Endocyte's (ECYT) CEO Ron Ellis on Q4 2015 Results - Earnings Call Transcript

| About: Endocyte, Inc. (ECYT)

Endocyte, Inc. (NASDAQ:ECYT)

Q4 2015 Results Earnings Conference Call

March 02, 2016, 04:30 PM ET

Executives

Ron Ellis - President and CEO

Mike Sherman - COO & CFO

Analysts

Adnan Butt - RBC Capital Markets

Boris Peaker - Cowen

Ted Tenthoff - Piper Jaffray

Operator

Welcome to Endocyte's Conference Call to Discuss the Company's Fourth Quarter and Yearend 2015 Financial Results and Operations Update.

Speaking today will be Ron Ellis, President and CEO’; and Mike Sherman, Chief Operating Officer and Chief 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

Thank you for joining our fourth quarter earnings call and yearend. I’ll take a couple of minutes and go through the strategy for the company and our advancement that we've made during the past year on that strategy and then I’ll turn it over to Mike. He'll take a little bit about some of the milestones we can look forward to in 2016 and cover our financials for everyone.

Just so to begin with, I want to talk a little bit about our strategy. Endocyte really as we thought about how we could fundamentally change the way we treat cancer, there were four things that we wanted to accomplish.

The first was that we knew we needed to target super potent drugs to cancer cells and we knew that we couldn’t really effectively treat patients if we had drugs that weren’t highly potent and we also needed to hit every cancer cell.

The second thing that we needed to do was we needed to be able to dose these drugs frequently. Now this traditional treatment of dosing once every three or four weeks would allow cancer cells time to recover and develop resistant mechanisms and so we needed to build a technology or drugs that we could dose much more frequently keeping constant pressure on the cancer.

Now the third element of which we knew we needed to do was to be able to develop drugs that combined well with other drugs. This would address two tumor heterogeneity and also we didn’t want to have drugs that really suppressed immune system, which we knew could play an important role in fighting cancers -- fighting the cancer.

And the last item that we thought was essential for having a really successful strategy or therapy for treatment was to select the right patients and having really the best tools for being able to predict and select the right patients for treatment.

So SMDCs which our technology is based on is ideal for this strategy. As you know these are highly specific drug conjugates or small size, allows them to penetrate tumors really effectively reaching all cells. Their rapid clearance increases safety, allows us to administer them more often and to combine them well with other agents.

We’ve tested this concept pre-clinically and in multiple models just as a one experiment, which I wanted to share pre-clinically in these PDX models, which -- we have compared and this is a multiple cancer model's long endometrial ovarian triple negative breast models.

We've compared the standards therapy at MTD to a SMDC and SMDC combinations. The standard therapy will result in about 4% animal cure. If we've taken SMDC and treat these same models and its MTD and at this frequent dose because of the high potency of these molecules, we can increase that cure rate by seven fold up to 28%.

If we then in those same PDX models combine the SMDC and put it in combination, the cure rate will increase up to over almost 50%. We'll be sharing some data on SMDCs impact on the immune engagement, but as a previous, some recent experiments, which we did in preclinical models where we combined with a checkpoint inhibitor we were able to achieve 100% cures, but more interesting was that once the mice were cured, when they were re-challenged with the same cancers cells, no further treatment, the cancer cells were recognized by the immune system and destroyed.

I will share more on the mechanism of that data through the year, but I think it provides some significant evidence of the importance of combining and the benefit of combining SMDCs in a way with other immune modulators or checkpoint inhibitors rather immune cancer drugs that provide really game-changing efficacy.

Now let me take a minute and talk about our patient selection. We as you know and you're all familiar we have what we call these companion imaging agents and there is one regulator in Europe said, it's really the ideal diagnostic agent for selecting patients.

SMDCs can be easily modified to contain a radioactive tracer, which allows us to quantify the amount of diseases targeted. And so we think we have a very predictive way of selecting those patients, which are most likely to benefit from the therapy.

So, how did we do? How are we doing on executing to that strategy in 2015 and what can we look forward to in 2016? We announced that our first SMDC EC145 and long FR100% patients and they had no carcinoma showed very encouraging data in combination with Docetaxel.

As you've seen in data previously announced, which reported this fall that PFS has a ratio was 0.73 and the OS improvement was six months over Docetaxel alone and we view this as an important study and evidence that we're on the right track with the strategy.

However, we knew we could do better and our second and third SMDCs are in clinical right now. EC1456 potency is much higher. The change in linker technology has allowed us to dose more drug. The Phase IA continues to does escalate. We have not hit MTD and is extremely well tolerated.

The same with 1169, which target PSMA and prostate cancer; dose escalation is ongoing, again extremely well tolerated, which is really important particularly with treating prostate cancer when these -- dealing with an elderly male population and again we have not reached MTD.

We've also been gathering data with our imaging agents in both 1456 and 1169. You're reminded we’re not selecting patients with the imaging agent. We’re just imaging them to get the data, but it’s clear that even in prostate cancer that there are tumors that more high expressers of PSMA and others that are not and our imaging agent allows us to select those patients that are high expressers.

We hired David Mozley from Cornell who has been heading up Development of our Companion Imaging Procedures and he has put together a world-class group of experts in molecular imaging to improve the way that we select patients with our companion imaging agents.

I will just report that one of the advancements Dave made by improving the re-procedures that we’ve improved the reliability from what was about 75% either Inter-Rater agreement to over 90%. Back to our last set of images we're at a 100% agreement.

This in addition to developing methods of which we can quantify the uptake and the lesion, remember previously it was a yes or no, which was effective in selecting patients, but this is an added level of information that allows us to measure the amount that's being taken up in the lesion.

Once we hit the MTD and these two agents will be expanding into multiple schedules and indications with different combinations and that will be something we look forward to in the upcoming year. Mike will give some more details on that.

Lastly as we look forward in 2016 we have two new SMDCs to announce. These agents have already started the preclinical and toxicology work to move into the clinic.

One of the SMDCs not only has a new mechanism of action, but early data that we’ve tested pre-clinically suggest that it not only knocks out cancer cells, but it also knocks out TAMs or SMDCs.

This is really exciting data and worth further exploring because we know these TAMs or MDSCs are cells that keep the immune system from being fully active in cancer treatment. And so a drug that hits both of those targets could really be a powerful drug that we've seen pre-clinically some really incredible data with this molecule.

The other one is an inflammation assay, which we’ve talked about before that targets activated macrophages. That molecule is now moving through preclinical. We’re excited about that because this would be one of the first drugs that we'll be able to knock down inflammatory macrophage and by that hitting multiple targets at the time. These macrophages as we reported, release TNF alpha and IL-1 and IL-6 and so by shutting that cell, we can have a multi-target effect.

So we're moving that forward to the clinic as well and those will be important along with 1456 and 1169 in the imaging agents that accompany those, these other two molecules will be exciting things to track throughout the year as we move along in executing this strategy.

So I’ll turn it over to Mike who can talk about some milestones and finances and then we will have Q&A.

Mike Sherman

Thanks Ron. I'll start with the financials and then hit the summary of the news flow, data flow we expect during the year.

First of all the spending for the fourth quarter of $9.9 million was up from last year’s fourth quarter spend of $8.2 million, but down slightly from the first three quarters of 2015.

R&D of $6.4 million was consistent with the recent run rates, quarterly run rates, up from Q4 last year primarily because we had an accrual reversal in the fourth quarter of last year that related to the close out of the PROCEED trial.

At $3.5 million, G&A in the fourth quarter was down from last year about 16% driven by reduced professional fees including legal fees. We ended the year with $173.6 million in cash representing a cash spend of about $33 million in 2015 for the full year or just under $7 million in the fourth quarter. We expect to end the year 2016 with between $125 million and $130 million in cash.

That reflects a spend rate in the first half that looks similar to the rate we’ve been on in 2015 and then an increase in the second half of the year as we get into the expansion phase of both the 1456 and 1169 trials.

As you know and as Ron alluded to, 2015 was a quiet year in terms of news flow as we’ve been setting the stage for important milestones for both our lead agents and pipeline drug.

As a result, we're looking forward to much greater news and data flow this year in 2016. So let me summarize that.

First we expect to provide an update on the dose escalation trials at ASCO. That update will of course include safety information, but will also provide insight into efficacy signals even though those trials are not in patient selected by the imaging agent.

We expect to be enrolling patients in the second half of the year and the expansion phase of the trials for 1456 that would be focused first on non-small cell lung cancer patients and then for EC 1169 prostate cancer patients. Both of those trials will use the imaging agents to select patients based on their receptor positivity.

We expect to be able to announce efficacy data from those targeted patients by the end of the year. [Indiscernible] and the two new drugs are moving forward to the clinic. On these program we expect to announce more detailed information including a deeper discussion of the mechanism of action, the preclinical data and our clinical development plans and timeline.

So expect those announcements and that detail to come during the course of this year as well.

On those agents we expect much of the preclinical work on the first drug, the oncology drug to be completed this year and then the second drug will be a bit behind that since there is more toxicology work required for the inflammation agent.

So with that, I see we you have some questions. So let me turn it back over to the operator for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And I’m showing our first question or comment comes from the line of Kennen MacKay with Credit Suisse. Your line is now open.

Unidentified Analyst

Hi, this is [Alex] [ph] calling in for Kennen MacKay. Two quick questions, the first one regarding EC 1456 we want to get a focus -- your perspectives on what the focus should be at ASCO in terms of how EC I456 might compare to Vintafolide in terms of superiority of that -- superiority of that molecule, but also looking at [emergence] compound and how that might fair from a competitive standpoint?

Ron Ellis

Great question, I think a couple of things, it's going to difficult to do a really strong comparison across those molecules with a different patient population. We're reporting or EC 145 our Phase I study. There was largely -- it was a dose escalation in all comers.

We were not imaging patients with 145. So we really don’t have their FR expressions with Phase I data from 145. If 1456 were again in all comers and we are imaging, so we do get some information on their FR expression. That’s one fundamental difference between those two. We're also testing two schedules with 1456 where we only had one schedule with 145.

The ImmunoGen compound data reported from Phase I was in a selected patient population, so they're mainly ovarian and endometrial and some long, but mostly were supported on ovarian data which we know was a high expresser.

So, I think the answers is its always tempting and you want to compare early on those compounds. The studies are so different in the patient populations and the designs that I think it will be hard to do that.

Having said that though, I think it's going to be really important and interesting to see A, the dose levels we're receiving with 1456, those we can compare to 145.

We can look at the PK of the molecule and really the other really important thing is the tolerability of the molecule and seeing how well tolerated the molecule is. As Mike indicated, we will look as everyone will want to and we're interested in seeing how it's behaving in this very diverse patient population particularly when we look at the imaging agents as well. So we should have some data to report there.

I would also not forget the data from 1169 in prostate cancer. This is going to be really, really interesting and it is really the first time that we’ve had an imaging agent with an SMDC targeted at PSMA.

And so I can tell you from our studies, both of these studies in particularly the prostate cancer study is enrolling really quickly. We’re getting patients on almost as soon as slots fell open and those studies are progressing well.

Unidentified Analyst

Great and just a quick follow-up to that, you said that you would have some data from the imaging agent. Will there be any efficacy analysis there from a subgroup analysis perspective?

Ron Ellis

Yes.

Unidentified Analyst

Okay, great. And one final question looking at the potential for synergies between 1456 and the checkpoint inhibitors, could you provide some color maybe on where an SMDC could have an advantage over an ADC as a combo therapy?

Ron Ellis

That's another good question and I promised our preclinical people that I won't steal their thunder on all their data. I think the best way to say is we’re pretty excited about what we’re seeing with the SMDCs and its tolerability and the preclinical we'll have opportunity later this year to outline that data and how we see not only in preclinical data, but what we'll see happen as we plan our clinical development program. But it’s been -- so far the data has been very -- pre-clinically very strong.

Unidentified Analyst

Okay. Great. Thanks for taking the questions.

Operator

And our next question or comment comes from the line of Adnan Butt with RBC Capital Markets. Your line is now open.

Adnan Butt

Thanks. So if I understood the comments correctly an MTD has not been reached yet. So what gives the company confidence that the expansion phase can happen, when it will happen by and that there will be some data this year from it?

Ron Ellis

Adnan I guess a couple ways to answer that question, one is as we look at with a better understanding of the PK of these agents, we’re a little bit more equipped to predict the maximum dose may happen than we were when we started the trials and only had EC145 which has a pretty different PK profile.

So I think that gives us some level of confidence and I think it’s also an accumulation of -- as we see while the drugs are very well tolerated today, we begin to see a little bit more noise in the toxicity profile in particular, you start to see increases in cities where we've seen that amid perhaps signals that we're getting close.

We haven’t been very good at predicting that thus far, but I guess those are the couple things that changed the story and we’ve got sites lined up and ready to go, many of which have been participating in the Phase I dose escalation. We'll expand those sites as we get into the expansion phase of the trial.

So should be getting data and enrollment on those what happened rapidly as soon as we hit the MTDs and still be on the same protocol. We won’t have to go through a protocol change in that process.

Mike Sherman

Adnan just the other comment on that, the jumps now in the dose escalation are pretty big in terms of mgs. So early on we’re making half mg or 1 mg jumps as we’re escalating. Now the jumps are 2.5 and then I think there will be a four mg jump and so we’re getting to the level where we just can’t simply keep going down many more cohorts before the doses are so high that we've got to be getting close to MTD.

Adnan Butt

Okay. And could you tell us which cohort and what dose level and what side effects you’re seeing if it fatigue, nausea, constipation or is it something different than you saw with 145?

Mike Sherman

Okay. So with EC 1456 with two schedules, we’re finishing up the 10 mg per meter square dose. And then the twice a week schedule we're at 7.5 mgs per meter square squared and with EC 1169 we’re at four, roughly 4 mgs per meter squared.

Adnan Butt

Okay. And if I can just add one follow up, at ASCO will you have data from 60 patients and I think you mentioned that some of them will be -- will that data will be broken out by full accept expression levels?

Mike Sherman

Yes we'll report all the data -- we'll report as is typical in a Phase IA study. We'll report all patients at all dose levels both safety as well as whatever efficacy that we have with the caveat as you know these were not selective patients and they are a very diverse group etcetera and a lot of patients were dosed up therapeutically but we'll report all that data.

Adnan Butt

So that’s may be up to 60 patients -- how many in each 1456 and 1169 please?

Mike Sherman

That’s a good question.

Ron Ellis

I think it’s close to 40 this isn’t exactly right, but 40 on 1456; 20 on 1169 something that I've scaled.

Adnan Butt

Okay. Okay. Thanks I'll get back in line. Thank you.

Ron Ellis

Adnan your other question about what we're seeing, there is no pattern yet. We have seen patients saying they're fatigued. It's hard to judge that in a Phase 1A study because these are patients who are fatigued anyway. I just don't know, we’ve not seen hematological toxicities, but as Mike said, there just seems to be a little bit more noise as our clinicians say, but no pattern to the noise.

Adnan Butt

Okay. Thank you.

Operator

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

Boris Peaker

Great. Thank you for taking my question. So I recall I think in the past in preclinical data, when we talked about the response to fully receptor targeting is being nonlinear and having more of a threshold profile, I’m just curious of a 1456, should it be the same thing in terms of having as minimum threshold in terms of dose required and if so, based on your models, where are you right now in terms of dosing in terms of reaching or going over that threshold.

Ron Ellis

That’s a great question Boris. Yes, we don’t see any reason why it would be different than pre-clinically. It does not have a linear, it seems to be at certain dose levels you will see almost very little and then you increase the dose by 50% CPRs and cures. So it varies as our preclinical people say it’s a steep curve and it does have a threshold you have to reach.

There is lots of ways to translate that. Our best data based on just exposure AUC is that we’re just starting into the efficacy ranges based on animal data with 1456 based on AUC.

Boris Peaker

Got you. And if you're getting into the efficacy ranges, I’m just curious in this dose expansion where you typically, dose escalation study that you're running right now, would it make sense to actually just do a small expansion study specifically in patients that are improving with imaging.

Just to get a sense of the response maybe you take half a dozen patient and get a sense of are you getting a response instead of trying to keep dosing and finding a maximum tolerated dose, just focusing on initial assessment above the threshold?

Ron Ellis

Yes, that’s a great question. We have -- we debated that when we started the study. Should we just use only positive patients in the Phase IA escalation, happy that our decision not to do that was probably a smart one because we didn’t expect we would dose so many patients.

We would be way behind in terms of dose expansion if we limited just to positive patients. But to your point about getting data and efficacy in positive patients, as soon as we get MTD, we immediately roll over into the expansion phase and that will only be FR positive patients will be dosed.

And we'll have data that’s what Mike is saying this year if we hit the MTD early this year, which we are hoping and expecting we would, that transition into patients that are FR positive will be seamless and immediate.

Boris Peaker

Well, I guess the part that I am having little challenge understanding is I understand you're trying to dose the MTD and it's very common and done in oncology, but if you have a very targeted drugs let's say you do, then there may be a wide therapeutic window between the threshold we just talked about and the MTD.

And so going to the MTD you might not necessarily pick up a lot of benefit, but have patients drop out for various reasons. So wouldn’t it make sense to actually test it on fully positive patients within that range in some way to get a sense of do you even have to dose it in MTD or maybe its counterproductive.

Ron Ellis

Yes, so we look at some of that data, I think to answer your question, not every patient, some of the patients who come in have positive lesions. And so as we get into this efficacious range, we’ll be seeing patients that have some positive lesions and we’ll be watching that as part of the study design without having to slow things down and say okay we’re only going to take 100% positive patients now.

It's also important there is another question we’re trying to answer and that is selecting the parameters of which we will use the imaging agent to select patients.

So for example right now we can measure within each patient a tumor-to-background ratio in each lesion, but we're curious where we should set that ratio, should it be two-fold higher or five-fold higher or six, so in the early phase we want a diverse group of patients that have a whole range of that, so that when we go into the efficacy or smarter about who we're going to select.

Boris Peaker

Got you. And can you just remind me in the dose escalation study how many patients are at each dose? Is it three as is typically done or is it more?

Mike Sherman

Three.

Boris Peaker

Three, got you. Okay. Well, thank you very much for taking my questions.

Mike Sherman

Thanks.

Operator

And our next question or comment comes from the line of Ted Tenthoff with Piper Jaffray. Your line is now open.

Ted Tenthoff

Great, thanks very much guys. Lot of questions specifically on the programs have been asked. So I wanted to ask a higher level question, just with respect as you look at the pipeline start to emerge into larger, little bit more expensive Phase II studies, obviously you guys retain a strong balance sheet, but what do you start to think about strategically in terms of partnering with corporate development with respect to pipeline?

Mike Sherman

Thanks Ted. Let me make a couple of comments [to proceed] at, the work that we’re doing on these pipeline agents, I do want to make it clear that there really isn’t a lot of overlap with the resources that we have focused on enrolling these lead trials. So I think from an activity standpoint and certainly from a spending standpoint, these earlier stage programs aren’t going to impact us much this year.

As we look forward however, the strategy for share count inflammation is going to be from very targeted studies in select indications that will give us an early and quick signal of mechanism to set the stage for partnership.

So it’s not our strategy to try to take this certainly the inflammation agent to the finish line on. As is the case with all of our agents, there the possibility of a partnership even with the oncology drugs is a possibility. We continue to stay close to all Pharma biotech potential partners.

They stay aware of our activity. We think the inflection points for value on those and then partnership will make sense after you have initial data. So we wouldn’t likely do anything prior to initial human data and targeted patients. Does that answer your question, Ted? Did we lose Ted?

Operator

I’m showing his line went back into the queue.

Ron Ellis

Okay.

Operator

All right. And at this time, I’m showing no further questions. So with that said, I would like to turn the call back over to Ron Ellis for closing remarks.

Ron Ellis

Well, I think I ended our last call by mentioning that it’s believe me, it's a little bit had to be patient in drug development and this past year has been kind of a year of patience as we've escalated the doses and kept going up and up.

I was talking to a senior executive at Big Pharma couple of weeks ago about we wanted an update on our program and I told him we've got good news and bad news. The good news is we're still dose escalating. The bad news is we're still dose escalating.

And his response was, really that's all good news and I think that's right. We hope to change as we made in the molecule with 1456 and with the design of 1169 would allow us to dose even more drug of these really, really potent drugs.

So I think that 2016 will be a really important year as we move from dosing and safety into understanding efficacy and understanding how best to select patients.

No I think also that as we have an opportunity and I don’t want to steal the thunder from Chris Lehman, our preclinical people, but as we lay out some of the new pipeline drugs particularly this new drug that kills TAMs or MDSCs will be really exciting and the molecule certainly to keep an eye on as we move that forward along with the inflammation drug.

We also and Mike has done a good job, we've also tried to be very careful with the spend in the runway without slowing things down, but to conserve the cash. So we have plenty of cash to move these drugs where they need to go to get proof of principle and concept on our overall strategy. So we look forward to further updates during the year and providing more data. Thank you everyone.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may now disconnect. Enjoy the rest of your day.

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