Altus Pharmaceuticals Inc. Q1 2008 Earnings Call Transcript

Altus Pharmaceuticals Inc. (ALTU)

Q1 2008 Earnings Call Transcript

May 7, 2008 11:00 am ET

Executives

John Jordan – Senior Director of Corporate Communications

David Pendergast – Executive Chairman

Jon Lieber – VP, CFO and Treasurer

Analysts

Eun Yang – Jeffries & Co.

Eric Schmidt – Cowen & Co.

Joseph Schwartz – Leerink Swann

Tom McGahren – Merrill Lynch

Presentation

Operator

Good day, everyone, and welcome to this conference call with Altus Pharmaceuticals regarding the Company's first quarter financial results. This call is being recorded. I will now 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 David Pendergast, Executive Chairman; and John Lieber, Vice President and Chief Financial Officer.

Before I turn the call over to David, I would like to direct your attention to our Safe Harbor statement in our news release today. Certain remarks that we may make during this call about our 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 included in our most recent Form 10-Q, which is on file with the SEC. Please refer to this filing for a description of those factors.

I will now turn the call over to David.

David Pendergast

Thank you, John. Good morning, everyone, and thank you for taking the time to participate in our first quarter investor conference call. Since our last update in March, we achieved a very important corporate milestone. I ’m pleased to report that we’ve completed patient enrolment for our Trizytek efficacy trial, which we means we remain on track to report top line results in the third quarter. This trial is being conducted under a special protocol assessment and was conducted at 40 cystic fibrosis centers around the world.

The trial included participation from CF patients over the age of 7 who have exocrine pancreatic insufficiency. We screened 200 patients which resulted in the enrolment of 165 patients in to the trial. To date, we have had 100 patients complete the trial with approximately 25% of those patients with CFA’s below 40%.

We expect to announce the completion of the last patient, last visit in June and we remain confident that we’ll report top-line efficacy data in third quarter. The long-term safety study is progressing well. The safety component of the SPA requires Trizytek to be administered to at least 100 patients for one year. At the end of April 2008, approximately 175 patients were participating in the Phase III safety evaluation, which should be sufficient to meet our requirements for the first half 2009 NDA filing.

Because of the uncertainties with the animal-derived products, we believe there is a need now more than ever for new products such as Trizytek that have produced using recombinant technology. Trizytek is designed to be stable and pure fixed ratio enzyme replacement therapy for pancreatic insufficient patients.

We are developing Trizytek to enhance health outcomes and offer significant patient advantages such as improved dosing that we expect will drive better long-term compliance. We are enthusiastic about the potential of Trizytek and committed to driving it to commercialization.

Now, moving on to 238. 238 is our once-per-week formulation human growth hormone, and we are looking forward to restarting this development program. The next stage of this 238 program consists of securing a commercial supply, initiating and completing the Phase Ic study this summer, and then initiating a Phase II pediatric trial subsequent to completing an analysis of the data.

We believe that completing these program milestones can establish 238 as a significant future entrant into the $2.8 billion growth hormone market by providing a once-weekly alternative that has a high degree of patient acceptability compared to the current daily injection regimen. The Ic trial is designed to confirm that the 238 material produced at the current increased manufacturing scale performed similarly to the material used in the previous Phase I and Phase II trial.

This trial is expected to include 36 subjects and the safety and PK profile of 238 will be evaluated over two weeks. We expect to complete the Phase Ic trial in the third quarter and upon completing the data analysis, we plan to initiate a Phase II pediatric trial, which is also expected to include 36 patients.

In this trial, we will be evaluating the annualized height velocity at six months. Regarding HDH supply, we currently have an agreement that provides HDH for the Phase Ic and the Phase II pediatric trials. During the next several quarters, we will be pursuing a long-term supply agreement.

Moving on to 237. 237 is being developed as an orally administered oxalate-degrading enzyme for the treatment of primary hyperoxaluria or PH and enteric hyperoxaluria or EH as well as to prevent the recurrence of kidney stones. This disease is characterized by excessively high levels of oxalate in the urine, which can be a precursor to forming kidney stones.

EH is caused by excessive absorption of dietary oxalate, and PH is caused by increased indigenous production of oxalate. When untreated PH could lead to recurrent kidney stones and could contribute to renal failure, ultimately patients suffering from sever PH experience calcium oxalate deposits in their organs, which when left untreated could lead to death.

Currently, there are limited pharmacological treatments for PH, EH or recurrent kidney stones. Pre-clinical work performed at office included PH and EH studies that showed 237 was able to reduce urinary oxalate levels. Based on this encouraging pre-clinical data, Altus initiated a Phase I clinical trial. The primary objective of this trial is to determine the safety and the notability of escalating dose levels of 237 in normal healthy adults.

Secondary objectives are to determine the clinical activity of escalating dose levels of 237 as measured by changes in urinary oxalate levels in normal healthy adults on a controlled high-oxalate diet, and to indentify the dose of 237 for future studies based on safety and clinical activity.

I’m pleased to state that the treatment phase of this trial is complete. Our Phase I study enrolled approximately 60 subjects into four cohorts. The broad range of doses should provide valuable information for future trial design, and we look forward to reporting the top-line results this quarter.

Finally, on the subject of the CEO search, I believe we are making good progress with the search of top-tier executive. The recruiting firm has been retained and continues to work on the position. A Board Committee is charged with managing the process and our top priority for the search is finding a right leader to guide Altus going forward.

I’ll turn the call over to Jon Lieber for a summary of our financial results.

Jon Lieber

Thank you, David, and good morning everyone. For the first quarter of 2008, the Company reported a net loss attributable to common stockholders of $24.6 million or $0.80 per share, compared to a net loss attributable to common stockholders of $15.8 million or $0.67 per share in the first quarter of 2007.

For the first quarter of 2008, the Company reported a net loss attributable to common stockholders of $24.6 million, or $0.80 per share, compared to a net loss attributable to common stockholders of $15.8 million, or $0.67 per share, in the first quarter of 2007. Revenues were $2.6 million in the first quarter of 2008 compared to $827,000 in the first quarter of 2007. The increase in first quarter revenue is primarily attributable to revenue associated with the Company’s agreement with the Cystic Fibrosis Foundation for the development of Trizytek.

Cash, cash equivalents and marketable securities at March 31, 2008 were $118.0 million. Research and development expenses totaled $21.6 million in the first quarter of 2008, compared to $12.9 million in the first quarter of 2007. The increase in R&D expenses is primarily due to an increase in development costs relating to conducting the Trizytek Phase III safety and efficacy trials.

General and administrative expenses were $5.8 million in the first quarter of 2008, compared to $4.6 million in the first quarter of 2007. The increase in G&A expenses is primarily driven by a one-time charge for a separation agreement, as well as increased recruiting costs related to the CEO search.

Our financial guidance for the year remains unchanged. Based on our current operating plans, we expect the timing and cost of the Trizytek Phase III safety and efficacy trials, the ALTU-238 Phase Ic trial, and the ALTU-237 Phase I clinical trial and other product development programs. Altus expect its net cash use in operating activities to be between $85 million and $95 million in 2008.

That concludes our financial summery, and I’ll now turn the call back over to David.

David Pendergast

Thank you, John. The coming weeks and months will be very exciting time for us at Altus. As we aim to achieve a number of important clinical milestones. In the second quarter, we will release our top-line 237 data for the Phase I study. In the third quarter, we expect to reinitiate the 238 development program and report top-line Trizytek Phase III efficacy results. This concludes my formal remarks. Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

(Operator instructions) We’ll take our first question from Eun Yang of Jefferies.

Eun Yang – Jeffries & Co.

Thanks. On ALTU-237, there is Swedish company OxThera developing a product in Phase III in the same indication. Can you actually talk about characteristics of your product versus theirs and in terms of advantages and disadvantages? And second question is on financials. In the 10-Q, you had mentioned that the remaining – the estimated or remaining development costs for Trizytek is above $40 million. Is that going to be exhausted this year or it’s going to be spilled going to next year? Thanks.

Jon Lieber

So, Eun Yang just to start with financial first, with respect to the remaining cost for Trizytek, the bulk of it occurs this year, although there is spill over into next year. So, we haven’t given the details specifically of the $40 million what’s this year and what’s next year. But it’s safe to say that a majority of it will be through the balance of this year meaning Q2, Q3 and Q4 2008 with additional money being spent in the early part of next year as the NDA filing is prepared. With respect to your first question on OxThera, we are aware of them. They are developing a product, they’ve done a – I believe they’ve done a very small Phase II and they are in a small Phase III right now about 40 plus patients in their Phase III. What they are trying to do is, their product is a – they are trying to colonize the GI tract of individuals with a bacteria that digests oxalate basically. That’s the approach that they are taking to treat hyperoxaluria basically. And it’s one thing that we certainly have seen as it looks like they’ve been able to negotiate with FDA and end point of reduced – of reduction in urinary oxalate levels, which I think goes well for us when we go to talk to FDA about what our endpoints of any future trials that we do could be, but I do think that the challenges with their product relative to ours are as follows, number 1, it has been proven difficult over time to re-colonize somebody’s GI tract with a bacteria and then enable that bacteria to grow. Certainly if those patients take any antibiotics or anything the gut would have to be re-colonized. And right now it’s our understanding that that bacteria has to be delivered at a frozen pace to patients. So, I think they are going to have some manufacturing work that they need to do before this becomes commercially viable. By contrast, we are developing ALTU-237 in a capsule form, it’ll be administered with every meal, but again significant improvement in terms of the delivery form. I don’t know, David, if there’s anything you want to add.

David Pendergast

Yes. The ultimate way of looking at it Jon provided, I think some very good detail with that. But it’s going to be a classical pharmaceutical dosage form of 237 that we’ll be developing as the folks are used to prescribing and used to administering, and that will be a very well controlled relative to dose and predicted results. And we’ve got and really unknown approach with this colonizing. So, it is hard to comparing contracts but we expect that the market will be much more pruned to a classical approach with a well-characterized, well-standardized capsule. But this will be uncertain territory for both of us.

Eun Yang – Jeffries & Co.

Okay. And then one other question on pancreatic enzyme product. Exicon has altered (inaudible) which is supposed to be if I remember correctly April this year. Do you know what happened to the product at the FDA?

David Pendergast

No. There’s been no – to our knowledge there’s no (inaudible) and we have no knowledge beyond what’s in the public domain.

Eun Yang – Jeffries & Co.

Okay. Thanks very much.

David Pendergast

Yes.

Operator

We’ll take our next question from Eric Schmidt with Cowen & Company

Eric Schmidt – Cowen & Co.

Good morning. Just looking for update on the strategic review process that was being conducted over the last or 6 or 7 months. It seems to me that thus far we haven’t heard any change in prioritization for the various programs?

David Pendergast

Hello, Eric, it’s nice from you again.

Eric Schmidt – Cowen & Co.

David, how are you?

David Pendergast

I’m well. We have in fact it’s interesting you are going to be accused to being appellant, but we just went though the first round of that yesterday, and we will be going through our review of that with the Board in June. I wouldn’t necessarily predict dramatic changes or not predict them at this point, but we have completed our analysis, we’ve completed a look at all of the projects and now we are looking at how it has best put those together in a plan that makes sense. We are anxiously awaiting the 237 data to see where that plays in our strategic plan, and obviously good 237 data validates a very important research pipe form for us, and that will have an influence in how we look at the portfolio. So, it’s a little early. We’ve got a lot significant data coming in the next three months with the 237 and with the Trizytek and that will influence how we look at our planning going forward and in our future investment decisions.

Eric Schmidt – Cowen & Co.

Yes, makes a lot of sense. On 238, can you disclose the source of growth hormone?

David Pendergast

We are not doing that. At this point and time we are in discussions but to discuss where may give some undo leverage to the person on the other side.

Eric Schmidt – Cowen & Co.

Okay. And are you in discussions just to procure long-term supply or are you also in discussions for a potential collaborative arrangement?

David Pendergast

At this point, we are in discussions for a long-term supply. If it might turn into a long-term collaborative arrangement is something that we would not reveal. But I think as I said in my prepared remarks, we have a few things in this program that many folks would like to see in order to ascribe proper value to the program. We would like to see them to make sure we get proper value and get a partner that’s committed to taking it forward and the partners would like to see it in terms of understanding that our product is different from some of the others that are looking at once weekly. I think this general view in the world that if a good weekly preparation could come to market that it would be a dominant player in the growth hormone. That’s our view and that’s confirmed by our discussions with various folks, not only other companies but physicians. So, I think we just have to demonstrate that ours is the weekly of choice given the number of others that have been out there, some of which is fumbled.

Eric Schmidt – Cowen & Co.

Okay. Great. Thank you.

David Pendergast

Thank you.

Operator

(Operator instructions) We'll take our next question from Joseph Schwartz with Leerink Swann.

Joseph Schwartz – Leerink Swann

Hi, good morning. I was wondering if you could bring us up to speed on the manufacturing side of things, in particular have you fully stocked the supplies for all of the 135 trial and both the safety in efficacy side, and then also the engineering in validation batches for that product and any others that you are working on. How much more needs to be done? Thanks.

David Pendergast

Okay. Just a general manufacturing run down. We have completely supplied as we have made it to the 135 trials. As I said these efficacy trials, the last – we are in the last stages of that, and we’ve completed enrolment. We have material for that and for the safety trial. We are currently in validation of the various active ingredients for Trizytek. We are taking those one at a time through the plant, and we are part way through way that program, and we are on schedule. And that currently is not on the clinical path for the filing, for the NDA filings, the safety study is on the clinical path. And in terms of other things, we are preparing to make or currently making depending on what they have the week this is, the materials for the Ic trial and for 238 and we have a clinical scale but we don’t have a commercial scale, we have for 237 and that work would need to be done before we move into a Phase II, III or a Phase III trial. I think that pretty much covers where we are.

Joseph Schwartz – Leerink Swann

So, have all three enzymes for the 135 program been transferred to Lonza and which engineering batches remain to be done and which validation lots on the actual components of the drug in terms of amylase and protease and like? Dave, I'm just a little bit unclear still.

David Pendergast

Yes. And that’s because I don’t know the detail of exactly where we are on that. We have transferred and what we’ve done is transferring and send validation. I believe we are though one, part way though a second and third one is to start later in the year. And I forgot which one done now. Jon, do you recall?

Jon Lieber

I forgot the statistics on which one is done, but yes, David’s right, we’ve completed our engineering batch upon two of three, the third one is coming sooner in process and then the validation batches comes in the second half of this year basically. So, we are right now proceeding according to the plans and the timeline set that we need to achieve in order hit our first half NDA filing for next year.

David Pendergast

So, I don’t have in my head where exactly what the plan is. I just know that as of current we are on our plans, and we are not – but I can tell you we are 30% through, 35% through something like that. We are not – I can’t tell you the exact detail which order they are going through the plant. I just don’t remember which order they are going through.

Joseph Schwartz – Leerink Swann

That’s fine. I just want to make sure that you are on plant given the past experience with various lots.

David Pendergast

I can appreciate that. Whenever you do go into a new plant and whenever you do the transfers and the scale up especially with three of them, one can understand the concern. As of now, we are wait through and seeing the normal – I mean I grew up in that well. We are seeing the normal kinds of hiccups, and we are resolving them as they come up and what I would consider a normal passion.

Joseph Schwartz – Leerink Swann

Great, thanks again.

David Pendergast

Yes.

Operator

Moving on, we’ll take our next question from Tom McGahren, Merrill Lynch.

Tom McGahren – Merrill Lynch

Hi, good morning. Question on 237. Assuming I guess positive top-line data in the second quarter, what would the clinical program look like thereafter when we start? I’m just trying to get to the sizes of the trials, clinical design, that sort of thing?

David Pendergast

Yes. That is an interesting question that we have yet to finalize. And the reason for that is the general biology is one of excess oxalate but there are really two clinical approaches because they are still pathologies if you will. Excess absorption, which a larger patient populations, a little more difficult trials and require more substantial growth requirements and we may, if we take one of those forward, we may want to have a partner. I say, may want to have a partner in order to do that. Primary hyperoxaluria is a much more orphan indication. It’s the kind of trial we could go directly into Phase II, III. You don’t need nearly the amount of material and we are currently working – we have plans for each of those. Currently doing our comparing contrast in terms of which would provide the most value. And so, we are in the final stages of that strategy discussion. And in addition to the clinical results, we have some more pre-clinical results that we might want to see from some other programs using the same principles, and we will put all of that together with the Phase I data and make a decision sometime in the next couple of months as to how to proceed. In any case, we are going to have to do a little bit more process development work on the material and that will take place. It will likely have to take place before our clinical programs start.

Tom McGahren – Merrill Lynch

Okay. And just a question on Trizytek. The enrolment was going slower or therefore enrolment sped up. I was just wondering, now that’s complete in the efficacy portion, any observations from as you got close to complete enrolment, why it was speeding up and just made the observations from the patient?

David Pendergast

Well, I’m not sure that there was as much as slow down and a speed up with regard to enrolment that deals with interaction of the patients. There was much more a Review Board bringing sights on timing issue that we didn’t – we ran into more difficulties in the Review Board stage of it because in the two hospital stays where inpatients had to come off of enzyme. And that caused several rounds of discussion with some of the Review Boards and there were some other issues with bringing size up. Once the size actually came up, they actually enrolled more quickly, some of them, and put more patients in them we had originally expected, which is what allowed us to recover. So, we were slower than expected in bringing size up because we didn’t anticipate as much challenge on that Review Board and so fourth. But the size performed ones up a little better, and hopefully that is a signal that folks are really interested in this drug, and that we will that kind of market receptivity that we saw in the clinical size once we get them up. So, once we get it approved, then hopefully we will see the same kind of uptick curves commercially.

Tom McGahren – Merrill Lynch

Okay. And then just one last question on the pre-clinical program for PKU and if gout is still alive there. Are you still going to make a go, no-go decision currently or at the end of the year or any changes to that?

David Pendergast

I have no changes for that. Both are progressing through their pre-clinical programs on schedule. We will be doing our assessments third quarter, early fourth quarter and be able to pick one to take through. If they are both looking good, then we are in a delightful situation of having 237 validation of the platform and two pre-clinical studies that would again show interest in gout and in PKU and then we would be looking at how do we take these forward in some combination with partners and what we would do ourselves, and that’s also part of going back to Eric’s question, that’s part of information we really need to be able to feed into our strategic planning process in terms of what this asset looks like and how we might be able to partner aspects of it, and try to take all three of these forward partially by ourselves and partially in conjunction with other folks.

Tom McGahren – Merrill Lynch

Okay. Thanks a lot.

David Pendergast

Yes.

Operator

We’ll now take a follow-up question from Eun Yang with Jeffries.

Eun Yang – Jeffries & Co.

Thanks. On 237, besides – in terms of what way we should look for in the data besides the safety profile, we actually – are you trying to find that the total response of this product in patients taking high oxalate diet?

David Pendergast

I guess the way we are looking at this is the primary end point and the primary result is safety of course. Secondarily though we would like to see a biological signal, and it’s not powered for us to argue that that’s statistically significant So, we would also like to give some sense of response over what is a fairly large dose range that we have given. So, what we would like to see is some pointers, both the biological activity and some sense of a response, but nothing that would be statistically significant because we’ve got four dose groups, so there’s a limited number of patients in the active and the percegal arm of that. But we should get some directional signals.

Eun Yang – Jeffries & Co.

So, when you talk about the biological activity, does that mean that you would like to see somewhere between or somewhere around like 20% reduction in the urinary oxalate from baseline?

David Pendergast

I’m not going to put a number on that at this point because if we see a signal and we see any kind of a dose signal with it then we will be looking to both the 237 and to our animals and to our understanding of the basic physiology to make a decision. So, it won’t be judged on 237 in terms of dose response and other sorts of things. We’ve got some pretty interesting and compelling animal data that’s coming forward in these models and that will hopefully be useful in the decision making as well.

Eun Yang – Jeffries & Co.

But in general in this type of patients, literally in Phase I, it's a healthy subset taking high oxalate diet. What level of reduction in urinary oxalate is considered as clinical and meaningful?

David Pendergast

I don’t know that work. We’ll find up along and talking with physicians and thinking about that especially with regard to EH. So, the connection between oxalate reduction and kidney stone formation and so forth, I’m just not – I think with – in response to questions at the time that we have the data I think we’ll be able to be much clear. It’s hard to think about it and answer what if questions in something that is as early and novel as this is.

Eun Yang – Jeffries & Co.

Okay. And the last question is on 238, you had mentioned that after Phase Ic data analysis that you would start Phase II in pediatric population. You mentioned that 36 patients there as well. Is that going to be a single on study or is it going to be compared to daily – once daily injection of the growth of hormone?

David Pendergast

Yes, we believe that the route is going to be comparison to the one daily.

Eun Yang

Okay. Thanks.

David Pendergast

Yes.

Operator

Thank you. That would conclude our question-and-answer session for today’s conference. At this time I would like to turn the call back over to Mr. David Pendergast for any additional or closing comments.

David Pendergast

Okay. Thank you very much, and thank you, everyone, for participating in our call, and we look forward to the next several months, they will be very exciting for Altus and look forward to the next call when we will have a number of exciting and interesting things to talk about. Thank you very much.

Operator

That does conclude today's conference. Thank you all once again for your participation and have a wonderful day.

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