Tenax Therapeutics, Inc.
Q2 2016 Earnings Call Transcript

Published: 11 Aug 2016

[Operator:]

Greetings and welcome to the Tenax Therapeutics' Business Review and Update in Conjunction with Filing of Fiscal Year 2016 Second Quarter Financial Report. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Nancy Hecox, General Counsel. Thank you. You may begin.

[Nancy Hecox:]

Good morning everyone, and welcome to the conference call for Tenax Therapeutics' second quarter 2016 earnings period ending June 30, 2016. The news release with our financial results and corporate update became available at 6 AM today and can be found on the Investors section of our website at www.tenaxthera.com. You can also listen to a live webcast and replay of today's call on the Investors section of the website. Before we begin, let me remind you that statements made on today's call regarding matters that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of these forward-looking statements include statements concerning the expected timing for the company's clinical trials, statements concerning the potential results of planned clinical trials and future development milestones for the company's product candidates. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Risks are described more fully in Tenax's filings with the Securities and Exchange Commission. All forward-looking statements made on today's call speak only as of the date on which they were made. Tenax Therapeutics undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made. Joining me on the call today is John Kelley, Chief Executive Officer of Tenax Therapeutics, who will discuss recent company highlights. Following John, Michael Jebsen, Tenax's Chief Financial Officer, will review the company's financials, after which we will open the call for Q&A. Now, let me turn the call over to Tenax's CEO, John Kelley.

[John Kelley:]

Thanks Nancy. Good morning everyone and thank you for joining us on today's call. The summer here at Tenax has been focused exclusively on clinical execution to enable the read-out of our LEVO-CTS trial before the end of this year, alongside the LeoPARDS data in septic shock from our colleagues at Imperial College London. First, I’ll walk through our progress and plans for the Phase 3 LEVO-CTS study. I am pleased to report that we have continued to see strong enrollment in LEVO-CTS throughout much of the summer. As expected, those rates have slowed a bit the last few weeks as we reached the end of the summer. But overall the rates have largely remained in line and should enable us to meet our timeline of reading out top line data during the fourth quarter this year. As of this morning, we now have 767 patients enrolled in the study. That compares to 620 patients as of May 19 and 487 patients as of March 15. So you can see that there is a strong trend. We anticipate that we'll see a pickup once again in enrollment as the summer winds down. In May, we guided that we expected to enroll past our target number of 760 patients in order to ensure sufficient powering for the trial. We are now projecting that we will enroll patients through the end of September in order to reach a final targeted total of approximately 880 patients, 120 more than originally planned. I touched on the reasons for these additional patients last call but just to provide some more details on why we feel this is necessary. First, a small number of patients have been randomized but did not receive study drug, which is around 4% of patients so far. Second, a small number are missing one or more component measurements of the primary endpoint, also around 4% of patients thus far. And finally, we had originally projected a blinded quad composite endpoint event rate of 26.4%. That has ended up being slightly lower thus far at approximately 25%. For all of these reasons we decided in consultation with Duke Clinical Research Institute to enroll the additional patients, and currently expect to end enrollment around September 30. Additionally, as we talked about last quarter, we have decided in agreement with our steering committee and the DSMB to forego the second interim analysis planned at 600 patients due to its close proximity with the completion of enrollment. As a reminder, our plan is to announce top line results during the fourth quarter, while the full data set will be presented at a future medical meeting by our partners at Duke Clinical Research Institute. I am pleased with the execution that has allowed us to reach this point through the hard work of both our team and the investigators at each of our different sites. We're also excited by the increased visibility of the trial and the drug within the participating medical centers which we believe could form a strong base to support a potential launch assuming the data readout is positive later this year. Toward that end, we continue to invest in our commercial planning and infrastructure to launch this critical care product with an efficient, targeted sales force. The research we have undertaken on the market opportunity confirms our belief that there is a strong need for an agent like levosimendan in cardiac surgery and we hope to bring this to patients in the near term. We strongly believe that levosimendan’s clinical profile to date shows that they have the potential to become a much needed treatment option for cardiac surgery and we look forward to seeing our data readout during the fourth quarter. Turning to septic shock, we still expect that our colleagues at Imperial College London will be reporting results from the LeoPARDS trial during the fourth quarter of this year at a medical meeting along with a simultaneous publication. Our current plan remains that we will conduct our own separate analysis using the data from this trial following the statistical analysis plan that we submitted to the FDA, that incorporates guidance from the agency around clinically meaningful primary and secondary endpoints. Our collaboration agreement with Imperial College calls them to give us access to the data within 30 days of publication, and once we have that data in hand we will run that separate analysis. If positive, we believe that the data could support an NDA filing and we would undertake the necessary dialogue with the agency to understand their guidance on next steps. During the next several months, our focus will turn from clinical and enrollment execution to waiting the data sets for top line presentation. We are proud of all the work that have taken us to this point and we’re eager to share and understand [indiscernible] and the implications that they may have for patients in the critical care setting. With that, I’d like to turn the call over to Michael Jebsen, our CFO to go over the financials.

[Michael Jebsen:]

Thanks John. I will begin today by summarizing our financial results for the three and six month periods ended June 30, 2016 and 2015, followed by a brief discussion of our cash position and burn rate. For the three months ended June 30, 2016 we reported a net loss of $4.6 million or $0.17 per share compared to a net loss of $4.7 million or $0.17 per share in the same period in the prior year. For the six months ended June 30, 2016 we reported a net loss of $9.8 million or $0.36 per share compared to a net loss of $7.8 million or $0.27 per share in the same period in the prior year. Total operating expenses for the three months ended June 30, 2016 were $4.7 million compared to $4.9 million in the prior year. The approximately $200,000 decrease in operating expenses for the current period was due to a decrease of approximately $700,000 in G&A costs and a write-off of approximately $1 million of Oxycyte related assets in the prior year, partially offset by an increase of approximately $1.5 million in research and development costs when compared to the same period in the prior year. Total operating expenses for the six months ended June 30, 2016 were $10.3 million compared to $8.1 million in the prior year. The approximately $2.2 million increase in operating expenses for the six month period was due to decrease of approximately $550,000 in G&A costs and the $1 million write-off of Oxycyte assets in the prior year, offset by an increase of approximately $3.8 million in research and development costs as compared to the same period in the prior year. G&A expenses for the three months ended June 30, 2016 and 2015 were $1.2 million compared to $1.9 million. General and administrative expenses for the six months ended June 30, 2016 and 2015 were $3 million as compared to $3.6 million in the same period of prior year. The approximately $700,000 and $550,000 decreases in G&A costs for the three and six months period ended June 30, 2016 respectively were due primarily to timing differences and for personnel costs resulted from our transition to a calendar fiscal year. The prior G&A costs included accruals for year-end bonuses stemming from our prior April 30 fiscal year end that were not incurred in the current period. We do not anticipate any significant additional charges to our G&A costs and we still anticipate overall annual G&A costs of approximately $6 million to $6.5 million. Research and development expenses for the three months ended June 30, 2016 were approximately $3.4 million compared to $1.9 million in the prior year. Research and development expenses for the six months ended June 30, 2016 were approximately $7.4 million compared to $3.5 million in the prior year. The increase in R&A expenses as compared to the same periods in the prior year was due primarily to the increase in costs incurred for the progression of our Phase 3 LEVO-CTS study, partially offset by elimination of prior costs incurred for the clinical and pre-clinical safety studies for Oxycyte. Due to the decision to expand enrollment we anticipate an additional $2.5 million in R&D costs for the remainder of 2016. Over the next two quarters we anticipate quarterly R&A expenses will begin to taper down as a result of the progression of the LEVO-CTS Phase 3 study. As we complete enrolment and begin to focus on site close out activities we anticipate LEVO-CTS clinical study costs to fall back to previous levels beginning in the fourth quarter. We expect overall 2016 R&D spend of approximately $13 million to $13.5 million resulting in an overall operating expenses of approximately $19 million to $20 million for the full year ending December 31. As of June 30, 2016 we had cash and cash equivalents, including the value of our investments in marketable securities totaling $29.5 million compared to $38.2 million at December 31, 2015. Overall for the remainder of calendar year 2016 and into 2017 we expect to see decreases in quarterly R&A expenses as [we] complete enrollment of the LEVO-CTS Phase 3 study and begin close-out activities. Our focus on capital efficiency has continued to pay off and after completing LEVO-CTS enrollment and analyzing the results, we currently expect to reach the end of 2016 with a cash balance between $19 million and $20 million. With our existing capital we are well positioned with sufficient funds to complete our Phase 3 trial and carry the program through potential approval. Based on our existing capital resources and our anticipated growth in burn rate, we still have sufficient capital to fund our operations through 2017. With that, I'll turn the call back over to the operator for Q&A.

[Operator:]

[Operator Instructions] Thank you. Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann.

[Jeffrey Cohen:]

So just couple questions. Could you talk about the patients which were randomized but not receiving drug in trial thus far and could you maybe shed some light on top rational reasons why they did not receive the drug?

[John Kelley:]

Well, several different reasons, but typically some of these are planned surgeries and the patients are randomized sometimes several days before the surgery is planned, and oftentimes, by the time the surgery comes around some things could happen. Some of their values here or their clinical performance has changed that they might not longer meet enrollment criteria, or we've had a case recently where someone consented to be in the trial, they were randomized and on the day of surgery they decided that they no longer wanted to be in the trial and they withdrew consent. So lots of different reasons but there is a gap between randomization sometimes and entrance into the trial and things change over that gap and they don't get drug.

[Jeffrey Cohen:]

Michael, one clarification, you talked about R&D spend, so it looks like you're at approximately $7.5 million for the first two quarters. You said $2.5 million for the balance of the year, is that inclusive of Q3 and Q4 bringing the total to $13 million to $13.5 million, could you clarify that?

[Michael Jebsen:]

Sure. In the last call I'd forecasted that R&D spend for the year would be between $11 million and $11.5 million, the additional $2.5 million as on top of that. So the $2.5 million covers the extra two months of enrollment as well as the additional costs related to approximately 120 more patients.

[Jeffrey Cohen:]

Okay. So an additional $2.5 million and $13 million and $13.5 million for 2016?

[Michael Jebsen:]

Correct.

[Jeffrey Cohen:]

And lastly, could you or walk us through what a commercial organization may look like assuming that the data is positive and everything goes as planned with the regulatory agencies in the U.S. and Canada?

[John Kelley:]

Sure. So I think we said before, just sticking with cardiac surgery, there are about 1100 hospitals in the United States that perform cardiac surgery. My understanding is in Canada it’s only 30 hospitals to do cardiac surgery and that's regulated in Canada more or so by government payments. So in the United States, or that 1100 you get to more than 80% of the patients by concentrating on about 700 hospitals. So to get the 700 hospitals you need a sales force that would be something in the range of 60 to 65 people. We'd also consider putting into place obviously the management on top of that and then some medical science liaisons and things such as that, but talking about an organization to be somewhere in the range of about 70, 75 people.

[Jeffrey Cohen:]

Do you plan or would you plan to commercialize direct in Canada or are you looking to take on a partner there?

[John Kelley:]

We have not had any discussion with anybody, first of all, to make that clear. And I think it really comes down to in Canada what the reimbursement looks like and how viable we think the product would be in terms of getting to those 50 hospitals. But it's a small number of hospitals to hit, it would be fairly easy and efficient to manage that with one overall North American organization.

[Operator:]

[Operator Instructions] Our next question comes from line of John Vandermosten with Zacks Investment Research.

[John Vandermosten:]

Just a question on surgical site [indiscernible] provided these in the past, where are we in terms of number of sites right now, has it tapered down? I think you said there are about 60, do we have an exact number?

[John Kelley:]

We have been – one time we had actually opened up a total of 79 sites. We have been closing some sites that have not been as active in terms of enrollment. I think right now we’re approximately at 60 sites.

[John Vandermosten:]

And are we still seeing top sites generating most of the patients or has that changed? I think there is a certain percentage that were in the top three sites. Has that –

[John Kelley:]

No, it continues to be. I mean we've got lots of sites that have enrolled more than four patients a piece, but our top sites are places like the Cleveland Clinic which I think now is over 50 patients that have been enrolled. There's a site out in Tacoma, Washington that is Saint Francis have care system that I think is in the same range. Case Western in Ohio is also in about the same range and we've got a number of sites that are above 20 patients. So it is definitely concentrated but we’ve got, of the 60 sites that have enrolled multiple patients.

[John Vandermosten:]

And I wanted a question on the sales force, what kind of incentive structure do you foresee there for the force?

[John Kelley:]

That's something that we’ll have to think about now and consider we haven't really given any thought to that at this point in time. Having managed many sales forces in the past, it’s always an interesting challenge to come up with something that will actually deliver what you wanted to deliver. So we’ll need to give that some thought. We haven’t done that yet. End of Q&A

[Operator:]

Thank you. It appears we have no further questions at this time. Mr Kelley, I would now like to turn the floor back over to you for additional or closing comments.

[John Kelley:]

Thank you very much. Again thanks everyone for joining us this morning. We look forward to keeping you up to date on our progress with enrollment and hopefully the next time we're together we can be discussing closeout of the LEVO-CTS trial. Thanks everyone. Have a great day.

[Operator:]

Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.