Gyre Therapeutics, Inc. (GYRE) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q2 2013 Targacept, Inc. Earnings Conference Call. My name is Jo, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to hand and turn the call over to your host, Dr. Stephen Hill, Targacept's President and Chief Executive Officer. Please proceed, sir.

Thank you, Jo, and good morning to everybody, and thank you for joining us. With me this morning, I have Alan Musso, our Chief Financial Officer and David Hosford, our Vice President of Clinical Development and Regulatory Affairs. First, let me inform you that comments made today may include forward-looking statements made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to plans, expectations, objectives or future events, financial results or condition including, for any of our product candidates, the design, scope or other details of clinical trials, the timing for initiation or completion of or for reporting of results from clinical trials or for submission or approval of regulatory filings, target indications or commercial opportunities, as well as AstraZeneca’s development plans for product candidates licensed from us, our cash runway, revenues or expenses, plans, expectations or any other matter that is not historical fact. Actual results may differ materially from those expressed or implied by any forward-looking statement as a result of many factors, including those described under the heading Forward-Looking Statements in our press release from earlier today or in the heading Risk Factors in our most recent Form 10-K or in later filings with the SEC. And we caution you not to place undue reliance on any forward-looking statement. Also, any forward-looking statement that is made speaks only as of today and should not be relied upon as representing our views of any future date. We disclaim any obligation to update any forward-looking statement except as required by applicable law. So with that in mind, this quarter has seen good progress in the advancement of our promising pipeline of Phase IIb product candidates, all of which are aimed at addressing great unmet patient need. So let me start with a brief update of each of our clinical programs. We announced in April that we had completed recruitment in our Phase IIb study of TC-5619, our wholly-owned alpha7 modulator, as a treatment for negative symptoms and the cognitive dysfunctions of schizophrenia. And it's that constellation of so-called negative symptoms such as social withdrawal and extreme indifference and the impacts from cognitive dysfunction that hinders schizophrenics from functioning in society. The anti-psychotic medications typically used to treat delusions and hallucinations don't effectively address these other disease domains, thereby leaving a significant unmet medical need and commercial opportunity. An estimated 4.7 million patients in the world, 7 major pharmaceutical markets have schizophrenia and a significant percentage suffered from the symptoms that we are targeting with 5619. In this study, which was designed to enroll approximately 456 patients at sites about 2/3 in Eastern Europe and 1/3 in the U.S., our primary endpoint is the scale for the assessment of negative symptoms or SANS. We've also designated measures of cognitive dysfunction and overall everyday functioning as key secondary endpoints. With recruitment for the study now complete, we expect to report top line study results in late December or January. Let me now turn to our program in active -- in overactive bladder, where we announced in May the initiation of the Phase IIb study of TC-5214 designed to enroll approximately 750 patients at over 100 U.S. sites. 5214 is a potent modulator of alpha3beta4 NNRs located in or around the bladder with a well-established safety and tolerability profile, stemming primarily from a large clinical program conducted in another indication. The strong scientific rationale supporting our efforts combines the compound's unique pharmacological and pharmacokinetic properties, scientific findings that implicate the role of alpha3 NNR in bladder function, promising preclinical findings with the compound and clinical observations from the prior program. There is a clear need for new therapies in this area, with an estimated 1 out of 6 adults in the U.S. suffering from overactive bladder. Currently available treatments have limited efficacy and for many, tolerability drawbacks, like excessive dry mouth, that can lead to noncompliance and discontinuation of treatment. On the clinical side, OAB is an indication with objective regulatory endpoints, where Phase II success has historically translated into Phase III success and approval. Enrollment in our study has gone well to date and we expect to report top line results in the first half of 2014. Finally, we also announced in April that we completed recruitment for our Phase IIb study of TC-1734 as a treatment for mild to moderate Alzheimer's disease. TC-1734 is an alpha4beta2 modulator that is being tested as a monotherapy head-to-head against donepezil, the market leader. We continue to anticipate reporting top line data from the study in mid 2014. Before we move into the financial update, let me close by reiterating our commitment to NNR Therapeutics. We have built a pharmacologically diverse pipeline based on a belief, with science behind us, that NNRs play a key role in many biological functions. As Alan will review, we have a strong balance sheet that we'll see us through to the important clinical outcomes that I've mentioned and well beyond. We do recognize that to build a sustainable company, we will need to enhance our pipeline. We have a substantial library of NNR Therapeutics with pharmacological diversity that provides us the potential to compliment our pipeline with internal programs, which is our strategic focus. We will also continue to be opportunistic in our evaluation of external prospects, giving stringent consideration to criteria for cost of capital, potential synergy with our existing programs and the opportunity to meaningfully enhance our overall company risk profile. And with that, I'll turn the call over to Alan for a financial update, and then we'll be happy to take your questions.

Thanks, Steve. Let me briefly review our financial results for the second quarter of 2013, which we released earlier today. We ended the second quarter with a balance of $164 million in cash and investments. Our net loss was $12.4 million for the second quarter of 2013 compared to net income of $14.5 million for the second quarter of 2012. For the 6 months ended June 30, 2013, our net loss was $20.4 million compared to net income of $16.8 million for the corresponding period of 2012. The change for both periods is primarily due to a decrease in deferred revenue recognition, partially offset by lower research and development expenses and the nonrecurrence in 2013 of restructuring charges that we incurred in 2012. As we've guided previously, based on our current operating plans, we expect our cash, cash equivalents and investments balance at the end of 2013 to be at least $135 million, and we continue to expect that our cash resources will be sufficient to meet our operating requirements through at least the end of 2015. And with that, we'll open up the call for your questions.

[Operator Instructions] We do have our first question and that comes from Alan Carr from Needham & Company. Alan Carr - Needham & Company, LLC, Research Division: A couple of them, both are around strategy. One, can you give us an update on, I guess, corporate strategy, with respect to commercialization or partnering each of those 3 programs that are in the clinic? And then also, you mentioned a commitment to NNR beyond the 3 compounds that are in the clinic. I'm wondering if you could give us a general sense of what sort of indications your classes have -- the compounds are -- classes of targets of NNR targets that are most interesting to you in the long term?

Yes. So thanks, Alan. Starting with the maybe -- start with the last piece. We said for a while that we want to explore the role of alpha7 and evaluate that beyond schizophrenia. As you know, other companies have been looking at alpha7 modulation of Alzheimer's and we continue to consider that possibility and see if there's a cost-effective way of exploring Alzheimer's beyond the programs we already have underway. With regards to other programs, we do have some internal prioritization underway in terms of thinking about novel uses of NNRs and we look at that both in terms of central nervous system, but also peripheral nervous system. As we often say, there are more nicotinic receptors outside the brain than inside the brain, so we think there's some interesting peripheral diseases that we could explore. With regards to the first part of your question for commercialization strategy, at this point, our assumption is that in the event of positive data from the schizophrenia program with our alpha7, we would most likely look for a partner to take that further. Certainly, in schizophrenia, maybe additionally in Alzheimer's disease. It is not a hard and fast decision, but at this point in time, I think we would be better served by doing that and ensuring we have sufficient resources to pursue the rest of our portfolio. With regards to the overactive bladder program, that might be more feasible for us to take that through to registration on our own. But we keep all those options open. So we don't want to decide in advance of the data, whether it's most advisable for our company and for our shareholders to either keep those programs to the later stage or to partner them. But at the moment, I think our plan for schizophrenia will be to look for a partner. Alan Carr - Needham & Company, LLC, Research Division: Okay. And I guess, I think I can toss another one here. With respect to some other compounds like underdevelopment and going after cognition like at in vivo and that sort of thing, how do you think your drug's profile might differ clinically?

Well, it's tough to know clinically, because unless you do a head-to-head trial with the 2 compounds. So the reality is you don't really know what the risk benefit profile of a drug is until you have evaluate -- pretty extensive exposure in real-life subjects. So whichever compound turns out to best-in-class is really unknown until you get close to commercialization indeed on the market. Pharmacologically, we're confident that we have a very selective alpha7 modulator and that may discriminate between pure alpha7 modulators and compounds that have some mixed activity at alpha7 and 5-HT receptors, that's tough to handicap whether that's a good thing or a bad thing at this point in time. But my sense is that probably over time, each of these programs that are focused on alpha7 may turn out to have slightly different risk benefit profiles and may even end up being more or less useful in different patients or populations. But they're such a big disease area that I think there's plenty of room for 2 or 3 very effective drugs for these symptoms.

The next question comes from Juan Sanchez from Ladenburg. Juan F. Sanchez - Ladenburg Thalmann & Co. Inc., Research Division: A couple of questions on IP, if you could remind us of the IP for 5619 and 5214 and whether or not the overactive bladder findings can help you on strengthening the IP for 5214. And the second question is whether or not the clinical findings in the depression program, when it comes to urinary retention, have been published somewhere?

Yes. So let me answer the second piece, then I'll maybe ask Alan Musso to give you some more specifics on the IP situation. We haven't published as such the data from the depression study with regards to the incidence of urinary tract infection and the retention of urine, simply because it's very difficult to publish it in a contextual way that's meaningful. And we've done our own internal analysis and we've convinced ourselves that when we look at that data, we see a dose-dependent increase at very modest levels, very low percentages, so low-single digit percentages of UTI and retention of urine that seem to be correlated with dose, but the numbers are just not big enough to give it statistical significance, but we thought it is a strong enough signal to support all of the preclinical work that justifies taking this compound as the clinic for overactive bladder. So we're reasonably comfortable that, that's a strong enough signal to add to the whole constellation of data that we have, making this relevant and we'll find out. The proof of the pudding is Phase IIb data. And Alan, can you answer the IP question?

Sure. In the case of 5214, we have multiple patents that are issued, as well as some that are pending, basically looking towards the new indications for which we're pursuing, those haven't issued, but they've been filed and are being prosecuted, so the current patent situation on that is patents that -- natural life through 2020 with an expected 5 years beyond that with Hatch-Wax, and that would apply to 5214 as well as ability, if we file before September 30, 2017, to be granted NCE designation. And in the case of 5619, that's also a patent that States that applies one patent that we're quite excited about is a solved patented that extend into 2029 natural life that could be extended and we feel really good about the characteristics of that patent as being applicable for exclusivity.

[Operator Instructions] There are no further questions, so I would like to turn the call back over to Dr. Stephen Hill for closing remarks. Thank you, sir.

Thank you. So thank you, firstly, to all the employees of Targacept for another very important quarter in the progression of our company. And thank you to all of you in the audience for your interest in our progress, and hope you all have a great day. Thank you.