Dominari Holdings Inc (DOMH) 2011 Q3 法說會逐字稿

Welcome to the Spherix Third Quarter Business Update Conference Call.

At this time, all participants are in a listen-only mode. Following Management's prepared remarks, we'll hold a Q&A session.

(Operator Instructions)

As a reminder, this conference is being recorded, November 16, 2011. I would now like to turn the conference over to Kim Golodetz. Please go ahead.

Thank you. This is Kim Golodetz with LHA. Thank you all for participating in today's call. Joining me from Spherix are Dr. Claire Kruger, Chief Executive Officer; Robert Clayton, Chief Financial Officer; and Dr. Robert Lodder, the Company's President.

Last week Spherix issued a press release reporting its third-quarter 2011 financial results and business highlights. If you have not received this news release, or if you would like to be added to the Company's distribution list, please call LHA in New York at (212)838-3777 and speak with Carolyn Curran.

As we begin, I would like to caution that comments made during this conference call by Management will contain forward-looking statements regarding the operations and future results of Spherix. These forward-looking statements involve risks and uncertainties that include, without limitation, risks that product candidates may fail in the clinic, or may not be successfully marketed or manufactured; that Spherix may lack financial resources to complete development of D-tagatose and/or SPX106; that the FDA may interpret the results of the studies differently than Management's interpretation; that competing products may be more successful; that demands for new pharmaceutical products may decrease, that the biopharmaceutical industry may experience negative market trends; that the Company's continuing efforts to develop D-tagatose and/or SPX106 may be unsuccessful; that its common stock could be de-listed from the NASDAQ Capital Market; and other risks detailed in the Company's filings with the Securities and Exchange Commission.

I encourage you to review these filings, including the Company's forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Importantly, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live call today, November 16, 2011. Spherix undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

With that, I would like to turn the call over to Claire Kruger. Dr. Kruger?

Thank you, Kim. My thanks to each of you for participating in the call.

Since our last call in August, we've made significant progress in advancing our dyslipidemia programs throughout the development process. In particular, we gained additional information about our compound SPX106 for the treatment of high triglycerides and other metabolic disorders. As you know, we recently licensed this compound from the University of Kentucky. We have been extremely encouraged by the data we've generated to date, and have also tested SPX106 in combination with D-tagatose, which we call SPX106T. Those combination data appear to be even more compelling, and we'll talk about that a little later in the call.

Recall that Spherix consists of two subsidiaries. Spherix Consulting is our Health Sciences Consulting division, which is responsible for our revenues; and Biospherics is our development subsidiary, which accounts for all the R&D expense. Today, Dr. Robert Lodder and I will review our accomplishments and our growth strategy. As we have been doing each quarter for the past year, we will provide our upcoming milestones so that you can track our progress going forward.

Let me start by updating you on our Health Sciences Consulting Business. We've performed work on behalf of 16 customers so far this year, compared with 19 customers last year. Our scientists regularly publish and present at major trade shows and conferences, and we've listed some of them in last week's press release. The expertise that resides in this Business is extremely important to the work at Biospherics, as our scientists oversee the work our CRO is performing, and ensure the necessary toxicology and mechanism of action work, among other studies, is performed with scientific rigor.

Before I discuss our plans and expectations for SPX106 and the treatment of dyslipidemia alone and in combination with D-tagatose, I will now turn the call over to Robert Clayton, who will review our recent financial results. Robert?

Thanks, Claire.

Spherix reported a net loss for the third quarter of 2011 of $0.9 million, or $0.36 per share. This compares with a net loss for the third quarter 2010 of $2.1 million, or $1.25 per share. The reduction in net loss was attributed mainly to lower research and development expenses. R&D expense for the third quarter of 2011 was $0.4 million, a decrease of $1.1 million from the prior year's third quarter. This decrease was attributed to lower spending following the completion of a Phase III clinical trial and a Phase II dose-ranging trial to develop D-tagatose for the treatment of Type II diabetes.

Third-quarter 2011 R&D expense is related to the Company's pre-clinical trials for the use of both D-tagatose and SPX106 in lowering triglyceride levels. Looking at our year-to-date results, the net loss for the nine months ended September 30, 2011, was $2.2 million, or $0.86 per share, compared with a net loss for the nine months ended September 30, 2010, of $6.8 million, or $3.99 per share. R&D expense for the first nine months of 2011 was $1.1 million, down from $4.3 million in a comparable prior-year period due to completion of the aforementioned clinical trials.

The Company had cash and cash equivalents of $5 million, and working capital of $4.7 million as of September 30, 2011; compared with $5.6 million and $4.8 million, respectively, as of December 31, 2010. We raised $2.5 million, net of offering costs, in a registered direct offering of common stock and warrants during the first quarter of 2011. In addition, we raised $1.15 million, net of offering costs, in a private placement of common stock and warrants in October 2011.

Over the next 12 months, we will need to spend between $4 million and $6 million to support our currently planned development operations. This estimate assumes the following -- one, no further significant expenditures for D-tagatose as a drug for the treatment of diabetes; two, continuing development of SPX106T as a treatment for high triglycerides; three, ongoing operations of the health science segment at the current level of activity; and four, raising additional funds to continue our development efforts beyond this 12-month period.

With that, I'll turn the call back to Claire.

Thanks, Robert.

In addition to the studies advancing SPX106 alone and in combination with D-tagatose, we have also been focused on protecting our intellectual property. As you may know, the patent on D-tagatose for lowering HbA1c levels in diabetics expires next year. However, we have filed for patent protection on a D-tagatose and Metformin combination that would, if granted, extend the patent life 20 years from filing, and we believe, will make D-tagatose more compelling to a partner. We've also filed use patents for SPX106T in the United States, which also will last until 20 years after the date of the original filing. An investigational new drug application for SPX106T is being prepared for submission to FDA, and a human proof-of-concept trial may begin later in 2012.

Combinations therapy is an important tool in many complex disease settings, including cancer, infectious disease, cardiovascular disease, diabetes, and the metabolic syndrome. Scientific progress has increased our understanding of the pathophysiological processes that underlie these and other multi-factorial diseases. This increased knowledge has advanced new therapeutic approaches, using drug combinations targeted at multiple therapeutic targets to improve treatment response and/or to minimize the development of drug resistance.

In settings like metabolic syndrome, in which combination therapy may offer significant therapeutic advantages, there is increasing interest in the development of combinations of investigational drugs not previously developed for any purpose. We estimate that it will take three years or more to conduct the studies necessary to attract a pharma partner for SPX106T, and that a partner would require a subsequent two to four years to complete all necessary studies for an NDA filing.

As we've mentioned in the past, compared with diabetes, the development pathway for drugs that lower triglycerides and cholesterol has different hurdles in terms of study requirements for approval, and thus lower development costs and quicker development time frames. Importantly for the market for triglyceride-lowering and cholesterol-lowering drugs, it's a large and under-served one, with an estimated worldwide treatment market of $26 billion annually. In the US, the opportunity exceeds $3 billion annually, as fully one-third of Americans are overweight or obese. Clearly, if we can develop a drug to provide a safe and efficacious treatment, the rewards for Spherix and its shareholders will be profound.

Turning now to our Corporate strategy, we are continuing to seek to in-license or acquire additional drugs to diversify our pipeline, as we told you last quarter; and we've engaged a financial advisor to seek out potential drugs. Clinical stage compounds in either Phase I or Phase II are of particular interest, as are orphan drugs, which can be eligible for accelerated approval processes. Although we have not yet signed any licensing deals, we have been diligent in reviewing several compounds.

The rationale behind our orphan drug strategy is to derive the benefits of a shorter approval pathway, as the regulatory authorities strive to provide solutions to these underserved patient operations. Orphan drugs are granted seven years of additional market exclusivity to encourage their development. In addition, these drugs typically may be marketed by fewer sales representatives, and often prices for the drugs are set at a premium.

Now I'd like to turn the call over to Dr. Robert Lodder to review progress with our pre-clinical programs in both D-tagatose and our licensed product, SPX106. Rob?

Thanks, Claire.

We're very excited about the potential of SPX106. When administered to genetically engineered mice prone to dyslipidemia, this compound achieved statistically significantly reductions in triglycerides and cholesterol in combination with D-tagatose for nine weeks. Both SPX106 and D-tagatose alone are able to lower triglycerides and cholesterol, but the combination is proving to be extremely powerful. We reported results from mouse studies this past June and September, and then followed up these announcements with news that SPX106T reduced dyslipidemia in new studies of apolipoprotein E-deficient mice and Syrian Golden hamsters. These findings corroborated data obtained in the LDL receptor-deficient mice.

Additionally, a new study in rats demonstrated that D-tagatose inhibits fructose absorption in the gastrointestinal tract, a finding that provides further insight into the mechanism of action of SPX106T. Claire and I presented these data last month in Washington, DC, at the American Association of Pharmaceutical Scientists' annual meeting. Our poster summarized results in two strains of genetically engineered mice prone to dyslipidemia. SPX106T significantly reduced VLDL and LDL cholesterol in LDL receptor-deficient mice fed a normal chow. In apolipoprotein E-deficient mice fed a Western or high-fat, high-carbohydrate diet, SPX106T significantly reduced serum cholesterol by 30%, or 307 mg per deciliter, with a p value of less than 0.05.

The compound prevented body weight gain, again with statistical significance. We generated significant reductions of 77% in subcutaneous fat, 90% in retroperitoneal fat, and an 85% reduction in epididymal fat, with a p value of less than 0.01 for all measures. SPX106T did not affect the weight of other organs, for example, the heart or the spleen. A recent range-finding dose study in hamsters fed the same Western diet, and given SPX106T, provided evidence that the combination was effective in reducing serum triglycerides. We are now conducting studies designed specifically to test therapy in diet in dyslipidemia, using dosing and timing information derived from the studies in LDL receptor-deficient mice.

In layman's terms, what we have found is that we're able to lower triglycerides and lower cholesterol in mice and hamsters that have been fed a diet that corresponds to the normal human Western diet. We hope to begin testing of SPX106T in humans in the Spring, and plan to file an IND application with FDA early next year. SPX106 is in pre-clinical development in combination with other agents, in addition to D-tagatose, for the prevention and treatment of atherosclerosis, hypertriglyceridemia and related dyslipidemias.

An important four-week safety study of the toxicology of SPX106 is also being conducted. The in-life portion of this study recently completed and the tissues are being analyzed now. The experiment examines the effect of near-normal doses to very high doses of SPX106 on various organ systems in the rat. Once this study is completed, we intend to submit the IND application for SPX106T. Biospherics would then be free to begin a Phase I safety study of SPX106T in humans in 2012.

Phase I studies of SPX106T would determine safety in dosing over the course of 2012. Phase II studies over 2013 and 2014 would evaluate the effectiveness of SPX106T, as well as look for any side effects. Finally in Phase III, clinical trials in 2015 and 2017 would establish efficacy and monitor for any adverse reactions from long-term use before an NDA is filed at FDA. In the meantime, Biospherics will continue to develop its other in-license drug candidates to diversity its pipeline.

With this review of recent data, I'll turn the call back over to Claire.

Thanks, Rob.

Before we open the call up to your questions, I just want to emphasize that we're confident that the pursuit of the development of triglyceride-lowering and cholesterol-lowering drugs is appropriate for Spherix. For these indications, we'd face develop costs and timetables significantly more favorable compared with diabetes, along with an enormous market opportunity. Particularly in the case of triglyceride-lowering drugs, currently available drugs have features that make them unattractive to patients. Yet while this development timetable is a shorter one, as Rob mentioned, the path to approval will take a while. In parallel, we have elected to pursue an in-licensing strategy which will provide us with a nearer-term pipeline and round out our development efforts.

With that overview of our recent financial results and business progress, we'll now open the call up for questions. Operator?

(Operator Instructions)

Your first question comes from the line of Jason Napodano of Zacks.

Hi, guys. Thanks for taking the question. Question about SPX106. When will we see some -- the presentations on the mechanism, or papers, or posters discussing exactly what SPX106 is?

Exactly what it is, or exactly what the mechanism is? Those are two different questions.

Well, give us a sense of -- I mean I think you said before this is a novel molecule, this is not something that's been seen before. Is that correct?

SPX106 itself is actually available in nature. We are working on other ones that are not, analogs that are not naturally available. But right now, SPX106 itself is something that you can find in nature.

Is this -- has it been tested in humans before? It's not grass, is it?

It is not grass.

Has it been tested in humans before?

Yes.

Okay, but not for triglycerides or -- what were those studies?

They weren't drug studies. Okay. Got you.

And SPX106, does that have in itself triglyceride-lowering properties, or are those properties only evident in conjunction with D-tagatose?

It has triglyceride-lowering capabilities on its own.

Okay. And they're amplified with D-tagatose, or there's some kind of synergy that exists?

Yes. One thing we can tell you is that D-tagatose works on the anabolic side of metabolism, and SPX106 works on the catabolic side of lipid metabolism. So D-tagatose is essentially preventing formation of lipids and SPX106 is essentially accelerating their degradation -- not excretion, but oxidation in the body.

Okay. And as far as the intellectual property there, you said that you filed some applications that would qualify -- I assume that means SPX106 would qualify as a new chemical entity?

Oh, under FDA purposes? Yes. It would be an NCE.

Got you. Okay. And then, so, the combination, that would get you 20 years of exclusivity?

Yes.

And the combination, I guess that's the same thing. If you combine it with D-tagatose, you would also get -- that would also get 20 years of exclusivity?

Right. On the combination.

Okay, and then just finally on tagatose. Can you remind us of -- actually let me ask about the combination with Metformin. What have you guys -- have you done tests there? Because I don't recall that there's been a formulated combination product of tagatose and metformin. Where are you with that?

No, we have not done that testing. It would be for anyone acquiring that property, it's an obvious next step in a Phase III trial, since Metformin is the first line of treatment, to have an add-on of tagatose with Metformin, which is why we filed for patent protection. But we have not done any testing, clinical testing, on the Metformin tagatose combination.

Got you. Then can you just remind us where you are with your supply of tagatose?

Do you want an actual inventory? I don't think we publicly reveal --

I don't think I need an actual amount, I've just been curious -- I mean, you've got enough to do whatever testing is necessary and partners --

There's enough to take us through a Phase III trial, one Phase III trial of SPX106T.

Got you. I think that's all I had, guys. Thanks for answering my questions.

Thanks for calling.

(Operator Instructions)

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Thank you. In closing, I trust we've shared with you our enthusiasm for the Spherix business model and laid out a road map of our planned activities. We're very excited about our drug development pipeline and look forward to keeping you abreast of our progress via these quarterly update calls. We'll speak with you again when we report our fourth-quarter results. In the meantime, I wish you good day.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.