Achieve Life Sciences Inc (ACHV) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sonus Pharmaceutical second quarter 2007 conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded Friday, August 3, 2007. I would now like to turn the conference to Pamela Dull, Director of investor relations. Please to ahead.

Thank you, Eric, and good morning, everyone. Welcome to Sonus Pharmaceutical's second 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 morning are Mike Martino, our President and CEO, Alan Furman, our Chief Financial Officer; Dr. Richard Daifuku, 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 progress on our key objectives. Next, Alan will provide a summary of our financial results. Then Mike will wrap up our discussions and finally we would be happy to take your questions.

Before we begin, I would like to remind everyone that some of the statements made today may include prediction, 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 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 reports on Form 10-Q for the first two quarters 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 prepared comments today will be pretty brief. The short story is that we remain focused on two key objectives; first, to secure independently-reviewed data from the pivotal Phase III trial of TOCOSOL Paclitaxel, and second, to continue the conduct of the Phase I study for our second oncology product candidate, TOCOSOL Camptothecin. With respect to the TOCOSOL Paclitaxel Phase III trial, the data collection and analysis process is proceeding as planned and we still expect the objective response rate and safety data to be available by the end of September. I would remind everyone that Sonus and Bayer Schering remain blinded to the outcomes of the Phase III trial and will remain so until the independently-reviewed data become available at the end of September.

We are continuing to collaborate with Bayer Schering to assemble and complete the available components of the NDA. We will begin to write and assemble the final clinical components when the Phase III trial data become available at the end of September. By meeting this milestone, we anticipate that the NDA will be submitted in the second quarter of 2008. However, that time line could be accelerated or delayed based on the clarity and complexity of the data from the Phase III trial. We'll be in a better position to provide further guidance on the NDA submission when we announce the results from the study.

The Phase I trial for our second oncology product candidate, TOCOSOL Camptothecin, is ongoing. It's still too early from any safety and efficacy results from this study. However, the data available to date continue to confirm the hypothesis from our preclinical program, specifically that TOCOSOL Camptothecin provides a longer half-life and greater exposure to SN-38, the active moiety, irinotecan. Our goal remains to obtain preliminary safety and efficacy data by year end, in order to make a decision about moving this compound into a Phase II study. I also would like to mention that in June, the first United States patent issued for TOCOSOL Camptothecin. We now have ten issued patents in the U.S. and five outside the U.S. pertaining to our proprietary TOCOSOL technology. In addition, our patent estate includes more than 20 additional applications throughout the world.

I'll now turn the call over to Alan for a review of our financials.

Thanks, Mike. I'll briefly review our financial results, which we reported in our press release this morning. For the second quarter of 2007, we reported a net loss of $6 million or $0.16 per share compared to a net loss of $4.9 million or $0.14 per share for the same period of 2006. For the first half of 2007, we reported a net loss of $9.2 million or $0.25 per share compared with a net loss of $10.2 million or $0.31 per share for the same period of 2006. The lower net loss for the first half of 2007 is primarily due to reduced expenses related to our Phase III pivotal trial and to reduced manufacturing costs for TOCOSOL Paclitaxel, as responsibilities shifted to our partner, Bayer Schering. These lower expenses also resulted in reduced reimbursement revenue from Bayer Schering.

For the second quarter of this year, we recognized $3.3 million in revenue under our collaboration agreement with Bayer Schering, which includes $1.9 million for reimbursable expenses for work related to the development of TOCOSOL Paclitaxel, and $1.4 million for amortization of the up-front license that we received in 2005. For the first six months of 2007, we recognized $8.3 million in revenue under our collaboration agreement, which includes $5.5 million from reimbursable expenses and $2.8 million for amortization of the up-front license fee. Cash and investments totaled $44.3 million at quarter end. Under our current operating forecast, that cash provides us significant resources to fund our operating activities through the second quarter of 2008. As we have previously stated, we do not plan to raise additional capital in advance of data from the Phase III trial of TOCOSOL Paclitaxel.

That completes our financial review and I'll turn the call back to Mike.

Thanks, Alan. As you can all imagine, I'm sure, we are eagerly awaiting the Phase III trial results for TOCOSOL Paclitaxel. We continue to believe in the opportunity for the product, but also clearly understand that the commercial position will be data driven and I guess the good news is that we're within a couple months of knowing that data. This is a very exciting and busy time for the Sonus team.

That completes our prepared remarks. We'd be happy to try to answer your questions. Eric, would you please open the line for those questions?

Yes, sir. (OPERATOR INSTRUCTIONS) Our first question comes from Mark Monane with Needham. Please go ahead.

Good morning and greetings from New York City.

Hi, Mark.

A couple questions, first on the trial -- on the trial design and then a financial question. One has to do with the definition of noninferiority. Can you go over that with us? It seems that the point estimate or the response rate for the Taxol group on the TOCOSOL Paclitaxel group could be either exactly the same or one could be above or below the other and still be considered noninferior. Maybe you can go over that definition with us?

Be happy to. Richard?

Yes. Probably the way to consider is that is that if the Taxol control arm has a response rate of 35% on the TOCOSOL Paclitaxel arm, we could have a response rate between 32% or more and being noninferior. At some point we would be superior and under those conditions that would be if we're above 42%. So, again, that is dependent on, of course, what our control arm achieves, but that will give you some idea of the range that we would expect.

So that -- the 35% Richard quoted is an example. I think that the reality is that the trial design requires a 25% noninferiority margin with an alpha -- one-sided alpha of 0.025, and so what that means is that we need to demonstrate that the distribution for TOCOSOL Paclitaxel delivers at least 75% of the benefit of the control arm with 97% confidence. So it's -- I've told people before, I'm not the best person to discuss the stats with you. It is kind of complicated and I think that's why Richard's example does a good job of illustrating that. Now we would expect -- based upon the literature, we'd expect the response rate for the control arm to be in the range of 35% to 40% or low 40s.

40%, good. That's very helpful. So just to review, even if the point estimate for TOCOSOL Paclitaxel is 32% and the point estimate for Taxol's 35%, we could still consider this as noninferior and a label would be generated or a potential interruption would be that those are two numbers that are essentially the same?

That's correct.

That's helpful. Can you spend a few moments, please, talk about the status of the CALGB study data analysis?

Sure. Elaine?

Yes. We continue to work with the data set that we have and continue to work with CALGB, and based on everything that we know as we continue to work with the data, we believe that this continues to be a reviewable data set for the FDA. And we are doing everything that we need to do in order to make that package as complete as possible for the FDA's review.

And will the time line -- is that a limiting factor for the submission of the NDA, or is it -- will it be done -- how does it fit into the NDA process?

Sure. That work is ongoing right now and it is not considered a rate-limiting event in the NDA submission plan and it is not considered on a critical path for the NDA submission plan.

Okay. And do you plan to publish any data on your analysis? Do you have the rights and do you have the interest to do so?

We do not have the rights for publication, so it will continue to be the responsibility of CALGB, should they choose to do so, to get the data published.

Fair enough. And I would be remiss if I didn't ask Alan a question, because I heard from anybody else. Could you go over, Alan, any guidance that you have for us in terms of spend or what the end of the year will look like in terms of the cash position for Sonus Pharmaceuticals?

Yes. Mark, previously we had said that we thought we'd get in somewhere around $22 million, and as you can tell from our results, we'runderspending that a little bit and I think that reflects both our spending and Bayer Schering's spending in advance of the data probably being lower than we had planned, but I wouldn't conclude that wouldn't be caught up by the end of the year following the data. So I think we're still somewhere in the $22 million to $25 million range at year end. And I think -- again, importantly, it'll all get caught up by around the end of Q2 of next year, so I think all of it is really timing related. So we should end up $22 million to $25 million by the end of the year and that cash should take us through Q2 of 2008.

Great. And then the net burn by the -- for 2007, have you guided us to that yet?

What we said earlier, it would average $9 million a quarter, I think that's what we said at the very beginning of the year.

Thanks for the added information. We'll look forward to the events of the third quarter.

Thanks, Mark.

Your next question comes from Matt Kaplan with Punk, Ziegel. Please go ahead.

Hi, good morning, guys.

Hi, Matt.

A couple questions. Could you talk about the status of the trial now in terms of where -- what the review -- obviously the trial is complete, what the status of the data review is at this point?

Well, just as a reminder that there are -- that the clinical portion of the trial continues to be ongoing. We still have patients in treatment, we still have patients in follow-up. So while we have had a data cutoff for purposes of evaluating the objective response rates and the data for the NDA, the trial is still ongoing. As you know, once a data cutoff date has been reached, there's a number of steps that need to be done and that's what we are involved in now. It is in all of the typical data clean up activities and the adjudication process by the independent radiology reviewers is ongoing. So all of that is moving according to plan and we -- as Mike said earlier, we are on target for having the data -- the adjudicated independent review data by the end of September.

Greet, and just to shift the topic a little bit, maybe -- can you talk about how this product can differentiate from Taxol potentially from a side effect point of view, and what data you've had to show that so far, specifically (inaudible) neuropathy?

Matt, as I think we've discussed previously, we do have some quite strong preclinical data that we might do better on the side of peripheral neuropathy. We presented an abstract at AACR where we compared TOCOSOL Paclitaxel to Taxol and to Abraxane and found that TOCOSOL Paclitaxel caused less peripheral nerve damage as measured by histology than other two drugs, (inaudible) and Abraxane. As you know, we don't have any comparative data, per se, until we get the results from the Phase III on neuropathy, but in our clinical trials as well, the incidence of neuropathy, particularly if (inaudible) three or more, appears to be low compared to the published literature. So we would think that that would be probably be the most important differentiator other than, of course, efficacy, which we can't really comment on at this point, since we don't have the results of the trial.

And how is neuropathy being looked at and examined in the Phase III?

We have a questionnaire that patients fill out that has been validated in all the relevant languages that's from the GOG that the patients answer.

Okay. One other question. How's enrollment going in the Camptothecin trial -- TOCOSOL Camptothecin?

Well, it's proceeding reasonably well. I think it general -- These Phase I trials the difficulty is that you have patients who have a relevant disease state, which for us is primarily we're focusing on primarily on colorectal cancer, since that's most likely where we'll go with our Phase II. And then you have -- and as you know, these patients have multiple lines of therapy, they typically have failed all available therapies, and yet we want them to, of course, be as healthy under the circumstances as possible so that we don't get adverse events, if you will, due to the severity of their illness. And consequently, it ends up being a little bit slower than one would like, but it's proceeding quite well. I think it's very encouraging that on the -- as Mike said earlier, we can't really comment on safety or efficacy, the data base is too small. But on the pharmacokinetic side, we've met or exceeded the expectations that we had based on halometric scales that we had run from our animal models in terms of AUCs and half life. So we're very hopeful that that will translate ultimately into greater efficacy, but it's obviously extremely early to make that statement.

And how many patients are you looking to enroll in this study?

It's hard to answer that because it depends on when we reach our MTD and we really aren't -- we're not there yet or close to it, so I can't really answer that.

You say you're not close to it, are you --?

We have had some -- the patients have had -- would expect some adverse events, but we haven't seen anything consistently that one would expect in this patient population. We know from the irinotecan experience that the major dose limiting toxicities should be Neutropenia and other one, at least with the irinotecan, is diarrhea. TOCOSOL Camptothecin differs from irinotecan by lacking the moiety of irinotecan that causes early diarrhea, so we don't anticipate any early diarrhea with our drug. But it's likely that we would have, at some point, late diarrhea as a dose-limiting toxicity in these patients and we haven't really seen either, so it's just not -- we just don't know when we will start seeing these things more consistently, which would tell us that we're nearing some MTD.

Are you at an expected therapeutic dose level yet or are you approaching that or --?

Well, it's a difficult question to answer. The AUCs that we're observing currently are not different than those that are observed with irinotecan, but I can't go beyond that really, because we don't quite know what the correlation between those AUCs and that drug exposure and efficacy, as such. That's not very clear in the irinotecan literature, actually.

And so how many patients do you have enrolled so far?

Oh, Matt, you know we don't disclose that information. You know it's kind of -- what we've indicated is we expect to have enough safety and efficacy data from the trial by year end to make an informed decision on Phase IIs; will we go forward, and what's the design? You get into a habit with these studies of following the roller coaster up and down with patient numbers from week to week. In our view it's a red herring.

And your thoughts on the Phase II at this point. Is it -- will it be an open label or --?

Well, yes, most likely what it will be -- I think it's important to do a comparative trial. We've also done some market research and I think it's what people would expect us to do and so we will most likely do a comparison versus irinotecan as probably second or third line in colorectal cancer, because irinotecan is approved as an agent for those. If we want to do first line, we would have to go into combination chemo, and that that would be a lot more difficult, I think, to do from the get go, so this is the current expectation of what we would do.

Great. Thanks a lot for taking my questions.

Thank you, Matt.

Our next question comes from David Miller with Biotech Stock Research. Please go ahead.

Good morning.

Hi, David.

Want to get some idea of what the data that we're going to see at the end of September is going to look like. How much data are we going to see in the release versus how much are you going to hold for presentation?

I think that is -- that's a -- it's a key question, David, and an important question, because on the one hand, as a small public company, we'd like it to be as transparent as possible with the data. On the other hand, I think we and Bayer Schering would like to utilize ASCO, for example, as a vehicle for really premiering the product and starting to generate some momentum towards approval on a launch, of course, assuming the data support that. And therein is a problem because ASCO's rules regarding prepublished data are pretty strict. So with that preview I'll turn it over to Alan. He's been working with the Bayer Schering IR and marketing folks to try to find a workable compromise.

Yes, David, what we would like to do -- and there is a method for doing this -- is really just approach ASCO in advance with some drafts of what we might expect to see how far we can push disclosure and still not glitch ourself for an ASCO presentation. On the other hand, as Mike mentioned, we're a small public company and we have to -- our SEC requirements will trump our ASCO requirements, if you will, but we clearly are going to work as hard as we can to meet both and I think we've got a good plan for doing that, and it involves just going direct to ASCO and trying to figure out what we can and cannot put out there and still have an opportunity to present.

Okay.

We're sorry, David, to be vague on the specifics, but I hope we've been pretty clear that, number one, we're aggressively pursuing this and there's a defined process for we're pursuing, and I think that clarity from ASCO and then clarity from counsel on SEC requirements will lead to an answer.

Okay. How long after September will it be before we see survival data?

The current game plan is that -- the current time lines would suggest that the objective response rate data will be available by the end of September. We would expect to have progression-free survival data about a year later, so mid to late 2008, and we would expect to have overall survival data a year after that, so mid to late 2009.

All right. Those are my questions.

Obviously, on those time-based -- on the time-based end point data, earlier is probably not better.

All right, thank you very much.

Thanks, David.

Our next question comes from Chris Holterhoff with ThinkEquity. Please go ahead.

Hey, guys, thanks for taking my questions.

Hi, Chris.

Just going back to the TOCOSOL Camptothecin program, can you give a little bit more detail on how you think Camptothecin -- TOCOSOL Camptothecin will address some of the limitations of cancer patient analogs?

Yes, sure, I can do that. There really are a number of characteristics that I think will differentiate it from irinotecan, and probably the two key ones -- one of which I've already alluded to -- is that one of the problems with the irinotecan is that it's a prodrug and a prodrug moiety is what causes early diarrhea or cholinergic (inaudible), which is one thing that often times patients have to be premedicated for it. We do not have that moiety, we've replaced it with vitamin E, which is, as you know, comparatively not nontoxic, so we don't anticipate any such side effects. The second element is that irinotecan -- or, sorry, SN-38, which is the active moiety of irinotecan binds to (inaudible) reversibly and also it has to be active throughout the (inaudible), particularly during the S phase. And we believe that a drug that has a longer duration of action would be more effective. In fact, that's been shown for drugs that act during the SAs and consequently that that should translate into greater clinical efficacy. So what we're aiming for is a drug that will be more effective and at the very least will not have one set of side effects, that are attributed to irinotecan. I can't really say anything about the safety profile beyond that, because we really don't have enough data to address that, but at least we won't have -- or there's absolutely no rationale why we would have these cholinergic symptoms and early diarrhea.

Okay, that's helpful. Given those improvements over cancer patient analogs, can you talk about other markets you might go into other than colorectal cancer?

Well there are -- these drugs have shown activity in other disease states that would be important. One could certainly think of lung cancer as another possibility. There's also been shown some activity in breast cancer and so those would certainly be opportunities that we would look at. But I think the plan is to start in CRC.

Okay, great. Thanks for the added detail, Richard.

Yes.

Thank you, Chris.

Our next question comes from Carrie Mewha from Galleon. Please go ahead.

Hi, guys. Thanks for taking questions.

Hi, Carrie.

Wanted to chat for a second on side effects and how we'll look at those in this trial. Specifically, if there is a new protocol in place for treatment of the side effects and if that could potentially confound what you see in your data?

So, Carrie, you're talking about the Phase III trial and it sounds to me like you're talking about infusion-related side effects?

Right, or even nutropina or neurotoxin (inaudible), because basically are your centers going to be pretty uniform in how they treat that and is there any treatment of side effects that could affect the way the data is reported?

Okay, good question. Richard?

Well, that's a good question,and it's also one that's difficult to answer. We've tried as best as we can -- you realize, first of all, this trial is being run internationally -- in the United States, Western Europe, and Eastern Europe -- and consequently there are limitations in terms of how much one can standardize therapy, but we've done our best to do that. We have -- certainly from the standpoint of nutropina, (inaudible) simulating factors have been made available, if necessary, to treat that and we do have -- we've written with respect to that, as I recall, that it would be good to follow the ASCO guidelines, although I don't think there was a specific absolute requirement that they do so, but again in an attempt to try to have some uniformity across sites, say, in that area. Likewise, when it comes to other side effects, such as potential infusion reactions or the like, we've also specified how drugs are to be administered, at what doses, or at least classes of drugs, if you will, so that -- again in an attempt to achieve some uniformity, but I'm sure it's imperfect.

Okay. And specifically, if you're (inaudible) at nutropina-- and this may be a naive question, and I apologize -- but, if patient begins to develop nutropina, it seems to me that treatment for that could potentially determine whether they progress the a Phase III or Phase IV, or as to whether they stay -- or I'm sorry, Grade 3 or Grade 4 or they stay at a Grade 1 or Grade 2. How do you address that when you look at the data?

I don't know that that is fully addressable at the end of the day. One can certainly look at -- since we do capture [concomatent] medications, we can see whether those were used, if you will, appropriately or not. But -- and again, in theory, under ASCO guidelines, you're not supposed to treat a Grade 1 nutropina. In fact, really what those guidelines come down is that you're supposed to treat symptomatic nutropina, and I'm sure that there are sites where physicians have been somewhat more aggressive than that. So we could look, for example, at GCSF use in total, for example, between the two arms of the study and see whether they're balanced. That could be one way one can try to address that issue. Again, this is not a perfect trial design. They never are when they get this large, right? It's very, very difficult to completely regiment how physicians would end up using something like a [colony] simulating factor.

(inaudible) matter for approval, right? It's not an end point that's at all meaningful as far as the updating is concerned.

Carrie, I'm sorry. We lost the first part of your question.

Sorry, apologize., I'm on a cell phone this time. I just wanted to make sure that those side effects are not part of the approval process, really? Barring something very bad and unexpected there, the FDA doesn't necessarily care how you're looking at those side effects?

Well, I wouldn't go that far. I think safety is part of what the FDA or we would look at as part of the approvability of the drug, but I wouldn't say that narrowly whether there's some imbalance in the GPSFs they use on both sides in one arm versus the other, I don't think that would play a big role because nutropina, per se, is treatable these days. So I think, for example, you also raise the issue of neuropathy. Well, I think that that's a little bit different because we would hope to have less neuropathy in our arm at the trial and neuropathy is not readably treatable. I think it depends a little bit on the data what particular side effect you're looking at in terms of how it would be looked at.

But they don't need to see an improvement in side effects for the drug to be approvable; is that correct?

Well, it's not our primary end point, but -- our primary end point is response rate -- but that being said, when all is looked at, safety is part of the analysis on whether to approve a drug or not.

Okay, that's all. Thank you.

Thanks, Carrie.

[OPERATOR INSTRUCTIONS) Our next question is a follow up from David Miller. Please go ahead.

Hi. Just want to follow up Carrie's questions. The criteria for treating side effects, while it may be difficult to compare between what's going on in this trial and the literature, I assume that the criteria for it are going to be balanced between the arms and you wouldn't expect any imbalances between the arms. So at least then when you take a look at these study data that you wouldn't expect to have something that would cause a problem as to trying to understand the comparability of TOCOSOL Paclitaxel versus taxol, correct?

I don't quite know how to answer that question, actually. It's possible that we could have an imbalance in any given safety outcome between one arm of the trial and the other, we just can't speculate at this point. Is that what you're asking?

Well, yes -- no. I'm talking about more along Carrie's line of questioning is differences between use of [concamit] and medications.

Well, again, we've done the best we think was possible in this kind of multicenter multinational trial. Again, we have suggested again on the GCSF side, for example, that the physicians follow ASCO guidelines and we provided those. Also, in other areas such as, for example, the treatment of hypersensitivity reactions associated with infusion, we've provided lists of acceptable medications and in what particular instances those were to be delivered. So we've done our best to try to standardize things across both drugs as we can reasonably think of. That's probably the best answer I can give. Again, this is not -- this is not a perfect world out there. I don't quite know what that will show at the end of the day.

Right, I understand. In your Phase II program, since a lot of the Phase II work overseas was done in the same centers where you're enrolling for your Phase III, did you have similar guidelines in place as far as showing the ASCO guidelines and lists of drugs for the generation of the Phase II data?

Yes, they were similar.

Okay. So there wouldn't be a situation where -- well, there's always going to be surprises, but the doctors, especially the doctors overseas have experience with using these lists and using these protocols from your previous trials?

The ones who were on the Phase II, yes.

Okay, great. Thanks.

At this time I am showing no additional questions in the queue. I'd like to turn the call back over to management for any concluding remarks they may have.

Thank you, Eric. We would like to thank all of you for joining us today, and as always, we appreciate your continued interest and support.

Ladies and gentlemen, this does conclude the Sonus Pharmaceuticals second quarter 2007 conference call. If you would like to listen to a replay of this call, one is available by dialing 800-405-2236 or internationally at 303-590-3000 and entering passcode 11094009 followed by the pound sign. Once again those numbers are 800-405-2236 or internationally at 303-590-3000 and entering passcode 11094009 followed by the pound sign. We at AT&T would like to thank you for your participation and you may now disconnect.