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Durata Therapeutics Inc. (NASDAQ:DRTX)

Q4 2012 Earnings Call

March 08, 2013 07:00 AM ET

Executives

Allison Wey - Director, IR

Paul Edick - CEO

Corey Fishman - COO and CFO

Mike Dunne - CMO

Analysts

Adnan Butt - RBC Capital Markets

Steve Byrne - Bank of America

Greg Wade - Wedbush

Operator

Good morning. My name is Jackie and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Durata Therapeutics 2012 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you, I would now like to turn the call over to Allison Wey, Vice President of Investor Relations. Please go ahead.

Allison Wey

Thank you, Jackie. Good morning and welcome to Durata’s full year 2012 financial results conference call. This morning we issued a Press Release, a copy of which is available on our website. In addition, we are conducting a live webcast of this call, also available on the site.

We are joined this morning by Paul Edick, Chief Executive Officer; Corey Fishman, Chief Operating Officer; Mike Dunne, Chief Medical Officer; and John Shannon, Chief Commercial Officer. Paul will provide opening remarks and share some highlights of the year. Corey will provide details of the financial results. We will then open the call for questions.

Please note that today’s conference call webcast may contain certain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the "Risk Factors" section of our most recent Annual Report Form 10-K, which is on file with the SEC.

In addition, any forward-looking statements presented on this call represent only views only as of today and should not be relied upon as representing our views as of any subsequent date. We anticipate that subsequent events and developments will cause our views to change; however, while we may elect to update this forward-looking statements at some point in the future, we specifically disclaim any obligation to do so.

I will now turn the call over to Paul Edick.

Paul Edick

Thanks, Allison. I’d just like to make a few opening comments. 2012 for us was a very busy and a very productive year at Durata. We think we made a great deal of progress. We raised $72 million in our initial public offering in July. We have had several scientific posters and presentations at scientific meetings and key conferences throughout the year.

We have received the Qualified Infectious Disease Product designation from the FDA which for us is extremely important providing the extra data exclusivity to give us 10 years of data exclusivity from the time of approval.

We also made several strategic hires, John Shannon our Chief Commercial Officer, our head of Investment Relations, Allison Wey. We brought in head of reimbursement to really make sure that we are prepared for reimbursement environment when we hit the market and begun the hiring of our medical science liaisons and scientific communication process.

We have established our permanent offices, technical operations facility in Connecticut and our headquarters in Chicago, and most importantly we completed or brought close to a close in 2012, both of our recent Phase 3 trials; and since both have reported out positive results hitting all primary and secondary endpoints. So we think it's been a very productive and very successful year and I will turn it over to Corey Fishman our Chief Financial Officer, Chief Operating Officer to go through our full year financials.

Corey Fishman

Thanks Paul. As Paul mentioned in 2012 we completed enrollment of our two large Phase 3 clinical studies with a combined patient total of over 1,300. These studies were clearly a key driver for our 2012 financial results. Our net loss for the 2012 year was $62.5 million versus $33 million in the 2011 year. R&D costs in 2012 were $51.7 million, compared to $30.1 million in 2011.

The increase in spending was due to the increase in clinical trial activities from those recently completed Phase 3 trials. During 2012, we completed enrollment of those trials and are now in the process of closing out the clinical sites and finalizing full trial results. As the cost related to these studies wind down, our 2013 R&D spending is expected to be lower than that in 2012.

Costs relating to operating of the public company and continuing our expansion efforts in preparation of the anticipated commercial launch of dalbavancin were the key drivers of increased G&A spending in 2012. For the year G&A spending was $9.8 million, compared to $4.3 million in 2011.

In 2012, we were also able to fully utilize our net operating losses in the U.S. to offset the gain and the transfer of our worldwide economic rates to dalbavancin to our Dutch subsidiary. We paid $9.8 million in Federal and State Income Taxes in 2012. As a result of this transfer and based on our forecasts we would expect the global effective tax rate to be in the mid to high teens a few years post commercialization and beyond, which would represent a substantial reduction to the statutory rate.

This efficient tax rate will provide additional value to an already attractive Royalty free other than Japan, financial profile of Durata in the years following the launch of dalbavancin. At December 31, 2012, we had cash and cash equivalent in short term investments of $45.3 million, compared to $11.5 million at year end 2011.

We are pleased to announce that earlier this week, we added to our cash balance by entering into a debt agreement with Oxford Finance LLC for $20 million. We choose to opportunistically enter into this debt agreement if the facility was relatively inexpensive, required little pollution and provided us with increased flexibility in our operating profile. We expect this facility to be funded by the end of the quarter. We currently have 18.4 million shares outstanding with another 2.1 million shares to be issued upon exercise of options.

In summary we had an excellent 2012 and began 2013 in a strong fashion with the readout of Discover 2 meeting its primary and secondary endpoints as well as increasing our operating flexibility with our debt facility. We're looking forward to a midyear filing with the FDA and an EMA filing at the end of the year.

Thanks for your time. We'll now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Adnan Butt with RBC Capital Markets.

Adnan Butt - RBC Capital Markets

The first one is procedural in nature. Has a meeting with the FDA been scheduled? What gives you confidence you can do everything required to file the NDA by the middle of the year and then I'll have a couple for Corey please.

Paul Edick

This is Paul Edick. I'll handle that briefly and then I'll turn over to Mike for any color. As you will recall and as everybody I think understands, we had a previous NDA for dalbavancin. So the FDA is very familiar with the asset. We've met with them a couple of times. Both of the clinical studies had spot agreements. We think we have a really good sense of what they're looking for. We have not scheduled our pre-filing meeting as yet, but we will be meeting with the FDA again in the near term to make sure that everything that they want to see in the reactivated NDA we have in place. We've spent a great deal of time over the last year updating all of the old NDA, making sure that it is currently compliant et cetera. And Mike Dunne, our Chief Medical Officer maybe can add a couple of points of color to that.

Mike Dunne

Yes, no Paul I think you've summarized the situation well. Typically you got to go through your data assess at this stage of the process and pull together your meeting agenda and we're kind of in the middle of doing that now. So everything else you said is right on target and we're just preparing all the background material as we speak.

Adnan Butt - RBC Capital Markets

Mike, can you just say a bit more on the reviewed timeline once the NDA is accepted?

Mike Dunne

Well, I do, we do Qualified Infectious Disease Product Status and that typically comes with a six month review time and although the agency does have another couple of months to rule on the filability of the package that it can out to eight months. We are kind of guiding for a one year review cycle, however because this is kind of the new process and our NDA has its own unique features to it. We will get much better clarity on the timing of the review process after we’ve had some of the meetings. But I think that gives you a sense of what we are working with.

Corey Fishman

And Adnan, I would add to that, we are guiding first half ‘14 approval.

Adnan Butt - RBC Capital Markets

Okay, thanks and then just one for Corey. R&D kind of down, obviously. Is that a fair run rate to look at for 2013 or could it go even lower?

Corey Fishman

I am sorry, I didn’t hear the very first part of your question.

Adnan Butt - RBC Capital Markets

The R&D expense, is that a fair run rate to look at for 2013 or could it go down even further?

Corey Fishman

Yes, we would expect as the trials are winding down, that that R&D number would be lower in 2013, from the 2012 run rate.

Operator

Your next questions comes from the line of Steve Byrne with Bank of America

Steve Byrne - Bank of America

Corey, can you just come briefly on the rate and term of the $20 million loan?

Corey Fishman

Sure, the rate is approximately 8.5%. It is interest only through April of ’14 and it goes through October 2016.

Steve Byrne - Bank of America

And with the IP being transferred to the Dutch subsidiary, is it your longer term objectives to recognize revenue worldwide through that subsidiary?

Corey Fishman

Yes, the way it would work, Steve, is even currently as well as in the future, all expenses and the majority of revenue would flow through the Dutch subsidiaries. Each of the countries would be an operating company and they would have a transfer price agreement with the Dutch subsidiaries and then therefore the majority of income would be held in their Dutch subsidiaries.

Steve Byrne - Bank of America

Okay, and then Mike, can you comment a bit on the pediatric study, the outlook there and what is your estimate for the proportion of skin infections in the States that are in people that are 18 years and younger?

Mike Dunne

Well, because we are going to be obliged to do a pediatric phase 2 E 3 skin study as everybody else to get the (inaudible) claim. There have been discussions already with both the U.S. and European regulatory agencies about the path forward to that. We have been recently discussing this in more detail with the European Medicines Agencies since you need to have your Pip (ph) as they call it a range before you will file. So those conversations have been happening and pretty mature.

We are going to be picking up the U.S. conversation shortly. That usually happens around the time we have this pre-NDA meeting. We’re already doing a pharmacokinetic study in children. We’ve done one in kids down to 12 years of age, and we’re right now working to the logistics of starting the PK study in kids below 12 years of age in various different cohorts and the findings from that will enable the dosing strata in the phase 2B3 study.

The process is ongoing. I know I expect it will probably see enrollment in phase 3 studies after we get our feedback from the FDA around 2014 timeframe. Now with regard the population of kids with skin infections, that’s clearly significantly less than the adults.

I am going to defer on the exact numbers but it’s going to be the typical pediatric to adult type of blend for these type of situations, can’t be more than single digit percent of the total number of adult patients.

Steve Byrne - Bank of America

Just one last one for you. Have you done any more subset analysis on the phase 3 studies to suggest any subsets either by pathogen or geography or infection type where Dalba was arguably superior.

Mike Dunne

All the sub-setting stuff is in progress. We reported on the, look at the top line tables. Those are the preliminary first look at all the data and we’ve talked about again well that shows, but we’re still working through all the rest of those tables. There is couple of hundred types of analysis that we do as part of physical analysis plan and that’s coming out over the next month or two, but I think the point you’re making is a good one. We will be looking at various different subsets to see how Dalbavancin compares in those groups to at least get a descriptive sense of how things look relative to the compared.

Paul Edick

And just one other comment, Steve. Our target is the various scientific meetings in 2013 for future release of other data like ICAC (inaudible) et cetera.

Operator

Our next question comes from the line of Greg Wade with Wedbush.

Greg Wade - Wedbush

Mike, can you just comment on the status of the (inaudible) efforts for Dalbavancin and whether the QID designation is of any assistance there in terms of what clinical studies might get you label in that setting?

Mike Dunne

Let me start with the second part of the question and I’ll tell you where we’re with the program. So, the QIDP status is a sign to the specific indication. So our status would be assigned to the skin claim, it would not be signed to (inaudible) but we haven’t made an application for that and the skin claim QIDP status doesn’t rollover to the osteo, and having said that, there are different paths through which you can discuss these types of new indications with FDA, and they are certainly all open to us along the way and we have actually had some meetings with the FDA about this topic. So we feel like we are moving in the right direction, about path forward in osteo.

What is nearest term on the horizon, it will be at the bone penetration study and that’s going to be phase 1ish study in normal volunteers and from those people we get samples of bone and we look for Dalbavancin levels not just in the bone, but it’s the synovial tissue, in the joint space and all the surrounding tissues to the bone and joint. That we'll be enrolling this quarter or early next quarter and should have resolved by the second half of the year.

That will enable us to get better feel for the dosing regimen. We believe that dosing regimen will look something like a gram to lower than 500 mg a week and we have done an extended duration PK study looking at both safety as well as various serum levels looking for accumulation over the time and patients dosed as long as eight weeks. So the first dose and then seven following weekly doses.

So we are getting a good feel for what we are able to do in the osteo program that we are enabling it with similar phase I type of information. We'll also be doing an animal model study to compliment all of that. With that package, we think we are going to be in a good position to start our phase 3 program. There are different ways to do that osteomyelitis program; one is in adults. That’s been complicated in the past, it’s certainly a medical need we need to address. The regulatory path probably need the lot of dialogue around that, although I think there is way to go forward there.

The pediatric osteomyelitis path seems to be a little bit more straightforward and we are going to be in some more serious discussions with the agency about how to move forward in that direction. Big medical need in kids, it’s a more straightforward type of osteomyelitis study. We think that Dalbavancin can play a nice role there.

Operator

That was our final question. And now I'd like to turn the floor back over to Paul Edick for any closing comments.

Paul Edick

Thank you. We appreciate people on the phone today and the questions. Just to reiterate, we believe 2012 was a really busy and very productive year and we look forward to an equally productive and successful 2013. Thank you very much for your time.

Operator

Thank you. This concludes today’s conference call. You may now disconnect.

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