Cardiff Oncology Inc (CRDF) 2016 Q4 法說會逐字稿

Welcome to Trovagene's fourth-quarter and year-end 2016 earnings results conference call and webcast.

(Operator Instructions)

Please note that this event is being recorded. I would now like to turn the conference over to Vicki Kelemen, Senior Director, Marketing Communications. Ms. Kelemen, please go ahead.

Thank you for joining us today on our fourth-quarter and year-end 2016 conference call. Joining me today are Bill Welch, Chief Executive Officer; and Mark Erlander, Chief Scientific Officer. Before I turn the call over to Bill, I must remind you of the risks inherent in our business and ask you to consider the following forward-looking statements.

Certain statements in this call are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of the words such as anticipate, believes, forecasts, estimated and intends or other similar terms or expressions that concern Trovagene's expectations, strategies, plans or intentions.

These forward-looking statements are based on Trovagene's current expectations and actual results could differ materially. There are a number of factors that could cause actual events to differ materially from those indicated by such forward-looking statements. Investors should read the risk factors set forth in Trovagene's Form 10-K for the year ended December 31, 2016, and other periodic reports filed with the Securities and Exchange Commission.

While the list of factors presented in the 10-K is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.

Forward-looking statements included herein are made as of the date hereof and Trovagene does not undertake any obligation to update publicly such statements to reflect subsequent events or circumstances. With that, I would now like to turn the call over to our Chief Executive Officer, Bill Welch. Bill?

Thanks, Vicki. Hello, everyone, and thank you for joining us. I will begin today's call by discussing our strategic announcement to further expand our precision medicine expertise into cancer therapeutics. We announced today in a joint release with Nerviano Medical Sciences, a leading oncology discovery organization, that Trovagene has license exclusive global development and commercialization rights to NMS-1286937, which we refer to as PCM-075.

PCM-075 is an oral, investigative drug and a highly-selective polo-like-kinase 1, or PLK 1 inhibitor. Nerviano Medical Sciences is the largest oncology-focused R&D company in Italy and among the most highly regarded in Europe. Nerviano has many important collaborations or license agreements with pharmaceutical companies including Genentech Roche, Pfizer, Array Pharmaceuticals and Servier as well as with other biotechnology companies.

Nerviano will receive an upfront payment of $2 million as well as development and regulatory-based milestone payments and tiered royalty payments on future net sales of PCM-075. Trovagene has all rights to direct and indirect manufacture bulk and finished goods, and Nerviano is the current manufacturer.

This transaction allows us to execute on our strategy to vertically integrate our ctDNA Precision Cancer Monitoring technology, or PCM, with precision cancer therapeutics by developing drugs where our deep understanding of tumor genomics may allow for effective targeting of appropriate cancer patients. We are excited to license PCM-075 and look forward to beginning a development program in patients with acute myeloid leukemia, or AML.

Trovagene has significant experience and expertise with biomarkers and technology in cancer, including AML. Trovagene is a patent holder of NPM1 for diagnosis and monitoring of patient's response. NPM1-mutated AML is a founder genetic marker in leukemia and accounts for approximately one-third of all AML patients.

We will use our ctDNA PCM technology to profile other dominant AML markers such as FLT3, DNMT3A, NRAS, and KIT, and measure patient response to therapy. Mark will discuss PCM-075, the role of polo-like-kinase inhibitors in tumor growth and our development strategy in his remarks.

As a reminder, our proprietary ctDNA PCM technology allows us to uniquely measure with high clinical sensitivity circulating genetic fragments of cancer tumors in urine and blood. In fact, we're the only liquid biopsy company with ctDNA technology compatible in both urine and blood. We have over120 patents issued and 60 patents -- applications in the US and internationally around our PCM technology.

We have numerous publications demonstrating the clinical utility of our PCM platform, including, detecting high-risk HPV infections by identifying mutations in the E1 gene of HPV in urine; identifying the presence of EGFR mutations to aid in the selection of targeted therapies for patients with non-small cell lung cancer as well as identifying EGFR-resistant mutations in cases not detected with tissue biopsy.

Publishing data showing a 95% overall detection rate of EGFR T790M by combining urine and blood versus 83% detection by tissue testing alone. And, detecting and quantifying ctDNA KRAS mutations in patients with unresectable pancreatic cancer with a 92.9% KRAS detection rate and quantification predicting patient outcomes.

We've made significant progress in 2016 in the development and validation of our liquid biopsy technology. In the fourth quarter, we completed the development of our research-use only, universal urine collection and DNA preservation cup which we plan to market as NEXTcollect for global distribution.

NEXTcollect simplifies the urine collection process and optimizes the preservation of DNA, enabling broad, global access through an otherwise underutilized sample type for diagnostics. Our proprietary sample preparation process also includes novel technology for the extraction and isolation of ctDNA from a urine sample, as well as proprietary methods to enrich the sample for mutant alleles.

We are performing analytical validation of our first multigene panel. We designed our panel to have industry-leading sensitivity for clinically actual mutations as recommended by the National Comprehensive Cancer Network, or NCCN. We believe our targeted multigene panel will address the market need between limited single-gene PCR assays and conventional next-generation sequencing genomic profiles, which are expensive and have low clinical sensitivity.

We plan to clinically validate our targeted multigene panel, which we will call [ERTHOS] Select for use in our San Diego-based CLIA laboratory. We will offer this panel as well as our Trovera EGFR, KRAS and BRAF tests, and related services as a testing service for pharmaceutical companies, third-party reference laboratories and physicians.

We announced today a restructuring program to support our expansion into precision cancer therapeutics. As stated above, while we have made good progress with our ctDNA detection platform, and early market feedback has been positive, we appreciate that broad-based adoption of this technology takes time. Our restructuring will streamline our early development programs as we focus our core organization on precision cancer therapeutic opportunities.

We believe today's announcement is in the best interest of all stakeholders, as we look to build an industry-leading precision medicine company. We will maintain our CLIA/CAP-accredited laboratory for clinical testing services for pharmaceutical companies, third-party reference laboratories, and physicians as well as for internal programs.

We will continue to provide our ctDNA PCM technology including the NEXTcollect, our universal urine collection and DNA preservation cup and our proprietary technology for extraction and isolation of ctDNA from urine. We plan to offer our ctDNA PCM technology through internal strategic business development activities. With that, I will turn the call over to Mark Erlander, our Chief Scientific Officer.

Thank you, Bill. Our accomplishments in 2016 have demonstrated clinical validity and utility of our ctDNA PCM technology for both the detection of tumor mutations and the monitoring of cancer patient response to therapy from urine and blood liquid biopsies.

We plan to incorporate these advances as we expand into precision cancer therapeutics. We have demonstrated and published on the high clinical sensitivity for detection of tumor mutations from both urine and blood in many different cancer types and most recently, in lung and colorectal cancers.

The results of multi-institutional clinical studies and real-world case studies conducted in 2016 with collaborators from MD Anderson, Stanford, UCLA, USC, MGH, Moffitt, City of Hope, University of Colorado, University of Torino, and Clovis Oncology where we reported the oral presentation at ASCO. Additional data was also presented at the World Conference on Lung Cancer, December of 2016, as well as published in four peer-reviewed oncology journals.

Importantly, our EGFR T790M mutation detection data was showcased by ASCO as part of their Clinical Cancer Advances 2017, and was recently published in Journal of Clinical Oncology. We have made significant progress in tumor mutation monitoring by demonstrating that our ctDNA PCM technology can be used to rapidly, within 24 to 72 hours, assess patient response to therapy to determine whether a therapy is efficacious.

The results of the studies conducted with multi-institutional collaborators from UC Irvine, University of Torino, and Moores Cancer Center at UC San Diego were recently published in three peer-reviewed journals demonstrating the clinical utility of monitoring mutational status in cancer patients. We believe patient monitoring with our ctDNA PCM technology will be a significant tool within our Precision Cancer Medicine technology portfolio for predicting which patients will have sustainable responses to drugs of interest.

We have an active therapeutic diligence team at Trovagene looking for and conducting strategic assessments of therapeutics, where our technology and diagnostic expertise can be a significant advantage for drug development. Our internal selection criteria are focused on IND stage drugs in oncology that address significant unmet needs and have compatibility with our ctDNA PCM technology.

I am pleased to announce that we have expanded our Clinical Advisory Board as the Company pursues oncology-related therapeutics. Dr. Jorge Cortes, Deputy Department Chair, Department of Leukemia, Division of Cancer Medicine at MD Anderson Cancer Center will head Trovagene's Clinical Advisory Board.

In addition, Dr. Filip Janku from the Department of Investigational Cancer Therapeutics, Division of Cancer Medicine from MD Anderson Cancer Center, has joined as a key member. We are excited to expand our Clinical Advisory Board with Doctors Cortes and Janku, as we look forward to initiating a therapeutic development program for patients with AML.

There is a large unmet clinical need to develop better therapies for AML. AML is a fast-growing form of blood and bone marrow cancer with a five-year survival rate of only 25%. Current treatment options are chemotherapy and stem cell transplant with several targeted therapies under investigation.

PCM-075 is a novel, orally available and highly-selective polo-like-kinase 1, or PLK 1 inhibitor. As background, the PLK 1, a [serine/threonine] kinase belongs to a member of four evolutionary-related kinases. Among these four members of the PLK family, PLK 1 is recognized to be fundamentally, fundamental component for cell division to take place correctly.

Unlike the other members of the family, PLK 1 is often overexpressed in many different tumor types and overexpression often correlates with poor patient prognosis. Most importantly, the PLK 1 is only expressed in dividing cells, whereas other PLK members are expressed in differentiated postmitotic cells, like neurons indicating a potential better safety profile for a PLK 1 selective inhibitor.

Pharmacological inhibition of PLK 1 results in a rest of cell division and subsequent cell death. PLK 1 inhibition may provide a more selective approach for targeting mitosis and avoid toxicities such as peripheral neuropathy as observed with chemotherapy drugs. To date, PLK inhibitors, as a drug class, have demonstrated clinical response in hematological malignancies.

The greatest clinical activity for PLK inhibitors have been observed in AML, which may likely be due to the high proliferative nature of AML tumors. Our interest in PLK inhibitors stems from this observed PLK clinical activity and the opportunity for a more selective therapeutic approach.

The properties of PCM-075 are as follows: PLK 1 selectivity, the only orally available PLK inhibitor in clinical development; a short half life, approximately 24 hours with reversible hematological toxicities; and fourth, an acceptable safety profile in humans with no adverse respiratory or cardiovascular effects. Nerviano has successfully completed a Phase 1 safety study of PCM-075 in patients in advanced metastatic cancers.

We plan to conduct a trial for determining dose, patient response, and qualitative biomarker analysis for patients with AML. Nerviano has an active IND with the FDA as well as manufactured active drug to begin a study in AML within this year. We look forward to sharing more details regarding the study design and our next studies once available.

We believe PCM-075 may have much broader opportunities in addition to AML. Nerviano has conducted numerous pre-clinical studies with early data supportive of other blood-based tumors such as Pediatric Acute Lymphoblastic Leukemia, or ALL, and for triple negative blood cancer, ovarian cancer and non-small cell lung cancer.

We are confident that PCM-075 has many potential therapeutic benefits and we plan to continue to assess and possibly explore additional precision cancer therapeutic opportunities going forward. I will now turn the call back over to Bill.

Thank you, Mark. I will now briefly review our financials for fourth quarter and year-end 2016. Trovagene reported a net loss of $8.5 million, or $0.34 per diluted share in the fourth quarter of 2016, as compared to a net loss of $10.2 million for the third quarter of 2016 and a net loss of $7.4 million or $0.26 per diluted share for the fourth quarter of 2015.

Total operating expenses were approximately $9.9 million for the fourth quarter, slightly down from $10 million in the third quarter of 2016, and an increase from $7.5 million in the fourth quarter of 2015. Net cash used in operating activities for the fourth quarter of 2016 was $9 million compared to $7 million in the third quarter of 2016.

The quarter-over-quarter increase can be attributed primarily to a greater research and development cost associated with the development of a multigene panel, a milestone payment to Boreal Genomics and certain non-recurring administrative expenses. R&D expenses in the fourth quarter of 2016 were $3.8 million, an increase from $3.2 million in the fourth quarter of 2015.

The increase is attributed to the investment and the development of a second-generation urine sample collection cup and our multigene panel. Sales and marketing expenses were $2.4 million in the fourth quarter of 2016, an increase from $1.9 million in the fourth quarter of 2015. G&A expenses were $2.3 million in the fourth quarter of 2016, slightly up from the $2.2 million in the fourth quarter of 2015.

Weighted average of diluted shares of common stock outstanding used to calculate per share results was $37 -- $30.7 million in the fourth quarter of 2016. For the year ended December 31, 2016, Trovagene reported a net loss of $39.2 million, or $1.37 per diluted share as compared to a net loss of $27.5 million, or $1.21 per diluted share for the prior year.

The increase in net loss is primarily due to increased expenses related to research and development, selling and marketing, general and administrative, and restructuring charges versus the prior year. As of December 31, 2016, Trovagene had cash, cash equivalents, and short-term investments of approximately $37.9 million.

In connection with today's announced restructuring to support our expansion into precision cancer therapeutics, Trovagene will reduce its annual pre-tax expenses by approximately $8 million per year, excluding one-time separation costs, through the reduction of approximately 30 employees and expenses primarily linked to research, clinical studies and operations.

We look forward to sharing our continued progress with you all. Thank you for participating in the call. This concludes our prepared remarks. Operator, we are now ready for the question-and-answer session.

(Operator Instructions)

Bill Quirk, Piper Jaffray.

First question is, as it relates to the restructuring that you are doing here, Bill, I believe you have something like 53 employees before you made this announcement, and you're down to 23. I am curious, what areas this affected? You highlighted early-stage stuff, but quite candidly given the percentage change there, it has to be more than that. I'm just trying to understand, do we have any sales people left to sell the diagnostic and the specimen collection cup? Why don't we start there?

Sure, Bill, as we said, we're going to continue a couple core operations at Trovagene, while we are primarily moving forward in the precision cancer therapeutic sector. The CLIA lab is operational, we have a CLIA lab team and we have contracts with and continue to look for opportunities. I would say primarily with pharma and then reference laboratories but there's never -- physicians still send us samples because of our core technology.

As you know, we do not have sales force calling on doctors. That was a reduction we did in December. In terms of the urine collection cup, our extraction and such, those we will be working to monetize and we think the best way is initially through our strategic sales. We have retained people that have relationships with and we will roll that out.

I would say that these things, while we are getting some very good positive market feedback, it takes time to adjust and to get this broadly adopted and we thought while we are doing that, it is best to use those resources for the precision cancer therapeutic sector.

Okay, and then, just I guess thinking about the pivot here towards the therapeutics space company, can you remind me what experience you have at Trovagene to lead a drug into a Phase 2 study. Are you going to have to reach out to an outside CRO or hire some additional people to augment? (multiple speakers) I -- it is obviously a pretty significant shift. Help us better understand how you guys are going to cope with this.

Sure, yes, I think there is a couple of things there. From my personal experience, about half of my career has been spent on therapeutics and diagnostics at Abbott and La Jolla pharmaceuticals. I was deeply entrenched in actually targeted therapeutics as well as cardiovascular and nephrology-based therapeutic and I have taken drugs all the way to the FDA and the approval process.

We have an active Clin Ops group and frankly, we've done -- Mark's team has done a great job in terms of getting samples and testing for our testing business and we will repurpose and utilize their Clin Ops components internally; but we certainly will start to leverage our CROs and outside regulatory consultants which we have. We have got a core team we have used for quite some time to vet this.

As we expand out for our therapeutic, essentially Clinical Advisory Board. What -- I think to best describe we'll feather in the industry -- the key assets as we go forward in terms of personnel but we will try to use as best we can third-party resources for doing phase 1/2 type studies.

Okay, just last one for me, thinking about the balance sheet. Obviously, clinical trials cost quite a bit of money to take them to fruition, so how are you guys thinking about the balance sheet and future cash needs, particularly concerning you obviously already have some debt on the balance sheet.

Yes, so I think the goal we originally had at the structure of the Company, we have got -- we're a true believer in our precision cancer technology. And we thought the best way to apply this are for earlier-stage drugs. Those are at the IND phase 1 level. We're getting it right and the studies cost aren't so high and our goal is to move this forward for proof-of-concept to show dynamic of the drug and that isn't so costly. We're working that through right now and we feel pretty good that we can get that trial up and going with the cash we have on hand.

Bryan Brokmeier, Cantor Fitzgerald.

This is Jordan Abrams on for Bryan. First question, you said you still plan to commercialize the multigene panel also the second-generation urine CAP, but what happens to those partnerships that were formed already to commercialize those products as they take a backseat to PCM-075?

I think where those products are right now, they're -- the research essentially has been done to development and as a pious example, for the urine extraction cup, the tools are made and we're looking to get that shot and put into a distribution center. And then what we would do is we would share those, once that is in a third-party center, and share that with key laboratories to work to get market uptake.

We also have the proprietary patented process to get DNA out of urine. We will also share that. The goal there is just to get people to use urine as a good sample collection broadly scoped. So as many people as we can go to. So that will be done through essentially key accounts.

The multigene panel is one that is a pan-cancer-like panel, one we hope to get operational in our CLIA lab and offer that for third-party as well as for an internal programs. We mentioned in AML, a number of those markers and markers we measure today and we will be using that expertise both for third parties as well as for our own work for our PCM-075.

Great. Thank you. Also, does the Company plan to target other indications in a similar way by licensing therapeutics or is the plan to stick with AML for now?

We have two -- obviously, we're a small Company. We've been working on this quite some time. These doesn't just jump up. You can imagine a lot of work went into this. We have an ongoing diligence team. I would say we're going to be thoughtful about that. Two things, there are other opportunities where our technology can help drugs like we did -- we hope to do with PCM-075.

At the same time, we think this drug class and this compound specifically has brought out opportunities. We will bring this one forward, keep our eyes open and see how things go. But we are bullish on precision cancer therapeutics utilizing our technology.

Right. Last question, what was -- just to wrap our heads around the switch, what was really the primary driver to switch to a precision medicine company rather than the diagnostic products?

Yes, that is a great question. We have always had -- we've been helping pharmaceutical companies all along the way and we were fortunate to be at ASCO at an oral presentation and usually ASCO is about therapeutics so it was nice of our technology presented, but we think the broadest value for what we are doing is on unmet needs, which usually are smaller patient classes.

And in that area it's great to be participating with the therapeutics where you get the bigger upside and we're doing a lot of the work along the way; we just want to participate. We've had an ongoing goal to try to find areas where we can do a bit of both. But today is our first announcement. We are very excited to say that now we can become a precision cancer therapeutics company, utilizing our core technology to help that out. But it is something we have been working on for quite some time.

Jason Kolbert, Maxim Group.

This is Lauren Chung for Jason. Quick question. I know you had mentioned that you will be relying near-term on third-party consultants but is it your goal to increase your R&D expertise in drug development going forward?

I think the place that, Lauren, we will probably originally hire is maybe CMO or some other operational people to work with our CRO and maybe regulatory but there would be some targeted headcounts on executing on this study. I don't see us being a core development of compounds but a core way to essentially direct those compounds.

There's quite a few either drugs that haven't worked, small indications or technology which we think could be a very good partnership. So we are in a lot of dialogues like that and I think best for us at this stage of the Company is to work with others to bring those forward as opposed to be a discovery Company. That is not just a core asset.

Sung Ji Nam, Avondale Partners.

Bill, could you maybe talk about, you talked about restructuring but as you look at your R&D spending for 2017 and going forward, could you maybe talk about how you are thinking of allocating? What percentage of that will be going towards therapeutic development versus diagnostics?

Sung Ji, I would say a majority would be going for the cancer therapeutics as we think of the P&L. We -- the restructuring we did, of course, we if we had infinite money we might do infinite things but we pulled forward our PCM technology quite well, actually. We think that where we are is a good springboard to get the benefit of what we spent.

We could always resurrect that if we needed to, in terms of investing more but we think right now we're trying to get the uptake of the urine collection extraction, the cup, and our panels, and so I think we will be working that. Most of the core research and clinical research will be focused on the precision cancer therapeutics.

And then in terms of the timing for analytical validation and clinical validation or multigene panel, could you talk about what are your targets in terms of when they will be completed? Will that be within this year, in the coming year or -- ?

We're working on that right now. I would rather not put a time on that but we are working in the validate -- the annual validation, the clinical validation would then go into our lab. That is our goal to have it this year. I just don't have a time to give you right now. Something we are confident we can do.

Okay, and then finally, for your urine collection device, urine and blood collection device, in terms of manufacturing capabilities, could you remind us, do you have the capabilities or would that be outsourced largely? And just trying to figure out how would you meet the demand once that starts ramping?

We built that -- we designed that for volume and demand because urine is a collection device. You want to be able to really scale that both on volume and cost. We have made molds. We have this now sitting to a third-party [ISOLEC] distribution that can make the various cups and then package them there and ship out and that is what we're working on right now is the final stages in that third-party manufacturer for us. It is scalable. It is one that we are ready to move forward once it hits the warehouse.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.