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Ocera Therapeutics, Inc. (NASDAQ:OCRX)

Q2 2014 Results Earnings Conference Call

August 11, 2014 4:30 PM ET

Executives

Linda Grais - Chief Executive Officer

Sharon Tetlow - Acting Chief Financial Officer

Franck Rousseau - Chief Medical and Development Officer

Gaurav Aggarwal - Chief Business Officer

Mike Byrnes - Vice President, Finance

Analysts

Joon Lee - Cowen and Company

Stephen Willey - Stifel

Operator

Welcome to Ocera Therapeutics Second Quarter Earnings Call. This call is being webcast live on the Events page of the Investor section of Ocera’s website at www.ocerainc.com. This call is the property of Ocera and any recording, reproduction or transmission of this call without the expressed written consent of Ocera is strictly prohibited. You may listen to a webcast replay of this call by going to the Investor section of Ocera’s website.

After today’s presentation there will be an opportunity to ask questions, until then all participants will be in listen-only mode. (Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Linda Grais, Ocera’s Chief Executive Officer. Please go ahead.

Linda Grais

Good afternoon. Thank you for joining us to discuss highlights of Ocera’s second quarter financial results, as well as our recent progress and outlook. With me today are Sharon Tetlow, our Acting Chief Financial Officer; Franck Rousseau, our Chief Medical and Development Officer; Gaurav Aggarwal, our Chief Business Officer; and Mike Byrnes, our newly appointed Vice President of Finance. Sharon, Gaurav and Mike, each joined Ocera during the second quarter and I’m extremely pleased that they are now part of the Ocera team.

I am also very happy to tell you that we will soon be adding another key member to the team. Dr. Rajiv Patni will join as Chief Development Officer on September 2nd. Rajiv is a highly experienced clinical development executive in several therapeutic areas, including acute care.

Rajiv experience includes leading programs at various stages of clinical development at Actelion, Roche, Novartis and Pfizer. We are excited to have Rajiv join our management team and expect that he will make significant contributions to the development of OCR-002.

Franck will stay on as Chief Medical Officer during the transition period of approximately three months and then will serve as a consultant to the company. We are indebted to Franck for his efforts in securing the merger between Tranzyme and Ocera and launching the AG program.

The current report on Form 8-K furnished with respect to our press release, which includes the second quarter financial is now available on our website, as well as on the SEC’s website at sec.gov.

Today we will provide certain forward-looking statements about events and circumstances that have not yet occurred, including projections of our clinical trial activity and cash usage for 2014 and beyond.

These statements are based on management’s current expectations and actual results and future events may differ materially due to risks and uncertainties, including those detailed in the Risk Factors section of Ocera 2013 annual report on Form 10-K filed with the SEC on March 18, 2014, and the company’s subsequent filings with the SEC.

Ocera disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to Ocera’s SEC filings for detailed discussion of the relevant risks and uncertainties.

We appreciate this chance to update you on our progress with our Phase IIb trial of OCR-002, the investigators sponsored Phase IIa studies, as well as the completion of our recent financing.

By way of review, our Phase IIb trial which is currently underway will evaluate efficacy, safety and pharmacokinetics of OCR-002 in hospitalized patients with liver cirrhosis and in acute episode of hepatic encephalopathy or AG.

This is a randomized, double-blind, placebo-controlled study of our patent protected ammonia lowering therapeutic product, OCR-002. Drug or placebo is administered IV for up to five days. The treatment arm is dosed with 20 grams of OCR-002 over 24 hours.

The primary endpoint for the trial is time to meaningful clinical improvement. We measure improvement with a modified version of the West Haven Scale. To enter the trial patient must have AG severity scores of grade two, three or four on this scale.

In our protocol, we define meaningful clinical improvement, which we also call any event, as a reduction in that score from three or four down to two or below or from two down to one or zero.

The primary endpoint in our trial is time to event, meaning the number of hours from the beginning of the infusion until the patients score drops to level two or below. We plan to enroll 140 patients, which gives 80% power to detect an absolute difference of 23% in time to event between the OCR-002 treatment arm and the placebo arm.

An interim analysis will be conducted after 37 events have occurred and we will evaluate utility and sample size. We enrolled the first patient in January of this year. We expect to enroll 140 patients in the trial.

We currently have activated 40 of our approximately 50 planned sites in the U.S. and are moving forward with our European CRO to open additional sites in Europe by the end of this year. We are confirming our previous guidance that we plan to complete enrolment in mid-2015. We expect to announce the results from this study in the second half of 2015.

In addition to our Phase IIb study, the two investigators sponsored studies continue to advance. One study is an open-label NIH sponsored study of OCR-002 as a potential treatment for HE in patients with acute liver failure.

These patients generally experience acute liver failure or ALF due to acetaminophen for other acute toxicities. This study has now enrolled 16 patients of whom 14 are evaluable. All 14 of the evaluable patients have recovered with one requiring liver transplant.

The other investigator sponsored study is a two-part trial, of which the second part is now underway in Spain. This is a double-blind placebo controlled study evaluating the effect of 10 grams per 24 hours of OCR-002 on ammonia levels in patients with upper gastrointestinal bleeds.

Although we have not been given a projection on announcement of results, we have been informed that this trial has only one more patient to enroll. We are also working towards the development of an oral dosage form of OCR-002 for chronic HE which we believe represents a significant market opportunity.

We are currently focusing on developing prototype formulations in order to select a dosing form to take in the human Phase I studies. Ultimately, our goal is to develop an oral formulation for the chronic outpatient HE population with a convenient dosing schedule.

Let me now turn the call over to Sharon for brief discussion of our recent financials as well as our financial outlook, and welcome Sharon.

Sharon Tetlow

Thank you, Linda and I’m very excited to join the Ocera team as it continues its clinical progress of OCR-002. Now for a brief update on our financials.

For the period ended June 30, 2014, we reported a net loss of $7.2 million or negative $0.46 per share, compared to a net loss of $2.1 million or negative $3.24 per share in the same period of 2013. This increase was primarily as a result of increases in both research and development and general and administrative expense.

As a reminder, based on SEC rules, our historical results prior to the merger with Tranzyme reflect those of Ocera as a private company. We ended the quarter with $38.1 million in cash, cash equivalents and investments and remain on track with our guidance of use of cash during 2014 of approximately $30 million. This excludes of course the $25 million raise in July.

On July 10, 2014, we raised $25.2 million in an underwritten public offering of 4.2 million shares of common stock at $6 per share. These proceeds will primarily be used to continue our clinical development of OCR-002. Based on our cash position at June 30th coupled with the proceeds generated from this offering, we believe that we have sufficient cash to cover operations through 2016.

Linda, I’m now turning the call back to you.

Linda Grais

Thank you, Sharon. Acute HE remains a serious neurological disorder with few treatment options. We believe that OCR-002 has the potential to significantly improve upon the current standard of care for HE, resulting in earlier hospital discharge and a better qualify of life for these very sick patients.

This concludes our prepared remarks this afternoon. Operator, would you please open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question will come from Joon Lee of Cowen and Company.

Joon Lee - Cowen and Company

Hey guys. Thanks for taking my questions and it’s great to see your full team there and apologize, I might have missed this but could you clarify, sort of, the outcome thus far on the acute liver failure study since this study has been open to all comers?

Linda Grais

Sure. Franck, would you like to take that?

Franck Rousseau

Sure. So the acute liver failure study as you correctly stated, Joon, is now open to various causes of acute liver failure, not exclusively acetaminophen overdose like it historically was. And they have actually enrolled one patient with -- because of LF, that is not acetaminophen poisoning, the first one and the studies will go forward like that. So this is just the beginning of the implementation of the change in the clinical site and opening the additional sites. They are not all yet on board yet but we should see more of mix of acetaminophen, enormous acetaminophen reason for LF.

Joon Lee - Cowen and Company

Got you. I know you guys had some challenges with the enrollment in the -- on Phase IIb. I know you guys maintained guidance for mid 2015 for the enrollment. And so does that mean that the study is enrolling as expected or has that changed since the last call?

Linda Grais

Joon, as you probably remember we did make some changes in the protocol and they have had a desired effect on the enrollment rates. So we are maintaining our guidance. I would say that it’s still not an easy trial to enroll as an acute care trial never is but we are maintaining our guidance on full enrollment.

Joon Lee - Cowen and Company

Great. And one last question on, would you be presenting any data at any meetings this year?

Linda Grais

Most likely not this year. We do expect there -- the investigator-sponsored studies will present data next year, most likely at EASL and possibly at AASLD.

Joon Lee - Cowen and Company

Got you. Thanks for taking my question.

Linda Grais

Sure.

Operator

And the next question will come from Stephen Willey of Stifel.

Stephen Willey - Stifel

Hi. Thanks for taking my questions. Just kind of wondering as you continue to bring more sites online, just kind of wondering. And I guess, specifically as you look to build out into Europe as well. Any color you can provide on, I guess, the variability that you might be seeing in terms of background standard of care? And just how we should be thinking about that as you get more of the sites online?

Linda Grais

Franck, could you please take that one.

Franck Rousseau

Sure. So -- hi, Steve. There is not that much variability in the background standard of care because as a matter of fact there is very limited standard of care. As you know, it’s mostly supportive measure and lactulose. Some patients are chronically on rifaximin, so far it’s not the majority.

And in Europe, as you know, rifaximin has just been approved and it’s very, very limited use even in the Western European part and virtually no use in the Eastern European part. So I think the standard of care is being very old, lactulose and supportive measure is actually per uniform across the board so far.

Stephen Willey - Stifel

Okay.

Franck Rousseau

And we do anticipate that it will stay the same.

Stephen Willey - Stifel

And you said that the majority of patients at this point are not on chronic with rifaximin when they’re admitted?

Franck Rousseau

That I don’t know whether the majority of patient in the study so far were not receiving rifaximin, we have a couple that were.

Stephen Willey - Stifel

Okay. And then with respect to the overall timelines, maybe just a little bit more color with respect to where you guys are in that process and does the extension of the enrollment timelines impact the ability at which back its moved into the clinic?

Franck Rousseau

I’m not sure I get the second part of the question, Steve.

Stephen Willey - Stifel

So just in terms of the overall formulation, does the extension of the enrollment timelines, does that therefore have an impact in terms of when we might think about the overall being moved into the clinic?

Franck Rousseau

Oh! I see. So we are still working at developing a prototype that would have the release and eventually animal pharmacokinetics that we liked to see. We have not successfully achieved that yet. We’re working very diligently in exploring multiple tasks to get there. Once we get there, we will clearly communicate that, but we’re not there yet.

So in term of timeline to get into the clinic, the gating factor is much more going to be to have formulation that we like and we think is worth bring in the clinic rather than the timing for enrolling the IV study.

Stephen Willey - Stifel

Okay. And then, should we be expecting guidance, maybe on the next call as to when we might be expecting the interim analysis to get triggered or that just be kind of communicated in the manner in which it happens?

Franck Rousseau

I’ll leave that to Linda. I think that certainly in the next call we’ll have more clarity toward when could that be than we have today, but I’m not sure that we would provide guidance much in advance of doing it.

Stephen Willey - Stifel

Okay.

Linda Grais

Yeah. As we said, the interim is triggered by the number of the events, not number of patients. So after 37 events have taken place then the interim analysis will be conducted. And at this point, it’s hard to say exactly when that will be. But as Franck said, by the next earnings call we may have greater visibility on that.

Stephen Willey - Stifel

Okay. Thanks for taking my questions.

Operator

(Operator Instructions) I am showing no further questions. I would like to turn the conference back over to Linda Grais for any closing remarks.

Linda Grais

Thank you again for joining the call. We appreciate your interest and look forward to updating you on our progress.

Operator

Thank you for -- again for joining. The conference is now concluded. Right now disconnect your lines.

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