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Endocyte (NASDAQ:ECYT)

Q3 2012 Earnings Call

November 01, 2012 02:00 PM ET

Executives

Mike Sherman - CFO

David Meek - CCO

Analysts

Simos Simeonidis - Cowen and Company

Jason Kantor - Credit Suisse

Adnan Butt – RBC Capital Markets

Grey Wade - Wedbush

Operator

Welcome to Endocyte’s Conference Call to discuss the company’s third quarter 2012 financial results and operations update. (Operator Instructions). Speaking today Mike Sherman, Chief Financial Officer and David Meek, Chief Commercial Officer. Following their comments we will open the line for questions. Please be advised that today’s call is been recorded and webcast. During this conference call the company may make predictive statements concerning the future events or development such as their expectations for EU regulatory filings, regulatory approvals, timing of clinical trial execution, clinical trial results and financial outlook.

Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please refer to Endocyte's filings with the Securities and Exchange Commission for a discussion of these risks and uncertainties.

Now let me turn the call over to Mike Sherman.

Mike Sherman

Thank you. Let me start by mentioning of course Ron is usually with us for these updates but unfortunately he was pulled away for a family emergency today and couldn’t be here. So Dave and I we will take the call in his place. With many of you on the East Coast I know you and you’re family have been dealing with some challenges, falling and restoring yourself so special thanks to all of you for being on the call this afternoon.

I will go ahead and hit the operational and financial highlights and I have David Meek our Chief Commercial Officer to join us to provide a brief update on the efforts he has been leading and our preparation for potential approval in the EU. First I’m pleased to say the filing process for the EU marketing applications has progressed on schedule and we expect to be able to announce the completion of that process before year end. Our enrollment continues to progress well in the Phase III PROCEED trial in ovarian cancer.

Also like to provide an update on the DOXIL supply situation or Caelyx as it's called outside the U.S. Pleased to say that Jameson has made some great progress on that front in the last several week. First they announced full access to DOXIL in the U.S. with confidence that they will be able to satisfy demand until the approval of the new supply solution which the FDA has under expedited review. So we have been full steam ahead in the U.S. and enrollment is going well.

Just this week Jameson also announced the regulatory approval of in the EU of the new supply solution. We have some sites already enrolling in the EU and we’ll activate additional sites as supply supports it. Jameson has said there won't be fully commercial supply available immediately so we will work closely with them to expedite that process. So generally good confidence that supply, new supply process is well on its way to returning.

We referenced in their release the Phase I trial Merck is preparing to initiative now. As we said before it's a very important element to our partnership to develop vintafolide in four additional indications. So we’re very excited to get this work going, Merck recently posted that trial on clinicaltrial.gov, so you can reference it there. Trial will evaluate vintafolide in combination with paclitaxel and carboplatin in a dose escalation study in advance cancers in Part I of the trial and then Part II will then carry that forward into a brain cancer and non-small cell lung cancer in patient selected by etarfolatide as positive for the folate receptor. This will essentially evaluate vintafolide in an earlier line of therapy in the two cancers in which we already have ongoing trials.

It's worth noting that this would satisfy one of the four new indications required for new development on Merck’s part and the other three would need to be in different tumor types. In other words other than ovarian and lung cancer.

With that let me turn it over to David for an update on the commercial planning activities.

David Meek

Thanks Mike. My name is David Meek and I’m the Chief Commercial Officer. I joined Endocyte three months ago and in the last few months we made significant progress in the preparation for the commercialization of vintafolide and etarfolatide for Europe and when I say we are making progress I mean our collaboration with Merck. I have led and been involved in numerous alliances with both big and small farmers and the one we have with Merck is going very well in my opinion.

They are strong cross functional partnering, communication and alignment and there have to be because we are developing and commercializing unique companion diagnostic imaging agent together with a target of therapeutic agent.

And in preparation for the European launch, our planning is well underway; we have been deeply analyzing the patient journey in the complex European value chain landscape, so we have a winning plan in place to ensure the maximum number of patients can have access to vintafolide and etarfolatide as fast as possible.

Endocyte has spent considerable customer time in Europe at the recent European Society of Medical Oncology Congress and the European Association of Nuclear Medicine Congress this past week. Physician feedback from this important meetings and for market research, the European oncologist and nuclear medicine physicians are quite interested and they see significant clinical value with our fully receptor target of therapy. And we are all well aware of the high unmet need for patients with platinum-resistant in ovarian cancer and physician feedback suggest high interest and anticipation for vintafolide and etarfolatide.

Endocyte Merck, know the opportunities and the challenges of launching in Europe and our objective and laser focus is of a winning launch with our innovative diagnostic imaging agent and our target of therapeutic agents. Thanks and I will turn it back to Mike.

Mike Sherman

Let me just finish up with some comments on the financial results. I mentioned during our second quarter call that our expected quarterly revenue coming from payments and research activities through the second quarter would be 11.7 million, so 11.7 million per quarter based on that prior those prior payments and expense recognition. The 4.6 million in research and development expenses for the third quarter which are reimbursable by Merck than add to that amount. We spread that 4.6 million over the period starting at the close of the Merck transaction on April 27, through the end of 2014, so that 32 months.

Through September that amortization is $700,000 and the remaining 3.9 million is recognized between the fourth quarter of 2012 and the fourth quarter of 2014 so spread over nine quarters.

So there is new baseline for Q4 will be 12.1 million and then the amortization of Q4 reimbursable expense will add to that amount. R&D expenses for the quarter of 9.9 million were up about a $1 million versus last year and also about the same amount from Q2. The sequential increase is driven by the increasing clinical trial enrollment and when you net out the 4.6 million current period reimbursable expenses by Merck the expense for the quarter of 5.3 million is down from recent quarters in last year.

You will note our interest expense this period is essentially gone as we retired our credit facility in the second quarter. We ended the quarter with 204.7 million in cash compared to 211.5 million at the end of June that’s less than a $7 million burn for the quarter that included a first payment from Merck on the reimbursable expenses. This is one of the reasons we also show the adjusted research and development expense. So you have a better sense of the cash flow related to operating expenses since that’s a reimbursement amount is spread through the revenue.

I’ll provide guidance for 2013 along with our fourth quarter update and earnings announcement early next year. In the meantime the guidance I have provided for 2012 spending is probably on the conservative side, spending after reimbursement will be somewhat lower. With that let me turn it back to the operator to see if we have questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our next question comes from Simos Simeonidis of Cowen and Company. Your line is now open.

Simos Simeonidis - Cowen and Company

Mike given the positive news on DOXIL both in the U.S. and Caelyx in Europe. Your guidance on when you will see data from proceed, doesn’t seem to have moved much. Are you being conservative and hoping to surprise getting the data littler earlier or are you still expecting the data in the first half of ’14.

Mike Sherman

That’s still our expectation Simos. The European ramp-up of trial sites is happen over the next few months. So we've factored that into our assumption. So our guidance I think is still intact.

Simos Simeonidis - Cowen and Company

Any thinking towards possibly doing more in the US given that you might be delayed for a little bit whilst?

Mike Sherman

Yes, it’s a great point. We've actually when working with Merck have identified some additional sites and frankly just expanding the exposure that sites have to using the imaging diagnostic and the therapeutic is always good. But we've been exploring and in fact been adding additional sites in US with their guidance and input.

Simos Simeonidis - Cowen and Company

And then can you remind us or disclose, what was your latest interaction with the FDA and what was the latest they've guidance in terms of, what they would like to see? What's your expectation in terms of an overall survival or not or whether it is still strong PFS depending on data will do or would they want to see another survival, a variant for approval?

Mike Sherman

Yes, we actually did meet with the FDA recently. I won’t go into the detail of that meeting but I will say that none of the assumptions around our primary endpoint have changed. It’s reinforced all of that. PFS is a primary endpoint. OS is a secondary endpoint which will of course be an important part of the analysis but PFS is the primary and the basis for the filing.

Simos Simeonidis - Cowen and Company

David spoke about the preparations that are going on with Merck for potentially European launch. What is the ball park number that you’re thinking about in terms of when that would be, early ’14, first part of ’14. What's the number we should be thinking about?

Mike Sherman

As you probably know, the part of the time line depends on the stop clock period and how long it takes to answer the question that they may have upon their initial reviews. So we haven't provided specific guidance on when we expect to launch but historical drug you’ve seen have taken a year to year and a half is kind of the range of the conditional authorization approval processes.

Operator

Thank you. Our next question comes from Jason Kantor of Credit Suisse. Your line is now open.

Jason Kantor - Credit Suisse

You’ve been the FDA very recently. Where do you guys stay on in terms of the enrolling the FR negative patients and give you some guidance as to adjusting the trial appropriately to exclude those patients and then also can you speak a little bit more to where Merck might be going with some of these other indications and is there any sort of timing obligation there in terms of your contract?

Mike Sherman

With regard to the FDA meeting, we do have some flexibility on the inclusion of the negative patients for now. We are going to continue to enroll those patients. There is actually some value to doing that. So we’ll just have to update later when and if we decide to stop enrolling those patients. It’s not really going to impact the timeline so it’s a modest impact as it relates to the cost of the trial. But as we suggested it, from a data standpoint certainly doesn’t impact the primary endpoint. But we are going to continue to enroll those negative patients for the time being.

As it relates to the trial, I can’t give any more insight into the indications that Merck plans to pursue one of those additional tumor types. You can imagine that they would likely come from those cancers that commonly over express the folate receptor as we said a number of times. There was a schedule that was part of the agreement that's not disclosed but I know that Merck is, as they have been with this Phase I trial is working quickly to get those other programs going on. It’s obviously in their interest to execute those quickly because there are no milestones per se that need to be met. Those trials need to be done regardless of kind of progress on ovarian and lung cancer. So no, barriers to starting them quickly.

Jason Kantor - Credit Suisse

Can you give us any update on any other programs in the earlier stage pipeline, any progress there?

Mike Sherman

Well we do plan to, I think as we said before, we do plan to file an IND and get into the clinic in the first half of next year, the folate-tubulysin conjugate. So our second folate targeted drug using tubulysin which is a very potent drug payload, more potent in fact than the payload that's attached to Infalyte. So we’ll see that in the clinic in the first half of next year. We’re working now to complete the clinical plan that would support the inflammatory agent. So it’s a fully targeted drug with (inaudible) is an anti-inflammatory agent as a drug payload. We need to see more about the trial design there to nail down the timing but we expect that that would be a drug we can get into the clinic by late next year.

Operator

Thank you, our next question comes from Adnan Butt of RBC Capital Markets. Your line is now open.

Adnan Butt – RBC Capital Markets

Do the EU regulators have any feedback on the Phase III trial by design or they are satisfied whatever the company is pursuing with the FDA?

Mike Sherman

Yes, we've had dialogue with EU dating back even prior to the decision process for whether we file or not for conditional authorization are really require their alignment on our plans for Phase III and I think we’re quite comfortable that we’re meeting their expectations in the.

Adnan Butt – RBC Capital Markets

So the primary efficacy population remains the FR++ patients?

Mike Sherman

Right FR++ are now we have changed our vernacular a little bit, we call FR 100% but that’s exactly right.

Adnan Butt – RBC Capital Markets

Okay and in terms of a breakdown in U.S. you saw you provided that in the past, can you provide it?

Mike Sherman

In terms of the number of sites that we would have….

Adnan Butt – RBC Capital Markets

Yes the balance between the two regions yes.

Mike Sherman

I haven’t provided any specifics on that. We had always planned to have more sites in the U.S. than in Europe but I haven’t provided much detail. More than half of the enrollment I would expect it to come from the U.S. for sure.

Adnan Butt – RBC Capital Markets

And have you given enrollment updates or the plan there is still to not get them.

Mike Sherman

Now our plan is just to keep your abreast based on our guidance and enrollment is going well in the U.S. and Canada, I should add to that but it's on North America, enrollment has been going well and we sort of standby the guidance we have provided for being able to finish that trial or get to the data by the first half of in 2014.

Adnan Butt – RBC Capital Markets

And if I can ask a pipeline question then I will get back in queue. In terms of the study that’s been conducted or are planned Merck how are inclusion criteria different than how (inaudible) different that you’re DOXIL for your current similar indicators.

Mike Sherman

I should say because we are going with the new combinations, they need to evaluate the combination toxicities with carboplatin and then paclitaxel so that’s really the reason and then I think whether there is an alternative dosing schedules, those will be the things that we explore in various studies going forward and otherwise it's really just a function of the new drug combination.

Adnan Butt – RBC Capital Markets

What is the maximum dose is it same as the current vintafolide dose or is it different?

Mike Sherman

It's the maximum dose, so I don’t know what the maximum dose could be with the new combination. Theoretically it could be higher I guess, so that’s to be determined in the trial.

Operator

Thank you. (Operator Instructions). Our next question comes from Grey Wade of Wedbush. Your line is now open.

Grey Wade - Wedbush

So what are you going to use to inform your enrollment strategy with respect to FR 0%, do you have a DSMB or we are seeing the study that might provide you some guidance as to whether it make sense to continue to enroll those patients, how should we think about this?

Mike Sherman

Yes we do have a DSMB, I’m not sure that should think too hard about it, I guess the one way to put it is that the value to enrolling these patients there is some value to doing it because it's sort of builds the inventory of evidence around the mechanism of action, it also supports the validation of the antigen agent, so there are a couple of reasons to include these patients and none of them really have to do or as much to do certainly with the approval end points but end-up supporting that data in a different way. So, I would expect it will continue to enroll those payments for a while at least and then to be determined whether we cut it off earlier.

Grey Wade - Wedbush

Okay and just couple of other questions with etarfolatide past approval in Europe maybe if David can just remind us how that will work and then lastly maybe any indication as to where the polycystic kidney disease program might stand in terms of priorities for the pipeline. Thanks.

David Meek

Yes I will answer the one about etarfolatide approval in Europe. It goes in the same time as vintafolide and folic acids, so the three dossiers are submitted at the same time and will be reviewed simultaneously.

Mike Sherman

Polycystic kidney disease program is one that we’re currently prioritizing among the other pipeline program, so this one I will have to update later as to what we can do there, there are actually some things we can continue to do to keep that moving forward with through the collaboration we have with UC Santa Barbara so probably work on that in the interim but I will update you later on that.

Operator

Thank you. And our next question is a follow-up from Adnan Butt of RBC Capital Markets. Your line is now opened.

Adnan Butt - RBC Capital Markets

Grey stole the question. Thanks.

Operator

Thank you and at this time I’m not showing any further questions in the queue.

Mike Sherman

Okay great. Well I appreciate again everyone being on the call. Look forward to so got some important milestones coming up here. Certainly before the end of the year with completion of the filing process and looking forward to more discussions on that and our plans for commercial readiness going forward. So again thanks for being on the call.

Operator

Ladies and gentlemen thank for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.

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