Concert Pharmaceuticals, Inc.
Q4 2014 Earnings Call Transcript

Published: 27 Feb 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the Concert Pharmaceuticals' Fourth 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 turn the conference over to, Justine Koenigsberg, Vice President of Corporate Communications and Investor Relations. Ma'am, you may begin.

[Justine Koenigsberg:]

Thank you. Good morning and welcome to Concert Pharmaceuticals’ fourth quarter 2014 investor update. A press release announcing our fourth quarter 2014 financial results was issued earlier this morning. An electronic copy of our press release is also available on our newly designed Web site at concertpharma.com. We hope you will have an opportunity to visit our new site which reflects our progress as we deliver on our mission to discover and develop innovative products that have impact for patients by addressing important medical needs. Joining me today are Roger Tung, our President and CEO, and Ryan Daws, our Chief Financial Officer. During the call, Roger will provide an update on our clinical pipeline 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 and good morning everyone. My remarks today will focus on three main areas. First, an update on our collaborations. Second, a review of our proprietary clinical pipeline, and lastly, a discussion of our new developing candidate that we intend to advance into clinical evaluation. Starting with the clinical programs advancing under our collaboration agreement with Avanir, Jazz Pharmaceuticals and Celgene. Our most advanced collaboration relates to AVP-786 with Avanir Pharmaceuticals. Last month, Avanir was acquired by Otsuka Pharmaceuticals for $3.5 billion and is now operating as a wholly owned subsidiary. Following the acquisition, there have been no changes to our license agreement and we continue to anticipate that Avanir will pursue advancing AVP-786 into Phase 3 testing for the treatment of agitation in patients with Alzheimer's disease, as they previously indicated. Avanir has stated that they expect to meet with the FDA to discuss the Phase 3 development of AVP-786. In addition to the anticipated Phase 3 Alzheimer's agitation trial, AVP-786 is also being evaluated in a Phase-2 study in patients with treatment resistant major depressive disorder and we believe it has potential to expand into other indications. AVP-786 has the potential to address a large but poorly served market and, if approved, we would be eligible to receive mid-single to low-double digit tiered royalties on commercial sales in addition to regulatory and sales milestones. We believe that the clinical progression and potential sales of AVP-786 could be important for Concert. Regarding JZP-386, or deuterium-modified sodium oxybate that we licensed to Jazz Pharmaceuticals, we began dosing in the second Phase 1 study in normal volunteers this quarter. JZP-386 is a next generation agent that’s intended to offer advantages over Xyrem, including potential once nightly dosing. We anticipate receiving data during the next quarter and expect to provide an update after we and Jazz Pharmaceuticals have evaluated the data and determined next steps. Move on to CTP-730. CTP-730 is our clinical candidate for inflammatory disease that we are developing with Celgene. We are progressing the Phase 1 program, which as we have previously stated, will include single and multiple ascending dose trials. We expect that the multiple ascending dose study will be completed later this year. Following completion of Phase 1 trials, we will be eligible for our first development milestone payment under the collaboration, which we expect to achieve in second half of 2015. Each of the compounds from our collaboration programs that I just discussed, has the potential to leverage and extend the know, efficacy of marketed drugs for late stage development candidates. By incorporating our deuterium chemistry within those proven drugs, we believe the deuterated analogs have the potential to follow an expedited development pathway similar to a 505(b)(2) approach. All of our collaboration programs are progressing nicely and we hope to realize $14 million in development milestones under these collaborations by the end of 2015. Let me move on to CTP-499 and CTP-354, our proprietary, potentially first in class drug candidates. We expect work on these programs in 2015 will allow us to assess and clearly define the development pathways. For CTP-499, we are focused on a special protocol assessment negotiations with the FDA which we hope to complete by year-end. For CTP-354, we will be conducting additional non-clinical studies to help us understand the adverse effects observed in our three-month, non-clinical toxicology study before proceeding with additional clinical trials. Since our lat update, we were able to confirm that the adverse effects seen in our three-month study were limited to only one of the two species studied. We have a number of additional non-clinical studies, both planned and ongoing, as we work to better understand these results. It's clear that the non-clinical work and its assessment will take some time and we do not believe we will advance CTP-354 into Phase 2 this year. We are focused on continuing our non-clinical evaluation to assess this opportunity and expect to provide an update later this year. We believe our DCE platform and approach provides the opportunity to advance a number of candidates into and through Phase 1 to rapidly determine the best development strategy. Accordingly, we are very excited about our next program to advance into clinic whole evaluation this year. We have selected deuterated ivacaftor for the treatment of cystic fibrosis as the next drug candidate in our pipeline. This is a highly attractive opportunity [for concert] [ph]. We believe we have the ability to efficiently develop a novel, potentially disease-modifying agent for cystic fibrosis patients that safe and well-tolerated. Our preclinical data indicate that deuterated ivacaftor provides the same enhancement of chloride transduction in cystic fibrosis transmembrane conductance regulator or CFTR channels as does ivacaftor. As such, it could potentially be used as a monotherapy in patients affected by certain gating mutations. In addition, we believe it could enable a combination with other CFTR modulators and other genotypes to expand patient options in the treatment of cystic fibrosis. Our preclinical data supports greater metabolic stability and potentially longer half life. We intend to begin Phase 1 clinical evaluation in the first half of this year, initially evaluating two analogs. The Phase 1 program will also include single and multiple ascending doses and is intended to evaluate safety and pharmacokinetics of our deuterium-modified ivacaftor. We hope that this program could realize an expedited development pathway and intend to discuss our regulatory approach with FDA. Our DCE platform has been extremely productive in creating a robust and highly diverse development pipeline. As evidenced by our current clinical candidates, deuterium has the potential to provide a wide-range of important new therapeutic agents. 2015 will be an important year for the clinical progression of our pipeline. We expect to gain important insights on the number of compounds to guide the best path forward. We are also embarking on a new and exciting clinical program in cystic fibrosis. And from our maturing pipeline, we hope to have an additional deuterated compound advance into pivotal testing. We look forward to keeping you updated on our progress. I would now like to turn the call to Ryan to discuss the full year 2014 financial results.

[Ryan Daws:]

Thank you, Roger. As I walk through our 2014 financial results, please reference the financial tables found in today's press release. Looking first at revenue. For the full year 2014, revenue was $8.6 million, compared to $25.4 million in 2013. The decline in full year revenue was almost entirely a result of the collaborations we signed with Jazz and Celgene in 2013. As a reminder, in the second quarter of 2013, we forged our strategic collaboration with Celgene in our receipt of $35 million of payment of which $17 million was immediately recognized as revenue upon delivery of the license. In the first quarter of 2013, we signed our licensing agreement with Jazz wherein we received $4 million of upfront payments of which $3.7 million was immediately recognized as revenue upon delivery of the license. On the expense side, research and development expenses were $27.6 million in 2014 compared to $21.8 million in 2013. Increase in research and development expenses was primarily related to development activity of CTP-354 as well as Phase 1 studies conducted under our Jazz and Celgene collaboration. General and administrative expenses were $11.6 million in 2014 compared to $8 million in 2013. The increase was primarily related to cash compensation and non-cash stock based compensation expenses and expenses associated with operating as a public company. Our 2014 net loss attributable to common stockholders was $31.8 million or $2 per share. For 2013, our net loss attributable to common stockholders was $6.5 million or $4.99 per share. We ended the year with $79.2 million in cash, cash equivalents and investment. We believe our cash is sufficient to fund our operations into the second half of 2016.

[Justine Koenigsberg:]

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

[Operator:]

[Operator Instructions] And our first question will come from the line of Matt Roden of UBS. Your line is now open.

[Matt Roden:]

I guess I wanted to start with the ivacaftor program. First of all, can you confirm, I would imagine this is a once daily version of ivacaftor. Can you confirm that? Secondly, deuteration tends to impact metabolism rate, as I understand that. I guess what I would really like to know is whether or not you would expect to see an increase in dwell time on the salt surface of the CFTR as a result of using this as opposed to the native ivacaftor. Just asking you in light of the data that shows that ivacaftor dwell time appears to be lessened in the presence of cystic fibrosis correctors. Whether or not there is data or artifacts [indiscernible] has inhered the data I think, but I would be curious to know whether or not you think that your analogs would be able to actually extend the dwell time and therefore maybe generate a differential efficacy profile?

[Roger Tung:]

Thanks for the question. I think much of what you are asking is, as you pointed out, really in a range of being unknowable at this point in the sense that there are certain laboratory artifacts that have observed and reported, but the translation of those laboratory events into clinical data is really uncertain. And so the answer to your question really becomes one that requires clinical demonstration. We demonstrated superior pharmacokinetics for our deuterated versions in animals and we are going to assess whether that’s also true with humans. We hope and assume that that is the case but that is something that we will assess in the clinic as we test the compounds. We have seen that the effects of deuteration are significant in this case and we will be very curious to understand how that translates into human dosing. We are also going to evaluate other features of deuteration that might provide other benefits relative to ivacaftor. Again those are going to be clinical questions in nature and we will expect those features to emerge during the course of the program. And I don’t want to be overly speculative at this point.

[Matt Roden:]

Okay. No, that makes sense. I guess, the related question I would ask you is, whether or not you have looked at these compounds, it sounds like they are more than one, in the HBe assays or some sort of related or analogous system to that?

[Roger Tung:]

We have and we are continuing to assess them. So I think what's really important to hear is that, what we have the opportunity to do is bring forward what we hope and believe will be an effective safe disease modifying new potentiate or agent to provide both as monotherapy and I think very importantly as part of additional combination therapies that will provide new choices for physicians and patients.

[Matt Roden:]

Okay. Great. And then 499, curious if you have gotten feedback from potential partners, I bet an SPA would be an important factor for them. Just trying to figure out the incremental benefit, so to speak, of getting the SPA, rather than normal sort of agreement with the FDA on endpoints. Whether or not you think that SPA can validate a program in the eyes of a potential partner.

[Roger Tung:]

Look, I mean we don’t comment on the business development discussions that we are having. I think what we can say is we think that the SPA is important for a variety of reasons. Among them is the business development dialog but also as it is such a long dated trial, it will be great to know, three years from now, the endpoints are kind of agreed to and that they are not subject to change. So we do think that people will be interested in knowing exactly what the programs is going to look like.

[Matt Roden:]

Okay. No, that’s helpful. Lastly, just [indiscernible] financials, Ryan. Can you confirm that the shares outstanding is what's in the payable today. Are the shares exiting 4Q '14 or is that in average of the quarter or an average for the year?

[Ryan Daws:]

So the one in the press release would be the average of the year. The shares at the end of the -- that you will see on the cover of the 10-K are going to be closer to 18.3 million shares.

[Operator:]

Thank you. And our next question comes from the line of Brian Abrahams of Wells Fargo Securities. Your line is now open.

[Brian Abrahams:]

So first question is on the deuterated ivacaftor program. I know you presented on deuterated analogs of ivacaftor a few years ago but I think at that time you were sort of leaning a little bit more towards COPD, given the competitive landscape and potential challenges conducting studies of potentiators in CF. So I am curious, what prompted you to advance the program now at this point. Was there any new preclinical findings that emerged? Was this more of a business decision and what gives you confidence now to sort of lean towards CF as the initial indication here?

[Roger Tung:]

Hi, Brian. Thanks for question. Those are great questions. I think one of the things that really has tipped us to moving in this program is that, one, I can say that we have always been excited about it, which is one of the reasons that we have showcase it in the past. But we are capital constrained as a private company. Having received the proceeds of the IPO and being in a position now to expand our product pipeline, that seems like an evident area where there is a lot of activity. As you know there are many different mechanisms that are being pursued in the cystic fibrosis treatment area. Not only correctors and potentiators but also a variety of new potential mechanisms, including other mechanisms of correction. We think that having a potentiator would be a very important adjunct in many of those combinations and that having a compound that has the properties that we hope that deuterated ivacaftor will, we would position it to be not only a potential monotherapy but also to enable and to extend the efficacy of other mechanisms. So what we see is an entity that could be part of a substantial number of combinations that could improve the efficacy of existing cystic fibrosis therapies to extend the number of patients who are treated with them. And as I stated before, to really add more options for patients and physicians.

[Brian Abrahams:]

Okay. Makes sense. And then what's your level of confidence in freedom to operate from IP standpoint?

[Roger Tung:]

Well, we would never really comment on that. We think that we have a great intellectual property position. We have been issued U.S. patents on our compound and other than that I wouldn’t comment.

[Brian Abrahams:]

Okay. On 354, how common is this [indiscernible] side effects that you are seeing to be observed in this one particular species and to what degree the FDA involved in these next steps in the work that you are doing. I guess I am just trying to figure out if there is sort of just a couple of boxes that you need to check for regulatory comfort to move this into Phase 2, or if you really have to kind of go back to the drawing board and pull together a full suite of data that then you can take to the agency to try to convince them that it's safe to move forward.

[Roger Tung:]

Well, everything that we have done so far in this program has been voluntary in terms of keeping the program from entering into Phase 2. But having said that, what we have communicated previously and I think what's the right thing to do, is that knowing that we have this unfortunate adverse effect in one of the species that we would engage with FDA and review our data with them prior to conducting Phase 2 testing in humans. Despite the fact that it's been in over 100 volunteers, we certainly don’t want any situation where we would incur unnecessary risk relative to the benefit that we could provide with the compound. We are assessing it as indicated. I am not a toxicologist so I won't try to speak about the commonality of the findings that we observed. But they have our attention and we are going to be diligent about pursuing the causality of them.

[Operator:]

[Operator Instructions] And our next question comes from the line of Bert Hazlett of Ladenburg Thalmann. Your line is now open.

[Robert Hazlett:]

I will follow up again on ivacaftor. Could you describe maybe a little bit in more details, Roger, about the data you expect to generate in the Phase 1 studies. Any more granularity you can give would be helpful there and I have a couple of financial after that.

[Roger Tung:]

Sure. Thanks for the question, Bert. So we are going to do two types of assessments in the Phase 1 study. The first of them is that we will be looking at two different deuterated analogs and we will be doing a single dose of crossover test between those to determine which one to go forward with. One of the really interesting, and I think advantageous aspects of the technology that we have, is that it is relatively straight forward to assess multiple analogs in their early stage testing. I think under the normal pharmaceutical paradigm to bring two compounds into an initial head to head test would require substantially more investment in a longer time frame than we have been able to use in moving forward our two analogs of deuterated ivacaftor. So we will assess those head to head. Choose one of the compounds and then carryout a traditional single and multiple ascending dose study, looking at the safety and pharmacokinetics of the compounds before moving them to subsequent trials.

[Robert Hazlett:]

Okay. That’s helpful. And then, I guess maybe you just touched on this, with 354, just a quick one on that. Does the single species talks give you any greater confidence, maybe that’s the wrong word, but confidence that you can adequately characterize the toxicity and move the molecule forward?

[Roger Tung:]

Well, we are certainly encouraged by the fact that we have observed is really only in a single species as far as we can determine. The ability to take the compound forward will be reliant on assessment that what we have in that species is not relevant to humans. So you have one that we are observing, some talks, results in and one that we are not. And we really need to understand on a fundamental level whether the mechanism that’s observed in species that has it, is a mechanism that applies or is likely to apply to humans or is not and if the latter than we get more confidence, sure.

[Robert Hazlett:]

Okay. Thank you. And then just a couple of quick financial questions. In terms of the development milestones, I think you referred to a $14 million figure that’s expected for 2015. Please correct me if that’s not right. And then you mentioned that you were expecting it directly from Celgene. Should we expect others from both Jazz and Avanir/Otsuka, or one or just the other. And then just, Ryan, given some of the swings and pushes and pulls with R&D, how would you expect R&D to trend in 2015 relative to 2014. Thanks.

[Ryan Daws:]

Sure. So maybe tackling the milestone question first. I think we said we have a total of $14 million potentially available this year. Recall that $8 million of that would be Celgene, upon completion of the Phase 1. And then there would be a $4 million milestone with Jazz, assuming the advance in the Phase 2 with the compound. And then a $2 million milestone associated with Avanir/Otsuka for taking the compound into Phase 3, dosing in Phase 3. Then the second question you had was more about the development expenses. We do think they will trend up. I think our guidance for cash burn, which I think really at the end of the day where you are going with it, is we expect to have sufficient cash to get us to into the second half of '16. And we have, as you note on the balance sheet, $79 million -- $79.2 million of cash.

[Operator:]

Thank you. And I am showing no further questions at this time. I would like to turn the conference back over to Justine Koenigsberg for any further remarks.

[Justine Koenigsberg:]

Great. Thank you for joining us today. As a reminder, next week we will be presenting at the Cowen conference followed by the Roth and Barclays healthcare conferences. And you can find more information on the events page within the investors section of our new Web site. We look forward to keeping you updated on our progress. Thank you again for joining us and have a nice day.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day everyone.