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Zenith's BET Inhibitor ZEN-3694 is Currently Being Evaluated in Multiple Oncology Clinical Trials

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Message: AGM - Jan 7, 2016 - Details

Hi, everyone.

Hope you get some benefit out of my notes.

First, some caveats. Please understand that I’ve done my best to transcribe what I heard, but there’s always room for misinterpretation or forgetting something. So don’t go saying “Don said so and so at the AGM” unless you heard it yourself… I can’t guarantee I got everything right.

I’ve cut down on the “word for word” transcription, because I can’t read all my notes. So some of the finer details may be left out. I use ZCC as the abbreviation for Zenith Capital Corporation and ZEL for Zenith Epigenetics Ltd.

Meeting underway at 9am. People were arriving late due to inclement weather and road conditions in Calgary. Probably about 35 people altogether, although 10 of those were likely Zenith/RVX staff, etc. The venue itself was a bit difficult to find for those folks unfamiliar with the Mount Royal University campus (including me). Interesting fact – the building in which it was held (Roderick Mah Center for Continuous Learning) was named after the person who introduced Don and Norman Wong to each other and was a close personal friend over the years. He was a very influential and well-liked businessman in Calgary, often referred to as the “unofficial” mayor of Chinatown. Don and Norm made a sizable contribution to MRU in 2008 (I think around $5M) in memory of Roderick Mah, thus the name on the building.

Business items were taken care of, including election of directors, appointment of auditors, sale of operating assets to subsidiary (Zenith Epigenetics Ltd), name change of parent to Zenith Capital Corporation as per management circular.

Management presentation got underway at 9:15. You’ll have to imagine a few slides being shown throughout.

DM:

Thank you for putting up with the normal procedures – we need to be official (chuckles from audience).

Today’s going to be a lot of fun. You’ve waited a few months since the last update. We’ve got a lot of good news and exciting stuff I can tell you.

(Talking to Agenda slide) We’ll start by going through the corporate profile and new structure, then epigenetic mechanism and some of the new things we’ve learned. We’re so far ahead of our competition in the knowledge of this, it’s getting exciting. We’ll talk a little bit about our new lead compound, ZEN-3694, and our first indication which will be prostate cancer. We’re pretty excited about that development. Then we’ll look at historic and development timelines and some of the expanded opportunities we’ve been working in the last year. Finally, market cap valuations and milestones.

This presentation will be posted on website in the next week or so. Will be after presentation at JP Morgan conference in San Francisco.

(Slide showing basic stats of company) Basically, we’re doing quite well. We’ve been able to raise $19.5M USD over the past year. Our enterprise value is estimated at around $110M. Will show at end of slide deck how we arrived at that. We expect it to go up “substantially” in the next short while. We’re just shy of 100M shares issued. Current cash burn rate is about $1.6M/quarter. It will go up as we launch the clinical trial. Compared to Resverlogix, you are going to be amazed at how fast things move in oncology as opposed to cardiovascular.

During the course of the past 1 to 1.5 years, we’ve had many development breakthroughs. We filed an IND with the FDA about a year ago. It was for hematology. The challenges with that in Oct 2014 were based around intellectual property. We had moved forward very fast with that, but prior to our publishing of our IP, another company had published a document that didn’t completely cover/block us, but would have made it difficult legally. We went back to the drawing board and, after bragging about our massive platform and extensive IP, we went back to that and developed two very good lead programs going forward – ZEN 3694 and ZEN 3717. There were actually about 7 or 8 that we had to choose from, all superior to our first one. We’ve very happy about having that depth.

(Still talking to company overview slide). Don’t forget about the Resverlogix China deal where we will have future royalties from passing through Zenith Epigenetics. It’s a future asset that will now be in ZCC – very much a benefit to the shareholders of ZCC, not just Resverlogix.

(Slide on corporate structure – a simplification of what they want it to look like at the end of the day … Three circles representing Resverlogix and ZEL at the top and ZCC lower down and in between the two of them – kind of a V shape). Resverlogix holds RVX-208 and about 2500 other compounds. ZEL will hold ZEN-3694 and 1500 other compounds. ZCC will hold the royalties, eventually, that come from these two companies, after the reorg is done. That’ll take a bit of time, but the net objective is to split the assets in such a way that does not create a huge tax bill for shareholders and that it gets done the right way.

Having this structure will allow us to sell off or IPO Zenith or sell off Resverlogix and still benefit from our hard work over the last 15 years developing this rather exciting epigenetic mechanism.

(Mechanism of action slide) I’d just like to remind people of what we’re working on. The other epigenetic companies are working in the Writers and Erasers space – the permanent addition of something on or off the end of the histone tail. We are a reversible adaptation of something on or off. It’s important to be able to turn genes on or off – to be reversible. One of the new technologies (CRISPR(?)) is a DNA alteration -- permanent modification to DNA. You think there’s complaints about GMO foods right now, wait til you see some of these going forward. You want to be in our space – able to turn genes on or off, modifiable and reversible.

(Slide on competitors) In this exact field of epigenetics, working with the bromodomains, we had about four companies start in their oncology programs ahead of us, all in hematology, blood borne cancers. Merck’s Oncoethix has not gone well. Constellation lost their deal with Roche. GSK has shut down that program for a long time, but may restart. Tensha (?) – no one knows where that is -- it has had some problems. We predicted this a few years ago. They’re all based on the same scaffold – benzodiazepine, which is a sleeping medication. With our company’s strong background in cardiovascular, we knew full well years ago, that these companies would have problems with their approach. Sleeping pills and heart problems don’t mix very well. We weren’t surprised by the problems they’ve had, although they did do some pretty good deals. $90M, $95M, $375M for a single molecule, so that part is encouraging.

Now we have new players in the field. Bayer, Gilead, BMS, Incyte and Abbvie. For us, we keep an eye on them, but we’re seeing a bit of a repeat of the first wave. Half of them chose poorly and are sticking with benzodiazepine. We looked at where they started and how they’ve designed their clinical trials. We believe we’ll most likely be ahead of them in the clinic in six months – we’re pretty excited about that. Zenith is skipping over hematology and going straight to solid tumors (may go back to hematology in the future).

BRD4 is directly involved in the resistance mechanism of several anti-cancer therapies, be they chemotherapy, hormone deprivation (androgen, estrogen) such as is seen in breast cancer treatments, antibody based therapies and signalling inhibitors. With us being able to inhibit BRD4, it is a huge breakthrough in oncology.

(slide on various cancers – breast, prostate, lung, melanoma, etc). Also opens opportunities. We’ve been working on determining how our compounds work in combination with existing treatments. We have the ability to enhance a number of these.

(slide on combos with other drugs) Over the past year, we are finding synergies with these various drugs. If you put the two together (combo-cocktail), do they work better or worse? For example, we’ve done a lot of work with enzalutamide (breast and prostate cancer).

(slide on how cancer works) We are focusing on high needs areas that have had low results to date. (Some pretty detailed explanations and terminology followed that I couldn’t quite grasp that explained how cancers grow and change over time and how drugs become ineffective against them over a period of time. Don joked that since Norm Wong was in the audience, he was probably the only person in the room that the slide made sense to)

We affect most of the targets in this space (at least a dozen), not just one by one, but in combination. We can down or up regulate them as required. We’ve had pretty good luck in deciphering these in the lab.

Immunotherapy is getting a lot of attention these days. Targeting PD1. We are equivalent to these solutions standalone. But in combination/synergistically with existing therapies, we are seeing a 60% greater benefit over and above standalone. We have been in touch with the pharmaceutical companies that have these other drugs.

(New indication slide – prostate cancer). Regional, local and metastatic cancers. Metastatic has a low survival rate, less than 50% after first year – you don’t want it. Current treatments include enzalutamide and abiraterone with a combined $3Bn in yearly sales. Patients become resistant to these after about 2-3 years.

The principal investigators for both of these drugs are highly involved with Zenith.

Our trial will be dealing with patients who have already gone through these therapies and have become resistant to them, be they chemo or drugs. For us, we’ll be able to see in Phase 1 whether our drugs are working or not because the patients don’t take a placebo. This is also one reason why things move a lot faster in the oncology space – you don’t have to wait for a Phase 3 trial to prove everything. We’re approaching this a second line solution, i.e. working after other therapies have been tried, but in the future, we’ll approach this as a first line solution (perhaps replacing the existing therapies).

Slide with some explanations on where/how enzalutamide and abiraterone work on a cancer. Also showing where ZEN-3694 acts (much further down the chain).


We are very excited about starting our trial and so are our principal investigators, because we believe we can have a positive effect.

A slide from a “hot new” drug by Johnson & Johnson (I believe it was ARN 509), showing improved efficacy when used in combination with our compounds – another opportunity to partner. We’ll be talking to a lot of people next week.

(Timelines slide) – what we’ve done over the past year. As a private company with limited news releases, it may seem like we’re just sitting around waiting, but it has been busy. What the staff across the street have accomplished in the past 12 months is phenomenal … I’m really proud of them. We did all the invitro, invivo pharmacology, BRBK, translational biology, various studies, API procurement, tox reports, everything for IND filing for FDA. Also a number of presentations at industry events and publications. There is a growing awareness of this field and we are very much a part of it.

The IND was filed late last year and I’m very happy to announce that we received a letter yesterday with approval (a couple of minor housekeeping clauses to be dealt with), so we are now able to commence with Phase 1 with the FDA US.

We will start with single agent dose escalation. These patients, 12 or so, start with 7.5mg for 28 days, and then it’s doubled and doubled again so by about the third dosing, we should start seeing some activity. We are hoping to see results by the summer. What we then do is a second cohort that will be in combination with enzalutamide where we can show that our drug in combination with the best drug on the market is an effective booster of both. Then we have the ability to take the same drug to start working in expansion cohorts such as breast cancer. So we’ll have both the male and female program going by 2017. We’re pretty excited about that.

I’ve mentioned the two leading drugs a couple of times. Eric Small (University of California San Francisco) (UCSF)) and Howard Scher (Memorial Sloan Kettering Cancer Center) (MSKCC)) are responsible for each of those drugs. They are our principal investigators. They have never worked together before so we’re pretty excited about that. We also have confirmed involvement from a very key group in the US, the PCCTC (Prostate Cancer Clinical Trials Consortium).

Question from Audience: Do you have to file a new IND for breast cancer?

Answer: No, the IND filing is actually for the drug itself so for every indication we want to use 3694 for, it’s done.

We can then also go back to look at hematology. What competitors are doing is going in at very low doses and taking all comers. So they’re looking at lymphomas, hematology and some have solid tumor program. Our approach will put us ahead of them in about 6 months time. So going from 2 years behind to in the lead with such a superior drug that we believe can be dosed every day is great. The competitors need to pause every few days of dosing because of the way they’ve designed their trials, the scaffolds they’ve chosen and that bleeding is often seen during oncological trials.

The fact that we can dose every day has gained the attention of others in the industry which again is very positive.

(Expansion) We are very deep into a discussion of licensing in China and we have several pharmas with very high interest. It would be a premium to market type of deal similar to what we did with Resverlogix and it would be for the China rights only.

We’re also looking at expansion into other indications – things move fast in oncology. One area is animal health. Things are a bit easier to get registered in this area. We may start with this in China.

We’re spending very little on this and the interesting thing is that we’ve already done a lot of this research with animals to get us to where we are today.

(Market cap slide) It’s been frustrating because every bank values this differently, anywhere from .09 to .60 depending on which bank you’re with. It’s none of these. I sold 19.5 million shares at $1USD. That’s what the true value is – before starting the Phase 1 trial.

As a comparison, Oncoethix was a deal done by Merck in January. They are one single compound and it doesn’t compare to us. The received $110M upfront for one compound -- Zenith has 1500. Not all will be drugs but there are many other candidates for us to look at.

Epizyme did an IPO for $400M. Pretty good numbers.

Constellation had a deal with Roche but Roche has since backed out. Again, they’re targeting benzodiazepine.

(Milestones). The development targets including filing the IND have all been hit. The hiring of the two principal investigators is hugely important. They’re the top two investigators for prostate cancers in the US. They see everything going on in the area, everyone goes to them for opinions – they’re with us.

Regarding the IPO on Nasdaq, I’ve said in the past I would never do another TSX listing – well, I’m looking at a TSX listing. One reason is that some resource companies that are not faring too well. I’m thinking that we might do a reverse takeover of one of these companies who might already have a Nasdaq listing. We’re still working on these angles to determine how viable that would be. My lawyer hasn’t even heard about this.

We know it’s important to everyone in the room, but whether we list first in Canada and then move down or go directly to the US is yet to be seen.

There are a lot of opportunities for partnering. We’re at the JP Morgan conference next week and the guys have a heavy schedule already.

Q&A from Audience (about 40 minutes in).

Couldn’t quite hear all of the questions clearly. Something about IPO in Canada to which Don replied “we wouldn’t be doing an IPO in Canada – it would more likely be a reverse takeover of a company in order to get a listing”.

Q: Where will trials be conducted?

A: 5 or 6 sites in US with UCSF and MSKCC being the primary ones. Also some sites from PCCTC. The trials will start this quarter. These patients are very sick. Part of the objective is to add value and show Proof of Concept early. That will allow us to proceed with some of the pharma discussions we’ve been having.

Q: How do you see deals being done? M&A or Joint ventures?

A: Both. The advantage we have is that we were quiet for so long about what we were and where we were going. We’re able to come in with a 3rd generation drug. We understand a lot more than other companies. It enables us to start some serious discussions. Everyone is waiting to see the results with human data. We’re very confident.

Q: Oral or injection as method of delivery?

A: Oral. Cost, production, shelf life are all in our favor. Biologics are very expensive (eg. $500K or PNH treatment). Having a small molecule solution is viewed favorably by payor groups.

Q: How would Royalty deals with other areas/companies be done in the new org structure?

A: Likely by end of month, there will be an official transaction date. ZCC will hold the royalty streams from both RVX and ZEL. ZEL will be the development company. It will be doing this on its own, in partnership with others or may even be bought out by some pharma. Same with RVX. (By the way, RVX is back in lab working on new drugs – very successfully.)

Hypothetically, if in the future, Zenith were approached by a pharma who said “we want everything” including the royalty stream, they just write two cheques. It’s a number that can be calculated and agreed upon. The structure also allows us to avoid dilution of the royalty stream as new investors would only have entitlement to ZEL in the future. As we go into more and more programs, there will be the potential to having to raise money. Why give away something (royalty stream) when we don’t need to?

Q: Record date, tax implications?

A: Record date will most likely be Jan 31 or thereabouts. Deemed price will be set by Deloitte and/or KPMG. The number will be “tax-proper” but it’s a conversation for the accountants. The objective is to minimize tax liabilities.

Q: Future of ZCC, especially what will be done with revenue streams?

A: Dividends, Dividends, Dividends. We aren’t contemplating any further investments. We already have ZEL and RVX. There’s 20 years of development effort at those two alone. We have our hands full.

Q: Does ZCC hold all the share of ZEL or will ZEL shares be distributed.

A: Current Zenith shareholders will own shares of both ZCC and ZEL.

Q: Can part of ZEL be sold? E.g. just the prostate cancer portion?

A: Yes, Henrik Hansen has done a great job of compartmentalizing the IP. It’s kind of an “onion” approach – different layers can be peeled off and sold separately. Key is to focus on and get this first Proof of Concept done to prove our approach – then the floodgates will open

Q: Is it better for us to partner (given that we can raise efficacy of various drugs) or is it better to go standalone?

A: It depends. FDA plays into this. When you’re a new drug, you often have to start a second line. The other one is approved – you have to prove you’re better.

Q: Potential situations where ZCC would want to/need to do a financing?

A: At the end of the day, ZCC will owe ZEL for the royalty stream. (That’s what I heard, but I couldn’t make out the remainder of the answer to the question -- perhaps whoever asked could clarify)

Q: How does the $34M number that we saw in the information circulars fit into all this?

A: Very confusing and I can’t explain the whole thing. Please talk to Brad about his if you need further clarification. It’s all part of the tax structure an implications. At the end of the day, you will own both ZEL and ZCC. ZEL will likely continue to need funding, but will also grow in value as the technology proves itself.

Q: How soon will shareholders see any money in their pockets? (my paraphrase)

A: Earliest payouts to shareholders in the form of dividends from ZCC would be in 3 years. It’s a longer term strategy. If it was sold in whole or in part, you would see something sooner.

Q: Length of trial?

A: We’re starting at 7.5mg (other trials start much lower because they haven’t done groundwork like we have). Dr Hansen corrected him and said we actually start at 48mg and double every month. By the time you’re into the 3rd cohort, you are seeing results. You know efficacy by whether patients are surviving or not.

Q: About valuation for a private corporation?

A: A US banking group would need to establish value. Eg Pharmacyclics went from $9Bn to $20Bn when sold to BMS.

Wrap up.

Don away for next few weeks, including conferences in SanFrancisco and Spain.

Again, I invite others who were at the meeting to enhance or clarify where I might not have provided the whole story. GLTA

masila

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