Concert Pharmaceuticals, Inc.
Q3 2017 Earnings Call Transcript

Published: 9 Nov 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Concert Pharmaceuticals' Third Quarter 2017 Financial Results 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] As a reminder, this call may be recorded. I would like to introduce your host for today’s conference Mr. Justine Koenigsberg. Ma’am you may begin.

[Justine Koenigsberg:]

Thank you. Good morning, and welcome to Concert Pharmaceuticals’ third quarter 2017 investor update. Our press release announcing our financial results was issued earlier this morning and an electronic copy of our press releases is also available on our website at concertpharma.com. In addition, during the third quarter, we officially launched our twitter handle and you can now follow us at @ConcertPharma. Joining me this morning with prepared remarks are Roger Tung, our President and CEO; and Nancy Stuart, our Chief Operating Officer. After our prepared remarks, we will open the call to questions where we will also be joined by Jim Cassella, our Chief Development Officer. As a remainder, 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 statements made on today’s call. With that, I would now like to turn the call over to Roger.

[Roger Tung:]

Thank you, Justine. During the third quarter, we announced a number of important developments and business milestones. These achievements include resuming enrollment in the CTP-543 Phase 2 clinical trial - Phase2a, engaging with the alopecia areata committee at the FDA patient focused drug development meeting and importantly closing the asset purchase agreement with Vertex. These accomplishments of the last quarter position us strongly to create value from our pipeline. First, let me highlight our ongoing CTP-543 Phase 2a trial in patients with moderate-to-severe alopecia areata. Alopecia areata is an auto-immune disease resulting in hair loss on the scalp and or body for which there is a significant unmet medical need and no FDA approved therapy. We intend to be at the forefront of advancing in oral therapy to treat alopecia areata with our CTP-543 program and believe that we have the potential to be first-in-class for this serious disease. The importance of our goal to develop the treatment for alopecia areata was further reinforced after hearing form patients directly at the FDA’s patient focused drug development initiative meeting in September. The meeting drew impressive purchase patient, including approximately 170 patients onsite at the FDA, which is far greater than any previous PFDDI meeting reflecting the desire by the community to support the development of new therapeutic agents. In addition to in person participation, an approximately 200 attendees participated via web line, a webinar online. During the meeting, two key topics were addressed by panels of patients and caregivers. These included the health effects of alopecia areata and current approaches to treatment. The testimony that shared was compelling heartfelt and deeply personal with the overarching theme of the meeting being that patients are in need of effective treatment options for this condition. We continue to be enthusiastic about our clinical program for CTP-543 in alopecia areata. As a reminder, our Phase 2a trial is a sequential design in 90 patients evaluating 4 and 8 milligrams of CTP-543 twice daily, compared to placebo over 24 weeks of dosing. Reflecting strong patient interest in the study, we’ve completed enrolment of the 4-milligram arm. As a result, a planned interim safety analysis will be conducted by an independent data monitoring committee in the first quarter of 2018. After the DMC review and pending their approval, we expect to enroll and evaluate the 8 milligram BID arm study. We remain on-track to complete dosing in the Phase 2a trial in the second half of 2018. We are excited about the potential of CTP-543 in alopecia areata because of the high level of activity observed with ruxolitinib in academic studies. In addition, as we previously stated, we believe CTP-543 has differentiated pharmacokinetic profile, lends itself to a favorable safety and efficacy profile. Next, let me discuss the closing of our asset purchase agreement with Vertex. This transaction closed in July resulting in a $160 million payment to Concert. This represents a transformational cash infusion that we project will fund our business into 2021. Importantly, we now have the financial resources to progress the alopecia areata program into pivotal trials, explore additional indications for CTP-543, and expand our pipeline with new programs. Also within the timeframe of our cash guidance, we expect Avanir and Otsuka to report results from the AVP-786 Phase 3 trials. AVP-786 is one of the most advanced and robust Phase 3 programs for the treatment of Alzheimer’s agitation and we look forward to the first key data readout with AVP-786 expected in the third quarter of 2018, less than a year from now. We believe that Alzheimer's agitation represents a blockbuster indication with the potential for us to realize meaningful royalties on future sales, as well as additional regulatory and commercial milestones. I would like to comment briefly on the recent ruling by the Patent Trial and Appeal Board or PTAB upholding the validity of our CTP-543 patent in the U.S. As a reminder, in April of this year, Incyte filed a petition for inter parties review or IPR with the PTAB seeking to invalidate our composition of matter patent covering CTP-543. In July, we filed a response to their IPR petition arguing for the patent ability of our claims to CTP-543 and other deuterated ruxolitinib compounds. Last month, PTAB decided in our favor and did not institute Incyte’s petition upholding the validity of our patent. This is the second time that the PTAB has declined to take on an IPR challenge against deuterium-modified drug. We believe that these decisions upholding the patentability of two different deuterium-modified drugs further demonstrates the strength of Concert’s intellectual property. In January, we expect the PTAB to decide if they will take up our post grant review or PGR, petition challenging Incyte’s very broad patent claims to deuterated ruxolitinib. We believe we have a very strong case and look forward gaining additional clarity on CTP-543’s IP landscape. Lastly, we are continuing a deep dive analysis of multiple research programs that we are considering bringing forward into development. We are working to complete our assessments including market opportunity regulatory landscape, clinical development pathway, IP environment and other analysis. Several of these compounds have risen to the top of our list and we have selected one, a neurology candidate to advance inter preclinical development in early 2018. I’ll pause here and turn the call over to Nancy to review our third quarter results.

[Nancy Stuart:]

Thanks Roger, and good morning everyone. As I review our third quarter results, please reference the financial tables found in today’s press release. Looking first at revenue, we recognized $143.8 million, related to the asset purchase agreement with Vertex. Research and development expenses were $7.1 million for the third quarter of 2017, compared to $8.1 million for the same period in 2016. The decrease was primarily due to the discontinuation of development of CTP-656 after Vertex acquired the product. General and administrative expenses were $4.9 million for the 2017 period, compared to $3.4 million for the 2016 period. The increase of $1.5 million in G&A expense was driven primarily by an increase in stock compensation, and professional and legal fees in connection with the CTP-656 agreement and intellectual property matters related to CTP-543. Our net income was $128.1 million, or $5.61 per share for the third quarter of 2017, due to the asset purchase agreement with Vertex. For the corresponding 2016 period, we experienced a net loss of $11.4 million or $0.51 per share. We ended the quarter with $207.1 million in cash, cash equivalents, and investments. During the third quarter, we received $144.1 million in cash with $16 million to remain in Escrow until January 2019. In September, we paid $30.8 million to Hercules Capital in repayment of the ventured debt that was secured during the second quarter. We anticipate our cash to 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] Our first question comes from Jeff Hung with UBS. Your line is now open.

[Nancy Stuart:]

Hi, Jeff, are you there?

[Jeff Hung:]

Yes, sorry. Thank you for taking the question. Regarding the PGR, are there any readthroughs that you are seeing from the recent IPR decision that would be applicable to PGR?

[Roger Tung:]

Well each of those are separate cases. However, I think some of the legal reasoning that was cited in terms of the rational for why the PTAB did not take up to the IPR challenge is potentially applicable to the analysis of the PGR - now I should say that the two cases maybe it is heard by different panels of judges. So, we can’t definitely say that that same legal analysis will be applied in both cases, but I will say it’s very consistent with our logic and the reason why we believe that both the validity of our patent should have been and was upheld and why we believe that Incyte’s patent should not be valid. So, I think that there is a consistency there that we’re seeing, which is again something that we view as favorable.

[Jeff Hung:]

And then, how important is the PGR to you versus the IPR? Like what will happen if the PTAB grows and Incyte stay around the PGR, maybe procedurally and then anything else that you could add to that?

[Roger Tung:]

Well procedurally we would have to analyze. If they chose to institute, of course then it will go into a court proceeding and that will have its own, just processes and over the course of the year, the PTAB will come to a determination about the validity or invalidity of the Incyte’s IP. If they choose not to institute then we will really have to see the rationale for their doing so and analyze based on the facts as they present themselves at that time. We think that the IPR was a big deal frankly. We think that coming out of that, we have great confidence that our intellectual property covering CTP-543 has a novel new molecular entity with its own protection, is a very important asset to us. And independent of the PGR, we think that there is a substantial amount of value in owning that compound and being able to exclude others.

[Jeff Hung:]

Okay, thank you.

[Roger Tung:]

Thank you.

[Operator:]

Our next question comes from Difei Yang with Mizuho. Your line is now open.

[Difei Yang:]

Hi good morning and thanks for taking my question. So, Roger with regards to this new neurology candidate, would you comment on when you could be in the position to give us a little bit more information on the specific indication and the molecule? Thank you.

[Roger Tung:]

Hi Difei, thanks very much for the question. So, we will have more to say about that in the - early in the New Year.

[Difei Yang:]

Okay, thank you. Then coming just to circle back on CTP-543, would you remind us there appears different mechanism even within the JAK inhibitors cost, so would you talk to us about the differences of approaches and why you feel CTP-543 may have the best shot?

[Roger Tung:]

Sure. So, with respect to CTP-543, really one way or analyzing it is to look at the JK subtype inhibition, but frankly we’re driven mostly by the clinical success of ruxolitinib that we feel demonstrates very clearly that a compound with the same mechanisms of actions shared by 543 can be a highly effective in the treatment of alopecia areata with what appear to be a very tolerable side effect profile coming out of the initial Columbia studies. So that’s really what gives us the most comfort with 543. I know there has been a lot of discussion of subtype mechanisms and one of the things that I’ll point out is that JAK3 inhibition, well it may be effective in the treatment of the disease is also historically been associated with immunosuppressive effects, and in fact lesions in the JAK3 are the most common cause of severe combined immunodeficiency. So, there is very clear evidence that disrupting the JAK3 mechanism can have severe immune compromising effects.

[Difei Yang:]

Okay, thank you Roger. So, my final question on the Columbia study, would you remind us what was the maximum dose that was tested in the trial?

[Roger Tung:]

So, the Columbia study was conducted with 20 milligrams twice daily, and I should also note that there is both published an anecdotal data indicating that lower doses of ruxolitinib at 10, 12.5, and 15 milligrams twice daily also are effective. And in fact, there has been a couple of reports that lower dose ruxolitinib has even been effective in patients who have failed tofacitinib therapy. So, we think that there is a range of doses, which the drug can be effective and the purpose of our Phase 2a study is to explore doses which will be de minimally effective dose, so that we can set up our later stage studies.

[Difei Yang:]

Okay. And then just very quickly, so do you think FDA just being extra cautious even though the highest the dose you are going to test in the 2a study only goes up to 8 milligrams BID, was there just extra caution or is there something else?

[Roger Tung:]

Well there was nothing that we observed in our pre-clinical or our clinical studies that we think was significantly different than what has been reported for ruxolitinib, so we think that FDA has taken a pretty cautious stance for the use of JAK innovation in different autoimmune indications. And I think some of that came out perhaps in the analysis of baricitinib in rheumatoid arthritis. So, they have suggested and we’re very happy to work with them to conduct a measured and safe approach to assessing the minimal effect of dose and dose range for CTP-543 in this indication.

[Difei Yang:]

Thank you so much for taking all of my questions.

[Roger Tung:]

Sure. Thank you.

[Operator:]

[Operator Instructions] Our next question comes from Adam Walsh with Stifel. Your line is now open.

[Neil Carnahan:]

Hi guys. This is Neil Carnahan on for Adam. Just wanted to ask, Avanir’s drug NUEDEXTA has been the news lately, albeit in a somewhat negative way, but has given some color on the overall market, can you talk to us about the implications here if there are and how you guys think about the overall market opportunity for AVP-786?

[Roger Tung:]

Hi Neil, thanks very much for the question. This is Roger. We realize that there has been a lot of focus on the use of NUEDEXTA in the treatment of not only suitable [indiscernible] but other indications in - or other symptoms I should really say in the Alzheimer's population. Our view is that overall what this indicates is that there is a very substantial pent-up interest in having an effective treatment for Alzheimer's disease, agitation and aggression symptoms. We are very pleased that what Avanir and Otsuka, their parent company are doing are developing ATP-786 for labelling in that patient population, and we think that a well-studied drug that has been approved in the patient population for that indication of aggression in dimension of patients with Alzheimer's, we think that an entity like that - all the indications are that there is a real medical need in market interest.

[Neil Carnahan:]

Thanks, guys.

[Operator:]

Our next question comes from Edwin Zhang with Stifel. Your line is now open.

[Edwin Zhang:]

My question has been answered. Thank you.

[Roger Tung:]

Okay, well thank you very much.

[Operator:]

And at this time, I’m showing no further questions. I would like to turn the call back over to Justine for closing remarks.

[Justine Koenigsberg:]

Thank you. Thank you everyone for joining us today. As a reminder, we will be participating at the Stifel and Jefferies London Conferences next week, and at the Mizuho Conference in early December. We hope to see many of you there and we look forward to keeping you updated on our progress. This concludes our call. Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.