Concert Pharmaceuticals' (CNCE) CEO Roger Tung on Q2 2016 Results - Earnings Call Transcript

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Concert Pharmaceuticals, Inc. (NASDAQ:CNCE) Q2 2016 Earnings Conference Call August 9, 2016 8:30 AM ET

Executives

Justine Koenigsberg - Vice President, Corporate Communications and Investor Relations

Roger Tung - President and Chief Executive Officer

Ryan Daws - Chief Financial Officer

Jim Cassella - Chief Development Officer

Analysts

Difei Yang - Brean Capital

Bert Hazlett - Ladenburg

Robert LeBoyer - Aegis Capital

Constantino Aprilopski - JMP Securities

Jeff Hung - UBS

Difei Yang - Brean Capital

Operator

Good day, ladies and gentlemen and welcome to the Concert Pharmaceuticals’ Second Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to introduce your host for today’s conference, Ms. Justine Koenigsberg, Vice President, Corporate Communications and Investor Relations. You may begin.

Justine Koenigsberg

Great, thank you. Good morning, and welcome to Concert Pharmaceuticals’ second quarter 2016 investor update. Our press release announcing our financial results was issued earlier this morning. An electronic copy of our press release is also available on our website at Concert Pharma.com. Joining me this morning with prepared remarks are Roger Tung, our President and CEO; Ryan Daws, our CFO; and Jim Cassella our Chief Development Officer. We will also be joined by Nancy Stuart, our Chief Operating Officer for the Q&A portion of the call.

Our remarks will focus on our proprietary program CTP-656 and CTP-543 as well as our financial results. Regarding our collaboration there are no new updates to report at this time. As a remainder, today’s discussion will include forward-looking statements about our financial outlook, business plans and objective and our future events and development. These statements are subject to risk and uncertainties that may cause actual results to differ materially from those projected. A description of these risks can be found in our most recent quarterly report on Form 10-Q filed with the SEC. Any forward-looking statements speak only as of today’s date and we assume no obligation to update any forward-looking statements made on today’s call.

With that, I would now like to turn the call over to Roger.

Roger Tung

Thank you, Justine and thank you all for joining us this morning. As we continue to make progress through the second half of 2016, we are highly focused on and working diligently to advance our two proprietary clinical candidates CTP-656 and CTP-543 interface to efficacy studies. Each of these compounds represents an important opportunity, where we see the potential for Concert to create a differentiate medicine that provides important patient benefits.

In the case of CTP-656, we expect to offer a new potent and more tolerated choice for individual with cystic fibrosis due to CFTR gating mutations. We believe that CTP-656 potentially offers dosing simplification and efficacy benefits compared to the current standard of care and will enable new and hopefully better combination therapies to move forward towards approval and potentially improved patient care. With CTP-533 we are building on the known activity of an approved drug mechanism but expanding into an important new area for the oral treatment of moderate severe alopecia areata.

Alopecia areata is a condition that can cause significant highly distressing hair loss from the scalp and body. It’s estimated to affect about 650,000 people in the U.S. there are currently no approved treatments. Our Phase 1 program for CTP-543 in healthy volunteers is underway and we remain on track to advance this candidate into a Phase 2 trial in patients with alopecia areata in the first half of 2017. From our perspective, recent evidence that JAK inhibition can positively impact the pathology of alopecia areata presents an exciting opportunity for Concert to develop CTP-543 in syndication.

Turning to CTP-656, its reception in CF community has been very positive. In June, we gave an oral presentation on the Phase 1 multiple ascending dose results at the European Cystic Fibrosis Society Conference in Basel, Switzerland. The Phase 1 result supports an emerging profile for 656 consistent with an improving patient adherence through differentiated features including once daily dosing and the potential for simpler dietary requirements. We believe that improved adherence will help support better real-world efficacy. In addition, with 656 is increased exposure to the most active species versus Kalydeco may also provide enhanced efficacy. CF therapy is undergoing major advancements and we believe we have the potential to enable the next wave of monotherapy and combination treatments and ultimately find better options for patients.

Importantly, we have received support for Phase 2 plans for both the U.S. and European CF clinical trials networks and we intend to leverage their extensive clinical trial infrastructure in order to successfully execute on our trial both CTP-656 and CTP-543 demonstrate the robustness and flexibility of our DCE platform for range of opportunities. They share the common features of leveraging the known safety and activity profile of approved drugs, we believe this significantly de-risks our drug development approach as we work to create better treatments for patients. We look forward to keeping you updated on our progress throughout the remainder of this year.

With that, I would like to turn the call over to Ryan to discuss our second quarter financial results.

Ryan Daws

Thank you, Roger. Beginning with revenue, revenue was $71,000 for the quarter ended June 30, 2016 compared to $53.4 million over the same period in 2015. The decrease in revenue was primarily due to the recognition of the $50.2 million received under our patent assignment agreement with Auspex in 2015 as well as the completion of Phase 1 clinical evaluation under our strategic collaboration with Celgene. Research and development expenses were $9.8 million for the quarter ended June 30, 2016 compared to $8.4 million over the same period in 2015. The increase was due to the conduct of Phase 1 clinical trial of CTP-656 and CTP-543 as well as increased manufacturing cost as we prepare to advance these programs into Phase 1 efficacy studies.

G&A expenses were $3.8 million for the quarter ended June 30, 2016 compared to $3.3 million over the same period in 2015. The increase was primarily related to non-cash stock-based compensation. Our net loss was $13.4 million or $0.60 per share for the quarter ended June 30, 2016 compared to net income of $41 million or $0.89 per share over the same period in 2015. As a reminder, we were profitable in the second-quarter of 2015 due to the one-time Auspex change in control payment. We ended the quarter with $118.4 million in cash, cash equivalents and investment. We believe this is sufficient to fund our operations into 2018. I will now turn the call over to Jim. He will provide a detailed update on the CTP-656 Phase 2 trial that we plan to initiate in the coming months.

Jim Cassella

Thanks Ryan. Our team has been working very hard to ready CTP-656 for its first efficacy study and will remain on track to open the IND later this year. Earlier this year, we met with the FDA pulmonary division to discuss our proposed Phase 2 design in our pre-IND meeting. FDA provided feedback to guide us in developing an approach that would advance 656’s registration as efficiently as possible under a 505(b)(2) regulatory pathway. Based on FDA guidance, we’ve chosen to pursue a design similar to what has been recently published in the journal Thorax authored by executive leadership and clinical trial experts from the CF Foundation. We believe that aligning our Phase 2 design with this published trial design for the next generation CFTR modulators positions us well within the community. As Roger mentioned, we now have the support of the cystic fibrosis clinical trial networks for our trial design and will be accessing their trial sites to enroll our Phase 2 trial. The feedback from the CF community has continued to be greatly supportive.

Development of new treatments in CF is rapidly evolving and we believe we are on the forefront of bringing the first competing agent forward to treat the gating mutations that are an underlying cause of CF. In addition, we are poised to team up with other CF companies so that we can combine our with other CFTR modulators to help create new and more effective therapies for the entire CF population. The Phase 2 design will enroll 30 to 40 patients and the treatment period will be 28 days. We intend to evaluate three doses of CTP-656 to define its dose response relationship. There will also be a placebo arm and a Kalydeco comparator arm in the trial to help bridge the Kalydeco data as we have agreement with the FDA that our NDA filing strategy will follow a 505(b)(2) pathway. Sweat chloride is a dynamic measure of CFTR activity and will serve as our primary endpoint. FEV1 will also be an important measure in our study.

So with the advice from the pulmonary division of the FDA, the support of CF clinical trial networks and the enthusiasm from physicians and other community members, we’re confident in our Phase 2 trial design and its ability to serve as a major stepping stone in the clinical development of CTP-656 as a new treatment option for patients with CF. We also believe that our Phase 2 design will offer a streamlined and efficient Phase 3 trial. As we discussed further our program with the CF community there continues to be high level of enthusiasm around the beneficial profile of CTP-656. We believe CTP-656’s unique features can enable it to become the potentiator choice for new and improved combination therapies for the broader population and we look forward to advancing our program as rapidly as possible.

Justine Koenigsberg

Great, thanks Jim. This concludes our prepared remarks and we will be happy to address any questions at this time.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Difei Yang with Brean Capital. Your line is now open.

Difei Yang

Hi good morning, everyone. Thanks for taking my questions.

Roger Tung

Good morning.

Ryan Daws

Good morning

Difei Yang

So for 505(b)(2), let’s path move forward assuming the Phase 2 is a positive. What else do you have to do to complete that data package for filing, is it one Phase 3 or 2?

Jim Cassella

RT spacio [ph] is that we will be doing one Phase 3, the 505(b)(2) pathway allows us to rely on the existing information known for Kalydeco and our task is to form the right bridge to that data package.

Difei Yang

So the bridge will be the Phase 3, one single Phase 3 trial?

Jim Cassella

The bridge is the Kalydeco arm in the Phase 2 trial and that will enable us to conduct a single Phase 3 we believe for the program.

Difei Yang

Okay, thank you.

Operator

And our next question comes from the line of Bert Hazlett with Ladenburg. Your line is now open.

Bert Hazlett

Yes, thank you for taking the question. Love to hear the progress and just a little bit more on 656, is there, the intention obviously is to have some combination, could you just give us an idea of when the most optimal time might be to combine or to have a – engage a separate partner and what important combinations might look like and then just as you discussed a single Phase 3 as monotherapy, when should we see any potential combination trial with 656?

Ryan Daws

Hi, Bert. Thanks for the question. This is Ryan. You know I think our view is the earlier we partner with the better. I think that allows us to work on some of the non-clinical efforts to prepare for clinical evaluation and so I think really the challenges here is a lot of the potential partners are little bit behind us. So while we are having discussions and advancing the bone business and I think we need a little bit of time for some of these guys to mature but in principle, the sooner we start the better I think from an overall timeframe perspective.

Bert Hazlett

And then I guess just when should we expect to see the first combination data with the 656 in the clinic?

Ryan Daws

I don’t think we are in a position to really comment on kind of how this evolves. You know I think what’s important to note is there is a lot of interest in what we are doing and we are having a number of different discussions and we look forward to seeing those mature.

Bert Hazlett

Okay, thank you very much.

Operator

And our next question comes from the line of Adam Walsh with Stifel. Your line is now open.

Unidentified Analyst

Thanks. Good morning. It’s Bob for Adam. For 656, would you provide us some specifics around what efficacy results relative to the Kalydeco arm that you consider sufficient to further development beyond Phase 2?

Jim Cassella

Yes, it is a great question. We are anticipating that we will have results at least comparable to that of Kalydeco with the profile of CTP-656. We know that we have the same kind of activity when you look at it in the model systems. We do have a profile based on the Phase 1 data that suggest we have some potential benefit in terms of the greater exposure to the parent as opposed to the less active metabolite. So we are anticipating that we will see at least comparable level of activity Kalydeco.

Roger Tung

So Bob, this is Roger. Just to extend that. This is a a very small study where we are looking at approximately six to eight patients per arm. So the ability to detect differences particularly superiority is not going to be great in the study. So we expect to see a continuation of the very positive effects that one sees with Kalydeco on switching over to CTP-656 as well as separation between the patients who are receiving placebo and those who are receiving active drug. So that will give us confidence then in the effect of the compound and a general sense of magnitude. I think further exploration of the effects will occur in the Phase 2b study.

Unidentified Analyst

Okay, great. Thank you so much.

Operator

[Operator Instructions] And our next question comes from the line of Robert LeBoyer with Aegis Capital. Your line is now open.

Robert LeBoyer

Good morning. I had a question on the 646 trial, there was a mention of the primary endpoints, and I was wondering if you could elaborate on some of the other measures that you are going to be looking at in the trial both primary, secondary or maybe some downstream effects of the disease overall?

Jim Cassella

Yes, so this is Jim. The primary endpoint will be sweat chloride which is a well-established and appropriate biomarker for CFTR activity. It’s been done previously in other other trials, the FDA recognizes it as an appropriate endpoint for exploring things like we are doing in this trial such as dose response relationship and so that’s a very important marker for us. We will also be looking at FEV1. Now obviously FEV1 is a measure of pulmonary function that will be important to look at the effects we get in this trial keeping in mind that it’s not the primary appointment but it is the secondary endpoint and will be bringing more than likely into the Phase 3 trial the FEV1 endpoint as the primary endpoint as that has been established previously.

Robert LeBoyer

Okay good and are there any specific measures of things like inflammation or fibrosis that would be measured for long-term follow-up, anything like that?

Jim Cassella

We won’t be doing that. We will be using the CF patient questionnaire to measure the impact on on the patient and that will be another endpoint is called the CFQR [ph] and that will be another endpoint in the study.

Robert LeBoyer

Okay and on the partnership front, are there any milestones coming up or anything down the road this year that we can look forward to and also in the patent portfolio, are there new molecules that have patented or any approximate patent count at this point?

Nancy Stuart

Hi, this is Nancy. So we do not anticipate any milestone payments from partnerships this year.

Robert LeBoyer

Okay.

Ryan Daws

And as far as the second part of your question, we have got approximately 90 issued U.S. patents and many more overseas.

Robert LeBoyer

Okay, great. Alright thank you very much.

Operator

And our next question comes from the line of Constantino Aprilopski with JMP Securities. Your line is now open

Constantino Aprilopski

Good morning and thanks for taking the question, guys. It’s Constantino. Regarding 543, the alopecia patients that you intend to enroll in the Phase 2 trial, have you given any thought how you are going to define those patients exactly? You know is it going to be scalp alopecia beard size of the lesion, so on and so forth. You can give any color regarding that?

Jim Cassella

Yes, so we are, yes, it’s a great question. We are in active discussions right now with many of the experts in this space and will be primarily focused on alopecia of the scalp and we will be looking at patients with a variety – varying amounts of hair loss. We will define sort of the lower limit of the amount of hair loss that’s PBV. However, we will be including patients that have total scalp baldness and also other patients that have what’s called universalis – alopecia universalis which is no hair on your body including eyebrows and facial hair.

Constantino Aprilopski

Okay, great thanks so much. Congrats on the quarter.

Jim Cassella

Thank you.

Operator

[Operator Instructions] And our next question comes from the line of David Darki [ph] with Morgan Stanley. Your line is now open.

Unidentified Analyst

Hi guys, just wanted to ask. Do you have any active ongoing talks for any additional collaborations at this point?

Ryan Daws

Hi, this is Ryan. It’s a good question. We really have a policy not right commenting on business development. We have an active dialogue going with number of folks around number of different programs and so, we wouldn’t want to speculate on timeframe or how this kind of evolve.

Unidentified Analyst

Right, you didn’t have any update on any of the existing ones this quarter? Is there not any kind of requirement that these companies communicate with you to give you some update on what they’re doing with the existing agreements?

Roger Tung

This is Roger. As we have indicated previously the communication from our partners is really controlled by them. So any updates on the programs aside from milestone that’s would be committed by them.

Unidentified Analyst

So there isn’t any additional interaction between you guys and them once the license – once you sign these deals, there isn’t any further need for any intelligence from you guys on how things are structured?

Nancy Stuart

I think I will just repeat what Roger said. Hi, this is Nancy. Really once we completed the Phase 1 studies for the Celgene and Jazz collaborations. We really – those were handed over to them and they are really responsible for the future – any future development of those programs.

Roger Tung

We of course continue to stay in touch with them but really all the communications are contractually through them.

Unidentified Analyst

Right okay, thank you.

Operator

And our next question comes from the line of Jeff Hung with UBS. Your line is now open.

Jeff Hung

Thank you for taking the question. Sorry if it was already asked. I joined a little bit late. Can you remind us what would be the regulatory strategy for potential combination therapies in CF. Would you 656 approved before conducting the combination studies or would you conduct them simultaneously just with different sets of data showing the effects of monotherapy versus combo? And then is the strategy different if the other CFTR modulators you study in combination are not yet approved?

Jim Cassella

I think those are good questions. I think the answer to your first question is there is no reason why we couldn’t do the development in parallel that is keep the monotherapy program going and ring along the combination therapy. Those obviously will be two different focuses with different patient population and so that will be a parallel process.

Jeff Hung

Okay, thanks.

Operator

And we do have a follow-up from Difei Yang with Brean Capital. Your line is now open.

Difei Yang

Hi thanks. So would you remind us the rough timeline on AVP-786 their rough readout etcetera?

Nancy Stuart

Sure, hi. Thanks for the question. So the Phase 3 Alzheimer agitation trial is scheduled to be clinically complete in Q3 of 2018.

Difei Yang

Thank you, Nancy.

Nancy Stuart

You are welcome.

Operator

And we have another followup from Bert Hazlett with Ladenburg. Your line is now open.

Bert Hazlett

Yes, thanks for taking the follow-up. On 543, you know alopecia areata is intriguing interactive indication with unmet need. Given the activity of the mechanism that you see with the let’s call it the parent molecule, is there a process by which you might be considering all further activity for development and it if there is – how do you see that evolving?

Roger Tung

Bert, thank for the question. This is Roger. As we indicated I think on our last quarterly call we are excited about the broad activity profile of JAK 1/2 inhibition and its potential in various disease states. We are focused at present on moving the compound forward in alopecia areata. However, many of the activities that we are doing to prepare for that study obviously will enable the compound, potentially if you take forward in for their indications. We are actively assessing other indications, and have identified others that look interesting. However, it takes a fair amount of work and a deep dive before we commit ourselves in any new indication. So at this point, I would continue to direct your attention towards alopecia areata indication as our first path forward.

Bert Hazlett

Thank you. We look forward to additional data with the molecule. Thank you.

Roger Tung

Thank you.

Operator

And I am showing no further questions at this time. I would now like to turn the call back over to Ms. Justine Koenigsberg for closing remarks.

Justine Koenigsberg

Thank you. Thank you everyone for joining us today. We look forward to keeping you updated on our progress. We will be participating next with the Wells Fargo and Ladenburg healthcare conferences next month and to see many of you there. This does conclude our call today and thank you again for joining us.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the programming, you may all disconnect.

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