Concert Pharmaceuticals, Inc.
Q3 2014 Earnings Call Transcript

Published: 12 Nov 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Concert Pharmaceuticals Third Quarter 2014 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). I would now like to introduce your host for this conference call, Justine Koenigsberg. You may begin.

[Justine Koenigsberg:]

Thank you. Good morning, and thank you for joining us for Concert Pharmaceuticals’ third quarter 2014 investor update. I'm Justine Koenigsberg, Vice President of Corporate Communications and Investor Relations at Concert. A press release announcing our third quarter results was issued earlier this morning. An electronic copy of our press release is also available on our Web site at concertpharma.com. Joining me today are Roger Tung, our President and Chief Executive Officer; Nancy Stuart, our Chief Operating Officer; and Ryan Daws, our Chief Financial Officer. During the call, Roger will provide an update on our clinical pipeline including CTP-354. Nancy will review recent developments relating to our collaborations and Ryan will discuss our financial results before we open the call for your questions. Before we begin, I would like to remind you that today’s discussion will include statements about the company’s future expectations, plans and prospects that constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors including those discussed in the risks factor section of our most recent quarterly report on Form 10-Q filed with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. With that, I would now like to turn the call over to Roger.

[Roger Tung:]

Thank you, Justine. I’d like to thank everyone for joining us this morning. As we approach the end of the year, Concert has achieved tremendous progress as a clinical stage company. Most significantly for a company at our stage growth, it is a distinguishing feature that Concert has a diversified client of multiple clinical candidates. These candidates, each of which wasn’t invented at Concert, are progressing both as proprietary programs and under collaborations. We currently have five clinical candidates that deploy Concert’s proprietary technology. This broad pipeline demonstrates the company’s productivity in applying our deuterium platform to a wide range of opportunities. It positions Concert to have many different ways to succeed as these product candidates progress in clinical studies. All three of our programs under collaboration have made significant progress in the last few months. Nancy will describe these in more detail later on this call, but I would like to note that each of these clinical programs represents a potentially very important product in our respective collaborators’ portfolios. With respect to our wholly-owned pipeline, I’d like to start with CTP-354. Earlier this morning, we announced that we have become aware of some new three-month nonclinical toxicology findings. Based on those findings we have decided to further characterize CTP-354 in additional nonclinical studies, resulting in a delay in the start of our Phase 2 program. CTP-354 is being developed as a potential treatment for spasticity in patients with spinal cord injury and in patients with multiple sclerosis. Our intent was to begin the first Phase 2 trial in patients with spasticity associated with spinal cord injury this year, which our previously completed one-month toxicology studies would have allowed us to do. As a reminder, three-month nonclinical toxicology assessment in two animal species is required for all clinically administered drugs and is needed to support dosing in multiple sclerosis trial, which is intended to be a longer duration than the spinal cord injury study. Preliminary data showed adverse effects potentially only in one animal species. We were surprised with the findings particularly because they were not observed in our earlier one-month preclinical studies. We will work to determine what additional analyses and nonclinical studies to conduct and intend to focus on assessing whether the effects observed are mechanist specific to one affected species. We will also assess potential metabolite effects since CTP-354 has metabolized substantially differently in both tox species than it is in humans. We will work diligently to complete the necessary studies and understand the preliminary results in order to move the program forward. We anticipate that our timing to complete the additional nonclinical work will require at least half a year but could be longer. Turning to our CTP-354 clinical studies, the results from our Phase 1 program have been promising. Last month, we presented CTP-354 Phase 1 results at the American Neurological Association Annual Meeting. CTP-354 has been assessed in more than 100 healthy volunteers and treatment was generally well tolerated. We did not see any serious adverse effects or discontinuations due to treatments effects in our Phase 1 program. We’re encouraged by our early clinical work and intend to work diligently to move this program forward. Moving on to CTP-499, our drug candidate for chronic kidney disease. Following our successful end of Phase 2 meeting with FDA this summer, we continue to focus on the next step, which is filing an initial special protocol assessment request with the FDA, which we expect to do by year-end. As we have stated previously, we expect that a Phase 3 program in diabetic nephropathy will be conducted with a collaborator. This week, we’ll present addition biomarker data for CTP-499 at Kidney Week. An assessment of a broad panel of biomarkers suggests a protective effect on disease progression following 48 weeks of treatment with CTP-499, which we believe reflects the inhibition of multiple phosphodiesterase isoforms in vivo. Based on the numerous statistically significant positive effects we observed on prospectively designated biomarkers, we are assured that CTP-499 is pharmacologically quite active in humans and believe the data support as being a disease modifying agent. Before I turn the call over to Nancy, let me mention our preclinical pipeline. While we continue to work intensely to monitor the progress of our clinical programs, we are also evaluating a number of other opportunities and we are in the final stages of selecting a new clinical candidate, which we intend to advance into clinical evaluation next year. This new clinical candidate further demonstrates the strong productivity over DCE Platform based on Concert’s leadership in deuterium medicinal chemistry. While all of our clinical candidates, a new candidate will be selected to provide best-in-class therapeutic benefits to treating an important disease and to making a meaningful difference for patients. We look forward to saying more on this and other potential pipeline advances in 2015. Nancy?

[Nancy Stuart:]

Thanks, Roger, and good morning, everyone. Our collaboration program has made very nice progress during the third quarter. I’ll begin with CTP-730. In September, we announced the initiation of the single ascending dose study. Under our collaboration with Celgene, we are responsible for the conduct of the Phase 1 program, which will include single and multiple ascending dose trials. We expect the Phase 1 program will conclude in 2015. After completion, Celgene will assume control with any future development. For JZP-386, our deuterated sodium oxybate, we have completed enrollment in the Phase 1 trial. We anticipate receiving initial data before year-end and expect to provide an update on the outcome of the study after we have evaluated the data and have determined next steps with Jazz Pharmaceuticals. Finally, I’ll turn to our collaboration with Avanir and AVP-786. Just as a reminder, 786 is our deuterium containing dextromethorphan with ultra-low dose quinidine. During the quarter, Avanir initiated a Phase 2 trial with 786 with the treatment of major depressive disorder. This resulted in a $2 million milestone payment to Concert. In addition to this ongoing Phase 2 trial and according to Avanir’s public statement, 786 has the potential to advance into Phase 3 testing in Alzheimer's agitation. Just by way of background, in September, Avanir announced positive Phase 2 Alzheimer's agitation data with AVP-923, a non-deuterated compound that they have been developing. Based on these positive data, they have stated their intention to develop AVP-786 in place of 923 in future clinical evaluations. Importantly, the FDA has indicated that it would consider an expedited development pathway for 786. This would permit Avanir to reference 923 data in the 786 regulatory filings. So as a next step, Avanir intends to request an End-of-Phase 2 meeting with the FDA where they will also discuss transitioning 786 into Phase 3 clinical development for Alzheimer's agitation. All-in-all, we have a lot of good activity ongoing with these programs. As we approach the end of the year and move into 2015, we look forward to the potential advancement of 786 in multiple trials and the readout of our Phase 1 proof-of-concept studies under our collaborations with Celgene and Jazz Pharmaceuticals. Thanks. I would now like to turn the call over to Ryan to discuss the Q3 financial results.

[Ryan Daws:]

Thank you, Nancy. As we walk through our third quarter financials, please reference the financial tables found in today’s press release. Looking first at revenue. Revenue in the third quarter of 2014 was 4.4 million compared to 681,000 end of third quarter of 2013. Revenue in the third quarter of 2014 was mainly comprised of a $2 million development milestone reached under our collaboration with Avanir and 1.6 million for services performed under our collaboration with Jazz Pharmaceuticals. As a reminder, in the second quarter of 2013, we forged our strategic collaboration with Celgene resulting our receipt of a $35 million upfront payment, of which 17 million was immediately recognized as revenue upon delivery of the license. The remainder of the upfront payment is being recognized to revenue as we execute on our collaboration. All of our collaboration programs are progressing nicely, as Nancy mentioned, and we have the potential to realize approximately $14 million in milestone payments from our partnerships by the end of 2015. On the expense side, research and development expenses were 8.6 million for the quarter ended September 30, 2014 compared to 5.7 million for the same period in 2013. The increase in research and development expenses was primarily related to expenses associated with the Phase 1 proof-of-concept study under our Jazz Pharmaceuticals collaboration, which began during the third quarter as well as ongoing development of CTP-354. General and administrative expenses were 3.5 million for the quarter ended September 30, 2014 compared to 2.1 million for the same period in 2013. The increase was primarily related to expenses associated with operating as a public company, non-cash stock-based compensation expense and professional fees. Our third quarter net loss attributable to common stockholders was 7.8 million or $0.43 per share. For the quarter ended September 30, 2013, our net loss was 7.2 million or $5.59 per share. We ended the quarter with 89.9 million in cash and cash equivalents and investment providing us the financial flexibility to support the business.

[Justine Koenigsberg:]

Thank you, Ryan. This concludes our prepared remarks. We would now like to open the call for questions.

[Operator:]

(Operator Instructions). Our first question comes from Matt Roden with UBS.

[Andrew Peters:]

Hi, guys. Thanks for taking the question. This is Andrew Peters in for Matt. So was just hoping for a little bit more color on the preclinical tox that you’re seeing. Can you characterize the nature of the toxicity that you saw? I guess I’m curious it doesn’t appear to be kind of a PK-related issue given that it seems to come up after extended dosing, so any color there would be helpful. And then just wanted to see to what extent have you involved, if any, the FDA in any of these discussions around kind of the start of the Phase 2 program and are they aware of this new finding?

[Roger Tung:]

Hi, Andrew. Thanks very much for the question. Taking the second question first, we had informed FDA that we intend to delay the start of Phase 2 until we can better understand the toxicological findings and understand a way which to take a compound for that we believe and they agree will be safe. So, as of this time, it’s very early days. I realize there will be a lot of interest in the preclinical toxicology that you’ve indicated and that probably other callers will have. So I’d like to just start out by providing a little bit more discussion. As a reminder, we saw minimal of any toxicology or toxicity, I should say, in the one-month study. So the three months results that we saw were unexpected. We under regulatory guidelines had the necessary coverage to conduct our spinal cord injury associated Phase 2 trial which is planned as a two-week active treatment period and CTP-354 has been generally well tolerated in over 100 subjects, which is the study at doses of up to 12 milligrams for 10 days where we didn’t see any serious adverse effects or treatment-related discontinuations. However, in – and abundance of caution, we’re choosing to delay our clinical progression because we want to understand whether the observed toxicity are species-specific or possibly related to a metabolite that is species-specific and we need to understand whether that has relevance to humans. We will not, at this time, be further characterizing the toxicity findings. The ones that we are reporting today are very recent. This study is still in fact ongoing and we don’t expect to report from our vendor until next year. So we’re working diligently to move the program forward. We believe that CTP-354 has the potential to be a groundbreaking new agent that provides substantial benefits to many patients and we’re focused on moving it forward safely.

[Andrew Peters:]

Okay, great. And I guess just secondly on 499, can you talk a little bit more about kind of the status and your thoughts on partnering that program, especially once you hear back from the FDA and what sort of timing we can expect on any sort of news from that front?

[Roger Tung:]

Sure. Ryan, could you answer that?

[Ryan Daws:]

Sure. It’s our policy not to comment or predict partnerships, so the latter part of that question is going to be the same as it’s been on prior calls which is we’re working a process. We’re filing a SPA by the end of the year with FDA and following that, we will see where the compound and the progress lies.

[Nancy Stuart:]

Just to clarify, we will be initiating the FDA process by year end.

[Andrew Peters:]

Okay. Thank you.

[Operator:]

Our next question comes from Mike King with JMP Securities.

[Michael King, Jr.:]

Thanks guys for taking the question. I just wanted to pursue the tox findings a little bit further. Roger, can you be specific about how many species has 354 been in? I assume you’ve – if you’re in humans, you must have done the two requisite species of tox, correct?

[Roger Tung:]

That’s correct, Mike. As you know, under ICH guidelines there’s the requirement to study toxicology in two species; one rodent and one non-rodent. We’re not identifying the species specifically but that is what we have done.

[Michael King, Jr.:]

All right. Because I guess my concern would be if it’s primate and you’ve got a greater analog to human that that’s a more serious tox finding than something that might be found in let’s say a dog?

[Roger Tung:]

Well, Mike, I do have to say that at least in my experience, monkeys are no closer to humans in terms of their general toxicological response than dogs are. I’ve seen cases where either species can be close to the humans, but what I will repeat is that what we have seen appears to be a species-specific effect and we’re working to better understand whether that has any relevance to humans.

[Michael King, Jr.:]

Do we know if Merck saw the same thing?

[Roger Tung:]

Mike, this compound was an analog of a compound that never got into human clinical studies. Well, it’s never actually in development, so we are the first group that’s doing any toxicological assessment on either the deuterated or non-deuterated logs?

[Michael King, Jr.:]

All right. But I was under the impression the Merck compound never made it into human development because of lack of bioavailability, but does that mean it didn’t undergo a full tox workup?

[Roger Tung:]

That’s correct.

[Michael King, Jr.:]

Okay, all right, I’m mistaken then.

[Roger Tung:]

Yes, the Merck compound was studied pretty broadly in quite a few different species and it was never noted as having toxicity effects in those studies.

[Michael King, Jr.:]

I hate to play 20 questions here but if it were in humans, would it be considered a laboratory finding, like an ALT elevation or would it rise to the level of an adverse event?

[Roger Tung:]

Well, Mike, at this point, again, we don’t really understand the relevance of what we’ve seen pre-clinically to the human situation. That’ something that we’re going to be focusing a lot on in the coming months. At this time, we really are not prepared to discuss this further. As I mentioned, this is very early. We don’t even have a report.

[Michael King, Jr.:]

Yes. And again, whatever you can say about timelines. Obviously, this will have an impact on the commercial projections with 354. Do you have any sense of how long experiments may take to resolve? That’s the question. And any help you can provide us with that?

[Roger Tung:]

Well, I think we’ll know, Mike, when we get a report and we have a chance to assess it and to start doing some experiments based on that information. But as I indicated in the call, we expect that that will take probably half the year or potentially more to understand this. I think it would be unwise of us to try to project more closely what the timelines will be like, because at this point we don’t truly know what we’re dealing with.

[Michael King, Jr.:]

Okay. Thanks very much for taking my questions.

[Roger Tung:]

Sure. Thank you.

[Operator:]

Our next question comes from Brian Abrahams with Wells Fargo.

[Unidentified Analyst:]

Hi. This is Ron Hsu [ph] on for Brian. Thanks for taking the question. Just a couple more questions about the tox findings. Can you talk about at what dose levels these occurred at and if you think [indiscernible] on a dose you can use for the 354 studies?

[Roger Tung:]

Thanks for the question. We really are just not prepared to give any specifics regarding the toxicology studies at this point. I think, again, this is very premature, very early. We are acting we believe very cautiously and prudently. We think that we’re doing the right thing in holding the clinical studies at this time, but at this time we’re not speaking specifically about the tox findings. I do want to say that we haven’t seen in the over 100 subjects that have received CTP-354 what we would characterize as anything that we believe is substantially concerning. We have not seen any serious adverse effects. There were no treatment-related discontinuations. So we think that we have developed a compound reasonably and safely to-date and it’s our intent to continue doing so.

[Unidentified Analyst:]

Got it. And just one more question actually on AVP-923 please. So the ease [ph] there had looked pretty balanced between the 923 and placebo in that Phase 2 trial except for the falls and diarrhea and a baseline you had seen a great number of those 923 patients with actually a history of falls compared to placebo. I’m just wondering how we should think about the relative effect of a lower quinidine dosing on potentially each of those side effects as 786 begins to replace 923 in their development plans?

[Roger Tung:]

Nancy or I can address this, as you like. So the active ingredient in both of those agents AVP-923 and AVP-786 are dextromethorphan and deuterated-modified dextromethorphan, respectively. We believe that those are agents that are really the neurologically active agents and that quinidine is present really only as a pharmacokinetic modifier. We know that the relative level of exposure between dextromethorphan versus deuterated dextromethorphan in 923 versus 786, respectively, is they appear to be essentially identical. So we wouldn’t expect to see difference [Technical Difficulty] or the overall properties of those compounds. Avanir is close to that data. We are not as far as the adverse effects. Our understanding was that there was actually lower morbidity associated with falls in the 923 but I think that question is really best addressed to Avanir and not us.

[Unidentified Analyst:]

Got it. Thank you very much.

[Operator:]

Your next question comes from Bert Hazlett with Ladenburg.

[Robert Hazlett:]

Yes. Thank you for taking the question. I just have one or two more and again my apologies for the 354 continuation discussions, but just thinking about this finding more broadly, is this a type of finding that has been characterized as species-specific previously? And then a second question would be, my understanding is if I have this right, you have [indiscernible] of caution stopped dosing in humans prior to your interaction with FDA. Would you expect there to be a formal decision or action from FDA regarding the studies once you do discuss it with them? If I’m incorrect there, please correct me.

[Roger Tung:]

Hi, Bert. Well, thank you very much for the question. I certainly understand the interest in CTP-354. So with respect to species specificity we don’t, as I indicated, really know what we are dealing with, so I can’t characterize this as being similar to dissimilar to other situations. We certainly know of many cases where development agents have shown species-specific effects, which were later shown mechanistically to be specific to that species and where the compound continued in development to become a marketed agent. So we don’t see the results that we have right now are necessarily something will prevent the development of 354 and we intend to do everything we can to move it along. We think that it has great potential as an agent and we believe that we owe it to patients who could benefit from it to do everything that we could do to get it to market in a safe and responsible manner. I’m sorry, I forgot – I lost the thread on the other question.

[Robert Hazlett:]

Sure. The second part was really focusing on your interaction with FDA. My understanding from your initial comments was that this action with regard to dosing in the Phase 2 was taken prior to formal discussions with FDA about the recent finding. So my question is, would you expect there to be a formal action from FDA once you do have an interaction with them?

[Roger Tung:]

I would hesitate to ever predict what FDA’s actions are going to be. We believe that we’re acting very responsibly here. Just to be clear we haven’t actually stopped dosing. We’re in between studies right now. We had intended to initiate dosing in a Phase 2 study after the completion of our Phase 1 studies, which are now complete. So we are holding off dosing and have not actually initiated it all in the Phase 2 study. So we have informed FDA that we believe we’re seeing toxicity findings in our preclinical study, the three months study. We have informed them that once we receive a report, we will forward it to them and that we are not intending to dose further until we better understand and consult with them on the basis of the toxicities and their potential relevance to species specificity or metabolite performed in animals and not in humans. As far as what FDA’s actions are going to be, I certainly wouldn’t presume to judge.

[Robert Hazlett:]

Okay. And one just quick follow up just to make sure we understand in terms of the prior one-month results versus these initial findings in three months. You saw no signals in the one-month tox studies that would even give you a whiff that something at three months might have come up?

[Roger Tung:]

That’s correct. It was really a surprise to us because at least in my general experience, you usually see some indication in the shorter term tox studies that then becomes amplified in longer term studies. But as we stated, we saw minimal if any toxicity in the one-month studies. So the fact that this popped up in three months was not something that we were thinking would happen.

[Robert Hazlett:]

Okay, terrific. And then just shifting to the Celgene collaboration. Is there any tightening of the timeline in terms of potential data releases, discussions, compound information or otherwise in terms of the progress with the collaboration there?

[Nancy Stuart:]

All we can say there, as you know, we’ve agreed with Celgene not to disclose which non-deuterated compound it reads on but it does read on a compound in Celgene’s portfolio. Our plan is to complete the Phase 1 program and to include a multiple ascending dose trial in 2015. And then following that, Celgene will be responsible for any further development.

[Robert Hazlett:]

Okay. Thanks, guys. I appreciate it.

[Operator:]

(Operator Instructions). Our next question comes from Mike King with JMP Securities.

[Michael King, Jr.:]

Thanks for taking the follow up, guys, and again sorry to keep harping on this, but a couple of questions. One is, has the program – are you putting this on clinical hold or voluntary clinical hold? Or let’s say if the agency agrees with your assessment of the tox, will it be up to them to put it on clinical hold or it’s just too early to determine any regulatory step like that?

[Roger Tung:]

Thanks, Mike. The way that I’d characterize it that we have a delay in the program right now and that we’re acting in a cautious and responsible manner. Clinical hold is really a regulatory term and as of right now, FDA is not responding to anything because we haven’t supplied them with any specific toxicology reports, because we haven’t received them ourselves. So what we’re doing is voluntarily saying that given our findings in the three months study, regardless of the fact that we actually have the formal toxicology coverage to conduct the specificity spinal cord injury study that we feel that we are being more responsible by delaying the program while we better understand these findings.

[Michael King, Jr.:]

Okay. You’re last comment, Roger, has sort of anticipated my next question which was could you conduct a study that went to up to the limit of where the tox was first seen given that you haven’t seen it in the previous studies or do you feel that you would not gain enough information relative to the risk of the downside from potential tox issue?

[Roger Tung:]

Mike, I guess the way I’d look at it is that we always want to put the safety of the patients first. Right now it would be great to be able to get some efficacy data on the CTP-354 because we think that there’s an opportunity, as I mentioned, for the compound to be effective and to be useful but we don’t want to expose patients to potential risks. And given the toxicity findings, the species that we observed in the three-month study, we just want to understand what’s going on better before we do further clinical testing.

[Michael King, Jr.:]

Okay. All right, great. Thanks very much for taking the follow up.

[Roger Tung:]

Thank you.

[Operator:]

Our next question comes from Jason Gerberry with Leerink Partners.

[Jason Gerberry:]

Good morning. Thanks for taking the question. Just quick questions for Roger. Could you just remind us with JZP-386, do you have a full three months of animal tox or just the one month, just curious if you have the full three-month tox with both species, just kind of curious how to compare that to where you’re at with 354?

[Roger Tung:]

Yes. Thanks very much for the question. So we believe – I think where the question may be coming from is question of whether there is a deuterium associated potential for toxicity. And I just want to generally say that we do not believe that there is any deuterium associated to toxicity that in other programs we’ve completed longer term tox up to the fully completed six and nine-month chronic tox that is suitable for marketed drugs. And we haven’t seen anything that is different in the deuterated compounds ever in our tox studies than we have with the non-deuterated compounds. So our belief is that the effect that we’re seeing with 354 is molecule specific and has nothing to do with deuterium content or our plan form in general. So I just want to be very clear about that. With respect to JZP-386, we’re not commenting on what specific studies have been done but we had interacted with regulators to conduct the studies in a well understood, well regulated manner. We believe that the coverage for the compound is well suited for its further development and beyond that, I would let Jazz answer any further questions.

[Jason Gerberry:]

Okay. Thank you.

[Operator:]

I’m not showing any further questions at this time. I’d like to turn the conference back to our host.

[Justine Koenigsberg:]

Thank you very much. Thank you everyone for joining us today. We appreciate your time.

[Operator:]

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.