Achieve Life Sciences Inc (ACHV) 2007 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Sonus Pharmaceuticals First Quarter 2007 Conference Call. [Operator Instructions] At this time, I would like turn today's conference over to the Director of Investor Relations, Pamela Dull. Please go ahead, ma'am.

Thank you, Andrew, and good afternoon, everyone. Welcome to Sonus Pharmaceuticals' first quarter 2007 conference call. As a reminder, this call is being recorded and broadcast live on our website at www.sonuspharma.com. A replay of the webcast will be available through the same link.

With me this afternoon are Mike Martino, our President and CEO, Alan Furman, our Chief Financial Officer, Dr. Richard Dakfuku, our Acting Chief Medical Officer and Vice President of Discovery and Preclinical Research, and Dr. Elaine Waller, our Senior Vice President of Regulatory Affairs and Quality Assurance.

We'll use the following agenda for today's call. First Mike will review first quarter progress. Second, Richard will provide an update on TOCOSOL paclitaxel. Then Alan will give a brief summary of our financial results. Finally, Mike will wrap up the call and then we'd be happy to take your questions.

Before we begin, I would 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 subject to risks and uncertainties. Actual results could differ materially from our predictions and estimates as a result of various risk factors, including those identified in our annual report on Form 10-K for 2006 and our quarterly report on Form 10-Q for the first quarter of 2007, copies of which can be accessed on our website.

Mike, I'll turn the call over to you.

Thanks, Pam, and welcome, everyone. Our last update was just eight weeks ago, so our prepared comments today will be pretty brief. Since that update, of course, we've continued to focus on our primary objectives for 2007 and we're making good progress. So there are just a couple of items that I would like to highlight today, as follows.

First, the conduct of the TOCOSOL paclitaxel Phase III trial remains on track. We continue to expect adjudicated data in the third quarter of this year.

Second, in collaboration with our partner, Bayer Schering Pharma, we are making good progress to complete as many components of the NDA as we can prior to obtaining the Phase III data. As we mentioned on our last call, we anticipate that the NDA for TOCOSOL paclitaxel will be submitted in the second quarter of 2008. Bayer Schering will be the sponsor of the NDA and will be responsible for submitting it to the FDA.

Third, in parallel with Phase III activities, we also recently presented encouraging preclinical data at the AACR annual meeting, showing that TOCOSOL paclitaxel resulted in less neuropathy than approved Taxane products. Richard will provide a few more details on that in just a moment.

And finally, the Phase I trial for TOCOSOL camptothecin is ongoing. It's too early for any safety and efficacy results from this study. However, the data available to date confirm the hypothesis from our preclinical program. That is, specifically, that TOCOSOL camptothecin previous a longer half life and greater exposure to SN38, the active moiety, than irinotecan.

Our goal remains to obtain preliminary safety and efficacy data by the end of 2007, in order to make a decision about moving this compound into a Phase II program.

With that, I'd now like to turn the call over to Richard to review the data that we presented on TOCOSOL paclitaxel at AACR. Richard?

Thanks, Mike. At the recent meeting of the American Association for Cancer Research (AACR) held in Los Angeles, we were pleased to present the results of our preclinical study showing that TOCOSOL paclitaxel causes less peripheral neuropathy compared to the approved Taxane products, which are Taxotere, Taxol and Abraxane.

In this study, the drugs were given weekly for six cycles, at clinically relevant doses for the treatment of metastatic breast cancer. With Taxol, the dose was reduced, as compared to the human dose, because the treated animals could not tolerate the clinical dose.

The study showed that TOCOSOL paclitaxel results in less severe effects on coordination, and based on pathological assessment of peripheral nerves, caused less nerve fiber degeneration than the approved taxanes. The study also showed that Abraxane and Taxol administration resulted in central nervous system lesions. However, this was not seen with TOCOSOL paclitaxel or Taxotere.

This work is encouraging and the first in the series of preclinical studies that we're undertaking to understand and highlight the basis for differentiating TOCOSOL paclitaxel from other Taxane products.

I'll now turn the call over to Alan to provide an overview of our financial results.

Thanks, Richard. I'll briefly review our financial results, which we reported in our press release this afternoon.

For the first quarter of 2007, we reported a net loss of $3.2 million, or $0.09 per share, compared with a net loss of $5.3 million, or $0.17 per share, in the same period of 2006. The lower net loss in the current period is primarily due to higher revenue from reimbursable activity with Bayer Schering and lower R&D spending related to drug supply and manufacturing costs for TOCOSOL paclitaxel.

For the first quarter of this year, we recognized $5.1 million in revenue under our collaboration agreement with Bayer Schering. This includes $3.7 million from reimbursable expenses for work related to the development of TOCOSOL paclitaxel and $1.4 million for amortization of the up-front license fee that we received in 2005.

Cash and investments totaled $49 million at the end of the quarter. We anticipate that our net cash burn for the balance of 2007 will be approximately $27 million. With this level of spending, we would end up with a cash balance of approximately $22 million at the end of 2007.

As we mentioned in our year-end call, we have sufficient cash to fund our operating activities through the second quarter of 2008, or three quarters beyond the date when we expect to have the data from the TOCOSOL paclitaxel Phase III trial.

We do not expect to raise additional equity in advance of a catalyst and we believe that catalyst will be the data from the TOCOSOL paclitaxel Phase III trial.

That completes our financial review and I'd like to turn the call back to Mike for some closing remarks.

Thanks, Alan. Well, I warned you up-front that this was going to be a short call in terms of prepared comments. I think the important summary is that at this point in the year we're on track to achieve our key objectives for 2007 and we presented these on our last call and I'll summarize them again here, as follows.

First, to secure adjudicated data from the Phase III trial of TOCOSOL paclitaxel, which we expect to have in the third quarter. Second, to support Bayer Schering in the compilation of the NDA for TOCOSOL paclitaxel.

Third, to continue to advance the Phase I program for TOCOSOL camptothecin, with a goal of obtaining preliminary data by year-end 2007, in order to make a decision about moving this compound into Phase II development and fourth, to move a third product candidate closer to an investigational NDA application.

As always, we appreciate your interest and support. That concludes our prepared remarks. Andrew, could we please now open the line for questions?

[Operator Instructions] And our first question will come from the line of Vinny Jindal. Please state your company affiliation followed by your question.

Hi, its Vinny from ThinkEquity Partners.

Hi Vinny.

Hey guys. On the SN38 product, the update that we're going to get at the end of this year, what do you expect in terms of data? Is it going to be simply that the product was safe or are we going to get a look, really, at some of the issues that are obviously important like diarrhea, etc?

Richard?

Vinny, yes. So the answer to that is, as you know, it's a Phase I trial so the primary focus is on safety and pharmacokinetics. As we mentioned, we are looking at the PK of this drug and we have found it to be consistent with what we have observed preclinically, and that is that it has a longer half-life and is producing greater AUC's at equivalent dose than irinotecan.

We will be obviously following the safety profile and determining whether there are side effects such as diarrhea, as we move ahead and as we dose-escalate.

Okay and just remind us again what is the AUC improvement for your formulation of SN38?

Well, it's substantially greater than irinotecan, by somewhere between one to two orders of magnitude for an equivalent dose.

Okay, for SN38?

Yes.

Okay.

Does that answer your question?

It does. That's great. Thank you. On the TOCOSOL paclitaxel Phase II in bladder cancer, are we going to see that data before the Phase III pivotal in metastatic breast or do you think it'll come after?

Well, I think it will come after it, Vinny, and it really is a resource allocation issue. As mentioned, at this point, our team, which consists of Elaine and maybe four additional people, we really are focused on getting as many components of the NDA on TOCOSOL paclitaxel in place and that remains the focus of those resources. So I think it's quite likely that the data on bladder will follow the data on 1075.

Fair enough and then one last question on the Phase III trial. I know that if you pass noninferiority, your end points in the trial, so it can be an analysis of superiority. Can you remind us how superiority is defined? Is it running essentially in a nova on the data sets and looking for superiority or is there a cutoff of improvement that's a superiority end point?

Well, at this point I would say that the trial is sized such that a 20% relative benefit should be supportable statistically to purport a claim of superiority.

Okay, so if there's an absolute difference, absolute improvement of 20%. So if it was 40%, then a 48% on your arm?

Well, it's a relative improvement. So, let's say that the control arm response is 35%. Then a 42% or greater response rate in the TOCOSOL paclitaxel arm would statistically support a superiority claim.

Got you. Okay, great. Thanks for clarifying that, Mike, and thanks, Richard, for your help with the questions.

You're welcome.

You're welcome, Vinny.

Mark Monane, Needham & Co.

Hi, good afternoon. It's Mark Monane from Needham & Co. Greetings from the East., a beautiful day in the greater metro area.

Hi Mark.

Spend a little time for us, please, talking about the neurotoxicity? I mean, everybody wants a drug that tastes great and is less filling, so the efficacy piece you think you're addressing with the noninferiority, but the less filling toxicity is the neuropathy piece that I think is very interesting. Maybe you could spend a little bit more time talking about what you believe the mechanism of action is and whether it has mechanism of action as well in effecting other side effects commonly associated with taxols like nephropathy or neutropenia?

Thanks for your question, Mark. I'll turn it over to Richard for the clinical piece of it. I would say up-front, though, that our ongoing market research continues to support, if anything, the fact that there is greater interest in a taxane with a better peripheral neuropathy profile, even than there is in a taxane with a better objective response rate profile, let's say.

And we believe, based on the research is that physicians seem to believe that we've reached the limits of efficacy with taxanes, but that what really limits the clinical utility at this point is the peripheral neuropathy profile.

Now that's not to say that I'm throwing in the towel on any chance that we might achieve superior objective response rate. I mean, I think we've consistently said that our baseline expectation is, in fact, noninferiority, but we remain hopeful that we could do better than that.

We continue to believe, however, that a distinguishing characteristic of the drug could well be the neuropathy profile. And the good news from the market research is that, at least within the confines of the market research that we've conducted, that is a significant driver of behavior of the participants in that research. In other words, they approach viewing TOCOSOL paclitaxel as a taxane of choice, based on a better neuropathy profile.

Now whether that translates to the market or not, would remain to be seen. But I think it underscores the point that peripheral neuropathy could be a significant differentiating feature. Now that's the easy part. I'll turn it over to Richard to handle the slightly more difficult part, which is why we think that could be happening.

Richard?

Yes. Well, it's likely that there may be two components to that question. The formulation that we have for one, as you know, is vitamin E-based and there is increasing data that vitamin E may be protective for neuropathies if induced by both taxanes and platinums and in fact, there are some clinical trials that have looked at that issue. NCI has started recently a Phase III to determine whether that's the case or not. So that could certainly be one basis for the decreased neuropathy.

The other possibility that we have is that our formulation is in nanodroplets. These nanodroplets have been shown to maintain integrity in vitro over periods of hours and we believe that because of this characteristic they can participate in something that's been described as enhanced permeability and retention. Which leads to nanodroplets getting concentrated in tumors, delivering the paclitaxel and then the paclitaxel concentrating there because of the poor lymphatic drainage

Consequently, instead of going to other tissues, if you will, they're going to tumor tissues and that could be a second reason why we're not seeing this kind of neuropathy.

So do you think, so, then, that these -- then the vitamin E might lead -- I understand about the retention and it's concentrated in tumors. Is there a property to vitamin E that you believe allows for targeting of the tumor cell above other cells? Or is the retention in the tumor cell that makes it less likely to go everybody by definition?

Well, it's not -- we don't think that the vitamin E -- well, we don't have currently any evidence that the vitamin E itself is targeting tumor cells. It's more what would be considered passive targeting, because as opposed to active targeting where there's a receptor, say for a vitamin E or the like.

In this particular case it's more because our nanodroplets are the appropriate size and maintain integrity probably for a sufficient period of time that they can participate in EPR. And thus, get into tumors, concentrate there, and deliver the paclitaxel.

Got it. That makes sense. And through your market research, and I know Mike mentioned some of this before, is there a number or is there a level of neuropathy? Clearly less is better, but is there a level of neuropathy that might make the drug a home run in terms of its profile, as you've talked to physicians who might be using the drug in the real world?

Well, again, all we can comment on is the observed behavior, if you will, in the participants in our study. And based on that, we would say that a relative reduction of 15 to 20% in grade three to four peripheral neuropathy in that study drove significant prescribing behavior.

Got it and then last question. Bayer Schering is a big organization and they have, obviously, a number of drugs that are either in development or out there in the real world. Has there been any discussion about combining potentially TOCOSOL paclitaxel with Nexivar or any of their drugs or maybe using the TOCOSOL platform for a better, for an improved side effect profile potentially for one of their drugs already on the market?

Well, Mark, I want to be -- you know, I think it would be inappropriate for me to comment for Bayer Schering. What I would say is that in discussions around how to increase the potential penetration of TOCOSOL paclitaxel in the metastatic breast market, we've agreed, that various combination trials, various Phase II types of combination trials would be very helpful and desirable. And obviously, I think, based upon the data, they're very excited about Nexivar. One of the target markets there clearly is in metastatic breast and clearly it's used in combination with Taxanes in metastatic breast.

So beyond that, I wouldn't want to comment for them. I would say, though, that we continue to hear from them that with good data from the Phase III trial that TOCOSOL paclitaxel continues to be an important asset for them. And if anything, it's relatively more important for Bayer Schering because of the investments they've made to date in Nexivar and the degree to which TOCOSOL paclitaxel could help leverage those investments.

Fair enough. Thanks for the added information. We all look forward to the events of the second half of '07 and thank you for the not short, but I rather say concise, prepared remarks.

Thank you, Mark.

Matt Kaplan, Punk Zeigel & Co.

Hi. It's Matt Kaplan from Punk Zeigel.

Hi Matt.

Hi guys. Just wanted to drill down a little bit more with Richard in terms of the neurotoxicity and the study that you did there and the preclinical study. Can you describe, number one, some of the brain lesions you were seeing and were they at all seen with TOCOSOL paclitaxel or were they only seen with Abraxane?

And then also, could you talk a little bit about the degeneration in the peripheral nerves that you saw, axonal degeneration that you saw with the different compounds that you looked and why you think you're getting such a different result? Or and why, I guess we did see a five-fold higher rate of neuropathy in the Phase III trials for Abraxane. But why do you think you're seeing that, I guess, replicated in the preclinical off?

I'll do my best to answer those. Obviously we don't have the answer to all those questions. The brain lesions are interesting. It wasn't actually something that we anticipated finding when we initiated this study at Charles River Laboratories.

It turns out that there are two distinct kind of brain lesions, because the ones that are observed with Taxol involve actually the brain tissue, if you will, while the ones that were observed with Abraxane involved cranial nerve findings. In particular, the optic nerve, also the trigeminal nerve. But the optic nerve was probably the most relevant one in the sense that is also described in their package insert, that you can get some damage to the optic nerve. So I guess we've replicated, to some degree in this trial, what has been observed clinically.

Did you see that with TOCOSOL paclitaxel?

TOCOSOL paclitaxel and I should say Taxotere, as well, just to complete the record, did not have any brain lesions. So and one thing that has to be made clear about the study is there was one limitation, and I mentioned this, briefly, in that you can't dose these animals with the clinically relevant dose of Taxol. They just don't tolerate it. They do tolerate the clinically relevant dose for all the other drugs, but not Taxol.

So we were obligated to use a low-dose of Taxol, which was 50 milligrams per square meter (mg/m2) and in the TOCOSOL arm we looked at both 50 mg/m2 and 100 mg/m2. Now you do see a dose response in the amount of nerve damage, as you increase from 50 mg/m2 of TOCOSOL paclitaxel to 100 mg/m2.

At 50 mg/m2 you see hardly anything about saline. Maybe just a little touch of damage to nerves and at 100 mg/m2 it's about comparable to what you would see -- in fact we've ranked all these things. And I think all these are described in a poster, which we could provide you. It's approximately probably the same as docetaxel at 40 mg/m2, which is, again, the clinical dose that's been used weekly. But by far the worst one, was in all cases, was Abraxane.

And how does this correlate with the neurotoxicity you've seen in the Phase II trials and I guess maybe talk about there's something called, "chemo brain" or the haze associated with some of the CNS effects of some of the chemotherapies, especially the Taxanes. Have you seen that with TOCOSOL paclitaxel? Does this correlate, translate to the clinic at all?

Well, you're asking very, very relevant questions and ones in which we have a lot of interest. Obviously this issue of chemo brain, or cognitive dysfunction, is an evolving field right now and certainly the findings that we've had on CNS lesions have raised the issue as to whether TOCOSOL paclitaxel might be a better treatment, from the standpoint of increasing potentially this chemo fog, chemo brain.

We don't really know the answer to that, because when we did these Phase II's, there wasn't really any thought given to that at all and as you know, measuring cognitive dysfunction is difficult. Currently, I guess there are roughly two modalities to do that. One of them is some kind of behavioral testing, cognitive testing that's down in patient, although there are some questions as to the relevance of that, because oftentimes it's found that patients experience symptoms that are out of greater, if you will, of greater magnitude than the testing demonstrates.

The other way is to do some imaging studies of some kind and people have tried functional MRI or PET scanning, these kinds of things and we're very interested in this field. We're giving it very serious thought. We are in the process of doing, as well, some additional preclinical work in this area that I'm not really prepared to discuss at this point.

But we are -- it's an area that we're actively looking into and that we have interest, because we think it could be a big differentiating factor for our drug versus the other drugs. But it's a little bit early in the process, because again, these were somewhat incidental findings, if you will. When we designed this study initially in animals, we were primarily -- the hypothesis was that we would decrease peripheral neuropathy.

The fact that we also did not cause CNS damage that something that I wouldn't say was completely unexpected, but it wasn't really expected on our part. So it was something we'd given some thought to ahead of time and it's one of the reasons, actually, we ended up looking in the CNS. But it wasn't -- we didn't have any reason to anticipate that would be the case, based on what we knew up to that point, if you will.

And I guess two more quick questions. The brain lesion or the astrocytosis that you saw with Abraxane and the optic nerve or in the brain in general, were those reversible? I don't know if you took a look at that. Did those reverse over time?

Well, we did to a point. We did a recovery period of 10 weeks and let's see, I'm trying to remember, so they got treated for six weeks and then I think a month later, so 10 weeks out, we got some additional animals to sacrifice and at that point there was very little reversal. So I can't comment beyond that time period. We just don't know.

All right, so they didn't reverse?

Yes.

And then final question. Are you taking a look at cognitive function at all in the Phase III or taking a look at it anecdotally or measuring it?

Well, [inaudible, multiple speakers] in the Phase III is we are looking at peripheral neuropathy. We have a GOG subsection of a questionnaire that is used in patients to ask them about peripheral neuropathy. Unfortunately, we didn't anticipate this issue, if you will, of finding CNS lesions in animals treated with Taxol, so we never actually planned on doing that.

We are, again, as I stated, we are evaluating this issue internally. We have thought about how we could address it going forward. If you realize, it's somewhat difficult, again, because it's not as if there's a lot of background experiments in which to base, if you will, our clinical development of this area, since it's an evolving field. But we have talked some to individuals who are leaders in the field and we are going to consider seriously how we can use this issue of chemo fog, chemo brain moving forward as part of our drug development.

All right and one question for Alan. I missed in the prepared remarks what you gave the guidance for burn for 2007.

Well, what we said, Matt, was that we would anticipate a burn of about $27 million for the balance of the year. That would put us at the end of year with about $22 million in cash, so virtually no change from what we talked about at year-end, so very consistent still with what we thought.

Great. Thanks for taking my questions, guys.

Thank you, Matt.

Thank you, sir. [Operator Instructions] And management, at this time we have no additional questions in the queue and I'll turn the conference back to you for any closing remarks.

Thank you, Andrew. I'd like to mention that our next opportunity to speak to you will be at our annual shareholder's meeting tomorrow, May 10th, which will be webcast and can be accessed on our website.

In addition, we will be participating in three upcoming investor conferences. Those include a presentation at the Rodman & Renshaw Annual Global Healthcare Conference on May 14th.

On June 7th we'll be participating in one-on-one meetings with the Bayer Schering Biotech Confab and we will also be presenting at the Needham & Company Biotechnology Conference, which is being held June 13th and 14th.

Our presentations at the Rodman and Needham conference will also be webcast and available on our website.

That wraps up our call for today. As always, we appreciate your support.

Thank you, management. Ladies and gentlemen, at this time we will conclude today's teleconference. We do thank you for your participation. If you would like to listen to a replay of the conference, please dial 1-800-405-2236 or 303-590-3000. You'll be asked to enter an access code of 11088543 followed by the pound sign. [Repeat instructions] We thank you for your participation. At this time we will conclude. You may now disconnect and please have a pleasant afternoon. 9