Memory Pharmaceuticals Corp Q2 2008 Earnings Call Transcript

Memory Pharmaceuticals Corp (MEMY)

Q2 2008 Earnings Call

August 13, 2008 9:00 am ET

Executives

Vaughn M. Kailian - President and Chief Executive Officer

James R. Sulat - Chief Financial Officer

David Lowe, Ph.D. - Chief Scientific Officer

Stephen Murray - Chief Medical Officer

Michael P. Smith - VP of Business Development.

Jzaneen Lalani - General Counsel

Analysts

Terence C. Flynn - Lazard Capital Markets

Michael G. King - Rodman & Renshaw

Patrick Moriarty - Fortis

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Memory Pharmaceutical’s Conference Call to discuss the company’s Second Quarter 2008 Results. There will be a question and answer session to follow.

I will now like to return the call over to Jzaneen Lalani, the General Counsel of Memory Pharmaceutical. You may proceed.

Jzaneen Lalani – General Counsel

Thank you. Good morning and thank you for joining us to discuss Memory Pharmaceutical results for the second quarter of 2008. With us today are Vaughn Kailian, President and Chief Executive Officer, Jim Sulat, Chief Financial Officer, Dr. David Lowe, Chief Scientific Officer, Dr. Stephen Murray, Chief Medical Officer, and Mike Smith, our Head of Business Development.

Before we begin, let me remind you that some of the information presented today regarding the company’s future expectations, plans and prospects are considered forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations and actual events may differ materially from those expectations. We refer you to our filings with the Securities and Exchange Commission including our annual report on Form 10-K and our quarterly reports on Form 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. We disclaim any intent or obligation to update any forward-looking statements as a result of developments occurring after today’s call.

With that let me now hand the call over to Vaughn.

Vaughn M. Kailian - President and Chief Executive Officer

Thank you Jzaneen and good morning everybody. Our second quarter was extremely productive highlighted by Roche’s decision to license our lead nicotinic alpha-7 receptor agonist Memory 3454, which validated the potential of the program and underscored the strength of our drug development pipeline.

We also reported key data for our two proprietary programs demonstrating the value of our pipeline as a whole and continued to make strong and solid progress in advancing our development candidates towards key objectives for the year.

Let me take just a brief moment to reviews Roche’s opt into 3454 which they now call R3487. This was a major milestone for Memory and then nicotinic program overall, it provides the path forward into later stage development for 3454, and significantly strengthens our financial profile. In connection with the opt in, we received a $6 million payment in May of this year and upon completion of our ongoing Phase 2a trial for 3454 in cognitive impairment associated with schizophrenia or CIAS, we will receive an additional $17 million milestone payment.

Roche is responsible for future development and commercialization of the 3454, we received milestone payments upon the achievement of additional development in certain commercial events and attractive double digit royalty term sales to the product. Additionally we retain an option to co-promote 3454 in the United States.

We continue to be actively involved in the development of the lead nicotinic candidates for 3454, we’re continuing to enroll patients in our Phase 2a trial and CIAS. And we are on track to report top line data in the fourth quarter of this year.

We are also preparing to initiate a biomarker study of the compound in schizophrenia patients, which will be funded by Roche. We now expect to enroll our first patient this fall and complete the trial in the first half of next year.

Our second compound in the nicotinic program, Memory 63908, we’ve completed three of the four studies in our Phase 1 program, results to-date show that the drug has linear pharmacokinetics suitable for once-daily oral dosing. The final study of multiple ascending dose study is ongoing, we expect to complete this trial and report the entire Phase 1 results in the fourth quarter this year. As I think you can see was very excited about the potential of the nicotinic alpha-7 program and this excitement appears to be shared by our partner Roche. At this point efforts are focused on moving forward with the development of 3454 and 63908.

Partially as a result of that we amended the collaboration between the company just last month to eliminate any ongoing obligations for Memory to fund early stage clinical development and compounds beyond 3454 and 908. Jim will talk more about this amendment in a few moments but one beneficial side effect will be to allow us to more quickly recognize revenue for payments that Roche has already made to us in connection with this program, while this won’t result in any additional cash for Memory that will enhance our reported balance sheet.

Turning to our other programs, we also reported significant progress with the PDE4 inhibitors and 5HT6 antagonists programs. In May we reported the results of the clinical trial of our lead PDE4 inhibitors, Memory 1414 and QEG bio-marker of CNS activity. In this study Memory 1414 produced robust CNS signal with the 500 mm and 750 mm doses demonstrating a statistically significant increase in both absolute and relative power of EEG signal in the alpha frequency. We also reported positive data for 1414 in preclinical models of inflammation together the fact that the data package provides a strong rational alpha development in either cognition or respiratory indications and provides the guidance for dosing and clinical trials.

In addition this data compliments our safety data for 1414, which suggest that the molecule can achieve therapeutic sales levels without the MS is traditionally associated with this drug class. We look forward to advancing this compound into a proof-of-concept Phase 2a study by year end. Our 5HT6 program we nominated our lead development candidate memory 68626, we’re very exited about those compound 626 is a novel, potent and selective antagonists to 5HT6 receptor that has demonstrated efficacy in multiple models of cognition and obesity. We recently presented positive pre-clinical data for 626 at the international conferences on Alzheimer’s disease in Chicago, in the studies 68626 was effective in models of cognition with a considered predictive efficacy in Alzheimer’s disease and mild cognitive impairment.

In addition the data suggest the potential for once-daily oral dosing with a favorable selectivity, safety and toxicology profile, which we believe offers advantages over 5HT6 of other 5HT6 programs currently in development. There is tremendous interest in our poster which reflects the scientific community, significant excitement about this target and our compound in particular. And we are on track to advance 626 into the clinic by the end of the year.

In summary we’ve reported significant progress with our pipeline in recent months, 1414 and 626 data together with Roche’s decision to license 3454 provides a window into the potential of our pipeline each of our candidates has a potential to address multiple indications or disease areas. And we are continuing to advance our programs toward key value creating those.

On that note I’d like to turn the call over to Jim, for a discussion of our financials. Jim?

James R. Sulat - Chief Financial Officer

Thanks Vaughn. Before we go into our discussion of the financials, I’d like to take a brief moment to discuss the recent amendment to our nicotinic alliance with Roche that Vaughn mentioned. This amendment, which we executed in July of this year, eliminates our obligation to provide support to Roche, for any compounds beyond the lead molecules in the nicotinic alpha-7 program, MEM3454 and MEM63908. Specifically, we will no longer be responsible for conducting Phase 1 studies for any future compounds in the collaboration i.e., compounds that might come after 3454 and 908. And we will no longer have an obligations to provide certain CMC, regulatory and IP services to Roche for future compounds.

In Athens, Roche is taking our greater responsibility for the program and this reflects, we believe, their increased excitement about its potential. In the near term, this will impact how we recognize revenue under the agreement. Prior to the amendment, we had recognized revenue for license fees, milestones and R&D funding previously paid by Roche, assuming that our obligations under the collaboration would extend into the fourth quarter of 2013. And the total payments received by Memory were being amortized into revenue over that period. Under this recent amendment, we now expect that our sensitive obligations under the collaboration, our ongoing Phase 2a trial for 3454 and CIAS, the 3454 biomarkers study, the Phase 1 program 908, and other manufacturing and formulation activities toxicology studies will all be complete by the end of the first half of 2009. As such, we should be able to shorten the period over which revenue is recognized from 2013 to mid 2009 and thereby accelerate the revenue recognition in accordance with this new timeframe.

In return for these changes, Memory and Roche have agreed to eliminate certain milestone payments related to early stage clinical development of any future compounds and then the nicotinic alpha-7 program, milestones that were originally intended largely to compensate memory for the cost providing the Phase 1 study and other services under the agreement.

With that let me now turn to a brief revenue of our quarterly results. We discussed the results in the press release we issued earlier today to rather than take the time to review the release in detail, I’d just like to provide a brief high level review of the numbers.

For the second quarter of 2008, we reported a net loss of $12.4 million or $0.17 per share. Revenues for the second quarter of 2008 was $0.9 million and although this is lower than the prior year due to the conclusion of the R&D funding portion of our PDE10 collaboration with Amgen, we did receive increased milestone payments and research and development funding from Roche related to our nicotinic alpha-7 receptor agonist program.

As I mentioned the recent amendment to the nicotinic alpha-7 receptor program is expected to accelerate our recognition of the deferred revenue currently on our balance sheet for this program. As of June 30, we had 22.6 million of such deferred revenue and if we recognize this amount over the next four quarters i.e., through the second quarter of 2009, when our obligations under this program will be substantially complete, revenue would be approximately $5.6 million per quarter as a result of the change. This is obviously a considerable increase over the $0.9 million of revenue recognized in the second quarter of this year and we expect this new higher rate of revenue to kick in from the effective date of the amendment, July 15 of this year.

Looking out further, our reported revenue would also be increased if as we expect, we received a 17 million milestone from Roche for completion of the CIAS study in the early 2009.

R&D expenses were $10.3 million for the second quarter down from $11.3 million in the same period of 2007, this reduction reflects the decrease in costs associated with 3454 and MEM1003, offset by increases in manufacturing and pre-clinical development activities for our 5HP6 antagonists development program. In addition, we reported lower personnel related costs reflect the affect of our March restructuring.

G&A expenses for the quarter ended June 30, 2008 were $2.6 million, essentially comparable to the G&A expenses for the same period in 2007. At June 30, we had $22.1 million in cash and cash equivalents compared to $27.5 million on March 31, and $38.2 million at the end of 2007. The quarterly change reflects the $6 million payments from Roche offset by our cash expenses. We continue to believe that our cash balance together with payments expected to be made by our collaboration partners will be sufficient to fund operating expenses and capital equipment requirements and make all scheduled repayments on our debt obligations into the first half of 2009.

I’ll now turn the call back to Vaughn, for closing comments.

Vaughn M. Kailian - President and Chief Executive Officer

Thank you, Jim. We began with second half of 2008 well positioned to execute our goals for the year and with a stronger financial profile and important new data to help guide the development of our proprietary programs. The Roche opt in for 3454 was again changing event for the company, not only did it validate our product platform but it also provided us with resources to invest in our other programs.

Our goal is to replicate that success with our other programs and we continue to make intangible progress in advancing those programs towards key goals.

Let me briefly recap our 2008 goals. First, we planned to initiate the biomarker study for 3454 in schizophrenia this fall with results expected in the first half of next year. Next we expect to complete our Phase 2a trial of 3454 in CIAS and report top line results in the fourth quarter of this year, which could trigger the $17 million milestone payments from Roche in early 2009. We expect to complete our Phase 1 program for 63908 and report top line results in fourth quarter of this year and finally we plan to initiate a Phase 2a proof-of-concept trial for 1414 and the Phase 1 trail for 68626 by year end.

And in summary, we expect to end the year with four clinical stage candidates and two key data readouts. We are extremely excited about the potential to create value from our programs in the near term and we look forward to updating you on our efforts.

With that operator I’d like to open the call for questions. Please.

Question-and-Answer Session

Operator

[Operator Instruction]. Your first question comes from the line of Terence Flynn from Lazard Capital Markets. You may proceed.

Terence C. Flynn

Hi, good morning and thanks for taking the questions. First, just on the proof-of-concept Phase 2a for 1414. I’m just wondering if you guys have thought about the potential indication you had and if you can give us any additional details into that?

Vaughn M. Kailian

Yeah, we can. Well, no we can’t, I’m sorry. We are in the process of putting together our final term cooperating plan on that right now and so you probably could expect to hear something in September i.e., much more expensive review of what our plans are for 1414. It will be going ahead and we will be letting the world know on exactly what our clinical strategy is for the program and we’d rather do it in rather more all embracing format in just one half.

Terence C. Flynn

Okay. And, then on 3454 the biomarker study that Roche is conducting, it seems like now are you’re seeing fall, to kick off that study I think previous guidance was summer. Is there any reason behind that slight delay, is it related to the additional formulation work or is it something else or you guess any insight there?

Vaughn M. Kailian

We’re trying to build more robustness into the clinical trial, that’s probably the best answer I can give you. And the result of that caused a slight delay in the start, but its nothing, and there’s nothing it’s more of a positive delay than it is a negative delay. So, if you would have read it anyway you should read it positively.

Terence C. Flynn

Okay, great. And then, just one financial question for Jim, just wondering what the outstanding balance is of the Hercules loan agreement?

James R. Sulat

Yeah. At the end of the quarter it was $14.6 million.

Terence C. Flynn

Okay. Great.

James R. Sulat

We stay back $400,000 in the second quarter.

Terence C. Flynn

Great. Thanks a lot guys.

James R. Sulat

Okay. Next question.

Operator

Your next question comes from the line of Mike King from Rodman & Renshaw. You may proceed.

Michael G. King

Good morning guys, thanks for taking the question.

Vaughn M. Kailian

Hi, Michael.

Michael G. King

Hi, Vaughan. Hi, Jim. I just wanted to see if you could give us when the NAD results come in for 3454. Can you just give us a little more color on sort of how, which format your release will take will be a brief top line staging primary end point or will you go through some detail and results to be presented later at a meeting or will you give us more clarity and more color on the results?

Vaughn M. Kailian

Steve, do you want to handle that?

Stephen Murray

Sure. Good morning, Mike. Do you need 908 by the way, Mike?

Michael G. King

Sorry?

Stephen Murray

Did you mean 908 the NAD trial for 908?

Michael G. King

Yes.

Stephen Murray

Okay. You should 3454, that’s what I heard, sorry? Right, and so Mike the Phase 1 program for the NAD study is a standard Phase 1 program and so we’ll be reporting on the safety tolerability pharmacokinetics at 908, upon completion of that study. There probably will be additional data coming out after the initial release but there will not be sort of a top line report as we would do for an efficacy type study because simply of the Phase 1 program.

Michael G. King

Okay. And there is no efficacy measures dealt into the program at all?

Stephen Murray

That is correct. It is safety tolerability in PK programs.

Michael G. King

Okay. And then I know, it’s still pretty clinical but it will be clinical shortly on 68626. Can you talk a little bit more about the molecule, you sad Vaughn, you are very excited about it. I know, there are couple of other compounds out there in trials. What makes yours special, maybe give us a little more color is it selectivity, is it potency to half-life whatever?

Vaughn M. Kailian

Well, David or Steve would probably best position to answer that. So, why don’t --

David Lowe

This is David, maybe I’ll take it. So, one fact that’s being abate in this field Mike is (inaudible).

Michael G. King

Okay.

David Lowe

And that was led to some of the compounds from big pharma of being out licensed. We clearly attack that problem and believe we’ve cured it. So, we have evidence of that obviously in pre-clinical work that will see the classical things that people do. Selectivity has also been an issue with some compounds, we believe, well we know, we’ve cured that one. And also pharmacokinetics, we have very good brain levels those who have sort of the three main areas that we believe from a pharmaceutical science perspective we’ve improved. And then, we also have broad activity in a number of cognition models and actually also in one model of obesity.

Michael G. King

Can you say which one?

David Lowe

It’s the Fat – [Fed Raptor] model, it’s in initial model in terms of profiling. We have a fat rich diet.

Michael G. King

Right.

David Lowe

And we got good activity in that model, those depend on everything that you’d expect, the way forward there if we want to elaborate data you’ll obviously to be get into additional models.

Michael G. King

Yes. And when, I mean, is there another point in time we are going to see more about this molecules characteristics?

David Lowe

We will be presenting in over the next six months I think more data at various meetings. I can’t say exactly when those will be but towards the end of the year maybe at the Neuroscience Meeting.

Michael G. King

Okay.

David Lowe

In the American Society for Neuroscience.

Michael G. King

Got it. I think that was the extent of my questions, thank you.

Vaughn M. Kailian

Great, thanks. Next question operator, please.

Operator

Yes, sir. Your last question comes from the line of Patrick Moriarty from Fortis. You may proceed.

Patrick Moriarty

Hi, thanks for taking my questions. Couple of follow-up’s on 626, if I may. At the Alzheimer’s meeting it was not only interest in your compound but also in GSK and I believe Stephen made a presentation. Is there anything you saw in their compounds or their presentations that will lead you to believe that you are differentiated from them?

Vaughn M. Kailian

Well, David, you and Stephen you want to -- Stephen was at the meeting and David do you want to comment?

David Lowe

The one point that I would make, well, two points actually would be once again the selectivity. It’s well known in the public domain that the GSK compound has some 5HT2a activity. However, how that would really translate to an advantage or a disadvantage in the clinic isn’t totally clear. But as you know, in general we are in the drug hunting business, all looking for selectivity.

Patrick Moriarty

Right.

David Lowe

And then another area that based actually on our own data comparing these compounds is in the, as I mentioned in response to Mike’s question, turn to the pharmacokinetics and particularly the sustained brain levels. Another issue with the GSK compound, well, they’ve actually published this thing so in various formats to PGP substrates, in other words it maybe getting pumped out of the brain, we think that might be contributing, well as we don’t have that (inaudible) from the brain.

Patrick Moriarty

Okay

David Lowe

The brain levels, sustains brain levels, we think might well be an advantage. All of these need to be filled and validated to the intents of how it translates into clinic risks.

Patrick Moriarty

Of course, and if I may turn towards the Roche collaboration, I have a few structural questions about that. So, if I understand it correctly there were no makeup payments or no makeup recognition of revenue, it’s going to be the revenue that’s right now deferred on the balance sheet will be all recognized over the next four quarters?

David Lowe

Yes. That’s our expectations, Pat.

Patrick Moriarty

Okay. And is there any change of control provision in that agreement?

David Lowe

No. In terms of, do the rates that we have, the economic rates to the program survive a change in control of memory, is that your question?

Patrick Moriarty

Yeah.

David Lowe

No, they do.

Patrick Moriarty

Well the economic rates. The economic rates as well as the co-promotion rates revive the change in control?

David Lowe

Also correct.

Patrick Moriarty

Okay, great. Thank you.

Vaughn M. Kailian

Was that the last question?

Patrick Moriarty

It was.

Vaughn M. Kailian

Okay. Well, with that I would just like to thank everybody for getting on the call this morning. As usual we are available to answer questions, just give us a call to company and we will get back to you as quickly as we can and thank you very much and we hope you enjoy the rest of the summer and I look forward to seeing you as we move into the fall. Take care everybody, thank you very much.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a wonderful day.

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