Altus Pharmaceuticals Inc. Q2 2008 Earnings Call Transcript

Altus Pharmaceuticals Inc. (ALTU)

Q2 2008 Earnings Call Transcript

August 5, 2008 11:00 am ET

Executives

John Jordan – Senior Director of Corporate Communications

Georges Gemayel – President and CEO

Jon Lieber – SVP, CFO and Treasurer

Burkhard Blank – EVP and Chief Medical Officer

Analysts

Steve Harr – Morgan Stanley

Eun Yang – Jeffries & Co.

Tom McGahren – Merrill Lynch

Joseph Schwartz – Leerink Swann

Presentation

Operator

Good day and welcome to this conference for Altus Pharmaceuticals second quarter investor conference call. 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 Georges Gemayel, President and CEO; Burkhard Blank, Chief Medical Officer; and Jon Lieber, Chief Financial Officer.

Before I turn the call over to Georges, I would like to direct your attention to our Safe Harbor statement in our news release. Certain remarks that we may make during this call about future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. As noted in the statement, our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors such as those that are discussed in our news release and in our SEC filings 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 Georges.

Georges Gemayel

Thank you, John. Good morning, everyone, and thank you for taking the time to participate in our second quarter investor conference call. Today’s investor call is my call quarterly call at Altus and I am very pleased to be with you. I am glad that during the last 5 weeks I had the opportunity to meet with many of you in the investment community. In fact, Jon Lieber, John Jordan, and myself met with more than 55 investors and analysts during this period.

There have been two consistent questions throughout most of the meetings. First, why did I join Altus and second when is the Trizytek data coming up. Let me reiterate my reasons for joining Altus. Altus’ technology platform, the number of compounds in clinical development, the quality of the preclinical candidate, the Altus current management team and the conviction that a lot of value could be created were the significant contributors to my decision to join Altus.

Since coming on board in June I have been comforted in the reasons for my decision. I am very pleased with the company’s recent accomplishments, particularly completing the last patient visit in the Trizytek Phase 3 efficacy trial and the signing of a long-term growth hormone supply agreement for ALTU-238. The second question was the timing of the Trizytek efficacy data announcement. We have been very consistent with this. We will report in the third quarter. As we stated in the news release this morning we are in the final stages of data compilation for the trial.

We believe that Trizytek our investigational oral enzyme replacement therapy for patients with pancreatic insufficiency would be the first pancreatic enzyme replacement therapy, which demonstrated robust safety and efficacy data to reach the market.

Let me just put a little color on the Trizytek program, 134 patients completed the digest efficacy trial, which tested the one capsule per meal dosing regimen. The primary endpoint of the study evaluates the fat absorption in cystic fibrosis patients with pancreatic insufficiency, which is measured by the coefficient of fat absorption known as CFA.

In parallel, Altus is conducting long-term safety studies that will evaluate Trizytek in cystic fibrosis and chronic pancreatitis. Over one year of open-label treatments, these studies are progressing.

There are two gaping items for the NDA submission. First is the long-term safety study in 100 patients on Trizytek for one year to be able to satisfy the FDA. And the second is completing the necessary manufacturing process validation work to support an NDA submission. We believe we are on track to complete our NDA filing for Trizytek in the first half of 2009.

Now moving to ALTU-238, our extended release formulation of human growth hormone. We expect to initiative the Phase I-c trial this quarter. This I-c trial is designed to confirm that 238 material produced at the current increased manufacturing scale performed similarly to the method of use in previous Phase I and Phase II trials. The ALTU-238 Phase I-c trial is expected to include 36 subjects. The safety and pharmacokinetic profile of ALTU-238 will be evaluated over one week. Upon successful completion of the Phase I-c data analysis, we are targeting early 2009 to initiate the Phase II Trizytek [ph] trial. This Trizytek trial will assess the change in 6 months annualized height velocity in growth hormone deficient children and will be used to finalize the Phase III study design.

Regarding the growth hormone supply we secured a long-term supply agreement with Sandoz in July. Sandoz supplied growth hormone for our completed Phase I clinical trial in healthy adults and Phase II clinical trials in adults with growth hormone deficiency. We believe this long-term supply agreement provides us with increased strategic options for ALTU-238.

Moving to ALTU-237. 237 is being developed as an orally administered oxalate-degrading enzyme for treatment of hyperoxalurias. These diseases are characterized by excessive high level of oxalate, which can be a precursor of forming stones in the kidney and or other orifices. Currently, there are limited pharmacological treatments for hyperoxaluria or recurrent kidney stones. In early June, we reported that ALTU-237 was safe and well tolerated in humans. We and our external advisors agree that the proof of concept for ALTU-237 can only be evaluated in hyperoxaluria patients. We are considering our options for moving ALTU-237 into a proof of concept Phase 2 trial, which would be targeted to start in 2009. Going forward, we will be coordinating our planning for this program with the company's strategic planning process, which we expect to communicate later this year.

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

Jon Lieber

Thank you, Georges, and good morning everyone. For the second quarter of 2008, the company reported a net loss attributable to common stockholders of $25.3 million or $0.82 per share, compared to a net loss attributable to common stockholders of $30.5 million or $1.06 per share in the second quarter of 2007. Altus did not recognize any revenues in the second quarter of 2008. The company recognized revenue of $1.5 million in the second quarter of 2007.

Research and development expenses totaled $21 million in the second quarter of 2008, compared to $17.9 million in the second quarter of 2007. Second quarter 2008 R&D spending reflects increased clinical and manufacturing costs associated with Trizytek and manufacturing related cost for ALTU-238.

General and administrative expenses were $4.7 million in the second quarter of 2008, compared to $4.1 million in the second quarter of 2007. This increase in primarily due to increases in personnel and stock-based compensation expenses.

The total expenses for the second quarter were $25.7 million compared to $33.6 million in the second quarter of 2007. Included in second quarter 2007 total expenses was a charge of $11.5 million associated with the termination of the termination of the Dr. Falk Pharma agreement and reacquisition of the European marketing rights for Trizytek.

Cash, cash equivalents and short-term marketable securities balances at June 30, 2008 totaled $92.8 million and we believe our current cash position will fund operations well into the first half of 2009. Going forward, we will need to bring additional funding into the company and it is our intent to deliver value-creating milestones prior to any financing.

As we have discussed with many of you before, we are evaluating the entire spectrum of funding including product or program-specific financing vehicles as well as corporate partnerships. That concludes the financial summary and I will now turn the call back over to Georges.

Georges Gemayel

Thank you, Jon. Operator, we are now ready to take any questions.

Question-and-Answer Session

Operator

(Operator instructions) We will go first to Steve Harr with Morgan Stanley.

Steve Harr – Morgan Stanley

There has been a lot of confusion about what the primary endpoint is of your Trizytek trial as well as what you think is necessary to show for some of the secondary endpoints like the overall patient population and those with a little less severe pancreatic insufficiency. Did you go over what is your primary endpoint exactly? What the trial is designed to power to show and then each of the important secondary endpoints here?

Georges Gemayel

Thanks, Steve, for the question. I will ask Burkhard to take it.

Burkhard Blank

Yes. The primary endpoint is improvement of CFA, i.e. fat digestion and fat absorption and the first analysis of the primary endpoint i.e. the most important readout of efficacy is Trizytek’s effect in patient’s more severely affected, i.e. those who have a baseline CFA of 40 or below or the patients off enzymes would absorb less than 40% of triglycerides in their diet. The second analysis of the primary endpoint is then the overall patient population meaning all the patients that made it to the trial and the final the third analysis is the CFA in patients above 40 those who are less severely affected. These agreements as part of the special protocol assessment with the FDA is as we have communicated in the past repeatedly that the FDA expects a robust treatment effect in those most at need and a treatment effect that they look at being robust and meaningful is somewhere between 20 to 30 percentage points improvement in CFA. There is no clear agreement as also communicated in the past because nobody knows. There are not data that have been published with any other products what is to be expected in patients who have a less severely affected baseline severity i.e. patients above 40. The trial is powered from the sample side primarily to the above 40 and then we have more than 90% power to show a statistically significant result or difference in CFA if we detect an increase in CFA of 10 percentage points or more. The power for the below 40 is in the upper 90s if we see there is somewhere between 20% and 30% CFA improvements.

Secondary endpoints, so this is, CFA is the prime endpoint and then there is a sequence of analysis with this primary endpoint. Secondary endpoint is the improvement in CNA. Again first analysis in those below 40, then overall and then above 30 and then we have the number of tertiary endpoints like stool weight, stool frequency, and increase of glucose concentration postprandial.

Steve Harr – Morgan Stanley

Okay and so just to get it more clear the absolute benefit that you are looking to see in both the primary efficacy endpoint, which is those are severely affected and maybe the second primary, the secondary endpoint under which they were less severely affected as what?

Burkhard Blank

We saw in Phase II an improvement in CFA endorsed below 40 the most severely affected, I think it was 32-percentage point. We saw an overall improvement in that patient population of 11.6 percentage points and we saw an improvement in those above 40 of 8% percentage points. We have no reason to believe that we cannot at least confirm these results in the Phase III trial design and from a number of design changes that have been agreed with the FDA. If anything likely that we have a reasonable opportunity to come up with better results. For example, we excluded patients from the Phase III that have baseline of 80% CFA, i.e. patients who absorbed most of the triglycerides for two reasons, a, you can’t show a drug effect likely, and b, they actually don’t need a drug. And there are some other reasonable protocol changes that if anything would into the direction of comfortably confirming what we saw in Phase II.

Steve Harr – Morgan Stanley

Due you believe this drug will be commercially competitive with the first time products with an 8% absolute increase in the less severe patient population?

Burkhard Blank

So, I didn’t understand what was the increase you mentioned?

Steve Harr – Morgan Stanley

You said 8% in the less severe early affected patient population? Is the first time product is seen in their recent studies they are small but they have seen larger numbers. So that is different from these?

Burkhard Blank

I don’t think anybody can credibly answer that question because any of the published data with any of the competitive products, they never disclosed treatment response by baseline severity. So, we don’t really know what the see and which severity stratum of the patient that they have studied.

Georges Gemayel

Steve, I think that it is fair really to mention that this will be the first well-designed, well-controlled study as we have done in this area. And it is done with (inaudible) patients. We didn’t do it through preselection of patients and this is a very rigorously conducted study. So, I think that we will know exactly that results of the study and they will reflect what is really happening in this patient population. It will be very hard to extrapolate from any other small study as you mentioned which is kind of in the market today and try to understand what is really happening. The other point, which I think is very important in this disease area is that we are dealing with artificial condition during this clinical studies, where we are putting these patients in hospitals and we are making them take a big number of pills. We control that bias et cetera [ph] and we know that in real life the situation is very, very different and then the compliance rate with these compounds are very, very bad, which means basically no matter what you see in artificially created situations, just the sheer number of pills which is you know patient has to take does not template into any clinical efficacy in their life. And with Trizytek being a once a meal is going to change that a lot. So, I think that it is very hard to say what will happen in the market place, but we are very comfortable with the profile of our drug, the weight of the design and through the robustness of its design and hopefully the robustness of the results. So, operator could we move to the second question.

Operator

Thank you. We will go next to Eun Yang with Jeffries & Co.

Eun Yang – Jeffries & Co.

Well, thanks very much. I just want to clarify the previous question. So, in the study if you hit the end point in the severe case of pancreatic insufficiency patients but overall you see you miss it, is it considered as success and is it an approvable clinical outcome?

Georges Gemayel

I would say that chances of not making the primary analysis of the primary endpoint, i.e. in the range of 20 to 30 percentage points agrees to improvement in the below 40 (inaudible), remote in my judgment. This is all I can say on that. There is no agreement with the FDA and I said we have said that repeatedly because there is no precedent on that. What is overall improvement in the overall population or in the above 40, which reflects a clinically meaningful and therefore approvable efficacy readout? I believe we have and will have good arguments if we see an improvement in the overall mean population in the 15% percentage point or higher that we have demonstrated efficacy with our product for that patient population and that from a efficacy perspective I would anticipate no problems in getting approval for the product. But it will be a review issue as many things are after drug submission and after FDA review. So this is really all I can say.

Eun Yang – Jeffries & Co.

Okay thanks. And I have a couple of other questions to Jon. Depending on the outcome of Trizytek Phase III study, is there some milestone associated with that from cystic fibrosis foundation?

Jon Lieber

No, there is no milestone attached to the Phase III – to the Phase III trial that we are currently running. There is on more milestone to be received from CFF and this is for the pediatric formulation when we complete that trial for that pediatric formulation.

Eun Yang – Jeffries & Co.

And then last question is in terms of the expense that you have been booking from the re-acquisition of Trizytek from Dr. Falk, is there some amount to be booked in the second half of this year?

Jon Lieber

No, the expense of the P&L was taken in the second quarter of last year as a one time P&L hit that we took last year. There are payments that still have to be made going forward, which I think we have laid out in some of our filings. So, the expense from a P&L standpoint is done.

Eun Yang – Jeffries & Co.

Okay. Thanks very much.

Georges Gemayel

Thank you. Next question please.

Operator

We will go next to Tom McGahren with Merrill Lynch.

Tom McGahren – Merrill Lynch

Hi, good morning everyone. Just a quick follow-up to those prior two questions. Then another question on the safety studies. What you would consider a failure for the Phase III trial. It sounds like you might file an almost what you see, I am not stating that correctly, but maybe that is what I am trying to get at. And then I have a follow up on the chronic pancreatitis trial?

Burkhard Blank

I can’t tell you what I personally would consider as failure. I can tell you what I and probably the FDA would consider a disappointment. If we wouldn’t see in the above 40 patient population around 10 percentage point increase or more than that that would then bring up the question to them. If that is good enough from an efficacy perspective in what is a majority of the patient population they make up between two-thirds and three-fours of overall CF patients there and we will just have to see what the data show us on this one. I cannot say more to that.

Georges Gemayel

Now you didn’t ask another question that was your question.

Tom McGahren – Merrill Lynch

Yes, second question. On the Phase II studies. You are doing for chronic pancreatitis and one patients with cystic fibrosis. I was just curious about the trial for chronic pancreatitis, the characteristics of the patients there and maybe are you seeing any changes in the liver enzymes, like you saw on the Phase II trial, anything you can tell us about that?

Burkhard Blank

We will report the results of both long-term studies once they have been concluded but what I can say that should be reassuring to you – at least was reassuring to us. Twice since we have started the Phase III program provided an independent data monitoring committee with the safety observations in all three trials. The efficacy in the two long-term safety trials and liver enzymes were obviously part of that data. The data monitoring committee came back to us on both occasions without any objections to continue the program as it was designed. So, there had not been any concerns on that.

Georges Gemayel

And Tom if I may say one thing about that Phase II, I don’t think there was any point in the Phase II data analysis or when the data was reviewed that there was a definitive knowledge that there was any impact on AFPs [ph] in the study. I mean, we are dealing with the patient population where liver enzymes are very unstable by the fact (inaudible). And this is why monitoring for this to make sure to know what is happening during the Phase III what is very important and this is why, this update which Burkhard has provided is very, very important.

Tom McGahren – Merrill Lynch

Okay, thanks a lot.

Georges Gemayel

Next question please.

Operator

(Operator instructions) And we will go next to Joseph Schwartz with Leerink Swann.

Joseph Schwartz – Leerink Swann

Hi, thank you. I don’t want to be beat a dead horse, but I was just curious if you could help clarify for me the primary endpoint. Are you making multiple comparisons, how much output do you have to spend, is it 0.05 for each of the 3 comparisons or do you only have the residual leftover for the second two, if you know what I am asking at?

Burkhard Blank

We have a two sided testing here for the first analysis of the primary endpoint. If only if that is – that analysis is positive we will be going to be secondary, which the overall mean and then in the tertiary. There is some outer [ph] spending and sorry I can’t tell you exactly what it is right now going from first to second to third, but in no means puts the likelihood of identifying what I said when I described the powering of the trial at risk.

Joseph Schwartz – Leerink Swann

Okay, when you present the top line data from the safety and efficacy portion that has been randomized, will you give us any insight into the longer term experience of the drug from the open label safety study such as weight gain data or other things like this that are important to physicians?

Burkhard Blank

I think it wouldn’t be a good idea to disclose interim data of an ongoing open label trial at the time when are ready to disclose the efficacy piece, which will be this quarter. As we said that is all I can say. So the answer to this is no.

Joseph Schwartz – Leerink Swann

Okay, and then lastly do you have any plans to convert the patients in the open label safety study to commercial product when the complete the trial portion?

Burkhard Blank

We are actively considering this right now. Don’t have a firm decision.

Joseph Schwartz – Leerink Swann

Great. Thanks very much.

Georges Gemayel

Thank you.

Operator

(Operator instructions) And with no further questions in our queue, I would like to turn the conference back over for any additional or closing remarks?

Georges Gemayel

Thank you very much for being here for participating in our call and we are looking forward for the next several weeks and months that will be very exiting for us, especially as we anticipate reporting the Phase III data. Since joining Altus I have had the opportunity and pleasure to meet many of you and I look forward to continue this and meeting with many more. I believe our ongoing clinical program, our future applications of the technology will fuel a very bright future for our company and I thank you very much for your support and thank you for participating in this call.

Operator

Thank you. And ladies and gentlemen, that will conclude today’s conference. We do thank you for your participation and you may disconnect at this time.

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Comments

[whatanorder!:]

someone should say why they're first posting this 5 weeks after the fact....

2008 Sep 15 03:24 PM