Altimmune Inc (ALT) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2009 PharmAthene Earnings Conference Call. My name is Heather, 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 today's conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your host for today's conference Ms. Stacey Jurchison. Please proceed.

Thank you, Heather, and good morning, ladies and gentlemen. Thank you for participating today. My name is Stacey Jurchison and I'm Director of Corporate Communications for PharmAthene. Joining me on the call today are David Wright, President & Chief Executive Officer; Christopher Camut, Vice President & Chief Financial Officer; and Eric Richman, Senior Vice President, Business Development & Strategic Planning.

Before we begin, I must remind you that during today's call management may make projections or other forward-looking statements regarding future events and the Company's future performance. These forward-looking statements reflect PharmAthene's current perspective on existing trends and information. 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 these projected -- 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 August 13, 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 will now turn the call over to David Wright, President & Chief Executive Officer to begin. David?

Thank you, Stacey, and good morning, everyone. Thank you for joining us today to discuss our second quarter 2009 financial and operational results. I will begin with a brief overview of our operational achievements during the quarter, after which Chris will take you through the relevant financials. Following that we will open up the call to your questions.

The second quarter marked a period of continued momentum for PharmAthene, as the Company continued to execute on its business plan. As Chris will describe in more detail shortly, we also closed on a private financing of convertible notes and warrants in late July, which puts the Company on solid financial footing for at least the next 12 months.

But first, let me begin with a quick update on our SparVax program. As many of you know, in response to the amendments issued by BARDA in April to the RFP procurement of 25 million doses of a next-generation rPA anthrax vaccine for the Strategic National Stockpile, all bidders in the competitive range were required to submit a comprehensive plan to the FDA outlining their regulatory strategy by June 15. As anticipated, we submitted our plan to the FDA on May 22, which outlined the non-clinical and clinical development plans for the licensure of SparVax.

On July 9, we announced that the FDA had completed its review of our development plan and provided feedback to the Company, which we then submitted to BARDA. Since that time we have held several due diligence meeting with BARDA personnel to review technical elements of our proposal and to understand the likely path going forward.

Now that we have shared FDA's feedback on our development plan with BARDA, we are pleased that the process is again moving forward. We anticipate submitting a revised proposal under the RFP before the end of the third quarter. While any proposal revision we submit could be subject to further negotiations and revision, and at this point we do not have any firm guidance from BARDA on a potential contract award date, we still believe awards could be made by the end of the year.

In the meantime, significant development in technology transfer activities for SparVax continue pursuant to existing development contracts, which was transferred from the National Institute of Health to BARDA on April 1. Despite the delay in the contract award, development activities for SparVax have continued unabated with funding provided by BARDA. We are also in the process of transferring the SparVax bulk drug substance manufacturing technology to a US-based contract manufacturer. These activities are also being funded by BARDA under this contract.

In May, BARDA conducted a site visit of our proposed CMO, which confirmed its suitability and capability to perform the technology transfer. In late April, we presented results from a second Phase II study of SparVax at the 12th Annual Conference on Vaccine Research, a conference sponsored by the National Foundation for Infectious Diseases. This study, one of two Phase II trials evaluating different dose and dosing regimens of SparVax provided further confirmation that SparVax is immunogenetic, and promotes good immunological recall following an antigenic challenge.

Additionally, SparVax data will be presented at the upcoming Bacillus ACT 2009 meeting, which is taking place between August 30 and September 3. Various government agencies, including the Institute of Medicine, have acknowledged the urgent need to stockpile a next generation anthrax vaccine, employing modern vaccine technology, which offers the potential for improved safety and convenience, as well as enhanced characterization and lot to lot consistency.

We believe that SparVax incorporates significant product development and technological advancements, which meet these requirements and, ultimately, may provide meaningful health and economic advantages for our nation and its citizens.

Moving on, we were previously awarded a multi-year contract from the National Institute of Allergy and Infectious Diseases, NIAID, for the development of a third-generation rPA anthrax vaccine, which we are developing with the intent of providing three year stability at 35 degree Celsius, and protective immunity in one or two doses.

Our efforts so far have been focused on assay development, process optimization, and scale up activity for potential three rPA candidates, and we're making promising advances. With regard to Valortim, our fully human monoclonal antibody for the prevention and treatment of inhalational anthrax, we had a particularly productive quarter.

Under our current therapeutic development contract with NIAID, we were awarded an additional $2 million in funding to perform CMC activities for Valortim. We recently submitted a CMC IND update package to the FDA in preparation for two upcoming antibiotic interaction human studies. Specifically, we will be evaluating Valortim in combination with doxycycline and ciprofloxacin. As an inside, it is kind of amazing to me that here at this point in my career, we are starting a study with doxycycline, which was called Vibramycin by Pfizer, and was the first drug I ever sold in the industry. I guess that things that go around do come back around.

Both of these studies though, are scheduled to begin dosing before the end of the third quarter. Additionally on June 1, we submitted to BARDA our proposal for advanced development of Valortim in response to a Broad Agency Announcement for advanced development and research of medical countermeasures for chemical, biological, radiological and nuclear threats.

We have proposed a development program for an IV formulation of Valortim for the treatment of inhalation anthrax, and will also be developing a [lipholization] formula that could allow for intramuscular administration. We have requested substantial funding for these activities for pre-pivotal and pivotal manufacturing and non-clinical and clinical studying activities.

We believe that Valortim has meaningful competitive advantages including a novel mechanism of action, potential sporicidal activity, and increased potency compared to currently available products, which makes it a strong choice for procurement considerations for the Strategic National Stockpile.

The therapeutic study of Valortim in the African green monkey or AGM model in collaboration with USAMRIID, is expected to be completed later this year. Preliminary results have demonstrated up to a 70% survival of Valortim treated animals. Initial data from this study will also be presented at the upcoming Bacillus ACT 2009 meeting.

Turning to our Protexia nerve agent program, I'm pleased to report that we reached a very significant milestone recently under our US Department of Defense contract. With the on-time delivery of the interim clinical study report for the Phase I clinical trial. This milestone was recently completed, and we expect to announce the results of this Phase I trial later this year, but it is important to note that no significant adverse events were reported.

The interim report was the major deliverable under the contract, and allows the DOD to begin their evaluation as whether to proceed to fund the next phase of development work under the contract. Approximately $65 million in funding is tied to this phase of activities, which extends through FDA licensure of Protexia. We anticipate a decision by the DOD by the end of the year or possibly in the first quarter of next year.

During the quarter, we also implemented a strategic realignment of our resources, and are in the process of transferring the SparVax vaccine manufacturing process from the UK to a US-based contract manufacturer as I mentioned earlier. We're actively hiring additional staff and building out our US operations in preparation for the successful execution of the deliverables under a potential advanced development and procurement contract for SparVax.

Finally, as Chris will review momentarily, we made excellent progress strengthening our balance sheet with a number of key strategic initiatives. I will now turn it over to Chris to summarize these developments. Chris?

Thank you, David. Let me start with a brief overview of our quarterly financial results, and then we will discuss some of the individual initiatives that we undertook during the quarter in more detail.

Revenues for the second quarter of 2009 were $8.1 million, compared to $11.7 million for the same period of 2008. For the six months ended June 30, 2009 and 2008, revenues were approximately $13.6 million and $17.5 million, respectively. Revenues for both periods of 2009 consisted primarily of contract funding from the US government for the development of Protexia, SparVax, and Valortim.

Research and development expenses for the second quarter of '09 were $9.5 million, compared to $12.3 million of last year. For the six months ended June 30, 2009 and 2008, R&D expenses were $15.2 million and $18.2 million, respectively. Expenses for each resulted primarily from R&D activities related to programs to the Valortim and Protexia programs. Both periods of 2009 also reflect activities related to the SparVax, RypVax, and third generation rPA anthrax vaccines program, which we acquired in April of 2008.

General and administrative expenses for the Company were $4.4 million and $4.6 million for the quarter ended June 30, 2009 and 2008, respectively. For the six months ended 6/30/09 and 2008, G&A expenses were $9.6 million and $9 million, respectively. G&A expenses were essentially flat for the three months ended June 30, 2009 and increased $600,000 in the first six months of 2009, compared to the same period of last year due to increased consulting and legal fees, along with increase in non-cash, stock-based compensation expense. These increases were partially offset by reduced travel and other administrative overhead costs.

For the second quarter of 2009, PharmAthene's net loss attributable to common shareholders was $6.6 million or $0.24 per share, compared to $21.6 million or $0.98 per share for the same period of 2008. For the six months ended June 30, 2009, the Company's net loss attributable to common shareholders was $12.6 million or $0.47 per share, compared to $26.3 million or $1.19 per share in the same period of 2008.

Before I turn the call back to David, I like to briefly review some of the recent corporate financial initiatives that we have undertaken. In addition to the public offering of common stocks and warrants that we completed in March of 2009, which netted the Company approximately $4.9 million in proceeds, we recently closed on a $19.3 million private placement of a new two-year 10% unsecured senior convertible note and common stock warrant.

We received cash proceeds of approximately $10.5 million from new investors, including an aggregate of $8.5 million from unaffiliated investors. Simultaneously, we canceled approximately $8.8 million in outstanding principal and accrued interest under the old 8% senior unsecured convertible notes that were originally issued on August 3, 2007, and were due August 3, 2009. We also paid our portion of the old notes to investors that elected not to participate in the new convertible financing, which totaled approximately $5.5 million.

In addition, we repaid all remaining amounts due under our senior secured credit facility, with early repayment penalties came to approximately $2.9 million. With this repayment of our venture debt $1.5 million in restricted cash related to the senior secured credit facility was released back to the Company, and it appears on the balance sheet now as cash and cash equivalents.

On a net basis, the Company added approximately $3.8 million in cash to its balance sheet and replaced our short-term debt with long-term debt. Also on June 17, 2009, PharmAthene and Avecia entered into a settlement agreement to resolve certain issues related to the wind down and cancellation of work related to our rPA vaccine program being conducted at Avecia Biologics in the UK, and to accelerate the payment of certain deferred compensation related to that acquisition.

As a result, we repaid or paid to Avecia Biologics $7 million of the remaining deferred purchase price consideration. Consequently, our existing letter of credit that had supported this deferred consideration and the related requirement that we maintain restricted cash on the balance sheet as collateral for the letter of credit was then terminated in June of 2009.

As part of the settlement, we agreed to pay Avecia Biologics approximately $1.8 million related to the past performance activities and raw materials related to their rPA work, subject to among other things, certain performance obligations by Avecia related to technology transfer.

In addition, we agreed to pay approximately $3 million in cancellation fees to Avecia, which is due no later than January 5, 2010. At June 30, 2009, available cash, cash equivalents and short term investments totaled $15.5 million, excluding restricted cash, which decreased to $1.5 million during Q2.

As I noted, this restricted cash was released in July upon our repayment of all amounts due under our senior secured credit facility and moved into the cash and cash equivalents account. As a result of these actions, and along with existing cash resources, we believe that at our current cash burn rate and based on our current operational expectation, our cash position is sufficient to fund our existing R&D programs and support our ongoing operation through the end of 2010.

At this point, I will turn the call back over to David.

Thank you, Chris. Before we open up the call to your questions to recap, the reminder of 2009 has the potential to be a very exciting time for PharmAthene.

Before the end of the year, we hope to have a decision from BARDA regarding the rPA procurement contract award, obtain additional advanced development funding for the Valortim program under a potential BAA contract, which is anticipated to be awarded by the end of the third quarter, present the Phase I clinical trial results for Protexia, and possibly hear back from the Department of Defense regarding the next phase of our development and procurement contract. Last but not least, begin two Phase I clinical trials of Valortim in combination with antibiotics to determine safety in humans.

Ladies and gentlemen, that concludes my remarks this morning. Operator, could you please instruct the audience on the Q&A procedure?

Thank you.

(Operator Instructions)

Your first question comes from the line of Boris Peaker with Rodman & Renshaw. Please proceed.

Yes, hi, this is Elemer Piros actually. Good morning. Can you hear me?

Yes. good morning.

What I would like to ask David, if you could please walk us through the timeline from the point on when the government actually asked for FDA feedback. And, if you could provide us what sort of activities took place up to-date, and what else is remaining to be done?

They asked for -- well, amendment one and two -- let me go back to my notes, because I thought I went through that. Let me get the dates exactly right. The amendments five and six were issued by BARDA and requesting information by June 15. We submitted our response on May 22.

Got it.

On July 9, we heard from the FDA with their comments, and they sent their comments to BARDA. Since that time, we have had several conversations with BARDA, they have asked for more information, which we have given them -- to us. We expect to hear from BARDA before Labor Day on guidance on submitting a revised proposal. Then, we expect to hear on that proposal before the end of the year.

So what is left to be done is for them to tell us to submit a revised proposal, which is basically ready to go -- for us to submit that to them, then for negotiations back and forth on any issues they have, on numbers and like that, and then for them to issue a contract.

Understand. If you were to get the grant or the contract, David, would there be some sort of an upfront payment made by the government, is that part of the negotiation?

That is part of the negotiations. Upfront payments as well as milestone payments, what the milestones are going to be and when the payments are going to be made, are all part of the negotiations that will go on between the time we submit our final proposal and a final contract is awarded.

And I know you can't disclose specific numbers, but an upfront payment would be -- is it crazy to speculate that it would be somewhere in the order of say a year's worth of cash burn for PharmAthene?

Elemer, the way the government works on these contracting issues is, and this is for public knowledge, the government is allowed to award an advance payment or an upfront milestone of anywhere from 5% to 10% of total contract value, but in general those upfront payments can only be used for activities directly related to that contract, and not really to fund company operations.

And again, this is all subject to a negotiation, but in general you can see anywhere from 5% to 10% of total contract value, but really you can assume that probably pretty much those funds would typically be used for activities related specific to that contract.

And, Chris, I have couple of numbers related questions as well. The line item in your balance sheet, other receivables, it is fairly sizeable during this quarter. Those are receivables within the third quarter?

Those receivables will be recognized in the third quarter and probably midway through the fourth quarter, and the number that -- the reason that the number has grown substantially is that as we were in negotiations with the government on the BARDA contract that was transferred from NIH to BARDA, we were asked to hold the invoices until negotiations of that contract were complete, and fully transferred over to BARDA from NIH.

As a result, we held several months of invoices here at the Company. We have come to an agreement with BARDA on how those invoices will be back -- billed back to the government, and how those payments will occur between the months of June through November.

So, you will see probably not a big change in our cash and cash equivalent number as we move through the third quarter and early fourth quarter, but you will see that receivable come down. So that is why you saw a significant drop in our cash and cash equivalents, but you saw the receivables. So, that is a unbilled government receivable that we expect to fully recover.

And so, your cash position is closer to almost double of what you have actually --?

Yes, that is a very good assumption.

I think the numbers related question -- what would be your cash burn, Chris, with or without a SparVax contract on a monthly basis?

Sure. You can expect our cash burn -- and if you look on a historical basis, Elemer, we'd don't really expect that to change that much. If you look at it without a SparVax contract, you are probably looking at anywhere from $1.4 million to $1.6 million on any individual month.

With a SparVax contract you may see a very slight increase, but again the majority of the funds, the way we bid, or bidding the contract will be covered under the contract. So, we really don't anticipate much of an increase in our monthly average cash burn.

Thank you for that. And what are the -- just the rough size of those so-called BAA contracts maybe, David, or, Chris?

For the Valortim BAA contract, it depends on how they award it and when they award it what the numbers will come through, but we are looking for up to $90 million in award for the Valortim BAA contract over the period of the contract.

But also, the only thing I would add to that is that would include the options.

For the total award of the total contract.

And over a three-year period -- three to five-years?

Three to five years.

Okay. And one last question, and thanks for answering these. Is there an update that you can provide vis-a-vis the litigation with SIGA?

Actually, there really isn't, because it has been our policy not to comment on active litigation.

But you are still in the discovery phase, is it safe to assume?

We are still in the discovery phase. That is approaching the end. We are expecting this to go to trial sometime this year or early next year.

Thank you so much, gentlemen.

(Operator Instructions)

And your next question comes from the line of Debra Fiakas with Crystal Equity. Please proceed.

Thank you. Some of my questions were answered in the preceding queries, but I wondered if you could also elaborate on what the cash burn was in the second quarter, just for that quarter?

Chris, you want to do that please?

Sure. Debra, there were certain activities that occurred during the second quarter that had our cash burn that was probably on the higher end of the range that I gave Elemer, so probably closer to the $1.6 million. And, a lot of that had to do with unfunded activities that the government does not reimburse us for such as fundraising activities or negotiating with our existing convertible note holders that we cannot pass along to the government. So, that slightly increased our cash burn and our G&A, but really not beyond the range that I gave to Elemer earlier.

Okay, very good. And then also, could you just for housekeeping purposes give us an idea of what are the unused portions or unspent portions -- unbilled portions of the contract that have already been awarded?

We generally do not disclose that or have chosen not to disclose that publicly Debra. But I can tell you in the aggregate that we have got between 50% and 55% of our total aggregate dollar amount of our contract that is yet to be billed to the government.

Okay, very good. And then, you mentioned that there will be presentation of SparVax data or SparVax development progress at an upcoming event at the end of August. So I wondered whether you could repeat where that is, and whether or not those materials will be available to the public.

Stacey, do you have that?

It is the Bacillus ACT meeting in Santa Fe, New Mexico, and there will be a press release with the data that is being presented.

Okay, thank you. That is all for right now. Thanks.

And your next question comes from the line of Steve Brozak with WBB Securities. Please proceed.

Hey, good morning, gentlemen. I just want to go over some mechanics of when contracts are awarded in terms of, how distributions are made and how milestones are set up. We have been following the system of awards, and a lot of things that are done are done based on milestones, which you basically have boxes to check where funds are then distributed to the Company.

Is that your expectation going into the future and looking at this award, where you do X, Y, and Z and it becomes a situation where you actually control your destiny in terms of revenue recognition and things like that? Can you give a little bit of clarity in terms of how that works?

Yes, Steve, I would be happy to. There is -- actually it is a fairly complex procedure, because there are advanced development payments, they are milestone payments, and then sometimes there are payments as work proceeds.

And so, it really depends upon what part of the contract, but we will be able once the contract is left to provide fairly specific guidance as to when funds will be expected, and what funds will be expected, and what work will be completed in what time, so that we are in control. The government does work with companies on setting this up, and that is part of the final negotiations that will go on.

Okay. So when the contract is awarded then at that point, you can basically provide granularity and some idea of how to model in terms of revenue, expenses and everything that will be discussed, and that will give you a good way of figuring out of doing discounted cash flow models. Is that -- ?

Absolutely. And, Steve, just so you are prepared, what we are planning on doing is once the contract is awarded, and we have time to catch our breath, and make sure we can model everything out, we will let you know that. But there will be two timelines. The timeline associated with the contract, and then there will be the timeline that the Company has set as its objective for achieving it.

And the Company's timeline for achieving these milestones will be shorter than what the government is. But in the contract, we set these at the farthest date we can set them in order to ensure that if something does go to hell in a handbasket, and we do miss one of our internal timelines, we don't lose the contract because we are not performing. So, you will see two sets of timelines when this comes out.

Great, great. I look forward to the good news. Thank you, gentlemen.

Yes, sir.

As there are no further questions in queue at this time, I like to turn call back over to David Wright for closing remarks.

Ladies and gentlemen, thank you again for joining us today. We do look forward to updating you again at our third quarter 2009 conference call in November. As always, if there is breaking news, we will also update you as we receive any updates ourselves. In the meantime, please feel free to contact our investor relations department in any time for additional information. As always, we welcome your feedback and questions. Thank you very much.

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