CTI BioPharma Corp.
Q3 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Operator:]

Good day, and welcome to the CTI BioPharma Third Quarter 2014 Financial Results Conference Call. Please note, today's call is being recorded. At this time, I would like to turn the conference over to Ms. Monique Greer, Senior Vice President of Corporate Communications and Investor Relations. Please go ahead, ma'am.

[Monique M. Greer:]

Thanks, Joshua, and welcome, everyone, to our third quarter 2014 financial results conference call. The press release reporting our financial results can be found on our home page and in the Investors section of our corporate website at ctibiopharma.com. Following formal remarks today by management, the conference call will be open for questions. Joining me are Jim Bianco, President and Chief Executive Officer; Matt Plunkett, Executive Vice President of Corporate Development; and Lou Bianco, Executive Vice President of Finance. Before we begin, please note that during the course of the call, we will be making forward-looking statements based on current expectations. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those anticipated by the forward-looking statements. Additional information concerning these risks and uncertainties is contained in the Risk Factors section of our quarterly report on Form 10-Q for the quarter ended September 30, 2014, and in the company's other periodic reports and filings with the Securities and Exchange Commission. I will now turn the call over to Jim.

[James A. Bianco:]

Thank you, Monique. Good afternoon, everyone. As you know, CTI is a commercial-stage biopharmaceutical company that's focused on acquiring, developing and bringing to market more effective, less toxic therapies to treat and cure a spectrum of blood-related cancers. Our initial registration strategy is to focus on indications where there exist an unmet medical need for better therapeutic choices for patients and health care providers. Consistent with that strategy, PIXUVRI was granted conditional marketing authorization as the first and still the only therapy approved for patients with aggressive B-cell non-Hodgkin's lymphoma who have failed 2 or 3 prior lines of therapy. It's the first-in-class aza-anthracenedione that has unique structural physiochemical properties that, unlike the class of anthracycline-related drugs, PIXUVRI is unique in its mechanism for inducing tumor cell death. So for example, instead of intercalation with DNA and inhibiting topoisomerase II, PIXUVRI is a potent DNA alkylator that induces mitotic instability in tumor cells irrespective the cell cycle, representing a new class of anticancer agents. And this really explains the ability to overcome anthracycline resistance as well as the high rates of durable complete response that's observed in clinical trials and now in our postmarketing experience. As you may recall, through a product-specific contract sales force, we market and promote PIXUVRI in several countries in Western Europe, including the U.K., Germany, Austria, the Nordic countries and through our distributors in Israel and Turkey. One of our stated corporate objectives for 2014 was to secure a partner to help expand the product reach and commercial potential of PIXUVRI in territories where it presently do not have a commercial presence while also retaining U.S. rights. In September, we entered into an exclusive license and collaboration agreement with Servier to develop and commercialize PIXUVRI in a transaction valued at approximately $133.5 million if all the milestones are achieved, and that's prior to receiving royalties and product sales. $12.3 million would be payable to us upon completion of enrollment in connection with our ongoing postmarketing commitment, PIX306 Phase III trial, and that trial is intended to support the conversion of our EU conditional authorization to full authorization as well as expanding the label to second line usage. Under our agreement with Servier. Servier has exclusive rights to commercialize PIX in those territories where CTI does not have a commercial presence or distributorship partnerships, and again, with the exception of the U.S. And we're excited by the prospects of having them on our team to help expand therapeutic and commercial potential for the drug. The arrangement with Servier also provides a 50-50 cost sharing for future and agreed-upon development efforts, including both registration-directed studies as well as what we term ISTs or so called investigator-sponsored trials, a number of which are currently in progress or plan to begin in 2015. We also believe this partnership will assist us in achieving one of our other stated business priorities, which is to have PIXUVRI be net positive in 2015. We believe we're on track to achieve that goal, and so let's now move on to pacritinib. We believe pacritinib may offer an advantage over other JAK2 inhibitors by providing better disease and symptom control without the need for dose titration, the latter being a requirement for JAK2 inhibitors that are associated with treatment-emergent thrombocytopenia and anemia. And this is an important attribute since recently, the 3.5-year follow-up data from the ruxolitinib COMFORT trials demonstrated on multivariate analysis that splenomegaly reduction was highly correlative with improving an overall survival. And as a result of treatment-emergent thrombocytopenia or as a result of intolerance to regular therapeutic doses amongst patients who have disease-related thrombocytopenia, titrated low doses of JAK1/2 therapy, while they may be better tolerated, but that's often at the expense of splenomegaly reduction and symptom control. In August 2014, the U.S. Food and Drug Administration granted pacritinib Fast Track designation for the treatment of myelofibrosis patients, including, but not limited to, those patients with disease-related thrombocytopenia, patients who are intolerant to or whose symptoms are sub-optimally managed on other JAK2 therapy. And as you know, we have 2 Phase III trials evaluating pacritinib in myelofibrosis. The first trial called PERSIST-1 is a randomized study of once-daily pacritinib compared to best available therapy but excluding JAK2 inhibitors. And this is among patients with primary or secondary myelofibrosis but with no limitation on their baseline platelet counts at study entry. This study is fully enrolled, and we anticipate reporting top line results from the PERSIST-1 trial in the first quarter of next year. The primary endpoint of the study is the proportion of patients achieving a 35% or greater reduction in spleen volume from baseline to week 24 as measured by MRI or CT scan, and that is in comparison to the same parameters in the best available therapy arm. The key secondary endpoint is the proportion of patients achieving the 50% or greater reduction in their Total Symptom Score or TSS from baseline to 24 weeks as measured by tracking specific symptoms on a Myelofibrosis Assessment Form, again, as compared to the control arm. During the quarter, the achievement of enrollment completion in the PERSIST-1 pivotal Phase III trial triggered a $20 million milestone payment from Baxter. Our second Phase III trial called PERSIST-2 is ongoing, and that is evaluating the safety and efficacy of pacritinib just in patients with low platelet counts who have moderate to severe thrombocytopenia, meaning patients whose platelet counts are less than or equal to 100,000. Now this trial will evaluate pacritinib compared to best available therapy, but unlike the PERSIST-1 trial, in this trial, the control arm allows for approved JAK2 inhibitors that are dosed according to the product label for myelofibrosis patients with thrombocytopenia. And this trial is expected to enroll approximately 300 patients in North America, Europe, Australia and New Zealand. The PERSIST-2 trial, as may you recall, is being conducted under a Special Protocol Assessment agreement with the FDA, and we expect that the data from the PERSIST-1 and the PERSIST-2 trials, if positive, will form the basis for an NDA submission in late 2015 and shortly thereafter, an MAA submission in early 2016 in Europe. Now pacritinib shows a kinome profile that's really unlike any of the other JAK2 inhibitors, thus providing the scientific rationale to explore this activity across a wide variety of blood-related cancers. For example, we have encouraging clinical data in lymphoma and preclinical data in FLT3-resistant AML. In fact, pacritinib is currently being evaluated in FLT3 AML through an ongoing investigator-sponsored trial underway in the U.K. And we're excited about a lot of the interest that we've seen -- received from key opinion leaders and investigators and cooperative groups to study pacritinib in a variety of other blood cancers in the future. Now we're confident that together with our partner, Baxter, we'll be able to more rapidly advance the development and availability of pacritinib for patients with myelofibrosis, AML and other blood-related cancers around the world. So a third promising product candidate is tosedostat, and I just want to briefly update you on that product. It's a first-in-class oral selective inhibitor of aminopeptidases. That is in a variety of Phase II studies. Unlike normal cells, transformed cells are very dependent on the ability to recycle intracellular proteins and make new proteins and survive. And scientific interest in tumor orthology [ph] has really grown over the last decade or so, following the clinical success observed with interrupting protein recycling at the level of the proteasome complex. Attention has now turned to pathways downstream of the proteasome complex that are responsible for removing and recycling essential amino acids from peptides. And one novel target for intervention are the aminopeptidases, which are a family of metalloenzymes that clip and free up amino acids from peptides and polypeptides, allowing them to be the building blocks for new proteins, which are essential to tumor cell survival. You may recall at the American Society of Hematology meeting last December, researchers reported positive interim results from an investigator-initiated Phase II trial of oral tosedostat in combination with either cytarabine or decitabine in newly diagnosed patients, elderly patients, with AML or high-risk myelodysplastic syndrome or MDS. Now there are several ongoing Phase II cooperative group sponsored trials and ISTs evaluating the activity of tosedostat in combination with standard agents, both in frontline and relapsed AML and/or MDS, and data from the so-called signal-finding trials may help form the appropriate design for a Phase III trial in the future. And this presentation and other publications can be found on our website. Now earlier this week, we acquired worldwide rights to tosedostat through current transactions with Vernalis R&D Limited, the originator of tosedostat; and Chroma Therapeutics Limited, through which CTI previously held a sublicense with respect to tosedostat in North, Central and South America. This transaction was important for us to conclude for a number of reasons. First, as we state, we are committed to building a blood cancer franchise, and as such, we wanted to own full rights to this unique late-stage asset. In addition, the acquisition removes approximately $209 million in future development and sales milestone payments we would have had to make under the prior agreement with Chroma. In addition, the royalty burden has also decreased substantially from mid-teens to mid-single digits. Now we anticipate clinical data from the ongoing randomized Stage II investigator-sponsored trials evaluating tosedostat plus cytarabine for older patients with AML or MDS, which is being conducted by the United Kingdom's National Cancer Research Institute, AML Cooperative Group. That data should be available sometime next year. And with positive clinical data and productive regulatory discussions, our intent would be the start a pivotal Phase III program in 2016. Now before I turn to our financials, let me just share with you we have a number of abstracts that have been accepted for presentation at the upcoming ASH meetings, including there will be updated kinome profile for pacritinib and specific information on the day and time of presentation and accepted abstracts will be forthcoming in advance of the ASH meetings. Let me just turn to our financials for the quarter and the 9 months ended September 30. So revenues for the third quarter and 9 months were $39.5 million and $42.3 million, respectively, and that compares to $400,000 and $1.8 million for the same periods in 2013. The increase in total revenues for the third quarter and 9 months of 2014 include license and contract revenue of $37.5 million, which was primarily attributed to the $20 million development milestone payment received from Baxter for the completion of enrollment in PERSIST-1 and recognition of $17.3 million from an upfront payment on the PIXUVRI collaboration agreement with Servier. And net product sales for PIXUVRI for the third quarter and 9 months of 2014 were $2 million and $4.4 million, respectively, and that compared to $400,000 and $1.8 million for the same periods in 2013. For the third quarter of 2014, operating income was $7.5 million compared to an operating loss of $15.5 million for the same period last year. For the 9 months in 2014, loss from operations was $46.9 million compared to $51.9 million for the same period in 2013. Noncash share-based compensation expense for the third quarter and 9 months of 2014 was $3.8 million and $17 million, respectively, and that compared to $1.9 million and $6.3 million for the same periods last year. For the third quarter of 2014, we reported a net income of $4.6 million or $0.03 per share, and that compared to a net loss of $22.4 million or $0.20 per share for the same period last year. Net loss for the 9 months of 2014 was $51.8 million or $0.36 per share compared to $59.8 million or $0.55 per share for the same period in 2013. Now as a result of the stock issuance in the transaction with Chroma resulting in expense recognition of approximately $21 million, we have revised our net financial guidance for 2014 that non-GAAP loss from operations to be in the range of approximately $66 million to $71 million, and again, excluding any noncash share-based compensation expense. Now year-to-date for the 9 months period ended September 30, non-GAAP loss from operations, excluding noncash share-based compensation expense, was $29.8 million compared to $45.5 million in 2013. A reconciliation of historical non-GAAP loss from operations, excluding noncash share-based compensation expense, to loss from operations for period in accordance with U.S. GAAP is included in our earnings release for the third quarter of 2014. Turning to our balance sheet. We ended the third quarter with cash and cash equivalents of $29.9 million. This is prior to the consideration of the $17.8 million upfront payment from Servier. For accounting purposes, due to the timing of the license and collaboration agreement with Servier, CTI recognized license and contract revenue from the upfront payment in the third quarter and totaled $17.8 million received in October what we reflected in our year-end cash balance. Currently, there are approximately 150 million common shares outstanding. So as we look forward and continue to execute on our 2014 operating plan, we're clearly excited about the prospects that we have for helping patients, building shareholder value. So let me just quickly recap some of the near-term priorities. Reporting top line results from PERSIST-1 in the first of 2 Phase III trials for pacritinib in the first quarter of next year is clearly a transformative event for the company potentially. And then completing site initiation and enrollment in the second Phase II -- Phase III trial and the so-called PERSIST-2 study for pacritinib and then initiating a series of investigator-sponsored trials evaluating pacritinib in additional indications outside of myelofibrosis, continuing to grow our EU sales of PIXUVRI in the relapsed aggressive B-cell non-Hodgkin's disease setting in the EU and potentially having that operating unit become profitable in 2015. So before we open the call for questions, let me, as always, thank our current shareholders for their support, and of course, our employees for their collective passion and dedication to improving the lives of patients with blood-related cancers. That's all. Operator, we can open the call as this concludes the formal presentation.

[Operator:]

[Operator Instructions] We'll take our first question from Charles Duncan with Piper Jaffray.

[Charles C. Duncan:]

And congratulations on all the recently completed bus. dev. transactions as well as enrollment of PERSIST-1. So my first question is on PERSIST-1. I'm wondering if you've been able to track on a blinded basis if you have any takeaways with regard to that trial. Were you able to enroll the kind of patients you wanted? Or are you getting on a blinded basis some of the responses that you'd like to see?

[James A. Bianco:]

So from the context of -- obviously, we would not be privy to nor would we want to discuss even on a blinded basis response data, and the answer to that absolutely is we do not see that. What we can tell you is that the study looks like the patient population that we wanted it to look like, which is the first trial that is truly representative of a cross-representation of myelofibrosis patients in clinical practice. So this includes the INT-1, 2 in high-risk patients. And if you look at the proportion of patients who have normal platelets, moderately thrombocytopenic and severely thrombocytopenic, those proportions are almost identical to what's reported in the literature with regards to this disease and the makeup. So approximately 40% will be in that thrombocytopenic category and approximately 60% will have platelet counts above 150,000. And so that, from our perspective, demonstrates that the patient population is what we hoped it would be in the study.

[Charles C. Duncan:]

And then, Jim, in terms of enrollment in PERSIST-2, you talked about being able to complete that, but how is that going? And can you provide any additional color on that?

[James A. Bianco:]

Enrollment's coming up to where projections are now. I think we've said it before that this was going to be a mid-year completion or close to mid-year second quarter is what we said for completion of enrollment. And that really was more on the logistics side from the operating perspective given the CROs that had consolidated during a series of acquisitions. So side initiation's on track and enrollment's picking up. There's a lot of interest. We just came back from the myeloproliferative neoplasm symposia that the European School of Haematology presented, and I can tell you that from both the PIs and the investigators, this study has very keen interest because of the issues that they run into in clinical practice with the currently approved JAK2 inhibitor and the difficulty treating patients with thrombocytopenia. So we expect enrollment to be on track and completed as scheduled.

[Charles C. Duncan:]

Okay. And then if I could just ask a quick question on PIXUVRI. In your prepared remarks, you mentioned seeing that franchise be profitable in 2015, but I think on the last call, you mentioned that you had targeted it making a net positive product margin contribution in this quarter. Is that still on track? Or maybe how do you define that?

[James A. Bianco:]

So the reason we didn't restate that on this call is that it's too close to call. And as you recall, we're looking at the impact of the Servier agreement. As you know, Italy and France will not be coming online on our P&L, if you will, in terms of the sales projections. But given the rate of growth quarter-to-quarter and period-to-period, that trajectory will take us to a point in 2015. If it continues, then it will have a net product margin contribution on a consolidated basis for that unit in 2015. So we tell you...

[Charles C. Duncan:]

Excuse me, top line is doing what you thought, and then just some nuances in the bottom line, in the expense lines?

[James A. Bianco:]

Yes, correct.

[Charles C. Duncan:]

Okay. And then finally, with regard to tosedostat, the deal seems like avoided a lot of potential downstream cost. Was there anything in the data that you saw for the U.K. phase of -- the Phase II/III IST that suggested that you consolidate that? Or was it more strategic?

[James A. Bianco:]

It was data-driven and I'll say strategic from the perspective of when we acquired it from share -- the shareholders for Chroma are 4 very well-known venture funds. And so it added, quite frankly, to our shareholder base, and these are some of the name -- kind of the who's who on the venture community. And I think their willingness to essentially swap stock for the future rights and payments that they had bodes well for essentially the prospects for that investment from their perspective. But it's -- I would say that the data drives that acquisition interest from our own perspective and then the ability to move it quickly without having to deal with the partnership that was essentially a virtual partnership. And so I think those were really the compelling arguments, and we'll see -- some of that data will be presented next year.

[Charles C. Duncan:]

Okay, that's helpful. I agree, that's a neat transaction from both perspectives.

[Operator:]

And we'll take our next question from Bert Hazlett from Ladenburg.

[Robert Cummins Hazlett:]

A couple of questions. Regarding pacritinib first, and Jimmy spoke to the kinome profile and the unique kinome profile. As you consider that profile, you mentioned several additional indications for pacritinib over the course of the last few months. Is there anything that's been strengthened in terms of additional indications? Is there anything that's been maybe lessened based on what you've learned about what the molecule is actually doing?

[James A. Bianco:]

Yes. I mean, in the clinical setting, the AML trials in the U.K. are encouraging. It's early and that's about the most we can say. And then in the preclinical setting, confirming that, that profile has impact in other blood-related diseases has been very rewarding, and a lot of that data will be presented next year.

[Robert Cummins Hazlett:]

Okay. So next year, we shouldn't expect anything at ASH this year?

[James A. Bianco:]

Bert, the utility indices is like CMML or MDS and CLL, et cetera. Those clinical study -- those preclinical studies are really under the control of the institutions that have generated the data, and we know that they will submit them for publication and/or presentation. But they were pretty much recent developments over the last 6 months and not within the ASH window for presentation. But needless to say 2015 is just shaping up to be -- it's a very pivotal information both in the Phase III program. And then in terms of how this asset -- this product really can fit into the treatments of a variety of blood-related cancers, including upstream in terms of how it acts to some very important molecules that were recently approved in CLL and in blood-related cancer space. So we're excited by the profiling of it and can't wait to start clinical studies essentially to confirm those preclinical findings.

[Robert Cummins Hazlett:]

Okay. Just one other one. Could you just give us an update on the status on the enrollment of PIX306?

[James A. Bianco:]

PIX306 is on track. We have started opening up European sites this year. Several -- a number of those sites are up and screening and enrolling patients. We should complete the site initiation setup period in the first half of next year, and our target is still maintain -- to finish enrollment by the end of 2015.

[Operator:]

And next, we'll move to Reni Benjamin with H.C. Wainwright.

[Reni J. Benjamin:]

I guess just a couple of questions, Jim. You had mentioned that enrollment for PERSIST-2 is scheduled to complete roughly around the second quarter of 2015. And kind of just based on the timelines as to when PERSIST-1 completed and when the data is going to be announced, it would seem that results from PERSIST-2 might be available in the first quarter of 2016. Am I making that calculation correct? Or could the data analysis occur quicker?

[James A. Bianco:]

So the answer is if it were the last day of June, then theoretically, 6 months to the -- assuming that, that patient is on the treatment arm as opposed to the control arm, then yes, that would be a tight squeeze for the end of the year. But that's not what we're currently looking at for enrollment completion when we said Q2. And the second thing is remember, we have Fast Track, so that allows us to even start a rolling submission as these various modules get completed. So if the last piece of information is a clinical study report on PERSIST-2, would it be tight? Sure, but just the same way, we now have a schedule from completing source data verification to database lock, which is pretty compressed, certainly not the industry standard in terms of months. We're talking about weeks. And so the team thinks that we still can keep that target into the 2015 time frame.

[Reni J. Benjamin:]

Got it, okay. And then just switching gears very quickly to PIXUVRI. Can you talk a little bit about maybe other drivers for sales -- sales actually did better than what we had thought for the third quarter. And I don't know how much of that was just all the countries coming online with the reimbursements or maybe a change in strategy. Can you give us any sort of color as to Servier strategy going forward or sales goals? And any other countries that may be onboard with reimbursement through the end of the year?

[James A. Bianco:]

Sure. So we can tell you that it's not a distributorship buy-in or anything like that. This is truly organic growth in terms of demand generation. And what we've seen when the U.K. came online is actually better-than-forecasted uptake in the United Kingdom, and what we're seeing in the Nordics right now is better-than-forecasted uptake. And what's generating a lot of that is key lymphoma experts and lymphoma study groups from the Nordics, from Denmark, in Austria, in Germany and soon in the U.K. They're using the product in a variety of clinical settings and seeing, as I think the phrase was, outstanding or amazing results. And by amazing results, first cycle complete remissions in patients who shouldn't be getting complete remissions let alone in responses. And so I think there's -- the team has been doing a good job on the medical education front. We didn't have the 2 years prior to launch run-in to develop KOLs and key messages and have people have experience with this in their own hands. It was just a single Phase III study. And I think that what we're getting back from the marketplace now is that people are seeing the utility of PIXUVRI in their patients, both patients who are palliative where they can get a response and have a durable response, or more importantly, patients who they want to try again to have a curative intent in terms of taking them back to transplant. So I think that is the organic nature of the growth. We're excited by the fact that Servier will have a presence at the same international meetings that we have. They'll be educating KOLs. So the voice, the call frequency and the visibility shooting free substantially in 2015 as they take over the product attributes in the territories that they have right to do. You see [ph], France and Italy are 2 very big lymphoma communities, you know, Italy has a population of 59 million today. And so they're big territories, and we're looking forward to them being able to educate and take the word of this emerging data out to other countries besides the countries that we're in. And I think that is going to be ultimately the driver for 2015 sales.

[Reni J. Benjamin:]

Okay. The ongoing -- I think it's pacritinib study in the "Pick a Winner" trial. Will we see any results from that at ASH?

[James A. Bianco:]

No, it's probably too early for ASH.

[Reni J. Benjamin:]

Okay. And I guess just a couple kind of housekeeping questions from previous trials as well as your share counts. But can you -- I don't have it on our notes, but do you have a final enrollment numbers for PERSIST-1? We keep saying approximately 320.

[James A. Bianco:]

Yes, that's pretty close. Okay, it's less than 330 and more than 320. It's 327 or whatever it is. It's not a big deal, but yes, that's right on target.

[Reni J. Benjamin:]

Got it. And PERSIST-2 will be roughly the same?

[James A. Bianco:]

Yes, it should be about -- 300 is the target, as you know. We have that many sites. What happens is you have that many sites open. By the time you hit the enrollment target, you already have patients who are now in screening that have already been randomized and you don't want to deny them the ability to participate in the trial. So you tend to overshoot by 5% or 10%.

[Reni J. Benjamin:]

Got it. And then just a share count question. The fully diluted shares that was reported in the third quarter because you have positive earnings, is that the complete number? Or it's off from our model? So we must be missing something. Is that number taking into account also the warrants and options that are out there? Or is this somehow modified?

[Louis A. Bianco:]

It's modified for anti-dilution effect. So if you look -- when there's a loss, all right, so you're going to see a difference between the 2. And then we also look at the treasury spot method, too, as if they were exercised, some of them.

[Reni J. Benjamin:]

Okay. So it's not all of them, just some of them?

[Louis A. Bianco:]

Right.

[Reni J. Benjamin:]

Excellent, okay. And then just one last question. The milestone payment from Servier, I thought on the press release when it was announced was an $18.1 million or $18.2 million milestone, but what's recognized was $17.8 million. So I'm just trying to get some clarity as to where we did the math wrong.

[Louis A. Bianco:]

Yes. Well, you didn't do the math wrong. We received the $14 million -- EUR 14 million payment. And when we do it for accounting purposes, we do it on the date of the transaction and what the FX rate was on that date. So that's why we recorded $18.1 million, but we deferred $800,000 of that under our revenue recognition for the agreement. And so it comes to $17.3 million, if you will, in sales that we would recognize as a receivable. When we receive the cash, however, because of the FX rate changes, it comes down to $17.8 million.

[Operator:]

[Operator Instructions] We'll take our next question from Bob Ai with WallachBeth Capital.

[Yunjun Ai:]

Actually, my questions have been answered.

[Operator:]

And no further questions at this time, sir.

[James A. Bianco:]

Okay. Thanks, everyone, for joining us on the call today. We appreciate your support. We look forward to seeing many of you at the upcoming investor conferences, and of course, at the ASH Meeting in December. So have a good evening.

[Operator:]

And this will conclude today's conference. We thank you for your participation.