Concert Pharmaceuticals, Inc.
Q1 2018 Earnings Call Transcript

Published: 6 May 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Concert Pharmaceuticals First Quarter 2018 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference may be recorded. And I'll turn the conference over to Ms. Justine Koenigsberg, Senior Vice President of Corporate Communications and Investor Relations. Ma'am, you may begin.

[Justine Koenigsberg:]

[Technical Difficulty] prepared remarks are Roger Tung, our President and CEO; Marc Becker, our CFO; and Jim Cassella, our Chief Development Officer. We'll also be joined by Nancy Stuart, our Chief Operating Officer for the Q&A portion of the call. As a reminder, today's discussion will include forward-looking statements about our future expectations, plans and prospects. These statements are subject to risks and uncertainties that may cause the actual results to differ materially from those projected. A description of these risks can be found in our most recent 10-Q filed with the SEC. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call. With that, I would now like to turn the call over to, Roger.

[Roger Tung:]

Thank you, Justine. And good morning. Concert is approaching important milestones in our pipeline development. Where CTP-543, we are roughly now 6 months from top line data for our ongoing trial for alopecia areata. We're also working diligently to bring our new candidate CTP-692 into clinical evaluation before year-end. Both of these proprietary candidates represent novel, distinct pipeline opportunities to address serious and medical needs and each has blockbuster potential. Importantly, 543 and 692 are wholly owned by Concert and each of these are opportunities that we can develop and commercialize in the U.S. on our own. Both compounds are initially being developed in therapeutic areas in which there is limited competition, and we have the great benefit of strong clinical evidence supporting the mechanism of each of our product candidates for those indications. Importantly, there's also a potential for indication expansion with both of these product candidates. Before we move on to a discussion of our progress with 543 and 692 I would like to take the opportunity to note that the potential patient impact and certainly the value of Concert discovered compounds extends far beyond these 2 proprietary candidates. We have developed a productive product engine capable of producing many more exciting clinical candidates and in addition to our proprietary pipeline they're advance candidates that we have licensed or sold that have the potential to provide additional non-diluted upside to Concert. The first of those compounds that I'll highlight is VX-561 previous known as CTP-656. Vertex acquired world-wide rights to this product in July of 2017, resulting in $160 million upfront payment to Concert. We also have the potential to receive an additional $90 million in future potential precommercial milestone. Given strong data in Vertex's Phase II program and their stated interest in developing VX-561 is part of future combination of therapies, we believe we're likely to realize the full-milestone potential under this agreement. A second late stage candidate that has meaningful milestone and royalty potential to Concert is AVP-786. Avanir's Phase III program for AVP-786 in Alzheimer's agitation is underway, and they've indicated the completion of 2 U.S.-based Phase III trials is expected in 2019 both of which are intended to support registration. Alzheimer's agitation represents a blockbuster indication and Avanir has the potential to be first to market with treatment for this large unmet medical need. In addition to regulatory and commercial milestones, Concert is entitled to a mid-single to low double-digit royalty on future sales of AVP-786. With of all these drug candidates moving forward in development, we have broad-based potential to create significant near-term value for Concert. 2018 is an important year for us as part of our ongoing transformation from a technology platform company to a rapidly value-creating enterprise. I'll pause here, and ask Jim to provide an update on our development activities for CTP-543 and CTP-692. And then Mark will review our first quarter financial results, before we open the call for questions.

[James Cassella:]

Thanks, Roger. Let me start with CTP-543. We recently completed enrollment in the 8-milligram BID cohort and are on track to report top line data in the fourth quarter from our Phase IIa trial in patients with moderate to severe alopecia areata, an autoimmune disorder in which the immune system attacks hair follicles resulting in patchy or complete hair loss. As a reminder, CTP-543 is our deuterium-modified analog of ruxolitinib, a Janus kinase inhibitor or JAK inhibitor. Ruxolitinib is commercially available for certain blood disorders, but there's also evidence from academic clinical studies of its effects in treating alopecia areata, for which there is no effective treatment available or FDA approved products today. There is strong patient advocacy amongst the alopecia areata community and this was evidenced by the robust participation and response to the FDA's Patient-Focused Drug Development Initiative in 2017. The patient participation at the FDA's alopecia areata meeting was record-breaking and resulted in a strong unified message to the FDA on the seriousness of the disease and the importance of new drug development. In fact, since this meeting, the FDA summarized and published input shared by patients in a Voice of the Patient report. Furthermore, FDA agrees that this is a serious disease as they granted us fast-track designation for CTP-543. Our ability to quickly enroll the second cohort in our Phase IIa trial further highlights the need and enthusiasm for this development of CTP-543 from dermatologist and patients. This study will provide important information on the efficacy and safety profile of our product candidate. The Phase II trial is designed to evaluate 2 oral doses, 4 milligrams and 8 milligrams of CTP-543 twice daily compared to placebo. If appropriate, we have the potential to amend the protocol to also evaluate a 12-milligram, twice daily dosing regimen. I will now turn briefly to CTP-692. Our deuterium-modified analog of endogenous D-serine, which we are developing as an adjunctive treatment for schizophrenia. Schizophrenia is a prevalent mental disorder that effects about 1% of the worldwide population. While existing medications can often control the positive symptoms associated with the disease, negative symptoms and cognitive dysfunction are generally poorly responsive to current medicines. It is these symptoms that are often associated with poor functional outcome for patients. Unlike currently approved medicines CTP-692 works through the glutamate and NMDA receptor system therefore CTP-692 can be added as an adjunctive therapy onto the patient's existing medications to address this area of high unmet medical need. Studies have shown that patients with schizophrenia have reduced levels of D-serine and the blood and cerebral spinal fluid. Based on documented effects of D-serine in patients with schizophrenia, we believe that CTP-692 has the potential to restore an NMDA receptor activity in key brain areas and improve clinical outcomes. In clinical testing, we show that CTP-692 and D-serine have similar binding and functional activity as the human and NMDA receptor supporting the potential for similar efficacy. We also demonstrated that CTP-692 results in higher exposure than a similar dose of D-serine. Importantly, in our studies in rat, at doses far above those at which D-serine caused kidney dysfunction, 692 was well tolerated with no evidence of nephrotoxicity, demonstrating a clear renal safety advantage for our due rated drug. As a result, we expect that we'll be able to explore higher and potentially more relevant drug exposure in our clinical program with 692 to flesh out the full therapeutic potential of the compound. Again, we believe CTP-692 has the potential to be an important advancement in the treatment of schizophrenia. The Concert team is actively working to move 692 forward to the clinic. We are finishing the necessary [indiscernible] manufacturing and preclinical testing to support advancing CTP-692 in Phase I evaluation by year-end. Our initial Phase I trial will assess the safety, tolerability and pharmacokinetics of single doses of 692 in healthy volunteers, and will be conducted outside of the U.S. in order to jump-start the clinical development program of this important new compound. There's a lot of enthusiasm around the opportunities with CTP-543 and CTP-692. In addition to the CTP-543 Phase IIa readout expected later this year, we're excited to see both of these programs advancing into important efficacy trials in 2019. Each of these drug candidate has the potential to have a meaningful impact on patient struggling with serious diseases, like alopecia areata and schizophrenia. In the future, there's also the potential to expand these programs into additional indications. Key readouts for both programs are on the horizon, and we look forward to keeping you updated on our progress. With that, I'd like to pause here and turn the call over to, Mark.

[Marc Becker:]

Thanks, Jim. As I review our first quarter results please reference the financial tables filed in today's press release. Looking first at revenue. We recognized $10.5 million for the first quarter of 2018. This revenue was driven primarily by noncash consideration received under an agreement with Processa Pharmaceuticals in which we granted Processa an exclusive worldwide license to develop and commercialize CTP-499. Originally developed by a Concert for kidney disease, CTP-499 is a mid-stage clinical candidate that will now be developed by Processa for other indications. Under the agreement Concert received a 5.9% equity position in Processa and is eligible to receive a royalty on net product sales in the 4% to 8% range. Given our historically stated intent not to advance 499 independent of a partner, we are very happy to have CTP-499 advance through this license agreement. Research and development expenses were $8.7 million for the 2018 period compared to $8.2 million in the 2017 period, an increase of $0.5 million. The increase was primarily attributable to the Phase II clinical study for CTP-543, development activities for CTP-692 and noncash stock-based compensation expenses. Cost incurred in the same period in 2017 were driven by development activities for CTP-543 and CTP-656, our candidate for cystic fibrosis, which we sold to Vertex in the third quarter of 2017 under an asset purchase agreement. General and administrative expenses were $5.6 million for the 2018 period compared to a $5.3 million in the 2017 period an increase of $0.3 million. The increase was primarily related to noncash, stock-based compensation expense. Our net loss was $4.5 million or $0.19 per share for the first quarter of 2018 for the corresponding 2017 period our net loss was $13.3 million or $0.60 per share. Finally, we ended the first quarter of 2018 with $191 million in cash, cash equivalents and investments. We continue to anticipate that our cash position will be sufficient to fund the company into 2021 under our current operating plan. This concludes our prepared remarks, and we would be happy to address any questions.

[Operator:]

[Operator Instructions]. And our first question will come from the line of Jeff Hung with UBS.

[Jeffrey Hung:]

Can you talk about your current thoughts for the design of the Phase IIb for CTP-543, anything that's changed in recent months?

[James Cassella:]

Jeff, this is Jim. No, we're still continuing to plan out that trial but we are on track to look at the initiation of that trial next year.

[Jeffrey Hung:]

Great. And then given that your 692 Phase I will be conducted outside of the U.S. Do you expect to have to conduct additional studies or collect additional data before starting Phase II trials in the U.S.?

[James Cassella:]

We'll be starting with our single ascending dose study at the end of this year, our plan is then we'll bring the compound back into the U.S. We'll file an IND and then do our multiple ascending dose trial in healthy volunteers before we get to Phase II, next year.

[Jeffrey Hung:]

Okay. Great. And then last question. Any update on CTP-730 or JZP-386?

[Nancy Stuart:]

Jeff, it's Nancy. As you know on both of those compounds, we took them through Phase I, we showed a nice deuterium effect and then we handed them over to the partners and now they're in the partner's hand.

[Jeffrey Hung:]

So is there any specified time frames in your partnership or they need to decide whether to advance this program?

[Nancy Stuart:]

There really are no specified time frames.

[Operator:]

And the next question will come from the line of Adam Walsh with Stifel.

[Adam Walsh:]

My first one on the PTAB IPR proceeding. Can you just remind us of the timeline to outline those for us and then if it doesn't go your way, what is plan B, what are your options there? That's the first.

[Roger Tung:]

Right. With the IPR proceeding, the PTAB instituted there -- the IPR against us, and we are in the process now of preparing a response to that, that's in the next several months will be filed with PTAB. Then, following that insight we'll have a response in two months to that and there will be oral arguments following that. A final decision will be reached by April of next year.

[Adam Walsh:]

And then Roger, on plan B, what are your options if it doesn't go your way?

[Roger Tung:]

Well, first of all, we feel very confident that it will. We like our arguments, we think we have very strong arguments that weren't significantly considered in the institution. But in general, we think that there will be opportunities to create a significant amount of intellectual property around 543. This is a new compound and a new indication, and we're taking it forward and we'll make -- and are making clinical discoveries around it.

[Adam Walsh:]

And then ironically for 561, the FDA has told Vertex that they see that as a new chemical entity, I know the FDA and the PTAB are different entities but anyway that you get any leverage kind of off the way the agency is looking at these deuterated compounds?

[Roger Tung:]

Yes. Actually, FDA has been very consistent in how they have huge deuterated compounds both in terms of granting orphan disease designation to VX-561 and deutetrabenazine, by the way, as well and in all of our interactions with them. We think that these are differentiated compounds with different clinical aspects to them, and we think that, that differentiation will help to clarify the fact legally that these are distinct entities.

[Adam Walsh:]

And then finally, on both 692 and 543, I noticed a couple of times during presentation this morning, you mentioned that there are additional expansion indications that you might be able to take those into and I think that's interesting from a strategic standpoint because you do get leverage off the earlier clinical studies that you do on the safety side and so forth and be able to kind of rapidly advance those into additional indications. Can you give us a broad sense of what additional indications there are or perhaps even ones that you might be thinking about?

[Roger Tung:]

Great question, Adam. So we're not going to run down specific indications but I think it's fair to say that with 543 our interest is -- has been most in the autoimmune area and that continues to be the case. With 692, this is a neurotransmitter that has been found to be or is believed to be deficient in a number of different neurologic and psychiatric indications and so that would continue to be the area that we would dig into.

[Operator:]

And the next question will come from the line of Konstantinos Aprilakis with JMP Securities.

[Konstantinos Aprilakis:]

This is Konstantine. I was wondering if you could provide a brief overview of the competitive landscape as you see it. That's developing for CTP-543 and alopecia. I'm looking for commentary on inhibitors of the JAK pathway for instance Aclaris has a topical JAK 1/3 inhibitor in Phase II trials for both alopecia areata and androgenetic alopecia and maybe other relevant pathways in active development.

[Roger Tung:]

Sure. Well, regarding the topical development of JAK inhibitor's, we think that there's certainly a place for topical agents, and we expect that if they're effective that they will get used although clearly not to the exclusion of oral agents, which we believe will have better efficacy. The day that it's been published to [indiscernible] on both tofacitinib and ruxolitinib strongly suggests that systematic administration will be more effective. The more direct competition would be oral JAK inhibitors and Pfizer is developing several JAK inhibitors in pilot studies for alopecia areata. And Aclairs has indicated that they will be bringing forward an oral agent into Phase II for alopecia areata as well sometime this first half of the year. We do -- we are in the most advanced position though as far as development of an oral alopecia -- oral JAK inhibitor for alopecia areata.

[Konstantinos Aprilakis:]

Is there reason to believe that inhibiting JAK 1/2 is superior to, lets say, JAK 1/3?

[Roger Tung:]

Well, I will say that we think that interferon gama is a key pathway by, which CTP-543 works and the interferon gamma pathway is mediated by a JAK 1/2 homodimer -- or heterodimer, excuse me. So we think that, that may be the reason why CTP-543 has got a significantly stronger inhibition of that pathway than for instance Cytopenia derived pathways.

[Operator:]

[Operator Instructions]. And our next question will come from the line of Difei Yang with Mizuho.

[Difei Yang:]

Just a couple on CTP-543, Roger could you talk about what are the factors and timeline will determine whether those will be escalated to 12 mg?

[Roger Tung:]

Sure. Maybe, I'll let Jim speak to you. Thanks for the question, Difei.

[James Cassella:]

Difei, so as you know we had always planned on exploring a broad-dose range, and our current trial is exploring the 4 and the 8-milligram BID dosing. What we're doing in conjunction with the advice from the FDA is we'll be continuing to look at the data derived from these doses at the end of the year. We will have our safety monitoring board is continuing to be involved with the evaluation of the safety of the program, we'll be looking at the input or the safety read as we go along and we'll be able to escalate based on their input, and we'll be very interested in DMC review of the 12 week safety data and then our intent is to -- the 12-week safety data from the 8 milligrams dose, and we'll be able to discuss our findings with the FDA and make our decision then.

[Difei Yang:]

Okay. So quick follow up to that, is there any reason for us to believe maybe 8 mg is the optimized dose from efficacy standpoint?

[Roger Tung:]

We have a lot of confidence that the 8 milligrams will be a relevant dose in terms of exploring the efficacy. I think that we won't know if it's the optimal dose until we explore maybe a dose higher than that. So I think that's one of the driving interest in again exploring a fuller does response for if we're...

[Difei Yang:]

Okay. And turning subject to CTP-692. Could you talk a little more what dose range may be interested, I think in the past you have talked about maybe 6 mg per kilo range, there's some interesting effect of D-serine that you also talked about 30 mg per kilos appears to be where the toxicity resulted due to [indiscernible] version, just the regular version that's where toxicity becomes unbearable. So can you talk about -- making comment on what is the [indiscernible] you'll be interested in?

[Roger Tung:]

I think, Difei, at 60 and 120 milligrams per kilograms in humans. There been some laboratory findings suggestive that there maybe kidney issues that are occurring, hence we think that with safety profile that we're observing pre-clinically with CTP-692 that, that we'll be able to explore a pretty good dose range with the compound. As Jim had indicated in his remarks earlier, we do see higher exposure at least in our preclinical studies with 692 than a corresponding dose of D-serine, so we're really not looking at it necessarily so much on a mg per kg basis but really trying to get to exposure levels where we think that there's going to be good efficacy. Our intent is to explore a pretty wide range in the single and multiple ascending dose studies depending of course on the findings that we have with respect to the safety of the compound and then to explore relevant exposure in our Phase II study.

[Operator:]

And I'm showing no further questions. I would now like to turn the call back over to Ms. Justine Koenigsberg, for any further remarks.

[Justine Koenigsberg:]

Great. Thank you. And we like to thank everyone for joining us this morning. We look forward to keeping you updated on our progress. As a reminder, we'll be participating in the Deutsche Bank and UBS conferences this month, and we hope to see many of you there. This concludes our call. Thank you.

[Operator:]

Ladies and gentleman, thank you for participating in today's conference. This concludes your program. You may all disconnect. Everyone have a great day.