IVERIC bio Inc (ISEE) 2014 Q3 法說會逐字稿

Good day and welcome to the Ophthotech Corporation third-quarter 2014 earnings results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kathy Galante. Please go ahead, ma'am.

Good morning and welcome to our third-quarter 2014 earnings call. Joining me today I have Dr. David Guyer, Chief Executive Officer and Chairman of Ophthotech; Dr. Samir Patel, President and Vice Chairman; Mr. Michael Atieh, Executive Vice President and Chief Financial and Business Officer; and Mr. Todd Smith, Senior Vice President and Chief Commercial Officer.

Before we begin, I would like to remind you that today we will be making forward-looking statements relating to the Company's future expectations regarding its financial results, potential receipt of milestone payments, clinical and regulatory development and commercialization plans. These statements constitute forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995.

These statements cover many events and materials that are subject to various risks that could cause the actual results to differ materially from those expressed in any forward-looking statement. I refer you to our SEC filings and in particular, the risk factors section in our quarterly report on Form 10-Q filed on August 6, 2014, for a detailed description of the risk factors affecting our business.

In addition, any forward-looking statements represent our view only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we disclaim any obligation to do so, even if our views change.

I would you now like to turn the call over to David.

Thank you, Kathy, and thank you to everyone for joining us on the call this morning. As we continue to strengthen our management team, I would like to introduce two of our newest members of the senior executive team.

Michael Atieh has joined us as our Executive Vice President, Chief Financial and Business Officer and Treasurer. During his career, Mike has led multiple senior level finance and business teams. At Merck he held various executive positions, including Senior Vice President AT Merck Medco, Treasurer and Vice President, public affairs.

At OSI Pharmaceuticals Mike was the Executive Vice President and Chief Financial Officer. He also has significant commercial, finance and business experience in ophthalmology, having led Eyetech Inc as the Executive Chairman when it became a private company.

Todd Smith joins us as Senior Vice President and Chief Commercial Officer. Todd will be responsible for developing and implementing the Company's commercial strategy and related high-quality infrastructure. As we continue to advance our pipeline and prepare for the potential launch of Fovista, Todd will lead the marketing, market access and sales teams.

In addition to leading successful product launches, Todd's breadth of experience encompasses global marketing as well as strategy and business development. Most recently Todd served as Executive Vice President and Chief Commercial Officer at Horizon Pharma where he launched the Company's pain portfolio.

In addition, he led the sales and marketing activities at Abbott for the virology franchise. Todd has gained experience at a broad spectrum of biotech and pharmaceutical companies which include Bayer, Agouron and Fenwell, Inc in addition to Horizon and Abbott. We are excited to have Mike and Todd join our senior management team and we are confident they will add great value as we continue with our mission to address multiple areas of unmet need in the age-related macular degeneration market.

As announced in our press release this morning, we are pleased to have achieved the final enrollment-based milestone related to the Phase 3 program of our anti-PDGF agent Fovista under the terms of the Company's $125 million royalty finance agreement with Novo A/S, which was entered into in May 2013. This milestone triggers a third and final payment to us of $41.7 million. The funding of this final tranche results in additional royalty interest to Novo based on Fovista sales.

We continue to stay on track with respect to the execution of our pivotal Fovista Phase 3 program, evaluating the safety and efficacy of Fovista administered in combination with anti-VEGF drugs for the treatment of wet AMD. We expect to have initial top-line data from the Phase 3 program available in 2016.

As we prepare for the potential launch of Fovista, we believe that there is a significant worldwide commercial opportunity to address major unmet needs in wet AMD. Accordingly, we have begun to build and invest in our commercial organization and to continue to work closely with Novartis, our ex-US partner.

In September we achieved a $50 million enrollment milestone payment from Novartis as part of our ex-US licensing and commercialization agreement which we entered into in May 2014. This payment was triggered as a result of Ophthotech reaching the initial enrollment goal in the Phase 3 clinical program for Fovista and is the first of a total of $130 million in potential enrollment-based milestones under the agreement.

Ophthotech continues to lead the global Fovista Phase 3 clinical program and has the sole responsibility for the registration of Fovista in the United States, while collaborating with Novartis to seek regulatory approvals outside the US. As an important reminder, our Fovista development strategy remains agnostic with respect to the choice of anti-VEGF agent administered in combination with Fovista.

I will now turn to our Fovista expansion program. In August we initiated the first of several planned Fovista expansion studies.

The expansion studies are designed to further investigate the potential role of Fovista combination therapy in reducing treatment burden, reducing subretinal fibrosis and addressing treatment resistance related to anti-VEGF monotherapy in wet AMD patients. Therefore, our Phase 3 pivotal trials and Fovista expansion studies allow us to leverage the underlying strength of the science related to Fovista to potentially modify the disease and become the foundation therapy for wet AMD.

In addition to expanding our Fovista and Zimura franchises, we are committed to exploring opportunities to address the unmet needs in AMD. Our strategy is to be scientifically driven, evaluate multiple options with limited upfront investment, and obtain early proof of concept validation prior to a larger commitment of our capital.

Today's announcement of an option agreement with AVEO Pharmaceuticals is an example of this strategy. As Samir will discuss shortly, currently a significant unmet need exists in treating wet AMD during the long term, or maintenance phase, of anti-VEGF monotherapy that current anti-VEGF therapies do not address.

To potentially address this unmet need, we have entered into a research and option agreement with AVEO. We plan to explore and investigate the role of this VEGF receptor tyrosine kinase inhibitor in a sustained release formulation administered in combination with Fovista for non-oncological ocular indications.

Under the agreement, Ophthotech is solely responsible for the formulation and development of the compound for non-oncologic ocular indications. The agreement is structured to provide significant optionality, with Ophthotech only making payments after reaching certain key milestones, while retaining total control over the decision to continue any further development.

Under the terms of the agreement, we will pay an upfront fee of $500,000 for exclusive rights to investigate this anti-VEGF compound. Upon the completion of our initial analysis, if we elect to continue the development of on ocular formulation of this anti-VEGF compound, we will pay an additional fee of $2 million upon our submission of an initial new drug application and $6 million upon demonstration of proof of concept in humans.

We also have an exclusive option exercisable at our sole discretion to obtain further development and commercialization rights for non-oncological eye indications outside of Asia. If we elect to exercise our option and choose to further advance the development of this compound, we will pay an option exercise fee of $2 million.

In addition, potential milestone payments may include future clinical and regulatory based milestones of up to $50 million, of which approximately 80% are due upon regulatory approvals, commercial sales-based milestone payments of up to $45 million and royalties on potential product sales. This deal is structured so that in effect as each trigger point is achieved, we will gain more information and knowledge regarding this agent for ocular use in combination with Fovista, therefore allowing us to make an informed decision regarding the benefit relative to the risk profile.

We believe the strategy and deal structure will lead to a higher probability of value creation for our shareholders. With that, I'd like to turn the call over to Samir.

Thank you, David. Good morning and thank you for joining us today. As David mentioned, we are excited to enter into this research and option agreement which allows us to exclusively investigate tivozanib, a VEGF receptor tyrosine kinase inhibitor, for potential treatment of non-oncologic ocular diseases.

The management of wet age-related macular degeneration today typically requires the administration of a monotherapy anti-VEGF regimen for multiple years. All current standard of care anti-VEGF agents are roughly equivalent with respect to their benefit relative to safety. In addition, multiple studies confirm that on average, over the longer term anti-VEGF monotherapy for wet AMD does not result in improvement of visual outcome, with many patients continuing to experience further visual loss in the real world.

We believe that a comprehensive solution to meet the current unmet need for wet AMD includes enhancing visual outcome during the acute phase of therapy and also reducing treatment burden and visual loss during the maintenance phase. Ophthotech's Phase 3 program is designed to investigate the potential of Fovista in combination with anti-VEGF, in combination with current standard of care anti-VEGF agents, to demonstrate improvement in visual outcome relative to monotherapy anti-VEGF administration.

If successful, these Phase 3 trials should address the unmet need of enhanced visual outcome during the acute phase of wet AMD therapies. The Fovista expansion studies will investigate the potential of Fovista combination therapy to address the additional unmet need of treatment burden and longer-term visual loss during the maintenance phase of treatment.

The rationale of Fovista expansion trials is based on the retrospective subgroup data analysis from our 449-patient randomized controlled Phase 2b Fovista combination therapy trial. Retrospective subgroup analysis from this trial suggests that compared to anti-VEGF monotherapy, Fovista combination therapy may result in reducing neovascular size and subretinal fibrosis. We believe that reduction in neovascular size via Fovista combination therapy may reduce treatment burden, and in addition of subretinal fibrosis, may translate into reduction of longer-term visual loss during the maintenance therapy.

We consider Fovista to be anti-VEGF agnostic and it can be paired with each of the anti-VEGF agents currently used to treat wet AMD, as reflected in the design of our Phase 3 program. However, none of the currently utilized anti-VEGF agents are able to successfully reduce treatment burden through a frequency of administration of every three months or greater without adversely affecting visual outcome.

Therefore, pairing Fovista during the maintenance phase of wet AMD therapy with a sustained release anti-VEGF agent, may potentially extend the dosing regimen to a quarterly treatment regimen or beyond. This would add another potential therapeutic regimen to address the treatment burden via Fovista combination therapy.

Tivozanib is a vascular endothelial growth factor tyrosine kinase inhibitor designed to potentially block the VEGF signaling pathway. In addition to its small molecule properties, we believe its high potency, selectivity and relatively long half life for a molecule within this class, are important properties for the development of a sustained release formulation for maintenance therapy.

This agreement continues our quest to develop multiple and flexible therapeutic options. In addition, this agreement may provide the opportunity to expand into other non-oncologic ocular indications, such as diabetic retinopathy.

We continue to evaluate optimal anti-VEGF strategies, technologies and targets that are complementary to Fovista. We look forward to keeping you informed as this program moves forward.

Looking forward to 2015, we are also excited about our planned Phase 2/3 trial of Zimura to treat geographic atrophy, a dry form of age-related macular degeneration. GA is a very pronounced unmet medical need in the AMD space, as there is currently no FDA-approved treatment for dry AMD.

Zimura inhibits the complement protein C5, a central component of the complement cascade. I will now turn the call over to Mike.

Thank you, Samir. Let me start by saying it has been a pleasure working with the Ophthotech team since I joined on September 30. I also look forward to meeting many of our shareholders and research analysts over the coming months.

Here is a brief update on our results of operations for the third quarter and our cash position. Revenue was $39.6 million for the three and nine months ended 2014 and related to the $50 million enrollment-based milestone that was achieved in September 2014.

The balance of the milestone payment was recorded as deferred revenue. As a reminder, the Company did not have revenue during the comparable periods in 2013.

Research and development expenses were $17.1 million for the three months ended September 30, 2014, compared to $11.1 million for the same period in 2013. R&D expenses were $66.2 million for the nine months ended September 30, 2014, compared to $17.8 million for the same period in 2013.

The increased research and development expense in each of the three and nine months ended September 30, 2014 relates primarily to our Fovista Phase 3 clinical program, including clinical trial costs and the cost to manufacture Fovista for the trial and increased compensation expenses associated with additional research and development staffing. Also contributing to the increase during the nine months ended September 30, 2014 was a milestone payment of $19.8 million that we made to a third-party licenser in June 2014, in connection with entering into the Novartis agreement.

General and administrative expenses were $8.8 million for the three months ended September 30, 2014, compared to $4.2 million for the same period in 2013. G&A expenses were $22.7 million for the nine months ended September 30, 2014, compared to $9.1 million for the same period in 2013. The increased general and administrative expense in each of the three and nine months ended September 30, 2014 relates primarily to an increase in costs to support our public company infrastructure, including additional management, corporate staffing, professional services and consulting fees, increased share-based compensation and costs related to an executive retirement and other one-time post-employment costs.

The Company reported net income for the three months ended September 30, 2014 of $10.9 million, or $0.31 per diluted share, compared to a net loss of $18.4 million, or $10.26 per diluted share, for the same period in 2013. The Company reported a net loss for the nine months ended September 30, 2014 of $62.3 million, or $1.88 per diluted share, compared to a net loss of $36.6 million, or $23.21 per diluted share, for the same period in 2013.

Now turning to the balance sheet. Cash, cash equivalents and marketable securities totaled $409 million at September 30, 2014, compared to $211 million at December 31, 2013. And now I will turn the call over to David.

Thank you, Mike. Before turning the call back over to the operator for questions, I would like to acknowledge the completion of our first full year as a public company. In September 2013, we closed our initial public offering and began trading on the NASDAQ market.

Today we continue to advance the Company with our Phase 3 Fovista program, the initiation of our Fovista expansion programs, and continuing development of Zimura, our complement program. In addition, we achieved another major milestone this year by entering into an ex-US licensing and commercialization agreement with Novartis, the leader in ophthalmic pharmaceuticals worldwide.

As part of our business development strategy, today's exclusive research and option agreement provides an opportunity to expand our research efforts in AMD and other ocular diseases. Furthermore, we continue to strengthen our team with experienced senior management executives that have successful track records in the development and commercialization of ophthalmology products.

We are well positioned to bring our clinical programs forward. We have a strong capital base, which we intend to effectively manage by investing in our promising product portfolio.

We look forward to providing you with updates as our programs progress. Thank you for your time this morning and for your continued support. I will now turn the call over to the operator to open the lines for any questions.

Thank you.

(Operator Instructions)

We'll take our first question from Yigal Nochomovitz with Oppenheimer.

Hi, good morning. Thanks for taking the questions. David, just one clarifying one first on the enrollment milestones.

The $41.7 million from Novo, is that tied to the same enrollment trends as that you received for the Novartis milestone last quarter? Or is it different?

Hi, Yigal, it's Mike Atieh. No, this is different. This is the final enrollment milestone related to the Novo agreement. And the Novartis, obviously, milestone is something completely different under the Novartis agreement.

Okay. And then on the AVEO agreement, I'm trying to get a better understanding of the strategic thinking there. It seems like a bit of a departure from where you're going with Fovista and being VEGF agnostic.

I'm just curious, is there something specific about tivo, as a small molecule versus an antibody, that may make tivo more amenable to possible co-formulation approaches? Thanks.

Good morning, Yigal, this is Samir. We're very much anti-VEGF agnostic. I think it's very much consistent, also, with how we've thought about this space.

All the current anti-VEGF agents do a terrific job in reducing and permeability alterations and are ideally suited to be paired with Fovista during the acute phase, or induction phase if you will, to achieve enhanced visual outcome. And that component has not changed and is being studied in our Phase 3 trials.

But as we look in an anti-VEGF agnostic fashion, how to address a disease that we all know requires multiple years of therapy, we certainly see that patients, on average, lose vision. Again, if we think about that in an anti-VEGF agnostic fashion and ask ourselves the question, what's behind the reduction of visual loss with current anti-VEGF agents?

I think most end-reduction treatment burden. And I think most individuals will agree that the reduction in vision loss is because of some combination of atrophy, fibrosis and growth of lesions. Treatment burden, it's been elusive for all the anti-VEGF agents currently to go past or increase the frequency past quarterly regimen.

So why is that? One of the reasons, we believe, is potentially that the biologic agents tend to have marked sensitivity, or conformational sensitivity, and also tend to be larger. So the ideal molecules for anti-VEGF would be amenable to a sustained delivery. We think that small molecules that one can conjugate with either polymers or use additional technologies, they're much more flexible.

When we have the opportunity of investigating a very potent one at that, with a longer half life, so if we were able to combine Fovista with an anti-VEGF agent that allows sustained delivery, just like all the current anti-VEGF agents are being looked at, I believe, for sustained delivery. So the concept is very much consistent with our being anti-VEGF agnostic to go ahead and address the unmet need in the maintenance space. Does that clarify your question?

Yes, great. Do you know, did AVEO ever look at anything in ophthalmology? Did they ever do any preliminary pre-clinical work even just to see if there's a potency against retinal diseases?

I'm not quite sure if it was AVEO, but I can tell you that there has been a pulse there at ARVO where tivozanib was looked at in choroidal neovascularization. It potently inhibited not only choroidal neovascularization, but caused regression of linear vascularization.

Okay, great. And then one final question on the Phase 3 for Fovista. Given that you're moving ahead with the enrollment, I'm wondering if you could potentially, at this point, narrow down the top-line data timing, even something like one half versus two half 2016 as we get closer to 2015? Thanks.

No, we've said we're on track and as before that there will be data in 2016 but we have not narrowed at this point.

Okay, thanks, David.

And we'll take our next question from Joseph Schwartz with Leerink Partners.

Great, thanks very much. Congratulations on the start of your first expansion studies. I wanted to ask, since clinicaltrials.gov just lists safety as the primary outcome, but I know you'll be looking at things like subretinal fibrosis, what kinds of technology you'll be using to measure and quantify that.

And then also, the arms on the clinicaltrials.gov lists a pre-treatment as well as a simultaneous treatment regimen. So I was wondering if you could talk a little bit about that.

Sure, this is Samir, good morning. So in connection to fibrosis and how it's evaluated and graded, recently at the American Academy of Ophthalmology, a subgroup analysis of fibrosis in a grading scheme where the severity of fibrosis was graded on fundus photographs by a massed independent reader, graded it from grade zero to grade four progressive fibrosis and that's one way to do it.

What I think it's important to realize at the outset is, it's fairly easy to note fibrosis on a fundus photograph. I don't think most physicians would disagree with that.

However, there hasn't been an established format or standardization for fibrosis grading in a quantitative fashion. That being said, I think most would agree that it's very easy to look at severe fibrosis, moderate fibrosis and minimal fibrosis. That's been quantified in the reader who presented our data.

So for this particular study in question you're talking about, we will continue to use that grading system. But we're also looking at some newer modalities that are out with the OCT that also looks at reflectivity of this fibrous component.

We're working with the reading centers to set up an algorithm that would capture this but it has not been validated to date. In closing, fibrosis, the presence or absence, is relatively easy and most physicians would not debate with any ambiguity whether it's present or not.

Thanks for that. And then the two treatment strategies, either pre-treatment or simultaneously administered, what does that represent?

Okay, sure. So -- and I'm sorry, you did ask that. If you look at the CAT paper that came out showed that patients who were treated with anti-VEGF therapy developed fibrosis roughly at about a rate of 33%, 32% or 33%, at first year and roughly about 40% in the second year.

And if you look at the odds ratio on patients, all the risk factors that led to development of that fibrosis and, interestingly, the presence of neovascularization and its components on OCT, known as subretinal hyper-reflective material, was strongly associated with emergence of fibrosis. In our trial we're looking at the regimen, as in the Phase 3, of simultaneous administration of anti-VEGF, anti-PDGF, to go ahead and confirm our findings in the Phase 2 trial, that the combination had reduction of subretinal fibrosis.

In addition, we're looking at pre-treatment, whether that can enhance the anti-fibrotic effect. That is based on the concept that if you were to strip parasites via pre-treatment, anti-VEGF administration itself has been now shown convincingly to increase and up-regulate PDGF.

So if you're pre-treating and preventing that up-regulation, then that might lead to enhanced new vascular regression, further reduction in subretinal hyper-reflective material. And may translate into an enhanced anti-fibrotic effect.

We're just trying to optimize the regimen in a more controlled trial downstream and understand if that results in enhanced anti-fibrosis. Hope that's clear, but I'm happy to answer follow-on questions.

Very helpful, thanks.

(Operator Instructions)

We'll go next to Terence Flynn with Goldman Sachs.

Hi, this is Irene in for Terence. Thanks for taking the question. Can you give us any more insight on the potential royalty that you might owe AVEO?

Yes, it's Mike Atieh. The royalty rates vary. They're tiered and they essentially start in the low double-digits and end in the mid teens.

Thank you. Can you update your thoughts on bringing forward the co-formulation of Fovista with an anti-VEGF?

I'm sorry, we missed the end of the question. It broke up a little bit. Can you repeat that?

Sure. Your thoughts on bringing forward the co-formulation of Fovista with an anti-VEGF.

Irene, are you referring to co-formulation as in the context of current anti-VEGFs? Or in the context of the tivozanib?

Really both.

Okay, so our position on that has not changed. At the end, it is about nothing but meeting the unmet need in the acute and maintenance phase of therapy, and what exact combination and what exact regimen ideally results in improvement of enhanced vision and reduction of treatment burden and visual loss.

If that means that administration of the anti-VEGF agent regimen and anti-PGDF need to be decoupled, as we are studying in our Fovista expansion study, then co-formulation doesn't make much sense. Secondly, in a setting where chronic suppression and sustained suppression of anti-VEGF leads to maximal improvement, then in that setting you'd administer anti-PDGF Fovista and you'd have a sustained release in the maintenance phase.

In the setting where the anti-fibrosis is demonstrated later on to be independent of the anti-VEGF effect, and given the new data that's been coming out from both IVAN and from CAT and recently Harvard as well, suggesting that increased exposure to anti-VEGF leads to more atrophy of the macula, and reduction of visual outcome is associated with atrophy, it wouldn't make much sense to have a co-formulated setting in that situation when there are no permeability dealteration. The other end of the spectrum, if we have permeability dealterations, that is leakage, and the patients continue to require the anti-VEGF component, and every time you inject anti-VEGF, PDGF up-regulates. There a combination and simultaneous administration would make sense and a co-formulation would certainly make sense.

As far as our development strategy is concerned, we're looking at co-formulation with all anti-VEGF agents we've looked at in the past. We continue to evaluate it now for its merit moving forward.

But I think in summary, what we've tried to say from inception is identifying the ideal regimen to reduce the treatment burden, reduce long-term vision loss and enhance visual outcome, is going to be the most important. That's what will drive the question of co-formulation, and not the simplicity of whether to have a co-formulation or not.

Great, thank you.

We'll go next to Stephen Willey with Stifel.

Sorry about that. Thanks for taking the question. Samir, with respect to tivo, I think it's been speculated that VEGFR-1 plays a little bit of a different role than R-2. I think there's been some speculation that R-1 may be a negative regulator of retinal angiogenesis. Just wondering if you can provide any color around that at all?

So just as a little bit of background -- thank you, Stephen, this is Samir. A little bit of a background. Not only is tivozanib a very potent anti-VEGF agent that inhibits all three receptors of VEGF, but it also has very long half life relatively speaking compared to the other tyrosine kinase inhibitors.

A lot of these drugs, as you know drugs in general, also are able to bind to the melanin in the eye. Really, taken together that micro environment is ideally suited for a sustained release formulation with a small molecule.

And specific to your question on the VEGF receptors, I think the answer is we don't exactly know and cannot make statements of what role each receptor makes in the eye with respect to angiogenesis. I can tell you that there are papers out there that PLGF plays a role in angiogenesis. We also have some studies that I have looked at, that show that blocking the VEGF receptor R-1 can be complementary as well.

But I think at the end, it's all about the specific angiogenesis, the heterogeneity of vessels that are there, the stage-specific evolution of the neovascularization. We simply don't know and we obviously have to do the studies in a broad group of patients to understand that.

Okay. I know tivo binds the receptors pretty tightly, but do you know what the potency of the fold selectivity looks like in terms of the next most potent kinase? I'm trying to get a sense as to how clean it is outside of the VEGFs.

That's a great question. As you know, the tyrosine kinase inhibitors as a general class they tend to have multi-target effects. Within that spectrum that's the really very attractive feature of tivozanib, is it happens to be a very selective one at very low doses. It's able to preferentially inhibit the VEGF component of the receptors.

As I stated, the combination of selectivity, the long half life and the potency is very important. As far as potency relative to other tyrosine kinase inhibitors, I think I'll refrain from giving actual numbers. But I think it's reasonable to state compared to the general categories of other tyrosine kinase inhibitors, its potency is several-fold higher.

So we believe that when you put all that together, we'll be looking at studying this and rapidly bringing it to proof of concept, as David stated. But there is a little upfront spend and hopefully in a structured transaction, we'll try to go ahead and derisk the asset with producing data that are complementary to Fovista.

Okay. And then just a quick one for Mike. I had to hop on a little bit late. The $39 million you recognized in revenue, that's presumably the Novartis enrollment milestone. And then do you recognize the balance of that in 4Q? Or is there some kind of schedule to that?

Exactly, Stephen. There's a schedule to that and it's based on how that payment is broken up based on a collaborative arrangement accounting. So you'll see it roll out as revenue over the course of probably two to five years or so. It's obviously not a lot of revenue. The cash came in the door in October, which was the important part of that.

Okay, thanks.

And that concludes the question-and-answer session. I would now like to turn the conference back over to management for any additional or closing remarks.

I would just like to thank everyone for their support and interest and we'll end the call now. Thank you.

And that concludes today's conference. We thank you for your participation.