Concert Pharmaceuticals, Inc.
Q4 2015 Earnings Call Transcript

Published: 1 Mar 2016

[Operator:]

Good day ladies and gentlemen, and welcome to the Concert Pharmaceuticals Fourth 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 follow at that time. [Operator Instructions] As a reminder, this call maybe recorded. I would now like to introduce your host for today’s conference, Justine Koenigsberg, Vice President of Investor Relations. Please go ahead.

[Justine Koenigsberg:]

Thanks, Kate. Good morning, and welcome to Concert Pharmaceuticals’ fourth quarter and year-end investor update. Our press release announcing our financial results along with the press release we issued last night, describing CTP-656 clinical trial results are available on our website at concertpharma.com. Joining me today with prepared remarks are Roger Tung, our President and CEO; Jim Cassella, our Chief Development Officer; and Ryan Daws, our CFO; and Nancy Stuart, our Chief Operating Officer will join us for the Q&A portion of the call. As a remainder, 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 annual report on Form 10-K 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. As we begin the first months of 2016, we couldn’t be more excited about the prospects for Concerts’ portfolio of deuterium modified medicines. In particular, we are excited and focused on the progress we expect to make this year with our drug candidates. Our goal remains to develop innovative treatments that have the potential to provide important benefits to patients. Looking back on 2015, we made substantial investments in our pipeline and in our business to support multiple clinical stage compounds across clinical research and development, manufacturing, intellectual property and regulatory functions. Our team has been exemplary and their efforts to advance our novel cystic fibrosis compound CTP-656 as rapidly as possible while maintaining excellent quality and focus. We expect that we are well positioned to execute on our business plan in 2016 and beyond. We’re continuing to broaden and strengthen our deuterium chemical entity or DCE Platform which is the underpinning of our business. This technology platform provides the opportunity to develop products that can provide important improved patient benefits whether competing with the non-deuterated drug in an existing market or meeting an unmet need in a new market. CTP-656 has demonstrated properties that we believe will make it a better medicine in Kalydeco. Our platform can also leverage the known activity of proved drugs to expand into new indications as is the case with deuterated dextromethorphan, the active ingredient in AVP-786. Deuterated deuterium modification has the ability to create important new compounds with a strong intellectual property protection and address clinically and commercially important indications. We continue to assess and explore new development opportunities to leverage our technology and grow our pipeline. I’d now like to review our deuterium drug candidates that are being developed under collaborations. This past year, we completed the necessary clinical work with CTP-730 for Celgene and JZP-386 for Jazz Pharmaceuticals. In the case of both of these programs we showed positive deuterium effects in Phase 1 studies for the deuterium modified drug candidates. For CTP-730 in collaboration with Celgene, we provided Celgene with a clinical study report in October of last year, earning a financial milestone for Concert. We are encouraged by the favorable pharmacokinetic profile of CTP-730 observed in our Phase 1 clinical trials. The study demonstrated the once-daily dosing of 15 milligrams of CTP-730 administered for seven days and similar study state exposure as historical date for 30 milligrams twice-daily of apremilast. Celgene is accessing the path forward for CTP-730 which may also have potential in other indications. However, CTP-730 has not ended as balanced into new trials at this time. For JZP-386 in collaboration with Jazz Pharmaceuticals, we showed favorable deuterium related effects in Phase 1 trials. Jazz is exploring formulation options, design to leverage the positive effects observed in trials. In addition to our programs with Celgene and Jazz pharmaceuticals, another prominent clinical candidate is AVP-786, which is being developed by Avanir Pharmaceuticals. We’re very pleased to see the robust clinical focus on AVP-786, which is now progressing in multiple Phase 2 and Phase 3 trials for major neurologic and psychiatric diseases, each of which independently represents a large market opportunity. In Avanir’s most advanced clinical program with AVP-786, two Phase 3 clinical trials were initiated in November of 2015, to evaluate its safety and efficacy in approximately 700 patients for the treatment of agitation associated with Alzheimer’s disease. Avanir has projected that the Phase 3 trials are expected to be completed in third quarter of 2018. As a reminder, there are no approved medicines for this indication, which we believe is a truly important medical need and likely a blockbuster commercial opportunity. This AVP-786 program was recently granted Fast Track Designation by the FDA. Avanir is also conducting two Phase 2 trials with AVP-786. The first as an adjunctive treatment in patients with major depressive disorder, and the second has an adjunctive treatment in patients with residual schizophrenia. The MDD trial is more advanced of the Phase 2 studies and Avanir expects it to be completed in the second quarter of the this year. The next stage of development for these drug candidates will be directed by our collaborators. This gives us the ability to focus our attention and resources on rapidly developing our proprietary pipeline. Let me conclude my overview with further prospects for Concert’s proprietary pipeline. As a priority in 2016, we expect to announce a new developing candidate and advance it into a Phase 1 clinical trial this year. Our new candidate is based on a marketed drug which was selected to provide first-in-class therapeutic benefits to treat an important disease with high unmet medical need. We expect to say more about the compound and the indication when it advances into clinical evaluation. Now let me turn the call over to Jim to discuss the latest CTP-656 results.

[Jim Cassella:]

Thanks, Roger. We’re very pleased with the profile of CTP-656 emerging from the Phase 1 program. We are excited by the potential to offer better treatment option for people with cystic fibrosis. We look forward to exploring the potential for our CTP-656 to achieve enhanced efficacy, as a result of greater exposure to the more active parent relative to the less-active metabolite, as well as the potential for improved adherence due to the ability to dose CTP-656 once-daily. Our multiple ascending dose Phase 1 trial with CTP-656, which was initiated in the fourth quarter of 2015, is progressing as planned. We announced last night results from the first part of the trial which was a single 150 milligram tablet-to-tablet comparison of CTP-656 versus current standard of care, Kalydeco. The results confirmed CTP-656’s superior pharmacokinetic profile compared to Kalydeco across a number of parameters and are consistent with what we have observed with our aqueous suspension in the pervious Phase 1 study. We continue to see a reduced rate of clearance with CTP-656, resulting in substantially increased exposure and a longer half-life. CTP-656 is half-life is about 15 hours which supports our use of once-daily dosing in our upcoming efficacy studies. We believe simplification of treatment regimen is an important factor for patient care. The ability to simply dosing may support better patient outcomes as a result of improved adherence. With both these solid dose and suspension formulation, the overall metabolite exposure profile of CTP-656 different from that of Kalydeco. For 656, the greatest exposure in plasma was to parent drug, which is the most active species, whereas with Kalydeco, the greatest plasma exposure was to less-active metabolite. As I mentioned earlier, we believed in enhanced efficacy of CTP-656 maybe a result of greater exposure to more active parent relative to less-active metabolites. Overall, these results important goal of a more convenient once-daily medicine that we believe will enable improved adherence and they also have additional patient benefits including their potential for reduced drug-drug interactions. The second part of the multiple ascending dose Phase 1 study, which is currently ongoing, is design to access three doses of CTP-656, 75, 150 and 225 milligrams administered daily for seven days compared to placebo to access the safety tolerability and PK of CTP-656. We intent to report top line results from this trial in April. We also recently initiated a Food Effect study that is designed to access bioavailability of CTP-656 under various fed and fasted conditions. As a reminder, Kalydeco needs to be dose with fat containing food twice-daily for optimal absorption. We will access fed and fasted conditions to evaluate the effect of CTP-656, and subsequent to this, we will set the dosing condition for the upcoming Phase 2 study. Results from the Food Effect study should also be available in the second quarter of this year. We are actively preparing to move CTP-656 into a Phase 2 efficacy trial in cystic fibrosis patients with gating mutations. We’ve recently met with the FDA to discuss the development pathway for CTP-656. FDA provided feedback to help us develop at our approach that would advance CTP-656 to registration as quickly and efficiently as possible, under our 505(b)(2) approach. As a result, we intend to implement changes to our initial study design. However, we expect the overall size and the duration of treatment will be similar. We’ll be working with clinicians to develop a revised Phase 2 protocol. We’ll remain focus on advancing 656 into an efficacy extension study, later this year. There is a lot of enthusiasm around the beneficial profile CTP-656 within the cystic fibrosis community, and we look forward to advancing our program as rapidly as possible. With that, let me turn the call over to Ryan to discuss our 2015 financial results.

[Ryan Daws:]

As I walk through our 2015 financial results, please reference the financial tables found in today’s press release. Looking first at revenue, revenue was $66.7 million for the year ended December 31, 2015, compared to $8.6 million for the year ended December 31, 2014. The increase in revenue was primarily due to the recognition of the $50.2 million change in control payment arising from the patent assignment agreement we had with Auspex and which was triggered as a result of Auspex’s sale to Teva. In addition, in the fourth quarter, we received total development milestone of $10 million under our collaborations with Celgene and Avanir. As a result of completing Phase 1 trials with CTP-730, we received $8 million from Celgene. We also achieved a $2 million milestone from Avanir in connection with the start of the Phase 3 Alzheimer’s agitation trials. On the expense side, research and development expenses were $28.9 million for fiscal year 2015, compared to $27.5 million in 2014, an increase of $1.4 million. The increase in research and development expenses was due to higher headcount and increased expenses associated with the developments of CTP-656, which are partially offset by reduced expenses associated with other programs. As we continue to advance CTP-656, in our next clinical candidate toward efficacy read outs in 2017, we expect the expenses will increase about historical levels. General and administrative expenses were $13.1 million for fiscal year 2015, compared to $11.7 million in 2014. The increase of $1.4 million in G&A expenses was primarily related to compensation expenses, predominantly non-cash stock-based compensation. Our 2015 net income attributable to common stockholders was $24.2 million or $1.14 per share. For 2014, our net loss attributable to common stockholders was $31.8 million or $2 per share. As a result of the one-time aspect change in control payment, we were profitable for the full year 2015. We have sufficient operating loss carryforwards available to offset our estimated ordinary taxable income for fiscal 2015. However, we recorded a tax provision of $429,000 in 2015 related to an alternative minimum tax obligation. We ended the year with $142.2 million in cash and cash equivalents and investments. We believe our current cash is sufficient to fund our operations into 2018 and achieve a number of inflection points for our clinical programs over the next 12 months to 24 months. Looking ahead in 2016, I am pleased to report that we have the financial resources to invest in our portfolio of promising product candidates including the advancement of CTP-656 into its first efficacy trial.

[Justine Koenigsberg:]

Thanks, Ryan. Excuse me, this concludes our prepared remarks. And we would be happy to address questions at this time.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Matt Roden with UBS. Your line is open, please go ahead.

[Jeff Hung:]

Thanks for taking the question. This is Jeff Hung in for Matt. For 656, once you moved to multi-dosing given the long half-life, should we expect the accumulation that you state there is a greater overall AUC. And is there any evidence that greater AUC over what Kalydeco delivers leads to more biological activity? Thanks.

[Roger Tung:]

Jim, could you take that?

[Jim Cassella:]

Sure. Yes, thanks. So in the multiple ascending dose trail, we are looking at sevens days of dosing, so we’ll be able to look at our accumulation ratios. We do know from the Phase 1 direct comparison with Kalydeco that we do have a greater half-life and overall exposure including AUC in relationship to Kalydeco. So, I believe that we have that information and that knowledge right now in relationship to the improved metabolic profile where we have greater exposure to the current compound. We also believe that we have the opportunity to possibly see increased efficacy as a result of the overall greater exposure and this is difference in the metabolic profile.

[Jeff Hung:]

Thanks.

[Operator:]

Thank you. Our next question comes from the line of Mike King with JMP Securities. Your line is open, please go ahead.

[Mike King:]

Hey, guys. Thanks for taking the question and congrats on all the progress at the year. Just a couple of questions, we often get asked about patient enrollment due to trial design and such. And so, if they surround things like, washout period, and willingness of patients to undergo washout period, and willingness to undergo coming off of the ivacaftor, if you believe that that’s your target population or will you be going after patients who are ivacaftor, naive, et cetera, maybe just start there for a beginning.

[Roger Tung:]

Hey, Mike. Thanks very much for all of your question. I’ll let Jim also take this.

[Jim Cassella:]

Yes. So, Mike, – so we’ve had a lot of great discussions with KOLs and clinical trial experts both here and in Europe. And we have really focused on logistics of running these kinds of trials. We’re pretty confident that we will be able to run the type of trial that we need to run, very aware of the issues that you raise, in terms of patient recruitment, as it relates to things like washout. We have discussed those things and we believe that we can run the trial that we need to run. In terms of the patient population, well, that will be exploring. We are going to include patients who have previously been on Kalydeco. We will probably not focus on patients who have not been on Kalydeco previously.

[Mike King:]

Not been on Kalydeco previously?

[Jim Cassella:]

Yes, we will not – we will not go after that population. We’ll be studying patients who are currently on Kalydeco.

[Mike King:]

Right, okay. And will any time to go washout in between their Kalydeco and 656?

[Jim Cassella:]

That’s one of the options that we’ve been discussing, yes.

[Mike King:]

Okay. And, I don’t follow Vertex, so I don’t know that answers for this question, I apologize but, can you discuss the 505(b)(2), what is the IP protection? Excuse me, I mean, the ivacaftor and how do you believe you can go through the 505(b)(2) pathway?

[Jim Cassella:]

Well, we believe it’s actually a pretty straightforward situation that our intellectual property is distinct from that of ivacaftor’s and that we won’t have an issue with respect to freedom to operate concerns. 505(b)(2) really means that what we – will be able to do is referenced certain portions however of the ivacaftor development package, because of the great similarity in pharmacology between the two agents. There is another example as with Auspex’s SD-809, they were able to file under 505(b)(2) registration pathway relative to the previous non-deuterated compound. So there is precedent for deuterated compounds having distinct intellectual property but being able to reference.

[Mike King:]

I got you, thanks. I have some more questions, but I’ll jump back in the queue.

[Jim Cassella:]

Thanks, Mike.

[Operator:]

Thank you. Our next question comes from the line of Joe Pantginis with ROTH Partners. Your line is open, please go ahead.

[Joe Pantginis:]

Good morning, guys. Thanks for taking the question. Couple of little questions if you don’t mind. So with regard to 656 and now that you’ve moved to the tablet formulations, excuse me. Are you at the capacity you need right now for the Phase 2 efficacy study and you need any additional capacity going forward for Phase 3?

[Roger Tung:]

Sorry. Well, thanks for calling first, Joe. With respect to capacity do you mean with manufacturing?

[Joe Pantginis:]

Yes. Sorry, to make the tablet, yes.

[Roger Tung:]

Okay.

[Jim Cassella:]

Yes. So, Joe, this is Jim. We have a pharmaceutics development group that is very experienced. We do a lot of our work through contract manufactures. So you can imagine, we are clearly on track to support our current development and our long-term development plan. So I believe that we have all of that on the control.

[Roger Tung:]

Yes, Joe I just want to add that some – one of the comments that Ryan made is that our spend this year will be increasing over our historical levels and part of that is really designed to position our manufacturing capability to produce commercial quantities and grade of material. So that’s an area of very high focus for us as an organization is to develop the finalized commercial route and to implement initial manufacturing approaches.

[Joe Pantginis:]

Okay. And then the other two small questions that I have, I’ll just ask at the same time. I know you mentioned that with regard to 730 and Celgene that there are no updates at this time. Is that just based on visibility that you’ve received about next steps from Celgene? So any comments there would be helpful. And then with regard to your new internal candidate. Obviously, you’re not going to disclose right now what it is, but just wanted to get a sense about what stage you’re at, you’re still in IND enabling studies, obviously before, are you still in candidate selection or where are you?

[Roger Tung:]

Nancy, could you speak to Celgene?

[Nancy Stuart:]

Sure. Thanks. As far as Celgene we’ve delivered our Phase 1 results last year and received a milestone and unfortunately for – we can’t offer any more transparency to you on the partner program. Really any next steps will be under Celgene’s control.

[Jim Cassella:]

And Joe, with respect to the next compound it is identified and we’re in the process of bringing forge with the intention to bring it into clinical evaluation this year. We’re unfortunately not ready to say anything specific about it at this time, but I also say that as an organization we’re very excited by what we see is a great opportunity.

[Joe Pantginis:]

Sure. Thank you.

[Operator:]

Thank you. Our next question comes from the line of the Difei Yang with Brean Capital. Your line is open, please go ahead.

[Difei Yang:]

Hi, good morning, thanks for taking my question. Just a feel, so the first question is on CTP-656. I was looking at the single dose data, and is there any reason to believe the multiple dose data will be materially different from single dose? If I think about single dose is a 150 milligram versus multiple dose adding 75 milligram to 225 milligram, how would you expect to be similar profile, is that is there – am I thinking this correct?

[Roger Tung:]

Hi, Difei, thanks for the question. In terms of profile, I’m not sure what you’re referring to relationship between parent and metabolites or to overall pharmacokinetics. But with respect to pharmacokinetics, we do know that compounds with that length of the half-life will have some accumulation, and that’s something that is going to be explored. Jim, could you – do you anything that you’d like to add?

[Jim Cassella:]

No, other than, we do expect to see a very similar type of profile in terms of the metabolites, but again, when we get all the data, we’ll be able to confirm all of that.

[Difei Yang:]

Okay. Okay thanks. And then I think along the line of leading to eventual stalling [ph] so we see there are few composition of matter patents [indiscernible]. And they’re going to, probably in 2026, 2027 range. So does that mean you cannot file before them?

[Roger Tung:]

Hi, Difei, well, as I mentioned previously we believe that the situation is that the patents covering the ivacaftor’s state really don’t bear on our program. So we don’t see that those provide an impediment to our filing in NDA.

[Difei Yang:]

Okay. Is there anything to prevent FDA to – from accepting your NDA filing because, what you have there is a lawsuit from Vertex, I don’t cover Vertex, so I’m just trying to think through what they might do and if that’s a possibility?

[Roger Tung:]

Very simply, no. As Jim indicated, we in our meeting with FDA had a constructive set of interactions and we’re given guidance on potential paths to 505(b)(2) type of filing which indicates that they – they see a path forward for us to register the compound based on both data that we developed for CTP-656 and data that was previously historically developed for ivacaftor in the Kalydeco filings. So we don’t see that there’s a impediment to bringing the path to compound forward and filing the NDA.

[Difei Yang:]

Okay, thanks for that clarification. And then moving onto CTP-730 and JZP-386. And I still see milestones in the next few years, do you still feel comfortable now that we don’t have – or you don’t have visibility into how these two companies are going to move those two compounds forward. So is there any reason to think the milestone payment might be at risk?

[Roger Tung:]

Nancy, could you address that?

[Nancy Stuart:]

Sure. Difei, we have not projected timing of the next milestone. I think you know we’ve stated what they – would be should the programs move forward, but at this stage we can’t give any guidance to timing.

[Difei Yang:]

Okay. Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Robert LeBoyer with Aegis Capital. Your line is open, please go ahead.

[Robert LeBoyer:]

Good morning and congratulations on all the progress that you’ve made. And a question on the 505(b)(2) route that you mentioned. And whether this change impacts the size of the trial, the length of the trial or the expected time for the regulatory filings that we had previous guidance for?

[Roger Tung:]

Hi, Robert, thanks for the question. Jim, could address that?

[Jim Cassella:]

Sure. So Robert the 505(b)(2) approach allows us to reference the data from the Kalydeco package in this particular case. It will have an overall positive impact us on our development program, what constitutes our development program, and potentially impact us on our filing date. We will be allowed when we show the – as the FDA puts it all the appropriate bridging between our compound and the reference compound in this case Kalydeco. As Roger mentioned previously, we have established that there’s a very similar pharmacology I think the FDA understands that. So the overall impact on our program with 505(b)(2) means that we will not have to do some of the downstream non-clinical and clinical work that the FDA already has a good sense for and understands the relationship with Kalydeco. So overall we see this as a positive outcome for us in agreeing to the 505(b)(2) approach, because it will give us a shorter path through NDA in relationship to, for example, the 505(b)(1).

[Roger Tung:]

And Robert, with respect to your question on the size and overall structure of the Phase 2 program, it’s really as Jim indicated that we expect that the size and treatment duration will be similar to what we previously anticipated.

[Robert LeBoyer:]

Okay. So, that’s sounds like you’re not expecting any changes in the size or the timeframes that it would be required to complete them?

[Roger Tung:]

We’re still very focused on initiating Phase 2 program this year as we have been. And we are hopeful that based on the guidance that we received, that we’ll be able to structure a study that is enrollable and efficient.

[Robert LeBoyer:]

Okay, that’s fine. And, if I could also ask a follow-up on the number of compounds – number of deuterated compounds that you’re holding patents on and the number of issues in active patents that the portfolio has right now?

[Roger Tung:]

We have north of 80 issued U.S. patent families, patent to – patents that cover, in general multiple compounds – adherence compounds and we have probably a relatively similar number of applications that are going through prosecution.

[Robert LeBoyer:]

Okay, great. Thank you very much.

[Roger Tung:]

And that’s with respect to U.S. patents.

[Robert LeBoyer:]

Great.

[Operator:]

Thank you. Our next question is a follow-up from the line of Mike King with JMP Securities. Your line is open, please go ahead.

[Mike King:]

Thanks for taking the follow-up guys. I just wanted to also ask about, any commentary you might be able to make on business development activity surrounding 499?

[Ryan Daws:]

Hi, Mike, this is that this is Ryan Daws. Thanks for the question. We have a policy that we don’t really comment on BD activities. I think what I would say is that they continue to have discussions – we continue to have discussion that remains some interest in them, but until we have something more definitive that we can announce, we’ll remain silent.

[Mike King:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Katherine Xu with William Blair. Your line is open, please go ahead.

[Katherine Xu:]

Hi, good morning. I’m just wondering about your overall strategy for 656. You’re going all the way for monotherapy and/or in some kind of combination to address the broader population?

[Roger Tung:]

Hey, Katherine, thanks for the question. Well, I think we see CTP-656 is being an important asset for us as a company, and we’re taking a pretty broad approach in terms of how we’re thinking about it. So we are certainly in touch with a lot of other organizations regarding possible combination approaches forward. And as Jim indicated, we’re also focused on bringing a compound forward as monotherapy in the class III and class IV mutation set for CF. So we think that the compounds gotten very interesting properties and has the capacity too. We hope help patients in a number of different regards.

[Katherine Xu:]

And from a safety perspective, any differences that you observed with 656 from Kalydeco in general the deuterated compounds that you have from the parent?

[Jim Cassella:]

Yes. This is Jim. So we don’t expect to see any differences in the safety profile between 656 and Kalydeco, and to-date we’ve not seen anything different.

[Roger Tung:]

And Catherine just a more general comment. We’ve now brought a good number of deuterium modified compounds into clinical evaluation. And in general, have not observed differences in the compounds except to the extent that the pharmacology can be magnified because of greater exposure in some cases or reduced because of less exposure.

[Katherine Xu:]

All right. Thank you.

[Operator:]

Thank you. And that concludes today’s Q&A portion of the call. I’d like to turn the call back over to Justine Koenigsberg, for any closing remarks.

[Justine Koenigsberg:]

Great. Thank you all for joining us today. We look forward to keeping you updated on our progress. And we will be participating at the Cowen, Roth and Barclays healthcare conferences later this month, and we hope to see many of you there. This concludes our call. Thanks again for joining us.

[Operator:]

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