Altimmune Inc (ALT) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 PharmAthene, Incorporated Earnings Conference Call. My name is Melanie and I will your coordinator today. At this time, all participants are in a listen-only mode. We will accept your questions at the end of this conference.

(Operator Instructions)

As a reminder, today's call is being recorded. I would now like to turn the call over to Stacey Jurchison, Director of Corporate Communications. Please proceed.

Thank you, Melanie. Good afternoon, ladies and gentlemen, and thank you for participating today. Joining me on the call this afternoon are Eric Richman, President and Chief Executive Officer; Charlie Reinhart, Senior Vice President and Chief Financial Officer; Dr. Thomas Fuerst, Executive Vice President and Chief Scientific Officer; and Jordan Karp, Senior Vice President and General Counsel.

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 March 28, 2011. Since then, PharmAthene may have made announcements relating to the topics discussed, so please reference the Company's most recent press releases and SEC filings. PharmAthene disclaims any intent or obligation to update these forward-looking statements. I will now turn the call over to Eric Richman, PharmAthene's President and CEO, to begin today's conference.

Thank you, Stacey, and good afternoon, everyone. We are pleased that you could join us today for PharmAthene's year-end 2010 operating and financial review. After my opening remarks, Dr. Thomas Fuerst will discuss recent progress in our biodefense medical countermeasure program, followed by our Chief Financial Officer, Charlie Reinhart, who will review PharmAthene's 2010 financial results. We will then briefly update you on the status of our litigation against SIGA Technologies before opening up the call to your questions.

During late 2010, we took important steps to strengthen PharmAthene's financial position and balance sheet. In the fourth quarter, we completed a public offering which raised net proceeds for the Company of approximately $15.9 million and converted virtually all of the then outstanding $21.8 million of convertible notes due July 2011. As a result, PharmAthene no longer has any debt outstanding, and we've raised additional capital to support our ongoing product development activities.

We've also strengthened our R&D and program management functions with the addition of several new leadership appointments. Namely, Ms. Susan Linna was appointed Vice President of Program Management; Dr. Kevin Connolly joined the organization as Senior Program Director for rPA-based anthrax vaccines; and Dr. Kimberly Taylor has joined the organization as Senior Program Director for Valortim.

We were delighted to welcome these experienced and accomplished individuals to the PharmAthene leadership team. Their breadth of expertise in biopharmaceutical and vaccine development puts us in a strong position to expand our capabilities in biodefense and infectious diseases, and help drive the future growth of this organization. Together, Dr. Fuerst, Ms. Linna, and each of our program directors continue to improve PharmAthene's operational efficiencies and responsiveness to our customers' needs.

We have continued to maintain a strong presence at biodefense industry and scientific forums, and recently presented new data from both rPA anthrax vaccine and anthrax anti-toxin programs at the American Society of Microbiology, Biodefense, and Emerging Infectious Disease Research meeting and the fifth annual PHEMCE Stakeholders Workshop at BARDA Industry Day. I'll now turn the discussion over to Dr. Thomas Fuerst, who will provide a more comprehensive update on our medical countermeasures program. Tom?

Thank you, Eric. Let me begin with our SparVax rPA anthrax vaccine program, a Phase II product. As you know, we are developing SparVax for general use prophylaxis and post-exposure prophylaxis for anthrax. Last year, we made significant technical progress in our rPA vaccine program.

Efforts in 2010 were primarily focused on completing the technology transfer from Merck-Avecia, based in the UK, to our US-based manufacturing partner, Merck-RTP. Technology transfer into Merck-RTP has been preliminarily completed at the 100-liter scale with three product demonstration lots.

While we are still assembling all of the analytical data, the available data strongly suggests that the demonstration lots meet the criteria for transfer, which is an important technical achievement for the program. We expect to have all of the analytical data in hand by the end of April.

Last year, our process scientist team made excellent progress in optimizing the fermentation process to increase rPA production yield. Our results demonstrate a six-fold increase in yield at the 100-liter scale for the bulk drug substance, another significant technical achievement. Also, the subtle improvements to the formulation process have enabled us to further enhance the stability of the vaccine.

We have presently demonstrated over three years of stability on our final drug product based on informal ICH compliance stability program using a variety of analytical methods and a well characterized, mouse-challenged potency assay.

Stability has historically been the Achilles heel of other recombinant anthrax vaccine programs, so we are especially excited by these ongoing results, which demonstrate an important breakthrough for PharmAthene's rPA vaccine program. Funding for our rPA program is provided under our cost reimbursement plus fixed-fee contract from BARDA, which currently extends until September of 2013.

In 2010, we submitted a White Paper under an open BAA request in additional funding to support our advanced development efforts for SparVax. BARDA informed us that while the agency remains committed to the development of a stable rPA anthrax vaccine, it has requested resubmission of our funding proposal following the completion of the rPA manufacturing technology transfer process, which we expect will be finalized next month and final report submission in the May timeframe.

We are making excellent progress in this regard, and anticipate resubmitting a White Paper for additional funding shortly thereafter. In the meantime, our rPA activities continue under our existing contract with BARDA. Now, moving on to Valortim. We were pleased to announce in December that the FDA lifted the partial clinical hold on the program, enabling us to move forward with plans for a Phase I IV dose-escalation clinical trial of Valortim.

As Eric mentioned, the trial was successfully initiated in late December and is currently in progress. The study is expected to enroll 28 participants who will receive escalating doses of one for every 10 mg/kg of Valortim or placebo over a 120-minute infusion period. This compares to 60 minutes in a prior Valortim-Cipro interaction study and 95 minutes in the first time in human study.

So far, everything is progressing well. We have completed dosing of 25 patients and no product-related adverse reactions have been observed. We anticipate the end-life portion of the trial will be completed in the third quarter of 2011 with final results available later in the year.

Funding for the Valortim program currently extends through September 2011, and we are presenting engaged in discussions with BARDA regarding future advanced development funding for this program. Finally, let me update you on recent developments in our nerve agent bioscavenger, our rBChE program. As we previously reported, last year the DOD was considering whether to fund continued advanced development of Protexia, our first-generation transgenic goat-derived rBChE product candidate.

Due to budget constraints and concerns regarding the duration of protection of Protexia, the DOD elected not to extend funding for Protexia beyond the year 2010. Instead, we are in late stage negotiations with the DOD to fund a second-generation mammalian cell culture approach to the production of rBChE, which we refer to as our Advanced Expression System, or AES. If successful, the AES platform could have significant advantages over the transgenic goat-based approach originally developed to product Protexia.

Specifically, these advantages could include -- one, an established manufacturing platform consistent with those used for other biotechnology products and with the US government's recent advanced manufacturing system initiative; two, a final product with a pharmacokinetic profile that more closely resembles naturally occurring butytylcholinesterase from human blood plasma; three, higher production yields than a transgenic goat-based approach; four, substantially lower costs of production to yield significant savings to our DOD and civilian customers; five, a more traditional regulatory path to FDA licensure; and finally, greater ability to scale our production if demand increases.

We anticipate entering into a $5.7 million contract with the DOD eminently to support work on the AES. I'll now turn the call over to Charlie to briefly summarize our 2010 financial results before we wrap up.

Thank you, Tom. For the years ended December 31, 2010 and 2009, PharmAthene recognized revenue of $21 million and $27.5 million, respectively. Revenues for both periods consisted primarily of contract funding from the US government for the development of our Protexia, Valortim, and SparVax biodefense programs.

The year-over-year decline in revenue in 2010 is primarily attributable to decreased Protexia revenues resulting from completion of major development activities for this program in the third quarter of 2009 and reduced activity in the Company's Valortim program related to the partial clinical hold which, as Tom mentioned, was lifted in December 2010. This reduction was partially offset by increased revenues under the Company's SparVax program.

Research and development expenses for the years ended December 31, 2010 and 2009 were $20.9 million and $30.2 million, respectively. For the year ended December 31, 2010, research and development expenses decreased $9.3 million from the prior year period.

The year-over-year decrease in R&D expenses resulted from a net impact of a decreased activity in the Company's Valortim and Protexia programs in 2010, completion of our activities in the Company's plague vaccine program, and a one-time termination fee paid to Avecia incurred in the second quarter of 2009. These reductions were partially offset by increased activity under our SparVax vaccine program and by therapeutic discovery tax grants received in the fourth quarter of 2010 of approximately $0.9 million.

General and administrative expenses were $18 million and $22.4 million for the years ended December 31, 2010 and 2009, respectively. General and administrative expenses decreased approximately $4.4 million for the year ended December 31, 2010 as compared to the prior year as a result of significant cost savings measures implemented by the Company which yielded reductions in a number of G&A expenses.

These initiatives included reassignment of certain employees previously engaged in G&A activity into roles that were included in R&D. Finally, these reductions were partially offset by the recording of bad debt expense during 2010 of approximately $2.9 million.

PharmAthene incurred interest expense of approximately $5.9 million and $2.8 million for the years ended December 31, 2010 and 2009, respectively. The increase in interest expense for 2010 is primarily due to the redemption of our July 2009 convertible debt, including the accelerated amortization of debt discount and deferred charges of approximately $1.2 million and payment of an interest inducement of approximately $1.1 million.

In addition, we recorded a change in the fair value of our derivative instruments. For the period ended December 31, 2010, we recorded a loss of approximately $5.5 million, compared to an approximate $1.0 million gain for the year ended December 31, 2009, which resulted from an increase in outstanding warrants related to our April 2010 and July 2010 financing transactions and an increase in our stock price to $4.23 per share at December 31, 2010.

For the year ended December 31, 2010, PharmAthene's net loss was $34.8 million, or $1.08 per share, compared to $32.3 million, or $1.17 per share, for 2009. As of December 31, 2010, the Company had cash, cash equivalents, restricted cash, short-term investments, and US government accounts and other receivables, including unbilled receivables, totaling approximately $21.6 million, compared to $24.5 million at December 31, 2009. As Eric mentioned, in November 2010 we completed a public offering of approximately 4.9 million shares of our common stock, which generated net proceeds for the Company of approximately $15.9 million.

Also during the fourth quarter, substantially all of the Company's 10% senior convertible noteholders converted their notes into an aggregate of approximately 8.6 million shares of our common stock. At December 31, 2010, none of the 10% convertible notes remained outstanding. A substantial number of insiders participated in the note conversion, including some of our original venture investors, a board member, and our CEO.

We believe that based on our current operating cash requirements and expected capital expenditures, and assuming expected receipts from our government contracts, grants, and other sources of funding are realized, we will not require additional funding to continue our current level of operations through at least the end of 2011. I'll now turn it back over to Eric.

Thank you, Charlie. Before we wrap up, I'd like to provide a brief update on litigation with SIGA Technologies, and then we'll open up the call to your questions. In December of 2006, we brought suit in Delaware against SIGA Technologies, primarily alleging breach of contract because of SIGA's failure to negotiate an exclusive license agreement with us to SIGA's antiviral smallpox drug candidate, ST-246.

We are seeking alternatively specific performance pursuant to which SIGA would be required to enter into the exclusive license agreement with us for monetary damages, which our damages expert in the case testified could be as high as approximately $1 billion. Trial on all counts in PharmAthene's complaint against SIGA commenced in the Delaware Court of Chancery on January 3 and was completed on January 21.

PharmAthene's post-trial brief was submitted to the court on March 4 and SIGA is due to submit its post-trial brief on April 7. We will then have an opportunity to submit a reply brief, which is due on April 22. Finally, the parties will appear in court to present their closing arguments on April 29. I am very pleased with how our legal team presented our case, and look forward to the court reaching its decision, which we anticipate will occur sometime in mid-2011.

If we are successful in our litigation, a substantial portion of the value of any procurement contract award to SIGA for ST-246 could flow to PharmAthene. At trial, we introduced evidence that we are ready and willing and able to perform under the license agreement term sheet at issue in the case and look forward to the judge making his ruling.

To recap, upcoming milestones for PharmAthene include -- a potential contract from the Department of Defense to support ongoing research related to an advanced expression system for our rBChE bioscavenger program; completion of the 100-liter tech transfer process for SparVax with final bioanalytical data, an important technical milestone for future funding for the program; resolution in our litigation with SIGA Technologies; completion of the Phase I dose escalation study for Valortim; and potential advanced development funding for the rPA and Valortim programs.

We look forward to keeping you updated as we achieve these goals. Thank you for your interest in PharmAthene and your ongoing support. Operator, that concludes my formal remarks today, and can you please instruct the audience on the Q&A procedure?

Yes, sir.

(Operator Instructions)

And our first question comes from the line of Joe Pantginis with ROTH Capital Partners. Go ahead.

Hi, guys. Thanks for taking the question, and good afternoon. A couple of quick questions on SparVax. First, thanks, Tom, for the update on all the analytical things you guys have been doing for the tech transfer.

Can you fast-forward a little bit and maybe discuss a little of the capacity that you'll have once you have the 100-liter scale in place and the timing that might go along with this capacity to deliver doses for the Strategic National Stockpile as well as for any potential ex-US interest on the drug?

Yes, Joe, I'd be happy to. And by the way, our commercial scales have 1,500 liters, and so we'll be at that level this summer. But we have a very robust manufacturing process in which we can produce about 12 million vaccine equivalent doses within about two weeks. Therefore, we should be able to quite readily fulfill the entire 75 million minimum dose requirement from HHS within a year or less.

Okay.

So, we have a very stable product and it's a very robust manufacturing process.

Super. And maybe just a quick follow-up on that. After you submit the second White Paper after you complete the tech transfer, based on the guidance you received from BARDA, what kind of potential timelines would you then be looking at for another potential funding announcement?

Yes. And so, as mentioned, our current funding from BARDA extends through September of 2013. And so the additional bolus of money, if you will, to support the advanced development work that would take us through fulfilling the requirements for our EUA, we're working with BARDA on that right now, and so we would anticipate the additional money within the next 12 months or so. A lot of it depends on the continuing resolution and the budget cycles -- that sort of thing.

Sure. Thanks a lot, guys.

Thank you, Joe. Thanks for joining us. I think I'll just add to that comment that Tom made. Joe, I think it's important to note that we have been in constant communication with BARDA, and this program, a second-generation anthrax vaccine, is a priority program for BARDA.

And we have had discussions where BARDA has discussed with us that they do not want any gap in funding, so that our program remains on track and the activities keep moving along until the product is development. So we're confident that we'll be able to work with BARDA to ensure that there is no gap in funding for this program.

Great. Thanks again.

Our next question comes from the line of Matt Duffy with BDR Research. Go ahead.

Good afternoon, and thanks for taking my question. I have a couple of things. I wonder if we could go a little further on the BAA request? How far do you think that will take you in development in terms of both timing and milestones?

Hey, Matt, thank you for joining us. It's Eric. Which BAA? Are you talking about the BAA for SparVax?

I meant for SparVax, yes.

Right. And so this is -- Matt, this is Tom -- similar to Joe's response. And so with regard to advanced development funding, that would take us to completion of the Phase II clinical studies as well as to consistency lot manufacture, if you will, to satisfy the requirements for potential use under an EUA. So that's typically an additional three to five years of funding.

Okay, great. And then, as you're just looking at some of the financials, do you have a number for cash burn that you're thinking about for 2011? And what's your fully diluted share count at this point?

I think I'll let Charlie respond to that.

Hi, Matt. This is Charlie Reinhart. So when we look forward to 2011, we're expecting a cash burn of under $1 million a month -- somewhere between $0.5 million and $1 million. And the share count is 56 -- I think it's 56.8 fully diluted.

Okay, great. Thanks very much.

Thanks, Matt.

Our next question comes from the line of Nathan Cali with Noble Financial. Go ahead.

Hey, guys. Good afternoon. Thanks for taking the questions. Just a quick question on the summary judgment brief that the judge will make an opinion on in April. What are the expectations there? Is he going to make any comments publicly? Will there be any information out on that? And what do you guys kind of expect from that?

Nathan, thank you for joining us today. I'm going to ask our corporate counsel, Jordan Karp, to respond to your question.

Hi, Nathan. Well, we filed our post-trial brief earlier in March. And all of the briefing, as we mentioned, will be completed by mid-April or so, and then the judge has asked for closing arguments at the end of the April. And as you know, this is a bench trial, so the judge will ultimately decide the case; there's no jury here.

I think the timing is somewhat unclear; the judge is not required to rule in a set time. But last year when we did have a hearing on the motion for a summary judgment, he did mention that he would like to decide this case by the late July/early August timeframe because that's when he loses his law clerk every year. Every year he gets new clerks. And given the complexity of this case, he'd prefer to rule without having to educate a new law clerk.

So we're hopeful that he'll stick to that timeframe and we'll have a final ruling kind of mid-year.

Okay. Thank you.

Ladies and gentlemen, that does conclude today's Q&A session. I'd like to turn the call back over to Stacey Jurchison for closing remarks. Please proceed.

Ladies and gentlemen, thank you again for joining us this afternoon. If there are any additional questions or if you would like additional information about PharmAthene, please do not hesitate to contact me directly at any time. Thank you very much, and have a great evening.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation. You may disconnect. Have a wonderful day.