Q2 2016 Earnings Conference Call
August 04, 2016, 08:30 AM ET
Michael Cola - President & CEO
Brian Piper - CFO
Garry Neil - Chief Scientific Officer
Mike King - JMP Securities
Brian Marckx - Zacks Investment Research
Good morning, ladies and gentlemen and welcome to the Medgenics’ Second Quarter 2016 Financial Results Conference Call. This call is being recorded and I would now like to turn the meeting over to Mr. Brian Piper, CFO, please go ahead sir.
Thank you and welcome to the conference call everyone. As a reminder, a copy of today's presentation can be found on Medgenics’ website. Our participants on today's call are Chief Executive Officer, Mike Cola; Chief Scientific Officer, Garry Neil and myself Chief Financial Officer, Brian Piper.
Before we begin, I would like to direct your attention to Slide 2 and remind you that today's discussion will include statements about the Company's future expectations, plans and prospects that constitute Forward-Looking Statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.
And with that, I would now like to turn the call over to Medgenics' CEO, Mike Cola.
Thank you, Brian. I am on Slide 3. We have a relatively short agenda this morning. We're going to walk you through the mid-year summary, obviously a very productive, very busy six months and particularly the last quarter. I would like to go back over our genomic medicine approach to discovery and development. We're going to try to do that in the context of the NOI program which Garry is going to work walk you through and give you an update, explain how we came to find the NOI molecule and then Brian will come back with the financials and milestones.
Right as I said an incredibly busy and productive first half with getting our NFC program off the ground and bringing in a new program with KHK. Obviously a lot of operational things had to happen and they have over the first half. We just had a tremendous response to our phenotype genotype study within go our positive ADHD patients. We genotyped over a thousand patients in about three and a half months just remarkable performance by the team but I think it also shows the need, the interest the demand for an effective non stimulant and a real clear diagnosis for a patient. Parent seems to be very interested in this therapy.
We've confirmed the prevalence of the mGluR genes in this patient population. If you remember, this is a 25% international study. Our original trial was done here in Philadelphia and it was a single study. So this should be more representative of the patient population and we intend to treat. It still relatively early even with a thousand patients we could see this number fluctuate but I think it's a good estimate at this point in time.
We began enrollment in the interventional part of the trial in June and we're on target for a second half data readout of the top line data again. It's going well we always experience a little bit of a slowdown in the summer but overall I think we are very much on target.
Based on the prevalence and the genes and the current size of the market, were estimating the US opportunity just for ADHD to be $2 billion to $3 billion then I could spend a lot of time on that today but again I think there's a significant unmet need for a product like this out there in the marketplace.
We are also in the process of kicking off our 22q Deletion Syndrome trial. Again, remember these patients have a very large micro deletion on their 22 chromosome. They're missing a very important GluR gene RANBP1 that gene is important in development of the brain in general. We've had some delays on this program. We're not going to spend a lot of time on it today, glad to answer questions but we have administrative issues with CHOP that have now been resolved. We have a signed contract. We plan to get this started the last week of August the first week in September.
If you remember the design, there is an open label portion of this trial five weeks and then we do a withdraw to put CEBO randomize withdraw through another seven. So we should have that top line responder data, at least from a good portion of the patients before the end of the year. So, again two really nice catalysts.
Also, obviously in the last quarter, we signed a very important deal for our strategically with KHK, we think it will be a tremendous partner. We're treating patients with a very high unmet need, Garry is going to walk you through that in detail. These are severe pediatric IBD patients starting with crones. It is a first in class drug. It's phase II ready and we think there's a relatively minimal investment to due risk those opportunity with a PAC trial that we're setting up to do right now to CHOP. Again, Garry is going to take you through that.
Obviously, very importantly we strengthen our balance sheet with the acceleration in the ADHD program and bringing on KHK. We have raised some money to take off the critical path of a few items that we thought were very important to not slow down the program. Those items were such things as phenotype to genotype to drive more patients to our phase III trial, we're continuing to do that with the ADHD program.
The development of our chip or smith [ph] chip for diagnosing these patients, we're investing there and then CMC for both, the NOI program and the NHC I program. We are trying to take as many things off the critical path in anticipation of great data.
We also extended the cash runway through first quarter 2018. Obviously we have many catalysts between now and then that will look to potentially raise money and importantly we continue to make progress on our genomic approach, where it not take two years into our relationship with CHOP, we see this is a tremendous opportunity. The translational work we're doing with them continues to yield really high value potential targets, we're not going to disclose those targets today but we're going to use the KHK program to show you how the model works.
We go to site 5, again for a company of our size, we have a very nice pipeline and this does not include the early stuff that we're working on with CHOP. Obviously we have three very important catalysts over the next three quarters with the ADHD data, the 22QDS data and the severe pediatric onset IBD data coming on in the next three quarters. We also intend to continue the pace or trying to do one to two new programs with CHOP a year. It does feel about right to have a nine month break between these because once we licensed them in it takes time and effort to set up the teams and get the programs up and running. Again Garry is going to give you a real world deal of what's going on with KHK today.
So we are committed to that, we're only committed to bringing in very high value programs that need very high unmet needs in our patients but it seems very plausible that will be able to do that based on the opportunity at CHOP.
Moving forward to slide 7 on our genomic approach, I think it's very important to understand why we're working with pediatric patients. We get questions about this, they seem like smaller markets where it really translate into adult markets but from a translational medicine perspective, this is the right place to start, why because these patients that have early onset disease generally have distinct genetically driven issues that are much easier to find in this patient population because they haven't been exposed to as many environmental variables.
If you look at the right hand side of slide 7, this is actually an IBD side, as you age, obviously the environmental factors in this case, microbes in your gut play an increasingly important role in your disease and inflammation but earlier on when you have a patient that is two or three years old showing very severe early onset Crohn's disease, that is generally highly genetically driven. Obviously something triggers it at nice patients but they have a genetic predisposition, that genetic predisposition gives us a much cleaner signal for us to do Translational Medicine and allows the CAG group that how can to actually find the genes because the signal to noise ratio is much better in children.
Obviously these children have a high unmet need, severe burden of illness generally very rapid progression and they're very much less responsive to standard of care as Garry will walk you through in the KHK example why because they have a different disease. It is a different disease than the later onset patients at.
So I think you have seen this before but I think it's important to reiterate this is the translational platform that we're working on again already enriched because of the pediatric patient population but also enriched for the rare and orphan diseases about 10% of those rare and orphan patients come through CHOP each year because of their clinical capabilities and the research parlays.
And then you see the scalable infrastructure that we're riding on. This infrastructure has been incredibly productive over the last 10 years with over 450 peer reviewed publications and just a plethora of novel genetic diseases, our job is to take those discoveries and turn them into therapies.
If we look at slide 9, this is how we're doing it. Again, Garry is going to give you a real world example that I think will add a lot of color to this. We get the gene from the CAG group at CHOP, usually comes with a little bit of translational work done with that but it's a clear signal, they know the gene is absolutely related to the phenotype in the disease. The translational piece itself we share with them they have some capabilities, obviously we have some capabilities.
Based on the type of program we generally put together at least a cell based model, an animal model or even a silica model, it gives us the pathway that we need to target and then we go out and look for potential programs that that we can apply to this. Obviously we're best suited to take programs that have failed in phase II or III, have great safety profiles, are well characterizing, well behaved PK and then obviously Medgenics exposed to the development.
Our development pathway looks much more like a cancer pathway regardless of the therapeutic area. We're starting with the genomic biomarker, we think will get greatly improved response rates based on that. It doesn't mean we'll use only genomic biomarkers in the case of NOI program as Garry will show you some data around a protein based biomarker which may be very helpful but in any situation we will start with the predictive biomarker as many companies do today in cancer. What does that allow for? It allows for much improved response rates, smaller faster clinical trials, obviously an increased probability of success and a very targeted launch that should have lots of capital and operating leverage. Our sales force would be embodied in a slip chip. We won't be prospecting for patients or physicians will be driving people to have their genetic status sport.
Obviously once you know the gene and you have diseases that are related to that gene just like in cancer, you can move on to additional agencies quite easily.
With that I'm going to turn it over to Garry. He's going to walk you through the anti-LIGHT opportunity and a real world example of what I just discussed.
Thanks Mike. So we're on Slide 12 now and which is the anti-LIGHT monoclonal antibody overview and I wanted to just start off by saying that we're very pleased with our progress and very pleased with our new collaboration with CAG K on this program.
As you'll recall, this is the first in class biologic which originated with Kyowa Hakko Kirin and it is the target is LIGHT. Now LIGHT as you recall stands for homologous to limbo toxin exhibits and dosable expression and competes with HSB glycoprotein D for binding to herpes virus entry mediator, a receptor expressed on T lymphocytes. So you understand why we refer to this as LIGHT because that expression doesn't exactly roll off the tongue. It's also known as CD258 and it's a member of the tumor necrosis factor Super Family number 14.
Importantly and I'll get into this a little bit later LIGHT is bound by decoys receptor 3 or DCR3 and it has a very important immune regulatory molecule. As we recall, it's a first in class biologic that is phase II ready with available clinical trial supplies. We have strong IP and regulatory exclusivity including the potential or orphan drug status.
Once again, we're pleased to be working with world class partners here including KHK, the originator and a very strong monoclonal antibody scientific shop. And we're also pleased to be working with CHOP including Professor Bob Baldassano who is the head of the Pediatric IBD center there and we also have the best scientific advisors with us including Dr Carl Ware and Sanford Burnham in La Jolla.
So as Mike said we've made great progress on this project in the last month. We've added the expertise we need at Medgenics. We've formed a joint team which is up and functioning with our top collaborators. We've started the dialogue with the FDA, transferred the IMD's that were formerly assigned to Santa Fe to Medgenics and we've now requested that a type B meeting with the FDA which we expect to hold early this fall.
We've transferred the clinical trial supplies through CRO and we've initiated the requalification. We've also planned our first joint development team meeting with our CAG-K colleagues later this month. And as I get into in a moment we've outlined a rapid and efficient development program starting with PLC in a pediatric onset Crohn’s disease and as you know peds Crohn’s disease is an orphan disease and it should thus be possible to obtain registration with a single trial.
If you go to slide 13, this is just to remind you that we were led to this opportunity by the groundbreaking work of Dr [indiscernible] and his colleagues at CAG at CHOP and this is part of our ongoing collaboration as Mike just defined. It's been known for some time that inflammatory bowel disease has a very strong genetic component. The CAG team established the critical role of decoi receptor three in a subset of pediatric onset IBD and later in other pediatric onset autoimmune diseases.
So the slide 15, sorry about the number of confusion but this slide is the rationale for anti-LIGHT approach. So this is an illustration of that rationale. Again, LIGHT is one of the master regulators of T cell function and inflammation. It's produced by immune cells and it up regulates the inflammatory response by stimulating other immune cells including T. cells. It acts through two receptor HPEM and LTBR. But importantly And here's the role of the DCR III which lead us to the antibody.
DCR III which is deficient or sub optimally functional in a subset of kids with peeves onset IBD binds LIGHT and in that capacity it modulates inflammation. So reducing LIGHT has been shown to reduce inflammation in animal models and this suggested to us that excess of LIGHT at the site of inflammation may be an important causal factor in IBD.
And if you go to the next slide which shows the human biomarker study, you can see that in this non interventional biomarker study done by Sanofi increased LIGHT is found in the inflamed tissue of IBD patients these are adults but we expect to find the same thing in the pediatric onset patients.
So taken together, a strategy to reduce LIGHT in the inflamed tissue seem to be very tenable to us. Now, because replacement of DcR3 isn't feasible for many reasons including safety, we look for an antibody binding LIGHT and we were thus able to establish this collaboration with KHK on this unique program.
If you go to the next slide, this gives you our rationale for the treatment intervention in pediatric IBD. Now, as you all know IBD is a very serious disease, fortunately with modern care deaths are less common, but the patients continue to suffer substantial morbidity and functional impairment. The frequency is increasing for unknown reasons.
The pediatric onset disease as Mike said differs from the adult disease in several important ways. First of all, it has a stronger genetic component that and the fact the kids have very strong immune system may explain why the disease also appears to be more aggressive in children with more complications including strictures, fistulas, and need for surgery. Moreover and this is just as important, the disease severely impacts these kids physical and psychosocial development and can create permanent disabilities. So the goal of therapy is not just mucosal healing although that's important in symptom relief, but also prevention of complications in protecting growth and development.
So the traditional treatments including steroids immunosuppressants and others that are being in the main stage of treatment in adults are known to lead to severe infections and also exacerbate some of these issues with growth and development and for this reason pediatric gastroenterologist are starting biologics therapy much earlier in kids so called top down approach which you can see on this diagram.
Unfortunately, as good as these new therapies are as many as 30% of these kids have a suboptimal initial response and half the initial responders stop responding within three years. This is why new biologic therapies like MDGN-002 are urgently needed.
If you go to the next slide, slide 17, these are current development plan in severe pediatric onset IBDs specifically Crohn's disease, as reminder we haven't yet had a chance to talk with FDA about this, but we expect to have that conversation early this fall. We're proposing a small open label, short duration, single center POC study at CHOP in 12 patients with pediatric Crohn's disease who were not responding to TNF-alpha antibodies with or without the DcR3 network mutation.
Our readouts will be safety PK Biomarkers including LIGHT as well as endoscopic healing and symptom relief using the pediatric Crohn's disease activity index. We're looking to get started in the fourth quarter with preliminary data early in 2017.
After proof-of-concept, we have planned a single placebo-controlled Phase III Pivotal registration trial with a long term safety extension for registration. We know FDA is going to require some additional toxicology studies and we will of course have to do some work on production of additional GMP grade material, but we have this all in our plan. You can see this is a very efficient and relatively low cost rapid program we estimate the cost of the proof-of-concept to be around $2 million.
If you go to slide 18, our initial target population is pediatric onset IBD not responsive to TNF-alpha inhibitors. The total population as you can see in the US is estimated to be around 52,000 patients well within the orphan definition. And of these, about 24,500 are currently treated with TNF-alpha inhibitors about 7500 of those do not adequately respond initially and another 8500 stop responding. So there about 15,000 to 16,000 TNF-alpha non-responders in the pediatric IBD population in the US and probably comparable number of patients in EU rather.
So we are exploring efficacy for our Anti-LIGHT antibody in both DcR3 and non-DcR3 mutated patients. If it turns out that the drug is ultimately only effective in the 10% to 15% of patients who have the DcR3 loss of function, the market which still be a very attractive orphan around 2,000 to 3,000 patients in the US with the conservatively estimated value of $300 million to $400 million. With that I will turn it back to Brian.
Thank you, Gary. And hi, everyone. I will just take a moment before moving to the financials to remind everybody of the deal terms for the KHK deal. As Gary mentioned, we are doing a lot of operational work, we are qualifying in KHK clinical supplies, transferring the IND and several other steps. We look forward to conducting the signal finding study initiating that the second half of the year and at that point depending on the data readouts we will reach in the early part of 2017 at point where we can exercise an option to license based on but we have to be positive data. Right to the program which would trigger a payment in the low single-digit millions through KHK.
Following that option exercise, KHK, our partner then elect to either pursue a partnership well which would be a co-development, co-commercialization type arrangement where the parties will share sales and cost equally in the US and Canada and we would receive double digit royalties on exit North American net sales or they could choose to elect a licensing type arrangement where Medgenics' would fund the development and commercialization in North America and the EU and retain approximately 75% of profits and we would also receive double digit royalties on ROW sales. So at that option point, one of those two paths forward would be elected. And then along the way there are success based development milestones stables in either scenario but that is just to give a summary of the deal.
Okay if we move on to slide 21, I will walk through the financials now. Gross and net R&D expenses for the second quarter were $8.7 million. That was both the growth and net number as we have not yet received a final indication on OCS funding in Israel versus 4.5 million gross and 3.0 million net for the same period in 2015. This is a significant increase which was expected and this is due primarily to increase spending on the NFC-I program and our continued support of the CHOP collaboration.
G&A expenses for the second quarter were 2.9 million decreasing from 3.9 million for the same period in 2015 that decrease was driven predominantly by a non-cash stock compensation component, related to stock options for retiring directors and the second quarter of 2015.
Most importantly probably is the cash balance which is now standing at just under $54 million following the fund raise in June that brought in about $20 million and net proceeds. Importantly, thus we expect to fund operations through Q1 2018. Following the raise we have 37.1 million shares outstanding as of August 1st. With just over 11 million options and about 5 million more outstanding, with the average exercise price of 584 and 727 respectively and that is as of June 30th.
And now to conclude on Slide 22, I will just remind everybody of the upcoming milestones we have a very busy second half of the year and right into the first part of twenty seventeen where we'll be looking to accelerate several of the programs. We will be receiving top line data on the mGluR mutations positive trial in the second half. We will very shortly initiate enrollment in the 22Q deletion trial.
And similarly expect the open label responder data that Mike referenced earlier this morning in the second half of the year as well and then the third component is initiating the signal finding study for the monoclonal antibody where we are very-very enthusiastic about getting that going and we will look for responder data in the first part of 2017. And we do expect to have initial pre-clinical proof of concept data with the gene therapy CNS programs in the second half of the year also. So a very catalyst study second half of 2016 for the company and we look forward to continuing on the operations to get us there.
And with that I'll turn it back over to Mike to conclude the call.
Thank you, Brian. As we've discussed just a great first half of the year. We plan on having a similar second half and with that I'll turn it over to the moderator.
Thank you, sir. [Operator Instructions]. Our first question comes from Mike King with JMP Securities.
Sorry Guys can you hear me?
Yes, Mike. We are good. Good morning.
Good morning guys. Just a quick question about-Mike you said that you are going to add like one to two programs per year coming out of CHOP, I just wonder how many, what kind of carrying capacity do you have for these programs? It is exciting as they are just want to have program management perspective different in complex clinical development plans.
Yes, I think it's a great question, Mike. Having run some fairly large organizations, I do think operationally it's important how you on-board programs and I think what we don't want to end up doing is ever risking the existing programs for a new program. So I think we have to be extremely selective in what we bring in. Obviously we're 45% to 50% company right now and we need to continue to build out our infrastructure to handle those programs but it's a process I've been through a couple times as such Gary and I think we have a pretty good understanding operationally as to what it takes.
I think the key there is to have very high value programs, be extremely selective and make sure that operationally we're capable of doing it. We're putting the one to two a year out there but that's a space to what we feel we can do today with relatively limited resources that in future years could change.
I think the good news; Mike is that we're not bound by opportunity or ideas. There are out there, it's a matter of being selective and being operationally diligent to make sure these things and on the right track.
Well I wonder if there's not an opportunity in some case to add value quickly and partner program versus the discussion to go it alone but it sounds to me like you wants to [indiscernible]
Well, I think it's a great point, Mike. KHK is a great example where we're likely not to go alone. I think they have the option to come in and do essentially ex-US commercialization, even though it will control the development. I think we're more than open to those type of collaborations and partnerships. We want to have high operating leverage share which means owning the intellectual property, owning the relationship with the agency and leaders but we don't necessarily want to be the guys doing the heavy lifting around the world to get a drug approved and commercialized it.
Thanks for taking the questions. I'll jump back in the queue.
[Operator Instructions] Our next question comes from Brian Marckx with Zacks Investment Research.
Hi good morning guys and congratulations on all the operational progress and the equity raise.
Wonder if you can talk about what the circumstances were with the anti-life candidate and why Sanofi decided not to continue to develop after phase I.
We don't know the whole story there. Obviously we've dealt almost primarily with KHK but from looking at the R&D which is something we do have it looks like it could have very well been a commercial decision, they had planned to go very broadly into the IBD and it looks like potentially either markets and a lot has changed since that deal was done in 2009. You've got generic Humera and Remicade or by a similar Remicade and on the way you've got the mechanisms out there and I don't know that it would have been an easy pathway for them commercially, a very competitive market. But we're we came to CAG-K and we were the only folks to do this is a path forward that meets a very high unmet need for patient type, obviously not a huge market. I mean peds IBD market, even if it is a first line therapy, it's still an orphan drug and I think that's really what they like. They obviously know the story better than we do they can't fully disclose it and that's fine with us. We look at the data and the facts as they are and see a great path forward particularly with the biomarker.
Mike is it is there any concern and not withstanding that CHOP has significant resources obviously in the space but is there any concern in terms of the clinical in being able to find enough subjects for [indiscernible]
As you know that generally a problem with most orphan diseases is getting the patients. We are in an unusual situation Gary mentioned about the Sana who runs the IBD clinic, it is the largest pediatric IBD clinic in the world which has got 2300 patients that come to Philadelphia. So for this initial trial which is relatively small, we're talking 12 patients, I don't see much of a problem. Obviously we're not going to know all 12 patients, this is a new drug, these are these are adolescents. We're going to go slowly at the beginning but for this first trial I don't anticipate much of a problem. The question is how many patients do you need for registration and I think the answer to that really depends on which patient population we end up with if it is DCRIII mutation population, it's probably a relatively small number. If it's broader it is [indiscernible] failures, it could be upwards of 80 to 100.
So I think that's quite achievable but that will be, it's a great question, it will be something that will negotiate with the agency and it really depends on what we see in this first trial which again I'm fairly confident that we can execute with the 2300 patients that are down there at the CHOP at this point.
All right, great. Thank you.
You are welcome.
And there are no further questions. I would like to turn the conference back over to Michael Cola for any additional or closing remarks.
Yes I just want to thank everyone for their attention. Congratulate Garry and Brian and the team for a great first half and we look to finish second half quite strong. It's a foundation that we're building today that should lead us to success for many years in the future. Thank you all and enjoy the rest of your summer.
And that concludes today’s presentation. Thank you for your participation. And you may now disconnect.