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Endocyte, Inc. (NASDAQ:ECYT)

Q1 2013 Earnings Conference Call

May 2, 2013 4:30 pm ET

Executives

P. Ron Ellis – Chief Executive Officer and President

Mike A. Sherman – Chief Financial Officer

Analysts

Adnan Butt – RBC Capital Markets

Jason Kantor – Credit Suisse

Simos Simeonidis – Cowen and Company

Bert Hazlet – ROTH Capital

Operator

Welcome to Endocyte’s Conference Call to discuss the Company’s First Quarter 2013 Financial Results and Operations Update. At this time, all participants are in a listen-only mode. Speaking today with be Ron Ellis, President and CEO; and Mike Sherman, Chief Financial Officer. Following their comments, we will open the lines for questions. Please be advised that today’s call is been recorded and webcast.

During this conference call, the Company may make predictive statements concerning future events or development such as their expectations related to the regulatory approvals, timing of clinical trial execution, clinical trial results and financial outlook.

Actual results may differ materially from those indicated by forward-looking statements due to variety of risks and uncertainties. Please refer to Endocyte's filings with the Securities and Exchange Commission for a discussion of these risks and uncertainties.

Now, let me turn the call over to Ron Ellis.

P. Ron Ellis – CEO and President

Thanks everyone for joining the call. I want to give an update on three or four times and then I’ll it over to Mike to talk briefly about the financials. Yeah, we’re very pleased with the progress of number of fronts, and we first start with our lead program partner with (inaudible) and the companion diagnostic (inaudible). We are in the process as we have reported in, conditional filing with the EU for conditional approval and that is ongoing.

We have received a 120-day questions, are in process of developing responses and clarifying those. We will comment anymore on that process, would be of use since it’s going. But just know that we’re working on that.

The other thing is we’ve announced, in previous press releases, we put a small very good team in Europe to support the potential launch.

We’ve got some really I think top talent that will support the launch and the partnership with Merck and we’re pleased with this group who will not only be there to support vintafolide, etarfolatide but future drugs that we develop will have commercial presence in Europe.

As you know, we’re conducting these two major clinical trials with vintafolide and etarfolatide with Merck to proceed which is the Phase 3 study in platinum-resistant ovarian cancer and Target which is our Phase 2b non-small cell lung cancer.

These trials are enrolling and pursuing nicely there on schedule and as you may have seen if we didn’t just let you know the EMA recently announced that the clinical supply issues with CAELYX are pegylated liposomal doxorubicin which is the drug we are using in the competitor for the study has been solved.

There is adequate supply for the countries in EMA to get access to PLD and so there is no restrictions there now. And so that is really good news to get that confirmation from the EMA. I also just wanted to give a brief comment about our next target the clinic it’s fully tubulysin agent called EC1456.

And we are performing one final preclinical – study for that drug and expect to have the first trial of a patient in the third quarter of this year. And then we’ll hopefully have some data towards the end of the year on how the drugs dosing is going.

And with that I’ll turn it over to Mike to go through some financial operational updates.

Mike A. Sherman

Thanks Ron. I’ll just take a few minutes to cover the financials and then touch on some operational items. We recognized $14.5 million in revenue in the quarter that is even with what we recognized in the fourth quarter and we recorded no revenue in the prior Q1. Revenue tends to increase sequentially as we amortize additional periods of reimbursable R&D. The reason why it was flat sequentially this quarter is because in the fourth quarter we also included the start of the amortization of the $5 million EU filing milestone.

R&D of $12.3 million was up from $10.5 million in the fourth quarter and $6.4 million last year. That was driven by increasing enrollment in the PROCEED trial as you know a portion of which is reimbursable by Merck and then the TARGET trial all of which is reimbursable by Merck.

G&A of $6.3 million was up from $5 million in the fourth quarter and $3.1 million last year, that was driven primarily by an increasing commercial investment particularly in the EU and as Ron mentioned we know established our EU headquarters in Zurich, Switzerland and have particularly that leadership team bring substantial oncology product launch experience, so we’re very excited about that.

Total expenses net of what's reimbursable from Merck were $14 million up from $11.3 million in the fourth quarter and $9.5 million last year. We ended the quarter with just under $186 million in cash and compared to approximately $201 million at the end of the year.

I wrap up by thanking everyone who is able to attend or listen into our Analyst Day at the end of March. It’s a great opportunity to dig deeper into what we think is very exciting pipeline and talk about how our approach to development is different and the benefits that brings in terms of risk return profile on our business model. Of course 2013 shaping up to be an other critical year for Endocyte expect for continued driving value for shareholders with additional clinical progress, a potential regulatory approval and then commercial scale up. I am not sure it was mentioned upfront but I also wanted to make sure everyone knew that Dave Meek our Chief Commercial Officer is also here with us online to help participating in the Q&A.

And with that, let me turn it back to the operator to see if we have any question.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Adnan Butt from RBC Capital Markets. Your line is open.

Adnan Butt – RBC Capital Markets

Hey, thanks for taking my question. Hopefully, you can answer, but if you can I understand in terms of the ongoing process in Europe, can you at least when you receive the questions and when you might be able to send the responses back to the event and secondly in terms of the timing of the Phase III study, do you still expect to PFS data in first half next for the ovarian cancer study as well.

Unidentified Company Representative

Well, there is three question well, the first question is we received the day one 20 questions as we projected in March. We don’t have a day yet for response and on the proceed we are so planning in the first half of 2014 for the 250 patients interim analysis.

Adnan Butt – RBC Capital Markets

And just one follow up can you say anything about the enrollment balance, geographic balance in the study and I will get back in queue. Thanks.

Unidentified Company Representative

I don’t know actually what it is right now.

Adnan Butt – RBC Capital Markets

Thank you.

Unidentified Company Representative

Mike will know.

Mike A. Sherman

At this point, Adnan it’s weighted towards the U.S. at this point.

Adnan Butt – RBC Capital Markets

Thanks Mike.

Operator

Our next question is from Jason Kantor from Credit Suisse. Your line is open.

Jason Kantor – Credit Suisse

Thanks for taking my question and thanks for a synced call script there got through that very quickly. I wanted to ask also about the 120-day question, will you provide some sort of disclosure when you have provided those answers? Can we expect to hear an update from you at that point or are we going to get no update at any point here.

Unidentified Company Representative

I think right now Jason, the answer is we probably won’t have any updates because a lot of this stays in discussion, America has lot of control and this is well as we do. We have said that if there is anything that would significantly we can delay the final answer from the (inaudible) we’d hope to be get guidance on that.

Jason Kantor – Credit Suisse

Okay and then in terms of supply of Caelyx in Europe. Is that right along with what you were expecting? Does that have the possibility of speeding up enrollment or how does that impact if at all your timeline?

Mike A. Sherman

Hi Jason, it’s Mike. It really was consistent with our expectations and consistent with what we were seeing in the market. It was just a nice confirmation from EMEA to have that formal announcement.

Jason Kantor – Credit Suisse

Okay and then just one last thing, you’ve mentioned you’re going to dose the first patient in the 1456 study in Q3 and could have some data by year-end. That seem pretty quick. Did I hear that right?

Unidentified Company Representative

No, I think what we would hope is that we’d have some information on what dosing levels we’re getting to. The study won’t be done by certainly the end of this year. But we hope we’d have something around dosing.

Jason Kantor – Credit Suisse

Okay, thank you.

Operator

Thank you, our next question is from (inaudible) from Leerink Swann. Your line is open.

Unidentified Analyst

Thank you, for taking my question, so you have three presentations at ASCO, I know you cannot talk that actual abstract, [that’s haven’t] being out yet, just wondering if you could give us a direction, in terms of target and the proceeds, trial side, what kind of direction we should think about?

P. Ron Ellis

Yeah, let me have David Meek answer that. David?

David Meek

Yes, thanks a lot for the question to, I think it’s premature we really can’t discuss that can be presented at ASCO. ASCO want to release that information at this point we got in the three papers, but you ask about, I am sorry you asked about the question about T-trial, could you repeat that?

Unidentified Company Representative

Yeah, so just wondering, you know what kind of direction we should think about, anticipate in terms of say number of patients, like what kind of data should we anticipate?

David Meek

No new data at this point. You should expect nothing new at this point, the trails are you’re underway as Mike and Ron have talked about the proceeds and the target study.

Unidentified Analyst

Okay. So I have one follow-up question, so like regarding the TARGET trial, what kind of Phase 2b data will be considered significant to expand to the Phase 3 phase?

P. Ron Ellis

Well, the study, is – this is Ron, I think what we are looking for as Mike correct me right, all right, I think the 0.7 all hazard ratio, I mean its roughly the 30% improvement in PFS, of course there are three arms and there is couple of histologies in their ad known screen both of the studies. So be looking at both of those, the overall studies of PFS, where 0.7 hazard ratio. Is that right, Mike, do you have the…

Mike A. Sherman

Yeah.

Unidentified Company Representative

Yeah, that’s correct.

Unidentified Analyst

Okay, great. Thank you.

Unidentified Company Representative

Thanks.

Operator

Our next question is form Simos Simeonidis from Cowen and Company. Your line is open.

Simos Simeonidis – Cowen and Company

Hi guys. Thank you for taking the questions. Would you be able to give us a rough idea of how many FR-100% patients, you’ve enrolled and proceed or how many patients you’ve enrolled in target so far?

Unidentified Company Representative

Yeah, we don’t seem at all with your name and so we hear once appropriately, sorry about that. We haven’t disclosed the numbers on enrollment. I will say that in both trial, the FR positivity has run consistently or maybe a little bit better than while we had planned for. So that has not impacted enrollment rate of implement.

Simos Simeonidis – Cowen and Company

Okay. And then the question for David, if we do to assume a positive decisions from EMA at the end of the year, this year. How quickly do you think that after that the both you and Mike would be able to launch? And secondly, just give us a quick, your view of the number of patients or variant patients that are using 100% or plus, plus in Europe in ovarian cancer?

David Meek

Regarding the last question, how similar we’ve been ready to launch, assuming we get approval. It will depend on the market with reimbursement. But we will be ready to go as soon as we get the EU authorization, that’s our plan between Merck and Endocyte. So we’ll have everything ready and we’ll follow the every launch markets in countries like once we get a price listing for reimbursement countries like Germany, Austria, we plan and going by the way. And then we’ll have sequentially based on reimbursement for those respective markets.

So we’ll have short answers soon by the way. And regarding the patient numbers, I think we’ll have to see with the number come up, but if you think at 40% of the platinum-resistant ovarian cancer patients are FR positive, FR 100% and that’s about the patient numbers we’re looking at. So it’s something about 22,000 patients taking about 40% of those patients that up positive we start to get to the patient numbers and we will have in Europe.

Simos Simeonidis – Cowen and Company

All right, it sounds good. Thank you for taking the questions.

Ron Ellis

I think this is Ron, Dave, correct me if I’m wrong, I think the total, if we look at the 22,000 then those that are platinum resistant. And then those are FR 100% then we comfort around 6000 patients.

Unidentified Company Representative

If you start well, we have a funnel slide that we actually use at the analyst day if you take a look at the funnel slide it’s on our website the numbers get down because you got those patients that will be scanned with these (inaudible) those patients that will come out due to come out any (inaudible) and so on. And you eventually get down to the bottom 6500 to 7000 patients.

Simos Simeonidis – Cowen and Company

Sounds great, thank you very much.

Operator

(Operator Instructions) Our next question comes from Bert Hazlet from ROTH Capital Partner. your line is open.

Bert Hazlet – ROTH Capital

Yes, thank you for taking the question. So just a couple of pipeline questions. In terms of the inflammatory indications for top-line, have you Ron have you discussed or determined whether or not that you will go with these indications alone, or whether you’ll potentially partner these and have you narrowed down the indications in terms of two or three that you maybe prepared to focus on. And then, I have another one on 1456.

P. Ron Ellis

Okay. Bret, good question. We had recently announced as you saw the presentation by Virginia Kraus at the Osteoarthritis Meeting showing that we could use our diagnostic imaging agent etarfolatide in anesthetic to identify activated macrophages in osteoarthritis. And it was a very, very well received presentation at the conference, they were the highlights in a having a way to diagnose this active disease and I think that the results were really quite remarkable.

So what that did for us is confirm that what we has seen in animal models that inflammatory diseases like ostreo and rheumatoid, and chromes and others have a component of these activated macrophages that are present and these activated macrophages have fault receptors. That’s how we’re able to image them with etarfolatide.

The vintafolide drug that’s being used in the ovarian study doesn’t work on these macrophages. These tend to be internally differentiated and so cells are not in a state of dividing these drugs that work on tube and don’t have any activity. We confirmed that in animal studies. So we have a different therapeutic, a molecule called 1669 which is in pre-clinical studies right now that would target and deactivate these macrophages. We think that by – we’ve seen them pre-clinically, if we deactivate these macrophages, really a positive clinical science in term bone erosion stopping and inflammation stopping.

It answered to your last question about the indications. We’ve been going through and reviewing that and I think we’ll be soon prepared to say what the development plan will be. Of course, osteoarthritis jumps out on the radar because of the exciting data presented by the Duke. But there are other indications where we could use these imaging agents along with the therapeutic to treat and we’re still sorting through all that.

Bert Hazlet – ROTH Capital

I appreciate that, thanks. And then on 1456, kind of the same question, if you narrow down the indications there in terms of what we should expect in terms of patient enrollment for the initial clinical study, and is there any ability to sum how trunk that program or speed it along based on what you know from your Vintafolide experiments?

Unidentified Company Representative

I think in answer to the last part, yes. It certainly helps to have known -- what we’ve done with Vintafolide and how to image and how to run these trials efficiently and effectively or what sites are good sites for enrolling. So I think that will be quite helpful. The other thing I think helps us on is dosing. We know where Vintafolide dosing is and so having some idea of where that is helps us as we go through the dosing with tubulysin, at least going to give us a target of where we want to be.

I think in terms of the clinical study, we have a DSMB group or not the DSMB, but an advisory group that’s working through the indications that we would target with 1456. And there are lots of – some of the problem is that there are lots of possibilities. I mean, there’s refractory and ovarian, for example, third line lung, there’s cancers where we don’t have active programs in. We’re just in the process of trying to sort out which is those we would do including the initial Phase I study.

So it’s a great question and I don’t have a final answer for you now, but we should pretty soon have that nailed down.

Bert Hazlet – ROTH Capital

Thanks.

Unidentified Company Representative

Thanks, Bert.

Operator

(Operator Instructions) we have no more questions in queue. I will turn the call over to Ron Ellis for closing remarks.

P. Ron Ellis

Well, again, thanks for everyone to join the call and again to all the Endocyte empoyees’ lawfulness been hard to work with not only keeping this running this important clinical study as well as preparing for the filing just tremendous effort by that Group and please with the progress there we’re also excited about seeing things some of these new components get into the clinic. We have been really happy with the partnership with Merc, they have been very helpful as a partner and collaborator on the clinic studies as well as the responses to the union and in helping prepare for the launch. So there’s been as well. We will see a lot of I think have some of these questions the people have asked, which are great questions cleared up with the next few months or get those out as we clarified for example what the and indications are going and how it may develop the activated macrophage program. So with that, I will end and look forward to updating you the next quarter.

Operator

Thank you ladies and gentlemen. This does conclude today’s conference. You may now disconnect. Thank you.

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