Altimmune Inc (ALT) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2012 PharmAthene, Incorporated, earnings conference call. My name is Ben 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 this conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would no like to turn the call over to Ms. Stacey Jurchison. Please proceed, ma'am.

Thank you Ben, and good afternoon, everyone. Joining me on the call today are Eric Richman, President and Chief Executive Officer, Dr. Arthur Elliott, Acting Chief Scientific Officer, and Linda Chang, Senior Vice President and Chief Financial Officer.

Before we begin, I'd like to point out that during today's call we will be making projections and other forward-looking statements, which are based on our current beliefs and expectations. Please be aware that these statements are subject to certain risks and uncertainties. We advise you to consult PharmAthene's filing with the SEC for additional information.

I will now turn the call over to Eric to begin.

Thank you, Stacey. And good afternoon, everyone. Thank you for joining us today for our year-end 2012 business review.

Linda will take you through our financial results for 2012 in just a moment. But first, I'd like to provide a brief recap of events during the past year and early 2013.

We made important progress towards achieving our business and financial objectives. This included advancing our core biodefense program, taking steps to strengthen our financial position, and completing the appeals process in our litigation with SIGA Technologies.

We also made important progress addressing the chemical hold on our SparVax program. In August, we received notification from the FDA that was placing our proposed Phase 2 study of SparVax on clinical hold pending the provision of additional data and information to the Agency.

As Dr. Elliott will report, we have worked diligently to assemble a comprehensive response that we believe will fully address the FDA's questions.

In 2012, the Delaware Court of Chancery issued its final order and judgment confirming PharmAthene's significant economic interest in Arestvyr, SIGA's smallpox antiviral therapeutic.

We were awarded 50% of the net profits over a period of 10 years from worldwide net sales, as defined in the Chancery Court's final judgment of Arestvyr and related products. This is after SIGA receives the first $40 million in net profits.

Based on the trial court's decision, we believe the potential economic value of this award to PharmAthene over the 10-year period of enforcement is significant.

Yesterday, SIGA announced it had completed its first delivery of approximately 190 treatment courses to strategic national stockpile and expects to complete full delivery under the contract within approximately 24 months.

SIGA has appealed aspects of the Chancery Court's decision to the Delaware Supreme Court. And we have cross-appealed certain aspects of the decision where we did not prevail. Oral arguments were presented by SEGA and PharmAthene in Delaware Supreme Court on January 10.

We are pleased to be nearing the end of the appeals process. We remain confident in the merits of our case and confident in the decision of the Chancery Court, and look forward to the final decision of the Delaware Supreme Court.

Based on the timing in the past in Delaware Supreme Court decisions, we expect a ruling from the high court by the end of the second quarter, if not sooner.

Earlier this month, important biodefense legislation reauthorizing the Pandemic and All Hazards Preparedness Act, or PAHPA, was passed by unanimous vote in the Senate. And subsequently by significant majority in the House. We have anticipated that the legislation should be signed into law by the President this month.

The PAHPA legislation is the cornerstone of the government's long term biodefense strategy. And its reauthorization signals strong, ongoing bipartisan support for the nation's countermeasure initiative.

Passage of this legislation is important because it designates funding levels for the bioshield special reserve fund and [BARTA]. And includes provisions requiring more frequent and meaningful interactions between the FDA and medical countermeasure developers.

I would now like to turn the call over to Dr. Art Elliott, our Acting Chief Scientific Officer, to review progress in our biodefense programs in 2012.

Thank you, Eric. And good afternoon. As Eric mentioned, our number one priority over the past few months has been to address the FDA clinical hold on SparVax. In its notification to the Company, the FDA requested that we provide additional stability time points for both the engineering and the GMP lots of US-manufactured final drug product, as well as additional information about our stability-indicating assays.

As you may recall, in 2011, we completed the technology transfer of our manufacturing process from the U.K. to a US-based contract manufacturing facility. At this point, we have obtained stability data of up to 12 months for the engineering lot of the final drug product, and nine months for the GMP lot of the final drug product.

Based on the data we have generated, we believe that SparVax is both potent and stable.

We have made very good progress developing a complete response to the FDA. The process has been an integrative one involving interaction and productive dialogue between PharmAthene and both the FDA and our customer, BARTA.

I believe this has ultimately led to a better understanding of FDA's request for information. Consequently, we have now assembled what we believe to be all the necessary information and requested data, and plan to submit our complete response to the FDA within the next few weeks.

We have also been moving ahead with other efforts and milestone activities under our current SparVax contract, including bulk drugs, substance, process characterization, and the execution of non-clinical studies.

We recently completed a non-clinical animal study of SparVax, which demonstrated potency and a dose-dependent immune response. As of December 31, 2012, there are approximately $28 million in available funding remaining under this contract, excluding potential options.

Moving on, progress in our recombinant bioscavenger program in 2012 was very encouraging. Late last year, in recognition of the technical program achievements, the Department of Defense exercised its option under our current contract to accelerate funding for this program.

Based on preliminary data generated to date, we believe that our next generation human cell culture approach should have significant advantages, including a more streamline and cost-effective development and production process.

We are continuing to work collaboratively with the DOD to execute on this contract and position the recombinant platform for future funding to initiate Phase 1 clinical development.

Over the next several months, we expect to complete pharmacokinetics and animal efficacy testing that will inform future funding decisions by the DOD. I will now turn it over to Linda to continue.

Thank you, Art. Hopefully, by now, you have seen our 2012 year-end financial results press release, which we issued after market at 4.00 p.m. today. If you have not, you may access this information on our website.

In 2012, we set an aggressive goal of reducing our annual cash burn to $6 million or less to further optimize the capital-efficient nature of our biodefense business model.

Well, we're pleased to report that we have met and exceeded this target. And we executed a $7.5 million [terminal], and we've opened a line of credit with GE Capital to further strengthen our financial position.

We ended the year with $19.2 million in cash, including restricted cash, cash equivalents and US government receivables, compared to $18.8 million in 2011.

We substantially reduced cash use in operations in 2012, coming in at $2.3 million for the year, compared to $7.8 million and $14.9 million net operating cash usage in 2011 and 2010, respectively.

Turning now to revenue. In 2012, we recognized $25.2 million in revenue, compared to $24.3 million, which largely reflects activities under our SparVax and our bioscavenger programs.

Research and Development expenses in 2012 were $19.5 million, compared to $21.2 million for the same period 2011. The $1.7 million decrease was largely due to a reduction in our internal research and development activities and decreased costs for our Valortim program.

General and Administrative expenses decreased approximately 19% to $11.6 million for the year, compared to $14.3 million in 2011.

Finally, our net loss for the year was $4.9 million, or $0.10 per share, compared to a net loss of $3.8 million, or $0.08 per share in 2011.

The increase in our net loss in 2012 was primarily attributable to a reduction in other income of $6.4 million associated with a change in the fair value of our derivative instrument, offset by a $4.5 million decrease in our annual operating expenses.

Looking ahead, we have increased the operational efficiency of our organization to the point where we can expect to continue to operate close to 2012 levels in 2013 and beyond. Based on our cash and available funding under our current contracts, we may solidly finance through at least early 2014.

With that, I will turn the call back over to Eric to wrap up.

Thank you, Linda. As you have heard on this call, 2013 is supposed to be a very exciting and eventful year for the Company. We look forward to submitting our complete response to the FDA with data to support potency and stability in advancing the SparVax program.

Next generation rPA vaccines, such as SparVax, are an important element of the [fem-c] strategy, potentially providing cost effective solutions to what is currently available.

We also anticipate a decision from the Delaware Supreme Court imminently, and look forward to bringing closure to this litigation.

As you've heard, SIGA has begun delivering Arestvyr to the government, which represents a significant milestone for the program and an important development for PharmAthene, if the higher court upholds the current judgment.

We look forward to updating you on our progress in 2013. And appreciate your continued interest and support of our company.

Operator, that concludes our prepared remarks for today. And, if you would, could you please open the line for questions?

Thank you very much. (Operator instructions). The first question comes from the line of Nathan Cali from Noble Financial. Nathan, please go ahead.

Sure. Thanks. Hey, guys, thanks for taking the questions this afternoon.

Sure, Nathan. Good afternoon.

The rBChE bioscavenger product with the [persi 6] technology, is that Crucell -- old Crucell technology that was acquired by Pfizer?

Yes. That's exactly right.

Okay. Was it the FDA that asked you and BARTA] to move forward with that technology? Or could you just give us a little bit of an overview?

Sure. Nathan, you may recall our initial approach in that area was with a transgenically produced butyrylchoninesterase. And that was a program that was funded by the Department of Defense. And we had originally expected that we would deliver approximately 90,000 courses of therapy to the Department of Defense.

After we completed a Phase 1 clinical study for that product and demonstrated that the BChE was effective in binding organophosphates, the DOD came back to us and asked us for a plan to produce a much larger amount of product that they would be interested in acquiring.

The specific number was classified. That number wasn't given to us. But it was far beyond the production capabilities of the transgenic system.

So we looked for another expression system, one which was more familiar to the DOD and have produced proteins in large scale before. So we worked with Crucell at the time. Their spinout called [Prucivia], and developed the technology to produce the BChE in the [presti] XL line.

And to date we have been very successful in producing two forms of the butyrylchoninesterase under the DOD contract. And, as you can imagine, this is an area of very high interest to the Department of Defense and other governments around the world.

Do you guys know what kind of price per dose you would be at for that?

We have not disclosed even the range of where that would be. But I can tell you that it would be similar to pricing for other recombinant proteins that you would expect to see in the commercial markets.

Okay. And expectations on -- I know you're submitting to the clinical hold for SparVax. Any expectations when that may get lifted?

Well, I can tell you where we are in that process. As Dr. Elliott mentioned, it's in the interim process with the FDA. We are much more comfortable with exactly what it is the FDA is looking for.

Some of the data that they were looking for was actually time-dependent. So, it was stability time points which we had generated. There is no additional data at this point to generate. We have generated all the data necessary. And we will be submitting that package -- a very comprehensive package -- to the FDA demonstrating potency and stability in the next couple of weeks.

We are just at the point right now where we're, basically, QCing the documents. And that will be out the door in a matter of weeks.

Once submitted and determined that it is a complete response -- and that's really what has driven the delay in submitting that to the FDA -- is we wanted to ensure that we minimized the back-and-forth between PharmAthene and the FDA.

Once that is submitted, there's a 30-day time period that is triggered. So, we'd expect to hear back from the FDA within a 30-day period.

Okay. Will we know when you guys file that, or just within the next couple of weeks?

I don't expect that we'll make an announcement that it has been filed.

Okay. And then just one other question outside of that. For SIGA and the litigation there, they mentioned on their recent quarterly update that they were going to recognize revenue on a deferred basis. Now, it was my understanding that 50% of the profits will go to you guys if things stand the way they are. And that the judge would monitor the profit split if he needed to.

So, with consideration of them stockpiling the first 500,000 courses to get paid their first revenue stream, even though they're deferring the revenue, still that profit is still available to PharmAthene accordingly? Is that your understanding? Or is there any guidance on that?

Well, our understanding at this point is basically what we have and what we know. And what we know at this point is that an initial 190,000 courses of therapy have been delivered to the Strategic National Stockpile.

The trigger for invoicing BARTA is delivery of 500,000 courses of therapy. So, our expectation, based on SIGA's guidance, is that it will be achieved in the next couple of months.

At that point, the way that the order -- judge's order from the Chancery Court -- reads is that there is a period of 60 days after the end of each calendar quarter which details the amount of net sales, COGs, R&D, SG&A expenses, and other information.

So, at this point, we don't have sufficient information to really adequately guide you on when the revenue, when the profit split will be paid to PharmAthene. We have to make sure that the product is delivered and that the lower court's ruling is upheld by the Supreme Court.

Okay. Thanks a lot for taking the questions.

Thank you, Nathan.

Thank you. Your next question comes from the line Ram Selvaraju from Aegis Capital. Please proceed.

Thanks so much for taking my questions. Eric, can you hear me?

Yes, I can, Ram. Thanks for joining us this afternoon.

A couple of quick questions.

First of all, with respect to the current litigation situation with SIGA, can you refresh our memory as to what specific aspects of the original Delaware Chancery Court ruling PharmAthene appealed against?

Yes. Jordan, are you able to address that? Ram, I think it's more appropriate for Jordan, our General Counsel, to address that question. And he'll be joining us in just a moment. I think he's just trying to get off mute.

Okay. In the meantime, perhaps you could give us an idea ...

Can you hear me on line?

Oh, yes. Go ahead, Jordan.

(Inaudible). But what we appealed is the judge ruled that we had not shown that the terms of the term sheet in and of themselves were a binding agreement. And that they should be enforceable and were petitioned. And that's essentially the main (inaudible) in our appeal.

Okay. Thank you for clarifying that. The second question, which also pertains to the smallpox antiviral, specifically with respect to twice per course.

Can you give us an idea of whether or not we should expect there to be any potential risk in the future of the government modifying the price per course under the existing stockpiling contract? Or how set in stone that is?

Well, while I don't have all of the information related to the contract that was signed between BARTA and SIGA -- and much of it was redacted -- what we do know is that there's a certain price per course of therapy for delivery pre-FDA licensure. And SIGA will receive that.

And then there's a certain amount that is then paid to SIGA with FDA licensure. And there's a certain amount for extending the shelf life.

Historically, what we have seen in other contracts with other products, under this specific contract, once you enter into a price with the government, that price is the price. And there's no alteration.

However, subsequent contracts -- so, future contracts for that same product the price can vary. And that's typically based on volume. Or, perhaps, it's a competitive process where there's another source of product.

Okay. Thank you for that clarification. The last question I had was, perhaps Dr. Elliott can answer this. I wanted to get an update from you regarding the next generation anthrax vaccine after SparVax, where that stands currently? And what we should expect as potential catalysts for that program and the timing of those catalysts that are likely to accrue over the course of the remainder of this year?

We have not disclosed any of that information. And we are working with several partners. So, at this time, I would not feel comfortable with sharing any of that.

Okay. Thank you very much.

Thank you.

Thank you. Your next question comes from the line David Nierengarten from Wedbush. Please proceed.

Thanks for taking the question. I guess I had another question on -- assuming your side, or PharmAthene prevails in the appeal, what -- I guess a little confused on what would happen or what remedies you have, or how the stream of profits might accrue to PharmAthene as, according to the judgment, it's according to GAAP accounting. And it's our understanding, I think as alluded to earlier, that there will likely be significant receivables on a component SIGA has been launching, et cetera.

And I guess the question is what you think the timing would be for your access or the beginning of that cash flow? Thanks?

Well, first of all, David, thank you for joining us this afternoon. I said previously, in response to a question, that at this point we don't have a lot of information about the timing of delivery and the invoicing to the government by SIGA. All we have is the judge's order which says that on a quarterly basis, 60 days after the end of a quarter, we will receive information from SIGA.

And that will help us inform the timing of the revenue stream to PharmAthene. So, Linda, is there anything further that you'd like to add to that?

No. But, David, as you know, it obviously would not be appropriate for us to comment on SIGA's accounting practice, et cetera, other than the fact that, as you know, they are a public company so they have certain rules and standards that they have to abide by.

And other than -- also, as you know, we're currently awaiting a decision on the appeal from the Delaware Supreme Court. So, at this point we do not have all the information. But rest assured that we intend to be very diligent in protecting our interests once the final decision is known.

And I guess just a quick follow-up. I guess the question goes back to, perhaps, something --

I'm sorry to interrupt you, David. Unfortunately, that is all the time we have for questions. I would now like to turn back to the speaker for closing remarks.

Well, thank you all for joining the call today. And, as you've heard, 2013 is going to be a very exciting year. One of the big milestones we've been waiting for for many years is delivery of Arestvyr to the National Stockpile. So we're very excited about that.

And we're looking forward to the final resolution of the litigation from the Supreme Court. We're also looking forward to resuming the clinical program for the SparVax next generation anthrax vaccine.

I'd like to thank you all for your participation on the call today. And look forward to keeping you updated on our progress. Thank you.

Thank you for joining us for today's' conference. Ladies and gentlemen, this concludes the presentation. You may now disconnect. Good day.