Conatus Pharma (CNAT) - BioWatch's Commentary On Its Q2-2017 Results

00:42 EDT 4 Aug 2017 | Biotech Watcher

On Tuesday, August 2, 2017, Conatus Pharmaceuticals (CNAT) announced its results for Q2 2017 and held a conference call, and then later filed its 10-Q with the SEC.

Conatus is identified by its lead drug emricasan for reducing inflammation and cell death in serious liver diseases. It is currently in a Phase IIb (ENCORE) program for treating nonalcoholic steatohepatitis (NASH) and other advanced liver diseases.

CNAT closed at $5.44 on August 2, 2017 and sunk 7.7% to $5.02. The valuation has been sliding since July 13, 2017.


The ENCORE program proceeds on pace with no surprises. Conatus has enough cash to comfortably finish the Phase 2b ENCORE program. Novartis is paying for half of the ENCORE program.

For now, we can go on auto-pilot regarding the ENCORE program until the first results emerge in 2018.

There are other items to watch:
       1)Novartis using emricasan as part of combination therapy to treat NASH in clinical trials;
       2)IDN-7314 and other candidate drugs will expand Conatus’ pipeline, additional plans will be announced in Q4-2017.

Background Readings

Brief Conatus Summary (January 20, 2017)

Financial Summary

Basic Facts for Quarter Ending June 30, 2017
(In thousands, except share and market cap data)
$      10,008
$      6,998
$       799
$               -
$               -
  R&D Expense
  SG&A Expenses
Total Operating Expenses
(Loss) from Operations
Net Loss
Comprehensive Loss
TBA in
Basic & diluted (loss) per share
Avg. Shares Outstanding
Recent Price (per share)
$ 5.02
$ 7.88
$ 4.82
Market Capitalization
Cash & Equivalents
Marketable Securities

The increase in R&D expenses reflect the ongoing clinical activities associated with the ENCORE program.

About the Recent Offering

Conatus received $7M from Novartis for exercising its recent option to proceed with the collaboration. Conatus also received about $30.7M in net proceeds from a public offering. About $11.2M was used to repurchase and retire CNAT stock held by Advent Life Sciences.  Advent was an early venture investor for CNAT. At the same time the Novartis collaboration was announced, the Advent partner resigned from Conatus’ board.

We were a bit surprised by the negative reaction from investors. It wasn’t a large dilution, about 6M shares), and it was easy to see coming.

Because Conatus management wants to introduce new drugs into clinical development, we expect Conatus to raise capital in 2017 or 2018 to support its new programs.

And when the funds were raised in May 2017, we said:

Is anyone surprised that Conatus had an offering? Do you remember the financial situation in Q4-2016? Conatus was likely approaching $20M in cash and that was after it had announced its ambitious ENCORE program of Phase IIb trials.

Before the Novartis announcement, CNAT was trading below $2 with a horrible valuation. On Halloween (October 31) 2016, it closed at $1.55 per share. It was scary.

It’s hard to believe this team wouldn’t want to acquire additional funds for the additional programs…We therefore also expect Conatus to raise additional funds in 2018.

Updated Guidance

Finance VP Shelly Vandertie once again confirmed that Conatus has enough cash to support operations and clinical activities through the end of 2019. She also updated guidance for a year-end 2017 cash balance between $55M and $65M.


Conatus Pharmaceuticals - Emricasan – Clinical Milestones
ENCORE Trials – The ENCORE program supports the design of the Phase III program. Each Phase IIb trial explores a different indication. Robust results, however, may support an FDA or EMA filing. The first results arrive in the first half of 2018.
HCV Fibrosis Recurrence Post-Transplant (POLT-HCV-SVR)
These patients have fibrosis in their transplanted liver after being cleared of a hepatitis C viral infection. A diverse range of patient severity with Ishak Fibrosis Scores ranging from F2 (early stage fibrosis) to F6 (cirrhosis). The primary endpoint is the change in the Ishak Fibrosis Score. This has an orphan designation.
 Phase IIb Efficacy (60 Pts) – 25mg 2x/day, 24 months
 Top-line Results
ENCORE-PH – Portal Hypertension – Patients with severe portal hypertension (SPH) that were cleared of Hepatitis C (HCV-SVR) and have NASH cirrhosis. The primary endpoint is a reduction of HVPG(Hepatic Venous Pressure Gradient) after 6 months of treatment, which may later serve as a valid surrogate. 
Phase IIb ENCORE-PH– 240 Pts, 5mg, 25mg, or 50mg 2x/day, 24 Wks
  Top-line Results
ENCORE-LF – Liver Function – NASH Cirrhosis + Clinically Significant Portal Hypertension (CSPH) – Pts have compensated cirrhosis and portal hypertension, and will examine the long-term impact of treatment. The ongoing liver cirrhosis trial results will inform the design decisions (e.g. sample size).

The endpoints include: MELDor CPTto measure mortality risk in patients with liver disease; biomarkers (e.g. bilirubin, albumin). Event-free survival serves as the primary endpoint. Analysis is conducted after a pre-specified number of events occur. These events include: all-cause mortality, new decompensation events, or a progression of ≥4 points in the MELD score
 Phase IIb ENCORE-LF – 210 Pts, 5mg or 25mg 2x/day, 48+ Wks
 Top-line Results
ENCORE-XT – Extension for ENCORE-PH and ENCORE-LF – The endpoints include: safety & efficacy, clinical outcomes, and quality of life. Patients of this trial will remain blinded until a clinical event occurs or until the patient leaves the trial.
 Phase IIb ENCORE-XT – 25mg 2x/day, 18+ Months
ENCORE-NF – NASH Fibrosis -  NASH patients with fibrosis, but not cirrhosis, are measured according to the NASH CRN Histological Scoring System.  The primary endpoint involves a biopsy based change in the fibrosis score after 72 weeks of treatment.

Based on previous studies in HCV patients, Conatus management expects the 5 mg dose to be as effective as higher doses in fibrosis patients. The 50-mg dose is being positioned for patients with cirrhosis and the 5-mg dose for patients with fibrosis.
  Phase IIb ENCORE-NF – 330 Nash Fibrotic Pts, 5mg or 50mg 2x/day, 72 Wks
  Top-line Results

Our Thoughts

In the past quarter, Novartis consummated the partnership and paid $7M to Conatus. Color us “unsurprised”. After Novartis paid $50M to Conatus to create the option, there was little doubt that Novartis was going forward with the ENCORE program.

For Novartis’, the crucial trials involve combination therapywith its own FXR agonists. As we’ve said multiple times:

… We think Novartis still consummates the deal even if emricasan is only effective in combination settings. Sure, emricasan won’t be worth as much, but Novartis wants to create a truly blockbuster franchise for its FXR agonists. To get there, it will likely need some added “oomph”.

While monotherapy would be wonderful, the current trend is for creating combination therapies to treat fatty liver disease and its more severe form, NASH.

We usually dislike one-trick ponies. Conatus is bringing new drug(s) and new indications to the clinic. Moreover, it has the cash to support early stage development for the next couple years.

Conatus Pharmaceuticals (CNAT) is small biotech that is carving out its own treatment niche in the crowded derby for treating severe liver disease. Like many other companies in liver space, its current valuation is low; Intercept Pharma (ICPT) and Genfit (OTCPK:GNFTF) receives the lion share of attention. Conatus has Novartis, and this isn’t the first rodeo for Conatus’ management and science team.

If you're a CNAT investor, then you are on cruise control for the time being.

(At the time this post was written, one or more BioWatch staff held a position in CNAT)

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Original Article: Conatus Pharma (CNAT) - BioWatch's Commentary On Its Q2-2017 Results


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