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Celator Pharmaceuticals Inc. (NASDAQ:CPXX)

Q2 2014 Earnings Conference Call

August 7, 2014 4:30 AM ET

Executives

Beth DelGiacco – Stern Investor Relations, Inc.

Scott T. Jackson – Chief Executive Officer

Lawrence D. Mayer – President, Chief Scientific Officer and Head-Research

Fred M. Powell – Chief Financial Officer

Derek Miller – Chief Business Officer

Arthur C. Louie – Chief Medical Officer

Operator

Welcome to Celator Pharmaceuticals’ Second Quarter 2014 Financial Earnings Conference Call. At this time, all participants are in a listen-only mode. An audio webcast of this call is available on the Investor Section of Celator’s website at ir.celatorpharma.com. This call is subject to copyright property of Celator Pharmaceuticals and recording reproduction or transmission of this call without written expressed consent of Celator Pharmaceuticals is strictly prohibited. As a remainder, today’s call is being recorded.

I would like now to introduce Beth DelGiacco of Stern Investor Relations.

Beth DelGiacco

Good afternoon. A press release for the Company’s second quarter 2014 financial earnings became available at 4 PM Eastern Time today and can be found on the investors section of the Company’s website at ir.celatorpharma.com.

Before, we begin I will read Celator Pharmaceuticals’ Safe Harbor regarding forward-looking statements. To the extent that statements made during this call are contained in Celator’s press release are not descriptions of historical facts regarding Celator they are forward-looking statements, reflecting the current beliefs and current beliefs and expectations of management made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Words such as may, will, expect, anticipate, estimate, intend and similar expressions, as well as other words or expressions referencing future events, conditions or circumstances are intended to identify forward-looking statements.

Examples of these forward-looking statements include, among others, statements regarding whether enrollment in our Phase III clinical study of CPX-351 will continue on schedule. The safety, potential efficacy and therapeutic potential of CPX-351, whether clinical results for CPX-351 obtained to-date will be predictive of future clinical study results, our expectations regarding our research and development plans for in the commercial potential of CPX-351, our expectations regarding regulatory submissions in approvals, our expectations regarding the sufficiency of our working capital and our expectations regarding our ability to expand our product pipeline in advance our CombiPlex platform.

Forward-looking statements involve substantial risks and uncertainties that could cause our clinical development programs, future results, working capital requirements, performance or achievements to differ significantly from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, the uncertainties inherent in the conduct of pre-clinical and clinical studies enrollment in clinical studies, availability of data from ongoing clinical studies, expectations for regulatory approvals and other matters that could affect the commercial potential of our drug candidates, our ability to raise capital and the trading of our common stock.

Celator undertakes no obligation to update or revise any forward-looking statements. For a further description of the risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks related to the business of the Company in general, see Celator's Form 10-K for the year ended December 31, 2013 and other filings by the Company with the U.S. Securities and Exchange Commission.

To begin todays call Scott Jackson, Chief Executive Officer Celator Pharmaceuticals will provide an overview of the business and discuss the business highlights for the second quarter of 2014. Following Scott, Dr. Lawrence Mayer, Celator’s President and Chief Scientific Officer, will provide an update on our new strategic plan to advance the CombiPlex technology platform and widen its application.

Finally, Fred Powell, Celator’s Chief Financial Officer will review the company’s financial results for the second quarter and we will then open the call for Q&A. Other members of management available for Q&A are Derek Miller, Chief Business Officer and Arthur Louie, Chief Medical Officer.

I would now like to turn the call over Scott Jackson.

Scott T. Jackson

Thank you, Beth and good afternoon everyone. We are pleased to have you join us today. We had a very productive second quarter, both in moving forward with ongoing initiatives and with planning our future. We step much of these past quarter focused on our lead product CPX-351 with an eye on the anticipated completion of the Phase III study and potential new drug application or NDA.

We spend our time managing patient enrollment of the pivotal Phase III study, modeling the progress of investigator initiated studies and interacting with regulatory bodies. We also secured funding that will allow us to continue making progress with the development of CPX-351 and advancing our technology platforms.

These are all very important checkpoints and based on the progress we made this quarter we feel confident in our initial projection that we will complete enrollment of our Phase III study in the fourth quarter of 2014 report data on the secondary endpoint of induction response rate in the second quarter of 2015 and report overall survival data the primary endpoint in the first quarter of 2016.

We also spend time thinking about our long-term strategy and how we can use what we've learned from the CombiPlex platform and CPX-351 studies to-date. To develop new product combinations based on our cutting edge technologies. We were extremely excited to announce at our first Analyst Day in July that we will be broadening the application of the CombiPlex platform, beyond traditional chemotherapeutic drugs to include molecularly targeted therapies.

Dr. Lawrence Mayer, our President, Chief Scientific Officer and Founder will elaborate on the relevance of the CombiPlex platform and on our strategy in studying new combinations going forward. And he will also provide a rational and why we intend the focus on certain combinations of therapies over others. We hope that this strategy will lead to new internal pipeline candidates and also to research and development partnership opportunities with other pharmaceutical companies.

But before we get to that I would like to provide more detail on the progress we made with our primary value driver CPX-351. Both in our Phase III registration study and also through the investigator initiated studies that are ongoing and planned. CPX-351 is based on our proprietary CombiPlex platform and is a synergistic 5 to 1 molar ratio of cytarabine and daunorubicin. This is currently being evaluated in a Phase III clinical study in patients with previously untreated secondary acute myeloid leukemia.

The study, which is being conducted in partnership with Leukemia & Lymphoma Society has a targeted enrollment of 300 patients and is being conducted in the United States and Canada. The patients are being randomize one-to-one so 150 patients will receive CPX-351 and 150 patients will receive the control arm which is the conventional therapy of cytarabine and daunorubicin commonly referred to as 7+3. And 7+3 is the current standard of care for patients with acute myeloid leukemia.

As I previously mentioned, the primary endpoint of the study is overall survival. The study was designed with this primary endpoint to be powered at more than 90% in order to detect the hazard ratio of 0.635 or better or approximately a 36.5% decrease in the risk of death with CPX-351. With a higher powered study, we hope to decrease the chances of false positive or false negative results and demonstrate the real effect of the drug, taking it conservative approach by assuming smaller difference and outcomes maybe seen in Phase III than what was seen in Phase II.

The secondary endpoints include response rate, event-free survival, 60-day mortality and leukemia clearance rate. We continue to receive positive feedback from the Independent Data and Safety Monitoring Board or DSMB, which completed a pre-plan safety analysis of the 150 patients enrolled in the study and recommended that the study continue as planned without protocol modification. We of course, find this reassuring and appreciate the DSMBs ongoing efforts to oversee the safety of the study. Overall we are very pleased with the continued strong execution of our pivotal Phase III study and support of the investigators and patients.

Thanks to all of these efforts we have surpassed 80% of the expected enrollment of the study. Again, we feel confident that we complete enrollment in the fourth quarter of 2014. Before turning the call over to Lawrence I want to talk about a few of the investigator initiated study we have ongoing or that we expect will start enrolling this year. Our Phase II study demonstrated high activity for CPX-351 particularly in high risk AML patients, leading us to seek registration and approval of the drug in the secondary AML population.

That said, we also believe that CPX-351 maybe used to treat patient with other forms of AML as well as other hematologic malignancies. To this end, we’ve pursued parallel development primarily through investigator-initiated studies and indications beyond secondary AML. Several of these studies are ongoing at highly regarded centers. I will not detail all of the studies today but I would like to touch on a few. We are looking at special AML populations that may benefit from CPX-351. Many AML patients are elderly and come with greater clinical risk. These increased risks create a subset in the AML patient population that may not be deemed eligible for intensive treatment.

At the Fred Hutchinson Cancer Research Center, CPX-351 is being studied in patients with either high risk myelodysplastic syndrome or AML were at high risk of treatment related mortality. We also have a study planned to initiate at MD Anderson Cancer Center evaluating CPX-351 in AML patients that are unfit for intensive chemotherapy.

At Cornell CPX-351 is being studied as a potential preconditioning agent prior to stem cell transplantation. For transplant candidates investigators hypothesize that CPX-351 the bulking of tumor from the bone marrow immediately prior to transplant may improve outcomes in late stages patients with myelodysplasia or AML. At Stanford, CPX-351 is being studied in high risk myelodysplastic Syndrome or AML patients. Who have few treatment options after relapse or refractoriness to prior hypomethylating agent therapy. These are just a few of the studies we have a long side our pivotal Phase III and we hope to initiate more as we identify patient subsets that may benefit from CPX-351.

So that is a very brief overview of some of the studies evaluating CPX-351. The investigator-initiated studies that I mentioned will provide important singles for additional development opportunities and possible label expansion for CPX-351. We conservatively estimate that CPX-351 could ultimately lead to global topline peak sales in the $500 million to $750 million range based on this potentially broader usage, but as I said our goal is to be Cutting Edge Technology Company and we want to maximize our technology to produce new internal products and to broaden our pipeline. We intend to do this with the CombiPlex platform and have laid out three potential new combinations of drugs to this end.

With that I would like to turn the call over to Lawrence Mayer to talk about this new strategy and our plan to broaden the pipeline of product opportunities via the CombiPlex platform.

Lawrence D. Mayer

Well thanks Scott. It’s a pleasure to be on the call today. As mentioned earlier CPX-351 is based on our most advanced proprietary technology platform called CombiPlex. And as a quick primer combination therapies are currently the most common approach to treating cancers. And many of these combinations require simultaneous exposure. Yeah typically these chemotherapy agents as well as other novel and approved agents have very different pharmacokinetic properties and consequently controlling the rate that each therapy penetrates the tumor cell to achieve simultaneous exposures very difficult.

In addition, most drug combination utilize doses based on the maximum tolerated dose, that was determine for each agent separately in early Phase I escalation studies. And in many cases this dose selection method may not be optable from maximizing efficacy when the drugs are using combination. So the CombiPlex platform allows us to identify a synergistic ratio of drugs and lock this optimal ratio in a drug delivery vehicle that will ensure maintenance and delivery of that ratio for extended periods of time in patients with the goal of markedly improving clinical benefit.

And in this matter CombiPlex optimizes drug combinations and has the potential to change how combination therapies are developed and also how cancer are treated and practice. Through CPX-351 are the early stage pipeline candidates we have demonstrated how CombiPlex can be beneficial in combining chemotherapeutic regimens. What we see vast potential in using this technology platform and combining other types of therapies as well, to our knowledge we are the only company that has been able to deliver synergistic combinations of drug simultaneously. And we would really like to explore how we can maximize this competitive advantage.

As Scott mentioned that our Analyst Day in July, we were pleased to rollout more detail on this plan to broaden CombiPlex using molecularly targeted therapies, and our current plan is to advance the technology and three distinct areas of this type of investigation. The first type of combination targets signaling pathways associated with major cancer indications, this includes inhibitors of the PI3 Kinase, AKT mTOR pathway, in combination with inhibitors of the RAFT mTOR pathway. We believe that these combinations are important to investigate because these two pathways together often impact the outcomes of a wide range of tumor types. And previous attempts to combine these types of inhibitors have exhibited some toxicity issues that maybe results with CombiPlex.

The second type of combination we planned to study, our combinations for existing chemotherapeutic such as docetaxel or other taxanes with molecularly targeted agents against modulator that control apoptosis such as heat shock proteins. This combination has been well studied, but a number of clinical trials today it have not been successful, based on the available data we believe that CombiPlex has potential to overcome the short comings of earlier attempts with this combination by creating a co-formulation that it provide simultaneous exposure of a taxane and heat shock protein inhibitor at optimize concentrations well minimizing toxicities.

And finally, we expect to look at combinations of epigenetic modulators such as histone deacetylase inhibitors in combination with hypomethylating agents. There is a very strong rational scientifically for this combination and again one were believe the CombiPlex approach could significantly impact and optimize efficacy outcomes. We are very excited to investigate combination of these agents are believe that these efforts will lead to very intruding internal candidate for development and potential R&D collaborations with other pharmaceutical companies especially if we are able to maximize the efficacy of drug combinations utilizing inhibitors of a very hardly studied pathways. Given the work we’ve done in this past quarter, we have feel we are very well poised to execute on this new strategy to have a full data sets available with these new programs by the third quarter of 2015.

And with that, I would like to turn the call over to Fred for an overview of the financial results for the quarter.

Fred M. Powell

Thank you, Lawrence. I’ll talk to our second quarter financial results, but I would like to first mentioned the source of funding that we secured recently then not only strengthens our balance sheet, but also allows us the flexibility to extend our operating runway into the fourth quarter of 2015 and execute on the many of the initiatives that Scott and Lawrence described today.

In May, we have announced a loan and security agreement with Hercules Technology Growth Capital for term loan of up to $15 million. We’ve received the first $10 million of the term loan at closing, and it is repayable installments over 42-months including an initial interest only period of 12-months after closing. The interest only period is extendible to October 2015, continued upon completion of enrollment in the Phase III to raise study by December 31, 2014.

Pursuing to the agreement, Celator issued Hercules warrant of purchase 158,006 shares of the company’s common stock at an exercise price of $2.67 per share. The remaining $5 million of the term loan can be drawn down at Celator's option at anytime between December 15, 2014 and March 31, 2015. If Celator draws down to remaining $5 million of the term loan, the warrant will become exercisable for an additional 52,669 shares of the company’s common stock.

Now on to the financial results from the second quarter of 2014 on which we issued a press release earlier this afternoon. We ended the second quarter with $24.9 million in cash and cash equivalents compared to $20.8 million as of March 31, 2014. Research and development expenses increased to $2.9 million for the quarter ended June 30, 2014 as compared to $2 million in the comparable period in 2013. The increase in R&D expenses was largely due to manufacturing, clinical and regulatory activities related to the Phase III study of CPX-351.

General and administrative expenses for the quarter ended June 30, 2014 increased to $1.7 million as compared to $1.1 million in the comparable period in 2013. The increase was primarily attributable to costs associated with commercial and strategic planning and increased compensation in investor relations expenses. We reported loss from operations of $4.8 million for the quarter ended June 30, 2014, compared to $4 million for the comparable period in 2013.

Now I’d like to turn the call over to the operator for any Q&A. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Joseph Pantginis from Roth Capital Partners. Your line is now open.

Unverified Analyst

Hi Guys. This is Diana [ph] in for Joe. For the Phase III, 351 study is there any other plan DSMB look or filing for enrollment is there any other any plan look at the study or should we just we waiting for the induction response rate data in the second quarter 2015?

Scott T. Jackson

Hi Diana, Thank you for the question. Yes there is another DSMB plans, the way to DSMB we are structured is that they would review after 25%, 50%, 75% a course completion Phase III study. We hit the 75% enrollment target, 225 patients in June and we do expect to have the next DSMB meeting in the fourth quarter of this year.

Unidentified Analyst

Okay great, thank you. And I have just one more question. You may have mentioned this but regarding IST that’s evaluating 351 as a preconditioning treatment for AML and higher risk MDS. Is that still expected to be completed in third quarter 2014?

Arthur C. Louie

Here is a discussion about extending the study possibly. So I think there is not likely that they will get through the 10 patients they plan originally and benefited is extended by another 10 patients or beyond that, it may go little bit longer.

Unidentified Analyst

Okay great. Thank you so much.

Scott T. Jackson

Thank you

Operator

Thank you. (Operator Instructions) I am showing no further questions on the phone line. So I’d like turn the call back over to Scott Jackson for further remarks.

Scott T. Jackson

I’d like to thank everyone for their participation in today’s call. And we look forward to updating you again soon. Operator.

Operator

Ladies and Gentleman, this concludes today’s program. Thank you once again for your participation. You may now disconnect. Everyone have a great day.

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