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Edited Transcript of SUMM.L earnings conference call or presentation 11-Oct-19 12:00pm GMT

Q2 2019 Summit Therapeutics PLC Earnings Call

Oxford Oct 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Summit Therapeutics PLC earnings conference call or presentation Friday, October 11, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Glyn O. Edwards

Summit Therapeutics plc - CEO & Executive Director

* Richard Pye

Summit Therapeutics plc - Senior Director of Corporate Affairs & Communications

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Conference Call Participants

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* Justin Alexander Kim

Oppenheimer & Co. Inc., Research Division - Associate

* Ross Cameron Blair

Rx Securities Limited, Research Division - Healthcare Analyst

* Timothy Chiang

BTIG, LLC, Research Division - MD and Specialty Pharmaceutical & Biotechnology Research Analyst

* Yun Zhong

Janney Montgomery Scott LLC, Research Division - Equity Research Analyst & Director of Biotechnology Research

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Presentation

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Richard Pye, Summit Therapeutics plc - Senior Director of Corporate Affairs & Communications [1]

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Thank you, and welcome to everyone joining us on the call today to discuss our financial results for the second quarter and half year ended July 31, 2019. Earlier today, we issued a press release summarizing these results. If you had not had a chance to review, it is available on our website at www.summitplc.com.

I'd like to remind listeners that we will be making forward-looking statements during this call. I refer you to our filings with the Securities and Exchange Commission for a description of the risks and uncertainties associated with these forward-looking statements and an investment in Summit Therapeutics. While we may elect to update these forward-looking statements at some points in the future, we specifically disclaim any obligation to do so, even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today.

Joining me on the call today is our Chief Executive Officer, Mr. Glyn Edwards. And following our prepared remarks, there will be a question-and-answer session.

I'd now like to turn the call over to Glyn for an overview of our activities during the first half of the year and expectations for the remainder. Glyn?

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Glyn O. Edwards, Summit Therapeutics plc - CEO & Executive Director [2]

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Great. Thank you, Richard, and thank you all for joining us today. To be a leader in the fight against antimicrobial resistance, you have to think differently. It's about having the technologies to precisely address the patient infection. It's about developing compounds to show that they're significantly better than that's already out there. And it's about demonstrating real value, value to the payer, but really importantly, value to their patients. And at Summit, we're doing all of these things. Each point to differentiate -- differentiation is exemplified by our lead precision antibiotic, ridinilazole.

In early antibiotic discovery, the focus used to be on drugs that could address the greatest number of infections, so called broad spectrum agents. Several things have changed in the field that now allow us to instead focus on developing very targeted antibiotics, getting the right drug for the right bug for the right patient. Firstly, there's been a significant advance in diagnostics, which really continues at a pace allowing physicians to know not only what bacteria are causing the infection, but also there's a susceptibility to marketed antibiotics. And we believe that as the field of targeted antibiotics advances, this will only become faster and more specific.

And then secondly, it's becoming clearer that the microbes that live on within us play a really major role in our health. Broad spectrum antibiotics and other non-antibiotic medicines cannot set the delicate and diverse mechanism of these microbiomes, and these could have long-lasting effects on human health. It's therefore, particularly, advantageous to specifically target the bad bacteria and spare the microbiomes. The impact of the microbiome on health and disease is extremely evident in C. difficile Infection or CDI. The onset of CDI is often linked to a conserved gut microbiome and further disruption by the broad spectrum antibiotics used as standard of care is tied to a high recurrence rate.

The ridinilazole is designed to selectively kill C. difficile. The effect as shown in our Phase II clinical trial is that the natural gut microbiome can protect against CDI recurrence. And in the Phase II clinical trial, ridinilazole showed a 60% reduction in recurrences and superiority over the current standard of care in sustaining cures.

The last change in the antibiotic field that I will discuss is the emergence of antibiotic resistance and the implementation of antibiotic stewardship programs in hospitals as a result. Stewardship called for the use of the right drug for the right patient at the right time and in the right dose. The more targeted an antibiotic is for that bacteria is meant to kill, the less collateral damage it inflicts. Broad-spectrum antibiotics may be specifically dosed for a certain pathogen, but this could be suboptimal for another pathogen, and suboptimal dosing is one of the factors that create resistance.

Ridinilazole is aligned with good stewardship as it's an antibiotic specific to C. difficile with minimal impact on other bacteria. Ridinilazole is designed to improve patient outcomes in CDI and is currently being evaluated in a global Phase III clinical trial called ReCoDIFy. These landmark design trials have 3 features: a superiority endpoint; inclusion of health economic measures; and deep, deep microbiome analysis as we seek to position ridinilazole as the frontline treatment for CDI.

We aim to achieve superiority in sustained clinical response in our Phase III trials. To achieve this endpoint, a patient must be cured at the end of 10 days of treatment and remain cured for not having a recurrence in the following 30 days. It is a measure where vancomycin is failing in about 1/3 of patients and where we have seen positive impact of ridinilazole in our Phase II clinical trial.

The trials were initiated in February 2019. They are also designed to show the economic value of treating patients with ridinilazole and CDI, and this is done through various health economic measures, including length of hospital stay and readmission rates. CDI is expensive to treat, and these patients are often isolated and have longer hospital stays on average than those with other diseases.

And in addition, those with recurrent episodes of CDI are typically sicker with increased morbility and mortality. And if ridinilazole can get patients out of the hospital sooner and also prevent readmissions, we will have the economic arguments to treat patients frontline with ridinilazole at a fair price for its value. And we estimate that a drug that can reduce recurrences by an absolute 15%, remember the 15, 1-5, which save between $1.4 billion and $2.7 billion in the U.S. alone. And to put that in perspective, in the Phase II clinical trial, ridinilazole reduced recurrences by a larger amount, by an absolute 20%.

Thus, ReCoDIFy is undertaking a deep analysis of the impact ridinilazole has on the microbiome patients compared to vancomycin, and the ability of ridinilazole to treat CDI while simultaneously preventing damage to the microbiome is central to its ability to reduce rates of disease recurrence.

Interestingly, at the recent IDWeek conference, we were excited to present additional clinical data from the Phase II trial. And we showed new microbiome analyses that, again, highlighted the minimal impact of ridinilazole on the gut's environment in stark comparison to the deleterious effects of vancomycin. We also showed effects on the metabolome and how ridinilazole-treated metabolome is a better metabolome than one treated with vancomycin and also better able to resist C. difficile.

Further, we showed that ridinilazole significantly improved patient quality of life in early and long-term measures of physical and mental health. And to me, it was stunning that patients on ridinilazole scored better for quality of life after only 5 days of treatment. Our strategy of designing better products and demonstrating their clinical and economic benefits applies to all of the candidates in our pipeline.

In March, we unveiled our DDS-04 series, the treatment to Enterobacteriaceae infections, and this series is part of a new class of antibiotic selective for Enterobacteriaceae such as E. coli, [Entasis] and pneumonia.

We've demonstrated further proof-of-concept data this past quarter in animal models of pneumonia and sepsis adding to the urinary tract infection data from ECCMID. With antibiotic resistance through Enterobacteriaceae rising, it's important to have new classes of antibiotics available, which have the potential to be equipotent across resistant and nonresistant strains, and we're currently in lead optimization.

Also this quarter, we presented data on our new class of antibiotics for the treatments in gonorrhea, SMT-571. It's shown in vitro potency against multi and extensively drug-resistant strains. Gonorrhoea is rapidly accruing resistance to standard of care, a combination of ceftriaxone and azithromycin. And once it reaches 5% resistance, the WHO usually switches its guidelines to recommend the next available treatment. And as of now, there is no next treatment.

These are exciting products. But just to get back to the main issue here, our overwhelming focus is on ridinilazole. That's where we are really putting all our efforts right now.

Looking ahead, we're aiming to build the fully integrated business of new antibiotics and to market ridinilazole in the U.S. We expect top line results from the Phase III trials in the second half of 2021. The trial initiation phase is progressing well with 17 countries open for involvement, including 9 new countries in August and September, more than half of the 300 planning sites are now open. Patient enrollment is 73 and is accelerating. It's early days. It's the foot of the hockey stick before we get to the heel, but we are encouraged. Should the results be positive, we expect to file for U.S. regulatory approval in 2022.

We've already been planning for the success most recently with the hiring of Ms. Anna Diaz Triola as Vice President of Marketing and Kevin McDermott as Vice President of Market Access. Both of these have expertise in marketing successful antibiotics, and we're excited to have them on board.

Ridinilazole has the potential to make a major impact for patients with CDI. We believe others see this potential as well. And in June, BARDA increased the total value of its award supporting the clinical and regulatory development of ridinilazole up to $63.7 million. With this announcement, they exercised an option to support the ongoing patient enrollment in voting in the Phase III studies, which brought the total committed funding out of that $63.7 million to $53.6 million.

I'll now provide an overview of our financial results for the second quarter ended 31st July 2019. We present Summit's results in accordance with International Financial Reporting Standards, IFRS, in pound sterling. But for convenience purposes, I'll give U.S. dollar equivalents for certain key numbers.

I'll begin with the income statement highlighting some of the key items. Other operating income for the second quarter ended July 31, 2019, was GBP 4.1 million as compared to GBP 2.7 million for the second quarter ended July 31, 2018. The increase related primarily to income pursuant to our funding contract with BARDA for the development of ridinilazole, which was GBP 3.5 million during the quarter, and this coincides with the initiation of the Phase III clinical trials.

Revenue was GBP 0.1 million in the second quarter ended 31st of July 2019 as compared to GBP 38 million for the second quarter ended July 31, 2018. Revenues in the second quarter ended July 31, 2019, relates to the release of the deferred upfront payment from Eurofarma Laboratórios for the exclusive right to commercialize ridinilazole in specified countries.

Revenues in the second quarter ended 31st July 2018 relate primarily to the release of all the remaining deferred revenue associated with the Sarepta Therapeutics agreement after the discontinuation of ezutromid for Duchenne muscular dystrophy in June 2018. The Sarepta agreement was terminated effectively August 2019, and there are no further material obligations from that contract.

Turning to expenses. Research and development expenses decreased by GBP 0.7 million to GBP 9.2 million during the second quarter from 2019 from GBP 9.9 million for the second quarter of 2018. This small decrease reflects the reduction in expenditure related to the historic DMD program and associated staffing costs, offset by the increased expenditure related to our CDI program as well as our antibiotic development activities.

General and administration expenses decreased to GBP 1.2 million for the second quarter ended July 31, 2019 from GBP 2.3 million from the second quarter of 2018. This decrease was primarily due to a net positive movement in exchange rate variances and the decrease in staff- and facility-related costs.

We reported a net loss for the second quarter ended July 31, 2019, of GBP 5.2 million as compared to a net profit of GBP 26.6 million during the second quarter of 2018, and this movement was driven by the previously discussed release of deferred revenue during the second quarter ended July 31, 2018.

I'd now like to discuss our current financial position and cash runway guidance. We ended our second quarter with cash and cash equivalents of GBP 20.9 million or $25.5 million compared to GBP 26.9 million at January 31, 2019. We are guiding that our existing cash resources, along with funds from our research and development cost-sharing arrangements, will be sufficient to fund the company through at least January 31, 2020.

Ridinilazole is an expensive project. Guidance for the next 2 years is that we'll need at least a further $140 million, and we expect about $25 million of that will come from BARDA R&D tax credits, et cetera, leaving about $115 million to be found, of which we expect to need about $50 million in the next financial year.

As an antibiotics company, we're in the business of cures. Current medications are failing patients in a variety of infectious diseases, and we have the opportunity to significantly improve our outcomes with our new classes of antibiotics. We are optimistic about the potential for ridinilazole as it progresses through its global Phase III trials and longer term for our DDS-04 and SMT-571 programs. We believe we have the right team and [science] for success.

And with that, I'll open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from the line of Ross Blair from Rx Securities.

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Ross Cameron Blair, Rx Securities Limited, Research Division - Healthcare Analyst [2]

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Congrats on the progress you're making in your Phase III trial for ridinilazole. And I just have a couple of questions today. Firstly, given your recent appointment, and is it your intent to keep hold of U.S. rights for ridinilazole? And my -- and second question is, is there anything else you could tell us about the current commercialization plans for ridinilazole? And third question, third and final question is how are you planning on differentiating SMT-571 in gonorrhea? And would the future trials, for example, would they also aim to demonstrate superiority?

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Glyn O. Edwards, Summit Therapeutics plc - CEO & Executive Director [3]

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Ross, thanks very much, and congratulations on your new appointment. So let's take 571 first. It's very early days at this stage. Resistance is a big issue. Resistance is growing. So we would expect to show that it's better against resistant patients, but it's highly likely that a program like that is going to be picked up by significant third-party funders. And so we expect that the primary drive for that development and the -- almost all the cost pickup for that will be in NGOs, particularly, aiming it at the developing world where there is real problems, leaving us the opportunity to market in the -- or to retain rights for the developed world.

So completely forgotten the first question. What was the first question? Oh, U.S. rights. Yes. Absolutely, we do intend to market within ridinilazole in the United States. It's a huge opportunity. There are 0.5 million new cases of C. difficile every year, and the current treatment, vancomycin, fails in approximately 1/3 of those patients. And we've shown in our Phase II and with all the signs that we have the opportunity to really make a big impact on that. And the trial is designed. So if successful, we'll have all the data that says why a doctor would want to prescribe it. We'll have all the data or including the quality of life data as well as the cure data that will mean the patient will want to be prescribed it. But also, we'll have the help of economic outcomes data that will tell the payers who are using ridinilazole frontline, and the majority of their patients will actually be a great economic move for them. So we think there is a massive opportunity for this product in United States.

Currently, our thoughts are for the rest of the world that we will ultimately find partners who will want to do that. And interestingly, as we look at growth projections, probably the most attractive market after the U.S. is going to be China.

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Operator [4]

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And the next question comes from the line of Tim Chiang from BTIG.

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Timothy Chiang, BTIG, LLC, Research Division - MD and Specialty Pharmaceutical & Biotechnology Research Analyst [5]

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I know you've provided the enrollment figure for the 2 new qualified studies. Could you talk a little bit about which of the 2 studies is enrolling faster? Also, you said more than half of your sites are now online. Could you talk a little bit about the U.S. study sites? How many of those are now open?

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Glyn O. Edwards, Summit Therapeutics plc - CEO & Executive Director [6]

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Yes. So the U.S. opened first. And -- so most of the sites are opened in the U.S. I don't have the exact figures in front of me but it's the majority of the northern half. And both studies are roughly neck and neck; and the recruitment, we opened them both at the same time. And while technically, we have to run 2 studies in terms of our enrollment goals, we're trying to get both of these studies finished at the same time. We started them both at the same time.

We have projections, and we've obviously given you that we think we'll have this data in the second half of 2021. It is really early days. You can see from that number that it's a small proportion. We will be giving regular quarterly updates as this progresses. And the time to really see how the recruitment rate is going is -- as in all of these infectious disease studies, which start off slow. They start like [RP] stated it. He's always said he's going to be around the second quarter of the next year. That's when we would expect to be on full enrollment rate at that time. The hospitals that come on stream tend to be the small studies to start with. And in the U.S., we're just starting to see the really large census coming on and they take longer to get through their procedures. And we've also got some big enrolling countries that have not actually joined in yet. So Canada has a -- is very -- traditionally very good at enrolling in C. diff studies, and some of the Eastern European countries are also very good at enrolling in C. diff studies.

So we're fortunate in that we have a fairly good insight into the studies that have been carried out, and we're using that information to try and inform our recruitment. But it is heavy lifting. These infectious disease studies are difficult where we're working very hard. We're looking for help wherever we can, and we will report on how this goes. We are encouraged. We're working very hard. We need to work harder.

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Timothy Chiang, BTIG, LLC, Research Division - MD and Specialty Pharmaceutical & Biotechnology Research Analyst [7]

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Glyn, just a follow-up. And obviously, it's a financial question. You guys sort of highlighted cash needs about $115 million, $50 million of which you probably need to get near term. Could you talk a little bit about your views in terms of getting that type of funding near term? How much progress have you made so far?

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Glyn O. Edwards, Summit Therapeutics plc - CEO & Executive Director [8]

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Yes. We're obviously working very hard to get this closed. We've got cash only to -- the right way of going, which is, obviously, we want to get this trial done as quickly as possible, so we have the pedal to the metal. We are now opening centers. We're opening sites. We're pushing people really hard to get this trial opened as fast as we can. So we really need to get something done in the next couple of months. We've -- nothing's done until it's done. We have supportive shareholders, but they don't commit until they commit. And we're optimistic, but it's a difficult area. Antibiotics have been hard. But we feel here, there is an opportunity to transform a particular area of infectious diseases. And most of the recent antibiotic launches have been done on the back of noninferiority trials with products that are relatively similar in indications that are pretty crowded. So we have the opportunity here, the unique opportunity in the near term to find an indication where the current standard of care just is not working that well. So that means with a superior product, we can show superiority in our trial, and that gives you a great position for achieving a switch in the market. There's every reason, if this trial delivers, why we should be able to get wholesale switching of patients in the United States in the front-line setting from vancomycin to ridinilazole. And this whole science program up to date, the new data on IDWeek, the data that we've built into the trial is aimed at hitting the 3 core constituencies, the publics that we need to speak.

I'll prove the most important is the patient. But if we can get patients so that they're not only cured at a high rate but they maintain that cure, that their microbiome is preserved so they feel a whole lot better, then they'll be wanting the drug. The medical profession will want it if we hit superiority, if we show we have better clinical outcomes. And the payers should want to use this because we can have a fair price for this and still mean that there is an economic drive to switch front-line setting to ridinilazole. So we think if we can make this argument to investors and stakeholders that we expect to -- with a lot of hard work and to bring this -- the money in that we need to bring in. But it's not done until it's done, but we're working hard and we're optimistic

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Operator [9]

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(Operator Instructions) And the next question comes from Yun Zhong from Janney.

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Yun Zhong, Janney Montgomery Scott LLC, Research Division - Equity Research Analyst & Director of Biotechnology Research [10]

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And I have a quick question on SMT-571. I think last quarter's update, you decided to postpone the development where potentially expedited pathway. So I wonder, are there any updates on the plan for 571? And also, I think in the past other company has been able to secure government funding to support gonorrhea program. And I wonder is that a possibility that you're considering?

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Glyn O. Edwards, Summit Therapeutics plc - CEO & Executive Director [11]

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Yes. There's no new update on -- when 571 will be in the clinic. We actually do have significant funding. As of today, 70% of the funds are covered. And I think there's every chance that we'll be able to get the future developments of this program fully covered or as close to fully covered as makes no difference. You're right, it is a major public health problem, gonorrhea. We need not just one new treatment, we need several new treatments over the next 5 to 10 years. And so far, the efficacy data on 571 in the way it is able to hit no resistant strains is really encouraging.

I think part of the background should be while we're excited by these longer-term programs. The biggest value that we can generate for patients and shareholders right now is to really make sure that we are really focused on delivering ridinilazole that -- this is the potential. We have very significant product, which will give very significant patient benefit and give very significant revenues. So we are not stopping our research activity. Don't get me wrong on that. But our focus and our expenditure management time right now is completely dedicated to delivering the huge promise that we have for ridinilazole.

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Operator [12]

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And the next question comes from the line of Justin Kim from Oppenheimer & Co.

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Justin Alexander Kim, Oppenheimer & Co. Inc., Research Division - Associate [13]

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Could you speak a little more to the pharmacoeconomic benefit associated with the 15% improvement in recurrence rate? Do you have a sense of sort of the components of those costs totaling over a $1 billion and sort of how they are broken up?

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Glyn O. Edwards, Summit Therapeutics plc - CEO & Executive Director [14]

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Yes. Can we take that offline? If you look at some of our previous corporate presentations, we have a slide on that. But actually and it -- there is potentially a lot more benefit than that because all we focused on is the saving -- if you've treated a 100 patients and as a result, 15 fewer of them had a recurrence than would have had it before, then the cost of those recurrences is very high, and then you share that benefit over all the patients treated. That's where you come up with those numbers. Tantalizingly, in the Phase II, we also saw some evidence of reduced hospital stay. And if we can see those benefits as well, then the economic value goes up very, very considerably. But we can take you offline on the mass and show you the publications where the cost per recurrence comes up and how we derive that. But it's truly robust. It's pretty robust.

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Justin Alexander Kim, Oppenheimer & Co. Inc., Research Division - Associate [15]

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Great. And maybe just one question on the microbiome. Do you observe any regional differences and sort of like that microbiome based on patient geography? And would you expect to sort of any variability based on sort of the sites or countries enrolling patient?

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Glyn O. Edwards, Summit Therapeutics plc - CEO & Executive Director [16]

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So first of all, this is an emerging field right now and not in our study, but there are conferences and presentations on the microbiome. And your microbiome and mine will change very significantly from one day to another depending on what we need -- some of our -- but the one characteristic that seems to be really important for C. diff is diversity. And although today, microbiome is diverse and looks like one thing, and after I've had fish solidly for 3 days, it will be diverse and looks like something else. It's the diversity that's important. So it's not a sort of individual quantities. In fact, there's lots of them.

And what we see with broad antibiotic treatment is that diversity gets absolutely hammered and is very significantly reduced. And it's -- there is highly reduced microbiomes that are really important for susceptibility to C. diff infections. And that's been reported all around the world. So whether you're in Japan on a seafood diet with high salts or whether you're in India on a vegetarian diet or in the U.S. on a more western diet, being treated with vancomycin will very significantly reduce your gut diversity. And that, that then leads to broad susceptibility.

Diving into the detail of that, we're starting to get some evidence of the various components that are important both in terms of the bacteria in the gut and also the products they produce, the so-called metabolome. The metabolome is all the small molecule -- molecules that are produced by the -- all the components of the gut, not just bacteria but phages, viruses and particularly yeast. So we're starting to understand that. And it all holds together well. The metabolome of patients treated with the broad-spectrum agents is very conducive to C. diff growing, where metabolome in patients treated with ridinilazole is not conducive to germination and not conducive to growth. So the science behind here is very strong.

But to get back to your original question. We as yet have no evidence from our work and no evidence from other people's works that the effect will differ by geographic region because of diversity of microbiome by geographic regions. The biggest determiner is going to be as the microbiome being hit by an antibiotic or to a certain extent people at long-term nursing care can have depleted variation and that may contribute too.

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Operator [17]

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Thank you. There are no further questions at the moment. Please continue.

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Glyn O. Edwards, Summit Therapeutics plc - CEO & Executive Director [18]

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Okay. Well, everybody, thank you very much indeed for listening to our call and asking these great questions. Thank you very much for joining us today. We look forward to providing you with updates on our novel antibiotic both from the financial progress, the progress in the trial and the scientific progress. And we look forward to speaking to you again soon. Thank you.