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Concert Pharmaceuticals, Inc.  (NASDAQ:CNCE)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Concert Pharmaceuticals Fourth Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Ms. Justine Koenigsberg. Ma'am you may begin.

Justine Koenigsberg -- Senior Vice President, Corporate Communications and Investor Relations

Thank you, Ashley. Good morning, and welcome to Concert Pharmaceuticals' fourth quarter 2018 investor update. Our press release announcing our financial results was issued earlier this morning, and an electronic copy of our press release is also available on our website at concertpharma.com.

Joining me this morning with prepared remarks are Roger Tung, our President and CEO; Jim Cassella, our Chief Development Officer; and Marc Becker, our CFO. We will also be joined by Nancy Stuart, our Chief Operating Officer, for the Q&A portion of the call.

As a reminder, today's discussion will include forward-looking statements about our future expectations, plans and prospects. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A description of these risks can be found in our most recent 10-K filed with the SEC. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call.

With that, I would now like to turn the call over to Roger.

Roger Tung -- Co-Founder, President and Chief Executive Officer

Thank you, Justine and good morning. In the fourth quarter of 2018, we achieved several milestones relating to our proprietary pipeline that set the stage for 2019 to be year of meaningful clinical progress for Concert. First, let me highlight our most advanced candidate CTP-543, which is progressing nicely as a potential treatment for alopecia areata. Jim will then review the details for our ongoing CTP-543 development activities.

The ongoing Phase 2 trial has already produced several very important results. The first is that we have identified a minimally effective dose with 8 milligrams twice-daily providing statistically, and we believe, clinically meaningful results. We are the first group to accomplish this and we believe it is a very important regulatory issue, as FDA has made clear that they are focused on optimizing the balance between patient outcomes and long-term safety with JAK inhibitors in the treatment of alopecia areata.

Second, 8 milligrams BID appeared to be generally well-tolerated, and if results observed to-date are also observed in larger studies, we believe that it could be a commercially viable dose. We found that, while the 24-week study endpoint showed good efficacy for the 8 milligram dose group, the response curve was trending upwards with no indication of plateauing. And we believe that dosing beyond 24 weeks CTP-543 may produce even greater efficacy. In addition, there is potential for further improved efficacy with our ongoing fully enrolled 12 milligram BID cohort.

Finally, we are assessing the potential for greater patient convenience based on once-daily dosing in our planned open label 8 milligram twice-daily versus 16 milligram once-daily trial. Our perspective is that we have an efficacious dose for CTP-543 with a potential upside to further optimize the efficacy and dosing regimen as we approach Phase 3 development. Based on the strong results generated to-date, we believe there is an opportunity to accelerate the development of CTP-543 and move directly from our ongoing Phase 2 trial into pivotal testing. We're very enthusiastic about the CTP-543 program as we move forward toward Phase 3 and commercialization.

Next, let me turn to the second proprietary candidate in our pipeline CTP-692, which we're initially developing as an adjunctive treatment for schizophrenia. This program advanced rapidly from preclinical evaluation to the first-in-human clinical study in 2018 and we are now advancing its Phase 1 development in preparation for an efficacy study in patients with schizophrenia later this year.

CTP-692 has a mechanism of action that is different from currently available treatments. Based on human clinical data developed by academic groups with non-deuterated D-serine, it offers the potential to improve both negative and positive symptoms, as well as cognitive function in patients with schizophrenia. We designed CTP-692 to build on observations that D-serine can help to remediate NMDA hypofunction, which is widely believed to be an important positive factor in schizophrenia, and importantly, it may avoid the renal safety concerns that have been associated with non-deuterated D-serine. We believe that this will enable us to maximize the mechanism's therapeutic utility. We're very excited about the momentum in our CTP-692 clinical program and 2019 will be a significant year as we evaluate the compound's renal safety characteristics and bring it into Phase 2 in schizophrenia patients.

In addition to CTP-543 in alopecia areata and CTP-692 in schizophrenia, we're also excited about the prospects of AVP-786, which is being developed under our collaboration with Avanir, a subsidiary of Otsuka. The first Phase 3 readout for AVP-786 for the treatment of agitation associated with dementia of the Alzheimer's type is right around the corner as Otsuka recently reiterated that the study completion is expected in April 2019 with top line results expected to be reported promptly thereafter.

We eagerly await these initial pivotal results along with results from the second US Phase 3 trial for AVP-786 with expected completion in December 2019. AVP-786 offers potential milestone payments and royalties on future product sales to Concert, and if approved, we believe the unmet medical need in Alzheimer's agitation could support blockbuster sales.

Before we turn to other details about our clinical progress, let me make a brief comment on the legal front. In the IPR proceedings that Incyte brought against a patent we have covering CTP-543, oral arguments were held on January 25th and the PTAB is expected to render a final decision by April 9th of 2019. We strongly believe in the validity of our patents and the important differentiated properties of CTP-543 with respect to ruxolitinib. Beyond that specific patent, we believe we have multiple ways to protect CTP-543 and intend to continue to aggressively advance its development regardless of the outcome of this legal proceeding. An adverse outcome in the IPR proceeding would not prohibit concert from developing CTP-543 for alopecia areata and the development timelines for CTP-543 would be unaffected.

Let me conclude my remarks by saying that the team at Concert is very focused on continuing our clinical progress and we see 2019 as a year of significant milestones for our Company.

I'd like to pause here and ask Jim to discuss the clinical progress we're making, and then Marc will review our fourth quarter financial results, before we open the call to questions.

James Cassella -- Chief Development Officer

As Roger just described, in 2018, we laid the foundation, so that we are well positioned in 2019 to execute on the clinical advancement of our lead candidate CTP-543 and CTP-692.

Let me begin with CTP-543. In November, we reported interim results from the Phase 2 clinical evaluation of the first two doses examine of CTP-543 in patients with alopecia areata. The interim analysis included the 4-milligram and 8-milligram twice-daily dosing cohorts. And as the trial is ongoing, we are currently assessing a 12-milligram twice-daily dose that we added in a protocol amendment in September.

In terms of the analysis of the first two cohorts, we met our primary endpoint with the 8-milligram BID dose with statistical significance compared to both placebo and the 4-milligram BID dose. Notably, in the 8-milligram twice-daily cohort, the percentage of patients achieving the primary endpoint trended higher over the course of the 24 weeks of treatment, and regrowth of hair did not appear to plateau at week 24. CTP-543 was generally well tolerated with no serious adverse events reported in the 4-milligram and 8-milligram cohorts.

We are highly encouraged by these initial efficacy and tolerability data for CTP-543 for the 8-milligram BID dose. In fact, these results continue to strongly support CTP-543's mechanism of action for alopecia areata. These findings will be presented at a late-breaking presentation at the American Academy of Dermatology's Annual Meeting this weekend. The response we have observed to-date in our clinical trial, gives us great confidence as we continue the clinical development plan for CTP-543.

Let me describe the next steps and milestones in the CTP-543 clinical program. Last fall, we initiated the 12-milligram BID dosing cohort and the CTP-543 Phase 2 trial, and we recently announced that enrollment for this final cohort is now complete. Top line data from the Phase 2 trial, including the 12-milligram cohort is expected in the third quarter of 2019.

In parallel, based on the robust findings observed in the Phase 2 trial with the 8-milligram BID dosing, we will be assessing CTP-543 and a new trial investigating 16-milligrams once-daily compared to 8-milligrams twice-daily. This is an open label study in patients with moderate to severe alopecia areata, which we expect to begin enrolling patients in the first quarter of 2019. The trial is expected to reach its primary 24-week endpoint in the second half of 2019.

This additional dose ranging and dose frequency data will give us important information to help select doses for pivotal evaluation. Once we complete these clinical trials, we intend to discuss the data with FDA in an end of Phase 2 meeting to review our registration pathway. Going forward, we intend to offer an open label extension for patients who enroll in our trials, including those who completed 12-milligram cohort and the ongoing Phase 2 trial.

We are highly focused on the need for an effective treatment for alopecia areata with a favorable safety profile and are taking steps to develop CTP-543 to meet this product profile and bring it to patients with alopecia areata as quickly as possible.

Turning next to CTP-692, our deuterium-modified analog of D-serine for the adjunctive treatment of schizophrenia. We initiated the Phase 1 CTP-692 program in healthy volunteers in December. The Phase 1 program includes a D-serine crossover comparison, as well as the evaluation of single and multiple ascending doses of CTP-692 and the effects of food on the pharmacokinetics of the drug. The crossover study showed that CTP-692 has increased plasma exposure compared to D-serine.

In addition, CTP-692 was well tolerated in healthy volunteers, and no serious adverse events were reported. We have designed the multi-study components of our Phase 1 program to support our ability to move next into a Phase 2 trial in the fourth quarter of 2019 that is intended to support advancement in pivotal evaluation. We expect to report additional Phase 1 top line data in the first half of 2019.

Our clinical program for CTP-692 has been carefully designed with the input from thought leaders in schizophrenia and NMDA biology, and is progressing well. CTP-692 offers the potential to fill a gap in the current standard of care for schizophrenia that primarily includes dopamine-modulating antipsychotic medicines. CTP-692 was designed to address glutamatergic hypofunction and offers the potential to improve, both the positive and negative symptoms, as well as cognitive function in patients with schizophrenia.

In particular CTP-692's action on NMDA receptor provides a unique mechanism approach as an add-on therapy to the standard of care antipsychotics. We believe CTP-692 has the potential to address an important unmet need, including in patients who are inadequately treated today. We are enthusiastic about moving forward into the clinic with CTP-692 as a potential adjunctive treatment for schizophrenia to improve outcomes for the millions of patients with this debilitating mental illness.

In summary, we are excited about the potential of our proprietary candidate CTP-543 in alopecia areata and CTP-692 in schizophrenia. Both of these proprietary drug candidates have the opportunity to address significant unmet needs for many patients. In the case of CTP-543, we are pioneering a new medicine for disease that currently has no FDA approved treatments, alopecia areata. And for CTP-692, we are advancing the treatment with a new mechanism of action that we believe can improve upon existing standard of care in schizophrenia. Key readouts for both of these product candidates are on the horizon and we look forward to keeping you updated on our progress.

I'd like to pause here and ask Marc to review our financial results, before we open the call to questions.

Marc Becker -- Chief Financial Officer

Thank you, Jim. As I review our 2018 financial results, please reference the financial tables found in today's press release.

Revenue was $10.5 million for the year ended December 31st, 2018, compared to $143.9 million for the year ended December 31st, 2017. Revenue recognized in 2018 consists of $10.5 million in non-cash consideration received under a licensing agreement whereby we granted Processa Pharmaceuticals worldwide rights to develop and commercialize CTP-499. In 2017, revenue relates to the asset purchase agreement whereby Vertex Pharmaceuticals acquired CTP-656, now known as VX-561. As part of the agreement, Vertex paid Concert $160 million in cash for all worldwide development and commercialization rights to CTP-656.

Relating to the Vertex agreement, the $16 million of the upfront payment that was put into escrow was released to Concert in Q1 '19 as expected. We also have the potential to receive $90 million in pre-commercial milestones under the agreement.

In the first quarter of 2019, we entered into a license agreement with Cipla Technologies relating to CTP-354 building on Concert's initial preclinical and clinical evaluation with CTP-354, a novel GABAA receptor subtype-selective modulator. Cipla intends to develop the compound for the treatment of spasticity and other relevant CNS indications. We received $1 million upfront from Cipla and have the potential to receive milestones, as well as royalties on future product sales. Under an existing CTP-354 agreement between Concert and the non-profit organization Fast Forward, we will owe half of the upfront to Fast Forward and are obligated to make modest future milestone payments to Fast Forward based on achievement of milestones under the Cipla agreement.

Research and development expenses were $43.1 million in 2018 compared to $30.2 million in 2017, an increase of $12.9 million. The increase is primarily results of expenses associated with clinical development and manufacturing of both CTP-543 and CTP-692. General and administrative expenses for 2018 were $22.9 million compared to $21 million in 2017, an increase of $1.9 million. Our net loss was $56 million or $2.40 per share, compared to net income of $95.6 million or $4.20 per share in 2017, due to the asset purchase agreement with Vertex.

Finally, we ended 2018 with $153.3 million in cash, cash equivalents, and investments. As we move through 2019, we expect our cash burn to be approximately $69 million, which is net of the $16 million in escrow proceeds from Vertex. And under our current operating plan, including the acceleration of CTP-543 into late-stage development, we believe our cash position is sufficient to fund the Company into the second half of 2020.

This concludes our prepared remarks and we would be happy to answer any questions.

Questions and Answers:

Operator

(Operator Instructions) And your first question comes from Carter Gould with UBS.

Carter Gould -- UBS -- Analyst

Good morning, guys. Thanks for taking the questions. Roger, I just wanted to dig into a little bit to CTP-543 and sort of the optimization work you're going to do there. Just trying to understand kind of how long you think you need to follow the patients to get what additional data you need to sort of optimize that dose? And really just trying to understand how that then maybe access a sort of a stage-gate and move into a pivotal study?

Roger Tung -- Co-Founder, President and Chief Executive Officer

Sure. Thanks for the question, Carter. So, we believe that at this point, we have identified the minimally effective dose, which is 8-milligrams twice-daily. We saw that, as you know, 4-milligrams twice-daily was numerically, but not statistically superior to placebo, and we think that that's -- a very important aspect of this program is that we now can move forward with that understanding. The 12-milligram dose, which -- 12-milligram twice-daily dose, which is now ongoing and fully enrolled is the highest dose that we intend to pursue.

In terms of longer-term dosing, both the patients who are receiving 12-milligrams twice-daily and the 8-milligram twice-daily versus 16-milligram once-daily cohort, which is planned to begin shortly, our intent is to roll over into a longer-term extended dosing. So that should give us longer-term information with those individuals, and that should apply to subsequent patients, who are enrolled in our studies.

Carter Gould -- UBS -- Analyst

Okay. And then maybe on CTP-692, any color you can provide on the planned Phase 2 in terms of either number of doses you plan to maybe potentially move forward with, duration of that study or it might be a little bit too early, but in terms of endpoints as well?

Roger Tung -- Co-Founder, President and Chief Executive Officer

Yeah, in terms of the duration of the study, typically schizophrenia studies have been in the 12-week to 16-week time frame and that's probably what we would intend to do. We're waiting for the results of the multiple ascending dose study to really nail down the doses that we intend to look at in the planned Phase 2. But at this point, we are thinking about doing the dose-ranging study to assess the efficacy of the drug over several doses.

Carter Gould -- UBS -- Analyst

Thank you.

Operator

Your next question comes from Difei Yang with Mizuho.

Alexander Lim -- Mizuho Securities -- Analyst

Hey, good morning guys. This is Alex on for Difei. Thank you for taking the question. Just had a follow-up on CTP-692. Could you talk a little bit about what are some of the key endpoints you'll be looking at there in the Phase 2 trial?

James Cassella -- Chief Development Officer

Sure. Hi, this is Jim. So we are still in the designing phase and we're talking to a lot of the schizophrenia experts in this space. But I think pretty clear at this point in time, one of the important endpoints that we'll be looking at is the PANSS scale, so the positive and negative symptoms scale. And I think when you look at the existing data for D-serine, you can see meaningful results looking at that scale in terms of overall score and also as it parses out positive and negative symptoms. So I think that's going to be one of the key scales that we'll be using.

Alexander Lim -- Mizuho Securities -- Analyst

Okay, great. Thank you. And just on CTP-543, just wondering what gives you confidence that you may be able to move into pivotal trials quicker than originally planned?

Roger Tung -- Co-Founder, President and Chief Executive Officer

Right. Well, I think we are very pleased with the quality of data that we got out of the initial Phase 2 study results in the placebo versus 4-milligrams versus 8-milligrams twice-daily cohorts. The fact that we saw such a high level of statistical significance at the 8-milligram dose cohort was certainly reassuring. We are impressed by the fact that the efficacy of the drug appears to be continuing to increase with the longer-term dosing and does not appear to have plateaued at the 24-week time frame, and the high level of tolerability that we at least have observed to-date has all given us confidence that what we have appears to be a well-suited medication for this disease.

Alexander Lim -- Mizuho Securities -- Analyst

Great, thank you.

Operator

(Operator Instructions) And your next question comes from Adam Walsh with Stifel.

Adam Walsh -- Stifel Nicolaus -- Analyst

Hey guys, good morning. Thanks for taking my questions. So, Roger, I know you've been restricted a little bit in the past on some of the partnered products, but you have pivotal data for AVP-786 for Phase 3 top line data coming in April. And maybe you could just help us understand, remind us of kind of the trial design, what you're looking for in terms of a positive outcome and just remind us of the deal structure there because the data coming in April per the press release, and so just a little bit of color and background there to help us understand what we're looking for and how meaningful that could be to Concert? That would be helpful. Thank you.

Roger Tung -- Co-Founder, President and Chief Executive Officer

Sure. Thanks for the question, Adam. So for really detailed information about the trial design, I think you're really best of contacting Avanir, Otsuka because they are the owners of the trial. It is a parallel-arm trial that's looking at several doses of AVP-786 versus placebo and the intent is to assess reduction in the symptoms of agitation and aggression in patients with dementia that's recognized to be secondary to Alzheimer's disease. We believe that it's an important aspect of the Company, which is maybe not fully recognized by some of the investment community in a sense that we have a potential benefit from both milestones and royalties in the mid-single digit to low-double digit on -- based on worldwide sales in a country-by-country basis. And that given the fact that there are approximately 5.7 million individuals with Alzheimer's disease just in the US with about a 50% rate that's estimated for agitation, significant agitation symptoms, this could truly be a very important disease from a medical and commercial perspective with AVP-786 potentially being the first-in-class treatment that would be labeled for that use. So I think our assessment is that, if there is statistically significant reduction in symptomology with acceptable tolerability that this could have an extremely positive effect on our overall capital structure as a Company.

Adam Walsh -- Stifel Nicolaus -- Analyst

That's helpful. Thank you.

Roger Tung -- Co-Founder, President and Chief Executive Officer

Sure.

Operator

I am showing no further questions at this time. I will now turn the conference back to Justine Koenigsberg for closing remarks.

Justine Koenigsberg -- Senior Vice President, Corporate Communications and Investor Relations

Thank you. I would like to thank everyone for listening in this morning. Next month, we will be participating at the Oppenheimer Conference in New York and hope to see many of you there. This concludes today's call. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.

Duration: 26 minutes

Call participants:

Justine Koenigsberg -- Senior Vice President, Corporate Communications and Investor Relations

Roger Tung -- Co-Founder, President and Chief Executive Officer

James Cassella -- Chief Development Officer

Marc Becker -- Chief Financial Officer

Carter Gould -- UBS -- Analyst

Alexander Lim -- Mizuho Securities -- Analyst

Adam Walsh -- Stifel Nicolaus -- Analyst

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