Adamis Pharmaceuticals Corp (ADMP) 2003 Q2 法說會逐字稿

Welcome to the Cellegy Pharmaceuticals Inc. second quarter 2003 earnings results conference call. (CALLER INSTRUCTIONS ).

I would now like to turn the conference over to Mr. Rich Juelis.

Please go-ahead sir.

Good morning and good afternoon on the East Coast.

This is Rich Juelis.

I am CFO.

I will talk to you about the certain risk factors and cover the financials and then I will turn it over to Mike Forrest, our CEO, to talk to you about general business issues and some updates.

We will be making some forward-looking statements.

There will be risks and uncertainties with regard to those outcomes.

Actual results could change from current plans, particularly with regard to the completion, timing and results of our Cellegesic and to--(indiscernible) trials, and also the outcome of ongoing discussions with the FDA with regard to our Fortigel product.

Finally, we will make some financial estimates which could change as well.

We also ask you to refer to our filed documents with the SEC including our December 31, 2002 10-K.

I would also ask you to refer to our press release from this Tuesday that summarized our financials and yesterday, we did file our 10-Q but let me summarize the highlights.

Revenues for the six month period did increase compared with last year, 655,000 for this year compared with 417,000 from last year.

The Rectogesic sales in Australia continue to do well.

They are about 30 percent higher this year than they were for the comparable period last year.

We're also recording licensing revenue of $416,000 for the six months and that is the amortization of the upfront payment we received from PDI in conjunction with the licensing agreement for Fortigel and we'll continue to record those revenues for the foreseeable future.

Importantly, operating expenses for the first six months are lower than they were last year.

As you recall, at the end of last year, we did reduce headcount and reduce our burn rate.

We've continued to keep expenses at a relatively lower-level throughout the first six months of this year and we plan to continue to do that for the next six months and focus only on our major clinical programs, then we can talk a little bit about that or Mike Forrest will.

I did want to mention that in Q2 in the recent quarter, expenses were higher than in the first quarter of this year.

There was a very large non-cash compensation charge associated with some stock option modifications and some payments made in stock but on an actual cash basis, the first and second quarters averaged about 3 million each quarter in terms of actual cash spending.

We did finish the second quarter with 17.6 million in cash and as you read in our financials, we are projecting a net burn or operating use of cash of about $1 million a month through the rest of this year.

I will answer any further questions that you have after Mike talks about the business update and let me introduce Mike to do that.

Thank you Rich and good morning to those of you on the West Coast and good afternoon to those of you on the East Coast.

I'd like to spend a few minutes to bring you up-to-date on recent activities and to recap where we are with our various strategic programs.

Beginning with Cellegesic, last week we announced that we had made considerable progress in Cellegesic.

Our patented nitroglycerin based product for the treatment of anal fissures and ultimately other conditions for which there are no currently approved therapies.

We are very happy to be back in the clinic now that we believe we have fully addressed the FDA's concerns and have devised a mutually agreed-upon trial protocol.

The FDA has agreed with Cellegy to a special protocol assessment which is intended to provide assurance that if prespecified trial results are achieved, the FDA will approve the NDA.

The current trial will enroll 150 subjects in up to 40 sites compared with the previous study's 229 subjects in 18 sites.

We believe this should aid in rapid patient accrual.

In order to expedite completion of the trial, we decided to open 40 clinical sites in the U.S. and Europe versus 18 that were in place for the previous trial.

As part of this strategy, we retained a CRO, a contract research organization, with a track record of success in central and Eastern Europe to monitor 20 of the 40 sites.

Because patients in these countries typically don't have access to pharmacy compounded nitroglycerin, we expect enrollment to be somewhat improved.

We also made other important changes vis a vis the earlier trials including the current trial will enroll 150 subjects in 40 sites compared to the previous study's 229 subjects as I mentioned before in 18 sites.

We simplified the trial design and the statistical analysis by administering only one active dose versus placebo compared with two active doses and placebo in the previous study.

We've also reduced the number of days required to reach our primary endpoint.

The primary endpoint is now the reduction of pain over a 21 day period compared with 56 days in the previous study.

In the previous trial the most pronounced pain reduction was observed during the first three weeks of treatment.

We've also refined our eligibility criteria to ensure that only the most appropriate set of patients are included in the trial and to be eligible, subjects have to have a higher level of pain compared to the previous trial and also have physical signs of a chronic anal fissure.

Since the start up of the pivotal study in June, close to the end of June of this year, all 40 clinical sites have been recruited in the U.S. and Europe and we reported in our press release last week that 25 of 150 patients at just 7 of the sites that have come on active stream have already been enrolled in the trial.

As of today, the number has increased to 33, meaning that more than 1/5 of the patients targeted for enrollment in the trial have now been successfully enrolled.

As you know, we're also interested in the use of Cellegesic for the treatment of dyspareunia, a painful vaginal condition that prevents normal sexual function in an estimated 40 million women.

We have already run one trial that was conducted by the well-known UCLA urologist I beg your pardon, Dr. Jennifer Berman (ph) and she showed that nitroglycerin ointment relieved the pain in some 90 percent of some 40 women affected with this condition.

Following treatment, these women were able to engage in satisfactory sexual intercourse, whereas they had not been able to do so prior to treatment with the ointment.

There is no known effective treatment for this widespread condition.

Cellegy plans to start up a trial in this indication in the fourth quarter of this year.

Cellegy estimates the market for fissures, hemorrhoids and dyspareunia is estimated to be well in excess of $2 billion per year so this is a very lucrative market for Cellegy to be participating in.

Moving to our second female health condition product Tostrelle, the phase two trial with Tostrelle our 0.5 percent formulation of testosterone gel for the treatment of libido in postmenopausal women, continues to progress well.

We recently reported that an interim analysis of the first 15 patients to complete the trial revealed that approximately 70 percent of the women on Tostrelle reported an improvement in satisfactory sexual activity as compared to only 13 percent of the women who are on the placebo.

These are encouraging preliminary results which we plan to discuss with our female health scientific advisory board and then the FDA in order to get confirmation that we are on the right track.

An estimated 15 million women in the United States have libido issues that may be relieved by the administration of low doses of testosterone.

This morning, we announced the resignations of Dr. Daniel Azarnoff, our Senior VP of Clinical and Regulatory Affairs, and Bill Cherry, Vice President of Regulatory Affairs and Quality.

Dan will remain as a research (indiscernible) in a consulting role.

Dr. David Karlin will continue as our VP of Clinical Research and as you know, Dr. Karlin has an extensive background as a gastroenterologist and significant experience in the treatment of oncological conditions, so we will have in-house capability to continue to manage our regulatory requirements.

Also today we announced that we have engaged the well-respected and highly experienced Washington D.C. based law firm of Hyman, Phelps & McNamara.

This is a highly experienced company that will help us, support us and guide us through the regulatory efforts with the FDA.

And they have experience not only in testosterone products but also products of significant interest to Cellegy that will be of use to us, help us guide us through this process.

We now feel we have the resources in place to navigate through the FDA and Hyman, Phelps & McNamara will work closely with us to formulate a plan for progressing the Fortigel program towards approval.

Speaking of Fortigel, in fact, we have now already met with the FDA on Fortigel and Hyman, Phelps & McNamara accompanied us to that meeting.

We feel the meeting with the FDA gave us a better understanding of the concerns they have regarding Fortigel and we are now actively working on a clinical and regulatory strategy that will address these concerns.

While it's a bit too premature to announce the specific strategy, we believe we're making very good progress on formulating a plan and both Cellegy and our partner PDI remain committed to bringing Fortigel to market.

We look forward to providing further details on that plan at the appropriate time.

At this point, I would like to stop and open up the conference call for questions.

(CALLER INSTRUCTIONS).

Larry Smith of DLS Research.

Hi Mike, hi Rich.

Mike, I was wondering if you could give us broad parameters on the enrollment of patients in the new Cellegesic trial for anal fissures.

Could you give us a rough idea of when all patients will be enrolled and I presume there is what, a 21 -- after the last patient is enrolled, you get the data point at 21 days past that, when might that be and then how long will it take to analyze the data, get it to the FDA and I don't understand what the specialty protocol means?

Does it mean accelerated approval or could you give us a little bit more information on that?

Yes Larry.

It's still a little bit early to make an accurate prediction as to when the trial will become fully enrolled.

As I mentioned, we have 1/5 of the targeted number of patients already actively under therapy and we are very encouraged that those have come on stream very quickly.

We're hoping if one were to straight line those numbers, it would probably be early in the first quarter that we would have the trial completed.

So if the trial continues at the current rate, that would be the targeted time for completion but if it slows down a little bit it will be a little bit later or if it speeds up it would be sooner.

With regard to the time lines for the data itself, the trial actually runs still for an 8 week period although the primary endpoint is based on the pain reduction during the first 21 days, which as I mentioned in previous trial produced the strongest differences versus placebo, so we've been able to convince the FDA that this was a valid primary endpoint as opposed to waiting for the entire 8 weeks to get pain improvement over that time frame.

But we do want to have the patients to continue for an 8 week period to demonstrate that the pain relief does in fact, continue.

The special protocol assessment is a process by which you can legally request the FDA to agree to in writing the specific protocol so that there is absolutely zero ambiguity relating to what it is that they are asking you to do and if you comply with what it is they ask you to do and you reach your endpoints, assuming there is no unforeseen safety issues with the product, the NDA should be approved.

We want to make sure that protocol was in fact in place and that the FDA had agreed to it before we embarked on another clinical trial because of the issues we had the last time with the statistical analysis.

This time, the statistical analysis plan has been very clearly specified and agreed to both by Cellegy and the FDA, so there shouldn't be any ambiguity whatsoever in this trial.

It took us a little bit longer to come to all these conclusions with the FDA and we were anxiously waiting to get the trial started but we felt it was important to eliminate any sort of possibilities of wiggle room and we did so through the special protocol assessment.

But the trial now is up and running.

We're very pleased it's up and running.

We're confident we will be able to produce the endpoints that are designed to be met in the trial.

Mike, if we guessed that you file the NDA in 3Q of '04, assuming all goes well, would we be pretty much on target?

I think 3Q is probably an outside number, but if we do reach it, I think that would be an acceptable outcome from Cellegy's perspective.

We're always trying to do things more quickly than that.

By outside do you mean late or early?

I think that would be late.

Okay.

Thank you.

(CALLER INSTRUCTIONS).

Whit Davis (ph) of CSFB.

Thank you, just one question.

Mr. Forrest, obviously the Company has a lot of hope for Cellegesic.

With that in mind, do you think it would be appropriate to consider selling Fortigel to PDI or someone else so you could focus your efforts more on Cellegesic?

We're examining all of our options as it relates to Fortigel.

We have not had such discussions with PDI.

I think that what I can say is we believe that because of the exquisite adjustability of the dose that we designed into the sort of operating parameters of Fortigel, we believe we can overcome whatever issues -- whatever issues ultimately are raised by the FDA, so our confidence level in being able to get the product approved is very high and I believe that the confidence level without speaking specifically for PDI, is similarly high.

The issue of whether we want to continue with this trial or turn it over fully to PDI has not been discussed but as we are going through this planning process, I'm sure some of those discussions will ultimately, inevitably take place.

Thank you.

Ken Trbovich of Unterberg, Towbin.

Hi, Mike.

I'm glad to hear you guys are making progress on Cellegesic.

It's pretty impressive to see the speed at which you are enrolling now, especially as compared to earlier studies.

I'm wondering if you could help us again by going over the commercial strategy.

Once the trial is complete I know obviously you are designing this in a way to try to hit the most difference relative to placebo.

If you could give us a sense from a commercial standpoint, what the company's plans are and then if there is any data that you have provided relative to the difference in treatment response at 21 days that is now the primary endpoint in the current study?

Okay yes.

The commercial strategy -- let me backup just a little bit by saying there are 700,000 people in the United States each year who suffer from an anal fissure and present themselves to the doctor for some sort of therapy.

The data shows there are in excess of 100,000 of these patients each year who are already being treated with nitroglycerin.

The physician requested the pharmacist to be extemporaneously compounded because no existing -- no other therapy is currently available to the patient so without therapy, the only way the condition can be treated is through a lateral internal sphincterotomy that costs somewhere between five to $10,000 depending who does it and where it's done, and while it is a highly successful procedure, it's painful to the patient and up to 30 percent of the cases will leave the patient unfortunately, incontinent because the surgical procedure is designed to weaken the muscle.

So the availability of nitroglycerin based medical therapy will go a long way towards replacing surgery and will be received with open arms by the medical community.

The targeted audience will be gastroenterologists or basically colorectal surgeons and gastroenterologists and our marketing plan calls for us to fuel the 75 person sales force that will call the high frequency on the most important of these physicians.

So we do plan at this time to market that product on our own.

It'll be a very profitable product with margins that are in the typical big pharmaceutical range, if not better.

And we expect because of the high demand for the product, which is already existent, that the profitability on the product as well as the penetration of the market intended will be rapid and tided and high.

So we still have not moved from our original strategy which is to self market this product in the United States.

Overseas, we are talking to people about out licensing.

Now with the sales force that's in place on Cellegesic, and the fact it also down the road will get approved for -- we hope it will get approved for the treatment of hemorrhoids, which will be an additional indication that we can use to call on for those same physicians and also because of the approval, we hope at some point for the treatment of dyspareunia, we will be branching out into calling on OB/GYNs who are primarily the people who will be responsible for writing scripts for the vaginal pain syndrome.

So it turns out that OB/GYNs are also fairly prolific subscribers of products for the treatment of hemorrhoids.

So it's a very efficient utilization of our sales team, which would probably be expanded at that point in time to cover OB/GYNs.

So that's the fundamental strategy.

And of course, Tostrelle ultimately fits into that nicely because that's a product that would also be targeted to OB/GYNs.

Okay.

And just as it relates to the data from the earlier study, I know you said the greatest difference in treatment response was seen in the first three weeks.

I didn't know if you could be more specific as it related to the earlier study.

Was that -- and I know there has been some disagreement with the agency about how it was analyzed, but based on analyzing the data at 21 days, we see statistical significance at a very low P (ph) value?

That's a good question and I'm sorry I didn't address it but first of all, I should reiterate that we saw highly statistically significant P values over the entire -- on reduction of pain over the entire eight-week treatment phase in both clinical trials so in the first trial the P value was .0001 and in the second trial the P value was .0005, so that was over the entire 8 week course of therapy.

The difference in pain however was even more markedly significant but you can see the P values actually don't mean that much at three weeks, but the biggest absolute difference in terms of reduction of pain was at the three weeks period.

So what we decided to do was put the three weeks in as the primary endpoint because it just provides an additional margin of safety, in terms of being able to achieve the outcome.

But we're confident that the product can achieve pain reduction over the entire eight-week period in any event because we've shown that to be true from a statistical standpoint in both of the first two trials.

And just help me out as it relates to the adverse events, I know you had a lot of good data about how these patients develop tolerance to some of the primary adverse events.

I'm assuming at three weeks that tolerance exists so they're getting the full benefit of the drugs with less occurrence of the adverse events?

The only significant adverse event as you know is headache, which occurs in about 50 percent of the patients.

It's a little bit sporadic.

Some people respond to -- have a cerebral and vascular effect of nitroglycerin more frequently than do other patients but the headache usually only lasts for about 20 minutes so you're going to see that in the first 30 days.

It tends to taper off at the end because there does seem to be a little bit of cerebral vascular tolerance to the drug, but not to the muscle relaxing effect on the internal anal sphincter.

But the side effect profile may come down a little bit but we don't think the headache issue will be one with the FDA because we've already discussed that at length and they agreed to have the benefit of the tremendous reduction in very severe anal pain is not something you need to concern yourself with if you have a headache.

Okay, thanks.

Jason Aria of Dala Equity (ph).

Hi guys.

A couple of questions.

Could you give us Rich the financial ramifications of the two resignations and I know that you all in the past as a management team, had taken pay cuts.

Would you consider doing that again to get us through this period?

Well Jason, with regard to the two positions, for an interim period of time obviously with Bill Cherry's leaving we wouldn't have that salary.

On the other hand, we do intend to replace a senior regulatory position, so at some point, that will probably be a wash so to speak.

Daniel Azarnoff will continue as a consultant for a period of time so you can assume that in effect that salary difference would be neutral.

We will use Hyman Phelps on kind of an as need basis so of course, there will be some fees there.

For the moment, we have not discussed internally, pay cuts similar to what we did last year or staffing reductions.

Our current staffing is at levels that we ended last year with so it's still a relatively modest number of people and -- but you know going forward, depending on the programs, we will continue to look at various opportunities in terms of people and also, in terms of other expenses.

I think we are pretty comfortable with where the burn rate is and the incremental spend will really be on the various clinical trials depending on how quickly we ramp up and what we decide to do ultimately with Fortigel.

Rich, two follow-up questions.

I guess there were no severance payments to either of these gentlemen?

Bill left to take another opportunity and Dan will convert to a consulting basis.

And lastly, as far as having enough cash on hand to reach a cash flow neutral position assuming we get one of our three lead candidates approved, where do we stand on that?

If you do the math, I think we are at approximately 18 months of cash assuming the $1 million per month use of cash which I talked about before.

That would likely not provide us the ability to hire a sales force for the launch of Cellegesic.

Arguably, that would be toward the end of next year.

So excluded from that if that was to be the driver for profitability, we would have to look at some arrangements similar to what we did before, possibly financing.

And Fortigel is somewhat undefined yet in terms of what the additional spending would be and the time lines for approval for Fortigel same thing; we have to come up with a plan and determine what our best guess is as to approvability.

So it is likely that either through a corporate deal or an arrangement of some kind or additional financing would be required before we would hit breakeven, hopefully sometime towards the end of next year or early in '05.

And as far as partnering to potentially bring in some cash, where do we stand with that?

We have discussions underway with a number of people overseas regarding Fortigel.

I think those discussions have been dampened a little bit by the FDA's non approvable letter but they haven't gone away.

I think they are -- what people are waiting for is to find out what the precise plan is for getting the product approved in the United States and to understand better what the concerns of the FDA are.

The partners that we're talking to recognize that there is no -- or believe there is no safety issue associated with Fortigel so this may be something that is unique to the FDA.

In fact, we believe it is unique to the FDA, so a bit of time needs to go by before all that gets sorted out.

And just on that let me add that we have filed in Sweden, the Fortigel package and we have not yet heard back but its very possible that they will proceed with approval, notwithstanding the decision by the United States.

So if approved, it would be very attractive to a partner in Europe.

And then you could do an EU rollout from Sweden?

That's right.

What would be the expected timing?

We expect to hear something from the Swedish authorities sometime late to early next year.

We are relatively close in terms of hearing something from them.

Late '03 to early '04?

Yes.

All right.

Thanks you guys.

You are welcome.

Larry Smith of DLS Research.

Mike, I have two questions.

Looking back -- first of all, I admire you guys for hanging in there.

I think you have two good products.

You just had an incredible string of bad luck it appears in these clinical trials but given the hiring of the Washington law firm, the change in it appears the person heading your regulatory strategy, the person heading R&D, as you look back, can you see a common thread to these three setbacks, two with Cellegesic and one with Fortigel other than plain dumb luck?

And then I have follow-up question after that.

That's a really good question.

First of all I believe it's 95 percent pure dumb luck, bad luck.

I'd prefer to leave it at that but I think we don't want to take any chances with it actually being something other than dumb luck so I think what we want to do is to change the way in which we are going about doing things here in order to eliminate any of the other possibilities.

Okay.

And the next question, what is the significance of hiring the Washington law firm to work with you on understanding the FDA's concerns with Fortigel and when might we know in more detail what the FDA's concerns really are?

The strategy for the Washington D.C. law firm is that -- my sense is that we may -- we certainly needed to have a different perspective on how one deals with the FDA than the perspective that we have been getting all along in both of these trials.

Hyman, Phelps & McNamara is very very highly regarded in Washington D.C. and is used by many of the major pharmaceutical companies and a lot of the smaller biotech companies.

In our interaction with the FDA, I have to say I was extremely impressed with the capabilities of the individual that is on our account, and I think we will be able to, by virtue of having a firm that works day in and day out with the regulatory authorities, a better insight into a) how they think b) how they react to various proposals and c) how to make those proposals in a way that is getting across your points and a way more effectively perhaps than we have done.

That's not to be entirely critical of everything we have done, but I think what you want to do is to make sure you maximize your probabilities of success and I'm really very comfortable with the initial interaction with these people, they will provide major benefits to Cellegy.

Larry, once comment also.

It is a law firm but the people that are resident in a firm like this are people that have both extensive legal as well as medical and scientific backgrounds.

So for example, it's not -- the implication is not that we plan on appealing or any litigation or anything of that sort.

These are people that are very very astute on the medical side and have various contacts that are very useful, so we're working with them on things that are not strictly legal, but have to do with developing protocols, with the logistics of things like special protocol assessments, with accelerated filings of NDAs and so on where they provide good overall business judgment, so its broader than a law firm.

It's really regulatory and medical in the broadest sense and we think that this firm provides that capability.

If I could just ask one more question.

Is there any chance at all that Fortigel might be approved without another trial?

I think it's really a little bit too early to comment on that Larry.

Of course, we would like that to happen and we're working as hard as we possibly can to see if we can't make that happen, but we haven't quite finished putting all the touches on a strategy which we then need to review in a little bit more detail with Hyman, Phelps & McNamara, so its too early to say exactly what the outcome -- what the strategy is going to be and what the outcome will be but obviously, that would be our best possible scenario.

When will we know that Mike?

I would say over the next several months, we should be able to provide additional color and detail on what we plan to do.

Okay thank you.

At this time, there are no further questions.

I will now turn the call back over to management for closing remarks.

Okay, thank you very much everyone for your participation and for listening in.

I would like to remind you that Cellegy is focused on the treatment of gastrointestinal disorders, the treatment of sexual dysfunction in women and men, and selected women's health care disorders and recently, the portfolio has expanded to the treatment of various forms of cancer.

As you all know, the biotech market is full of opportunities and challenges and Cellegy remains highly confident that we will ultimately bear significant fruit in this dynamic and exciting business.

Thank you.

(CALLER INSTRUCTIONS).

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