Crescent Biopharma Inc (CBIO) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the 2012 Targacept, Inc. Third Quarter Earnings Conference call. My name is Kim, and I will be your operator for today.

At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of the conference. If at any time during the call you require assistance, please press star followed by zero, and an operator will be happy to assist you.

As a reminder, this call is being recorded for replay purposes. Before I turn the call over to Mr. Mark Skaletzky, Chairman of Targacept Board, let me inform you that the comments today may include forward-looking statements made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to plans, expectations, objectives, future events, or financial results or conditions including any of Targacept products, candidates for design, the scope or order of detail of clinical trials, the timing for initiation of completion or for recordings of results in clinical trials or for submission or approval of regulatory filings, target indications or commercial opportunities, any payments Targacept may receive from AztraZeneca, AstraZeneca's development plans or product candidates licensed from Targacept, 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 Targacept's press release from earlier today or under the heading "Risk Factors" in Targacept's most recent Form 10-K or in later filings with the SEC. Targacept cautions you not to place undue reliance on any forward-looking statement. Also, any forward-looking statement that is made speaks only as of today and should not be relied upon as representing Targacept's views as of any future date. Targacept disclaims any obligation to update any forward-looking statement except as required by applicable law.

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

Thank you, Kim, and good afternoon, everyone. Alan Musso, Targacept's Senior Vice President Finance and Administration and Chief Financial Officer; and Dr. David Hosford, Targacept's Vice President Clinical Development and Regulatory Affairs are also here with me today.

Let me start today's call with a few words on the search for a new CEO for Targacept. This has been a robust process focused on identifying the right candidate to lead the Company forward as we advance our clinical pipeline towards the market, pursue opportunities for potential new medicines and build shareholder value. We look forward to bringing the process to a conclusion and introducing a new chief executive in the near future. Until then, I will continue working with the other members of the office of the Chairman to guide the Company's pipeline development, resource allocation, and strategic direction.

As many of you saw a few weeks back, we announced that we would be implementing a further reduction in force and also closing our laboratory operations by the end of this year as additional measures designed to align our resources more closely with our objectives to realize the value potential of our clinical-stage assets and conserve capital to best position the Company for future opportunities.

This difficult decision impacted approximately 38% of the current workforce. I would like to once again thank these talented and dedicated people for their many contributions over the years.

And, with that, let me turn over the call to David Hosford to give you an update on Targacept's clinical pipeline.

Thanks, Mark, and good afternoon, everyone. I'll start with an update on our ongoing Phase 2b clinical trial of TC-5619 as a treatment for negative symptoms and cognitive dysfunction in schizophrenia. 5619 is a wholly owned NCE that is highly selective for the alpha7 nicotinic neuronal receptor subtype.

Negative symptoms in cognitive dysfunction affect millions of patients with schizophrenia around the world severely impacting the ability of these patients to function effectively in society. A substantial body of scientific evidence and clinical experience, to date, both for us and for others, supports the potential of alpha7 modulators as a novel approach to address this large unmet need.

Accordingly and along with interactions with thought leaders in the field and with FDA, we are conducting a robust study for TC-5619 that we believe best positions the compound for late-stage development. While we believe 5619 has promised to benefit both of these domains of the disease, negative symptoms represents a clearer regulatory path. Consequently, the primary endpoint in our ongoing Phase 2b study is the scale for the assessment of negative symptoms, or SANS, which was a secondary endpoint on which 5619 showed a statistically significant effect in a previous 12-week schizophrenia study that we conducted.

We plan to enroll approximately 450 patients into the ongoing study at sites in the US and in Eastern Europe. The enrollment trajectory for the study is tracking below our planning expectations in part due to a longer-than-anticipated regulatory process at those sites outside of the US.

While we've implemented steps that have improved the enrollment rate based on the study's recruitment to date, we now expect to report top-line results in the fourth quarter of 2013.

Let me switch now to our ongoing Phase 2b study of ADD-3480, an alpha4beta2 modulator licensed to AstraZeneca. We are currently running a 12-month Phase 2b study of 3480 as a monotherapy head-to-head with donepazil in mild to moderate Alzheimer's disease. Alzheimer's disease represents a tremendous unmet medical need with estimates that, by 2050, the number of people in the US with the disease may grow to a projected 11 million to 16 million people, barring the emergence of medical breakthroughs that would prevent or more effectively treat the disease.

As a reminder, we utilized the FDA's special protocol assessment process to confirm with the agency that our ongoing study has the potential to be pivotal. We are continuing to enroll for the study although it has been slower than anticipated, and we now expect to report top-line data in the middle of 2014.

Finally, I'll spend a brief moment on TC-5214, a nicotinic channel modulator. As we announced in September, based on a unique pharmacokinetic profile, clinical results seen to date and findings from preclinical studies, we believe that this compound is well suited for development in overactive bladder, an indication where current treatments are inadequate, there is an established regulatory path and, importantly, where clinical success is measured by objective endpoints.

Accordingly, we are moving forward with a Phase 2b clinical trial. Prior studies have shown that over 90% of 5214 is eliminated unchanged through the bladder and that the compound acts potently at nicotinic receptors located there. In preclinical models agents that block the action of these receptors decreased bladder wall contraction frequency and impacts nerve signaling from the bladder.

In our planned clinical study, we hope to demonstrate similar effects in patients, which we expect would be associated with symptomatic improvement in overactive bladder.

We are finalizing arrangements with a contract research organization that we have selected to work with in this indication, and we are identifying appropriate study sites. We are also finalizing the protocol and continue to expect to initiate this study in the first half of 2013.

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

Thank you, David. I'll take just a few minutes to review our financial results for the third quarter of 2012.

We ended the third quarter with a balance of $195.6 million in cash and investments. Our net loss was $7.9 million for the third quarter of 2012 compared to a net loss of $9.1 million for the third quarter of 2011. The lower net loss for the 2012 period was primarily due to a decrease of $19 million in research and development expenses partially offset by a decrease of $17.8 million in deferred revenue recognition.

For the nine months ended September 30, 2012, our net income was $8.9 million compared to net income of $1.3 million for the corresponding period of 2011. The higher net income for the 2012 period was primarily due to a decrease in research and development expenses of $32.4 million partially offset by a decrease of $21.3 million in deferred revenue recognition and $2.3 million in charges relating to our restructuring in the second quarter of this year.

As you know, in October we announced an additional reduction in force and plans to shut down our internal laboratory operation. As a result, we are updating our financial guidance to reflect current operating and program spending expectations.

For the year ending December 31, 2012, we now expect our operating revenues will be approximately $58 million, and our operating expenses to be in the range of $58 million to $62 million. We also now anticipate our cash and investments balance to be at least $180 million at year-end.

In addition, based on the two reductions implemented this year, we expect to realize annual savings of approximately $22.5 million beginning in 2013 with 2013 cash requirements expected to be between $16 million and $18 million for internal operations and $25 million to $30 million for external costs associated with pipeline programs.

Let me close by emphasizing that as targets of transitions, we continue to have promising clinical programs representing a number of unique pharmacologies in areas where the medical need is great and the commercial opportunity is substantial. We have a strong balance sheet and a longstanding commitment to the efficient use of capital.

We remain focused on developing our innovative pipeline with the goal of delivering new medicines to improve the lives of patients suffering from debilitating diseases and disorders.

And, with that, we'll open up the call for questions.

(Operator Instructions) Robyn Karnauskas, Deutsche Bank. Your second question comes from the line of Alan Carr with Needham & Company.

I wanted to ask a little bit about the -- how you guys see the future of the bladder trials playing out? How many total trials do you guys think you'll need going past Phase 2b. Are these things you guys have run yourselves or would you have to partner this and likewise for marketing. Is this the kind of thing you guys would see yourselves marketing or would you bring a partner in for that?

This is Alan. I'll give you a little bit of flavor on that.

This is Mark on for Alan. I should actually have said that.

Okay, Mark. Yes, we basically have looked at the history of clinical trials that are run in the OAB space, and we are pleased to see that the designs are pretty well established, so we'd expect the trial would likely be of a 12-week duration looking at a few different doses of 5214 against placebo. And one thing that's really interesting for us on the OAB development is that it's our understanding that in history everything that's succeeded in a Phase 2b trial has gone on to Phase 3 success and gets to the market. So it seems to have objective endpoints. It's reproduceable in Phase 3, and we believe that the market opportunity for a new mechanism with an approved side effect profile and with enhanced efficacy over the current agents would be substantial. We've had a chance to vet that with key opinion leaders and with PRMA, and they have reinforced that for us.

So -- we feel really good about that opportunity. We think the molecule is well-designed for that indication, and we're proceeding towards getting that study underway. Anything you want to add to that, David?

Just to echo that the pharmacology really supports use of this particular molecule. In our bladders, there are a type of nicotinic receptor that contains an alpha3 sub-unit. We know that 5214 blocks the ability of that receptor to function. And this particular receptor helps to signal the brain when our bladders are full, and we need to urinate.

And so the ability of 5214 to collect in the bladder as an unchanged molecule in spite of very low systemic concentrations means that you've had just the right amount to bathe that alpha3 receptor, exert this effect to prevent its signaling to the brain that one needs to go to the bathroom at an inappropriate time and, therefore, sort of help these overactive bladder symptoms.

We tested it in an animal model of overactive bladder where it performed very well, and so we think in this current trial, like I said a few minutes ago, if we can show the same thing, it would offer a nice benefit because at the doses we plan to use, it has nearly placebo-like adverse event profile.

And going back to your question on sort of the commercial opportunity and how it could get brought to the marketplace -- we sense that if we have a positive outcome in the planned upcoming trial, there will be substantial interest generated in this program. We see it both being something that would be promoted to the primary care physicians for which we would look to have a marketing partner but also could have a specialty opportunity. So we'll, at that point, determine what's the best path forward. But we're quite excited about this program and how it can move forward.

Great, no, that's very helpful. And I was wondering if you could just say again the numbers you gave for 2013? I have $16 million to $18 million written down.

Yes, $16 million and $18 million is the cash expenses for the internal operations, and we're expecting $25 million to $30 million to be the cost that we spend externally on the pipeline program. The $16 million to $18 million plus $25 million to $30 million. So basically a $41 million to $48 million projected spend.

Robyn Karnauskas, Deutsche Bank.

Hi, guys, it's Lethia for Robyn. Two questions here -- one on 5619. (inaudible) can you dig a little bit more into what's the ex-US on the regulatory side? And also is the guidance still that 25% of the trial will be enrolled? And then I just have a follow-up on the Alzheimer's.

Yes, the guidance is still that about 25% of the trial enrollment would be from the US, and the regulatory authorities took a number of months longer than we had anticipated, and their time was not under our control. In many cases, it slipped from one of their monthly meetings to the next monthly meeting to the next. And so we sort of sat and watched that slow process unfold.

We have implemented some changes that have brought on additional resources to bear, but not enough to make the trial, at least as far as we can predict right now, recruit in time with our prior guidance, and that's why we're providing this new guidance.

Okay, great, thanks. And then on Alzheimer's -- I just wondered like some of the setbacks that other companies have seen on the bigger trials, like, how are you guys using that to maybe inform your design, going forward, and educate the process?

Could you elaborate just a little bit on what you mean in terms of the learnings that would --

Just as far as, like, the mini trials we've seen, like, with Lilly, that read out with some of the setbacks in Alzheimer's not reading out, necessarily, on their primary endpoints. I'm just trying to see if you guys can leverage any of that knowledge or experience and kind of how you guys are looking at your study.

Okay, so you're talking about the recent antibody trial that Lilly conducted in which they found that in their subset analysis of the most mild patients, when they pooled the two studies, they did have a statistically significant effect. Is that the one you're referring to?

Yes.

Yes, so -- I mean, we've looked at that with interest, and that particular mechanism of action could lend itself to earlier treatment by removing the amyloid, which otherwise accumulates in the brains of people with Alzheimer's disease, and it's becoming more and more evident that by the time Alzheimer's is diagnosed in many people, the amyloid burden in their brains is quite great and perhaps nearly at a ceiling. And so it could mean that if you intervene at that point, if amyloid is truly a culprit in the disease, it may be too late.

So I think this hint from the Lilly study is making people think for something that could be a disease modifying treatment, you may need to impact those people earlier and earlier and earlier in their trajectories when they're just beginning to show signs of the disease.

Now, that wouldn't affect our use of ADD-3480 because it's designed to be a symptomatic benefit and not a disease-modifying one. And so what we're trying to do is improve cognitive performance of people where their Alzheimer's disease has been clearly established but where there is room to give them improvement.

A couple of things that we did to design the current trial, which are a little bit different than the original trial that was run with 3480 and Alzheimer's disease is to extend the treatment period to be 12 months. The earlier trial was only about three months' duration and, secondarily, we've screened for patients that have a little -- sort of -- more of a certain diagnosis of Alzheimer's disease. We changed the MMSE entry criteria in the trial. I think that will bring in the right patients. So there's a couple of things that we changed for the current trial, which we believe is well designed.

Can I speak one last one in the bladder?

Sure.

Just around the timing of that -- you said a 12-week trial. Is it possible that we could get data into 2013 or is it more -- 2014 -- or is it too early to tell?

We would expect it to be in the 2014 calendar year for the readout on that.

(Operator Instructions) Jon LeCroy, MKM Partners.

I think the last time you said you expected to have enough cash to get through 2015. Is that still the expectation?

Yes, it is.

Okay, and then on the slower enrollment in Alzheimer's -- is there any of that due to competition from a lot of ongoing other trials or is it something else?

That's always hard to gauge. To our knowledge, there are no other trials in the same areas where we are conducting this, but that can always be a factor.

And so any hint on what you think might be slowing those down?

Not really. We, again, have done things to try to enrich the enrollment in that trial, too, so we talk to the sites regularly. The CRO interacts with the sites regularly. We have implemented as many changes either in the trial protocol or in our conduct of the study as we think could improve enrollment without affecting the quality of the subjects that are coming in, and this is the enrollment that we're left with, so that's why we're issuing the new guidance.

Okay, and then on overactive bladder -- were there any side effects in the Phase 3 trials that may have suggested there's some human effects on overactive bladder?

Yes. When you look at the labels for some of the antimuscarinic agents such as Toviaz or Ditropan, you will find a small incidence of urinary retention or urinary tract infection in the pivotal trials that led to their approval. And then when we look at, for those same adverse events in the more than 2,000 people treated with 5214 for depression, we do find low single-digit adverse event reports of those same types.

Now, that doesn't prove that this would work, but it certainly is of the same order of magnitude as what's seen for these other approved products. So that certainly raises the likelihood that this agent should work, particularly when you combine the preclinical evidence that we have and the pharmacology involving the alpha3 NNR.

We have no further questions at this time. I would now like to turn the call over to management for closing remarks.

Thank you all for attending and great questions. I hope everyone is doing okay with the hurricane and there's not another one on its way. Have a good evening. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.