Altus Pharmaceuticals Inc. Q3 2008 Earnings Call Transcript

Altus Pharmaceuticals Inc. (ALTU)

Q3 2008 Earnings Call Transcript

November 4, 2008, 11:00 am ET

Executives

John Jordan – Senior Director, Corporate Communications

Georges Gemayel – President and CEO

Jon Lieber – SVP, CFO and Treasurer

Analysts

Eric Schmidt – Cowen & Co.

Joseph Schwartz – Leerink Swann

Eun Yang – Jeffries & Company

Tom McGahren – Merrill Lynch

Presentation

Operator

Good day everyone and welcome to this conference call with Altus Pharmaceuticals regarding the company’s third quarter financial results. Today’s call is being recorded. I would now like to turn the call over to Altus' Senior Director of Corporate Communications, Mr. John Jordan. Please go ahead, sir.

John Jordan

Thank you and good morning everyone. Joining me today on the call is Georges Gemayel, President and CEO; Burkhard Blank, Chief Medical Officer; and Jon Lieber, Chief Financial Officer.

Before I turn the call over to Georges, I would like to direct your attention to our Safe Harbor statement and our news release. Certain remarks that we may make during this call about future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. As noted in the statement, our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors such as those that are discussed in our news release and in our SEC filings included in our most recent Form 10-Q, which is on file with the SEC. Please refer to those filings for a description of those factors.

I will now turn the call over to Georges Gemayel.

Georges Gemayel

John, thank you very much. Good morning, everyone, and thank you for participating in our third quarter investor’s conference call. Before Jon Lieber reviews the quarterly results, I am going to take a little time to update you on several items related to our clinical development pipeline.

In particular, during the last several months, we have reviewed the Phase III Trizytek data in detailed with physicians and regulatory consultants. We have seen some positive family data as well from the open label long term safety studies in cystic fibrosis and chronic pancreatitis. All of these have strengthened our confidence that we have a viable drug that can benefit patient who need pancreatic enzyme replacement therapy.

During the third quarter, we released top line results from our 163 patient, Phase III, double-blind, placebo-controlled trial with Trizytek. Trizytek is a stable pure combination of three active enzymes in a fixed-ratio designed to improve fat, protein and carbohydrate absorption in pancreatic insufficient individuals. Trizytek successfully met its primary end point of improvement in fat absorption in CF patients with statistical significance. Trizytek was well-tolerated with a favorable safety profile and there were no serious adverse effects attributed to the Trizytek treatments. The data was presented at the 2008 North American Cystic Fibrosis Conference on October 23 and 24, and was well-received by the CF community and other.

For pancreatic insufficient patients, the most relevant measure of success is long term health outcomes such as weight and height maintenance or gain. These overall health outcomes are being evaluated in one-year studies which have enrolled more than 200 patients. In the NACF Trizytek data news release, we said that preliminary data from the open label long term studies suggested that adults are maintaining their weight and BMI percentile and children are maintaining their height and weight percentiles with continued Trizytek treatments. The NACF meeting was an important opportunity for us to connect with the CF caregivers and to discuss the strength of our data and the anticipated advantages of Trizytek.

After completing the long term studies we believe the information from more than 500 patients from the Phase II and Phase III studies will be extremely powerful in differentiating Trizytek from all other pancreatic enzyme replacement therapies. We are on tract to complete this Phase III long term studies as expected in the first half of 2009.

As you know, we also reported in August that our overall top line results were affected by marked difference between patients within the U.S. and patients outside U.S., and that we would be investigating the potential cause of this data anomaly. This investigation is still ongoing. And while we do not have any definite conclusion to report, the investigation has supported the validity and credibility of our reported overall efficacy results. We have also looked and eliminated the obvious potential causes of the country to country differences such as: mislabeling of the drug, failure to follow the randomization code, adherence to the protocol, as well as shipping and storage of trial drug supply.

We do soundly believe that Trizytek will be an important therapy and we want to ensure that the drug reaches patients as soon as possible. To that end, we have scheduled the meeting with the FDA in mid-November to discuss how our current data package, which will include preliminary data from our long term safety studies may be received in an NDA filing.

Now giving our current cash position and the status of the Trizytek program as a whole, we have made the strategic decision to pursue our business development options regarding the program and eye in discussions with potential partners. We are pleased with the quality and quantity of partners that are interested in our Trizytek asset. And we will of course notify you should any of these discussion results in a fine collaboration agreement.

During the next several months, we are expecting valuable Trizytek program information from business development and clinical and regulatory initiatives. We believe this input will assist us in finalizing our strategic plan for 2009 and beyond.

Finally, I am very pleased to report that ALTUS-238 program is back in the clinic. The Phase I-C study started and was completed in the third quarter. The trial 1-c designed to confirm that ALTU-238 material produced at the current increase manufacturing scale performs similar to the material used in previous ALTUS-238 studies. We expect to report results from this study during this quarter. In addition, we believe the information gathered from the trial will be very helpful in future ALTUS-238 clinical studies including the Phase II pediatric trial which is targeted for initiation in early 2009.

I will now turn the call over to Jon Lieber for a summary of our financial results.

Jon Lieber

Thank you, Georges, and good morning everyone. For the third quarter of 2008, the company reported a net loss attributable to common stockholders of $22.2 million or $0.71 per share, compared to a net loss attributable to common stockholders of $22.6 million or $0.73 per share in the third quarter of 2007. Cash, cash equivalents and marketable securities at September 30, totaled $70.3 million. In the third quarter of 2008, the Company did not recognize any revenue compared to negative revenue of $0.6 million in the third quarter of 2007.

Research and development expenses totaled $18.7 million in both the third quarter of 2008 and 2007. Third quarter 2008 R&D spending reflects continued clinical and manufacturing costs associated with Trizytek, outsourced third party, and internal cost related to the ALTU-238 Phase I-C clinical trial.

General, sales, and administrative expenses were $4.3 million in the third quarter of 2008, compared to $4.4 million in the third quarter of 2007. Based on current operating plans and the expected timing of product development programs, Altus believes that net cash used in operating activities will be between $80 million and $90 million in 2008.

Going forward, we will need to bring additional funding into the company. As we have discussed with many of you before, we are evaluating the entire spectrum of funding including primarily corporate partnerships as well as product or program specific financing vehicles. That concludes the financial summary and I will now turn the call back over to Georges.

Georges Gemayel

Thank you, Jon. Operator, we are now ready to take questions. Thank you.

Question-and-Answer Session

Operator

(Operator instructions) We will pause just a moment to give everyone a chance to signal. And we go first to Eric Schmidt with Cowen & Co.

Eric Schmidt – Cowen & Co.

Good morning, Georges. In terms of your upcoming meeting with the FDA on Trizytek, do you really plan to push the agency for a strong yes or no decision on the filing? You have been involved with too many companies that have filed some of the equivocal data only to find out that in the later point in time that they don’t quite meet FDA standards.

Georges Gemayel

I think we are asking the question point blank to the FDA about the file ability of our NDA.

Eric Schmidt – Cowen & Co.

Okay. And how will you communicate the outcome of the decision of that meeting with investors?

Georges Gemayel

What we believe is that we will be making the communication after this meeting at an appropriate time after doing what needs to be done in sight.

Eric Schmidt – Cowen & Co.

Okay. My last question on the follow-up data from the ongoing Trizytek, studies. When are we going to see those results that you alluded to and described in a bit of detail? When are we going to see those data presented?

Georges Gemayel

I will pass down to Burkhard Blank.

Burkhard Blank

Second quarter ‘09.

Eric Schmidt – Cowen & Co.

Thank you.

Georges Gemayel

Thank you, Eric.

Operator

And we will go next to Joseph Schwartz with Leerink Swann.

Joseph Schwartz – Leerink Swann

Hi, good morning. I was wondering, when we see the follow-up data, will we be able to glean how many patients received the higher dose of Trizytek? Will this information be submitted to the FDA as well? Is there any reason to believe that perhaps patients could benefit from a higher dose given the ratios of your enzyme appear a little bit different than the existing enzymes on the market?

Georges Gemayel

Thanks Joe. This is a very important question and we have looked at that in particular. What we can tell you is that in the study we are allowing patients to go up to two pills of Trizytek first per meal, and one per snack. So up to eight or sometimes if they want they will get approval of up to 11. What we see is the average pill per day which is taken overall in the study is about 5.5 pills a day. So, even when the patients are allowed to go up in doses, they seem to be very well maintained and staying on the study and happy with Trizytek at 5.5 pills a day on average.

Joseph Schwartz – Leerink Swann

Okay, great. And as a follow up in terms of financials it looks like R&D declined significantly and to get to the high end of your burn range for the year which came down last quarter, it seems like R&D would have to decline again significantly. Is that reasonable to assume?

Jon Lieber

Yes Jo. I think a lot of it is predicating on the timing of expenses recognized at our contract manufacture for Trizytek but I think that is a fair statement.

Joseph Schwartz – Leerink Swann

Okay, thank you.

Operator

Next to Eun Yang with Jeffries & Company.

Eun Yang – Jeffries & Company

Thanks very much. Georges you mentioned that there are discussions with potential corporate partners with Trizytek and I am assuming Trizytek is one a bit a product. And can you comment on what’s the lack of factors, the determining factors for cost meeting to do? Is that the outcome of the FDA discussion scheduled for this month?

Georges Gemayel

It is a couple of things. Definitely, Eun, what we do know from most of our partners is that they would like to wait until the outcome of the November 18 meeting. So this is definitely an important time for us.

The second question is what we are trying to achieve here with the deal is basically taking the burn off our P&L as much as possible with Trizytek. So these are what the consolidation [ph] we are doing and the partners are coming with different proposals and we will be discussing that as this process move forward.

Eun Yang – Jeffries & Company

In the past, you guys always maintain that you do look for a partnership outside the U.S., so the difference, is it fair to assume that the difference in today’s discussion versus like a previous in your expectation? Would it be you are looking into worldwide partnership including the U.S. territories?

Georges Gemayel

It is safe to assume that. Yes Eun.

Eun Yang – Jeffries & Company

Okay, thanks very much.

Georges Gemayel

Thank you.

Operator

We will go next to Tom McGahren at Merrill Lynch.

Tom McGahren – Merrill Lynch

Hi, good morning Georges, following up in partnerships possibilities, are there any potential discussions for the ALTU-238 growth hormone?

Georges Gemayel

We have a former conversation mainly about Trizytek at this stage and if somebody is asking to look at 238, we will be showing it to them. But so far, the discussions have been concentrating mainly on Trizytek.

Tom McGahren – Merrill Lynch

Are you actively seeking a partner for 238 at this stage?

Georges Gemayel

If you remember, we did seek a partnership beginning of the year. And a lot of the answers we have heard at that time are that the availability of the pediatric growth data will be important to consummate a deal. So we are still working with this assumption.

Tom McGahren – Merrill Lynch

Okay, thanks a lot.

Georges Gemayel

Thank you.

Operator

(Operator instructions) Returning to Joseph Schwartz with Leerink Swann.

Joseph Schwartz – Leerink Swann

Hi. Thank you for taking the followup. Curious about the strategic review process and have you considered whether you could sell Trizytek outright if someone wanted the entire rights to that program worldwide to be able to control the asset completely?

Georges Gemayel

Joe, we are really open to all the term sheets which will come as a result of this process. We did not set any definite boundaries and we never said to any potential partner, we will never accept this kind of deal. So we are open to see what the partners would like to do with this product and we will take the best proposal we will get.

Joseph Schwartz – Leerink Swann

Okay, thanks again.

Georges Gemayel

Thank you.

Operator

Again, we are standing by with no further questions. At this time, I would like to turn the call back over to Georges Gemayel for closing comments.

Georges Gemayel

Thanks operator. Thank you very much for participating in our call. We appreciate your continued support of Altus and look forward to updating you in the next coming months. So thank you and have a good day.

Operator

This does conclude today’s conference. We do thank you for your participation. You may have a nice day.

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