Tenax Therapeutics, Inc. (NASDAQ:TENX) Q1 2016 Results Earnings Conference Call May 19, 2016 8:30 AM ET
Nancy Hecox - EVP, Legal Affairs, General Counsel, and Corporate Secretary
John Kelley - Chief Executive Officer
Michael Jebsen - Chief Financial Officer
Jeffrey Cohen - Ladenburg Thalmann & Co., Inc.
Anita Dushyanth - Zacks Investment Research, Inc.
Greetings, and welcome to the Tenax Therapeutics' Business Review and Update in Conjunction with Filing of Fiscal Year 2016 First Quarter Financial Report. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.
I’d now turn the conference over to Ms. Nancy Hecox, General Counsel for Tenax Therapeutics. Thank you, Ms. Hecox. You may now begin.
Thank you. Good morning everyone, and welcome to the conference call for Tenax Therapeutics' first quarter 2016 earnings period ending March 31, 2016. The news release with our financial results and corporate update became available at 6:30 AM today and can be found on the Investors section of our website at www.tenaxthera.com. You may also listen to a live webcast and replay of today's call on the Investors section of the website.
Before we begin, let me remind you that statements made on today's call regarding matters that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of these forward-looking statements include statements concerning the expected timing for the company's clinical trials, statements concerning the potential results of planned clinical trials and future development milestones for the company's product candidates.
Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Risks are described more fully in Tenax's filings with the Securities and Exchange Commission. All forward-looking statements made on today's call speak only as of the date on which they were made. Tenax Therapeutics undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.
Joining me on the call today is John Kelley, Chief Executive Officer of Tenax Therapeutics, who will discuss recent company highlights. Following John, Michael Jebsen, Tenax's Chief Financial Officer, will review the company's financials, after which we will open the call for the Q&A session.
Now, let me turn the call over to Tenax's CEO, John Kelley.
Thanks, Nancy. Good morning everyone and thank you for joining us for today’s call.
As we head into the summer months, we continue to execute on our clinical program and are nearing several potential late-stage inflection points during the second half of this year for our lead candidate levosimendan in both cardiac surgery and septic shock. We are very excited to share those results with you later this year and I'll be walking through updates on our progress and plans for each of these programs here today.
First in cardiac surgery, as we touched on in March, the enrollment pace in our Phase 3 LEVO-CTS study has continued to stay strong and we are now at 621 patients in the study as of this morning. For reference, we were at 301 patients on December 15 and 388 on January 31.
In March, we had 72 patients randomized, followed by 65 in April. So far this month, we have 34 patients. This performance continues to be driven by the output of our larger sites, the hard work of our clinical team, the refinement of our protocol and what we believe is a greater visibility of the drug in this trial within the cardiac surgery physician community in North America. We continue to get feedback from our largest recruiters that they are very excited to get this drug approved in North America. We're very pleased with the progress and look to be on pace for another strong month in May.
We're also excited to announce today that the Data and Safety Monitoring Board or DSMB [indiscernible] LEVO-CTS earlier this week and completed the first interim analysis of the trial. They evaluated the safety and efficacy of the first 451 patients enrolled in the trial.
As a reminder, the DSMB charter included evaluation of whether the study should be stopped for futility, or profound efficacy, as well as identification of any safety issues. So their recommendation to continue as planned is certainly a positive sign for this study across multiple fronts.
Based on our assumptions for the trial of 32% event rate in the placebo arm and a 35% effect size for levosimendan, we plan to enroll 760 patients in the trial. Assuming the current rate of enrollment holds, we would hit that number by the end of July. The steering committee for the trial recently looked at the blinded event rate for the first 400 patients and we are on target for the projected total number of events for the quad endpoint.
However, we also know that there are some patients that have been randomized that did not receive drug or a few patients that have missing data. That is to be expected in a large trial such as this. Based on this, the steering committee has decided that we will enroll past the 760 total to make sure we have the right number of total events. That means, we’ll most likely continue the trial for one additional month.
Given our current enrollment speed and strong financial position, we believe it is well worth the investment to enroll these extra patients and ensure that if anything we have extra powering to show a significant difference between the two arms and give ourselves the best possible chance of success. We still expect to meet our guidance of reading out top line data before the end of 2016.
The other decision we made in conjunction with our steering committee and the DSMB is that we will forgo the second interim analysis at 600 patients that we had previously planned to conduct. Given the increased rate of enrollment by the time we lock and scrub the data, we would be very close to the end of enrolling the full trial.
And considering the efficacy futility hurdle and the DSMB recommendation of that 451 patient mark, we decided with our steering committee that this was the most logical course of action. This will also save us the statistical penalty that we would have taken with the second lot. We will do another look at the blinded event rate for 600 patients to make sure we are on track to hit the total number of events projected for the trial.
We continue to believe that the data today for this drug points toward success in this study. As we touched on in our March call, we are investing additional resources around our commercial plan for launching levosimendan in North America. Our research continues to confirm our view that there is a significant market opportunity here with half of the claims data showing the increased risk factors for LCOS and the significant mortality differences and increased economic cost involved with these patients.
We also know from our experience with this trial and our outside research that the cardiac surgery market in North America is highly concentrated and well suited for a targeted sales organization like the one that we plan to employ.
Additionally, we are keeping our eyes on the other studies for levosimendan that are going on in this space. This includes the [Like Horn] study in Europe that is testing the efficacy of levosimendan given preoperatively in around 340 patients with ejection fraction of 40% or less undergoing CABG with or without valve replacement.
We would expect those results to come out early this summer. While, of course, this does not affect our trial and it's not designed exactly like our trial, we're always interested in the growing body of literature and data on this drug in the cardiac surgery setting.
Now, moving on to our septic shock program, we continue to expect that our partners at Imperial College London will be reporting results on their LeoPARDS trial during the second half of this year at a medical meeting, likely in the fourth quarter along with a simultaneous publication. They announced on April 15 that they have locked their database for analysis, so we are glad to know that they are on track to report these results and we will be in close contact as the date nears and they are prepared to submit the results for publication and presentation.
As I touched on last quarter, we have received explicit guidance from the FDA that they would like us to conduct our own separate analysis using the data from this trial and a statistical analysis plan that we submitted to them. Our specified primary endpoint is ventilator-free-survival with secondary endpoint of ICU-free-survival and deepen the need for dialysis. These are all measures that Imperial College has collected during the study and our collaboration agreement causes them to give us the access to the data within 30 days of publication.
Once we have the data in hand, which we anticipate should be around the end of the third quarter, we would run that separate analysis ourselves and disclose the results, with that announcement expected before the end of this year. If positive, we believe the data could support an NDA filing and we would undertake the necessary dialogue with the agency to understand their guidance on next steps.
So we are now just months away from potential major inflection points in both of these programs. Our focus for the next several months is fixated on executing in both areas. With the enrollment and read out of LEVO-CTS and the completion of our data analysis of the LeoPARDS data to enable the necessary regulatory discussions moving forward.
We have made tremendous progress during the last year and at the same time we continued to invest in the necessary research and organizational planning to prepare for a potential near term commercial launch in North America.
We continue to believe in the potential rationale for levosimendan in both of these indications and are encouraged by the additional ongoing trials and increasing number of publications that continue to come out for leaders in the field, which we believe speaks to the unique properties of this candidate and the results seen to date in other clinical studies. We are excited to share these upcoming milestones with you and plan to continue providing updates on progress and enrollment during the coming months.
With that, I'd like to turn the call over to Michael Jebsen, our CFO, to go over the financials. Michael?
Thanks, John. I will begin today by summarizing our first quarter 2016 financial results for the three month period ended March 31, 2016 and 2015, followed by a brief discussion of our cash position and burn rate.
For the three month period ended March 31, 2016, we reported a net loss of $5.4 million or $0.19 per share compared to a net loss of $2.9 million or $0.10 per share in the same period in the prior year.
Total operating expenses for the three month period ended March 31, 2016 were $5.7 million compared to $3.2 million during the same period in the prior year. The approximately $2.5 million increase in operating expenses during the current period was due to an increase of approximately $2.3 million in research and development costs and an increase of approximately $200,000 in general and administrative costs when compared to the same period in the prior year.
General and administrative expenses for the three month period ended March 31, 2016 were $1.8 million as compared to $1.6 million in the same period of the prior year. The approximately $200,000 increase in G&A cost for the current period was due primarily to an increase in personnel costs and legal and professional fees, due in part to the additional costs related to filing our transitional report on Form 10-KT during the period. We do not anticipate any significant additional charges to our G&A costs for the remainder of fiscal 2016 and we anticipate overall G&A cost of approximately $6 million to $6.5 million through December 31.
Research and development expenses for the three month period ended March 31, 2016 were approximately $3.9 million compared to $1.6 million in the same period of the prior year. The increase in research and development expenses when compared to the same period in the prior year was due primarily to the increase in costs incurred for the progression of our Phase 3 LEVO-CTS study.
During the three months ended March 31, 2016, we recognized CRO cost of approximately $3.5 million for the management of this trial, which includes approximately $1.7 million in pass through site activation and enrolled patient cost compared to CRO cost of approximately $1.1 million during the prior year.
Over the next two quarters, we anticipate R&D expenses will begin to taper down as a result of the progression of the LEVO-CTS Phase 3 clinical study. As we complete enrollment and begin to focus on site close out activities, we anticipate clinical study cost to fall back to previous levels beginning in the third quarter.
We expect overall 2016 R&D spend of approximately $10.5 million to $11 million resulting in an overall annual burn rate for fiscal year 2016 between $16.5 million and $17.5 million.
As of March 31, 2016, we have cash and cash equivalents including the value of our investments in marketable securities totaling $34.8 million compared to $38.2 million at December 31, 2015. With our existing capital, we are well positioned with sufficient funds to complete our Phase 3 LEVO-CTS trial and carry the program through potential approval. We expect that our current cash and investments on hand will be more than sufficient to accomplish corporate goals through 2017, including the readout of our LEVO-CTS trial and potential NDA filing in the LCOS indication.
Our clinical execution and efficient use of capital gives us the flexibility to continue to evaluate strategic opportunities for growth, including developments in our septic shock program and potential additional candidates that will fit our pipeline strategy.
With that, I'll turn the call back over to the operator for Q&A.
[Operator Instructions] Our first question is from Jeffrey Cohen of Ladenburg Thalmann.
John, could you repeat early portion of your script, the 32% placebo rate and what was the second metric?
The assumptions that we'd made for the trial, Jeff, were that we would see a 32% event rate in the placebo arm and a 35% effect size from levosimendan, so reduction of events of 35% in the active arm.
So can you talk a little bit about – you’re foregoing or the DSMB is foregoing the 70% and now a statistical penalty is removed, can you talk a little bit about why you're extending for another month if that's not going to be included, those patients in the primary analysis – expect additional cost to be?
Patients that were randomized, but did not receive study drug will not be in the primary analysis. So we have a handful of those so far and there are also a handful of patients where they don't have complete data, like they didn't get all the blood reads or EKGs. So to make up for the patients that we would not be evaluating, we’re just going to over enroll by probably about a month, so that we would have enough patients to evaluate and achieve the endpoints that we're looking for.
In terms of additional cost, that's probably about $0.5 million to do another month of running the trial. And since the enrollment rate has picked up and we are actually starting to look like we're going to finish a couple of months sooner than we were thinking, we think that this is a wise move. So I would anticipate that we would be done sometime in August, early September, 30 days to the final readout following the patients and then locking the database in the fall.
Could you give us a little better sense of – I see there is currently 64 study sites, can you give us a better sense of the top recruiting sites as far as the concentration or numbers or percentages they’ve drawn from the top three or five or 10 sites?
The top site continues to be Dr. Luber site, which is in Tacoma, Washington. I think he is at 40, 41 patients. Second on the list then would be the Cleveland Clinic which I think is around 35. The next on the list is probably Case Western and they're in the 30s, there are about 35 patients also. And then next I think is the Heart Hospital in Plano, Texas, Baylor and then down. We also have one of the sites in Canada, site in Montreal, I think, is also in the 20s. So we’ve got quite a few sites that are at 20 or more patients.
And then we've got a handful of sites that have only done a couple of patients, but we've been actively managing those. We have activated, I think, in total 75 hospitals and we've managed it down to 64 because we're dropping hospitals where they just don't seem to be able to really recruit patients. So I think we've been fairly aggressive in managing the sites and really working with those that are capable of putting in a high number of patients.
Could you talk a little bit about the foregoing the statistical penalty from the 70% threshold at 600 patients, mathematically, what does that provide for you?
The overall P value that we needed to hit for the dual endpoint was .04. We take a penalty every time you take a look, so the penalty at the first look was something like .002 and at the second look it was like .008. So we get to put some of that back in, so it just means that the P value at the end of the trial for the dual endpoint instead of being .03 it’s something like .038, .034 or something like that. So it’s not a big penalty, but we do get to put it back in.
That wasn’t the driving decision, really the driving decision is we're already over 600 patients and the DSMB just was able to do the – look at 450 patients. So we're really going to be done recruiting by the time they get a chance to see data and do anything around stopping the trial at 600 patients. So it's really a midpoint. The DSMB will review safety for 600 patients; they’re just not going to do the efficacy analysis.
I assume Michael for you, I think I’m well within or slightly above your parameters on the G&A and the R&D line, at least for the balance of 2016. But it sounds like based on your commentary and the strong recruitment as opposed to a flat line for the balance of the three quarters for the year, I should be thinking more like [indiscernible] for the last three quarters. Would that be accurate?
Exactly. Really, the volatility in R&D spend is driven by the curve of enrollment. So I mean we have a set amount of budgeted dollars for patient enrollment costs and when we spoke last quarter, I had estimated that this would be seen ratably over the four quarters. Now, it’s pretty clear we're going to absorb all those costs in the first two and a half quarters. But it doesn't increase the overall 12 month spend; it's just bringing it in in the first two quarters primarily with some trickle out in the third.
So Q2 R&D more pronounced with the back half of the year being a higher level being diminished?
Exactly, I would anticipate Q3 and Q4 to look a lot closer to what we saw quarter over quarter in the prior year.
And one more and then I'll leave it there. John, if you could talk about are there opportunities, other drugs in this space or in a similar space for critical care or the cardiac space that you've looked at or been aware of that you want to call out or talk a little bit about some of the activities on the [indiscernible] over the past quarter? I’ll leave it there.
We continue to look at opportunities as they're presented to us and we've looked at several things. Nothing that we've seen yet that really looks like it's something that we wanted to get involved with, but we continue to work on other opportunities and if anything is in the bag we’ll let you know as it is.
[Operator Instructions] And our next question is from Anita Dushyanth of Zacks Investment Research.
I had a couple of questions regarding the near term benefits that are you seeing anything from the investment made in the training and communication initiatives in support of the LEVO trial?
The investment made, well, we’ve done a couple of things, activities so far. One was we have a field-based associate that you would normally characterize as a medical science liaison who is actively working with our research sites to make sure that they are using best practices, if you will, with regards to recruiting. And we’ve seen a significant benefit from that personal contact with sites. It’s almost directly related to that person making a visit and we see recruitment take place. So they definitely have had a benefit in terms of helping us boost recruitment at the various sites.
And then we're also doing activities in terms of just educating ourselves. We've been doing marketing research with regard to septic shock. I think we've learned a lot about how that condition is treated in the United States, what the current treatment paradigms are and what people view in terms of what the drug can do.
We've also just recently completed a large resource utilization study with a premier health group and largest purchasing organizations in the United States understanding what the cost of Low Cardiac Output Syndrome is to hospitals when it does occur. And that's just going to be an important part of the story as we look to bring levosimendan to the market in the United States.
And do you have any conversations regarding licensing agreements, you have US and Canada currently sublicensed, right?
We have the license for North America for levosimendan and that gives us the right to develop and commercialize the drug in North America and we continue to look at other opportunities for candidates that we can bring into our company to develop and commercialize, but nothing that we're ready to talk about.
And my last question will be, I saw some literature on the drug camptothecin, it had some positive effect in animal models showing efficacy for septic shock. Would you consider this as a potential competitor for levo?
I’m not familiar with the drug that you're mentioning, but there are a lot of things that people have developed in terms of treating septic shock. I think it's important to distinguish that levosimendan’s role in septic shock would really be to support end organ function. It doesn't do anything to the infection. It basically allows the heart to continue to provide adequate blood supply to end organs and protect end organs from damage. So I’m not familiar with exactly the drug you're talking about though.
We have no further questions in queue at this time. I would like to turn the conference back over to management for any closing remarks.
Thank you everyone. We do appreciate your interest in the work that we're doing here. We’re coming up on a very exciting time for Tenax. The next time we're on the phone giving you a quarterly call, we may be discussing things like close out of the trial, completion of enrollment and anticipation of data. So summer is usually a time to relax, but not at Tenax this year. We look forward to talking to you again soon. Take care.
Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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