Gyre Therapeutics Inc (GYRE) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2010 Targacept, Incorporated Earnings Conference Call. My name is Jennifer and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Dr. Donald deBethizy. Please proceed.

Thank you, Jennifer. I'd like to have Alan Musso start off with our forward-looking statement.

Thanks Don.

Before we get started today, I'd like to remind you that on this call, we may make forward-looking statements under the provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements other than historical facts regarding among other things the progress or scope of development of any of our product candidates or programs, such as the size, design, population, conduct, duration, or objective of any clinical trial, the timing for initiation or completion of or availability of results from any clinical trial, for submission or approval of any regulatory filing or for market introduction or the indications for which any product candidate may be developed, the competitive position of any of our product candidates, or the commercial opportunity in any target indication, any payments with AstraZeneca or GlaxoSmithKline may make to us, or our plans, expectations, or future operations, financial or cash position, revenues, costs, or expenses.

Actual results may differ materially from those expressed or implied by any forward-looking statements as a result of various important factors such as those described under the heading Forward-Looking Statements in the press release that we issued earlier today or under the heading Risk Factors in our most recent annual report on Form 10-K or in other filings that we may make with the Securities and Exchange Commission.

We caution you not to place undue reliance on any forward-looking statement. Any forward-looking statements that we make speak only as of today and should not be relied upon as representing our views as of any date after today. We disclaim any obligation to update any forward-looking statement except as required by applicable law.

I will now turn the call over to Dr. Don deBethizy, our President and Chief Executive Officer.

Thanks Alan. Good afternoon and thank you for joining us today. Dr. Geoffrey Dunbar, Targacept's Senior Vice President of Clinical Development & Regulatory Affairs is also here with Alan and me today.

Earlier this afternoon, we issued a press release describing our first quarter financial results and recent highlights and providing an update on our most advanced programs. We will take just a few minutes to review our progress and then welcome your questions.

We are fortunate to have an industry-leading pipeline of NNR therapeutics that we believe have potential to build health and restore independence for patients suffering from CNS diseases and disorders. Let me start with our product candidate for major depressive disorder, TC-5214, a nicotinic channel blocker that could represent a much needed novel mechanistic approach to treat the millions of patients with major depression who do not respond well to first-line antidepressant therapy.

Following our highly successful phase IIb study, we are co-developing this product candidate with AstraZeneca under a collaboration agreement entered into at the end of 2009. Planning is well underway for the expected initiation of phase III clinical trials of 5214 as an adjunct to antidepressant therapy in the middle of this year and for the expected initiation of a phase IIb clinical trial of 5214 as a second-line switch monotherapy in the second half of this year.

With an end-of-phase-II meeting with the FDA now behind us, our shared goal with AstraZeneca remains to file an NDA for TC-5214 in 2012.

Consistent with our (inaudible) strategy, our pipeline also features three phase II compounds in development for one or more cognitive disorders. Earlier this week, we were pleased to announce an amendment to our 2005 collaboration agreement with AstraZeneca to expand the development program for one of these product candidates, a highly selective alpha 7 NNR modulator known as TC-5619, that AstraZeneca has a future option to license.

The scientific literature is replete with studies showing possible therapeutic applications for compounds that act on the alpha 7 NNR. We believe that the robust program that we and AstraZeneca have agreed upon for TC-5619, namely separate phase II clinical proof-of-concept trials in cognitive dysfunction and schizophrenia and adults with ADHD and additional clinical and nonclinical studies to enable potential future development in Alzheimer's disease all in parallel increases the potential for clinical success for this promising product candidate and could accelerate our time to market.

We expect to complete our ongoing phase II trial in CDS in the fourth quarter of this year and we plan to initiate our phase II trial in adults with ADHD very soon. Moreover, as a part of restructuring of the financial terms related to 5619 under the agreement, we are scheduled to receive an $11 million payment later this month.

Our other clinical stage product candidates for cognitive disorders illustrate the pharmacological diversity of our pipeline. Both modulate the alpha4beta2 NNR and are being developed by AstraZeneca under our 2005 collaboration agreement. AZD3480 is a non-stimulant plan for additional development for the treatment of ADHD and AstraZeneca is preparing for the planned initiation of a phase IIb clinical trial in adults in the second half of this year.

AstraZeneca is currently conducting a number of clinical trials of a third product candidate targeting cognitive disorders, AZD1446, including a safety and tolerability study as an add-on treatment to donepezil in subjects with Alzheimer's disease and a phase II study in adults with ADHD, both expected to complete in the second half of this year.

We're excited to have these three distinct phase II product candidates moving forward for cognitive disorders.

Now our fifth clinical stage product candidate, TC-6987, represents the latest addition to the clinic of a compound discovered by Targacept scientists using Pentad, our proprietary drug discovery platform.

This product candidate is progressing through phase I clinical development and will be evaluated for future phase II development for one or more inflammatory disorders. TC-6987 modulates the alpha 7 NNR, which as noted by leading researchers in the inflammation field in a 2009 article published in the Journal of Internal Medicine plays a key role in cytokine mediated inflammatory pathways.

As you can see, our pipeline continues to progress, providing multiple opportunities to catalyze future success.

And before I turn the call over to Alan, I'd like to mention how gratified our entire management team was with Targacept's recent naming as one of the top 30 companies in The Scientist Magazine's best places to work in industry for 2010. This is the fourth consecutive year that we have received this recognition. And it's a testament to the culture fostered by our talented and dedicated employees and the breakthrough science that they do.

And with that, I'd like to turn it back over to Alan Musso, our Chief Financial Officer.

Thank you, Don.

Let me now briefly summarize for you our financial results for the first quarter of 2010. We ended the first quarter well capitalized with $285 million in cash and investments and continue to expect that our current cash resources will be sufficient to meet our operating requirements at least through 2013. We remain focused on the efficient use of capital and management of our expenses.

Turning to our operating results, we had a net income of $6.8 million for the first quarter of 2010 compared to a net loss of $4.7 million for the first quarter of 2009. For the first quarter of 2010, our net operating revenues were $19.5 million compared to $6.1 million for the first quarter of 2009. The increase was primarily due to the recognition into revenue of $17.9 million of a $200 million up-front payment that we received from AstraZeneca at the beginning of this year partially offset by reductions of $2.5 million in milestone payments from GlaxoSmithKline and $2 million in revenues derived from our cognitive disorders agreement with AstraZeneca as a result of the conclusion of the preclinical research collaboration under that agreement in January of 2010.

Our operating expenses in the first quarter of 2010 were $12.4 million compared to $11.2 million in the first quarter of 2009. The increase was due primarily to $1.1 million of additional research and development expenses. We expect the research and development expenses to increase for future 2010 periods [principally due to] our 20% cost-sharing for the TC-5214 phase III program and planned investments in our TC-5619 and TC-6987 programs.

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

Thanks, Alan, and thanks to everyone joining us on the call today. In closing, with a broad array of clinical stage NNR therapeutics, promising clinical/preclinical programs, and a dedicated team committed to addressing the unmet medical needs of those suffering from CNS disorders, we ended the first quarter well positioned to build upon the significant momentum of last year.

And with that, we'd like to open the call up for questions.

(Operator Instructions). Your first question comes from the line of Terence Flynn from Lazard Capital Markets. Please proceed.

Hi, good afternoon. Thank you for taking the question. Just wondering on 5619 and the cognitive deficits and schizophrenia trial, I was wondering first if you could just remind us of the differences between 5619 and 3480 and then secondly just to remind us of any changes in trial design, particularly on the endpoint for this study versus the earlier CDS trial that you and AZ ran.

Thanks.

Thanks Terence. I'll start with sort of a general response and then turn it over to Geoffrey for a little more detail. I'll start at a very high level. 3480 is an alpha4beta2 targeted compound and it was in a very large cognitive dysfunction in schizophrenia trial and - called HALO. And it was done in 100% in smokers. That trial was negative. We are uncertain about the role that nicotine could've played in that trial. We also - and 5619 is an alpha 7 NNR-targeted compound and we will be doing that in both smokers and nonsmokers.

And with that, I'll turn it over to Geoffrey to tell you a little bit more about the trial design for 5619.

Yes, hi there. Thank you, Don.

I think it would be wrong to draw any conclusions about the 5619 trial based on this study on the 3480. As Don has indicated, 5619 targets selectively the alpha 7 NNR. And we know that in [familial] schizophrenia there's an abnormality on chromosome 15, which proves for the alpha 7 NNR. So that's a little bit of important difference in the pharmacology and the pathophysiology.

With regards to the trial, as Don has already mentioned, we are taking into account whether the patients are smokers are nonsmokers. And another important aspect of the design compared to the HALO study is we're using a cognitive test battery, which we believe is more sensitive than the test used in the HALO trial.

Great. Thanks a lot.

And your next question comes from the line of Bret Holley from Oppenheimer. Please proceed.

Yes, thanks for taking the question. I was wondering how Astra at this point sees the evolution of the adult ADHD market and what are they thinking? Obviously they're pushing in kind of on all fronts with your compounds and it seems like they probably could use a pretty large opportunity. I'm also wondering whether they [take into account] the regulatory environment in childhood ADHD.

Well, let me just start with the data from our phase II trial with AZD3480 in adults. That really catalyzed AZ's interest in this ADHD area because the Holy Grail there was to - is to get stimulant-like effect sizes with minimal - with good safety and tolerability, which we achieved with 3480. So that really opened up their minds to the fact that nicotinics might afford an opportunity to have compounds that wouldn't be scheduled and that would make them unique in the market. And the thinking had been that you needed to have those kinds of stimulant-like compounds in order to get the effect sizes. So we've demonstrated in a small study that you can get the effect sizes that have been historically only seen with stimulants in a compound that's very well tolerated with placebo-like side effects. And then on the alpha 7 side, 5619, one of the things that Geoffrey could comment on is the results from our phase I work.

Yes, certainly, I mean, certainly vis--vis the view of the marketplace in the future, it's important to realize that over the last 10 or 20 years, the frequency of diagnosis of ADHD has increased. And an important element of the diagnosis of ADHD in adults is that they - these subjects had the condition as a child. So as you go forward in time, we see the market, the potential market for adult ADHD growing.

And just in terms of 5619 and taking the alpha 7 approach, we have good preclinical data showing cognitive effects. And then in our phase I work, we actually observed [and intentional] effect in normal, healthy volunteers. And that led us to really be advocates. Geoffrey was the big advocate for taking 5619 into ADHD. And he was able - along with the rest of the team, able to persuade AZ that we should take a look, we should develop 5619 more broadly. And we're just delighted that AZ has recognized that and has embraced it wholeheartedly and it was the result of the amendment to our agreement.

And, Bret, this is Alan. AstraZeneca actually has intentions to develop for the ADHD marketplace as the whole, so they're not limiting themselves only to adult ADHD, although there will be more near-term studies that are planned.

Okay, so the - it's not really signaling any flaw on the front, on the trials of ADHD front, although I guess you guys would argue that if you had a non-stimulant-like compound that the FDA would be more apt to I guess more comfortable with considering such a drug for children, correct?

Yes, I think clearly, and if you remember, Bret, as we talked about why AZ wanted to wait until the second half of 2010 to get the adult ADHD phase IIb started was that they wanted to get the juvenile toxicology completed and the pediatric assessment done and they've been working through all of that so they could align the development programs of both pediatric and the adult ADHD.

Great. Thanks very much for that information.

Thank you.

(Operator Instructions). Your next question comes from the line of Jon LeCroy with Hapoalim. Please proceed.

Thanks for taking my call. I just had a couple of quick questions on when some of these trials might wrap up, so the 5619, the ADHD trial that you're starting this month, how long is that slated to go, enrollment time, that sort of thing? Also for the 3480 trial slated to end in the second half, is that kind of latter second half, early second half, and then same thing for the -- or I guess you're -- I apologize, you're starting the 3480 trial, but when would that wrap? And then same thing for the 1446 trial?

Jon I think in the 5619 ADHD study, we expect to complete that study by the first quarter of next year.

Okay. And then the 3480 trial, we haven't disclosed when we will complete the ADHD trial with AZ, the one for 3480, but I would say looking at the second half of 2011 is a reasonable time frame.

And then for 1446 kind of third quarter, fourth quarter?

I would - we've just been saying the second half of the year because one of the studies is scheduled to complete near the end of third quarter and the other in fourth quarter, so certainly by fourth quarter we should have results from both of those studies and we'll be working through with AZ what the disclosure looks like around those.

Okay. And then just financial housekeeping, are you still looking for 80 to 90 in operating expenses?

Alan?

Yes, Jon, that's still the guidance and, yes, we haven't made any adjustments to that.

And then you think that'll be lumpy or just increase throughout the year as far as R&D goes?

Well, the 5214 trials that kick off in the middle of the year, we do have the 20% cost shift, so that will drive additional expenses in the second half of the year. So it'll probably be weighted to be more heavy in expense in the second half of the year.

Okay, great. Thanks.

Thanks Jon.

Thanks Jon.

And your next question comes from the line of Alan Carr from Needham & Company. Please proceed.

Hi, good afternoon. Thanks for taking my questions. I missed a good chunk of your prepared remarks. I'm sorry if these were asked. But the first one relates to Seroquel, the approval in Europe as an adjunct for depression or what sort of clarity has that added for you guys? How does that impact your development over there?

Well, as we were doing the licensing deal with AstraZeneca, we were well aware of their efforts with Seroquel XR. And we have - we selected AZ because of their extensive experience, both clinical and [DV], both clinical and regulatory. So this is the - this is something that we were anticipating. And the - and AZ recognizes clearly that Seroquel XR is positioned as third- and fourth-line therapy and they have seen TC-5214 as a clear second-line opportunity because of its safety and tolerability profile.

You have any changes to specific trials that might be needed or any trials actually that you now know that you don't need to do?

No Alan. And I'll let Geoffrey discuss that because that was one of the advantages we had as we interacted with AZ during the negotiation of the deal actually was they had a lot of clarity about how to develop in Europe. So I'll have Geoffrey comment on the elements of that.

Yes, thank you, Don. Well, to let you know, we've already had a very successful meeting with the FDA. They have been very supportive of the program. We have not as yet had a meeting with the EMEA. And so clearly the final program will result following that meeting.

However, because of our interaction with AstraZeneca and knowledge of the area, we do know that there will have to be at least two [perfect] studies. One would be a trial (inaudible) study in the elderly and then another would be a trial to show a relapse-prevention or a randomized withdrawal study.

Okay. And then another question I had was relating to the amendment for 5619. How does that change or does it change the option terms in your deal with AstraZeneca?

Yes, Alan, do you want to comment on that?

Yes. Hey Alan. What it does provide is for AstraZeneca to make their licensing decision upon the first POC, positive POC outcome, irregardless of indication. So the way the clinical trials read out is going to be that CDS could be first, followed by ADHD. And then we're in the process of doing preparatory work to allow development in Alzheimer's disease. So if one of the two reads out and is positive, that will provide AstraZeneca the need to make their licensing decision at that time.

So if the first one isn't successful, they can - the option lasts until the second or third one, so there's one positive one and is that right?

Yes, it basically plays out as the trials do, so that - and they could obviously license it. If the first two were negative and they - the work, enabling work in AD is completed, they could choose to license it or they could choose to fund an Alzheimer's trial. If they fund and develop this for Alzheimer's, the option holds in place until that Alzheimer's trial completes.

Does the fee around exercising that option change with this amendment?

It - the fee for - they've basically got option exercise fee of $30 million irregardless of at what time they would exercise.

So that stays the same?

Right.

Okay, great, thanks. Appreciate it.

Thanks Alan.

There are no further questions at this time. I will now turn the call over to Dr. Donald deBethizy for closing remarks.

Thank you, Jennifer. Again, thank you for joining us today and we look forward to speaking with you again soon. Take care.

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