16:30: Cerulean Pharma Inc. (CERU) Q3 2014 Earnings Conference Call November 13, 2014 4:30 PM ET

Paul A. Friedman - Executive Chairman Alejandra Veronica Carvajal - Vice President, General Counsel Christopher D. T. Guiffre - Principal Executive Officer, Chief Operating Officer

Michael Schmidt - Leerink Partners LLC Michael G. King - JMP Securities John Newman - Canaccord Genuity Inc.

Good afternoon, and welcome to the Cerulean Third Quarter 2014 Conference Call. This call is being recorded. My name is Sayed, and I will be your operator today. With us today from the Company is Paul Friedman, Executive Chairman; Chris Guiffre, Chief Operating Officer; and Alejandra Carvajal, Vice President and General Counsel. Now I’d like to turn the call over to the Cerulean team. Dr. Friedman, please proceed.

Thank you, Sayed. Good afternoon, everybody, and thank you for joining Alejandra, Chris, and me for this call. Today I'm going to update you on activities in the third quarter, and then Chris will provide an update on the team and a brief financial update. Finally, we will answer your questions as best we can. Before we begin, I'll ask Alejandra to comment on forward-looking statements that may be made during this call. Alejandra?

Thanks, Paul. Certain remarks that we make during this call about the Company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors, including those discussed in the Risk Factors section of our most recent Quarterly Report on Form 10-Q, which is on file with the SEC, and can be accessed on our website. In addition, any forward-looking statements represent our views only as of today, and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. Back to you, Paul.

Thank you, Alejandra. So the first candidate from the Cerulean Dynamic Tumor Targeting platform, CRLX101, is a nanoparticle drug conjugate, or NDC, with a camptothecin payload. It has shown activity in multiple tumor types, both as monotherapy and in combination with other cancer treatments. It's been tolerated to date in more than 250 patients. It's differentiated by its durable inhibition of two important cancer targets, Topoisomerase I, or Topo I, and Hypoxia-inducible Factor I Alpha, or HIF-1 Alpha. CRLX101 is being studied in three tumor types in combination with other cancer treatments. We're conducting one randomized trial ourselves, and we're working with leading investigators on three single-arm investigator-sponsored trials, or ISTs. The ISTs are designed to confirm combinability of 101 with other cancer treatments in humans, and to detect objective signals of activity – that is objective response rates, pCR, and pathologic complete response, or pCR. I will come back to those later in the script. We call these single-arm studies clinical proof of principle trials. The first of these ISTs provided clinical proof of principle trials. The first of these ISTs provided clinical proof of principle in relapsed renal cell carcinoma, or RCC, allowing us to confidently launch a randomized Phase II trial in RCC in August. The second and third of these trials should allow us to make similar go, no-go decisions in relapsed ovarian cancer and non-metastatic rectal cancer in the first quarter of 2015. The lead indication for CRLX101, third and fourth-line RCC, is an area of high unmet need. Two classes of drugs are used to treat RCC – the tyrosine-kinase inhibitors, or TKIs, and mTOR inhibitors. RCC patients are often given a TKI in first line, and a second TKI or an mTOR inhibitor in second line. By the time patients progress to third…

Thanks, Paul. Cerulean is making great progress. We have a clinically validated platform that's proving itself to be a product engine. We have a lead product from that platform that is showing activity in three important indications. We have a second platform-generated candidate that stands at the threshold of entering the clinic. To capitalize on this significant opportunity, we need to invest in building a very strong team. Let me take just a few minutes to tell you about our team-building in 2014. Just before our IPO, we added three experienced public company Directors to our Board, who all have strong records as company builders and value creators. Paul Friedman is the former CEO of Incyte; Bill McKee is the former CFO of Barr; and Bill Rastetter is the former CEO of Idec. Paul has stepped up to assume the role of Executive Chairman here at Cerulean, and the value of his experience building a $10-billion oncology company cannot be overstated as we think about capitalizing on the multi-product opportunity here at Cerulean. Then in the last few weeks we announced the addition of two members to the Management team, and two important additions to our Board. Alejandra Carvajal, who is here with me on this call, is our General Counsel, and she brings significant experience, including her time at Millennia. Pam Strode is our VP of Regulatory Affairs and she brings a wealth of experience from her tenure at BI and BMS. Susan Kelley recently joined our Board, and she brings deep oncology drug development experience from her time at Bayer, and at the Multiple Myeloma Research Consortium, and Multiple Myeloma Research Foundation. And finally David Parkinson also recently joined our Board. His extensive oncology drug development experience at Biogen, Amgen, and Novartis, and the experience he brings from…

Thank you. [Operator Instructions] And our first question comes from Michael Schmidt from Leerink. Your line is open. Please go ahead.

Hi, thanks for taking my questions. Paul, I had one question. It seems like you've taken a more active role in managing the Company right now in this transition period. Are there any major changes to the strategy compared to the prior CEO's agenda?

No. I want to preface answering any questions by saying I have stepped up in this role, which I'm assuming will be interim until we get a replacement for Oliver Fetzer. And I'm coming up to speed as quickly as I can. I'll try to answer whatever questions I can. But Chris may have to handle the bulk of the questions because I don't want to answer a question where I don't think I've had time to really digest all the material. But what I can say is that we haven't changed anything. The plan remains exactly as it was. The strategy remains exactly as it was. And I think we're all pretty excited and looking forward to the data that's going to come out of the IST trials in ovarian and rectal, and in the randomized trial for RCC. Conceptually, this mechanism, I think, is a very interesting one in that it doesn't depend on like a specific protein being expressed on a cell, which can be down-regulated. It's more a physicochemical phenomenon, which is pretty much why I joined the Board in the first place. I still am very optimistic about these studies, and we haven't changed a thing.

Yes. I may have missed this during your prior remarks, but how many patients worth of data will you release in the first quarter next year in the ovarian and in the rectal cancer study? And what was, again, the response rate that you're looking for, for a go decision in either one of the two trials?

So we believe – I think we're pretty sure that the number of patients on which we would base our decision, even though we would continue to recruit into those studies in parallel while we were going ahead with a go decision to set up a randomized trial, would be on the same order as what we made the decision on for RCC. We're in 10, 11,12 in that range.

Yes.

We’re looking for 20% response rate in ovarian and a 30% with respect to pCR in non-metastatic rectal.

Okay, and last question. Are there other indications, other solid tumor indications, where Avastin alone doesn't seem to have the [indiscernible] effects, for instance in breast cancer. I was wondering whether you envision other indications in the future that might be amenable to CRLX101 plus Avastin combinations and what your thoughts are on that topic?

I think that's a pretty open-ended possibility. There are multiple tumor types where you could conceive of doing this. I think one of the limitations for Avastin is it upregulates HIF-1 alpha. It's a good agent, but that's what happens with these angiogenic agents. I think that's the beauty of the combination, and it could be applicable for a variety of other solid tumors. Chris you may want to comment further on that.

Sure. Yes, Michael, you're exactly right. There's a long list of indications that we've considered. We obviously haven't moved on any one of them because we have our hands quite full running three tumor types in our first drug and then putting the second candidate into the clinic. But there is a long list of possible combinations that are based on the VEGF-HIF combo, but there are actually other combos, as well. You're probably aware of potential syngeries with topo 1 inhibitors and other drugs. So we haven't really talked publicly about where we're going because we haven't made any final decisions. We don't like to talk about speculation. But our challenge is to narrow down the list to whatever the next one will be. It's not to find the next one.

Yes, and I may have missed that, too. Are you still enrolling patients in the single-arm renal cancer study, or are you finished after the 11 patients now?

No, we are still enrolling – we're not, but Steve Keefe is at Penn. The feedback we've gotten is that the results continue to look very promising. And he will be reporting on a complete set, I'm told, or he's planning to at ASCO.

Correct. Dr. Keefe's intention is to submit the final data to ASCO and present in June.

Okay, thank you, so much.

Thank you, Michael.

Thank you. Our next question comes from Mike King from JMP Securities. Your line is open, please go ahead.

Thanks for taking the question guys. Just a real quick question on Avastin in renal. Can you remind us what proportion of patients are seeing Avastin in the RCC setting? I saw something at ASCO GU last year, I want to say. It was something in the single-digits sort of second and third line. I just don't know if you've got any updated market share information on that.

Michael, I don't have a specific for you; but the data that you saw is accurate to our knowledge. Avastin is approved in RCC as you know, which is why it's reimbursed in both the IST and the randomized trial. But it is not heavily used any with the introduction of the various TKIs – and there are a bunch of them – which are oral and easier to take. Avastin is just not commonly used. If you ask me to answer the question I'd say single digits. But I can't be any more definitive for you right now.

Okay. Maybe to follow-up on the previous question about ISTs and your comment, Chris, about trying to narrow the focus rather than expand. It seems like it's possible to do other ISTs, where you could be combining with the TKIs, whether it be Sutent or Inlyta or Nexavar, and other VEGF-targeted therapies. I'm just wondering what your strategic thoughts are on studies of that nature.

Yes, we completely agree that Avastin is not the only VEGF inhibitor with which we can be synergistic. In fact, we presented data publicly from animal models showing that we've done it with more than just Avastin. So yes, any of the TKIs theoretically is a potential opportunity combined. But as I said in response to Michael's question, there are actually possible combinations here well beyond just VEGF-HIF combo. And so our challenge, again, is really to find the financial and human resources to allow us to continue to explore the broad field, while focusing our efforts on execution so we can deliver on our promises.

Great. Execute away.

We're trying. Thank you.

All right. Good bye.

Thanks Michael.

Thank you. Our next question comes from John Newman from Canaccord. Your line is open. Please go ahead.

Yes, I had a follow-up question on the data that you discussed regarding the rectal study. I think you said that you'd seen one pCR, as well as two patients, that showed decreased tumor burden. Just wanted to confirm that was at the current dose rather than the 150, or was that at 150 and you're dosing at a higher dose?

The MTD for the drug is 15 mg/m2.

Okay.

Okay. The first cohort was done at one dose lower than the MTD. It was done at 12 mg/m2. That's where there are pCR read-outs on the three patients who received 12 mg/m2. So a dose that's lower than the MTD. And it was very well tolerated in combination with chemoradiotherapy. And it gave what I think are really encouraging results There was one pCR; and of the three people the other two had marked reduction in tumor size with only minimal residual disease. Now the second court is being looked at and that is at the MTD of 15 mg/m2 and to date that has been very well tolerated in combination with chemoradiotherapy. And I think that's important. I mean I know everyone wants to see efficacy, and of course we do as well. But part of our story is that we really believe in the potential of combinations and in particular the potential of combining other cancer treatments with 101. So we’ve done a lot of studies in animals, of course. But really, the RCC trial was somewhat groundbreaking because it was the first time we had combined 101 with another cancer treatment in human beings. And we were very pleased to see that Avastin and 101 combined well in human patients. And therefore, we're running trials in both ovarian and RCC using that combination. But if you think about it, when we stepped into this arena in non-metastatic rectal cancer, this is the first time we tried a triple therapy. And we're trying 101 in combination with another chemotherapy and radiation. So that is a pretty high burden for patients to tolerate to begin with, the standard of care, which people refer to as chemoradiotherapy. To layer on 101 on top of that was a bit of an uncertain proposition. And those who know this space well know that people have tried to combine chemoradiotherapy with another topo 1 inhibitor, irinotecan. And that was clinically infeasible because of irinotecan's toxicities. So here, what we were hoping to find out is that our molecule would be better tolerated in combination with the standard of care than irinotecan. And what we've seen now at the starting dose no problem and at the full dose, so far, no problem. So that's important to us generally as we think about combining this drug with other drugs. But in this indication, gives us great optimism that we are going to be able to explore the boundaries of driving up pCR rates with a better-tolerated topo 1 inhibitor that also serves as a durable HIF inhibitor.

Okay, and also, can you comment on what you think the FDA's attitude towards use of this drug in the neoadjuvent rectal might be. Since if the drug is successful, you're potentially looking at a cure for patients rather than a metastatic setting, where you can help patients out with a couple months of survival maybe, but you're not going to cure them.

Sure. Well, so what I can tell you right up front is we cannot guarantee that the FDA will accept pCR as a surrogate end point in this setting. There is no guidance on that to date. What we can tell you, however, is that there is guidance that was issued by the FDA about using pCR in the neoadjuvant breast setting. And we can also tell you that one drug has received an approval based on that guidance, Perjeta. And so we understand that the policy decision behind that was to encourage drug developers to explore and study drugs in the neoadjuvant setting. A, because that's good for patients and, B, because that's good for society. It's hard to encourage it’s hard to get a drug companies to invest in studying that patient population if they have to run very expensive and very long to these three survival-based trials. So we believe the policy argument that led to the guidance in neoadjuvant breast and that led to the Perjeta approval applies here as well. But unless and until the FDA approves our drug based on our pCR data, there can be no assurance that that will be the case. We just think we have good arguments.

Great. One question about the work that you're doing in ovarian in combination with Avastin. Do you think that if Avastin does not get approved in the United States that going forward, Genentech might be willing to put more resources behind your studies. Because they know that there's a certain dose level that you can't go above for Avastin in ovarian to be safe, and that your combination could effectively give you the efficacy that they can't get because of dosing?

Yes, it's hard to predict what Genentech will do based on many discussions I've had with them on other programs over the years. But that would be a very rational position to take, in the event that they don't get approval. I don't know what you would want to say.

Again, I will echo. I never want to be in the position of commenting on what other companies are going to do. I also will point that there is no contract between Genentech and Cerulean. We've given no rights to Genentech, nor have they given us anything other than providing the drug. There is no formal plan between the two companies that I could comment on. What I can comment on is that if the drug is not approved in Avastin, I think it does two things. One, it makes sure there's a wide open field for us as we move forward. Number two, it illustrates that both the FDA and Genentech agree with us that there is a significant unmet need in second and third line Avastin. And we could pursue that opportunity. Of course, if they're approved, as you point out, there are other opportunities because Avastin is not used in later lines. But we're only a week or so away from that decision and so I think speculating any further now is not good practice. We'll wait and see what the results are, and then we'll read and react. And that will be factored into our go/no-go decisions in the first quarter.

Okay, great thanks, guys.

Thank you. This does conclude our question-and-answer session for today. I would like to turn the call over to Dr. Friedman to conclude the call.

Thank you, Sayed. And thank you all for dialing in and listening and interacting with us and we’re looking forward to reporting on our continued progress next quarter. Good night everyone.

Thank you for attending the Cerulean third-quarter conference call. You may now disconnect.