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Alcobra Ltd. (NASDAQ:ADHD)

Q3 2013 Earnings Conference Call

November 7, 2013 9:00 AM ET

Executives

Garth Russell – Investor Relations-KCSA Strategic Communications

Yaron Daniely – Chief Executive Officer

Udi Gilboa – Chief Finnacial Officer

Analysts

Ram Selvaraju – Aegis Capital Corp.

Annabel E. Samimy – Stifel, Nicolaus & Co., Inc.

Operator

Good morning. My name is Angie and I will be your conference operator today. At this time, I would like to welcome everyone to the Alcobra Third Quarter 2013 Conference 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’d now like to turn the conference over to Mr. Garth Russell with KCSA, Strategic Communications. Please go ahead, sir.

Garth Russell

Thank you, Angie. Before turning the call over to management, I’d like to make the following remarks concerning forward-looking statements. This conference call contains certain forward-looking statements within the meaning of the Safe Harbor provisions of the 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, they are subject to various risks and uncertainties and actual results, performance or achievements of Alcobra could differ materially from those described and/or implied by the statements on this conference call.

For example, forward-looking statements include statements that imply that MG01CI may be helpful to treat cognitive dysfunctions, such as ADHD, including PI-ADHD and Fragile X, or that we will receive favorable results in clinical trials in MG01CI. Statements regarding the timing of IND experiments and subsequent initiation of enrollment to our Phase III trials as such INDs cleared and such trials are commenced at all or the timings and reporting of such data from the Phase III trials.

Statements regarding initiation of other clinical trials and timing thereof, as well as statement regarding levels of our expenses in the future, in addition, historical results of conclusions from scientific research do not guarantee that the results – future results would not suggest different conclusions or that historic results referred to on this call would be interpreted differently in light of additional research.

The forward-looking statements contained or implied in this call are subject to other risks and uncertainties, including those disclosed under the headline Risk Factors in Alcobra Ltd registration statement on Form F-1 filed with the Securities and Exchange Commission on October 22, 2013 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 of the result of new information, future events or circumstances or otherwise.

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

Yaron Daniely

Thanks, Garth. Welcome everyone, thank you for participating in today’s conference call. Joining me today is, Mr. Udi Gilboa, our Chief Financial Officer.

Today, we’ll update you on the progress we’ve made in our development program, our expectations regarding near-term milestones and the financials for the third quarter of 2013. After our prepared remarks, I’ll be happy to answer any questions you may have.

In the past quarter, we made significant progress in our development programs for MGO1CI as we gain a greater understanding of the drug safety and efficacy in treating cognitive disorders in preparation of launching several advanced clinical studies in the near future.

This has included completing an extensive series of preclinical studies with major research organizations eliciting the mechanism of action of our drug candidate MGO1CI. As a reminder, MGO1CI is a proprietary dual-release bilayer formulation of Metadoxine that offers immediate, as well as extended release formulations in a single oral dose. This study show that MG01CI appears to rapidly correct abnormal signaling pathways that have been linked with cognitive impairment. We’ve found that Metadoxine selectively binds and deactivates the 5-HT2B receptor, a member of the serotonin receptors family without showing any affinity to other serotonin receptors or any of the characterized targets of existing stimulant and non-stimulant medications such as dopamine and norepinephrine receptors and transporters.

In accordance with these findings Metadoxine didn’t increase the concentration of these neurotransmitters or their metabolites in the brain, unlike currently available ADHD therapies that further suggesting this drug should avoid scheduling. Instead of broadly increasing dopamine or norepinephrine levels we’ve seen that Metadoxine is able to restore balance to the dysregulated glutamine gamma system, a circuit that’s critical in executive functions such as learning, memory and attention and one that severely disturb in many cognitive dysfunctions.

Importantly Metadoxine did not induce any behavioral or neurophysiological effects on healthy controls indicating its specificity of action. We believe these findings may account for the positive effects on executive functions as well as the favorable tolerability profile we have absorbed thus far in preclinical and clinical trial of MG01CI.

In relation to this work specifically on ADHD during the quarter we initiated a placebo controlled clinical study designed to compare the efficacy of very dosage levels of MG01CI to treat and improve cognitive dysfunctions in adult subjects with Predominantly Inattentive Attention Deficit Hyperactivity Disorder commonly referred to as PI-ADHD or ADD.

As we announced earlier this week we just enrolled our final subject in a 36 person study and have scheduled the last patient visit with a physician for November 26, 2013. This was just in line to announce the study data during the week of December 16, 2013. We expect this study to confirm and extend some of the key differentiating attributes of MG01CI, which have absorbed in previous clinical trials including the significant effects sites we have seen in Predominantly Inattentive ADHD patients, the broader benefits on cognitive functions beyond the core ADHD deficits such as spatial working memory, visual information processing, reaction time and inhibitory control and the rapid onset of the drug which we set it apart from all other non-stimulant ADHD drugs.

Our main focus continues to be on moving forward with our first of two U.S. adult ADHD Phase III trials. Part of our preparations during the last quarter included the selection of Premier Research as the CRO for the study. Premier has extensive knowledge and expertise in CNS clinical trials, having conducted more than 150 CNS study over the past five years, including numerous advance stage ADHD trial. We’ve already seen the benefits of their experience in site selection and management of local IRB approvals, clinical trial design and clinical trial operations which has been extremely valuable as we moved ahead with the regulatory process from MG01CI as a treatment for adult ADHD.

With our CRO in place, we’ve initiated the clinical site selection process. Initial response among what we considered to be the top ADHD sites in the U.S. has been very positive, and we are now considering expanding the number of sites from 15 to 20 plus sites. Of great significance, we have now scheduled an investigator meeting for all trial investigators and staff in mid December to officially launch the Phase III study before the end of the year.

In terms of acquiring all the necessary regulatory approvals to those trial participants we are just waiting on certain manufacturing information and product from our API manufacturer in Germany and manufacturer of our final product in the U.S. gathering this information has taken slightly longer than we planned internally.

That said we made tremendous progress front loading and executing upon various aspect of site contracting, training , IRB submissions, pre-screening patients, advertising and recruitment, which will allow us to mitigate any impact on the overall duration and timing of trial launch and completion. Therefore we reiterate our expectation through report data from this Phase III Adult ADHD study early on the second half of 2014.

In addition to our leading ADHD program, we continue to believe that MG01CI could have a major impact in treating other cognitive dysfunction. During the third quarter, we reported positive results of significant improvement in cognitive and social functioning from a preclinical study in a validated animal model of Fragile extension.

Fragile X is a rare syndrome stemming from a change or mutation in the Fragile X gene that leads to a protein deficiency causing problems with attention, learning and social interaction. Due to the rarity of Fragile X syndrome and our initial finding our product candidate should qualify for orphan drug status permitting various development incentives such as faster time commercialization which can include tax, credits, grants and extended exclusivity period.

The results from this study were very well received during a formal presentation at the FRAXA Investigators Meeting in Southbridge, Massachusetts which revealed promising data for the potentially new use of extended-release Metadoxine as a treatment of Fragile X and possibly autism spectrum disorders. This is especially compelling giving the lack of any approved FDA treatment options for Fragile X, as such we plan to move forward with the Phase II placebo-controlled clinical study for Fragile X starting in Q2 2014.

In order to fund the expansion of our clinical research programs beyond the adult ADHD program we recently completed a follow-on offering raising approximately $38 million before underwriting discounts, commissions and other operating expense. The funds raised allow us to aggressive launch the pediatric programs for MG01CI and ADHD as well as the Fragile X programs in adult and children through expected approvals.

This additional capital plays an important role in our ability to quickly and effectively support these new clinical programs which we believe have the potential to build significant and new shareholder value for our investors, will not disrupting the planned Phase III trials for adult ADHD, which remained fully financed by the proceeds from our may 2013 IPO. We do appreciate the strong support we’ve seen in this following offering from our existing as well as new quality healthcare investors.

Turing over to a brief description of our financials, Udi the floor is yours.

Udi Gilboa

Thank you, Yaron and thank you to our shareholders who are joining us today. I want to start by acknowledging our regional and new investors who expressed their enthusiasm for the company’s achievement today and in the future potential by supporting tremendously successful offering last month with significant demand. We are proud to have shareholder base, with the breadth of experience and understanding of the healthcare space.

Turning to our results. Operating expenses for the third quarter of 2013 were $3.1 million of which $0.3 million was non-cash charges for stock-based compensation. Excluding stock-based compensation operation expenses for the third quarter of 2013 were $2.8 million.

As Yaron mentioned earlier the Company expect quarterly operating expenses to increase over the next few quarters due to an acceleration of its clinical development activities. As we previously mentioned, our largest expenses in the foreseeable future will be the two Phase III trials for our drug candidate to treat adult ADHD, which are each expected to cost approximately $6 million. In addition to two Phase III trials the infusion of new capital would allow us to proceed with three additional clinical program in 2014, which will also be reflected in increased operation expenses.

Net loss for the third quarter of 2013 was $3.1 million, or $0.28 per basic and diluted share, compared to $300,000 or $0.04 per basic and diluted share for the same period of 2012. As of September 30, 2013, cash, cash equivalent and short-term deposits totaled $19.5 million compared with $21.6 million as of June 30, 2013.

This does not include approximately $38 million in gross proceeds from the public offering completed on a product earlier, which Yaron mentioned earlier. And with nothing further, we’ll open up the call for questions.

Yaron Daniely

Operator, can we open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Ram Selvaraju with Aegis Capital.

Ram Selvaraju – Aegis Capital Corp.

Hello, can you hear me?

Yaron Daniely

Yes, we can Ram. Hi.

Ram Selvaraju – Aegis Capital Corp.

Thanks very much for taking my questions. I have a bunch which I’ll try to get through as quickly as possible. First of all, you are mentioning your own the pharmacology of controlled intravenous Metadoxine, can you confirm that the drug does not have any affinities for the 5-HT2C receptor subtype?

Yaron Daniely

Yes, thanks Ram for the question. That is correct, so in the receptor binding and receptor occupancy studies, we do not see any binding to the 5-HT2A or 5-HT2C receptors.

Ram Selvaraju – Aegis Capital Corp.

Okay, thank you. Can you also give us some color on how Metadoxine influences the Glutamate GABA system, is there any induction of actual GABA production by the drug?

Yaron Daniely

So we are looking into the actual production we have done those studies as well as neurophysiological studies just measuring excitatory and inhibitory potential as using a whole patch clamp assay on brain slices e cetera. What we find generally is that the drug is able to increase the inhibitory gabaergic pathway and outcomes and decreased consequently the glutamatergic excitatory signals. This is by presynaptic modulation potentially of the 5-HT2B receptor. We are looking now more carefully in various regions of the brains mapping out the GABA Glutamate levels.

Ram Selvaraju – Aegis Capital Corp.

Okay. Quick questions on autism and Fragile X, you mentioned that the Fragile X program is going to start in the second quarter of 2014 and I wanted to know whether this anticipates the end of the first Phase III trial in ADHD or whether it’s going to be initiated after we get results from the first ADHD Phase III trial?

Yaron Daniely

No, no, this would actually predated, so we expect to start the first placebo controlled Phase II study in Fragile X adults and adolescent in Q2, we do not expect to have the Phase III data for adult ADHD at that point yet.

Ram Selvaraju – Aegis Capital Corp.

Okay. And what about autism, can you speak to any formal proof-of-concept clinical trial design in autism as of yet and when that might be initiated or is that too early.

Yaron Daniely

Well, it’s somewhat premature. I think that what we’ve found are the intracellular modification that Metadoxine appears to have on signaling cascades that have been long studied in autism as well on some key markers such as [indiscernible] could potentially allow us to look through the ASD axis and defined patients with autism that would potentially respond better to our medication. Some of the challenges in developing drugs for autism spectrum disorder has been that the axis is so vary that it’s kind of hard to know what a potential drug may hit and what it may not hit. Our findings in the Fragile X model gives us a clue as to what intracellular target and what this regulated pathway this drug is affecting, giving us an indication of potentially selecting autism spectrum disorder patient into a more focus ASD trial. We are evaluating this together with several collaborators these days.

Ram Selvaraju – Aegis Capital Corp.

Okay, a couple of quick questions regarding dosing in the Phase III ADHD trials and I will jump back into the queue. My understanding is that in the Phase II exploratory study, you are testing a 700 milligram dose, is that correct?

Yaron Daniely

Yes.

Ram Selvaraju – Aegis Capital Corp.

So can you give us an idea of whether or not this 700 milligram dose is going to be included in the first Phase III placebo controlled ADHD trial? What its purpose is? And depending on what you see in the first Phase III trial whether or not it is going to be included in the second Phase III trial, which as I understand is going to be a competitor tool set.

Yaron Daniely

Yes, I will try and not make an error in providing details as we’ve not done before. And I expect shortly the protocol outline for this first Phase III study will be publicly available on ClinicalTrials.gov, so you will be able to see the exact details of the trial. The inclusion of the 700 mg dose comes after our prior experience that we’ve already had with this dose, and part of an investigation that’s required by FDA during development to evaluate the minimally effective dose for any drug.

So the FDA before approval and it can be earlier or during the first Phase III or during the second Phase III would like to see a dose other than 1400 mg that shows either reduced the efficacy or no efficacy. To be able to move forward with approval of a certain dose which is we expect to be with 1400 mgs. So the inclusion of the 700 mg in our crossover study which completed enrollment just recently. It’s another way of us getting an early indication as to what this dose actually is doing whether it’s minimally effective or non-affective at all. We do expect to include that dose in our Phase III program as well. So this does not obviate the need to include in a parallel Phase III design of that dose.

Ram Selvaraju – Aegis Capital Corp.

Okay, but just to confirm, if let’s say for example, if you didn’t see activity with the 700 milligram dose even the exploratory study or in the first Phase III study. Would you still have to include it in the second Phase III study.

Yaron Daniely

I expect not.

Ram Selvaraju – Aegis Capital Corp.

Okay. And then finally, when do you anticipate the actual IND approval from the FDA for the Phase III program.

Yaron Daniely

Well, we expect to receive clearance 30-day after submission of the IND that’s the usual FDA timelines, and again IND submission it’s part of the overall process to be able to enroll patients in the U.S. together with other activities like training sites and recruiting sites and building a patient database, which are all currently ongoing. We do expect to submit the IND late December or early January. And this will position us to remain on target to achieve our goals completing recruitment by the midpoint of 2014.

Ram Selvaraju – Aegis Capital Corp.

Okay, thanks. I’ll jump back into the queue.

Yaron Daniely

Thanks.

Operator

(Operator Instructions) Your next question comes from the line of Annabel Samimy with Stifel.

Annabel E. Samimy – Stifel, Nicolaus & Co., Inc.

Hi, thanks for taking my question. I just wanted to continue on the line of question around the dose. What was the specific rationale for choosing the 700 milligram, and if it didn’t show efficacy at that level, is there any reason why you might have to – do the different dose like say 900 or 1000 to try to establish that minimally effective dose. And from that point are the pediatric studies also going to be at those similar doses?

Yaron Daniely

Right. So look, on the continuum of dosing there is really no end to the amount of points you could theoretically pick, Annabel. And so the traditional paradigm has been to jump half doses or double doses. You see it with any of the stimulant to the non-stimulant 10, 20, 40 mgs. These are routinely the step wise up and down sponsors are required to evaluate in clinical trial. So I believe that if we show no efficacy with the half dose, the 700 mg dose, there really would not be a reason to start evaluating interim doses between 700 and 1400.

With regards to pediatric study, pediatric studies are now designed to include significantly less dose than adult doses. So you can imagine that if we are talking about a 1400 mg dose for adults, which is about 20 mgs per kilo, in a kid that would translate to significantly less dose. We do not expect to reach the same doses in kid that we get to an adult.

Annabel E. Samimy – Stifel, Nicolaus & Co., Inc.

Okay. And the actual milligram amount it seems pretty high, is that going to affect the size of the pill potentially for pediatric patient?

Yaron Daniely

Right. So again the size of the pill is significantly smaller for the pediatric patients. And theoretically there are opportunity to develop formulations even during the Phase II pediatric ADHD study that would allow better compliance in ease of dosing for pediatric patients.

Annabel E. Samimy – Stifel, Nicolaus & Co., Inc.

Okay. And then I guess while we are on the discussion of pediatric trial, can you give us a sense of the timelines that you have for the full clinical pathway for pediatrics and when you can potentially file an sNDA and I guess the same is true for Fragile X, which seems to be possibly able to move rapidly forward?

Yaron Daniely

Yes, the way we’ve been discussing this and the path and we continue to reiterate the following general plan. We expect again to launch the Phase III ADHD trials in adults. Shortly, we will launch the pediatric Phase II trial possibly in the second quarter of 2014. We would also launch during the same quarter the Phase II trials in adults and adolescence with Fragile X. All these trials we will be reporting in the second half of 2014 with the adults ADHD Phase III trial possibly reporting before the Phase II trials in pediatric ADHD and the adult and adolescent Fragile X programs, but all of them will be reporting in the second half of 2014.

The Phase III I think you’ve asked towards approval, the Phase III pediatric ADHD program as well as the Phase III Fragile X programs are all scheduled now for late 2014 or very early in 2015.

Annabel E. Samimy – Stifel, Nicolaus & Co., Inc.

Okay, great. Thanks.

Operator

(Operator Instructions) We do have a follow-up question from the line of Ram Selvaraju, Aegis Capital.

Ram Selvaraju – Aegis Capital Corp.

Thanks very much for taking my follow-up questions. I just wanted to ask a couple of financially related questions regarding trial cost. Can you give me an idea of the original costing estimate for the Phase III program in ADHD? And how this has changed since you’ve made the decision to include more sites in the program? And then secondly, if you could give me an idea of what you anticipate the budget to be for the Phase II and pivotal studies in Fragile X syndrome? Thanks.

Yaron Daniely

Sure, Ram, thanks. The planned budget for the Phase III adult study was around $6 million each previously and that has not changed. The possible increase in clinical site may actually increase the efficiency of patient recruitments, so there is compensation kind of a balance between the benefit of perhaps including two or three additional high recruiter clinical sites and the ability to actually wrap up the study efficiently on time. So we do not expect and the way that contract has been approved and executed. We do not expect any significant deviation from the original estimate of $6 million per trial.

With regards to the Fragile X study, as we have indicated in the F1 statement and the follow on, we have earmarked $14 million for the two Phase IIs and two Phase IIIs for Fragile X. We expect cost between $1 million to $2 million for the Phase II trials and $6 million to $7 million very much in line with the ADHD trial for the Phase III Fragile X study. These are smaller in size, but marginally more challenging in recruitment. And so at the end of the day the balance has to be similar in terms of expected expense.

Ram Selvaraju – Aegis Capital Corp.

Okay, that’s very helpful. And then lastly, when you release data from the exploratory Phase II trial, can you confirm that you will in fact hold the conference call or not in order to discuss that with the investor community.

Yaron Daniely

Yes, we plan to release the data as soon as we have and we are looking now in our schedules to provide a time for either a conference call webcast or actually a meeting in this area to review much of the data that has been generated over the last few months including more detailed mechanism of action, data more a clarity around recruitment and clinical trial startup operation, as well as the Phase II exploratory study that’s been completed recently.

Ram Selvaraju – Aegis Capital Corp.

Okay. And just with respect to the exploratory Phase II study design, you said – as you said it was a crossover design, so my question is where would we be most likely to see statistical significance, would it be versus baseline or between the after groups versus placebo, can you just give us an idea of how we should be thinking about that?

Yaron Daniely

Well, we have been measuring all these endpoints and have included them as pre-specified endpoints in our clinical trial design. The improvement of our baseline is something that we have seen and reported on in previous clinical trial. The improvement over placebo has been seen in our Phase IIb 120 patient study a year ago. I wouldn’t say, I would expect one over the other, Alcobra believe that this is well controlled, well designed study will show significance or we hope to show significance on all these endpoints.

Ram Selvaraju – Aegis Capital Corp.

Okay. Thank you.

Operator

At this time there are no further questions. I’ll now turn the conference back to management for closing remarks.

Yaron Daniely

Thanks. So in closing I’d just like to say we’re very excited about the event that are scheduled to take place over the next few months and we look forward to keeping you all updated on our ongoing progress. Thank you, operator.

Operator

Thank you for participating in today’s conference call. You may now disconnect your lines at this time.

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