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Alcobra Ltd (NASDAQ:ADHD)

Q2 2013 Earnings Call

August 06, 2013 09:00 am ET

Executives

Garth Russell - KCSA Strategic Communications

Yaron Daniely - Chief Executive Officer, President and Director

Udi Gilboa - Chief Financial Officer, Chief Accounting Officer and Director

Jonathan Rubin - Chief Medical Officer

Analysts

Joe Aguilera - BioRevolution

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Alcobra Limited Second Quarter 2013 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you.

I would now like to turn the conference over to Mr. Garth Russell of KCSA Strategic Communications. Please go ahead, sir.

Garth Russell

Thank you. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. This conference call contains forward-looking statements within the meaning of the Safe Harbor provisions with Private Securities Litigation Reform Act of 1995 and other federal securities laws.

Because such statements deal with future events and are based on Alcobra's current expectations, these are subject to various risks and uncertainties and actual results, performance or achievements of Alcobra could differ materially from those described or implied by the statements on this call.

For example, forward-looking statements include statements regarding commencement of timing of commencement of clinical trials, commercialization of MG01CI product and its future effect on ADHD market and change in levels of expenses.

The forward-looking statements contained or implied on this call are subject to other risks and uncertainties, including those discussed under the heading Risk Factors in Alcobra Limited registration statement on Form F-1 filed with the Securities and Exchange Commission, SEC, and in subsequent filings with the SEC. Except as otherwise required by law,

Alcobra disclaims any intention or obligation to update or revise any forward-looking statements, which speak only as of the date hereof, whether as a result of new information, future events or circumstances or otherwise.

At this time, it is now pleasure to turn the call over to Dr. Yaron Daniely, President and Chief Executive Officer of Alcobra. Yaron, The floor is yours.

Yaron Daniely

Thank you, Garth. Welcome everyone and thank you for joining our first quarterly conference call since we completed our IPO in May. Joining me on today's call is, Mr. Udi Gilboa, our Chief Financial Officer, and Dr. Jonathan Rubin, our Chief Medical Officer.

Today, we will update you on the progress we have made in the business and discuss the financials for the second quarter 2013. After our prepared remarks, I will be happy to answer any questions you may have.

To start, I would like to say how pleased we were with the success of our recent IPO. Because of the tremendous interest we received in the early days of the road show, we decided to increase the total size of the offering from $15 million to $25 million, which will provide us with enough capital to support our current clinical plans.

This includes funding for R&D leading to and including both, Phase III clinical trials for our drug MG01CI as a treatment for adult ADHD, a Phase II trial in pediatric ADHD, an additional Phase II trial for non-ADHD indications. This positive reaction by the investment community, coupled with the potential for MG01CI to be a leading non-stimulant treatment for people with ADHD, is helping to create even a greater awareness for Alcobra in and outside of the financial market.

For those of you listening today that did not have the benefit of hearing the Alcobra story during our IPO road show, I would like to take a few minutes to provide an overview of the industry, the company and discuss MG01CI and why it is such an exciting opportunity for the ADHD market and potentially for other cognitive disorders. I will then provide a business update outline upcoming milestones.

To begin, the ADHD market covered a measurable portion of the population. It is estimated that approximately 8% to 10% of school-age children and about 45% of the adult population suffer from ADHD. This has created tremendous demand for the drugs used to treat the disorder.

To give you an idea of the size of the market, just in the U.S. the market is estimated to be $3.8 billion annually, and the number of people diagnosed with ADHD and seeking treatment is growing as general awareness and understanding of the disorder has increased. In the U.S. market is expected to grow 7% per annum and reach $6.8 billion by 2018.

Currently most of the approved ADHD drugs are classified as stimulant, including blockbuster drug such as Adderall, Vyvanse and Concerta, these drugs are fast-acting and effective, however there are scheduled substances due to their addictive properties as well as their potential to be abused and have many and significant side effect.

The other class of ADHD drugs is non-stimulant of which the most notable drug is Strattera. While Strattera is leading the non-stimulant market for ADHD medication it is much less effective and slower to act than approved stimulant drugs and has serious side effect such as suicidality and liver toxicity. Despite these challenges, many doctors and patients still favor Strattera, because it is not a stimulant.

Turning the discussions to Alcobra, initial clinical results indicate that our proprietary drug MG01CI is a fast-acting, highly effective non-stimulant treatment for ADHD with a superior tolerability profile. These are the primary differentiating factors of our drug in relation to most others in the market. And as such, we feel that if approved in the U.S. our drug could effectively penetrate the existing ADHD market.

In order to obtain approval to market our drug in the United States, we plan to file an NDA with the FDA once our clinical trials are completed. We are currently planning to start a Phase III study later this year. This will be the first of the two Phase III trials the FDA requires as part of the approval process. It is expected that each of the Phase III trials will take approximately six months to complete and will be run consecutively. Each of these trials is expected to cost approximately $6 million and to be completely funded by the proceeds from a recent IPO.

Our most recent study, a double-blind placebo-controlled randomized Phase IIb trial with 120 patients yielded very positive results across all of our end points. The overall findings from that trial reflect the following, a significant effect size over placebo, higher than effect size reported for Strattera in its Phase III study with a particularly large effect on inattentive patients and inattentive symptoms rivaling that reported for stimulant medication in these ADHD subsets.

A response rate that is higher than other stimulant that have shown historically in other trials in the market our response rate, it's more rapid and typically experienced by available non-stimulant providing immediate response as opposed to a 6 to 10-week delay. Tolerability, which appears to be superior when compared to all approved stimulant and non-stimulant drug with no adverse effects on sleep, appetite or mood and only low rate of short-term nausea and headaches reported, a complete absence of cardiovascular effects including no changes to heart rates, blood pressure or ECG, which are seen with all other existing ADHD drugs.

Lastly, a major advantage over approved drugs in terms of a consistent 1,400 milligram dosage used across all patients from day one of treatment. This means no dose titration or adjustment is required. Although this was a brief overview I am more than happy to answer additional questions during Q&A. I hope this provided you with a clear picture of the opportunity we see for our drug as an exciting candidate to make a big splash in the multibillion dollar ADHD market.

As I mentioned earlier, the next major step for Alcobra as we look to bring our ADHD drug through the approval process in the U.S. is the first of two Phase III clinical trials for our drugs to treat ADHD in adults. This trial will be designed exactly like the Phase IIb study, except that we will enroll 250 patients which is approximately double the number of patients and in line with the Phase III trial sizes of the approved ADHD drugs. We are on target to initiate this trial later on in this year.

As part of this process, we will be finalizing CRO selection. I'm pleased to say that we have already created a short list CROs that have experienced successfully conducting trials for other ADHD drugs that have been approved and we expect to finalize our selection within a few short weeks. Once the CRO is in place, we will be in a position to officially announce enrollment of clinical sites into the trial. We already have identified and contacted several sites in the U.S. and in Israel that are ready to be enrolled.

In total, we expect to launch the study with 15 sites in the U.S. and in Israel. In order to best help facilitate clinical development and potential commercialization of our proprietary drug, we recently hired Dr. Jonathan Rubin as our Chief Medical Officer. Jonathan is highly experienced in ADHD drug development, including most recently working at Shire for more than six years, serving as Medical Director in Global Medical Affairs supporting multiple products within the ADHD portfolio.

We are conducting additional clinical work outside of the Phase III trial. This includes initiating placebo-controlled clinical study this month which will further establish the immediate onset and magnitude of the effect of several doses of MG01CI in patients with predominantly inattentive ADHD. This is going to be a smaller randomized study that will recruitment 36 patients who will be getting a single dose of our drug either 700 milligrams or 1,400 milligrams or placebo. We expect to get results for this study fairly quickly given the number of patients in that it is a single dosing.

Other than magnitude immediacies effect we are also second effecting these patients on a broader battery of cognitive and executive functions in order to identify improvement beyond typical ADHD symptom. We are also in the process of completing a series of investigations into the mechanism of action from MG01CI. These include pharmacological, molecular and imaging studies, which we will be reporting on this fall.

It is important to keep in mind that ADHD is just the first cognitive disorder market we have researched extensively at this point. We believe that some of the positive effect we are seeing in ADHD patients could be beneficial to other cognitive disorders including among others threat, mood disorders, autism, schizophrenia and Alzheimer's disease. As part of our clinical research strategy, we expect to initiate Phase II clinical trials MG01CI to treat a couple of these other disorders by the end of this year.

Moving to our IP portfolio, we are confident, we have a strong IP protection around our product to a mix of issued and pending patents. This position was strengthened significantly just a few weeks ago with the issuance of our first U.S. patent covering modified release Metadoxine, which is the key to utilizing the drugs for any neurological or cognitive indication given the extremely short half-life of immediate for this drug.

Another major U.S. which we expect to receive soon covers the use of Metadoxine for cognitive disorders and impairment and ADHD specifically. In addition, we have several other patents pending in the U.S. that cover Metadoxine derivatives, combination therapy in our proprietary manufacturing process.

Before turning the call over to Udi to discuss the financial, I just want to say again how pleased we are to be moving ahead so quickly on so many fronts. We appreciate the excitement and support of our new shareholders and support our efforts to offer as much information to shareholders as possible regarding our drug, how it fits into the ADHD market and what we are doing to move towards U.S. marketing approval.

We have scheduled an educational seminar discussing ADHD for today in New York. I'll be joined by Jonathan, Udi and the Chairman of our Clinical Advisory Board Professor Lenard Adler. Presentation to the seminar is scheduled to start at 12:30 pm today and I invite all of you to listen in via live audio cast if you are unable to attend in person. And without, Udi, the floor is yours.

Udi Gilboa

Thank you, Yaron, and thank you to our shareholders for joining us today. I want to also thank you all for the growing excitement around the company and our drug.

Operating expenses for the second quarter of 2013 were $1.2 million of which $700,000 was a non-cash charge from stock-based compensation mainly related to completion of the company IPO in late May. Excluding the stock-based compensation, operating expenses for the second quarter of 2013 were $300,000. The company expects quarterly operating expenses to increase from $300,000 throughout the remainder of 2013, mainly due to the hiring of experienced and senior personnel in the advancements of the company’s clinical development plan.

Financial expenses for the second quarter of 2013 were $100,000 of which virtually all was related to the convertible loan that was converted to equity upon the IPO.

Net loss for the second quarter of 2013 was $1.3 million, or $0.15 per basic and diluted share, compared to $400,000, or $0.06 per basic and diluted share, for the same period of 2012. As of the end of the quarter, cash, cash equivalents and short-term deposits totaled $21.6 million.

As I mentioned earlier, we are ramping up certain expenses as we bill out the necessary support for the Phase III trial and other clinical activities. As such, we are currently operating quarterly cash burn rate of $300,000 and this is expected to increase through 2013. However the majority of our expenses are still going to be related to funding the clinical activity.

As Yaron mentioned earlier, our largest expenses in the foreseeable future will be the two Phase III trials for drug to treat adult ADHD, which are each expected to cost approximately $6 million.

With nothing further, we'll open up the call for question.

Question-and-Answer Session

Operator

(Operator Instructions) We have a question from Joe Aguilera of BioRevolution.

Joe Aguilera - BioRevolution

Congratulations, guys on the IPO and your progress. Just a quick question, how do you expect to attack your market capability versus the current standard of care versus the three drugs that you mentioned?

Yaron Daniely

Thanks Joe for the question. We believe our drug is very uniquely positioned against some of the drugs that are dominant today in the market. The first attribute is that is a non-stimulant and against stimulant use a non-stimulant is almost always preferred with the general population and in particular with the ADHD population, versus the non-stimulants that are sold today over $1 billion a year primarily Strattera and Intuniv, we have non-stimulant that's not only immediately effective and seems to be more tolerated and better tolerated it really seems to drive an effect size the magnitude that is clearly superior both, on the overall ADHD population and on the predominantly inattentive population, so we truly believe that this would be a first-line therapy for the majority of patients who could benefit from non-stimulant therapy and also to put up a real fight for patients who are normally indicated for stimulant therapy as well.

Joe Aguilera - BioRevolution

And, what's Strattera doing in revenues right now?

Yaron Daniely

If I am not mistaken, Strattera is selling about $800 million globally, a little short of $700 million in the U.S. alone.

Joe Aguilera - BioRevolution

And do we expect to partner with somebody after the Phase III? What's your strategy in terms of partnering after the two Phase III results and when will that data be out?

Yaron Daniely

The first set of data from our first Phase III, again which will be launched by the end of this year, will be outside the mid-point of 2014. I think what you are alluding to is correct. I am sure there is going to be significant strategic interest in the company at that point.

We are very focused on executing our development plan and getting the product approved. The strategic options that are available up till approval and end approval are going to be evaluated by the board and considered.

Joe Aguilera - BioRevolution

Okay. So, your cash position, the $21.6 million. How long will that last without any deals et cetera, how long will that cash burn last into?

Yaron Daniely

Well, we expect the cash we have on hand to be supportive of our entire development plan as I outlined earlier, the two Phase III trials in adult ADHD all the way to approval in 2015, as well as the Phase II trial in pediatric ADHD, and a couple of Phase II trials in non-ADHD indications. All of these things which I outlined again taking us to the second half of 2015 are fully funded by the cash we have in hand.

Joe Aguilera - BioRevolution

How many shares are outstanding after the offering?

Yaron Daniely

I think around 12 million shares.

Joe Aguilera - BioRevolution

And the other indications, will there be Alzheimer’s on the other indications and will you look to partner that as well on the cognitive impairment as you have many indications that you could work with that, but that's going to cost a lot.

Yaron Daniely

Well, I think you are right in suggesting cognitive impairment is a very prevalent indication and that they are various diseases being associated with cognitive impairment. I think that it's important to note that Alcobra is narrowing down the list now with the help of, Jonathan, Dr. Rubin, who just joined the company and trying to identify one or two unique opportunities in this field that would yield relatively immediate and significant outcome cognitive impairment, schizophrenia and mild cognitive impairment and Alzheimer are significant unmet needs in the market, but they don’t really lend themselves to short and relatively small clinical trial and so I would say without committing to anything that these are not likely to be our first choices in interesting cognitive disorders outside of ADHD.

Joe Aguilera - BioRevolution

And, how long will the Phase II of pediatric trial for the ADHD, when will that data be out and how many patients are you going to do in that trial?

Yaron Daniely

Phase II trial, which is the first ADHD pediatric trial you do would be launched sometime in 2014. It's a relatively small and short trial. It's normally a small group of children in a dose escalation open label study design, so this [call] should be shorter very, very rapidly recruiting usually follows these children for several weeks anywhere from 6 to 10 weeks including the dose titration, again titrating from a very low dose to a higher effective dose, so this should all be completed around the mid-point again in 2014, probably within Q3 2014.

Joe Aguilera - BioRevolution

And will that be for children and teens on the pediatric?

Yaron Daniely

No. This is pediatric, so the [population] is handled separately normally in a clinical trial. This is usually aged 6 to 12.

Joe Aguilera - BioRevolution

What's the main side effect that we have seen so far from the Phase II results for any of the results on ADHD?

Yaron Daniely

The Phase II results, which by the way have been published in a paper in the Journal of Clinical Psychiatry about six months ago and that paper is available on our website, really show a very good tolerability profile. There were no significant side effects associated with the drug and in fact no adverse events difference between drug and placebo. The only exception was a low rate of very slight nausea, transient nausea that happened within the day or two of patients taking the medication. It went away after a day or two. It did not affect enrollment in the trial. It did not require any medication or anything like that. In fact the rate of nausea which was about 17% in the trial is even slightly lower than the rate of nausea reported for example for Strattera in its Phase III study. That’s really the only adverse events that showed any difference between the placebo and the drug treatment in the Phase IIb.

Joe Aguilera - BioRevolution

Okay. So, any patients that fails Strattera what do they go on?

Yaron Daniely

Well, patient that fail Strattera or either cannot tolerate Strattera or cannot wait for two months for Strattera to achieve maximum clinical effect, and assuming they took Strattera because they are adversely taking stimulant medication, may be taking things like if they are children, maybe taking Intuniv, which is only group of the pediatric population and for Adderalls in adult I think that their pharmacotherapy choices are highly limited, so they may be taking CBT, cognitive behavioral therapy or some sort of training, but really on a pharmacological side they don’t have pharmacological options.

Joe Aguilera - BioRevolution

So, would we take any failures from the Strattera patients? I am just looking out for our drug.

Yaron Daniely

No. I think the inclusion/exclusion criteria in our trial are very much in line with the inclusion criteria in all the ADHD trials that have been run in the U.S. over the last 15 years. Most of patients enrolled into U.S. studies are treatment naïve, so about 60% to 70% of patients that are enrolled treatment naïve this is also the observation that we had in our Phase II trial.

The other 30% are by in large our previous stimulant users either are off stimulants or do not tolerate well stimulant. Strattera, previous Strattera users are relatively few in those trials. Having said that, there is a requirement to not enroll people who have been non-responsive for two or more ADHD pharmacological treatments, so people who do not respond to drugs at all are not included in those clinical trials.

Joe Aguilera - BioRevolution

What I understand is it takes Strattera approximately three to four weeks to kick in, when it does in roughly 24 per day contrary to the stimulants, which were up to 12 hours a day. Correct? Do we have advantages over that?

Yaron Daniely

Well, there are a couple of things that I would highlight. First, Strattera, I am not aware of any clinical study that shows an effect throughout the day. If you want an effect throughout the day for Strattera, you have to take it twice a day. I would say that probably Strattera may be effective for again 10 hours to 12 hours, very much like the long-acting stimulant such as Vyvanse or Concerta. Okay? Sorry, the second part of your question was?

Joe Aguilera - BioRevolution

No. It's all right. This is being good. Thank you, guys.

Yaron Daniely

Sure. Thank you.

Operator

(Operator Instructions) At this time, we have no further questions.

Yaron Daniely

Okay. So, in closing I would just like to say that we are very excited about the events that are scheduled to take place over the next few months and we look forward to keeping you all updated on our ongoing progress. Thanks to everyone again for joining us today and I look forward to seeing some of you today at our ADHD Seminar.

Operator

Thank you. This concludes your conference. You may now disconnect.

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