Madrigal Pharmaceuticals, Inc.
Q3 2008 Earnings Call Transcript

Published: 13 Nov 2008

[Operator:]

Good day and welcome to the Synta Pharmaceuticals third quarter 2008 financial results conference call. Today's conference is being recorded and webcast. At this time, for opening remarks, I would like to turn the call over to Rob Kloppenburg, Vice President of Investor Relations and Corporate Communications at Synta Pharmaceuticals. Please go ahead, sir.

[Rob Kloppenburg:]

Hello and thank you all for taking the time to join us today. With me are Dr. Safi Bahcall, our Chief Executive Officer, Keith Ehrlich, our Chief Financial Officer, Dr. Eric Jacobson, our Chief Medical Officer, Dr. Jim Barsoum, our Senior Vice President of Research and Michael Bailey, our Chief Commercial Officer. This morning we issued a press release that reported results for the third quarter ended September 30, 2008. This release can be found on our website at www.syntapharma.com. Before I go any further, I'd like to remind everyone that we will be making forward-looking statements during this conference call. These include statements relating to the timing and progress of our programs, the timing and amounts of milestone payments, and financial guidance for 2008 and 2009. These forward-looking statements reflect our current views with respect to future events, and are based on assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Including those risks and uncertainties described under Risk Factors in our Form 10-K for the year ended December 31, 2007 as filed with the SEC. Synta undertakes no obligation to publicly update forward-looking statements, whether because of new information, future events or otherwise, except as required by law. I will now turn the call over to Dr. Bahcall, after which we'll open the floor to questions. Safi?

[Safi Bahcall:]

Thanks, Rob and thank you all for joining us this morning. To begin with, in the third quarter, we have continued to make significant progress with elesclomol, our first-in-class oxidative stress inducer. The Phase 3 SYMMETRY trial of elesclomol in metastatic melanoma continues to enroll extremely well. We've been very pleased by the positive reception in the melanoma community to the drug, to the oxidative stress mechanism, to the rigorous trial design and to the high quality of the conduct of the trial. This is a tribute to the hard work of our clinical and operational teams in supporting the efforts of investigators at over 150 trial sites around the world and I recognize them and thank them for this effort. As we have previously guided, we expect the planned interim safety and non-futility analysis of the PFS data to take place this quarter. As we have also said before, the company is quarantined from this analysis, which will be conducted according to a pre-specified charter agreed to with the FDA, as part of our Special Protocol Assessment. The data monitoring committee will meet, review the data and let us know the recommendation, which we expect to receive in December. Once we have received this recommendation, we expect to issue a brief press release. Based on our current enrollment rates, we expect to complete enrollment in January or February of 2009 and conduct the primary analysis of progression-free survival shortly thereafter. We will have more specificity around the timing of PFS data, as we get closer. This past quarter, we have also seen improved awareness of elesclomol and the potential of oxidative stress induction. Details of the mechanism of action of elesclomol were published in the journal Molecular Cancer Therapeutics in August. Interest in oxidative stress continues to build in the scientific and medical communities. Most recently, John Fruehauf, and Valerie Trapp, investigators from UC Irvine published an article entitled Reactive oxygen species

[Keith Ehrlich:]

Thank you, Safi, and good morning everyone. I refer all of you to our earnings release and 10-Q filing from this morning. I will briefly summarize some highlights and then we will go on to questions. For the quarter ended September 30, 2008, we reported a net loss to common shareholders of $26.3 million or $0.78 per basic and diluted share, compared to a net loss of $14.9 million or $0.44 per basic and diluted share for the same period in 2007. Research and development expenses were $24.1 million for the third quarter compared to $11.5 million for the same period in 2007. General and administrative expenses decreased to $3.7 million in the third quarter of 2008 from $3.9 million for the same period in 2007. The increase in R&D expenses reflects the substantial progress we have made in our Phase 3 SYMMETRY trial for elesclomol in metastatic melanoma and associated NDA preparation activities. The increase in clinical activity for our Hsp90 inhibitor, STA-9090, also contributed to the increase in R&D expenses. The relatively low and consistent G&A expenses reflect our commitment to cost and infrastructure containment. In September, we achieved $25 million in operational milestones which was paid to us by GSK in the fourth quarter. As a reminder, we account for our milestones using a time-based model, recognized over the 15 year performance period of the agreement. Upon achievement of a milestone, we recognize as collaboration revenue, that portion of the milestone equal to the portion of the 15 years that has elapsed. The balance is recognized on a straight-line basis over the remaining time. The company ended the third quarter of 2008 with $83.4 million in cash, cash equivalents and milestone payments receivable. This includes $25 million in milestones that were achieved in the third quarter and paid in the fourth quarter. Based upon our current operating plans, we expect to end 2008 with between approximately $65 million and $70 million of cash, cash equivalents and milestone payments receivable. This includes a further $15 million in operational milestones Synta expects to achieve before the end of the year. Synta expects to earn an additional $10 million in operational milestones from GSK in the first quarter of 2009. In addition, Synta will be eligible for a milestone payment of $25 million upon achieving the primary endpoint of the SYMMETRY trial or upon a determination by Synta and GSK to file for regulatory approval, as well as up to $75 million in potential milestones for melanoma regulatory filings and approvals. By the second quarter of 2009, we expect to transition to cost sharing with GSK, in which Synta would pay a minor portion of ongoing elesclomol costs. A very substantial non-dilutive milestone payments and the significant reduction in expenses due to elesclomol program cost sharing are an important element in providing us with a solid financial footing as we head into 2009. I'll now turn the call back to Safi.

[Safi Bahcall:]

Thanks, Keith. I will now open the call to questions and discussion. Operator?

[Operator:]

(Operator Instructions) Our first question comes from the line of Jim Birchenough with Barclays Capital.

[Jim Birchenough:]

Hi, guys, thanks for taking the question. Just on the timelines for the SYMMETRY trial, it seems like a bit of a push out in timelines for completing enrollment, so it begs the question of how confident you are in enrollment completing by February. And then following up on that, once we complete enrollment, if we look at the February timeframe, how confident are you that we will have hit the PFS requirement in terms of number of events at that point?

[Safi Bahcall:]

Well, two questions. One is, last quarter we guided to finishing enrollment by the end of the year or shortly thereafter, and I think we are now very confident we'll finish enrollment by January or February, so we're pretty consistent with what we've been saying for the last several months, and we do want to give ourselves some window just given the holidays and unpredictability. That being said, we are seeing extremely strong enrollment as high as we have ever seen in any melanoma trial. In terms of hitting the required number of events, we're confident that we will have the required number of events in time to do the analysis shortly after completing enrollment. Does that answer your questions?

[Jim Birchenough:]

Yes, I guess I'm trying to get a sense of whether getting the data at this point, whether enrollment or PFS events is going to be the gating item to getting the data?

[Safi Bahcall:]

I think they end up working out so that we can hit those timelines. We're now getting close enough that we have pretty good visibility, and so, we're pretty confident that we will finish enrollment by January or February and we will be able to conduct the analysis very shortly thereafter.

[Jim Birchenough:]

And I can't remember, Safi, but have you said how many events underlie the interim analysis that we'll be getting in December?

[Safi Bahcall:]

No, I think we're not allowed to get into that level of detail about the DMC charter.

[Jim Birchenough:]

Okay, final question is just on the financial side. As you look at the burn being mitigated somewhat by the cost sharing with GSK next year, how much runway do you have in terms of cash? Do you think you've got more than a year? Just trying to get a sense of how far out this cash at year-end takes you if you don't assume any further milestones beyond the $10 million in the first quarter?

[Safi Bahcall:]

Obviously, Jim, we have a big binary event coming up, and what we've done through the deal, through our cost management and through pretty careful planning is position ourselves so we have at least a year's cash to get us through end of 2009 or well beyond, more or less regardless of what happens.

[Jim Birchenough:]

Okay, great. Well, thanks for taking the questions.

[Operator:]

Our next question comes from the line of Jason Kantor with RBC Capital Markets.

[Michael Yee:]

Hey, it's actually Michael Yee for Jason. A couple questions, Safi, on the interim analysis in December. Should we assume that you'll press release something right away, and you're basically going to say continue on or there's a futility analysis? What kind of disclosure should we expect there?

[Safi Bahcall:]

That's right. We'll do what is typically done, which is a brief press release summarizing the recommendation which would be either continue, change study conduct or stop.

[Michael Yee:]

Okay. And then in terms of the Phase 3, can you help us with your thinking in terms of after you complete enrollment, timing to lock-in clean and then when do you think you could actually get an NDA filed, assuming a possible event?

[Safi Bahcall:]

It's hard to get much more specific about the timing of PFS data right now. We will get a little more specific as we get closer. And then, in terms of timing of NDA, we're targeting in 2009.

[Michael Yee:]

Okay. And then just quickly on a financial question, there was a big jump in R&D. I know you're moving to a cost sharing, but is this a reasonable run-rate into the fourth quarter, or were there some type of one-time things in the third quarter that caused it to have a huge jump there?

[Keith Ehrlich:]

Thanks for the question; I think it's a fair reflection of the high level of activity in our R&D efforts in the SYMMETRY trial and in other areas. We will note that we would expect by the second quarter of next year to move into the cost sharing arrangement.

[Michael Yee:]

Okay. Thanks, guys.

[Operator:]

Our next question comes from the line of Joel Sendek with Lazard Capital Markets.

[Joel Sendek:]

Thanks a lot; I just want to follow up that last question. When you move into cost sharing on R&D line, can you give us some sense of what the split will be? Or at least how much of the $24 million is Elesclomol right now?

[Keith Ehrlich:]

Certainly the portion of the $24 million, Elesclomol is the majority of that.

[Joel Sendek:]

Okay.

[Keith Ehrlich:]

And as far as the cost sharing, as we said, once we go into cost sharing, our expectation is to be responsible for a minor portion of the cost going forward. By contractual agreement with our partner we're not explicit about what that exact split is.

[Joel Sendek:]

Okay, so if I assume 25%, would that be a good estimate?

[Keith Ehrlich:]

I can't comment on the precision.

[Joel Sendek:]

Okay, let me ask a couple other questions. Again, on the futility analysis, you mentioned two outcomes, either continue or stop. Does the stop also break down into stop because of good data or bad or stop because of good data too?

[Eric Jacobson:]

Joel, this is Eric Jacobson. We have only written in a formal futility for a futile outcome. We haven't written into the protocol or the charter stopping for efficacy.

[Joel Sendek:]

And how many patients will be in that analysis and would it be all the patients? Or will it be? Can you give us some sense of either the patient number or the percentage of patients that that analysis will contemplate?

[Eric Jacobson:]

You mean the futility analysis?

[Joel Sendek:]

Right.

[Eric Jacobson:]

We're taking all the patients that we have available per a pre-specified cutoff date, so it's going to be hundreds of patients, but we haven't given any further specifics as far as numbers of events, et cetera.

[Joel Sendek:]

Okay. And then one more financial question which is, I just want to make sure I have this clear as far as your amortization. If we can just use an example of the $25 million that you earned and are getting paid in the fourth quarter, if you amortize that over 15 years, I think I heard you say there's a piece of that that immediately gets recognized and the rest is over 15 years, is that is right?

[Keith Ehrlich:]

That's right, it's over a 15 year period beginning, but calculated as though it began last November when we signed the agreement. So there's a catch-up in this period. And then the remainder continues to be amortized forward, one fifteenth a year on a monthly or quarterly basis.

[Joel Sendek:]

Okay, so in this case you'll probably get maybe five quarter’s worth at once?

[Keith Ehrlich:]

That's correct.

[Joel Sendek:]

Okay. And then the final thing is Elesclomol in prostate cancer, I am wondering, just to be clear, that would with in chemo-naives, hormone-refractory chemo-naive?

[Eric Jacobson:]

We haven't really talked about the specifics of the patient population other than the hormone refractory population. And again, this is the first time we're using it in combination with Docetaxel. I guess its okay to say that we're enrolling both chemo-naive patients as well as patients who have received one prior standard chemotherapeutic regimen.

[Safi Bahcall:]

One important factor on that is about 70% of patients are getting Docetaxel in their saline.

[Joel Sendek:]

Okay, thank you.

[Operator:]

Our next question comes from the line of Andrew Vaino with Roth Capital.

[Andrew Vaino:]

Thanks for taking my call, just a quick question. For the study where you guys are looking at the sodium salt of Elesclomol, how much Elesclomol are you dosing in the sodium form?

[Safi Bahcall:]

You mean in the upcoming prostate study?

[Andrew Vaino:]

Correct.

[Safi Bahcall:]

This is a dose at escalating trial. We're starting at a dose similar to what we're using in melanoma and then we're going to be escalating to define the MTD of the drug in combination with Docetaxel. This is the first time we've used Elesclomol with Docetaxel. We'll be looking at the PK, safety, et cetera and dose escalates.

[Andrew Vaino:]

What's the water solubility of this sodium salt?

[Safi Bahcall:]

It’s soluble.

[Andrew Vaino:]

Like grams per milliliter or--?

[Eric Jacobson:]

Grams per milliliter.

[Andrew Vaino:]

Okay. For the Apilimod, it doesn't seem that there is a tremendous amount of progress there over the past year. How many patients have been enrolled in this trial so far?

[Eric Jacobson:]

Right now, we've had really a handful of patients enrolled. This is a trial where we're using synovial tissue analysis as a biomarker. So, it's difficult to get biopsies pre- and post-treatment treatment in these patients. So, we're just slowly accruing patients and then hope to have some data by next year.

[Andrew Vaino:]

Okay. And then finally, financially, on the cash and equivalents section, how much of that are equivalents, and is anything of that in something riskier than a T-bill?

[Keith Ehrlich:]

Substantially all of it is in Treasury funds, and there's a small amount that are typical overnight bank account to cover the next day's checks.

[Andrew Vaino:]

Okay, great, thank you very much.

[Operator:]

That concludes the question-and-answer session. I will turn the conference back over to Dr. Bahcall for closing remarks.

[Safi Bahcall:]

With that operator, we will end the call, thank you.

[Operator:]

Ladies and gentlemen, this concludes today's call, you may now disconnect.