ESSA Pharma Inc.
Q2 2008 Earnings Call Transcript

Published: 24 Sep 2008

[Operator:]

Welcome to EPIX Pharmaceuticals second quarter 2008 financial results conference call. (Operator Instructions) At this time I would like to introduce Kim Drapkin, EPIX's Chief Financial Officer.

[Kim Drapkin:]

Thank you, and good morning. Welcome to EPIX's conference call to discuss the results from the second quarter ended June 30, 2008. With me on the call today is Dr. Elkan Gamzu, Interim Chief Executive Officer of EPIX. On behalf of the entire EPIX organization I would like to say we are delighted to welcome Elkan to the team, and look forward to working closely with him to continue to execute our long term growth strategy. Elkan comes to us with significant experience very relevant to EPIX. For example, while VP Drug Development at Warner-Lambert, he oversaw the clinical program that led to the approval of Cognex, or Tacrine, the first drug approved for Alzheimer's disease. In addition, he has held CEO positions at several biotech companies, and we feel very fortunate to have someone with his expertise at EPIX. On today's call, I will be discussing EPIX's second quarter 2008 financial results, and reiterating our financial guidance for the rest of the current fiscal year. Elkan will then review EPIX's recent achievements and highlight our 2008 corporate objectives. After the prepared remarks we will open the call up to questions. Before we get started, I would like to remind you that certain matters we will discuss today, other than historical information, consist of forward-looking statements relating to, among other things, our expectations concerning our financial results, available cash, clinical programs, and regulatory strategies. These forward-looking statements are not guarantees of future performance, and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. These risks and uncertainties are described in our Annual Report on Form 10-K for the year ended December 31, 2007, and subsequent SEC filings. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. We undertake no obligation to update, or revise the information provided in this call, whether it is the result of new information, future events, or circumstances, or otherwise. Now we would like to review our financial results for the second quarter ended June 30, 2008, details of which were provided in the press release we issued earlier this morning. On June 30th, 2008, we had cash, cash equivalents, and short term investments of $43.2 million, a decrease of $3.5 million from the first quarter of 2008. For the quarter ended June 30, 2008, we reported a net loss of $2.3 million or $0.06 per share, versus $18 million or $0.55 per share for the quarter ended June 30,2007. This decrease in net loss was primarily due to an increase in revenue related to milestones achieved and a reduction in general and administrative expense. Total revenues for the quarter ended June 30, 2008 were $17.4 million compared with $1.8 million for the second quarter of 2007. Revenue in the second quarter of 2008 primarily reflects the milestone payments earned under our collaboration with GlaxoSmithKline. Research and development expenses totaled $15 million in the second quarter of 2008 compared with $14.8 million for the second quarter of 2007. This slight increase in our R&D expenses primarily resulted from increased spending on our pre-clinical programs. General and administrative expense was $3.4 million in the second quarter of 2008 compared with $4.5 million for the second quarter of 2007. This decrease was primarily due to lower legal expenses. We currently have $100 million of convertible debt outstanding, which we will be required to repay, plus accrued and unpaid interest, on June 15, 2011, if our bond holders exercise their put options, as well as upon a change of control, or termination of trading of our common stock on the NASDAQ stock market. Approximately 41.4 million shares of common stock were outstanding at June 30, 2008. As we announced earlier this week, we have entered into a committed equity financing facility with Kingsbridge Capital Limited, a private investment group. While I will not deliver the details that were provided in our press release and associated SEC filings, the highlights of the transaction are as follows. Kingsbridge has committed to purchase, from time to time, the lesser of $50 million, or approximately 8.3 million of newly issued shares of our common stock. This commitment will span the next three years. The purchase price will carry a discount to our trading price, ranging from 6% to 12% and the EPIX management team will determine the exact timing and amount of any draw down subject to the terms and conditions of our agreement. In connection with this transaction, EPIX issued Kingsbridge 400,000 warrants with an exercise price of approximately $2.49 per share. It is important to note that under our agreement, Kingsbridge is prohibited from shorting shares of EPIX stock. We were pleased to establish this facility as we believe it may offer us access to capital, with flexible terms, as we work to execute our Vasovist monetization strategy. As we stated earlier, we ended of the quarter with cash, cash equivalents, and short term investments of $43.2 million, compared with $61.1 million on December 31, 2007. We currently estimate that cash, cash equivalents, and marketable securities on hand as of June 30, 2008, together with anticipated revenue to be earned in 2008, will be sufficient to fund our operations through the first quarter of 2009. The aforementioned financing facility may provide us with funding beyond the first quarter of 2009, depending upon the timing and amount of draw downs from this facility. We are reiterating our full fiscal year 2008 guidance. We currently expect to realize a net loss in the range of $45 million to $50 million, with revenue in the range of $25 million to $30 million. Revenue in 2008 is expected to relate primarily to reimbursed research and development costs, and milestone achievements under our existing strategic partnership agreements. Accordingly, our revenue expectations are based, in part, on our ability to continue to progress the clinical and pre-clinical development of our product candidates under our collaboration agreements. In that regard, I would like to quickly recap the milestones achieved this year, and summarize our current partnerships. First, we have a partnership with GlaxoSmithKline that is valued at up to $1.2 billion. This partnership includes their exclusive option to license three unnamed GPCR targets currently in early discovery, as well as PRX-03140, our compound for Alzheimer's currently in Phase 2b. With regard to the GPCR discovery programs, in the second quarter we identified three candidates to move forward into lead optimization in the third and final discovery program. With this discovery, we received a milestone payment of $3 million for the identification of three lead candidates in the third program, plus an additional $2.5 million for our overall progress on the discovery programs. Also, during the second quarter, we initiated our Phase 2b program for PRX-03140, and as a result we earned a $7.5 million milestone payment. In addition to this milestone payment, GSK will also share in the costs of the Phase 2b Alzheimer's program. As a reminder, under our collaboration with GSK, we are entitled to cost sharing pre-opt-in, as well as milestone opportunities before and after opt-in on all four programs. We are also entitled to tiered double-digit royalties throughout. Second, we have a partnership with Amgen, which is valued up to $307.5 million. This program began with a pre-clinical out-license of our S1P1 patent portfolio, which triggered a $20 million upfront payment. There are several milestone opportunities in this partnership and double-digit royalties. This program is currently in the pre-clinical stage at Amgen. Third is our relationship with Cystic Fibrosis Foundation Therapeutics. In early April, this collaboration was expanded and is now valued at up to $50 million. This expansion came on the heels of our successful development of a validated, virtual 3-D model of the full-length CFTR, which is a key protein associated with cystic fibrosis. CFFT funds all of our ongoing cystic fibrosis research efforts. Finally, we also have a partnership with Bayer Schering Pharma, which provides for a 50-50 profit share on U.S. Vasovist sales, and a small royalty on Vasovist sales outside of the U.S. As we announced earlier this quarter, we resubmitted our NDAs to the FDA on June 30, 2008 and remain hopeful for an approval by the end of the year. The FDA has notified us that the PDUFA date for Vasovist is December 31, 2008. This concludes our financial report, and I will now turn the call over to Elkan.

[Elkan Gamzu:]

Thank you, Kim, and good morning everyone. As you can imagine, the past two weeks have been quite busy, but I want to say, also very exciting as I joined this really talented EPIX team. As Kim mentioned, my experience was focused on the CNS area, and I have a Ph.D. in experimental and physiological psychology. I believe that my range of experiences in both academia and the industry has allowed me to build a skill set that will be relevant to EPIX as we move our early, and later stage product candidates forward, and as we execute our strategy to monetize Vasovist. I decided to join the EPIX team because I believe that the opportunities in front of the Company are broad and dynamic. At the forefront is a strong drug candidate in 03140. I am very excited about the recent data, as well as the unique approach that provides symptomatic relief to an under-served patient population, while also having the potential for disease-modifying capability. Clearly this is an opportunity to participate in a large and growing market with a differentiable product. In addition, we have a deep pipeline of clinical and pre-clinical compounds that are in development for other large and growing markets and I believe that the potential opportunities for success in all of these programs, let alone one, could be significant. I believe, also, that our proprietary in-silico technology platform is a valuable asset that should continue to fuel the Company's pipeline for years to come. The strategic partnerships and collaborations that Kim mentioned struck me as particularly strong, and I regard these relationships as an important part of the EPIX value proposition. I am also very impressed with the Company's resilient pursuit of approval for Vasovist, and the potential to monetize this asset and use the proceeds to support EPIX's R&D efforts. So, with all of these positive attributes and potential, I am thrilled to become part of the EPIX team. It is a team that is dedicated to achieving success and fully vested in pursuing strategies that should benefit all stakeholders, including employees, investors, physicians, and patients and their families. My first order of business has been to work with the team here at EPIX to understand and assess the status of all programs, and to evaluate our strategies, and obviously this will be an ongoing process. So, on that note, let me spend a few minutes highlighting our clinical pipeline. I will start with the 03140 molecule, which is in development for Alzheimer's. We were very pleased to have been selected to present the Phase 2a data for 03140 at the recent ICAD meeting. As Kim mentioned, during the quarter, we initiated our Phase 2b program for 03140, which consists of two trials in patients with mild to moderate Alzheimer's disease. The first trial in this program is designed to assess the safety and efficacy of three months of treatment with 03140 as monotherapy. The trial involves 240 patients who are either intolerant to acetylcholinesterase inhibitors, or are newly diagnosed patients. The trial has four arms, a placebo group, two doses of 03140, one at 50 mg and the other one at 150 mg, and also includes a positive control arm in which the patients will receive a standard dose of Aricept. The primary end point in this trial is ADAS-cog, and we expect data from this trial by the end of 2009. The second trial in the Phase 2b program is a combination study of 03140, together with Aricept, where 03140 is an add-on therapy in patients who have already been taking a stable dose of 10 mg of Aricept for at least four months. And, let me just remind you that 10 mg is the standard dose of Aricept. Patients in this study will not be permitted to take other medications during the study. The duration of the combination study is six months. The trial design will involve 420 patients who will be randomized to three arms; a placebo group where patients will continue to receive their stable Aricept dose and have placebo in addition. All of these groups here will have the standard Aricept dose, so I will just tell you that the addition in the other two arms is a dose of 50 mg of 03140, and a high dose of 150 mg of 03140. And, remember, in each case we are adding placebo, and one of the two doses to a standard Aricept treatment, so we are talking about a combination study. The primary end point for the study is also the ADAS-cog, and we expect to have data from this trial in 2010. Next, I would like to provide you with an update on our Phase 2b Right Heart Catheter study of 08066, in secondary pulmonary hypertension. COPD is estimated to be the third leading cause of mortality worldwide within the next 10 years, and pulmonary hypertension is estimated to be present in up to 20% of COPD patients. The treatment of pulmonary hypertension in about 50% of these patients is specifically recommended where the pulmonary hypertension limits exercise capacity. This yields a patient population of about 1.2 million people in the U.S., or 10% of the overall COPD market. We believe that this is a promising area of medicine, with increasing patient populations and no currently approved drugs. Following the statistically significant reduction in systolic pulmonary artery pressure, or SPAP, as it is often known, seen in our Phase 2 trial of 08066 in this patient population, we are pleased to be working closely with one of the top leaders in the field, Dr. Aaron Waxman of Massachusetts General Hospital, on the upcoming Phase 2b clinical trial. The trial protocol calls for subjects suffering from moderate to severe COPD with secondary pulmonary hypertension. It will be a one-arm, open-label study. The patients will be administered 500 mg of 08066 on day one, followed by 300 mg twice a day for the next three months. The primary end points are

[Operator:]

(Operator Instructions) And your first question comes from the line of Mike Yee with RBC Capital. Please proceed.

[Mike Yee:]

Great. Thanks for the call, a couple of questions. In the Alzheimer's program, can you kind of walk us through a little bit more detailed thinking on timing of the data? Do you expect about a year to enroll these studies, longer or shorter, depending on which one of those stages we are referring to? And then on the monotherapy study, you said that they would be intolerant to acetylcholinesterase inhibitors, if I heard that correct, and then therefore if you are including a positive control arm, what kind of curve would we expect there if they are intolerant to acetylcholinesterase inhibitors? I would start there.

[Elkan Gamzu:]

That is a very good question. I will reiterate what we said. We do expect the monotherapy trial to be complete, to have data by 2009, and we expect data on the combination trial in 2010. It is really too early to talk about anything, any changes in those schedules. And, clearly in the monotherapy trial, patients who are intolerant to acetylcholinesterases could not be randomized to Aricept since it is a cholinesterase inhibitor. But, the patients who are newly diagnosed could be randomized to all groups. Again, since the randomization in the other case would be to placebo or active, that would take care of any control issues.

[Mike Yee:]

So, if they were nearly diagnosed, they would placebo or the Aricept arm, and if they…

[Elkan Gamzu:]

No, if they are nearly diagnosed, they could be in any of the four arms.

[Mike Yee:]

Yes. Okay. And, if they are intolerant then they are only to the placebo or to the drug arm.

[Elkan Gamzu:]

I would assume so.

[Mike Yee:]

Okay. And, in the Vasovist program, I guess some of it has been talked about before in terms of the different strategies but, I mean, should our expectations be for something to happen before approval, or after approval? I mean, is this a deal that is doable before approval, since that is obviously a huge inflection point in terms of evaluation, I would think?

[Kim Drapkin:]

Sure, Mike, though there are various opportunities, both before and after, but our thinking at this point is if there is no clinical risk we are obviously going to bring more value to the Company, so we are leaning more towards waiting to monetize this until after we have approval. That being said, we are looking at various alternatives and talking to a number of parties. But, our goal obviously is to maximize the value and we will do that to the best of ability.

[Mike Yee:]

Yes, that is very helpful.

[Kim Drapkin:]

Sure. Thanks for the questions.

[Operator:]

And your next question comes from the line of Alan Carr with Needham. Please proceed.

[Alan Carr:]

Hi, and good morning everyone.

[Kim Drapkin:]

Good morning, Alan.

[Alan Carr:]

Questions about the Kingsbridge facility. I am sorry if I missed this, but what are your plans to draw down funds from that, and are there going to be any changes in terms of, is there a possibility of cutting back research or discovery efforts at the Company? Where do you all stand on that?

[Kim Drapkin:]

Sure, so as Elkan says, one of the reasons that we were attracted to this facility was the flexibility that it affords us. So, we have the opportunity to have Kingsbridge purchase shares at our discretion, obviously subject to the terms of the agreement. We are not giving guidance specifically on how we plan to do this, but basically we will monitor the timing of other events, such as achieving milestones, entering into new partnerships, and monetization of Vasovist, as well as the market, and make decisions based on those facts. In terms of cutting back research, as Elkan said, being new to the Company, and coming in, it is an opportunity for him to put a fresh set of eyes on our priorities in looking at the pipeline. That being said, we do run a very lean organization. We have fewer than 120 employees and so there is not a lot of fat, if you will, but we are obviously cognizant of our balance sheet and make sure that we make appropriate decisions accordingly.

[Alan Carr:]

Okay. And one fairly narrow question, with respect to the CF program, can you give a little more detail on where that one stands? My recollection is that you do not have a lead compound yet. Is that right, and if not, how far away do you think you are from that?

[Kim Drapkin:]

Sure. So we are in the very early stages with that program. As we said, we recently achieved a milestone for modeling the CFTR. It is a very exciting research area. We are hopeful to move this into the clinic at some point, but it is a little too early to give specific guidance on timing.

[Alan Carr:]

Okay. Thanks very much.

[Kim Drapkin:]

Thanks, Alan.

[Operator:]

And your next question comes from the line of Jon LeCroy of Natixis. Please proceed.

[Jon Lecroy:]

Yes, thanks for taking my call. Have you guys earned any milestones in the third quarter so far, and then can you help us with your base revenue run rate, without any milestones for the next two quarters, and then I noticed the royalty payments bumped up in the second quarter. Should we assume those are flat going forward? And then I have one follow-up.

[Kim Drapkin:]

Sure. So, in terms of milestones, the milestones that we have earned this year were primarily in the first and second quarters so far. To date, we have earned about $11.5 million in milestones on the pre-clinical programs, the majority of which were earned in the second quarter. We also earned a milestone of $7.5 million for the initiation of the clinical study. The financial guidance that we have given for revenue this year is $25 million to $30 million. We do not build in new partnerships, or significant at-risk milestones, into that projection, and we are on track for that and have reiterated that guidance today. As far as the royalty, Jon, were you referring to royalty expense?

[Jon Lecroy:]

Yes, expense.

[Kim Drapkin:]

Okay, sure. So, our technology comes from remote, where one of our senior V.P. of drug discovery with her Ph.D. thesis, and as it was discovered while she was a student at Tel Aviv University we owe a very small royalty back to the business arm of Tel Aviv, which is remote, so every time we earn a milestone or generate revenue from any of our products that came out at any level of our technology, we owe a very small royalty expense to remote. And, we have disclosed publicly before that it is typically 5%. There is an annual cap of $5 million, so that is the most that that royalty expense would be as we, move towards more significant milestones.

[Jon Lecroy:]

And then for the follow-up. Can you give us any more background on Dr. Kauffman's exit from the Company?

[Kim Drapkin:]

As with anything with personnel matters, we really cannot say much beyond what was publicly disclosed. Michael obviously was a great asset to EPIX and we wish him well.

[Jon Lecroy:]

Alright, thank you.

[Kim Drapkin:]

Okay. Thanks, Jon.

[Operator:]

And your next question comes from the line of Ian Sanderson with Cohen. Please proceed.

[Ian Sanderson:]

Good morning, and thanks for taking the question.

[Kim Drapkin:]

Hi, Ian.

[Ian Sanderson:]

On, 03140, first, did you indicate the number of patients that will be enrolled in the monotherapy trial, and…

[Elkan Gamzu:]

Yes, we did.

[Ian Sanderson:]

Okay.

[Elkan Gamzu:]

One second, Ian. I will just get to that one quickly. It is 240.

[Ian Sanderson:]

Two hundred forty.

[Elkan Gamzu:]

And the combination is 420.

[Ian Sanderson:]

Okay.

[Elkan Gamzu:]

And your next question?

[Ian Sanderson:]

And, on the combination trial, why so long to the date to be ready? You seem to be planning a very long enrollment period. I would imagine that this trial might be relatively easy to enroll.

[Elkan Gamzu:]

Again, for most companies, we want to take a reasonably conservative perspective. Do not forget that this is a six-month trial as well.

[Ian Sanderson:]

Right.

[Elkan Gamzu:]

So, we have to enroll all of the patients, and then have them go through all of the six months of treatment, and then lock the database, etc.

[Kim Drapkin:]

It is obviously very early at this point, Ian. As we get closer, and have a better sense of enrollment, if appropriate, we will update our timing.

[Ian Sanderson:]

And the monotherapy trial is a three-month trial, is that correct?

[Elkan Gamzu:]

That is correct.

[Ian Sanderson:]

Okay. And then finally on Vasovist, how much leeway does your agreement with Bayer Schering provide? In other words, do they have a right of first refusal, can they block any sort of sub-licensing agreement, or are you free to do what you can?

[Kim Drapkin:]

Sure. So we do not comment specifically on the confidential terms between ourselves and other partners. That being said, they are well aware of our strategy to monetize and they are committed to helping us get Vasovist approved and working with us in this process.

[Ian Sanderson:]

And, related to that, can you give us any update on how Vasovist is selling ex-U.S. right now?

[Kim Drapkin:]

Sure. Bayer Schering has all of the commercial rights to Vasovist, and they do not publicly disclose their sales, so we cannot comment any further on that. We are pleased to see it continue to get approval, so with a recent approval in South Korea and it is now approved in 34 countries, so we are looking forward to hopefully having approval here in the U.S. by year end.

[Ian Sanderson:]

Thank you.

[Kim Drapkin:]

Thanks, Ian.

[Operator:]

And your next question comes from the line of Yale Jen with Maxim Group.

[Yale Jen:]

Thanks for taking my questions. Good morning.

[Kim Drapkin:]

Good morning, Yale.

[Yale Jen:]

Just some details about the pipeline right now. The first one, is 07034, did I get it correctly that currently the program is a little bit on the assessment and may not start Phase 2a study in this quarter?

[Kim Drapkin:]

That is correct, Yale, and at this point, as Dr. Gamzu said, we are looking, we are looking at the right enantiomer, the R-enantiomer, and assessing what we will do on a go-forward basis. Our plans at this point, the earliest we would probably start a trial would be 2009.

[Yale Jen:]

Okay. And, then what about the two pre-clinical programs that the original idea was trying to out license them maybe this year or next year? Are those still intact in terms of the time line for those?

[Kim Drapkin:]

Sure. So the two most advanced pre-clinical programs that we have that are not partnered, Targets CCR2 and P2Y2, and we have said that we are looking to partner one or both of those, and we are continuing along that strategy. We are not giving any specific timing, but obviously we are in talks at all times with various parties on our available assets.

[Yale Jen:]

And also finally, as Dr. Gamzu is new on board and you mentioned earlier, is the Company to reassess the entire portfolio and ultimately prioritize the various programs moving forward, and maybe even getting new ones, and things of that nature?

[Elkan Gamzu:]

Well, I think it is incumbent on any public company to continually reassess its portfolio and its strategy, and certainly I think one of the things that is interesting is that when somebody comes in with a new perspective. But, we have not come to any conclusions. I have been here a total of, I think, this is my ninth day and if I were in your shoes I would be upset if I made comments that were definitive about any strategy changes that anybody would consider. So, just to go back to a more serious note, I think it is an ongoing process. At the moment, our strategy in general is to maximize the assets that we have, and to continue to develop the portfolio.

[Yale Jen:]

Okay, great. Thanks for taking my questions.

[Elkan Gamzu:]

You are welcome.

[Kim Drapkin:]

Thank you.

[Operator:]

There are no additional questions at this time. I would like to turn your presentation over to management for closing remarks.

[Elkan Gamzu:]

Thank you, operator, and thank you to all of you who have been participating in the call. As outlined, we at EPIX have a number of strong opportunities for success. We have a deep clinical pipeline with drug candidates focused on large and growing markets. We have strong partnerships, and have continued to reach milestones and generate revenue. We have a proprietary and innovative technology platform that should allow us to continue to expand our clinical opportunities and, finally, we have a dedicated team in place, focused on executing our long term growth strategy. We, as all of the members of this team, are very excited about the future, and we thank you all for your continued interest in EPIX, and we look forward to reporting on our progress as the year progresses.