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Edited Transcript of CNCE earnings conference call or presentation 1-Aug-19 12:30pm GMT

Q2 2019 Concert Pharmaceuticals Inc Earnings Call

Lexington Aug 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Concert Pharmaceuticals Inc earnings conference call or presentation Thursday, August 1, 2019 at 12:30:00pm 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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* Carter Lewis Gould

UBS Investment Bank, Research Division - Large Cap Biotech Analyst

* Difei Yang

Mizuho Securities USA LLC, Research Division - Executive Director of Americas Research

* Esther Lannie Hong

Janney Montgomery Scott LLC, Research Division - Director of Biotechnology

* Joon So Lee

SunTrust Robinson Humphrey, Inc., Research Division - VP

* 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. My name is Celine, and I will be the conference operator today. At this time, I would like to welcome everyone to the Concert Pharmaceuticals' Second Quarter 2019 Financial Results. (Operator Instructions) I would now like to turn the conference over to your host, Ms. Justine Koenigsberg. You may begin.

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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' Second Quarter 2019 Investor Update. Our press release announcing our financial results was issued earlier this morning, and an electronic copy of our release is also available on our website at concertpharma.com. Joining me this morning with prepared remarks are Roger Tung, our President and CEO; and Marc Becker, our CFO. We will also be joined by Nancy Stuart, our Chief Operating Officer; and Jim Cassella, our Chief Development 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 also 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. As we move into the back half of 2019, we look forward to key clinical events for each of our core pipeline products, including our 2 proprietary compounds, CTP-543 for alopecia areata and CTP-692 for adjunctive treatment of schizophrenia; as well as AVP-786 for Alzheimer's agitation, which is being developed by Avanir.

Beginning with CTP-543, our JAK 1/2 inhibitor for the treatment of alopecia areata. We believe our compound has potential to be a best-in-class treatment, and we expect to advance the drug candidate into Phase III testing next year. The results from the interim analysis for the 4-milligram BID and 8-milligram BID cohorts in our Phase II dose range finding study were very positive. They set the stage for what appears to be a highly attractive profile for the treatment of alopecia areata, privilege autoimmune disease for which there is no currently approved treatment available for patients. The next important milestone for CTP-543 is the top line data for the 12-milligram BID cohort that we plan to report early in September, which is the final top dose we are assessing.

We also have 2 ongoing open-label dose regimen trials assessing BID versus QD dosing of CTP-543. The first study compares 8 milligrams BID to 16 milligrams QD. It's fully enrolled, and data are expected by year-end. We expect results from this study to support our end of Phase II dialogue with the FDA. We intend to read out results from the second study comparing 12 milligrams BID to 24 milligrams QD in the first half of next year. On the legal front, we have filed a notice of appeal with the Federal Circuit Court challenging the PTAB's April 2019 decision on the patentability of our CTP-543 composition of matter patents. We believe we have strong arguments for this appeal. The process should take about 18 months to 2 years for a final decision. In a scenario where we have no patent protection, we would rely on regulatory exclusivity. With regulatory exclusivity, the earliest we are likely to face generic competition is about 6.5 years after approval. It's important to keep in mind this litigation relates to a single patent and as the IPR appeal proceeds, we are actively pursuing other IP protection for CTP-543.

Now turning to the secondary -- second proprietary candidate in our pipeline. CTP-692 is a deuterated form of D-serine that we are initially developing as an adjunctive treatment for schizophrenia. The Phase I results have given us confidence that our deuterium modification has provided potential for a much safer product profile than that of nondeuterated D-serine. CTP-692 has demonstrated multiple advantages compared to nondeuterated D-serine. In addition to a dramatically improved renal safety profile, we saw a much higher brain exposure in rats compared to D-serine. In our Phase I trial, CTP-692 displayed well-behaved pharmacokinetics, significantly lower inter-subject variability than has been reported for D-serine. The safety advantages in the SAD and MAD trials show that the drug was well-tolerated over the dose ranges tested, which included the doses expected to be evaluated in Phase II testing.

Importantly, consistent with our preclinical observations, key blood and urine markers of kidney function did not indicate any signs of renal impairment. Taken together, our data suggests that we will be able to explore a sufficient dose range in our Phase II trial to conclusively evaluate the therapeutic efficacy and safety of CTP-692. Phase I single and multiple ascending dose data will be presented next month at the European College of Neuropsychopharmacology Congress in Copenhagen, and we look forward to discussing our drug candidate with investigators in the psychiatric community.

Our Phase II trial for CTP-692 is expected to begin in the fourth quarter of this year. CTP-692 is being developed as an adjunctive treatment for schizophrenia. Patients enrolled in the Phase II trial will be stable on their existing antipsychotic medications and will be randomized to receive 1 of 3 CTP-692 doses compared to placebo. The doses we intend to evaluate are 1, 2 and 4 grams CTP-692, administered once daily over a 12-week treatment period.

The primary endpoint will be the change in PANSS total score, a commonly-used rating scale for schizophrenia studies. We intend to design the Phase II dose-ranging trial to be sufficient to support advancement into Phase III. Overall, we are pleased that CTP-692 demonstrated favorable clinical properties, and we look forward to advancing it into Phase II later this year.

Let me now touch on the third clinical candidate, AVP-786, which is a partner compound. Avanir, the subsidiary of Otsuka Pharmaceuticals, announced the second Phase III for AVP-786 in Alzheimer's agitation is fully enrolled, and the trial is expected to be completed in October. Otsuka has also stated that they expect to report top line results this year. There are no FDA-approved treatments for Alzheimer's agitation. This is an enormous market opportunity, and under the structure of our agreement, not only are we entitled to additional regulatory and commercial milestones, but also future royalties on worldwide product sales.

Let me conclude my remarks by emphasizing our optimism for Concert's pipeline and our enthusiasm for the continued data readouts on the horizon. I'd like to pause here and ask Marc to review our second quarter financial results before we open the call to questions.

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Marc A. Becker, Concert Pharmaceuticals, Inc. - CFO [4]

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Thank you, Roger. As I review our second quarter financial results, please reference the financial tables found in today's press release. Revenue was modest in the first and second quarter of 2019, totaling $1.1 million as a result of a license agreement with Cipla Technologies. In the first quarter of 2019, we licensed CTP-354, a novel compound, to Cipla, who intends to develop it for spasticity and other relevant CNS indications. Research and development expenses were $14.5 million in the second quarter of 2019 compared to $8.9 million in the second quarter of 2018, an increase of $5.6 million. The increase in research and development expenses related 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.

General and administrative expenses were $5 million for the second quarter of 2019 compared to $5.5 million for the same period in 2018. The decrease of $500,000 is attributable to decreases in legal and employee-related expenses. Our net loss for the second quarter of 2019 was $18.7 million or $0.78 per share compared to a net loss of $13.3 million or $0.57 per share in the second quarter of 2018. The increase in net loss is a result of higher R&D spending in the second quarter of 2019 compared to the second quarter of 2018.

Finally, we ended the second quarter of 2019 with $136.6 million in cash, cash equivalents and investments. As we move through 2019, we expect our cash burn 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 into the second half of 2020. This concludes our prepared remarks and we would be happy to address any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Joon Lee from SunTrust.

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Joon So Lee, SunTrust Robinson Humphrey, Inc., Research Division - VP [2]

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And congrats on all the progress. Regarding your upcoming schizophrenia study for 692, I understand it's going to be an adjunctive therapy, potentially making the opportunity potentially much bigger. And it seems you'll be using positive and negative symptom scale. Given that these patients are already on stable dose of antipsychotic, what would be an appropriate inclusion criteria? Would you enroll nonresponders or those who have failed a certain number of antipsychotics? And based on the experience with D-serine, what would be the expected improvement on the scale with 1, 2 and 4 grams of 692? And the second question, if I may, is are you able to disclose some of the arguments made in your appeal that supports the novelty of 543? I know you guys have prevailed under similar situations in the past using some unexpected findings of deuterated drugs. I would be curious to know what, if any, unique drug properties you were able to define for the deuterated ruxolitinib.

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

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Joon Lee, thanks very much for the question. I'll take the second part of that first, and then I'll give the podium over to Jim to take the first part of it. Regarding the second part, we've laid out our argument structure in our briefs for the -- before the PTAB. So those are generally the types of arguments that we'll be making. We do think that there is really a difference, not only quantitatively but qualitatively, between CTP-543 and ruxolitinib. It's probably inappropriate to comment in greater detail at this point, since we will be making those arguments more finely in our briefs to the Federal Circuit, but the general structure of our arguments are already public. And we think that we have very good reason for why those should prevail. Jim, could you take the clinical question?

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

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Joon, thanks for the question. It's a great question. So in schizophrenia, as we all know, there have been -- antipsychotics have been used for decades now. And when you look at the atypical antipsychotics, they're used around the world. And we know that they do not adequately treat all the symptoms of schizophrenia. So generally, what you have is a very strong effect on mostly the positive symptoms, but you still have residual symptoms leftover, negative symptoms and cognitive functioning as well as with the positive symptoms. So I think that the patient population as a whole around the world are generally underserved in treating all of the symptoms.

So our approach on looking at adjunctive therapy is that with a compound and a mechanism like 692 addresses using a deuterated form of D-serine, we know that the clinical trials have shown effects on positive and negative symptoms as well as cognitive functioning. So I think we stand in a position where we can help the overall benefit of the patient by improving on the symptom domain. So I think that's really the approach we're taking. In terms of identifying these patients, a scale like the PANSS is widely used around the world. We can use that to identify the patients that still have symptoms remaining by their PANSS scores, and we'll be able to use that PANSS then as a way of measuring the improvement with our compound. This has been done with the D-serine trials that have been reported in the literature. So I think we have a very good basis for believing that we can show benefit there on the symptom profile.

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Operator [5]

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Our next question comes from the line of Adam Walsh from Stifel.

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Xiaodong Zhang, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [6]

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This is Edwin Zhang on for Adam. First, congrats on all the progress you made last quarter. A quick question on CTP-543. We know it is going to test 12-milligram twice daily and 24-milligram once daily in an open trial -- open-label trial. So to my understanding, this 24-milligram trial will not be part of the discussion in the end of Phase II meeting with the FDA early next year. So what are the factors that drive you consider doing this trial? Are there any PK/PD data to support this?

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James V. Cassella, Concert Pharmaceuticals, Inc. - Chief Development Officer [7]

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This is Jim. So we have an ongoing trial with the -- looking at the 8-milligram BID and the 16-milligram QD doses. And this is an open-label trial that is currently ongoing. And you mentioned the second open-label trial, which is the 12-milligram BID versus 24-milligram QD. So these are open-label trials. The intent of the 12-milligram BID, 24-milligram QD trial was to help us understand more fully the once-a-day versus twice-a-day dosing. It is an open-label trial. When we have our end of Phase II meeting with the FDA. If the trial is not completed by that time, we will be able to incorporate that data into our understanding of once-a-day versus twice-a-day dosing. But the point of that trial was also that we were able to expand our footprint and looking outside of the United States, and that trial is being conducted in part in Canada. So we're able to engage now Canadian investigators, expand our profile to Canadian patients. And so that's also another purpose of the trial as well. So the data will be very useful for us in many ways, but at the time that we have our end of Phase II meeting, we'll have our first dose regimen trial completed, and whatever data we can use from this trial we'll be able to incorporate.

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

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Right. This is Roger. I'd also like to add in that what it enables us to do is to get greater patient exposures for the 16-milligram total dose and the 24-milligram total dose. That will help to inform our understanding of the overall safety and tolerability profile of the compound as well as efficacy in advance of our discussions with FDA.

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Operator [9]

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Our next question comes from the line of Carter Gould from UBS.

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Carter Lewis Gould, UBS Investment Bank, Research Division - Large Cap Biotech Analyst [10]

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I guess, just Roger, maybe if you could take a step back and talk briefly, at this point, how you see sort of the competitive environment emerging across alopecia? You guys have made really good progress and have a clear path forward. But maybe just step back and you kind of compare all the competing approaches and kind of where you think you stand and how you stack up at this point?

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [11]

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Thanks for the question, Carter. Yes, I think it's a great question. As you know, there was some new data in alopecia that was released by Aclaris recently, and that speaks to, in general, the ability of JAK inhibitors to have positive effects in treatment of alopecia areata. I think in terms of the level of efficacy that we're seeing with CTP-543, so far, we have what we see as at least equivalent to the best data that has been released to date and we have yet to test our highest dose. So we continue to believe that 543 has the potential to be the best-in-class agent with what has been in our reported trials or reported doses, a very good tolerability profile, tolerability and safety. So I think that there is a high level of potential for successful treatment of a patient community that has not had access to well studies and approved treatments. I think CTP-543 has the opportunity to be one of the first, at least, treatments available to patients and potentially the best-in-class treatment. So we're very enthusiastic about the profile that we have. And we look forward to seeing how this plays out. But we like what we see with 543.

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Justine E. Koenigsberg, Concert Pharmaceuticals, Inc. - SVP of Corporate Communications and IR [12]

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Operator, we can move to the next question.

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Operator [13]

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Our next question comes from the line of Esther Hong from 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, are there any atypical antipsychotics where CTP-692 would not be used as an adjunctive treatment? And if so, what percent of the patient population takes those atypical antipsychotics? And then lastly, if you can discuss any feedback or discussions you've had with the medical community on CTP-692?

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

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Sure. Esther, this is Jim. So in the literature, the only drug that seems to -- that we will not use with -- based on literature, we will not use with 692 is clozapine. So clozapine is an atypical. It's a basically a third line therapy, it's used in a very small percentage of patients. It's only a handful of percentage of patients. Basically, the belief is that clozapine might work through its many actions that it has, but there hasn't been much positive data with drugs like D-serine or D-cycloserine when added on top of clozapine. So I think that's the only drug that we would not be putting our drug on top of.

I can take a shot at your next question, which is the medical community that we've spoken with has been very enthusiastic about looking at a mechanism like D-serine. It really comes out of the NMDA hypofunction hypothesis. It's a different mechanism that could really add on to the dopaminergic antipsychotics that have been used for the last 50, 60 years. I think being a different mechanism, one that is relevant with patients that have hypofunction of NMDA reflected by low D-serine levels and other data in the literature suggests that this is a very viable mechanism. I think the clinical data that's been generated with D-serine in the academic studies to date have been -- while there's been some studies that haven't worked out, the studies that have been positive have been very encouraging. So I think there is -- we get a lot of excitement. I've worked in the schizophrenia space before. A lot of the KOLs and the clinical trialists that I speak with are very excited to be involved in this program.

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Operator [16]

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(Operator Instructions) Our next question comes from the line of Robin Garner from LifeSci Capital.

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Robin Thai Garner Kalley, LifeSci Capital, LLC, Research Division - Senior Analyst [17]

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I wanted to ask a question regarding CTP-692. You mentioned the PANSS score as a primary endpoint. Can you speak to any secondary endpoints that would be important to patients and to the FDA? And secondly, another question regarding your expenses going forward. So the R&D expense was lower in Q2 than in Q1. How should we think about that R&D expense for the rest of the year?

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

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So I'll take the first part of the question, and then I'll let Marc take the second. So the PANSS is a great scale for looking at the total benefit. So that's why the primary -- it will be used as a primary endpoint. Another very important endpoint will be a Clinical Global Impressions. So I think you can rely on us using a Clinical Global Impressions Scale as well in the trial. One of the other things to consider when you look at the PANSS, and you look at total symptomatology that's reflected by the total PANSS score, there also are subscales associated with the PANSS. And primarily, when you look at the traditional analysis of the PANSS, there's 3 subscales. It's on positive symptoms, on negative symptoms and general psychopathology. So you can be assured that at least as exploratory measures, we'll be looking at those things as well.

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Marc A. Becker, Concert Pharmaceuticals, Inc. - CFO [19]

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This is Marc. On the R&D question, yes, our R&D expense was around $15 million this quarter, last quarter, quarter before that. We gave our cash burn guidance to be $59 million for the year. And I think the R&D expense is just going to reflect the upstart of CTP-692 in Q4, and then the ongoing advancement of CTP-543 in the few clinical trials that we have. So I expect that overall, we're going to come in at that guidance, which is a little lower than the last time, that we announced our cash guidance, and that's just reflecting our own tightening of our assumptions and -- as well as some additional manufacturing efficiencies.

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Justine E. Koenigsberg, Concert Pharmaceuticals, Inc. - SVP of Corporate Communications and IR [20]

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I think we can take our final question.

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Operator [21]

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Our next question comes from the line of Difei Yang from Mizuho Securities.

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Difei Yang, Mizuho Securities USA LLC, Research Division - Executive Director of Americas Research [22]

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Just a couple. The first one is on CTP-692. Would you remind us the hypothesis, why despite having higher exposure, the renal side effects has been drastically improved?

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [23]

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Difei, thanks very much for the question. Well, I've got to say that the mechanism of action of the toxicity of D-serine is not fully understood. So we can't give a detailed answer. We do see that there is a very substantial change, both in the markers of kidney dysfunction as well as actually in histological exams. So this is a very well-understood phenomenon. There are a number of hypotheses for why that toxicity occurs. Clearly, we are differentiated in terms of the metabolic profile of CTP-692 versus D-serine, and that may be playing into the difference in toxicity. This is a quite impressive, and frankly, unprecedented effect. So we will be looking into it, I'm sure, in more detail in the future.

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Difei Yang, Mizuho Securities USA LLC, Research Division - Executive Director of Americas Research [24]

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Roger, then the final question is on CTP-543. Would you share with us your calculation or your thinking behind, even without any additional IP, that the asset will be protected for 6.5 years?

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [25]

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Sure. So the basis for that analysis is that we are highly confident that CTP-543 is a new chemical entity, both based on discussions that we've had with other deuterated compounds and more specifically around 543 with FDA. And as an NCE, it is entitled to 5 years of regulatory exclusivity. This is a disease that also has a pediatric component to it. So as we do studies that are required for the analysis of the compound or the study of the compound in pediatric community, that would entitle us to an additional 6 months of exclusivity. And that's before an ANDA could be filed. The expected time for processing that would be roughly at least a year, we would guess, just based on current precedent. So that would be, we feel conservatively based on current data, 6.5 years.

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Difei Yang, Mizuho Securities USA LLC, Research Division - Executive Director of Americas Research [26]

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Thank you, Roger, for the clarification. And very much look forward for the CTP-543, 12-mg readout in September.

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Roger D. Tung, Concert Pharmaceuticals, Inc. - Co-Founder, CEO, President & Director [27]

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Thank you. As do we. Appreciate the question.

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Operator [28]

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There are no further questions at this time. I will now turn the call back over to Ms. Justine Koenigsberg.

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Justine E. Koenigsberg, Concert Pharmaceuticals, Inc. - SVP of Corporate Communications and IR [29]

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Great. Thank you. I would like to thank everyone for joining us this morning. Please note that we'll be participating at the H.C. Wainwright and Janney conferences next month and the Cantor conference in early October. We hope to see many of you there. This concludes today's call. Thank you.

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Operator [30]

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This concludes today's teleconference. You may now disconnect.