Theriva Biologics, Inc. (TOVX) Q1 2014 Earnings Report, Transcript and Summary

Good morning and welcome to Synthetic Biologics First Quarter 2014 Investor Conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. At this time, I would like to turn the call over to Kris Maly, Vice President, Corporate Communications at Synthetic Biologics. Kris?

Thank you Betty, and good morning everyone. Welcome to Synthetic Biologics’ First Quarter 2014 Investor Conference call. Today I’m joined by our CEO, Jeff Riley, and our CFO, Evan Ballantyne. Pre-market this morning, Synthetic Biologics issued a press release reporting its first quarter 2014 financials and summarizing recent operational highlights. That release can be found on the Investors section of our website. During our call today, Jeff will begin with an overview of our business objectives and review the recent Phase II data from our MS program. Evan will then provide a brief overview of our financials for the three months ended March 31, 2014. Jeff will conclude our prepared remarks with a progress update on our anti-infective programs and on the advances we are making toward our upcoming milestones. After the formal portion of the call, we will offer an opportunity for Q&A. In addition to the phone line today, this call is being streamed live over the internet and the webcast replay will be archived on our website for 30 days. During the call, we will be making forward-looking statements regarding Synthetic Biologics current expectations and projections about future events. Generally, the forward-looking statements can be identified by terminology such as may, should, expects, anticipates, intends, plans, believes, and estimates, and similar expressions. These statements are based upon current beliefs and expectations and assumptions and are subject to a number of risks and uncertainties, including those set forth in Synthetic Biologics filings with the SEC, many of which are difficult to predict. No forward-looking statements can be guaranteed and actual results may differ materially from such statements. This information in this call is provided only as of the date of the call, and Synthetic Biologics undertakes no obligation to update any forward-looking statements contained on this call on account of new information, future events or otherwise, except as required by law. With that, I’d like to turn the call over to Jeff.

Thanks Kris, and good morning everyone. Since the beginning of the year, we have continued to achieve milestones and advance Synthetic Biologics programs. We remain focused on developing our core pipeline of novel anti-infectives and we are committed to executing our aggressive R&D strategy. We are proud to say that after two years of working to build a world-class organization at Synthetic Biologics, we are now on the doorstep of advancing some of the most innovative anti-infective programs into the clinic. These include our C. diff, our constipation form of IBS, and pertussis programs, each of which we believe represent multi-billion dollar opportunities for the company. I’d like to thank our long-term investors for supporting us along the way. We also believe we have added significant value to Synthetic Biologics by successfully demonstrating the therapeutic potential of oral estriol in the Phase II exploratory trial. Our goal continues to be entering into a strategic partnership for this program. We are in active business development discussions with potential partners at this time and I will discuss how the recent positive data support our efforts to monetize this asset. Given the market’s reaction to the Phase II MS data, it seems there may be some lingering confusion about the findings of the study that could be impacting the value of our stock. While Synthetic Biologics is focused on building shareholder value by advancing our pipeline, we are also committed to protecting shareholder value, which is why I want to discuss the Trimesta data at the onset of this call. To quickly summarize recent events, the study’s lead investigator, Dr. Rhonda Voskuhl from UCLA, presented positive top-line efficacy and safety results from the Phase II trial evaluating adjunctive Trimesta in women with relapsed remitting MS, the most common form of MS, at the…

Jeff – thanks, and thanks everybody for attending the call today. Synthetic Biologics’ first quarter 2014 financials were included in a press release which was distributed over the newswire earlier this morning. The company’s March 31, 2014 10-Q will be filed with the SEC later this afternoon. For both the three months ended March 31, 2014 and March 31, 2013, our general and administrative expenses were $1.1 million. Included in these numbers were non-cash charge related to stock-based compensation of $255,000 for the three months ended March 31, 2014 compared to $353,000 for the same period a year ago in 2013. Research and development expenses increased to $2.7 million for the three months ended March 31, 2014 compared to $1.1 million for the same period in 2013. The increase of 143% is primarily the result of increased program costs associated with expanded research, development and manufacturing activities within our anti-infective pipeline, including our C. diff, CIBS and pertussis programs. Non-cash charges related to stock-based compensation were $107,000 for the three months ended March 31, 2014 compared to $104,000 for the same period a year ago. I’d like to add that our Phase II MS trial evaluating Synthetic’s oral estriol drug candidate, Trimesta, which Dr. Voskuhl from UCLA recently reported positive top line data, is being conducted under an investigator-initiated IND and is funded by $8 million in grants received from the MS Society and the NIH. I was extremely pleased with the investigator-initiated Phase II MS trial results. These results will allow the company to pursue potential partnering opportunities or to move forward into Phase III trials with potential collaborators. In my opinion, that is the definition of a successful trial. Also, our pertussis and acinetobacter monoclonal antibody development programs are being funded from a prepaid account established with Intrexon Corporation in 2012. Cash and cash equivalents as of March 31, 2014 were $11.2 million compared to $14.6 million as of December 31, 2013. As CFO of Synthetic Biologics and in my previous position as CFO of Clinical Data, which coincidentally was acquired by Forest Labs for $1.3 billion, I have had the privilege of working with some very novel drug candidates which have the potential to have an impact on human health. To conclude my part of this discussion is, as Jeff said, we believe that our C. diff and CIBS programs represent multi-billion dollar program opportunities for Synthetic Biologics. These clinical programs are amongst the most impressive opportunities I have ever seen, and I am extremely excited by the company’s near and longer term prospects. At this time, I’ll turn the call back to Jeff for our overview of our core products.

Thanks Evan – couldn’t agree more with your assessment. In fact, it’s my hope that the details I’m about to review will further support the assessment and spread management’s excitement to our shareholders and other listeners on the call this morning. Our promising portfolio of novel anti-infective candidates continues to represent our core focus and the primary mid to long-term growth drivers for Synthetic Biologics business. As noted earlier, we have been extremely successful in building a robust pipeline over the last two years of truly innovative biologic and drug candidates, each designed to address specific high needs serious infections and diseases. We continue to operate at the forefront of today’s research by employing novel approaches and technologies to target specific pathogens such as Clostridium difficile, methanogens, pertussis and acinetobacter. Our plan is to remain aggressive in terms of preclinical and clinical R&D, leveraging the strength and commitment of our academic and corporate collaborators. Through these efforts, I’m proud to say that we have continued to make important strides and we are on track to complete our ambitious goal of moving three of our novel anti-infective development programs into the clinic over the next 12 months. I’d like to begin with an overview of our Clostridium difficile project. Synthetic Biologics’ second generation oral enzyme therapy, SYN-004, is designed to protect the normal gastrointestinal microflora or microbiome from the unintended effects of IV antibiotics and potentially preventing the devastating effects of hospital-acquired C. diff. C. diff is a multi drug-resistant bacterium that has surpassed MRSA as the number one hospital acquired infection in the United States. In fact, in 2013 the CDC identified C. diff as an urgent public health threat, particularly given its resistance to many drugs used to treat other infections. As media coverage increases regarding the devastating effects…

Thank you, Jeff. We’d now like to open the lines to questions. Betty, would you please describe the procedure to ask questions for our listeners?

[Operator instructions] Our first question comes from Jason Kolbert of Maxim. Please go ahead, sir. Jason Kolbert – Maxim: Good morning, Jeff. Thanks for the overview – I really appreciate it. Just a couple of questions. First of all on estriol, is it my understanding now that the search would be on for a partner and it would only be with a partner that you would move to the next phase of clinical development, and what would that next phase look like?

Hi Jason, glad to have you on the call this morning. The current thought is that we are in multiple partnering discussions at the moment. We are looking for somebody that can either move it forward together with us in unison or that will move it in collaboration into the Phase III trials. There were some incredibly interesting results that came out of this trial, in particular in the cognition piece. We currently have an ongoing Phase II enrollment study going for cognition specifically, and some of the discussions are around do we expand that current—the existing clinical trial in cognition, and what would it look like if we go into a Phase III trial specifically for relapse and remitting. We did have a discussion with the FDA late last year and we do have guidance on what that parallel Phase III, those two pivotals would look like. That’s about all I can say at this time, but it’s fairly well defined what we would need to do. Jason Kolbert – Maxim: Okay, well what I hear you saying, though, is that cognition may become one of the endpoints that you’ll be looking at, and that would be new and novel in the world of MS.

That’s correct. I mean, there are no other drugs out there today that have a label for cognition specifically; and Dr. Voskuhl, as I said, in her quote seems to believe that it may actually work for other central nervous system disorders, not just MS alone. Jason Kolbert – Maxim: Thank you. Listen, I really appreciate the breakdown on the pertussis and the constipation the C. difficile programs. I think that’s really helpful. I just wonder if I could get you to expand a little bit on each of those programs on what the size of the Phase II trials might look like, and in terms of the endpoints both in pertussis and in the CIBS program. And on the CIBS program, given the fact that this is a chronic disease that’s occurred over a long period of time, how long will it take before you really would see symptomatic relief? And sorry – one more question, if you can keep this in your head. Since it’s 505b2 and there is an API that’s been used, people have been exposed to that, so is there a lot of historical data that suggests proof of concept is in hand already?

Okay, let me— Jason Kolbert – Maxim: Sorry – many questions.

No worries. Let’s start with C. diff. So the C. diff Phase Ia and Phase Ib are fairly quick. Obviously we’re looking at normal volunteers to begin with. That’s not a large number of folks that we need to dose. We have the CRO lined up – it’s all ready to go. The Phase Ib will be roughly the same size but will be inpatient specifically, so we’ll be looking at safety in the Phase Ia and safety plus efficacy in the Phase Ib. Again, not a huge number of patients – well under 50, probably, for each of those two. As you can imagine, it’s a fairly quick readout on these particular patients. Primary endpoint will likely be C. diff with a secondary being antibiotic-associated diarrhea, so fairly straightforward trial. The Phase II is a different beast. We need to be informed from the Phase I to figure out how large and how powered the Phase II should look like. We are in discussions with a variety of folks that are experts in this field, to include the CDC, to really determine what that would look like. Again, it’s a preventative approach, so it’s never been done; but it’s also point of care, so a patient would take one of our 50 milligram pills or two of our 50 milligram pills at the same time as they go into the hospital and get an IV antibiotic, and they would stay on those pills while they’re on the IV antibiotic and probably a couple days after they go home to make sure that that IV antibiotic is not doing damage in the intestinal tract. So that’s the C. diff program. Jason Kolbert – Maxim: So what I hear you saying is that by the second half of this year, we should have a little bit more clarity on just what the Phase II design and structure will be as you kind of start this—you know, look forward to prep that for first half 2015.

Absolutely, and what we didn’t—you know, we’ll obviously have a pre-IND meeting with the FDA as well to really discuss what that would look like, so towards the latter part of the third quarter or early fourth quarter, we should have a much more well delineated plan going forward on getting through proof of concept. Jason Kolbert – Maxim: Okay. Same type of question on pertussis and on constipation in terms of Phase II.

Okay, so pertussis is probably going to be in the market before all of our other drugs. It’s going to be fairly quick. The initial Phase I study is very easy – you know, it’s probably 10 to 15 normal volunteers. We’re going to inject the antibodies into them and see what happens. Typically there’s almost no effect safety-wise from an antibody, a monoclonal. We’ll then jump directly into the Phase II study. The Phase II study, at the moment we’re looking at a pediatric label for this product, so we’re going to be looking for infants that have pertussis that we’ll dose. We don’t think that we need more than 50 to 60 total to get all the way through the Phase II and the Phase III for that particular product. Again, we’re looking for efficacy and we’ll see that within the first few days, as well as safety; and again, if we see that we’ve not—you know, our first discussion with the regulatory folks seems to point that we may be able to get a compassionate use label for that drug, so we’re looking at next year, towards the latter part of next year when we’ll probably be into a Phase III and then driving forward that we may have a compassionate use designation before that. Again, there’s no drug, there’s no therapeutic available for these infants that get this condition. Where we’re going to do the trials is still open to question at this time. We’ll do the Phase I here in the United States, but there are other countries outside the United States that have significantly higher rates of pertussis and obviously recruitment becomes much easier in those countries. So that’s pertussis. Jason Kolbert – Maxim: Thank you, that’s really helpful. And constipation?

Last of the Mohicans. So the IBS program – again, the API itself, we can’t talk about it at this time, the reason being is we’re building additional—we end licensed 10-plus patents out of Cedars Sinai around this particular drug and treatment and use, and all of that. We just felt that, and our IP attorneys felt that we needed to build some more IP just to make sure, and that’s what we’re doing today. So we’re doing in vitro and in vivo work with a specific API. The drug itself for the other indication has been around for a long time – very effective, huge database of safety. We should have no issues. The differences are going to be in systemic exposure – again, we’re trying to keep the majority of our drugs, C. diff included, in the intestinal tract with no systemic exposure. That’s the goal. So that is really a unique way of attacking this problem and that’s what we’re doing today, as well as potentially longer lasting within the intestinal tract itself. So that’s the goal. Again, we’re treating the underlying cause of the disease. We’re not treating the symptoms of the disease, right? We’re trying to knock or prevent the methanogens, which are a form of archaea, which is a different tree of life, but we’re trying to inhibit those guys from making methane in the gut. Not killing them – just keeping them from interrupting that cycle. The other question you had is how long until we see results. You see results in the first few days. It’s very rapid. You remove the methane gas, you remove the problem that the patients are having. The patients would likely be on a once a day dosage of this pill for the rest of their lives. You take them off the pill, the methane gas comes back fairly quickly, so this would be a chronic treatment for the rest of their lives. Jason Kolbert – Maxim: Yes, terrific. Thank you for the comprehensive overview, Jeff. We’re excited by all the catalysts we see ahead. Thanks.

Thanks Jason.

Our next question comes from Keay Nakae from Ascendiant Capital. Please go ahead. Keay Nakae – Ascendiant Capital: Yes, good morning. Jeff, back to Trimesta. So I guess two questions – the first one is are we still looking at mid-2015 to get the top line results from the cognition study?

Answer is yes at this point in time, unless we increase the number of patients, which is under discussion at this time. Keay Nakae – Ascendiant Capital: Okay, and as you move Trimesta forward for MS, if you’re thinking about Phase III studies with cognition as the primary endpoint, it would seem like you’re going to need to or would want to wait until you see that top line data from the cognition study to be able to better inform any tweaks you might want to make to your Phase III study. So is that sort of the timing that one would be thinking about?

I would think so. I mean, it really is going to depend on the partner, Keay, to be honest with you. A couple of the partners are very focused on the cognition component and a couple are focused more on the relapse and remitting adjunctive therapy component, so I don’t have a clear answer for that. That will be driven by the guys with the deeper pockets, I think, and how fast they want to move it forward. Keay Nakae – Ascendiant Capital: Okay. Do you have a better sense at this time when you might be able to release more data analysis from the Phase II study?

Well, I think there’s two time points. One, we are tentatively planning an MS investor analyst day like we had last year sometime this summer, where we’ll bring Dr. Voskuhl to New York and we’ll answer any questions or she’ll answer any questions that we may have. The database itself was locked on March 15 so there was only roughly a month of data crunching that UCLA was able to do before Rhonda presented last month, so it’s been a fairly short period of time, which is why we keep saying top line results. Her intention continues to be to present again, I want to say either mid-September or mid-October at the next neurology conference, which is another big one; and that is where she was planning to present the deeper dive – you know, the abstract, all the bells and whistles that came with the program itself. We have not looked at what’s happened in the 18 to 25 versus the 25 to 50-year-old range. We’ve not looked at a lot of the cognition data up to this point. We’ve not looked at in detail a lot of the MRI data that was also part of the trial, so that is ongoing work that’s being done and funded by UCLA and by Synthetic Biologics. We hope to have a much better view, I think, when we have the investor day in the summer, but I think you’ll have the full-blown soup-to-nuts view in the September-October time frame at the next neurology conference. Keay Nakae – Ascendiant Capital: Okay, thanks. That’s all I have.

Thank you, Keay.

Again, if you have a question, please press star then one. Our next question comes from Keith Markey of Griffin Securities. Please go ahead. Keith Markey – Griffin Securities: Morning Jeff, morning Evan. A couple questions. A little bit more on the Trimesta MS cognition information. I was just wondering if you feel that the neuroprotection or neuroprotective properties of Trimesta might be identified through the MRI data on the grey matter.

That is absolutely correct. Keith Markey – Griffin Securities: Okay. Will that be more or less kept away from the public until Dr. Voskuhl makes her presentation at the neurology meeting?

That is correct. What was looked at was the white matter, so the data that was in the presentation was white matter only. We will be going back and looking now at all the grey matter over the next few months. We’ll probably under CDA show that to certain partners going forward, and then of course she’ll present it in a more academic fashion later this year. Keith Markey – Griffin Securities: Sure. Then I was just wondering about the cognition data, did she provide any information about how often the patients were tested for cognitive function during the trial?

She’s not released that information yet, no. Keith Markey – Griffin Securities: Yeah, okay. Secondly, I was just wondering – I understand that a former director sold stock in the company around the time of the Trimesta data being released. Can you address that and tell us whether or not—what the status of that investor’s present interest is in the company?

Sure, I think you’re referring to Steve Kanzer. Steve was the founder of this company back in the day it was called Pipex. He had roughly 7 million shares up until recently. He resigned his position in the company on February 26 of this year, and he reported to the SEC sales of approximately 5 million shares on April 29, April 30, right in that time frame. So like a lot of the folks on this call, he’s now just a private investor and he’s not privy to any of our ongoing—since February, he’s not been privy to any of our internal management discussions. He’s under 5% and not required to report any future sales going forward. Keith Markey – Griffin Securities: Right, okay. Thanks. One final question about the CIBS program. Do you have a sense at this point of how large that trial might have to be, and whether or not you would have to have rather a prolonged clinical trial, maybe in the neighborhood of two to three years, to determine safety and efficacy on a chronic basis?

Well, without giving away the API, I’ll try to answer that question. The existing API for the existing condition is given chronically and is given over the lifetime of a patient. Keith Markey – Griffin Securities: Okay, so it’s not a major leap forward.

Right. Our product is the same product, essentially, but we’re reducing the systemic exposure so that there will be no systemic exposure or as little as possible. So I would guess from an FDA regulatory perspective, they would view that in a positive light, that we’re taking an API that’s been known to be exceptionally safe for many, many years and given over the lifetime of a patient, we’re now taking that and reducing the dosage, probably, and reducing the systemic exposure so it doesn’t get in the bloodstream. So it really is resident only in the intestinal tract. With respect to how many patients and how long would it be, the trials are not two years. This is like a six month trial at the most. Again, we see effects, or Dr. Pimentel has seen effects within the first few days of giving the patient the drug. I mean, you’re looking at constipation, right, so you’re looking at number of bowel movements, you’re looking at bloating, you’re looking at pain – very easy to measure, typically, in any of these particular patients. So we don’t think it’s going to be a long haul to really look at the data. We’re going to start the latter part of this year and we’ll have data sometime in the middle of next year, so six to 12 months, let’s say, from the time we start enrollment to the time we get final data. The other thing is we don’t know how many patients it’s going to take. It really depends on discussions with the FDA. Again, this API is a very well known drug, a huge safety database. It gets signaled very, very quickly in these patients, so the question to the FDA is do you run a large Phase I that could potentially be a pivotal trial? Do you run directly into a Phase II, which is our current thought process, and do you power the Phase II high enough where it could be accepted as one of the two pivotal trials? Possibly. We just don’t know at this stage of the game, but I would guess that well under 300 – 200 to 300 patients would be more than sufficient for us to have a high powered program in this area. Keith Markey – Griffin Securities: That sounds great. One of the things that is diagnostic for this particular condition, from what I understand, is the presence of methane in the breath in the patient. I assume you’re going to be measuring that on a periodic basis during, prior to and then subsequent to treating the patient. How is that done?

It’s just a breath test. It’s just like if you were pulled over by a policeman and got hit by a breath test. I’m not saying you’ve had that, Keith! I’m just—you know, we definitely have—it’s very straightforward. We likely would not use it at the beginning. We wouldn’t use it to enrich the patient population. We don’t want it to be used in that way, but we would do it as we went along to correlate reduction in methane gas with a reduction in the symptoms. Keith Markey – Griffin Securities: Are you saying that you’re not going to identify the patients who have methane being expressed as the ones that you’ll enroll?

Well, we won’t use that as an enriching patient population choice, and there’s a variety of reasons for that, the primary one being it’s just—it wouldn’t be used that way out there in the real world, right? I mean, physicians will prescribe this without doing the methane test many, many times, so we’re trying to look at it is what would the real world situation be like, and Dr. Pimentel kind of goes back and forth should we use the breath test upfront with every single patient and use that as a determinant as to whether that patient is enrolled, or do we not? At this time, it’s sort of in between. My guess is that he will take all comers in the Phase II trials and then we would use the breath test as just a marker going forward. Keith Markey – Griffin Securities: Okay. Thank you very much.

Thank you, and as that is all the time we have for questions, I would now like to turn the conference call back over to Jeff Riley for any closing remarks.

Everybody, thank you for—if you’re still on the call, for lasting with us for the 45 minutes. I’m sorry – it was a pretty long one, but we felt it important to really address the MS results with more clarity. Thank you, Betty, for guiding this call. I want to reiterate one last time that the fundamentals of Synthetic Biologics’ business are strengthened given results of Trimesta. We are on schedule to hit all of our anti-infective milestones and we’ve engaged in partnering discussions on Trimesta. We remain strategically focused on developing novel anti-infectives, which is our core strategy. As noted earlier, we expect our C. diff and CIBS programs to move into the clinic later this year, and pertussis early next year. We also believe we have added significant value to the company by demonstrating the therapeutic potential of oral estriol in the Phase II exploratory trial, which further supports Synthetic Biologics’ efforts to attract a strategic partner to accelerate development of this innovative therapy for relapsed and remitting MS. Again, I’d like to thank our long-term investors that have been with us for the last couple of years, and we look forward to a very, very fruitful end of this year and next year. Thanks again for everyone joining us this morning. We look forward to updating you at an MS investor analyst day sometime this summer and later in the year at an anti-infective investor analyst day, and of course our quarterly call next quarter. Thanks a lot.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.