Avenue Therapeutics, Inc. (ATXI) InvaGen Announces Acquisition Agreement with Avenue Therapeutics Conference Call (Transcript)

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About: Avenue Therapeutics (ATXI)
by: SA Transcripts

Avenue Therapeutics, Inc. (NASDAQ:ATXI) InvaGen Announces Acquisition Agreement with Avenue Therapeutics November 13, 2018 8:30 AM ET

Executives

Joe Vazzano - VP Finance

Lucy Lu - President and CEO

Analysts

Operator

Good day and welcome to the Avenue Therapeutics Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to the Avenue Therapeutics team. Please go ahead.

Joe Vazzano

Thank you, Operator. Good morning everyone and thank you for joining us today to discuss the agreement with Invagen Pharmaceuticals, a subsidiary of the leading global pharmaceutical companies Cipla Limited. My name is Joe Vazzano, Avenue's Vice President of Finance. With me today are Dr. Lucy Lu, the President and Chief Executive Officer of Avenue therapeutics.

Before we begin, I would like to remind you that comments made by management during this conference call will contain forward-looking statements that involve risk and uncertainties regarding our operations and future results. I encourage you to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's Form 10-K, 10-Q and 8-K which identifies specific factors that may cause actual results or events to differ materially from those described in any forward-looking statement.

Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, November 13, 2018, except as required by law Avenue undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

I will now turn the call over to Lucy.

Lucy Lu

Thank you very much Joe and thanks everyone us for joining us this morning. We’re very excited to share with you the exciting news of our agreement with InvaGen, a subsidiary of Cipla Limited, an India based leading global pharmaceutical company. This is a truly transformative arrangement for Cipla, Avenue and our shareholders. The transaction has two stages. In the first stage InvaGen will invest $35 million in Avenue at $6 per share. Following the investment InvaGen will own 33.3% of Avenue and will have the right to name three members of Avenue's Board of Directors. We’re excited to have InvaGen as our largest shareholder and believe that having their expertise on our board will help progress us toward our goal of bringing IV Tramadol to the market as quickly as possible.

InvaGen existing commercial presence in the U.S. market will also help us realize the true market potential of IV Tramadol in the U.S. With this investment we’re now fully funded to complete our phase 3 program, all the way to potential FDA approval of IV Tramadol.

In terms of timeline we plan to initiate the second pivotal study IV Tramadol in patients undergoing abdominal proxy or tummy tuck procedure by the end of the year assuming that we get positive results we plan to file a new drug application or NDA by the end of 2019. If we’re successful the second stage closing will occur on or before April 2021 at the second stage closing, InvaGen will acquire the remaining shares of Avenues common stock that it does not own for up to a $180 million which is projected to be approximately $13.92 per share. The second stage closing is subject to the satisfaction of certain closing conditions including conditions pertaining to U.S. FDA approval, labeling, scheduling and absence of any run or similar restrictions on IV Tramadol.

The completion of first stage closing is subject to various conditions including an affirmative vote of a majority of our shareholders and other customary conditions. We plan to file a proxy in the coming weeks and then hold a shareholder vote to approve the proposed transaction. We anticipate the closing of the first stage to be completed in the first quarter of 2019. We believe that this is a strategic transaction for both Avenue and Cipla. With this investment, Avenue has received the necessary capital to complete its Phase 2 program and through potential approval and Cipla has secured the rights to acquire Avenue if we're successful in developing our drug IV Tramadol.

And since the second part of this transaction is the decision upon our successful development it is probably worth spending just a few moments discussing why we believe we will be successful. Just as a reminder Tramadol in the pill form is approved in the U.S. and many countries outside the U.S. it is an established pain medication however no IV formulation for post surgical pain has ever been approved in the U.S. Tramadol has a unique mechanism of action in fact it's got two mechanisms of action in one drug. It is a weak opiod agonist primary inhibitor of norepinephrine-serotonin reuptake.These two mechanisms work together synergistically to inhibit changed signaling in the central nervous system. And as a result Tramadol demonstrated an efficacy profile similar to opiods in many studies but it has a lower risk of dependence than conventional narcotic.

The DEA or drug enforcement administration classifies Tramadol as a schedule 4 controlled substance indicating a low potential for abuse and low risk of dependence. All of the conventional narcotics in the U.S. today such as morphine, hydromorphone are schedule 2 drugs indicating a high potential of abuse and risk of dependence. Given its unique profile it is expected to provide more potent pain relief than IV [indiscernible] and IV [indiscernible] that are currently on the market and has the potential to replace conventional narcotics in many patients. In addition it's important to point out that IV Tramadol represents a convenient bridge to oral Tramadol in the post physical study.

Consistent with the established pain relief profile of Tramadol in May this year Avenue announced positive top line results from our first pivotal stage 3 clinical trials of IV Tramadol in patients undergoing [indiscernible] surgeries. As previously announced the study met its primary end points with IV Tramadol 50 milligram achieving a statistically significant improvement in some of pain intensive difference go over 48 hours or stay 48 compared with placebo. The study also met all of its key secondary endpoints and IV Tramadol was based and well tolerated by patients. These positive results were a meaningful milestone for Avenue bringing us one step closer to introducing IV Tramadol as a potential new treatment option of patients suffering from moderate to moderately severe post surgical pain. So with today's [indiscernible] transaction, we plan to begin enrolling patients into our next Phase 3 study of IV Tramadol in patients undergoing abdominal proxy by the end of this year and again if the study is successful we will be on track to submit a new drug application to the FDA by the end of 2019.

So with that we will take some questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] We will take the first question from [Jonathan] [indiscernible]. Please go ahead. Your line is open.

Unidentified Analyst

Good morning, Lucy, and congrats on what looks to me to be the two stage acquisition it's really nice to see that the cash takes care of the goes to the cash requirements going forward.

Lucy Lu

Thank you, Jonathan good morning.

Unidentified Analyst

Can you please describe what is required for the [indiscernible] as the press release you show a partial list of those requirements.

Lucy Lu

I would be happy to, obviously we will file an 8-K shortly as well as the proxy statement in the coming week. In terms of the second tranche condition, there are four conditions that must be met. FDA approval, a label for IV Tramadol for moderate to moderately severe pain that’s not specific to any surgical type. But today oral Tramadol has the label for moderate to moderately severe pain and we expect IV Tramadol to have a similar label and we certainly don’t expect to label it to be restricted to any specific surgery type. In addition we also need to have a schedule 4 classification by the DEA with a sustained [indiscernible] oral Tramadol and also any absence of runs or similar restrictions that would restrict the use of IV Tramadol.

Unidentified Analyst

Can you describe any further detail in CBR that’s attached for sales and royalties.

Lucy Lu

Sure, thank you for the question. So the contingent value of our trial to commercial success for IV Tramadol in the U.S., the CBR agreement will be filed in a proxy. I would encourage you to read the proxy and understand the CBRs in more detail.

Operator

[Operator Instructions]

We will now take the next question from John [indiscernible]. Please go ahead.

Unidentified Analyst

Congratulations on the acquisition, great news. First question I want to ask was on the shares. If looks like this all this 5.8 million shares will all be newly issued to the group and can you walk through I guess the implied shares, I think I’m getting about 17.5 million if I back up that one third ownership, from I guess where you were at the end of the second quarter. So just my question walking us through I guess about the 11 million share at the end of the second quarter to the imply 17.5 million that you get you divide numbers of shares outstanding by the acquisition ownership of one third.

Joe Vazzano

So the fully diluted shares as of the signing date is 11.7 million shares. So, with the addition of the 5.8 million shares granted to the book, it all bring the total to 17.5 and that represents one third of -- the 5.8 represents one third of 17.5.

Lucy Lu

I think it's really important note 180 million second tranche payout will go to the 11.7 million shares which are the for the current shareholders of Avenue Therapeutic and so for our purposes in terms of calculating the per share amounts it's really based on the 11.7, you can read in more detail in the proxy across the 8-K how this calculation is done but just to bring to everyone's attention the 180 million consideration is for the current shareholder in Avenue Therapeutic.

Unidentified Analyst

So the 5.8 million of new shares issued and the 180 million goes to close out all the shares that are currently held by shareholders. That's helpful. The other question I wanted to ask was just on the benefit that you will get from the acquisition and what assets that Cipla and its subsidiary have here in the United States that can help commercialize the drug when and if it's approved. Can you clarify how that benefit will help with the commercialization.

Lucy Lu

So Cipla today has subsidiary company in the United States InvaGen and I cannot speak for Cipla however our understanding is the company is trying to establish its specialty hospital business in the U.S. and this transaction is part of that strategy we have been very, very impressed with our team and with their due diligence we really do believe that they are well positioned to achieve their goals. So we are trying to work with them very closely to prepare for the successful launch of IV Tramadol in the U.S.

Unidentified Analyst

Okay and will they have a portfolio of hospital drugs that all market together along with…

Unidentified Company Representative

Sure. So again I cannot speak for Cipla on their strategy but I think obviously that's a question you have to ask Cipla or InvaGen. But we understand that this particular transaction is part of their strategy.

Unidentified Analyst

Okay, so it sounds like it's a first 4a and 2b and just something bigger perhaps down the line with their hospitals and drugs. My next question was just on Avenue perhaps being able to pursue are their indications or other compounds while you rig going on with this why were continuing on this I think be able to do something else as well or just to stay focused on IV Tramadol.

Lucy Lu

So our current plan John is to stay focused on IV Tramadol as you know we have a very small team and we really need everyone to be 100% focused bringing this product forward that's our current plan.

Unidentified Analyst

And I think on the call you outlined just the timeline of expected submission to the FDA I guess next year what does the timing look like for the trial itself and also the readouts to kind of close out that the Phase 3 you are going to commence before year end.

Lucy Lu

We are trying to start the study by the end of this year. This type of studies continuing more fairly fast so we expect to have data by mid-2019 which will enable us to file an NDA by the end of 2019. This is positive.

Operator

[Operator Instructions]

We will now take the next question from Michael Mullen from National Holdings. Please go ahead.

Michael Mullen

Lucy just a couple of questions to clarify. In answer to John's question you said the second tranche of 180 million was for the 11.7 million shares of record and in your press release you mentioned 13.92 per share. I’m assuming it's going to be little bit more than 11.7 probably for management options and things like that, is that correct.

Lucy Lu

So that is the correct assumption and also as you know Michael there are certain transaction costs.

Michael Mullen

Right.

Unidentified Company Representative

Is after paying the bank for example, excludes a lot of the milestones that we’re obligated to take on. So I would encourage everyone to read the proxy which will be filed in the coming week. But it's our best guesstimate today in terms of what shareholders equally successful.

Michael Mullen

Got and the second question I have is again a follow-up to John, just so I understand it. Your expectation as of today November 13 is that the second study the [indiscernible] you hope to report out by mid 2019 which would put you in position to file the approval by the end of '19 in the early part of your prepared comments you had mentioned that the second stage of this transaction would potentially close in April 2021. So just walk me through what your expectations are on your review process for the FDA, you think it will take a year to get through the FDA review is that why it's going out to 2021, and working up the labeling and all the other continues to close this second tranche just on the sense of timing.

Lucy Lu

So we do plan to file NDA, if the second study is positive we plan to file NDA by the end of '19. It generally takes 10 months sometimes 12 months to get FDA approval assuming there are no issues. In addition after that company generally goes to DEA to get schedule for the drug. We fully expect IV Tramadol to have the same scheduling as oral Tramadol which is schedule 4. So that will take a few months. So the April 2021 is sort of aligned in the sense saying that we need to do all of this before that time. I do feel like our team is adequately positioned and prepared to deliver on all conditions by that time. But we expect a standard FDA review process right now, which is 10 months and sometimes this process not because of anything we did just because of the long queue at FDA can get maybe a couple of months, we fully expect our review to be 10 months and everything should be done before the April 2021 timeline.

Michael Mullen

Understood and just so I understand I will definitely read the proxy to better understand the CBR but the second tranche, the second stage of the 180 million of the CBR would be only received by the shareholders of record as of that April date, correct. Is that how it's working.

Lucy Lu

Yes.

Operator

[Operator Instructions] We will take a follow-up question from John [Indiscernible].

Unidentified Analyst

A follow up question on some of the benefits that are going to be received by the shareholders afterwards the kind of follow-on what Michael was asking how will that be given to this former shareholders after the closing and how can that how can that value be passed on to them. Talking about as you follow me on the question a little bit. The post second stage closing the value overwrites than gross profit how does the shareholders get back contingent value.

Lucy Lu

So the CVR is high to commercial but, these IV Tramadol performs as well as we think it could then the shareholders will receive consideration, so whoever is a shareholder of record at the time of second tranche or closing will be eligible to receive the CDR. Is that what you are asking John?

Unidentified Analyst

Yes, exactly. And I guess after the close is I mean how is that I mean if the shares are already paid for how is the shareholders given benefit from that.

Lucy Lu

Yes, there is going to be a CVR paying agent who has a record of how many shares we receive and they will if we take them in commercial milestones than there's going to be a payout to these shareholders on the CVR.

Unidentified Analyst

Okay, so it like it's goes to shares or something like that I don’t know what it's called but it's not right that's what it is. Okay, very good.

Lucy Lu

Alright, if there are no more question operator we can conclude our call today.

Operator

Thank you, ladies and gentlemen, this will conclude today's conference call. Thank you all for your participation. You may now disconnect.