Gyre Therapeutics Inc (GYRE) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2011 Targacept earnings conference call. My name is Brian and I will be your operator on today's call. At this time all attendee lines are muted and are in listen-only mode, and we will be facilitating a question-and-answer session at the end of today's call. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

At this time I would now like to introduce to you Mr. Alan Musso, Senior Vice President, Finance and Administration, and Chief Financial Officer. Please proceed, sir.

Thank you, Brian, and good afternoon, everyone. Don deBethizy, Targacept's President and CEO, and Dr. Geoffrey Dunbar, Targacept's Senior Vice President, Clinical Development and Regulatory Affairs and Chief Medical Officer, are also here with me today.

Before we get started I would like to remind you that our comments today may include 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 conditions, including for any of our product candidates, the design, scope, or other details of clinical trials; the timing for initiation or completion of or availability of results from clinical trials; or for submission or approval of regulatory filings; target indications or commercial opportunities; as well as any payments we may receive from AstraZeneca; our cash runway; revenues or expenses; or any other matter that is not a historical fact. Actual results may differ materially from those expressed or implied by any forward-looking statement 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 in 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 statements. Also, any forward-looking statement that we make speaks only as of today and should not be relied upon as representing our views as of any future date. We disclaim any obligation to update any forward-looking statement except as required by applicable law.

We are going to begin today with our financial results for the second quarter of 2011, which were released earlier today. Let me take just a few minutes to review the results with you, and then I will turn the call over to Don for some remarks.

We ended the second quarter with a balance of over $290 million in cash, cash equivalents, and investments. We had a net loss of $2.3 million for the quarter and net income of $10.3 million 2011 year-to-date, compared to net income of $3.8 million and $10.6 million for the corresponding 2010 periods. The net loss for the quarter and lower net income for the six-month period were due primarily to higher research and development expenses, with that increase driven principally by our 20% cost share on the TC-5214 Phase 3 program.

In the second quarter, we completed an underwritten public stock offering which generated $80.8 million of net proceeds to Targacept. As a result, we are updating our financial guidance; and we now expect that our cash, cash equivalents, and investments balance at the end of 2011 will be at least $230 million and our current cash resources will be sufficient to meet our operating requirements through at least the end of 2014.

This guidance does not include amounts that we could receive if milestone events are achieved under our collaboration agreements with AstraZeneca. We are not making any adjustment to our previously announced guidance for expected net operating revenues or expected operating expenses for 2011.

With that, I will turn the call over to Don.

Thanks, Alan, and good afternoon, everyone. First, as an overarching comment, let me say that we are committed to improving patients' lives through the development of a pipeline of innovative NNR therapeutics to treat diseases and disorders of the nervous system. Quality execution and careful resource management across all of our programs remain our priority.

With that background, I will share with you some of the progress we have made in the first half of 2011. Let me start with a brief update on TC-5619. 5619 is one of two internally developed, wholly owned alpha7 NNR modulators that we have in mid-stage clinical development, making us uniquely positioned to capitalize on the breadth of potential therapeutic applications of compounds that can affect alpha7 subtypes.

Following the encouraging findings on negative symptoms in cognitive dysfunction and schizophrenia from a previous Phase 2 trial of 5619, we are actively preparing for a Phase 2b study with the goal of reinforcing and building upon these results. As we plan for the next study in schizophrenia, we have interacted with the FDA and a number of recognized experts in the field, and have used these discussions to guide our clinical trial planning.

We expect to initiate the study not later than in the first quarter of 2012. While getting the schizophrenia trial up and running is our first priority for 5619, we continue to believe that it can also be beneficial for other indications.

Our recent financing has provided us with additional capital to support development of 5619 in schizophrenia and potentially Alzheimer's disease and/or ADHD, while maintaining a strong balance sheet. We look forward to advancing this promising compound and further validating its value proposition.

Our other internally developed wholly-owned alpha7 modulator is TC-6987, which is in development to treat inflammatory disorders, a new area for us and a broadening of our therapeutic focus into the peripheral nervous system.

We are currently conducting two separate Phase 2 learning studies, one in asthma and one in type 2 diabetes, that are designed to help guide the selection of the optimal indications for later-stage development.

At this point we are behind our original enrollment target and do not anticipate that we will be able to meet our goal of having these studies completed by year-end. We have taken various measures designed to increase enrollment rates for these studies and expect to be able to provide updated target completion dates in the coming months. We remain enthusiastic about the value of these trials and the science supporting the role of alpha7 in modulating the cytokine response relevant to multiple debilitating conditions.

Our product candidates for cognitive disorders include the alpha4beta2 NNR modulators, AZD3480 and AZD1446, which are subject to our cognitive disorders agreement with AstraZeneca. Regarding 3480 we successfully utilized the FDA's Special Protocol Assessment process to confirm our planned Phase 2b in Alzheimer's disease as a potential registration trial, and are progressing towards the expected initiation of the study later this year, pending approval from applicable European regulatory authorities.

We are entitled to receive an additional $5.7 million in payments from AstraZeneca in connection with the Alzheimer's trial, which would offset a significant portion of the costs. In addition, we expect AstraZeneca will be making advancement decisions regarding additional development of 3480 in ADHD and 1446 in Alzheimer's disease later in the second half of 2011.

Finally, let me update you on TC-5214, our Phase 3 product candidate as an adjunct treatment for major depressive disorder. We continue to work closely with AstraZeneca and its CRO Quintiles to progress the RENAISSANCE Program, a multi-study, global campaign designed to support the filing of a New Drug Application with the FDA planned for the second half of 2012.

Thanks to the efforts and dedication of the team, we have seen a tremendous amount of progress in this program. I am pleased to report that we have now completed enrollment in both RENAISSANCE 3, the global flexible dose study, and RENAISSANCE 2, the flex dose study in the US and India.

Importantly, we continue to expect to deliver the first top-line results from the program for RENAISSANCE 3 in the fourth quarter of this year, with the remainder of the RENAISSANCE studies projected to read out through the first half of next year. We also continue to expect the filing of an NDA with the FDA in the second half of 2012.

As a quick reference aid on the RENAISSANCE Program, we have created a summary table that aligns the various studies with the clinicaltrials.gov identifier. The table is available on the 5214 page on our website, and we hope that it will help you as you evaluate the trials.

Now let me close by saying that the next 12 months will be exciting and potentially transformational for all of us at Targacept. With our unparalleled expertise in the NNR field, we have built a pipeline of innovative NNR therapeutics aimed at addressing some of the world's most difficult-to-treat diseases and disorders.

With encouraging Phase 2 clinical findings suggesting 5214 and 5619 are potential psychiatry products, the Phase 3 program for 5214 progressing towards completion, and 5619 representing just one of two unpartnered alpha7 targeted compounds that set us up to capitalize on the broad role of this subtype, we believe we are very well positioned and will remain focused on quality execution across all of our programs. With that, we will open it up to questions.

(Operator Instructions) Alan Carr, Needham & Company.

Hi, thanks for taking my question. I wanted to ask a few about 5619. So it sounds like you got all the information you need from FDA and consultants for a schizophrenia trial.

Yes.

Do you have a -- is it going to be a SANS endpoint? And can you give us an estimate of what this one is going to cost?

Well, I can talk a little bit about where we've -- we are still in the process of finalizing the protocol, but we have got most of the input we need. We have gone through quite a bit of internal process trying to make sure we take all of the learning from the Phase 2 trial that we have run.

Our data really emphasize the fact that we should put -- use SANS and negative symptoms as the primary endpoint; and then use cognition as a key secondary endpoint. And with that, I will turn it over to Geoffrey just to give you a little more color on this trial.

Yes, well, basically as Don says, we are going to use the SANS as the primary outcome measure. SANS is the symptoms -- assessing negative symptoms. We are going to use a measure of cognitive function as a key secondary. And also a measure of functionality, UPR S2.

The study will be conducted in primarily Eastern Europe, but there will be a number of US sites. The cost is -- we don't fully know that at the moment. We are in the process of recruiting or reviewing a number of CROs who will take responsibility for their clinical operation. And of course, we won't know the costs until that decision has been made.

Still in the what, $10 million to $15 million range, I think is what you guys had given before?

I think that's reasonable, a reasonable estimate. It has been the numbers -- the range that we have been using for budgeting purposes. But hopefully we can bring it down some from that.

Then another aspect of 5619. You mentioned ADHD and Alzheimer's. My recollection was that this -- the results from your exploratory trial in ADHD didn't look particularly promising. Are you having a change of mind here?

Well, you know, like everything, once you spend some time with the data -- and it was pretty obvious to me from the get-go. We missed the primary endpoint as we defined it, the Connors ADHD rating scale.

But we had -- we reported, when we reported that trial out, that we had cognitive activity. And it was pretty obvious that we had drug-like activity.

The question for us is -- did we have sufficient activity to merit further work in the area? And our conclusion is that we do.

We have a fairly strong signal in the inattentive types. And we have -- our translational medicine group has been very active in modeling the pharmacokinetic and pharmacodynamic relationship.

We are all pretty excited about it, actually. I think it really -- at a minimum it provides corroborating evidence for the cognitive activity of this molecule and reinforces the attentional signal we saw in Phase 1 in healthy normals.

It is consistent with the cognitive improvement that we have seen in the schizophrenia patient. I think that we are making sure that people recognize -- our investors recognize -- that it looks like there is an opportunity in ADHD. We are going to be working diligently on that and then reporting back to you as we get more information.

Geoffrey, anything to add to that?

No, I think that that is right. As you know, we are obliged to report results of our trials very quickly. And typically with all data sets you need time to interrogate it. As Don says, with further interrogation, looking at the data in different ways, and particularly with the PK/PD modeling we feel much more strongly about the signals from that trial than we did initially.

Okay. Thanks very much.

Robyn Karnauskas, Deutsche Bank.

Hi, guys. Thanks for taking my question. So we are getting close, and I am very excited for all of you for the data coming out in the fourth quarter.

I was just wondering if maybe you can just comment a little bit about your relationship with Astra. There were changes at Astra in the R&D division, and now you are upcoming with the data.

I was just wondering if maybe you can comment a little bit about -- how has your relationship been? How has it changed? Is there any change as far as like strategy or focus when the data comes out?

Then maybe how do we -- what can we expect as far as how much data will be released in a press release? Thank you.

Yes, thanks, Robyn. Let me start with the relationship with AstraZeneca. I have to say that it couldn't be better. We have an outstanding relationship with AstraZeneca. Everything during our partnering discussion there was -- we had the sense that AstraZeneca was going to be the best partner because they would involve us. We had built trust with them over time, so they knew our capability.

But I have to say that they have exceeded our expectations with how deeply embedded our people have been involved in all of the aspects of this Phase 3 program. And that it is really gratifying.

In fact, a little testimonial to that is I did a testimonial for them on a video they did for their venture capital and partnering efforts, just advocating AstraZeneca as a partner. So it has been on every level that we have been deeply involved, respected, been able to give our biotech and the knowledge that we have around 5214.

In some areas we were able to help lead the efforts in the beginning of the transition and tech transfer. So I have to say it has gone very well.

And the learning that we had around our clinical trials in depression and augmentation have been well received. Then the learnings that they had from their augmentation work with Seroquel have been incredibly valuable to us.

They are a powerhouse in the market and have been with Seroquel. So we are very excited about this.

I think we have really focused hard on the execution of this global trial. It is not a small program, and it has -- and I have to say that Quintiles has done an outstanding job for us.

So, I think that -- I am glad you asked the question, because my view was going from a Targacept-run Phase 2b in depression with 5214, to a triumvirate, if you will, running a global program, I thought that was where we placed a lot of emphasis. With Geoffrey's work and a number of other people, we have really made great progress.

The testimony is the fact that these trails are enrolling at the rate we needed them to, to meet the aggressive NDA filing period of the second half of 2012. Everything is on track, and you couldn't ask for any more than that.

Now to your question about data. We have built into the program a system, and AZ has a fantastic system for sequestering the team, giving them time with the data, getting the data sets all scrubbed and prepared. And we are confident that with the experience we had with 5214 in Phase 2b, their experience with Seroquel in augmentation that -- I know, Geoffrey, you have talked about the fact that we will have a lot ready to go.

So when we present it will be top-line data, naturally. But the plan is to make sure we understand the data well, so that we can communicate clearly to investors what the outcomes are.

How much of a time period do you think you will have between the first trial readout and the second trial readout?

We're -- you know, the guidance we have been -- that we are on track for it is, once REN 3 reads out that the rest of the trials will read out in a three- to five-month period. So we haven't -- we want to leave ourselves that room in there right now, as the trials are in the execution phase.

So we might be able to refine that as we get closer. But right now they will come now in the three- to five-month time frame after the first trial comes out.

I guess last question on 5619, even though they didn't opt in, how aware are they in your program? Have they had any discussions regarding -- have you -- I mean how, I guess, aware of the rest of the Company is AstraZeneca regarding like your development plans for those products?

Well, they are pretty aware of -- they have just conducted a pretty thorough due diligence on 5619 and they were very conscientious about that. They really like the molecule.

We enjoyed that process. We didn't learn anything new that we didn't already know.

It is the first Phase 2 program in schizophrenia and ADHD. We understand the limitations of the first trial; but we also saw the value in it, and they saw the value. For internal reasons, they made the decision not to license.

Then the other programs that we have been deeply involved with since the end of 2005 is the alpha4beta2 program. So they know AZD3480 very well, AZD1446, and the other compounds -- preclinical compounds that came out from the research collab -- we had a four-year research collaboration with them.

So they know Pentad. They know our research capability and our discovery capability. They know our development capability well.

I don't think they are quite as familiar with 6987 and the inflammation program. Then the programs that had been partnered with GSK that we now wholly own -- Parkinson's and addiction and some of those programs -- they are probably not as familiar with.

Last question; I'll just slip this in. Do you plan on going into a quiet period at a certain time frame ahead of the data when you know the data is coming out?

Yes. We are going to be evaluating that as we get closer to the data and thinking through what is the best strategy for that. We haven't made a predetermined decision that we are going to have to do that; but it's certainly something that we will be considering.

Okay, great. Thanks so much.

(Operator Instructions) Kim Lee, Global Hunter Securities.

Good afternoon. My questions are around the AZD3480 program. As you had said in your prepared remarks, that you are utilizing the FDA process to plan these trials. Does that mean that you are going to pursue an SPA then for this program?

Also, is it possible that this Phase 2b would be considered a pivotal study?

Yes. The answer is yes, but I will let Geoffrey just talk a little bit about that.

Well, there is not -- I have not a lot to add. The SPA process went very, very smoothly. The agency has bought into it, and we are tooling up to start that trial.

And it would be considered a registration trial. So it's -- we want to make sure that we give 3480 a good chance of demonstrating its value. It will be -- we will have donepezil in that trial as well, so we will know how it works compared to the gold standard now.

As you know, with AstraZeneca we ran a previous trial, Phase 2b trial, in Alzheimer's disease. We have an inconclusive outcome because Aricept didn't separate from placebo -- and neither did 3480 -- because we believe the trial was too short that we had allowed patients with too high of an MMSE in that trial.

But when we did post-hoc analysis -- that was a trial with 465 Alzheimer's patients. I know from the post-hoc analysis there were about 25 patients that had -- that were too mild of a patient really to have been included in that trial. So when they were eliminated from the data set we actually had a significant difference on ADAS-Cog with 3480. Aricept was trending; it wasn't significant, but it was trending.

So it was those data, along with the fact that in our Phase 2 in age-associated memory impairment in 193 subjects we hit all three primary endpoints in that including attention, episodic memory, and subject global improvement. So it is that body of work that really shows the cognitive-enhancing potential of the compound.

We want to make sure it gets a shot in a clinical trial. This will be a one-year trial, and we will have -- we will certainly get placebo decline during that period of time. It will be very interesting to see how 3480 does against donepezil.

Great. How many additional studies do you think you will need, if any, to gain approval?

Well, I think we certainly will have to have an additional study. But we have a pretty significant safety database now, because we have been in 1,500 patients or subjects. Not all of them on drug, but Geoffrey, you might --?

Yes. No, actually, I would just agree with that. We have got a whole bunch of safety data already in the bag. So with a positive trial against donepezil, then we just would think about a second study, which could be possibly an augmentation. And with those two trials head-to-head and an augmentation study against placebo, we would be in very good shape to file an NDA, expecting to get dual labeling.

Okay. Great. Considering you have had some SPA discussions, give us a little more detail about what you anticipate this trial looking like, the trial design basically (technical difficulty) one year and comparing to donepezil. Anything else you can tell us about that?

I think we should probably wait until we do our full disclosure around the protocol and everything. We wanted to -- on this call it's make sure we kept -- because we had been guiding that we would start this trial in the second half of 2011.

And we wanted to just show -- we wanted to make sure everybody knew that we had made quite a bit of progress, had gotten interaction with the FDA. We are moving forward.

And then when we get started, we will be laying out the protocol more specifically. Kim, we will be able to get into more and people will be able to assess that more directly.

Understood. One last question for Alan. Looking at the R&D expenses for this quarter, it was quite a bit lower than Q1. What do you think is a good base to go off of for Q3 and onward?

Yes, well, we have issued our guidance for the operating expenses for the year. We have estimated that our full 2011 operating expenses will be in the range of $105 million to $115 million.

We expect that the G&A run rate will be fairly consistent in the second half of the year as it was to the first. So I think that will give you some idea as to what we are looking at for R&D expense in the second half.

Okay, so are you anticipating -- it seems like from my estimates that R&D would ramp up in the second half of this year and, I assume, because of the additional trials you are going to be running in the second half of this year?

That's correct, yes. The RENAISSANCE Program will continue in very high activity mode. We will be ramping up with the 3480 trial in Alzheimer's disease; continuing to execute the program on 6987; and then readying 5619 for the schizophrenia trial and maybe doing some additional translational work there.

You know, one thing Kim, Alan just reminded me when he mentioned 3480 again, I just wanted to remind everyone that we only have the right to conduct this AD trial with AstraZeneca. So the forward -- the planning if we are successful with this Alzheimer's trial with 3480, we'll obviously be in discussions with our partner AstraZeneca about what the next steps would be.

We have been in discussions with them as we prepared for this trial. But it will depend on the outcome and the data, and then we will then work with them to design the rest of the Phase 3 program.

Okay. If I remember correctly, AstraZeneca was going to have go/no-go decision on this Alzheimer's trial. It sounds like they are moving forward with it with you, as long as you are paying for the trial. And then depending on the results they will, I guess, again partner with you for the rest of the program?

Well, they -- we have -- they still have the license to 3480. So what we have done is we have been the advocate for moving forward in AD. We worked an arrangement out with them where we have some milestones totaling $5.7 million that will come to us, which will pay for a significant portion of the trial.

And then -- so we are conducting this trial, and this pass-through monies will pay for a large part of it. Then at the end of the trial what we hope is that 3480 will show its stuff, and demonstrate the efficacy that we have believed in for a long time, and reaffirm the placebo-like side effects that we have seen.

Then we will be interacting with AZ then, and AZ will have the responsibility of deciding whether -- of how it should move forward. So we are excited about that AstraZeneca saw the value in us being able to do this and the willingness to do it and helped fund it.

So it is a really great place to be with 3480. We have believed in this molecule for a long time. I know our teams are excited about doing it, and we are hopeful that by doing a one-year trial and using more moderate patients -- more severe patients than we used in the original trial -- that we should be able to show that a nicotinic, an alpha4beta2 nicotinic can outperform a cholinesterase inhibitor.

Great. Thanks.

Joel Sendek, Lazard Capital Markets.

Hi, thanks. I got on the call late, sorry if you have talked about this already. I wanted to ask about 6987, and the reason for the delays, and what the contingency plans are. I don't know if you can give us a little bit more detail on that.

Sure. I will start. In a general sense, we had very aggressive protocols with trying to control as many variables as possible, which has turned out to be making it very difficult to get the enrollment rates. We have had more stringent criteria than almost anybody running these kinds of trials.

So as we have interacted with thought leaders and looked at the hurdles we were putting in front of our CRO, I think the team realized that we could -- that some protocol amendments would make recruiting much more straightforward. So those are the kinds of things that we are looking at.

We just had a debate about whether we would guide when we would get them done. We are optimistic about getting them done pretty quickly now. But we wanted to make sure that we had some time to look at the enrollment rates.

Remember, this is the first time as a team we have gone outside of the nervous system disorders; and part of that is some learning on our part. But I think we are pretty confident at this point that we can deliver both these trials. Geoffrey, do you have any --?

No. I mean the two approaches for turning a situation around is, one, as Don has mentioned, easing the entry criteria in the protocol. And the second has been, as is often the case in clinical trials, you select your sites and you never know a priori who are going to perform and who won't perform.

We have had a bunch of sites that haven't performed very well. So we are now -- I was going to say in the process, but we are through the process actually of getting rid of the poor sites and replacing them with more productive units.

Great. Thanks a lot.

Jon LeCroy, MKM.

Thanks for taking my call. Most of my stuff has been answered. But on 1446, I think Astra was waiting on the results of a pharmacodynamic study. Is that still the case? You have any timing on when that may be finished?

Well, I know that they have completed most of the studies that they wanted to do, and they are in the process of evaluating that. I also know that we have been waiting for the end of the vacation season to get some dates on the calendar where some of those decisions can be made.

So we are well into it now. I think the people have most of the data that they want to.

We have been working. We have been invited to participate in that assessment, and also to comment on the data, and to help put the arguments together of why we should move forward. So we have been actively involved in that.

So I think that is moving forward nicely. I don't what the outcome will be yet, but we will keep you posted.

Okay, thanks.

Ladies and gentlemen, there appear to be no further questions in the queue at this time. Therefore I will turn the call back over to Mr. Don deBethizy for any closing remarks.

Thank you, Brian. I want to thank everybody for taking the time. I know it has been a busy day and a busy week for everybody.

I just want to reiterate that we are all excited about what is coming and very excited about having the sustainable pipeline that we have, and feel blessed that we were able to discover the second psychiatry product in 5619. So now we have very -- we have strong data in depression in psychiatry and we think that those two potential products will form the basis for us moving forward. And then the additional programs that we have will continue to provide opportunities for the Company. So thank you very much. Goodnight.

Ladies and gentlemen, that concludes today's conference call. You may now disconnect your lines and have a nice day.