EPIX Pharmaceuticals Inc. Q4 2007 Earnings Call Transcript

EPIX Pharmaceuticals Inc. (EPIX)

Q4 2007 Earnings Call

February 20, 2008 10:00 am ET

Executives

Kim Drapkin - CFO

Michael Kauffman - CEO

Andrew Uprichard - President and Head of R&D

Analysts

Ted Tenthoff - Piper Jaffray

Alan Carr - Needham & Company

Michael Yee - RBC Capital Markets

Yale Jen - Maxim Group

Ian Sanderson - Cowen

Presentation

Operator

Thank you for holding, and welcome to EPIX Pharmaceuticals yearend 2007 investor conference call. At this time all participants are in listen-only mode. Three will be a question-and-answer session following today's remarks. Please be advised that this call is begin taped at the Company's request and will be archived on the Company's website for two weeks from today.

At this time, I would like to introduce Kim Drapkin, EPIX's Chief Financial Officer. Please go ahead.

Kim Drapkin

Thank you and good morning. Welcome to EPIX's conference call for the fourth quarter and the year ended December 31, 2007. With me today on the call is Dr. Michael Kauffman, Chief Executive Officer of EPIX. On today's call, I will be discussing EPIX's 2007 financial results and guidance for the current fiscal year. Michael will then review EPIX's key 2007 achievements and highlight our 2008 corporate objective. After the prepared remarks, we will open the call up to question. Dr. Andrew Uprichard, our President and Head of Research and Development will be joining Michael and I for the Q&A session.

Certain matters we will discus today other than historical information consists of forward-looking statements relating to, among other things, our expectations concerning our future results, available cash, clinical programs and regulatory strategies. These forward-looking statements are not guarantees of future performance and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.

These risks and uncertainties are described in our annual report on Form 10-K for the year ended December 31, 2006 and subsequent SEC filings. You are cautioned not to place undue reliance on these forward-looking statements which speak only as of today. We undertake no obligation to update or revise the information provided in this call, whether as a result of new information, future events, or circumstances or otherwise.

Now, I would like to review our financial results for the fourth quarter and year ended December 31, 2007, details of which were provided in the press release we issued earlier this morning.

For the year ended December 31, 2007, we reported a net los of $62.8 million, or $1.85 per share, versus a $157.4 million, or $7.57 per share, for the year ended December 31 2006. This decrease in net loss was primarily due to a non-recurring charge of $123.5 million recorded for in-process research and development relating to the acquisition of Predix Pharmaceutical Holdings, Inc. in the third quarter of 2006.

Total revenues for the year ended December 31, 2007 were $15 million compared to $6 million for 2006. This increase in revenue is primarily due to our successful achievement of milestones and reimbursed research costs under our strategic collaboration agreement with GlaxoSmithKline and Cystic Fibrosis Foundation Therapeutics.

Research and development expenses totaled $57.5 million in 2007 compared to $26.3 million for 2006. The increase in the R&D expenses was due to increased R&D activities across our five ongoing clinical development programs, as well as preclinical programs and internal costs.

General and administrative expense was $20.1 million in 2007 compared to $12.3 million for 2006. This increase was primarily due to the non-recurring legal and accounting costs associated with our investigation of the historical stock option practices completed in the first quarter of 2007.

We currently have $100 million of convertible debt outstanding. Approximately 41.4 million shares of common stock were outstanding at December 31, 2007. For the year ended December 31, 2007, we are reporting cash, cash equivalent and short-term investments of $61.1 million compared to $109.5 million at December 31, 2006.

We currently estimate that cash, cash equivalents and marketable securities on hand as of December 31, 2007, together with the anticipated revenue to be earned in 2008, will be sufficient to fund our operations through the first quarter of 2009. In addition, with respect to the full 2008 fiscal year, we currently expect to realize a net loss in the range of $45 million to $50 million with revenue in the range of $25 million to $30 million.

Revenue in 2008 is expected to relate primarily to reimbursed research and development costs and milestone achievements under our existing strategic partnership agreement. Accordingly, our revenue expectations are based in part on our ability to continue to progress the clinical development of our product candidates under our collaboration agreement.

2008 will be a significant year for EPIX with potential value-creating events, including proof-of-concept in PRX-23 in depression and potential approval of Vasovist. These catalysts and other progress we hope to make in 2008, could offer us significant sources of capital.

This concludes our financial report and I will now turn the call over to Michael.

Michael Kauffman

Thank you, Kim, and good morning. The past year has been an exciting year at EPIX. We are extremely pleased with the milestones we achieved under our partnerships with both GlaxoSmithKline and Cystic Fibrosis Foundation Therapeutics. We're also very proud of the exciting data we announced in 2007, including Phase 2a data for PRX-8066 and Pulmonary Hypertension associated with COPD, and a positive Phase 1b data for PRX-7034 in Obesity and Cognitive Impairment.

It is also important to note that the Phase 2a data we announced in Alzheimer's disease for PRX-3140 was compelling and showed statistically significant improvements in patients ADAS-cog measurements after only measurements after only two weeks. As you all know, we updated our Alzheimer's data in January of this year when we discovered data transcription errors made by the CRO prior to their delivery of the data sent to us. We were obviously very surprised to learn that after announcing our preliminary results that a well established multinational CRO that specialized in Cognition Research would report erroneous data to the company.

I'd like to take a moment to address this. We at EPIX remain committed to providing our shareholders and the public with accurate clinical trial results. When we discovered these errors, we moved as quickly and as efficiently as possible to report our fully audited and validated findings to the public. Most importantly, we and our partners GSK as well as patients remain very encouraged by our clinical results for 3140. We saw an impressive improvement in-patients cognitive function within two weeks and the drug was well-tolerated with no serious drug related adverse events.

I'm happy to report that this program is extremely promising and is moving forward. We are working closely with GSK to design the Phase 2b program, which we plan to initiate in the first half of this year. We have several patients that have continued on an extension study and one has been dosed through an additional three months. They all continue to make progress and realize the cognitive benefits of PRX-3140 and appear to be tolerating the drug well.

Now, as we move into 2008, EPIX is looking forward to continuing to build on our clinical development advances and corporate milestones. I'd like to take a moment to talk about several of these up coming catalyst. First, our Phase 2b results for PRX-00023 in major depressive disorder. We expect to announce the findings from our Phase 2b clinical trial of PRX-00023 in major depressive disorder or MDD late in the first quarter of this year. We completed enrollment in this trial in October of last year and enrolled 362 MDD patients, and over accrual due to interest in the trial, which means that this study is powered at about 90% to detect approximately a three point difference in the MADRS endpoint between drug and placebo.

The findings from our previous Phase 3 clinical trial of PRX-23 in generalized anxiety disorder showed promising affects on a pre-specified secondary endpoint in depression, as measured by MADRS, which is the Montgomery-Asberg Depression Rating Scale. The MADRS and FDA recognized primary endpoint for approval of drugs in major depressions including LEXAPRO is the primary endpoint for our Phase 2b and MDD, and we are looking forward to sharing the results from this trial with you later this quarter. As we've said previously, based on the data from this trail, we expect to focus our 2008 efforts on partnering this compound.

It is important to note that depression is a large marketplace with a number of approved therapies, many of which are now generic or about to become generic. Despite the number of approved agents, about 50% of patients who respond to their anti-depression therapy will switch or discontinue them within one-year due to tolerability and side affects. Therefore, this remains an area with significant market opportunities for a drug with our clinical profile. In particular, this is an area in which patients and their physicians are eager for safe effective therapies that will not cause the common side effects like sexual dysfunction, weight gain, insomnia and withdrawal symptoms seen with many of the currently used drug treatments.

Later this quarter, we will be initiating a Phase 2b right-heart catheter study of PRX-8066 in Pulmonary Hypertension associated with COPD. This is a promising area of medicine with an increasing patient population with no currently approved drugs. PRX-8066 is our first in class 5-HT2B antagonist and we believe that it has tremendous potential to address one of the fastest growing diseases globally.

Within the next 10 years, COPD is estimated to become the third leading cause of mortality worldwide. Pulmonary Hypertension is estimated to be present in approximately 20% of these COPD patients. And most experts believe that about half of these patients with both COPD and Pulmonary Hypertension or about 1 million people in the U.S alone would benefit from specific treatment of their Pulmonary Hypertension.

Following on the statistically significant reduction in systolic pulmonary artery pressure seen in our Phase 2a clinical trial of PRX-8066 in patients with Pulmonary Hypertension associated with COPD, we plan to initiate this next study at Massachusetts General Hospital working closely with a leader in the field Dr. Aaron Waxman.

Additionally, we are making great progress in our promising Alzheimer's disease program. As I mentioned earlier, building on the compelling results seen in our Phase 2a clinical program, we are working with our partner GlaxoSmithKline to design the Phase 2b clinical program for PRX-3140 in Alzheimer's disease. The Phase 2b proof-of-concept clinical program will be initiated in the first half of 2008 in a larger patient population for a longer dosage period than that used in our Phase 2a trial.

As we recently announced, we now have regulatory clarity on Vasovist and have initiated our image re-reads. We've reached agreement with the U.S Food and Drug Administration, the FDA, on our proposal for the re-read of the images of our normal blood pool magnetic resonance angiographic agent, Vasovist. Although, this process has taken some time, we're very pleased with the progress we've made with the FDA, as well as with our relationship with the division of imaging agents. We've initiated the re-read of images obtained in our prior Phase 3 studies and expect to complete the re-read and resubmit our New Drug Application or NDA to the Food and Drug Administration in mid 2008.

Once we have submitted to the FDA, the agency will up to 180 days to review the date. Vasovist has already been approved for marketing in 33 countries outside of the U.S based on approvals by five independent regulatory bodies. We look forward to working with the FDA to make Vasovist available to patients in the United States.

Finally, we plan to initiate a study in cognitive impairment for our 5-HT6 antagonist, PRX 7034 by mid-year. We have decided to move the development of PRX-7034 forward in cognitive impairment based upon the program's statistically significant Phase 1b results and favorable tolerability profile to date.

In October 2007, EPIX was selected by the Treatment Units for Research on Neurocognition and Schizophrenia, commonly referred to as TURNS, a program of the U.S National Institute of Mental Health, for a future clinical trial to be conducted in conjunction with the TURNS network. TURNS accesses and selects those compounds it feels are important to the study and treatment of neurocognitive disorders and schizophrenia. We are working with the TURNS network to develop a trail protocol and timeline, with a collaborative Phase 2a study expected to start in mid 2008

Additionally, we remained interested in 5-HT6 antagonism in obesity based on our statistically significant data previously reported and will be working on backup compounds to PRX-7034 for using this and in other indications.

In summary, we've had a very exciting year ahead of us in EPIX and we look forward to keeping you updated on our clinical trials progress. At this time, I'd like to open the call up to your questions. As a reminder, Andrew Uprichard and Kim Drapkin are here with me to answer those questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions)

And your first question comes from the line of Ted Tenthoff with Piper Jaffray.

Ted Tenthoff - Piper Jaffray

Great. Thank you very much. Can you hear me at here Michael?

Michael Kauffman

We can.

Ted Tenthoff - Piper Jaffray

Great. How are you?

Michael Kauffman

Good.

Ted Tenthoff - Piper Jaffray

Two quick questions, one just a little housekeeping. Kim, I didn't hear what was the net loss guidance for the year? And then, Michael, if you can, you went into a little bit of detail about the Phase 2b that you'll be starting this year in Alzheimer's disease in the first half, can give us a little bit more color on what you might be doing in terms of size of that trial, will that be an international trial? What's your current thinking on the kind of next steps there?

Kim Drapkin

Okay. Ted, thank you for your questions. The net loss guidance for 2008 is $45 million to $50 million.

Ted Tenthoff - Piper Jaffray

Okay. Great. Thank you.

Kim Drapkin

Michael?

Michael Kauffman

Sure. Ted, on the question of the Alzheimer's program, which we're working with Glaxo to design. This is a program given the data that we received, obtained in the Phase 2a, there is interest on both sides in looking at both monotherapy and in combination therapy moving ahead. So, we haven't finalized the program yet, but our expecting is, is that there are likely to be two trials. The length of the trials will be on the order of 12 weeks, possibly longer, possibly 12 weeks for the monotherapy and possibly longer for the combination study.

The combination study will be carried out with our drug in combination with Aricept, as compared to Aricept alone. And the monotherapy study is for patients who are naïve to cognitive therapy. The plan is that as we stand now that the trials will be conducted in United States.

Ted Tenthoff - Piper Jaffray

Great. That's very helpful. Good luck with that.

Michael Kauffman

Thank you.

Kim Drapkin

Thanks, Ted.

Operator

And your next question comes from the line of Alan Carr with Needham.

Alan Carr - Needham & Company

Hi, good morning, everyone.

Kim Drapkin

Good morning, Alan.

Alan Carr - Needham & Company

I was wondering if you could give us a little more information about the plans for 7034 and I recall that you were going to explore one of the enantiomers in obesity. So could you go through over your thought process behind the plans for 2008 with this drug?

Michael Kauffman

Sure. So we are moving ahead in the 7034 program with R-enantiomer. Manufacturing of that has been successful. And we have clean enantiomer. The plan looking over the data is that we're quite convinced that this target is useful in both cognition and in obesity. Net-net, the doses that are necessary, we believe to show a cognitive effect are lower than those in obesity.

And really as you are aware, the only major issue that we've seen to-date with this compound has been some mild prolongation of the QT interval, which although is we believe safe for patients is probably not going to be suitable for obesity in a general population. But using the lower doses, which showed only very, very small or negligible QT prolongation, we could move that ahead in cognition.

So we will be exploring a cognitive study, as we mentioned most likely with the TURNS network. That's a U.S National Institutes of Health Network of experts in cognitive impairment particularly in schizophrenia and we'll be starting a trail with the R-enantiomer sometime mid year, the details of that to be determined.

Alan Carr - Needham & Company

So will the NAH cover the cost of that trial? How does that work?

Kim Drapkin

No Alan, they will not. We're primarily working with them for their expertise and the access to the clinical investigators.

Alan Carr - Needham & Company

Okay. And so, it sounds like that you'll just look for a --, you'll nominate another compound from this program for obesity, then that's the plan?

Michael Kauffman

That's correct. We have a very clear focus on how to reduce the potential QT liability and we'll be working on that. As I said we're convinced that this is good target in both cognition and obesity and we think it's best that two separate compounds to be used in those indications.

Alan Carr - Needham & Company

And then one more, I guess on a broader sense, what's your thoughts on filing new INDs and bringing new compounds into the clinic? What's the time and do you expect to do one a year or--?

Michael Kauffman

Sure. I mean we've in the past, we've done approximately one a year. Certainly, our technology platform allows us to pretty efficiently bring new compounds to the clinic and we have a number of compounds in preclinical. As far as this year is concerned, we're really going to be keep an eye on thing, and we'll be talking to potential partners as well, but there is no commitment for this year

Alan Carr - Needham & Company

Okay. Thanks very much.

Operator

And your next question comes from the line of Michael Yee with RBC Capital Markets.

Michael Yee - RBC Capital Markets

Great. Thanks. A couple of questions for you guys. Kim, what was the milestone in Q4 for how much was that, and then can you help us understand your thinking around your revenue guidance for '08 in terms of milestones? And where are these coming from GSK? Is this from Amgen's side? Can you help us think about that for modeling purposes?

Kim Drapkin

Sure. The two milestones that we announced in the latter half of 2007, there was a $3 million milestone on a preclinical program from GSK, and there was also a $1.25 million milestone from the Cystic Fibrosis Foundation, that also was for a preclinical compound. The guidance that I have given for revenue for 2008, the $25 million to $ 30 million, that is comprised of both cost reimbursement as well as milestones. It does not include any new partnerships, any options in from Glaxo. Beyond that, we're not going to give any specific guidance on how that revenue breaks out between milestones and cost reimbursement, but it is from our existing partnerships.

Michael Yee - RBC Capital Markets

And some of those may have been in third quarter. Which one of these were in the fourth quarter, or should I assume some of these milestones are on the fourth?

Kim Drapkin

The two that I mentioned were both in the fourth quarter. We issued press releases on both of those.

Michael Yee - RBC Capital Markets

Okay. For Mike, in thinking about the Alzheimer's program, do you think that you can easily enroll a monotherapy study with your compound given the number of trials ongoing now out there? And how long do you think that would take and when can we get data there?

Michael Kauffman

Right. So, let just answer the first part of that because obviously we will not know for sure until we get in. We'll give more guidance as we get into that study in terms of initiating it. Given the comments back from the experts that have looked over the current data with this compound, given the tolerability profile, and given the fact that this compound is focused on symptomatic benefit with a fairly rapid onset of action at lease today, we and the experts that were working with and advisors that will be participating in the trial believes that we can enroll this trial in a reasonable pace in the U.S. It's a fairly interesting profile for a patient with newly diagnosed Alzheimer's or for patients that have chosen not to go on the currently available cognitive enhancing medicines, especially given the data that we obtained in the two-week study. So we are comfortable that that will be a doable trial.

Michael Yee - RBC Capital Markets

All right. So no thinking about timing or only thinking of data?

Michael Kauffman

We will initiate this by at least one of the two proof-of-concept programs. Again, we and Glaxo are still in the midst of creating the plans for this. But we will certainly have one of the studies up and running in the first half of the year and the second study up and running very shortly thereafter. And then we will work to accrue as rapidly as possible.

Michael Yee - RBC Capital Markets

Okay. And I guess same on the PAH side, when, I know you're going to start that program, start that trial up here in the first half, how long do you think that study can take and when can we get data there?

Michael Kauffman

Yeah. The plans are to initiate that study this quarter. As we've been indicated with Aaron Waxman at MGH and we expect to have data by late this year or early next. Again, we'll update the street as we get into the trial and look at accrual.

Michael Yee - RBC Capital Markets

Okay. And lastly, on Vasovist, just to be clear, do you plan to put out a press release or announce the topline results there prior to filing that? Or are you just going to all do it at once, or how do you think about that?

Andrew Uprichard

Yeah. This is Andrew Uprichard. Certainly, once we get the results of the re-read through, we will be updating the markets and that would be obviously prior to submitting the NDA. Since we have the results, we'll let you know.

Michael Yee - RBC Capital Markets

Now being, in the second quarter?

Andrew Uprichard

Yes. Second quarter.

Michael Yee - RBC Capital Markets

Okay. Great. Thanks.

Operator

And your next question comes from the line of Yale Jen of Maxim Group.

Yale Jen - Maxim Group

Hi. Good morning gentlemen and ladies.

Michael Kauffman

Good morning.

Kim Drapkin

Good morning.

Yale Jen - Maxim Group

Just a little quick question, most of the questions have been answered. A couple of sort of quick ones. The first one is for the 07034. I just want to confirm that the compound going into the cognitive impairment is the one with a mix or is with the R-enantiomer?

Michael Kauffman

No that's the R-enantiomer.

Yale Jen - Maxim Group

So the R-enantiomer will be eligible?

Michael Kauffman

Yeah

Yale Jen - Maxim Group

Okay. And the second question is that, it seems most of the milestone this year was geared to the first half of this year. Do you think there is any sort of interesting things to occur in the second half of this year?

Kim Drapkin

Well, in term of catalyst, yeah, we have several catalysts in 2008. We will have data, as you know, in first quarter on depression.

Yale Jen - Maxim Group

Right.

Kim Drapkin

As Michael said, we'll be initiating the Pulmonary Hypertension study also this quarter.

Yale Jen - Maxim Group

Right.

Kim Drapkin

And we will be initiating the Alzheimer's study in the first half of 2008, submitting NDA for Vasovist by mid-year and as well as initiating the cognitive impairment by mid-year. So as we initiate these studies, we will give more broader guidance in timing as to when we will have results.

Yale Jen - Maxim Group

Okay. Sounds good. And the last one is that since you may have two trials for the Alzheimer's disease, is the -- those both are in Phase 2b so is the options, up in options by the GSK will include both package, those data package from both those trials before they get a package for them to make decisions?

Kim Drapkin

The Phase2b program is part of the proof-of-concept package, and that's something we can't provide further clarity on. That is just confidential between Glaxo and ourselves. But it is the Phase 2b is the proof-of-concept package.

Yale Jen - Maxim Group

Okay. Great. Thanks a lot.

Kim Drapkin

Thanks, Yale.

Operator

(Operator Instructions) Your next question comes from the line of Ian Sanderson with Cowen.

Ian Sanderson - Cowen

Hi. Good morning. Thanks for taking the question. On PRX-23, how many doses were tested in the Phase 2b depression trial and how do these doses compare with those tests in the Phase 3 anxiety study?

Michael Kauffman

So in the study that we'll be announcing at the end of this quarter, there was one dose tested but it was a flexible dose design. What that means is, is that every patients could go up as high as a 120 milligrams twice a day, so a total of 240 in a 24 hour period. They all started at 40 twice a day within three days had the option to go up to 80 twice a day and then 120 twice a day within three more day. So in the first week, patients could escalate to the top dose. We did do an interim study prior to the initiation of this study with does as high as 320 milligrams in a single day, either as a split dose or a single dose and that was well tolerated provided, again, that the drug was escalated in the manner that I described. So those were tolerable.

In the prior study in generalized anxiety, where we saw the p-value of 0.009 on the MADRS endpoint with the HAM-A p-value was 0.11, we tested a dose of 80 milligrams once a day. So this dose that we're currently using is three times higher and that was chosen in particular because it was clear from the previous trial that we had underdosed the drug and that was true from both efficacy signal as well the side effect profile of the agent.

Ian Sanderson - Cowen

Okay. And so all the doses being tested currently are BID?

Michael Kauffman

So the only dose that's being tested currently right is 120 BID.

Ian Sanderson - Cowen

Okay.

Michael Kauffman

Keeping in mind that the drug does have a 12 hour half life, so it should not be a problem to make this formulate this into a once a day drug. But given that, we're using a 3X higher dose than we did previously, we thought it best to spread it out a little bit.

Ian Sanderson - Cowen

Okay. And if I could, on 7034, the cognition trial, you mentioned schizophrenia patients or what type of patients are being targeted for that cognition trial?

Michael Kauffman

Right. So there is a well defined, although nothing approved yet, syndrome in schizophrenia or a component, I should say, of schizophrenia, which is cognitive impairment. And a lot of that kind of impairment has to do with what's often called the executive function on the, sort of make decisions and make flexible changes in thought patterns and schizophrenics do not do that, those things well.

Other drugs that have targeted HT6 including one that came from Eli Lily and it is now sitting at Lundbeck, has shown positive data there. So our expectation is, we will be going into patients with schizophrenia who are being treated with a second generation neuroleptic agent such as Risperdal, and we will be using, looking at add-on therapy in order to improve the cognitive impairment parts of the schizophrenia.

And in fact, there is actually a well validated endpoint, the CIAS endpoint, cognitive impairment associated with schizophrenia endpoints that are used to measure this. So those are the patients.

Ian Sanderson - Cowen

Thank you very much.

Michael Kauffman

Great.

Operator

And there are no further questions. I will now turn the call back to Dr. Kauffman for closing remarks.

Michael Kauffman

Thank you. We've established a solid clinical and collaborative foundation for ethics, as the company continues to grow and evolve. This year will be key, as we continue our efforts to build on that foundation and communicate a steady stream of data and corporate milestones. We look forward to sharing with you the results from our major depression study in the short-term and with the many additional clinical updates I mentioned earlier on the call. 2008 promises to be a productive year at EPIX and we thank you for your continued support. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect.

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