Achieve Life Sciences Inc (ACHV) 2003 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Sonus Pharmaceuticals 2003 year-end conference call. (OPERATOR INSTRUCTIONS) I will now turn the conference over to Mr. Mike Martino, CEO of Sonus Pharmaceuticals. Sir, you may begin your conference.

Thank you Tina. Hello and welcome everyone to our 2003 year-end conference call. With me today are Dr. Michael Stewart, Chief Medical Officer; Rick Klein, Chief Financial Officer; and Pamela Dull, Director of Investor Relations.

2003 was another year of solid progress for Sonus. We achieved a number of specific objectives to advance TOCOSOL Paclitaxel, and these objectives provide clarity and momentum heading into 2004.

We will use the following outline for today's call -- Rick will highlight our fourth quarter and annual financial results; second, I will recap these 2003 accomplishments; and then Michael will provide an update of our clinical and regulatory progress with TOCOSOL Paclitaxel; I will close out with a review of our 2004 objectives.

With that, I will turn the call over to Rick to review the financial results.

Thanks Mike.

Before reviewing the financial results I'd like to remind everyone that some of the statements made today may include predictions, estimates and other information that might be considered forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ from our predictions and estimates as a result of various risk factors, including those identified in our Form 10-K and other SEC filings, all of which can be accessed at our website at sonuspharma.com.

Turning to the financials, we ended the year with a solid financial position, including $19.7 million of cash and no debt. These existing resources are sufficient to fund our objectives in 2004. However, we will also expect to secure additional funding, initially from corporate partnering activities, which will provide the basis for the remaining clinical development and New Drug Application submission for TOCOSOL Paclitaxel and for bringing additional products into the clinic.

Turning to the income statement, for the fourth quarter of 2003 we reported a net loss of $2.6 million or 15 cents per share compared with a net loss of $2.4 million or 18 cents per share in the fourth quarter of 2002. For the full year we reported a net loss of $10.5 million or 68 cents per share compared with a net loss of $11.6 million or 86 cents per share in 2002.

The 2003 financial results reflect an average net cash burn of slightly less than $1 million per month. With the initiation of new clinical studies under our regulatory strategy for TOCOSOL Paclitaxel and ongoing activities for pre-clinical development of new product, we expect that the spend rate will increase to the 1.0 to $1.5 million range per month in 2004. And as I mentioned at the outset, we began the year with $19.7 million in cash.

That completes the snapshot of our financial results, and I will turn the call back to Mike.

Thanks Rick. As I said up front, 2003 was another strong year for Sonus. We achieved the significant majority of the objectives we set at the beginning of the year, and I'd like to recap those accomplishments now.

First, we completed patient enrollment in the Phase 2a trials for TOCOSOL Paclitaxel in June and the data from the treatment of those patients continue to support our belief that the product offers an easier to use, more tolerable, and potentially safer and more effective alternative taxane therapy for patients and physicians. Michael will provide an update on those data in a moment.

Second, we had a very productive meeting with FDA last spring, outlined a clear, concise and versatile regulatory strategy for TOCOSOL Paclitaxel, and initiated two new clinical trials to implement that strategy during the fourth quarter. The objectives of our regulatory strategy remain to get TOCOSOL Paclitaxel approved for the competitive label as fast as possible and to preserve the opportunity to differentiate and accrue further value to the product subsequent to that initial approval.

Third, in October we received Fast Track designation from the FDA for development of TOCOSOL Paclitaxel for the treatment of inoperable or metastatic transitional cell carcinomas of urothelial, most of which are bladder cancers. We believe this designation recognizes the potential of our drug to treat a disease for which no chemotherapeutic agent is currently approved. And it further supports our objective to secure FDA approval for TOCOSOL Paclitaxel as fast as possible.

Fourth, together with C-Cor (ph), our contract manufacturing partner, we successfully scaled the manufacturing process for TOCOSOL Paclitaxel to ensure adequate clinical supply for ongoing and planned trials and to provide a commercial scale process to enable regulatory approval on product launch. From a competitive standpoint, we continue to believe that we have a favorable cost of manufacturing position that should provide good margin advantages for Sonus and our partners when TOCOSOL Paclitaxel reaches the marketplace.

Fifth, we strengthened our intellectual property estate for TOCOSOL Paclitaxel with the issuance of two new patents which were announced last year. I am pleased to announce that we recently had a third patent issued, this one related to our TOCOSOL technology platform. This now brings our total number of issued US patents to five, with three of those specific to TOCOSOL Paclitaxel.

Six, we significantly enhanced our clinical and regulatory development capabilities with the additions on Dr. Michael Stewart as Senior Vice President and Chief Medical Officer and Dr. Elaine Waller as Vice President of Regulatory Affairs and Quality Control.

Finally, we strengthened our cash position, as Rick mentioned earlier, with the completion of a private placement financing that brought in net proceeds of $13.1 million.

Now I also want to discuss the two objectives that we modified over the course of the year, starting with our corporate partnering effort.

As you know, we started 2003 with the stated objective of getting a partnership done on TOCOSOL Paclitaxel. Our primary objective was to secure the additional financial resources that we felt would be necessary to accelerate the clinical development of the product beyond what were then the ongoing Phase 2a studies.

In early spring, favorable changes in two critical areas provided us with more flexibility around this goal -- first, we had the productive meeting with the FDA where we secured clarity on the steps that were required to execute a regulatory approval strategy for TOCOSOL Paclitaxel and that could be faster and less costly than originally expected; second, the capital markets improved significantly and we were able to complete an equity financing that provided the necessary resources to implement that strategy without the acute need for cash from a partner. In fact, as Michael will review and a moment, both the clinical pharmacology study under the 505(b)(2) half of our regulatory plan and the Phase 2b bladder study which is the Fast Track component of our strategy, are underway. I believe that we have the right studies ongoing, the necessary resources and expertise to implement those studies, and I'm optimistic that we are now well positioned to achieve the objective of concluding a corporate partnership.

Moving an additional products into clinical development was another objective for 2003 that we did not achieve. However, we said at the very beginning that maintaining the critical focus on TOCOSOL Paclitaxel was our greatest priority, and that moving another product candidate into the clinic would be resource dependent.

The good the good news, I think, is that we have continued to focus and make progress with TOCOSOL Paclitaxel, and at the same time we've advanced the non-clinical development of other potential products. These activities have resulted in data on product candidates that maybe even more promising for clinical development then TOCOSOL Camptothecin, our previously announced product candidate. We were pleased to learn recently that an abstract on these encouraging non-clinical data has been accepted for presentation at the upcoming annual AACR meeting, which will be held in late March. We look forward to discussing the new compounds and that data further at that time.

Now I'd like to turn the call over to Michael Stewart for a review of our clinical and regulatory progress with TOCOSOL Paclitaxel. Mike?

Thanks Mike.

With the completion of patient enrollments in the Phase 2a clinical program and the initiation of new studies to support the regulatory development of TOCOSOL Paclitaxel, we continue to be pleased with our progress.

For a quick update on the Phase 2a study, I'm happy to tell you that since our last update in November two more partial responses and one more complete response have been recorded in the ovarian cancer study for an overall objective response rate now of 38 percent. The response data from the non-small cell lung and bladder trials were already matured when we last reported to you, with objective response rates of 21 and 33 percent respectively.

From a safety perspective the emerging data also continue to be favorable. There have been no significant changes in the incidence of neuropathy, with nearly 70 percent of patients never developing this complication. Only nine percent of patients have in grade three toxicity (ph) and still no instances of grade four toxicity. About one-third of patients have had grade three or four neuteropenia.

As you may remember, the secondary efficacy end points of our Phase 2a studies are contra-disease (ph) progression and one year survival. Those data continue to mature and we will update them by the time of the ASCO annual meeting which is being held the first week of June in New Orleans.

We also made further progress in our clinical development programs with new trials. For those who might be new to the Sonus story, we're pursuing three complementary paths to get TOCOSOL Paclitaxel to market as quickly as possible.

The first path is to seek approval via a 505(b)(2) new drug application by comparing our products to Taxol at the approved dose and schedule. In the fourth quarter of last year we implemented the first clinical steps of the 505(b)(2) program with the start of a clinical pharmacology study. Our intention is to complete this study and review the data with the FDA during the summer to gain agreement on the end point and design for a confirmatory efficacy trial. As we have previously stated, we expect to initiate that pivotal trial in 2004, with the goal of submitting a New Drug Application to the FDA in late 2005 or early 2006.

We've also activated a Phase 2b study in inoperable or metastatic urothelial transitional cell cancer to support the second path of our regulatory strategy. As Mike mentioned earlier, we received Fast Track designation for this development program, which means that Sonus and the FDA are committed to work together efficiently and expeditiously and develop a TOCOSOL Paclitaxel for the treatment of this serious disease. Our objective is to complete enrollment in the Phase 2b study as quickly as possible, preferably this year, but recognizing that the relatively small number of patients with advanced disease may limit the speed of enrollment.

Finally, to support the third leg of our regulatory strategy we also look forward to activating Phase 2b trials in advanced ovarian and breast cancers in 2004 to explore potentially higher efficacy as a result of increased dose levels or dose densities compared to the approved Paclitaxel dosing regimen.

Mike, that's it for the update. I will turn the call back to you now.

Thanks Michael.

We continue to believe that TOCOSOL Paclitaxel offers features and advantages that will translate into real benefits for patients and physicians. We know that today's taxane market is significant with worldwide sales of over $2 billion. However, we also believe the available taxane products are not realizing the full growth potential of this market due to certain limitations such as time-consuming and difficult preparation of the drugs prior to administration, long and inconvenient infusion times, and treatment limiting side effects in some patients.

TOCOSOL Paclitaxel is a ready to use formulation that does not require reconstitution or dilution, eliminating the accompanying time and cost for pharmacy facilities and studies and staff. The product can be administered in a quick fifteen minute infusion compared to the one to three hour infusion required with the available taxane product. In addition to convenience and ease-of-use, the clinical data shows that TOCOSOL Paclitaxel is well tolerated. As a result, most patients do not need doses reduce or delayed, which is essential to successful treatment. To date TOCOSOL Paclitaxel is demonstrating promising safety and anti-tumor activity in multiple tumor types. And in summary, these are the features, advantages and benefits that we believe will position TOCOSOL Paclitaxel as the taxane of choice in an attractive and growing market.

The great thing about our 2003 accomplishments is they give us a strong sense of momentum to achieve very clear and aggressive objectives for 2004, and I'd like to discuss those now.

Our primary focus in 2004 is to realize the value of TOCOSOL Paclitaxel by achieving four things -- first, completing the clinical pharmacology study and meeting with FDA to gain agreement on the protocol for the 505(b)(2) confirmatory efficacy trial; second, initiating enrollment in that pivotal study in 2004 to enable an NDA submission in late '05 or early '06; third, driving enrollment in the Phase 2b bladder study to take advantage of the Fast Track designation for that program; and fourth and finally, concluding a corporate partnership to set the stage for maximizing the product's commercial opportunity.

Our second goal is to diversify to a multi-product company by achieving three things -- first, the positioning a second Sonus product for clinical trials; second, creating additional development opportunities by collaborating with new partners to apply our technology to their proprietary products; and third, by identifying in licensing prospects to expand our existing pipeline and technology capabilities.

To enhance our ability to meet these aggressive objectives, I am pleased to announce -- first, the appointment of Dr. Winn Gold (ph) as Vice President of Research and Process Development; second, the promotion of Dean Kessler to Vice President of Pre-clinical Development; and finally, the appointment of Dr. Neile Grayson as Vice President of Strategic Planning and Corporate Development. And let me say just a few words about these organizational changes.

Winn Gold joins Sonus from a 13 year career at Frazenius Coby (ph) where she most recently served as Vice President of Research and Product Development. She brings extensive experience in new drug development, specifically with the development and application of emulsion formulations, a major component of our core technology platform. Winn's responsibilities will include discovery research, formulation development, analytical chemistry, manufacturing, and quality control.

Dean Kessler has been promoted to the position of Vice President of Pre-clinical Development. Dean has played a role in the development of TOCOSOL Paclitaxel and the other non-clinical products in our pipeline and the scope and magnitude of his responsibilities and his contributions have steadily increased. Dean's focus will be on biology screens, experimental non-clinical pharmacology, and all aspects of non-clinical safety (technical difficulty) Working together, Winn and Dean will provide the scientific leadership and focus to benefit the discovery and non-clinical development of new drugs, as well as the development and growth of our people.

Neile Grayson brings us significant experience in the development of new drugs from lab to the clinic, as well as in structuring and managing external collaborations, which will be an important asset as we continue to evolve our business. Neile joins Sonus from NeoRex (ph) where she was Vice President of Corporate Development. Her experience also includes nine years at Mallinckrodt (ph) where she directed activities related to identifying and assessing corporate growth opportunities, including internal discovery and research, external collaboration, and early stage clinical research.

This strengthening of our organization comes a time when we have great clarity around the clinical and regulatory development of TOCOSOL Paclitaxel. We see significant opportunities ahead to further apply our technology to bring other products into the clinic. And adding these people and capabilities to the existing team puts us in a stronger position to capitalize on those opportunities.

That complete our prepared remarks. We will be pleased to answer any questions. Could you please open the line for questions?

(OPERATOR INSTRUCTIONS) Matt Kaplan, Punk, Ziegel & Co.

Thanks for taking my question. Congratulations on your accomplishments in 2003 and setting up for 2004. Just a couple of questions.

With respect to giving us some detail in terms of data presentations expected in 2004, you mentioned AACR and ASCO. Could you give us some detail in terms of what type of data we should expect at these conferences?

As you know, I would not want to be in a position on speculating on what data may be available. And as you further know, ASCO in particular frowns a great deal on discussions of data in advance of the meeting.

I guess in terms of would be Phase 2 data for TOCOSOL Paclitaxel, pre-clinical data -- in terms of that, not the type of --?

In general at AACR we would plan to discuss the non-clinical data related to new product candidates and really provide some more detail on the nature of those candidates and why we're excited about them based on the non-clinical data.

At ASCO, we would expect to be in a position to discuss the maturing secondary efficacy end points on the Phase 2a trials. And as Michael referred to those, those would include the time to progression data, as well as the one year survival data. I might add that the great news on the one year survival is that in fact in the ovarian trial we may not have mature data by ASCO because patients continue in that study. The good news is that the data may be good data; the bad news is we may not be able to discuss it by ASCO.

Could we see some bio-equivalency data from the PKPD pharmacology study there as well?

I think that's not likely, Matt. The real purpose of generating that data is to facilitate our discussion with FDA, and we think that that is the material end point for that study. And our current plans would certainly involve releasing any material information around that data and that meeting with the FDA.

Two more quick questions and then I will jump back in the queue.

With respect to on the business development front, you seem to be fairly positive with respect to the partnership discussions that are ongoing for TOCOSOL Paclitaxel. Could you elaborate on those a little bit in terms of -- obviously you missed the timing in 2003 and you seem fairly confident that you're going to execute on that objective in '04. Just why are you so confident I guess?

I am optimistic and confident that we will achieve that objective in '04. I would point out, as I have said previously, that not doing the deal in '03 was a choice not to accept terms that were on the table, rather than the unavailability of terms around which to do a deal.

I am confident that several things will converge in 2004 to make this an achievable objective. One will be the continuing maturity of the Phase 2a data, which continues to point to what we believe are differentiable (ph) features of this product. Second will be continuing clarity around our implementation of the clinical and regulatory strategy related to all three legs of the strategy, but principally related to the 505(b)(2) leg. And finally, I think with the passage of time and with a renewed interest in both biotechnology in general and filling new product pipelines in particular, that there will be motivations to make things happen and perhaps faster than has happened in the pass. So I see those three things converging in our ability to get a deal done.

It seems from Rick's comments earlier in the call that that would proceed a financing in terms of helping to fund the Company.

I think we've been consistent in terms of saying that our ideal financing strategy would be, number one, to complete a partnership, both to validate the product and provides in cash as a prelude to doing anything else on the public markets. At the same time, I've also said along the way anytime you're a small company with less than a couple years of cash in the bank, it's difficult to rule out different scenarios and possibilities. But clearly our strategy at this point to complete a partnership as the first step in financing the Company in '04 and beyond.

Last question -- in terms of you were mentioning excitement about the pipeline behind TOCOSOL Paclitaxel. Is that one product or is that a number of products that you're thinking about?

Potentially it is a number of products. Just to elaborate a little bit, the challenge with any formulation technology is the versatility of that technology and application to different compounds. And we're really excited by the fact that we may have made some generational improvements in TOCOSOL which simply make it a more versatile formulation technology, which means it can be applied to a wider range of things. I think it always makes sense to have a number of bets in the pipeline. That has been our objective for some time. And so we've been working hard on it and I think we're finally getting some traction that could result in some interesting product candidates.

Thanks.

David Miller, Biotech Monthly.

Actually it's Alan Leong. I'm his research director. A couple of questions. Is the PKPD trial blinded at all? If not, have you been sharing any data with the potential partners as the trial has been proceeding?

It's not a blinded study in terms of the administration. We randomize patients to which drug they get first and which drug they get second. But because this is -- we see something that's going to be a pivotal trial, we're having the data qualified by an independent monitor before they come to us so that there will never be any questions about which data are used and why. So no, we have not been sharing the data because it's an issue of going through the process and making sure of the vigorous controls that are there.

What details can you give us on the pivotal trial for 505(b)(2) approval, like number of patients or end points? Do you have any at least general ideas you can offer us?

That came from a discussion that we had with the FDA last spring where in fact I think that the issue there is the nature and -- the compelling nature of the ClinPharm results. Obviously this decision is very much going to be data-driven, but what they've asked us to do is come back with our non-clinical and clinical pharmacology data, and based on the strength of those data what they put on the table was a concept of using a supportive end point, for example, objective response rate or time regression rather than needing to go to overall survival.

We have looked at the kind of trial that we would like to propose to them. Clearly they've asked for a head-to-head comparison with Taxol in a disease of appropriate interest. And I think that when we looked at the kind of statistical rigor we would like to achieve -- which includes for my mind something like 90 percent power with an alpha of 0.01, so very robust statistical results -- we're looking at sizing the trial around 250 patients total.

Then you say you're looking for a superiority trial?

It's designed as a specific kind of non-inferiority.

I'll get back into the queue. Thank you.

(OPERATOR INSTRUCTIONS) Oliver Marti, Columbus Circle Investors.

Just two quick questions. One, I missed when you were talking about potential for partnership. Did you say sometime in 2004 or did you say that you were close to concluding it?

I said I'm very encouraged and optimistic that we will achieve that objective in 2004.

I apologize; I misheard that. The second question was in terms of terms -- and obviously that's important to shareholders -- could you just give us a range of what kind of terms you think makes sense in terms of up-front payments or royalties, or a 50-50 promoter, US or international, or something like that?

Well, this is one of those questions where I wish Neile Grayson was with us so I could put her on the hot seat right away. I want to be able to give some guidance. I know that it's important. At the same time I don't want to do anything that would compromise ongoing negotiations.

What I would say in general is that if you look at the scope of deal that have been done on comparable products in Phase 2 development with strong data and what we believe are relatively low clinical and regulatory risks, then we think -- and of course its territory dependent, but let's just take the US territory where we think money is in the range of 50 to $80 million pre-commercial including clinical funding and double-digit royalties is --

Kind of in the ballpark.

A fair benchmark. Now, at the same time for the right partner and the right deal with the right arrangements, if we really believe that appropriate force is going to be brought to bear to make this a successful product, we'd be willing to consider the trade-offs between pre-commercial dollars and a heavier sharing of profits post-commercialization.

Just my last question with regard to the trials and what have you. There's three kind of front leaders, if you will, in this area. And two have gone I think the way of 505(b)(2) and one has gone the way of a regular NDA filing with a survival end point. Why do you think there's a difference in the strategies companies have taken? Is that an FDA issue? Is that a company specific issue?

It's difficult to speak to other companies' strategies; they clearly have better knowledge of their products then we do and vice versa. And FDA maintains strict confidence around discussions with sponsors, so we don't have access to their discussions with FDA. We believe that the 505(b)(2) path is available to us because we have not chemically modified a well-known, well-studied active ingredient, Paclitaxel. We simply put it in a delivery package that offers the benefits of a ready to use feature, more convenient administration, and a better tolerability and side effect profile, etc. And we were delighted that FDA agreed with that assessment and is willing to consider a 505(b)(2) application for our drug.

Great. Thank you very much.

(OPERATOR INSTRUCTIONS) Mr. Martino, we have no further questions. Do you have any closing remarks?

Thank you Tina. I do. If there are no further questions we would like to thank all of you for joining us today and for your questions. As always, we appreciate your continued support. We look forward to keeping you updated on future developments in a timely matter. That will conclude the call. Thank you Tina.

Thank you sir. Ladies and gentlemen, this concludes today's teleconference. You may all disconnect.