Concert Pharmaceuticals, Inc.
Q2 2015 Earnings Call Transcript

Published: 5 Aug 2015

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Concert Pharmaceuticals Second Quarter 2015 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 be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the conference over to Vice President of Investor Relations, Ms. Justine Koenigsberg. You may begin, ma’am.

[Justine Koenigsberg:]

Thank, Andrew. Good morning, and welcome to Concert Pharmaceuticals’ second quarter 2015 Investor Update. A press release announcing our second quarter results was issued earlier this morning. An electronic copy of our press release is also available on our website at concertpharma.com. Joining me today with prepared remarks are Roger Tung, our President and CEO, Nancy Stuart, our Chief Operating Officer and Ryan Daws, our CFO. After our prepared remarks, we will open the call for 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. Good morning and thank you for joining us today. We made great progress for the first half 2015 with the evolution of our product line. In addition, our balance sheet has never been stronger. As a result, Concert is poised for continued advancement towards the development of innovative new medicines, targeting a range of important diseases. The productivity of Concert’s DCE platform is demonstrated by our ability and expand our product pipeline. We now have multiple clinical programs that show the potential of our technology to substantially improve the therapeutic properties of our drugs. The majority of our pipeline and the focus of our markets today are growth candidates in which we have used selective deuterium incorporation to enable metabolic improvements to existing drugs. These agents provide potential opportunities to both improve the clinical properties to the existing drugs for improved uses and to expand their utility into new ones. The rapid progress of AVP-786 is noteworthy in that it demonstrates the latter case, with the development of our deuterated compounds and previously unimproved indication. Along with our progress in pipeline advancement, we have substantially spread the financial position in the first half of 2015. Our strong balance sheet provides a solid base from which to maximize the value of our existing product candidates and to expand our product pipeline with programs that offer the potential to create new medicines more efficiently and cost effectively than traditional pharmaceuticals R&D. Our program focused today will be on AVP-786, CTP-656 and CTP-730 and will be presented by Nancy.

[Nancy Stuart:]

Thanks, Roger and good morning, everyone. I’ll begin with AVP-786. Just as a reminder, 786 is being developed under our collaboration with Avanir Pharmaceuticals. AVP-786 is poised to be the first Concert covered compound to enter Phase III testing. In the second quarter, Avanir confirmed its plan to advance 786 into pivotal registration studies in agitation associated with Alzheimer’s disease. This is an indication with our currently no improved treatment. The trials are expected to begin next month and to enroll approximately 700 patients. The Phase III primary efficacy studies, will each consist of 12 weeks of treatment and the main efficacy measure will be the agitation aggression domain score of the neuropsychiatric inventory or NPI. This is the same primary endpoint Avanir used in the Phase II study, evaluating non-deuterated dextromethorphan which was strongly statistically significant. With more than 5 million people in the U.S. with Alzheimer’s disease and an estimated half of those experiencing agitations, 786 has blockbuster potential. The 786 program continues to move forward in an expedited manner, following the acquisition of Avanir. Otsuka has brought global reach and 786 with a key driver in their acquisition of Avanir. Avanir is projecting the completion of the Phase III studies in the mid-2018 timeframe. This 786 is commercialized, constantly receives royalties in the mid single-to-low double-digit range in addition to the potential regulatory and sales milestones which could total to over $160 million. In addition to Alzheimer’s agitation, Avanir is evaluating 786 for treatment resistant to major depression which is expected to be completed in the second quarter of 2016. And finally, Avanir plans to initiate another Phase II trials with 786 in residual schizophrenia further broadening the opportunity for 786 across the number of neurologic or psychiatric disorders indication[ph] with the first efficacy data read out expected next year. I’ll move on now to CTP-656. Our goal here is to develop a one [indiscernible] treatment to expand patient options. 656 is opposant and a selective potentiator which we project will have a strong safety and tolerability profile. Accordingly, we are aggressively investing in this development and believe 656 can become an important partner for other CFTR modulators in order to create potentially improved treatment for cystic fibrosis patients. We are progressing nicely with this program in Phase I testing, and the multiple ascending dose study is expected to begin in the fourth quarter of 2015. We are very enthusiastic about the potential of 656 and monitoring the treatment as well as in combinations with a range of other agents. Based on our interactions with physicians and staff patients, it’s clear that their broad interest from the community and additional therapeutic options. We are committed in advancing the 656 program as rapidly as possible. Our initial focus is to evaluate the compound in patient with the G551D gating and [indiscernible] function patients as monotherapy. However, we believe there may be opportunities to expand into other CF mutations as part of combination therapies and possibly address other non-CF indications. As our development plans are finalized, we will provide updates on the 656 program. Turning now to our collaboration with Celgene. CTP-730 is a deuterated version of one of Celgene’s portfolio compound and it is intended for the treatment of inflammatory disease. The clinical conduct of the 730 Phase I multiple sending dose trial was completed this quarter and we expect to achieve $8 million development milestone from Celgene in the fourth quarter after we provide them with completed study report. Under our Celgene agreement, we have been responsible for conduct and cost of 730 Phase I studies and Celgene would be responsible for any further development and cost beyond Phase I. We are pleased with the progression of the program today and look forward to Celgene assuming responsibility for its further advancement. In summary, our current focus is to use our novelist[ph] human approach to approve upon existing drug candidate or marketed product. And finally, I would just like to underscore Roger’s statement that our pipeline has significantly evolved in the first half of this year. I will pause now and turn the discussion over to Ryan to report on our second quarter financial results.

[Ryan Daws:]

Thank you, Nancy. As we walk through our second quarter financials, please reference the financial tables found in today’s press release. Looking first at revenue, for the second quarter of 2015, revenue was 53.4 million, compared to 1.2 million in the corresponding period of 2014, which was primarily due to the recognition of the $50.2 million payment we received under the patent signed agreement with Auspex as a result of their sale to Teva. In the second half of 2015, we expect to realize 10 million in milestone payments relating to our collaborations. As Nancy mentioned, upon completion of CTP-730 Phase I program we are eligible for an $8 million payment from Celgene which we expect to receive in the fourth quarter of 2015. An addition of $2 million will be recognized from Avanir when the Phase III Alzheimer’s agitation trials begin. On the expense side, research and development expenses were 8.4 million in the second quarter of 2015, compared to the 6.2 million in the corresponding period of 2014. The increase in research and development expenses was primarily related to the development activities of CTP-656 and CTP-730. General and administrative expenses were 3.3 million in the second quarter of 2015 compared t 2.7 million in the corresponding period of 2014. The increase was primarily related to non-stock cash based compensation expenses. Our second quarter 2014 net income attributable to common stockholders was $41 million or $1.89 per share basic and $1.80 per share diluted. For the second quarter 2014, our net loss attributable for common stockholders was $8 million or $0.45 per share. As a result of the one time Auspex change of control planning we expect to be profitable for the full year 2015. We expect as deficient operating loss carry forwards available to offset our estimated taxable income for fiscal 2015. However, we recorded a tax provision of $600,000 during the second quarter to recognize our expected alternative tax obligation for 2015. We ended the second quarter with $151.7 million in cash, cash equivalents and investments. We believe our current cash is sufficient to fund our operations into 2018. As we end this quarter, I’m pleased to report that Concert has a strong balance sheet and the financial resources to invest in our portfolio of promising product candidates.

[Roger Tung:]

Thanks, Ryan and Nancy. Concert has a robust pipeline comprising both clinical stage compounds including those discussed today, and a writ set of pre-clinical programs. We are focused on identifying candidates with attractive therapeutic and commercial potential which we can independently develop to build value in our portfolio. Our strong cash position is enabling us to maximize the value of our product portfolio and technology and our team at Concert is more enthusiastic as ever about the opportunities ahead. With that, we would be happy to address any questions.

[Operator:]

[Operator Instructions]. And our first question or comment comes from the line of Matt Roden with UBS. Your line is now open.

[Jeff Hung:]

Hi this is Jeff Hung in for Matt. For AVP-786, it looks like a full Phase III study being conducted as a single study plan. Is there anything do about deuterated analog general with respect to the potential patent approval? And full clinical trial – and do you think that concerned programs whereby Phase II/III have approval – I just have another question. Thank you.

[Roger Tung:]

Thanks for the question, Jeff. So, just as a reminder, AVP-786 is moving into a Phase III program without first having gone through Phase II of that indication. So we see that as a clear situation where there has been an acceleration of the deuterated compound relative to what would ordinarily be available to the non-deuterated FC. The fact that it is going through two Phase III studies isn’t really does surprising because this is an indication which has previously been approved. So this is in fact potentially the first compound to be approved ever for that indication.

[Jeff Hung:]

Okay, thanks. And then what is the strategy for presenting data in [indiscernible], will we see single spending dose data presented somewhere like just trying to find ways for the multiple spending dose data before showing that you have…

[Roger Tung:]

That’s been our plan that we’ve communicated previously. We do hold back the right of course to present interim data in an appropriate circumstance if there is reason to do so. But at this point, our plan is to present of completion of program late this year or early next year.

[Jeff Hung:]

And then related with additional Phase I data would you require the [indiscernible] spending dose combination or could you start combos at the end of the multiple spending dose? And then logic is what’s the combination partner be at that point?

[Roger Tung:]

We are not commenting at this time on analogical pathway, what we have indicated is that we are initially focused on moving the compounds forward in the gating and minimal function mutations because that’s an area where we know that the mechanism is effective and we are of course sitting and demonstrating the efficacy of CTP-656. Clearly, we’ll want to expand our focus beyond that but the timeframe and the way in which we do that is something that’s going to hold during the clinical progression program.

[Jeff Hung:]

Okay. And then last one is could you clarify what you mean by non-CF indication? Thanks.

[Roger Tung:]

Right. There are number of disease states in which the CFTR appears to play a role in the pathology of diseases, probably most prominent to Mangos or you’re way to see it, COPD, and asthma. So those are one such – we are interested in assessing for possible clinical development.

[Jeff Hung:]

Thank you.

[Operator:]

And our next question or comment comes from the line of Bert Hazlett with Ladenburg. Your line is now open.

[Bert Hazlett:]

Yes. Thanks for taking the question. I just – I’d like to follow on a little bit, could you Roger, could you elucidate a little bit further about what might be an optimal time that you might consider additional partnerships with 656? And when do we get a sense of your significant commitment to choose this molecule?

[Roger Tung:]

Hi, Bert. Thanks for the question. Well, in terms of commitment, the compound we are moving it along as rapidly as we are able to. So, there is no lack of effort on our parts to progress the compound quickly. We have taken it from as you know, the beginning of last year, the compound was not only preclinical but it had not even entered into being a developing candidate. So we brought that through and guided it to the clinic – a very short period of time for typical drug development program. We are in process now of exploring it in Phase I studies at the beginning of this year. As you know, we had two candidates which we were interested in pre-clinically and again based on their positive pharmacokinetic data, we then took the two compounds two full development into an initial human crossover study and based on that, have identified that clinical candidate CTP-656. So there’s already been quite a bit of work over the course of the past in particular 18 months and really six months in moving the program forward. In terms of taking it into further studies beyond, studying the compound is monitored as you know we are having very open discussion with a variety of different companies who are working in this area but as is typical, we don’t comment on this development. And so, we’ll be more specific about that as we reach agreements and time is appropriate.

[Bert Hazlett:]

Thanks for that. Could you also just give us a brief update on the status of 499, if you mentioned it, perhaps I missed it and the potential for the SPA to come through and other activities and also on 354? Thank you.

[Roger Tung:]

Sure. With CTP-499, the discussions with FDA are proceeding well and we continue to anticipate that we will have a special protocol as been agreed with them this calendar year. So we feel very good about that process. With the respect to CTP-354, as we communicated earlier, we are assessing the compound pre-clinically. We have been conducting R&A analyzes expression of genes in the animals which had a toxic response to it in the preclinical studies and based on that we are assessing the potential to move the compound forward into further human clinical studies. As we stated before, when we completed that analysis, our intent is really to do a portfolio assessment and determine whether that represents a sufficient opportunity relative to other things that we have certainly in the works to move it back into development. It’s clear that there will be substantial amount of work if we intend to do that, just based on previous experience with compounds that shows single species stocks.

[Operator:]

And our next question or comment comes from the line of Robert [indiscernible] with Aegis Capital. Your line is now open.

[Unidentified Analyst:]

Good morning. And Roger, you just touched on something that I was going to ask and that is the advancement of the compounds from preclinical to clinical. Are there any milestones that we can look forward to or any intention in the 12 months?

[Roger Tung:]

Well Robert, thanks very much for the question. We had stated previously that our intent is to bring another compound into the clinic next year. So, the process that’s been ongoing at the company is to review our preclinical portfolio to determine which of those provides an opportunity that we feel – as I mentioned in my remarks can be taken forward to provide an important new medicine that our technology meaningfully has to – and that process is going as planned and we continue to anticipate another compound entering in 2016.

[Unidentified Analyst:]

Okay, great. Congratulations on the progress.

[Roger Tung:]

Thank you very much.

[Operator:]

And I’m showing no further questions at this time. So with that said, I’d like to hand the call back over to Justine Koenigsberg for any closing remarks.

[Justine Koenigsberg:]

Thank you. Thank you everyone for joining us today. I’ll close with mentioning that we’ll be presenting next at the Wells Fargo, Robert Baird and Ladenburg conferences in September and hope to seeing many of you there. And we’ll conclude our call, thank you for joining us.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This conclude the program. You may all disconnect.