Altimmune Inc (ALT) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2010 PharmAthene earnings conference call. My name is Shamiqua, and I will be your operator for today. At this time, all participants are in listen only mode. We will conduct 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.

Thank you, Shamiqua, and good afternoon, ladies and gentlemen, and thank you for participating today. Joining me on the call this afternoon are Eric Richman, President and Interim Chief Executive Officer, Charlie Reinhart, Senior Vice President and Chief Financial Officer, Dr. Thomas Fuerst, senior vice president and chief scientific officer, and other members of our senior management team who will be available during the Q&A session following our prepared remarks.

I must remind you that 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. 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 May 11th, 2010. Since then, PharmAthene may have made announcements relating to the topics [to invest], 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 Eric Richman, president and interim CEO, to begin today's conference.

Thank you, Stacy, and good afternoon, everyone. Thank you for joining us today to discuss our first quarter 2010 financial and operational results. I'd like to begin by reviewing some recent developments here at PharmAthene. During the past several months we have strengthened our leadership structure, both at the board level and senior management level, and begun adding important incremental functional expertise to our organization to ensure success as we move forward in developing products with our US government partners.

Last month we were pleased to welcome Dr. Thomas Fuerst to PharmAthene as chief scientific officer. Tom has extensive industry experience and US government experience, with over 20 years of experience in the research, development and manufacturing of biological products. Prior to joining the Company, he served as director of vaccines and biologics and subsequently senior science and technology advisor for the US Department of Health and Human Services.

In these positions, he was responsible for leading the development and acquisition of vaccines and biotherapeutic products for biodefense and other emerging public health threats, including anthrax, small pox, botulism and pandemic flu. During his tenure at HHS, Tom helped to establish the Biomedical Advanced Research and Development Authority, BARDA, and oversaw the planning, implementation and monitoring of medical countermeasure development and acquisition for that agency.

We are delighted to welcome Tom to our organization. Tom will provide strategic scientific direction for the Company and manage the day-to-day oversight of PharmAthene's research and development programs. I would also like to acknowledge some additional changes to our leadership team. We were pleased to announce recently the promotions of Francesca Cook and Dr. Valerie Riddle to the positions of senior vice president, policy and government affairs, and senior vice president, medical director, respectively.

Valerie and Francesca joined PharmAthene in 2003 and have been instrumental in our successes to date. Francesca is well known and respect on the Hill for her advocacy of biodefense issues. Her efforts have helped to raise the profile of our industry among key legislators and contributed to important policy changes, which have positively impacted our industry and our national security.

Dr. Riddle, who is a board certified physician in internal medicine and infectious diseases, has demonstrated capable stewardship of our nonclinical and clinical programs over the years. Her exceptional leadership in this area is exemplified by her participation as co-chair of the Alliance for Biosecurity Animal Model Working Group, which is focused on furthering the collaboration between industry, government and other stakeholders for animal model development of biological, chemical, radiological and nuclear threats. We have recently expanded Valerie's responsibilities to include oversight of our project management functions, in addition to clinical and nonclinical development.

We also have the distinct pleasure of welcoming two new distinguished members to PharmAthene's Board of Directors. Dr. Mitchel Sayare recently joined the board in April. As the former Chairman and CEO of ImmunoGen, he brings deep operational experience and biotechnology to the Company. Also, Dr. Jeffrey Runge, who joined the board this past December, lends an impressive background and familiarity with the government's requirements for biodefense, having previously served as assistant secretary for health affairs and acting undersecretary for science and technology at the US Department of Homeland Security.

Our programs, as you will hear in a minute, are making significant progress, despite short term obstacles which we are confident will be resolved. We look forward to reporting development milestones and potential funding awards over the next 12 to 18 months, as I'll discuss in more detail later. I'd like to now introduce Dr. Fuerst, our CSO, who'll provide a brief update on our biodefense programs.

Well, thank you, Eric. It's a pleasure to be here today and I look forward to meeting many of you in person in the coming months. As Eric mentioned, my background is somewhat unique in that I first became involved in biodefense shortly after 9-11 at Sanofi Pasteur, where I led a collaborative R&D effort to develop a next generation anthrax vaccine. Since that time, I've remained committed to biodefense issues and feel very strongly that the development of a sustainable, innovative biodefense industry in this country is a national security imperative.

My interest in joining PharmAthene was based on two important reasons. First, because I felt that I could be more effective in helping to advance these critical biodefense products by transferring the skills and knowledge I had cultivated within government service to industry. And second, because I believe very much in the merits of PharmAthene's portfolio, its operational team and the need to see these products commercialized.

With that said, let me talk a little bit about our rPA vaccine program. As you know, SparVax is a highly purified recombinant protective antigen vaccine which PharmAthene is developing for general use prophylaxis and post-exposure prophylaxis for anthrax. Clinical studies have shown that protective immunity can be achieved rapidly and safely with SparVax, using a highly purified and well characterized vaccine formation as compared to the current anthrax vaccine, which has been viewed as a rather crude preparation that was developed nearly a half a century ago.

SparVax, like our other product candidates, utilizes modern recombinant technology, which is a key objective for Project BioShield, to invest in development and acquisition of newer and safer countermeasures to protect American citizens. Also, the manufacturing process for SparVax yields a product with enhanced purity, which may lead to fewer adverse reactions in humans.

It is precisely for these reasons that government agencies, including the institute of Medicine, have called for the development and acquisition of next generation anthrax vaccines for the civilian national stockpile and why we remain dedicated to bringing an improved anthrax vaccine to market.

We're also making progress with future products which use rPA as a basis for improved immunogenicity and stability. Last week we were pleased to complete the cGMP production of 14,000 vials of lyophilized rPA made under an NIH Challenge Grant. This product has potential to meet the criteria of a room temperature stable vaccine that can achieve protective immunity in fewer doses.

Moving on to Valortim, the program continues to progress in collaboration with NIAID and BARDA. We are moving forward on our investigational plan to determine the cause of the adverse reactions seen in the Valortim cipro study and hope to be back in the clinic later this year. The accumulating data suggest that Valortim may be highly effective antitoxin for post-exposure prophylaxis and treatment of symptomatic individuals with anthrax.

Valortim is extremely potent and we believe will require a lower dose than other monoclonal antibodies in development, making it ideally suited for intramuscular administration. This is an optimal product profile for treatment following a potential anthrax incident. In addition, Valortim has a unique mechanism of action, which, to the best of our knowledge, has not been demonstrated with other monoclonal antibodies, serving to differentiate it from other antitoxins in development.

Thank you, Tom. We continue to make progress in our development program for SparVax, with funding provided under our current contract with BARDA, which extends through June of 2011. In the first quarter we entered into a modification to this contract, which, if all milestones are achieved and all contract options are exercised, could provide up to an additional $78.4 million in development funding for this program.

While this contract modification is currently the subject of a protest by one of our competitors, we are confident that the protest is without merit and that the contract modification will ultimately be upheld. A ruling on the protest is expected by June 11, 2010. The GAO held a hearing last week and we believe that we and BARDA were able to address all of GAO's questions. We also continue to explore additional funding opportunities with the goal of enabling the Company to advance SparVax to a stage of procurement consideration by the US government.

With regard to Protexia, we continue to make progress in our negotiations with the Department of Defense regarding the second phase of funding under our Protexia contract, referred to as Milestone B, which could cover further advanced development activities for Protexia, extending until FDA licensure. We have been in negotiations with the DOD to explore a potential increase in funding for this program beyond the $65 million originally projected. We expect the Department of Defense will make a decision on Milestone B later this year.

In the meantime, we have been negotiating a contract modification with DOD which would provide incremental funding of up to $4.1 million to cover interim program expenses during 2010. We hope to finalize this contract modification imminently. We are optimistic about the likelihood of continuing our advanced development efforts for Protexia and will keep you apprised as our discussions evolve.

As Tom noted, we have made progress on our Valortim investigation, anticipating moving back into the clinic later this year. Finally, I would like to mention recent events in our third generation, or 3G anthrax vaccine program. As you know, this early stage program has been funded under a thee-year NIAID, or NIAID contract, for up to $13.2 million awarded to us in September of 2008, of which we had recognized revenues of approximately $1.6 million through March 31, 2010.

NIAID has raised concerns regarding performance under this contract, with project delays and contract management noted as key areas of concern. In April 2010, NIAID notified us that the agency is considering terminating the contract, possibly for default. We have responded to the -- to address the agency's specific concerns. We believe it is likely that we will reach an agreement with NIAID to terminate this contract.

We have been exploring alternative third generation technologies for enhancing an rPA vaccine, which are directed at meeting the government's requirements for reducing the number of doses to achieve protective immunity, enhancing product stability and possibly employing alternative delivery mechanisms. Our lyophilized rPA based vaccine candidate, which Tom mentioned earlier, has shown promise. And we are continuing to evaluate its potential to fulfill these requirements. I'll now turn it over to Charlie to briefly summarize our first quarter 2010 financial results. Charlie?

Thank you, Eric. For the quarter ended March 31, 2010, revenues were $3.1 million compared to $5.5 million in the same period of 2009. Revenues for the quarter ended March 31, 2010 consisted primarily of contract funding from the US government for the development of SparVax and Valortim.

The decline in revenue in the first quarter of 2010 is primarily attributable to the completion during the third quarter of 2009 of all work and related funding under the initial phase of our Protexia contract with the Department of Defense. Consequently, no revenue for Protexia was recognized during the latest accounting period.

As Eric just mentioned, we anticipate that the DOD may shortly issue us a contract modification to provide interim funding for the Protexia program totaling up to $4.1 million, which will be reflected in future operating periods.

Research and development expenses were $5 million for the quarter ended March 31, 2010 compared to $5.7 million for the first quarter of 2009. The reduction in R&D expense is the net result of the completion of the first phase of our existing Protexia development program in the third quarter of 2009 and the completion of activities related to the development of our plague vaccine, partially offset by an increase in costs incurred on our anthrax programs.

Expenses associated with the general and administrative functions were $5.3 million in the first quarter of 2010, as compared to $5.1 million in the same period of 2009. General and administrative expenses increased $200,000 for the three months ended March 31, 2010, as compared to the prior year, primarily as a result of the recording of an allowance for doubtful accounts of approximately $588,000 associated with the potential wind-down of the third generation anthrax vaccine program.

PharmAthene's net loss attributable to common shareholders for the quarter ended March 31, 2010 was $7.9 million, or $0.28 per share, compared to $6 million, or $0.23 per share, for the first quarter of 2009. As of March 31, 2010, the Company had cash, cash equivalents, short term investments and US government accounts receivable and unbilled receivables totaling approximately $17.1 million, as compared to $22.8 million at December 31, 2009. The Company expects to become current on all customer invoicing during the second quarter of this year.

In April of 2010, we completed a public sale of approximately 1.7 million shares of our common stock, generating gross proceeds of $2.5 million. We believe that the proceeds from this financing, in combination with existing cash resources and anticipated cash receipts from billed and unbilled contract receivables, provides sufficient liquidity to fund our existing operations through at least the end of 2010. I'll now turn it over to Eric to wrap up.

Thank you, Charlie. Well, there are still some challenges ahead, but we continue to be very excited about the future potential of this company. As I mentioned at the outset, I am confident that the leadership team we now have in place will enable us to execute and meet key deliverables under our government contracts and achieve important potential valuation catalysts over the next 12 to 18 months.

Most notably, we expect a decision on the SparVax contract modification protest by June 11th. We are confident the protest will be denied. However, should it be upheld, we will vigorously pursue other funding mechanisms for rPA. In the meantime, development of SparVax continues, continues on schedule, with funding provided under our current BARDA contract, which, even without the contract modification from the first quarter 2010, provides funding through June of 2011.

In addition, assuming [Sega Technology's] motion for summary judgment is denied, we anticipate that our case could go to trial in late 2010. Discovery in the case closed in February. In March, Sega filed a motion for summary judgment and we subsequently filed a reply brief, to which Sega then responded. We expect that the court will schedule a hearing on the motion for summary judgment in June or July of this year.

Once the court rules on this motion and assuming open issues remain in the case, we can then ask the court to set a trial date for any time 45 days following the summary judgment ruling, with the ultimate trial date subject to the court's schedule and docket at that time. As we've described previously, damages in this case could be substantial. We hope to have more information to share with you on this matter in the coming months.

Also during this period, PharmAthene is pursuing two new significant US government contracts for our biodefense programs, as well as the next phase of funding under our DOD contract, potentially representing more than $300 million in total funding commitments if awarded. Specifically, we are seeking advanced development funding for SparVax under a broad agency announcement, or BAA. If awarded, we anticipate funding under a BAA contract could be in excess of $100 million over a five-year period.

Second, we are seeking potential advanced development funding for Valortim, also under a BAA, which could represent in excess of $80 million in funding for this program. And finally, we expect to have a decision on Milestone B under our existing contract with the DOD for the next phase of work for Protexia, with potential funding in excess of $100 million over a five-year period, should DOD decide to move forward. The combination of these three contracts could generate annual revenue of approximately $80 million to $100 million, which could allow us to achieve cash flow breakeven operations.

Before I wrap up, let me reiterate that all of us at PharmAthene share a strong commitment to working with our partners in the government to develop improved medical countermeasures that enhance our nation's biosecurity and protect the wellbeing and safety of all Americans. I am personally grateful to each of you for your continued support and your faith in our mission. We look forward to keeping you apprised of our progress.

Operator, that concludes my formal remarks today. Could you please instruct the audience on the Q&A procedure.

Sure.

(Operator Instructions)

Your first question comes from the line of Matt Duffy of BDR Research. Please proceed.

Good afternoon. Thanks for taking my questions. First one for Tom, I think. I wonder if you could give us your perspective, given your background on the importance of some of the differences you outlined between rPA and the first generation anthrax vaccine. You laid out several different things, but how important do you believe that is to DOD and BARDA?

Well, Matt, that's a great question. And you're probably familiar with the Institute of Medicine report that was published in 2002 entitled The Anthrax Vaccine, Is it Safe, Does it Work? And just a quote from that publication goes, although ABA appears to be sufficiently safe and effective for use, it is far from optimal. And then the review committee concluded that, a new vaccine developed according to more modern principles of vaccinology is urgently needed.

And so if we just kind of break AVF into parts, if you will, and look at different areas, and there are four areas that I'd just like to comment on. One is ABA is a relatively uncharacterized product and there are some lot-to-lot consistency concerns. rPA is a well characterized and standardized product candidate. So there's clearly a difference there.

Two, AVA productivity yields are lower than more modern technologies such as our E. coli biomanufacturing platform. This should permit PharmAthene to produce more economically the rPA vaccine to fulfill the government's requirements and have the ability to surge produce on an as-needed basis.

Third area is that ABA has a relatively high reactogenicity profile, which may make the vaccine more difficult to expand into, for instate, pediatric and elderly populations if needed. We expect rPA to have a less reactogenic profile.

And then fourth, the bulk drug substance for rPA is in a liquid form that is more amenable to formulation development work, with novel adjuvants and delivery systems. This is an area of interest to the government for future generations of the product.

Okay, very good. Thanks. And then Valortim. I wonder if you could give us some more color on the investigation into some of the adverse events and the status -- specific status and next steps for potentially getting the partial clinical hold removed.

Matt, this is Eric. Thanks for joining the call today. I'm going to have Dr. Riddle, our chief medical officer, respond to that question, as she's been intimately involved in the Valortim program and the investigation. Valerie?

Sure. Hi, Matt. Nice to have you on the call today. I think I can say confidently that we've made significant progress in the investigation so far. We've looked very carefully at our chain of custody and looking to determine whether or not there were any findings of concern for how the product was handled or tampered, et cetera, at the clinical site. We've also done an extensive comparison of the material in the first-in-human study versus the material that was used in this study, and by and large have found that those are comparable.

The only outstanding investigation at this point in time is looking at a potential difference in [Cho] wholesale protein. And we're in the process of doing that evaluation now and expect to have those results in the next several weeks. The next step for us will be to do a skin testing study to try to understand whether or not these reactions were truly allergic or just allergic-like in nature.

And I think it's been reported previously that one of the differences in the first-in-human study and this study has to do with the rate of infusion. We infused over 60 minutes in this study and over 95 minutes in the first-in-human study. So it is possible that this isn't infusion related event, much like you would see with other monoclonal antibodies. So once we finish the Cho wholesale protein investigation and the skin testing study, we'll be in a much better place to determine our next steps.

And what's the process once you've wrapped that up? So you finish that and then you submit it back to the -- to BARDA or FDA or do you interact with both? And then what sort of decisions do you need?

Sure. Most importantly, we have a safety monitoring committee that's been involved all along. And our first step will be to report on the results of all of those investigations to the safety monitoring committee and get their recommendations. Those have to be then rolled up with our recommendations, which we will reach consensus with NIAID, BARDA and then those will be provided to the FDA, along with our proposed protocol for moving forward back into the clinic. And once we have all of that information and have the FDA buy-in, we would hopefully be able to move forward.

And I'd just like to add to Valerie's comments that we have had very welcome participation and collaboration from FDA, NIH, BARDA and our co-development partner, Bristol-Myers. So we are confident that we'll work through this issue and get the product back in the clinic.

Your next question comes from the line of Jason Kantor of RBC. Please proceed.

Yes, several questions, I guess, on the $4.1 million that you could get from reworking the contract for Protexia. Would that come all at once or is that something you would get over some period of time? And I guess on the NIAID contract, which may unwind, is there -- do you have to -- would you have to give back some money or is there some kind of effect on your balance sheet from that change?

Jason, this is Charlie Reinhart. So let me take those two questions separately. The $4.1 million contract that we're discussing with the DOD is designed to be utilized for this calendar year in its entirety. So it's a one-year contract. Actually less than one year. As far as the wind-down with 3G, we are in discussions with NIAID and so no arrangements are finalized. It's not my anticipation we would give money back. As I mentioned, I booked an allowance for doubtful accounts, but at this point I think that is expected to be the primary ramification.

And then on the balance sheet, you said that you will have all of your invoicing current by Q2. What about your accounts payable? There was a big jump in accounts payable. Is that -- does that also have to get reconciled in Q2?

Accounts payable is a little higher than normal at March 31 and it'll trend down back to its normal level by the end of the quarter, as the unbilled AR will trend down, and to become a more normal level later this quarter.

Okay, thank you.

Ladies and gentlemen, please stand by for your next question.

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

Hey, congratulations. Eric, I'll make it quick. I have one question. Can you just talk us through what the numbers might look like and assumptions if the protest that you're now facing is basically denied? What are you looking at and what are you thinking about in terms of what your franchise will experience, because obviously that's one of the things that pretty much a lot of the shareholders are thinking about in terms of valuing PharmAthene.

Steve, thank you for joining us today and thanks for your question. As I said during the call, we don't expect that the protest will be upheld. We expect that it will be denied. But in the event that the protest is upheld, I would remind you that our activities that are currently ongoing are funded through June of 2011. And there are several available funding mechanisms through BARDA that we could apply for additional funding. So if the $78 million, which was awarded in the first quarter, is actually no longer available to us, we would simply reapply for that funding and various activities under a different mechanism through BARDA.

As you know, in the biodefense industry there's a lot of ups and downs in the near term. But what we focus on is developing these products for the long term. And with a product that has received now nearly $200 million in funding and has been through two phase II clinical studies and demonstrated safety and efficacy in almost 800 individuals, we are confident that this program is the leading rPA program and will be funded by an agency that is looking to bring a product like this to market.

And in terms of what you would be looking for, making assumption that everything goes through, what kind of dollar amounts are we -- obviously you've been through a bit of a rollercoaster ride. What kind of dollar amounts are we talking about here? We're obviously not talking about lower numbers here. The point I'm trying to get at -- and I know that there might be some reticence in terms of answering, and that you never know until you've got it. What numbers are we looking at in the -- where you would originally believe that you would be receiving?

Steve, this is Charlie Reinhart. The $78 million is potentially over a three-year period. It's not straight-line, of course. But it's not too far of that, I don't think.

And then after a contract award, what kind of a -- what type of number would you be looking at there based on what the current market conditions for -- and I'm not -- again, not looking for a direct answer because obviously markets change. But what are we looking at on that front?

I'm not sure I understand your question. When you say what number are we looking for, are you talking about the size of the contract or --

Exactly.

The next phase of the relationship, is that what you're asking?

That would be the next item that we would look at afterwards because the idea would be to discount it from there.

Well, we would expect that the next phase of that contract would be in the area of about $100 million for additional advanced development funding.

Okay. So we're looking at a number that's somewhere just shy of $200 million, is the golden number, spread over a period of time.

Yes, I think that's a reasonable assumption, yes.

Okay. Great. Well, I wish you good fortune in that. And I'll hop back in queue. Thank you.

Thank you, Steve.

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

Thank you. Several of my questions were answered, but I just wanted to clarify with you, Charlie, that your expectation for bringing your accounts receivable current, does that include both the bill that is in accounts receivable as well as the unbilled?

Yes, but let me clarify, Debra. The Company will always have some amount of money in unbilled. It'll be about one month's worth of work.

Okay.

But that will be sizably -- a sizeable reduction from its current status.

All right. And then also, could you let us know what your cash usage was in this quarter?

It was right around $5 million.

Excellent. And I understand that there are still some unknowns with regard to the SparVax contract that's under question. I just wondered if, in the course of the conversations that you've had with the GOA and so forth, if you had understood of any precedence for this sort of thing and if you've been apprised of what the outcome was. In other words, have there been other contract disputes of this nature?

There have been. In the biodefense industry and defense contracting industry, it is, I wouldn't say common, but it is typical that a competitor would file a protest against an award. What's unusual in this case is that the -- it seems as if the competitor has nothing to gain from filing a protest against the $78 million that was awarded to PharmAthene. The competitor has filed other protests against other companies and they have not been successful. So we expect that that will be the same in this event.

All right, thank you very much.

This concludes the Q&A portion of today's call. I would like to turn the call back over to Ms. Stacey Jurchison. Please proceed.

Ladies and gentlemen, thank you again for joining us this afternoon. If there are any additional questions or if I can provide any further information about the Company, please reach out to me directly and I look forward to assisting you. Thanks again and have a great evening.

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