Crescent Biopharma Inc (CBIO) 2014 Q2 法說會逐字稿

Good morning, everyone, and welcome to Q2 2014 Targacept, Inc. earnings conference call. My name is Parita and I will be your coordinator for today. At this time, all participants are in listen-only mode. We'll conduct a question and answer session toward the end of this conference.

(Operator Instructions). I would like to turn the call over to Dr. Stephen Hill, the President and CEO. Thank you.

Thank you, Parita, and good morning to everybody and thank you for joining us today. Also with me is Alan Russo, our Chief Financial Officer.

First, let me inform you that comments made today may include former forward-looking statements made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to plans, expectations, objectives, or future events, financial results or condition including, for any of our product candidates, the design, scope, or other details of clinical trials; the timing for initiation or completion of, or the reporting of results from clinical trials or for submission or approval of regulatory filings, target indications or commercial opportunities; as well as AstraZeneca's development plans for product candidates licensed from us; our cash runway, revenues, or expenses, plans, expectations, or any other method that is not a historical fact.

Actual results may differ materially from those expressed or implied by any forward-looking statements 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 on 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 is made speaks only as of today and should not be relied upon as representing our views at any future date. We disclaim any obligation to update any forward-looking statement except as required by applicable law.

So with that, it has been clearly a busy few months for us. As I'm sure you have seen, we received data in our Phase 2b clinical trials in both Alzheimer's disease and in overactive bladder, and have publicly shared the top line results.

Let me talk first about our Alzheimer's disease study. As we announced, this trial was designed to test whether TC-1734 or alpha4beta2 NNR modulator with superior to the market leader, donepezil, as a monotherapy over a 12-month period. This trial did not include a placebo arm, and a total of 293 patients with mild to moderate Alzheimer's disease were randomized across 61 sites in Eastern Europe and three sites in the US.

In this study, TC-1734 did not meet the objective of showing superiority to donepezil on measures of either cognitive function or global function. As in previous studies, the compound was considered generally safe and well tolerated. This is a rigorously designed trial, planned to provide us with a definitive answer as to whether TC-1734 could be a better treatment option than the current standard of care in what has been a very difficult disease area for the development of novel therapeutics. After considering the study results, we decided not to invest further in this program.

Let me now turn to the second recent clinical study's readout, TC-5214, as a treatment for overactive bladder. This Phase 2b study was conducted at 119 sites in the US and randomized 768 patients with overactive bladder. The study's co-primary endpoints were change in micturition frequency and changed in urinary incontinence episodes per 24 hours from baseline to 12 weeks. Patients in the study received one of three doses of TC-5214: 0.5 milligrams, 1 milligram or 2 milligrams, or placebo twice daily randomized in a 2-1-1 ratio favoring placebo.

In this study, TC-5214 demonstrated mixed results on the co-primary endpoints of the highest dose. We saw a statistically significant reduction in micturition frequency with a P value of 0.033 and an improvement that did not reach statistical significance on episodes of urinary incontinence with a P value of 0.379. Additionally, on several secondary endpoints, including the physician rating of global clinical improvement, and on patient-reported measures of urgency, statistically significant and dose-dependent improvements were observed during the course of treatment.

TC-5214 was considered terminally safe and well tolerated, although we did observe a 15.1% placebo adjusted rate of constipation and a 5.9% rate of urinary tract infection in the highest dose group. While we continue to analyze the complete data set, we decided to discontinue development of TC-5214 in overactive bladder, as we are not convinced that TC-5214 would provide better treatment option than currently approved OAB medications.

Looking forward, now, let me turn to our ongoing gastroparesis program. Gastroparesis is a chronic and debilitating disorder affecting an estimated 5% to 12% of patients with diabetes. In June, we initiated an exploratory phase 1/2 trial of TC-6499 as a treatment for gastroparesis. TC-6499 is a small novel molecule that modulates activity of the alpha3beta4 and other neuronal nicotinic receptors.

The alpha3beta4 NNR is located throughout the G.I. tract, and when modulated, is believed to increase colonitic tone, to which in turn leads to increased motility. This is a crossover design trial evaluating three doses of TC-6499 and placebo in approximately 20 subjects at several US sites using a sophisticated carbon breath test as a surrogate measure of gastric motility. We expect to provide guidance on the estimated completion of this trial as we get a little further along in the recruitment cycle.

Looking at the bigger picture, we have consistently stated our goal of building a sustainable company over the long term. We have done substantial scenario planning over the last 12 months, and whilst we certainly hoped that we would see a positive outcome in at least one of our phase 2b readouts, with the high-risk nature of clinical development, we knew that that was not a certainty. Accordingly, we acknowledge and plan for the possibility that none of the study outcomes would go our way.

And we also made a deliberate decision not to hedge our portfolio by taking on new programs ahead of those results, but, instead, to preserve our capital for the further development of those programs if they were to produce results that supported further development. Unfortunately, that did not occur, and we are now moving forward and have the resources needed to embrace new opportunities beyond NNR therapeutics with an ongoing commitment to be disciplined in our diligence, decision-making, and financial management.

During 2014, we have been especially active in screening for assets that could be a good fit for Targacept. And once the majority of these have been dismissed from consideration, we have identified several that are interesting and warrant further exploration.

Targacept has strong shareholder base which includes substantial ownership positions held by several very smart and experienced healthcare investors. We have had discussions with a number of them over the course of the last week. We plan to engage with them in evaluating our portfolio options as we seek to determine the best path forward. We will keep you updated on the status of these activities in the coming months.

In the meantime, I want to thank all of you for your continued support. With that, let me turn the call over to Alan for our financial update and then we will take questions. Alan?

Thank you, Steve. Let me now briefly highlight our financial results for the second quarter of 2014, which were released earlier today.

For the second quarter of 2014 we had a net loss before income taxes of $8.1 million compared to $12.4 million for the second quarter of 2013. For the six months ended June 30, 2014, we reported net loss before income taxes of $19.7 million compared to $20.4 million for the corresponding 2013 period. Lower net loss for the 2014 period was due primarily to a decrease in research and development expenses.

As of June 30, 2014, cash and investments and marketable securities totaled $122.8 million. As we announced earlier this morning, we are updating our financial guidance to reflect current operating and program spending expectations. This is based on anticipated savings from our announced discontinuation of TC-5214 and TC-1734 development work, a 25% smaller workforce compared to year-end 2013, lower patent-related costs, and a continued emphasis on managing our expenses.

We now expect our operating expenses for the year ending December 31, 2014, to be in the range of $32 million to $36 million. And we expect to have approximately $107 million in cash and investments at year-end. We do not anticipate significant operating revenues for the year.

And we estimate that in the second half of 2014, cash payments for the closeout costs of the recently completed clinical trials of TC-1734 in Alzheimer's disease, and TC-5214 in overactive bladder will be approximately $6.4 million. And costs for the ongoing gastroparesis trial are estimated to be $2.5 million. These projections do not include any financial impact that we might experience as a result of pipeline diversification or business and corporate development initiatives. And, with that, we will open up the call for your questions.

(Operator Instructions) Robyn Karnauskas.

A few questions on TC-6499. First off, what gives you confidence that this will be active in -- on gastroparesis? I know there was some early phase 1 work done, but I wonder if you can expand on that data that suggests it will be an active agent in the disease.

The data that led us into that study was, firstly, the scientific rationale for the role of NNRs and cholinergic modification of G.I. motility, and also a phase 2 study where we looked actually at irritable bowel syndrome where we did see, in a pretty small study, a fairly significant improvement in spontaneous bowel movements. So we know that the compound does have action on bowel motility, but at this point this is the right study to tell us whether there is an effect on the rate of gastric emptying as opposed to the more broadly impact on the G.I. tract in general.

So, in the increase in bowel motility, has that been seen to correlate with improvement in gastroparesis?

I don't think that -- no, it is not known by me. I don't think --

So there wasn't -- there hasn't been any other -- not necessarily by you, but you had not seen any other correlation between the two?

No. So again, so the basis of the rationale is the belief that cholinergic modulation effects, gastric motility, and the observation that we have impact on other parts of the G.I. tract.

Right. And then, looking kind of at the market for this, you had mentioned that 5% to 10% of diabetic patients experience this syndrome. How many of these patients actually need drug therapy and really how large is this market? What are we looking at here?

Yes, we have done some initial work. It is actually that, because there have been no traditionally, no really very effective treatments for gastroparesis, understanding the epidemiology is not quite as straightforward. I think the easiest thing to say is that if the drug is effective in that indication, we think there will be a very healthy market for it. I wouldn't want to quantify that in dollar terms, but certainly sufficient to justify a full development program and launching a product if it were, indeed, effective in that indication.

Right. I mean, instead of looking at it from dollar terms, how many patients are we looking at that would really need a drug therapy such as this?

I don't have the paperwork in front of me, but I think it is millions rather than tens of thousands. I think the number I remember is 1 million to 2 million. Alan, do you remember?

That is some of the base numbers. It is basically not something that there has been great data on in determining what the total patient population is. Some of the estimates are as high as 6 million. So it is somewhere in the low couple of million to about 6 million. And those are US numbers.

Okay. Then just looking at the timing of the trial, when do you think we will have an update as to completion of enrollment of these 18 patients and more color on the path forward in the phase 1/2?

Yes. I think that is challenging at the moment. We always thought this might be a very challenging study to recruit because we have to be careful about getting the right patients in. So we don't have all the centers up and running yet, so I am loath to give guidance on recruitment timelines. It is something with which it is a little bit unpredictable until we have all the sites up and running and we get a sense of how quickly those patients are going to recruit.

And, when you say the right patients, what does that mean?

Well, you have to get diabetic patients who are able to tolerate being in this type of study with the duration that is involved. And each patient acts as their own control, so they have to be on placebo and then active drug. So our planning process of looking at this just -- it may not be the quickest study to recruit terms of getting patients who are fulfilling inclusion criteria.

Alan Carr, Needham & Company.

I guess a quick follow-up to the previous one. We might be able to assume that results from this gastroparesis trial may take into 2015 then, correct?

Well, again, I don't want to give guidelines, but certainly it is possible that could run into 2015, yes.

Thanks. And then, could you comment on the business development strategy here? Maybe you can give us a profile of what sort of compounds you would like to bring in, in terms of stage of development, indication, and maybe the timing that you hope to bring something in?

Yes, I think the real answer to that question, Alan, is we are pretty neutral on therapeutic area. We probably would not want to go into CNS diseases where the etiology is still relatively unknown. I think we have explored that pretty thoroughly with our own NNRs.

But, generally, it is really a question of looking for therapeutic areas indications and opportunities where the expertise we have in the Company, which is pretty broad, can add value to understanding the opportunity. So we are, again, fairly neutral on therapeutic area. Clearly, we would like to find things with meaningful inflection points in the near term and, by that, I need over mean the next year or two.

But, perhaps, most importantly, we don't feel any rush to bring something in just for the sake of having something to do. So we are going to be very cautious about looking for opportunities. There are a lot of things out there, but as we dig deeper into each of those, many of them don't really fit our criteria for being a big opportunity, both for our investors and the patients we hope to treat. So we are open-minded. It doesn't have to be CNS or peripheral nerve, provided we have the expertise to assess the program carefully.

Jon LeCroy, MKM Partners.

When you are looking at assets, are you looking at whole companies in any cases? Or is it just kind of things that have been shelved or not moving forward with other companies?

Again, we are very open-minded about that. So, for example, one of the opportunities we have been looking at would be the acquisition of a company. But, equally, we are prepared to look at in-licensing or even more broad types of investment into risk-sharing with other companies. So again, in terms of deal structure, we are very open-minded, but it has to be something with the potential for a meaningful impact on patients and meaningful upside potential for our investors.

Okay. Then, in terms of size, assuming you are in-licensing or acquiring a product, how much of your $107 million at the end of the year do you think you have available to pay for an asset?

Well, again, there are different ways of structuring deals, and I think cash is perhaps the most important asset that we have at the moment in addition to the folks that we have and the expertise that they have. But that cash is very valuable in terms of applying it to running development programs. So, my preference would be to construct deals which minimize the use of cash for acquisition and maximize the use that cash for actually running development programs. So clearly, in addition to the cash, we have the potential for using equity for acquisitions. But, again, I would rather see the bulk of that cash invested into meaningful asset development.

Okay. And then, I guess two more, just one on kind of the availability of products out there to acquire. And what is the competition like? We hear a lot from the larger companies that it is difficult for them to find assets that are interesting.

Yes. But it is not impossible, and we have looked at probably hundreds over the last 12 months or so. And the vast majority of those we have not felt were justifiable to take forward. But, the challenge is to find the one or two that are meaningful. And out of the searching that we have done, we believe there are a handful of programs that could be very meaningful for us and we continue to pursue those.

But, I think the main thing, and I just want to keep reiterating this, is that we are not looking for something for the sake of doing something. We are looking and we will continue to look until we find something meaningful. And notwithstanding the IPO market, it is $100 million-plus is a significant amount of cash to be able to apply to moving something important forward. So we believe that if we continue to look carefully, we will be able to find something that is an appropriate match for that cash.

Okay. And then the last one, I don't know if you already mentioned this, but what sort of phase of assets are you looking at?

Well, again, we are open-minded about that. It ranges from entry into man through to phase 3 ready programs. So we have looked at different programs in all of those areas. And, again, it is less important whether it is phase 1, phase 2, or phase 3. And it is more important that, with the cash on hand, we will be able to move an asset to a likelihood of a positive outcome with a meaningful inflection point within a two- to three-year time period.

Bert Hazlett, Ladenburg.

I want to continue on a little bit more in the same vein. Maybe you have touched on this, but if you could elaborate a little bit more, I would greatly appreciate it. As you consider additional business development, what characteristics do you consider your areas of expertise? I would imagine CNS is one of them moving forward, but where do you consider your sweet spot in terms of therapeutic area from an internal standpoint as you are evaluating additional assets?

And then, secondly, are there any areas that you specifically have ruled out, potentially oncology or other areas where you just don't feel, maybe at this point, you have the expertise to be able to move something forward with the robustness that you might need to, given the bidding for these assets that are out there? Thank you.

Yes, I think there is different components to that question. So when it comes to bidding against other people -- and obviously, we are not going to overpay for something. But in terms of therapeutic area, that is really less an issue about the corporate history. And, as you know, Targacept has been primarily focused on CNS.

But the individuals within the Company come from very varied backgrounds. So whilst we have had a corporate focus on nervous system, the individual people within the Company have much broader expertise. My own expertise covers pretty much every therapeutic area. Steve Toler, who runs our preclinical, has covered a whole range of different therapeutic areas, including in -- down at Pfizer in the past. David Hosford is more focused on the neurological stuff.

But, again, within the Company, we have some pretty good generalists. And, on that basis, I would at this point for the sake of your thinking about it, I wouldn't next exclude any particular therapeutic area. With the exception of we are probably not going to, as a small company with limited resources, we are not going to probably invest in expensive CNS-related diseases where the etiology is simply unknown. And you can pick a target and just do everything right, but have the wrong target.

So I think we would need to seek out therapeutic areas and indications where the science is a little bit better understood than it has been for some of those diseases that we have explored in the past.

Thank you for that. And I guess just, again, not to put too fine a point on it, but are you ruling out particular areas like oncology or is it (multiple speakers)?

No. We would not -- we are not a priori excluding any particular therapeutic area.

(Operator Instructions). And we have no further questions.

In which case, thank you Parita. Thank you, Alan, and thank you to all of Targacept's employees over this challenging period over the last couple of months. And I thank you to all of you in the audience and to our investors. And we will continue to be diligent and careful about husbanding our resources and we will keep you informed as that process progresses. So thank you and enjoy the rest of the week.

Ladies and gentlemen, that concludes your conference call for today. Thank you for joining and have a good day.