Achieve Life Sciences Inc (ACHV) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Sonus Pharmaceuticals fourth quarter conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today, Wednesday, March 5, 2008. I would now like to turn the conference over to Jennifer Kirkland with EBC Group.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Sonus Pharmaceuticals fourth quarter and year end 2007 conference call. As a reminder, this call is being recorded and broadcast live on Sonus website at www.sonuspharma.com. A replay of the webcast will be available through the same link. You may also listen to a replay by dialing 800-405-2236 or 303-590-3000 for international calls. The password is 11109351 pound. The replay call will be available for one week.

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 are subject to risks and uncertainty. 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 three quarters of 2007. Copies of which can be accessed on our website. I will now turn the call over to Mike Martino, President and CEO of Sonus.

Thank you, Jennifer. Good afternoon, everyone, and thank you for joining us. Here with me today are members of the Sonus Senior Management team including Alan Fuhrman, our Chief Financial Officer; Dr. Richard Daifuku, our Senior Vice President of R&D and acting Chief Medical Officer; and Dr. Elaine Waller, our Senior Vice President of Regulatory Affairs and Clinical Development.

Our last quarterly update was in mid-November of last year. At that time we expressed our fundamental belief that the key to driving sustainable shareholder value was to utilize and leverage our cash and capabilities to broaden and deepen our pipeline of clinical drug candidates. Since that call we focused on achieving that goal by driving our internal development efforts and identifying and assessing external opportunities. This afternoon we would like to update you on these activities as follows.

First, Elaine will update you on our progress with the phase 1 trial of SN2310 and our plans for the ongoing development of that drug candidate. Second, Richard will review progress to date with one of our internal discovery programs. Third, I will review our progress to date with identifying and assessing external development alternatives. Finally, Alan will review our fourth quarter financials and 2008 cash forecast, then we'll be happy to take your questions. Now I would like to turn the call over to Elaine for an update on the progress of SN2310.

Thanks, Mike. As a reminder, SN2310 is a novel pro drug developed and patented by Sonus that delivers SN38 the active ingredient in Irinotecan. SN2310 is a member of a potent class of anticancer drugs called topoisomerase 1 inhibitors. In addition to Irinotecan there is one other approved drug in this class and together they had combined 2006 sales in excess of $1.1 billion. Irinotecan came off patent last month. Current topo 1 inhibitors work by binding reversibly to the topo 1 DNA complex causing breaks in that section of the DNA strand during cell replication, rebuilding infill (inaudible).

Issues with current inhibitors are, first, efficacy is dependent on the drug being present at the right stage of the cell replication cycle. And second, the binding is reversible and DNA can undergo repair in the absence of the drug. Thus, providing for prolonged exposure to active drugs may improve efficacy. Finally, the third issue is that Irinotecan, the most potent of the approved topo 1 inhibitors delivers SN38 in a pro drug that also causes acute pulallergic symptoms most notably early onset diarrhea. Our goal with SN2310 is to develop a commercially viable product that demonstrates improved anti-tumor activity and/or better tolerability in the treatment of selected solid tumors as compared with other approved pantothecins. We believe that SN2310 can be successful because it provides longer exposure to SN38 than Irinotecan, a key potential to better efficacy and the chemical component of Irinotecan that is responsible for the pulallergic symptoms has been eliminated.

Currently the Phase I trial is ongoing at two centers in the United States and we are making progress in determining the safety and pharmacokinetic profile as well as the maximum tolerated dose. Given that the active (inaudible) is SN38, one would expect the dose to be limited by bone marrow toxicity. While we have seen some evidence of bone marrow toxicity to date, it has not yet been identified as a consistent dose limiting toxicity. Thus we are playing to escalate the dose until determination of the maximum tolerated dose, which we anticipate before the end of the year. Our phase 1 data to date suggests that SN2310 provides for sustained release of SN38 resulting in a longer half-life and similar exposure to SN38 at much lower doses than Irinotecan. This may result in improved antitumor activity. In addition we have preliminary evidence that tolerability is improved.

We met recently with a clinical advisory panel to discuss our preclinical and clinical data and received constructive feedback on future development options, preliminary planning op our Phase II trial is underway so that we can be prepared to start Phase II for SN2310 near the end of this year following the anticipated conclusion of the Phase 1 trial. I will now turn the call over to Richard for an update on our internal discovery efforts.

Thank you, Elaine. Again, our strategic goal is to broaden and deepen our pipeline of clinical stage drug candidates. In tandem with SN2310 product development efforts last spring we initiated discovery efforts in several small molecule oncology therapies. These efforts currently comprise two programs. The first be pro drugs of existing small molecules where as the novel pro drug is designed to provide improved patient outcome and greater patient convenience. The second program focuses on novel small molecules where an opportunity exists using no (inaudible) to address clinical shortcomings the existing approved compound.

It is important to emphasize that these programs have little impact on our current cash burn. The total projected spend over the next 12 months is less than $1 million. Yet they have the potential for creating significant shareholder value in the long term should they yield drug candidates that move into clinical development. Our most advanced program is focused on developing proprietary inhibitors of DNA methyltransferase malignant cells. Inhibitors of DNA methyltransferase, a large expression of genes that can lead to apoptosis or invest in malignant cells. Sonus has identified an inhibitor of DNA methyltransferase that is significantly more potent than the improved inhibitor (inaudible) with the potential for an improved therapeutic index. Our objective is to select a (inaudible) DNA methyltransferase inhibitor in the second half of 2008. If we achieve this objective we believe that a drug candidate could move into a Phase I clinical trial by the middle of 2009. I will now turn the call back to Mike to review progress with our external development efforts.

Thanks, Richard. I think it bears repeating that our goal is to broaden and deepen our pipeline of clinical stage drug candidates, because we believe that's the key to generating sustainable value for a Company like Sonus. Elaine and Richard have described the internal programs we are pursuing to achieve this goal. Attainment of this goal can also be supplemented or secured through external corporate development efforts. We've been actively engaged in the disciplined, systematic process to identify and assess assets and opportunities that complement and leverage our internal programs, people, capabilities, and cash. In collaboration with Provana Partners we've taken an indepth look at quite a large number of such opportunities.

I can tell you that our focus has been in oncology, that we are considering both small and large molecules, that we are considering end licensing of stand-alone assets, as well as a merger with a private or another public company and that we are considering opportunities in the U.S. as well as other countries. It would be premature and inappropriate to speculate on transactions of any type until they are completed. However, I think, and I want to emphasize that I'm sharing my opinion with you here, that the process to date has yielded a number of attractive alternatives. I look forward to discussing material progress on these efforts at the appropriate time. I'll now turn the call over to Alan Fuhrman, our Chief Financial Officer, to provide the financial details of the fourth quarter to discuss our 2007 results as well as our 2008 cash forecast.

Thank you, Mike. For the fourth quarter of 2007, Sonus reported a net income of $1.9 million or $0.05 per share compared to a net loss of $7 million or $0.19 per share it the fourth quarter of 2006. The net income in the fourth quarter of 2000 is the result of two factors both related to the early termination of the Phase III clinical trial for TOCOSOL Paclitaxel.

The first is that we recognize the remaining $6.9 million of deferred revenue related to upfront licensing fees that we received from Bayer Schering in 2005. In addition, we incurred lower research and development expenses in Q4, 2007, as compared to Q4 2006. For the full year 2007, the Company reported a net loss of $13.1 million, or $0.35 per share compared with a net loss of $23.6 million or $0.68 per share in the same period 2006. The lower net loss for 2007 is primarily due to reduced expenses related to the Phase III pivotal trial and manufacturing costs for TOCOSOL Paclitaxel.

For the full year of 2007 the Company recognized $20.1 million in revenue under our collaboration agreement with Bayer Schering including $19.1 for reimbursable expenses for work related to the development of TOCOSOL Paclitaxel and $11 million for amortization of the upfront license fee.

We finished 2007 with $34.2 million in cash and investments on the balance sheet. The increase over our prior guidance is primarily due to timing differences for expenses related to the close-out for the TOCOSOL Paclitaxel Phase III trial. We estimate that our cash burn will average approximately $1.7 million per month, which will be sufficient to fund current operations into the third quarter of 2009. We will provide further guidance in the event that we announce an end licensing deal, a strategic transaction, or undertake further cost restructuring measures. As of February 29, 2008, we had approximately $29 million in cash on our balance sheet.

On November 7, 2007, we received a later from the NASDAQ stock market that we did not comply with the $1 minimum bid price required for continued listing. We have until May 5, 2008, to regain compliance, and this can be accomplished if our stock closes at or above $1 per share for a minimum of ten consecutive business days. Alternatively, at such time, we can apply for listing on the NASDAQ capital markets if we meet the initial fee standards for that market, in which case we would be -- we would have an additional 180 days to regain compliance with the minimum bid requirement. That completes our financial review, and now I will turn the call back over to Mike.

Thanks, Alan. As Alan indicated, our existing cash will fund the programs we've outlined today into Q3 2009. Our management philosophy has always been to constantly evaluate and adjust the use of available cash against progress on program objectives, as a resulting achievement of meaningful milestones that would allow us to raise needed additional capital. Historically we've done this efficiently and effectively. We will continue to manage the business according to this philosophy and we'll make appropriate future decisions given progress on programs, our remaining cash, and our ability to raise capital.

In summarizing our prepared comments, I believe Sonus represents an outstanding value opportunity for shareholders. Today we're trading at about 50% of cash value. We have a novel oncology product in the Phase 1 trial, and our goal is to initiate a Phase II trial later this year. We have preserved a team that has the ability to rebound from a disappointing event and create value. We've identified a number of outstanding opportunities to access additional product candidates that would leverage our internal pipeline, our capabilities and our cash. In short, I believe this is an exciting opportunity to redefine Sonus as an oncology development Company with several product candidates in the clinic.

Before closing I want to say how proud I am of all of our employees and grateful that they've continued to be dedicated to our mission to develop cancer drugs that provide a better combination of efficacy and safety for patients. With that, I would now like to open the line up for questions. Operator.

Thank you, sir. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Matt Kaplan with Punk, Ziegel.

Couple questions, one for Neil, Neil, give us a sense when we could see some of the Phase I data for the SN -- for the 2310 program?

Matt, this Elaine Waller. I would -- as discussed in the call, we anticipate that trial being completed later this year, and it is our intent that once those data are available to publish those results, assuming they are positive, which we have every reason to believe now that they will be, and so we do intend to publish, and those would be made available within that process.

So you will wait to publish those results at a medical meeting or a journal, or will you -- when you say publish, will you publish them as a press release?

Certainly, we would publish them in an abstract form at one of the medical meetings.

Then based on the results that you're seeing so far, you seem very comfortable that you're going to be pushing it into Phase II.

Well, as I said, we are already doing preliminary planning for our Phase II. So I think that tells you our level of confidence in being able to determine the maximum tolerated dose and being able to move forward.

And will the Phase II be in the form of a active control study, or what are you contemplating at this point?

We are planning to do an active control trial, yes.

And then just a question for Mike. You made some comments that -- about some of the programs that you're looking at externally, a number of those programs look attractive. Could you give us a little bit more sense in terms of what some of those programs look like just in a broad sense?

Well, I really can't, Matt, at this point beyond the comments that I have already made. That they are, at this point all in oncology. I would say that earlier in the process we ventured outside that therapeutic area but have come back to the as an area that we know pretty well.

I guess, can you say if they're clinical stage or preclinical stage?

I can tell you at this point that most of the current opportunities would involve assets that are in the clinic. Some of those may involve other assets as well and earlier stages of development. We are also looking at a number of opportunities with late stage preclinical candidates that we believe have novel mechanisms of action, have the potential to be first in class. Those opportunities may not be sufficient on a stand-alone basis, but in combination with other potential opportunities, could all be very interesting ways to achieve our goal, which is a broader and deeper pipeline of clinical or near clinical stage assets. And by near clinical stage I would say that 12 months from the time of acquiring them to getting to the clinic is kind of the outside parameter. We'd like it to be earlier than that.

Okay. Thank you.

Thank you, Matt.

Thank you, sir. Our next question comes from the line of David Miller with Biotech Stock Research. Please go ahead.

Great. Thanks for take my questions.

Hi, David.

In the Phase I trial, as you are searching for maximum tolerated dose, it sounds like you're getting some sort of a variable marrow toxicity so that maybe some patients may be more susceptible to that than others. If I have that right, have you made any either to try to figure out if there's markets, you're looking at the population which ones might be more susceptible than others?

This is Elaine. What we have seen thus far is the type of bone marrow toxicity and myelo suppression that you would anticipate with SN23 -- SN38 being the active (inaudible). What we have not seen is that in a consistent enough manner that we believe that we have reached a maximum tolerated dose.

Okay. But have you -- so does that mean that some patients are seeing that toxicity and some aren't? Is that what you mean by not consistent?

That is correct.

Have you looked at trying to figure out the difference between those patients, perhaps, and the patients who aren't seeing it?

There are a lot of variables to look in Phase I, and one of the things that we know to be true about these patients is that per the protocol they have already been treated for their disease. We know that people come into the end of the trial with different prior exposures to chemotherapy and radio therapy, and so there may be some variables there but nothing from a biological marker standpoint that we are taking a look at.

I could maybe just add to that a little bit, David, we also are prescreening our patients for UGT181 which as you know is a marker for Irinotecan toxicity. We are essential excluding those patients. As you know there are all kinds of different (inaudible) out there that may have an impact on drug metabolism and it's all possible, I think what you're getting at is that some of the patients might have different metabolisms of SN38 and that certainly is possible.

That's good. That saves me from asking that question which was the next one.

A final point I would add to that, David, is as we learn from our advisors the profile for Irinotecan itself is pretty variable. So when you add that to that the fact with the types of patients we have in this trial their bone marrow is already pretty beat up, consistently seeing the myelo suppression is really the key and we just aren't seeing it yet.

When would you expect to start the Phase II? Did you say end of this year?

Yes, we said near the end of this year.

That assumes that we do determine the maximum tolerated dotes in the Phase I trial.

Talk a little bit about the strategic alternatives. The first question I have is that, are any of these alternatives that you're looking at kind of removed Sonus from being its own publicly traded company?

At this point I would say the answer is no.

Okay.

Now, that is not the same assaying that -- that is not the same assaying that control would not change hands, nor is that the same as saying that the existing management team would continue in place in whole or in part. But I, at this point, I can express my belief that the alternatives would result in Sonus continuing to be a publicly traded entity.

Okay. And then the last question I have is essentially how are you looking about paying for this. You have $29 million cash in the bank, you have a burn rate that goes through Q3 of 2009, which is better than a year, but you also, sounds like you have some pretty interesting stuff and, unfortunately or fortunately interesting stuff costs money. Are you thinking of equity issuance? Are you thinking of cash? Are you thinking of kind of a deal where you're also bringing in an investor at the same time to enable this? Can you help us understand how that part of it might happen?

You can send your checks to the attention of Alan Furhman. I would say at this point, that the one thing I would rule out from the list you've mentioned, the significant use of cash up front. We are very cognizant of the financing challenges in today's capital markets. And so using cash to acquire assets resulting in insufficient cash to develop those assets we think is not a very smart move.

So you're looking more of back end loaded and use of equity kind of things?

On the end licensing assets, licensing opportunities we'd be looking at minimal cash up-front, back end loaded milestones, and royalties that we think would be reasonable and competitive. For other transactions we're look predominantly at the use of equity.

All right. Good. That's what I needed to know. Keep up the good work. Thanks.

Thank you, sir. (OPERATOR INSTRUCTIONS) And we have a follow-up question from the line of David Miller. Please go ahead.

I always end up having one more as soon as I hang up the phone. For the preclinical stuff, the first thing in the clinic would be the DNA methyltransferase in mid 2009, or would you have a pro drug in the clinic earlier than that?

Putting aside any external efforts that Mike has defined, I think in terms of internal efforts, yes, the DNA methyltransferase inhibitor would be the next drug that we're projecting to have in the clinic. And again, if there's lack of clarity in my statements, I don't want to say that pro drugs and novel drugs are mutually exclusive. In some cases we're doing pro drugs as novel drugs. Those are two technologies we're applying in a number of different ways.

Thank you.

I think that's absolutely right. I would again not preclude external transactions that would access assets that are either in the clinic and/or soon to be in the clinic.

Right.

I thought you were calling back, David to get Alan's address.

No, unfortunately I'm not, sorry.

Thank you, sir. Our next question is from the line of [Dan DeClu] with ASB Advisors.

Thanks very much for having the call.

Hi, Dan.

Hi, Mike. Congratulations to all of you on making a lot of headway after a tough blow last year. It's great to see that you've been able to rally into some interesting programs. My question is around the business development area again. I'm sure that I'm preaching to the choir, but as someone that's been a shareholder for a long time and who continues to have a great deal of confidence in you and the management team and the programs that you're shepherding along, you have a currency now that's trading at $0. 50 on the $1 or to put it another way, everything about the Company that we value is being valued in a significant negative fashion by a very hostile equity market. Cash is extremely difficult to come by, as you know, in my experience it's among the more difficult environments ever. So when you consider a transaction that would either increase your burn rate or that would involve issuing a significant amount of equity for a new program, I can only say that I hope that you hold the opportunities that you have in hand already that you know about in the same degree of esteem that your shareholders do. Everything else out there I'm sure is -- has various pros and cons, but knowing what I know about the Company, I'm inclined to think that you hold a pretty good hand as it is. Anything that would involve giving a significant chunk of that away at a valuation which is negative would have to, to my way of thinking, be extraordinarily attractive.

Well, Dan, I have to say that I appreciate your comments. And in fact, while I don't want to negotiate in the press, I have to say that we've had a lot of calls or even suggestions that we consider a number of reverse merger opportunities with a private company. And, there very well may be some attractive alternatives that would fit that description. At the same tame as we've looked at some of those opportunities, quite frankly the challenge is a value challenge. Because as you pointed out we were hit squarely between the eyes with a reduction in value when we announced our Phase III results last fall. On the other hand, if we're talking to a private company whose expectations of value are based on their last post-money raised, plus progress, and that occurred a year or more ago in markets that are far different from they are today, then the risk to our shareholders is frankly threefold. Number one, the initial dilution on the deal. Number two, the additional dilution when the capital markets weigh in on private valuation and adjust it, and then number three to the extent that those private companies don't bring significant cash with them the financing overhang resulting from the fact that we'd have to raise additional capital to fund those programs. So we are -- we are very mindful of the point that you make. Really, one of the key objectives here is value creation. And a deal that digs a significantly deeper value hole for us before we can start climbing out, especially if those private investors are looking to shift the risk of management and financing to us and our investors, to help them get out of their investment is just not very attractive from our perspective.

Thanks, Mike. It makes sense to me, too.

Thank you. And Mr. Martino, there are no further questions. Please continue with any closing statements.

Thank you, operator. I would like to point out that we will be presenting at the Invest Northwest conference in Seattle on 11:50 a.m. on Tuesday, March 18. We want to thank you all for joining us today. We really believe we are on the path here to recovering from a disappointing event and finding opportunities to create value and we look forward to updating you on our progress on that strategy and those programs in the near future. Operator, that concludes the call.

Ladies and gentlemen, this concludes the Sonus Pharmaceuticals fourth quarter conference call. If you would like to listen to a replay of today's conference please dial 303-590-3000, or 1-800-405-2236, entering passcode 1110935. Once again, if would you like to listen to a replay of today's conference please dial 303-590-3000, or 1-800-405-2236, entering passcode 1110935. ACT would like to thank you for your participation. You may now disconnect. Have a pleasant day.