Armata Pharmaceuticals, Inc. (ARMP) 2003 Q3 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Targeted Genetics 2003 third-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. Stewart?

Thanks, Peter. Good morning, and thank you all for joining us. I'm very pleased to report on yet another successful quarter for Targeted Genetics. 2003 has been a very significant year for us. We set some aggressive goals for the company in the beginning of the year, and we have consistently delivered on them. We have improved our financial position through both the equity markets and through other strategic transactions. We have built a short-term contract manufacturing position, further strengthening our current infrastructure, and we have continued to advance all three of our core product development programs. The team has really worked hard this year to make it a success. And, I believe delivering on these goals is, indeed, a testament to this.

Now, as with previous quarters, throughout the course of this call, I will be providing you with an update on the company's progress to date, as well as future milestones to look out for. You will also hear from Todd Simpson, our Chief Financial Officer, who will review our financial results from the third quarter of 2003.

So, before I go any further, I would like to remind you that during the course of the 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 10-Q.

Now, before I get into specifics with regard to Targeted Genetics progress, I would like to point out that the gene therapy sector, as a whole, continues to demonstrate meaningful progress. While in New York during the third quarter, I had the opportunity to participate in a meeting focused on advances in gene therapy. This is a forum for the biotech investment community to receive company overviews from several firms in the sector. And after listening to the various organizations discuss progress to date, it became very clear that gene therapy companies have, indeed, made significant progress, and are beginning to advance in the clinic, demonstrating potential for product candidates to treat disease in a whole new way. This group is targeting disease categories that include Cystic Fibrosis, Alzheimer's, Parkinson's Disease, various cancers, an AIDS vaccine, and several cardiovascular diseases.

Out of a group of gene therapy companies, there are currently an oncology product candidate and a pivotal Phase III clinical trial -- 18 product candidates in Phase II testing, and 17 product candidates in Phase I testing. And many more will advance at the end of 2003, and the beginning of 2004.

Now, in our view, if one company in the sector experiences product success, we all stand to benefit from this. And as gene therapy programs are advancing in the clinic, this is obviously quite an exciting time for the field.

I am obviously also pleased to say that some of Targeted Genetics' core development programs are among the leading programs in our sector, and I would like to quickly provide you with an update on our recent progress.

As many of you know, we announced the initiation of a Phase IIb clinical trial in patients with mild to moderate Cystic Fibrosis, or CF, at the beginning of the third quarter. This is the most advanced CF gene therapy clinical trial to date, and will enroll up to 100 patients, 50 on our product candidate, tgAAVCF, and 50 on placebo. Study participants will receive two doses of the product, delivered via nebulizer, at day zero and day 30, and will be evaluated for a total of 90 days with biweekly lung evaluations throughout the ninety-day study duration. We are very pleased to be working, once again, with the CF Foundation and it's therapeutic development network on this trial.

Targeted Genetics has built a very strong safety profile associated with our Cystic Fibrosis product candidates through the completion of a number of pre-clinical and clinical trials over the past several years -- studies that have also provided evidence of functional correction of the genetic defects. Our current Phase IIb clinical trial will focus on the improvement in lung function of patients receiving tgAAVCF. The primary end point will be changing lung function after 30 days. We will also measure additional efficacy-related secondary end points, while continuing to monitor safety.

In conjunction with our collaborative partner, the Cystic Fibrosis Foundation, we've made good progress in initiating this trial. We have begun work at seven clinical trial sites, and will ultimately utilize 12 sites nationwide. It is early in the process, but we anticipate completing this trial at some point in the next 12 to 18 months. We, and our investigators, have been very encouraged by previous clinical success to date, and we look forward to results of this larger efficacy-focused trial.

I also want to touch briefly on Targeted Genetics' presence at the annual North American Cystic Fibrosis meeting in Anaheim, California this month. Our Chief Scientific Officer, Dr. Barrie Carter, participated in a forum specifically focused on the role of AAV-mediated gene therapy in the treatment of Cystic Fibrosis. Dr. Carter discussed the results of previous clinical trials conducted at Targeted Genetics, and the progress we have made to date. He focused on our safety experience with tgAAVCF, and our recent clinical trial results, which showed a statistically-significant improvement in lung function after 30 days. This was an excellent opportunity to highlight the role of Targeted Genetics in advancing a novel approach to the treatment of Cystic Fibrosis.

Now, moving on to our AIDS vaccine program. We and our collaborators at the International AIDS Vaccine Initiative, or IAVI, and Columbus Children's' Research Institute, have been very busy moving through the regulatory processes to initiate a Phase I clinical trial to test our AIDS vaccine product candidates in humans. As many of you know, we completed our AIDS vaccine pre-clinical data package earlier in the year, and announced these results at the American Society of Gene Therapy annual meeting in June of 2003. We were quite encouraged by these results, and pleased to observe both an antibody and antigen-specific T-cell response to the vaccine. Now, many AIDS experts believe that both an antibody and T-cell response are necessary for preventing the progression of AIDS in humans, and this dual response result is unique, compared to other strategies for AIDS prevention currently in testing.

Our planned Phase I clinical trial will be a safety study, that will additionally monitor immune response in the secondary end point. There will be a dose escalation study, and will likely be conducted in Europe. So, as we move to the regulatory processes to begin a Phase I trial, we believe we are still on track to does the first patient in the coming months, depending on regulatory authorities' timing and ability to expedite the process on their end.

Similarly, we are also busy moving our Rheumatoid Arthritis programs through regulatory processes, to initiate a Phase I clinical trial in patients with Rheumatoid Arthritis, or RA. For those of you who do not already know about RA, it is a chronic and debilitating disease affecting over 2.1 million people in the U.S. alone. And this incidence is expected to increase over time. Or clinical trial will utilize Targeted Genetics' AAV technology to deliver the DNA sequence, encoding a soluble tumor necrosis factor receptor, or TNFR, as a treatment for RA.

Now, many of you may remember that Targeted Genetics was actually spun out of Immunex (ph) Corporation in 1992. As part of that transaction, we were granted a license to certain Immunex genes and technology for use in gene therapy applications. One of those genes is the TNFR-FC gene. The objective of our arthritis development program is to identify inflammatory disease settings in which the limitations of proteins, our monoclonal antibodies therapy, may be overcome via gene therapy. Our first focus in this effort is on the treatment of RA patients who may not fully respond to currently-available anti-TNF therapy. While these products have been successful, rheumatologists maintain that about 20 to 40 percent of patients on anti-TNF therapies continue to experience arthritic pain in one or several major joints.

We are enthusiastic about this program, based on our belief that we may be able to deliver this gene, using our AAV technology in a localized setting, resulting in sustained levels of low TNF receptor protein. If successful, this product represents a very significant product opportunity complementary to current anti-TNF therapies.

We completed our pre-clinical data package earlier this year, and we are quite pleased with results to date. In September, our clinical trial protocol was successfully reviewed by the National Institutes of Health (indiscernible) DNA Advisory Committee, or RAC, and we expect to initiate a Phase I clinical trial in humans in the coming months, depending on the timing of final regulatory approval. This Phase I will be a dose escalation safety study, and will likely be conducted in the U.S. and Canada.

Turning to our financial picture -- while Tom will provide you with a detailed update on our financial position, I would like to briefly highly achievements accomplished during the third quarter. First, we continued to strengthen our cash horizon during the quarter, through the issuance of common stock to Biogen, yielding $4.8 million from this transaction. Under the original terms of our research collaboration with Biogen, Targeted Genetics was given the option to sell, at its discretion, up to $10 million of its common stock to Biogen under an equity purchase commitment. While our research collaboration with Biogen concluded in September of this year, Biogen continues to be our largest common stockholder, with ownership interest of approximately 18 percent.

Additionally, in September, Targeted Genetics converted its outstanding debt of 9.4 million, owed to Elan Corporation, into equity, under terms of a collaborative agreement between the two companies. Elan and Targeted Genetics had established a joint venture in 1999, called Emerald Gene Systems, which was focused on the development of additional applications of Targeted Genetics' non-viral gene delivery capabilities, and specifically, on pursuing lipid-based skin delivery systems to target metastatic cancer treatment indications.

Our total debt owed to Elan would have grown to 11.7 million, and by eliminating the debt, via the September conversion into stock, we were able to avoid $2.3 million in interest charges. As a result, we can continue to focus our cash resources on key product develop programs, and other ongoing operational requirements.

I would like to mention one more success for the third quarter before I turn things over to Todd, and this refers to our contract manufacturing relationship with GenVec. As most of you remember, earlier in the year we announced our intention to leverage some of our excess manufacturing capacity to generate short-term revenues for the company. We then announced our first contract manufacturing collaboration with GenVec. The agreement, established between the two companies, involved Targeted Genetics conducting initial feasibility studies to manufacture one of GenVec's adeno-viral product candidates. And just recently, we announced that the feasibility studies were successfully completed. And GenVec has given the approval for us to move forward with the manufacturing of clinical-grade material to support clinical trials for its oncology product candidate, TNFerade. We are quite pleased with the success of this program so far, and our internal team has done an outstanding job of executing on the demands of this project, and demonstrating our leadership position in the field of manufacturing.

While we do not expect to have excess manufacturing capacity for the near future, we will continue to evaluate contract manufacturing opportunities, should additional capacity become available. And, in the meantime, we expect to complete the GenVec clinical production campaign by the end of 2003.

And, with that, I would like to turn the call over to Todd Simpson, our Chief Financial Officer, who will review our financial results for the third quarter of 2003.

Thanks, Stewart, and thanks to everyone for joining in this morning. So, as Stewart just mentioned, we're not only made significant progress on our three core product development programs this year, but we've also significantly improved our financial condition in several ways. So, what I want to cover this morning are a couple of things. I will go over our financial results for the quarter and year-to-date, but I also want to highlight some changes on our balance sheet. So, let me start things off with that.

Recall, that at end of 2002, we focused our activities on our Cystic Fibrosis, AIDS vaccine, and Arthritis programs. We extended our AIDS vaccine collaboration with IAVI through the end of this year, and struck a new collaboration with the CF Foundation to fund our current Phase IIb clinical trial. These actions, in addition to other cost-reduction measures, reduced our overall operating expenses by about 40 percent from where they were a year ago, and our burn rate dropped to about $1 million per month. This created a scenario that we felt was much more conducive to capital raising, and in a series of transactions, we have raised about $21 million in new equity capital this year, so far.

We ended the September quarter with 26.1 million in cash, an increase from 12.6 million at the beginning of the year. And now feel that this cash, along with the funding we expect to receive from IAVI, puts us in good shape to execute our planned development programs and clinical trials, through at least the end of 2004. While certainly an improvement from where we were, we still have work to do, and we will continue to work on extended our collaboration funding with IAVI, as well as look at several capital-raising strategies to further expand our cash resources.

As Stewart also mentioned, we converted all of our outstanding debt with Elan into shares of our common stock during the quarter. This further simplifies our capital structure, but more importantly, it allows us to focus our cash resources on our core programs, and eliminates further substantial interest charges. This conversion reduced our long-term debt position to about $12.7 million, which now consists primarily of equipment financing and a $10 million note due in August of '06 to Biogen, our largest shareholder. Our equity has increased from about $6 million at the beginning of the year to what is now nearly $40 million. So, indeed, we have improved our financial position quite considerably.

As you know, earlier this morning, we announced our third-quarter financial results. This included a net loss of $780,000, or a penny per share, for the quarter ended September 30, '03, compared to a net loss of $4.8 million, or 11 cents per share, for the third quarter of last year. We reported a net loss of $8.5 million for the 9 months ended September '03, compared to a net loss of 17.7 million for the same period last year. And, as we have said in previous calls, the decrease in 2003 net losses is largely the result of the planned decreases in operating expenses that we implemented last year, and are focused now on our three core programs.

Our revenue in the third quarter of '03 was $5 million, compared to 4.8 million in the third quarter of last year, and was $12.7 million for the 9 months ended September, '03, compared to 14.8 million for the same period last year.

Revenues in 2003 consist primarily of revenues that we earned under our AIDS vaccine collaboration with IAVI, and the third-quarter recognition of $3.4 million in previously-deferred payments received from Biogen, as part of our collaboration with them that, as Stewart mentioned, concluded in September of this year.

Also, recall that revenues in the first quarter of this year included termination-related revenue from our Wyeth (ph) collaboration of $3.9 million. So, moving through the remainder of this year, our revenues will primarily consist of R&D funding under our IAVI relationship, as well as some contract manufacturing revenue under our GenVec relationship.

Our operating expenses for the third quarter of '03 were $5.5 million, down from $9.3 million in the third quarter of last year, and were $20.3 million for the year-to-date in '03, compared to 31.8 million for the same period in 2002. Again, this reflects our planned efforts to reduce our burn.

R&D expenses decreased to $3.9 million in the third quarter of 2003, from $6.8 million in the third quarter of '02, and decreased to $12.8 million for the year-to-date in 2003 -- a 44 percent reduction from the $22.8 million incurred last year.

Similarly, G&A expense decreased to 1.1 million in the third quarter of 2003, down from 1.7 incurred in the third quarter of 2002 -- and fell to $3.9 million for the year-to-date in 2003, down 38 percent from the $6.3 million incurred last year.

One last thing to point out is the non-cash charge that we have taken this year related to our Sharon Hill (ph) and (indiscernible) facilities, both of which we attempting to sublease, as we have talked about. These charges, again, which are non-cash charges, were $374,000 in the third quarter, and $3.6 million for the year-to-date.

So, all in all, I think, again, as Stewart said, another quarter marked with great progress, both scientifically and financially, and, with that, I'm going to stop and turn the call back over to Stewart to highlight some of the plans for the remainder of the year.

Thanks, Todd. So, looking towards the remainder of 2003, we will continue to move forward in the advancement of the three key product development programs. We will continue to approve patients for our Cystic Fibrosis Phase IIb trial, and as I mentioned, we anticipate that this trial will last about 12 to 18 months. We will also continue to work with regulatory authorities in order to initiate both our AIDS vaccine and RA Phase I trials in the coming months. Our GenVec program will be up and running through the end of 2003. So, the fourth quarter is really a busy time for our manufacturing team, as we complete this phase of work on behalf of GenVec.

On the partnering front, we continue to see collaborative opportunities for our product candidates in our gene delivery systems. And we also will seek to extend current collaborations and, indeed are in the process of negotiating an extension to our AIDS vaccine collaboration with IAVI.

Finally, while we are very pleased with the significant progress made with respect to our financial picture over the last several months, as Todd mentioned, we will continue to seek out opportunities to further extend our cash position. This continues to be a top priority for the company, as we develop plans to carry our program through clinical development, and realize the full potential of these product candidates.

And, with that, I would like to close by, again, thanking everyone for their ongoing support. We thank you for your time this morning, and we look forward to updating you in the near future on continued progress. And, at this point, we are very happy to answer any questions you may have. Peter?

(OPERATOR INSTRUCTIONS). Geraldine O'Keefe, Fortis Bank.

Very nice (technical difficulty) this morning. Just a few questions for you, Stewart, I guess -- these are for you. Just on the Cystic Fibrosis -- if I heard you correctly, you've enrolled 8 sites, you will enroll 12 sites in total. And, you are saying the time will take 12 to 18 months. Is that 12 to 18 months from now, or from when the -- when it is fully enrolled?

Well, first we've actually initiated 7 sites out of 12. And that is from the beginning -- from the day we began. So midyear -- mid-'03.

So, 12 month from mid-'03 -- (multiple speakers) 12 to 18 months from mid-'03?

Correct.

I would assume in the next few months, you will be initiating (indiscernible) in your AIDS vaccine and your RA. But, I'm just wondering, will there be any data points (ph) or any -- between now and the 12 to 18-month timeframe? Will there be any interim analysis or any point at which you might have some more data from any of your products?

Well, we will do an interim analysis for our Cystic Fibrosis program, but the interim analysis is really designed as a go/no go for futility. It is just a point of responsibility, I think. And, so, while we will not have the results of that ourselves -- it will be done by an independent data safety monitoring board -- you know, we will obviously say whether we are proceeding or not.

You know, other milestones are really more initiation of trials, I would say. The AIDS vaccine trial and the RA trial are both placebo trials. And so, we will not really have the results of those until later in 2004.

Okay. Another question, if I may. Just on the GenVec deal -- can you just tell us a little bit more -- maybe I missed it when you were saying earlier -- it will be up and running by the end of this year? When is it going to start generating revenues?

Again, the relationship sort of had two components to it. There was an initial feasibility phase that we initiated, sort of, midyear. That had revenue ascribed to it; however, we were not in a position to recognize that revenue until we got the final signoff of the feasibility batches with GenVec. That happened in October -- early October. So, we will be reporting some revenues from the GenVec relationship in the fourth quarter. That, obviously, also segways us into the clinical grade manufacturing aspects of the contract now with GenVec. And we are doing that work now, and plan to, hopefully, have that wrapped up by year-end. So there may, in fact, be some additional fourth-quarter revenue that comes from that, if not fourth quarter, it would be first quarter.

The last question, if I may. Does this use up all of your spare manufacturing capacity? Or, have you still left space to do additional similar deals?

Well, we are monitoring that very closely. For 2003, I think we are fully booked with the GenVec deal. But, for 2004, most of our capacity will actually be used by our internal product requirements -- our manufacturing for the additional Cystic Fibrosis trials, for IAVI trials, AIDS vaccine trials, and for those Phase II Rheumatoid Arthritis trials. So, we are going to be looking at the schedules very, very closely. And if we can fit in additional things, we will. Because, obviously, we want to leverage these resources and people and capacity as closely as we can.

Okay. Thank you very much.

Russ Gilbertson, Roth Capital Partners.

Congratulations on the progress that you have made this year, and a nice quarter.

My first question is in regards to revenues, looking forward. And, I am just curious -- I know you are in negotiations on the IAVI deal, but what would you anticipate in '04 for revenues from this? And also from your GenVec deal?

Well, I obviously cannot give solid guidance on what will happen because, as you just mentioned, we are in the process of negotiating with IAVI right now, precisely what we will do next year. The work that we're contemplating, obviously, includes the Phase I clinical study, which will be conducted from our (indiscernible) at IAVI. So it will not really cycle through Targeted Genetics all that much.

But, we're also planning on doing some development activities on the multi-component vaccine that we have talked about. I think, in previous calls -- we will be looking to deliver multiple viral genes that, perhaps, generate an even-more robust immune response. And, you know, the size and the scope of that work is being hammered out right now, and we just really -- can't really say much until that is completed.

Sure. Sure. But, there's a potential that it could expand, compared to what you've done in '03?

Potentially, yeah.

Okay. Very good. And in the enrollment -- I know you have initiate the sites for the Cystic Fibrosis trial, but, actually, in terms of patients, how does that reflect numbers of patients that have been enrolled?

Russ, we do not really disclose that because (multiple speakers) we would have to do, sort of, (indiscernible) per patient. Things are on track for the timeline that we mentioned. (multiple speakers) we don't really talk about specific patient numbers.

Okay. Well, I guess we'll have to wait and hear, then. Well, thank you very much, and have a good day.

(OPERATOR INSTRUCTIONS). At this time, it appears we have no further questions.

Well, thank you very much. We very much appreciate your interest, and look forward to updating you in the future.

Ladies and gentlemen, thank you for your participation in today's 2003 third-quarter financial results conference call with Targeted Genetics. This presentation will be archive, and can be accessed at www.TargetedGenetics.com.

Thanks again for joining us today. You may now disconnect.