Adamis Pharmaceuticals Corp (ADMP) 2005 Q1 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the first quarter financial and business update conference call. After the speakers' remarks, there will be a question-and-answer period. [OPERATOR INSTRUCTIONS] Thank you. I would now like to turn the conference off to Mr. Robert Caso, Vice President of Finance and Chief Financial Officer. Sir, you may begin your conference.

Thank you. Good afternoon good morning. This is Robert Caso. With me is Dick Williams, Chairman and Interim CEO. We will be presenting an overview of the Company's first quarter 2005 results and a status of key operating accomplishments for 2005. Dick and I will be happy to answer any questions you may have at the conclusion of of our presentation.

During the course of our presentation, we will be making certain forward-looking statements. Investors are cautioned that these forward-looking statements are subject to numerous risks and uncertainties known and unknown, which could cause actual results and developments to differ materially from those expressed or implied in such statements. Readers are cautioned not to place undue reliance on forward-looking statements and we undertake no obligation to update or revise statements made during this presentation. Investors are encouraged to read both the Risk Factors Section of the Company's annual report on form 10-K, and also its more recent SEC filings.

The Company reported a loss of $5,086,000 or $0.19 a share in the first quarter of 2005, versus the loss of 3,058,000 or $0.15 a share in the same period of 2004. The difference between those two periods is due mainly to nonrecurring items which I will discuss later. Note that the current year results include Biosyn, which was acquired in the fourth quarter of 2004. Revenues for the period were approximately 1.6 million, compared to 338,000 in 2004. Revenues in the current period include 1.2 million of Biosyn grant revenue, license revenue of 240,000, and product sales of 153,000. Total costs and expenses in the current period were approximately 6.8 million in the first quarter of 2005, compared to 3.6 million in the prior year.

Included in cost and expenses are research and development expenses of approximately 2.8 million in 2005, versus 2.2 million in 2004. Current quarter R&D expenses include 1.2 million of Biosyn research in connection with the HIV and contraception product candidates, partially offset by a reduction in overall R&D of approximately 900,000 consisting mainly of clinical trial costs and professional services. Selling, general and administrative expenses were 4 million in the first quarter of 2005, compared to 1.4 million in the prior year. The increase in current quarter SG&A expenses compared to the same period in the prior year includes; 1.4 million of litigation expenses related to the pre-trial litigation preparation, a noncash write-off of approximately 800,000 of lease-hold improvements in connection with the relocation of the Company's headquarters in March, approximately 400,000 in ex-officers severance expenses, and approximately 400,000 in Biosyn overhead.

Special transactions affecting the Company's first quarter 2005 financial statements include; the settlement of the PDI litigation in early April and the relocation of the Company's headquarters. In connection with the PDI litigation settlement in April, all rights to Fortigel reverted back to Cellegy to which it made a $2 million cash payment to PDI and issued an 18-month $3 million noninterest bearing note and a 3-year, $3.5 million noninterest bearing convertible note. The convertible note cannot be converted during the first 18 months and is callable by Cellegy for its face value of 3.5 million. If not called during this 18-month period the note can be converted into the Company's common stock at $1.65 share. For accounting purposes this settlement is a subsequent event to the first quarter. And the transaction modifies conditions present at the balance sheet date.

Therefore, the Company reflected this settlement in its first quarter financial statements and took a recording of the $2 million cash payment and accrued expenses and other current liabilities, and 4.6 million representing the estimated fair value of the PDI notes in long-term payables. This total of 6.6 million was charged against the presettlement deferred revenue balance of approximately 13 million. The remaining amount of deferred revenue, approximately 6.5 million, will be credited to licensing revenue in the second quarter of 2005. The Company, beginning in the second quarter, will record its interest expense relating to the discount on the notes of approximately 1.9 million, using the effective interest rate method over the remaining life of the note.

With respect to the relocation of the Company's headquarters, the Company incurred a noncash write-off of approximately $800,000 in leaseholds. As to liquidity, the Company used approximately 5 million in the first quarter of 2005 as compared to 3.1 million in the same period last year. The primary increase in the use of cash in 2005 was the inclusion of Biosyn in 2005, litigation expenses, and ex-officer severance expenses. The Company recently completed an offering of $6 million in a pipe financing. As to liquidity, this should provide the Company with adequate funds through early 2006. I would now like to turn the presentation over to Dick.

Thank you, Rob. Good morning. Several important accomplishments have occurred since we last spoke at the end of March. We are continuing on the key tactical programs that we outlined in the past, maximize our overseas commercial cash flow from our two approved products in Europe, concentration on Savvy Phase III development programs, capitalizing on the value of Fortigel. And tightening our spending and minimizing our infrastructure dollars. Several second quarter objectives were outlined the last week of March and three significant ones have been accomplished so far.

In early April, we settled the PDI litigation as Bob previously noted. In - - but however, in the first quarter, we had litigation expenses of 1.4 million, and this follows the fourth quarter expense level of 1.2 million. In the settlement, we received back our rights to Fortigel, the testosterone replacement therapy for male hypogonadism and the present value of the settlement, as Rob indicated, was $6.6 million. By settling this lawsuit we reduced future litigation expenses substantially and we will be able to minimize any development expenses as we see fit. We are currently in discussions with several potential licensees to outlicense Fortigel. We look forward to reporting the results of our efforts in the near future. In mid-April, we submitted information requested by the FDA during our meeting in late March. We were notified later in April that the FDA accepted our replies to their questions and requests. The FDA has treated this information as a class one response to their not approvable letter of December 23, 2004. And as indicated, they are re-reviewing the information and the NDA and will respond to us by June 15, 2005.

A third item to be accomplished was the Company's need for funds. Last Friday, we completed a financing of $6 million. Five current institutional shareholders participated in the financing. SJ Investment, LLC, Tisch Family Interest, Kingsway LLC, Greenway Capital, and Kingsbridge Capital Limited. The transaction consisted of the sale of approximately 3.6 million shares of common stock at an offering price of $1.65 per share. The Company also issued approximately 715,000 five-year class A warrants, a 20% warrant coverage, at an exercise price of $2.25 per share, which is a 36% premium over the offering price. The class A warrants can be called if the Company's common stock trades 20 consecutive days over $5. The Company also issued approximately 715,000 five-year class B warrants, at an exercise price of $2.50 per share, a 51% premium over the offering price. The class B warrants can be called if the Company's common stock trades 20 consecutive days over $5.50.

The three directors of the Company also purchased a total of 50,000 shares in the offering at the closing price of the Company's stock on the day of the transaction, $2.13. The directors did not receive warrants. We are pleased as we completed the financing with five of our current institutional investors, new investors and three of our directors. C.E. Unterberg, Towbin acted as an advisor to the Company. And was instrumental in helping to broaden our investor base and with the execution of the transaction. These additional funds should help support the Company's cash needs through early 2006 and will allow us to continue our key tactical and strategic programs initiated in January 2005.

For the remaining weeks of the second quarter, we expect our licensee, * ProStrakan to launch Rectogesic the last week of May in the United Kingdom. Rectogesic is nitroglycerine for the anal fissures and was approved in the United Kingdom last year. Continued progress on filing throughout Europe of the Swedish approved Tostrex, a testosterone replacement therapy for male hypogonadism and the U.K. approved Rectogesic, we expect additional approvals of these products later this year and in early 2006. The Swedish launch of Tostrex should occur later in 2005. Additional progress in the Phase III trials of Savvy, a contraceptive gel which is being studied as a contraceptive and for the reduction of transmission of HIV in Africa, has a current enrollment of approximately 2500 patients and is on the original time schedule. A third Savvy Phase III trial is being carried out in the United States for contraception only. The current enrollment is in excess of 250 patients and is on schedule. As mentioned before, we are pursuing the outlicensing of Fortigel, which should be accomplished later this year.

Tostrelle, the female sexual dysfunction testosterone product, is on hold from outlicensing discussions. The industry still is awaiting the FDA policy on the safety of testosterone in women before it continues its discussions with partners. And as noted previously, Cellegesic, the nitroglycerine product for the treatment of anal fissures, NDA is - - in the United States is being reviewed by the FDA and we should hear from the FDA by June 15. All of us associated with Cellegy are excited by the accomplishments this year and we look forward to continuing making progress for our shareholders and the Company in the coming months. Thank you very much. And now we will take a period for some questions if there are any.

[OPERATOR INSTRUCTIONS] Our first question is from David Paris, a private investor.

Yes, good morning.

Good morning.

I was wondering if you could comment on assuming that we get a favorable reply from the FDA on Cellegesic, how will the Company proceed as far as commercializing the drug in the United States?

David, in all honesty, we have looked at several alternatives. The Board is not committed on a direction yet. We will do some preparatory work, but until we get the outcome on June 15, we want to make sure that we don't direct any resources to one alternative or another. And as soon as we have an answer from the FDA, we will be glad to share the strategic direction in that whole situation.

Okay. Thank you.

[OPERATOR INSTRUCTIONS] Our next question is from John La Forge of SRQ Capital.

Hi, Dick. Just one quick question. When it comes to - - now that the pipe is done, if we assume that June 15 does not go well, have you done any thinking about when the next deal might have to be done to keep this thing afloat?

At this moment in time, in looking at our parameters, I think in all cases, other than let's say the very positive, where if we did decide to commercialize ourselves, we would have to raise additional funds. As Rob and I both indicated, in looking at the level, right now, we're probably in good shape through early 2006. And that does not count any license funds from - - up front funds let's say from the licensing of Fortigel, or Tostrelle, or let's say it doesn't go as we think with the FDA. You still have a product there that is a licensable asset for other people.

Great.

Does that answer your question?

Yes, it did, perfectly. Thanks, Dick. And the next question, on a different tract; is have you heard anything out of P&G in terms of their testosterone product? Anything new there?

Not that we've seen on our intelligence and public information, no.

Okay. Thanks.

Our next question is from Eunjin Um of Kingsbridge Capital.

I just wanted to follow-up from the previous question regarding Cellegesic. It is great news that it is going forward and hopefully they will come back with a favorable response by the FDA. But assuming that again if that it doesn't go well, what are your plans for Cellegesic? Is this something that you will continue to pursue and keep it alive to get some - - an approval via out-licensing of that particular product to another pharma and perhaps they can do a trial and try to get it through for approval? Or will you pretty much put the program on the back burner?

No, just like I mentioned, if it came out where there was additional effort required or - - it's hard to judge, because you don't - - let's assume that additional work is required. I don't know if that could be a 50-person, small Phase IV trial, you don't know if that is a 300-patient Phase III trial. So it is pretty hard to answer that part of it. If it is a major investment, this Company will not make it. And as I previously said, we will seek partner to outlicense it.

That's great.

But if it is below that or to the positive, we will deal with that differently than if it is a major Phase III trial.

And just a quick question for Fortigel, you know, you had just commented that you are trying to fight an outlicense partner by this year, so I'm assuming that are you in active discussions perhaps?

That's what I mentioned, yes. We have current - - we are in discussions right now.

And will they be - - if you outlicense it, it is going to be an arrangement where they will pretty much fund the whole program and also have full commercial rights?

Hard to guess right now.

Okay.

I mean you have to have the partner in the conversation. But I think what is important on Fortigel; Fortigel at this current moment is under a special protocol assessment for the next Phase III. We know what the parameters of funding for that Phase III are. We've already selected contract resource organization, we have selected sites, et cetera. So, in essence, it is not something that let's say a new partner has to start from the beginning. It is basically a package that has a ribbon around it.

Thank you.

They can modify but I'm just saying it is way down the path because we were pursuing that under our other contract.

Very good. Thank you.

Thank you.

At this time, there is a follow-up question from David Paris.

Yes, Mr. Williams, good morning. I wonder if you could comment, do we have any information about the NASDAQ delisting or - - I know the stock price has strengthened a little bit recently but I don't know if we're kind of out of Dutch with them or where does that stand?

No, David, we have not heard from them. The last 13 trading days, we were above the 50 million market cap except for two days, back about a week and a half ago. And those two days were during the last 15 to 30 minutes where on very small volume, it went right below the level of 50 million.

Right.

And the requirement is to have 10 consecutive. We have not heard so we can't give you a status and if we do hear it - - if there is still a question by NASDAQ, we will appeal, which means that we will stay on the national market for whatever period of time it takes to have a committee meeting with NASDAQ, which usually is several weeks.

Okay. Great.

And if that doesn't work out, I mean if you just look at it right now, we're - - we've been tracking very strong over the 50 million cap.

Right, right. Yes, I'm encouraged for sure. I just wondered - -

The other thing to think about, too, is we now have 3.6 million additional shares out, so that in essence gives you a higher market cap - - I mean gives you more market cap at a lower price. The old break-even was $1.92, for instance, at the 50 million mark.

If I could just sneak in one more question, I noticed that Dutton and Associates released a new research report and upgraded the Company to a speculative buy again. Which was certainly good news. But I read the report and Dr. Bagwat, the analyst who covers the Company, offered the opinion that the success of Savvy gel in clinical trials was critical to the survival of the Company. And I wondered if you agreed with that? It to me that it would certainly be very good news but that Rectogesic and Fortigel alone might enable the Company to survive. So I guess I was wondering what your thoughts were on that comment by the analyst?

Sure. We've never spoken to that analyst at all. As far as that opinion, management believes and the Board very much to where you are. This Company has in essence three avenues of strength, the testosterone products, which are approved in Europe, and will be outlicensed in the U.S. The nitroglycerine products, which are approved overseas and who knows what will happen. But that could drive - - with the two approved product, the financial results of that and whatever happens in the U.S., are very strong two prongs in this Company. The third is also Savvy. It is a three-pronged approach tiered with the overseas products providing financial strength in the next 18 months to two years. Savvy coming on just past that period of time. And then whatever does happen, regulatory-wise in the U.S., really puts additional strength in the foundation. But you're correct.

Well, I'm really reassured to hear you say that because that's certainly the way I read it. And you know, I guess he is entitled to of course his opinion. But it just didn't seem to square with what I was, you know, interpreting, so thank you very much for the comment.

You're welcome.

Your next question is from Whit David of Credit Suisse First Boston.

Just looking at your information it looks like a good positive development, the FDA has accepted the new data and set the June 15 deadline.

Correct.

And we were wondering is there any feedback from your consultants or advisors on the probable outcome there?

No. No one is going to handicap it. The important thing is that it was treated as a class one response and it is being reviewed.

Great. Thank you very much.

Thank you. Have a good day.

Talk to you soon.

Your next question is from Rob Ligny of Sineron.

Good morning, Dick. Just wondered if the - - if pipe raised takes the going concern qualification off the table at this point?

Technically it would, but no, in all honesty the growing concern of opinion per se is - - the next one is March of next year when the accounts are are audited.

So technically, yes, but we not officially until this time next year?

Yes because they don't issue them in between.

I just didn't know if you had gotten any opinion from auditors regarding that.

Not ongoing concern per se. But from a liquidity standpoint, yes. They are very positive because we raised money.

Thanks a lot, Dick.

Thanks Rob.

At this time this there are no further questions.

Thank you all very much. Rob and I appreciate being able to take the time and answer your questions. And feel free to call us at Cellegy at any time and we will be glad to get back with you. That's 650-616-2200. Have a good day now.

Have a great day.

Thank you. This concludes today's conference call. You may now disconnect.