Targacept's CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 7.13 | About: Catalyst Inc. (CBIO)

Targacept, Inc. (TRGT) Q1 2013 Earnings Call May 7, 2013 8:30 AM ET

Executives

Stephen Hill – President and CEO

Alan Musso – SVP, Finance and Administration, CFO and Treasurer

David Hosford – VP, Clinical Development and Regulatory Affairs

Analysts

Alan Carr – Needham & Company

Jon LeCroy – MKM

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2013 Targacept Inc. Earnings Conference Call. My name is Sharlene and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Dr. Stephen A Hill, President and Chief Executive Officer. Please proceed.

Stephen Hill

Thank you, Sharlene. Good morning everyone and thank you for joining us. My name is Stephen Hill and I am the President and CEO of Targacept. And with me this morning, I have Alan Musso, our Chief Financial Officer and David Hosford, our Vice President of Clinical Development and Regulatory Affairs.

First, let me inform you that the comments made today may include forward-looking statements made under the Private Securities Litigation Reform Act of 1995.

Forward-looking statements relate to plans, expectations, objectives or future events, financial results or condition including, for any of our product candidates, the design, scope or other details of clinical trials, the timing for initiation or completion of or for reporting of results from clinical trials or for submission or approval of regulatory filings, target indications or commercial opportunities, as well as AstraZeneca’s development plans for product candidates licensed from us, our cash runway, revenues or expenses, plans, expectations or any other matter that is not a historical fact.

Actual results may differ materially from those expressed or implied by any forward-looking statement as a result of many factors, including those described under the heading Forward-Looking Statements in our press release from earlier today or under the heading Risk Factors in our most recent Form 10-K or in later filings with the SEC.

We caution you not to place undue reliance on any forward-looking statement. Also, any forward-looking statement that is made speaks only as of today and should not be relied upon as representing our views as of any future date. We disclaim any obligation to update any forward-looking statement except as required by applicable law.

With that said having now been at the helm of Targacept with for five months, I continue to be enthusiastic about the company and its future. We have a promising pipeline headed by multiple Phase 2b candidates in development with a potential to provide significant benefit to millions of patients whose current treatment options are inadequate.

So, let me share with you the progress that we’ve made. I’ll start with a brief update of each of our clinical programs. Firstly, we are developing TC-5619 our wholly-owned alpha7 modulator, as a treatment for negative symptoms and cognitive dysfunction in schizophrenia.

A few weeks ago, we announced the completion of recruitment into our Phase 2b study. This study has been designed to enroll approximately 450 patients at sites in Eastern Europe and the United States.

Our primary end point in this trial is the Scale for the Assessment of Negative Symptoms or SANS, and we’ve designated cognitive dysfunction and overall everyday functioning as key secondary end points. Many people believe that the so-called negative symptoms of this disease such as social withdrawal and extreme indifference are largely responsible for the inability of schizophrenics to return to function in society.

Under the antipsychotic medications currently used to treat the characteristic hallucinations and delusions of schizophrenia do not effectively address these negative symptoms. They need a substantial, with recent estimates that about 4.7 million people in the world’s seven major pharmaceutical markets suffer from schizophrenia. We expect to report top line results from this study towards the end of this year.

Let me now turn to our program in overactive bladder. It’s estimated that one in six adults in the United States suffer from OAB and currently available treatments have limited efficacy. And for many major tolerability drawbacks such as excessive dry mouth. TC-5214 is a potent modulator of alpha3beta4 NNRs, located in or around the bladder and has a well established safety and tolerability profile arising from our previous clinical programs.

Based on strong scientific rationale that has emerged around the role of alpa3 in bladder function coupled with pre-clinical study findings and signals seen in our prior clinical program we are nearing the initiation of a Phase 2b clinical trial that we expect to start on schedule in the second quarter this year. In addition to TC-5214’s unique properties, we are enthusiastic about OAB as an indication with objective regulatory endpoints and one where Phase 2 success is historically translated into Phase 3 success and approval.

Finally we’re developing TC-1734 an alpha4 beta2 modulator for the treatment of mild-to-moderate Alzheimer’s disease. We announced recently that we’ve concluded recruitment into our 12-month Phase 2b study of 1734 as a monotherapy head-to-head against donepezil, the market leader. We continue to anticipate reporting top line data from this study in the middle of 2014.

Before we move into the financial update, let me close by saying that we believe that these pharmacologically diverse programs together with the balance sheet that will see us through to important clinical outcomes, position us well for the future. We recognize that over the long-term we will need to enhance our pipeline.

Our library of diverse NNR therapeutics provides us with the potential to complement our pipeline internally, either by pursuing clinical compounds for additional indications or by advancing our earlier stage compounds. In addition, we will continue to be opportunistic in our consideration of external prospects, where we see a potential fit with our existing programs.

And with that, I’ll turn the call over to Alan, for a financial update and then we’d be happy to take your questions.

Alan Musso

Thank you, Steve. Let me just quickly highlight our financial results for the first quarter of 2013. In the first quarter of 2013, we had a net loss of $8.1 million compared to net income of $2.3 million for the first quarter of 2012.

The change is due principally to a decrease of $19.1 million in deferred revenue recognition, partially offset by a decrease in research and development expenses of $9.5 million. The decrease in research and development expenses was principally due to the conclusion of a Phase 3 program and workforce reductions in 2012. We ended the first quarter with a balance of approximately $175 million of cash and investment.

And now, we’d like to open up the call for your questions.

Stephen Hill

So, Sharlene, we’re ready to take any questions from the audience.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions). Your first question comes from the line of Alan Carr, Needham & Company. Please go ahead.

Alan Carr – Needham & Company

Hi, thanks for taking my questions. Wonder if you could review the current arrangement with AstraZeneca, they have raised the 1446, but I’m wondering what other alpha4 beta2 compounds they might have and can you comment on what the latest is in terms of their plans for 1446?

Stephen Hill

Yeah and unfortunately it’s not – there is no publically available information with regards to AZ’s plans. 1446 is a compound that they’ve licensed from us. As you know, recently we changed the terms of the agreement with AstraZeneca to broaden the field or scope of the areas in which they can take that compound. So, they have some internal ideas or particular indications in which they want to study that compound. But to date, they have not made those plans public. With regards to other compounds as part of that collaboration, maybe I could ask Alan to comment on that.

Alan Musso

Yeah. We’ve had over the course of the four-year funded research collaboration developed several alpha4 beta2 compounds, that met the established criteria. 1446 is the lead, but there are others behind that that, they have the rights to. But those are in the pre-clinical stages.

Alan Carr – Needham & Company

Okay. And then any other NNR programs that we should be watching I guess competitively in CNS other than what’s at in DIVO?

Stephen Hill

Well, there are a number of companies who have and have had in the past alpha7 programs for schizophrenia and Alzheimer’s. There is less information publically available about those. AbbVie certainly have communicated that they have an alpha7 program underway in Phase 2b, that they anticipate presenting some data this year.

And I think indeed have suggested they will be going into Phase 3 next year, and we are aware of a number of other pharmaceutical companies that have their own internal alpha7 programs, but no data has been forthcoming to date from those.

Alan Carr – Needham & Company

Okay, great. And then the last one is around 5619, the Phase 2b trial there. Can – it’s in U.S. and Europe or – now the recruitment is done, can you give us a sense of breakdown between patients in U.S. versus Europe?

David Hosford

Sure. This is David Hosford, hi Alan. We have gotten 20% to 25% of the subjects from the U.S. and the remainder from Eastern Europe and those countries in Eastern Europe are Russia, Ukraine, Serbia, Hungary and Romania.

Alan Carr – Needham & Company

Okay, great. Thanks very much.

Stephen Hill

Thank you.

Operator

Thank you for your questions. (Operator Instructions) We do have another question and it’s from the line of Jon LeCroy, MKM. Please go ahead.

Jon LeCroy – MKM

Hi, thanks for taking my call. I was just wondering if you could update your financial guidance. It looks like – I think the last time you guided for $2.4 million in revenue recognition, you came already above that. So, any update there? And then also for your spending assumptions and maybe cash window, are you still – do you still have sufficient cash to go through 2015?

Stephen Hill

Hey Jon. Sure, I’m happy to update the guidance for you. Yes, we ended up reporting the $3.5 million of revenue in the first quarter. And that was the result of the restructuring of the AstraZeneca arrangement that we took into revenue, all the remaining deferred revenue relative to TC-1734 or 3480. So that concluded the revenue recognition from there. The base assumption had been having that recognized over a longer period of time.

In the case of the operating expenses and the cash runway, we continued to be consistent with the guidance that we gave earlier. We expect operating expenses to be in the range of $48 million to $54 million. We expect to have year-end cash of at least $135 million and we continue to expect that we’ll have sufficient cash to operate the company at least through 2015.

Jon LeCroy – MKM

Okay. Thanks.

Operator

Thank you. And now I’d like to turn the call back over to Dr. Stephen A. Hill for closing remarks.

Stephen Hill

Okay. So, once again, thank you to all of our audience for dialing and listening. We are excited by the way things are progressing within the company and we look forward to updating you further as the year goes by. So thank you all and have a great day. Thank you, Sharlene.

Operator

Thank you. Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.

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