Conatus Pharmaceuticals' (CNAT) CEO Steven Mento on Q1 2014 Results - Earnings Call Transcript

May.13.14 | About: Conatus Pharmaceuticals (CNAT)

Conatus Pharmaceuticals (NASDAQ:CNAT)

Q1 2014 Earnings Conference Call

May 13, 2014, 04:30 PM ET

Executives

Alan Engbring - Executive Director, Investor Relations and Corporate Communications

Steven Mento - President and Chief Executive Officer

Charles Cashion - Senior Vice President, Finance, Chief Financial Officer and Secretary

Analysts

William Quirk - Piper Jaffray

Prakhar Verma - Stifel

Ed Arce - ROTH Capital Partners

Bert Hazlett - Ladenburg

John Boris - SunTrust

Operator

Welcome to the Conatus Pharmaceuticals financial results conference call. At this time, all participants are in a listen-only mode. This call is being webcast live on the Investor Center of the Conatus website at conatuspharma.com. This call is property of Conatus Pharmaceuticals and recordings, reproductions and transmissions of this call without the express written consent of Conatus strictly is prohibited. As a reminder, today's call is being recorded.

I would now like to introduce your host, Alan Engbring, Executive Director of Investor Relations and Corporate Communications of Conatus.

Alan Engbring

Good afternoon. A press release of the company's first quarter 2014 financial results was issued earlier this afternoon and can be found on the Investor Center of the Conatus website at conatuspharma.com.

During today's call, we may make forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in these forward-looking statements due to risks and uncertainties associated with Conatus' business. These forward-looking statements are qualified by the cautionary statements contained in Conatus' SEC filings, including its annual report on Form 10-K and quarterly reports on 10-Q and Conatus' press releases, including today's release on first quarter 2014 financial result.

This call contains time-sensitive information that is accurate only as of the date of this live broadcast. Conatus undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Joining me on the call today is Steve Mento, President and Chief Executive Officer of Conatus, who will discuss recent company highlights and clinical development program; and Chuck Cashion, Senior Vice President and Chief Financial Officer of Conatus, who will review the company's financial results. We will then open the call for questions from invited participants.

I would now like to turn the call over to Steve Mento.

Steven Mento

Thank you, Alan, and good afternoon, everyone. We have enjoyed a very productive first quarter, much of which we covered in our prior call several weeks ago, at the end of March. I won't repeat those details today, but will summarize the highlights today in 2014, followed by updates on our major clinical development programs.

Our lead compound, emricasan is an orally active pan-caspase protease inhibitor that addresses both, excessive apoptosis or cell death and inflammation. Two key mechanisms of liver damage common across a broad spectrum of liver diseases.

Emricasan works on those same mechanisms, regardless of the initial insult that cause the disease. Whether it was a viral infection, obesity, drugs or alcohol or autoimmune disease, the same mechanism apply from the earlier stages of liver damage to the end-stages approaching liver failure.

We are evaluating emricasan across the spectrum of liver disease to determine where it may provide the greatest benefits for patients and the greatest commercial opportunities.

I will provide updates on each of these efforts. I want to start today with a closer look at our most recently initiated trial, which we announced just yesterday. Emricasan has been granted U.S. orphan drug designation for the treatment of liver transplant recipients with reestablished fibrosis, to delay the progression to cirrhosis and end-stage liver disease.

Our latest Phase 2b trial addresses a subgroup of that population. Patients' transplanted livers become infected with hepatitis C or HCV, leading to fibrosis in the new organ, because most of these patients must remain on immunosuppressive drugs to prevent rejection of the new liver, the virus is poorly regulated by the immune system and disease progression can be more rapid than in non-transplanted patients.

If their HCV infection goes untreated, these vulnerable patients risk rapid decline in liver function and progression to end-stage liver disease, as they will be unlikely to qualify for a second liver transplant. Antiviral treatments are becoming increasingly available and can effectively eliminate the viral infection, but they do not address the liver damage already caused by the virus.

While there has been reported cases of fibrosis reversal in post-orthotopic liver transplant or POLT patients, following a sustained viral response to HCV antiviral treatments or SVR, some patients may continue to progress from fibrosis to cirrhosis. We believe that after elimination of the virus, emricasan has the potential to improve the rate of healing in these patients and reduce the progression from fibrosis to cirrhosis.

Importantly, our Phase 2b trial in these POLT-HCV-SVR patients also provides our first clinical proof-of-concept opportunity for emricasan as an anti-fibrosis agent. We have designed this clinical trial to enroll up to 60 patients at about 15 U.S. clinical sites, and we expect completion of enrollment to take about a year.

The trial is placebo-controlled and blinded to both doctors and patients. Patients will be randomized with two-thirds receiving emricasan and one-third receiving placebo. Dosing is 25 milligram orally twice-daily for two years with a one month follow-up after the last dose.

This is a long-term trial, because we wanted to use an endpoint that tracks a meaningful change in fibrosis with potential regulatory agency acceptability. And that process takes time. The primary endpoint in this exploratory proof-of-concept trial is the change in the Ishak fibrosis score compared with placebo.

The placebo patients on average have 1 point of progression, emricasan patients would have to average no change. The placebo patients average 1 point of improvement, emricasan patients would have average 2 points of improvement.

Limited data are available on fibrosis progression rates in this post-transplant patient population, but in non-transplant patients cleared of HCV infection, only about 30% show even 1 point of improvement in liver fibrosis score after two years.

Of course, three years, one for enrollment and two for treatment is a long time to wait for data. So we've designed this trial as sponsor-open. Even though doctors and patients won't know who is getting drug and who is getting placebo, we will have the ability to monitor the trial as it progresses and analyze interim data to see if emricasan is showing clinical activity.

The trial will also evaluate key serum biomarkers, histological markers of inflammation and safety and tolerability of emricasan in this target patient population. Our analyses initially will focus on changes in the secondary endpoints such as key biomarkers and changes in inflammation measured on annual biopsies.

We expect to provide periodic updates as the trial progresses and maybe able to expand from this exploratory proof-of-concept trial into additional liver fibrosis indications resulting from virus infections, obesity, chronic excessive alcohol use or autoimmune diseases, even before this trial is completed. Initial open-label data are expected to be available from this trial in the first half of 2015.

One of the most exciting new opportunities is the recent introduction of highly successful antiviral treatments for patients infected with HCV. These treatments, which I already mentioned in relation to post-transplant patients, are expected to be used much more broadly moving forward in patients with HCV-induced cirrhosis, whose livers are still functional and therefore may not currently be transplant candidates.

The World Health Organization estimates the worldwide prevalence of HCV infection as 150 million to 200 million people and the worldwide incidents of 3 million to 4 million people annually. According to a recently published article on results of a new combination HCV antiviral therapy, approximately 25% of HCV infected population in United States has cirrhosis and this is expected to rise to 37% by 2020.

As with the post-transplant population, clearance of the virus does not eliminate the damage already established in the liver. The conclusion of an in-press article by Dr. Scott Friedman and colleagues at Mount Sinai notes, quote, HCV infected patients, despite achieving SVR, remain at a higher health risk in comparison to the general population, indicating that SVR is a virological cure, but not necessarily a cure from risk of liver disease.

Extensive preclinical testing of emricasan has demonstrated its ability to halt and even reverse the liver damage process across a broad range of animal models of various liver diseases. Proof-of-concept in our post-transplant HCV-SVR fibrosis trial could pave the way or pave the past to additional cirrhosis and fibrosis indications.

Before I provide updates on our other clinical programs, I want to spend just a few minutes on the topic of biomarkers. A number of biomarkers have been used over the years to track the progression of liver damage. Levels of certain biomarkers such as transaminases, however, can actually decrease as liver damage progress, because there are fewer functioning liver cells remaining to produce them.

One biomarker, cleaved Cytokeratin 18 or cCK18 is steadily gaining acceptance in the study of liver disease, as a key indicator of liver damage. Cytokeratin 18 is a structural protein that is cleaved in particular locations by caspases as part of the apoptosis process. A strong correlation has been established between cCK18 levels and the degree of liver damage.

The higher the cCK18 level, the higher amount of liver damage. Levels of cCK18 continue to increase as liver damage progresses, because it is produced directly by caspase-driven apoptosis. It is being increasingly adopted as a preferred generic biomarker of liver damage.

The Cytokeratin cleaved-side measured by the commercially available laboratory test is specific to caspases. So measurement of cCK18 provides a direct readout of caspase activity. Because emricasan is a pan-caspase protease inhibitor, it reduces caspase activity and thereby reduces apoptosis. That leads to reduced levels of cCK18, which means cCK18 is both a generic marker of liver damage and a mechanism-specific biomarker for emricasan.

Measurement of cCK18 level yields on-target activity of emricasan in patients with liver disease and is a key endpoint in all of our ongoing implant clinical trials. Expected reductions in cCK18 levels in emricasan-treated patients can be compared to directional changes and other endpoints with the idea of building a database that may lead to important links between these endpoints.

As cCK18 becomes more recognized for its unique correlation with liver damage, we believe that data from our trials can contribute to the potential for cCK18 to become an accepted surrogate marker for clinical trials. Emricasan is the only product candidate in clinical development we are aware of for which cCK18 is mechanism-specific. So we are very excited with the increasing recognition of its utility.

Next, let's move to a discussion of fatty liver disease, which has drawn a lot of interest lately. We initiated a Phase 2 clinical trial in early March for patients with nonalcoholic fatty liver disease or NAFLD, including patients in which fat deposits cause inflammation, which is called nonalcoholic steatohepatitis or NASH. As the disease progresses, it can result in damage the liver, leading to fibrosis cirrhosis and compromised liver function.

Like other liver diseases, NAFLD and NASH, typically cause few or no symptoms, especially in the early stages and are often not diagnosed until the liver has extensive damage. Our current study in fatty liver disease is designed to confirm the appropriate doses for potential future studies in this population, to expand emricasan safety database and to evaluate any changes in key biomarkers of liver damage including cCK18.

Preclinical studies of emricasan in animal models have demonstrated emricasan's ability to reduce fat deposition in the liver as well as fibrosis and to also improve metabolic parameters. Future trials might include patients who have NASH plus fibrosis or NASH plus cirrhosis, as these patients could benefit from a drug that could stabilize or reverse liver damage.

We expect topline results from this trial in the second half of 2014. There is not yet an established regulatory approval pathway for the NASH population, but we intend to be ready to move forward once appropriate Phase 3 endpoints are confirmed.

I'll discus next the acute-on-chronic liver failure or ACLF population. These patients have been living with the cirrhosis and then suffered an acute event that puts them at risk for eminent and catastrophic liver failure and potential additional organ failures. We believe emricasan maybe able to stop the rapid and life threatening disease progression and help restore organ function.

We started our Phase 2b trial last September in the United Kingdom and expanded to U.S. sites beginning in January. In March, we announced a protocol amendment and updated guidance. This trial is one of three we are conducting to determine whether any dosing adjustments are needed for patients with more advanced liver disease.

We expect pharmacokinetic data in the second half of 2014 from a subset of the patients in our ACLF trial from our trial in patients with severe renal impairment and from our trial in patients with hepatic impairment. Our analyses of potential directional movement of biomarkers and functional parameters from individuals in the ACLF trial are also expected in the second half of 2014.

I'll conclude with a brief update on our planned approach for patients with chronic liver failure or CLF. These patients have long-term cirrhosis that progresses over time to decompensation, which is marked by the development of jaundice, variceal hemorrhage, ascites, or encephalopathy.

Their best hope is a liver transplant and a critically ill subset of this patient population may include those eligible for the transplant waiting list or those too sick to be on the transplant waiting list. We believe emricasan maybe able to delay further disease progression and to stabilize these patients long enough for a suitable liver to become available for transplant or to restore their health enough, so they can qualify for a liver transplant.

As I mentioned, we will be dosing -- we will use the dosing and pharmacokinetic information from our three trials and patients with advanced staged disease as we finalize the design of a trial for patients with decompensated cirrhosis. We also believe emricasan may have the potential to benefit earlier-stage patients with compensated cirrhosis whose liver function is still near normal. Our goal for this patient population will be to delay or prevent progression to decompensation. We expect to start a trial, a Phase 2 clinical trial in cirrhosis patients in the second half of 2014.

I will now turn the call over to Chuck to discuss our first quarter 2014 financial results.

Charles Cashion

Thank you, Steve. We announced our financial results for the first quarter of 2014 shortly after the market closed today. Our net loss for the first quarter of 2014 was $5.2 million compared with $2.3 million for the first quarter 2013. Research and development expenses were $3.7 million for the first quarter of 2014 compared with $1 million for the first quarter of 2013.

General and administrative expenses were $1.6 million for the first quarter of 2014 compared with $700,000 for the first quarter of 2013. These increases in R&D expenses, G&A expenses and net loss were the result of our expanding clinical development activities as well as our growth and increased obligations as a public company.

At March 31, 2014, we had cash, cash equivalents and marketable securities of $51.1 million compared with $56.4 million at December 31, 2013. We are projecting a balance of $28 million to $32 million at the end of 2014. We believe our financial resources are sufficient to fund our plan, clinical development activities for at least the next 12 months, which should allow us to reach significant clinical milestones in multiple programs.

I will now turn the call back to Steve for some closing comments before the Q&A session.

Steven Mento

Thank you, Chuck. Based on emricasan's promising preclinical and clinical results to date, we are actively pursuing a development strategy addressing a broad spectrum of liver disease. We have ongoing clinical trials for patients near the sickest end of the spectrum, patients with advance-stage disease of liver and an ongoing trial near the healthy end of the spectrum patients with NAFLD or NASH, who are asymptomatic, but whose fat-induced fibrosis puts them at risk of progression to cirrhosis. All of these trials are expected to generate topline results in the second half of 2014.

We recently started a trial ahead of schedule for the POLT-HCV-SVR patients, who are closer to the middle of the liver disease spectrum, patients whose transplanted livers have fibrotic damage caused by recurrent HCV infection. After clearance of the virus, their best chance for long-term health is to maintain or improve the health of their transplanted liver. Our next focus of Phase 2 clinical trial start in the second half of 2014 will address another portion of this spectrum, patients with cirrhosis.

This concludes our prepared comments. Now, I'd like to turn the call over to our operator to moderate the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will be coming from the line of Charles Duncan from Piper Jaffray.

William Quirk - Piper Jaffray

This is William for Charles, just a couple of quick ones. Maybe I missed it, but the ACLF, can you give us a sense of timing for the complete data?

Steven Mento

Yes, second half of this year.

William Quirk - Piper Jaffray

And then on the last call you mentioned the June meeting regarding NASH endpoints, is that meeting still planned and is it public?

Steven Mento

Yes, it is. And it will be in Chicago, close to where you maybe. And I think its June 18. And I don't have the details on the information, but we can send that to you.

Charles Cashion

It's a follow-up, AASLD meeting with FDA.

William Quirk - Piper Jaffray

I guess, do you guys expect that to finally establish the endpoints or do you think it will take more time?

Steven Mento

Well, I think we'll have to wait and see. I think this is a stepwise process and I think that this is an important next step. There was discussion at the meeting in September that there would be additional follow-up and this is additional follow-up. So whether or not there will be conclusions at the meeting, I actually don't know, but I do think it's a very important step in the right direction.

Operator

Our next will be coming from the line of Stephen Willey from Stifel.

Prakhar Verma - Stifel

This is Prakhar Verma for Steve Willey. On the ACLF trial, so since you guys implemented protocol changes, have you seen any -- what's the update on the enrollment, but have you seen any increase on the enrollment? And second question on the enrollment, the number of sites in the U.S., how many sites are up and running in the U.S.? In the last, last call, you said that there were about six sites in the U.S. enrolling, do you have any update on that number?

Steven Mento

As we said in the call in March, all sites that were up and running continue to enroll based on the protocol that was on amendment. The amendments are now in place and it is our belief that we would be able to meet the guidance timelines that we've talked about in the second half.

Operator

Our next question will be coming from the line of Ed Arce from ROTH Capital Partners.

Ed Arce - ROTH Capital Partners

Just wanted to get a sense, given all of the readouts that you expect in the second half of the year, do you have any sense for any expected publicly issues at fall medical conferences.

Steven Mento

Good question. Right now, we do not have plans for the fall meetings. And depending upon when the data becomes publicly available, obviously we will participate in meetings as time and the data allows, but not right now for the fall meetings.

Operator

Our next question will be coming from the line of Bert Hazlett from Ladenburg.

Bert Hazlett - Ladenburg

Just have a question regarding the trajectory of R&D spend, you've got some data readouts upcoming, how should we be thinking about R&D spend? And again you noted the G&A spend increase year-over-year, is this a steady state, sort of a G&A spend that we should be thinking about at least through the remainder of the year? And on the R&D, if you could maybe give us a little general thoughts not only this year, but for further out as well?

Charles Cashion

Bert, Chuck Cashion here. I think with respect to G&A, we are in a relative steady state at this point in time. I think we've absorbed our public company expenses and that should be fairly consistent going forward. With respect to R&D, we expect the additional expenses in the subsequent two quarters of 2014, but not enormously, so I think it's going to be a ramp from the first quarter, with the second half of the year being larger than the first half, but not extraordinarily. So I think there is a small bump up there as you go out quarter-by-quarter.

Bert Hazlett - Ladenburg

And as we're thinking further out is that dependent upon how the data looks primarily?

Charles Cashion

I would say that's a fair assessment. Certainly we'll adjust our spending accordingly as we obtain clinical results and in the presence of a good result I think you'd expect greater spending.

Operator

Our next question will be coming from the line of John Boris from SunTrust.

John Boris - SunTrust

Steve, just back to the number of sites, can you maybe just -- can you light on us on number of sites that you have open in the U.S. I think you did indicate six last time, have there been any additional sites open?

Steven Mento

We're close to a dozen -- you're talking about the ACLF protocol now, right?

John Boris - SunTrust

Right.

Steven Mento

And we're going to have just under 30 sites total in the U.S. and the EU, up and running with the amended protocol shortly.

John Boris - SunTrust

So total of 30?

Steven Mento

Around 30.

John Boris - SunTrust

That's between U.S. and EU?

Steven Mento

That's correct.

John Boris - SunTrust

And then just on your spending pattern that you articulated, and then the mix between R&D, G&A. G&A sounds like you mention that it was going to be pretty stable, at least going for a steady state, but as you rollout these additional clinicals between completion of trials probably in around fourth quarter, how should we be thinking about that split between third quarter and fourth quarter?

Steven Mento

I think as Chuck said that there will be a bit of a ramp up in R&D spending related to starting all these trials. A ramp up in the POLT indication as you might expect will be a little bit slower, because it's a long-term trial. And the other trials, the magnitude, the size of those trials are not so large that we're going to have dramatic increases. So I think Chuck's comments about a modest ramp up throughout the rest of this year are appropriate.

John Boris - SunTrust

And then just one, final one. On the ACLF clinical that you made the amendments to, can you just remind us what amendments were implemented in that clinical trial and how that might help facilitate enrollment in the right patient type?

Steven Mento

Sure. In general, what we did, we did some practical things to increase the pace of straining, so that patients could be enroll more rapidly that actually will enable us to bring in sicker patients sooner. And we also modified the specific inclusion criteria a bit, reduced the values a little bit to allow patients that were little less ill to come into the trial.

So we've actually modified the protocol, so that both ends of the spectrum of this particular disease, the patients with lower, still severely ill, but with a little bit better organ function can be enrolled and we can enroll the sicker patients faster, because we produce the time required to screen those patients prior to enrollment.

John Boris - SunTrust

And just one last question on the NASH meeting. What are you hoping that the FDA and top opinion leaders were able to accomplish at this upcoming meeting? And how is that going to help, at least facilitate getting the right endpoints and the right indication to find here going forward?

Steven Mento

Well, as I said, what we're doing right now in that patient population is just verifying the dose that we would use in future studies. And within our existing clinical trials and our planned clinical trials, remember our mechanism is insult and different. So we plan to and are encouraging a component of those patients enrolled in all of our trials to have the ideology of a liver disease due to fatty liver disease.

So that said, in a pure NASH population or in a pure NASH plus cirrhosis or fibrosis population, I think that any information that amplifies, kind of the earlier, at least discussion, there hasn't been a written report from the earlier meeting that talked about NASH plus fibrosis is kind of being the minimum patient population where they thought treatments for that particular fibrosis was required, so the earlier stage patients probably not requiring treatment.

And I think NASH plus cirrhosis, kind of the sicker end of the population, when you're closer to more clinical outcome or clinical event endpoints, getting some clarity along those lines I think will be very important. I don't think they'll be having the meeting if they were not going to try and provide some clarity.

But as I said earlier, I think it's a lot to ask for absolute clarity to say this population, this endpoints, what its going is what it's going to be, but that said, we'll be ready. We are confident that the study we have right now is going to help us to select the appropriate dose and will familiar with all the options relative to the endpoints. And feel comfortable that whatever the outcome is, we can execute the strategy that will include that outcome.

Operator

Our next question will be coming from the line of Bert Hazlett from Ladenburg.

Bert Hazlett - Ladenburg

Just brief one on the POLT-HCV-SVR trial, maybe you touched on this and I missed it, but why the two-to-one randomization? And secondly will there be any interim look at maybe 12 months to get a sense of how things are progressing?

Steven Mento

First, the two-to-one is simple, as we wanted to have as many patients as possible, potentially get exposure of the drug. We wanted the people see those controls and in looking at how to generate the information, we didn't lose anything by going from two-to-one or one-to-one.

Second, it's blinded for the physician and the patients, but it is sponsor-open. So we believe that we can take looks throughout the trial and believe that in the second half of this year we will have at least some at first half of next year 2015, we'll have some initial data on the biomarkers in the early phases.

And then the next big data point would be the one-year biopsy, where we would expect to see evidence, hopefully of positive impact on the inflammatory score or fibrosis. And then primary endpoint is the two-year biopsy score versus Ishak fibrosis scores, as I described in the opening statements.

Operator

Thank you. There are no further questions at this time. I would now like to turn the call back over to Steve Mento for closing comments.

Steven Mento

Well, thank you all for your participation in today's call and your continued support of Conatus. We look forward to updating you again very soon.

Operator

Ladies and gentlemen, this concludes today's conference. You may disconnect now.

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