Altimmune Inc (ALT) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 PharmAthene earnings conference call.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today, Ms. Stacey Jurchison. Please proceed.

Thank you, Stacy, and good afternoon, ladies and gentlemen. Thank you for participating today.

Joining me on our call this afternoon are David Wright, our President and Chief Executive Officer, and Christopher Camut, our Vice President and Chief Financial Officer. In addition, Eric Richman, our Senior Vice President of Corporate Development and Strategic Planning, will be available during the Q&A session.

Before we begin, I'd like to remind you that during today's call we'll be making forward-looking statements which are within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All forward-looking statements included in this conference call are based on information available to the Company on the date of this call, Monday, March 31, 2008. The Company undertakes no obligation and expressly disclaims any such obligation to update the forward-looking statements made in this conference call to reflect events or circumstances after the date of this call or to update reasons why actual results would differ from those anticipated in such forward-looking statements. For consideration of risk factors, please refer to the year-end 2007 press release issued earlier today.

I'll now turn the call over to David Wright, PharmAthene's President and Chief Executive Officer. David?

Thank you, Stacey, and good afternoon, everyone. Thank you for joining us today to discuss our year-end 2007 financial results. I'll begin with a brief review of our programs and then Chris will review the financials. Following this, we will open up the call to your questions.

Over the past year, PharmAthene has continued to make substantial progress in each of our proprietary biodefense programs and in building the capabilities and critical infrastructure necessary for success in the biodefense industry. These efforts were validated most notably by our recent agreement to acquire Avecia vaccines business unit, which we announced on March 20th.

Under the terms of the agreement with Avecia, PharmAthene is acquiring, among other things, a second generation recombinant protective antigen anthrax vaccine, a recombinant dual antigen plague vaccine and a third generation rPA anthrax vaccine program. Since we provided a thorough review of the Avecia transaction during a conference call on March 20th, I won't go over the details on today's call. For those interested, a reply -- a replay, excuse me, of the March 20th conference call is accessible through our website or by telephone.

The combination of Avecia's vaccine programs with our existing biodefense products, Valortim and Protexia, creates an expanded biodefense portfolio with five distinct product opportunities, important critical mass, particularly with respect to anthrax countermeasures, and as I will mention in more detail shortly, may provide a potential -- provide a potentially near term procurement opportunity.

PharmAthene's mission is simple; to be a leading provider of biodefense medical countermeasures that are urgently needed by the government. We have managed to advance this mission by pursuing an acquisition growth strategy focusing on high priority biodefense products that the government has a clear need and intent to procure and which also have meaningful near to mid-term procurement potential. The Avecia acquisition fulfills both of these requirements.

We are very, very enthusiastic about the opportunities ahead of us, for good reason. As you saw, we made significant progress in each of these programs last year. Valortim is our fully human monoclonal antibody designed to protect against and treat inhalation anthrax infection. The Company is co-developing Valortim with Medarex.

During the year, we completed studies in a new nonhuman primate model of established anthrax infection. The disease course in this model is believed to follow a similar course as would be expected in humans exposed to aerosolized anthrax spores. A pilot study demonstrated that treatment with Valortim promoted survival of 50% of the treated animals compared to zero animals in the control group.

We believe this is an encouraging survival result, since the study in animals had evidence of bacteria multiplying in their blood and were poised to manifest severe symptoms and death at the time they received treatment with Valortim. We are continuing our collaboration with USAMRIID this year to further refine this new therapeutic model.

Also in 2007 we presented new mechanistic data for Valortim, showing that Valortim may possess the ability to enhance killing of anthrax spores within microphages, potentially blocking the ability of the spore to develop into bacteria. While this remains to be explored, if it is indeed true, we theorize it may be another means by which to prevent toxin production and propagation of anthrax infection. Further investigation is ongoing this year to confirm these results. Also, we were awarded a funding contract from NIAID valued at up to $13.9 million to support the development of Valortim for its use as an antitoxin therapeutic to treat inhalation anthrax infection.

Looking ahead, in 2008 we expect to complete manufacturing scale-up for Valortim. In addition, we are focusing on completing formulation and lyphilization development activities. As I mentioned, we also anticipate completing our GLP animal model development for a therapeutic indication for Valortim. If our progress remains on target, later in the year we also hope to begin a human study of Valortim in combination with antibiotics.

Turning to Protexia, our nerve agent countermeasure, in 2007 we made excellent progress advancing this program and in achieving important CMC milestones during the year. Specifically, we successfully completed the pegylation process for Protexia. In general, the conjugation of proteins with polypropylene glycol, or PEG, has been shown to decrease immunogenicity, increasing circulation serum half-life and increased the stability of recombinant proteins.

Recently we announced new pharmacokinetic data using the pegylated product, showing that Protexia achieved its target product profile and demonstrated an acceptable half-life in two animal species. The data compare favorably with what had been predicted for Protexia's profile in these models. We also were successful in defining a full scale manufacturing process for Protexia and have commenced GMP manufacturing.

Based upon our progress in 2007, we are on target to file the IND for Protexia in the third quarter of this year and plan to begin a Phase 1 trial early in the fourth quarter. We're very encouraged by the progress to date in our Protexia program and are pleased to be starting the first human safety trials of Protexia this year.

As you know, PharmAthene was awarded an advanced development contract from the Department of Defense in 2006. We continue to maintain a very good relationship with the DoD and they appear pleased with our progress. Based upon the success of the program so far, DoD recently initiated a contract modification which provides an additional $5.8 million in funding for the Protexia program.

Including the $5.8 million provided under this contract modification, the DoD contract now provides for a total committed funding of up to $40.5 million for Protexia. The contract allows for an aggregate payment at the option of DoD of up to $219 million, including the $40.5 million I just mentioned. Importantly, we remind investors that the markets for both Valortim and Protexia are significant and we believe each product possesses unique competitive advantages.

At this point, I'll turn the call over to Chris for a discussion of our final results. Chris?

Thanks, David. We will be releasing our year-end 2007 results this afternoon following the close of the markets. Hopefully you've had a chance to review the press release for preliminary information. We will be filing our annual report on Form 10-K with the SEC later today.

In 2007, PharmAthene recognized revenues of $14.6 million compared to $1.7 million for the same period in 2006. Our revenues consist primarily of contract and grant funding from the United States government for the development of our two programs, Protexia and Valortim. The significant increase in revenues in 2007 was primarily attributable to the revenues provided under the Department of Defense advanced development and procurement contract for Protexia, which totaled $14.6 million in 2007 compared to $1.5 million for the same period of 2006.

For the full year 2007, research and development expenses were $16.6 million compared to $7.3 million in the same period of 2006. The year-over-year increases in R&D expense of $9.3 million was primarily attributable to increased process development and manufacturing activities related to Valortim and Protexia, as well as from increased employee related expenses including stock compensation expense.

Expenses associated with general and administrative functions were $13.9 million for the full year 2007 compared to $8.5 million for the same period in 2006. The year-over-year increase was primarily attributable to increased employee costs of $2.8 million and related increased travel expenses, as well as from increased stock compensation expense and increased facility-based costs as a result of additional headcount and from our relocation to a larger corporate facility within the Annapolis area.

Net loss attributable to common shareholders for the full year of 2007 was $17.7 million, or $1.88 per share and diluted share. Non-cash adjustments for the year ended December 31, 2007 included a $2.4 million credit that resulted from the cancellation of former PharmAthene preferred stock warrants, a $900,000 gain of the extinguishment of debt and stock compensation of $1.8 million.

As of December 31, 2007, cash, cash equivalents and short term investments totaled $52.7 million. The $47.6 million increase in cash, cash equivalents and short term investments from December 31, 2006 was primarily attributable to the merger with HAQ, which resulted in net cash proceeds of $57.9 million, in addition to the March 2007 $10 million venture debt financing, all partially offset by the funding of operations.

I'll be happy to take any questions on the financials following David's closing remarks. I'll now turn the call back to David.

Thank you, Chris.

We're very excited about the future of this company and, I think, for good reason. With the Avecia acquisition, PharmAthene will have made tremendous progress towards advancing our strategy of becoming a leading biodefense company with industry leading capabilities and a diversified portfolio that will include multiple best-in-class products, all of which may have significant revenue potential.

We will continue evaluating new biodefense products or commercial opportunities to add to our portfolio through in-licensing, acquisition or co-development agreements which support our strategic -- which support our strategy. And of course we will update you on these efforts whenever possible. I look forward to keeping you informed of our progress over the coming months.

Before I close, again let me thank both our employees and shareholders for their continued commitment and support, without which these exciting developments would not be possible. I expect 2008 will be a very active year for us and I hope you will stay tuned to our progress.

That concludes my formal remarks. I ask the operator to instruct the audience on the Q&A procedure.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Gary Siperstein with PharmAthene. Please proceed.

Hi, David. It's Gary Siperstein with Eliot Rose.

Hi, Gary.

How you doing? Congratulations on a nice close to the year and the exciting M&A with Avecia. That's where my question lies. You mentioned in the press release about the DoD cessation of funding on the plague product and the adjustment of terms. Can you just give us some color on that, please?

Gary, I appreciate the question. But right now, today, at this point in time, I can say little more than what was in the press release other than, regardless of the news, we believe still combining the Avecia vaccine assets with our portfolio represent a tremendous strategic opportunity. We still think the economics are strong and will add significant value creation and we still are working towards closing the transaction in early April. But we are still talking with them and in negotiations, so it would be inappropriate to go any further at this time. At closing, we'll be happy to fill you in and tell you everything you need to know.

Okay, fair enough. And I know you talked on the Avecia call about some of the funding that PharmAthene experiences itself with the government covering a large portion of it. Can you -- just going forward, do you have sort of an '08 game plan and where do you expect -- exclusive of M&A, where do you expect cash to be at the end of the year with the Avecia burn?

Chris, you want to address that, please?

Yes. I think, Gary, our cash burn will continue to be in line with as we've projected in the past and provided guidance for in the past. On a net basis, if you remember, we burn roughly $1.25 million to $1.5 million a month. So we expect our burn to be about the same. In our due diligence of Avecia, as we stated on our previous call, roughly 94% of all of their expenses are funded under government grants and contracts. We don't expect that to be any different. There will be some integration costs and some additional costs, but we do not expect our burn to go up significantly. So pretty much in line with what we've experienced over the last -- since closing the HAQ merger.

Okay, so everything else being equal going forward, Avecia, their expenses will be covered approximately 94%, and the 6% that's not covered will not change your $1.5 million a month appreciably? Is that what you're saying?

Yes, that's correct.

Okay. And does that take into account the recent news on the plague situation?

It probably -- again, it'd probably be inappropriate for me to comment. I can tell you, though, between the rPA and the rYP programs, consolidated, they were roughly that 94% I was referring to. So I think both programs were generally equally funded, so even with or without the plague program, we don't anticipate that to change.

Okay. And in terms of the debt, I guess current debt and long term debt of approximately $20 million, I know you mentioned the roughly $10 million venture loan and so forth. The other $10 million, is that the convertible preferred?

Yes, that is the $11.5 million of the convertible note that was converted at the time of the HAQ merger. And that, as you probably remember, is a two-year note which matures in August 3rd of 2009. And the principal amount outstanding on that is $11.5 million.

Okay. And the conversion price is, just refresh me?

The conversion price is $10 per share.

Okay. And have you guys begun negotiating with them on perhaps an adjustment to the conversion to eliminate that note?

There's been some high level conversations, but we really haven't disclosed anything on that. But that is obviously something that we're considering.

Okay. And just last question and then I'll get back in queue and give someone else a chance. David, can you -- I know you don't want to give anything away to the competition, but as you move forward post Avecia and you're looking at in-licensing, other M&A and co-development, can you give us any more color than that on a very general high level to give us some flavor?

Well, we actually are following the government's guide here as to what they're going to purchase and when. And they have published that anthrax is their number one, then smallpox, then botulism, then radiological and then chemical. And we are looking specifically in those areas. The DoD has a separate list and that's where plague fits in. Ebola is high on their list so we would be very interested in partnering with someone on an Ebola product if it was a significant product.

So it's really, our strategy has been to really attempt to identify what the government's going to buy next and then look for the best asset and use the infrastructure that we have put together in contracting, in earned value management systems, in lobbying and government relations as well as our development capabilities in regulatory and manufacturing and clinical and quality. So to take and combine those assets and show other companies where there are products in this very, very tough and very tricky industry, and the biodefense industry is different, and we are specializing there. So that's kind of where we're looking, Gary.

Fair enough. Thank you.

With no further questions in the queue, I'd like to turn the call back over to management for closing remarks.

Well, I would like to just thank everyone for their participation today. I think this is an exciting time and I really look forward to updating you on our progress during our next quarterly conference call and as significant events occur. Thank you very much.

Thank you for your participation in today's presentation. This concludes your presentation. You may now disconnect and have a great day.