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Executives

Susan Specht

Scott Daniel Cormack - Founder, Chief Executive Officer, President and Director

Michelle G. Burris - Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Operations, Treasurer and Secretary

Cindy Jacobs - Chief Medical Officer and Executive Vice President

Analysts

Y. Katherine Xu - William Blair & Company L.L.C., Research Division

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

Chad J. Messer - Needham & Company, LLC, Research Division

OncoGenex Pharmaceuticals (OGXI) Q2 2012 Earnings Call August 2, 2012 4:30 PM ET

Operator

Good day, ladies and gentlemen. Welcome to the OncoGenex Second Quarter 2012 Earnings Conference Call. My name is Mimi. [Operator Instructions] As a reminder, this conference call is being recorded.

At this time, I would like to turn the call over to Susan Specht, Director of Investor Relations with OncoGenex Pharmaceuticals. Please go ahead.

Susan Specht

Thank you, and thanks, everyone, for joining us. With me today from OncoGenex are Scott Cormack, Chief Executive Officer; and Michelle Burris, Chief Financial Officer. Also on the call are Cindy Jacobs, Chief Medical Officer; and Jaime Welch, VP of Marketing and Corporate Communications.

Before we begin, I'd like to remind everyone that today's conference call contains forward-looking statements based on current expectations. These statements are only predictions, and actual results may vary materially from those projected. So please refer to OncoGenex's documents filed with the SEC concerning factors that could affect the company, copies of which are available on our website.

I'll now turn the call over to Scott, who will provide an overview of the development activities for our 2 clinical stage product candidates, custirsen and OGX-427.

Scott Daniel Cormack

Thank you, Susan. Good afternoon, and thank you for joining us.

I'd like to begin today's call with an update on our clinical development progress for custirsen in both non-small cell lung cancer and castrate-resistant prostrate cancer, or CRPC.

We recently issued a press release announcing the updated development plans for custirsen in non-small cell lung cancer. The Phase III trial, known as the ENSPIRIT trial will be an international, randomized open-label study evaluating the potential survival benefit of combining custirsen with docetaxel in patients with advanced or metastatic non-small cell lung cancer, who have progressed after first-line chemotherapy has failed. The study aims to enroll approximately 1,100 patients and has been designed based on an expected median survival for patients in the control arm to be 9 months and to detect a hazard ratio of 0.8 with 90% power.

2 interim analyses will be performed. The first analysis is planned to assess whether to stop the trial early based on both inadequate evidence of clinical benefit and futility. We will be evaluating both progression-free survival and overall survival during this interim analysis. If both endpoints meet the predefined criteria for showing an inadequate progression-free survival clinical benefit and overall survival futility, the trial will be stopped.

The second analysis is based on survival alone and will be performed later in the trial. The trial will not be stopped early to claim efficacy.

As you may recall, Phase III data from a single-arm study evaluating custirsen in combination with gemcitabine platinum-based regimen in first-line non-small cell lung cancer, were published earlier this year. The data demonstrated the median overall survival of 14.1 months and an acceptable safety profile.

Additionally, decreased serum clusterin levels in 95% of patients evaluated were observed with lower serum clusterin levels during study treatment, correlating to longer survival outcomes.

While these data are promising data for custirsen in combination with the gemcitabine-platinum regimen, treatments in the first-line non-small cell lung cancer landscape has rapidly changed to predominantly other agents such as trimetrexate.

While pre-clinical data indicate activity for custirsen with trimetrexate, numerous studies in prostate and breast cancer have demonstrated an excellent safety profile and clear synergy for combining custirsen with docetaxel. Docetaxel is globally recognized as a standard of care in second-line treatment for both squamous and non-squamous non-small cell lung cancer, and the second-line market represents a considerable unmet patient need.

This study will be conducted internationally by Teva and enrollment is planned to begin later this year. We look forward to providing further details when the trial is initiated.

Regarding the clinical development program for custirsen and CRPC, we continue to be very positive about the progress of SYNERGY. As you may recall, SYNERGY is the primary registration Phase-III study for custirsen in combination with docetaxel and is evaluating a survival benefit for patients in the first-line chemotherapy setting. This study aims to enroll approximately 1,000 patients and accrual is expected to be completed by the end of this year.

Finally, in the coming weeks, we expect to begin patient enrollment to the AFFINITY trial, our Phase-III clinical study, evaluating an overall survival benefit of custirsen when combined with Jevtana as second-line chemotherapy for patients with CRPC. This study aims to enroll approximately 630 patients throughout North America, Europe, Russia and Australia. The Phase-III study is based on an estimated median survival for patients in the control arm of 14 months and to detect the hazard ratio of 0.75 with 85% power or an approximate 25% increase in survival time.

The critical hazard ratio has been calculated to be approximately 0.83. The AFFINITY study will evaluate the benefit of custirsen in combination with Jevtana, which is relevant whether Jevtana remains as second-line chemotherapy for CRPC or is repositioned as first-line chemotherapy based on future results of ongoing studies.

I'd now like to focus on our other clinical stage product candidate, OGX-427, which is a proprietary asset. As you may recall, OGX-427 is designed to reduce levels of Heat Shock Protein 27, or Hsp27. Overexpression of Hsp27 correlates to increased stage and grade in many types of cancer. It is also believed to be an important factor leading to the development of treatment resistance and is associated with negative clinical outcomes in various cancers. Pre-clinical studies indicate that the innovation of Hsp27 increases tumor cell death rates and delays tumor growth.

Preliminary data from an investigator-sponsored Phase-II clinical trial of OGX-427 in chemotherapy-naive patients with metastatic CRPC were presented at the American Society of Clinical Oncology Annual Meeting in June 2012. The results showed a higher number of patients without disease progression at 12 weeks and greater declines in prostate-specific antigen and circulating tumor cells with OGX-427 plus prednisone treatment compared to prednisone alone. This study has recently completed enrollment at 74 patients. We look forward to providing updated results from this trial as they become available.

As previously announced, an investigator-sponsored randomized Phase-II study evaluating OGX-427 in combination with Zytiga in patients with CRPC is expected to initiate in the second half of 2012.

In addition to our development activities in prostate cancer, we continue to enroll patients through our randomized Phase-II clinical trial of OGX-427 in patients with metastatic bladder cancers. This trial aims to enroll approximately 180 patients throughout North America and Europe, and will evaluate the overall survival benefit of OGX-427 in combination with gemcitabine and cisplatin.

Additional Phase-II investigator-sponsored studies evaluating OGX-427 in other malignancies are under development. Further details of these studies will be provided when the trials are initiated. Results of these studies may direct future company-sponsored trials in indications that show promising clinical benefits.

In conclusion, we're pleased with our progress in the first 6 months of 2012, and we look forward to an exciting year ahead. We are eagerly anticipating completion of enrollment in SYNERGY, initiation of 2 new Phase-III trials for custirsen and continued data presentations and trial initiations for OGX-427.

At this time, I'll turn the call over to Michelle who will provide an overview of the second quarter financial results. Michelle?

Michelle G. Burris

Thanks, Scott. We ended the second quarter with approximately $97.6 million in cash, cash equivalents and short-term investments. We continue to expect that these funds, combined with our reimbursements due from Teva under our collaboration agreement, will be sufficient to conduct our operations into 2015.

As part of the Teva agreement, we received an advance reimbursement of $30 million. Of this amount, we incurred costs through June of $14.6 million. We expect the remaining $15.4 million to be spent by year-end 2012.

As we discussed in the past, once the advance reimbursement is exhausted, all costs associated with custirsen's development will be reimbursed by Teva on a quarterly basis.

Revenues for the second quarter of 2012 increased to $2.4 million. That compares with $1.9 million for the prior-year quarter. Revenue for the 6 months ended June 30, 2012 increased to $3.7 million compared with $3.1 million for the same period in 2011. The increase in both periods was due to increased revenue earned through our collaboration with Teva as a result of the clinical development activities associated with the AFFINITY trial, which we plan to begin enrolling later this year.

Total operating expenses for the second quarter also increased $8.4 million compared with $6.9 million for the same quarter in 2011. And the total operating expenses for the 6 months ended June 30 increased $15.2 million compared with $13.3 million for the same period in 2011. The increase again for both periods is primarily due to higher clinical expenses, some associated with the patient enrollment in our clinical trial evaluating OGX-427 in combination with initial chemotherapy in patients with metastatic bladder cancer and the start of the AFFINITY trial as well as employee expenses, including stock-based compensation expense.

Net loss for the second quarter of 2012 was $4.2 million or $0.29 per diluted common share. That compares with $6.5 million or $0.67 per diluted common share for the prior-year quarter. Net loss for the 6 months ended was $11.1 million or $0.89 per diluted common share compared with $9.6 million or $0.99 per diluted share for the same period in 2011. The decrease in net loss for the 3 months ended compared to the same period in 2011 was primarily due to a $1.6 million non-cash gain on revaluation of our warrant liability that's recorded in the second quarter of 2012 as compared to a $1.7 million non-cash loss on the revaluation of the warrant liability in the second quarter of 2011. This non-cash revaluation accounts for a total of $3.3 million delta between the 2 periods. Also as a reminder, total operating expenses did increase for both periods as previously discussed.

Before completing our financial review, I'd like to run through our guidance for 2012. Net cash requirements are expected to be in the range of $45 million to $50 million. Year-end cash, cash equivalent, investments and receivables from Teva are expected to be in the range of $68 million to $73 million. This guidance has not been changed since our last call and reflects the financing completed this past March. Our continued development of custirsen under our Teva agreement, as well as our development of activities for our proprietary asset, OGX-427, soon-to-be interim randomized Phase-II study, is included in that guidance.

Thank you again for joining us. And I'd now like to turn the call over to the operator to open up the line for questions. Mimi?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Katherine Xu of William Blair.

Y. Katherine Xu - William Blair & Company L.L.C., Research Division

I have 2. First is with regards to AFFINITY. And can you elaborate again about how you are going to move the combination with Jevtana to the front line, if Jevtana eventually is going to overtake custirsen in the front line? And the second question is, with OGX-427 in combination with Zytiga, what setting are you looking at? Are you looking at pre-chemo setting after [indiscernible] setting that's why you're starting it later this year, or you're looking at a post-chemo setting?

Scott Daniel Cormack

So the first question with respect to AFFINITY and the combination with Jevtana. So the trial design, as you all know, is in combination with Jevtana in the second-line setting so that will be in combination -- or in following patients that would have first-line chemotherapy and specifically, docetaxel. As you again would know, there is a trial being conducted by Sanofi for evaluating Jevtana in the front-line setting. We're not suggesting that there's an automatic migration, but if we generate data with Jevtana showing a survival benefit in the second-line setting and we've also said -- showed a benefit with custirsen plus docetaxel in the front-line setting, we should be able to achieve a label claim that would be suggestive of advanced prostate cancer regardless of the taxane that we will be utilizing. Your second question with respect to OGX-427, so that was the study in combination with Zytiga. So we haven't yet given the details about the specific patient population, whether that would be the pre-chemo or post-chemo setting. And the intent there -- it is intended to start this trial later in the year. And at the time that we do the initiation, we'll be providing additional details on the specifics for the patient population.

Operator

Our next question comes from Stephen Willey of Stifel, Nicolaus.

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

Just a couple on ENSPIRIT, and I think I may have missed your opening comments or at least, some of the specifics around this. But can you just walk us through the powering assumptions, again, with respect to ENSPIRIT? And did I hear you say that you're assuming a control-arm survival of 9 months in the docetaxel arm?

Scott Daniel Cormack

Yes, okay. So on the ENSPIRIT trial, it's a 1,100 patient study, which would be for docetaxel as a second line. And yes, the expectation for the control group for docetaxel is about 9 months. That would be the expectation. And then, Cindy, if you want to go through the balance of the powering assumptions again for Stephen and any other questions you'd have on the stat sales as well, that would be great.

Cindy Jacobs

Sure. So the hazard ratio is 0.8. So 90% power is how we calculated the 1,100 patients.

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And just with respect, I guess, to that 9-month historical number around docetaxel. Can -- I guess, just by looking at some of the historical data, I think that's probably one of the bigger numbers. I'm not sure that there's been a historical docetaxel-only arm where, I think, I remember seeing 9 months. So I'm just kind of curious as to why that was selected as the benchmark in the control arm?

Cindy Jacobs

When I think of that, we agree it's an estimate. I think the most important thing is that it's based on a hazard ratio of 0.8. So it really doesn't make too much difference what the control arm is, but the hazard ratio has to be 0.8 in favor of the treatment arm.

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

Yes, understood. And I think you said that docetaxel, again, we know is labeled in -- for both squamous and non-squamous. Is this an all-comers trial?

Cindy Jacobs

Yes, it is.

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And will you have a pre-specified subset analysis from an efficacy perspective within both types of histologies?

Cindy Jacobs

Well, those will obviously be exploratory analyses but we do have stratification for those 2 histologies.

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then just a couple of more questions, if I may. One, the AFFINITY assumption, I think, you -- there you mentioned 14 months in the control arm. Does that assume any kind of -- are you building an assumptions with respect to kind of any potential post-chemo abiraterone or 3100 use into that number?

Cindy Jacobs

Well, yes. In fact, with the TROPIC trial, it was at median survival of 15.1 months. And when we discussed this with our KOLs again, what you tried to estimate through your control arm, it was looking at [ph] abiraterone and MDV3100 was going to be moving into the pre-chemo space. You might have patients then coming later in the chemotherapy later into second line and actually -- probably will could have shorter median survival time. So that's why we estimated 14 months. But again, the most important thing is that hypothesized hazard ratio of, in that case, 0.75 for designing that trial.

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then maybe, Scott, just a bigger picture question for you. I know that there has been a bit of new ads in terms of management over Teva. And I'm just curious as to kind of how your interactions with them have been thus far. And if there's been any kind of palpable change if at all with respect to kind of how they're viewing the program at this point?

Scott Daniel Cormack

Yes. Obviously, the relationship with Teva is an important one because of their interaction with our lead asset for custirsen. I think what you see in the development plan with, obviously, the AFFINITY program going forward later on this year as we've talked about and then the details surrounding the non-small cell lung cancer program that are now detailed and looking to initiate here as well [indiscernible] that's where that collaboration is. So we continue to be very positive on it. As we talked about in -- I think it was in the last call, there have been a number of changes implemented within the Teva structure that I think are actually very beneficial. They include, obviously, bringing Cephalon into the franchise which obviously they have a lot of branded medicines benchmarked. Therefore, I think it fits well to the strategic plan that aligns to where our program fits for the Teva program. And then if you look at the changes that they've made throughout the structure, bringing Jeremy in to lead the organization to CEO level; Michael from the CSO perspective. There's just a number of very high-profile individuals with great expertise in not only expanding their franchise in the generics but of course in the branded medicine. So I think all of those are aligned to a very serious play to branded medicines, and oncology continues to have a good play for us and we very much support the collaboration. And I think the progress we've made in the last 6 months have been very, very good with respect to the collaboration.

Operator

[Operator Instructions] Our next question comes from Chad Messer of Needham & Company.

Chad J. Messer - Needham & Company, LLC, Research Division

Just go back to the ENSPIRIT trial briefly -- thanks for going over all of that. I'm just wondering, no one knows this more than you guys, but there's -- prostate cancer is certainly true -- and lung cancer also it's a pretty rapidly moving landscape with new therapies and I -- okay, so 9 months is what you're expecting, which in the steep point of outcomes, sounds a little on the high-end for docetaxel, but that's only to your favor if you actually hit it. But is the comparison to docetaxel -- I'm just wondering if that's really the best thing that you want to be in second-line lung. So I mean, what do you really think you need to see in terms of overall survival to have a commercially-viable combination in this increasingly competitive setting?

Scott Daniel Cormack

Yes. I think I was going to go to this question when Stephen was asking a similar question on hazard ratio on base. As Cindy pointed out, these trials are effectively based on hazard ratio, which is obviously the important determination. We provide our estimation for what the control group is, so that you can understand sort of the magnitude of change that we might be looking for when you calculate that out. But ultimately, it comes down to hazard ratio. I think the key question is the clinical benefit that you're looking to determine. Depending on the indication, you're generally wanting to show a 15% to 20% improvement in the overall survival benefit for these patients. And that's for a couple of reasons. It's from a regulatory perspective of approvability, but it also goes to the meaningfulness from both the patient perspective as well as the clinician perspective. And somewhere around that 15%, 20% or better is generally where you want to be to have a sufficient level of benefit that everybody involved as stakeholders would want to be using the drug. And so there's obviously a stats analysis plan that's driving want you want to do to ensure the trial's success. But the other piece is aligning that to what the clinical benefit is needed for the space. And as you probably know, we utilize advisory boards on a regular basis. They tend to be disease-specific. So in the prostate space, we obviously bring together medical oncologists and urologists together and have discussions about meaningfulness. We've done the same thing with non-small cell lung cancer. And we ask the critical questions of what would we -- what should we expect for docetaxel on the second-line setting, and what would we consider to be -- what would you consider to be meaningful as far as an improvement in survival that should allow for adoption of the agent in that space. So it's bedded against that kind of expertise. It's not just dust coming up with this in a vacuum. And I think that's an important statement. And it's not designed obviously from just simply achieving the statistical endpoint, but it has to be aligned to a clinical benefit that is meaningful to the patient as well as the prescribing physician. So hopefully, that will answer the question, Chad.

Chad J. Messer - Needham & Company, LLC, Research Division

Yes -- no. I understand. And then just -- I want to make sure I got a couple of things right. You said there's going to be 2 interims, the first looking at PFS and OS was cut off, the second OS only, but neither of these are for efficacy. They are both for futility, I then assume, and safety?

Scott Daniel Cormack

That's correct. That's right. So the 2 assessments that are being done are through futilities and there isn't an intention to do an early stop so that you could claim efficacy. And I think we've had this discussion in previous discussions on calls where -- if you're trying to do some of these interim analyses, particularly if you have survival benefits, it's difficult to, for example, contain costs when you're looking at a number of events because by the time you get events that you have confidence in, you pretty much improved the trial, right? So there is that aspect of it. And as far as doing an early stop, you're obviously giving up some of your powering to achieve an interim analysis to claim an early stop, which means ultimately -- your trial ultimately has to be bigger. And it tends not to make an awful lot of sense in some of these trials and the 1 trial is an example of that. I want to go back to your question on docetaxel on second line, because I didn't address that in the first part of the question. So again, when we've had the discussion with a very broad international advisory group in lung cancer, docetaxel is a standard of care that is globally utilized. And that's an important statement. It's one of the main drivers for us to go into the second-line setting because if you look at the first-line setting and you look at, say, Penetrex and some of the other agents, you get inclusion with or without Avastin depending on geography. And what's interesting is when you go to the second-line setting in docetaxel, it tends to be very uniformly used as the second-line go-to agent. So you don't have the same differentiation as you marks with the various geographies. And I think that's an important aspect, because it goes to obviously the potential for this kind of a combination on a global basis for the development of this asset.

Operator

I'm showing no further questions in the queue at this time. I'll hand the call back to Scott Cormack for closing remarks.

Scott Daniel Cormack

Thank you very much, Mimi, and thank you, everybody, for participating on the call. We look forward to providing you further updates as we progress on completing the enrollment for SYNERGY and initiating the other trials as we move forward into the last half of the year. Thank you again.

Operator

Thank you. Ladies and gentlemen, this concludes the conference for today. You may now disconnect, and have a wonderful day.

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