Tenax Therapeutics, Inc. (TENX) Q3 2016 Earnings Report, Transcript and Summary

Good morning, and welcome to the Tenax Therapeutics' Business Review and Update in Conjunction with Filing of Fiscal Year 2016 Third Quarter Financial Report. At this time, all participants are in a listen-only mode. [Operator Instructions] It is now my pleasure to turn the conference over to Ms. Nancy Hecox, Please go ahead ma’am.

Thank you. Good morning everyone, and welcome to the conference call for Tenax Therapeutics' third quarter 2016 earnings period ending September 30, 2016. The news release with our financial results and corporate update became available at 6:00 AM today and can be found on the Investors section of our website at www.tenaxthera.com. You may also listen to a live webcast and replay of today's call on the Investors section of the website. Before we begin, let me remind you that statements made on today's call regarding matters that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of these forward-looking statements include statements concerning the expected timing for the Company's clinical trials, statements concerning the potential results of planned clinical trials and future development milestones for the Company's product candidates. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Risks are described more fully in Tenax's filings with the Securities and Exchange Commission. All forward-looking statements made on today's call speak only as of the date on which they were made. Tenax Therapeutics undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made. Joining me on the call today is John Kelley, Chief Executive Officer of Tenax Therapeutics, who will discuss recent company highlights. Following John, Michael Jebsen, Tenax's Chief Financial Officer, will review the company's financials, after which we will open the call for the Q&A. Now, it’s my pleasure to turn the call over to John Kelley, Tenax's CEO.

Thanks, Nancy. Good morning everyone and thank you for joining us on today’s call. This is an exciting time to be providing you with an update as we near the completion of enrollment for our Phase 3 LEVO-CTS trial in cardiac surgery patients. First, I’d like to thank the patients who have participated in this study and the investigators and clinical staffs who have worked tirelessly throughout this trial. We know that all of them along with our team here at Tenax are anxiously awaiting the results of the study. We believe that the significantly increased enrollment rate and visibility for this study in 2016 speaks strongly to the unmet need in this critical care population. So we look forward to reporting out this important clinical assay. What I’d like to do today is walk through where this study currently stands, the next steps and expected timing and then address how we think about the cardiac surgery patient population with regard to a potential commercial launch. As a reminder, for everyone, on the trial design, the LEVO-CTS trial is a double-blind randomized placebo-controlled study that is evaluating the use of levosimendan administered prophylactically to reduce morbidity and mortality for cardiac surgery patients at risk for developing a low cardiac output syndrome or LCOS. The trial is also measuring secondary endpoints around potential pharmacoeconomic benefits and the incidence rate of LCOS. In this trial, we enrolled CABG patients, CABG patients with mitral valve or mitral valve alone or CABG patients and aortic valve surgery patients. All with an ejection fraction of 35% or less. Our co-primary endpoints or dual endpoint for either death or the use of a mechanical-assist device, as well as the quad endpoint for death, perioperative myocardial infarction, dialysis or the use of mechanical assist. We only need to hit one of these endpoints for a successful trial as specified under this Special Protocol Assessment that the FDA agreed to. Starting with enrollment. Today, enrollment now stands at 864 patients overall, and we hope to enroll the remaining patients by the end of this month. As many of you know from our last calls, this is a 120 more than we had originally planned, which is in order to ensure that we have sufficient events for the study. A small number of patients were randomized that did not received study drug around 4% of patients thus far and a small number are missing one or more component measurements of the endpoint. And finally, we had originally projected that blinded quad composite endpoint rate of 26.4% and that has ended up being slightly lower thus far at around 25%. So since this is an event-driven trial, we need to hit the pre-specified number of quad endpoints to stop the trial and that number is 201. We were also pleased to receive a recent recommendation from our data and safety monitoring committee to continue with the trial as planned after their final safety review from the first 621 patients. In terms of enrollment, as we mentioned, we have been very encouraged throughout 2016 to see a much higher enrollment rate and expansion of active clinical sites. Just a few statistics. Overall, 65 hospitals have enrolled two or more patients including 34 hospitals who have enrolled more than 10. From the start of 2016, the trial has averaged approximately 53 patients per month. The trial’s top enrolling site is the Cleveland Clinic at 56 patients, the Franciscan Health Center and Tacoma, Washington at 53 patients, the University Hospital Case Medical Center in Cleveland at 44 patients, Columbia University with 36 and Spectrum Health at 34. As we’ll discuss in the commercial section, we believe that the interest in the trial and this drug are a positive indicators for the North American market opportunity. We were especially pleased to see the strong enrollment from our Canadian site where the interest was so robust that we eventually ran out of drug near the end of the study and had to end enrollment at some of those sites. After the last patient is enrolled, we need to wait for the 30 day follow-up period in order to lock our database which should be right around the end of the year. After that the team at Duke Clinical Research Institute will begin the top-line data analysis to enable that read out. Right now, we are projecting that we will be able to report top-line results in January. We will be entering the quiet period shortly as the analysis gets underway. We expect DCRI to present the full data from this study at a medical meeting during the first half of 2017 and if the data is positive we anticipate submitting our NDA early next year as well to enable a 2018 commercial launch. We continue to believe that the profile for levosimendan shows a strong rationale for benefit in this patient population. Based on the large amount of data from Europe in the cardiac surgery population and its use in the critical setting, the fact that the drug is on the market in over 60 countries and has been used in over 1 million patients, many of them cardiac surgery patients gives us confidence that we can get this drug to the market in North America. We also believe that we have designed this trial correctly with the optimal high risk patient population that is most likely to benefit from levosimendan, which gives us the best possible chance to show clinically meaningful results through these patients. Turning back to the market opportunity, as discussed, we are very encouraged by the expanded visibility and interest in LEVO-CTS including our Canadian site and we believe that this supports and complements our market research to-date for a launch in the LCOS indication. Right now, we see around 320,000 cardiac surgeries a year in the US and probably around 30,000 in Canada. Numbers that have consistently grown during the last four years. With our market research showing that 40% of patients have two or more risk factors for developing LCOS, we believe that we have the opportunity to address at least 25% of the total CV surgery market, which would be in the range of 80,000 to 90,000 patients annually. We believe that this opportunity can be covered by the very targeted sales force of around 60 to 70 representatives, given that 80% of the cardiac surgery patients are in the top 700 US hospitals. In Canada, cardiac surgery is performed in about 32 hospitals. Furthermore, our market research over the past year has given us confidence both in the unmet need as well as the enthusiasm from the physician community for a treatment option like levosimendan. Our LCOS resource utilization study conducted with Premier Health which looked at around 60,000 cardiac surgeries between 2012 and 2014 in the United States shows that an increase in defined risk factor through LCOS significantly increases the incidence level. It also shows that on average, LCOS incidence drives additional hospital cost of around $14,500 per admission and about 30 day and six months readmissions go up significantly along with the associated cost. This is all data that we hope to reaffirm with our pharmacoeconomic analysis in LEVO-CTS. What we have is the unique dual value proposition with the opportunity to not only reduce morbidity and mortality, but also improve the efficiency of our healthcare system and remove some of these excessive costs by addressing the LCO risk from the start. We are also very encouraged from our initial target product profile research with physicians as they appear to recognize the opportunity here. From the cardiothoracic surgeons, anesthesiologists and pharmacy hospital administrators, we have surveyed, they highlight some level of cardiac dysfunction with most cardiac surgery patients and as many as 20% with severe post-op left ventricular dysfunction. Currently, the clinicians are not using preventive measures for these patients preoperatively. We also see a physician a positive reaction to levosimendan profile and unique mechanism of action. And each of these three groups gives the drug a largely positive vote for likelihood of use if available. For all of these reasons, we believe that positive data in LEVO-CTS would point toward a strong commercial launch that could address these patient needs and provide clinicians and hospital systems with a valuable and cost-saving addition to the current treatment paradigm. Before closing, I would also briefly like to touch on the LeoPARDS trial data in septic shock that was presented by Imperial College London at the European Society of Intensive Care Medicine Annual Congress. As announced in October, following Dr. Anthony Gordon’s presentation, the trial did not achieve the primary endpoint of reducing the incidence and severity of acute organ dysfunction in adult patients who have septic shock, as well as the pre-specified secondary endpoint. Based on those results, we do not plan to move forward with development in this indication. As many of you know, septic shock remains an area devoid to treatment options. We are very grateful to Dr. Gordon and his team for their work on this study and enabling our collaboration. We were able to obtain a clear clinical answer with minimal spend. We also do not believe that this result in any way impact the potential outcome of our LEVO-CTS trial, which is in a completely different patient population with a different dosing protocol and design. Before I turn the call over to Michael for the financials, I again just want to thank everyone involved with the LEVO-CTS trial from our partners at Duke Clinical Research Institute to all of the patients who have participated. We look forward to sharing the results with you during the next couple of months. With that, Michael, I’ll turn it over to you.

Thanks John. I will begin today by summarizing our financial results for the three and nine months periods ended September 30, 2016 and 2015, followed by a brief discussion of our cash position and burn rate. For the three months ended September 30, 2016, we’ve reported a net loss of $4.2 million or $0.15 per share, compared to a net loss of $2.9 million or $0.10 per share in the same period in the prior year. For the nine months ended September 30, 2016, we reported a net loss of $14.2 million or $0.51 per share, compared to a net loss of $10.6 million or $0.38 per share in the same period in the prior year. Total operating expenses for the three months ended September 30, 2016 were $4.5 million, compared to $3.1 million in the prior year. The approximately $1.4 million increase in operating expenses for the current period was due to an increase of approximately $1.6 million in research and development cost as compared to the same period in the prior year, partially offset by a slight decrease in general administrative cost during the current period. Total operating expenses for the nine months ended September 30, 2016 were $14.9 million compared to $11.2 million in the prior year. The approximately $3.7 million increase in operating expenses for the nine month period was due to an increase of approximately $5.4 million in research and development cost, partially offset by a decrease of approximately $7,000 in G&A cost and the approximately $1 million write-off of Oxycyte-related assets during the same period in the prior year. G&A expenses for the three months ended September 30, 2016 were $1.3 million as compared to $1.4 million in the same period of the prior year. The approximately $100,000 decrease was due primarily to legal and other professional fees incurred in the prior year as a result of our transition to calendar fiscal year and a decrease in franchise and other state taxes paid in the current period as compared to the same period in the prior year. G&A expenses for the nine months ended September 30, 2016 were $4.3 million as compared to $5 million in the same period of the prior year. The approximately $700,000 decrease in G&A cost for the nine month period ended September 30, 2016 was due primarily to timing differences for personnel cost resulting from accruals for year-end balances stemming from our prior April 30 fiscal year-end that were not incurred in the current period. Legal and other professional fees incurred in the prior year as a result of our transition to a calendar fiscal year and a decrease in franchise and other state taxes paid in the current period as compared to the same period in the prior year. We do not anticipate any significant additional charges to our G&A cost and we still anticipate overall G&A cost of approximately $6 million to $6.5 million for the full 2016 fiscal year. Research and development expenses for the three months ended September 30, 2016 were approximately $3.2 million, compared to $1.7 million in the prior year. Research and development expenses for the nine months ended September 30, 2016 were approximately $10.6 million compared to $5.2 million in the prior year. The increase in research and development expenses as compared to the same periods in the prior year was due primarily to the increase in cost incurred for the progression of our Phase 3 LEVO-CTS study, partially offset by the elimination of the cost incurred for clinical and pre-clinical safety studies for Oxycyte during the same period in the prior year. Over the next two quarters, we anticipate quarterly R&D expenses will begin to taper down as a result of the completion and enrollment and progression of the LEVO-CTS Phase 3 clinical study. As we complete enrollment and begin to focus on site closeout activities, we anticipate LEVO-CTS clinical study cost to fall back to previous levels approximately $2 million to $2.5 million per quarter beginning in the fourth quarter. We continue to expect overall 2016 fiscal year R&D spend of approximately $13 million resulting in an overall annual burn rate of approximately $19 million for the full year ending December 31. As of September 30, 2016, we had cash and cash equivalents including the value of our investments in marketable securities totaling $25.1 million, compared to $38.2 million at December 31, 2015and overall for the remainder of calendar year 2016 and into 2017, we expect to continue to see decreases in quarterly R&D expenses as enrollment is completed in the LEVO-CTS Phase 3 study is closed down. Our focus on capital efficiency has continued to pay off and after completing LEVO-CTS enrollment and analyzing the results, we currently expect to reach the end of 2016 with a cash balance of approximately $19 million. With our existing capital, we are well positioned with sufficient funds to complete our Phase 3 trial and carry the program through potential approval based on our existing capital resources and our anticipated annual burn rate, we have sufficient capital to fund our operations through calendar 2017. And with that, I’ll turn the call back over to the operator for Q&A.

Thank you. [Operator Instructions] We’ll go first to the line of Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Hi, there, John and Michael. Can you hear me okay?

Yes, got you, Jeff.

Super. So, I just wanted to review some of the commentary, firstly, as far as the timing goes, it looks like you are talking about an NDA filing provided the data comes out possibly in early 2017, and the commercial launch in 2018, at least for modeling purposes, how should we think about the launch? Should we think of that potentially occurring at the end of 2017? Or where should we be modeling the first half of 2018?

I’d say the first half of 2018, beginning of 2018, by the time we get an approval and get all the packaging components taken care of label printed and drug shipped to us from Orion, that will take a month or two to occur.

Okay and how should we think about the total numbers? You are at 864 now and you are closing at 50 or 60 per month. So, the total is going to come out at around 184, is that accurate to reach 201, event rate?

880, it should be 880.

Okay, 880 and do you expect in the coming two weeks, three weeks?

Right now, this month, we’ve been seeing about a patient, a little bit more than a patient a day. So, yes, it should be, I mean, we’ve got 16 more patients to go.

Okay, got it and, Michael, for you on the financial side, looking at how are we modeling out 2017 as far as the R&D and G&A and you made commentary as far as the R&D decreasing, so when we go 2 or 2.5 per quarter, so, does it look like from your standpoint 2017 looks fairly evenly split between the G&A line and the R&D line? And how – cost for commercial activities being involved in either R&D or G&A?

So, for your first question, yes, we would anticipate 2017 looking more of a split between G&A and R&D as opposed to the – almost 3 to 1 that we are looking at right now. In terms of commercialization cost, again, that is – it’s tough to answer how much of that will occur in 2017, because it’s all contingent upon timing and when we file, we do not anticipate adding any infrastructure prior to an NDA being filed and accepted by the FDA. So, whether those costs are coming in the second half of 2017 or fourth quarter of 2017, it’s still a little too early to tell. We will have a much clearer picture of what 2017 and into 2018 and 2019 look like financially as we finalize our budgets and get this trial wrapped up and have a look at the data honestly.

Okay, and cost associated for the NDA will be under which line item? Is it middle of 2017 or the back half of 2017?

There won’t be any significant cost with filing the NDA upon acceptance, we’ll start having to accrue for some milestone payments due to Orion. Those would be G&A.

Okay, and can you remind those the milestone payments, you have one payment upon a filing and one payment upon an approval?

It’s upon approval, one payment and it would be $2 million.

It’s $2 million in the United States, another million dollars when it gets approved in Canada.

Okay.

Simultaneous.

Right, and those would both be under G&A?

Correct.

Okay, and theoretically, Canadian approval come after US approval, in theory.

We would estimate probably nine months post-US approval.

Okay, nine months post-US approval. And could you give us some data, John, as far as the size of the market. I think the last time we took a dive into this, we were clipping in the more 275,000 to 280,000 of cardiac surgery and now it sounds like it’s in the amount of 300,000, 320,000 you mentioned. Could you give us some points there as from where the data is coming from?

That comes from the Society of Thoracic Surgeons database and that would include all adult and general cardiac surgery. So, as 320,000 if you say, just adult, surgery, you probably that number of 280,000, 290,000 is in and around where it would be.

Okay, and we should think that Canada is approximately 10% of the composition as far as market size?

Yes, as best that we can determine, they don’t have an equivalent database in Canada, that we found yet of these STS database.

Okay. Super. I got it. Thanks. Very helpful. I appreciate it.

Thanks, Jeff.

[Operator Instructions] We’ll go next to the line of Brian Jeep with WallachBeth. Please go ahead.

Good morning. Thanks for taking the questions.

Hi, Brian.

Hi, first the – in the press release you said you are expecting cash of $19 million to $20 million at the end of 2016 and then it would imply an uptick in cash burn for Q4 and I think with R&D going down, I might expect otherwise, is that $19 million to $20 million, is that kind of those older numbers or is it possibly something higher than that?

I am pretty confident it would be pretty close to that number, although the actual spend, the recognized expense in fourth quarter is going to taper down due to the way we accrue for the pass-through patient costs. We’ve already recognized some of those costs that will be paid. So, in addition to reducing some of the actual recognized expense, we have to chip away at some of that accrued liability.

Okay, all right. And I guess, also kind of on the topic of capital, was LeoPARD, the initial results coming out and no longer pursuing that indication, does that kind of hazed in your pursuit of business development opportunities or are you still kind of out there looking at opportunities?

We continue to look at things as they are presented to us and evaluate other possibilities of things that we would like to focus on in the hospital marketplace. So, I can’t say it’s hazing or bit change than anyway, we’ve been doing it all along.

Okay. All right. And also in terms of capital, obviously, you’d want to raise the capital that you need before your – you just put forward, should we expect 2017 that there might be a capital raise or what are your thoughts there?

I mean, obviously, yes, to build an infrastructure, we would have to finance it and we do intend to begin that process in late 2017. So, assuming we complete this trial, the data is positive, and the FDA accepts our filing, then I think it’s probably safe to say that we will also be looking to raise additional cash in mid to late 2017.

Okay. And then, last one was just, John, you said the number, but I didn’t get a chance to scribble it down. How many reps did you think you’d need to support the total rollout?

60 to 70, somewhere in that range depending on how we lay out territories from a geographical perspective.

So, lost my headset, can you repeat that one, one more time?

60 to 70.

60 to 70.

Depending on how we lay out territories to handle geography.

Okay. All right. That’s all I had. Thank you very much.

Thank you.

[Operator Instructions] And we will take a follow-up from Jeffrey Cohen. Please go ahead.

Well, thanks for taking the follow-up. John, I wonder if you could discuss with us a little bit about the UK Sepsis trial as far as any retrospective thoughts or analysis as far as the patient population and the dosing regimen that kind of lessons learned.

Yes, well, a couple of things, Jeff, that I maybe should point out. First of all, we did not design the trial. The trial was already up and running when we first got involved in it. So, we had no input into what the patient selection would be and what the dosing of the drug would be. To qualify for this study, if I remember correctly, you had to be 18 years of older, diagnosed with septic shock and had to have been on I think a couple of Vasopressor drugs for at least four hours. So there was no pre-screening if you will with regards to patients with cardiac dysfunction, patients needing cardiac support. It was sort of all cumbers with septic shock. As you might know, the hallmark of septic shock is patients typically have low blood pressure, they have low blood pressure and that has to be raised first, but I have no information, I haven’t seen any analysis of what the average blood pressure was going in were entered into the trial and administered either levosimendan or a placebo. They started at a dose that I think was a lower dose than what we are using in cardiac surgery. But they titrated up to a higher dose. And so, they went up to 0.2 mgs per kg where we are at 0.1mg per kg. So, they gave a very potent invasive dilator at a high dose to patients who will potentially hypotensive. So in hindsight, a lot of what we saw in terms of patients on levosimendan in that group were getting higher doses and longer duration of dose of pressers obviously to do something with – to help maintain the blood pressure. So, one could say that it was similar to some of the trials that were done previously in heart failure where it was wrong patients, wrong drug, wrong dose.

Okay. And what percent would you think of those patients from the sepsis trial were hypotensive? And was that 0.2 dosing for 24 hours? Is that right?

Well, no, they were supposed to start at a lower dose and then continue to titrate up to that level if the patients were tolerating it. So they wouldn’t have gotten that much for 24 hours, but they could have gotten it for a considerable period of time. But I have not seen any of the analysis yet, that or had a chance to go through and say, let’s break it out as to how many patients have lower blood pressure and how many patients go the higher dose they know, quite a few did, but the bottom-line is, again, they were getting higher doses than longer duration of dose oppressors meaning they were doing much more in the levosimendan group to try to get the blood pressure up. So, I am assuming they were having problems with hypotension.

Okay. So it’s similar some of the previous work done, would it be safe to say that, perhaps a quarter to a half of those patients were hypotensive prior to administration of levosimendan?

Yes, I’d think that’s probably right.

Okay. That’s helpful. Thanks a lot.

Okay.

And at this time, we have no further questions. So I would like to turn it back over to Mr. John Kelley, CEO. Please go ahead for closing remarks.

All right, thank you very much. Once again I appreciate everyone’s interest and support of what we are doing here at Tenax and look forward to bringing the results of the LEVO-CTS trial to all of you in the not too distant future. Thanks a lot. Have a great day.

We would like to thank everybody for their participation on today’s conference call. Please feel free to disconnect your line at any time.