Endocyte's (ECYT) CEO Ron Ellis on Q2 2014 Results - Earnings Call Transcript

Jul.29.14 | About: Endocyte, Inc. (ECYT)

Endocyte, Inc. (NASDAQ:ECYT)

Q2 2014 Earnings Conference Call

July 29, 2014 4:30 PM ET

Executives

Ron Ellis – CEO and President

Mike Sherman – COO and CFO

Analysts

Jason Kantor – Credit Suisse

Adnan Butt – RBC Capital Markets

Boris Peaker - Cowen and Company

Joel Beatty - Citigroup

Ling Wang - Chardan Capital Markets

Robert Hazlett – Ladenburg

Operator

Welcome to Endocyte’s Conference Call to discuss the company’s second quarter 2014 financial results and operations update. Speaking today will be Ron Ellis, President and CEO; and Mike Sherman, Chief Operating and Financial Officer. At this time, all participants are in a listen-only mode. Following their comments, we will open the lines for questions. Please be advised that today’s call is being recorded and webcast.

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 a discussion of risks and uncertainties impacting those results.

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

Ron Ellis

Thanks for joining our third quarter call. I’ve got Mike Sherman on the call as well. Mike will cover financials and some operational issues. I just want to cover a couple of items before Mike goes through the financials. As we had said previously, we would keep people abreast of our Phase I studies with the two compounds, 1456 and 1169. The 1456 trial, which is a fully-targeted tubulysin molecule -- as you recall, this is the much more potent warhead than the molecule that was on 145. We’ve finished up the first two cohorts with really no safety issues. We’ll start the third cohort in August. Third cohort is relatively the same dose as dosed with 145, so we’ll be anxious to see how the drug behaves, but so far the first two cohorts have been really well tolerated.

We’ve had some couple of patients in these first cohorts that have done really well in the therapy. They have been out 7 and 8 months on therapy with 1456. So, it’s still early, but we are encouraged by what we’ve seen with 1456, both particularly the safety of that and that some of the patients who are staying on the drug for a very, very long time and much longer than their previous therapies.

The Phase I for 1169, which is the PSMA-targeted tubulysin molecule is just really starting. So we’ve got IND clearance from the FDA and are putting patients in, but really not far enough along really to have any update on that, but maybe by the next call we’ll have an update on how 1169 is doing in prostate cancer, and we’re excited about these molecules. We’re really excited about the warhead and what we’ve seen pre-clinically, and we, I think, feel good about what we’ve seen so far in the clinical -- early clinical studies.

The TARGET study, which is the 145 non-small-cell lung cancer, we’re still targeting an update at ESMO that will be a full update of PFS and response rate, and then a more mature update on the overall survival. As you recall, we met the primary endpoint on PFS for that study back in February and saw positive signs in the combination arm both in response and PFS, but then, the OS also is trending positive, but it was quite immature.

And so, this update which will have an ESMO will give a more robust look at the overall survival data, and that will have an exact number of events, Mike may remember, maybe around 50% or 60% of the OS events would be in that ESMO analysis. So, anyway that will – I think we’ll have that update in September.

With that, I’ll turn it over to Mike to go through any financials.

Mike Sherman

Thanks Ron. With the acceleration of the collaboration revenue and the PROCEED trial expenses in the quarter, let me spend just a few minutes on those details, so those are clear. Of the $49 million in revenue we recognized in the second quarter, $31 million of that was an acceleration of revenue that otherwise would have remained in the deferred revenue balance through the end of the quarter.

So the remaining $18 million is pretty similar to what we have been recognizing in recent quarters. The Merck collaboration has a 90-day termination period, during which they continue to be responsible for the same expenses that they’ve been responsible for under the agreement. And just as a reminder, that’s a 100% of the TARGET trial expenses and a portion of the PROCEED trial expenses. That 90-day period ends in mid-September.

So, in addition to that obligation, Merck has agreed to reimburse us for their share of all the future PROCEED trial expenses, so even after the 90-day period. Plus also agreed to reimburse us for some of the PROCEED expenses to which their 70% share would apply both past and future expenses. With all that considered, we expect our third quarter revenue will wind down to the $3 million to $5 million, and then be near zero in the fourth quarter. That $3 million to $5 million estimate includes PROCEED and TARGET trial activities during the period first, and second the reimbursement of past expenses, which will go beyond the original agreement with Merck which would not recognize as revenue yet, and all the future trial expenses that Merck will reimburse.

We’ll settle that in a final payment from Merck based on an estimate we’ll make during the quarter, and then they’ll make the final payment on that estimate as opposed to us having the reimbursement extend beyond the third quarter. R&D expenses of $19 million were similar to Q2 of last year, but up by about $6 million sequentially compared to the first quarter. This sequential increase was driven by the PROCEED trial expenses including $4.8 million accrual for all future trial expenses that was partially offset by the continued decline in the TARGET trial expenses as that trial is really just in monitoring mode right now.

G&A expenses of $7.5 million were similar to first quarter expenses, even though it included $1.3 million in severance and other contract termination costs. That includes the elimination of approximately 20 physicians, which followed the withdrawal of our European marketing applications. With the June ending cash balance of $219 million, our revised year-end guidance of the cash balance in excess of $200 million represents a significant reduction in the roughly $15 million to $16 million quarterly cash burn rate we’ve experienced recently.

This will result from both the reduction in expense as our second half expenses will be down from last year by about a third and also the timing of reimbursements from Merck as they will be paying for in the quarter both expenses that were recognized in prior periods and actually paying for expenses that from a cash standpoint will actually occur in future periods.

So with that, let me turn it back to the operator and we can take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Jason Kantor from Credit Suisse. Your line is now open.

Jason Kantor – Credit Suisse

Hey, guys. Thanks for taking my question. Couple of them. Could you give us some sense of what kind of venue or how you might release the clinical data for the EC1456 ?

Ron Ellis

Mike, do you know the answer to that ?

Mike Sherman

Well, I think that…

Ron Ellis

That’s a great question Jason, I don’t know when we’ll give the full data and how much we will just do in quarterlies.

Mike Sherman

Yes, so Jason, I think it will partly depend on the data that we see. So, getting into – as we get into the third cohort, beginning to match the kind of doses we delivered in vintafolide, although we’re not -- we’re taking more than the 100% targeted patients. So it’s unclear as we’ll see a bolus of data that’s ready to present at a conference. So in the meantime, what we’ll give you at our quarterly calls is probably more an update on the safety profile and how we’re progressing through the cohort, and then I would expect probably more early next year we would have kind of a wrap up on the Phase IA portion of the trial which is just the dose escalation.

Jason Kantor – Credit Suisse

Is there a – is it possible that before then you would move on to a different portion of the trial, and that would give us some sense of the positivity of the data?

Mike Sherman

Yes. So, the way that it will transition will be, the first part of the trial is a traditional dose escalation. We’re exploring a couple of schedules as we do that. And then, once we identify the MTD and the optimal schedule, we’ll then move forward in between 4 and 6 target indications, and we’ll probably update next quarter as we’ve selected those dose indications. But we’ve talked before about you can imagine lung cancer, ovarian cancer would be among those that we would choose to pursue.

So, as that Ia wraps up, it’s possible that even though we haven’t exclusively included targeted patients for the receptor that we’ve got enough from an efficacy standpoint to report on that, but at a minimum, you’ll know that we’ve gotten to doses that are meaningful on a safety profile that’s attractive to move into that Part b, which nails down the indications we’ll target for the next phase.

Ron Ellis

I’d expect that we have something at ASCO.

Jason Kantor – Credit Suisse

Okay.

Ron Ellis

I mean whether it’s interim look or whether we’re through all the cohorts or not, we don’t know yet, but we certainly have ASCO, have a submission for that.

Jason Kantor – Credit Suisse

And since you are sort of freely speaking about some of the experience you have with the drug, can you say whether or not you’ve seen any confirmed responses by standard criteria?

Ron Ellis

So far, we’ve had I think three, four patients who have gone through scans. We haven’t seen any response yet. We’ve just had these two patients who have seen decrease, but they haven’t reached the 30% level, and they’ve gone out again seven or eight months on the therapy.

Jason Kantor – Credit Suisse

Okay.

Ron Ellis

And that was in the first cohort starting dose. Second cohort, we haven’t got the data from scans yet on patients in that cohort. So, I think the key is going to be to see how this next cohort goes, the third cohort, and then we’ll be up at doses equal to 145 or approximately about there and see how the drug behaves at those dose levels.

Jason Kantor – Credit Suisse

Okay, thank you.

Operator

Our next question comes from the line of Adnan Butt from RBC Capital Markets. Your line is now open.

Adnan Butt – RBC Capital Markets

Well, thanks for taking the questions. Couple on 1456, first based upon your experience with the first two cohorts, when do you expect the third cohort - will be able to give an update on the third cohort? And then secondly, is there any reason to expect differences in tolerability in targeted versus non-targeted patients?

Ron Ellis

Well, so the first question Adnan, on an update on the third cohort. I think we’re – to say cautiously but we’re quite encouraged by what we’ve seen so far in the first two cohorts. We’ve got patients who have been on the drug for eight months now. And so it’s so far very well tolerated. Now if you remember in this drug, we made two design changes to it. One was the much more potent warhead which we’ve seen pre-clinically is significantly better than the 145. The other change we’ve made is in the space [region] [ph] to make the drug so it is more - excreted more through the renal system then the through the liver; you remember the dose limiting toxicity of 145 was ileus and so we made that change to be able to increase the therapeutic window of the drug and so far we haven’t seen any indications of the kind of toxicity we saw with 145 particularly GI toxicity, constipation or ileus.

And then, in terms of the untargeted drug versus the targeted drug, the untargeted drug is not dosable, I mean it’s just too potent. So, there is human data on the untargeted drug to know what it’s going to look like. We know – and so I think the targeted drug at least in animals is dosable and we should see – we have a therapeutic window with that drug, but the untargeted drug, there is no therapeutic window.

Mike Sherman

And Adnan, on your question about the non-targeted patients, I don’t know that we’ve seen significant differences in safety profiles with EC145 or vintafolide, but yes of course that needs to be proven by the data. So it’s not clear whether we’d seen a – see a difference in safety profile between those that are positive for the receptor or those that are negative, we haven’t in the past.

Ron Ellis

Yes, and remember that 1a we’re not selecting patients, we’re just scanning to get their status, but we have negative patients and positive patients both in that early study, and so far we haven’t seen any difference.

Adnan Butt – RBC Capital Markets

Just a question on vintafolide. Now that the program is back, do you think the company would be able to give – present detailed data from the ovarian study somewhere - is that in the works at all?

Ron Ellis

I think we need to do that, I think, yes, we will. I don’t know the timing of when that will occur, we’re still actually going through and doing data analysis on the ovarian study, but I think we need to and will give a public - overview of the program what we’ve learned from it.

Adnan Butt – RBC Capital Markets

Okay, thanks.

Ron Ellis

But, again I don’t have timing for that right now.

Adnan Butt – RBC Capital Markets

Okay, thank you.

Operator

And our next question comes from the line of Boris Peaker from Cowen. Your line is now open.

Boris Peaker - Cowen and Company

Thank you for taking my questions. I just wanted to know regarding the TARGET study for the ESMO and what are your expectations or kind of what are you setting out as expectations for investors and also did Merck see the PFS OS data from that study?

Ron Ellis

Well, two questions, did Merck see the PFS data, yes they were in February, both we saw that, and the response and we both saw what was very early OS data, and so we said there was a positive trend, the treatment arm had not though reached a median. So, we still had a long ways to go. Neither Merck or Endocyte have seen any data since February.

Boris Peaker - Cowen and Company

Okay. So, it’s only been based on the February data?

Ron Ellis

Only February data. So, we’ll get a first look at this, I think we’ve got a place holder submission at ESMO but it needs to be updated, and that I think happens in August. So in the next couple of weeks we’ll I think get the updated OS data.

Boris Peaker - Cowen and Company

Got you. And with the regaining rights from Merck, I’m just curious if you’ve received an increase from maybe other parties, potentially interested in partnering or exploring some kind of subgroup indications?

Ron Ellis

We – I haven’t had any conversations with anybody on that.

Boris Peaker - Cowen and Company

Okay. Great, thank you for taking my questions.

Operator

Our next question comes from the line of Joel Beatty from Citigroup. Your line is now open.

Joel Beatty - Citigroup

Yes. Hi, this Joel Beatty on for Jon Eckard, thanks for taking the question. Could you give us an idea of the time lines of when to expect data from the 1169 trials?

Ron Ellis

Well, it’s – that’s a great question, it’s dose escalation Phase 1a study. The one thing that will probably be a little more useful in this study is that PSMA which is the target is expressed in almost all the patients. And so I mean every patient should conceivably be positive for the receptor we’re targeting. And I’m guessing it’s going to be - it’s hard to know because I don’t know how high we’ll be able to dose escalate, but maybe mid next year. That’s a pure guess, because I don’t know how many cohorts we’ll go through. Mike, do have an update on that or do you know…?

Mike Sherman

No, I don’t have anything to add to that.

Ron Ellis

Okay.

Mike Sherman

We had a question from Ling.

Operator

Our next question is from Ling Wang from Chardan Capital Markets. Your line is now open.

Ling Wang - Chardan Capital Markets

Okay, thank you for taking my question. Can you share with us your thoughts on when you might make a decision on whether to advance EC145 in non-small cell lung cancer or should we assume, you probably going to wait for more data from 1456 to decide which one to advance?

Ron Ellis

We will have to make a decision on that, I think that even though the OS data will be - at ESMO would be helpful it’s still not mature OS data, it’s I think 60% of the data will still be - will have advanced, and we’ll still be giving 1456 data. So I think sometime next year – early part of next year we’ll make a decision of whether we would move forward with 145 either alone or some we could potentially look and see if we partner in that sub-indication or just stay with 1456. But anyway need to see more data before we decide that.

Ling Wang - Chardan Capital Markets

Okay, and thank you.

Operator

And our final question comes from the line Robert Hazlett from Ladenburg. Your line is now open.

Robert Hazlett – Ladenburg

Thanks, thanks for taking the question. With regard to 1456, could you remind us of the half life of that compound compared to vintafolide, just is there any particular difference in that characteristic?

Ron Ellis

It’s longer, and I saw that data a couple of weeks ago, I’m trying to think, Robert, short of guessing I know the half life – serum half life is longer than 145. And but I don’t remember exactly how much longer, I don’t know if Mike remembers or not?

Mike Sherman

Yes, well in the grand scheme of things it’s still a very short half life on the compound, as you recall we are under 30 minutes on vintafolide. So I don’t think it’s dramatically different than that.

Robert Hazlett – Ladenburg

Okay. And then just with regard to the PSMA program, do you foresee the need to screen for PSMA expression in patients. I know it’s pretty widely expressed in prostate cancer. But I’m just curious whether or not you see the need to do that in this study?

Ron Ellis

That’s a great question. We had a meeting last week, an advisory meeting with - on PSMA and imaging, we had - a lot of work has been done at Memorial Sloan Kettering and what’s interesting about PSMA is that yes it’s expressed on most patients, but the level is very different. They see some tumors that - lesions that have high levels of PSMA and others that are very low. So I believe, yes, you will still want to scan and you want to look for those patients that not only some PSMA expression but those that have high levels of that expression of PSMA.

Robert Hazlett – Ladenburg

And what is the status of your PSMA diagnostic?

Ron Ellis

We have two, right now, the technetium agent is clear that’s in the clinic right now, so they can scan patients with that. We have a second one a PET imaging agent which allows us to do better quantification of levels in tumors and that would be ready in the clinic early next year.

Robert Hazlett – Ladenburg

Okay, thank you, looking forward to the data at ESMO. Thanks guys.

Ron Ellis

Thanks Robert.

Operator

And there are no further questions at this time. I would like to turn the call back over to Ron Ellis for further remarks.

Ron Ellis

Well thanks, joining us on the call. We are making really good progress on these new compounds and hopefully at the next call we’ll have more data at this - dose level of 1456 and some data on the PSMA. I think there is a lot of promise in those compounds and the programs would be well developed. And as Mike said, we’re in a good cash position to build and develop those and we’ll just keep executing the development plan for the compounds. Mike do you have anything to add?

Mike Sherman

No, I appreciate everyone joining the call.

Ron Ellis

Okay, thank you.

Mike Sherman

Thank you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may now disconnect.

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