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Receptos, Inc. (NASDAQ:RCPT)

Q1 2014 Earnings Conference Call

May 12, 2014, 08:30 AM ET

Executives

Faheem Hasnain - President and Chief Executive Officer

Graham Cooper - Chief Financial Officer

Sheila Gujrathi - Chief Medical Officer

Analysts

Ravi Mehrotra - Credit Suisse

John Rende - Copernicus Capital

Operator

Good day, ladies and gentlemen, and welcome to the Receptos First Quarter 2014 Earnings 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 is being recorded.

I would now like to turn the call over to our host for today's conference, Chief Executive Officer, Faheem Hasnain. You may begin.

Faheem Hasnain

Good morning, everybody, and thanks very much for joining us for the Receptos first quarter 2014 earnings call. With me today are Graham Cooper, our Chief Financial Officer; and Sheila Gujrathi, our Chief Medical Officer. Today's call is also being webcast live on our website and will be available for replay until May 26th.

Before we begin, I'm going to ask Graham to handle the forward-looking statement disclaimer. Graham will walk you through our financial results, followed by an update on our clinical development program that Sheila and I will cover. After that, we'll be happy to take any questions you may have. Graham?

Graham Cooper

Thanks, Faheem. Please note that except for statements of historical facts, the statements in this conference call are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. Please see the forward-looking statement disclaimer on the company's earnings release issued this morning, as well as risk factors in the company's SEC filings. Undue reliance should not be placed on forward-looking statements which speak only as of the date they are made and the facts and circumstances underlying these forward-looking statements may change. Except as required by law, Receptos disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances.

I will now turn to the financial results for the first quarter. For the three months ended March 31, 2014, Receptos reported a net loss of $21.5 million or $1.01 per share as compared to a net loss of $9.6 million or $5.46 per share for the first quarter 2013. Total revenues for the first quarter of 2014 were $1.4 million compared to $1.5 million for the first quarter 2013.

Total operating expenses for the first quarter of 2014 were $22.8 million compared to $9.1 million for the first quarter of 2013. R&D expenses were $20 million for the first quarter of 2014 compared to $8 million for the first quarter of 2013. The increase in R&D cost is primarily related to increased Phase 2 clinical trial activity and startup costs for our Phase 3 trial of RPC1063 in relapsing MS and increased activity related to the Phase 2 trial of RPC1063 in ulcerative colitis.

G&A expenses were $2.8 million for the first quarter of 2014 compared to $1.1 million for the first quarter of 2013. The increase in G&A expenses is primarily related to the expansion of our operating activities and costs associated with being a publicly-traded company.

As of March 31, 2014, Receptos had $158.6 million in cash, cash equivalents and short-term investments and debt with the principal balance of $5 million. The increased cash balance is partly as a result of the equity offering that we completed in January 2014, which provided net proceeds of approximately $110 million and substantially strengthened the financial position of the company. We now have approximately 22.2 million shares outstanding or approximately 23 million shares on a fully diluted basis.

Faheem?

Faheem Hasnain

Thanks, Graham. There are three major topics that we're going to cover on the call today. First, with regard to RPC1063 in relapsing MS, I want to remind you where we stand with the program and the important data that we expect to report later this year. I'll then ask Sheila to update you on the UC program where our Phase 2 trial of RPC1063 is continuing to enroll with data also expected later this year. Sheila will update you as well on our anti-IL-13 antibody program where we have some exciting progress to report. I'll wrap up with an update on our oral GLP‑1 receptor modulator program. And we'll then be happy to take any questions.

So as you're aware, we completed enrollment of the Phase 2 portion of RADIANCE in relapsing MS last fall and performed an interim analysis of the data in December. Now let me briefly remind you the headline on that interim analysis. Overall, our differentiation profile appeared intact, including an adverse event profile, which has been relatively deemed to be balanced between RPC1063 and placebo groups. Our cardiovascular profile, including starting this heart rate effect, which appeared modest for 1063 treated patients compared to placebo patients, low rates of liver enzyme elevations which appears supportive of the favorable hepatotoxicity profile. And as it relates to efficacy, preliminary clinical activity and reduction in lymphocyte count that appeared to be consistent with data from other S1P receptor modulators on the market or in development.

And with regard to the ongoing Phase 2 trial, we continue to expect the full topline results to be available in mid-2014. We enrolled 258 patients in this trial, substantially greater than the 210 planned as a result of the momentum that was built for the investigators in the latter part of the enrollment period. The primary endpoint in this placebo-controlled trial is reduction in the cumulative number of total of gadolinium enhanced lesions as determined by MRI from week 12 to 24 of the study treatment. We will also be looking at a number of secondary endpoints as well as all of the standard safety and tolerability parameters.

The interim review and the confidence that we took from the preliminary data allowed us to go ahead and initiate the Phase 3 portion of RADIANCE in relapsing MS. And we randomized our first patient in the trial late in the fourth quarter of 2013. Now as you well recall, we have a SPA from the FDA on this trial, which is expected to enroll 1,200 patients with relapsing MS. This is designed as a head-to-head superiority study with the same two doses of orally-administered RPC1063 versus injectable Avadex. The primary endpoint of this trial will be reduction in annualized relapse rate after two years of treatment. Again, we will be looking at a number of secondary endpoints including disability and brain volume loss.

Initiating this trial before the completion of the Phase 2 portion should allow us to compress the overall development timeline as we're able to hit the ground running with sites that had already been actively enrolling the Phase 2 trial. Early indications of enrollment suggest that this is indeed the case.

Our second Phase III trial, which has already a special protocol approval from the FDA or SPA is designed with a one year primary endpoint. And as such, we expect that during the initiation of the two Phase III trials may allow them to be completed at approximately the same time. We believe that if our timelines continue to play out, RPC1063 can potentially be the next S1P receptor modulator into the US market.

I'm also pleased to report that within the last couple of weeks, we've received scientific device from the European Medicines Agency regarding the adequacy of the planned Phase III clinical trials and the overall development program in support of a future marketing authorization application. The EMA raised no major objections regarding the design of the Phase III clinical trials and indicated that with minor adjustments the proposed development program would be sufficient to support MAA in the European Union.

Meanwhile, the opportunity for novel oral therapies in the MS market continues to expand. Overall, the market for MS therapy has grown to $16 billion worldwide. Oral therapies as a class now exceed 25% of the total scripts in the US and continue to grow every quarter. This shift in market share is coming at the expense of the legacy injectable therapies, all of which have seen market share declines in the past 12 months. Gilenya, which is the only currently approved S1P modulator, produced $1.9 billion in sales in 2013 and its market share in the US has increased even in the face of the launch of Tecfidera about a year ago.

So clearly, there continues to be a need for next generation oral therapies, especially those that have proved upon the existing standard of care. Now while the current oral therapies do offer improved efficacy and convenience, they have a number of safety and tolerability issues, which limit their uptake. In the case of Tecfidera, patients often experience tolerability issues, including GI effects and flushing. In the case Gilenya, there continues to be a negative perception associated with its safety profile. Unfortunately, there is no cure for patients afflicted with MS. Patients start on a drug and generally continue until they relapse prompting a switch. If we are successful getting RPC 1063 approved, we expect that when it arrives in the market, there will be a substantial group of patients in need of a new oral therapy with an enhanced profile versus the other approved drugs.

So that covers the update on the RPC1063 in relapsing MS. I'm going to now hand the call over to Sheila to give you an update on our other clinical stage programs, including the TOUCHSTONE trial of 1063 in ulcerative colitis as well as RPC4046, our antibody to IL-13 for the treatment of eosinophilic esophagitis. Sheila?

Sheila Gujrathi

Thanks, Faheem. During ulcerative colitis program, as you're aware, we are conducting a randomized Phase II study of RPC1063 in patients with moderately to severely active ulcerative colitis. We are enthusiastic about the opportunity for RPC1063 in ulcerative colitis and inflammatory bowel disease more generally.

Current therapies can be used to treat inflammation in the intestine. However, the long-term use of these types of anti-inflammatory agents, which includes injectables and infused biologics and associated with limited durable efficacy, have significant side effects. As a result, there remains significant unmet need for effective and well tolerate new therapies, particularly new oral therapies in the maintenance setting. This represents a substantial market opportunity. Let me remind you that the ulcerative colitis market in terms of the number of patients is actually substantially larger than the MS market with over 1 million patients in the US alone.

There is also precedent for efficacy of lymphocyte trafficking agents in the treatment of IBD. As you may know, Takeda's drug vedolizumab is an IV-infused biologic, which affects the trafficking of similar sub-population of lymphocyte as RPC1063. Thus we view the evidence of clinical efficacy and safety demonstrated by vedolizumab as clinically relevant rationale and supportive of our approach. In December, a joint panel of members from the FDA's GI Dug Advisory Committee voted to recommend approval of vedolizumab for the treatment of adults with moderately to severely active UC and Crohn's disease and the PDUFA action date is in late May.

In addition, vedolizumab has received a positive CHNP opinion in Europe for the treatment for both UC and Crohn's disease, which bodes well for approval in the European region. Based on the mechanism of action of RPC1063, the precedent of other lymphocyte-tracking agents that have shown efficacy in this indication in the past and our overall safety and tolerability profile, we believe that we have the potential to be the first in class and best in class oral therapy for the treatment of UC.

Turning to our clinical program, the TOUCHSTONE Phase II trial designed to enroll 180 patients randomized to the same two dose levels as RPC1063 or placebo, the primary objective of this trial is to compare the efficacy of 1063 for the induction of clinical remission in patients with active UC after eight weeks of treatment. This trial is now over 80% enrolled with many additional patients currently in screening. We now have more certainty about our timeline since we're nearing completion of enrollment and we're expecting the results from this trial in Q4 of this year, slightly behind our previous guidance of mid-2014. The reason for the slight delay has to do with seasonality in enrollment and holidays in certain geographies.

The FDA has indicated that if the results of this study are statistically and clinically persuasive, the TOUCHSTONE study could count as one of our pivotal Phase III trials in UC, meaning that we would need to conduct only one additional pivotal induction study and one Phase III maintenance study for approval. And as you would anticipate, if we show efficacy in UC, it'll be natural for us to pursue the program into Crohn's disease as well. The Crohn's market represents another 1 million or so patients worldwide.

Switching gears to our anti-IL-13 program, we do have some news to report, which is that we filed our IND with the GI division of the FDA for RPC4046 in Q1 of 2014. In addition, the IND has now been cleared, allowing us to proceed forward with our clinical effort. We've initiated the study startup activities for our Phase II trial in eosinophilic esophagitis patients and we expect to begin enrollment of this study in the second half of 2014. We plan to conduct the trial as a randomized double-blinded study in 90 patients with two subcutaneous doses of RPC4046 against placebo on a 1:1:1 basis.

The primary objective of this trial would be to determine whether treatment with our molecule is efficacious by histological improvement of eosinophilic counts at week 12. Key secondary endpoints include clinical, endoscopic and esophageal function outcome measures. We also plan to explore potential predictive diagnostics biomarkers for efficacy in this proof of concept study. We expect that we will results on this trial in the first half of 2016.

EoE is an emerging orphan indication with significant unmet need. Patients with EoE can have a range of symptoms including food impaction, difficulty swallowing and resulting weight loss or failure to thrive. While there are no approved therapies, the majority of patients are treated with swallowed steroids, which are associated with a number of side effects and a limited duration of efficacy. There appears to be strong scientific rationale from a preclinical basis to support a directed anti-IL-13 therapy, including esophageal overexpression of IL-13 cytokine, the ability of IL-13 to induce expression of eotaxin-3and periostin, which is the most highly expressed protein in EoE as well as the ability of IL-13 to promote both inflammation and fibrosis in the esophagus. There also appears to be clinical validation of this mechanism in other allergy-mediated disease areas, including recent demonstration of efficacy in asthma and EoE patients.

So that's an update on our clinical stage programs in UC and EoE. Faheem?

Faheem Hasnain

Thanks, Sheila. So to summarize in RPC1063 having completed the interim review of the Phase II portion of RADIANCE in relapsing MS in December, we've triggered the first Phase III trial, which is actively enrolling patients in sites around the world. The interim review of the Phase II trial appear to confirm our differentiation thesis, and we continue to expect to be in a position to share topline data with market in the middle part of this year. If those results are positive, we will trigger the second Phase III trial, which is a one-year trial and as such is not expected to be rate limiting to the overall development timeline.

Based on our trajectory and if the data continue to play out this summer, we have the potential to be the next S1P modulator into the market, a market that is growing in overall size and where oral therapies appear well positioned to continue to take share from injectable therapies.

We have a larger, perhaps even larger opportunity in UC and IBD generally, where our current Phase II trial is continuing to enroll patients. We are adjusting our timeline for topline results slightly from mid-2014 to Q4 and we continue to be as excited as ever about our prospects in this indication. I continue to believe that success in this proof of concept trial could create an upside for the program that is yet to be fully appreciated, given the size of the patient population and the significant unmet need.

And let me remind you that we own 100% of RPC1063 in all indications and we have issued composition of matter IP lasting until 2029 without adding time for data exclusivity. And with regard to our anti-IL-13 antibody program, we have now filed and had accepted our IND with the GI division of the FDA that opens the door for the initiation of our Phase II trial which we intend to conduct as a randomized controlled double-blinded study in 90 patients with active eosinophilic esophagitis. We expect that we will results in this trial in the first half of 2016.

And while our oral small molecule GLP‑1 receptor allosteric modulator program is still early, we are excited about the novel mechanistic approach and the sizeable opportunity that this innovative program represents. Orally-administered lead compounds have shown single agent efficacy in a diabetic disease model as well as activity that's synergistic with metformin in combination studies. We intend to conduct IND enabling studies later this year. This program could represent a substantial opportunity whether we pursue it alone or in partnership.

Broadly speaking from a corporate standpoint, Receptos is in a strong position. Having raised over $100 million in additional capital in the first quarter of 2014, we are well funded through the Phase II data and beyond. This will provide us with strength and flexibility in whatever we choose to do whether it be negotiating favorable partnership terms or taking our programs further into the clinic independently.

Finally, I want to take a moment to thank the members of the Receptos team that have created all this progress. We simply couldn't do what we did without our exceptional team. I'm extremely appreciative of their efforts and I take time to thank them everyday.

With that, we'd be happy to answer your questions.

Question-and-Answer Session

Operator

(Operator Instructions) We're showing our first question comes from the line of Ravi Mehrotra from Credit Suisse.

Ravi Mehrotra - Credit Suisse

Sheila or Faheem, could you just remind us when we see the topline data to RADIANCE, how much granularity will you be able to give us on that data set?

Faheem Hasnain

Yeah, Ravi, so we will certainly issue a release on the topline data. Our intention will be to supply enough information to help investors and others understand the elements around our differentiation thesis as well as the primary endpoint and the efficacy profile of the compound. I think those elements are really important. What we will likely not do is get into a lot of granularity about the specifics on data as we would hope and we don't know this at this point. But we hope to be able to get the actual data presented at a scientific session hopefully at the AAN, which would get us in likely as a late breaker abstract if we can fit under the timing. Sheila?

Sheila Gujrathi

We are actually hopeful that we could meet the ECTRIMS deadline.

Faheem Hasnain

Sorry, not ECTRIMS, yeah. Non- ECTRIMS. That's why Sheila was smiling at me.

Sheila Gujrathi

So yeah, so that would be when we would provide an additional granularity on efficacy data as well as on the safety and differentiation profile therapy.

Ravi Mehrotra - Credit Suisse

Then a quick follow-on, on the Crohn's disease pathway. And I know it obviously it depends on the readout to UC. But perhaps, Sheila, you could just run us through how you think you could differentiate yourself from a Phase 2, Phase 3 setup versus the other trials that we're seeing in [ph] ED?

Sheila Gujrathi

Well, so we're actually thinking through development planned for Crohn's disease at this time, preparing for hopefully positive UC data. And we would expect similar magnitude of efficacy in Crohn's disease as UC. And again, the precedent there for us is looking again at vedolizumab where you see very good maintenance data and you see in Crohn's disease that appears to be similar in terms of magnitude as well as durability.

So we are exploring potential for accelerated design options. As you probably are aware, the GI division of the FDA is reading through what are the appropriate endpoints in the Crohn's disease setting in addition to looking at subjective signs and symptoms that currently have been reported out in the Crohn's disease activity index or the CDAI outcome measure. They are really focusing now on including endoscopic type readout as well, some of what we have in ulcerative colitis setting with the endoscopy readout as part of the Mayo score.

So we are actually incorporating all of those elements. We do plan to discuss the Crohn's development program along with a Phase III development program for UC at the end of Phase II meeting with the GI division of the FDA, as well as seek European advice on these important development programs, and that's when we would really finalize the design. But I think we have a pretty good idea of the two components right now and see if we can accelerate the Crohn's program. And we've been talking to our advisors about that.

Operator

Our next question comes from the line of John Rende with Copernicus Capital.

John Rende - Copernicus Capital

A quick question on your discussion of a partnership. When you think about either a commercial or a commercial clinical partner, can you give us a little more thought around timing? Is this, let's wait for getting deeper into the Phase 3 trials, is it something a little earlier? How do you think about the timing of something like that?

Faheem Hasnain

Our thoughts on that, I think we're becoming increasingly clear around this. And that is we're thinking about partnership as being necessary for commercialization, but not for development. And the reason I say that is that we've been on a path here that I think has been an accelerated path and I think we continue to be on an accelerated path. And the types of trials that we are doing, we certainly have done a lot of vetting with a lot of our potential pharma partners and pharma brethren. So we feel very comfortable about the choices that we've made.

And then I think the second thing we feel very comfortable about is our ability to execute. And so just quite frankly, a partnership that has pharma engaged in the development process probably would do not a whole lot of and then maybe potentially slow things down. So with all that said, I think our imperative here is to really think about partnering for commercialization and we would want to partner with a pharma that has capabilities to allow us to excel and succeed in both the IBD segments as well as the MS segments.

Now I don't think that necessarily limits us to players who are currently in MS and IBD today, but I think this gives us an opportunity to be very picky and do great diligence on our side in terms of both cultural fit and commercial capability globally. So with all that said, I think this notion of partnering for commercialization suggests that we would need to have a partner in place no later than about 18 months preapproval.

Operator

I'm showing no further questions at this time. I'd now like to turn the call back to Faheem Hasnain for further remarks.

Faheem Hasnain

Well, thanks very much to all of you on phone for joining us on this call. We appreciate your support and we look forward to continuing to keep you updated regarding the progress of our development programs. So have a great day, everybody. Thanks.

Operator

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

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Source: Receptos' (RCPT) CEO Faheem Hasnain on Q1 2014 Results - Earnings Call Transcript

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