Armata Pharmaceuticals, Inc. (ARMP) 2002 Q1 法說會逐字稿

All lines during the teleconference will be in a listen-only mode. If you would like to ask a question during this presentation, please press the number one key on your touchtone phone. Please keep in mind that pressing the number one key a second time will withdraw your question. At this time I would like to introduce our first presenter, Stewart Parker.

Good morning. On behalf of my colleagues at Targeted Genetics, I would like to welcome all of you to our 2002 first quarter earnings conference call. Today, Todd Simpson, our Chief Financial Officer, will review our financial results from the first quarter of 2002. Subsequently, I will provide an update on the company and our various programs, along with some quarter highlights, and events and milestones to watch for in the next nine months. I would like to remind you, though, that during the course of this call we may make projections and other forward looking statements regarding future events, or future financial performance of the company. We wish to caution you that such statements are just predictions, and actual events and results may differ materially from the statements we make. So, please, see our documents that we file from time to time with the SEC for information about risks that may affect the company, including our most recently filed annual report on form 10-K.

Now with that, I would like to turn over to Todd, who will review our financial results from the first quarter.

Thank you Stewart, and thanks to all our participants for joining us today. Earlier this morning, we announced our financial results for the first quarter of 2002, which included a net loss of $6.4 million, compared to $6.2 million for the first quarter of last year. Net loss per common share was 15 cents for the first quarter in both 2001 and 2002.

Revenues increased to $5.4 million for the first quarter of 2002, which is up from $3.8 million for the same period last year. This increase reflects higher revenues earned under our hemophilia collaboration with Wyeth Genetics Institute and under our HIV collaboration with the International AIDS Vaccine Initiative. These increases, though, were partially offset by lower revenues earned under our cystic fibrosis collaboration with Celltech. This program continued in its Phase II clinical studies but involved less R&D activities as it made its transition Our revenues reflect both cash funding, which offset direct program expenses, as well as amortization of upfront cash fees previously received. Our revenues for the first quarter of 2002 which were $5.4 million, were similar to the revenues earned in the fourth quarter of 2001, which were $5.2 million.

Moving on to expenses, our total expenses increased to $11.6 million for the first quarter of 2002, compared to $10.8 million for the first quarter in 2001. R&D expense was $9 million for the first quarter, compared to $6.4 million for the same period last year. The increase is the result of the increased activities that I described in our hemophilia and HIV programs, partially offset by lower expenses incurred in our CF program.

G&A expenses decreased to $1.7 million for the first quarter of this year, down from $2 million a year ago. This is primarily the result of non-recurring expenses in 2001, related to our acquisition of Genovo in the previous year.

Lastly, I would like to point out that under recently issued accounting principles we and other companies like us have adopted, effective 1 January of this year goodwill is no longer amortized. This resulted in a decrease in amortization expense from $1.5 million for the first quarter of last year, to about $126,000 for the first quarter of this year. Focusing on the cash front, we entered the second quarter with access to approximately $52 million of cash on hand and funding expected from our partners. Our cash balance is $17 million, but it is really only a part of the picture. We also have a number of strategic partnerships that provide capital to fund both specific programs with these partners, as well as providing capital for non-program-specific uses.

One of these relationships is with Genzyme, which is a relationship that we inherited with through our acquisition of Genovo in 2002. Genzyme recently indicated that it would not be exercising its final option to purchase $4 million of our stock. This was to occur under an option to purchase our stock at approximately $12.85 per share.

Since we have been using a portion of this funding for the development activities of our Lysosomal Storage Disorders Program, we do not plan to continue to work through the remaining term of the development agreement, which is scheduled to end in August. While we are disappointed that Genzyme has elected not to exercise its option, with the stock at $10.00 below the exercise price of the option we can certainly understand their decision We continue to manage our other financial resources, which are quite significant and provide us with a lot of flexibility in managing our cash balance. These include $16 million in expected funding to support ongoing research and development activities over the next twelve to eighteen months; a $10 million equity put with our partner, Biogen, allowing us to issue stock to them at our discretion at a time we choose; and a convertible loan commitment with Elan. Under this commitment, we have borrowed $2 million so far, and plan to access another $8-9 million this year. When combined with the $17 million in cash on hand, this provides us with access to the $52 million that I referred to, and this allows us to really drive our programs forward while we continue to pursue our other funding options.

So that will wrap up the financial overview, so I would like to turn the call now back over to Stewart, who will update you on the progress that we are making in several of our programs, and describe some of the things that we plan to be able to share with you later in the year. Stewart.

Okay. Thanks Todd. Let me begin by saying that I have never been more excited about the prospect for our programs and joint development efforts than I am currently. If you followed us we have consistently commented in the past that the development of gene therapy, like that of monoclonal antibodies, or any other new technology, represents a path that it is not always linear, and certainly not always predictable. The key, we believe, to showing the utility of any new technology is to show clinical proof of concept. We believe that clinical data presented in 2002 by ourselves and by our other gene therapy colleagues will really go far to producing that proof of concept. In April, for example, data were published describing complete immune system repopulation in four severe combined immuno-deficiency, or 'boy in a bubble' syndrome sufferers. This was after a single gene therapy administration. So, we were really pleased to see those data against supporting evidence of gene therapy's potential. In our last quarterly earnings call, we described 2002 as a year with many opportunities to report progress in both our clinical and our preclinical programs. We are very pleased that as we begin the year, both of these programs are indeed showing progress, and planned data presentations will occur throughout the year. Thus far, we have also expanded our intellectual property portfolio, continued enrolling patients in clinical trials, and we are trying to expand research opportunities through collaboration.

Before our programs, I want to provide some more information on the status of our relationship with Genzyme. Todd mentioned that Genzyme has chosen not to exercise its option to buy up to $4 million of Targeted Genetics stock, and as a result of this we will not be continuing with our Lysosomal Storage Disorders Program.

We have been using the funding received through a series of equity purchases to support development activities under the collaboration. The structure of this relationship was in place at the time we acquired Genovo in 2000. The terms of this agreement are significantly, and I emphasize 'significantly', different from the terms we had established in our other product development collaborations such as those on Cystic Fibrosis, Hemophilia, and AIDS vaccine programs; and our multi program collaboration with Biogen.

The type of deal structure that made sense to Genovo as a private company in 1999 is not necessarily the type of deal structure that we have pursued as a public company. While we and Genzyme discussed several ways in which we might continue this program, we were unable to identify a new structure that works strategically for both companies. And, as a result of that, we are not continuing with the collaboration.

I think that it is very important to mention that this was really a business decision on both sides, as the science has been moving along very nicely. In the future, Targeted Genetics may receive royalty payments if Genzyme commercializes a product utilizing technology that was provided by Genovo. That does not include any of Targeted Genetics' non-Genovo related technology, which would require a separate license from Genzyme.

One of the things that we are continually trying to do is to match our resources - both internal and external - with the size and scope of each of our partnered and non-partnered programs. And we try to strike the right balance advancing our partnered and non-partnered programs - continuing to invest in our core technologies and manufacturing capabilities, and creating a cushion for the future, thereby maintaining enough flexibility to respond to new opportunities as they come forward. While we were certainly disappointed that Genzyme did not exercise its option, we did not believe that any of the structures available to fund this partnered program were in our shareholders' best interest. In addition, a portion of these proceeds would have been used to fund other programs, and therefore we are reviewing our budget and plans, and we will make an adjustment to maintain the company's cash horizon, which we have indicated before would last to 2004. We are doing this now, and the Genzyme decision becomes obviously one of a handful of factors that go into that analysis. There are a number of other factors, including potential activity and current activity in the area of corporate collaborations, potential financing activities, and obviously scaling some of our programs or re-prioritizing them to reflect our financial reserves. As always, we remain committed to managing our financial resources to support our long-term objectives.

Let me turn to our clinical programs, starting with our cystic fibrosis program. We continue to enroll patients in our phase II cystic fibrosis clinical trials, and we still plan to present the results of this phase II clinical study this year at the North American Cystic Fibrosis Foundation conference in the beginning of October. We are very pleased that over the course of this study an independent data and safety monitoring committee twice, now, recommended lowering the age of enrolment; first from 18 to 15, and then from 15 to 12. This, you may not know, is the first ever repeat dosing study of an AAV-based product, and we are very pleased to see that the good safety profile that we have seen in our earlier studies to date is indeed being maintained in this study.

The results of this study will bring us one step closer to understanding the potential benefit of gene therapy in the treatment of cystic fibrosis. Today, there are currently no approved treatments to correct the underlying cause of cystic fibrosis, and there is a tremendous need for therapy that does not just treat symptoms of the disease, but fights it in its earlier stages. We continue to believe that our product candidate, tgAAV-CF, may have the most significant impact on the long-term outcome of cystic fibrosis patients if treatment is initiated prior to the development of lung damage. In younger patient populations, we hope to halt, or significantly slow the development of lung damage, which is the major cause of death for these patients.

Our next step for our cystic fibrosis program will be based, obviously, on the results of this phase II study. We will consider initiating one or more large efficacy trials if warranted by the phase II data, or we may want to perform additional phase II studies that may allow us to look at different dosing strategies, or ultimate delivery devices. We will work with our collaborator, Celltech, to make all the decisions regarding the next step once we have had a chance to analyze the phase II results.

I'd like to next discuss our other clinical programs, which are focused on cancer. As you may know, we are evaluating two cancer indications with our product candidate tgDCC-E1A: currently, head and neck cancer, and ovarian cancer. In both indications we are evaluating tgDCC-E1A as a component of combination therapy using either radiation or chemotherapy. As we mentioned last quarter, we will be presenting preliminary data from our phase I clinical studies for the treatment of ovarian cancer next month at the American Society of Clinical Oncology meeting. The phase I study is evaluating tgDCC-E1A in combination with chemotherapy for the treatment of ovarian cancer. We are also still on track to present data from the completed study by the end of 2002.

As we announced in our call last quarter, we decided to initiate additional phase I/II trials in ovarian cancer using a slightly different chemotherapy regimen, with IV-infused carboplatin. This decision was made as a result of consultation with physicians treating ovarian cancer, who informed us that intravenous, or IV-infusion, was the most convenient mode of administration for their [indiscernible]. We'll initiate this clinical trial in mid-year 2002. The trial is designed to expand the information that we have on tgDCC-E1A, and its role in cancer therapy. We designed this study to potentially serve as the basis for a pivotal phase III study if the data are strong, while we continue to further understand the dosing and safety profile of tgDCC-E1A in ovarian cancer patients.

Moving on to our phase II study of tgDCC-E1A in combination with [indiscernible] radiation therapy in patients with recurrent head and neck cancer. As previously discussed, we have set a very high bar for determining a go/no-go decision on this indication, and this has not changed. We will pursue tgDCC-E1A in combination with radiation if we have achieved at least a 60% response rate. If we cannot achieve that response, then we would really rather divide our resources to the ovarian indication, and to some of our other unpartnered programs.

This is a crowded indication, and therefore patient referral has unfortunately been slow. Pending patient referral, we will be conducting an interim analysis of this phase II study, and we hope to announce our next course of action at the end of the second quarter.

I would like to turn to our preclinical programs now. I'd like to turn to the highlights from several of these programs. We are very proud of the momentum generated within our preclinical programs so far in 2002, and look forward to encouraging data throughout the year that will provide strong proof of concept in these disease categories as we move in towards initiation of the clinical trials process. I would like to start with our HIV vaccine, which as many of you know is collaboration among the International AIDS Vaccine Initiative, and scientists at the Children's Research Institute in Columbus, Ohio. This preclinical program utilizes our AAV delivery technology to introduce genes from the HIV genome as a way of providing a source of antigens capable of generating a robust immune response that would indeed provide protection against infection with wile [phonetic]-type HIV. Previously, our collaborators at Children's Research Institute provided promising data from studies using AAV-based vaccines in an animal model of AIDS. In these studies, non-human primates receiving the AAV-based vaccine demonstrated robust and durable antibody and T-cell responses to the vaccine, and had reduced viral load when challenged with the virulent strain of SIV, the non-human primate equivalent to HIV. Ongoing studies on this model are evaluating long-term survival and viral load of vaccinated animals.

Just recently, our collaborators at Children's Research Institute presented new data in support of AAV technology for an AIDS vaccine treatment at the annual Keystone AIDS vaccine conference. These positive data, whilst not a specific subject our ongoing collaboration, were yet further support for AAV as the vector of choice in the prevention of HIV.

At Targeted Genetics, we focus on developing the AAV vector constructs carrying genes to vaccinate against HIV, and we have commenced manufacturing of these vectors in support of preclinical studies and planned clinical studies. Through 2002, we'll continue to work carefully to implement a preclinical program that we believe will support an IND filing, and clinical trial initiation in the mid-2003 timeline.

I would like to now provide an update on one of our preclinical programs that we have been developing ourselves, which focuses on arthritis. As mentioned in our previous calls, this program utilizes our AAV vector technology to deliver the DNA encoding soluble TNF receptor proteins directly to arthritic joints. Given today's understanding of the protein as a validated therapeutic molecule, this is a great opportunity for us to explore potentially utility in several models of inflammatory disease.

Today, our preclinical efficacy and safety data have been impressive, and we are now working at pharmaco-kinetic studies in several different animal models, which should enable us to start planning more specifically for human dosing regimens. We believe that this product will be dosed on an intermittent basis in patients with arthritis. In the second quarter, we look forward to sharing some of the results of the pharmaco-kinitic studies and animal models at the fifth annual American Society of Gene Therapy or ASGT meeting, which will take place in June. According to our current timeline, we still expect to file an IND for this potential product in 2003.

Now let me move on to our preclinical program in hyperlipidemia. Last week, we announced that we had entered into a sponsored research agreement with Dr Daniel Raider of the University of Pennsylvania. Dr Raider is considered a leader in the field of genetic factors associated with premature heart disease. According to the terms of the agreement, Dr Raider will begin research to evaluate potential treatment of dislipidemia, a lipid disorder, by AAV delivery of genes encoding proteins that may impact on lipid and cholesterol metabolism. This was originally an area of research at Genovo before the acquisition in 2000.

We are very interested in evaluating the potential application of the gene delivery technology to the treatment of various lipid disorders, and we are very excited to have Dr Raider pursue this line of research for us. As many of you know, our philosophy at Targeted Genetics is really to focus on product development opportunities, rather than pursuing significant amounts of basic research. We believe that by entering into the sponsored research agreement, we will be able to continue to assess the product potential of AAV gene delivery in dislipidemia, without detracting from our efforts in our other clinical and preclinical programs.

Turning to collaborations, I have already discussed the status of the Genzyme collaboration. I would like to take some time now to update you on our other partnerships, which are moving along quite nicely. We have been working first with Biogen since our acquisition of Genovo in 2000. This partnership, initially established between Biogen and Genovo, was focused on delivering the gene for Interferon Beta, for the treatment of glioma, a form of brain cancer. We were able to reconstruct this partnership, and it was expanded at the time of the acquisition to cover up to four main gene therapy products. As you may remember, we announced at the beginning of the year that we had worked with Biogen to define two of the additional four research collaboration targets related to new product candidates. These have been defined as an infectious disease and a genetic disorder. Work on these products has been initiated with the goal this year of generating strong supportive proof of concept data.

Another exciting collaboration is our partnership with Wyeth Genetics Institute, a unit of Wyeth Pharmaceuticals. This collaboration encompasses our hemophilia program. The additional indication we are pursuing is hemophilia A, but we also have the option to work with GI to develop a gene therapy product for hemophilia B. Thus far, we have been investigating various methods of delivery for this product candidate, for both improved clinical benefit, and patient ease of use, keeping with the goal with potential product commercialization. Our achievements in this program to date, and our ongoing preclinical studies, are designed to increase the likelihood of our success once we enter into clinical development. We are very excited about the data we have been generating in this program, and we really look forward to data from some these studies as the program progresses.

Emerald Gene Systems is our joint venture with Elan Corporation, and is another collaboration that will produce a significant amount of new data in 2002. The goal of EGS is, as you remember, to develop enhanced gene delivery systems by combining our gene delivery technology with Elan's drug delivery technology. We expect to present results from a number of different research programs related to EGS throughout the year, and we look forward to updated data presentations as early as June, during the fifth annual American Society of Gene Therapy meeting. Research in 2002, and the joint venture at Cyboson [phonetic] demonstrating proof of concept with potential product candidates, especially in the area of non-viral vector candidates. Data presented in 2001 demonstrated enhanced gene delivery to specific cell types. Upcoming data presentations reflect continued indido [phonetic] studies, confirming what we have already observed in cell culture models.

I will quickly touch base on one more topic based on excellent progress in the area of intellectual property accumulation during the first quarter. Throughout the first quarter we made several announcements discussing expanded intellectual property in both viral and non-viral gene technology, as well as an additional E1A gene patent covering its use in potential cancer treatments. Our exclusive license to an additional patent received by the University of Texas in the Anderson Cancer Center regarding the E1A gene helped us to further protect our position with respect to using this gene in the treatment of cancer. We have already seen promising data from both our clinical and preclinical studies in E1A, and we believe that E1A gene therapy may play an important role in treating a variety of cancers.

Our license to a new patent in the area of non-viral gene delivery technology exemplifies as well our commitment to focus not only on viral vector technology, but non-viral vector technology as well. The patent focuses on DCC, or DC Cholesterol, and a method of formulating it which should aid in facilitating the commercialization of DCC-based gene delivery systems. We are only one of a few companies to focus on and develop those viral and synthetic gene delivery systems, and we really feel that this will help maximize our product opportunities down the road.

Finally, we received an additional patent related to our AAV vector technology. This patent covers the use of small regulatory control elements within the AAV genome that help drive gene expression. This new use may help to maximize gene expression efficiencies, with little or no loss in viral payload.

We truly believe that AAV vectors hold great promise in the potential treatment of a variety of diseases, and Targeted Genetics has a strong intellectual property portfolio in the area of AAV vector technology, particularly in large-scale manufacturing processes, which we believe is a significant asset in addressing large markets and attracting world class partners.

To summarize Targeted Genetics continues to focus on the development of drugs with significant market potential. As I have just described, we have really tried to work diligently to launch both clinical and preclinical programs that cover a wide variety of opportunities in the field of gene therapy, focusing on disease categories in which there is a strong need for adequate treatment. Over the next several months, we will be presenting data from a number of our programs, beginning with the American Society of Clinical Oncology meeting in May, and then continuing through the year. So please stay tuned for the mini milestones ahead as we show progress in our programs, continue to expand current collaborations, and pursue new opportunities for collaborations, thereby further defining our leadership role in gene therapy. Before I close with my prepared comments, I would like to remind you that our annual meeting of shareholders will be held next Thursday, 9 May, at the Washington Athletic Club in downtown Seattle. We really welcome our shareholders, and those interested in learning more about Targeted Genetics can join us for this event.

I would like to thank all of you now for taking the time to join us this morning, and at this point we would be happy to take any questions you may have.

Ladies and gentleman, we are now opening the conference call for the question and answer portion of the call. If you'd like to answer a question, please do so by pressing the number one key on your phone. Please be aware that pressing the number one key a second time will take you out of the question rotation.

We do have our first question, from Al Roche, with Ladenburg. Al, go ahead with your question.

Thank you. Well, it looks like you have a lot of things going to be happening in the next twelve months. I was just wondering, for the ovarian cancer indication, could you remind us what the structure of that trial is, and how the second trial is going to look compared to that?

I will do my best, Al. Nice to hear from you. I'm glad that you are on the call. The phase I study that we are presenting at ASCO is a phase I dose escalation study, using escalating doses of E1A, delivered interperitinially [phonetic], in conjunction with Taxol delivered IP, and Sislatin [phonetic] delivered interperitinially [phonetic] as well. There is certainly a cohort of oncologist out there who believe that IP administration of Sislatin [phonetic] and other drugs is a burgeoning approach to treating ovarian cancer in particular. So, the calls on our earlier studies...we had only done single agent ovarian studies. We really had to do a dose escalation study to see if the combination of E1A with chemotherapy presented any additional toxicity beyond anything we have seen with the single agent studies. That is a study that we will be presenting at ASCO on a preliminary basis.

The new study is designed to expand our information on the utility of E1A, using a different chemotherapy regimen, and specifically we will give E1A interperitinially [phonetic] but use carboplatin IV. Again, our goal is to look at the various opportunities and expand the data that we have generated, and then move into [indiscernible] studies after that.

We are still actually enrolling patients, so it will be a fairly small number. I believe that it is twelve to twenty four.

Did you hear my answer?

No, I didn't.

It's twenty-four patients.

Twenty-four patients?

Okay. Thank you.

Yes, because we think that is a promising indication. Our goal is to initiate and basically wrap up the phase I component in 2002, and then we'll start to make plans for the initiation of a phase III. But we also feel at this point that E1A is prime for partnering, so it is one of our top priorities in terms of partnering this year, that will allow us to move into much larger pivotal studies in 2003.

Okay. Then I have a question on the cystic fibrosis trial. Can you remind us how that trial is structured, and where you are in terms of accruing patients?

Okay, we are almost done accruing patients. We may even be done today. But remember the dosing regimen is dosing once a month for three months, and then following up for 90 days. It is a double-blind placebo controlled study: 18 patients on drug, 18 on placebo. We are dosing at the highest dose the nebulizer that we use in our phase I in our dose escalation study. So, again, our goal is to unblind the study in the second half of the year, and present the data at the North American CF conference.

As you may remember - I think that I mentioned that - we have been able to drop the dose now twice, so we have a large number of patients who are juveniles, and as young as twelve years, which we think is very exciting.

So that was a dose once a month at three months, and follow for 90 days, right?

Right. That's right.

Okay. Thank you.

Great, thanks.

Thanks Al.

Ladies and gentleman, at this time we have no further questions from the audience.

Well, we really thank you all for joining us, and appreciate the attention. If we can be of assistance, please call us directly, and we look forward to updating you on our progress next quarter. Thank you very much.

Ladies and gentlemen, thank you for participating in today's 2002 first quarter financial results conference call with Targeted Genetics. This presentation will be archived, and can be accessed at www.targetedgenetics.com. Thanks again for joining today's presentation.