Adamis Pharmaceuticals Corp (ADMP) 2004 Q3 法說會逐字稿

Morning, ladies and gentlemen, and welcome to the Cellegy Pharmaceuticals 2004 third quarter financial results and business update conference call.

At this time all participants are in a listen-only mode.

Following management's prepared remarks we'll hold a Q&A session.

To ask a question, please press star followed by 1 on your touchtone phone.

If anyone has difficulty hearing the conference please press star, 0 for operator assistance.

As a reminder this conference is being recorded today, Wednesday, November 10, 2004.

I would now like to turn the conference over to Mr Richard Juelis, Chief Financial Officer of Cellegy.

Please go ahead, sir.

Good morning, everyone.

Before we begin today I'd like to remind you that we will be making forward-looking statements that are subject to numerous risks and uncertainties, including the timing and the outcome of regulatory review of Cellegesic in the US and Tostrex in Sweden, the outcome of clinical trials including the Savvy prevention and contraceptive Phase III trials and the contemplated Phase III trial for Tostrelle.

With regard to Cellegesic NDA there is no assurance at this point that the FDA will find the trial data as well as the other sections of the FDA acceptable.

And although we've received priority review this can not now be interpreted as an assurance of approval.

We'd encourage all of you to review our annual report on form 10K and other filings with the SEC, including our forthcoming third quarter report on form 10Q which will be out in the next couple of days.

And now let me briefly review the financials contained in the press release and then I'll turn it over to Mike Forrest who will give you a review of recent highlights.

First of all, as you can see, our revenue for both the 6 and 9 month periods of this year compared to last year are higher with Rectogesic, in particular, substantially higher.

Sales for the recent quarter and the 9 month period are both 50% above the prior year levels.

We believe this is -- this bodes very well for US sales growth potential of Cellegesic, assuming approval of the product in the United States.

On the operating expense side, for the 9 month period our expenses were $900,000 lower, most of which is associated with reduced clinical and regulatory activities this year compared with peak Fortigel and Cellegesic clinical and regulatory spending last year.

Now, we do expect clinical expenses to increase next year assuming we began a Phase III trial with Fortigel and a Phase III trial for Tostrelle.

In addition, clinical and -- I'm sorry, sales and marketing expenses will increase or the pre-launch activities associated with Cellegesic assuming it is approved by the FDA.

And finally our cash position has improved substantially during the quarter, primarily associated with a $10.3 million private placement in July and the receipt of $500,000 in up-front payments from ProStrakan, our Tostrex licensing partner in Europe.

Our cash usage on a net basis for the quarter is about 3.1 million and that's in line with the usage that we've had for the prior 3 quarters of this year.

Now, let me turn it over at this point to Mike Forrest to give you recent highlights and other business updates, Mike?

Thank you very much, Rich, and good morning, everyone.

As you know, for those of you who have been following the company, Cellegy has achieved a number of very significant milestones over the past several months and I would like to spend a few minutes just recapping on what those have been.

First of all, our product, which is called the Rectogesic, which is Cellegesic in the United States, for the treatment of chronic -- pain associated with chronic anal fissures was approved by the MHRA for sale in the United Kingdom.

The UK Government has also agreed to act as a rapporteur for filing of the NDA or the regulatory package in the rest of the European member states and that process is now quite advanced and progressing nicely.

As you know, from our last conference call, Cellegy has committed to being in discussions with several potential partners and those discussions are ongoing with regard to finding a partner to engage in the commercialization of the product in Europe.

The UK launch is expected in the first half of next year and revenues from that sale will then be flowing to Cellegy during the course of next year and we now anticipate that several other markets in the European theater will begin to come on stream late in 2005.

In the United States, the product Cellegesic, as you will recall, had an NDA filed last June and in October the FDA granted the NDA a priority review and established an accelerated PDUFA of the first of January, 2005.

On the the expectation that this product could potentially be approved in the United States, Cellegy is now rapidly gearing up for the U.S. launch which we anticipate would take place, assuming approval, in the second quarter of 2005.

The market size for this product in the United States alone is approximately $150 million for the -- $150 million for the fissure indication alone.

So, we think it's quite excite and because there are no products that are currently approved by the FDA and this represents a nice potential for Cellegy, not only in 2005, but also in the years beyond.

The third product or the third key event is with Tostrex.

As you know the product is in the final stages of regulatory review in Sweden and it's possible that the product will be approved by the Swedish authorities, although there certainly can be no guarantee of that.

On the other hand, the product has been licensed to our partner, ProStrakan, for commercialization in Europe and Rich alluded to the up-front money that we've received, the total up-fronts in milestones are about $5.6 million, plus royalties that will accrue to Cellegy on the sales of the product.

Sales are expected to begin assuming approval in Sweden in the first half of -- Sweden in the first half of 2005, and as with the UK, the Government has agreed to act as the -- introduction of the product and regulatory perspective and the rest of the European member states which we expect okay come on stream in late 2005 or early 2006.

There by, contributing to the revenue flow that would be coming to Cellegy from the European sales of Rectogesic.

In the United States, the Company has made some good progress recently in discussions with the FDA regarding a special prote Special Protocol Assessment for a final Phase III clinical trial for the treatment of male hypogonadism in the United States.

If the conclusions of that special PDUFA are satisfactory, Cellegy is in a position to start the trial in early 2005, with an approval expected sometime in mid-2006.

Our fourth product is Tostrelle.

Tostrelle, as you know, is our trans-dermal testosterone gel for the treatment of FSD, or declining libido, in post menopausal women.

And a couple of months ago we reported very exciting phase II results that have now been presented at the International Section For the Study of Women's Sexual Health in Atlanta, where these exciting results, after having been reviewed first by our scientific advisory board and then subsequently, by the FDA, we decided to stop these, our Phase II clinical trial and begin to move the product into a Phase III program which we expect will happen in the second, I'm sorry, during the first half of 2005.

The results as reported at the ISWSH conference were, as I said, exciting, they were essentially identical to the blood levels and the efficacy results that were achieved by Proctor and Gamble in over a 2,000 patient clinical trial with their patch product.

The market is widely believed in the United States to be about a $2 billion potential market or possibly even greater.

Cellegy believes it's in the lead position to be the first gel product to be introduced in the United States behind Proctor and Gamble's patch and on the basis of market receptivity studies and history it's quite obvious to us that there's a very strong preference of non-irritating, very elegant and easy to apply gel products over the more complex patch products that are not liked by women to the same extent as they are for creams and gels.

So, we would expect to -- at a penetration of 10 to 20 to 30% of the -- the overall marketplace for the treatment of sexual dysfunction in women is not unreasonable and as I said, we plan to begin our Phase III studies in the first half of '05 and we do believe we're in the lead with the development of this program.

Our next project is Biosyn.

And as you know, about a month and a half ago we announced the acquisition of Biosyn, Inc, a private company that's located in Pennsylvania.

That acquisition not only was announced but it's now been completed formally and the Company has now been rolled into Cellegy as an operating entity.

The lead product from Biosyn is one called Savvy, which is a vaginal gel with patent protection or IP protection that covers the product through 2018.

Savvy is a broad spectrum microbicide, which is delivered in very low concentration, it's a 1% vaginal gel and the broad spectrum includes activity against sperm, so it's a contraceptive, it also kills on contact HIV, Herpes, chlamydia, trichomonas, gonorrhea, and syphilis.

So this is a very exciting product that has the potential for not only as a contraceptive agent but also as a broad spectrum microbicide against all these organisms, particularly HIV and other sexually transmitted diseases.

We believe that Savvy is the leader in the race to prevent the transmission of HIV, HIV AIDS in women.

There are over 1,000 patients enrolled in 2 Phase III clinical trials under way in Ghana and Nigeria.

The protocol for these trails has been reviewed and by the and FDA and the product designated as fast track by the U.S. FDA.

The trial for the prevention of HIV in women is expected to be completed by the middle of 2006.

There's also a separate Phase III clinical trial underway in the United States for using Savvy for contraception, and this is being conducted under a special protocol assessment that's been agreed to with the FDA.

This trial, the contraceptive style -- trial, as well as the HIV study, is expected to complete roughly in the middle of 2006 which, as you know, is only 18 months away.

So this is a near-term product.

The data from both the HIV study as well as the contraceptive study are expected to be combined into one NDA filing for both indications.

And on the basis of the time line that I've just outlined we would expect the product, if successful, would be approved in 2007.

And then finally, as Rich mentioned, during all of this activity, the Company managed to complete the deal with ProStrakan to bring in a little bit of additional cash as well as to raise $10.3 million in a pipe financing to a group of existing and some new shareholders.

So, as you can see, the company has made very significant progress over the last several months.

It has a very exciting pipeline.

And the company is moving aggressively to increase overall investor awareness of these activities.

We will be present at the CS First Boston conference during the middle of this month.

We'll also be presenting at the Lazard Healthcare conference at the end of November, November 30th, to be specific.

And also, we're be presenting at the First Albany Healthcare conference in early December.

We do also expect a analyst, written analyst coverage to be put in place by at least one outside analyst firm by the end of the year.

So, with that, I will stop at this point in time and open up the floor to questions which we will attempt to answer.

Thank you very much.

Ladies and gentlemen, if you wish to register for a question for today's question and answer session you will need to press star then the number 1 on your telephone.

You will hear a prompt to acknowledge your request.

If your question has been answered and you wish to withdraw your polling request, you may do so by pressing the star then the number 2.

If you are using a speakerphone, please pick up your handset before entering your request.

One moment please, for the first question.

Our first question is from John Laforge with First Albany.

Hi, guys, you got a lot going on, which is great.

You can't beat that.

But, where are you -- where is the money going to come from?

One of the things I thought about and wrote down as you started talking, Michael, was Tostrex with the potential of $5.6 million of up-front payments from ProStrakan, what are those up-front payments?

Is it, you know, that you get approval suite, and you get does bang one?

What is the time line of those payments and does that impede you from having to do any more pipe deals?

That's a good question, thank you very much, John.

The ProStrakan deal is tied to -- we, first of all, got a half a million up front on signing and then the rest of the milestones are geared towards, largely, the approvals by the rest of the major European countries so w'd expect to have each of the markets come on, the large portion of the balance of that would be approved -- or would be paid.

So, that is relatively near-term revenue that we can expect.

Second is we do have the ability to do pipes at any point in time, but the company, as you know, has been very reluctant to dilute itself because we believe that the potential for upside growth is very near and very significant.

On the other hand, we also have as it relates to Tostrelle, the possibility of being able to bring in a major partner within the relatively near term and that partnership could be quite a significant -- represent a significant influx of money.

So, the combination of additional milestones coming from Strakan, the licensing deal which is currently under discussion for Cellegesic in Europe with a potential partner, the revenue flow from sales of both of those products and the possibility of a licensing deal on Tostrelle with a significant partner, lead us to believe that a financing, if one were to take place next year, would not be a huge financing and very dilutive to the company.

That does not negate the possibility, however, that such a financing will take place.

And, so I wouldn't want anyone to walk away with the impression that no additional funds may be necessary because they -- we might be in a position to do a financing sometime next year.

Okay, thanks.

You're welcome.

Your next question is from the line of Ujen Um with Kingsbridge.

Hi, good morning.

Is your timeline for Tostrelle for Phase III to begin in early 2005, does that dependent upon whether you find a partner and then begin a Phase III trial or will you be prepared to go it alone if you do not -- if you're not successful in obtaining a partner?

That's a very good question.

Thank you very much.

Cellegy is, for those of you who have not been following us, I will say that we are quite an aggressive company and are anxious to try to maintain, wherever possible, our competitive position.

In this case, we believe that we're in the lead, as I mentioned before, in the development of a testosterone gel for the treatment of female sexual dysfunction.

In that context, given that the spoils of being first to market are really quite great, we have made the decision that where, to the greatest extent possible, we'll embark upon a Phase III clinical trial even independent of a -- of being able to obtain a partnership agreement.

So our plans do call for launching aggressively into Phase III and that will be complimented down the road by the availability of a partner or even our own funds from the proceeds of commercializations and the efforts in the United States and in Europe.

Are you actively in discussion with anyone for the Tostrelle program?

We have begun discussions with a couple of partners but I wouldn't want to say that they're in the advanced stages at this point in time.

Okay, great.

There's a lot of interest in this area, as you might imagine.

So regardless of partnership or not, the Phase III Tostrelle program will begin early, is it first quarter or second quarter of '05?

We're committing to the first half of 2005 and that program is scheduled to -- at the current time to begin independent of a partner.

Great, thank you.

Your welcome.

Your next question from Val Baguet with Jim Dutton & Associates.

Hi, guys.

The -- I have a question about the Cellegesic.

How is the search for U.S. contract manufacturer going?

We have -- we're no longer in a search for a contract manufacturer.

As you know the product has -- is currently being manufactured in Europe under an in place manufacturing agreement with a company called PentaFarm, which is a branch of one of the largest manufacturing companies in Canada.

This is located up in Montreal.

And that plant has been reviewed and signed off on by the FDA.

So, it's got full manufacturing certification from the FDA.

And we do intend to manufacture initial lots for both Cellegesic and Tostrex in Canada.

In fact, that all well on stream and we expect to have product available for both products in the very early part of the year in January.

So, nothing is, from a manufacturing standpoint, is to impede the launch or will impede the launch of both of these, either of those 2 products overseas or in the United States.

On the other hand, it's always good to have a backup facility because you never can tell.

You know, with -- there may be some difficulty and almost all companies try to put in backup manufacturing facilities.

So, we've located a very sophisticated high-quality manufacturing company in the United States who's currently doing all of the process validation for being able to transfer as a backup facility, the manufacturing from Canada to the United States and so, we, therefore, will have a second source facility available in the United States and our expectation is that that will be fully operational by the middle of the year.

So, there's a very low likelihood that we would be left unprotected for any significant period of time.

In fact, most of the launch materials for either of these 2 products would have been prepared well in advance of the second facility coming on stream.

So I think that we're in very good shape from a manufacturing perspective.

Great.

The other question in regard -- was regarding the Cellegesic or Rectogesic patent overturn in Europe.

And I'm wondering what sort of erosion of the intellectual property will result from that?

And also, given the off label compounding that's done in Europe, how should we plan our models going forward?

The -- also, a very good question.

The patent that's currently the subject of dispute between Cellegy and a couple of companies in Europe and was overturned as part of an additional -- an initial opposition.

And that opposition review by the patent office in Munich will take place in the early part of next year, I think January or February.

We do believe that Cellegy will prevail.

The same argument that has upheld scrutiny in the United States, Japan and many other countries is the same argument that is being presented in the European patent office.

And we think there's a high likelihood it will be sustained for the European theater.

On the other hand, -- and if that's the case the patent will go through about 2017.

On the other hand, even if we do lose that patent battle, there's a regulations in place in Europe that provide for data protection for periods of 10 years in all the major countries and for 6 years in some of -- in the minor countries, that prevent anyone from being able to access the regulatory package under what sort of the rough equivalent of the US ANDA system.

So, in that case, if anyone wants to market a product competitive with Cellegesic, it's called Rectogesic in that part of the world, they would have to go out and do the full-blown clinical trials in order to get approval.

And since those are, as we all know, very complex trials to do and very difficult to predict success on, we believe that we have protection for, at the very least, 6 years of commercialization exclusivity throughout Europe and probably 10 years.

So -- and those patents will have no affect -- whatever happened in Europe has no effect on the United States because these are all issued patents and are, we believe very -- quite strong and well protected.

Great.

One final question concerning Savvy.

First of all congratulations on the Biosyn acquisition.

Thank you.

Savvy seems to have a significant amount of irritation to the vaginal epithelium and I wonder how that will -- how you will deal with that question going forward, some studies up to 80% of women complain of burning, et cetera.

I don't know is it possible that there's some ideas combining this with some sort of anti-inflammatory agents to minimize the side affects?

Also a good question.

And, actually, it's interesting that you would ask because I think others have surfaced similar concerns.

And what I like to do is spend a few minutes to alleviate those concerns.

The irritation that you're referring to is that which was reported in a very, very early Phase 1 study with the product back in the early days when the carrier formulation was first being formulated.

As a result of the relatively high irritation rates that you were referring to, the product was completely reformulated over a period of a couple of years and went through some additional studies that showed that the irritation levels were almost nonexistent.

They were very, very benign and very nonirritating.

So, it would have been difficult to move the product into the commercialization arena under the original -- with original formula, but the revised formula is a very elegant one and one that has almost no irritation whatsoever associated with it and significantly less than that which has been reported for a product called N-9, which was the reference agent at that point in time.

So, the trials that are being conducted in Europe -- I'm sorry, in Africa and the United States, are all with the new carrier that has a very low incidents of irritation.

And, in fact, in the clinical trials in Africa, now over 1,000 patients, there has not been one serious adverse event that's been associated with the use of the product.

And no complaints that we're aware of vaginal irritation or burning.

So this is a very benign presentation and one which is expected to have major advantages as a vaginal gel because it's a safety profile that it represents.

Once again, ladies and gentlemen, as a reminder, to register for a question, please, press star and then the number 1 on your telephone.

Okay.

I think we'll -- we'll take 1 more question and then try to wrap up.

Your final question comes from Gib Dunham with Beck, Mack & Oliver.

A question for Richard.

Could you talk about the deferred revenue on the balance sheet?

Talk more about it and over what time period would it be recognized?

On our balance sheet?

Yes.

That -- that's associated with the up-front payment we had -- most of it is associated with the up-front payment we received from the Fortigel license agreement 2 years ago.

That was a $15 million up-front payment and the accounting calls for amortization of that over, in this case, a period through 2018, I believe it is, which is the end of the patent period for that product or for the main patent on the Fortigel formulation, so, according to GAAP, you would amortize those up-front payments for accounting purposes over the life of the product or the life of the patent, which is what we're doing.

Okay.

Thank you very much.

And I'd like to conclude by just reminding everyone that in 2005, we do expect to begin to receive revenue from Cellegesic, which is called Rectogesic in Europe, followed by a rollout in other markets in the European theater over the balance of 2005 and into 2006 and beyond.

We're also looking at the near-term possible approval and launch of Cellegesic in the United States which represents very major near-turn upside potential for the company and its shareholders.

It's also possible that approval of Tostrex, which is Fortigel, will be done by the Swedish authorities in the very near time frame in Europe with the accompanying revenue flow increasing over time from Sweden and from the rest of the European theater.

From there on, we expect at least 1 new launch per year from the pipeline that I've identified to you that would be from Fortigel, for the treatment of male hypogonadism in the United States, the introduction of Savvy for contraception and for the prevention of HIV in women in the United States, a major upside potential, a major commercial opportunity for the company.

The introduction of Tostrelle to be the first -- we expect to be the first gel for the treatment of female sexual dysfunction in the United States.

And additional indications, rollout indications, on Cellegesic for the treatment of common hemorrhoids, a condition that affects 9 to 12 million people in the United States, and for the treatment of dyspareunia, which is a painful vaginal syndrome that afflicts some 5 million women in the United States.

I believe, and our company believes, that this is one of the most exciting and robust pipelines in the specialty pharmaceutical arena.

And all of the products that I've enumerated have very significant commercial potential.

I'd like to, on that note, thank you very much for your participation and request that you please stay tuned as we continue our march towards commercialization of this exciting pipeline.

Thank you very much.

Thank you for participating in today's Cellegy Pharmaceuticals 2004 third quarter financial results and business update conference call.

This call will be available for replay beginning at 2:30 p.m. eastern standard time today through 11:59 p.m. eastern standard time on Friday, November 12, 2004.

The conference ID number for the replay is 2151182.

Again, the conference ID number for the replay is 2151182.

The number to dial for the replay is 1-800-642-1687 or 706-645-9291.

We thank you for your participation and ask that you please disconnect your lines at this time.