Conatus Pharmaceuticals (NASDAQ:CNAT) Q2 2018 Earnings Conference Call August 1, 2018 4:30 PM ET
Alan Engbring - Executive Director of IR and Corporate Communications
Steve Mento - President & CEO
Keith Marshall - EVP, COO & CFO
Yasmeen Rahimi - ROTH Capital Partners
Ed Arce - H. C. Wainwright & Co.
Jay Olson - Oppenheimer
Stephen Willey - Stifel
Vernon Bernardino - Seaport Global
Welcome to the Conatus Pharmaceuticals Financial Results Conference Call. [Operator Instructions]
This call is being webcast live on the Investor Center of the Conatus website at conatuspharma.com. This call is property of Conatus Pharmaceuticals, and recordings, reproduction or transmission of this call without the express 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.
Good afternoon. A press release with the company's second quarter 2018 financial results was issued earlier this afternoon and can be found in the Investor's 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 second quarter 2018 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 discuss expectations for the ENCORE-PH clinical trial; and Keith Marshall, Executive Vice President, Chief Operating Officer and Chief Financial Officer of Conatus, who will review the company's 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.
Thank you, Alan and good afternoon everyone. In today's call, I'm going to focus on two key questions we believe are top of mind for most investors. What sets our drug candidate, emricasan, apart from the pack in the crowded NASH space, and more importantly, why are we so excited about the upcoming completion of our ENCORE-PH study.
I'll get to those questions shortly but first, I'll ask Keith to provide a brief status report on our development programs and to review financial results for the second quarter.
Thanks, Steve. In collaboration with Novartis, we are conducting three randomized, double blind, placebo controlled, Phase IIb clinical trials of emricasan in targeted NASH patient populations as part of our initial registration strategy.
The first of these three clinical trials expected to read out is the ENCORE-PH trial, which is being conducted in approximately 240 patients with compensated or early-decompensated NASH cirrhosis. Patients were randomized one to, one to, one to, one to, receive emricasan at 5, 25, or 50 milligrams or placebo twice daily for 24 weeks. The primary endpoint is the mean change from baseline in HVPG at 24 weeks for each emricasan dosing group compared with placebo.
Patients completed the first 24 weeks -- excuse me, patients completing the first 24 weeks can continue on blinded treatment or placebo, an extension for an additional 24 weeks. We announced completion of enrollment in the ENCORE-PH trial during the second quarter and topline results are expected on the fourth quarter of 2018.
The second trial expected to reach out is ENCORE-NF, which is being conducted in approximately 330 patients with NASH fibrosis. Patients were stratified by CRN NASH fibrosis stages of F1 to F3 and randomized one to, one to, one to receive emricasan at 5 or 50 milligrams or placebo twice daily for 72 weeks. The primary endpoint is biopsy-based improvement in CRN fibrosis score without worsening of steatohepatitis. Topline results were expected in the first half of 2019.
The last of our ongoing clinical trials is ENCORE-LF trial, which is enrolling approximately 210 patients with decompensated NASH cirrhosis. Patients are being randomized one to, one to, one to to receive emricasan at 5 or 25 milligrams, or placebo, twice daily for 48 weeks.
The primary endpoint is event free survival for emricasan compared with placebo when a pre-specified number of events have occurred, or after all patients have been treated for at least 48 weeks. Topline results are expected in the second half of 2019.
Next, I'll review financial results for the second quarter, which were released shortly after market close today. Revenues were $8.8 million for the second quarter of 2018 compared with $10 million for the second quarter of 2017. Revenues were $18.5 million for the first 6 months of 2018 compared with $17 million for the first 6 months of 2017. All revenues were related to the Novartis collaboration.
The changes in revenues for the second quarter and first 6 months were driven primarily in changes in research development expenses resulting in corresponding changes in revenues from Novartis. Changes in revenues for both periods were also driven by the effects of adopting the ASC 606 revenue recognition standard.
Research and development expenses were $10.7 million for the second quarter of 2018 compared with $13.2 million for the second quarter of 2017. The decrease was primarily due to lower spending related to the ENCORE-NF and ENCORE-PH clinical trials and manufacturing activities, partially offset by higher spending related to the ENCORE-LF clinical trial and new product candidate development.
Research and development expenses were $22.8 million for the first 6 months of 2018 compared with $21.1 million for the first 6 months of 2017. The increase was primarily due to higher spending related to the ENCORE-LF and ENCORE-PH clinical trials and new product candidate development, partially offset by lower spending related to the ENCORE-NF clinical trial.
General and administrative expenses were $2.6 million for the second quarter of 2018 compared with $2.2 million for the second quarter of 2017. General and administrative expenses were $5.3 million for the first 6 months of 2018 compared with $5 million for the first 6 months of 2017. The increases in general and administrative expenses for both periods were primarily due to higher personnel costs.
The net loss for the second quarter of 2018 was $4.5 million compared with $5.4 million for the second quarter of 2017. The net loss for the first six months of 2018 was $9.5 million compared with $9 million for the first 6 months of 2017.
Cash, cash equivalents, and marketable securities were $57.5 million at June 30, 2018, compared with $74.9 million at December 31, 2017. And a projected year-end 2018 balance of between $35 million and $40 million.
We believe current financial resources along with anticipated reimbursements for 50% of the cost for the ongoing clinical trials, without including any potential milestone payments under the Novartis collaboration are sufficient to maintain operations through topline results from the three encore Phase IIb clinical trials by the end of 2019, as well as to fund initial pipeline expansion activities.
I'll now turn the call back to Steve for further details on emricasan and the ENCORE-PH clinical trial. Steve?
Thank you, Keith. Let me go back to my opening comments. I'm going to focus today on answering two questions, what sets our drug candidate, emricasan, apart from the pack in the crowded NASH space. And more importantly, why are we so excited about the upcoming completion of our ENCORE-PH study. The short answers can be summed up four statements.
Portal hypertension is an important significant problem with a significant market. Emricasan can offer benefit to patients with severe portal hypertension. We believe ENCORE-PH is optimized for success and we believe emricasan is positioned for broad commercial success. Let's review the support for these statements.
Statement number one, portal hypertension is an important significant problem with a significant market. Severe portal hypertension, defined as HVPG greater than or equal to 12 millimeters of mercury increases the risk of over-decompensation, including variceal bleeding, ascites, and hepatic encephalopathy.
HVPG is an objective global measure of liver health unlike biopsy-based measurements. Decreasing HVPG in patients with severe portal hypertension is predictive of clinical benefit. HVPG may be an appropriate surrogate endpoint for accelerated approval in patients with severe portal hypertension.
Statement two, emricasan can offer benefit to patients with severe portal hypertension. The emricasan mechanism of action has the potential to positively impact both intra-hepatic and extra-hepatic pathology associated with severe portal hypertension.
This is supported by multiple studies in animal models of cirrhosis, statistically significant, and clinically meaningful reductions in severe portal hypertension in cirrhosis patients after only one month of dosing with emricasan in our previously reported pilot clinical study, and fast track designation for emricasan in NASH cirrhosis.
Current treatment with non-selective beta blockers off label is indirect, not targeted to the liver, not always well tolerated, and not always effective.
Statement 3. We believe ENCORE-PH is optimized for success. All of the approximately 240 patients in our ongoing ENCORE-PH clinical study presented with severe portal hypertension due to NASH at baseline.
Multiple subgroups within the study population to facilitate the final selection of patients for Phase 3 include NASH cirrhosis patients with either compensated asymptomatic disease, or currently stable decompensated disease with 1 prior clinical event. Patients with varices and patients without varices and patients taking non-selective beta-blockers, and patients not taking non-selective beta-blockers.
As a reminder, the primary endpoint for the study is mean change in HVPG after six months of dosing with placebo versus emricasan at 5, 25, or 50 milligrams twice daily.
Statement four. We believe emricasan is positioned for broad commercial success. Positive results from the ongoing ENCORE-PH clinical trial would further demonstrate emricasan's potential to provide clinically meaningful benefit to NASH cirrhosis patients. Prevalence of NASH cirrhosis is expected to grow from 1.4 million patients in 2016 to 3.5 million in the U.S. alone by 2030.
So what sets Conatus from the pack in the crowded NASH space? We hope to show in the upcoming data readout in our ENCORE-PH study that emricasan significantly improves severe portal hypertension in NASH cirrhosis patients as a single agent, and to use this information to set the stage for a pivotal Phase III study in this high medical need patient population.
That concludes our formal presentation. Now, I'd like to turn the call over to our operator to moderate the Q&A session.
Thank you. [Operator Instructions] And our first question comes from the line of Yasmeen Rahimi from ROTH Capital. Your line is now open.
Thank you so much. Sorry about the noise in the background. Question, my apologies, because I'm in the airport. Question is to Steve. Can you enlighten us a little bit on the PH study that's about to read out, the placebo response rate that you're expecting?
In this particular target patient population, it's really not known what the actual placebo rate would be. In our prior pilot study, we had NASH patients and HCV patients and what we saw was that patients over a relatively short period of time tended to increase, sorry, tended to decrease their HVPG in the presence of emricasan. There was no placebo group in that trial so we have no firm estimates in the placebo population.
However, expectation is that it has at least the potential to be less variable than a biopsy-based endpoint because HVPG is a global measurement of what's going on in the liver and not just a representative of a small subset of liver tissue, as would be the case in a biopsy based trial.
And if I may ask one more follow-up question. HVPG is a tough measure in terms of its invasiveness. Can you enlighten us how you controlled across trials, across the -- just not trials -- across the 90 size, sort of a uniform protocol to ensure that the data is going to be coming in with a lower standard deviation?
Right, so each individual site had to pass rigid criteria and qualify before they were allowed to enroll patients in the trial. The same central reader that is reviewing -- single reader -- that's reviewing all of the scans was the one that qualified those sites. And I can tell you, based on the scans that we've received, they are pretty uniform high quality. So we're very confident that the results are going to be reliable based on the quality of the scans.
Thank you so much. My apologies about the background noise.
And the next question comes from Ed Arce from H. C. Wainwright. Your line is now open.
Hi guys. Thanks for taking my question. A couple here on your ENCORE-PH study. First, I think it probably goes hand in hand with the placebo rate question is just in terms of hurdle rate that you're looking for. I know in the previous study you had a range and wondering if you could disclose sort of what you're thinking in terms of either proportion of patient responders or some level of reduction of millimeters of mercury.
Let me answer it this way. I think that the smoothing out of variability comes in the form of looking at mean HVPG rather than responder rates as the primary endpoint. And we believe that the number of patients in the groups are sufficient for us to be able to detect that within the confines of a few points reduction of HVPG in general.
Our definition of success in this trial is that change in mean HVPG. With respect to responder analysis, it's not powered specifically for any particular responder analysis. We'll be looking certainly for at least trends in responder analyses along the lines of what we looked at in the past, those being a reduction to below 12 HVPG in any patient, or 20% reductions in HVPG regardless of where they started, or even 10% reduction.
So those are the kinds of responder analysis that we're going to look at in the study and would hope to see at least trends in those responder analysis.
Okay. Great. That's helpful. And then one more if I could. Just thinking about your overall program here with readouts later this year and then early next year. Really, PH and NF could support, as you've stated for a while now, each one could be supportive of a definitive pivotal study, each supportive of a separate indication within the overall space in NASH, one pre-cirrhotic and the other one cirrhotic.
So perhaps it would be helpful to go over how you think about the LF study in the context of the overall program, especially since it reads out farthest out. Thank you.
So first, I would agree with your statement that the hope would be that both the ENCORE-PH and ENCORE-NF studies would be supportive of further development in those patient populations in the context of pivotal study.
I put the LF study in the same context but difference in the sense that we're not looking at surrogate endpoints in the ENCORE-LF study. This is an event based study that potentially sets up in this particular patient population, the decompensated patient population, an opportunity to either provide support for pivotal studies in the other two patient populations, or perhaps more importantly, be an independent opportunity to develop the drug in that patient population along a regular approval pathway as opposed to an accelerated approval pathway.
So we think all three trials are important. We think that all three trials and their particular populations could certainly serve as hopefully supportive trials for pivotal studies. But independently, I think they all feed off of each other because we believe the mechanism of action of this drug can have an impact on all three of those populations.
And additively, should we be fortunate enough to see positive results in all three of those, that provides a very, very strong basis for what I would believe would be approval of this drug in a broad-based patient population in the NASH space.
Great. That's helpful, Steve. Thanks a lot.
And the next question comes from the line of Jay Olson from Oppenheimer. Your line is now open.
Hey guys. Thanks for taking the questions. Can you take us back to the pilot study in portal hypertension and just remind us about the findings that gave you confidence in the ENCORE-PH study?
Sure. We got -- this was a study in patients that had a range of portal hypertension from just above baseline values of 5 up to and including patients with severe portal hypertension, which is defined as HVPG 12 or above. We had two specified subgroups in that patient population, those below 12, and those above 12.
We did not see a significant response in the patients below 12. But in the patient population above 12, again, the patient population that we're focused on in the ENCORE-PH study, we saw an average 3.7 point reduction in HVPG in those patients after only 1 month of dosing.
Eleven out of 12 of the patients in that group had at least some reduction in HVPG in that 1-month dosing. By the way, the dosing in that was at 25 milligrams emricasan BID. I believe 8 out of 12 had a 10% reduction in HVPG and 4 out of the 12 had a 20% reduction in HVPG.
So by focusing exclusively on that patient population and looking at mean HVPG, obviously, with 6 months dosing, we would hope to show similar kinds of results. One of the challenges with longer-term dosing, I want to point out, and actually we've had discussions along these lines with our investigators is that the longer you go, the higher the probability that patients that are ill will drop out.
So potentially, if those patients are placebo patients, you may have a situation where the sickest placebo patients are already out before they have a 6-month dose. We don't expect that to be the case. Our dropout rate is certainly consistent with what our expectations were and how we powered the trial, but that's one cautionary measure.
The other thing I do want to point out that in the pilot study was about 50/50 NASH patients and 50% HCV patients. Remember, initially, we were developing this drug as a treatment for cirrhosis but based on guidance from the regulators, they wanted us to pick a particular ideology. That's why we focused in NASH cirrhosis.
Okay. Great. Thank you. That's very helpful. And then just in terms of the 10% and 20% reduction in HVPG, can you just help us understand, what is the minimum effect size that you would consider clinically meaningful? And if you achieve that minimum threshold, could ENCORE-PH support a regulatory filing?
So let me answer the second question first. Our expectations are that the ENCORE-PH trial alone can't support -- is not a trial that will support a regulatory filing. With respect to the literature, there is a broad basis of evidence that indicates that as little as a 10% reduction in HVPG can provide clinical benefit to patients.
The data is generated from patients in that severe portal hypertension population, so 12 and above, through the use of off-label non-selective beta-blockers. Now, non-selective beta-blockers do not improve the liver, but what they do is decrease cardiac output. So the pressure of the blood or the force of the blood going into the liver is lower.
What's been observed in those studies with as little as a 10% reduction in HVPG is an increase in time to first variceal bleed or a decreased frequency, better to say, of about 50% to first variceal bleed after 2 years, and the same situation, about a 50% decrease in next variceal bleed in patients that had a prior variceal bleed. So not dramatic improvements but demonstrated improvements with non-selective beta-blockers.
Now, most people in the literature talk about a 20% reduction as being definitive. Obviously, we'd have to have discussions with the regulators to determine in a responder analysis study whether it would be 10% or 20% but we think there's good data to support either.
Great. Thank you very much. Appreciate you taking the question.
[Operator Instructions] And the next question comes the line of Stephen Willey from Stifel. Your line is now open.
Yeah. Good afternoon, guys. Thanks for taking the questions. I guess just as we think about a topline release for ENCORE-PH should we expect to see some of the responder analyses that you had mentioned as being kind of secondary endpoints? And then should we also expect to see some of the patient subgroup data, I guess specifically those patients who either do or don't have varices, or either are or are not on beta-blockers?
We're certainly going to be looking at all those subgroups. So you're right, we're going to be looking at compensated patients versus decompensated patients. Recall that about 30% of the patients in this study presented with one prior decompensating event.
They were stable, but they -- we're also going to look at sub-populations based on whether they were on non-selective beta-blockers or not on non-selective beta-blockers. And also presence of varices or not. The trial was not powered specifically, statistically, to show a significant benefit in those subgroups.
So the hope would be to show a significant improvement in HVPG in the total population based on the primary endpoint and then hopefully see at least trends in that same population in the context of responder analyses. The determination of what subgroups to present in the initial topline data and how to present those will have to be made a little bit closer to time after we see some of the data.
But right now, minimally, we'd look at the total patient population with respect to the primary endpoint, and then at least look for trends that would dictate, in the total population, what our position would be with the FDA in trying to identify and get agreement on which of the options with respect to responder analysis is going to be appropriate.
And do you have any estimation as to what proportion of patients you would expect to be enrolled in the trial to have either varices or be on beta blockers at time of enrollment?
Yeah. Good point. We did stratify based on non-selective beta-blockers. There was not a requirement or a predisposition that patients had to have varices. You can have HVPG above 12 and not have varices. We know all patients did have endoscopic examinations.
So we know what proportion of patients did present with varices and which ones didn't, but that was not predetermined that patients would have to have varices and then be stratified based on that.
Okay. But would you expect just based on how these patients are treated that a large proportion of them will be on beta-blockers at entry or…
I think -- there's again a really good question. Large is a relative term. They're only about -- not all patients tolerate the non-selective beta-blockers and there's clearly different opinions on which patient populations would be appropriate for that.
When patients hit about -- hit 12 on HVPG, they are considered for non-selective beta-blockers. But other considerations, since these are really drugs that modify cardiac output, you really have to take a look at the total morbidity of those patients with respect to particular cardiovascular components to determine whether or not the non-selective beta-blockers would be used.
It's not going to be -- I don't have the number off the top of my head but it's certainly not a majority of patients coming in on non-selective beta-blockers. It would be a minority but I don't have the distribution of how many of those, for example, in the compensated or decompensated would be on there. It will be something that we'll look at but certainly not a majority of patients.
Okay. And then just lastly on the LF trial, I guess is it your expectation that you guys will hit the event trigger before the 48 weeks? Or just kind of curious as to what you think might drive the stoppage of that study, whether or not it's going to be events or duration?
I'm really confident that we're going to be able to report one or the other in the second half and I honestly don't know how it's going to go at this stage of the game. As you might expect, these are decompensated patients so we're getting events and we'll have to see whether or not we hit the event component first or the 48 weeks for the patients first.
But we're confident we'll have the endpoint or have the trial completed in the second half of 2019.
Do you think there is potential regulatory consequences, if for instance you were able to achieve a reduction in events, versus, I guess, a reduction or a trend towards decreased events within the 48 week treatment period?
Obviously, we'd have to have those discussions with the FDA. One thing to remember in this study. We are including as one of the events a 4-point increase in MELD score, as categorized as an event in the study. And that we're maintaining patients on drug when they hit that 4-point increase in MELD score, until they have a clinical event associated with that.
So there's a lot of things in this study I think that are going to be important in discussions with the regulatory authorities. What happens to patients that get an increase in MELD score? Does it happen first? Is it coincident with clinical events associated with that?
So I can't comment on how the regulatory discussions will go but we've designed the study so we'll have lots to discuss.
Understood. Thanks for taking the questions.
And we have a follow-up question from the line of Ed Arce from H. C. Wainwright. Your line is now open.
Hi guys. Just wanted to follow-up with a finer point on the read out for the topline in PH given that this is a placebo trial versus placebo and you've got responder analysis essentially at secondary endpoints. Wanted to be sure that this was a win on basically P value below 0.05 is what we're looking at.
That's what we're looking at on the primary endpoint, which is change in mean HVPG versus placebo. That is correct.
And then supplemented obviously by hopefully reductions at or above 10% and below the 12 HVPG.
Right, but the trial was powered statistically for the primary endpoint. That's why I said that we would hope for at least trends in responder analyses again depending upon which one. You had differences between the placebo and the active group, and potentially in subgroups.
But can't comment on whether or not those would hit a P 0.05 because they weren't powered for that particularly.
Got it. Okay. Thanks again.
And the next question comes from line of Vernon Bernardino from Seaport Global. Your line is now open.
Hi guys. Thanks for taking my question. Most of mine have been answered. Just wondering if you could comment -- remind us as far as how Novartis' role or what Novartis' role as far as the rollout of the data and decision making process once these readouts with LF and PH are made?
This is a collaborative effort and we will review and have consensus on the data and the outcomes associated with that before they're reported to the outside world.
And will you need to have those readouts first before -- I understand as far as a Phase III is concerned, but any plans for any other studies in the IIb stage?
The only studies that we are currently engaged with Novartis, ongoing studies, are the three IIb studies. Additional studies that would be required either for approval -- these could be Phase III studies or any other fill-in studies -- would be the responsibility of Novartis and I'm not in a position to discuss those right now.
Okay. That's all I have. Thanks.
There are no further questions at this time. I will now turn the call back to Steve Mento for closing remarks.
Well, as always I want to thank you for your participation in today's call and for your continued support of Conatus.
Thank you. That concludes our prepared comments. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.