Concert Pharmaceuticals, Inc.
Q1 2017 Earnings Call Transcript

Published: 2 May 2017

[Operator:]

Good day, ladies and gentlemen. And welcome to the first quarter 2017 update conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. I would now like to turn the call over to Justine Koenigsberg, Vice President of Corporate Communications and Investor Relations. Please go ahead.

[Justine Koenigsberg:]

Thank you. Good morning. And welcome to Concert Pharmaceuticals first quarter 2017 investor update. Our press releases announcing our financial results and the initiation of the CTP-543 Phase II trial were issued earlier this morning. An electronic copy of our press releases are also available on our website at concertpharma.com. Joining me this morning with prepared remarks are Roger Tung, our President and CEO; Ryan Daws, our CFO; and Jim Cassella, our Chief Development Officer. We will also be joined by Nancy Stuart, our Chief Operating Officer, for the Q&A portion of our call. Our remarks today will focus on our financial results, the CTP-656 agreement and the CTP-543 program. 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 risk factors can be found in our most recent 10-Q filed with SEC. Any forward-looking statements speak only as of today 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. We have a lot going on at Concert, notably our efforts towards closing the CTP-656 asset purchase agreement with Vertex and the recently initiated Phase II trial with CTP-543, our proprietary candidate for alopecia areata. My comments will be brief and will focus on the importance of deuterium modification in the pharmaceutical landscape and a recent challenge one of our patents. Deuterium-containing medicines are continuing to emerge as medically and commercially important entities. Some important current examples include our recent transaction with Vertex for CTP-656, the approval of Teva’s Austedo by FDA for movement disorders and Huntington's disease last month, and the ongoing Phase III development of AVP-786 in Alzheimer's agitation by our licensee Avanir. Concert’s DCE Platform is a key driver of innovation in the field of deuterium medicinal chemistry as evidenced both by our pipeline and our partnerships. Last month, Incyte filed an IPR petition, which in essence challenges the validity of our patent covering CTP-543. We’ve anticipated that such a challenge might be raised. We're preparing our response now and will file it within the statutory three-month response period. The Patent Trial and Appeal Board, or PTAB, will then have an additional three months to decide whether to grant or deny Incyte’s petition. If the PTAB institutes a review of our patent, we would expect a final PTAB decision in the fourth quarter of 2018. We’re confident in our patent’s validity and intend to vigorously defend it. I will note that an IPR challenge to the patent of another deuterated drug, Teva’s deuterated Venlafaxine was previously filed by another party. In that case, the PTAB declined to institute a proceeding since they determined that the challenge was not likely to succeed on its merits. I’d like to pause here and ask Ryan to provide an update on the CTP-656 asset purchase agreement and review our first quarter results and then Jim will provide an update on CTP-543 before we open the call to questions.

[Ryan Daws:]

Thank you, Roger. As we announced in early March, we have entered into an asset purchase agreement with Vertex Pharmaceuticals for CTP-656, our once-daily potentiator for cystic fibrosis. Under the agreement, Vertex will pay us up to $250 million, including $160 million at closing. As we discussed, the transaction is subject to shareholder approval and other closing conditions, including HSR clearance. I’m pleased to update that we have set a shareholder vote May 24, 2017. Additionally, conversations with the Federal Trade Commission continue and Vertex recently refiled their notification to keep those conversations going. We and Vertex continue to work diligently toward closing the transaction. We believe that Vertex is best suited to bring 656 forward given their arsenal of pipeline products, clinical expertise in cystic fibrosis, and commercialization capabilities. In addition to benefiting CF, this transaction will be transformative for Concert without requiring a dilutive equity raise. We expect that the upfront cash it provides will fund the company into 2021, while our pipeline products advance to several key milestones. Now, as I review our first quarter results, please reference the financial tables found in today's press release. Looking first at R&D expenses. Research and development expenses were $8.2 million for the 2017 period compared to $10.5 million for the 2016 period, a decrease of $2.3 million. The decrease of $2.3 million was primarily attributable to the Phase 1 clinical studies for CTP-656 performed in 2016. Costs incurred in both periods were driven by development activities for CTP-656 and CTP-543. General and administrative expenses were $5.3 million for the 2017 period compared to $3.6 million in the 2016 period. The increase of $1.7 million in G&A expenses was primarily related to professional fees in connection with the CTP-656 asset purchase agreement. Our net loss was $13.3 million or $0.60 per share for the first quarter of 2017. For the corresponding 2016 period, our net loss was $13.9 million of $0.63 per share. Now, Jim will provide an update on CTP-543 program.

[James Cassella:]

Thanks, Ryan. As a reminder, CTP-543 is a deuterium-modified analog of ruxolitinib, a janus kinase inhibitor, or JAL inhibitor, that is commercially available for certain blood disorders. Our interest in alopecia areata for the CTP-543 program began with the investigator-sponsored study at Columbia University, in which 20 mg twice daily of ruxolitinib resulted in significant hair regrowth in 75% of patients with alopecia areata. Alopecia areata is an autoimmune disorder, in which the immune system attacks hair follicles, resulting in patchy or complete hair loss. Based on our Phase I findings, the average systemic exposure of 16 mg b.i.d. of CTP-543, our highest those that we are evaluating in the Phase IIa trial, appears comparable to published findings for reported average exposure of the 20 mg b.i.d. ruxolitinib dose. Based on clinical evidence with ruxolitinib and what we know about the profile of CTP-543, we move into our Phase IIa trial. The team at Concert has worked diligently to advance the CTP-543 program into Phase II. Yesterday, we announced the initiation of the trial and expect to report topline data in first quarter of 2018. The Phase IIa is a double-blind, placebo-controlled dose ranging study. We will evaluate 4, 8, 12 and 16 mg of CTP-543 twice-daily compared to placebo in approximately 100 adult patients. Patients who have alopecia areata with at least 50% scalp hair loss, which would be defined as a SALT Score of 50 at screening and baseline will be eligible to enroll. This represents the more moderate to severe population, which we believe is well-suited for an oral treatment. In addition, patients in this study must have a current episode within the range of six months to not exceeding ten years. The primary outcome measure of the Phase IIa trial is the effect on treating hair loss as measured by the SALT Score after 24 weeks of dosing. The trial will include an additional 28 weeks of dosing, during which all patients enrolled in the study will receive CTP-543. There's a lot of enthusiasm among dermatologists and patients around the advancement of CTP-543 as a potential first-in-class oral treatment for moderate to severe alopecia areata. We believe this study will provide important information on the safety and efficacy profile of CTP-543 and guide our dose selection for the Phase IIb trial. Our goal as always is to develop innovative medicines to offer important and meaningful benefits to patients. We look forward to advancing our pipeline in 2017. This concludes our prepared remarks and we would be happy to address any questions.

[Operator:]

[Operator Instructions]. Our first question is from Jeffrey Hung with UBS. Your line is now open.

[Jeffrey Hung:]

Thanks for taking the question. For the 543 Phase IIa, where do you think the bar is on the primary outcome to consider the trial a success? So, is it just statistically significant difference or something else that’s maybe more clinically meaningful?

[Roger Tung:]

Jeff, thanks very much for the question. Jim, could you please take this one.

[James Cassella:]

Yeah. Jeff, so clearly we’re setting a standard here of 50% as the bar. However, we will be exploring all the data that we generate from the study and we’ll look at the 50% mark as a statistical mark and we’ll continue to look at the efficacy with higher percentage of hair regrowth.

[Jeffrey Hung:]

Okay. And then, it looks like the dose that you chose for the Phase IIa is lower than the 20 mg b.i.d., the open label pilot study. I think you touched upon it in the prepared remarks, but can you talk a little bit more about the dose selection and why you ultimately decided to max out at a lower dose?

[Roger Tung:]

Sure, Jeff. We had looked at the exposure that we got in the single and multiple ascending dose studies that we did with CTP-543 in Phase I. And what we saw is that, on a population basis, the exposure that we had with 16 mg was approximately in the range of the population exposure for 20 mg that was historically reported for ruxolitinib. So, that is kind of the top of the range that we don't really want to go above, given the known MTD in this mechanism. So, we’re exploring doses below that to assess the overall treatment effects at lower doses from a therapeutic window perspective, time to response, overall efficacy and a number of other parameters.

[Jeffrey Hung:]

Okay, great. And then my last question, with Vertex acquiring 656, how are you thinking about future pipeline candidates, particularly ones that you would find to develop on your own? Are there certain therapeutic areas that you’d like to focus on?

[Roger Tung:]

That’s a great question. We intend to be taking a broad look at our pipeline. We think that the mechanism of action of 543 lends itself potentially to other indications and we’re also going to be looking at likely broadening the pipeline with additional candidates. That will probably be a future event. Right now, our focus is firmly on closing the Vertex transaction and transferring the asset to them.

[Jeffrey Hung:]

Thank you.

[Operator:]

Our next question is from Adam Walsh with Stifel. Your line is now open.

[Adam Walsh:]

My first question is, can you just give us, I guess, Jim, some closure on the tablet appearance issue that occurred with 543?

[James Cassella:]

Yeah. Sure, Adam. So, as you know, we reported that we had an appearance issue and we were conducting an investigation. We’re very happy to say that we concluded the investigation, we determined that there was no impact on patient safety or risk to patients and there was clearly no impact on tablet performance. So, therefore, upon the conclusion of the investigation, we were able to release those supplies into the clinical supply chain.

[Adam Walsh:]

Excellent, thanks. And then my other question is, we do get questions from clients regarding whether or not there would be any potential FTC issues with the closing of the Vertex transaction. With the shareholder vote coming up, May 24, the timing between that milestone and the guidance for the latest closing date of October 31 is pretty wide. Is that due to presumably FTC scrutiny or how should we think about the timing of the closing there?

[Ryan Daws:]

Hey, Adam. It’s a great question. The outside date, you could call it, is October 31. So, to the extent that the – we’ll have satisfied the shareholder vote condition, leaving really governmental approval or HSR approval. And what that does is defines that timeframe under which we were in this – that limbo period. On October 31, we and Vertex could agree to extend or we could agree to abandon. But that’s really what that date is therefore.

[Adam Walsh:]

Good, helpful. Thanks, guys.

[Operator:]

[Operator Instructions]. Our next question is from Difei Yang with Aegis Capital. Your line is now open.

[Difei Yang:]

Hi. Good morning. Thanks for taking my question. Just a quick one. To think from an IP perspective, if all the original molecules started to patent their deuterated version of the molecules, do you think that will leave – potentially leaving shrinking pool of opportunity for Concert? How do you think about those things?

[Roger Tung:]

Hi, Difei. This is Roger. Thanks for the question. So, I think it depends on exactly the structure of each situation. If a patent describes and certainly exemplifies deuterated versions of a compound within the original patent, then the patentee rightfully owns the intellectual property on those deuterated analogs. If someone tries to go back in time and patent deuterated compounds when they didn't already, then presumably that would have a priority date that is new relative to when that – the data on the deuterated compounds is produced. So, the bar that we have, in general, of getting intellectual property protection on any particular deuterated analog or sets of analogs requires that we demonstrate unanticipated findings that underscore the patentability of a compound, and that would be a bar that would apply to anyone who is going back presumably and trying to get intellectual property protection when they hadn’t previously covered those compounds.

[Difei Yang:]

Thank you, Roger. And this is very helpful.

[Roger Tung:]

So, just as a general comment, we still see quite a few opportunities to expand our pipeline and we’ve not found ourselves in this situation where we have any dearth of expansion possibilities.

[Difei Yang:]

So, Roger, that just reminds me of another question. Would you, on the very high level, walk us through the process that you guys use to come up with a candidate? For example, just like CTP-543, somebody like you guys have a holistic approach to select a compound. How do you do that?

[Roger Tung:]

I think that’s right. I think there's the technical aspects of it, which require our finding specific analogs of compounds that have differentiation and are determining that the level of differentiation that it has from a pre-existing compound is sufficient for us to believe that it warrants taking further into testing. But there's also a lot of assessment of commercial likelihood of success of regulatory factors including path to approval, competition, medical need. And so, there is a lot of ways of assessing any particular candidate. And we do try to be very careful, which is why we're not offering any specific guidance right now on the timeframe in which we’re going to be broadening our pipeline.

[Difei Yang:]

Thanks for the additional color.

[Roger Tung:]

Sure, thanks for the questions.

[Operator:]

Thank you. And I’m showing no further questions. I would now like to turn the call back over to Justine for any further remarks.

[Justine Koenigsberg:]

Thank you. And thank you, everyone, for joining us this morning. We look forward to keeping you updated on our progress. Please note we would be participating at the Deutsche Bank conference tomorrow. We’ll also be at the UBS conference later this month and hope to see many of you there. This concludes our call. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. You may all disconnect. Everyone, have a great day.