Targacept Management Discusses Q4 2013 Results - Earnings Call Transcript

Targacept, Inc. (TRGT) Q4 2013 Earnings Conference Call February 13, 2013 8:30 AM ET

Executives

Stephen Hill - President and CEO
Alan Musso - SVP, Finance and Administration, CFO and Treasurer

Analysts

Mohit Bansal - Deutsche Bank
Alan Carr - Needham and Company

Operator

Good day ladies and gentlemen and welcome to the Q4 2013 Targacept, Inc. Earnings Conference Call. My name is Theresa, and I'll will 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 the conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Dr. Stephen Hill, Targacept's President and CEO. Please proceed sir.

Stephen Hill

Thank you, Theresa, and good morning everyone and thank you for joining us. With me this morning is Alan Musso, our Chief Financial Officer. First as usual, let me inform you that 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.

So with that traditional introduction, today I am pleased to report good progress towards the completion of our two ongoing Phase-IIb clinical trials, that is TC-5214 for overactive bladder and TC-1734 for Alzheimer's disease, both of which are on track for top line results in the middle of this year.

In addition, we remain well capitalized, having ended 2013 with over $140 million in cash and investments, and we continue to have the benefit of a talented and engaged work force. We recently adopted our corporate goals for 2014, which ascended [ph] on the outcome of our TC-5214 Phase-IIb study in overactive bladder, on operational excellence, enhancement of the company's development pipeline, capital efficiency, and leadership as measured by employee engagement factors. While our business is high risk, and success cannot be assured, I am confident our team will make every effort to deliver on our goals.

Now let me provide with you a brief update on our clinical programs. As announced earlier this week, we succeeded in completing patient recruitment into our Phase-IIb at TC-5214, which we are studying as a treatment of overactive bladder. The disorder affects approximately 40 million adults in the U.S., and has been shown to seriously impact quality of life. This is a robust Phase-IIb study, designed to randomize approximately 750 patients at over 100 U.S. sites. TC-5214 is a potent antagonist of alpha3beta4 neuronal nicotinic receptors located in or around the bladder, and thus far has a well established safety and tolerability profile, studying primarily from a large [indiscernible] program conducted in a different indication.

Given the size and design of the study, and the objective regulatory endpoints for this indication, the results, which we expect in mid-2014, should provide us with a clinical dataset, that will inform us on the potential of TC-5214 to become a first in class treatment for patients with OAB; because currently available treatments have limited efficacy, and for many, tolerability drawbacks that can lead to non-compliance, discontinuation of treatment, we believe that there is a clear need for new differentiated medications to treat overactive bladder.

Our second ongoing Phase-IIb study is evaluating TC-1734 as a treatment for mild-to-moderate Alzheimer's disease. Patients in this study are receiving either TC-1734, a wholly owned alpha4beta2 modulator, or the market leader donepezil, as a monotherapy, in a head-to-head comparison over a 12-month treatment period. And we continue to anticipate reporting top line data from this study in mid-2014.

Preparations continue for the start of an exploratory trial of a further compound, TC-6499, for the indication of diabetic gastroparesis. The planned crossover design trial is expected to evaluate three doses of TC-6499 and placebo, in approximately 20 subjects, utilizing a carbon breath test as a surrogate markup of gastric motility. We anticipate that this study will get underway around the middle of this year.

For completeness, let me just mention that our pipeline also includes a molecule referred to as AZD1446, which is licensed to AstraZeneca. AstraZeneca are currently assessing the data related to that compound, with a view to possible further development.

And with that, let me turn the call over to Alan, for our financial update, and then we will take questions. Alan?

Alan Musso

Thanks Steve. Let me now briefly highlight our financial results for the fourth quarter of 2013 and for the full year, which we released earlier today.

For the fourth quarter of 2013, we had a net loss of $13.4 million, compared to a net loss of $15.9 million for the fourth quarter of 2012. The lower net loss for the 2013 period, was due principally to a decrease of $1.6 million in research and development expenses, and non-recurrence of $1.4 million of charges related to a workforce reduction, that we completed during the fourth quarter of 2012.

For the year ended December 31st, 2013, we reported a net loss of $46.7 million, compared to a net loss of $7 million for 2012. The higher net loss for 2013, was principally due to a decrease of $53.9 million in deferred revenue recognition, partially offset by a decrease in research and development expenses of $10.2 million and the non-recurrence in 2013, are restructuring charges, for which we incurred $3.7 million of expense in 2012. As of December 31, 2013, cash and investments in marketable securities totaled $143.8 million.

Moving to our financial guidance for 2014, based on current operating plans, we expect minimal operating revenue, and we expect our operating expenses to be in the range of $40 million to $45 million. We also expect our cash, cash equivalents and investments balance at the end of 2014 to be at least $140 million. We continue to expect that our current cash resources will be sufficient to meet our operating requirements, at least through the end of 2015.

And with that, we will open up the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Robyn Karnauskas from Deutsche Bank. Please proceed, sir.

Mohit Bansal - Deutsche Bank

Great. Thanks for taking my question. This is Mohit Bansal for Robyn. So I have two questions; first is like, could you just help us understand what according to you would be good data in overactive bladder trial, which would help you make a de novo [ph] decision, and what are your thoughts on partnership for this asset? And then I have a follow-up.

Stephen Hill

Yeah. So the study is powered to see a reduction in a number of micturitions per day, of one micturition per day, over and above placebo, and in addition, the co-primary endpoint is to see a reduction of one in constant episode per day, over and above placebo. So that would reflect, at least as good and maybe better efficacy than anything currently available. So clearly, if we meet the statistical endpoints, then we believe that we would have a very competitive product into the marketplace.

If we were to fall shorter there, and not make the statistical endpoints, we may still see a level of clinical impact, that might be interesting to pursue, in combination currently. But I think we will have to review that in the actual data.

In terms of partnering, at this point, we are not proactively seeking partners for this program. We do believe, if we get a positive result, that we have the skills and resources to take the program through a Phase-III pivotal program, certainly in the U.S. and maybe in addition in Europe as well, to submit a package to the regulatory authorities for a potential approval. So we believe that we have the ability to do that, and currently is our plan.

Mohit Bansal - Deutsche Bank

Great. Then maybe another question, so if you do not see a signal in this trial, so what are the other options you are thinking about -- for taking the company far?

Stephen Hill

Say that again?

Mohit Bansal - Deutsche Bank

I mean the question is like, if the trial does not work, and then -- how should we think about the different options you have for taking the company far ahead?

Stephen Hill

So in the event that the overactive bladder study proves clearly negative, then we are looking at two options. One, is what I call a selling modest approach, which is the licensing or bring [ph] from our own in-house portfolio. Two or three more, relatively early stage, may be, early Phase-II programs, at the same sort of stage of [indiscernible], as the gastroparesis program that we have already communicated. So we broaden out our portfolio. The alternative is to look for an asset, probably an external asset that we require in licensing, to basically replace the overactive bladder programs. If the overactive bladder program is negative, we then look to apply the resources that we have to a program which should be about the same stage, had the overactive bladder turn out positive.

So we are in the process of looking at external opportunities, both as more modest earlier Phase-II programs, but also, late stage programs, that we basically just swap out in the event that OAB is negative.

Mohit Bansal - Deutsche Bank

Good. Thanks.

Stephen Hill

Thank you.

Operator

Thank you for your question. (Operator Instructions). Your next question comes from Alan Carr from Needham and Company. Please proceed.

Alan Carr - Needham and Company

Hi thanks for taking my questions. A little bit of a follow-up on 5214 and then a question on 5499. So with 5214 in OAB, can you comment on the baseline patient profile of the entire population that's been enrolled? Does it meet your expectations in terms of severity of the disease and that sort of thing? And then with 6499, can you comment on the Phase-I and Phase-II work that's been done on that trial in the past? I am wondering, how you will characterize for this? Thanks.

Stephen Hill

Yeah. So starting with 5214; we saw the sort of patients exactly in line with what we'd expect to see for a study of this type, both in terms of number of micturitions per day. So typically, these folks that come into these studies, have 12 or 13 micturitions per day. The entry character is a minimal 8, but they average 10, 12, 13, we haven't seen anything unusual in that respect, and we also determined an event, that we wanted to have at least 75% of patients in the study would be wet, i.e. patients who are having constant episodes, and we have indeed met that goal.

So the profile of the patients who have entered the study, are very much in line with what you'd expect for the population we were looking to treat. So I don't think there is anything out of the ordinary in that respect.

In terms of 6499, this is a compound that has been in humans in the past. And in particular, we started in a relatively small Phase-II study in irritable bowel syndrome, with constipation. And we did indeed, in that study see fairly significant impact in spontaneous bowel movement, although, with other priorities, we didn't progress that compound at that time.

So we do know, the compound has an effect on GI motility, particularly lower GI motility, and we are hopeful that we will see that same sort of effect in upper GI, in this case, gastric motility.

Alan Carr - Needham and Company

Great. Thanks very much.

Operator

Thank you for your question. Your next question comes from the line of [indiscernible] Research. Please proceed.

Unidentified Analyst

Good morning and thanks for taking my question. In regards to 6499, you are probably familiar with trends on programming gas decrease, you've had a couple of Phase-IIs that failed. Obviously, different target ends and for all kinds of reasons. But was there anything, that you typically, from what happened with that program, regarding baselines or a leading phase, that informed [ph] of your strategy or design going forward?

Stephen Hill

I think its tough to translate one mechanism to another, and that's why I think the proof-of-principle study that we are doing, actually is a neat way of giving us some early information, roughly cost effective way. So the gastric breath test that we are planning in very simplistic terms was, you provide a standardized breakfast to the patients, who would be studying in the phase one unit, and within that, you give them heavy combinants, not a [indiscernible] combinant, it’s a heavy combinant. We study the measure in the expired breath, size of the food is absorbed and metabolized. So obviously, this slowed the regular gastric emptying, the less the food gets absorbed, and the less carbon, heavy carbon there is, to be metabolized and its reaching the breath.

So I think that will give us a pretty good handle on, whether this particular compound might be effective in gastroparesis, which is clearly, not an easy disease to treat. But I am not sure, that we can draw too much from the transom [ph] experience, in terms of the different mechanism of action.

Unidentified Analyst

Great. Thanks a lot.

Operator

Thank you, Chris. We have no more questions. and I would now like to turn the call over to Dr. Stephen Hill, for closing remarks.

Stephen Hill

Alan, if you're still on the phone. I think I may have misheard the comment about year-end cash for 2014, so I am going to just ask you to repeat that clipping, I heard a number which may not have been correct, so just for the record, could you just give us --

Alan Musso

Yeah, we expect our year end cash at the end of 2014 to be at least $100 million.

Stephen Hill

One, zero, zero?

Alan Musso

Yes. That's right.

Stephen Hill

Okay. Thank you. Theresa, if there are no more questions?

Operator

There are no more questions.

Stephen Hill

Okay. With that, maybe just thank you very much everybody on the line. We appreciate your attendance on the call, and hope you all have a great day, despite the weather. Wherever you happen to be. Thank you and have a good week. Bye-bye.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and thank you for joining.