Executives
Tony F. Cruz - Chairman of the Board and Chief Executive Officer
Nicole Rusaw-George - Chief Financial Officer
Analysts
Dan Trang - Stonegate Securities Inc., Research Division
Philippa Flint - Bloom Burton & Co., Research Division
Transition Therapeutics (TTHI) 2013 Earnings Call September 11, 2013 4:30 PM ET
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Transition Therapeutics Full Year Fiscal 2013 Financial Results Conference Call.
I would like to begin by reviewing the Safe Harbor provisions. Certain statements made during this conference call about the company's future plans and intentions or other future events constitute forward-looking statements for purposes of Canadian securities legislation and the Safe Harbor provisions under the SEC's Private Securities Litigation Reform Act of 1995. These forward-looking statements are not based on historical facts but rather on management's current expectations regarding Transition's future growth, results of operations, performance, future capital and other expenditures, competitive advantages, business prospects and opportunities.
Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. These risks are described in the company's annual information form and the company's annual report on SEC Form 20-F for the fiscal year ended June 30, 2013, and other SEDAR/SEC filings. Forward-looking statements are made as of the date of this conference call, and Transition assumes no obligation to update or revise them to reflect new events or circumstances.
[Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, September 11, 2013.
I would now like to turn conference call over to the host of today's call, Dr. Tony Cruz, Chairman and Chief Executive Officer of Transition. Please go ahead, sir.
Tony F. Cruz
Thank you. I am Tony Cruz, the Chairman and CEO of Transition. I'd like to welcome you to our conference call announcing Transition's fiscal 2013 year-end financial results. Nicole Rusaw, Transition's CFO, will begin by providing a summary of Transition's financial results for this past year. Then I'll provide a summary of our progress over the last year, particularly focusing on the last quarter. And finally, we will answer any questions that you may have. So I'll pass it over to Nicole now.
Nicole Rusaw-George
Thank you, Tony. I will start by providing an update on our cash position. At June 30, 2013, the company's cash, cash equivalents and short-term investments were $28.1 million compared to $19 million at June 30, 2012, resulting in an increase of $9.1 million. The company's working capital position increased $9.4 million from $16.1 million to $25.5 million at June 30, 2013. The increase in the company's cash, cash equivalents and short-term investments, as well as the increase in working capital, is primarily due to the $11 million milestone payment received from Elan upon commencement of the Bipolar Disorder trial in August 2012, as well as a $7 million milestone payment received in June from Lilly when Lilly exercised their option to assume all development and commercialization rights to type 2 diabetes drug candidate TT-401.
The increase in cash has been offset by the company's fiscal 2013 cash burn of approximately $9 million. Subsequent to year end, we announced the issuance of approximately 2.6 million units in a private placement, which resulted in gross proceeds of USD 11 million. In light of the private placement, the company currently has approximately $36 million in cash. Management projections indicate that the current cash resources should enable the company to execute its core business plan and meet its projected cash requirements well beyond the next 12 months.
I will now discuss significant variances in the results of operations from June 30, 2013, compared to June 30, 2012. During the year ended June 30, 2013, the company recorded net income of $23,000 or $0.00 income per common share compared to net loss of $12.3 million or $0.48 loss per common share for the year ended June 30, 2012. In fiscal 2013, the company recognized revenue of $17.9 million, which is comprised of the $11 million payment received from Elan and the $7 million payment received from Lilly. Revenue was 0 for the comparative period ended June 30, 2012.
R&D expenses increased $664,000 or 8% from $8.2 million for the fiscal year ended June 30, 2012, to $8.9 million for the fiscal year ended June 30, 2013. The increase in R&D expenses is primarily due to an increase in clinical development costs related to TT-401/402, which has been partially offset by a decrease in TT-301/302 clinical development costs.
G&A expenses decreased $849,000 or 19% from $4.4 million for the fiscal year ended June 30, 2012, to $3.6 million for the fiscal year ended June 30, 2013. The decrease in G&A during fiscal 2013 is due to decreases in legal consulting fees and business development expenses, as well as decreased salaries and related costs. The decrease has been partially offset by increased investor relation expenses.
During the fourth quarter of fiscal 2013, the company decided to no longer develop TT-301 and 302, the compound acquired from NeuroMedix. Accordingly, the company has recognized the impairment of intangible assets of $6.5 million for the year ended June 30, 2013. There was no impairment of intangible assets recognized during the comparative period.
That concludes the financial review for fiscal 2013. Tony?
Tony F. Cruz
Okay, thanks, Nicole. So I'll give a brief update. In the past quarter -- and I'll try to focus on the past quarter. This was highlighted by, again, the progress of development of our leading diabetes drug candidate, TT-401, that is now partnered with Eli Lilly and also the continuation in the advancement of our 2 -- our leading CNS drug, D5, which is currently in two 400-patient trials in Bipolar and also in agitation/aggression in moderate to severe Alzheimer's disease. And these studies are being performed by our licensing partner, Elan Pharmaceuticals.
I'd like to now first focus on our diabetes program, TT-401, which we have now licensed with a partnership with Eli Lilly. It's been an exciting and productive 6 months for this program and also for Transition. First, we completed our proof-of-concept trial with TT-401 in obese diabetics and obese patients and press released the top line data. TT-401, just to remind people, is a dual agonist with activity of the GLP-1 and the second target for the treatment of type 2 diabetes. This study enrolled 5 cohorts of obese diabetic subjects to evaluate 5 dosing levels. Each cohort received once weekly treatment with TT-401 or placebo for 5 weeks.
We were very pleased with the data and observed the following key findings that were important in Lilly's decision. One was that the 3 highest doses in all dose groups were considered tolerable and well tolerated. The 3 highest dose groups showed significant reduction in fasting blood glucose relative to placebo. And there was also significant body weight reduction from the baseline of the 3 highest dose groups. And a similar reduction in body weight was observed in non-diabetic obese subjects.
As I mentioned, it was -- had an acceptable safety and tolerability profile. The major common adverse event was a decrease in appetite. And so based on these findings that Lilly found to meet all their criteria for advancing the program to the next stage of development. We're part of the decision making for Lilly to take on the program back in-house.
In parallel, we also completed the Phase II enabling nonclinical studies, which also met all our expectations. And therefore, this also played a role in Lilly's decision. So taking everything combined, the proof-of-concept data and the supporting nonclinical data demonstrated that TT-401 could have broader therapeutic benefits for type 2 diabetes and provide a swift -- a pretty good path or a clear path to a larger Phase II efficacy study that will be performed by Lilly, where we will also be participating.
So Lilly reviewed the data, not only proof-of-concept data but the manufacturing and nonclinical data. And based on this review, Lilly made the decision to exercise the option to take the technology in-house and continue its development going forward. As per our agreement, Transition received a $7 million milestone. And based on our agreement going forward, Lilly will assume all costs and be responsible for future clinical development and commercialization. Transition will participate in the Phase II study by committing $14 million in funding during the 2014 calendar year. It's also based on patients being enrolled.
In return, Transition was able to increase its economics where now Transition will receive up to $240 million in milestone payments, double-digit royalties and potentially low single-digit royalties on future related molecules that may be developed by Lilly. Since this deal was finalized, Lilly has taken this technology in-house and began preparation for a Phase II study. We feel that TT-401 is a very exciting GLP-1 dual agonist with the potential to provide superior glucose control and weight loss for the treatment of type 2 diabetes.
Subsequent to the news that Lilly was exercising TT-401, Transition announced the exclusive licensing of world rights to a novel small molecule transcription regulator, TT-601, from Lilly for the treatment of osteoarthritic pain. This is a selective and potent inhibitor of a novel nuclear receptor target that modulates inflammatory pathways that may be involved in pain or that is thought to be involved in pain.
This molecule is targeted to treat patients who do not respond to NSAIDs or cannot take NSAIDs due to potential additional GI risks. We anticipate that TT-601 will enter Phase I studies in the first half of 2014. And similar to our previous deal with Lilly, following a proof-of-concept trial, Lilly will have the option to acquire the technology and continue its development. If this was to occur at that time, Transition will receive a $6 million milestone and up to $140 million in milestones and a high single-digit royalty. So obviously, as part of our strategic moving forward is to bring in those molecules, move them forward and continue to find either the partner that we -- where we got the molecule or someone else to continue with further development and pay for those costs going forward.
I would like to talk about advances in the development of the D5 program for the treatment of Alzheimer's disease and also its other applications in neuropsychiatric indications. Our partner, Elan, has, as I mentioned, two 400-patient studies ongoing with enrollment in North America and Europe. One is investigating the effects of D5 for the treatment of agitation/aggression in moderate to severe Alzheimer's patients, and the other is for the treatment of mood changes in Bipolar Disorder patients.
In addition, Elan just announced recently that it has initiated a small Phase IIa trial in Down Syndrome. This new development would suggest not only Elan's commitment to this technology but also its potential application across a number of different disease -- D5's application across a number of different disease indications.
Agitation and aggression in Alzheimer's patients is considered a major problem for caregivers and a very high cost to health care system. It is the major reason why AD patients are institutionalized. The 400-patient agitation/aggression trial is placebo-controlled safety and efficacy study with the primary endpoints being severity of aggression following a 12-week treatment with D5. Although we don't have specific dates from Elan, we do expect that this trial will be completed sometime during 2014.
Bipolar is also a significant mental illness and affects nearly 3.5 million people in the U.S. and Europe. The 400-patient trial is also a placebo-controlled efficacy trial involving treatment with D5 for up to 48 weeks or time to a first mood episode during that period of treatment. According to clinicaltrials.gov, we do expect that this trial will be completed around the end of 2014, but we do not have specific dates from Elan as well. These trials represent a major commitment by Elan, and if any of them were to be successful, which we hope they will, it would be a transforming milestone for Transition.
Finally, as you all may know, Elan will be acquired by Perrigo, or at least one expects to be -- that to occur over the next little while. From the comments by Perrigo's CEO, as well as the increasing ongoing activities on D5 by Elan, we believe that Perrigo is fully committed to continue the development of D5 that I described above.
So we have a lot of things going in the company, and we continue to build our pipeline, and we expect to actually build our pipeline further over the next 6 to 12 months. So in order to strengthen our cash position, Transition recently raised $11 million with the potential to bring that up to $21 million over the next 2 years. This financing was performed at a premium to market, and it was done mostly with our leading shareholders, Jack Schuler, Larry Feinberg and Oracle, as well as participation by some of our management and Board of Directors. As of today, Nicole indicated that there's $36 million in cash. Based on the company's projected burn rate of $8 million to $10 million per year, we are in a good cash position to fund the development of our existing programs and perhaps even bring in an additional program.
So we would like now to answer any of your questions that you may have, and thank you very much.
Question-and-Answer Session
Operator
[Operator Instructions] And Doctor, there are no questions in queue at present time. [Operator Instructions] And Doctor, there are no questions in queue at present time. I'll turn the conference back to yourself -- oh, one moment, please. I believe we are getting our first question queued up. It comes from the line of Dan Trang, Stonegate Securities.
Dan Trang - Stonegate Securities Inc., Research Division
Kind of wondering if you could provide some color in regards to any other indications you might be exploring for the -- with the partnership with Eli Lilly?
Tony F. Cruz
Is this related to TT-401 or TT-601?
Dan Trang - Stonegate Securities Inc., Research Division
Yes, TT-401.
Tony F. Cruz
TT-401, sorry?
Dan Trang - Stonegate Securities Inc., Research Division
Yes, TT-401.
Tony F. Cruz
Yes, TT-401. Well, Lilly just took the molecule in-house, and so the process has already occurred of transferring the technology over. Going forward, the next plan is to initiate or plan to initiate a Phase II trial. And Lilly is now taking over that process of organizing both manufacturing the product and initiation of the Phase II. We are going to be participating with them with our contribution of $14 million, and Lilly will be responsible for all additional costs and any additional activities apart from the Phase II that are ongoing during this time. The -- we expect at some point that Lilly will have some -- an idea of how this program is going to be moving, and we will be finding out more from Lilly as time goes on. But at this time, it's still a little bit too early to know exactly when they're going to initiate the study.
Dan Trang - Stonegate Securities Inc., Research Division
Okay. And a follow-up question regarding product pipeline. Can you provide any color in regards to anything you're working on currently, any other compounds or...
Tony F. Cruz
Well, we just brought in TT-601 from Lilly under a similar format or a similar platform where we would take this molecule from the lead molecule to proof of concept. That molecule is for osteoarthritic pain. We have the tox data that's ready, 1 month tox data that will allow us to do Phase I study. So we're basically manufacturing the compound, looking at stability formulation, and we expect to have an IND submitted sometime in February, March. And we expect that, that program could move into the clinic sometime around April, May at the latest, around that time. So our focus really is on that molecule, to take it forward as quickly as possible. As part of that development plan, we'd like to really investigate the molecule's therapeutic window, and so we are doing additional work on it's tox, longer-term tox, so that we can better understand the therapeutic window, and that's ongoing. So our focus is really in that molecule. In addition to that, the company does plan to increase its pipeline over the next 6 months and maybe 12 months. And so our -- a lot of our work right now is to look at potential leading molecules that we can get our hands on from Big Pharma to see if we can find ones that meet our criteria to move forward and then get into some sort of agreement and move those molecules forward. So that's our next goal.
Dan Trang - Stonegate Securities Inc., Research Division
Okay. And is there any type of ideal as far as mix of molecules, I mean, number-wise, I mean, that you can put out there or...
Tony F. Cruz
Well, there's certain criteria that we use. One is that it has to have the sound science. It has to have the therapeutic window. In other words, the tox profile has to look appropriate for the disease indication, at least that's available at the time of licensing it in. Thirdly, it also has to have an indication where you think that molecule has a position in the marketplace. Once you get proof-of-concept data, people would -- or whoever would partner that from us would believe that they could take it forward and be reimbursed at some point because there's a major medical need that isn't currently provided with the drug. And finally, it has to ensure that we can reach that proof-of-concept study perhaps in no more than, say, $6 million to $10 million. And so there are -- there is a series of criteria that we use to try and select these molecules because we still are under constriction in terms of how much we can spend on any of these molecules before it becomes unacceptable to us. So those are the main criteria that we use. But in terms of disease indication, it applies to a lot of disease indications. Perhaps the only one that we have not looked at when we go through these molecules that are provided to us by other companies is cancer just because there is a uniqueness there. But other than that, we pretty well look at most molecules and see if we can find a way to move them forward.
Operator
[Operator Instructions] Our next question comes from the line of Philippa Flint with Bloom Burton.
Philippa Flint - Bloom Burton & Co., Research Division
Just following up on your conversation with the previous caller. You talked about your plans for 601 and additional work you want to do to explore the therapeutic window. Are those -- is that working in partnership with Lilly? Do you have a team where you work on what's the best strategy to develop it or are you doing it by yourself?
Tony F. Cruz
Well, the work we have -- when we license these molecules, we have the final say in what we do. We can also add additional work that we want to do. In other words, we control development during the period that we have this molecule with -- but we do have to achieve what we've put down contractually at the end of the day so that Lilly can have that data to analyze at that time. But we tend to do more than is down contractually just because we feel that it's in both of our best interests to have more data to be able to derisk the molecule when you get to decision time at proof-of-concept data. So part of our derisking of this program is to really add additional data. And we think it's -- it allows 2 things. One is it allows us to feel more secure as we spend more money as we move this program forward and we get into preclinical -- into clinical studies, which are more expensive, particularly the proof-of-concept studies. So the more data we have, the more secure we feel that it's worthwhile moving into those studies. The second is when we do provide that data, if there's additional data available on tox, longer-term data, it also feels like our partner has a better decision-making ability at that time to decide what is the risk of the molecule. So it acts -- and finally, the final thing that it does is by doing these additional studies, which we do, it also allows us to very quickly move forward into Phase IIs or Phase IIbs once the proof of concept or Phase IIas are done, so there's no delay time. So it's to our advantage. It doesn't cost a lot, and so we try to add as much derisking to the program as possible as we go along, which I believe as to the process at the end to make those decisions that are necessary, either for us to spend money or for our partners to invest into this program and take it over.
Operator
And Doctor, there are no further questions at present time. I'll turn the call back to you. Please continue with your presentation or closing remarks.
Tony F. Cruz
Okay, well, thanks, everyone, for attending the conference call. And if you have any questions, please, you can contact either Nicole or myself, and we'll get back to you. Thanks very much, everyone.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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