Anacor Pharmaceuticals' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.13.14 | About: Anacor Pharmaceuticals, (ANAC)

Anacor Pharmaceuticals, Inc. (NASDAQ:ANAC)

Q4 2013 Earnings Conference Call

March 13, 2014 5:00 PM ET

Executives

DeDe Sheel – Director, IR

David Perry – CEO

Geoffrey Parker – CFO

Analysts

Eric Schmidt – Cowen and Company

Ritu Baral – Canaccord Genuity

Operator

Good day, ladies and gentlemen and welcome to the Anacor’s Fourth Quarter 2013 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder this conference call may be recorded.

I would now like to introduce your host for today’s conference, DeDe Sheel. Please proceed.

DeDe Sheel

Thank you. Good afternoon and thank you for joining us for Anacor’s 2013 fourth quarter and full year financial results conference call. Joining me on today’s call are David Perry, our CEO and Geoff Parker, our CFO who will review our business, clinical and financial highlights for the quarter and year-ended December 31, 2013.

Before we get started I would like to note that during our call and question-and-answer session today we will be making certain forward-looking statements, including statements regarding the potential FDA approval of tavaborole, our planned commercial launch of tavaborole, our potential initiation of Phase 3 studies of AN2728 in atopic dermatitis and financial projections related to our cash balance and use of cash, as well as our ability to fund operations as currently conducted and fund the commercial launch of tavaborole and the clinical development of AN2728 with the potential filing of NDA which we anticipate to be in the second half of 2015.

These statements are subject to risks and uncertainties related to Anacor’s future financial and business performance. Additional risks and uncertainties and other matters are described more fully in Anacor’s Annual Report on Form 10-K for the year-ended December 31, 2012 filed with the SEC and subsequent quarterly reports filed on Form 10-Q.

Investors are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date of this call and we undertake no obligation to update any forward-looking statements made on this call today, except as required by law.

And now I will turn the call over to David Perry.

David Perry

Thank you, DeDe. Good afternoon everybody and thank you for joining us on the call today. I am going to break my comments into two sections, and first, highlight some of Anacor’s significant achievements from 2013 before talking about some of the more recent events of 2014.

I will begin with 2013 events in the Clinical and Regulatory area and first I would like to say that our novel antifungal generic named tavaborole will now be referred to as Kerydin. The FDA accepted the proprietary name or brand name Kerydin for Tavaborole earlier this year. The spelling there is K-E-R-Y-D-I-N. So going forward, we will use the branding Kerydin although the approval of the name isn’t final until the FDA approves the full New Drug Application.

So going back to 2013, about a year ago, we reported statistically significant results from our Phase 3 study of Kerydin for the potential treatment of mild-to-moderate onychomycosis. These Phase 3 clinical data were the final data we needed to file our NDA which we did in July of last year. In October, the FDA notified us that they had accepted our NDA for review and gave us the PDUFA goal date of July 29 of this year, 2014.

Moving on to the next drug in the pipeline, AN2728, we completed several studies in 2013 in preparation for initiating the first Phase 3 studies in mild-to-moderate atopic dermatitis this year. In March of last year we announced - we completed and announced results from Phase II dose ranging study of AN2728 in adolescents and in December of last year we completed and announced results from the Maximum Use Systemic Exposure study in children both in mild-to-moderate atopic dermatitis. Also last year we completed a thorough QT study in December and as expected the results demonstrated that AN2728 is safe from a cardiac safety perspective.

On the research side in 2013 we signed two significant research agreements. In April, we signed an agreement with the Bill and Melinda Gates Foundation to discover drug candidates intended to treat various neglected diseases. The Gates Foundation agreed to pay $17.7 million in research funding over a three year term and also invested $5 million in Anacor’s common stock. Later that year in October we entered into a Research Agreement with United States Department of Defense, Defense Threat Reduction Agency or DTRA to design and discover new classes of systemic antibiotics to treat potential bio terrors and threats.

And in terms of 2013 corporate events, in October, we received a favorable ruling in our arbitration with Valeant regarding a dispute under our master services agreement we had had with Dow Pharmaceutical Sciences which was subsequently acquired by Valeant. On October 27th, we entered into a settlement agreement with Valeant in which Valeant agreed to pay up the $142.5 million to settle all existing and future claims. We received that $142.5 million payment on November 7th of last year. So 2013 was a significant year for us and transformational in many ways and we expect equal or greater progress in 2014.

I will highlight some of the events that have happened since the first of the year, again beginning with Clinical and Regulatory and starting with Kerydin. Based on our interactions with the FDA the review of Kerydin remains on track. It’s been reviewed under PDUFA V and under PDUFA V the FDA conducts a mid-cycle review meeting which is comprised of the NDA review team to discuss important findings to date as well as whether or not advisory committee meeting is needed.

The FDA held its mid-cycle review meeting for Kerydin in December and in January communicated to us there were no significant issues identified to-date, no additional information was needed and confirmed that an AdCom meeting isn’t required. While we are pleased with the outcome, we also recognize that this only represents the findings midway through the review and does not guarantee approval.

Also under PDUFA V, the FDA will hold a late cycle review meeting in Q2 in which the review team will discuss with us the status of the application. This meeting will not focus on the regulatory decision for the application.

Moving on to AN2728, as we announced a couple of weeks ago we had a successful End of Phase 2 meeting with the FDA in which the FDA agreed with the initiation of in major design parameters of our Phase III clinical trials of AN2728 for mild-to-moderate atopic dermatitis. We expect to initiate these studies in the next 45 days.

I will just briefly recap the design elements of those trials. Under Phase 3, we plan to conduct two multi-center double-blind placebo-controlled trial with approximately 750 patients per trial randomized two to one, active to vehicle. Both studies will be conducted at multiple sites and enroll ages – enroll subjects, ages two years and up with mild-to-moderate atopic dermatitis. We will apply this drug twice a day for 28 days and the primary efficacy endpoint will be treatment success at day 29 defined as an ISGA of clear or almost clear with a two grade improvement from baseline.

Secondary improvements in the Phase 3 trials will include an ISGA of clear, almost clear at day 29 as well as time to treatment success. In addition to the two Phase 3 trials we will also be conducting in parallel a long-term safety trial. We will do this study to evaluate the safety of intravenous use of AN2728 for up to 12 months. Subjects who complete either of the Phase 3 trials we will have the option to enroll into the long-term safety trial and total approximately 500 subjects enrolled with the ultimate goal of having at least 100 subjects enrolled for 12 months and at least 300 subjects enrolled for six months. The subjects in that trial will be treated as needed under the direction of an investigator.

And other news in 2728, we also just completed a drug-drug interaction study in February, which demonstrates that AN2728 does not interact with cytochrome P450 subtype 2C9. We do not anticipate needing to do any further drug-drug interaction studies with AN2728.

On the personnel side, on Monday, we announced that we had hired executive, an Executive Vice President and Chief Commercial Officer, Vince Ippolito. Vince has over 25 years of leading specialty medical sales and marketing efforts at Valeant, Medicis and Novartis. He is overseeing multiple new product launches in dermatology. Importantly for us that includes Lamisil for onychomycosis and Elidel for atopic dermatitis. Vince joined Medicis in 2003, where his last position was EVP of Sales and Marketing from 2008 and 2012 where Medicis were acquired by Valeant.

During his time at Medicis he helped launch more than 10 new products in the field of dermatology. Prior to joining Medicis Vince worked for Novartis for almost 16 years where he served in a variety of sales and marketing roles including General Manager of Marketing Group Brand leader for Dermatology and bone products where he helped lead the re-launch of Lamisil and Vice President of Respiratory Dermatology and Pediatric sales where he oversaw the launch of four new products including Elidel in atopic dermatitis. We welcome Vince to Anacor and believe his experience will be invaluable as we plan the launches and commercialization of Kerydin and AN2728.

I will talk briefly about neglected diseases. We are pleased with the progress we are making across our neglected disease portfolio, our partner DNDi or Drugs for Neglected Diseases has been conducting a Phase 1 of AN5568 for human African trypanosomiasis or HAT or sleeping sickness. A disease which is fatal if left untreated and for which there are currently no safe, effective and convenient treatments. We expect the result – we expect to complete results from that trial later this year and we also expect DNDi to initiate a final Phase 2/3 study later this year.

In our Tuberculosis program, we expect that our partner will have a product candidate in initial clinical trials later this year and under our research agreement with Bill and Melinda Gates Foundation we are pleased with the progress for our pre-clinical candidate in malaria and in River Blindness.

I will mention a couple of upcoming events; we have four oral presentations on Kerydin and AN2728 at the upcoming American Academy of Dermatology Annual Meeting in Denver, which is on March 22nd. We will be presenting both Phase 2 and Phase 3 studies of Kerydin and for AN2728 in atopic dermatitis we will be presenting the Phase 2 dose ranging study and the Phase 2 safety and efficacy study of AN2728 in adolescents. We are looking forward to a productive 2014 with a potential approval and launch of Kerydin, initiating the Phase 3 trials of 2728 in atopic dermatitis and continuing to build our R&D and clinical pipeline and we are pleased that we have the financial resources to support these activities, but more on that I will turn the call over to Geoff Parker.

Geoffrey Parker

Thank you David. I will now review our fourth quarter financial results. Revenues for the quarter ended December 31, 2013 were $8.5 million compared with $3.3 million for the comparable period in 2012. This increase was primarily due to the recognition of the remaining $4.8 million of deferred revenue under the Medicis agreement as a result of the termination of that agreement in October 2013. The remaining increase was due to revenue recognized for research services performed under the Gates Foundation agreement signed last April and DTRA agreement signed last October.

So we had a decrease in revenues from not for profit organizations for neglected diseases and from Lilly for our animal health program. Research and development expenses for the fourth quarter of 2013 were $12.8 million compared to $12 million for the comparable period in 2012. The increase was primarily due to an increase in clinical trial activity in our AN2728 program and increases in expenses related to our new Research Agreement with the Gates Foundation and DTRA. These increases were partially offset by decreases in expenses relating to our clinical trial activity for our Kerydin program and decreases in our research activities for our neglected diseases program.

General and administrative expenses for the fourth quarter of 2013 were $4 million compared to $2.8 million for the comparable period in 2012. The increases in the fourth quarter of 2013 compared to the same period in 2012 were due to increases in salaries, free commercialization activities for Kerydin, recruiting activity and stock-based compensation. The $142.5 million we received from Valeant as a result of our settlement agreement was recorded as a one-time litigation settlement gain in the fourth quarter of 2013.

Due primarily to the Valeant settlement, we recorded earnings per share of $3.01 for the fourth quarter of 2013 and $2.10 for the year both on a fully diluted basis. On a basic shares outstanding basis, earnings per share were $3.19 for the fourth quarter of 2013 and $2.16 for the year.

Cash, cash equivalents and investments totaled $166.8 million at December 31, 2013 compared to $45.7 million at the end of 2012. So with regards to our guidance, our current cash balance provides us with sufficient resources to fund the launch of Kerydin and the development cost of our AN2728 program in atopic dermatitis through the filing of the NDA which we expect will occur in the second half of 2015.

That concludes our prepared remarks. I will now turn the call over to the operator for questions and answers.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question will come from the line of Eric Schmidt from Cowen and Company. Your line is open

Eric Schmidt – Cowen and Company

Thanks. Congrats on all the progress. Is Vince actually on the line?

David Perry

Vince is really busy Eric.

Eric Schmidt – Cowen and Company

Okay, David, then you are going to be on hot seat. Just hoping you could kind of provide a little bit more color with regards to launch of tavaborole, Kerydin, excuse me in terms of one, maybe how quickly do you think you could get this thing out to the market assuming approval? When you might start to hire sales reps? What the initial target audience might be, et cetera?

David Perry

So I anticipate that there will be a lot of interest in this question and we get it a lot. At the moment we anticipate that this would be a competitive launch that we will have a competitor launching it roughly at the same time and for that reason we’re reluctant to be too specific about the answer to any of those questions, other than to say we expect to be ready to launch shortly after the approval date and we are confident that that approval will happen on or before our PDUFA date in July. And we intend to field a sales force that will be able to call on all the high prescribing podiatrists and dermatologists.

Eric Schmidt – Cowen and Company

Do you think you will be updating us as we get a little closer or is this for competitive reasons going to be something that you are going to need to stay quiet on?

David Perry

Both, I think we will provide more detail as we get closer but we probably we won’t provide anything that we think would put us at a competitive disadvantage.

Eric Schmidt – Cowen and Company

Okay. And is it possible for Geoff to provide any kind of spending guidance for 2014 just for the entire year on SG&A?

Geoffrey Parker

Eric at this point I reiterate our guidance that I just provided which is that the resources and our comfort as to how far that takes us, and again takes us through the launch of Kerydin and also takes us through the anticipated filing of the NDA for AN2728 which would be targeted today in the second half of 2015. But at this point, we are not providing guidance on revenues for Kerydin.

Eric Schmidt – Cowen and Company

Or expenses, Geoff?

Geoffrey Parker

Well, we have been fairly – we have been consistent in the past and continue to be consistent here that we believe that the fully burdened cost of the sales and marketing directly related to Kerydin will be in the $25 to $30 million area for the 12 months period. So I still think our expense for sales and marketing will be in that range, although we reserve the right to update that as we enter the launch phase.

Eric Schmidt – Cowen and Company

Okay. Last question maybe with Kerydin, seemingly on a good track at the FDA, have you started to look outside U.S., Japan or other territories even Europe or you might want to get on track with the development program?

David Perry

Yeah. Either we are having those conversations and we haven’t really prioritized them, that economic opportunity in the U.S. is so much greater than it is in those territories simply because of pricing differences. So we believe we will ultimately partner Kerydin in those regions but it’s not our most important thing.

Eric Schmidt – Cowen and Company

Okay, great. Thanks a lot.

David Perry

Okay.

Operator

Thank you. (Operator Instructions). Our next question will come from the line of Ritu Baral from Canaccord Genuity. Your line is open.

Ritu Baral – Canaccord Genuity

Hi guys. Thanks for taking the question. A couple of questions on the 2728 Phase 3, how many centers are they going to be and where they are going to be geographically located?

David Perry

We will have approximately 80 centers, it could be a few more than that, it could be a few less, and they will be predominantly in the U.S but might include also Mexico, Canada and or Australia.

Ritu Baral – Canaccord Genuity

Do you have to have a minimum percentage of patients in the U.S. for your discussions with the FDA?

David Perry

That is not one of our criteria, but we will have the majority of them in the U.S. anyway.

Ritu Baral – Canaccord Genuity

Got it. And the fact that you are going to be conducting the study during the summer versus winter which is a high season for AD, was that by design or just how the progress [inaudible]?

David Perry

We have said that we think these studies will take about a year to conduct, so by definition we get to cover all the seasons. But one of the reasons that Australia might be included is that obviously we get to enroll in the winter months there while it was summer here.

Ritu Baral – Canaccord Genuity

Understood. And could you highlight for us some of the other key secondary endpoints that you think will be most meaningful and just review for us the total scale used to measure the endpoints and what it ranges from all the way down clear to almost clear?

David Perry

Sure. So it is a five point scale starting with clear as a zero and then one is almost clear, two is mild, three is moderate and four is severe. So the primary endpoint is the proportion of patients that gets a clear or almost clear from that scale so a zero to one and have at least a two grade improvement. So if they are enrolled as a mild or a two, they have to get clear, if they are enrolled as a moderate or a three, they have to get to either clear or almost clear. And that’s the primary endpoint and that’s consistent with the most recently approved steroid that the FDA has approved.

Our first secondary endpoint will be the proportion of patients who reach simply clear or almost clear. So same as the primary endpoint but without the additional requirements that they have a two grade improvement. We included that because that is the end point on which Elidel was approved, so that will be our primary competitor - our comparator with them although of course we will be still comparing across trials. And then we will look at through time the resolution of symptoms and we have a couple of ways of measuring that.

Ritu Baral – Canaccord Genuity

Got it. And what do you anticipate based on being around on that five point scale given that patients have to be two or above?

David Perry

Well. We will enroll twos and threes; I don’t know what the average will work out to be but based on that they will all be mild to moderate.

Ritu Baral – Canaccord Genuity

Got it. And the last question, a little bit of a FDA tutorial here. What will be involved in that new late cycle review meeting, in the active cells it doesn’t outline that the specific topics to address will be – will that be variable or if there is specific points to cover including labeling?

David Perry

Great. It’s a good question. So PDUFA V is relatively new and there haven’t been a lot of drugs that have been through it. So there aren’t a lot of people to ask this question of and honestly this is the first time we’ve been through PDUFA V. The guideline suggests that it will be about Phase 4 commitments, it could be REMS cetera. It’s also possible that it will include some labeling discussions and the agenda is driven by the FDA. So we expect to get that agenda from them approximately two weeks before the meeting.

Ritu Baral – Canaccord Genuity

Great. Thanks for taking the question, guys.

David Perry

Sure.

Operator

Thank you. (Operator Instructions). And at this time I not showing any further questions. I’d like to turn the call back over to David Perry for any closing remarks.

David Perry

Thanks everyone for your time and for dialing in and good evening.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.

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