Gyre Therapeutics Inc (GYRE) 2010 Q2 法說會逐字稿

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

I would now like to turn the call over to Mr. Alan Musso, Senior Vice President, Finance and Administration and Chief Financial Officer. Please proceed.

Thank you, Keisha, and good afternoon everyone.

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 that we may receive, the periods that our cash resources will be sufficient to fund our operations, or our plans, expectations, or future operations, financial 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, CLINICAL Development and Regulatory Affairs, and our Chief Medical Officer, is also here with Alan and me today.

This afternoon we issued a press release announcing our second quarter financial results, recent highlights, and program updates. We will spend a few minutes reviewing the quarter and then we'll welcome your questions.

Let me begin with an update on our Depression program. In June, we and AstraZeneca announced the enrollment of the first patient in the phase III clinical development program for TC-5214, a nicotinic channel blocker. The phase III program, referred to as the Renaissance program, is designed to support the planned second half of 2012 filing of a new drug application with the FDA for TC-5214 as an adjunct treatment for major depressive disorder, or MDD. In patients who do not respond adequately to first-line therapy with a selective serotonin re-uptake inhibitor or serotonin--norepinephrine reuptake inhibitor. Filing of a marketing authorization application in Europe is planned for 2014.

We and AstraZeneca have designed the Renaissance program to include two fixed dose phase III studies and two flexible dose phase III studies, as well as a long-term safety study in which patients would receive TC-5214 or placebo for up to one year. Three of the five studies in the Renaissance program have initiated, with the other two expected to initiate later this year.

In addition to the TC-5214 program, Targacept has three diverse product candidates in phase II development for cognitive disorders, where there remains substantial unmet medical need. Let me start with an update on our alpha 7 modulator, TC-5619, which is now being studied in separate phase II clinical proof-of-concept trials in cognitive dysfunction and schizophrenia and adults with ADHD, as well as additional studies to enable potential future phase II development in Alzheimer's disease.

The ADHD study, which is being conducted at approximately 16 sites in the US, was initiated in the second quarter and is enrolling ahead of projection. We now expect that the results from that study will be available in the first quarter of 2011.

The cognitive dysfunction and schizophrenia study, which began at the end of last year, is well underway at approximately 15 sites in the US and India. We had previously expected this study to complete by the end of this year, but due to a longer-than-anticipated regulatory process in India we are now anticipating that this study will also complete in the first quarter of 2011.

Our cognitive disorders program also includes two alpha 4 beta 2 NNR modulators, AZD3480 and AZD1446, both subject to our 2005 agreement with AstraZeneca. AstraZeneca is continuing to assess AZD3480, a non-stimulant, in non-clinical studies designed to support further development across the broad ADHD patient population. If AstraZeneca determines that AZD3480 is suitable for advancement as an ADHD therapy, we expect the next trial would be a phase IIb clinical trial in adults with ADHD, and would initiate in the first quarter of 2011. AZD1446 is the most advanced compound that arose from our now completed pre-clinical research collaboration with AstraZeneca. A number of clinical trials are underway with this product candidate, including a safety and tolerability study as an add-on treatment to Donepezil in patients with Alzheimer's disease, and a phase II study in adults with ADHD. We expect both of these studies to complete in the second half of this year.

Before I turn the call over to Alan, I'd like to take a few moments to talk about our Inflammatory Disorders program. There has been a multitude of publications by our scientists and others, which present the mechanistic basis for the alpha 7 nicotinic receptor as a therapeutic target for a wide variety of conditions where inflammation is a key component. That scientific rationale, together with publications describing positive outcomes for compounds selective for alpha 7 in a variety of pre-clinical models of inflammation, provides compelling support for the promise of NNR therapeutics in this area.

Earlier this week we were pleased to announce an addition to our Inflammatory Disorders program, with the [in-]license of NNR-based patents in a library of pre-clinical compounds from Cornerstone Therapeutics. This technology arose from work done at the Feinstein Institute for Medical Research, led by Kevin J. Tracey. Dr. Tracey is a recognized expert in the field of inflammation and has published extensively on the potential utility of alpha 7 as a therapeutic target. As I have said many times, NNRs are unique in the breadth and diversity of their potential therapeutic application, and we look forward to expanding our work in inflammatory disorders.

Turning to our lead product candidate in this area, TC-6987, which was discovered by Targacept scientists utilizing Pentad and is currently progressing through a phase I multiple rising dose trial, which we expect to conclude in the coming weeks. Later this year we anticipate settling on the initial target indications for future development of TC-6987, and we expect that we will be able to initiate the first phase II study in the fourth quarter of this year.

In summary, I am very pleased with the breadth of opportunity in our pipeline. In these challenging economic times, we will continue to prudently manage our resources as we work to exploit the tremendous potential of NNR therapeutics to build health and restore independence for patients. And with that, I'll turn the call over to Alan to review our financial results.

Thank you, Don. We are well capitalized as we enter the second half of 2010, with $283.7 million in cash, cash equivalents, and investments at June 30th. As Don mentioned, capital efficiency and prudent management of our expenses remain priorities for us as we continue to invest in our pipeline. We continue to expect that our current cash resources will allow us to execute our business plan and meet our operating needs through at least the end of 2013.

Turning to our operating results, we had net income of $3.8 million for the second quarter of 2010, and $10.6 million year to date. This compares to a net loss of $9.7 million and $14.3 million for the corresponding 2009 period. The net income positions for the 2010 periods were due primarily to recognition of deferred revenue from the $200 million upfront payment that we received from AstraZeneca at the beginning of this year. That payment is being recognized into revenue over the estimated period to NDA filing for TC-5214, and accounted for revenue of $18.1 million for the second quarter and $36 million year to date.

Operating expenses for 2010 were $15.9 million for the second quarter and $28.4 million for the year to date. This compares to $12.7 million and $23.9 million for the corresponding 2009 periods. The increase in operating expenses was due primarily to higher research and development expenses of $3.1 million for the second quarter and $4.2 million year to date. We continue to expect research and development expenses to increase for future 2010 periods, principally due to our 20% cost sharing for the TC-5214 phase III programs and planned investments for the development of our clinical product candidates TC-5619 and TC-6987.

And now, let me turn the call back over to Don.

Thank you, Alan. In closing, I want to take just a moment to recognize where we are as a company. Ten years ago this month, Targacept became an independent company. In those 10 years, we've worked hard to leverage our unmatched experience and expertise, and in our research to become an established leader in the development of NNR therapeutics to treat a broad range of diseases and disorders. We could not have reached the 10-year milestone without the efforts of our talented employees and the support of our investors, collaborators, and other stakeholders. So I just want to thank you.

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

(Operator Instructions). Your first question comes from the line of Alan Carr with Needham and Company. Please proceed.

Hey, good afternoon, thanks for taking my question. I'm sorry, I missed a part of your commentary, but around 3480, can you comment on the status of that drug? It seems a bit delayed.

It is delayed somewhat from what we've talked about before, and it's related to the fact that AZ is working through the assessment of the therapeutic index for its application in ADHD, which is a younger population than we had worked with before in the elderly. So they're working through that right now, and that's taken them some additional time, and so we've projected that if they decide to move that compound forward, it'll be in early 2011.

So you had done some work on adult ADHD, and so right now AstraZeneca is exploring in a pre-clinical forum here whether or not this would be suitable for pediatric, is that right?

That's correct.

And then also, timing around 1446, I think you've said consistently the second half of 2010 for both of those, but my recollection is that one might come a little bit earlier than the other, maybe the September October timeframe? Are you able to narrow that down yet?

No, I think we just are comfortable because we're working with AZ and working through the data with them when those data come. We've just given ourselves some room and that's why we're specifying the timeframe that we have.

Okay. Thanks very much.

You bet, thanks Alan.

Your next question comes from the line of Bret Holley with Oppenheimer. Please proceed.

Hi there, it's actually Matt Lowe in for Bret today. I was just wondering when could we see efficacy data potentially for 1446 in Alzheimer's, and I guess could you try and quantify the level of efficacy maybe that Astra is hoping to achieve in terms of ADAS-Cog versus Aricept?

You know these are early phase II studies and they're intended to -- in the Alzheimer's patients to be safety studies, so Geoffrey, do you want to comment on that?

Yes, I will, Don. You're absolutely right, these are safety trials. The one you're talking about, the Donepezil, is a safety study. It's actually an augmentation or an interaction trial with Donepezil in anticipation for possible future trials as augmentation. So there won't actually be any comparative data with Donepezil coming out of that early phase II trial.

And the timeframe is not suitable for getting an ADAS-Cog measurement, so I think we and AZ are looking for some sort of cognitive signal out of that trial just to give us some indication that would help us with dosing moving forward.

Okay, that's great, thank you very much.

You're welcome.

Your next question comes from the line of Josh Schwimmer with Leerink. Please proceed.

Hi, thanks so much for taking the question. I'm not sure if either of these have been answered, but first on the CDS market, can you help us understand the prevalence of cognitive dysfunction in schizophrenia, about what percent of patients do you envision would require that kind of therapeutic product? And my second question is on 3480 and what are the ongoing non-clinical studies that need to be completed before moving into phase IIb, what remains to be addressed there? Thanks.

Well let's talk first, Alan do you want to comment on the market on CDS?

Yes. The estimates are that about 75% of subjects with schizophrenia suffer from cognitive deficits or dysfunction, and to date there have been no therapies that have been successfully developed and approved for that indication. The indication has received attention based on a panel that was put together by the National Institutes of Mental Health, where it was identified that that was probably the biggest unmet need for schizophrenic patients, and secondly that the alpha 7 mechanism was thought to be the most promising for treating that. So we believe that it does represent a very large unmet need, and feel like the trial that we have designed is well suited to determine if there is a signal in that population because we're using [CogState] executive function as the primary outcome, one that has been over time recognized as probably being the most sensitive and the most relevant for picking up those.

So it's a very large market opportunity. We're excited about the trial we have going, we're looking at it in both smokers and non-smokers, and feel good about those being progressed and anticipate that we'll be able to see those results in the first quarter of next year.

And the second question, Josh, was on 3480?

Yes.

Of course we are required to do the juvenile tox pre-clinical studies to be able to move into the pediatric population, and they're doing additional work to verify the therapeutic index. If you remember about 3480, it's a substrate for cytochrome P450 2D6 so it has plasma variability, and they're working through those data now to determine if it's suitable for ADHD.

Are there other plans for kind of developing around that 2D6 potential interaction with --?

Well, we did that with 1446 actually, so part of the back-up and follow-on program, the four-year research collaboration was, one of the design features was to identify compounds that had similar cognitive improving activity, and without being substrate for 2D6. So we've successfully done that with 1446.

Now 3480 has been in a large number of people, mostly elderly, and so we remain interested as well in its potential for AD, and we're sorting through all of this with AZ right now as they continue to run studies. And so we just pushed the date back on a start of an ADHD trial into the beginning of 2011.

Got it. Thanks very much.

You bet.

(Operator Instructions). Your next question comes from the line of Kim Lee with Global Hunter Securities. Please proceed.

Good afternoon. Can you elaborate on the reason why the TC-5619 data will be out about a quarter later and you had mentioned something about the regulatory [process] in India?

Yes, we have done trials in India before, and the timelines that we provided initially contemplated about an eight-week regulatory approval timeline. And what's happened in India in general for most clinical studies, and there's nothing particular about 5619, that that's been extended to about five months. So isn't that right, Geoffrey, it's about --?

Yes, we were anticipating three months. It's been pushed out to five months. But I would comment that the recruitment is going very well in that trial, and we are retaining, the drop-out rates are much lower than we anticipated. So we're still looking very good for a end of this year, early next year finish, so yes.

Yes, I think we're just giving ourselves some room now for the fact that we used up all of our contingency time by just waiting for the approval process, and we've been pretty aggressive about enrollment. So we feel good about the trial, it's just we want to make sure that people's expectations aren't teed to right at the end of the year.

Okay. And do you expect after phase II data results to initiate a phase III, or would you do an additional phase II?

Well, you know this compound is part of the option mechanism in our 2005 agreement with AZ, and they will have to make a licensing decision and there will probably be an additional phase II, isn't that right Geoffrey?

Yes, I think that's why clearly it will depend on discussions with AstraZeneca, if they take up the option.

Okay.

I think their plan is to do another phase II. Obviously as we look at these data and we try to -- and we make it -- as we work through that, I'm not quite sure what AZ would do at this point. So number one they have to license it, and number two they have to decide. But I do know that their plan all along has been to conduct a larger phase IIb that focuses in on the learning from this phase IIb.

Okay. And can you tell me what gives you comfort of getting positive phase II data out of this? I mean do we -- how are patients in India treated right now for CDS, and are there more naive patients there than there are, say, in the US?

Geoffrey, why don't you address that?

Yes, I mean I think that really, the distance between, I would say little distance between how schizophrenia presents, how the cognitive dysfunction of schizophrenia presents in India compared to the West.

The [basis of their] (inaudible) therapy is going to be very similar. It's going to be standardized. And in this particular trial, the balance between Indian and US patients is going to be more equitable compared to, for example, our earlier trial in depression.

We are able to look at double-blind data, in terms of their cognitive performance, if you like their cognitive deficit at their time of entry into the trial. And remember this is still double-blind, and there seems to be very little difference in the degree of cognitive problems in Indian patients compared to US patients. So we're pretty comfortable with these populations, the US and the Indian are really rather similar.

And you know, the additional confidence that we have is we have strong pre-clinical data in animal models with this compound in cognition. And we also have picked up a cognitive signal in healthy normals in the phase I trial, so we're quite confident that this compound has cognitive activity and we have looked at both smokers and non-smokers in this trial so that we are looking with the presence of nicotine and without the presence of nicotine.

Okay, great. And a question for Alan, can you break down exactly how much of your milestones were revenues and how much were made up of net product trials?

Sure Kim, I can do that in one second, let me just get my notes here. Yes, the revenues were predominantly the recognition of the license fees, and that comprised in the second quarter $20.7 million of the $20.9 million of revenue. The additional $200,000 was grant revenue.

Okay, great, thank you.

You're welcome.

Thanks, Kim.

There are no further questions in queue at this time. I would now like to turn the call back over to Dr. Don deBethizy for any closing remarks.

Thanks Keisha. Well, I just want to thank everybody for taking their time to listen to the call today. We're excited about the progress we've made thus far in 2010, and we're very excited about the investments that we're making in our pipeline in the area of cognition, depression, and this new area of inflammatory disorders.

So thank you very much, and have a good rest of the summer. Take care.

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