Ophthotech's (OPHT) CEO David Guyer on Q2 2014 Results - Earnings Call Transcript

| About: Ophthotech Corporation (OPHT)

Ophthotech Corporation (NASDAQ:OPHT)

Q2 2014 Earnings Conference Call

August 6, 2014 08:00 AM ET


Kathy Galante - VP, IR and Corporate Communications

David Guyer - CEO

Samir Patel - President

Bruce Peacock - CFO and Business Officer


Joseph Schwartz - Leerink Partners

Yigal Nochomovitz - Oppenheimer & Co. Inc.

Carter Gould - JPMorgan Securities

Terence Flynn - Goldman Sachs

Stephen Willey - Stifel, Nicolaus & Co.


Good day and welcome to the Ophthotech Corporation second quarter 2014 Ophthotech corporation earnings results conference call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Kathy Galante. Please go ahead, ma'am.

Kathy Galante

Thank you and good morning and welcome to our second quarter 2014 earnings call. Joining me today, I have Dr. David Guyer, Chief Executive Officer and Chairman of Ophthotech; Dr. Samir Patel, President and Vice Chair and Bruce Peacock, Chief Financial and Business Officer.

Before we begin, I would like to remind you that we will be making forward-looking statements relating to the Company's future expectations regarding its financial results, potential receipt of milestone payments, clinical and regulatory developments, and commercialization plans on the call today. These statements constitute forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. These statements cover many events and matters that are subject to various risks that could cause actual results to differ materially from those expressed in any forward-looking statements.

I refer you to our SEC filings and in particular to the Risk Factor section in our quarterly report on Form 10-Q filed on August 6, 2014 for a detailed description of the risk factors affecting our business.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we disclaim any obligation to do so, even if our views change.

I would now like to turn the call over to David.

David Guyer

Thanks, Kathy, and thank you to everyone for joining us on the call this morning.

During the second quarter 2014, we continued to immerse ourselves in the execution of our Fovista phase III program in combination with an anti-VEGF treatment in wet age-related macular degeneration. Our pivotal program is on track and as you may recall, we expect to enroll a total of approximately 1,866 patients. We've already activated more than 225 sites worldwide. We plan to have initial top-line data from the Fovista phase III program available in 2016.

As we continue to build a strong foundation for the Fovista program, we were extremely excited to have announced on May 19 that Ophthotech achieved yet another major milestone by entering into an ex-US licensing and commercialization agreement with Novartis, the leader in ophthalmic pharmaceuticals worldwide.

This collaboration is a strong validation of Fovista's cutting edge science and executes on our previously stated plan to partner Fovista outside the US with a premier partner, while upon potential approval, Ophthotech continues to plan to market Fovista independently in the US.

As previously announced, total payments to Ophthotech under the agreement could total over $1 billion in upfront and milestone payments, not including future royalties, making it one of the largest ex-US partnering deals ever in the biotechnology industry. Immediate payment and near-term milestones could total up to 330 million.

We have already received an upfront payment of 200 million, which was paid upon execution of the agreement and future Fovista phase III enrollment based milestones could total up to an additional 130 million.

We're also eligible to receive contingent future ex-US marking approval milestones totaling up to 300 million and ex-US milestones up to 400 million. On top of that, we are entitled to royalties on the ex-US net sales of Fovista products, including a mid-30% royalty on Fovista as a standalone product and a royalty of approximately equal value on sales of co-formulated Fovista products.

We remain responsible for milestones and royalties that we owe to third parties. It is important to remember that this is an ex-US agreement and that these royalties not only pertain to potential EU net sales, but also include many markets worldwide including Asia and South America, where we are entitled to the same mid 30% royalty of Fovista as a standalone product in net sales in these markets and a royalty of approximately equal value on sales of co formulated Fovista products.

Ophthotech continues to lead the global Fovista phase III clinical program and continues to have sole responsibility for the registration of Fovista United States while collaborating with Novartis to seek regulatory approvals outside the US. As an important reminder, our Fovista development strategy remains agnostic with respect to the choice of anti-VEGF agent administered in combination with Fovista.

Separate injections of the anti-VEGF agent with Fovista will allow physicians to choose their preferred anti-VEGF agent for the combination therapy. The collaboration also provides for the potentially development of a fixed combination delivery of a co-formulation of Fovista within Novartis proprietary anti-VEGF product, which would result in additional flexibility for physicians.

Novartis will also seek to develop and commercialize alternative innovative delivery technologies such as a Fovista pre-filled syringe as part of our collaboration. In addition, this agreement grants Ophthotech options exercisable under certain conditions to obtain US rights to market potential co formulated product and the pre-filled syringe for Fovista. We have always stated that an ex-US partner was critical to our goal of effectively establishing a comprehensive global branding strategy in advanced of a potential Fovista launch.

As a recognized international leader in an unparalleled global reach in eye disease, Novartis is the perfect ex-US partner for Fovista with proven world class commercialization ability and an established extensive network within the international retinal community.

Novartis has capabilities in achieving a wide distribution outside the United States and a first-hand understanding of the reimbursement mechanisms on a country by country basis.

We have already held several productive project team meetings with our colleagues at Novartis, and together we've rapidly begun to lay the groundwork for setting priorities as we begin to further develop our commercializations strategy for Fovista in advance of a potential product launch. We look forward to working closely with them as the Fovista program continues to advance.

I will now turn to our Fovista expansion studies. Yesterday, we announced the initiation of the first of several expansion studies to evaluate beyond our phase III program, the potential of Fovista to provide additional benefit to patients with wet AMD.

We are extremely pleased to announce that we've started enrolling patients in the first study of our anti-fibrosis program and have dosed the first patient. This particular study is designed to investigate Fovista in combination with anti-VEGF agents to determine the possible role of Fovista in sub rental fibrosis in wet AMD. This was a topic of great interest at our R&D Day in March, and the rental specialists at this meeting were excited to learn more about the potential to help wet AMD patients improve long-term visual outcomes by decreasing fibrosis.

Samir will speak to this in more detail in a few minutes.

Furthermore, we are pleased to announce that data from the independent third party phase IIb sub-group analysis of Fovista in combination with anti-VEGF therapy in potentially reducing sub-rental fibrosis has been recognized by the American Academy of Ophthalmology, a major meeting for rental physicians and ophthalmologists, and has been accepted as a paper presentation at the AAO meeting. This Fovista presentation is scheduled for October 21, 2014.

In addition to the anti-fibrosis program, we're planning additional expansion studies at Fovista administrated in combination with anti-VEGF therapies in the treatment of wet AMD. These studies include investigating the potential for reduction in the treatment burden for patients, as well as for improving -- improvement in sub-optimal visual outcomes for anti-VEGF treatment resistant cases. We are expecting initial data from some of our Fovista expansion trials in 2015.

Plans are also underway to advance our second product candidate, Zimura, to a phase II/III clinical trial for the treatment of geographic atrophy, a form of dry AMD. Geographic atrophy is another area of great interest to us. There is a clear unmet medical need and significant market potential for this form of dry AMD, which affects approximately 8 million people worldwide. In addition to the GA trial, a phase II clinical trial was planned for Zimura and Fovista in combination with anti-VEGF therapy for wet-AMD patients believed to have complement mediated inflammation.

All in all, we have a total of 10 clinical trials now ongoing or to be initiated in the near future, tripling the number of clinical trials planned from last year.

One final note, I would like to welcome the newest addition to our management team. Hans Christinger has joined Ophthotech as Vice President of Business Development and Alliance Management. Hans has over 20 years of experience in the biotech pharmaceutical industry, including 14 years focusing on partnering and licensing in both the US and abroad. His most recent experience includes management positions at Abbott and Roche. In addition to working closely with other members of management on the company's corporate and business development efforts, Hans will represent Ophthotech as the Alliance Manager for the Company's ex-US Fovista collaboration with Novartis.

With that, I'd like to turn the call over to Samir, who will give us a closer look at the anti-fibrosis program, as well as provide more detail on some of the new clinical problems that we will be starting in the near future. Samir?

Samir Patel

Thank you, David. Good morning, everyone, and thank you for joining us today. We have begun our -- to expand our clinical programs as part of our mission to develop the next generation of science-driven AMD therapies to address unmet needs. I will first discuss the anti-fibrosis program we recently initiated and why we believe it's important to address an unmet need for our patients.

As David said, we have a panel of distinguished retina specialists at our R&D Day earlier this year. In addition to addressing the neovascular regression, they were particularly enthused about the possibility of Fovista providing an anti-fibrotic solution for visual loss resulting from the evolution of wet AMD. Furthermore, recent peer-reviewed literature has shown that approximately 46% of wet AMD patients on anti-VEGF monotherapy developed sub-retinal fibrosis after just two years of monotherapy.

As retina specialists look for additional treatment options to enhance visual gain and reduce visual loss for patients, the treatment options are currently limited, particularly during the chronic phase of the disease. In a published study, Fovista has demonstrated an anti-fibrotic effect in a pre-clinical model of retinal scarring. Also respond the publications of the CAT trial also brought attention to the significant anti-fibrotic potential of Fovista combination therapy in our phase IIb trial data. As David mentioned, we have initiated an open-label phase IIa study designed to explore the role of Fovista in combination with anti-VEGF therapy in reducing the formation of sub-retinal fibrosis in wet AMD patients.

We believe the underlying strength of science holds great promise for Fovista combination therapy to modify that disease and potentially become the foundation therapy for wet AMD. We are excited to be at the forefront of this innovation and look forward to data from our anti-fibrosis programs.

In the meantime, we look forward to the sub-retinal fibrosis and neovascular growth data from our phase IIb trial entitled Dual Antagonism or PDGF and VEGF in reduced -- reducing sub-retinal fibrosis and neovascular growth being presented at this year's American Academy of Ophthalmology.

As David mentioned earlier, some of the other programs we have planned for Fovista include adding Fovista therapy to an anti-VEGF regiment in wet AMD patients to reduce treatment burden and another study to address anti-VEGF resistance. These studies are likely what will be coming next in the pipeline for expanded clinical programs. We are also planning a trial in proliferative vitreoretinopathy while the National Eye Institute is planning to utilize Fovista in their study for von Hippel-Lindau disease.

Turning to our second compound, Zimura. We are also excited about our planned phase II/III trials studying Zimura in geographic atrophy. As David said, GA is a very pronounced unmet medical need in the AMD space as there is currently no FDA approved treatment for dry AMD and it affects many more patients than wet AMD.

We believe Zimura inhibits the complement protein C5, a central component of the complement cascade. Studies indicate that complement mediated inflammation plays a major role in pathogenesis of dry age related macular degeneration. By inhibiting C5, we believe Zimura may decrease complement-mediated inflammation and cell damage in dry AMD.

Our phase IIa trial while uncontrolled showed a trend with increased administration correlating to a relatively reduction in mean growth of geographic atrophy lesion area. As mentioned by an independent leading center at 24 weeks, with no evidence of drug-related adverse events. Plans are underway for a phase II/III trial in GA to validate those results.

We're also planning a phase II trial with Zimura and Fovista in combination with anti-VEGF therapy for the treatment of anti-VEGF resistance in wet AMD patients.

I will now turn the call over to Bruce.

Bruce Peacock

Thanks, Samir. I would like to provide a brief update on our results of operations for the second quarter and our (Audio Gap) June 30, 2014 were $42.3 million with $34.7 million attributable to research and development. This compares to operating expenses of $7.6 million and research and development expenses of $4.3 million for the same period in 2013. The increase in research and development costs for the quarter is attributable to the advancement of our phase III clinical program for Fovista including clinical trial costs and the cost of manufactured Fovista for additional trials as well as increased costs from additional research and development staffing and it also includes share based compensation expense.

The Q2 2014 R&D costs also reflects a $19.8 million payment due in pay to a third party licensor in connection with the upfront payment we received under the Novartis agreement. The Company's general administrative expenses were $7.6 million for the quarter ended June 30th, 2014 compared to $3.2 million for the same period in 2013.

The increase was due to increased personnel cost, including additional corporate staffing to support our public company infrastructure, and increased share-based compensation expense and professional services and consultant fees.

The Company reported a net loss for the quarter ended June 30, 2014 of $52.5 million or $1.57 per share. This compares to a net loss of $11.9 million, or $8.07 per share, for the same period in 2013.

Now, let's turn to Novartis deal and its effect on our financial position. In addition to adding significant resources and expertise for the ex-US development and commercialization of Fovista, the Ophthotech-Novartis transaction also strengthens our business by providing cash to continue executing our development and commercialization strategies for Fovista in the US, Zimura, and potentially other products. As of June 30, 2014, the Company had $452.5 million in cash, cash equivalents and marketable securities.

The $200 million up-front payment received from Novartis has been recorded as a deferred liability, which would be recognized as revenue following any EU regulatory approval of Fovista. For income tax purposes, the majority of the $200 million will be recorded as revenue. The Company expects to utilize its 86 million federal income tax net operating loss carry forwards available to reduce the resulting 2014 tax liability, resulting in accrued liability at June 30, 2014, with current income taxes of $29.5 million.

With that, I would like to now turn the call back over to David.

David Guyer

Thank you, Bruce. We are pleased with the Company's productivity over the past several months as we continued to execute on our phase III Fovista program, entered into an ex-US agreement with Novartis, one of the largest ex-US partner deals ever in the biotechnology industry and initiated the first of a series of Fovista expansion studies. We looked forward to the initiation of two additional Fovista studies, one studying treatment resistance and the other investigating treatment burden.

And as Samir mentioned, we look forward to the presentation of the anti-fibrosis data from our Fovista phase IIb trial at the American Academy of Ophthalmology or AAO, where Ophthotech also will host an investor event. More details will follow in the coming weeks.

We'll continue to focus our attention on executing on the plans that we have in place and look forward to providing you with updates as our programs progress. Thank you for your time this morning, and for your continued support.

I'll now turn the call over to the operator to open the lines for any questions.

Question-and-Answer Session


Thank you, sir. (Operator Instructions). We'll take our first question from Joseph Schwartz with Leerink Partners.

Joseph Schwartz - Leerink Partners

I was wondering, thinking back to your last AAO presentations, you showed that different subgroups of patients all benefited from Fovista therapy on top of Lucentis. But I was wondering, based on your recent R&D D Day presentations, if you could remind us, was that the case for patients that are more or less VEGF experienced as well? And if so, could you enrich your phase III enrollment to include people that are more VEGF experienced and therefore might have some PDGF up-regulation and could benefit disproportionately from Fovista?

Samir Patel

Our phase III trial was in treatment-naive patients. It is currently in treatment-naive patients, and just by every feature of that trial, as you know, is predicated on the findings from our phase IIb trial, which was also in treatment-naive patients.

So, we think it is really important to continue with the integrity of the trial and maximize the ability to reproduce those data.

So, we are not including any treatment-experienced patients. But you are correct that VEGF, anti-VEGF up-regulates PDGF. And you'd expect those patients to respond, particularly if they are a part of the anti-VEGF resistance spectrum. And we will be studying this as part of our Fovista expansion studies.

Joseph Schwartz - Leerink Partners

Yes, that makes perfect sense. Puts everything in proper perspective. I guess then maybe the phase II data might understate the benefit that Fovista could bring in the real world where so many people get anti-VEGF therapy. Now, could you also just highlight for us, if you're willing or able to do so under your agreement with Novartis, I know you get some substantial enrollment-based milestones, what are those predicated upon? If you can give us any more detailed sense of those thresholds and -- or will we just hear when they are announced and will there be any detail behind them at that point?

Bruce Peacock

We haven't given any guidance as to what are the detail triggers for those milestones. We've disclosed the aggregate amount and as you just stated, when they're achieved, obviously, then we'll be disclosing that.


We'll go next to Yigal Nochomovitz with Oppenheimer.

Yigal Nochomovitz - Oppenheimer & Co. Inc.

So just on the expansion trials, I'd just like to get a little clarification in terms of the distinction in the patient population between the VEGF-resistant trial and the anti-fibrosis trial because it seems to me that they are not necessarily mutually exclusive, and given that the VEGF-resistant patients may exhibit fibrosis as well. So could you just help me understand the enrollment criteria for those two trials? Thanks.

Samir Patel

So you are correct that, given the mechanism of actions of Fovista in modifying the underlying disease that both sets of patients or both groups of patients should potentially benefit from combination therapy and to that end, in most of the Fovista expansion trials will be looking at both groups. Specific to your question, for the anti-fibrosis, yes, we'll be looking at both treatment-experienced and treatment-naive patients as well, because we believe both of them should benefit from reduction, potential reduction of anti-fibrosis or reduction of fibrosis.

Yigal Nochomovitz - Oppenheimer & Co. Inc.

Okay. And do you have sort of a baseline level of fibrosis that you're requiring the patients to exhibit as an entry criteria as well as a sort of prior VEGF experience as an entry criteria for the fibrosis study?

Samir Patel

The presence or absence of fibrosis based analysis of fundoscopy; it's fairly straightforward and quite sensitive. Pure quantification of the amount of fibrosis is a little bit more challenging, although one can clearly put the amount of fibrosis in categories, some quantification of mild, moderate or severe. What we're requiring as part of our studies as planned are to have a very diverse group of patients with different levels of fibrosis that are enrollable so long as the central region of the retina, the foveal center is not affected by fibrosis because it'd be challenging to demonstrate that you can improve outcome in those patients who already have had significant damage. But we will have brought entry criteria to look at either the reduction in fibrous deposition or development of fibrosis.

Yigal Nochomovitz - Oppenheimer & Co. Inc.

And then on the reduction of treatment burden expansion study. Could you offer some thoughts as far as what level of reduction in treatment burden on VEGF that you might hypothesize or envision? And also could you discuss a bit in terms of what protocols you're going to be putting in place to maximize the opportunity for physicians to possibly limit the use of anti-VEGF when appropriate, so that you could see an effect?

Samir Patel

We haven't disclosed any details about those files, but I'll make some general statements. Anti-VEGF administration is practiced globally can be divided into, at least in the United States, treatment extend regimen is utilized almost unanimously these days. And outside the United States, a lot of physicians use an induction in the maintenance with the PRN regimen. I think, suffice it to say in both of those the number of injections that are given on a yearly basis are not dramatically different. So I think we know from published studies that quarterly administration with anti-VEGF agents, none of them have been proven that the visual acuity holds up with quarterly administration.

So I'd say the benchmark to give some idea of what the level of a treatment reduction that you'd have to be to call it clinically meaningful in our opinion.

Yigal Nochomovitz - Oppenheimer & Co. Inc.

And then on the Novartis deal, obviously there's a lot of interest in what could happen with respect to US commercialization where you have the full rights. So I just wanted to clarify whether the co-formulation work that you may undertake with Novartis is something that's being done with an eye to the US market or if that's really just for the ex-US opportunity?

David Guyer

So as we said, our key thesis is we want to be anti-VEGF agnostic and our market research as well as independent published papers have shown that doctors today want choice, they want separate injections. There are a lot of advantages to it, but we want to be able to provide the greatest flexibility and so we do have options -- opt-in rights for the US for a co-formulation that Novartis may develop.

And I think this is important as we see the way the market changes over time to be able to give the greatest flexibility and choice to physicians. But our main thesis, from what we're hearing loud and clear, both at our Research Day, at a Morgan Stanley sponsored AAO meeting and an independently recently published paper, also just physicians prefer separate injections. Nevertheless, we want to have all bases covered and to have that option for US co-formulation if we choose to do so.

Yigal Nochomovitz - Oppenheimer & Co. Inc.

And David, one sort of big picture question for you. One of the themes that investors have sort of raised with me and discussing the story is just some level of being a bit puzzled as to why you haven't received more credit for the Novartis deal, given its scale and that it is sort of one of the record deals, ex-US on the partnering front. So any thoughts there as to why you think that may be the case?

David Guyer

No, we really can't comment on evaluation or how investors look at it. Simply to say that from an operations point of view and a financial point of view, we are extremely excited.

As we said earlier, it's one of the largest biotech partnering ex-US deals ever, both on the frontend and especially on the backend where it's more like a phase III -- a post-phase III distribution-type economics. Importantly, it is a great partner, and operations-wise having a great partner early to be able to have a global branding is what you want to do, especially with a fast track product.


We'll go next to Geoff Meacham with JPMorgan.

Carter Gould - JPMorgan Securities

This is Carter on for Geoff, two questions. First, how should we think about the prevalence of the fibrotic phenotype among patients with poor visual acuity in the current treatment paradigm? And two, I know in the past, you had spoken about potentially looking at biomarkers in the fibrosis study. Can you maybe update us on the plans to look at these biomarkers in the open label study? Thank you.

Samir Patel

So if you look at just the natural history of untreated neovascular AMD, usually fibrosis is the rule over time. So it's part of the natural evolution of the disease. And with anti-VEGF administrations, multiple studies have independently shown now that as administered in the marketplace at roughly two-year to four-year period, patients are pretty much back to their baseline vision when they experience the dramatic loss vision. And the two factors that consistently are associated with that visual loss is fibrosis and some atrophy of the retina.

Now two very large studies, one being the CAT study and another one from Denmark, have independently shown that approximately a third of the patients develop this complication at one year, and about 45% in the second year, and in larger lesions, it's probably even higher.

So it's a significant cause and in our opinion the major cause for poor visual outcome that limits benefits in these patients. And so, we think it is significantly, it will be fairly easy to determine the reduction of fibrosis and its impact on visual outcome.

And Carter, I think if you can expand on the biomarkers, when you say biomarkers in fibrosis as a finding the fibrosis itself is quite evident.

And for example, in our American Academy of Ophthalmology, the data that's going to be presented [indiscernible] patient trial, independent masked reader had fairly similar data in reduction of fibrosis, as we had presented earlier at the JPMorgan meeting. So biomarker-wise, it's the evolution of fibrosis that we use as biomarker.

Are you specifically referring to -- can we identify patients that are more prone to fibrosis?

Carter Gould - JPMorgan Securities

Yes, I thought you made comments around that in the past, but we could follow up offline.

Samir Patel

Yes, no, but that's true. In general, if you have patients with larger lesions or patients with neovascular tissue right underneath the neurosensory retina or patients with increased hemorrhage, all of those contribute to a faster deterioration or evolution to fibrosis.


We'll go next to Terence Flynn with Goldman Sachs.

Terence Flynn - Goldman Sachs

I was just wondering, in terms of the sub-retinal fibrosis trial that you announced, if you could give us a little more details on the design there. Number one, if there is a comparator arm. And then number two, what the primary endpoint will be if that will be visual acuity, or will it be some measurement or quantification of fibrosis.

Samir Patel

Sure. So just going back in a more historical fashion, in terms of CAT paper when it came out looking at fibrosis in neovascular AMD. They specifically talked about our phase II trial having a significant potential to reduce fibrosis. And that was based on their quantified findings that the neovascular tissue as seen by the OCT examination directly correlated with increased evolution of fibrosis and they felt that the combination therapy hence could be potentially beneficial to these patients.

So in this open-label trial, we are trying to determine what is the most efficient way of reducing that -- what's called a sub-retinal hyper-reflective material on the OCT.

Because that correlates directly with the amount of fibrosis, we are looking at two different regimen currently of administration of Fovista in combination with anti-VEGF, one being pre-treatment with Fovista alone and then subsequently treating with the combination therapy.

And another sub-group of patients will have simultaneous administration of both agents just like we had in the phase IIb trial and the current phase III trial. So what we would like to do is to be able to determine, and we have some pre-clinical studies indicating that, if you pre-treat you're able to have greater revolution of that in neovascular tissue which may contribute to a greater reduction in fibrosis. So those are all components we'd like to study in this open-labeled study, which will determine which direction we're going to go in our definitive program that will be forthcoming.

Terence Flynn - Goldman Sachs

Okay. And the primary endpoint again, what's the major endpoint?

Samir Patel

Yes, so because it's a safety study, pre-treatment is the first time we're doing none of our phase I, IIb or phase III trials had a pretreatment. We're going to go through a safety study, and hence an open-label design for the current study.

Terence Flynn - Goldman Sachs

Okay and then maybe one question. I know, David, you mentioned the recent hiring of Hans to focus on managing Novartis relationship. Was also wondering if part of the responsibility there will be to continue to build out the pipeline on the BD front?

Any thoughts there in terms of -- is this a longer-term project, or is it something you're working on near term? Thank you.

David Guyer

Yes, Hans will -- in addition to his important role as the Alliance Manager working with Novartis, is our Vice President of Business Development [indiscernible] as we have, continue to look at all opportunities with a very, very high hurdle.


We'll go to Stephen Willey with Stifel.

Stephen Willey - Stifel, Nicolaus & Co.

Just curious, as you think about some of these expansion studies, including the sub-retinal fibrosis study. If you're going to be looking at these as an opportunity to maybe evaluate Fovista in patients with occult lesions, because I know that patient subtype was specifically excluded from the phase IIb and ongoing III, and I'm just wondering if you're looking at the expansion studies as a way to get more data in those patient subtypes.

Samir Patel

Just from an evolutionary perspective, the exclusion of [indiscernible] in the phase III trial is -- stems from our initial phase I trial, which was a very small sample size 23-patient study and in that subgroup, you'd like to look at the anatomy for any drug effect because you don't have the sample size and because we had terrific phase I data, inclusion criterias again brought forth in all subsequent studies, including our phase IIb and our phase III to maximize the probability of success.

With that being said, if you look in our phase IIb study, the very group of patients that did best, that is those patients with larger lesions, as you'd expect by the mechanism of action, are typically patients with the occult and when we say occult, what it usually means is that you don't have any classic components. And because we allow patients that have occult components, as long as they had some classic in the phase II trial, we had lots of patients that had predominantly occult, the vast majority of the lesion being occult and they did remarkably well.

And I think there is fairly unanimous agreement amongst retina specialists that the subtypes occult, predominantly classic, minimally classic, are virtually not utilized in the area of pharmacotherapy.

So we have no reason to believe that there should be any differential response.

And this current design of the trial that excludes the classic is just to continue and put that same criteria through an increased probability of success. I think it's of note though in our expansion trials there won't be any exclusion of classic, and also in our current phase III as I think it's important to realize occult minimally classic stems from sourcing evaluation of the lesions, which currently is not performed and mostly OCT is utilized, which is the standard of imaging now. So that is the case in our phase III trials. So the subclass occult, predominantly classic and minimally classic does not apply to our phase III trial.

Stephen Willey - Stifel, Nicolaus & Co.

And then Bruce, I'm not sure if I missed it, but do you have any idea as to what the schedule is going to be in terms of how you amortize the Novartis upfront? Thanks.

Bruce Peacock

Yes, as we indicated in the press release, we'd expect it to be recognized as revenue following achievement of any EU approval. Likely, at that time, the majority of it would be recognized as revenue then.

Stephen Willey - Stifel, Nicolaus & Co.

Okay. So you're going to delay the recognition of the $200 million until an EU approval and we should expect that to hit the P&L as a one-time event?

Bruce Peacock

Correct. That's right.


We have no additional questions. I would like to turn the call back to management for any additional or closing comments.

David Guyer

Great, thank you very much for your interest and support, and we look forward to give you further updates. Thank you.


And that does conclude today's call. Again, thank you for your participation.

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