Altus Pharmaceuticals Q3 2007 Earnings Call Transcript

Altus Pharmaceuticals, Inc. (ALTU)

Q3 2007 Earnings Call

November 07, 2007 11:00 am ET

Executives

John Jordan - Senior Director, Corporate Communications

Shelly Berkle - President and CEO

Jon Lieber - VP and CFO

Burkhard Blank - SVP, Medicine Development and Regulatory

Analysts

Steve Harr - Morgan Stanley

George Farmer - Wachovia Securities

Eric Schmidt - Cowen

Tom McGahren - Merrill Lynch

Presentation

Operator

Good day everyone and welcome to this conference call with Altus Pharmaceuticals, regarding the company's Third Quarter Financial Results. Today's call is being recorded. At this time, I would like to turn the call over to Altus' Senior Director of Corporate Communications, Mr. John Jordan. Please go ahead, sir.

John Jordan

Thank you and good morning, everyone. Joining me today on the call is Shelly Berkle, our President and CEO; Jon Lieber, Vice President and CFO and Burkhard Blank, our Senior Vice President of Medicine Development and Regulatory.

Before I turn the call over to Shelly, I would like to direct your attention to our Safe Harbor statement in our news release. Certain remarks that we may make during this call about future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

As noted in the statement, our actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors, such as those that are discussed in our news release and in our SEC filings, including our most recent Form 10-Q, which is on file with SEC. Please refer to this filing for a description of those factors.

I'll now turn the call over to Shelly.

Shelly Berkle

Thanks, John. Good morning everyone, and thank you for taking the time to participate in our third quarter 2007 investor conference call. During the quarter our commercial theme launched a new brand name for ALTU-135. Going forward, this product and program will be referred to as Trizytek DIGEST porcine free enzymes. Trizytek is an oral enzyme replacement therapy for patients with pancreatic insufficiency. During the second quarter, we started the Phase III clinical trials to evaluate the safety and efficacy of our lead program. The Trizytek efficacy trial, which is a multicenter randomized double-blind placebo-controlled clinical study, is testing a one-capsule-per-meal dosing regimen.

I am pleased to report that we now have 24 efficacy sites and a total of 36 safety sites that have been initiated for this worldwide Phase III program. We continue to add new sites in both the efficacy and safety trials. We plan to recruit approximately 300 patients from more than 50 sites worldwide for the efficacy and safety trials, making this Phase III program one of the largest cystic fibrosis clinical trials [technical difficulty] proteins, which we believe is a significant advantage over other long-acting therapies in development.

We have entered into an exclusive North American agreement with Genentech to develop, manufacture and commercialize ALTU-238. Genentech continues to evaluate its option for global commercialization rights to ALTU-238. With the development plan, when the development plans are finalized we will coordinate with Genentech to provide updated timelines. This is important to Altus. We understand that this is also important to investors and we are working to get this completed.

Before I move on to review our third quarter financials, I would like to briefly review our program. ALTU-237 are orally administered crystalline formulations of on oxalate-degrading enzyme that we have designed for the treatment of hyperoxalurias and potentially kidney stones.

There are limited effective pharmacological treatments for any of these indications, which makes ALTU-237 an important addition to our clinical pipeline. The ALTU-237 pre-clinical data is very encouraging and we are excited about continuing to advance this product through clinical development.

In mid-August, we announced the start of the Phase I trial for ALTU-237. This Phase I clinical trial is single-center, double-blind, placebo-controlled dose escalating study, evaluating the safety and tolerability of ALTU-237 in a normal healthy adult. This study plans to enroll 64 normal healthy adults, that will be randomized into four cohorts. A secondary objective of the trial is to determine the clinical activity of escalating dose levels of ALTU-237 as measured by changes in urinary oxalate levels in normal healthy adults on a controlled high oxalate diet and to identify a dose of 237 for future study.

As the Phase I trial results demonstrate that ALTU-237 is safe in humans, we expect to conduct additional clinical trials to investigate the potential activity of 237 in different hyperoxalurias related indications. The ALTU-237 Phase I trial continues to move forward. I am pleased to report that the first cohort is completed. And the second cohort is expected to be completed this month, and we anticipate enrolling subjects in the third and fourth cohorts in the first quarter of next year. The schedule is somewhat longer than we originally anticipated, but the trial is moving forward, and we remain very excited about the program.

Now, turning to our financials, for the third quarter of 2007, the company reported a net loss attributable to common stockholders of $22.6 million or $0.73 per share, compared to a net loss attributable to common stockholders of $16 million or $0.71 per share in the third quarter of 2006.

For the third quarter, the company reported negative revenues worth $619,000 in the third quarter of 2007, compared to negative revenue of $2 million in the third quarter of 2006. The company's third quarter revenue in 2007 and 2006 were impacted by an increase in the total estimated development program costs related to Trizytek.

During the third quarter of 2007, the company reviewed the planned development program for Trizytek and increased the total estimated development costs from $137.5 million to $157.5 million.

The total expenses for the third quarter were $23.1 million compared to $15.1 million in the third quarter of 2006. The increase in 2007 total expenses were primarily attributable to increased R&D spending, which includes continued clinical and manufacturing costs associated with Trizytek, Spending on ALTU-238 clinical manufacturing, cost related to the ALTU-237 Phase I clinical trial, and development spending on Altus' early stage pre-clinical projects.

Cash: cash equivalents and short-term investment balances as September 30, 2007 totaled $152 million. For 2007, we continue to believe that the net cash used in operating activities will be between $45 million and $55 million.

With the financial review behind us I'd like to review the news that we announced recently regarding management changes here at Altus. At the end of October, we announced that Dr. Alexey Margolin will retire at the end of this year. We are very grateful to Alex for his many contributions to office. During his 14 years with the company, Alex was instrumental in creating the solid scientific foundation that has enabled Altus to grow from a concept to pre-commercial development. Alex made significant contributions to the pipeline of compounds that leverage our unique protein crystallization technology.

We wish Alex all the best and we look forward to continuing to benefit from his expertise as a scientific advisor through office. We also announced that Dr. Burkhard Blank will lead all medical development and manufacturing activities here at Altus, by bringing our development and manufacturing activities under Burkhard's oversight. We believe that our drug candidates will be poised for a smooth transition from research into clinical development.

With that we conclude our formals remarks on the call today. I will now turn the call back over to the operator, who will open the question-and-answer period.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). We will go first today with Steve Harr with Morgan Stanley.

Steve Harr - Morgan Stanley

Hi, I just want to go back and talk a little about the ALTU-135, and first of all just to go over again your primarily end point which is a co-primary, how are you splitting the outcomes among us just two end points?

Shelly Berkle

Okay. I will pass that over to Dr. Blank, Steve. Burkhard?

Burkhard Blank

Yes, the agreement after consulting the FDA on this matter is as follows. The FDA was clear to us that they want to have the Phase III efficacy trial confirm what we saw in the Phase II, i.e., a robust impact on improvement of fat absorption as the most clinically relevant end point and they want to see that in the patient population most that need of that the more severely effected. That's why we have agreed with them to characterize treatment defect in patients who have a baseline TFAs below 40 that means without being on treatment they absorb only 40% of the triglycerides is/are contained in their food. And then, also characterize subsequent to this analysis the overall effect in every patient who made it into the trial and as they associate to life the analysis in patients above 40 only.

Steve Harr - Morgan Stanley

Okay. And then just in terms of the enrollment. Is there a set number you have to get, you've arranged and you are just going to try to get the lower end does that effect your power on. And how large of it delayed do you think this could be in terms of getting the data out?

Shelly Berkle

The agreement with the FDA, and we've communicated that unless this before is as follows. It will be in all common trial and we anticipate having patients enrolled with similar base line characteristics as we have seen in Phase II. The efficacy trial is how to give up at least 80% power to identify a clinically relevant improvement in the above 40 group and which would be roughly 100 patients required for that, with the expectations that we have from Phase II. And this would give us around 40 patients in the below 40 and this stratum would be very highly powered, I think it's in the 98%, 99%. What we have seen so far in the trial is, that overall recruitment is still in line to achieve the communicated release of top line efficacy data in Q2 of next year.

However, we saw a difference from expectations as the percentage of severely effected, i.e. below 40 CFA at baseline patients compared to Phase II. We see few of those than we had anticipated and this obviously, puts the trial in the situation where we have to do everything that can be done to address that piece of what we have seen so far. And because that has the potential of taking longer than originally anticipated result is fair, if we share that element with you today.

Steve Harr - Morgan Stanley

I had presumed that delays to hold on the line at the top line, is this co-primary as you can un-blind part of the study not the rest of it?

Shelly Berkle

No, we would not un-blind the trial. We would not do any analysis until the overall trial has been secured in terms of patient recruitments within the objectives and the agreement of the FDA.

Burkhard Blank

Steve, let me also stress this piece is not on the critical path for NDA submission. The NDA submission is driven by the timeline of one, you're having 100 patients characterized for a year on the treatment.

Shelly Berkle

Steve, the only thing I would add to that is a lot of the US sites that particularly the ex-US sites are now ramping up significantly. So, it is still somewhat premature to give any final answer on that, and again I reinforce what Burkhard Dr. Blank just said and that we don't believe it will impact our NDA timeline with the first half submission of '09.

Steve Harr - Morgan Stanley

Thank you.

Operator

And we'll go next to George Farmer with Wachovia Securities.

George Farmer - Wachovia Securities

Hi, good morning. Can you talk a little bit more about the reasons for the slower recruitment in the zero to 40 group, does it have to do with the availability of patients or does it have to do with reluctance to undergo what you describe as being more or less owner as trial condition?

Shelly Berkle

The patients cannot be reliably identified, as sites even by physicians that treat them for long period as regards to their base line characteristics of CFA, because that is not part of the clinical management it is primarily or for the vast majority of the patients only known once they go into clinical trials. So, what we are seeing is, we are seeing from essay, so far we are seeing somewhat of the channeling impact of more widely -- patients with more mildly expressed pancreatic insufficiency into this trial.

We don't really know what drives this. We have a number of handles to address it, but quite frankly it would be overstating if I would stand up here right now and say this is going to work, this is going to work and an obvious look that we are going to take is whether sites or patients preferred to put patients into the trial that have a higher number of treatment pills in their steady state treatment before they go into the trial that could then explain part of the channeling, but I don't want to speculate any of that. It is very difficult to identify patients before the trial in which stratum they will fall once you characterize them for baseline severity.

George Farmer - Wachovia Securities

And then didn't you see a greater effect in the patients that were in the zero to 40 group verse the 80 group?

Shelly Berkle

You are right, that we saw in that Phase II and this is also one of the reasons why the FDA was clear to common sense to demonstrate and confer in the Phase III that the drug has a major impact on those most in need for treatment.

George Farmer - Wachovia Securities

Okay. Shifting gears to 238, I know you have been able to give details on in terms on MS options with Genentech for rest of the world, right. But can you just kind of remind us when that option was signed, was that actually signed in December when you announced the deal or was it signed in February when the deal formally became official?

Shelly Berkle

What do you mean the options signed?

George Farmer - Wachovia Securities

When does the option come into effect?

Shelly Berkle

Well, really it was in the springs, yes, we signed the overall agreement at the end of the year.

George Farmer - Wachovia Securities

Right.

Shelly Berkle

Okay, and in effect that is the beginning of the contract and that is the point in time from which they started investigating the desire to exercise the rest of world options.

George Farmer - Wachovia Securities

Okay, and finally on 237, can you talk about those limiting toxicities you have observed pre-clinically?

Shelly Berkle

Burkhard, do you want to?

Burkhard Blank

We haven’t seen any dose limiting toxicity and the pre-clinical models neither in the pharmacological models which we deal look at that, but it could pick it up there in the [TOX] program that will run. Let me explain this for a bit what happened here is after we had done the first cohort, we looked at the un-blinded data together with external consultants, and there was a pattern that was somewhat unexpected in the sense that some urinary parameters who have changed, compared with one would see and in healthy subject.

Now, we took the time to put together EXCEL safety committee and provide it to them un-blinded information and what they concluded is this pattern goes across placebo treated patients and active treated patient and in all likelihood is associated with a diet and not -- there was no association what we have seen with treatment.

However, it took some weeks to come to this conclusion and since this trial is run at CRO site what usually happens and will happen in this instance, there are certain time slots given to customers and once you miss one of those time slots you just fall back into the next time slot, so if you like all or nothing it’s not a continual impact on the timelines and then all or nothing, this is what happens. We don't have a concern at all. I personally looked at that closely on the pre-clinical on the clinical evidence, I don't have the concern at all.

George Farmer - Wachovia Securities

Okay, Thanks very much.

Operator

And we'll go next to Eric Schmidt with Cowen.

Eric Schmidt - Cowen

Thanks for taking the question. Another question on Trizytek Phase III design. Could you tell us what magnitude or benefit the FDA wants to see in either the CFA between zero and 40 or CFA less than 80 groups?

Shelly Berkle

We've seen in the Phase II trial in the dose that was selected for Phase III in the below 40 and improvement of CFA of around 30 percentage points. I don't know whether that’s 30 points or whatever, but around 30 percentage points and the overall improvement in that patient population was around 10 percentage points. So, the discussions with the FDA, the consultation that we got from them resulted in a trial design that if confirmed by the results in Phase III that was interpretation interpreted by the FDA as evidence of sufficient clinical activity in the patient population.

Eric Schmidt - Cowen

So, you need to achieve a roughly 30% improvement in CFA in the less than 40 and 10% improvement in CFA in overall population of improvable?

Shelly Berkle

That's right. But as always in these matters, it's very hard to say what is a must, because as you know by chance finding these efficacy redoubts have the tendency they could be on the higher end, they could be somewhat on the lower end. So the 30 is not must, but the statistical results have to be in agreement with the confident interval around to 30 as a mean.

Eric Schmidt - Cowen

I guess what I am asking is, if you have hit statistical significance but the number is less than your targeted 30, essence to last year improvable or this is the FDA set some limit that you must achieve to be convinced to the evidence?

Shelly Berkle

I don't want to speculate on what the FDAs, you might be on whatever outcome of that trial, I see no reason whatsoever why the below 40 shouldn't show again and the increase in CFA and I am subjective on that of at least 25 percentage points, which in my estimation would have the FDA agree that that is a robust confirmation of a clinically meaningful effect in patients most they need.

Eric Schmidt - Cowen

But this one being in the SPA, now I mean they must say you need to had either a statistically significant benefit or a certain magnitude benefit?

Shelly Berkle

What is in the SPA is, what the power of the trial is to detect a difference and, basically I'll summarize to do what the content of the SPA is and I don't want to go into any further details of that.

Eric Schmidt - Cowen

Okay, last question, and just switching to ALTU-238, this may be a question for Jon Lieber, but I was surprised that Altus is still spending a fair bit of money on this program, I thought that Genentech was responsible for all of the manufacturing and development and milestones, sorry clinical developments there?

Jon Lieber

Yeah Eric, you are correct, they are so. We have and they can ask us to do things as part of the development plan, they can ask us to do work for which they reimburse us for that. So, we incur the cost on, certainly, in our P&L for the cost related to that that reimbursed by Genentech for those costs.

Eric Schmidt - Cowen

Jon, I think the Q says that you've spend over $10 million year-to-date though, but you haven't recovered those cost from the top line when do we expect those to come through?

Jon Lieber

Well, first of all we recovered costs based on I think from the time of the agreement coming in fact from Hart-Scott-Rodino with respect to how much we've spent, year-to-date, nine months it was about 10.6 and there is a lag in terms when they pay us. So we recover, we received reimbursements for our second quarter costs we should be receiving our Q3 cost relatively shortly.

Eric Schmidt - Cowen

Okay. So overtime, sorry.

Jon Lieber

Yes, keep in mind that because we haven't disclosed in the documents where we have some issues around our ability to recognize the reimbursement we received from Genentech as revenue. You will see it more reflected in the cash flow statement as opposed to on the P&L.

Eric Schmidt - Cowen

Alright. Thank you.

Operator

We'll take your next question from Tom McGahren with Merrill Lynch.

Tom McGahren - Merrill Lynch

Hi, good morning everyone. Quick question on the ALTU-135, another one on 238. In the Phase II trial on 135 of the 120 or so patients. Do you recall the breakdown as a percentage of those who were zero to 40 CFA baseline less than 80, and then on well answer that question first and I'll ask for 238?

Shelly Berkle

28 over of the total invaluable patients were in the below 40 which was roughly 25% to 26%.

Tom McGahren - Merrill Lynch

Okay. And then on 238, is it fair to say that the Genentech option expires at the end of this year. Do you still think that Genentech will hop in and do you have competencies ready to go and in fact they do not?

Shelly Berkle

We haven't given a firm deadline, we have said that it's an issue of a matter of lots is appose to, and here, Tom, we are working with Genentech to have rest of the world option completed. They are and I have said this before actually we are in discussions with their potential partners. We are just disappointed that these discussions have taken perhaps longer than we would have wished, but that's not unusually negotiation either. So, things continue to move forward and obviously we will communicate to you as soon as we can.

Tom McGahren - Merrill Lynch

I appreciate that. But do you think that there is some point in time where, if you are thinking about they are just not going to do it, they apprises to a material breach the agreement which you do have?

Shelly Berkle

As I said, we are working with them under the assumption that they will move ahead. At the same time, we make sure that if in fact the worst case situation occurred where they didn’t exercise that we can move ahead. We have specific language on our agreement that allows access to some anatropin to the API for rest of the world clinical development as well as access to all of the clinical data that is in fact developed, which will allow us the opportunity to find the partners for the rest of the world. But again, I emphasize that we continue to work with Genentech and their potential partner in terms of try to exercise that agreement.

Tom McGahren - Merrill Lynch

Okay. Thanks a lot.

Operator

And gentlemen there appears to be no further questions at this time, I would like to turn the call back to you for any additional or closing comments?

Shelly Berkle

So, thank you very much. I just like to thank everyone for participating on today's call and we continue to appreciate your support for Altus. Thank you very much.

Operator

And again that does conclude today’s conference call. We thank you for your participation. You may disconnect at this time.

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