Altimmune Inc (ALT) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the 2009 Year-End PharmAthene Earnings Conference Call. My name is Michele and I will be your operator for today. At this time, all participants are in listen-only mode. We will be conducting 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 conference, Ms. Stacey Jurchison. Please proceed.

Thank you, Michele. 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, Charlie Reinhart, Senior 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, anticipates, believes, should, intends, estimates, and other words of similar meaning.

Any such forward-looking statements are not guarantees of future performance and involve risk 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 23rd, 2010. Since then, PharmAthena 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 to begin.

Thank you, Stacy and good afternoon, everyone. Thank you for joining us today to discuss our year-end 2009 financial and operational results. I'll begin with an update on each of our biodefense programs followed by a discussion on current status of our litigation with SIGA. Following this, Charlie will take you through the relevant financials and then, we'll open up the call to your questions.

Let me begin with an update on our SparVax recombinant PA anthrax vaccine program. Last year, we identified two potential funding mechanisms to enable PharmAthene to obtain additional development funding for SparVax. The first option was in modification to our existing contract to potentially add funding under this contract. In January, we submitted a proposal seeking additional funding under our existing SparVax research and development contract to cover certain activities, including bulk drug substance CMC activities, analytical method development and data generation to support target expiration dating, all of which fall within the original NIH contract statement of work.

In February, PharmAthene and BARDA entered into a contract modification, providing additional funding for the SparVax program of up to $78.4 million. Under the modification, we could receive payments on a cost reimbursement plus fixed fee basis of up to $61 million during a base period of performance which extends through December 31st, 2012 assuming that all milestones are achieved. In addition, the government, at its sole discretion, may exercise three contract options during the base period of performance which could increase the value of the modification by up to $17 million, bringing the total value of the modification to $78.4 million.

Recently, a competitor filed a protest alleging that activities funded under the modification were outside the scope of work of the original contract and the contract should have been subject to competitive bidding. Following the close of business on Friday, March the 19th at 2010, BARDA sent us a formal, written notice suspending performance under the modification pursuant to the automatic stay requirements of the Federal Acquisition Regulations pending a ruling on the protest.

We are confident that the protest is without merit and the contract modification will ultimately be upheld and that BARDA adhered to all of the appropriate legal and contractual requirements in awarding this modification to PharmAthene. A ruling on the protest is expected by June 11th of this year.

Meanwhile, our development activities for SparVax remain ongoing and are funded under our current contract with BARDA which extends until mid 2011. We continue to hold weekly technical meetings with BARDA personnel to insure the timely development of SparVax. Now, the second mechanism BARDA identified to fund rPA development was a special modification under the existing broad agency announcement which BARDA specifically revised in December 2009 to accommodate proposals from rPA vaccine developers.

In February, we submitted a white paper under this BAA requesting additional funding to further support our development efforts for SparVax. If BARDA finds our white paper submission acceptable, we will be requested to submit a formal proposal which we believe could occur in the first half of 2010 with potential funding under the BAA possible by the end of 2010.

In addition, a new rolling BAA was recently issued which may provide additional funding opportunities for rPA which we plan to explore. BARDA has indicated that it believes the studies funded under BAA contracts could help potential rPA vaccines advance far enough to enable them to meet Project BioShield procurement requirements in the future.

More recently, the trend at BARDA has been to separate advanced development contracts and procurement awards. Despite the shift in funding strategy, BARDA continues to assure us of its commitment to the rPA vaccine development and procurement. And we are encouraged by the swift implementation of new mechanisms to facilitate the continued advancement of this important program.

The procurement of next generation recombinant modern anthrax vaccine for the Civilian Strategic National Stockpile represents a very important national security imperative. Several years ago, based on recommendations from the Institute of Medicine, the US government established a requirement to procure 75 million doses of rPA vaccine for the Civilian Stockpile in recognition of the considerable advantages rPA vaccines offer.

Specifically, newer vaccines based upon modern recombinant vaccine technology offer the potential for improved safety, convenience and cost effectiveness as well as rapid immunity. Our product SparVax in recent clinical studies has achieved protective immunity with only three doses over 56 days compared to the five-dose-over-18-month regimen for the current vaccine. Obviously, 18 months to establish protective immunity is not optimal for use in a Civilian Stockpile.

Moreover, the manufacturing process for SparVax is a highly consistent process, resulting in a product with enhanced purity which may lead to fewer adverse reactions when administered to the public. In addition, modern biotechnology processes have dramatically reduced the manufacturing cost for recombinant vaccines, enabling production at a fraction of the cost of older technology.

For example, the price per dose for the current anthrax vaccine has escalated from $2.26 per dose in 1998 to an average price of approximately $24.00 per dose more. More recently, representing a 900% price increase over 10 years. This equates to a cost per person of approximately $120.00. Now, conversely, SparVax requires three doses at an expected cost of approximately $15.00 per dose for a total cost of $45.00 per person. This represents a savings to the US government and taxpayers of approximately $75.00 per person or more than $5 billion for a Civilian Stockpile comprising of 75 million doses of vaccine.

Finally, having another option to protect the American public reduces not only the cost but the risk associated with relying on a sole producer. It is precisely for the reasons I avow that various government agencies, including the Institutes of Medicine have called for the development and acquisition of next-generation anthrax vaccines and clearly, while BARDA remains very committed to this endeavor.

A stockpile that includes modern anthrax vaccine would also meet the biodefense initiatives of the administration and Congress. In the president's State of the Union address, he acknowledged the need for an enhanced focus on biodefense, which was also underscored by the recent recommendations for an increased focus on bioterrorism preparedness issued by the Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism.

Now moving on, while much of the focus of 2009 was centered on SparVax, we also achieved notable progress in both our Protexia and Valortim development programs. In December, we presented Phase I clinical trial results for Protexia at the 2009 PHEMCE Stakeholders' Workshop. The Phase I clinical study for Protexia was a randomized, placebo-controlled, third-party, double-blind, dose-escalation study conducted to assess the safety and tolerability of Protexia administered intramuscularly at one or two time points in healthy human volunteers.

The Phase I data showed that Protexia was safe and well tolerated with no serious adverse events and importantly, no evidence of an immune reaction to the drug. In addition, new studies investigating the therapeutic efficacy of Protexia in a guinea pig model were also presented at the PHEMCE Conference. In this study, we showed 100% survival in animals treated with Protexia administered by IM injection two hours after exposure to a 2.5 LD50 dermal challenge with VX compared to 0% survival in animals receiving a saline control.

Animals in the control group showed a progression of adverse physiological symptoms leading to death, including slowed heart rate, decrease in core body temperature and seizures. These adverse physiological changes were significantly minimized or prevented in animals receiving Protexia. This study confirms that Protexia may represent a promising post-exposure therapy for VX exposure.

Funding for the Protexia program is provided under a multi-year contract awarded by the Department of Defense in September 2006. The initial phase of the DoD contract extended through the end of Phase I clinical testing which was completed in December 2009. Since then, PharmAthene has been in negotiations with the DoD regarding the second phase of funding under the contract referred to as Milestone B which would cover further advanced development activities for Protexia extending until FD Licensure.

Under the current terms of the contract, the Department of Defense has the right to elect continued development of Protexia with additional funding originally projected to be around $65 million. We currently anticipate, however, that the remaining development costs required to obtain FDA licensure will exceed those in our original proposal. And we have been in negotiations with the DoD to explore a potential increase in funding for this program. We expect the DoD will make a decision later this year or early next year and of course, we'll keep you informed and updated as news unfolds.

Turning to our Valortim program, in 2009, we continued to make progress particularly with regard to the potential mechanism of action of Valortim. The confirmatory animal model data were presented at several scientific meetings during the year. We also presented new data illustrating the potential ability of Valortim to neutralize anthrax bacteria as well as to support the immune system's response to an anthrax infection. Studies conducted by Dr. Alan Cross and his team at the University of Maryland continue to demonstrate how Valortim may support the ability of the innate and adaptive immune response to control anthrax infection and possibly destroy anthrax bacteria.

Additionally, new data in the New Zealand White Rabbit Model for inhalation anthrax were presented in the 2009 PHEMCE Stakeholders' Workshop which showed Valortim to be an effective treatment for anthrax, even at very low doses. Also, new confirmatory therapeutic data for Valortim from an African Green Monkey Model demonstrated up to 70% survival amongst Valortim treated animals. A very promising result given that these animals had signs of active infection at the time of treatment.

We're very encouraged by the accumulating animal data which suggest that Valortim may posses important characteristics that make it a strong choice for procurement in the Strategic National Stockpile for civilian biodefense. Specifically, demonstrated efficacy in animal models as both a prophylaxis and a therapeutic for inhalational anthrax. The potential for assisting the immune system's killing of anthrax bacteria, a mechanism of action not previously described for other monoclonal antibodies and efficacy at low doses.

As we mentioned during our third quarter conference call in August 2009, we began a Phase I clinical trial of Valortim in combination with the antibiotic Cipro. During the course of the study, there were two adverse reactions reported in four of the subjects dosed. While both of these adverse reactions resolved after the infusion was stopped ant there was no lasting harmful effect, we halted further dosing and shared our findings with NIAID and the FDA, which subsequently placed the Valortim Cipro study on partial clinical hold until the cases could be determined.

We have been evaluating a number of possible causes for the adverse reactions, including whether they might be related to the rate of infusion or allergic reactions. Further investigation is ongoing. We hope to be able to resolve this matter by the third quarter of this year.

However, in the mean time, although negotiations on our BAA submission for Valortim have been temporarily suspended until the issue is resolved, we continue to maintain a constant and open dialogue with BARDA contracting and technical personnel and have continued to solicit their comments on our business and technical proposals under the BAA. I would like to emphasize that this partial clinical hold does not pertain to the other Valortim-related development efforts which remain ongoing.

As I mentioned previously, the results from an initial Phase I clinical study of Valortim evaluating escalating doses of Valortim in 46 healthy subjects using a 95-minute infusion period showed that Valortim was safe and well-tolerated, with no drug related serious adverse events being reported. We are, therefore, hopeful that we can resolve this issue and recommence clinical testing of Valortim later this year.

Finally, in March 2009, we completed a public offering of our common stock in warrants resulting in gross proceeds of approximately $5.5 million for the companies. And in July 2009 closed on a $19.3 million private placement of new, two-year, 10% senior unsecured convertible notes and warrants. Together, these transactions added additional capital to strengthen our balance sheet and to facilitate our ability to execute our corporate objectives.

Before I turn the call over to Charlie, I'd like to provide a brief update on the status of our ongoing litigation with SIGA Technologies. As you know, in December of 2006, we filed a complaint against SIGA in the Delaware Chancery Court which we amended in May of 2009 alleging among other things, breach of contract as a result of SIGA's failure to negotiate the terms of a definitive license agreement to SIGA's anti-viral small pox drug candidate, SIGA-246 in accordance with a term sheet negotiated by the parties and attached to the June 2006 merger agreement between the two parties, which SIGA terminated in October of 2006.

We further allege that even if SIGA were not bound by the terms of the term sheet, SIGA nevertheless breached its express duty to negotiate a license agreement with us in good faith as required by the merger agreement because the proposals it made during the course of negotiations in the fall of 2006 were made in bad faith. After several failed attempts to negotiate a license agreement with SIGA during that period, PharmAthene filed a law suit seeking alternatively a judgment requiring SIGA to enter into an exclusive license agreement with us for the SIGA-246 compound in accordance with the term sheets or monetary damages.

As SIGA has previously publicly disclosed at its FCC filings, we have submitted an expert report in the case with damage calculations in varying amounts up to approximately $1 billion. Furthermore, in lieu of a lump-sum payment for damages, the report of our damages expert also includes a calculation of economically equivalent royalty payments from SIGA to us.

Finally, as an alternative to economic damages, we have asked the court to direct SIGA to enter into a license agreement with us in accordance with the original terms of the term sheet attached to the merger agreement. Regarding the schedule in the case, discovery closed in February. Not unexpectedly, last week SIGA filed a motion for summary judgment. Our reply brief and any cross motions for summary judgment are due in April and we believe we have several persuasive counter arguments.

All other summary judgment-related briefs are due from both parties in May. We then anticipate the court will hold a hearing on the motions; while the specific timing is within the court's discretion, we are hopeful the court will schedule a hearing in June or July. Thereafter, once the court rules on the motions for summary judgment and assuming open issues remain in the case, the parties can then ask the court to set a trial date. We continue to believe that our case has merit and we intend to pursue it vigorously and we look forward to getting to trial.

I'll now turn the call over to Charlie to briefly summarize our 2009 financial results.

Thank you, Dave. For the years ended December 31, 2009 and 2008, PharmAthene recognized revenue of $27.5 million and $32.9 million respectively. Revenues for both periods consisted primarily of contract funding from the US government for the development of Protexia, SparVax and Valortim.

The year-over-year decline in revenue in 2009 is primarily attributable to the shift of the Protexia program from broad, pre-clinical development efforts including manufacturing to a focus on clinical evaluation as well as the completion during the third quarter of 2009 of all work and related funding under the initial phase of the contract with the Department of Defense as Dave eluded to earlier.

Research and development expenses for the years ended December 31 2009 and 2008 were $30.2 million and $31.8 million respectively. Research and development expenses for 2009 consisted primarily of R&D activities related to our Valortim and Protexia development programs as well as to our SparVax, RypVax and third generation anthrax vaccine programs.

The $1.6 million decrease in R&D expenses was primarily due to a reduction in pre-clinical development costs for our Protexia program as the program progressed through clinical evaluation and a reduction in the development costs of our plague vaccine program, partially offset by increased pre-clinical development costs associated with our anthrax, therapeutics and vaccines programs.

General and administrative expenses were $22.4 million and $19.4 million for the years ended December 31, 2009 and 2008 respectively. The increase in general administrative expenses for the periods was primarily due to costs associated with transitioning the company's development and manufacturing activities for SparVax and third generation anthrax vaccine programs as well as other general administrative functions from the UK to the United States. And in addition, with preparing and submitting various bids and proposals along with increased non-cash, stock-based compensation costs during the year.

For the year ended December 31, 2009, PharmAthene's net loss was $32.3 million or $1.17 per share compared to $36.4 million or $1.59 per share for 2008. As of December 31, 2009 the company had cash, cash equivalents, short-term investments and US government accounts receivables and un-billed receivables totaling approximately $22.8 million.

As David mentioned, in addition to the March 2009 public offering of common stock and warrants which netted approximately $4.9 million in proceeds, in July 2009, we also completed a $19.3 million private placement of new, two-year, 10%, unsecured senior convertible notes and common stock purchase warrants. As a result of these actions in 2009, and along with existing cash resources and anticipated cash receipts from billed and un-billed contract receivables, we believe that we have sufficient liquidity to fund our existing operations through the end of 2010.

I'll turn the call back over to David for his closing remarks now.

Thanks, Charlie. Before I conclude today, I would like to take a moment to briefly review some forward-looking financial guidance for the company. This information is based on our long-range financial planning and I believe illustrates the unique attributes of our biodefense business model and provides a road map of what we currently believe investors can expect from PharmAthene over the next few years. My remarks are, of course, predicated on a number of assumptions. However, I think you'll agree there are tremendous opportunities ahead for PharmAthene which could dramatically impact the valuation of our company.

Let me quickly review the assumptions. Our plan contemplates a BAA contract award for SparVax by late 2010 with a funding of approximately $150 million over a five-year period. A second BAA contract award for Valortim in late 2010 or early 2011 with funding of up to between $80 million and $100 million over a five-year period. A new Milestone B contract from the Department of Defense for Protexia in late 2010 or early 2011 with funding of approximately $125 million over a five-year period.

Based upon these assumptions, our forecast indicates that annual revenues will increase significantly over the next couple of years and allow us to reach a cash flow neutral to slightly positive position by 2011 and remain cash flow positive thereafter. From 2011 onwards, therefore, potential future capital raises would only be required to support initiatives to expand our business.

This model also anticipates product sales of Valortim to the US government commencing in late 2014 with operating income growing substantially from that point forward. It is essential to emphasize that the plan does not take into account any possible upside related to our litigation with SIGA. As I mentioned earlier, our damages expert has valued potential damages in this case up to approximately $1 billion.

Looking ahead, in addition to the potential funding milestones -- potential funding milestones I just noted and potential upside for the SIGA litigation, we anticipate that the contract modification for SparVax will be upheld following the ruling in June and that work under this modification will continue. We also expect to obtain later this year, additional data from ongoing, proof of concept, non-clinical therapeutic studies of Protexia, building on the promising new animal data generated in 2009 and to re-commence the clinical development of Valortim pending resolution of the ongoing adverse event evaluation.

Ladies and gentlemen, that concludes my formal comments this afternoon. Thank you again for joining us. We appreciate your continued interest and support of the company and look forward to updating you further during our first quarter earnings conference call.

Operator, at this time could you please instruct the audience on the Q&A procedure?

(Operator instructions).

Your first question comes from the line of Jason Cantor of RBC. Please proceed.

Oh. Hey, thanks for taking my call. My question -- a couple questions around the SIGA issue. So first, are there specific subject matter that are at the basis for the summary judgment or is it just a summary judgment to throw the whole thing out because we've seen that the motion dismissed was denied? So, is this on a particular issue in the case?

Sure, hi. This is Jordan Karp, the General Counsel. The motion was filed under seal, so we have to be somewhat limited on what we can say at this point publicly. But the motion goes to our claim for lost profit as well as our request that the court order SIGA to enter into a license agreement in accordance with the terms of the term sheet. What I can say, though, is there was nothing in the motion that was a surprise to us or unexpected.

Okay. And on those damages, how -- what kind of assumptions do you use to get the damages of $1 billion considering no drug has been sold yet and the market cap of SIGA is only $300 million, and that's 3 times the value of the company, so what's the basis for damages at this point?

The basis for damages are the RFP which has been issued and procurement contract which government has and a number of other factors that the experts have looked at in their models. And these, the expert testimony I think while not public, several hundred pages of models and information and data.

Okay. And then finally, what level of royalties are you seeking against them in lieu of this $1 billion?

Jason, this is all not disclosable at this time and is part of the active case which we cannot disclose.

That's reasonable. Okay. Thank you very much.

You're welcome, sir.

Your next question comes from Steve Brozak of WBB Securities. Please proceed.

Good afternoon, gentlemen, pardon my voice. I'll limit it to one question to save my voice and not have other people have to hear me. Can you give us some color on what -- obviously, everyone's caring about in terms of the protest. What ramification does it have as you see it? Right now, you're going to continue development regardless, so you're looking at a situation where the development will continue to proceed. What's the downside for right now and what would you see in terms of the effect in terms of the progression of the program? I'll limit it to that and let you answer.

The down side is harassment that's unnecessary and it is a diversion of management's time. The technical people will continue under Mod 16, we'll continue to be funded, work will go forward. There's a potential downside of costing the government extra money because they have to pay any penalties that occur due to the work stoppage. But other than that, the program's going to continue and I do not believe that any delays that may be caused because of this will have a significant impact on the program going forward and they're not delays that we can't make up.

Great. Thanks very much.

You're welcome.

Your next question comes in line of Debra Fiakas of Crystal Equity Research. Please proceed.

Thank you. A couple of housekeeping questions, could you let us know what your cash usage was either for the fourth quarter or for the year?

Debra, this is Charlie Reinhart speaking. So, our monthly cash burden started at the beginning of the year at about $1.5 million a month and it trended up in the fourth quarter, a little closer to $2 million and we expect it to trend down again during 2010.

Excellent. Thank you. And then also Charlie, in regard to the receivables, the two categories, other receivables including unbilled ones, could you give us some kind of detail or just a little bit of color on what is there and when would you expect to collect on those receivables?

So, the way it works is just that as we do work, the amounts are recorded as unbilled and then as they're invoiced over time, they go into AR and get collected. And so, it's a program-by-program specific question. I think these receivables will get billed and depending on what month they relate to, frankly, within the normal course and they'll get collected between now and June, probably and there'll be another number sitting there by the time we get to June because it'll be a couple more months worth of activity in there.

Okay. So, from your response can I infer that none of these receivables are sort of stuck in limbo because of project suspensions?

No, that's accurate, yes. You can assume that.

Actually, I'll go a step further. The -- any work that has been done or any penalties which occur because of stop work order are billable and collectable at the time they happen. So, this has no affect whatsoever on the collection of funds for work done.

Excellent. Thank you. And then in regard to Valortim, it sounds like from your description with the study that you stopped, relating to the use of Valortim with Cipro, that this is a very important study. It's very important that you prove that Valortim work with Cipro or is it simply that you must prove that it works with some other sort of antibiotic or prophylaxis? I guess my question really is how vital is it that Valortim be proven effective with Cipro?

That's a very good question. And that's a question which is currently one that is being discussed amongst the regulatory bodies. Initially, we have been guided by the FDA that we did not have to do studies with antibiotics to show anything other than safety. Human Genome Sciences has recently been asked to look at how to show an increased efficacy and we are discussing with the FDA how to do this because there are no current animal models which would be able to show this.

So, the study that we stopped is not on the critical path. It is not a study that will keep us from moving forward. It's a study that we want to do before the end of the day, but it will not slow down our development of this product.

That concludes the question-and-answer session. I would now like to turn the call back over to David Wright for closing remarks.

Well, thank you again for joining us this afternoon. As always, please feel free to contact our Investor Relations department at any time for additional information. We welcome your feedback and your questions. Thanks again, everyone and have a great evening.

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