what if you had a call and no one showed up....CombinatoRx, Inc. (CRXX)
Q2 2009 Earnings Call
August 10, 2009 8:30 am ET
Executives
Robert Forrester - Interim President and Chief Executive Officer
Justin Renz - Senior Vice President and Chief Financial Officer
Gina Nugent - Investor Relations and Corporate Communications
Analysts
Presentation
...I will now turn the call over to Robert.
Robert Forrester
Good morning everybody on this beautiful summer morning. Also, further evidence this morning that CombinatoRx’s name is incredibly hard to say. So, this has been a busy and successful first half of the year for CombinatoRx, and I want to go through some of those activities now. We negotiated a merger agreement with Neuromed, entered into a significant research alliance with Novartis, reported positive clinical data on three drug candidates, published key scientific findings in Nature Biotechnology, improved the financial terms in our Fovea product development collaboration, and most recently renegotiated the lease on our office and lab space to significantly reduce our long-term financial obligations. These accomplishments over the past six months positioned CombinatoRx to thrive for the long term.
Let’s start with our proposed merger with Neuromed, which brings together our significant product assets, unique discovery capabilities, experienced management teams and financial resources, providing a substantial opportunity for building value going forward. Neuromed is a privately owned biotech company with a late-stage pain drug, Exalgo, an excited ion channel inhibitor program, and an experienced product development team. So, the key assets of the combined company include; firstly, Exalgo, which is designed to be a once daily oro-hydromorphone for the treatment of chronic to severe pain, which is a significant late-stage product opportunity which was recently sold by Neuromed to Mallinckrodt, which is a subsidiary of Covidien, to be a key asset in Covidien’s emerging branded pain management franchise.
For the sale of Exalgo, Neuromed has or will receive $50 million in upfront payment, up to $16 million in additional development funding, as well as the potential for significant revenue from milestone on approval of Exalgo. The approval milestone is a minimum of $30 million which could increase to $40 million depending on the timing of the approval and the number of doses of Exalgo that actually are approved. In addition, we will receive tiered royalties on future net sales of Exalgo.
Currently, there is no long-acting form of hydromorphone available in the US, which represents key opportunity for Exalgo. In addition, the US prescribing audience is very familiar with hydromorphone IR which had 2.5 million prescriptions in 2008 representing 19% share of the short-acting opioids market with a 17% annual growth rate. This provides strong foundation for Exalgo sales growth. An NDA for Exalgo was filed as a complete response permission on May 22, 2009. The FDA has accepted the filing and the PDUFA date is November 22, 2009.
Secondly, the combined company will have multiple clinically validated product assets including mid-stage pipeline programs such as Synavive, CRx-401, and Prednisporin which is licensed to Fovea. An early-stage asset such as the CombinatoRx B-cell malignancy program, CRx-601 for Parkinson’s disease, and the Neuromed ion channel inhibitor program. Thirdly, we have a validated drug discovery technology as illustrated by the CombinatoRx Novartis oncology collaboration, which has the potential to generate future product opportunities and milestone payments. Fourthly, we have the financial resources to continue operations into 2012.
In addition to leveraging the efficiencies that come about by combining product asset discovery capabilities and financial resources, Chris Gallen and the rest of the Neuromed management team bring substantial product development expertise to bear on the product pipeline.
Secondly, we entered into a strategic alliance with Novartis focused on the discovery of novel anti-cancer combinations utilizing the CombinatoRx proprietary combination high throughput screening (cHTS) platform and Chalice analyzer software. The collaboration will explore combination effects in cell lines representing a broad spectrum of cancers to provide a robust and systematic understanding of combination therapy opportunities in oncology. Under this non-exclusive agreement, CombinatoRx has received a $4 million upfront payment and funding for research support for two years. In addition, for each combination advanced to the market from the collaboration, CombinatoRx is eligible to receive up to $58 million in clinical, regulatory, and commercial milestones. Importanlty, CombinatoRx retains the right to conduct oncology research on its own and with others and will retain certain intellectual property rights arising from the collaboration.
Thirdly, our ophthalmic collaborator, Fovea Pharmaceuticals, reported positive results from its clinical proof-of-concept trial to assess the therapeutic effect of a CombinatoRx-derived combination drug candidate, Prednisporin, in subjects with persistent allergic conjunctivitis. Based on these data, Fovea has announced intentions to initiate further clinical trials for Prednisporin both in the US and in Europe. In addition, we amended the research and license agreement with Fovea to enhance our economic interest in Prednisporin and the other ophthalmic product candidates licensed to Fovea. CombinatoRx will now be eligible to receive milestone payments of up to approximately $65 million and increased tiered royalty payments of up to 12% on the development and commercialization of Fovea products generated from the CombinatoRx platform.
Fourth, we reported positive Phase 2 clinical results with CRx-401 as an add-on to metformin in subjects with type 2 diabetes. CRx-401 met its primary endpoint with statistically significant reductions in fasting plasma glucose and we also observed positive trends in related efficacy measures.
Fifth, we presented full data on the Synavive Phase 2 knee osteoarthritis clinical trial at the Annual European Congress of Rheumatology meeting (EULAR). The trial demonstrated rapid and sustained efficacy of Synavive in all WOMAC measurement subscales including pain, physical function, and stiffness, and importantly, combination effects were observed in comparison to prednisolone alone.
Sixth, we published new findings by CombinatoRx scientists in Nature Biotechnology, providing further evidence of the benefits of combination therapy and demonstrating improved selectivity through synergistic combinations. This systematic exploration of combination therapy was made possible by CombinatoRx’s unique combination high throughput screening technology.
Finally, we re-negotiated the lease on CombinatoRx’s Cambridge facility to reduce the total square footage by approximately 40,000 square feet or 63% and our subsequent annual lease obligation by approximately $2.0 million or 57% reduction.
I will now turn the call over to Justin to briefly review the financial results of the second quarter of 2009.
Justin Renz
We reported revenue of $3.3 million in the second quarter of 2009 compared to $2.9 million in the second quarter of 2008. We had a net loss from continuing operations for the quarter ended June 30th of $7.1 million or $0.20 per share, as compared to $16.1 million or $0.47 per share loss in the second quarter of 2008. Stock-based compensation expense was approximately $1.2 million in the second quarter of 2009 as compared to $1.6 million in the second quarter of 2008. Depreciation and amortization expense was approximately $1.9 million in the second quarter of 2009 as compared to $0.8 million in the second quarter of 2008. This increase is due to our change in the estimated remaining term of our fourth floor space as we began to accelerate our leasehold improvement amortization as a result and in anticipation of the lease negotiation.
As a result of this recent re-negotiation, we received a restructuring credit of $425,000 in the second quarter of 2009 as we had a favorable change in the estimate of our 16th floor rental obligations.
Our 2009 net loss from continuing operations year to date excluding this restructuring benefit, stock compensation expense, and depreciation and amortization expense was $4.5 million. In the third quarter, we will incur approximately $1.7 million in additional restructuring charges net of which $2.7 million relates to our July 1st post-merger downsizing announcement, and this is partially offset by a $1 million net credit related to our lease re-negotiation of the fourth floor. As of June 30th, we had cash, restricted cash, and short-term investments of approximately $30.6 million.
Although we’re not in a position yet to give guidance on 2009 year-end cash, we believe that we have positioned ourselves such that our cash balance provides sufficient cash reserves for us to operate into 2012.
With that, we’ll stop here and take your questions. Operator, we’re ready for some questions.
Question-and-Answer Session
Operator
(Operator Instructions). There are no questions at this time.
Gina Nugent
Thank you operator. This concludes the CombinatoRx second quarter 2009 conference call. Thank you all for participating. |
