Conatus Pharmaceuticals
Conatus Pharmaceuticals (CNAT) is a biotechnology company focused on the development and commercialization of novel medicines to treat liver disease. The company is developing emricasan, a first-in-class, orally active pan-caspase protease inhibitor, for the treatment of patients with chronic liver disease. Emricasan is designed to reduce the activities of human caspases, which are enzymes that mediate inflammation and apoptosis. Conatus believe that by reducing the activity of these enzymes, caspase inhibitors have the potential to interrupt the progression of a variety of diseases.
Conatus plan to continue advancing toward initial registration of emricasan for patients with cirrhosis due to nonalcoholic steatohepatitis, or NASH, with parallel development toward registration of emricasan for patients with NASH fibrosis. itscurrent clinical program for emricasan includes the following randomized, double-blind, placebo-controlled Phase 2b clinical trials:1
- Phase 2b ENCORE-PH (Portal Hypertension) Clinical Trial: In November 2016, Conatus initiated a clinical trial to evaluate the effect of emricasan in approximately 240 compensated or early decompensated NASH cirrhosis patients with severe portal hypertension. Top-line results are expected in 2018.
- Phase 2b ENCORE-LF (Liver Function) Clinical Trial: In May 2017, Conatus initiated a clinical trial to evaluate emricasan in approximately 210 patients with decompensated NASH cirrhosis. Top-line results are expected in 2019.
- Phase 2b ENCORE-NF (NASH Fibrosis) Clinical Trial: In January 2016, Conatus initiated a clinical trial to evaluate emricasan in approximately 330 patients with liver fibrosis resulting from NASH. Top-line results are expected in the first half of 2019.
- Phase 2b POLT-HCV-SVR Clinical Trial: In May 2014, Conatus initiated a clinical trial in approximately 60 post-orthotopic liver transplant, or POLT, recipients with reestablished liver fibrosis post-transplant as a result of recurrent hepatitis C virus, or HCV, infection who have successfully achieved a sustained viral response, or SVR, following HCV antiviral therapy, or POLT-HCV-SVR, patients with residual fibrosis or cirrhosis, classified as Ishak Fibrosis Score 2-6. Top-line results are expected in the first half of 2018.
In May 2017, Novartis Pharma AG, or Novartis, exercised its option under the Option, Collaboration and License Agreement, or the Collaboration Agreement, Conatus entered into with Novartis in December 2016. Pursuant to such exercise, Conatus granted Novartis an exclusive, worldwide license to its intellectual property rights relating to emricasan to collaborate with us and develop and commercialize emricasan products, containing emricasan either as a single active ingredient or in combination with other Novartis compounds for liver cirrhosis or liver fibrosis, for the treatment, diagnosis and prevention of disease in all indications in humans. The license became effective upon its receipt of a $7.0 million option exercise payment in July 2017.
Pursuant to the Collaboration Agreement, Conatus is responsible for completing the three ENCORE trials and the POLT-HCV-SVR trial described above. Conatus and Novartis will share the costs of these four Phase 2b trials equally. Novartis is responsible for 100% of certain expenses for required registration-supportive nonclinical activities. Novartis is also responsible for the development of emricasan beyond the four Phase 2b trials described above, including the Phase 3 development of emricasan single agent products and all development for emricasan combination products, and Novartis has agreed to use commercially reasonable efforts to develop and commercialize emricasan products. A joint steering committee comprised of representatives from its company and Novartis oversees the collaboration, development and commercialization of emricasan products.
Under the Collaboration Agreement, Novartis paid us an upfront payment of $50.0 million and an option exercise payment of $7.0 million. In addition, Conatus is eligible to receive up to an aggregate of $650.0 million in milestone payments, as well as royalties.
Conatus also plan to expand its development pipeline by developing its existing preclinical product candidates, developing new product candidates, or purchasing or in-licensing product candidates. In addition to liver disease, Conatus may pursue the development of product candidates in other disease areas. In June 2017, the U.S. Food and Drug Administration granted Orphan Drug Designation to its preclinical product candidate IDN-7314, a pan-caspase inhibitor, for the treatment of primary sclerosing cholangitis, a disease affecting bile ducts in the liver, which can lead to cirrhosis and liver failure. Conatus believe the Orphan Drug Designation provides a potential opportunity to address an important unmet medical need and expand its development pipeline beyond emricasan. Conatus will continue to evaluate the potential of IDN-7314 as a product candidate, along with other product candidate opportunities, and Conatus plan to announce initial pipeline expansion plans later in 2017.
Since its inception, its primary activities have been organizational activities, including recruiting personnel, conducting research and development, including clinical trials, and raising capital. Conatus has no products approved for sale, and the ocmpany not generated any revenues from product sales to date. Conatus has funded its operations since inception primarily through sales of equity securities and convertible promissory notes and payments made under the Collaboration Agreement, and the company incurred significant operating losses since its inception. Conatus has never been profitable and have incurred net losses of $29.7 million and $24.1 million for the years ended December 31, 2016 and 2015, respectively, and $9.0 million for the six months ended June 30, 2017. As of June 30, 2017, Conatus had an accumulated deficit of $159.7 million.
Conatus expect to continue to incur significant operating losses and negative cash flows from operating activities for the foreseeable future as the company continue the clinical development of emricasan and seek regulatory approval for and, if approved, pursue commercialization of emricasan. In May 2017, the company completed a public offering of 5,980,000 shares of its common stock at a public offering price of $5.50 per share. Conatus received net proceeds of approximately $30.7 million, after deducting underwriting discounts and commissions and estimated offering-related transaction costs. Immediately following the offering, Conatus used $11.2 million of the net proceeds to repurchase and retire 2,166,836 shares of its common stock from funds affiliated with Advent Private Equity, or Advent, at a price of $5.17 per share.
As of June 30, 2017, Conatus had cash, cash equivalents and marketable securities of $88.2 million. Although it is difficult to predict future liquidity requirements, the company believe that its existing cash, cash equivalents and marketable securities will be sufficient to fund its operations for at least the next 12 months from the date of the filing of this Form 10-Q. Conatus will need to raise additional capital to fund further operations, including the development of product candidates other than emricasan. Conatus may obtain additional financing in the future through the issuance of its common stock in future public offerings, through other equity or debt financings or through collaborations or partnerships with other companies.
Successful transition to profitability is dependent upon achieving a level of revenues adequate to support its cost structure. Conatus cannot assure you that it will ever be profitable or generate sustained positive cash flow from operating activities and, unless and until it do, Conatus will need to raise substantial additional capital through equity or debt financings or through collaborations or partnerships with other companies. Conatus may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed could have a material adverse effect on its results of operations, financial condition and its ability to execute on its business plan.
JOBS Act
In April 2012, the Jumpstart its Business Startups Act of 2012, or the JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” Conatus is electing not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, Conatus will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that its decision not to take advantage of the extended transition period is irrevocable. In addition, Conatus is in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an “emerging growth company” Conatus choose to rely on such exemptions, Conatus may not be required to, among other things, 
provide an auditor’s attestation report on its system of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of its initial public offering, or IPO, or until Conatus no longer meet the requirements of being an “emerging growth company,” whichever is earlier.
