Cypherpunk Technologies Inc. (CYPH) Q4 2014 Earnings Report, Transcript and Summary

Welcome to Macrocure's Fourth Quarter and Year-End 2014 Financial Results Conference Call. Before we begin, I would like to remind you that forward-looking statements will be made on this call. Forward-looking statements provide the company’s current expectations or forecast on future events. Forward-looking statements include statements about the company’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Forward-looking statement are subject to known and unknown risks and uncertainties and are based potentially on inaccurate assumptions that could cause results to differ materially from those expected or implied by forward-looking statements. The company’s actual results could differ materially from those anticipated in the forward-looking statements for many reason. And I encourage you to review the company’s filings with the Securities and Exchange Commission including without limitation the company’s forms F1 and the 6-K and when it is filed which is anticipated in the next day or so. The company's annual report on Form 20F for the year-end December 31, 2014 which identifies specific risk factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Unless required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events that are after the date of this call. At this time I would like to turn the conference call over to Mr. Nissim Mashiach, Macrocure’s President and Chief Executive Officer. Sir, please go ahead.

Thank you, operator and good morning everyone. Welcome to Macrocure 2014 financial results conference call. Joining me on today's call are Mark Page, our Chief Financial Officer, Mike Molyneaux, our Chief Medical Officer, Shai Lankry, our VP of Finance and Francesca DeMartino, our VP, Investor Relations. I want to start by welcoming Mark Page and Tharuvai Ramesh to Macrocure. We recently announced the appointment of Mark as a CFO and Dr. Ramesh as VP, Operations. I'm thrilled that Macrocure can attract such high caliber talent. Their knowledge and expertise will be very valuable as we enter 2015, a critical year for Macrocure. On today's call I will review our most recent corporate achievements, provide an update on the progress of our clinical trials and lastly outline the milestones calendar for the remainder of the year. Mark will provide an overview of our financial results for the fourth quarter and the year-ended 2014 and then we will open the call for questions. 2015 is proving to be a very important year for us. We have a lot of important milestones to report since our last quarterly call in November. As the year progresses the news flow will only increase as we get closer to reporting our clinical trial results. I will start today with an update on the clinical development of our lead product candidate CureXcell. As a reminder we’re conducting two pivotal double blind randomized Phase III clinical trials. These trials in DFU and VLU will support our BLA filing for a broad label indication for the treatment of all chronic wounds below the knee. I will start with the DFU trial. In September of 2014 we finished enrolling 285 patients across 25 sites in the U.S., Israel and Canada. Since then we have been focused on completing the treatment period, allowable treatment windows and conducting the follow-up for safety and durability. We previously stated that we expect to report clinical trial result in the second half of 2015. This time line is based on a few assumptions. First with the last patient enrolled in September of last year we predict that the last patient will be out in June of this year allowing us to move through database lock in early September. We’re on track and we feel very comfortable with our timelines. We can now more accurately predict the completion of the full data audit and analysis. In the press release we issued yesterday we announced that we expect to report data in October thereby meeting our milestone. While we need to read the final results of this study we continue to believe that the DFU trial will be a success. We have always had a strong conviction that CureXcell has the potential to transform the wound care space and how chronic hard to heal wounds are treated. This is based on the result that we have seen with CureXcell in Israel with over 5000 patients and with our previous clinical studies in Israel with DFU and VLU patients. To further support our conviction we also reported that in January we successful completed the sixth and the final meeting with the Data Safety Monitoring Board. As with prior meetings we were advised to continue the clinical study with no modifications. The DSMB also confirmed that no safety concern were observed. This has been the case throughout the whole duration of the study. Therefore we’re very excited to be nearing the completion of our pivotal trial and report the results later this year. I will now move to describe the results of the second pivotal study, the VLU study. As a reminder we commenced patient enrollment in May of last year and by October we had 25 clinical sites actively enrolling patients. We have seen strong recruitment rate throughout the enrollment process. As a result we were able to revisit and accelerate our timeline. Our initial plan was to announce interim results in the second half of 2015 and full clinical trial results in the second half of 2016. Given the strong recruitment rate we have shortened our overall timeline. We believe this has several positive outcomes. Firstly we will forego reporting interim results which alleviates any potential for alpha penalty and the need to add more patient for the interim analysis. Secondly, we now anticipate reporting full clinical trial results in the first half of 2016 versus the second half. Lastly we will conduct a futility analysis which will include quantitative results in the form of ranges of probability for success. Results from this analysis are expected in the third quarter of 2015. Finally with regards to the VLU in December we successful completed the first DSMB meeting. We were pleased to report that the DSMB recommended the study to continue with no modification. In summary, we’re extremely pleased with the progress we have made in both DFU and VLU trials. We are meeting and exceeding our previously disclosed timelines and dedicating our focus and resources to this critical clinical programs. I will now turn into few additional corporate updates. Last month we hosted the analyst day and reported the results of the Mechanism of Action study. The event itself met all of our expectations. We had an excellent turnout and several engaging Q&A sessions. We’re thankful to those of you who attended and the five physicians who took time out of their practice to present data and information on the wound care space and their patient case studies. The webcast replay is still available on our website and includes the slides that were presented. I encourage all of you to visit the events section of our IR website and review the materials. To summarize the mode of action study results we’re reporting the following. Our lead product candidate CureXcell contains 55 different cytokines and growth factors which we believe are essential for wound closure. We demonstrated a significant up regulation and amplification of this biochemical factors by two to 100 fold from the base line. We continue to stress that this study is the first of its kind in the wound care space. In addition we confirmed some important product characteristics. Most importantly that CureXcell is the only product in the wound care space which can assure the activation of this growth factors along the shelf life. We also confirmed that CureXcell promote blood vessel formation or angiogenesis, cells proliferation, collagen density and organization and granulation, tissue formation. Lastly as a result of the mode of action study we confirmed that our technology has the potential to be leveraged into multiple therapeutic areas and disease states outside of the wound care. As such we committed to disclosing additional pipeline indications later this year. Overall we are very pleased with the study and its results. Knowing the true science behind our technology will facilitate our ability to build a platform technology beyond the wound care space. And it gives us an added layer of conviction that we have a ground breaking product in the development that has the potential to transform the wound care space. Of note we will be presenting two clinical abstracts at the upcoming symposium for the advance wound care in April in San Antonio, Texas and this basically concludes our business update. 2015 is off to a great start. As our progress to-date indicates we are on-track with the DFU and ahead of schedule with the VLU. Our clinical team has worked hard to meet or exceed timelines and I'm thankful to their commitment and dedication. We have a lot more anticipated good news in the months ahead and we will keep you informed of our program. I will now turn it over to Mark to review our financial results.

Thank you, Nissim and hello everyone. I'm very glad to be with you this morning and doing my first call a CFO of Macrocure. As some of you know I worked with Macrocure closely in its IPO last year in my capacity at Credit Suisse. I believe both the clinical and perspective commercial opportunities here are very exciting as evidenced by my decision to leave Wall-Street after almost 20 years and joining the Macrocure team last month. As I further settle into my role I look forward to reconnecting with those of you that I already know as well as meeting those of you that I don’t know yet. Today I will review our financial results for the fourth quarter and full year ended December 31, 2014. Let's start with the fourth quarter. Research and development expenses for the fourth quarter of 2014 were $5.7 million compared with $3.3 million for the fourth quarter of 2013. This increase was primarily due to significant increases in patient recruitment and enrollment especially in our VLU study as Nissim stated in his comments. General and administrative expenses for the fourth quarter of 2014 were $1.9 million compared with $800,000 for the fourth quarter of 2013, this increase was primarily due to increased professional expenses and other customer costs associated with being a publically traded company. For the fourth quarter of 2014 the company posted net loss of $7.6 million or $0.42 loss per share compared with a net loss of $3.9 million or $0.52 loss per share in the fourth quarter of 2013. Moving onto our financial results for the full year 2014. Research and development expenses for the full year were $15.5 million compared with the $9.3 million for 2013. This increase was primarily due to the ongoing clinical development of CureXcell including increased expenses associated with the continued increased patient recruitment in the DFU and VLU trials. General and administrative expenses for the full year were $5.4 million compared with $4.6 million for 2013. This increase was primarily due to expenses incurred during our IPO, increased professional expenses and other customary costs associated with being a publically traded company. Finance expenses net for the full year were $4.5 million compared with $4.3 million for 2013. Please note these items were both onetime non-cash expenses. For the full year ended December 31, 2014 the company posted a net loss of $25.5 million or $2.15 loss per share compared with a net loss of $18.3 million or $2.46 loss per share for 2013. I will now turn to few balance sheet and other items. As of December 31, 2014 cash and cash equivalents including short and long term deposits were $47.4 million. We have not debt outstanding. As of February 28, 2015 the company had 16.7 million ordinary shares outstanding, this figure excludes and additional 1.3 million ordinary shares issuable upon exercise of warrants and exercise price of point [indiscernible] shackles per share that were outstanding that were outstanding as of that date. If you’re interest in calculating a fully diluted shares outstanding number for us we also had 1.8 million options outstanding at an average weighted exercise price of $7.23 as of December 31, 2014 in addition to the penny warrants I just mentioned. Finally regarding 2015 cash burn expectations we expect that cash used for ongoing operating activities in 2015 will be in a range of $21 million to $25 million reflecting an anticipated expenditures to complete our current Phase III clinical trials and process this year. This range excludes approximately 4 million and potential capital expenditures in 2015 primarily for our new U.S. manufacturing facility. The exact timing of such capital expenditures is yet to be determined. With that summary I will turn the call back to Nissim.

Thank you, Mark. Before we move to the Q&A I want to review the timelines for our clinical milestones. I will start with the DFU, we anticipate reporting full Phase III clinical trial results in October. For the VLU we anticipate reporting fertility analysis results in the third quarter of this year and full Phase III clinical trial results in the first half of 2016. We’re on track to submit our BLA to the FDA in the second half of 2016. We’re very optimistic about what lies ahead. We’re focused and committed and we continue to believe that the market will welcome and adopt CureXcell as a new and unique treatment in the advanced wound market. We thank you all for your continued support and interest. And now operator if you can please open the call for questions.

[Operator Instructions]. Our first question comes from the line of Bruce Nudell of Credit Suisse. Your line is open. Please go ahead.

I just had two questions, one is regarding the mechanism of action study. Nissim, could you just talk about how heavily that might be weighed by the FDA and to what extent is that kind of insurance that a single trial might be needed.

So Bruce as you know FDA normally in different biological product encourage a company to provide scientific data around mechanism of action. In our case even during the IND discussions that we had FDA mentioned this request that down the road we should provide a scientific data around mechanism of action. What we did hear is as I said before it’s first of its kind, very [indiscernible] work around what is the science, what are the changes between each injection and what are the effects on the tissue based on this unique mechanism of fraction. I think this would be a valuable - by the FDA it will be valuable also when it comes to reimbursement but in terms of one pivotal study we talk early on that in order to get the broad label we have an agreement with the FDA that we need two pivotal study and both the VLU and DFU will support this broad label.

And just thinking about if the results are positive in the October timeframe, what next steps will you embark on to prepare for commercialization as soon as you have those data in the hopper?

Obviously there are many things going on the background, so obviously we need to finish both studies, complete the - reach the end points of both studies of VLU and DFU. In terms of commercialization we’re building our - we will start soon to build our commercial facility, manufacturing facility and part of the use of the proceed from the IPO will be dedicated to building our manufacturing facility and all the information from the clinical trial, the new facility will support our BLA which will come in the second half of 2016. I would say at that point we will start building and preparing the ground for product launch, completing our reimbursement activities with CMS and we are on-track to launch the product CureXcell in the United States in early 2018.

[Operator Instructions]. Our next question comes from the line of Ian Somaiya of Nomura Securities. Your line is open. Please go ahead.

This is Dana [ph] for Ian. Can you tell us about the characteristics of the sites you’re recruiting for VLU and possibly discuss the driving factors for the faster than expected enrollment? And then how should we think about R&D and sales and marketing cost from now until 2017 and finally what should we expect with the two abstracts that will be presented at SAWC.

Sure. So basically you asked three questions and I will start with the first question around the VLU side, so we’re not giving any granulation about which sites we’re picking and the name of the site but I would tell you -- I will tell you few things. First of all the sites that we have with the VLU are spreads across the country and the reason that we’re accelerating and accelerating our timelines is really because of the great execution by the clinical team from the company. The sense of urgency, the ownership of the study and -- but above all I would say the one and the most important one is the product. CureXcell is very unique product. It provide a major added value to physician, major added value to patients, and it's a totally different technology, the first of its kind, it's injectable product with very unique mechanism of action and once physician across the different sites in the United States understand what they have in their hands, they value that and they are very enthusiastic to be part of winner product, to be part of a big success and with our interaction both through the VLU and the DFU study it was clearly stated to us that those physician are looking for something new. They don’t want to have another me-too product. And I believe that CureXcell is one of the key driver for the success of the VLU enrollment rates as well as the DFU and I think that down the road when it comes to the market it will show all of the attributes that I just mentioned to you. Now the second question about the R&D spend, I will turn it to Mark.

So we haven't provided specific R&D guidance even for 2015 and I know your question asked for 2017 but if you think about 2015, we have two Phase III studies going on right now. I think you can for at least this year assume that we are going to have elevated spend in R&D like we saw in the fourth quarter and actually over the next couple of quarters could it be at or exceed those levels. You know there is the potential for that. You will be able to see as our trials conclude, that those R&D expenses will abate. So I think at least what we’re prepared to share with you regarding 2015 is R&D expenses, you know we really have two major buckets of expenses, R&D and G&A, there is no sales and marketing right now. But think about R&D being roughly 75% to 80% of those total operating expenses, hopefully that’s helpful.

And with regards to the abstract at SAWC, Mike can you address this question please?

The abstract at SAWC revolves around the mechanism of action, both the in vitro and in vivo. The in vivo study has been accepted for oral presentation so we’re pretty proud of that because in general there is about 300 to 400 abstracts that are submitted and they generally pick about 15 to 20 for oral presentation. I think that dovetails in with Nissim's point about the product; in general there was a lot of excitement about this product and it's starting to build within the industry as people become more familiar with the studies and with the product. And I would just like to add some color to Bruce's question if I could, the interesting thing about the mechanism of action study that we did is that it covers all the common deficiencies within both chronic wounds in DFU and VLU but there is a very interesting characteristic that you see for example, the DFU has a problem more with angiogenesis than the VLU. We’ve very good data on very potent angiogenic capabilities. The VLU has more trouble with cell proliferation and keratinocyte migration. We also have excellent data from the MOA that shows very significant levels of keratinocyte proliferation and migration. So not only with the MOA can we show that we address the common deficiencies of both wounds but we also address the minor differences between the two as well. So that’s a very key point on how we can leverage that MOA for FDA and for reimbursement.

Thank you very much.

And just regarding the sites, these are all experts in venous leg ulcers, they are all very experienced. You know if you added up the number of years of experience for those sites we should be talking about 100s of years cumulatively of clinical trial research and particularly Phase II and Phase III research. So we have excellent, excellent sites and they are very engaged.

Our next question comes from the line of Steve Lichtman of Oppenheimer. Your line is open. Please go ahead.

This is [indiscernible] for Steve. First on the MOA, in your discussions with physicians, what data points from that study would you say have been the most positive surprises for those that have seen the data and secondly and given the new VLU data timing, could the BLA submission be any sooner than the second half of '16?

I will address your second question and I will let Mike address the first question around the mode of action. So at the moment you should assume that the BLAs will be submitted in the second half of 2016 as we previously stated. Keep in mind that we’re talking about very large studies we need to collect a lot of data plus of course what I mentioned before using our own manufacturing facility, validate the results and it's all comes together to a BLA which we will file in 2016. However so far I would say that we met and exceed all of our milestones with the clinical and regulatory development and we will see how we can facilitate things around the BLA but for the time being you should assume that things should be around the second half of 2016 for BLA submission.

Regarding the mechanism of action, one of the key metrics that has commissioned and very excited is the angiogenic capabilities. So what that means is the ability to grow new blood vessels at the wound bed. All of these wounds have some level of ischemia or anoxia [ph] which is lack of blood flow at the wound bed and that impairs their ability to heal. This product has shown very potent angiogenic capabilities and it's not only growing the blood vessels, but the blood vessels are maturing as well. So when you compare the blood vessels of the CureXcell treated product to the normal blood vessel formation it's pretty much identical and it's very sequential so it happens the same way. The other key component was the granulation tissue thickness and collagen production. So this is basically the scaffold, this is the support system that’s needed to close these wounds and have the skin closed. But it's also very important to durability so what we’re seeing is very normal collagen production, exercise metrics production again mimicking normal tissue. So if you compare our healed with CureXcell versus normal skin that healed it's pretty much identical with minimal scaring and that was another key point for the physician.

And I guess more generally can you give us your latest thoughts on plans pursue reimbursement coverage and I know this is, you’ve mentioned that it will happen this year sometime but do you have any indication on your plans for the timing of the decision to build out the new manufacturing facility and that’s all for me guys, thanks.

Let's start with the reimbursement and then I will talk about the manufacturing. So for reimbursement as you know one should have the results from the pivotal studies and obviously aim after October when we have the result of the DFU will start engaging relationship with CMS and coupled the result of the Phase III with the mode of action result. I think that would be viewed as very unique product and we believe that we’re the only injectable product, it's a biological product and therefore it should be subjected to a new code with CMS and a different pricing range. However due to the fact that we have such a unique production process with very high yields and very high gross margin. I would say we feel very comfortable with the reimbursement outcome because we have the full flexibility to either go with different code or new code or even stay with the current bucket of upper bundle lower bundle prices and still be very attractive in terms of gross margin. But I would say we’re using experts and consultant at the moment to reshape our strategy with CMS, and it's due time we will be able to share with you this information but I would say the real discussion point would be once we have the pivotal data available for us and to have a discussion directly with the CMS around those data. In terms of the manufacturing facility, we should start working on building the facility this year and hopefully it should be completed early next year. Keep in mind that the technology of CureXcell is very straightforward when it comes to manufacturing. The production process from start to 24 hours, the scale is very small to a 100 ml that would enable us to do it very quick turnaround when it comes to building our manufacturing facility with very low level of capital and we just recently as you know we just recently hired Dr. Ramesh who has strong track record and proven capabilities in building manufacturing facility not just from a design and establishment but also taking the whole validation process and getting the FDA and EMEA approval and we believe that we have the right team in place to execute those manufacturing capabilities and I would say by the end of this year we will be able to again share with you some more concrete information about the progress with our manufacturing capabilities.

[Operator Instructions]. Thank you. And that does conclude our question and answer period for today as well as our conference. Ladies and gentlemen thank you for attendance, you may all disconnect.