Transcript of Dr. Walker's Rodman & Renshaw conference
Good morning Spectral shareholders. Not knowing what to do while waiting for the big news, I made this transcript last night of Dr. Walker's talk at the Rodman & Renshaw's18th Annual Global Investment Conference (Sepember. 13, 2016). Thought I'd share it with you guys, in case some are interested.
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"Thank you very much, and I very much appreciate this opportunity to bring you up to date with what we’re doing in this very important area of septic shock.
Briefly, this is a mature company. We were formed in 1991. We have been traded on the Toronto Stock Exchange since 1992. We have a market cap of approximately $250M; inside ownership of about 45%. We’ve got about $10M at this point, and our capital structure is that we’re about 70% institutional and 30% retail. Our board is a mixture of seasoned individuals from both sides of the US-Canada border, and individuals that are used to bringing products to market and engaging in transactions. Same is true in our management: this is a seasoned group of individuals who have run many clinical trials.
So, the area that we have focused on is sepsis. Sepsis continues to be the largest single unmet medical need facing North America, and in fact the rest of the world. This is a common problem. It represents about 30% of the patients in the intensive care units (ICU’s). In the US over a million patients every year are diagnosed with sepsis. The current cost of managing these patients is over $20M (billion?) per year. This is a global problem, with no targeted treatment available, and it’s also a very fatal problem, with over 300,000 thousand people dying every year from sepsis or septic shock. We have focused on a very specific area called septic shock, which we will talk about a little bit more, but that market alone for us is about $3B. I am happy to say that we have at this point finished our registration trial as of June, and we are in fact the only company in that position.
Sepsis is a complex problem and it requires a very complex answer to it, and failure in the past is often related to trying to treat all forms of sepsis as if they are created by the same problem and will respond to the same treatment. We have focused entirely on the area of endotoxin. Endotoxin is a component of all gram-negative organisms and when these organisms are either replicating or dying, then this endotoxin is shed. Endotoxin in the blood stream initiates the inflammatory response known as sepsis, and this in fact is what Bruce Beutler got the Nobel Prize for in 2012. Getting endotoxin into your blood stream, or endotoxemia, can occur in two different ways. First is through an infection. Essentially what you are seeing here (slide) is a normal lung, and should a patient get a community-acquired gram-negative organism, they are likely to come to the emergency department to be treated, and this has a very low mortality rate if it is a single-organ problem. On the other hand, if it is an 80 year old immunologically suppressed person in the ICU, it won’t respond to the antibiotics. The endotoxin will begin to leak out of the system into the blood stream, and that’s when you go from a single organ failure, with 3% mortality, to multiple organ failure, with mortalities up to 60%.
The other very, very important source of endotoxin is in our gut. Each of us walks around with about 25 grams of endotoxin in our gut, because of the number of bacteria that exist there. If I took the endotoxin of one person’s colon, one person’s colon, I could kill 20,000 people with that injection. We walk around with this all day, with many protective mechanisms to keep it in our gut, but sometimes they get overwhelmed. When they get overwhelmed, endotoxin gets into the blood stream, and then you have sepsis and septic shock.
So our solution, which is a new solution, a novel solution, is a theranostics, that is we have a treatment guided by a diagnostic. No sepsis trial has ever used that kind of strategy. Our diagnostic is our own proprietary Endotoxin Activity Assay. This is the only assay in the world for endotoxin. It is already approved by the FDA. It is a whole blood assay that gives you the result of the endotoxin in about 30 minutes. Therefore, it is ideal to initiate a therapy. The therapy we have matched for this is a product, a therapeutic column, that takes endotoxin selectively out of the bloodstream. This is called Toraymyxin. It is manufactured by the Toray Industries in Japan. This product has been used on a 150,000 people safely around the world. We are the first company that has a license for this product and bringing it to North America.
We were bolstered by evidence from outside the United States that this product works. There was a randomized prospective trial, called the EUPHAS trial, run in Italy. And this showed a 20% reduction in mortality rate at 28 days in patients with septic shock. This has been turned into a registry and these kinds of numbers continue to be demonstrated by this method. In Japan, where this product has been used for almost two decades, a very significant reduction in mortality has been identified in groups of patients similar to the kinds we have studied. What has been consistent is that the sickest of the patients, the patients with the greatest number of organs failing, and the ones who are most likely die, are the patients that benefit most from our therapy.
So in taking this information to the FDA, we were allowed to proceed directly to a registration trial for this device. The trial was known as the EUPHRATES trial. Our principal investigator was Dr. Phil Dellinger, former head of the Surviving Sepsis campaign in the US, another world leaders in the area of sepsis. This is a blinded randomized controlled trial of standard of care versus polymyxin plus standard of care. This is done in 50 or 60 intensive care units in North America and Canada and the treatment, one treatment, consists of a perfusion with two columns separated by about 18 hours, for 2 hours each.
Now the population that we are specifically interested in are those patients that actually don’t recover from initial resuscitation. So, initial treatment of sepsis, as the guidelines demonstrate, will turn some of these patients back from developing severe sepsis and septic shock. Our interest are those patients in fact that do not recover from this episode and are continuing to lose blood pressure and are most likely to die.
But also, if your product actually takes endotoxin out of the bloodstream, we thought it was important to know that endotoxin was in the bloodstream. And therefore one of the entry criteria for this was an elevated endotoxin level based on our endotoxin assay.
So overall, the population consists of patients in septic shock on vasopressors with a high EAA level. But, after our interim analysis, our DSMB identified the fact that patients with organ dysfunctions greater than 9, or basically three organs failing, we the ones most likely to benefit from our therapy. So after that, the FDA allowed us to focus only on that group of patients.
So during the course of this trial, we evaluated 917 patients who met all the clinical criteria for septic shock. We randomized a total of 446 patients who had the clinical criteria plus demonstrated an endotoxin elevation. Since our April 4th amendment, we have randomized 176 patients with all of these characteristics but, in addition with MODS (Multiple Organ Dysfunction Syndrome) levels greater than 9, indicating really three organ dysfunction. In this group of patients, our primary endpoint is a 20% reduction in mortality at 28 days.
So, this trial, while focused on reduction in mortality, actually is going to have very important secondary outcome information as well. Most of this is related to organ failure. Patients in sepsis die because of sequential failure. And it’s about 20% per organ. So when you have 4 organs, it’s about an 80% mortality, and we know what 5 organs is… So what we’re looking at is not only survival at 28 days, but reasons for survival, which is improvement in organ function. The reason this is terribly important, is because it is the organ dysfunction that drives the massive costs of treating these patients in the ICU’s.
So, as I have said we have finished this trial… enrollment completed in June. We are particularly interested in this last group of patients and the sample size there was based on a predicted 60% mortality and a 40% treatment, which would give you a 20% reduction in absolute mortality. Now, in this group again, we have patients who meet all the clinical criteria, and then have their endotoxin levels measured. If your endotoxin level was high, in most cases you get randomized. However, there is a group a patients in all of our trials, that despite the fact they meet the clinical criteria and have an elevated endotoxin, don’t get randomized. And they don’t get randomized, for the most common reason is they don’t sign the cons… I’m sorry, their family will not sign the consent. But that acts actually as a surrogate for our placebo group, and after the end of the trial, that actually was tracking at 62%.
If you compare that to the composite mortality, in other words the mortality of all the patients that were randomized on a 1:1 basis, and we know this because we were able to track the 28 day mortality in all groups of patients, is 45%. So if you do the math on that, it would appear that we are reducing this mortality from the 60% level to a very significantly reduced number. So we’re very pleased where we are in our clinical evaluation.
As far as the market opportunity goes, we first looked at this based on epidemiological studies. When you look at this, we know that there’s about a million patients per year identified with sepsis in North America, and that’s a target market that some people have tried to go after. However, the patients are so non-homogeneous, that none of their trials were successful. We have focused on those patients in septic shock with high levels of endotoxin, and if you look at that number base, it looks to be about 150,000 patients per year. But after running this trial for approximately 5 years, we were able to get a very good view of patients in ICU’s across the United States and some in Canada. In other words, we got reports on about 150 patients every week for this period of time, and we could then begin to build up what we think is our market, based on real data.
And as you know, there are almost 6,000 hospitals in the United States. Our target, we think, is about 2,000 hospitals with major intensive care unit beds. If we look at the data from the sites that enrolled, these are the numbers that you see, that there is about 160 patients screened on a yearly basis, about 133 of them go on to have a worsening MODS with a high level of… with a high MODS score, and we’re seeing about half of those are going to have high levels of endotoxin, which is a bit of an underestimation, a conservative estimation. This still leaves us with nearly 150,000 patients, which we think is a very, very accurate estimate of the number of patients who would be suitable candidates for this product. And of course these patients have a 60% mortality and there’s absolutely nothing else that’s available to treat these patients.
The market exclusivity I think has become an interesting point for us in that is, yes these are mature products and that the patent protection for both the EAA and the PMX expire in 2022 and 2019, however both of these products are suitable for patent term protection or patent term extension, because of the length of the trial we have run. So that would give us perhaps another 5 or 6 years of patent protection. However, because this is the world’s first and a first in North America, a regulatory trial for a device in sepsis, this is by necessity a PMA.
A PMA, when approved, gives remarkable protection of us in the market, because of the difficulty of doing such a trial. And we know that any product, any single product now that has endotoxin removal or sepsis as an indication will have to do another PMA. We can tell you from our experience, that puts people 6 to 8, at least 6 to 8 years and about 70 or 80 million dollars behind where we stand today. So that is a tremendous exclusivity. There are no such things as 510(k)’s for new products against a PMA when there’s only one product that has been approved. And of course, the manufacturing know-how is not insignificant. This product is made in Japan and, as I mentioned, from proprietary products and is significantly difficult to re-engineer.
So we have been sticking to our path for commercialization and I think you can see that, as we finished our trial, in fact our investigators prompted us to approach the FDA for a Compassionate Use program. Because this is the only thing that is out there and they wanted to be able to have continued access to it. So this is not a blinded trial, this is an open trial. The FDA has approved that. So we are now beginning to have this product used in a number of our sites, that were our sites in the trial, under this Expanded Use program. We have announced publicly that our primary outcome analysis data will be available in very, very early Q3.
During this period of time, we’re obviously considering two pathways and exploring both. One is a pathway of us taking this to market, and the second of course is a partnership of some description that could accelerate the adoption. We would anticipate… and just to look at the regulatory pathway, a PMA submission is 4 modules: two preclinical, a third of manufacturing and a fourth which is a clinical trial, a clinical study report. The FDA, years ago, has given us a modular approach to this. So we have already submitted modules 1, 2 and 3 and they have already been reviewed… So we are anticipating putting Module 4, the clinical study report in the end of November or early December of this year. The FDA has guided us to say they would like to have a pre-sub meeting with us, which we anticipate in November, and I think this is a positive sign in that they want to ensure that there are no gaps in what we are submitting.
On our side, we have already commenced our manufacturing scale-up and ensured a secure supply of all our proprietary reagents for our own EAA manufacturing. Our supply chain is intact, with the manufacturer of the column. Toray has already built a new plant that is just outside Japan, with significantly increased capacity. Our luminometer for the EAA assay is manufactured in Germany and again is in the process of scale-up and I’ll return to the pump comment in just a minute, and of course warehousing logistics are up and have been tested.
During the course of this trial, all the patients were perfused with a standard hemodialysis machine. And there are a number of these from formerly Gambro, from Baxter, from Fresenius, and any of them can be used. However, they are large and expensive and tend not to reside in the ICU at all times. So we recognized a need in the ICU for a stand-alone, dedicated pump, which would be much more user-friendly. So this is the product which is now being manufactured for us in Geneva, and it is in front of the FDA for clearance, and we will have it as we go to market. This is a product that is very important for the uptake of the product because in the ICU, this now can be run by the IC nurse, so you do not need to bring in an expensive dialysis technician over with the dialysis machine. So this makes it much more user-friendly for the critical care physician, who of course is our target audience. The final slide is basically the milestones and, as we talked about, the regulatory milestone… you can see we have met each of these along the way in 2016 and with our submission of Module 4, we would anticipate that, given the fact that it has been a modular submission, that we would expect a relatively rapid turnaround from the FDA and we’re looking at FDA approval of this hopefully in the first quarter, but certainly in the first half of 2017, and the other endpoints have already been met. So we are actually in an interesting position of actually having completed a purely North American sepsis trial that has never been done before. It is a theranostics trial, which is focused on a very specific group of patients, using an already approved diagnostic and a therapeutic that has already proved to work in other parts of the world, and we look forward to this. This has the potential of saving 30 or 40 thousand North American lives a year. Thanks very much."