Altimmune Inc (ALT) 2008 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the 2008 Year End Financial Results Conference Call. My name is Tonya, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference.

(Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Ms. Stacy Jurchison. Ms. Jurchison, please proceed.

Thank you, Tonya. Good afternoon, ladies and gentlemen, and thank you for participating today. Joining me on the call this afternoon are David Wright, President and Chief Executive Officer; Christopher Camut, Vice President and Chief Financial Officer; and Eric Richman, Senior Vice President, Business Development and Strategic Planning.

During the course of this call, management will make projections and other forward-looking remarks regarding future events and the Company's future performance. These forward-looking statements reflect PharmAthene's current perspective on existing trends and information and can be identified by such words as expects, plans, will, may, anticipate, believe, should, intend, estimate, and other words of similar meaning.

Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties including those noted in PharmAthene's filings with the SEC on forms 10-K, 10-Q, and 8-K. Actual results may differ materially from those projected in the forward-looking statements.

For the benefit of those who may be listening to the replay, this call was held and recorded on March 30, 2009. Since then, PharmAthene may have made announcements relating to the topics discussed. So please reference the Company's most recent press releases and SEC filings. PharmAthene disclaims any intent or obligation to update these forward-looking statements.

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

Thank you, Stacy. And good afternoon, everyone. Thank you for joining us today to discuss our year-end 2008 financial and operational results. I'll begin with an operational overview, after which Chris will take you through the relevant financials. Following that, we'll open up the call to your questions.

The last 12 months have been a very rewarding and productive period for PharmAthene on many fronts. For one, it marked the first full calendar year we have operated as a public Company, following our merger with Healthcare Acquisition Corp in August of 2007. Since then, we have remained sharply focused on our goal of becoming the premier company specializing in the development and commercialization of best-in-class biodefense countermeasures. To fulfill this mission, we have focused on expanding our biodefense portfolio, and over the years have selectively acquired several promising product candidates.

In evaluating potential product opportunities, we apply strict selection criteria geared toward providing us significant opportunities to get additional government grants and contract funding for our products. Our acquisition of Avecia biodefense vaccines portfolio, completed in April of 2008, is an excellent example of this strategy.

The combination of Avecia's three vaccine programs, which included SparVax, a second-generation recombinant protective protein protected anthrax vaccine; RypVax, a dual antigen plague vaccine; and a third-generation rPA anthrax vaccine technology together with PharmAthene's existing product candidates, Valortim and Protexia, has resulted in number one, an expanded product portfolio now encompassing five potential best-in-class next-generation product opportunities, important critical mass, particularly with respect to our anthrax franchise, and last but not least the potential for us to recognize for the first time procurement related revenues in the coming years, as I'll describe in more detail in a minute.

Our most advanced product candidate, SparVax, is a highly-purified rPA vaccine intended for pre and post-exposure protection against anthrax infection. Phase I and Phase II clinical trials involving over 770 healthy human subjects have been completed, and shown that SparVax was well-tolerated and immunogenetic in humans. Further, these studies suggest that just three doses of SparVax administered several weeks apart should be sufficient to induce protective immunity. This compares to the vaccination regimen for the current licensed vaccine, which requires five doses over a much longer period.

As most of you are aware, there is widespread consensus amongst government agencies of the need to stockpile a next-generation anthrax vaccine which offers the potential for improved safety, convenience, and enhanced cost efficacy. To address this need, in 2008 the Department of Health and Human Services, BARDA, issued a request for proposals to which PharmAthene responded. The request for proposal was for 25 million doses of a recombinant protective antigen to be deployed in the Strategic National Stockpile for civilian defense against anthrax infection.

While it was widely anticipated that HHS would award the contract by the end of March, we remain optimistic that an award is imminent, perhaps as soon as mid-April, and believe that PharmAthene is well-positioned to receive a potential contract under this solicitation. We recently submitted our final revised proposal to HHS.

Pending any major unforeseen developments in HHS, we believe that the evaluation process is substantially complete and that a contract award under this solicitation will be announced shortly. As you can understand, there is little else that I'm in a position to discuss at this time except that we can assure you that both BARDA and PharmAthene are working diligently to accomplish this.

While a good deal of our energies during 2008 were devoted to advancing SparVax and submitting our response to the request for proposals to BARDA, we achieved notable milestones in each of our Valortim and Protexia and third-generation rPA programs. In late September 2008, the NIH awarded us a significant contract to support ongoing development of our third-generation rPA vaccine product candidate.

Assuming all milestones are met and contract options are exercised by the government, payment [under] this contract could total almost $84 million during the full period of performance. We believe the magnitude of this award underscores the government long-term commitment to maintaining substantial anthrax countermeasure portfolio in the Strategic National Stockpile.

Additionally, new therapeutic data for our anti-toxin anthrax therapeutic Valortim were presented at the ICAAC/IDSA 2008 Annual Meeting, showing the Valortim enhanced survival compared to control animals exposed to lethal anthrax challenge. At the 2008 Health and Human Service Public Health Emergency Medical Countermeasures Enterprise Stakeholders Workshop, we presented new animal data that suggests that pegylated human butyrylcholinesterase or recombinant butyrylcholinesterase, which is our Protexia product candidate, may have efficacy as a therapeutic against nerve agents exposure.

Until recently, Protexia had only been evaluated in animal models for post-exposure prophylaxis with encouraging results. These new data suggest the potential utility of Protexia as a therapy for nerve agents. Further studies to confirm these results are currently ongoing.

During the year, we also received notification of a $1.6 million Congressional Appropriation for continued development of Protexia. This funding is an additional to the previous announced multi-year contract from the Department of Defense for advanced development and procurement of Protexia, valued at up to $219 million, providing that certain milestones are achieved and all contract options and extensions are exercised by the government. This brings the total amount of potential funding for Protexia to approximately $222 million.

Excluding a potential barter contract for SparVax and assuming achievement of all milestones of the government exercising all contract options, up to $554 million of non-diluted US Government contracting and funding commitments have been awarded to us and our predecessors to-date, to support the development of our products. We view this as a major achievement.

Meanwhile in 2008, we commenced a Phase I clinical testing of Protexia to evaluate the safety, tolerability, pharmacokinetics, and immunogenicity in healthy human volunteers. The trial is expected to be completed in mid 2009 with data available later this year.

In October, we completed a strategic equity financing with global recognized pharmaceutical company Panacea Biotec, raising net proceeds of approximately $12.7 million, and effectively aligning ourselves with an internationally recognized Company with a strong focus in vaccines and emerging infectious diseases.

Finally, just last week we completed a public offering of our common stock and warrants, resulting in gross proceeds of approximately $5.5 million, adding additional capital to strengthen our balance sheet and facilitate our ability to execute our corporate objectives. We see this as an important achievement given the current unpredictable financing environment.

At this point, let me turn it over to Chris to take you through our financial results, after which I will provide a few closing remarks including our goals for 2009. Chris?

Thank you, David. For the years ended December 31, 2008 and 2007, revenues were $32.9 million and $14.6 million respectively. Revenues for the year ended December 31, 2007 consisted primarily of contract revenue funding from the United States Government for the development of Protexia and Valortim.

In addition to these revenues from these two programs, revenues for the year ended December 31, 2008 also included amounts related to US Government contracts we acquired as part of the Avecia vaccines acquisition that support the development of SparVax, our second-generation anthrax vaccine, our third-generation rPA vaccine, and our RypVax plague vaccine product candidate. These acquired product candidates contributed $11.9 million of the increase in revenues for the year ended December 31, 2008 compared to the prior year.

Research and development expenses for the years ended December 31, 2008 and 2007 were $31.8 million and $16.6 million respectively. Expenses for 2008 resulted from research and development activities related to our programs for Valortim and Protexia, as well as from activities related to SparVax and RypVax, which were acquired in the second quarter of 2008.

Increase in research and development expenses in 2008 were primarily due to the programs acquired as a result of the Avecia acquisition, as well as process development, manufacturing, and increased clinical activities during the year, partially offset by reduced internal resource costs.

Expenses associated with general and administrative functions were $19.4 million and $13.9 million respectively for the years ended 12/31/08 and 2007. G&A expenses increased as a result of additional employee costs due to the increased headcount following the Avecia acquisition and related expenses, non-cash stock compensation expense and legal and consulting expenses.

Briefly, we also incurred acquired in-process R&D expense of $16.1 million, associated with the Avecia acquisition. The total purchase price consideration at the closing at the acquisition was $17 million, with the acquisition valued at $18.6 million after the inclusion of the acquisition costs. The $16.1 million represents the portion of the purchase price value attributed to the development, programs, and technology, which was determined to have no future alternative use and was charged to acquire in-process R&D.

For the year ended December 31, 2008 the Company's net loss attributable to common shareholders was $36.4 million or $1.59 per share, compared to $17.7 million or $1.88 per share for 2007. As of December 31, 2008 available cash, cash equivalent, and short-term investments totaled $22.9 million, excluding restricted cash totaling $13.3 million. In addition, as David mentioned, we recently closed on a public offering of common stock and warrants that resulted in gross proceeds of approximately $5.5 million.

At this point, I'll turn the call back over to David to wrap up.

Thank you, Chris. Before we open the call up to your questions, let me just emphasize that we are very enthusiastic about the prospects for PharmAthene going forward. Should we receive a contract from HHS for SparVax, we will not only have achieved a significant milestone, but more importantly it will mark our transition from a Company focused on development, to one focused on selling our products to the government and generating a long-term revenue potential for our shareholders. Hopefully, we'll have more news to share with you on this front very shortly.

Meanwhile, we continue to move ahead with the development of our biodefense product pipeline. As for the remainder of this year, milestones we expect to achieve include the following. Completing the Phase I clinical trial of Protexia. Importantly, if this trial is successful and the Department of Defense, at its discretion, elects to fund the next phase of development under our contract it would provide additional funding of up to $65 million for the Protexia program.

Two, continuing to evaluate Protexia as a therapeutic for nerve agent exposure building on the promising new animal data obtained this last year. Three, completing an initial dose-ranging study of Valortim in the African green monkey, or AGM Model. As I've noted in prior calls and news announcements, we've been working in collaboration with scientists at the United States Army Medical Research Institute for Infectious Diseases evaluating the AGM Model as a preferred model for testing new anthrax therapeutics based upon its relevance to the human experience of anthrax infection.

Initiating therapeutic efficacy models -- model development studies of Valortim in the New Zealand White Rabbit Model and in non-human primates to determined their applicability to provide efficacy data under the FDA's animal rule. Also, beginning a Phase I clinical trial of Valortim in combination with antibiotics to determine safety in humans.

We look forward to keeping you updated on our progress. This concludes my formal remarks this afternoon. Operator, could you please instruct the audience in the Q&A procedure? Thank you.

Thank you.

(Operator Instructions)

Your first question will come from the line of Debra Fiakas with Crystal Equity Research. Please proceed.

Thank you. I was wondering could you tell us what the cash usage by operations was for the year 2008?

I'm sorry, Debra. Can you repeat the question?

Cash usage -- what were the cash flows from operations? I assume it was a cash usage. What was that for the year?

The cash flow -- net cash used by operating activities was approximately $13.2 million.

Okay. Thank you. And also, could you maybe give us a recap on -- the Avecia transaction required some subsequent payments. Could you give us a recap on the payments that might still be due to Avecia?

Sure. Upon successful execution of a contract from BARDA for the delivery of 25 million doses to the SNS, PharmAthene would owe Avecia Biologics within 90 days $10 million from the signing of the contract. For any orders from the government in excess of 25 million doses, there is a very small, single low-digit royalty that is owed. But that is not anticipated until pretty far into the future. So the actual cash out the door 90 days would be $10 million, Debra.

Okay. So you still have some time even, and it's -- there's not a date firm. It's the contract signing itself, not another date firm as an earlier date.

That is correct.

Okay. And then you mentioned -- I think David mentioned during his prepared remarks that you've received or earned or won over $0.5 billion in contracts and funding for various projects. I wondered could you give us some idea what is left on those contracts that has not yet been completed?

Sure. To-date, Debra, we've recognized about 45% of that $554 million, as David referred to. The remaining funds have yet to be recognized. And it varies by contract based on the period of performance of each contract. So we've got about 65% -- I'm sorry, about 60% -- 55% to 60% of funds remaining to be billed under those contracts.

Okay. And I would imagine that a portion of that 55% is also contingent on the achievement of milestones and the exercise of some additional options. Could you maybe split out that 55% between what has already been awarded and you're already currently -- or you're currently working toward it and those that are -- that which is subject to additional options?

Sure. Of the remaining amount that is subject to our performance, as long as we continue to perform under our contracts we fully anticipate to recognize those funds. But if you're -- I think specifically what you're asking is the amount that's available under options. And of that percent, I would say probably less than 12% is if options are exercised. So the majority is for -- is revenue that we expect to recognize as long as we continue to hit our pre-described milestones and development milestones.

Okay. Excellent. Thank you. And then one last question. Of the Phase I clinical trial for Valortim, do you have a timing? Could you indicate what the timing might be for that, or is it yet unscheduled?

Debra, I may have misspoke. The Phase I trial that is currently ongoing is for Protexia. We completed almost two years ago a Phase I trial on Valortim in subjects. The Valortim trial which will be conducted will be one looking at compatibility of Valortim with antibiotics.

Okay.

So it's more of a Phase II trial.

Okay. Very good. That does help clarify it. Thank you very much.

You're welcome.

Your next question will come from the line of Elemer Piros with Rodman. Please proceed.

Good afternoon, gentlemen. My question, David, is if you could -- I understand you can't really disclose too much about your final steps of negotiating the government. However, we had a sense towards the end of the last year that you were down to the final inning and the final negotiations of the contract.

Did the arrival of the new administration reinitiate some of those talks? And have you seen any significant change in terms of what the current government would think about the final outcome of this procurement grant?

No. It hasn't. The current administration is strongly behind a secure foundation of biodefense. The new Secretary of HHS probably will not be sworn in prior to this contract. However, she is okay with that. She doesn't feel it necessary to review this, and there is not expected to be any further delays on the swearing in of her.

So what has had delayed it was the Panacea [protest], which was filed (inaudible). And these are extremely complex contracts. The government is trying to get two of them out simultaneously. And there are numerous people which have to sign off, and they're not easy to put together.

But there is nothing that has happened from a political nature which changes our thinking one bit from biodefense being extremely important going forward. We see funding increasing for BARDA going forward. And we see the support of the administration. And quite honestly, we see the new FDA Administer -- the new FDA head, as well as the new Secretary for HHS, being positive occurrences in the biodefense industry.

So just as a follow-up, David, so I take that you would think -- you still believe that there will be two actual contracts that would be awarded. Now is it possible that each would be awarded 25 million doses or 12.5 million? And, what do you think is thinking there?

Well, we have never put in -- our bid is for 25 million doses. I don't know how anyone could award us a contract for 12.5 million because we never quoted on 12.5 million.

Okay.

So the only quote we put in is for 25 million.

25 million.

And it would be impossible just take our quote for 25 million and cut it in half because it wouldn't work as well. As you know, on a manufacturing scale that just doesn't work.

Yes. Understood. And maybe a question to Chris. Chris, irrespective of whether this contract is awarded during the next several weeks, do you see 2009 cash usage, cash burn on a monthly basis, still in the $1 million to $1.5 million range? Hello?

Chris? I'm wondering if he's on mute. I don't know what's happened to Chris. Can you hear me?

Yes, I can.

Okay. I can answer that for Chris. He may be answering it and not realizing he's on mute. But we expect it to be in the $1.5 million to $1.6 million per month burn.

Okay. Thank you so much, David.

You're welcome.

And your next question will come from the line of Daniel Mallin with [WEB] Securities. Please proceed.

Hi, David. That's WBB Securities. I'm just correcting a minor mistake from the operator and plugging my firm. I guess there's clearly two contenders here. And I know that you can't really comment about what's happening at the other contender that's for SparVax here on these pending anthrax rPA contracts. But I want to ask you a couple of questions about FDA protocol and procedures that might help to clarify why I feel that you guys perhaps have a competitive advantage.

My question to you is when you signed the Avecia deal, you basically signed a deal in which they will continue to be the provider of the protein. In other words, the protein that has been produced and developed to date by Avecia and used in the Phase II programs will continue to be utilized in -- manufacturing in the existing facilities that have already been used for the prior trials. Is that correct?

We have the option of that any time should it be required by any reason, whether the government wants it to be made in the US and they put in US-only regs, we have the portability of that protein. And Avecia has the not only -- they have the requirement to provide the portability of that. So while yes, they can continue to make it, if there was a reason for them not to, that product -- that is totally portable, and I can tell you we have spent a lot of time looking at alternate manufacturing sites.

Well, let me try and cut to the chase here and ask the real question here. If you had purchased the program outright from Avecia with the intention of relocating that and having it manufactured at a different facility, do you think that the FDA would require an additional Phase II trial for the new protein produced at the new facility? Or, would you be able to -- as you seem to be able to, move directly to a Phase III trial?

I think we can move directly to a Phase III with the data we have. And as much as this protein has been characterized, there may be a small bridging study needed. But no, it could move right in.

Would it be likely that an additional bridging study would have been required had you chosen in between Phase II and Phase III to manufacture this at a completely different facility?

Don't know. I mean, it's -- I would find it hard, Daniel, to second guess the FDA. Sometimes yes. I mean, in my experience that has been required. In my experience with monoclonal antibodies, it hasn't been required. So, I think it depends upon each individual protein.

Now if you're going down the road, do we have an advantage over the VaxGen product because it's being made in a new facility that hasn't been licensed and it's never been made in that facility? You know, I think we probably do. I think there's a -- if it's not real, it's at least a discussionable advantage that we possibly could have.

That VaxGen antibody hasn't really been made in commercial scale anywhere in a long time. The people who made it last are all gone. And it's not going to be made in that facility anymore. And it is being made by anthracis, which is probably a little bit more difficult than E. coli.

So, is there at least a philosophical advantage that we may have? We could have. But I view this -- I don't view this in quite the same way as I would if we were a commercial product. I view this a little differently in that I know what the Company has to do to execute. I know we have a strong product. And I know we're at least going to be there at the same time as our competitor, if not perhaps before.

Even having said that, it's my belief that at the end of the day the government may well, unless there's a significant difference in quality or cost -- may well buy 50% from us and 50% from them because that's what they have committed to doing in having two suppliers.

Thanks. That's very helpful. And just a quick update, if you will, on the Protexia program, which I think you were studying for Parkinson's, I believe. Is there any update there in terms of an IND filing?

No. That was not Parkinson's. I'm sorry. But just to clarify that, that was for Alzheimer's.

Oh, okay. I apologize.

And the work required to take that forward we determined was too expensive and too time-consuming at the time, and that we needed to focus on doing what we were doing with that program. So we have not gone ahead with that work.

I -- it just didn't make sense for us to enter into that arena with the competition we were against, and with the number of dollars and resources it would have taken to take that to the next step. We have decided for the time frame just to put that program on hold and focus on both the therapeutic and a prophylactic indication for [nerve agent].

Thank you. That's all very helpful. I look forward to your coming press releases.

Thank you.

And your next question will come from the line of [Ryan Lang] with [Emory] Asset Management. Please proceed.

Hi, David. How are you?

Good.

So we've touched on this question a bit from some of the other folks that asked questions. But my understanding is that the government is going to issue two contracts here, both for $25 million?

That's what we believe --

Is that still our understanding? And can you tell us a little bit about that?

Well, it's the same thing, I think, both our competitor and PharmAthene has been saying for the last almost year is that as we got into this, they do not want to have the same thing happen that happened with VaxGen in that they get three years down the road and oops, they find themselves without an anthrax vaccine in the Strategic National Stockpile.

So in order to ensure that -- or help ensure that that does not happen again, Dr. Robin Robinson has stated publicly that he wants to have multiple companies competing for these. And, he would like to have multiple companies providing products to the Strategic National Stockpile.

Consequently, the Strategic National Stockpile, BARDA, has a requirement for 75 million doses. They have contracted with Emergent for almost 25 million doses of the first generation anthrax vaccine. Therefore, when they started talking about an RFP for 25 million, it became almost obvious to those in competition what they were doing because they need 75 million.

They will take 25 million from each company. If one of the companies falls apart, then they will increase their contract to 50 million in order to provide what is needed for the Strategic National Stockpile.

Yes. That was my next question. So they will step up for the performing party the balance of the contract?

I mean, I can't speak for BARDA. But knowing what they have to do, it would just make obvious sense that that is what they would do, and that if you look at the Department of Defense and the way they run their contracts in the history of the defense industry, that's what happens there.

Okay. That's helpful. Thank you. Did we find Chris?

Chris, are you back?

All right. Good luck.

I'm not sure what happened to Chris, but thank you.

And your next question will come from the line of [Peter Smith] with [News Times]. Please proceed.

Hey, Dave. Well, I'm not going to congratulations yet, but I hope everything works out over the next few weeks.

So do I.

I have a question for you regarding the -- what will happen with the warrant on the PharmAthene stock that will -- that's expected -- that expire in July of this year? Any insight on that?

I really don't have any insight. And the reason I don't is because the Company hasn't made a decision on how that's going to play out yet and what we're going to do. And I think that we will be able, as the time period comes closer, to add some clarity to that once we see what happens with the stock price and the Board comes to a decision on that.

All right. Thank you.

You're welcome.

Your next question will come from the line of Matt Duffy with BDR Research. Please proceed.

Hi. Thanks for taking my question. David, I apologize if you guys have already covered this. I jumped on a minute late. But could you talk about what timing of payments might look like under the second generation anthrax contract if it is awarded -- what timing in terms of procurement -- of development and then procurement?

Matt, I can talk in very general terms. But until the contract is awarded and until the ink is dry, I really don't know when it's going to be. But in general terms, we have two and a half to three and a half years of development work to do. So there will be payments along those with milestones set. And, as I say, once the contract is issued we can add a lot more clarity to this, but until then we can't.

We -- after that, there will be a procurement phase in which a drug will begin to be delivered to the Strategic National Stockpile, and that during that time then the (inaudible) will be coming in on the procurement side of that product. So it's -- while we are in our fourth iteration of the contract, and if I told you what we put in our first iteration, I can promise you the fourth iteration doesn't look anything like the first iteration. So until we see it and until they sign off on it, I'm hesitant to give much more clarity than that.

Okay. That's helpful, though.

Okay. Anything else?

No. That's it. Thank you.

You're welcome.

There are no further questions at this time. I would now like to turn the call back over to management for closing remarks.

Well, thank, everyone, again for joining us this afternoon. I was really hoping that timing was going to work that I was going to have this call and be able to make a huge announcement. But we look forward to updating you again on our first quarter call. And once the contract is out and awarded, I will imagine we will have a call to update investors on that. So at least I hope to talk to you before the conference call in May.

As always, in the meantime if you have any questions please don't hesitate to call Investor Relations, myself, Chris, or Eric at any time. We appreciate you, and thank you for all your time. Take care.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.