Cassava Sciences Inc (SAVA) 2014 Q1 法說會逐字稿

Greetings and welcome to the Pain Therapeutics first-quarter 2014 financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Peter Roddy, Vice President and Chief Financial Officer of Pain Therapeutics. Thank you, Mr. Roddy, you may begin.

Thank you and welcome to our Q1 earnings call. We're glad you are with us today. I'm here with Remi Barbier, Chairman, President and CEO. On this call, after the traditional reminder regarding forward-looking statements, I'll touch on some of the financial highlights of the first quarter. Then Remi will provide an update on the business and then we'll have time for questions from call participants. So first a reminder for you all about forward-looking statements.

During the course of this call we will make forward-looking statements about some of our product candidates and our finances. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those in our forward-looking statements. Further information regarding these and other risks are included in our annual report on Form 10-K and other SEC filings.

Now for some brief comments on the financial highlights for the first quarter. Cash at March 31, 2014 was $47.1 million. We used $2.7 million in the first quarter. You may recall our guidance for cash usage for 2014 is approximately $12 million and that translates to about four years worth of cash.

During the first quarter we increased our R&D spending in focused third-party activities on our early-stage assets, up to $2.1 million in the first quarter of 2014 compared to $1.2 million in the first quarter of 2013. Otherwise, our other spending was in line with the first quarter of 2013 and our recent quarters.

On a more mundane note, we had during the first quarter and early in the second some insider stock option exercise activity and we expect to see other insiders exercising options in the coming months. Some of these option exercises were so-called net exercises. Given how net exercises are reported to the SEC, people might confuse net exercises with sales of stock. They are not.

To be clear, there have been no insider sales in PTI stock and we aren't aware of any plans of insiders to do so. Remi will take it from here.

Okay, thank you Pete. To just reiterate that last point, no selling by insiders despite what one might read on the Internet. What I'd like to do is a brief review of the Company and especially REMOXY, where we are and where we're going and then open it up for a Q&A session.

And before going through a brief review I'd like to remind our investors and anyone who's on the line why we have been incognito for I would say about 2, 2.5 years. Basically in the past 2.5 years or so our partner with REMOXY, which is Pfizer, they would not publicly commit to whether or not they would in fact move forward with REMOXY. All of that changed in October of last year, October 2013.

On October 23, Pfizer put out a standalone press release with regards to REMOXY basically saying that CNC difficulties and challenges were all met. Pfizer is moving full speed ahead with the refiling of REMOXY.

So basically at the end of October we got the green light to go ahead and tell our story. And since then we've been telling our story with gusto to a large number of institutional and individual investors. So that's really what's changed in the past few months and why we're doing these earnings calls and why we intend to continue the earnings calls.

We have also been invited to a number of healthcare -- Wall Street healthcare conferences. I don't have the list in front of me. I know we'll be in Las Vegas at the Merrill Lynch conference, the Jefferies one in June or July and I think another one.

And in addition, as I've been telling our investors, the plan is to roughly do one deal -- non-deal road show per month. We've been doing this pretty much since January and we've had tremendous reception. I would say, gosh, probably we've met with, I don't know, probably 30 -- 20 to 30 different accounts every month since January. And like I said, we're getting a very good reception.

But the take-home message from investors, especially the large institutional healthcare investors, is they just don't know who we are. They vaguely have heard of REMOXY or they vaguely remember PTIE, but they don't have the story current. It's not on the radar. And this is why one of our distinct outreach strategies has been and is, and will remain, to do one non-deal road show per month.

So with that little intro let me talk about Pain Therapeutics and where we are. So, our lead compound is called REMOXY. We believe it represents what we're calling the next generation of use resistance. REMOXY met all of the Phase 3 efficacy study endpoints under special protocol assessment. We have never had any problems with [pharm tox] or really with clinical efficacy.

And we also believe that REMOXY has the potential to target a very large market. Depending on who you believe, it is either $2 billion or $3 billion in size. If you split the trends you can it $2 billion, $2.5 billion with favorable demographics being a pain product that typically targets the elderly.

But it's not just about having the right drug. It's about having the right drug with the right partner and the right economics and I believe we have all three. Of course, Pfizer is our partner on REMOXY and our deal economics is such that our net royalty to Pain Therapeutics starts at 15%. And after a cumulative $1 billion of sales, it jumps up. There is a onetime cliff up to 20% royalty on net sales in the US and stays at the 20% rate through patent expiration.

So again, the theme here is right drug, right partner and certainly right economics.

So what is REMOXY? Again, it's a rather unique and extended release formulation of oxycodone targeted for patients who suffer from moderate to severe chronic pain -- typically pain of some sort associated with osteoarthritic conditions.

We also have a pipeline, but because we're really spending a lot of our time telling the REMOXY story, I would rather not talk too much about the pipeline and perhaps leave that for the Q&A.

Our partnership with Pfizer has been a very rewarding one. To date we have received $185 million in cash milestone payments from the partnership. That's a lot of money especially for a small company.

We are also entitled to receive another $15 million cash milestone payment on approval of REMOXY. Pfizer pays for all of R&D and commercial expenses related to REMOXY. And essentially we get -- upon approval then we get the 15% to 20% royalty on net sales in the US. Ex-US the royalty is a flat 10%.

The pain market is very, very large and we probably don't have time and you probably don't have interest on this phone call to walk through all the details, but essentially it's a very large market, very complex market with many different silos I call them. Silos in the sense of whether it's cancer-related pain or orthopedic pain or mild pain or post-op pain, what have you.

And if you look at the actual consumption of opioids, the global consumption of opioids in the past 20, 30 years, it has skyrocketed. Mostly in North America and a lot of that has to do with, thank goodness, better education on the part of physicians and prescribers and nurses on how to treat pain, but also just sheer demographics. As the population gets older there's more exposure to chronic conditions that require pain management, especially opioids.

However, and this is a big however, there is also a dark side to opioids and it's called misuse. Broadly speaking it falls into the category of prescription drug abuse and you can Google it, opioid misuse or prescription drug abuse. It's a massive, massive problem and it has been for about 15 years. And it's not getting any better.

I would say at this point that the regulators are fully committed to some sort of solution for opioid misuse. Whether it's the FDA, the CDC, FBI or even the White House, I think just about every government -- not every government agency, but many government agencies and certainly many of the regulators around description drugs have a plan or a statement on how to come up with a solution.

Our solution is to -- or has been to develop a formulation of oxycodone that is very difficult to defeat under common, street methods of abuse. And notice I'm not saying abuse proof. I'm saying common methods of abuse. And depending on how you count, there are roughly 6 to 9 methods.

If you break it up with a fine tooth comb, we break it up into about nine different methods: vaporization, dissolution, freezing, snorting, microwave, chewing, crushing, injecting and grinding. I got them right. And what we've done with REMOXY is come up with a formulation that is intended to resist all of these common methods of abuse.

Again, not abuse proof and we're not making any type of medical claim here, we're simply saying that REMOXY -- we engineered REMOXY to resist common routes of formulation abuse. And by doing this, we think that REMOXY has a chance at changing, really completely changing for that matter, the market dynamics by introducing a gold standard of abuse resistance.

I should add on that note that when we first talked to Wall Street and our investors about abuse resistance, I want to say this was maybe 12, 13 years ago, the reaction was very negative. Basically many people told us no can do. We shouldn't be working on it, it's not invented, that type of thing. Fortunately for us we kind of followed our track and we have come up with what we believe to be a gold standard of abuse resistance.

However, since then it would seem to me that just about everyone and his brother is coming up with claims to abuse resistance. I think this may turn out to be a problem certainly for investors because at this point I think there's almost as excessive number of companies going around saying we have abuse resistant formulations.

In fact, last Wednesday -- or in any case on April 30, the US Senate held a meeting on prescription drug abuse and it was a meeting between Senators and officials, top officials from FDA and DEA, and part of the meeting -- I've got part of script in front of me. I just want to point out a couple things that the FDA has said.

And I quote, the current state of abuse deterrent technology is still in its infancy. That's a very, very important statement and we wholly subscribe to that statement. We think REMOXY can change the way that statement is phrased.

The other thing that the FDA is asking for is what they're calling a signed space comprehensive strategy. Again, this plays in very well into the strength of REMOXY.

The third point, the third take-home point from this US Senate meeting is, and here I quote, the FDA should swiftly to remove any older, less safe versions. That is a very important point to us because it is our belief that with the right data the FDA will only allow certain formulations of opioids on the market, i.e., those formulations that present the best shot at abuse resistance. In other words, the most robust formulations.

Okay, don't want to take too, too long on the background, but essentially I think, as many know, we have missed our -- we've gotten two complete responses on REMOXY, both centered on manufacturing issues. And again, at this point Pfizer -- back in October 22, 2013, Pfizer announced that they've achieved technical milestones related to manufacturing. And essentially all systems go for REMOXY.

So what happens between now and refiling the NDA? Pfizer is guiding towards a mid 2015 refiling of the FDA. We think that's entirely realistic. May even be a -- may even happen a little bit before that, but we're sticking to a mid 2015 refiling. And between now and then there are a number of PK studies and likeability studies and so forth.

All of these studies, by the way, are in clintrials.gov. So I'm not going to waste your time. You can track them for yourself. We think that most of these studies will be completed pretty much by the end of the summer followed by a few months of refiling the NDA, or repackaging the NDA I should say. And then it's off to the races. And again, on approval we, Pain Therapeutics, receives $15 million of cash milestone payments.

Let's see, the other thing to say is I've gotten a number of emails and phone calls saying well, are they ahead or are there any delays? Pfizer has asked us not to comment on the day to day aspects of the REMOXY story and so -- Pfizer is a very important partner, as you might imagine so we will respect their wishes. I can say that I'm not aware of any delays nor are we ahead of schedule. I think we are right on schedule, perfectly on schedule.

Pretty much that kind of sums it up on the REMOXY front. Again, in our minds REMOXY is a well partnered asset with a 15% to 20% royalty, targeting a very large $2 billion to $3 billion market.

Switching gears a little bit, again I said I wouldn't talk about the pipeline, but just want to give everyone a heads up that we are going through kind of a lengthy, strategic review of all of our drug assets in our portfolio.

We have not committed -- I want to repeat, we have not committed to developing hydromorphone or any other abuse resistance opioids. We've spent some money on hydromorphone and some money on other things, but we haven't made the big commitment and will not essentially until our Board meeting in June and also until our IP, intellectual property, is in place for some new assets which we expect to announce sometime within the next one to two quarters.

The other questions I've had have to do around positioning for the Company and really kind of what's the long-term vision for Pain Therapeutics.

And I would say the long-term vision for REMOXY, I've been very consistent about this, is we are positioning the Company for profitability based on the economics and the sheer market size of REMOXY. Again, 15% to 20% royalty net to Pain Therapeutics on potentially a very large -- potentially a blockbuster drug. We think that provides very compelling investment opportunity for investors and certainly it compels us to shoot for profitability.

Last thing to say before we turn it over for Q&A is I am well aware that our website is out of date. Some have been -- some have called it an antique and it's properly accurate. We're working on a new website, give us a little bit of time. With that, probably would like to turn it over to Q&A.

(Operator Instructions). Mark Spiegel, Stanphyl Capital.

Hi, thanks for taking my call. I've been trying to figure out the ramifications of Teva having won that patent case over Purdue in January.

And what I'm wondering is if in fact Purdue's tamperproof technology is not patentable -- or I should say abuse resistant technology, even if it's not as good as yours, what's to stop both Teva and then a whole bunch of follow-on generics coming onto the market with their own versions of OxyContin? And then Pfizer saying hey, this is no longer a branded drug that we're going to do $500 million or $1 billion a year with. It's going to be a generic that does $150 million and just dropping it. So you've obviously heard this question before. How do you respond to that?

Yes, we've heard this question before and we've responded consistently. What I'm hearing is about two or three different questions embedded. First off, litigation IP is very complex and I'm not qualified to comment on who does what to whom and why and who's justified. But, a couple of things.

If you take your worst-case scenario, which I guess you fall into that camp, keep in mind that when opioids go public, go generic, it's not like a small molecule. A small molecule, the market will shrink by 80%, 90%. Not so with opioids.

With opioids, markets typically shrink by 30%, 40%, going to 50%. And that's because there are a lot of regulations around opioids. It is essentially an oligopoly market. You can't just have 100 different players jump in the way you might fall in with a small molecule, so that is point number one.

Point number two, there has been a [Bayer] case against opioids since about 1930 when oxycodone was invented. And I think time and time again has shown that if you have the right formulation and you have the right IP and you really have a leading edge drug based on science, there is a large substantial, profitable market for appropriately selling and prescribing opioids.

Third thing is -- again, what I was saying earlier, what I tried to communicate to you is that there is a lot of confusion these days around the term abuse resistance. What does it mean? And I would say that the 12 or 15 or how many companies that have suddenly jumped into the game to them abuse resistance means being able to knock out one, two, maybe three methods, common methods of abuse. That is not the game that we play.

Our approach is based on a -- again, a science-based formulation that attempts to prevent all the common forms of formulation abuse, all nine common forms of abuse. That's the key difference between REMOXY and what everyone else has.

So, we know that Purdue's drug obviously is on the market and it's been approved. And I heard what you said earlier about the Senate hearing. You seem to be implying it's possible that the FDA would remove abuse resistant drugs that aren't as abuse resistant as yours and I guess that's conceivable if that's one of the things you're saying.

And then my question is, how do you prove that without a head-to-head trial? You know, a head-to-head -- and maybe you do it. A head-to-head [liking] study showing yours is less liked by the addicts.

Yes, I think you're absolutely right. And here I quote, the FDA -- this is a letter from Senator something or other to FDA -- actually from two senators to FDA. It says quote, the FDA should act swiftly to remove any older, less safe versions. And by the way, this comment or this request by the US Senate is very consistent with the written guidance to industry put out by the analgesic division of the FDA.

Basically I believe the strategy, the regulatory strategy is to always raise the bar for abuse resistance but never go back in time. Never lower it. So every new generation or every new product, opioid formulation, in my mind has to be at least as abuse resistant as what's already on the market. You cannot go back, you can only go forward. That's a very powerful statement in favor, we believe, in favor of REMOXY.

Okay, last question. Have you or Pfizer considered running a head-to-head study against the tamper/abuse resistant form of OxyContin that's currently on the market?

Stay tuned.

Okay, thank you. Thanks for taking all those questions.

[Hubert Huhn], private investor.

Hi, my question is -- I just wondered (inaudible) if I missed it because I got dropped on the call earlier. I was wondering, the trial that REMOXY was going through was supposed to be four sets of trials which one was supposed to be I believe completed in April and three in June. What are the statuses of those?

Again, if you go -- I don't want to take up the group's time with published information, but if you go to clintrails.gov, that information is pretty much updated and widely available to anyone with access to the Internet.

So again, we can spend 20 minutes going through the status, but I will say that we're not -- we talk to Pfizer all the time. And perhaps I should have started by saying this. We communicate with them all the time. We receive, Pain Therapeutics, receives all of Pfizer's regulatory letters, any written communication between Pfizer and the FDA with regards to REMOXY of course we get a copy of.

So we feel we're very much in the know with what's going on. Again, I personally talk to Pfizer all the time and vice versa. As far as I can tell there are no delays. Nothing is ahead of schedule, nothing is behind schedule, we're right on track. I think the guidance for a mid-2015 refiling is imminently doable. That pretty much sums it up. And the rest is just an awful lot of details.

Now, what are the chances of, let's say the trials and everything are completed due June of 2014, of refiling sooner if not fast tracking it, if that's a possibility?

Oh, it's possible, but I think, again, we have a very good relationship with Pfizer. We'd like to keep it that way. So I don't want to steal any thunder or whatever the expression is. If Pfizer is saying mid-2015 refiling, mid-2015, I think for practical purposes we should stick with that. Will they be? Could be. But as far as I'm concerned I'm sticking to what Pfizer is publicly saying.

Okay. Thank you very much for taking my questions. Thank you.

Michael Beatty, private investor.

Thanks for taking the call guys. Just due to the abundant liquidity and private equity opportunities available out there, would you guys entertain or has there or are you able to comment about the possibility of any private equity sale of the firm or at least of that particular patent?

I mean it's a fascinating question because the foundation of your question is that in some way, in some fashion PTIE is undervalued. I will not comment. As CEO of the Company I'm not going to comment, I'm not going to go there and I cannot go there. But it's a fair point.

I will say that unlike a lot of companies in our space, we have the liquidity, we have the financial strength and, more importantly, we have the discipline to remain as a standalone company for as long as it takes. I think that's a luxury that other companies and even some of our suppliers don't really have.

But to make the leap from there to some sort of private equity buyout or whatever you want to call it, I'll tell you my standard line which is we're a public company, it is a Board manner. Make us an offer.

Got you. Thank you.

(Operator Instructions). Kevin Kedra, Gabelli.

Hi, guys. Just wanted to clarify something -- a comment you made that (technical difficulty) a lot of the data from Pfizer could play out over the summer. And I was just wondering is that timeline based on direct communications with Pfizer? Is that basically working off of what we see on the clintrails.gov site?

Again, I want to emphasize that we are constant -- I am constantly in touch with Pfizer. The relationship, the REMOXY relationship is really between Pain Therapeutics and Pfizer, that is it. Everything else is peripheral. So to that extent we are privy to all of the regulatory correspondence, to all the phone calls, the written communications. And they've been a very good partner in that respect. So a little bit of both, Kevin.

Okay. And the four studies that are listed, is that sort of everything that's needed now for REMOXY at this point? Or there are other studies that need to still be initiated at some point?

Again, I want to stick to what Pfizer has publicly announced. And I think for practical purposes the idea that the NDA will be refiled within three or four quarters, I think really that's kind of the take-home message here. The second take-home message is that I'm not aware of any delays nor are we ahead of schedule. We're right on schedule. No challenges, nothing really to communicate that would upset a refiling for next, what is it, three or four quarters.

Okay. And then just a question maybe for Pete. You mentioned that the $47 million or so of cash is about four year?s worth of cash. And I know that's the case at the current burn rate. Is that just basically extrapolating the current burn rate? Or do you actually anticipate over the next few years keeping the burn relatively flat compared to what it is now?

We're very focused on our cash. And it's both keeping control over the balance of -- our balance sheet, keeping it strong so that we can see our way through.

Pete is really kind of the wing nut on our finances here and he really keeps us in great shape. From my perspective the 4 to 5 years of finance of balance sheet, that's kind of assuming kind of a scorched earth vision. A more realistic vision is that this year our burn rate is, whatever, $10 million, $11 million, $12 million. Next year we've got a $12 million cash milestone payment.

$15 million.

I'm sorry, $15 million. Thank you. $15 million, so that kind of neutralizes our burn. And the following year it's off to the races with an approval in hand and the launch of the drug.

Our overhead is very focused, very low. The approval of REMOXY and the royalties from the sales of REMOXY will fundamentally transform the business.

All right, thanks.

And to be cleared, Kevin, again I repeat, and I think you have I may have talked about this some time ago -- the vision at Pain Therapeutics, the long-term vision is to be a profitable company. So we're not one of these companies that every time we have $1 we're going to spend $1.50. Not at all.

Drew Hayworth, Madison Street Partners.

Hi Remi, how are you? Quick question, just can you add any questions on the feedback you've been getting from your new institutional investors that you've a meeting with, the 20 or 30 road shows since January, I think it is? The reason I ask is we have not seen any new filings of any new owners of the stock. Usually basically the top 10, 15 shareholders are roughly the same.

Yes, great question Drew. My take is that first of all the biotech index and the biotech -- what's the right word -- kind of biotech investors in general are under severe pressure.

As you know, a lot of investors kind of thought into these highfalutin biotech IPOs in the past 12 months, some of which clearly were overvalued. Some of which may have been undervalued. But there are a couple in particular that were overvalued. Those have come home to roost. And so, I think a lot of biotech investors are under pressure to kind of reduce some of their exposure to at least a concept -- some of the concept stories out there.

On the other hand, when it comes to Pain Therapeutics, I think the appeal that we hold is that, number one, we have a real drug; number two, with a real partner; and three, real economics. And we have a stable financial situation. We don't need to raise money. That's a rare combination.

Whether it is IPOs or biotech companies that have been around through 15 years, in the emerging biotech scene that's a fairly uncommon situation. There have been a lot of requests for us to sell shares and I always listen, but we're not going to sell shares at these evaluations, that would be absurd.

That would be absurd.

The thing the -- the feedback that I get consistently and especially from the large institutional investors that we're targeting is the lack of liquidity, which is true. And also the fact that at the end of the day our stock trades between $5.00 and $6.00 and many of these institutions can't or don't want to hold a $5.00 stock.

So between being a single-digit stock and the liquidity, I think a lot of these larger funds -- we're on the radar screen, but I think not many of them are waiting for either the NDA to be filed or the actual approval before jumping in with both feet.

In the meantime -- in the interim what I've have noticed is that a number of them have bought small positions, just kind of put their toe in the water, just to keep track. So long way of saying, I would suspect that in the next 12 months, 12 to 18 months, I think you're going to see a pretty large turnover in (inaudible) PTIE as far as institutional investors.

Okay. Well, I think you're right. As soon as Pfizer files or refiles the NDA the stock will pop and people will come in. You almost don't need to wait for an actual approval because Pfizer is not going to resubmit an NDA without it having being absolutely perfect.

At this time I'll turn the floor back to management for closing comments.

Thank you, everyone, for participating in our earnings call and we'll look forward to seeing you either on the road or at one of the healthcare conferences or via a phone call.

Thanks, everyone.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.