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Transition Therapeutics (NASDAQ:TTHI)

Q3 2014 Earnings Call

May 13, 2014 4:30 pm ET

Executives

Tony F. Cruz - Chairman of the Board and Chief Executive Officer

Nicole Rusaw-George - Chief Financial Officer

Analysts

Neil Maruoka - Canaccord Genuity, Research Division

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the conference call to discuss Transition Therapeutics' third quarter fiscal 2014 financial results.

I would like to begin by reviewing the Safe Harbor provision. Certain statements made during this conference call about the company's future plans and intentions or other future events constitute forward-looking statements for purposes of Canadian securities legislation and the Safe Harbor provisions under the SEC's Private Securities Litigation Reform Act of 1995. These forward-looking statements are not based on historical facts but rather on management's current expectations regarding Transition's future growth, results of operations, performance, future capital and other expenditures, competitive advantages, business prospects and opportunities. Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. These risks are described in the company's annual information form and the company's Annual Report on SEC Form 20-F for the fiscal year ended June 30, 2013, and other SEDAR, SEC filings. Forward-looking statements are made as of the date of the conference call, and Transition assumes no obligation to update or revise them to reflect new events or circumstances.

[Operator Instructions] I would now like to turn the conference call over to today's host, Dr. Tony Cruz, Chairman and Chief Executive Officer of Transition.

Tony F. Cruz

Thank you, and welcome, everyone. I'm Tony Cruz, the Chairman and CEO of Transition. So welcome to our conference call announcing fiscal 2014 third quarter financial results. Nicole Rusaw, which -- she is Transition's CFO, will begin by providing a summary of Transition's financial results for the past quarter. And then I'll provide a summary of our progress over this period as well as answer any of your questions.

Nicole?

Nicole Rusaw-George

Thank you, Tony. I will begin with a brief discussion on our cash position. At March 31, 2014, the company's cash and short-term investments were $52.9 million, a net increase of $24.8 million compared to the June 30, 2013, year-end balance of $28.1 million. The increase in cash and short-term investments is primarily due to the net proceeds of $16.4 million received from Perrigo in exchange for 2.26 million Transition common shares, as well as a $10.9 million raised from the August private placement. The increase in cash has been partially offset by the 9-month net cash burn of $3.1 million.

Today, the company has approximately $47.2 million in cash, and our projections indicate that our current resources should enable the company to execute its core business plan and meet its projected cash requirements beyond the next 12 months.

I will now discuss the significant variances in the results of operations for the 3- and 9-month periods ended March 31, 2014, compared to March 31, 2013.

For the 3-month period ended March 31, 2014, the company recorded a net loss of $5.1 million, or $0.17 loss per common share, compared to a net loss of $2.9 million or $0.11 loss per common share for the comparative period ended March 31, 2013.

During the 9 months ended March 31, 2014, the company recorded a net loss of $8.7 million, or $0.29 loss per common share, compared to net income of $2.1 million or $0.08 income per common share for the 9 months ended March 31, 2013.

Revenue was nil in both the 3-month period ended March 31, 2014, and 2013. Revenue was nil in the 9-month period ended March 31, 2014, compared to $10.8 million in the 9-month comparative period, which represents the milestone payment received from Elan upon commencement of the next D5 clinical trial.

R&D expenses increased by $2.3 million from $2.4 million for the 3-month period ended March 31, 2013, to $4.7 million for the 3-month period ended March 31, 2014. For the 9 months ended March 31, 2014, R&D expenses increased by $300,000 to $6.9 million from $6.6 million for the same period in fiscal 2013.

The increases in R&D expenses for both the 3- and 9-month periods are primarily due to increases in clinical development costs related to drug candidate D5 and preclinical research on TT-601. The increase in R&D costs have been partially offset by decreases in clinical development costs associated with diabetes drug candidate, TT-401, which is currently fully funded by Lilly, as well as decreased amortization resulting from the fiscal 2013 write-off of TT-301 technology.

During the 3-month period ended March 31, 2014, G&A expenses increased $260,000 to $1.13 million from $871,000 for the 3-month period ended March 31, 2013. For the 9-month period ended March 31, 2014, G&A expenses increased $500,000 to $3 million from $2.5 million for the same period in fiscal 2013. The increases in G&A for both the 3- and 9-month periods are primarily due to increases in legal and professional fees as well as increased business and corporate development activities.

That concludes the financial review for the third quarter of fiscal 2014. Tony?

Tony F. Cruz

Thanks, Nicole. And now I'll give an update on what's been happening last quarter. It's been an extremely busy one at Transition where the company acquired from Perrigo or Elan all the development and commercializing rights of ELND005, which I'll call D5 from now on.

The addition of D5 broadened and strengthened the company's development pipeline with an unpartnered, late-stage clinical asset. The company took control of 6 ongoing trials with D5 at various stages of completion. The first one, probably the most important one, we feel, is a 400-patient trial in agitation/aggression in AD, which is called AG201 or the Harmony study. There was also a 400-patient trial for maintenance therapy in Bipolar Disorder, which is BP201 (sic) [BPD201] study; a 24-patient trial for the treatment of cognition in Down Syndrome; and also 3 Phase I NDA-enabling clinical pharm studies assessing renal clearance, cardiovascular safety and metabolism of D5.

As part of the deal with Perrigo to take over these studies, Transition also received $15 million, this is in U.S. funds, investment for a 7% stake in the company. We felt at the time that this cash -- that with this cash that we're receiving at Perrigo, the company has sufficient funds to give us sufficient time to evaluate the ongoing D5 trials.

One of the earlier objectives was to quickly perform an extensive evaluation of each trial and drug candidate in the company. And the intent was to implement a balanced and affordable strategy for growth in the 3 key areas in the company. The first was the D5 development for neuropsychiatric indications, TT-401, for the treatment of type 2 diabetes and also maintaining the capacity to continue to analyze new programs that we thought could be very worthwhile in the future.

This risk-reward analysis for each program, it provided the company with the opportunity to select and exploit the most valued programs as well as terminate programs that we might consider more risky or not have enough supporting data for clinical development.

So for the D5 trials in agitation/aggression AD and cognition Down Syndrome, we reviewed the previous Phase II data in much more detail since we now had access to the complete data from our previous Phase II. We also looked at all the preclinical data that was available, as well as the mechanism of action of D5, as well as any blinded data -- sorry, unblinded data that was available from ongoing studies.

Based on the totality of these data, we were trying to assess the likelihood of success for each indication but as well also the cost and duration of each trial to take them to completion because of -- as a small company, we have limited resources.

The outcome of this analysis was to make a decision to continue and complete both of these trials. We performed a similar analysis for the Bipolar trial with the exception that we did not look at any blinded data as there were too few patients completed in the trial at that time. In fact, there were only 2 that had gone the full 12 months. There was no safety concerns to date when we looked at it. And -- but we did feel that this trial would take an additional 2 years to complete and was too expensive for the company to take forward along. So the decision was made to terminate the Bipolar trial and focus our financial and human resources on the agitation/aggression trial as well as on the completion of the Down Syndrome trial.

So just to touch base on those 2 trials that we're continuing on, the enrollment in AD is going very well, and we expect this trial to be completed in mid-2015. The safety extension, which is Study AG251, this is following the 12-week treatment period. We have an extension of up to 36 weeks. It's also going very well, and it's enrolling subjects who have completed the control Harmony AD study. And to date, the large majority of subjects completing the Harmony AD study are participating in the AG251 extension study. So the -- this agitation/aggression in AD program, as you may know, has received Fast Track status in the United States or from the FDA.

The enrollment for Down Syndrome trial is just about completed. We're waiting for one patient to come in by mid-May. And we expect that the data will be available in the third quarter of 2014. Following the completion of this study and, of course, depending on advice from the regulatory agencies and experts in the field, the next step in development would be a larger Phase IIb in Down Syndrome patients. So at the moment, we're trying to start to get a statistical analysis plan to look at the data and present it sometime in the third quarter.

In addition, the enrollment of the 3 Phase I NDA-enabling trials with D5 are also complete, and the data is being analyzed. And we expect this data to be presented at some of the upcoming scientific meetings later this year.

Briefly, I would like to say a few words about TT-401 program for type 2 diabetes that is partnered with Eli Lilly. And of course, this now is controlled by Lilly. And based on our discussions and participation with Lilly, the Phase II study of TT-401 in type 2 diabetes is in the final preparation for dosing, and we do expect, in fact, dosing to commence in the very near future.

Based on our proof of concept data in the obese diabetics that we did as well as the -- one cohort of obese subjects, we're definitely looking forward to the initiation of this trial and obviously its potential outcome sometime in 2015. The more exact dates will be given at a later time once we obtain further information from Lilly.

Transition will be supporting a portion of this study with an expected contribution of $14 million in 3 installments during the study.

We continue to be committed to our growth strategy through in-license programs, and so I'll just touch that. We have an ongoing diligence process to in-license 1 or 2 additional drug candidates over the coming months to expand the company's overall development pipeline. The approach that we have adopted is one where we perform all of the necessary studies to [indiscernible] these programs as much as possible before in-licensing this program. And we are going through that process with one molecule currently. And so this -- if it passes that process, then we will consider licensing it. And the same is true with the second one that we'll be looking at-- that we're looking at currently.

Lastly, I would like to provide an update on Transition's corporate structure and its subsidiaries since there was a change since we obtained D5 from Perrigo. We acquired the D5 technology and all the development and commercializing rights in an Irish-domiciled corporation that is now called Transition Therapeutics Ireland Limited. And going forward, the company is now seeking to leverage the economic benefits of D5 for all our future assets, including TT-401. And any in-licensed asset that may occur, it will now go through Transition Therapeutics Ireland Limited.

Financially, as Nicole mentioned, as of the end of March, we had approximately $52 million in cash. and as of today, we have over $47 million in cash. Our burn has increased since taking on the responsibility for the cost of D5 development. However, as most of the D5 trials are now completed or near completion, this burn is now going to be well contained and focused on the agitation/aggression trial in AD.

As a company, I think we are very well positioned for success moving forward. We have 2 leading programs in large clinical trials in major disease indications that should be validated over the next 9 to 18 months. As well, we have a growing pipeline of products from our collaborations with pharma.

So I'll stop here and ask if there's any questions that I can take now. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Okay. And your first question is from the line of Neil Maruoka with Canaccord.

Neil Maruoka - Canaccord Genuity, Research Division

Just a question on the settlement of a previous relationship. My understanding was that Perrigo was covering a lot of those costs. Can you provide just a little more detail on what that really did do?

Tony F. Cruz

Go ahead, Nicole.

Nicole Rusaw-George

Yes, okay. Actually, that settlement of our pre-existing relationship relates to the settlement of the collaboration agreement between Waratah and Elan. And under IFRS, it's an accounting -- it's one of those tricky accounting situations, but that represents essentially the cost to get control of the development and commercialization rights of the D5 assets.

Neil Maruoka - Canaccord Genuity, Research Division

Okay. And a question for Tony just on the Bipolar trial. Were you -- now that, that trial is discontinued, were you able to look at any of the data maybe from the dropouts and see any trends there, anything that was encouraging from that?

Tony F. Cruz

It's still ongoing, the trial, so we will not be able to look at any data until the safety data and the trial as a whole has been completed. There's a 6-week follow-on when -- they come in for a last visit when the trial is terminated, and then there's a 6-week following that. The patient comes in and that's the final evaluation for safety. Once that's done, then you do a database log. So we don't expect to have data from that for probably, I would say, another 4 months. But yes, our plan is to look at it and see if there's anything that we could see there or not. But we won't have that data for another 4 months.

Neil Maruoka - Canaccord Genuity, Research Division

Okay. And just one last question, more a housekeeping issue. Can you provide what your estimated burn rate would be just for the NPS trial in AD?

Tony F. Cruz

Yes. Yes, we're still trying to figure that one out to be. So I can give you an approximation at the moment. Right now, I think it's around $1.6 million to $2 million per month. Obviously, we hope to cut that back even more. But for the time being, we think it will be around $1.6 million to $2 million. At least that's how we projected for it. And that's the majority of our costs right now with the exception of some of the personnel that we have here at Transition and the cost of running the company.

Operator

Our next question comes from the line of Bash Hamar [ph] with IMS Health.

Unknown Analyst

My question is actually regarding your 401 program. So it's licensed to Lilly, and this compound works on GLP-1 and glucagon receptors. But Lilly is also developing an oxyntomodulin analog that also works on GLP-1 and glucagon where also Lilly recently initiated its Phase II trial for this analog. My question is, is TT-401 in reality Lilly's oxyntomodulin analog? Was it an [indiscernible]?

Tony F. Cruz

Yes, there was some confusion whether the current trial that they have ongoing with another molecule was our molecule in fact. It's definitely a different molecule, and I'm not aware that they're developing any oxyntomodulin at the time -- at this time. At least my understanding is that they're not. The only molecule that they're going moving forward with the glucagon and GLP-1 activity is our molecule. But I know that they have another molecule there, but I'm not sure what that molecule is or whether it's actually correct that it's an oxyntomodulin. I'll have it checked and maybe I can get back to you on that. But we have an arrangement where, at least until very recently, that they weren't able to -- that they -- I don't believe it could have worked on another GLP-1 glucagon molecule. So I don't think -- I'm pretty sure it's not the same molecule as I've asked them that.

Unknown Analyst

Okay. But the 401 is oxyntomodulin compound?

Tony F. Cruz

It is an oxyntomodulin, and -- it is an oxyntomodulin, and I believe it's the only one in their pipeline with a GLP-1 and glucagon activity, yes.

Unknown Analyst

Yes. And that's the -- it's once weekly injectable?

Tony F. Cruz

That's right. The other molecule that they have in clinical trials that sounds similar is -- has got a different activity, though, I'm pretty sure.

Operator

And at this time, there are no further questions. I will turn the conference over to Mr. Cruz for closing remarks.

Tony F. Cruz

Well, thank you all for attending the conference call. And if there's anything at all that you want answered, please feel free to give me a call. Thanks very much, everyone.

Operator

Thank you for joining today's conference call. You may now disconnect your lines.

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