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Edited Transcript of CNCE earnings conference call or presentation 7-Nov-19 1:30pm GMT

Q3 2019 Concert Pharmaceuticals Inc Earnings Call

Lexington Nov 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Concert Pharmaceuticals Inc earnings conference call or presentation Thursday, November 7, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James V. Cassella

Concert Pharmaceuticals, Inc. - Chief Development Officer

* Justine E. Koenigsberg

Concert Pharmaceuticals, Inc. - SVP of Corporate Communications and IR

* Marc A. Becker

Concert Pharmaceuticals, Inc. - CFO

* Roger D. Tung

Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director

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Conference Call Participants

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* Alexander Lim

Mizuho Americas LLC - MD & Head of Investment Banking

* Esther Lannie Hong

Janney Montgomery Scott LLC, Research Division - Director of Biotechnology

* Robin Thai Garner Kalley

LifeSci Capital, LLC, Research Division - Senior Analyst

* Xiaodong Zhang

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the third quarter update call. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to turn the conference over to Mr. -- to Ms. Justine Koenigsberg, Senior Vice President of Corporate Communications and Investor Relations. Ma'am, please go ahead.

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Justine E. Koenigsberg, Concert Pharmaceuticals, Inc. - SVP of Corporate Communications and IR [2]

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Thank you. Good morning, and welcome to Concert Pharmaceuticals' Third Quarter 2019 Investor Update. 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 risk factors can be found in our most recent 10-Q 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.

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [3]

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Thank you, Justine, and good morning. In 2019, we've accomplished important progress in our pipeline with strong results generated with both our proprietary candidates, CTP-543 for moderate-to-severe alopecia areata and CTP-692 for adjunctive treatment of schizophrenia. We've been actively presenting both of these clinical programs at scientific and medical meetings this year, and we're very pleased with the enthusiasm shown for both candidates' results and their potential to address important unmet needs for chronic diseases.

For CTP-543, we believe the Phase II results have set a new benchmark for clinical efficacy in the treatment of alopecia areata. In a moment, Jim will recap the results presented at EADV last month. With our Phase II results, we've identified 2 doses of CTP-543 with promising efficacy and tolerability profiles, both of which may be suitable for assessment in future trials. We also see some advantages of a higher dose, including faster onset and greater magnitude of effect. The program is progressing nicely, and we expect to advance CTP-543 into Phase III testing in 2020.

As a reminder, we are also conducting 2-dose regimen studies evaluating twice-daily versus once-daily dosing. Both of these studies are fully enrolled, increasing our patient database and helping us to define the characteristics of these doses and dose regimens of CTP-543. These data will be very helpful as we meet with FDA in an end of Phase II meeting next year.

As a reminder, we filed a notice of appeal with Federal Circuit Court challenging the PTAB's decision on the patentability of our CTP-543 composition-of-matter patent. In addition, we are actively pursuing other IP protection for CTP-543, including a pending application that's supported by an impressive Phase II results and several more applications in preparation. We hope to have more to say on this topic in 2020.

Now turning to CTP-692, our drug candidate that is a deuterated form of D-serine. We're excited about the prospect of CTP-692 because it offers patients a scientifically well-supported, potentially, a new mechanism of action to treat schizophrenia, which is a disease that continues to have substantial unmet medical need.

The activity of D-serine in schizophrenia is supported by positive clinical results with non-deuterated D-serine, which, however, is limited by renal toxicity concerns. We will move our CTP-692 into Phase II later this year with confidence that 692 has the potential for a much safer product profile than that of non-deuterated D-serine.

In addition to our proprietary drug candidates, Avanir reported in September, top line results from their second Phase III trial for AVP-786, which is a compound Concert licensed to Avanir back in 2012. While we were disappointed that the trial did not meet its primary and secondary -- key secondary endpoints, it's important to note that under the structure of our license agreement, all development costs and activities for AVP-786 were the responsibility of Avanir. Avanir and its parent, Otsuka have stated that they will analyze the full set of data from the first 2 studies and explore the best path forward.

I will note that our agreement with Avanir is not specific to indication, and there are a number of ongoing trials evaluating AVP-786 in multiple neuropsychiatric indications.

Let me conclude by emphasizing our optimism for Concert's pipeline. With the strong data we've developed this year with our proprietary compounds, we have multiple possibilities to create significant near-term and long-term value for Concert.

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

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James V. Cassella, Concert Pharmaceuticals, Inc. - Chief Development Officer [4]

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Thank you, Roger. We've made excellent progress on the clinical development front across both our proprietary programs this year, and we are well-positioned to continue advancing CTP-543 for alopecia areata and CTP-692 for schizophrenia into their next phases of development.

Beginning with CTP-543. We were delighted to have had the opportunity to present our Phase II data during the late-breaking news session at the EADV Congress last month. The meeting provided a great platform to showcase our program to the international medical dermatology community and clinicians, who specialize in treating alopecia areata in both Europe and the U.S.

Let me briefly review the top line results from the Phase II dose-ranging trial with CTP-543. As a reminder, the primary endpoint analysis in the Phase II trial compares the proportion of responders between placebo and each of the active CTP-543 dose groups at week 24. A responder is defined as a patient achieving at least a 50% relative reduction in SALT score compared to their baseline. The Phase II results demonstrated very clear dose-related response, and the primary endpoint was met with statistical significance for both the 8-milligram twice-daily and 12-milligram twice-daily doses. For ease of discussion, I will refer to the 8-milligram twice-daily and 12-milligram twice-daily dose groups as the 8-milligram and 12-milligram cohorts, respectively.

58% of patients in the 12-milligram cohort and 47% of patients in the 8-milligram cohort were responders at week 24. The 8-milligram and 12-milligram cohorts, each showed significant improvement from the 9% placebo response. The 4-milligram twice-daily cohort had a 21% response rate, which was not statistically significant from placebo and will not be a dose carryforward into later-stage development.

Let me also note that further improvement was observed with the 12-milligram cohort at response levels beyond the 50% improvement in SALT. The 12-milligram cohort was significantly different from placebo, with 42% of the group achieving at least a 75% improvement in SALT and 36% achieving at least a 90% SALT change. For the 90% threshold, we see not only a statistical separation for the 12-milligram dose group from placebo starting at week 20, but we also find a significant separation from the 8-milligram dose cohort. So with this higher response threshold, the 12-milligram dose appears to provide an additional benefit over the 8-milligram dose.

In addition to hair loss analysis using SALT, we also asked patients to rate their sense of improvement in their alopecia areata after 24 weeks of dosing as a secondary endpoint. Data from the Patient Global Impression of Improvement Scale show a very favorable dose-related response curve, with nearly 80% of patients receiving 12-milligram, saying that their alopecia was either much improved or very much improved compared to when they entered the study.

CTP-543 was generally well-tolerated in the Phase II trial. The percent of patients experiencing adverse events was similar between the 8-milligram and 12-milligram cohorts and the placebo group. The most common adverse events reported across the treatment groups were headache, nasopharyngitis or common cold, upper respiratory tract infection and acne. One serious adverse event was reported for a patient in 12-milligram cohort, who was treated for cellulitis and after a brief dose interruption, resumed treatment and completed the trial.

Based on the data we have generated to date, we believe that CTP-543 has a compelling and potentially best-in-class product profile as a treatment for alopecia areata. We are highly encouraged by the Phase II efficacy and tolerability data for the 8-milligram and 12-milligram twice-daily doses. We look forward to advancing this product candidate into Phase III and moving it further on its path towards offering a new treatment option for patients with alopecia areata, a community that suffers with no FDA-approved treatment options today.

Now turning to CTP-692, a deuterated form of D-serine that we are initially developing as an adjunctive treatment for schizophrenia. The Phase I results give us confidence that our deuterium modification has the potential for a much safer product profile than that of non-deuterated D-serine. CTP-692 has demonstrated multiple advantages compared to non-deuterated D-serine in our nonclinical program.

In addition to a dramatically improved renal safety profile, we saw much higher brain exposure in rats with CTP-692 compared to D-serine. In our Phase I clinical trial, CTP-692 displayed favorable pharmacokinetics with significantly lower inter-subject variability than it has been reported for D-serine. The safety assessments in the single and multiple ascending dose trials show that CTP-692 was well-tolerated over a dose range tested, which included the doses to be evaluated in Phase II testing.

Importantly, consistent with our nonclinical data, key blood and urine markers of kidney functions did not indicate any signs of renal impairment. The Phase I clinical trial for CTP-692 was presented in early September at the European College of Neuropsychopharmacology Conference in Copenhagen. The poster presentation was very well received, and there is high enthusiasm from a broad psychiatry community for a new mechanism to treat schizophrenia.

Taken together, our data suggest that we will be able to explore a sufficient dose range in our Phase II trial to evaluate the therapeutic efficacy and safety of CTP-692. The Phase II trial will be a robust study evaluating 1, 2 and 4 grams of CTP-692 once-daily versus placebo over a 12-week treatment period. We intend to randomize approximately 300 patients, who are stable on their existing antipsychotic medication. The primary endpoint will be the change in PANSS total score, a commonly used rating scale for schizophrenia studies. We expect to have data by year-end 2020.

Looking ahead, we are very happy to be hosting a webcast event next week with Dr. Joe Coyle, who currently serves as Director of the Laboratory for Psychiatric and Molecular Neuroscience at McLean Hospital. He is a professor of psychiatry at Harvard Medical School and has been an esteemed thought leader in the field of psychiatry and schizophrenia. Dr. Coyle's lab is focused on understanding the neurobiology of serious mental illness and his work has been very influential in developing more effective neuropsychiatric treatments, including for schizophrenia.

At next week's webcast event, Dr. Coyle will further discuss the opportunity for CTP-692, including the NMDA mechanism and the utility of D-serine for schizophrenia. We look forward to an informative discussion with Dr. Coyle and hope that you will have the opportunity to join us.

Let me pause here and ask Marc to now review the financial results.

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Marc A. Becker, Concert Pharmaceuticals, Inc. - CFO [5]

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Thank you, Jim. As I review our third quarter financial results, please reference the financial tables found in today's press release. Research and development expenses were $13.5 million in the third quarter of 2019 compared to $11 million in the third quarter of 2018, an increase of $2.5 million. The increase in research and development expenses relates primarily to the clinical development of CTP-543, including multiple ongoing clinical trials as well as increased expenses associated with the manufacturing of CTP-692 to support ongoing clinical development. As a reminder, our financial resources are dedicated to these proprietary candidates. For our partnered programs, including AVP-786, all development costs are the responsibility of our collaborators.

General and administrative expenses were $4.7 million for the third quarter 2019 compared to $6.3 million for the same period in 2018. The decrease of $1.6 million is primarily attributable to decreases in legal and employee-related expenses.

Our net loss for the third quarter of 2019 was $17.2 million or $0.72 per share compared to a net loss of $17.4 million or $0.74 per share in the third quarter of 2018. Finally, we ended the third quarter of 2019 with $121.5 million in cash, cash equivalents and investments.

We expect our cash burn for the year to be approximately $59 million, which is net of $16 million in escrow proceeds received from Vertex in the first quarter. Under our current operating plan, including the planned advancement of CTP-543 into Phase III development next year, we believe our cash position is sufficient to fund the company through 2020. This concludes our prepared remarks.

And we would be happy to answer any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Adam Walsh of Stifel.

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Xiaodong Zhang, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [2]

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This is Edwin Zhang on for Adam. Our first question is on pipeline. Beyond 543 and 692, what are the next potential clinical program emerging from your pipeline? And I have a follow-up.

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [3]

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Yes. Well, thanks very much for the question. This is Roger. So we certainly have an ongoing effort in preclinical pipeline compounds and have a number of exciting entities that potentially could come forward. But as we've communicated previously, we think that the most effective use of our assets right now is to conduct pipeline expansion by looking at additional indications for existing clinical compounds. In particular, for 692, we believe that there are multiple neuropsychiatric indications that are potentially treated by that neurotransmitter.

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Xiaodong Zhang, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [4]

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Okay. We know you have named a new Chief Legal Officer. Related to this appointment, is there any new strategic shift on the current IP issues? And also, can you remind us the legal milestone in the coming months?

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [5]

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Well, in terms of legal milestones, as you may be aware, we have filed, as I discussed, a challenge to the PTAB ruling and intend to vigorously dispute that going forward. In terms of the appointment of a new Chief Legal Officer, that's really to strengthen our executive team to oversee the legal function as a whole and to give us strength as we move forward in our legal endeavors.

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Operator [6]

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Your next question comes from Difei Yang of Mizuho.

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Alexander Lim, Mizuho Americas LLC - MD & Head of Investment Banking [7]

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This is Alex on for Difei. So first one on CTP-543. Could you remind us the considerations that went into testing both QD and BID dosing? And then for the Phase III, do you expect to test both dosing regimens or just one, assuming the QD trial shows similar efficacy and safety?

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [8]

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Yes, thanks for the question, Alex. So as we've indicated, with CTP-543, this is a compound and a mechanism that's never really been studied in terms of its dose regimen in the context of alopecia areata. And primarily, our hope is to better understand the pharmacokinetic, pharmacodynamic relationship and to assess if there are opportunities to simplify the dose regimen or otherwise to discover how best to administer the compound for treating the disease. In addition to that, it has the benefit of increasing the number of patients who have been exposed to the compound and decreasing the burden on patients who are going to be in the Phase III study. So in terms of what we expect to do going forward into Phase III, we are currently assessing that. We won't really be able to answer the question until we've spoken with FDA. We do think that both 8-milligram and 12-milligram twice-daily doses are -- and of course, depending upon what we do with the dose regimen studies, the 16 and 24 may be appropriate for the Phase III studies. However, I'll also note that, as we've stated, we have seen some better results, particularly at the higher dose response with the 12-milligram than with the 8-milligram doses. So this is something that we're actively assessing and we'll be talking about with the agency.

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Alexander Lim, Mizuho Americas LLC - MD & Head of Investment Banking [9]

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Okay. Great. And then just switching to 692 and the Phase II trial design, do you expect 692 to have efficacy on the positive symptoms? And then maybe remind us the rationale for measuring outcomes on both positive and negative symptoms?

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James V. Cassella, Concert Pharmaceuticals, Inc. - Chief Development Officer [10]

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Yes, this is Jim. So yes, so we -- the literature tells us that D-serine is very special in many ways and that it does support improvement on both positive and negative symptoms as well as in cognitive functioning. So our rationale for looking at the total PANSS score, which is the primary endpoint, encompasses all of those domains. So as our primary endpoint, we'll be looking at total score, which covers a positive, negative and sort of general psychopathology. So that's our primary endpoint. For looking at the subtypes of positive symptoms and negative symptoms, we will be able to pull out those domains as secondary analysis as we go forward. But the literature does tell us that we can move positive symptoms and negative symptoms as well as improved cognitive functioning. So we're really looking at the Phase II trial as a way to really gauge the effects on the overall improvement in the patient as well as looking at the individual domains of their symptomatology.

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Alexander Lim, Mizuho Americas LLC - MD & Head of Investment Banking [11]

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Okay. Great. And just one last quick one, if I may. Anything -- could you share what would be a clinically meaningful improvement in the positive versus the negative symptoms there on the PANSS score?

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James V. Cassella, Concert Pharmaceuticals, Inc. - Chief Development Officer [12]

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Again, we're powered for looking at the total change score in the PANSS. So the powering is designed to show that we will have at least a 5-point improvement over placebo in the total score. And that's how we've designed the trial to look at the overall total score. So a 5-point difference versus placebo is the powering and also believe to be clinically meaningful.

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Operator [13]

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(Operator Instructions) Your next question comes from Esther Hong of Janney.

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Esther Lannie Hong, Janney Montgomery Scott LLC, Research Division - Director of Biotechnology [14]

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So on CTP-692. So there have been some investigator-sponsored studies of non-deuterated D-serine. Can you provide any additional background on those studies, the outcome, if -- how those studies looked at primary endpoints? And did they use the PANSS score? Any sort of background information on non-deuterated D-serine?

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James V. Cassella, Concert Pharmaceuticals, Inc. - Chief Development Officer [15]

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Sure, absolutely, Esther. Thanks for the question. And it's a great question because D-serine has a long history, actually, the NMDA hypothesis, the hypofunction hypothesis goes back over 20 years, and this has been an area of interest for a long time. There have been probably around a dozen studies that have looked at D-serine in the clinic, and a good portion of those studies have been positive.

To answer your question specifically about some of the details, they do use PANSS. It's commonly used. People have looked at the total score like we're doing. And in the cases where there have been positive results are reported, they do see movement in the total PANSS. And when you look specifically at the subscales, you can see movement on the positive symptoms and on the negative symptoms. And I think the movement on the negative symptoms is a special hallmark of the D-serine literature. I think, when we looked at all the papers that have been published previously, we looked at the ones that have been positive and the ones that have been negative and showing clinical benefit. There are some differences between those studies and some of the studies, where there's been positive results have been very educational for us in designing our trial, but we also look at the studies that haven't shown positive results to see what we can glean from those studies as well, and whether they've looked at the drug on top of a drug like clozapine or they've looked at in-patients or looked at different varieties of patients, we also learn from that in our inclusion and exclusion criteria. So basically, we've talked with the KOLs that have been involved with these -- with D-serine for a long time. We've looked at those studies, and we really have designed our Phase II program and looking forward for our Phase III to be optimally designed to really pull out the best benefit.

And Roger?

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [16]

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Yes. So thanks, Jim. A couple of other comments in general about the clinical studies with D-serine and how they inform CTP-692. One of them is that the studies which have shown more mixed results were conducted at a lower-dose level. So that was at the 30-milligram per kilogram dose level or roughly 2 grams per patient per day. And as you look at the studies that were conducted at higher doses. Those appear to be uniformly positive. So that's one of the things in terms of thinking about the PK/PD relationship that has led us to think about the doses that we're going to use. As Jim noted, we see a substantially higher exposure in the brain in our preclinical models with CTP-692 than we do with D-serine. And so we expect that the doses that we are assessing in the Phase II study, going up to 4 grams per day per person, adequately covers the dose range that's going to give us a very good readout on the properties of 692 as a adjunctive treatment for schizophrenia. And finally, one of the things that we pointed out in prior discussions of 692 is that it has -- in our study, it has remarkably low inter-person variability in the PK work that we did in both single and multiple ascending dose assessments. And that's in contrast to what's been reported for D-serine, which has been stated to have a high level of variability in clinically relevant doses. So I think all of those point to a favorable profile as well as, of course, the improves renal safety that we hope to obtain for 692.

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Esther Lannie Hong, Janney Montgomery Scott LLC, Research Division - Director of Biotechnology [17]

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Great. And then just a follow-up. Can you speak a little bit then about the potential expansion opportunities for 692? Will you wait until data from the Phase II study in symptoms associated with schizophrenia? Or any thoughts on that?

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [18]

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Well, as we've indicated previously, CTP-692 is a deuterium-modified version of a native -- a human endogenous neurotransmitter, which is altered, certainly it's schizophrenia and there's evidence of alterations in a number of others neuropsychiatric indications as well. We think that this is -- there's a lot of overlap in neuropsychiatric disease. And if we see movement in schizophrenia, that's certainly going to be a positive indicator for its potential in other disease states. We haven't made any decisions yet as to whether we're going to move forward in additional indications prior to the readout of the Phase II study, but that's something that we're actively assessing.

As far as the specific indications, there are multiple disease states, which there is some indication may be susceptible for treatment with 692, but we're not ready to identify a specific one at this time.

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Operator [19]

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Your last question comes from Robin Garner of LifeSci Capital.

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Robin Thai Garner Kalley, LifeSci Capital, LLC, Research Division - Senior Analyst [20]

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I'd like to ask you a few questions on CTP-692. Could you elaborate further on what aspect of its structure might be leading to that lower inter-person variability?

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [21]

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Robin, thanks for the question. We really don't know what all the variables are because the metabolism of both D-serine and CTP-692 is fairly complex. It has active transport. This is not a compound that is passively uptaking this amino acid and went pass-through membranes by itself. So there is an active transport aspect to its absorption both from the periphery or from the gut into the periphery and the periphery into the CNS. It is interesting to us that we see continued very high levels of absorption with 692, which is essentially dose linear, as we move up to extremely high levels of absorption. So it seems like it's a great substrate for the transporters. And as I noted, we also see much higher brain levels relative to the periphery. So in terms of the overall pharmacokinetics, we know that it's well recognized by the endogenous transporter system and probably is slower in terms of its degradation by all of the mechanisms that degrade the compound. But in terms of really being able to nail down the specifics, I would guess that it's contribution of multiple effects, but we can't give you a specific right now.

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Robin Thai Garner Kalley, LifeSci Capital, LLC, Research Division - Senior Analyst [22]

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Okay. And also, given the range of studies that we've already seen within D-serine. Do you have any thoughts on -- or can you share kind of what's the appropriate time point for a primary endpoint?

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James V. Cassella, Concert Pharmaceuticals, Inc. - Chief Development Officer [23]

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Yes. So the studies have ranged in duration from a few weeks out to 16 weeks. When you look at the data, we think that you can see effects as early as around 2 weeks. And we're -- we decided on a 12-week treatment course. We believe that, that gives us the best opportunity to look at the establishment of the effect and a little bit of the durability of the effect. And clearly, if we're looking at things like negative symptoms, it gives us the opportunity to really see those things grow to their full extent as well.

So I think that we've optimized on 12 weeks by a combination of looking at the literature and talking to a lot of the experts in this space.

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Operator [24]

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I am showing no further questions. At this time of line -- I would now like to turn the conference back to Ms. Justine Koenigsberg.

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Justine E. Koenigsberg, Concert Pharmaceuticals, Inc. - SVP of Corporate Communications and IR [25]

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Thanks. We'd like to thank everyone for joining us this morning. Please note that we will be participating at both the Stifel and Jefferies London Conferences later this month, and certainly hope to see many of you there. This concludes today's call. Thank you for joining us.