Armata Pharmaceuticals, Inc. (ARMP) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Targeted Genetics 2003 second quarter financial results conference call. Today’s presenters are Stewart Parker, president and CEO of Targeted Genetics and Todd Simpson, CFO of Targeted Genetics. (Operator instructions) At this time I would like to introduce our first presenter, Stewart Parker.

Thanks, Peter. Good morning and thank you very much for joining us. The second quarter of 2003 has been a very successful one for Targeted Genetics and for the biotech sector in general. Just in the last quarter the industry raised nearly $3.8b in financing and the FDA approved some major biotech products, all supporting growing signs of strength in the biotechnology arena.

Targeted Genetics is certainly a part of this success, extending its cash position and presenting very encouraging data that serves to boost several of our programs into the clinic. We’ve presented our final pre-clinical results from our AIDS vaccine and arthritis program, and this positive data support initiation of clinical programs for those products.

We also presented a full analysis of our cystic fibrosis phase 2 clinical trial. These results support the advancement of this program into a larger confirmatory study. We were able to announce the initiation of this phase 2(b) clinical trial just a few weeks ago, and we are very pleased to have launched this study in conjunction with the Cystic Fibrosis Foundation.

Each of these milestones represents significant progress for the company, and I look forward to discussing all of this with you, in addition to our plans going forward during the course of this call. You will also hear from Todd Simpson, our CFO who will review the financial results from the second quarter of 2003.

Now I would like to remind you 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 only predictions and actual events or 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 quarterly report on form 10Q.

So let me start first by discussing our recent financing success. Todd will certainly provide more details, but I would like to highlight the significant accomplishes for Targeted Genetics during the quarter. So earlier, the company had determined the need for additional funding as a top priority at the end of 2002 and we set out to extend our cash runway through a number of different avenues.

The financing strategy that we talked about over the past several calls have included controlling our costs, extending our collaborative funding and being position to appraise the capital market. Previously we reported that we had successfully accomplished the first to facets of this strategy, and this quarter we accomplished the third by completing a $17.5m public offering. This financing provides an extended cash position that allows us to support ongoing development of our core programs and our company operations going forward.

Now we still have more work to do in this regard and we continue to remain very focused on further extending this runway, but we are very pleased with this public offering and feel that we capitalized on a significant opportunity during the quarter. This quarter also brought about successes in several of our clinical and pre-clinical programs and I would like to share highlights with you this morning. I will begin by bringing you up-to-date on milestones accomplished in our Cystic Fibrosis program, referring specifically to tg-AAV-CF, which is our gene-based product candidate in clinical development, which treats the underlying cause of cystic fibrosis.

As I am sure you know, current treatments address only the signs and symptoms of this disease. Our product candidate, however, addresses the underlying genetic defect in cystic fibrosis patients, and it is designed to impact the progression of this life-threatening disease.

Late last year, Targeted Genetics presented positive preliminary results from our phase 2 clinical trial in patients with cystic fibrosis, and as we enter into 2003, we needed to secure the right partnership to continue this program and move forward with the next clinical trials.

At the beginning of the second quarter we were very pleased to announce a new partnership with the Cystic Fibrosis Foundation to advance this program. The focus of this collaboration is the implementation and execution of our phase 2(b) clinical trial, and the Cystic Fibrosis Foundation will provide $1.7m of support to fund a clinical trial site and other external costs related to this study.

Our team moved very quickly then to begin the process of launching this trial, and just two weeks ago we announced its initiation. This phase 2(b) trial with 100 patients is the most advanced gene therapy clinical trial in cystic fibrosis and will be testing the largest number of patients to date. This will be our first cystic fibrosis clinical trial examining changes in lung function as a primary end point.

We will of course continue to monitor safety and additional efficacy end points as well. It is early in the process, but we do anticipate completing this study at some point in the next 12 to 18 months.

We also presented a full analysis of our previous phase 2 cystic fibrosis clinical trials at the annual meeting of the American Society of Gene Therapy in the beginning of June. This data confirmed previous results demonstrating a very clean safety profile throughout the entire five month study period.

As has been previously presented, we observed statistically significant improvements in lung function after 30 days, and a statistically significant decrease in IO8 levels after 14 days. In addition, a full analysis demonstrated positive trends in various measurements of lung function after 60 and 90 days. Twenty-three percent of patients treated with tg-AAV-CF sustained a 5 percent or greater improvement in lung function at 90 days, while no patients receiving placebos issued this response.

Seventeen percent of patients treated with the product candidates sustained a 10 percent or greater improvement in lung functions at 90 days, while again no patients receiving the placebo achieved this response. This data was obviously quite encouraging and we look forward to the results of this next study.

Moving onto our AIDS vaccine program, as many of you know, earlier in the year we announced an extension of our collaboration with the International Aids Vaccine Initiative or IAVI to continue advancement of this program. We are very pleased to extend our relationship with such a solid and well-respected partner, and we have worked over the last several months to complete our pre-clinical data package for regulatory submission so that we can initiate a phase 1 clinical trial in humans in the remainder of 2003.

Pre-clinical data from this program also was presented at the Annual Meeting of the American Society of Gene Therapy. These results demonstrate a sustained, dose dependent antibody and antigen specific T-cell responses over a six-month period in vaccinated non-human primates throughout the duration of this study.

Additionally, extensive safety studies were conducted and the primary candidate was found to be safe and well tolerated in the rabbit and non-human primate models. Many AIDS experts believe that an antibody and T-cell response are necessary for prohibiting the progression of AIDS in human, and this zero response result is unique compared to other product candidates for AIDS prevention currently in testing.

This data is part of a larger pre-clinical package that make up our regulatory filing submissions that we believe will allow us to initiate a phase 1 clinical trial in the remainder of this year.

We are very excited about moving forward with this program and also look forward to understanding more and potentially validating the potential of our adeno-associated virus, or AAV affectant technology in a vaccine setting.

We also presented data from our arthritis program at the annual meeting of the American Society of Gene Therapy and these pre-clinical results indicate that there were no safety issues in the maximum dose levels attributable to the product candidate. Local PNSRSP expression was confirmed in the injected joints after inter-articular administration of the product, the candidate in both normal and arthritic rats without the significant, systemic PNSRSP protein levels.

Together with the published data on efficacy of inter-articular administration of our PNSRSP-based gene delivery product candidate, this data provide a complete pre-clinical package to move forward in the remainder of 2003 with the regulatory filing to allow initiation of a phase 1 clinical trial.

Based on previous therapeutic experience with PNF and Taganus based treatment, we believe there is a great potential for this product candidate to provide an alternative therapy for those patients who do not completely benefit from currently approved treatment.

Other highlights in the quarter include results from pre-clinical work, from our lipid based delivery technology and its potential in the treatment of metastasis cancer. Data presented again at the annual meeting of the American Society of Gene Therapy encompassed various attributes of the company’s unique synthetic gene delivery platform.

We presented results of safety studies of lipid based vehicles, or LPD, utilized to deliver the E1A gene, our proprietary [pituitary inhibitor] gene. Targeted Genetics has worked to develop improved synthetic ventures based on LPD in which the DNA that encodes the therapeutic gene of interest is condensed prior to encapsulation in lipid. This technological approach results in small, defined particles with an excellent stability profile.

As a result, when these enhanced LPD formulations are administered intravenously, they have an improved stability in the blood and the ability to enter target cells more specifically, thus improving gene transfer efficiency.

We’ve seen evidence of this improve trans-section efficiency in animals [inaudible] of metastasis cancer where results suggest decreases in tumor size and also increased survival time. Results presented during the quarter are yet further evidence that the potential of our lipid based technology and its advantages with certain types of cancer.

Finally, another highlight is in the area of intellectual property. During the quarter Targeted Genetics, for example, was granted a significant patent supporting a new development in AAV manufacturing. Targeted Genetics has emerged as a leader in the field of AAV manufacturing, and this patent highlights a method of large-scale AAV manufacturing that is unique to the company.

The patent describes an AAV manufacturing process and lists the growth conditions used to culture the production cells, led to the release of that geoparticle into the cell culture medium without the need for breaking up in the host cell membrane. This approach leads to improved production quality and allows for a more cost-effective approach to large scale manufacturing of AAV vectors.

This new patent supports several of the company’s product development programs, including its AIDS vaccine, cystic fibrosis and arthritis program, and expands our overall growing body of intellectual property covering various technologies, genes, vectors and manufacturing processes.

We now have over 400 patent or patent applications under file with the U.S. Patent and Trademark Office and foreign counterpart. With that I would like to turn the call over to Todd Simpson, our CFO, who will review our financial results for the second quarter of 2003. Todd.

Thanks, Stewart, and thanks everyone for calling in this morning. Earlier today we announced our second quarter results which included a net loss of $6.9m, or 13 cents per share for the quarter ended June 2003. This compares to $6.4m or 15 cents per share in the second quarter of last year.

We recorded a net loss of $7.7m for the first half of 2003 compared to $12.8m in the first half of 2002. The lower year to date net loss in 2003 is primarily the result of decreases in our operating expenses, and I will touch upon a bit more in detail, but first I would like to highlight the revenues.

Revenues in the second quarter of 2003 were $2.1m compared to $4.6m in the second quarter of 2002, and were $7.7m for the first six months of 2003, compared to $10m in the same period of 2002. Revenues in 2003 reflect activities under our AIDS vaccine collaboration with IAVI and under our collaboration with Biogen.

Year to date revenues under our IAVI collaboration are down this year, but really reflect the substantial work that was done last year that has now put us in a position to begin clinical testing of a product candidate later this year.

The other principal reason for the decrease in 2003 revenues is the conclusion last year of our collaboration with Alan, Wyass and Seltec, so as a result no revenues were recorded from Seltec or Alan in 2003. However, we did report $3.9m in revenues from Wyass associated with the completion of that collaboration in the first quarter of this year.

With respect to operating expenses, recall that in 2002 we reported our planned efforts to reduce our operating expenses and focus our resources on our key product development programs. Specifically, on advancing the clinical development of our cystic fibrosis, AIDS vaccine and arthritis programs this year. As I mentioned last quarter, these efforts have had a pretty significant impact on our operating expenses and that certainly continues to be the case in the second quarter.

Our operating expenses for the second quarter of 2003 were $8.7m down from $10.9m in the second quarter of last year. R&D expense decreased $4.3m in the second quarter of 2003, a 43 percent decrease from the $7.6m incurred in the second quarter of last year. G&A expense decreased to $1.4m in the second quarter of 2003, a 37 percent decrease from the $2.3m incurred in the second quarter of 2002.

Lastly, our equity in the net loss of our joint venture with Alan called Emerald Gene Systems was zero for the second quarter of 2003, compared to $833,000 in 2002. Offsetting these decreases was a $2.9m non-cash charge related to an update in the estimate of the cost that we expect will be incurred in terminating our [Bolso] facility lease, something that we have talked about in previous calls. This charge and the related balance sheet accrual represent the present value of the rents that we owe under the lease, reduced by rents that we believe can be recaptured through sublease.

The revised estimate takes into consideration new information that we obtained during the quarter, as well as recognizing the impact that our improved financial condition has had on our discussions with the facility landlord toward terminating the lease. Namely, our estimates have been updated to include first the brokerage commissions that will be paid to the agent that we have now hired to assist us in finding a suitable sublease tenant; the additional time that we believe it will likely take to find such a tenant; and lastly the lease rates we feel are achievable in what continues to be a pretty soft sublease market locally.

Expenses for the six months ended June 30, 2003 were $14.8m, down from $22.5m for the same period last year. R&D expense for the first half of 2003 was $8.9m, this was a 44 percent decrease from the $15.9m incurred in the first half last year.

Similarly, G&A expense for the first half of 2003 was $2.8m, a 40 percent decrease from the $4.7m incurred in the first half of 2002. Lastly, our equity in the net loss of our joint venture with Alan was zero for the first half of 2003 compared to $1.6m in 2002. Again, each of these decreases represents the planned reductions announced last year and as I described earlier, 2003 reflects $3.2m in non-cash leads restructuring charges.

Moving onto our cash resources, we ended the second quarter of 2003 with $24.8m in cash, up from $12.1m at the end of the first quarter. As Stewart said, we have talked over the past several calls about our objective to not only trim our burn rate but to secure additional funding for the company. With the expense reductions now implemented, a very focused product-driven operating plan and collaboration funding secured with IAVI and the Cystic fibrosis Foundation, in June again we were able to complete a $17.5m financing. This was a public offering of common stock amongst institutional investors, priced at $2.25 per share that netted $16.1m to the company. This cash plus the approximately $4m we expect to come in from our partners now puts us in perhaps the strongest financial position we’ve been in for a while, and should comfortable fund our operations through at least the end of 2004.

With that stated, we recognize we still have work to do, and will look to continue to strengthen our financial condition. We are working on extending the funding of our HIV collaboration with IAVI into 2004 and 2005 and as Stewart mentioned, we are now pushing to initiate the first clinical trial for that program by year end.

We are also pursuing new collaboration and alliances, and of course continue to keep our eyes on the capital market. Lastly, the financing that we completed in June reduced Biogen’s equity ownership in the company which means that we can now issue up to approximately 2.5m shares under the equity purchase commitment that is part of our collaboration with Biogen. Under this purchase commitment, we can issue shares to Biogen at market price until September 15th of this year. So all in all, I think this is another significant quarter for us with both operational and financial milestones met. With that, I am going to turn the call back over to Stewart to highlight some of our plans for the rest of the year.

Thanks, Todd. So looking toward the rest of 2003, we positioned ourselves well, we believe, to successfully meet our goals for clinical progress in our core programs. Just to briefly cover some of our upcoming planned milestones that we expect in those programs, we will continue patient recruitment for our cystic fibrosis phase 2(b) trial and we anticipate that the trial, as I said, will last about 12 to 18 months in duration.

To provide a little more detail regarding the structure of this trial, it will be a double-blind, randomized placebo controlled study where study participants will receive two doses of tgAAVCF delivered via nebulizer at day zero and day 30 of the study, and they will be evaluated for a total of 90 days. The primary end point is a 30 day mean change in lung function between tgAAVCF treated subjects and subjects treated with placebo. There will be a bi-weekly evaluation of changes in lung function after two doses of the product candidates. We also will assess the impact of tgAAVCF on inflammation and biologic study time markets a return in this compared to placebo.

The study will continue to monitor the safety and tolerability profile of the product candidate and study participants for seven months. A total of 100 patients 12 years of age and over will be evaluated, 50 in the treatment group and 50 in the placebo group.

We are still on track to begin our phase 1 AIDS vaccine clinical trial in the second half of 2003 and will be providing more information regarding specific protocol design once details have been confirmed. We still expect to submit regulatory filings with our arthritis program into the clinic by the end of the year as well.

On the partnering front, we continue to see collaborative opportunities for our product candidates in our gene delivery systems. We will also seek, as Todd said, to expand current collaborations including our IABI collaboration and in the next six months we will be working hard towards this goal.

We continue to remain very busy in the area of contract manufacturing, and are currently in the process of completing our first feasibility studies under our agreement with GeneVac. The feasibility studies have gone quite well thus far, and we expect to move into the product manufacturing stage in the fourth quarter of 2003.

We will certainly provide updates as we move forward in this regard, but in the meantime we will consider additional contract manufacturing opportunities if they don’t conflict with our own internal manufacturing capacity requirements.

Finally, as Todd mentioned, we will continue to seek out opportunities to further expand our cash position. This obviously continues to be a top priority for the company as we develop plans to carry our programs through clinical development and realize the full potential of these product candidates.

With that, I would like to close by thanking everyone for their ongoing support, and a special recognition to our really hardworking team which has been consistently dedicated to meeting all of our company goals for this year and the years ahead. We’ve made significant progress and we really look forward to continued success throughout the remainder of this year as we bring two more programs into clinical development and continue to strengthen our leadership position in the gene therapy sector.

So thank you for joining us this morning, and at this point we would be very happy to answer any questions you might have.

(Operator instructions) We have a question from Geraldine O’Keefe. Please go ahead.

Good morning, Stewart. Hi Todd. Just a couple of short questions for you. This termination charge that you incurred this quarter, is that the complete charge or can we expect more charges in the coming quarter?

It’s likely the complete charge. It is based on estimates that you periodically update and review. So while we don’t expect that there will be additional charges going forward, there might be in the event the assumptions need to be changed.

Are there other restructuring charges that we can anticipate for the rest of the year?

No.

Can you just explain a little bit further the issue of shares fro Biogen? What are the conditions of that? Are they obliged to buy those shares from you at the current market price, or how do they – maybe you can just explain a little bit more about that.

Let me maybe give a little bit of historical color. As part of our collaboration with Biogen that we entered into almost three years ago there was an equity purchase commitment of $10m. In September of last year we took $4m of that $10m down, leaving $6m left on the recommitment. However, we were unable to access the remainder of that $6m given that Biogen’s ownership interest in the company was about 20 percent. So this was a limitation that we couldn’t’ go through.

With the financing that we completed in June, that obviously has changed Biogen’s ownership in the company a bit, and if you do the math that allows us to issue about $2.5m shares under the purchase commitment to Biogen up until September 15th, which is the expiration of the purchase commitment.

Essentially the way it works, Geraldine, is the shares are issued to Biogen and priced at basically a 10 day trading average prior to the issuance.

This is entirely your decision then, to do the issue of those shares and the timing of that issue? Is that correct?

That is correct.

You could potentially, well at current market price, you’d get about another $5m in cash?

That’s correct.

Okay. Just to clarify, Stewart, the arthritis product and the AIDS product are expected to get to clinic by the end of this year. Is that correct?

We expect to initiate the phase 1 trial for the AIDS vaccine this year and we expect to at a minimum file the regulatory filings for the arthritis program this year.

Thank you very much.

Thanks, Geraldine.

(Operator instructions) At this time it appears we have no further questions.

Thank you very much and we look forward to updating you.

Ladies and gentlemen, thank you for participating in today’s 2003 second quarter financial results conference call with Targeted Genetics. This presentation will be archived and can be accessed at www.targetedgenetics.com. Thanks for joining today’s presentation. You may now disconnect.