Conatus Pharmaceuticals' (CNAT) CEO Steve Mento on Q4 2017 Results - Earnings Call Transcript

Conatus Pharmaceuticals (CNAT) Q4 2017 Results Earnings Conference Call March 7, 2018 4:30 PM ET

Executives

Alan Engbring - Executive Director of IR and Corporate Communications

Steve Mento - President and CEO

Keith Marshall - EVP, COO and CFO

Analysts

Jay Olson - Oppenheimer

Yasmeen Rahimi - ROTH Capital Partners

Operator

Welcome to the Conatus Pharmaceuticals Financial Results Conference Call. At this time, all participants are in a listen-only mode. This call is being webcast live on the Conatus website at conatuspharma.com. This call is property of Conatus Pharmaceuticals and recordings, reproduction, or transmission of this call without the expressed written consent of Conatus is strictly prohibited. As a reminder, today's call is being recorded.

I would now like to introduce Alan Engbring, Executive Director of Investor Relations and Corporate Communications at Conatus.

Alan Engbring

Good afternoon. A press release with the company's 2017 financial results was issued earlier this afternoon and can be found in the Investors section of the Conatus website at conatuspharma.com.

During today's call, we may make forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in these forward-looking statements due to risks and uncertainties associated with Conatus' business.

These forward-looking statements are qualified by the cautionary statements contained in Conatus' SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q and Conatus' press releases, including today's release on 2017 financial results.

This call contains time-sensitive information that is accurate only as of the date of this live broadcast. Conatus undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Participating on the call today are Steve Mento, President and Chief Executive Officer of Conatus, who will address the potential outcomes and opportunities related to the company's POLT-HCV-SVR trial; and Keith Marshall, Executive Vice President, Chief Operating Officer and Chief Financial Officer of Conatus, who will review the company's NASH programs, pipeline development activities and financial results. We will then open the call for questions from invited participants.

I would now like to turn the call over to Steve Mento.

Steve Mento

Thank you Alan, and good afternoon to all of our participants.

For those of you who have been following our progress since we embarked on the emricasan development journey, you may recall the initiation of the POLT-HCV-SVR trial back in May of 2014. I am going to focus today on the upcoming release of topline results from this trial in the second quarter, the first of our four ongoing Phase 2b trials to read out.

At the time we started the POLT trial the target patient population was just emerging. The first of the direct acting antivirals for HCV was approved in the fall of 2013 and the label included post liver transplant patients. These patients previously were at high risk of damage to the transplanted organ because they still had active Hep C virus infections and they were on immunosuppressive drugs which made the use of prior generations of antiviral treatments that included Immunostimulants problematic.

The result was aggressive occurrence of Hep C infection of the new liver and rapid deterioration to fibrosis and cirrhosis. Advancement to cirrhosis could take 10 or 20 years following an initial Hep C infection but could take as little as 3 to 5 years in transplant patients with recurrent infections. The new antivirals were game changer because they were well-tolerated in immunosuppressed transplant patients and highly effective in clearing the virus.

Once the new antiviral were approved, post transplant patients with recurrent HCV infections were high on the list for treatment and many have since been successfully cleared of their HCV infection. While the virus infection was eliminated, the fibrosis or cirrhosis remained in their transplanted livers. Some patients might be able to stabilize or regenerate healthy livers on their own over time, but other patients might need more time to stabilize their disease liver or even continue progressing due to the underlying damage itself.

To provide some perspective on the continuing unmet need in patients cleared of Hep C infection by the new antivirals, we hosted an expert call with Dr. Paul Pockros of the Scripps Clinic a couple of weeks ago. Paul is widely recognized for his expertise in chronic hepatitis C and was instrumental in supporting the advancement of the new antivirals. He is a practicing hepatologist with patients across all etiologies of liver disease including many with active Hep C infection and a growing number who have been cleared [Audio Gap] viral therapy clears the hepatitis C virus, but does not directly treat liver fibrosis or cirrhosis.

25% to 30% of pre-transplant HCV-SVR population patients have advanced liver disease that could continue to progress. For patients with residual fibrosis or cirrhosis, continued follow is indicated which puts a continuing burden on patients, treating physicians and the healthcare system.

There are no approved curative treatments for fibrosis or cirrhosis, so follow-up at best results in symptomatic treatment. A drug that accelerated the healing process in patients with fibrosis or cirrhosis delayed their disease progression and decreased need for regular monitoring would be welcome.

We conducted the POLT-HCV-SVR trial to see if patients at the highest risk for disease progression treated with emricasan could stabilize or reverse their liver damage faster and more effectively than patients on placebo. The POLT-HCV-SVR trial enrolled approximately 60 patients who received liver transplants as a result of damage caused by HCV infection. Because these patients received transplants before the introduction of the broadly effective new direct acting antiviral treatments, they still had active Hep C virus infections in their systems post transplant.

They were also on immunosuppressive drugs to prevent transplant rejection, so their transplanted livers were vulnerable to recurrent Hep C infection and rapid progression to fibrosis and cirrhosis. Patients were randomized 2 to 1 to treatment with emricasan at 25 milligrams twice per day or placebo and were stratified for baseline Ishak Fibrosis Score, a biopsy based measurement of viral-caused fibrosis.

Patients presented at baseline with various stages of fibrosis, Ishak’s Score of 2, 3, or 4 or cirrhosis Ishak’s Score 5 or 6. The primary endpoint in this trial is the change from baseline after two years of treatment in the Ishak Fibrosis Score. We also plan to look at one year changes in the Ishak Fibrosis Score and add a number of other secondary endpoints across the full trial population and in various population subsets.

The trial will provide our first biopsy-based measurement of efficacy in humans which could be relevant not only for emricasan but also for future caspase inhibitors we may develop. With two-year dosing in an immunosuppressed patient population, this trial also significantly expands our safety database basically doubling our total patient years of drug exposure.

We’re using responder analysis to evaluate the primary endpoint of Ishak Fibrosis Score. For patients with baseline Ishak Scores of F2 through F5, responders include those with stable and improved Ishak Scores after two years. We believe this is appropriate in this trial because lack of progression after two years as a favorable outcome for these patients.

For patients with baseline Ishak Scores of F6, we count only those reductions in Ishak Scores as responders. We believe this is appropriate because these patients are at very high risk and cannot get any worse on the Ishak scale.

We're defining success as a positive difference of 15 percentage points or more between the percentage of responders in patients treated with emricasan and the percentage of responders in the placebo group.

For example, if the response rate in the placebo group is 30%, we need to see at least a 45% in the treatment group. If the response rate in placebo group is 50%, we need to see at least 65% in the treatment group.

Dr. Pockros noted that a 15% difference in responders would be clinically meaningful because it would be a likely indication of stabilization in liver function platelet counts and albumin production. Should we see the 15 percentage point or greater difference between groups, we and Novartis expect to further evaluate emricasan's potential development in two post transplant patient populations with either advanced fibrosis or cirrhosis. The post transplant HCV-SVR population targeted in this trial and the growing post transplant NASH population.

We also expect to further evaluate the potential for biopsy endpoint trials in the much larger and growing pretreatment HCV-SVR population and with advanced fibrosis and cirrhosis and in filling a gap in our current trial lineup in early NASH cirrhosis population with mild or no portal hypertension.

If the POLT results show a difference of between 5 and 15 percentage points, we may further evaluate these four groups if the biomarker show consistent effect. In this situation we would likely want to identify particular subgroups in which activity is more evident.

Logically if the difference between the treatment on the placebo groups is less than five percentage points, we would not be inclined to advance directly to any further evaluations on the basis of the POLT trial along but we do have free additional NASH trial readouts coming over the next two years any or all of which could support advancement to Phase 3.

Next I'll ask Keith to provide updates on these trials along with the status of our pipeline development efforts and a review of our financial results. Keith?

Keith Marshall

Thank you, Steve.

Another collaboration with Novartis, we're conducting three additional randomized double-blind placebo controlled Phase 2b clinical trials of emricasan in target Nash patient populations. Each trial has treatment durations and in points tailored to specific patient populations including two in patients with cirrhosis and one in patients with fibrosis. We remain on track with our projections for Type I results from all three trials over the next two years.

After the POLT trial the next readout will be ENCORE-PH, our Phase 2b trial and mostly compensated in some early decompensated NASH cirrhosis patients all with severe portal hypertension. We announced the initiation of the ENCORE-PH trial in November 2016 with topline results expected in the second half of 2018.

The primary endpoint is the mean change in HVPG for emricasan compared with placebo after six months of treatment. We’ve also added six months treatment continuation phase in which will be monitoring a number of exploratory end points including decompensation events and liver function.

The third trial expected to readout is ENCORE-NF for which we announced the initiation in January 2016, completion of enrollment in August 2017 and expect topline results in the first half of 2019. This trial in patients with NASH fibrosis is evaluating biopsy based improvements in CRN Fibrosis Score after 72 weeks of treatment with emricasan or placebo without worsening of steatohepatitis.

The specific patient population primary endpoint in treatment period for the ENCORE-NF trial are modeled after others in the field and will allow ad hock comparisons of single agent efficacy results.

The most recent of our four ongoing clinical trials is ENCORE-LF for which we announced the initiation in May 2017 and expect topline results in the second half of 2019. This trial is enrolling patients with decompensated NASH cirrhosis. The primary endpoint is event free survival for emricasan compared with placebo and the primary analysis is to be conducted when a prespecified number of events occurred or after all patients have been treated for at least 48 weeks.

As with ENCORE-PH, the ENCORE-LF trial has integrated clinical outcomes rather than a specific extension trial. With the one year treatment period, a clinical outcomes primary end point and an advanced disease patient population, we believe encore LF has the potential to establish a full approval pathway rather than an accelerated approval pathway like our other trials.

We are responsible for conducting these four Phase 2b trials on generally 50-50 cost sharing basis with Novartis. Novartis will be responsible for conducting and covering 100% of the cost for any further development and for any combination treatment development.

We also recently initiated a follow-on observation study for patients completing any of the four ongoing Phase 2b trials. Treatment will not be extended in this follow-on study, so it's designed primarily to provide longer term safety data following treatment with emricasan compared with placebo.

As we complete the ongoing trials and Novartis assumes a leading role in any future trials, we're working to expand our independent development pipeline as well. Although we're not quite ready to identify specific programs, we are actively advancing in three areas of interest.

First is exploring the potential for IDN-7314, a pan-caspase inhibitor is a potential treatment for PSC. The first step in that process is to evaluate samples from PSC patient to determine potential subgroups for caspase activity appears elevated.

Second is developing new caspase inhibitors for diseases in targeted organ systems beyond the liver initially in GI diseases and lung diseases for potential internal clinical development and other indications for potential partnering. We expect to report on initial programs from an effort later this year.

And third is an active exploration of potential in licensing candidates consistent with our expertise and capabilities. While we cannot predict the outcome or timing of these activities, we have identified a number of interesting opportunities.

I’ll shift next to a brief review of our financial results for the fourth quarter and full-year 2017 which were released after close of market today. Total revenues were $8.8 million for the fourth quarter of 2017 and $35.4 million for the full year 2017 compared with $0.8 million for both the fourth quarter and full-year 2016.

Total revenues consisted of collaboration revenue related to Novartis agreement. The increases in revenues were result of having a full fourth quarter and a full-year of collaboration revenues in 2017 compared with 13 days of collaboration revenue in 2016.

Research and development expenses were $10.9 million for the fourth quarter of 2017 and $43.2 million for the full year 2017 compared with $6.5 million for the fourth quarter of 2016 and $20.3 million for the full year of 2016. The increases in research and development expenses were primarily due to the ramp up of the ENCORE trials and the development of new compounds.

General and administrative expenses were $2.3 million for the fourth quarter of 2017 and $9.7 million for the full year 2017 compared with $3.5 million for the fourth quarter of 2016 and $10.3 million for the full year 2016. The decrease in general and administrative expenses were primarily due to consulting and legal fees in December 2016 related to the execution of the Novartis agreement.

The net loss for the fourth quarter of 2017 was $4.4 million compared with $9.1 million for the fourth quarter of 2016. The net loss for the full year 2017 was $17.4 million compared with $29.7 million for the full year 2016.

Cash, cash equivalents and marketable securities were $74.9 million at December 31, 2017 compared with $77 million at December 31, 2016 and a projected year end 2018 balance of between $35 million and $40 million.

We believe our current financial resources together with the anticipated reimbursements for 50% of the cost for the four ongoing clinical trials without including any potential milestone payments under the Novartis agreement are sufficient to maintain operations through the topline results from all four Phase 2b clinical trials by the end of 2019, as well as to fundamentally initial pipeline expansion activities.

I will now turn the call back to Steve for brief summary before you open the call to questions from invited participants. Steve?

Steve Mento

Thank you, Keith.

Our first data readout from the POLT-HCV-SVR trial is on track for the second quarter of 2018 and could support advancement into any of four defined patient population with advanced fibrosis or cirrhosis due to HCV infection or NASH.

Our three ongoing trials in NASH patients two with cirrhosis and one what fibrosis are expected to yield topline results over the next two years. We’re evaluating three separate paths to pipeline development including our pan-caspase inhibitor IDN-7314 in PSC, a series of new pan-caspase and caspase selective inhibitors for GI and lung diseases and clinical stage in licensing candidates in liver and other GI diseases.

We have sufficient financial resources to maintain operations through all four emricasan Phase 2 trial readouts by the end of 2019 and to support our initial pipeline expansion efforts. We are pleased with our progress to-date and excited by our near-term potential.

This concludes our formal presentation. Now I'd like to turn the call over to our operator to moderate the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Jay Olson with Oppenheimer. Your line is now open.

Jay Olson

I had a couple of them. Can just help us understand what we should expect to see when you disclose the topline results from the POLT study. Will your press release just tell us whether or not the difference between the treatment groups is greater than 15% or will you be actually giving the absolute number in terms of the fibrosis improvement in the two groups.

And then will you also be updating us at that time assuming that the treatment difference is greater than 15%, will you give us some idea of what additional studies that you will plan at that time as well?

Steve Mento

Well, what we can commit to is providing information on the primary endpoint whether or not we’ve achieved the 15% or greater. After that literally we are in discussions right now and we will know better what it is we’ll report after we actually see the information data.

Jay Olson

And then you indicated for the ENCORE-PH study that you would have later this year topline results on the primary endpoint, and then that would be followed by an extension period for additional outcomes. Can you maybe just help us understand what to expect there and especially if you could provide a framework similar to what you provided for the POLT study which is very helpful in knowing what to expect there?

Steve Mento

Well for sure, as the data readouts for the ENCORE-PH study get closer, we will be providing more details. What I can tell you today is this study has a large patient population, three dosing groups of emricasan 525 and 50, as well as placebo.

As you heard from Keith the primary endpoint is mean change in HVPG at six months. The reason for the six-month extension on top of that is really two fold. There will not be another HVPG determination.

It's to enhance the safety database in this patient population at all three doses. And also to determine whether or not patients either on emricasan or an active group in that subsequent six months have clinical events that potentially could be associated with a portal hypertention.

Jay Olson

And then if I could maybe just one last financial question. It sounds like your projected year end 2018 cash balance of $35 million to $40 million, does not include any expected milestone payments, is that correct?

Keith Marshall

That's essentially correct. We have not incorporated milestones into the guidance that we've offered for 2018 and 2019.

Operator

And our next question comes from Yasmeen Rahimi with ROTH Capital Partners. Your line is now open.

Yasmeen Rahimi

A number of questions. Question number one is, maybe you could guide us which of the trials other than POLT obviously has completed enrolment? And then given the competition that's out there for recruiting NASH patients? So among the ENCORE trials which enrolment do you feel has been the easiest and why that is the case?

And then the second question is on ENCORE-PH. Can you give us some sort of idea around what sort of baseline HVPG scores we might be expecting in the trial? And then I have two last follow up question.

Keith Marshall

Now remind me the first question...

Yasmeen Rahimi

The first question is ENCORE, yes enrolment.

Keith Marshall

So the only trials that we've announced enrolment completion are obviously the POLT trial and the ENCORE-NF trial. What our policy going forward is likely to be is, when we complete enrolment on the other two trials, the PH trial and the LF trial we will announce that.

Yasmeen Rahimi

Okay. Was it easier to enroll into the LF trial versus the NF trial?

Keith Marshall

It's interesting. So what I can say about enrollment is that we were very happy with completing enrollment for the NASH Fibrosis, the ENCORE-NF trial because there is a lot of competition from Phase 3 development opportunities there and really felt very comfortable not only with the pace of enrolment but in completing that.

I can also say that in the ENCORE-PH trial there was concern initially about patients being willing to undergo two HVPG determinations in this one at baseline in one at six months. What we did was incorporate -- the clinical team I think did a great job in incorporating highly selective process not only in screening sites that we felt had patients with severe portal hypertension, but also a qualification process and their ability to accurately and reproducibly do HVPG measurements.

All those things said, we’re the only active trial in patients with NASH cirrhosis and severe portal hypertension. So really there was no competition for patients from an enrolment perspective. Really the setting up the trial and making sure we pre-qualified the sites and ensure that we had the right patients in was the key to getting enrolment up to where it needed to be in order for us to meet the guidance for this which is second half of this year.

Yasmeen Rahimi

And then some base line numbers around HVPG for the ENCORE-PH?

Keith Marshall

All I can say is that, everybody is 12 or above. We haven't given anything to the outside world about the baseline characteristics of any of the patients other than they have HVPG 12 or above.

Yasmeen Rahimi

And then one last question so maybe you can tell us little bit more about IDN-7314 what are the similarities and differences between this molecule versus emricasan. I mean why you decided to choose PHC versus that close consent primary sclerosing cholangitis or sclerosis and then some timelines around the development phase?

Steve Mento

So IDN-7314 is a relative emricasan but not the same. And what I can tell you for sure is all caspase inhibitors and I created the same. The rationale associated with IDN-7314 was some very compelling preclinical data we got in models of PSC and our ability to use that preclinical data plus supporting additional information to get orphan drug designation for PSC both in the U.S. and the EU.

Now the challenge with PSC as I'm sure you're aware it's a very complicated disease and animal models are very uniform in their presentation of disease. So what we’ve talked about doing in the context of PSC is actually doing some patient screening before committing any clinical development on IDN-7314 to identify which patients within the PSC group of patients might have particularly elevated biomarkers associated with the caspase activation.

A component of the disease - a frequent component of diseases is inflammatory bowel disease. So part of the things that we want to do in analyzing tissue and potentially serum samples from banks, bank materials from patients is identify which patient populations would have particularly elevated biomarkers of caspase activation and then make a decision subsequent decision whether or not that patient population is one to appropriately develop clinically 7314.

Operator

[Operator Instructions] And our next question comes from Stephen Willey from Stifel. Your line is now open.

Unidentified Analyst

This is [indiscernible] for Steve. Steve two questions one both related to the POLT. One what’s the expected placebo rate in the trial, is there any specific number that you’re looking for. And second threshold level that you talk about 15% what's the basis of that. is that based on some clinical study or just a natural history of these patients? Thank you.

Steve Mento

So the first question is since this population is - sorry the answer to your first question is since this population is never been studied before it is not possible to predict the placebo rate. And in fact one of the reasons for doing this study and I think one of the reasons why hepatologist have been committed, remember this is a rare study excised three biopsies. One at time 0, one at 1year and one two years, as there is no information, no information like that that we’re achieving in this patient population at all. So the placebo rate will be identified within this patient population by our trial.

The 15% really came from an internal analysis and setting expectations for biopsy-based evidence of efficacy from a variety of studies that took place out there with other drug products and differences as low as 10% are as high as 20% or 25% were deemed sufficient to move potential drug candidates further in clinical development. 15% seemed like a reasonable target initially when we set up the study especially not knowing what the baseline placebo rate would be.

Operator

Thank you. I am not showing any further questions at this time. I will now turn the call back to Steve Mento for closing remarks.

Steve Mento

I want to thank you all for your participation in today's call and for your continued support of Conatus.

Operator

Ladies and gentlemen, this concludes today's presentation. Thank you once again for your participation. You may now disconnect.