Altimmune Inc (ALT) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2009 PharmAthene Earnings Conference Call. My name is Michelle and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Stacey Jurchison, Director of Corporate Communications. Please proceed, ma'am.

Thank you, Michelle, and good morning, everybody. Thank you for joining us today. As Michelle mentioned, I'm Stacey Jurchison, Director of Corporate Communications for PharmAthene. Joining me on the call this morning are David Wright, President and Chief Executive Officer; Charlie Reinhart, Senior Vice President and Chief Financial Officer; and Eric Richman, Senior Vice President, Business Development and 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 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 November 12, 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 filing. PharmAthene disclaims any intent or obligation to update these forward-looking statements. I will now turn the call over to David Wright, President and Chief Executive Officer, to begin.

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

Before I begin, I'd like to introduce Charlie Reinhart, who joined us in August as Senior Vice President and Chief Financial Officer. Charlie brings over 25 years of experience in accounting, financial reporting, investor relations, and financial planning and analysis, and has worked with high-growth, publicly-traded companies such as Millennium Pharmaceutics and Cephalon.

We are delighted to welcome him to PharmAthene and believe that Charlie's expertise will help position us for continued growth as we advance our goal of becoming the leading provider of best-in-class biodefense medical countermeasures. As we enter the final quarter of 2009, we continue to make very good progress in each of our biodefense development programs. Let me begin by providing a brief update on our rPA Anthrax Vaccine Programs.

Over the past 50 years, advances in modern vaccine technology has contributed to a vast improvement in public health. Production of new commercial vaccines using modern recombinant protein technology has resulted in highly consistent, purer, and well-characterized vaccines that can be manufactured using industrial biotechnology manufacturing capabilities on a large scale to meet flexible needs at a reasonable cost. While commercial vaccine manufacturers have readily adopted these new technologies, and even the current smallpox vaccine is based on modern recombinant technology, our nation has been slow to embrace new production methods for anthrax vaccines.

Consequently, numerous government agencies, including the General Accounting Office, the Institute of Medicine, the NIH Working Group on Civilian Biodefense, have voice a unanimous recommendation for the development of new and improved anthrax vaccines that are safer and more effective, based upon modern recombinant vaccine technology. This has prompted the establishment by our government of a national requirement to develop and procure 75 million doses of recombinant anthrax vaccine for deployment in the Strategic National Stockpile.

Recombinant vaccine technology offers several advantages. First, convenient conventional biotechnology manufacturing process provides greater flexibility of manufacturing options and the ability to readily scale-up and/or transfer the process to meet domestic or international surge demand.

Second, a high-yielding manufacturing process will enable greater efficiency in the cost of production and therefore a product which is more economical to manufacture and therefore less costly for the government. Third, this new technology uses a highly-consistent process resulting in a more reproducible product over time. Finally, advances in recombinant technology have resulted in a product with enhanced purity, which may lead to fewer adverse reactions when administered to humans.

In summary, a product which has the potential to be safer, better, and more cost-effective for the government. We believe SparVax fits this profile and meets the criteria established in the RFP for a recombinant anthrax vaccine for the Strategic National Stockpile.

At the beginning of the third quarter, we announced that the FDA had completed its review of our development plan for SparVax and provided feedback to the Company, which we then submitted to BARDA. After several meetings with BARDA personnel to review technical elements of our proposal and to understand the likely path going forward, we submitted a fourth revised proposal to BARDA on September 4.

During the proposal process, we were told by BARDA to play for a project start date in the fourth quarter. Although we are halfway through the quarter at this point, we have received no further guidance from BARDA on this issue. However, based on our ongoing dialogue with BARDA, we still believe awards could be made by the end of the year.

In the meantime, BARDA continues to be strongly engaged as we move forward with activities under our former NIH rPA development contract, which was transferred by BARDA in April of 2009. This contract has been modified to redefine the remaining scope of work and to align that effort more efficiently with the work proposed under the potential advanced development and procurement contract.

Following a successful kick-off meeting earlier this year, which was attended by BARDA personnel and during which BARDA emphasized the importance of and their commit to the rPA vaccine product, we have conducted regular collaborative conference calls with technical personnel at BARDA to review ongoing activities and progress under the contract.

During the third quarter, our development team focused on completing ongoing stability studies and continuing the development of potency assays. At this time, our rPA bulk drug substance has been shown to retain potency for 48 months, while the final drug product demonstrated potency for 36 months. These studies are still ongoing. We have also continued manufacturing scale-up and technology transfer activities to a US-based manufacturer for the bulk drug substance of SparVax.

SparVax is being developed to provide protective immunity at three doses over approximately 60 days, which would represent a significant improvement over the currently licensed anthrax vaccine. In addition, consistent with our longer-term strategy for anthrax, the government is funding third-generation rPA vaccine technologies, which may offer the potential to induce protective immunity in one or two doses without the need for a conventional cold chain.

We continue to make progress in our third-generation rPA vaccine program and presented data at the Bacillus-ACT 2009 Meeting, highlighting attributes of a 3G product prototype suggesting that an optimized formulation may provide more rapid immunity and enhanced immunogenicity. We also presented new data from our Valortim anthrax anti-toxin program, illustrating the potential ability of Valortim to neutralize bacillus anthracis as well as support the immune system's response to an anthrax infection.

In August, we began a Phase I trial of Valortim in combination with the antibiotic Ciprofloxacin. During the course of this study, there were two adverse reactions reported in four of the subjects dosed. While both of these adverse reactions were resolved after the infusion was stopped, we halted further dosing and shared our findings with NIAID and FDA, which subsequently placed the Valortim/Cipro study on partial clinical hold until the cause could be determined.

We are in the process of evaluating a number of possible causes for adverse reactions, including whether they might be related to the rate of infusion or allergic reactions. The infusion rate in the Valortim/Cipro study was 60 minutes, compared to 95 minutes for the initial Valortim Phase I clinical trial, during which no such reactions were observed. Infusion-related and allergic-like reactions have been observed before with the administration of other marketed monoclonal antibodies.

Possible steps we might consider include slowing the infusion rate or co-administering an antihistamine at the time of dosing. BARDA has advised us that they will continue to provide feedback on our BAA submission, including forwarding business and technical comments and questions for our review, but will not make an award until resolution of this issue and the clinical hold is lifted, at which point we expect they will promptly recommence the negotiation process.

As I mentioned, the results from our initial Phase I clinical study on Valortim, evaluating escalation doses in 46 health subjects using a 95-minute infusion period, showed that Valortim was safe and well tolerated and no drug-related Grade II or IV or serious adverse events were reported. The most common side effects reported were pain/burning at the injection site for those being dosed intramuscularly and a mild headache in three subjects.

Given the positive results from the earlier Phase I trial, we are hopeful that these issues will be resolved in a timely manner. I will keep you updated with respect to our findings. We continue to believe that Valortim has meaningful competitive advantages over existing anthrax countermeasures, including a mechanism of action not previously described for other monoclonal antibodies, the potential for direct and indirect killing activity and efficacy at low doses, which makes it a strong choice for procurement in the Strategic National Stockpile.

Now I turn to our Protexia program. Activities during the third quarter focused on completion of a US Phase I clinical trial. This randomized, placebo-controlled, third-party, double-blind Phase I trial was designed to assess the safety and tolerability of escalating doses of Protexia when administered by intramuscular injection to healthy human subjects at one or two time-points. A total of 33 subjects participated in the study.

The results of the Phase I trial will be presented at the upcoming 2009 PHEMCE Workshop and BARDA Industry Day taking place in Washington, DC December 2nd through the 4th. Briefly, though, Protexia was well tolerated in the study with no significant safety issues and importantly, no evidence of immunogenicity.

At this point, I'd like to provide a brief update on the timing of our ongoing litigation with SIGA Technologies. By the back of background, in December 2006 we filed a complaint against SIGA in the Delaware Chancery Court alleging, among other things, that we have the right to exclusively license, development, and marketing rights for SIGA's antiviral smallpox drug candidate, SIGA-246, pursuant to a merger agreement that was terminated by SIGA at October of 2006. The complaint also alleges that SIGA failed to negotiate in good faith the terms of such a license pursuant to the terminated merger agreement.

The Company is seeking alternatively a judgment requiring SIGA to enter into an exclusive license agreement with PharmAthene for SIGA-246, in accordance with the terms of the term sheet attached to the merger agreement or monetary damages. Fact discovery in the case has closed and the parties are now engaged in expert witness discovery, which we believe will be completed in February of 2010.

Following that, if neither party files motions for summary judgment, we expect the case could proceed to trial in March or April of 2010, subject to the court's docket and schedule. If one or both of the parties files motions for summary judgment, then a trial is unlikely to occur before the end of the third quarter 2010, depending on the timing and outcome of the court's ruling on the motions for summary judgment and the court's docket and schedule at that time. I will now ask Charlie to summarize our financial results for the quarter.

Thank you, David. Revenues for the third quarter of 2009 were $6.8 million, compared to $10.7 million for the same period of 2008. For the nine months ended September 30, 2009 and 2008, revenues were approximately $20.4 million and $27.4 million, respectively. Our revenues consist primarily of contract funding from the US government for the development of SparVax, Valortim, and Protexia.

Research and development expenses for the third quarter of 2009 were $7.6 million, compared to $9.4 million for the same period last year. For the nine months ended September 30, 2009 and 2008, R&D expenses were $22.8 million and $26.5 million, respectively. Expenses during each period resulted primarily from R&D activities related to our SparVax, Valortim, and Protexia programs and to a lesser extent RypVax and our third-generation rPA anthrax vaccine programs.

General and administrative expenses for the Company were $6.2 million and $4.8 million for the quarter ended September 30, 2009 and 2008, respectively. For the nine months ended September 30, 2009 and 2008, general and administrative expenses were $15.8 million and $14.7 million, respectively.

General and administrative expenses increased $1.4 million and $1.1 million for the three and nine months ended September 30, 2009, respectively, as compared to the comparable 2008 periods, primarily due to the costs associated with transitioning our development and manufacturing activities as well as other G&A functions from the UK to the US and due to increased costs associated with preparing and submitting various bids and proposals along with increased stock-based compensation costs during the nine-month period.

For the third quarter of 2009, PharmAthene's net loss attributable to common shareholders was $14.0 million, or $0.50 per share, compared to $4.3 million, or $0.20 per share, in the same period of 2008. For the nine months ended September 30, 2009, the Company's net loss attributable to common shareholders was $26.6 million, or $0.97 per share, compared to $31.2 million, or $1.41 per share, in the same period of 2008.

During the third quarter, we issued two-year, 10% unsecured senior convertible notes and common stock purchase warrants, referred to as our New Convertible Notes and Warrants, in a private placement in the aggregate principal amount of approximately $19.3 million. This private placement included the issuance of $10.5 million in New Convertible Notes and Warrants to new investors for cash and $8.8 million in New Convertible Notes and Warrants in exchange for 8% senior unsecured convertible notes due August 3, 2009, referred to as our Old Notes, and accrued interest in the same amount.

The New Convertible Notes issued in exchange for the Old Notes were accounted for as an early extinguishment of debt, resulting in a non-cash loss on extinguishment of debt of approximately $4.7 million. The proceeds from the sale of the New Convertible Notes and Warrants were used to repay $5.5 million of our Old Notes that were not exchanged for the New Convertible Notes and Warrants and to repay all outstanding amounts and fees under our existing credit facility.

As of September 30, 2009, available cash, cash equivalents and short-term investments were $11.6 million. In addition, billed and unbilled accounts and other receivables were $18.7 million at September 30, 2009. The Company estimates that at its currently projected rate of net cash consumption, the existing sources of cash and cash receipts from contract receivables will be sufficient to fund operations through the end of 2010. I will now turn the call back over to David for his closing remarks.

Thank you, Charlie. Before we open up the call to your questions, I'd like to remind everyone that the next several months have the potential to be a very eventful time for PharmAthene. Before year's end, we hope to have a decision from BARDA regarding the rPA advanced development and procurement contract.

As I mentioned, we will also be presenting Phase I clinical trial results for Protexia in early December at the upcoming BARDA stakeholders meeting. In addition to the Phase I Protexia data, we'll be presenting new animal therapeutic data for Protexia along with data from our Valortim and SparVax programs. Finally, during the first quarter of 2010, we expect that the Department of Defense will make a decision regarding the next phase of funding for our Protexia program.

So as you can see, the next several months should be a very productive period and we look forward to keeping you updated on our progress. Ladies and gentlemen, that concludes my remarks for this morning. Operator, could you please instruct the audience on the Q&A procedures?

Yes. Thank you, sir.

(Operator Instructions)

And our first question comes from the line of Elemer Piros of Rodman & Renshaw. Please proceed.

Good morning, gentlemen.

Good morning.

David, I was wondering if you could give us maybe a little bit more detail on the partial clinical hold of the Valortim program. You mentioned -- first of all, what sort of funding is in place for the program and would the resolution of the partial clinical hold be funded by the government or would you have to do it on your own?

Good questions, Elemer. First of all, there's approximately $24 million in funding for advanced development of the Valortim program. And that funding is in place and this particular study is not on the critical path, so that funding is not affected at all. So this will not slow down the development of Valortim.

What is affected is our application -- or our response to a BAA for approximately somewhere near $100 million in funding for further advanced development, which was expected originally to be awarded sometime after the first of the year. That will not go ahead until -- that award of the funding will not go ahead until we resolve this issue. Although I will say that we are in the middle of a DCAA audit on that award, which is continuing, and they continue to ask us technical questions and work through questions on that award.

So I believe this issue can be resolved. Unfortunately, I cannot give you a definitive timeline at this point in time being as there is an FDA/NIAID meeting going on as we speak and this issue is being discussed. So we should have more information in the next couple of weeks as to how this will affect the timeline. But being as this has been seen previously with monoclonal antibodies, we did change the rate of infusion in this study and we did not pre-medicate. It is our belief that this is a bump in the road, hiccup in the program, but not life-threatening.

And how will you -- what level of evidence will you have to provide? Was that indicated to you, that the issue could be alleviated by slower infusion or concomitant medications?

We actually are answering that question this week in meetings with the FDA and NIAID.

Would you be able to provide some tangible evidence or a theoretical discussion on how you might proceed?

There's both tangible data as well as theoretical. As I mentioned, this has occurred with other antibodies. As I mentioned also, the original Phase I study was done at a slower rate and we saw no such reactions. Additionally, other antibodies in this area, I believe if you looked at published data from the HGSI antibody, they were administered at an even slower rate and they were pre-medicated.

We're looking at -- the investigation is ongoing. The first thing we have to rule out is was there any product-specific issues? Was there any issue with tubing, with fluids? Were there any allergens present in the atmosphere? Were there any pre-existing conditions in any of these subjects? So there is several phases of this investigation which are ongoing and I believe we'll have this positively resolved and some information for you in the near-term rather than long-term.

Okay. Just to follow-up on that, David. Are you alone in this applying for this BAA to your knowledge or is there a competitor there?

This is not a competitive BAA. There are other people -- I'm sure this is an open BAA for advanced development, so it's not an either/or or it's not like a competitive award.

Okay. And what did you learn from the FDA meeting on the Human Genome Sciences' antibody that you could use in your future developments?

Not prepared for that one. There were a number of learnings from that meeting. As to what the committee may ask for in the future? I think we've got some information from that meeting as to how they view this and how they will look forward to it, so it may affect study design. I don't think there were any real surprises, okay? More of confirmation of where we were going and what our thought process was rather than, oh my God, we hadn't thought of that.

And a question related to your negotiations with the SparVax. What was the last time then when you talked about it and do you think that from your end, at least at this juncture, have you answered all their questions?

November 4 was a BARDA kick-off meeting in which our technical people and BARDA's technical people were at. We have weekly calls with BARDA to go over technical issues and we call the contracting office about once a day to see if there's any new news. So it's -- the level of communication is high. Right now, the level of information coming from BARDA is not high. So there is nothing that leads me to say that there is issues that we should worry about, but there's nothing for me that I can tell you that at 3.00 on next Tuesday we will have some sort of answer.

And just to describe the dynamic of these weekly technical conversations. Does it go like, we have three questions, you answer them and a week later they come up with two more questions, you answer them and a week later they only have four questions and you --? How does it go? If you could just provide some general insight to that.

These meetings are very collaborative-type meetings. BARDA is engaged in the process of not only reviewing what we're doing, but attempting to ensure the success of the product. They have a huge desire for this project to be successful. Being as they had one failure on their watch already and that was with our competitor's product that totally failed and couldn't show stability in the previous hands of where it was. So they don't want that to happen again.

From the contractual area, from the responses that we've had, there are no technical issues left on our proposal. So the last thing to be negotiated would be business issues and those mainly will be around timing of payments and milestones for payments.

And you think you presented with them your business proposal to a sufficient detail for them to come back with counter-proposals, et cetera? So you provide them with everything that you think number-wise that they would need?

Elemer, there is nothing that they don't have. I think they know the size of my undershirt and the proposal is that specific. It really goes in tremendous detail. So it's not a matter of giving them something they need; it's a matter of negotiation of, well, we will give you X dollars for a wide milestone or we will make X payment 22 days instead of 18 days after you achieve this. So that's the area of detail that we are at right now.

Good luck and let's hope for a nice holiday present, and thanks for taking my questions.

Thank you for your interest.

(Operator Instructions)

And our next question comes from the line of Debra Fiakas of Crystal Equity Research. Please proceed.

Thank you. First, I want to say I appreciate, David, that you're calling the contracting office at BARDA every day. If anything, they'll know that there's a lot of people out here wondering when they're going to make a decision. Just a couple of housekeeping questions. First off, Charlie, I wondered if you could tell us what the cash usage was in the quarter?

I'll refer you to our 10-Q, which is about to come out for a --.

Okay.

-- more detailed analysis of operating cash flows.

Okay, very good. You plan to file that today?

Today or tomorrow, yes.

Excellent. And then the next question is also in regard to the balance sheet. I noted the other receivables and the unbilled receivables remains at a fairly high level. And I wondered if you could tell us, out of that total, I think it's $3.7 million, how much of that is unbilled or unrecognized revenue?

Debra, I'm not sure I understand your question. Let me just provide some background and see if I understand what you're asking. So if you look at our balance sheet, there's both an accounts receivable line and another receivable, unbilled AR line. Is that what you're referring to?

Yes.

Okay. And so the nature -- is the question what's the nature of those two line items or is the question what the balances are or both?

I wondered about the unbilled receivable portion. I wondered if any of that is unrecognized as revenue at this point or if it's all recognized as revenue and simply the bills have not been submitted?

So the mechanics of the process go as follows. We work on programs based on contracts. The costs and labor are tracked monthly. And at the end of the month, we recognize revenue based on the contracts and as the revenue is recognized it becomes an unbilled AR. So in that unbilled AR figure is only money which has already been recognized as revenue.

All right. Very good.

Then as we work with our customer to develop the invoices, it gets transferred out of unbilled effectively into billed, which is the AR line.

Okay. Very good. And then on the next question also a little bit of a housekeeping question. It's in regard to the payment on the credit line. I wondered if you could tell us how much was that you actually paid on the credit line.

I think that the final payment on the credit line was about $2.5 million.

Okay, thank you. David, during your opening remarks you mentioned that the current SparVax work is being supported by previously granted awards from BARDA and I wondered if you could just give us an idea of what you have remaining on those existing contracts? What dollar amount?

Yes. Just a clarification, Debra. The work I'm referring to was originally awarded under an NIH contract, not a BARDA contract.

Oh, an NIH contract. I'm sorry.

Being as it made more sense for BARDA to be in charge of everything moving forward, those were moved from the NIH to BARDA. In round numbers, there's about $35 million involved in this contract and I believe, Charlie, there's the majority of that is left, or $25 million of that is work that is ongoing. Is that --?

I think we've generally said that about half of the contract is --

About half? Okay. So there's probably then about $17 million left of work to be done.

Okay. And if there turns out to be some kind of an extended deliberation period on the part of BARDA that extends on into 2010, will this $17 million allow you -- will it support your current activities with regard to SparVax?

Yes, it will.

Okay. And then I think the final question that I wanted to ask you about is in regard to your Protexia. I missed during your earlier comments, there is a pending decision and I wondered if you could give us some comment, if you didn't mention it, what kind of timing there might be with regard to your next phase of the Protexia funding and activity.

We have completed milestone A. We are presenting the data and the government is reviewing that and we expect a decision on milestone B funding moving forward to occur within the first quarter of next year.

All right. Thank you. I'll stop there and get back in the queue.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the question-and-answer portion of today's call. I would like to turn the presentation back over to Mr. Wright for any closing comments.

Thank you very much. And ladies and gentlemen, thank you again for your time this morning. As always, please do not hesitate to contact our Investor Relations Department at any time if you would like additional information and we will keep you informed as we move forward on events as they occur. Thank you again and have a good day.

Thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect. Have a wonderful day.