Endocyte's CEO Discusses Q1 2014 Results - Earnings Call Transcript

May. 2.14 | About: Endocyte, Inc. (ECYT)

Endocyte, Inc. (NASDAQ:ECYT)

Q1 2014 Earnings Conference Call

May 02, 2014, 08:30 AM ET

Executives

Ron Ellis - President and Chief Executive Officer

Michael Sherman - Chief Financial Officer

David Meek - Chief Commercial Officer

Analysts

Jason Kantor - Credit Suisse

Adnan Butt - RBC Capital Markets

Daniel Brims - Brean Capital

Ted Tenthoff - Piper Jaffray

Ling Wang - Chardan Capital Markets

Greg Wade - Wedbush

Debjit Chattopadhyay - ROTH Capital Partners

Operator

Welcome to Endocyte's conference call to discuss the company's first quarter 2014 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. (Operator Instructions)

During this 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 discussion of risks and uncertainties impacting those results.

Now, let me turn the call over to Ron Ellis.

Ron Ellis

Thanks, everyone, for joining our call this morning, and we apologize for the delay of our release schedule. I guess you can understand now we have been preparing, as we just received the news from the DSMB recommendation, and we've had that data for less than 24 hours. And remember, PROCEED was a double-blinded trial, and DSMB notified us just a few days ago or yesterday.

This is obviously not the outcome we expected. We're very surprised by the results, particularly for the teams here and at Merck that have worked hard to develop vintafolide in PROC, and all the patients that have been involved in these trials. First to express our appreciation that everyone's contributed.

I'll say upfront that we, along with Merck, are in very early stages of reviewing the data. We've had it, again, for less than 24 hours, so I can't tell you much about the data. We are suspending screening and enrollment in the meantime, since the DSMB recommendation was that the study would be futile.

I am not in a position really to provide any answers right now. We do know that the study didn't raise any safety concerns. It wasn't halted for the safety issues. And I'll also say that the safety and PFS data in the combination arms was consistent with what we saw in the Phase 2 trial.

Obviously, this is again, we're surprised and disappointed. We're working with Merck to understand the data. We have notified the regulatory agencies of the DSMB decision that the -- or DSMB recommendation that the study would not pass futility hurdle.

In the meantime, we'll continue to follow the results from EC145 and the target study of non-small cell lung cancer. And remember, the drug did meet the primary endpoint in PFS and we saw a positive trend in OS that we're following and we'll have that data this fall.

We'll also keep people up to date on the other drugs in the pipeline. This doesn't effect their development anyway and they're moving forward in their Phase 1 studies of these drugs, which have a different warhead than the drug in EC145 and we'll keep people posted on that.

With that, of course, we will take questions, but I'll pass it over to Mike to go through the financials, and then we'll go on to Q&A.

Michael Sherman

Thanks, Ron. I won't be going over the detailed financials, which are in the release from this morning. But I want to look a bit at the larger picture with Merck having responsibility for the development of vintafolide going forward, including financial responsibility, we'll focus our efforts in financial resources on the proprietary pipeline.

The rationale for the financing, we just completed, was to allow to move these programs forward more aggressively. And we believe that we can leverage what we have learned from vintafolide development in order to be both more aggressive and more efficient and how we develop those agents.

There are additional candidates behind the two Phase 1 drugs in the clinic, including a fully-targeted drug, utilizing an alternative warhead, a DNA alkylator and agents with alternative targets. And we'll be judicious in bringing those agents forward as we generate additional data.

In terms of operations, our burn rate will decline in second half of this year compared to our recent run rate and with the cash we have on hand now, we have a substantial runway to bring these agents through to the development process.

If we and Merck ultimately agree to stop the Phase 3 PROCEED trial, as the DSMB has recommended, we expect to take a charge in the second quarter in connection with the discontinuation. We're currently working to quantify that.

Additionally, we believe that our obligations under the Merck collaboration agreement have been met and we expect to recognize the remaining deferred revenue, which is sitting on the balance sheet at $46 million in the second quarter. We're also in the process of assessing our cost structure to determine what's appropriate to capitalize on our pipeline moving forward.

So with that, let me turn it back to the operator, and I see we have some questions lined up.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Jason Kantor with Credit Suisse.

Jason Kantor - Credit Suisse

Very sorry to hear about the bad news. A couple of things, one, I assume we should assume that EU approval is probably off the table, can you comment on that? How much of your expenses right now are for your sort of infrastructure in EU and will you unwind that? And I guess can you give us some sense of how low you think your core R&D SG&A can go, kind of, where you think you might exit the year?

Ron Ellis

Jason, let me take the first part of that, Mike can take the financial part. Our obligation, of course, regulatory and ethical is to notify the regulatory agencies of the DSMB's recommendation and we did that I think last night, yes, late last night. So we've had no discussions with them.

I mean, I think it's safe to assume this would really put in question whether the EMA approval would come through or not, since it's a conditional approval, it has to be confirmed in a Phase 3. But we have not had that discussion with them and it's possible they'll want to sit down and talk with us and look at the data, after we've had a more through review, which we're busily doing right now or Merck is busily doing to understand the implication.

So I think right now, it's too early to really call that, but it certainly is going to put a question in whether that was going to occur or not. I don't know Mike, do you want to try to answer on the financial part, Jason's got the burn.

Michael Sherman

And I'll refine the guidance as we go forward. So let me just give you some general sense of kind of core spend. I think that as well, as we reassess structure that's going to obviously impact us. So looking at it this way, on the PROCEED trial we've been spending about, say, on average $5 million to $6 million per quarter on that trail for the last few quarters anyway. And so that will wind down quickly, should we terminate.

I'd also say that on the European organization, and this is a rough figure, but roughly $1 million per quarter for that organization right now. And so, for sure, we'll have some savings there. So I'll come back and start including, probably as we file our Q with a little bit more clarity as to some guidance going forward.

Jason Kantor - Credit Suisse

And if I can ask just one follow-up. So what is Merck's obligation then, regarding other studies? You know, it has plans to go into breast and maybe lung, and I'm just wondering if they can walk away from those obligations at this point?

Ron Ellis

Mike, I think, yes, Merck can. Since they're paying for those studies, they can decide which ones to move forward or not. Of course, we're all going to continue the lung study, the enrollment is complete, the PFS is in. We'll be following that through the OS data.

And I don't know right now, what Merck will do in terms of development and in triple-negative breast or the Phase 1 study that's going on. I don't think Merck knows either. I'd tell you, when you just get this data and you're digging sort of trying to look at what the result was, we need to get to that process first, Jason. And then I think we'll be in a better position to make decisions. But to your question, there is no obligation that they would have to.

Operator

Our next question is from Adnan Butt with RBC Capital Markets.

Adnan Butt - RBC Capital Markets

In terms of the non-small cell lung cancer study, what gives you confidence that you'll see some update in the second half and when in the second half? And then what would make Merck or the company take that program forward?

Ron Ellis

That's a great question, Adnan. Well, first off, there was a meeting with Merck, a couple of weeks ago, regarding the lung data reporting. And I think there was an agreement that we would have reported ESMO, and that will include not only the final PFS and overall response rate data, which is mature, but an update on the overall survival data.

So you will see that at I think, ESMO, is safe to say. And if that changes we'll let you know. And we had discussions with Merck, and actually I talked with Roger last week or so about the lung data. And I think it's just going to be a totality of the data, the decision to be made. Clearly, the OS is going to be the most important measure. And at the time we had not reached a median overall survival in the treatment arm and we had the other two arms.

And so there is a positive signal there that the data, I caution, is immature. And so it's important to watch that through. And then I think kind of seeing where that data comes out in context of the PFS and overall response and everything else, well, then, Merck will make a decision once they see everything.

Adnan Butt - RBC Capital Markets

Ron, is there anything in the pipeline that you could pursue or would pursue ovarian with again?

Ron Ellis

I think it's too early to tell, but I will say that I think it's always hard to sort of guess on what happened, but we know that we can target these tumors. And if we've got the data and evidence knowing that folate hits these tumors, they light up and we know we hit there.

So I think if the drugs having difficulty, it's probably a warhead issue more than anything. And so a different warhead with the different mechanism or more potent may make a difference in that. But right now until we've seen more data, it's hard to decide.

Operator

And our next question is from Daniel Brims with Brean Capital.

Daniel Brims - Brean Capital

Can you tell us what the hurdle rate was that the Data Safety Monitoring Board was looking for it to pass the futility analysis?

Ron Ellis

Mike, do you want to cover that one?

Michael Sherman

Actually I think the hurdle rate is probably not relevant given the fact that, as Ron said there was really a very little benefit demonstrated. And so as opposed to and until a formal decision is made by us and Merck, I'll keep that confidential.

Daniel Brims - Brean Capital

And have you looked at the demographics at all? Was there anything that was glaring in the imbalances between the populations?

Ron Ellis

At first glance we haven't seen anything, though. Again, we've had the data for less than 24 hours. So there is a lot more work to be done there. I will say that as I mentioned in the press release, the treatment arm was exactly where it was in the Phase 2 and what really changed was the control arm. And that's kind of the puzzling thing about the results from what we saw in Phase 2.

Operator

And our next question is from Ted Tenthoff with Piper Jaffray.

Ted Tenthoff - Piper Jaffray

Can you give us timelines on what we should see from the rest of the pipeline?

Ron Ellis

So we're finishing up cohort 1 on the folate EC1456 molecule and all patients are still being treated, I think close to five, six months on the drug. And the first two, the third one is just coming in, and has started dosing. So we'll start cohort 2 pretty quickly. I think in probably May or June. And we'll have update as we kind of hit kind of significant milestones on that.

I don't have, Ted, a particular plan on when we would full release the Phase 1 data, but we'll certainly keep you posted on that. The prostate cancer drug targeting PSMA with tubulysin has also cleared the IND and we've got sites ready and started the screening process for patients. So we'll be updating you on those throughout the year.

Operator

And our next question is from Ling Wang with Chardan Capital Markets.

Ling Wang - Chardan Capital Markets

Sorry to hear the bad news. So I'm sorry if I missed this, but when do you think we might be able to see the more detailed analysis for the PROCEED study? And also what kind of factors are you looking at in terms of determining whether this is a trial-related issue with a drug that potentially impact the decision for other programs for this compound?

Ron Ellis

I have said and my answer is I don't know, because Merck has the data and are going through the analysis, kind of leading that. I don't know when they're going to finish that. And I don't know when they would be in a position to want it share the data with you. As soon as we know we'll let you know. And certainly we'll want to get that out. We're as interested as anybody in understanding kind of what happened. But right now, I don't know.

Ling Wang - Chardan Capital Markets

So I also wanted to clarify, so what first glance suggested the control arm, sort of behaved better than in the Phase 2 study? Is that the right way to think about it?

Ron Ellis

Yes, significantly better than historical performance, but we don't know why.

Operator

And our next question is from Greg Wade with Wedbush.

Greg Wade - Wedbush

Could you just remind us with respect to the primary endpoint in PROCEED versus the Phase 2, how PFS was evaluated? And then is there anything new in PROC that's come along in terms of potential prior treatments that may have impacted the response to Vynfinit?

Ron Ellis

The PFS measurement -- the two primary differences, Greg, would have been that this PROCEED was double-blinded as opposed to investigator-assessed, both were investigator-assessed, but this was double-blinded and the PRECEDENT was not.

And we also used the more up-to-date RECIST 1.1, which has a different definition for target lesions than RECIST 1.0, which was used in the PRECEDENT study. You'll remember that that change came about kind of in the middle of PRECEDENT study. So we're using the more up-to-date one. Other than that there's really no differences. And, Greg, what was the second part of the question?

Greg Wade - Wedbush

New therapy? The newer therapy.

Ron Ellis

I haven't seen any data to know. I mean we've had about I think in PRECEDENT about 12% of the patients approximately were getting Avastin. I haven't seen what the results are in this study whether that might have increased based on the [ph] aerial rural study that was finished up in Europe whether that changed that. But we'll certainly look at that. I mean that's certainly a factor to take a look at what the prior therapies were.

Greg Wade - Wedbush

And is there a biochemical assessment of progression as well?

Ron Ellis

On CA-125?

Greg Wade - Wedbush

Yes.

Ron Ellis

No, not in either study. It had to be radiological.

Operator

And our final question is from Debjit Chattopadhyay with ROTH Capital Partners.

Debjit Chattopadhyay - ROTH Capital Partners

Could you just talk about the potential resistant mechanisms to the vincas versus the upcoming pipeline drugs and how that plays into potential efficacy in similar indications as we go forward?

Ron Ellis

First off, again, I think we need to understand the data that's occurred. And understand what might have caused the results. And that's kind of priority one right now. Relative to the implications for the other drugs, until we've done that, I think it's really difficult to see. I think the other thing will be really important in making that decision is seeing how the Phase 1 goes with these other drugs

Of course, it wouldn't have any implications for the prostate drug at all, that targets a completely different receptor. For next folate drug, we'll have to see what that data looks like and then how the Phase 1 data plays out. And then be in a better position to say, here's what we would with these other drugs relative to what we've seen here.

Debjit Chattopadhyay - ROTH Capital Partners

Yes, I mean I was thinking more in terms of the payload per se not just the alkylator receptors?

Ron Ellis

Just explain to me again your question on the payload, whether we would change it or?

Debjit Chattopadhyay - ROTH Capital Partners

Well, I mean, the payload -- the resistance to vincas versus, say, the tubulysins, are they completely a different pathways? And for example, if a patient is getting first line taxane, and then again receiving a vinca with similar kind of overlapping resistance mechanisms, would that have been issue in the trial, for example?

Ron Ellis

So the reason we've developed these other warheads is because we always want to have warheads that are more potent and that work in resistance models. And this tybulysin molecule, it does have a much greater activity in resistant models, particularly taxane-resistant models. So based on the pre-clinical data, it is a more active drug than the vinca in the resistant models. Of course, it's early in the Phase 1 study, so we have to get the dose right and other things, but that's really the reason we've developed that is to find drugs that work in these resistant models. And we'll see how that goes.

Operator

Thank you. And I'm not showing any further questions at this time, please proceed with any further remarks.

Ron Ellis

Well, we'll end with, we appreciate people being on the call with us. And again, our express our shock and disappointment in this, but our appreciation to all the Endocyte employees and the investors as well as our Merck partners as we've developed these drugs. This is a tough business. And it's certainly not what we had hoped to see.

We're still encouraged by what we have in terms of our pipeline and other opportunities with 145 as we watch lung data and we'll continue to move forward with that. So with that we'll end the study or end the call. And thank you everybody.

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 weekend.

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