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Endocyte, Inc. (NASDAQ:ECYT)

Q3 2013 Earnings Conference Call

November 5, 2013 16:30 ET

Executives

Ron Ellis - President and Chief Executive Officer

Mike Sherman - Chief Financial Officer

David Meek - Chief Commercial Officer

Analysts

Simos Simeonidis - Cowen and Company

Chris Raymond - Robert Baird

Jeremiah Shepard - Credit Suisse

Gene Mack - Brean Capital

Ling Wang - Chardan Capital Markets

Greg Wade - Wedbush

Operator

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

During today’s conference call, the company may make predictive statements concerning future events or developments. Actual results may differ materially from those indicated by forward-looking statements. Please refer to Endocyte’s filings with the Securities and Exchange Commission for a discussion of risks and uncertainties impacting those results.

Now, I will turn the call over to Ron Ellis.

Ron Ellis - President and Chief Executive Officer

Thank you for joining our third quarter call. I want to just cover some key milestones upfront and then Mike will go through the financials. We have Dave Meek here also to answer questions regarding the launch in Europe, which is my first topic. As you know, we are getting very close to getting an opinion from the CHMP on conditional approval for vintafolide and etarfolatide for Europe and platinum-resistant ovarian cancer. This is further grouped that has been diagnostically identified as FR100%. All through this process, it’s been our policy with Merck that we don’t provide specific details about the process so that we can keep the communication and integrity of the communication between us and the CHMP intact, but as we get closer, we are getting a better idea of when we will hear the opinion.

Right now, we think it will either be in December or January, most likely in January, but we still haven’t got the final schedule on when the CHMP will have the meeting. This difference is really mostly a function of workload. As you may recall, this application was three separate products. And so keep in mind, for these receptors [ph], this application for some of them was three times the amount of work than they would receive in a single application. And so there has been a lot of work on both sides trying to getting it through this process.

I want to just reiterate or say that the process is moving forward through the normal review process. We have had many exchanges with information from the receptors [ph] and we are just working through what we would consider to be the normal process for conditional approval application. I guess, related to that, we are also continuing to prepare for a potential launch. Just this last month, we hosted events at – successful events with Merck at ESMO, the Society of Medical Oncology Meeting in Europe, as well as the meeting of the European Society of Nuclear Medicine, was also held. And those meetings went extremely well. We are working on pricing and reimbursement. We are continuing to build the EU organization, particularly the field group. And we are now in the stage, where we are working through contracts to support shipping and logistics for the products in Europe. So we are quite advanced to the preparation and process and we feel comfortable. We will be prepared should we hear a positive opinion from the CHMP.

Just the second item is update on the other studies at vintafolide and the etarfolatide as we told you the TARGET study enrollments complete, that was the non-small-cell lung cell cancer and the combination therapy, cleared the futility hurdle we announced that last month, that’s vintafolide with docetaxel versus docetaxel alone. And we are still thinking probably top line results in Q1 and that Merck will probably have the full study results released to the scientific conference. We haven’t named that conference, but my guess is it probably would be ASCO. Merck is working on activities related to the startup of the triple-negative breast cancer study. This would be our fourth study that we expect probably to get enrollments started in the first half of next year. We are not exactly clear when that would be, but we are in the advanced stages of the planning and getting that steady ready to go.

The other study which Merck is finishing up is a Phase 1 study where we are testing vintafolide with other chemotherapy drugs in particular platinum taxanes. And as the results are wrapping up and we will have results I think Merck will probably present results to ASCO in that study and I know that study has gone well.

Related to the pipeline, what we call the EC1456, which is the folate targeted tubulysin agent, that Phase 1 trial is now open. We expect be enrolling patients anytime now. We also expect to have the clinical study start with the prostate cancer indication, which is the compound that targets PSMA with the tubulysin warhead. And again, I think or maybe first quarter we should be clear to move ahead with that program. We are just in the final stages of finishing up the pre-clinical work for that. As you recall we have already validated the ligand for targeting we have the imaging agent that have done that in a Phase 1 study, so this is the therapeutic trial that we are moving forward with. So those I think are the key updates for Endocyte for this quarter.

Let me just give Mike chance to go through the financials and then we will go through Q&A.

Mike Sherman - Chief Financial Officer

Thanks Ron. Let’s just go right through the financials as you say. We have recognized $16.6 million in revenue in the quarter that’s pretty consistent with the $16.5 million in the second quarter and up from $12.4 million last year. R&D of $13.5 million was down sequentially quite a bit from you saw from the second quarter of $18.6 million and up from last year $9.9 million. I had mentioned on our last call that we had accelerated some of the activity into the second quarter and you can see the other side of that now as expenses were quite a bit lower.

You may recall in the second quarter we have purchased a significant amount of PLD which is used as the control drug in the PROCEED ovarian cancer trial. We can provide that supply to all sites globally as its needed. This ended up being particularly important as Jason has recently announced another shortage in the U.S. and because they have received approval from an alternative supplier for Europe that U.S. shortage doesn’t affect the clinical enrollment or the potential commercial launch in Europe. And because we have enough U.S. supply on hand now to get us at least through the interim analysis at the 250 patients point which like we are in good shape.

With TARGET non-small cell lung cancer trial enrollment also peaked during the second quarter. So those costs started declining in the third quarter and we expect that spend to continue decline going forward. Because both proceed costs are shared with Merck and then Merck is responsible for all the TARGET trial expenses, the decline in PLD purchases and the decline in total TARGET trial expenses also explains the sequential reduction in reimbursable Merck expenses.

G&A of $6.1 million has been stable for the last few quarters, it’s up from last year $3.8 million in the prior year quarter and that’s primarily driven by investments in or commercial readiness. We ended the quarter with just under $160 million in cash, down from $170 million at the end of Q2 and that reflects a cash burn of about $10 million for the quarter. Given that we have $160 million in cash now I would expect relative to our guidance that we would be at the lower end of that guidance range.

So with that let me turn it back over to the operator and we will take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from Simos Simeonidis from Cowen and Company. Your line is open.

Simos Simeonidis - Cowen and Company

Hi guys, thank you for taking the question. A few weeks ago we heard the DSMB’s recommendation for TARGET and even though we haven’t had a call with investors can you give us your thoughts on the outcome of this interim look and are you encouraged by the fact that – by the recommendation of the fact that they said move forward but the monotherapy is unlikely to have a positive or relieve to improvement over docetaxel, how do you see the trial going forward based on these news?

Ron Ellis

The DSMB we will receive the data when it’s un-blinded earlier this year when we hit the final event. I think we feel good about the fact that the combination therapy past futility and the DSMB has that moving forward. That by far is the arm that’s most likely as you would go in just to try to expect to do the best. I think it’s also at least we are – some important that the DSMB has said that there is patients in the single arm should continue on therapy. And so we will be I think anxious – I am anxious to see the data and how it comes out earlier this year and then kind of better sense of – how each of those arms, but I think the overall we are not surprised by the fact the combination arms doing better and we feel good about the fact that it went through the futility. I mean, there never was really a plan to run both arms into a Phase 3. This study was designed to answer the question which arms should we take forward in the Phase 3. And my guess is from the DSMB recommendation that it would be as we expect the combination arm versus the single agent, but until we see really the data, it’s hard to have a strong opinion of the real view on that.

Simos Simeonidis - Cowen and Company

Were you disappointing that vintafolide didn’t have enough of an efficacy to have better than 50% improvement in PFS over docetaxel or was it something that given that docetaxel has efficacy – has some efficacy in this setting is not all that surprising?

Ron Ellis

Well, I think it was a little bit of both. I mean, it would be great if we had heard the both in past, but no question about that. And one would have been pleased to see that both single and double agent had passed, but again, is there something there is not surprised about and something the study was designed to answer, which would be have the highest probability of success in the Phase 3. So I think we are not surprised at all by the outcome.

Simos Simeonidis - Cowen and Company

Okay. And then a question for Mike, you are going to have by the middle of the year, you are going to have two of your own – three more of your own compounds in the clinic, even though it’s going to be all Phase 1 trials, how should we think about your spending going forward?

Mike Sherman

I will give more guidance at a future time, but in the meantime I would say what you should expect to see is that our investment in vintafolide will decline, so the PROCEED trial will shift during the course of next year into that final phase, where Merck is responsible for 75% of the costs. So their obligation increases. And of course, the TARGET trial, the lung cancer trial should be racking up the costs on that trial early next year anyway. And then all of the future trials – all the future indications are 100% covered by Merck, so really won’t show up on our scorecard. So as both the PROCEED and TARGET expenses decline, we will start picking up the pipeline and I would expect generally kind of a balancing of those two year-to-year.

Simos Simeonidis - Cowen and Company

Okay, great. Thank you taking the questions.

Ron Ellis

Thanks Simos.

Operator

Our next question is from Chris Raymond of Robert Baird. Your line is now open.

Chris Raymond - Robert Baird

Hey, guys. Thanks for letting me to ask the question. Just two quick questions. And first one, I am not sure if you are willing to answer, but I think I remember you guys talking with respect to the CHMP process that you maybe asked to present in front of the agency, can you describe whether or not that’s taking place if that’s still sort of a checkpoint in this process or not?

Ron Ellis

Yes. Right now, we don’t have any indication that there would be an oral presentation, but we probably won’t be for sure until we kind of finalized the schedule with them, but right now, no, we don’t know, that’s how it occurred.

Chris Raymond - Robert Baird

Okay, great. And then maybe just on the breast cancer effort, just noticing the trial that Merck is running with in breast cancer, it looks like it’s a three-arm study and so there is the combo control and then you get the single agent. Just you could maybe talk a little bit about the rationale there, especially in light of the outcome you saw in non-small-cell lung cancer with the lack of activity single agent?

Ron Ellis

Chris, that was a little harder to comment on. Merck is who runs that study so that’s really under their design we are providing input. And I don’t personally know if they are going to stay with the three arms. As far as I know right now they are, but I know they are looking at whether they would keep it three arms or maybe make the other two arms two different dose schedules. I think that will be cleared up over the new few months sort of month or two as they finalize that design.

Chris Raymond - Robert Baird

Okay. So this was laid out before the non-small-cell lung cancer, okay, great.

Ron Ellis

That’s correct, yes.

Chris Raymond - Robert Baird

Thanks a lot.

Operator

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

Jeremiah Shepard - Credit Suisse

Good afternoon this is Jeremiah in for Jason Kantor. Thank you for taking the questions. Regarding the TARGET study, will there by anymore DSMB looks and if so will there be interim analysis before you have the final readout in Q1?

Ron Ellis

No.

Jeremiah Shepard - Credit Suisse

And you also mentioned there is you have the three filings in the EU and I am assuming that there would be – might be reviewing our different portions of the EMA, was there possibility that you could have approval or some sort of feedback on one or more for others like or they will all be at the same time?

Ron Ellis

All at the same time and they are with – they are all with the same two receptors [ph], but they are divided out between the receptors [ph] with different people that are leading the effort on certain products.

Jeremiah Shepard - Credit Suisse

Okay. And in regards to the PROCEED trial I mean you mentioned you have this interim analysis could you remind us so we could see it during the interim – what time announcement you will make with the district or that you will announce whether or not to move forward the next 100 patients or could there be any chance for yet to see at that point?

David Meek

That’s you have that right is we will still be blinded to the day that trial is blinded when we remain so even beyond that interim analysis so the way it’s designed is at the 250th patient enrollment and that’s 250 FR100% patients. The analysis will occur and the DSMB will either recommend to add an additional 100 patients or whatnot as the announcement will be just that.

Jeremiah Shepard - Credit Suisse

Okay. Thank you for taking the question?

David Meek

Thanks Jeremiah.

Operator

Next question is from Gene Mack from Brean Capital. Your line is open.

Gene Mack - Brean Capital

Thanks for taking my question. I had a TARGET question as well just I’m wondering if you guys could remind us how the – how that trial was – how is the physical analysis of that trial is supposed to go is that each arm independently being compared to docetaxel alone. And then if so I guess you sort of randomized that as far as new patients for arm and what were the powering assumptions as far as each arm’s ability to hit the primary?

Ron Ellis

I believe it’s 75% powered to detect 0.67 hazard ratio or it translates to about 50% improvement. And each arm was compared to docetaxel, so the end points powering was around single agent being 50% better than docetaxel and the combination being better than docetaxel and the futility analysis would reflect the dose powering assumptions.

Gene Mack - Brean Capital

Okay so for the combination I mean it’s the same doubling assumption?

Ron Ellis

Yes.

Gene Mack - Brean Capital

Okay and…

Ron Ellis

It’s not coupling it’s a 50% improvement but yes.

Gene Mack - Brean Capital

Alright, yes, exciting. And could you walk us through sort of how the decision to go forward in breast cancer will unfold, I mean is there – are we waiting to see data or see wait and see how your teams react to the filing and that also the final outcome in TARGET for moving forward in breast or is it independent?

Ron Ellis

Well, I it’s they do nothing fully independent, but they are not linked in any contractual or any other way Merck’s just going through the normal planning process of this trial and planning on starting it up in the first half of next year. In the contract with Merck, there is obligation for them to study it or vintafolide in different indications. And we have ovarian and lung and then they will pick up the breast cancer study as well as some other indications that will come forward. I think one of those will be endometrial. And so I think we will just see that unfold in full next year as part of the development of the program.

Gene Mack - Brean Capital

Okay. And just going back along real quick, assuming let’s assume that the combination arm I guess is successful, but then also the monotherapy arm achieved some sort of hazard ratios below 1 maybe somewhere below 0.85, how do you think about those types? Is that a scenario that’s still possible that the monotherapy arm might show something close to a 20% benefit, maybe that’s not statistical, based on the powering, but how do you think that might inform the decisions of powering?

Ron Ellis

Well, the first question is yes, that’s possible that we see a benefit with the single agent, but it’s not at a 50% improvement. Then it’s just a matter of – I don’t think we can really answer that Gene until we kind of see all the data and then make a decision about, Merck, which Merck will make about what’s the best Phase 3 design. I mean, the other thing to keep in mind, the study, for example, enrolled adeno and squamous cell. And so it will be interesting to see if there is a difference in histology with Alimta there was. Alimta was active in adeno, but not squamous. Docetaxel, there wasn’t a difference. It tends to be the same. So those kinds of analyses will also be really important as we look in the data and then decide what’s the best path for the Phase 3 study?

Gene Mack - Brean Capital

Great, thanks so much.

Ron Ellis

Thanks Gene.

Operator

The next question is from Adnan Butt from RBC. Your line is open.

Unidentified Analyst

Hi, this is Jeff on behalf of Adnan. Thank you for taking the questions. And I was just going to answer this, but the read out for the Phase 3 ovarian cancer study be more than 2Q ‘14?

Ron Ellis

Yes. I didn’t quite hear the question, but you said the read out for the interim proceed analysis Q2 ‘14, yes, that’s right.

Unidentified Analyst

And assuming that PFS hurdle was met, how quickly do you think you can add 100 patients then when that overall survival data read out?

Ron Ellis

Yes. We have said that it would take about 9 to 10 months to add those patients. It’s quite possible that based on the – we have added additional sites when we switched to that design. And so it’s possible that we are able to accelerate that, but at this point, one would expect that you would finish that 350 patient enrollment early in 2015. Typically what you do is add 18 months to 24 months, that’s final overall survival analysis in this indication. We would not be waiting of course for the final OS analysis in order to move ahead with the potential application. We would be using the PFS analysis available at that 350 patient enrollment plan.

Unidentified Analyst

Great, thank you very much.

Operator

The next question is from Ling Wang analyst Chardan Capital Markets. Your line is open.

Ling Wang - Chardan Capital Markets

Thank you for taking my questions. So can you provide some insight when the first quarter of next year, the TARGET trial report a top line data, what will the top line data include? And also for EC1456, can you discuss in more detail about the development strategy for this compound concerning that it’s the same product target compound as EC145? Thank you.

Ron Ellis

So let me ask Mike to cover the first question, which is I am not sure if Merck has cleared what they are going to announce as top line results, the first quarter. I don’t know Mike if you have heard anything on that. And then I can take the 1456 question.

Mike Sherman

Yes. So I am not sure I can give much more clarity other than it would top line as opposed to full data. Of course, the rationale is that we want to save that analysis for a scientific conference, but we will and do you have a commitment that we would at least announce some top line. So I think yes, you have to signal as to whether it’s a positive trial or not and then what level of detail to be determined probably by Merck.

Ling Wang - Chardan Capital Markets

Okay.

Ron Ellis

On the 1456 which is folate tubulysin molecule, the next trial will be broken into two parts. The first is a normal Phase 1 dose escalation study. And as we have said before the key there is just to see the toxicity profile of it and safety of the drug. And kind of what dose we are able to reach before we get an MTB that will proceed over the next – end of this year through and into next year. We don’t know how long into next year it depends on how many doses we escalate up, but that would be the first part. Then the second part is then to start to explore that drug in different folate receptor positive indications. And we are still kind of thinking about that and gathering data.

There is a wide variety of indications that we could look at I will just give some examples but none of these are locked in stone. We could look in ovarian as our refractory as opposed to platinum resistance that’s a patient who have doesn’t respond at all the first line therapy. These patients really high unmet need in that group and that could be a possibility. We could also look at patients who are in the third and fourth line so they have resisted but they felt primary therapy and then they would receive our drug as a second therapy. We could also move into diseases like endometrial liver cancer or other types of cancers and we are still kind of going through the process of going through and doing that. That second part would really be single agent, single arm studies where we are looking for signals that then would informed us about how to move it into the what indications to move it into the registration studies. And that’s a great question. I think as we get a little closer maybe next year and have a research meeting or clinical update, we will be prepared to give a more clear plan for how we are going to develop that compound.

Ling Wang - Chardan Capital Markets

Thank you. And just I mean for the dose escalating part have you disclosed what kind of indications are you going to include in this portion?

Ron Ellis

These are just solid tumors. So there is…

Ling Wang - Chardan Capital Markets

(Indiscernible)

Ron Ellis

Yes, we will scan them with EC20 but we are not limiting them to holding like FR100% patients.

Ling Wang - Chardan Capital Markets

Okay, thank you.

Operator

Next question is from Greg Wade from Wedbush. Your line is open.

Greg Wade - Wedbush

Good afternoon and thanks for taking my questions as well. Ron with respect to TARGET if patients are having tolerability to the taxanes in the taxane vintafolide combination group, can they stay on vintafolide, then I have a quick follow-up?

Ron Ellis

I think the answer is yes, but I am not 100% sure Mike or Dave do you know? I know – let me skip back to we could have a check I know for the PRECEDENT study in ovarian when they were receiving DOXIL plus vintafolide if they weren’t tolerating DOXIL then they got – they could stay on vintafolide alone. And I think it’s the same it will long Greg that will – let me check and we will get back to you for sure.

Greg Wade - Wedbush

I appreciate that.

David Meek

I think we are taking what’s happening is there are some dose reductions (indiscernible) on both, but we can check that.

Greg Wade - Wedbush

Okay, great. And then next question is with respect to the vintafolide market in Europe in the ovarian cancer setting, I wonder you might have anymore precision in terms of your thinking on pricing for etarfolatide and vintafolide? And thanks for taking my questions this afternoon.

Ron Ellis

Okay, Dave, tell him what pricing is.

David Meek

Greg we will let you know soon. We are having quite a few active conversations with the payors in Europe right now and the early in the big launch markets. So those conversations are happening. We have not quite landed on price yet. Merck of course covers than half a lot and so that’s their responsibility for the pricing of vintafolide and for etarfolatide that’s ours. But I would say right about the time assuming we hear approval in Europe we will be able to really surprise.

Greg Wade - Wedbush

Okay, can you give us some benchmarks against that you are…?

David Meek

But I would say – I can’t say this quick, I think I know (indiscernible) the payor conversations are going really well. They see tremendous value in the personalized medicine solution where we can use each of our forward types to select and deselect patients they would go on to vintafolide therapy, so we are quite encouraged with the feedback we are hearing from the payors. This is in the market research that we have done as well as the one-on-one conversations we had with the payors at the country and regional level in various countries.

Greg Wade - Wedbush

Thanks.

Operator

Thank you. I am not showing any further questions in the queue. I would now like to turn the call over to Ron Ellis for closing remarks.

Ron Ellis - President and Chief Executive Officer

Well, thanks again everyone for joining us on the call. As we ground up this year, it’s been for us a very, very good year. A lot of positive things have occurred. I think kind of our take-home messages from this call is that we are going to hear soon from the EU. The process is proceeding as we would have expected normally and that we are continuing to prepare for launch along with Merck for these two exciting products for really a patient population that has a high unmet need for better – has a high need for better treatments. And in the end, that’s what we are really about is providing better therapies for patients to make their lives better. So we are excited about hearing about that milestone. And hopefully next year, we will be providing that drug to patients in Europe. The pipeline is moving forward well with the new drugs in the prostate cancer as well as the folate tubulysin. So those things I think are exciting opportunities.

And also sort of speak to the potential for multiple drugs coming out of our technology using the same molecules to target these drugs. I think the other thing is that the partnership with Merck has been great and we have had meetings with the numeric leadership and talked about planning for the product. There is an excitement on both sides for the products and moving it forward in other indications. We are seeing that in the triple-negative breast planning as well as moving forward with these combination studies, where we are seeing our drug how it doses with drugs like platinum and taxane, which are staples of oncology. We know pre-clinically that the drug works really well with those combinations, but this gives us safety to allow us to move it forward into other indications and that kind of also has gone really well.

And I just characterized the partnership with the people on the ground is being really collaborative, very, very positive and strong commitment from both sides to see the product succeed. We are still ending the year with a lot of cash on hand, which gives us plenty of powder to be able to move these programs forward. And I think this next three to six months are going to be extremely exciting. I think on the lung data, a lot of questions about that. We are not, I think discouraged about that. We designed the study to answer an important question. We are going to get the answer to that question in which combination to move forward for patients and we will have that data early next year and that will increase the chances of having a positive Phase 3 outcome as you learn more in these Phase 2 studies. So I think we feel pretty positive about the future at Endocyte. And we appreciate the calls for everybody. And again if you have follow-up calls, please give us a call and we will keep communicating through this process with CHMP.

Operator

That does conclude today’s conference call. You may now disconnect. Thank you. Have a great day.

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