Crescent Biopharma Inc (CBIO) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the first quarter 20121 Targacept, Incorporated earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. And at this time, I would now like to turn conference over to your presenter for today, Mr. Alan Musso. Sir, you may proceed.

Thank you, Chris and good afternoon, everyone. Don DeBethizy, Targacept's President and Chief Executive Officer and Dr. David Hosford, Targacept's Vice President of Clinical Development and Regulatory Affairs, are also here with me today.

Before we get started, I would like to remind you that our comments today may include forward-looking statements made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events, plans, expectations, objectives, or financial results or conditions, including for any of our product candidates the design, scope or other details of clinical trials, the timing for initiation or completion of, or for reporting of results from clinical trials, or for submission or approval of regulatory filings, target indications or commercial opportunities, as well as any payments we may receive from AstraZeneca; AstraZeneca's development plans for product candidates licensed from us; our cash run rate, revenues or expenses, plans, expectations, or any other matter that is not a historical fact.

Actual results may differ materially from those expressed or implied by any forward-looking statement as a result of many factors, including those described under the heading Forward-looking Statements in our press release from earlier today or under the heading Risk Factors in our most recent Form 10-K or in later filings with the SEC. We caution you not to place undue reliance on any forward-looking statement. Also, any forward-looking statement that we make speaks only as of today and should not be relied upon as representing our views as of any future date. We disclaim any obligation to update any forward-looking statement, except as required by applicable law.

And now I'll turn the call over to Don.

Thanks, Alan, and good afternoon, everyone. Let me start by acknowledging that the last few months have been challenging for us. In March, we and AstraZeneca announced disappointing results from the remaining Phase III RENAISSANCE study of TC-5214 and have subsequently discontinued development of the compound as a treatment for major depressive disorder.

Since the first pivotal trial readout for 5214, we have been carefully reviewing all aspects of our operations and focusing on portfolio prioritization. Last week, we announced a reduction of our workforce by 65 employees, or approximately 46%, as part of a strategic plan to align our resources with our near-term value creation opportunities. Although the restructuring was a necessary business decision, it was nonetheless a very difficult process for me and the rest of our leadership team and I want to express my sincere appreciation to all of our employees, past and present, for their contribution.

While this action has changed the size of our Company, what hasn't changed is our commitment to innovative science and developing new medicines to improve the lives of patients suffering from debilitating diseases and disorders. While much of the external focus over the last year has been TC-5214, we have maintained a leadership position in the field of NNR research and built a deep clinical pipeline of NNR therapeutics that represent multiple pharmacologies and target important unmet medical needs.

We currently have three Phase II clinical studies ongoing - a Phase IIb of TC-5619 in negative symptoms and cognitive dysfunction in schizophrenia; a Phase II study of TC-5619 in adults with inattentive predominant ADHD; and a 12-month Phase IIb study of AZD3480 head-to-head with donepezil in mild-to-moderate Alzheimer's disease. Both 3480 and AZD1446, a second alph4beta2 NNR modulator in development in Alzheimer's, are licensed to AstraZeneca.

We expect that AstraZeneca's next clinical trial for 1446 will be a Phase II study evaluating it as an augmentation treatment in mild-to-moderate Alzheimer's disease.

We also recently completed two exploratory studies of TC-6987, a wholly-owned novel compound that is highly selective for the alpha7 NNR; a distinct NNR mechanism that we believe has application across a wide array of diseases. In the asthma study, we were pleased that 6987, as an adjunct to a low-dose inhaled corticosteroid, showed a rapid onset of action on the forced expiratory volume measure, with the drug effects seen at the first assessment point 30 minutes after initial dosing.

Importantly, an effect was also seen at the end of the 28-days study duration. This study was designed to detect a signal in patients of the potential of NNR therapeutics outside of the CNS and we've accomplished this objective and are considering next steps.

Before I turn the call over Alan for our financial update, I want to briefly review with you the ongoing clinical studies for TC-5619. The Phase IIb study of 5619 in negative symptoms and cognitive dysfunction in schizophrenia is now well underway. We plan to enroll approximately 450 patients with schizophrenia at sites in Eastern Europe, as well as in the U.S., and we anticipate results in mid-2013.

In designing the Phase IIb study, we considered the results from our previous study of 5619 in schizophrenia patients, engaged in dialog with thought leaders in the field, and interacted with the FDA. This process led to a few important design differences that we believe best position 5619 for success.

First, we've established as the primary endpoint the scale for the assessment of negative symptoms where we saw our most consistently strong results in the prior study. We are still encouraged about the potential of 5619 to treat cognitive dysfunction and have included cognitive assessments in the study as secondary endpoints.

Second, patients are required to have a threshold level of negative symptoms at randomization in order to be enrolled. This will increase the likelihood that impairment at baseline is sufficient to provide a meaningful opportunity for the improvement with 5619.

And finally, we are evaluating two fixed doses of 5619 - a low dose and a high dose - over a six-month period rather than the forced titration dosing for 12 weeks that we used in the previous study.

There are no approved therapies specifically for negative symptoms of schizophrenia, a recognized unmet need that has drawn significant attention in the medical community. Just last month, prominent thought-leaders from pharma, academia and the EMA gathered in Florence, Italy for a satellite meeting to the 3rd Biannual Schizophrenia International Research Conference focused entirely on negative symptoms. The meeting was chaired by Stephen R. Marder from UCLA and both David Hosford and Geoffrey Dunbar from our clinical team participated.

Beyond reinforcing the substantial interest in the development of a novel and effective treatment for negative symptoms, the feedback we received at this meeting gives us additional confidence in the strength of the design of our ongoing study.

In addition to our schizophrenia study, we're conducting a Phase II study of 5619 in adults with inattentive predominant ADHD. This will be a nearer-term clinical readout for us, with the results expected in the second half of this year. In our previous Phase II study in adults with ADHD, we saw encouraging findings in the inattentive predominant subpopulation for 5619 versus placebo on the Connor's Adult ADHD Rating Scale total score and in attention subscale as rated by investigators.

We also saw some concordance on the Carr's, as rated by patients, where 5619 outperformed placebo on four of five subscales.

Coming on the heels of the Phase I study in which 5619 demonstrated a robust attentual effect in healthy adults, these results, couples with unmet need in this indication, triggered our initiation of the ongoing Phase II study.

It is worth noting that there's no ADHD drug on the market today that is approved specifically for the inattentive predominant ADHD subtype, even though the market research firm, Decision Resources, estimates that around 60% of pediatric ADHD cases are inattentive predominant and it is well known that inattention is the more pronounced feature or ADHD in adults. This creates a significant opportunity for us.

And with that, let me turn it over to Alan for an update on the financials. Alan?

Thank you, Don. Let me just take a few minutes to review our financial results for the first quarter of 2011, then I'll turn the call back over to Don for some closing remarks before we take questions.

For the first quarter of 2012 we had net income of $2.3 million, compared to net income of $12.6 million for the first quarter of 2011. The lower net income for the 2012 period was primarily due to an overall decrease of $16.3 million in deferred revenue recognition, partially offset by a decrease in research and development expenses.

In connection with the wind down of 5214 depression program and termination of our collaboration agreement, we have accelerated revenue recognition on the remaining portion of the $200 million upfront payment that we received from AstraZeneca. In the second quarter, we expect to record as revenue the remaining $32.7 million that is carried as deferred revenue on our balance sheet at March 31st.

As of March 31, 2012 we had cash and investments and marketable securities totaling $223.7 million. We estimate this financial impact from the reduction in force we announced last week and associated costs will be annual savings or approximately $12.9 million in cash operating expenses on a going forward basis, with estimated onetime severance and related costs related to the restructuring of approximate $2.4 million in 2012.

Moving on now, we are updating our financial guidance for 2012 to reflect the recently announced workforce reduction and associated costs, as well as adjustments to planned spending of pipeline programs.

Based on our current operating plans, we now expect for the year ending December 31, 2012 our operating expenses to be in the range of $65 million to $75 million and our cash, cash equivalents and investments balance at the end of 2012 to be at least $175 million.

We also now expect that our current cash resources will be sufficient to meet our operating requirements through at least the end of 2015. Our revenue guidance for 2012 is unchanged at a range of $50 million to $60 million.

And now I'll turn the call back over to Don.

Thanks, Alan. Before we open the call to questions, let me say a couple of things.

First, as we mentioned last week, Dr. Geoffrey Dunbar, our Chief Medical Officer, has decided to retire effective at the end of this month. I'd like to acknowledge him for his efforts over the past 11 years and thank him for his contributions to the growth of Targacept and wish him well going forward.

Clearly, we've gone through many changes at Targacept over the last quarter, but our vision of building health and restoring independence for patients has not changed. We have faced difficult times in the past and come out a stronger Company. With the clinical pipeline of Phase II product candidates that represent multiple different NNR pharmacologies, an experienced management team with a track record of capital efficiency and strong cash position, we continue to have the foundation for future success.

And with that, we'll take your questions.

(Operator Instructions) Robyn Karnauskas, Deutsche Bank

Hi guys, thanks for taking my questions. I guess first a clinical question on 5619, since you mentioned the ADHD data coming out later this year. What kind of -- what are you looking for in that data that we can look at, as investors, that would be something that would be relevant to the schizophrenia program? So, is there anything that we should be looking for or any magnitude of benefit that we think that might have a read-across to how well the drug will do in schizophrenia in 2013?

Sure. We've got Dr. David Hosford with us here and Dr. Hosford's a neurologist and I'm sure that he'll provide some insight into that.

Sure, thank you for the question. It's a very good one. In the last two completed studies in both schizophrenia and ADHD, 5619 did show statistically significant and clinical significant effects in a variety of different cognitive endpoints. And so, based on that correlation between the effects and benefitting cognition in those two studies, we suspect that if we also see benefit in this current ongoing ADHD study, that that suggests that the drug could also have a positive effect in the schizophrenia study. Of course that will remain to be seen.

And the one thing I might add to that is one of the hallmarks of the cognitive dysfunction in schizophrenia is a decrement in executive function and an important component of executive function is attention.

Now, having said that, we know that schizophrenia is a complex disease and some have estimated it as a minimum of five different disorders. And since we're accumulating sort of weight of the evidence, a positive outcome in ADHD has a read-through to schizophrenia, a negative outcome in ADHD doesn't necessarily mean that we wouldn't address the negative symptoms or even have some other cognitive domains being effected by 5619.

Does the magnitude of benefit in ADHD have a read-across to the magnitude of benefit in CDRs?

It's a good question, Robyn, and I don't think we really know. I think it's essentially the same answer. I do think it'll be encouraging if we have an effect on these inattentive ADHD. It will be consistent with the Phase I work in healthy normals where we saw a 200-millisecond improvement on the power of attention by the CDR test battery. And just to anchor that in other numbers, with 3480 we had about a 70-millisecond improvement.

So this is a pretty potent and efficacious attentual compound and it's likely to be contributing in both conditions, the attentual activity. So we have three different signals. We have it in healthy normals. We have it strongest in the inattentive subtype of ADHD in our first trial and we have this cognitive benefit in schizophrenics. So there are probably connecting features, but, again, we're still learning about how this drug manifests its cognitive activity and I just want to make sure that as we emphasize that we don't overemphasize the read-through to schizophrenia if it's negative.

That's helpful and I guess, then, one last question on timelines of both trials. So I know you said that with CDRs trial that you're going to, you have a plan in place to make sure that trial reads out in 2013 and that really helps us get comfortable with your strategy for spend. Maybe you could sort of outline what happens if enrollment goes slower in the U.S. versus in Eastern Europe? How will you manage keeping that trial on track? And then, second, is there any risk to timelines for the ADHD trial, which you're saying will readout by the end of this year?

Well, I'll turn this over to David or Alan after, but I do want to make a general comment. We're much further into the ADHD trial, as you can imagine, because we have results coming out here in the second half of the year and so we're quite confident around the timeline on ADHD.

We're earlier in, obviously, in a trial in schizophrenia that's going to readout in 2013 and we will take the approach that we've taken historically. In doing these clinical trials, we have a variety of tools at or disposal, some of which will cost more money. Obviously, if you decide to increase the number of sites or modify the protocol or things like that, these are all things that we have historically with our trials to keep them on track.

And as you know, we have very specific goals that have very objective measures for us in terms of timeline, so we are tracking that on a weekly basis. The entire executive team gets a graph of the screening rate and the enrollment rate and so we know whether whatever we're doing to continue to keep enrollment at the right level, whether we're getting effectiveness or not.

Great. Thank you.

David?

And I can add to that just a bit. Don gave an extremely complete answer and there's nothing I could add to that. However, we are focused very much on our contract research organization, which is a very experienced one with a lot of past trial results from schizophrenia trials both in the U.S. and from Europe. We talk to them many times a week. As Don said, we get the metrics from them that we examine very frequently and we know, on a nearly daily basis, what the sites are experiencing so we will be able to quickly make change as appropriate, if appropriate.

And the other element, obviously, is preserving the quality of the trial. It's very important that we get high quality patients into this trial; that we establish their stability on their atypical antipsychotic. That's a four-week run in period and then this is a six-month trial and so we had very good success with the three-month trial that we did previously, so it really encouraged us. We learned a great deal from that. That is carrying over into this trial, that learning.

So we're confident that we'll be able to deliver this trial in 2013 as planned and we're looking forward to having, being able to replicate what we saw in Phase II with our previous trial.

Great. Thanks again.

Bret Holley, Oppenheimer

Yes. Thanks for taking the question. I'm wondering about the times on 1446. I mean, it's essentially going into Phase II. I was wondering how long that might take and I guess what are some of the criterion that Astra are likely to apply to 1446 versus 3480, based on what they learned in the Phase II experience with 3480 in Alzheimer's?

Those are good questions, Bret. I would just -- I'll make a general comment. Our expectation, we're anticipating that they will run a six-month trial and so we're thinking that if they run a six-month trial that they are likely to have results coming out in somewhat in the same timeframe that we are for 3480, because we got started earlier - it's one-year trial - on 3480. Having said that, AZ has gone through quite a few changes in their company and what we do know is through all of that they have communicated to us and reestablished their commitment to 1446.

I don't know what impact the transition is having on the timeline. We're on top of that and David, you may have some more to add to that.

They're anticipating starting that study before the end of the year. As Don said, it will be a six-month study and it will be an augmentation study with other cholinesterase inhibitors. And so, between the two - the 3480, which is a monotherapy study and 1446, which is an augmentation study - you'll be able to get complimentary pieces of information about what an alph4beta2 NNR modulator can do in this disease. They, like Don said, probably would complete the trial in the next year.

The other learning that they're applying in addition to doing a longer trial for 1446 than they did in their first trial of 3480 is that they will not be studying the most mild patients. That first study of 3480, which was a three-month study, not only conducted the trial for a short period of time, but also looked at the full range of both mild and moderate patients.

In this current study with 1446, they'll be studying the full range of moderate patients, but only going into the most effected at the mild end of the spectrum and so by doing that, that increases the ability of the A-COG, one of their primary outcome measures, to truly see a change.

The other part of the question from Bret was what did we learn from the earlier work done on 1446 and that gives us confidence about its activity.

Right. So, 1446 did show activity in a variety of different settings. It showed them in healthy volunteers who had had their cognitive function impaired the administration of scopolamine. It showed effects in subjects with Alzheimer's disease using a variety of surrogate measures; changes in certain EEG parameters, for example. And so already having been in Alzheimer's patients and seeing those effects, we are encouraged that now, looking at the full variety of cognitive domains that can be effected in the disease, they will have a chance to see a benefit if it is there.

And just as background, just to remind everybody, as we worked with AstraZeneca on this cognition collaboration, they recognized the value of having both the lead compound 3480 and the backup or follow-on that was developed during our four-year research collaboration, which is1446. And both those compounds had very good preclinical activity in animal models. We were able to keep that very robust activity in the backup of the molecule.

One of the design features was to reduce the activity at cytochrome P450 2D6 and to decrease the plasma variability that is associated with 3480. Now, that's turned out not to be an issue in the clinical trials. 3480 has been in more than 1,350 subjects and patients. We've repeatedly seen cognitive activity in those studies in healthy normals as well as people with a variety of cognitive disorders and we've had exquisite safety in all of those trials.

1446 we're expecting will have a much tighter plasma concentration, which is always preferable on a drug, but we also are looking to see if we can reproduce the activity that's in the preclinical models and it's a great way to have two molecules moving forward that have a similar mechanism alpha4beta2.

Great and thanks for the information. That was very helpful.

Thanks, Bret.

Juan Sanchez, Ladenburg Thalmann

Hi guys. I missed the first part of the call, so I apologize. But to the ADHD program, does the FDA see the inattentive predominant ADHD as a standalone indication? Is that something you have to make the case for? And the second question is what do you think the drug profile is likely to be as an add-on therapy or as a standalone replacing the stimulants and how do you differentiate the market opportunity of each one of those possibilities?

David?

Yes. Thanks, Juan. Regarding your first question, would the FDA recognize an indication for inattentive predominant ADHD, we'll clearly have to have that decision with them and with other global regulatory authorities. We've had some discussion will some consultants who deal with the agency and they've suggested to us that the agency will find this a very interesting result, if we can replicate it.

To give you a little bit of data, 60% of children with ADHD are estimated by Decision Resources to have the inattentive predominant type and as we all know, most children with ADHD grow up to be adults with ADHD. Adults usually have gotten a lot of their hyperactivity out of their systems by that time, either through their own behavioral control or through stimulant medications. But what's left largely untouched is that inattentive component and so we're encouraged that if we can replicate the findings and have the appropriate discussions with the various regulatory authorities, this might be a nice indication for it.

Now, with regards to whether it would be monotherapy only in inattentive or adjunctive along with, say, a stimulant, in adults for whom inattention is still an untreated symptom, that also will depend on the results of this study. We'll look at these results in connection with the results that we saw before in all comers with ADHD, talk to the agency, talk to other experts in the field and make a decision about which one of those directions we may want to go. We may decide to go in both directions.

Yes and I think that's important. It's important to note that it's a spectrum of opportunities. So, if we find that we have an excellent monotherapy opportunity, we expect that this, of course, will be a non-stimulant, non-scheduled, once a day oral-dosed compound with very good drug ability. So it's really a nice opportunity to address some of the concerns that people have in prescribing ADHD medicine.

And then the other thing about nicotinics that we've observed over and over again is that because of their neuromodulatory activity and the presynaptic activity that they have, they really do work very well with other medications in conjunction with other medication. We have had numerous examples of that as we've moved forward, so it's a spectrum of opportunity.

Thank you.

Jon LeCroy, MKM Partners, LLC

Hi, thanks for taking my call. I just wanted to touch on 3480 in Alzheimer's again. Can you talk a little bit about how recruitment is going in that site and remind us how many patients you're trying to recruit and when you expect to have the trial fully enrolled?

David?

Sure. The trial design is a monotherapy study of donepezil head-to-head against AZD3480 in 300 subjects with mild-to-moderate Alzheimer's disease. We expect to complete recruitment by the end of this year and as Don emphasized earlier in the study, we're always looking at aspects of the study very carefully and we'll implement measures, as appropriate, to keep recruitment on track.

We just held a series of meetings with some of the sites who are conducting the study in some of the different countries in Europe and so, just as with schizophrenia, we're in touch with those sites on a weekly basis, understand what various issues they'd be having. And so we're always sort of looking at them on a site-by-site basis, ready to deal with any issues as they arise.

And then what ratio are you thinking will end up in the trial versus Eastern Europe versus the U.S.?

We're expecting that the U.S. will be the heaviest contingent of any single country, although the majority of patients will come from Europe as opposed to the U.S.

David, I think you're just commenting on the schizophrenia trial. In the Alzheimer's trial it was 3480.

Oh, right. Right.

Right now we're focused only European sites. So we're expecting that all of the recruitment will be from European sites, except for a couple of U.S. sites, so it's under a U.S. IND with a couple of U.S. sites.

That's correct.

For Alzheimer's in 3480, we expect most of the recruitment will come out of Eastern Europe.

Yes.

Okay, thanks, and then what about 5619 in schizophrenia percentage in the U.S. versus ex-U.S.?

That's what David was referring to. We're in that case. We expect and we've designed the trial to have at least 25% of the subjects come from U.S. sites. And it's interesting to note that there's a cost difference between doing trials in Eastern Europe versus the U.S. And you can tell by the dialog going on between Alan and David that we're heavily involved in making sure we get the kind of data that we need to be successful, from a regulatory standpoint and an efficacy standpoint. But at the same time trying to modulate and keep the overall costs of the trial at a level that is consistent with what we've done historically, so we have very active involvement both on the financial side as well as with the clinical group.

Okay and then maybe one last one on the 5619 ADHD. How far along is enrollment in that trial? Can you estimate?

Well, we basically put in our press release that recruitment's going well, so we feel very confident that we'll be able to deliver that per the guidance of the second half of this year.

Okay and remind me again how long is the treatment phase of that one?

It's a four-week treatment phase.

Okay, thanks.

Thank you.

Alan Carr, Needham & Company

Hi, thanks for taking me questions. In light of the restructuring that you're all implementing, can you tell me what discovery work and what nicotinic receptor biology work is going to look like at Targacept? What sort of scale is this compared to what was being done at the Company, previously?

Well, as we noted in the call, we have reduced the staff by 65. It's a 46% reduction, which took out -- which focused -- it was across the Company in all functions, but it had the largest impact on our preclinical and discovery capacity.

What we endeavored to do was to preserve the scientific knowledge that we've accumulated over the last 20 years in the Company. So we have that. We're focusing that scientific capability on our development-stage pipeline. We have had -- of course, we have a lot of compounds that are in various stages of development following our decision two-and-a-half years ago to invest in the upfront payment from AstraZeneca, to invest a portion of that into our pipeline.

So we will be -- we are continuing to look at how to monetize some of those opportunities. And of course the staff that we've retained has the ability to do that and the skills that we have on preclinical side are very important, as we work through the various development challenges we have around the CMC, around metabolite identification, as well as characterization of mechanism and dependence liability and things like that.

Did you have a goal in terms of number of preclinical or clinical candidates to be nominated per year prior to the restructuring in a new lower one now?

Well, we are not going to be endeavoring to nominate new preclinical candidates in the immediate future. We have a number of compounds that are in various levels of development, some of which will progress with a grant and we've been funded historically by the National Institutes of Drug Abuse and the Michael J. Fox Foundation. So those will continue to advance some of the molecules.

The others will be put on hold until we restore the shareholder value and get focused on the value inflexion points around our clinical capability. So we're focusing. We have a lot of stuff and we've been very blessed to have -- we raised -- we had revenue of about $330 million, largely nondilutive, along with raising about $330 million from investors over the last 12 years.

So we have -- we've been able to build a very nice pipeline. We have and so what we're going to do now is deliver on the clinical stage assets, preserve the capability of doing this basic NNR work that we've done, continue to interface with the academic groups that we do, and build shareholder value.

So we're very pleased with where we worked everything out with the board and with our stakeholders. This restructuring was not easy on everybody, but we've rallied ourselves around focusing on our clinical stage assets and we're all excited about the possibilities for treating diseases with these compounds.

Okay and then an accounting question. How is the upfront for 5214 going to be accounted for going forward?

Yes. We're going to accelerate the revenue recognition on that, so as of the end of the first quarter, we had $32.7 million of that on the balance sheet as deferred revenue. That will all get taken into revenue here in the second quarter.

Okay and that's it for it, then the rest of it -- that'll be the end of it, then?

That'll be the end of it.

Okay, good. Thank you.

You're welcome.

(Operator Instructions) David Windish, Newton Management

Hi. Can the Company disclose the prepaid expenses, accounts payable and accrued expense lines as of 3-31?

Well, that's generally a part of our 10-Q filing. I don't have that in front of me specifically. Oh, hold on, I might be able to reference it and provide that for you. Which specific line item were you interested in?

Prepaid expenses, accounts payable and accrued expenses.

Yes. Prepaid expenses as of March 31st were about $2.5 million. Are current liabilities, accrued expenses was about $9.8 million and what was your last question on?

Accounts payable.

The accounts payable is about $1.5 million.

Great. Thank you.

You're welcome.

And we have no further questions at this time. I would now like to turn the call back over to the presenters for any closing remarks.

Thank you, Chris. I want to thank everybody for being on the call this afternoon and I look forward to further developments within the Company and we're excited about this new phase of Targacept. Thank you very much.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.

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