Memory Pharmaceuticals Corp. Q3 2008 Earnings Call Transcript

Memory Pharmaceuticals Corp. (MEMY)

Q3 2008 Earnings Call

November 13, 2008 9:00 am ET

Executives

Vaughn M. Kailian – President and Chief Executive Officer

David Lowe, Ph.D. – Chief Scientific Officer

Stephen Murray – Chief Medical Officer

Michael P. Smith – VP of Business Development.

Jzaneen Lalani – General Counsel

Analysts

Terence C. Flynn – Lazard Capital Markets

Michael G. King – Rodman & Renshaw

Patrick Moriarty – Fortis

Presentation

Operator

Welcome to the Memory Pharmaceuticals conference call to discuss the company's third quarter 2008 results. There will be a question and answer session to follow. I will now turn the call over to Jzaneen Lalani the General Counsel of Memory Pharmaceuticals.

Jzaneen Lalani

Thank you for joining us to discuss Memory Pharmaceutical's results for the third quarter 2008. With us today are Vaughn Kailian President and Chief Executive Officer, Mike Smith Chief Financial Officer, Dr. David Lowe Chief Scientific Officer, and Dr. Stephen Murray Chief Medical Officer.

Before we begin, let me remind you that some of the information presented today regarding the company's future expectations, plans and prospects are considered forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on the current expectations and actual events may differ materially from those expectations.

We refer you to our filings with the Securities and Exchange Commission including our annual report on Form 10-K and our quarterly report on Form 10-Q which identify the important risk factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. We disclaim any intent or obligation to update any forward-looking statements as a result of developments occurring after today's call.

With that let me now hand the call over to Vaughn.

Vaughn Kailian

I'd like to take some time today to briefly review the events of the past quarter and to discuss our strategy and outlook going forward. Over the past few months we continue to execute our overall strategy focused on directing our resources toward those development programs where we believe we can deliver the greatest value for our shareholders and we have made tangible progress in advancing our key candidates.

In addition, we've taken steps to strengthen our financial profile and leverage our partnerships to provide us with greater resources to prosecute our development programs. Along those lines in September we amended our nicotinic agreement with Roche to expand our development program for MEM 3454 which Roche calls R3487 in exchange for an acceleration of certain milestone payments from Roche. Specifically we expanded our ongoing Phase II trial for 3454 in cognitive impairment associated with schizophrenia or CIAS to increase the number of patients in the trial to 212.

If the results of the trial are positive, the increase in patient numbers could support advancing the compound into a pivotal trial. Importantly, Roche has provided upfront funding for all external and internal costs associated with the increase in the size of the trial and agreed to accelerate a portion of the $17 million milestone associated with this trial. Specifically we received $3.5 million in connection with the amendment and we will receive $5 million upon the randomization of 212 subjects in the trial.

Enrollment in the CIAS trial has been quite strong and we expect to achieve the enrollment goal shortly which will trigger the milestone payment. The remaining $8.5 million will become due 30 days after the availability of top-line data from the trial, which we anticipate will be next spring.

We believe that the expansion of the trial is an extremely positive development for the program and for Memory overall. It has a potential to accelerate the development program for 3454 and CIAS without any additional financial burden to Memory while allowing us to earn $8.5 million in milestone payments earlier than anticipated originally. Perhaps more importantly it underscores Roche's enthusiasm for and commitment to the program, which is further evidenced by Roche's plans, which we announced in September to commence a Phase II trial for 3454 and Alzheimer's disease.

Plans are also underway to commence a biomarker study for 3454 and schizophrenia which will be funded by Roche. We have a principal investigators meeting scheduled for next week and we expect screening to start before the end of the month. The placebo control study will enroll 12 smoking stable schizophrenic patients and evaluate the affect of four doses of 3454 on three evoked potential responses. The primary endpoint of the trial will be the affect of 3454 on P50 sensory gating.

Secondary measures include mismatch negativity and P300 evoked potential responses. Ultimately we hope to identify whether these measures could be used as potential efficacy biomarkers for nicotine agonists such as 3454 and the other compounds in this program. We anticipate announcing results from this trial in the third quarter of 2009.

We have been equally productive with our other programs in the past few months. In September, we completed the fourth and final study in the Phase I program for MEM 63908, our second nicotinic alpha-7 receptor agonist which Roche calls R4996. Over the course of the Phase I program over 100 healthy and elderly male and female subjects were dosed with 63908. We're in the process of evaluating the data and expect to report the results later this quarter.

Before I turn to our other programs, let me add that we also received a key patent for both 3454 and 63908 which further strengthens our leadership position in the nicotinic space. In October, we announced the issuance of a US patent covering the composition of matter for a series of nicotinic alpha-7 receptor agonists including these two compounds. This provides key patent protection for the compounds through 2025 excluding the potential for any potential term extensions.

In summary, we've made substantial progress with our nicotinic program and our partnership with Roche continues to be quite productive. We've also advanced our two proprietary programs. For Memory 1414, as we have discussed in the past, the data from the program has suggested potential in two disease areas, cognition, and inflammation. We have determined that the most appropriate path forward at this time is in an inflammation indication such as asthma.

There is strong rational for the use of PDE4 inhibitors in respiratory indications and 1414 has demonstrated a positive affect in multiple models of inflammation. In addition, 1414 has consistently demonstrated a clean safety profile in clinical trials, and so we believe that Memory 1414 can produce a robust anti-inflammatory affect without the emesis traditionally associated with this drug class.

We're planning to initiate a Phase IIa proof of concept trial in asthma around yearend. The purpose of this trial is to evaluate the efficacy safety and tolerability of multiple doses of 1414 on the allergen induced late asthmatic reaction in steroid free subjects with mild allergic asthma. The trial will be conducted in the UK and will enroll 16 subjects who will be randomized to receive 1414 or placebo in a crossover design.

The primary objective of the trial is to assess the efficacy of 1414 compared to placebo on the late asthmatic reaction following an inhaled allergen challenged as measured by changes in SED1 compared to baseline. We're looking forward to commencing this trial and we expect it will have top-line results in the second half of next year.

Our fourth candidate is Memory 68626, a novel potent and selective antagonist of the 5-HT6 receptor that has demonstrated efficacy in multiple models of cognition and obesity. In July, we presented positive preclinical data for 626 at the International Conference on Alzheimer's disease. In this study 626 was affective in models of cognition that are considered predictive of efficacy in Alzheimer's disease and mild cognitive impairment.

In addition, the data suggests potential for once daily dosing with a favorable selectivity, safety, and toxicology profile which we believe offers advantages over other 5-HT6 programs currently in development. We're looking forward to providing additional updates on our preclinical data for 626 at the upcoming Society for Neuroscience Meeting and at an AC&P meeting later this quarter.

We are very excited about the potential applications for 626 and we've been preparing to advance the program into the clinic this year. However, given the resources currently available to us we've decided to postpone the start of this trial so that we can focus our efforts on the nic alpha-7 and PDE4 programs. This is a purely financial decision and in no way reflects a lack of enthusiasm for the compound quite the contrary. Importantly, once we believe that we have the resources in place to advance the program appropriately we intend to ramp up the Phase I program for 626 relatively quickly.

On that note, I'd like to turn the call over to Mike Smith our CFO for a discussion of our financials.

Michael Smith

We discussed the results of the press release we issued today so rather than take the time to review the release in detail, I’d just like to provide you with a brief high-level overview of the numbers. In the past quarter we recorded $4.3 million in revenues, significantly higher than the $900,000 in revenue we recorded in the second quarter of this year. This increase reflects the increased R&D funding from Roche, as well as a change in the timing of the revenue recognition driven by our July 2000 amendment to the nic alpha-7 agreement with Roche.

Our third quarter operating expenses were consistent with our second quarter level. We recorded $10.3 million in R&D expenses unchanged from the second quarter. This reflects continued investment in our nicotinic and other proprietary programs and as Vaughn mentioned, an exciting result of these investments is a Phase IIa asthma study which we will be conducting for MEM 1414, a study we plan to initiate before the end of this year.

Our G&A expense of $2.3 million for the third quarter was slightly lower than the $2.6 million we recorded in second quarter 2008, but unchanged from the prior year. We reported a net loss of $8.9 million or $0.11 per share for the quarter. On September 30^th, we had $14 million in cash and cash equivalence compared to $22.1 million on June 30^th and $38.2 million at the end of 2007. The quarterly change reflects the $2 million investment from SMRI offset by our cash expenses.

I should note our September 30^th cash balance does not include the approximately $6.6 million we received from Roche in October in connection with our September expansion of the CIAS trial or the $5 million milestone we expect to receive upon the achievement of the enrollment milestone for that study. As Vaughn mentioned we expect to reach that enrollment event relatively soon.

As noted in our press release today, we continue to expect that our cash balance together with payments expected to be made by our collaboration partners, will be sufficient to fund operating expenses in capital equipment requirements to make all the scheduled payments on our debt obligations into the first half of 2009.

I will now turn the call back to Vaughn for closing comments.

Vaughn Kailian

Over the course of 2008 our programs have matured and we’ve seen great evidence of their potential to create value over the long-term. Roche’s commitment to 3454 certainly provides validation for a nicotinic portfolio and the program is truly benefiting from the resources that Roche can bring to bare to accelerate the development of our compound in both CIAS and the Alzheimer’s disease.

The data from our 1414 program suggests utility in two very different indications and the key opinion leaders we have spoken with are extremely interested in the compounds potential. Memory 626 continues to produce compelling data in models of cognition and we have been encouraged with the interest from the scientific community. So we’ll continue to evaluate ways to advance that program. In parallel with our progress on the clinical development front, we’ve focused on ensuring that we have the appropriate resources, operating structure, and clinical development strategies in place, and we’ll continue to operate in a fiscally responsible matter.

Let me briefly recap our upcoming goals. We expect to complete enrollment of our Phase II trial of 3454 and CIAS shortly, which will trigger a $5 million milestone payment from Roche. Top-line results from our CIAS trial are expected in the spring of 2009. The final $8.5 million payment associated with this trial will become due from Roche after 30 days after the end of the trial.

We plan to expand the biomarker study for Memory 3454 before the end of the month and with results expected in the third quarter of next year. We expect to report results from our 63908 Phase I program later this quarter and we look forward to initiating a Phase IIa trial for Memory 1414 in asthma this year, with the results expected in the second half of next year.

In summary, we have a number of value creating events over the next six months and we are extremely excited about the near-term potential of our pipeline and we look forward to continuing to update you on our efforts.

With that operator, I’d like to open the call for questions and Jzaneen, if you can manage the questions from your end that’d be very helpful for me.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Terence Flynn – Lazard Capital Markets.

Terence C. Flynn – Lazard Capital Markets

First on 3454, just wondering if you can share with us any additional details of the potential design of the Alzheimer’s disease trial and possibly when you might, or Roche might initiate that study.

Vaughn Kailian

Well first of all when that program, and that aspect of the program went over to Roche that basically is Roche’s responsibility to handle all further disclosures on the AD trial. I don’t believe that we’re at liberty to discuss that beyond what we’ve already said that we expected to start in the near future here.

Our responsibility is to complete the CIAS trial and the biomarker studies that we’ve just talked about and the 908 trial. So, we’ll be pretty expansive about the results of those trials since they’re within in our domain, but the other trials and the future plans for 3454 you’re probably going to have to ask the folks at Roche. Suffice it to say, I think they’re very excited about the program.

Terence C. Flynn – Lazard Capital Markets

So we shouldn’t expect a press release from you guys once Roche starts that study, like if Roche elects not to disclose it for some reason just given its an earlier stage program you guys -

Vaughn Kailian

That’s a good question. Why don’t we ask Jzaneen and Steve?

Michael Smith

This is Mike Smith. Yes, we will be announcing the details of that study once the study becomes basically initiates, but at this time for confidentiality and competitive reasons, those are things that we can’t disclose. Well we have disclosed the Phase II study in AD.

Terence C. Flynn – Lazard Capital Markets

And just on 63908, I know you’re still going through the Phase Ia data and we’re going to get this shortly, but just wondering assuming there are no safety signals, what the next steps for that program would be with respect to a Phase II study or Phase Ib?

Vaughn Kailian

Steve?

Stephen Murray

This is Steve Murray. Like with 3454, Roche will take responsibility for 63908 as it moves forward. We will have the data, as we said later this quarter for the Phase I program, but the planning for additional studies will have to be announced by Roche.

Terence C. Flynn – Lazard Capital Markets

Thanks for taking the questions.

Stephen Murray

And we’ll be announcing both, Terence, those are good questions, we’ll be announcing the details of those studies as they emerge. So for the AD study as we’re pretty close to the point where that study could initiate details will be forth coming.

Operator

Your next question comes from Patrick Moriarty – Fortis.

Patrick Moriarty – Fortis

I actually have a couple of questions. First with the current cash balance and a few trials here set to ramp up by the end of the year. How can you stretch the resources or what are the financing plans to take care of funding these trials?

Vaughn Kailian

Michael?

Michael Smith

Yes, I can jump in on that. Well it’s a good question it’s a question we’re addressing through multiple avenues, Patrick, so one of the changes we made in the past quarter was to mend the CIAS arrangement or the nic alpha-7 arrangement with Roche so that we receive $6.6 million in October to fund the expansion of that study.

Again with the upcoming announcement or an upcoming event on enrollment for that study, we expect to receive $5 million before the end of the year related to that study as well in addition to that $6.6, and that’s from Roche. As we have noted in the past, we’re continuing to explore discussions to finance the company and having the normal conversations that we would be having otherwise.

The other side of that is what are we spending and in the last year we’ve taken as you know, a couple of steps to cut back and refocus the resources of the company towards the key programs that are value changing events, at least in the short-term for the company. One of the things that we also indicated today is that we’ll be moving forward with the 5-HT6 program when we have resources available. So one of the general things that we’re mindful of we're mindful of using the resources available to us in smart ways and we’re making decisions on what we do with that money in the next six months, to make sure that we can reach substantial value changing events.

Patrick Moriarty – Fortis

Separately, we’re expecting data from Targacept, AstraZeneca’s 3480 in schizophrenia in December. Do you feel that this trial or results from this trial will have any bearing on how you view 3454 and CIAS? Is there any correlation there is it predictive of what you may see in your trial?

Vaughn Kailian

Steve?

Stephen Murray

This is a really new field and so we’re just seeing data as these phases complete, so we’ll have to see the data to really have any real opinion about that. Certainly we’re hoping to learn as much as we can about the indication, the population, the responses on the various outcome measures and all the data available would be very useful there. Whether their data actually has a significant predictive, it's significantly predictive in terms of what we can expect.

It’s going to be difficult to tell until we see the results. One of the things we would point out though is that they’re using a different endpoint then we are. So frankly how those two endpoints to make it battery versus what they’re using, they’re computerized battery relate to each other, is still very much up in the air. Frankly we’re looking forward to learning from data as it comes out, but how it will actually be predictive of our data, we won’t know until we see our data.

Patrick Moriarty – Fortis

And in terms of cognition and schizophrenia versus your positive and negative symptoms and how they vary over time, what kind of placebo affect are you expecting in the trial? Would it be more or less then what you would see with the traditional positive and negative symptoms, or is that something, maybe that's what you can learn from the Targacept trial, is to whether or not there’s less of a placebo affect in cognition.

Stephen Murray

The data that‘s available so far with the measured battery suggests that the placebo affect really isn’t much of an affect. There is a practice effect that one sees as the measured volumes that you are repeatedly administered, but in terms of placebo responses there isn't much evidence that cognition is significantly changed by a [inaudible] but once again there are new indications that we'll learn as new data comes out. One of the exciting things is as you point out that over the next six to eight months a number of large studies and this indication I'm going to be reading now and we're going to begin to get a handle on what to expect in terms of these studies, the trial design, the endpoints how they perform and placebo-controlled studies and so it's really quite an exciting time for the field.

Vaughn Kailian

I believe that was our last question, operator, so I'd like to thank everybody for participating in the call today and we look forward to, A, performing against the goals that we've enumerated today, and then B, being able to spend some time with you and report the results. With that I'd like to end the call. Thank you all for participating.

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