Altimmune Inc (ALT) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 PharmAthene, Incorporated Earnings Conference Call. My name is Elisha, and I'll be your coordinator 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 this conference.

(Operator Instructions)

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

Thank you, Elisha. 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, and Dr. Thomas Fuerst, Senior Vice President and Chief Scientific Officer, as well as other members of our 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 is held and recorded on August 12th, 2010. Since then, PharmAthene may have made announcements relating to the topics discussed, so please reference the Company's most recent press releases and SEC filings. PharmAthene disclaims any intent or obligation to update these forward-looking statements. I'll now turn the call over to Eric Richman, President and Interim CEO, to begin today's conference.

Thank you, Stacey, and good afternoon, everyone. We appreciate your interest in PharmAthene and your participation today. I'll begin with some general remarks on our operations, after which Dr. Tom Fuerst, our Chief Scientific Officer, will provide a brief update on the status of our biodefense programs. Following this, our Chief Financial Officer, Charlie Reinhart, will take you trough PharmAthene's second quarter financial results, and then we'll open up the call for your questions.

PharmAthene remains strongly committed to successfully partnering with the US government to develop improved medical countermeasures to protect our nation, citizens and military personnel. A recent op-ed in the Washington Post by former Senators Bob Graham and Jim Talent drew our attention to the fact that the nation still remains unprepared to combat a bioterror event, underscoring the importance of our mission.

We continued to make meaningful progress towards our goal in the second quarter. In June, we were very pleased to learn that the US Government Accountability Office denied a competitor's protest challenging a previously announced contract modification for our rPA vaccine program for up to $78.4 million.

Consequently, the contract remains in effect and funding under the modification has since resumed, and we are moving forward with additional development activities outlined under the modification. So far, the US government has committed, if all options are exercised, a total of up to $223 million in funding for our rPA program. As it currently stands, funding under this contract will extend until 2013.

We are also seeking additional funding for our rPA anthrax vaccine program in excess of $100 million under a broad agency announcement, or BAA. We anticipate a possible award under a BAA could occur early in 2011.

We are also seeking funding from the US government under the same BAA for our Valortim anthrax antitoxin program. Similarly, we anticipate a contract award could be made for Valortim in the first half of 2011.

For Protexia, we are in active discussions with the Department of Defense regarding continued funding for this program. During the second quarter, the DOD agreed to provide incremental funding to cover interim program expenses while they consider the longer term funding needs of the program. We anticipate the DOD will reach a decision later in 2010 and will keep you apprised of these developments.

Let me now turn the call over to Dr. Tom Fuerst, our Chief Scientific Officer. I first introduced Tom during our last quarterly conference call. As a former BARDA and Health and Human Services official, having previously served as director, vaccines and biologicals, and senior science and technology advisor at HHS, Tom brings invaluable knowledge and insight about our customer to our organization. In the short time since he's joined us, he has made important contributions that will ultimately help us -- make us a better partner with BARDA for the US government's biodefense initiative. Tom?

Well, thank you, Eric. I'd like to begin with our rPA anthrax vaccine program, which we're developing for a general use prophylaxis and post-exposure prophylaxis for anthrax. I'm very encouraged about the potential for this program, as the benefits and also the requirement for rPA based vaccines for the stockpile are currently well established, and I believe our program is at the forefront of efforts in this field.

Importantly, SparVax meets a fundamental objective of Project BioShield, which was established to encourage the development and acquisition of newer modern medical countermeasures that offer improvements in cost, convenience, safety and effectiveness. We continued to make solid progress and achieve notable milestones in our rPA development program over the last several months, which have been primarily focused on the technology transfer from our UK manufacturer, Merck Avecia, to our US based contract manufacturer, Merck Diosynth. During this time we successfully transferred the Merck Avecia process to our US contract manufacturer and full scale cGMP 1,500 liter process runs are scheduled to commence shortly.

As you may be aware, stability is an important issue, which has been the Achilles heel of previous rPA development efforts. We are encouraged by the accumulating stability data for SparVax, which suggests that it's both highly stable and potent. We have monitored the stability of final drug products stored at 5 degrees centigrade using a range of analytical techniques since 2003.

In 2005, we made several improvements to the formulation process, which significantly enhanced the stability of the vaccine. We have monitored the stability of this lot using a well characterized mouse challenge potency assay. The data show that the vaccine is potent at 39 months from the date of manufacture, with further testing of this lot currently ongoing.

We are also advancing development of a lyophilized, or freeze-dried version of our rPA anthrax vaccine, which was supported by funding under a challenge grant from the NIH. Preliminary studies suggest that this lyophilized rPA formulation is structurally stable and potent at temperatures up to 70 degrees centigrade.

To date we have achieved 100% survival in a mouse challenge model system using lyophilized rPA anthrax vaccine stored at 55 degrees centigrade for 16 months, and 70 degrees centigrade for seven months, compared to no survival among the unvaccinated challenge mice.

In addition, new nonclinical data were recently presented at the 2010 International Conference on Emerging Infectious Diseases, showing that this lyophilized rPA formulation was able to produce a robust mean response. If successfully developed, the lyophilized rPA anthrax vaccine has the potential to meet the criteria of room temperature stable vaccine that can achieve protective immunity in fewer doses, an important advantage for the strategic national stockpile.

Now, moving on to Valortim, we continue to make headway in our investigational plan to determine the cause of the adverse reaction seen in the Valortim cipro study we commenced last year. The final element of our investigation includes a skin testing study to try to further define the physiologic mechanism underlying these reactions, which recently commenced.

We were pleased to learn that none of the subjects has exhibited any reactions to Valortim or its excipients in the skin testing study, including one of the two subjects who experienced an adverse reaction in the Valortim cipro trial. We plan to submit the results of our investigational plan to FDA in the fourth quarter, with the goal of reinitiating the IV administration clinical program for Valortim in early 2011.

Assuming the FDA and other relevant parties, including the Safety Monitoring Committee, agree to reinitiate clinical testing of Valortim, we've proposed moving forward with our Valortim dose escalation study, which will evaluate doses of Valortim ranging from 1 to 10 mg/kg administered IV over a period of two hours.

Now, it's important to point out that reactions related to the rate of infusion of monoclonal antibodies are frequently observed in clinical practice and in development of monoclonal antibodies. In the Valortim cipro study, subjects receive IV Valortim at a more rapid rate than used previously. In that study, Valortim was infused over a period of 60 minutes compared to 95 minutes in the initial phase 1 trial. In addition, pretreatment with antihistamines or corticosteroids can prevent or minimize the potential for any allergic type reactions. I'll now turn it over to Charlie to briefly summarize our second quarter 2010 financial results.

Thank you, Tom. For the quarter ended June 30, 2010, revenues were $4.8 million compared to $8.1 million in the same period of 2009. For the six months ended June 30, 2010 and 2009 respectively, revenues were $7.9 million and $13.6 million. Revenues during the most recent quarter and first six months of 2010 consisted primarily of contract funding from the US government for the development of SparVax, Valortim and Protexia.

The decline in revenue in the second quarter and the first six months of 2010 compared to 2009 is primarily attributable to the completion of the first phase of development activities under our existing DOD contract for Protexia, which concluded in the third quarter of 2009, and reduced activity in our Valortim program as we complete the clinical investigation plan previously mentioned by Tom.

PharmAthene's research and development expenses were $5.9 million for the quarter ended June 30, 2010 compared to $10.2 million for the second quarter of 2009, and $10.9 million and $16.0 million for the six months ended June 30, 2010 and 2009 respectively. The reduction in R&D expense during this period compared to 2009 is primarily attributable to a onetime Avecia termination fee of approximately $3 million incurred in the second quarter of 2009, as well as a reduction in the level of activity on our Protexia and Valortim programs.

Expenses associated with general and administrative functions were $4.1 million in the second quarter of 2010 compared to $4.4 million in the same period in 2009. Expenses associated with general and administrative functions were $9.4 million and $9.6 million for the six months ended June 30, 2010 and 2009 respectively. General and administrative expenses decreased approximately $300,000 for the first -- for the three months ended June 30, 2010 and approximately $200,000 for the six months ended June 30, 2010 as compared to the prior periods.

These decreases were the net result of reductions in expenses for salaries, accrued bonuses, stock compensation, recruiting, relocation and travel expenses, partially offset by the recording of bad debt expenses in the amount of approximately $1.1 million in the second quarter of 2010 and $1.6 million for the first six months of 2010, primarily associated with an invoice to the Company's government customer related to the rPA anthrax vaccine development work performed at Avecia prior to the transfer of development activities to a US based manufacturer, and prior to the novation of the Company's government contract for the advanced development of its rPA anthrax vaccine candidate from NIH to BARDA.

For the second quarter June 30, 2010, PharmAthene's net loss was $6.4 million, or $0.22 per share, compared to $6.6 million, or $0.24 per share, for the second quarter of 2009. For the first six -- for the six months ended June 30, 2010, the Company's net loss attributable to common shareholders was $14.3 million, or $0.50 per share, compared to $12.6 million, or $0.47 per share, in the same period of 2009.

As of June 30, 2010, the Company had cash, cash equivalents, short term investments, restricted cash and US government accounts receivable and other receivables totaling $13.7 million as compared to $23.2 million at December 31, 2009. As I mentioned in the last quarterly call, we set an objective to become current on all customer invoicing, which I am pleased to report has been achieved. Although our billing is now current, some of these invoices are still undergoing review and approval by the US government prior to being paid. We expect to recognize payment on these invoices during the third quarter of 2010.

Finally, in July 2010 we completed the sale of approximately 2.8 million shares of our common stock and six-year warrants for approximately 1.3 million shares of our common stock, generating gross proceeds of $3.9 million. We believe that 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. We continue to make steady progress in each of our programs over the past several months and have achieved important development milestones. Notably, the award and reinstatement of substantial additional funding for our SparVax program, which demonstrates the continued commitment of our government partner towards the commercialization of improved next generation anthrax vaccines.

We also achieved an important technical milestone, completing the initial tech transfer of our manufacturing process from Merck Avecia to a US based manufacturer, Merck Diosynth. And we are on schedule to complete full scale GMP process development early next year. I am confident in the capability of our new leadership team to manage the challenges that lie ahead to ensure that we meet our objectives.

To quickly recap, the important valuation catalysts for PharmAthene include the potential to obtain a BAA funding for Valortim, potentially in excess of $100 million, to support advanced development of this important antitoxin therapeutic, additional funding for SparVax, which, if awarded, will supplement our existing funding stream, enable us to progress SparVax to a point of procurement readiness, additional funding from the Department of Defense for Protexia, and finally, resolution in our litigation with SIGA Technologies.

As many of you are aware, the Delaware court of chancery held a hearing on July 22nd on SIGA Technologies' motion for partial summary judgment in PharmAthene's breach of contract lawsuit against SIGA. Following the hearing, the court reserved its decision on the motion, but indicated that it wants to schedule the case for trial, with a trial date no later than January 2011. A trial date has now been set for January 3rd, 2011. We look forward to bringing this case to trial and will keep you updated on any developments.

For those interested, a transcript of the hearing will soon be publicly available. Previous court opinions regarding the case are also publicly available. In closing, our business philosophy is straightforward, to forge and sustain a strong partnership with our customer, the US government, to develop and commercialize new and improved medical countermeasures that enhance our nation's biosecurity and protect the wellbeing and safety of all Americans.

Quite simply, PharmAthene's success is our customers' success, and ultimately our nation's success. We thank you for your continued support in this mission. Operator, that concludes my formal remarks today. Could you please instruct the audience on the Q&A procedure?

(Operator Instructions)

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

Hey, congratulations, gents, on the contract award and the good news around that. I'll cut away from a different part, the part that you just mentioned. From people that were at the court hearing, there was a perception that basically there was a question as far as, well, what exactly would damages be and how would you basically assess them. And now we're looking at a situation where we're in a horizon of potential contracts being awarded. Can you give us some insight as to what that would mean?

Sure, Steve. And thank you for joining the call. And I'll make a couple of remarks and perhaps our General Counsel can also weigh in. In our view, ST246 is a very promising smallpox antiviral and has been shown to inhibit smallpox and other pox viruses across multiple animal species and has demonstrated safety in human clinical trials. We are optimistic about a procurement contract from BARDA and we believe it's imminent.

The thrust of our complaint against SIGA is that we are entitled to an exclusive license to that product. Following a hearing in July on SIGA's motion for partial summary judgment, as I just described, the court reserved its decision on that matter and set the case for trial, starting January 3, 2011.

Now, to answer your question, Steve, specifically, we have asked the court for alternative remedies of specific performance or monetary damages. Specific performance could entail the court ordering SIGA to enter into an exclusive license with us, or other potential remedies.

We have also engaged a damages expert who has calculated various potential damage amounts up to $1 billion. If BARDA, in fact, makes a procurement award to SIGA prior to trial, we believe that it would not be detrimental to our case. In fact, be very beneficial.

Okay. I'll jump back in the queue. But congratulations again on the quarter and obviously on the news that you've gotten an award. And we look forward to finding out what happens this quarter. Thank you, again, gentlemen.

Thank you, Steve.

Your next question comes from the line of Nathan Cali from Noble Financial. Please proceed.

Hi, guys. Good afternoon. Thanks for taking the questions. Just had a couple of questions. What is being done to prepare for the trial in January? And as far as your billed and unbilled receivables, have you guys seen any progress there? I know you discussed it a little bit. Could you just go into a little bit of detail there?

Nathan, thank you for joining us today on the call. I'm going to ask Jordan Karp, our general counsel, to comment on the first part of your question, and then Charlie can address the second part. I know Jordan's been very busy over the last several months, so he'll be able to best address your question.

Okay.

Hi. Well, just to recap, as you know, discovery in the case is done, meaning the parties ended the period where they'll be exchanging information. SIGA has filed its motion for partial summary judgment. We had the hearing. So, at this point, it's really preparing the case for trial.

So over the next -- the trial's in January, over the next couple of months (inaudible - background noise) getting our witnesses ready. We'll be organizing the documentation and documentary evidence we plan to submit. And we're going to be ready to go come January 3rd.

Nathan, this is Charlie Reinhart. To answer your question about receivables, so collections are going very well, frankly. In my earlier statement, I said that the balance sheet as of June 30th should be fully collected in the third quarter and we believe that'll be true. We've already collected about half of it --

Okay.

(inaudible - microphone inaccessible)

Okay, thanks.

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

Hey, good afternoon and thanks for taking the questions. A couple of things. One, you've got the award, and congratulations on that. But how far does the $78 million take SparVax development? Does it -- what specific trials and how far in the development process will that get you?

Matt, thanks a lot for joining us on the call today. Valerie, would you like to address that?

Sure. Hi, Matt. The existing funding will take us through some nonclinical development. It does not fund clinical trials for us at this point in time. And has an option for validation activities for our bulk drug substance on the manufacturing side.

Okay, very good. And on the Protexia side, as they're making the decision here, can you give us some color on some of the decision points and what the issues are that they're weighing in terms of as they determine whether or not to go ahead with additional Protexia funding?

Matt, as you -- as you may be aware, we've discussed publicly that we expect a decision about milestone B, is what the DOD calls it, which is the advanced development stage of Protexia. That decision to be reached by the end of the year. We are in active discussions with the DOD about various ways to move forward, which includes -- may include additional data that they would like to see. So I think we just sit tight and be able to describe more as some of those discussions unfold over the next couple of weeks.

Okay, very good. Good luck with that.

Thanks. What I can say, Matt, about Protexia is that the government is firmly committed to a bioscavenger. There is funding for the program. There's funding for a bioscavenger. There is a requirement for the product. As far as we know, Protexia is the only product that meets the requirement.

So we are very enthusiastic about the prospects for that product and moving forward. So we look forward to being able to provide you a clear understanding of how that program will move forward over the next couple of weeks.

Okay, very good.

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

Thank you. I was wondering if you could tell us a little bit more about the manufacturing facilities for SparVax and if there is a requirement for some additional investment over the next, say, 12 months to 18 months.

Yes. This is Tom Fuerst. And so, as we indicated earlier, our manufacturing facility is down in North Carolina in Research Triangle Park. It's with Diosynth. That is a part of the Merck manufacturing franchise. And it's a fully -- it's a fully outfitted manufacturing facility. There are no additional requirements that are necessary in order to build out the facility. It's fully functional. And so we are in very good shape with manufacturing for SparVax.

Excellent. And this, I think, is probably a question for Charlie. Could you please, if you would, repeat the cash figure that you provided?

In the script, what I said was there was $13.7 million in a combination of cash, investments and receivables.

Okay, excellent. And then also could you tell us what the cash usage was during the second quarter, just during the June three month quarter?

According to the Q, which we'll file shortly, it was about $6.6 million.

Excellent. Thank you.

Ladies and gentlemen, this does conclude the question and answer portion of the call. I will turn the call back over to Stacey for closing remarks.

Thank you, everyone, again, for joining us this afternoon. If there are any additional questions or if anyone would like supplemental information about the Company, please don't hesitate to contact me directly any time. Thank you very much again, and have a terrific evening.

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