Concert Pharmaceuticals, Inc.
Q1 2019 Earnings Call Transcript

Published: 5 May 2019

[Operator:]

Good morning, and welcome to the Concert Pharmaceuticals First Quarter 2019 Financial Update. My name is Carla, and I will be your conference operator today. [Operator Instructions]. And now I would like to turn the call over to Justine Koenigsberg. Go ahead, please.

[Justine Koenigsberg:]

Thank you. Good morning, and welcome to Concert Pharmaceuticals First Quarter 2019 Investor Update. Our press release announcing our financial results was issued earlier this morning, and an electronic copy of our press release is also available on our website at concertpharma.com. Joining me this morning with prepared remarks are Roger Tung, our President and CEO; Jim Cassella, our Chief Development Officer; and Marc Becker; our CFO. We will 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 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 statement 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. I'm very pleased with the progress we've made advancing our pipeline of innovative medicines, which sets us up for a catalyst rich year in 2019. Already this year, we've launched multiple clinical trials for each of our proprietary candidates, presented clinical results at multiple medical conferences and have undertaken a number of disease awareness initiatives. Let me first comment on CTP-543, our most advanced internal drug candidate. We've done important pioneering work to advance CTP-543 as a potential new treatment for patients impacted by alopecia areata. The results from our dose range finding Phase II study have been very positive to date, and we're continuing to move forward on track with the clinical program. This trial and our CTP-543 dose regimen study of 8 milligrams twice daily versus 16 milligrams once daily will provide support for an end of Phase II meeting with FDA to further define our registration strategy. We've made several important advancements that position 543 as a leading development candidate for alopecia areata. These include already having identified our minimally effective dose, which provides statistically and, we believe, clinically meaningful improvements for hair growth with favorable tolerability profile observed to date. Importantly, there is potential for further improved efficacy with our ongoing fully enrolled 12 milligram BID cohort in the Phase II study, which will conclude in the third quarter of 2019. In addition, we have completed initial development of our patient reported outcome tool and are assessing it in the dose regimen study. Last month, the PTAB issued a final written decision in the IPR proceeding. We're disappointed that PTAB did not rule on our favor. We believe that we have strong arguments supporting the validity of our patent and intend to appeal the decision to the Federal Circuit as we work to obtain additional intellectual property issuances protecting CTP-543. We remain highly committed to the continued advancement of 543 as a potential treatment for alopecia areata. The outcome of this proceeding does not prohibit us from developing 543, and our development time lines remain on track. The PTAB decision is specific to certain patent claims covering CTP-543 and does not affect other programs in our portfolio. Now turning to the second proprietary candidate in our pipeline. CTP-692, a deuterated form of D-serine, leverages multiple academic studies of D-serine's efficacy as a treatment for schizophrenia but appears to impressively reduce its potential for renal toxicity. We are excited about the prospect of CTP-692 as an adjunctive treatment for schizophrenia in the area of substantial unmet medical need that has, for decades, alluded the development of new mechanisms of action. I'm pleased to say, we successfully completed the SAD study. And if we observe a favorable safety profile in the ongoing MAD study, particularly related to renal safety parameters, we will move to Phase II later this year with confidence that our deuterium modification has provided the potential for a much safer product profile than historically been seen with non-deuterated D-serine. In addition, we also have an exciting partner to our program with Avanir, a subsidiary of Otsuka Pharmaceuticals. For this partnered asset, called AVP-786, the first Phase III trial for the treatment of agitation associated with Alzheimer's disease demonstrated a statistically significant improvement on a primary endpoint for 1 of the two doses being evaluated. We eagerly await the results from the second U.S. Phase III trial for AVP-786 with expected completion in December of 2019. AVP-786 offers potential milestone payments and royalties to Concert on future product sales, and if approved, we believe the unmet need in Alzheimer's agitation could support blockbuster product revenues. We're also pleased to see that Vertex is advancing the VX-561 as potential once-daily treatment for cystic fibrosis with 2 Phase II trials recently initiated, including a monotherapy trial in patients with cystic fibrosis who have been getting mutation. As a reminder, Vertex acquired a compound from us under an asset purchase agreement in 2017. In addition to the $160 million upfront payment we received, there remains $90 million in pre-commercial milestones. Given the Vertex' development efforts, we believe the likelihood of achieving these milestones is high. Earlier this week, we announced the appointment of Jesper Høiland to our Board of Directors. Mr Høiland currently serves as President and CEO of Radius Health. During his more than 20-year tenure at Novo Nordisk, he held multiple global roles, most recently as President and Executive Vice President of Novo Nordisk U.S.A. He is an accomplished executive with broad commercial expertise in the pharma industry and will provide important breadth to our Board. Let me conclude my remarks by emphasizing our optimism for 2019, which we see as a year of significant milestones for our company. As we make progress towards these milestones, I look forward to keeping you updated. I'd like to pause here and ask Jim to discuss our clinical progress, and then Marc will review our first quarter financial results before we open the call to questions.

[James Cassella:]

Thanks, Roger. From a clinical development perspective, this is an exciting time for both of our proprietary drug programs. With CTP-543, we have 2 ongoing Phase II trials in alopecia areata as well as an open label extension study for the long-term continuation of dosing for these and future patients. In addition, we are poised to start an additional dose regimen Phase II study with clinical centers in the U.S. and Canada. All of these efforts reflect our commitment to developing a treatment for alopecia areata with a profile that addresses the needs of patients and regulators. The last cohort in our ongoing Phase II trial evaluating our highest-dose 12 milligrams BID is advancing as planned. Data from the completed Phase II study is expected in the third quarter of this year and will contribute to our briefing package to support an end of Phase II meeting with FDA to review and discuss our registration pathway. In parallel, based on the robust findings observed with our 8 milligram BID dose, we initiated a study in March to evaluate once-daily versus twice-daily dosing regimens. This is an open label study in which patients with moderate to severe alopecia areata receive either a 16 milligram once-daily dose or an 8 milligram twice-daily dose of CTP-543. Interest in the trial is strong, and we expect to reach its primary 24-week endpoint in the fourth quarter of 2019. Also, we have now started to enroll patients into our open label extension study. With the first patient who completed the Phase II trials 12 milligram cohort, we're pleased to not only offer long-term treatment to patients who participated in our studies but also to further understand the safety and efficacy of CTP-543 beyond 24 weeks. In addition to the clinical achievements with CTP-543, we're active with the alopecia areata patient community and medical leaders. In the first quarter, we launched a new patient-focused section of our corporate website, highlighting alopecia areata. This is intended to be a resource for the patient community and support the efforts to raise awareness about this autoimmune disease. Additionally, we have been actively presenting the interim Phase II data to the medical community. In early March, we were selected to present the results during the quietly attended Late-Breaker session at the American Academy of Dermatology annual meeting. And last month, we presented results at the World Congress for Hair Research in Barcelona. There's a lot of activity around CTP-543 this year to support advancement of this drug candidate into late-stage development, and it is our intent to initiate Phase III trials in 2020. Turning next to CTP-692 for the adjunctive treatment of schizophrenia. As a reminder, CTP-692 was designed to address glutamatergic hypofunction, and thus, offers the potential to improve both positive and negative symptoms as well as cognitive function in patients with schizophrenia. In particular, 692's action on the NMDA receptor provides a unique mechanistic approach as an add-on therapy to standard of care antipsychotics. We are executing on a multi-study Phase I program to support the advancement of CTP-692 into Phase II trial in the fourth quarter of 2019. Later this month, we will present a crossover data from the Phase I study of CTP-692 at the American Society of Clinical Psychopharmacology Annual Meeting. We expect to report Phase I single-ascending dose and multiple-ascending dose top line data for CTP-692 later this quarter. We are enthusiastic about moving forward in the clinic with CTP-692 as a potential new medicine to add to the treatment paradigm for patients with schizophrenia. Key readouts for both of our product candidates, CTP-543 for alopecia areata and CTP-692 for schizophrenia, are on their horizon, and we are excited about the progress ahead. I'd like to pause here and ask Marc to review our financial results, and then we will open the call to questions.

[Marc Becker:]

Thank you, Jim. As I review our first quarter financial results, please reference the financial tables found in today's press release. First, let's look at revenue. In the first quarter of 2019, we entered into a license agreement with Cipla Technologies and recognized $1 million of revenue from an upfront payment received as compared to $10.5 million of revenue recognized in the first quarter of 2018, which was driven by our agreement with Processa Pharmaceuticals. The Q1 '19 license agreement with Cipla relates to CTP-354, a novel GABAA receptor subtype-selective modulator, which Cipla intends to develop for the treatment of spasticity and other CNS indications. In addition, to the $1 million upfront payment, we have the potential to receive milestones as well as royalties on future product sales. On an existing CTP-354 agreement, we paid half of the upfront to the nonprofit organization Fast Forward. Research and development expenses were $15.8 million in the first quarter of 2019 compared to $8.7 million in the first quarter of 2018, an increase of $7.1 million. The increase is primarily a result of expenses associated with clinical development and manufacturing to support the continued advancement of CTP-543 for alopecia areata and CTP-692 for schizophrenia. General and administrative expenses were unchanged at $5.6 million for the three months ended March 31, 2019, and the same period in 2018. Our net loss for the first quarter of 2019 was $21.8 million or $0.93 per share compared to net loss of $4.5 million or $0.19 per share in the first quarter of 2018. The increase in net loss is a result of both higher R&D spending in the first quarter of 2019 compared to the first quarter of 2018 and higher revenues in 2018 due to a onetime payment from Processa. Finally, we ended the first quarter of 2019 with $153.8 million in cash, cash equivalents and investments. As we move through 2019, we expect our cash burn to be approximately $67 million, which is net of the $16 million in escrow proceeds received from Vertex in the first quarter. Under our current operating plan, including the planned advancement of CTP-543 into Phase III development next year, we believe our cash position is sufficient to fund the company into the second half of 2020. This concludes our prepared remarks, and we would be happy to address any questions.

[Operator:]

First question comes from the line of Adam Walsh from Stifel.

[Adam Walsh:]

My first one is, Roger, following the adverse PTAB ruling on the 149 patent, you talked about the potential to appeal that decision, can you help define for us what the market exclusivity periods would look like in the event of winning that appeal versus not? And then I have a couple of follow-ups.

[Roger Tung:]

Sure, Adam, thanks for the question. Well, first of all, the -- in the event that we do not prevail on appeal, we believe that we would have 5 years of regulatory exclusivity, plus likely another 6 months of exclusivity due to pediatric studies. Our belief is that 5.5 years is a base case that provides sufficient opportunity to obtain revenues from CTP-543 to underpin the development of the compound. If we are able to get additional exclusivity due to patents, there are a number of patents which are potentially outstanding, of course, the 149 patent, which you referred to, which I believe this extends to 2032, plus potential extensions, and there's additional intellectual property that we've filed around the compound that we extended further than that.

[Adam Walsh:]

That's helpful. And then just a couple of other quick ones here. In terms of the CTP-692, we're going to get those results, obviously, in the second quarter. If they're good, what's next? How fast do you think you could get a Phase II up and running? And how long -- what is your initial take on how long that might be before we would see Phase II clinical data? And then finally, do you have any idea when Avanir intends to publish the result in a peer-reviewed journal? What the timing of that would look like? Have they disclosed anything there?

[Roger Tung:]

Yes. So taking the second question first. Avenir has not staged -- indicated a time line for release of that data. We are very eager to see it. We think that everything that we are aware of is positive about that and are looking forward to the completion of the second Phase III study towards the end of this year in December. Regarding the -- sorry, the...

[Nancy Stuart:]

692.

[Roger Tung:]

692, Phase II, yes, our hope is to initiate Phase II before the end of this year, and we haven't made specific projections about the time line for completion. We do intend for it to be a robust study, which would be Phase III enabling. So we'll have a significant population that will be involved in that study.

[Adam Walsh:]

Roger, can you remind us how long typical Phase II schizophrenia studies are in general? Is there kind of a cookie cutter time line that we could use?

[James Cassella:]

This is Jim. So when we look at the studies that have been done with D-serine, for example, with the schizophrenia patient population, yes, those trials are typically anywhere in the 6- to 10-week -- 16-week time period. So we're anticipating that we'll have something along the lines of about a 12-week treatment period. So with the -- as Roger said, with the -- we're going to power this thing up so that it will be a stand-alone Phase II trial to support going into Phase III afterwards. So I think typically, these are not very long treatment durations. But within a year or so, you can expect to see readouts.

[Operator:]

Next question is from the line of Esther Hong from Janney.

[Esther Hong:]

So just quickly, first -- so just questions on CTP-692. Given the overlap and targeted -- the targeted indication between CTP-692 and AVP-786, any discussions for out-licensing 692? Or are plans to develop and commercialize internally? And then second, with the CTP-692 program progressing so quickly and initiating the Phase II study later this year, can you provide any updates on patent protection for the drug?

[Roger Tung:]

Thanks for the question, Esther. So let's see, the -- there's some overlap but not a high amount of overlap between AVP-786 and CTP-692 in the sense that 692 is really directed as a general adjunctive treatment for schizophrenia, whereas studies that are being carried out with AVP-786 are for the treatment of negative symptoms, which is a distinct indication. So we are always in the process of discussing business development on all of our products, but we typically don't discuss anything that is ongoing until it's completed. We are very excited about the program. We feel like we could take it to the market and to -- and sell the product ourselves. And that's, of course, one of the underlying thesis behind our developing 692. So if we were to do any business development around it, it would have to be a pretty positive kind of deal. Now let's see -- sorry, oh yes, in terms of the patent protection, we do have outstanding applications. We do not have issued patents right now on 692. I have to say that the effect that we saw in terms of amelioration of renal toxicity with the deuterium modification is something that's not been reported to our knowledge ever before, and we think that, that provides an extremely strong intellectual property position around 692. So we feel very confident that we have a unique kind of approach protecting the deuterated compounds, its use in schizophrenia and other aspects of its development.

[Operator:]

Our next question is coming from the line of Difei Yang from Mizuho.

[Difei Yang:]

So just a couple. Follow-up on the 692 program, can you clarify for us the adjunct therapy for schizophrenia? What does that mean? Does that mean potentially 692 may also address the positive side of the symptoms?

[James Cassella:]

Yes, Difei. This is Jim. Thanks for the question. It's very good to clarify. So with adjunctive therapy, the idea is that this will be used in combination with the standard of care antipsychotic drugs that these patients are currently on. The idea behind this is that the patients are currently not fully treated or inadequately treated because of the limited efficacy of some of the drugs or because of intolerability issues. So by adding a drug like 692 on top of the standard of care, we're working through a different mechanism. And the clinical study to date have shown that we can actually add to the effect of the antipsychotic drugs, both in terms of negative symptoms and positive symptoms. And also in studies, it's been shown that there's been improvement in the cognitive functioning. So we think that by our add-on therapy, we can really add to the completeness of the therapy for these patients and really add up beneficial effect by going on top of their existing therapy.

[Difei Yang:]

And then turning to CTP-543, I apologize if I have missed your prepared remarks, so what's the next step for PTAB after PTAB decision? And what is the worst case if patent 149 is invalidated, what does that mean to the CTP-543 program? And can it still be commercialized assuming a positive Phase III development?

[Roger Tung:]

Thanks, Difei, for the question. So our next step is to appeal the finding to the Federal Circuit Court. There is some -- there is a significant number of PTAB decisions which are in part or in whole reverse at the Federal Circuit, and we think that the fact pattern of this decision is one that leads us to believe that there is a reasonable likelihood of getting a partial or a complete reversal decision. So we think it's very worth our while to continue carrying that all. In terms of the ability to commercialize 543, we do believe that we will be able to bring the compound to markets. And the lack of a intellectual property protection is certainly something that we would prefer to avoid and are seeking not only validation of the 149 patent but additional intellectual property protection. But it would not prevent us from having exclusivity on the sales of CTP-543 based at least on regulatory exclusivity, which in the U.S. is five years plus likely an additional 6-months due to pediatric exclusivity; and in Europe, it's potentially 8 years plus another two years.

[Operator:]

Thank you, and now I'm turning the call back over to Justine Koenigsberg.

[Justine Koenigsberg:]

Okay. We're not showing any further questions at this time. So we'd like to thank everyone for joining us this morning. Please note that next week, we'll be participating at the Deutsche Bank and the SunTrust Conferences, and later in the month at the UBS Conference, and we hope to see many of you there. Thank you for joining us today. This concludes our call.

[Operator:]

This concludes today's conference call. Thank you all for attending. You may now disconnect.