Armata Pharmaceuticals, Inc. (ARMP) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Targeted Genetics 2003 fourth quarter and year end financial results conference call. Today's presenters are Stewart Parker, President and CEO of Targeted Genetics and Todd Simpson, CFO of Targeted Genetics. During this teleconference all lines will be in a listen-only mode (Operator Instructions). At this time I would like to introduce our first presenter, Stewart Parker.

Thanks, John. Good morning and thank you for joining us as we take some time today to look back on 2003 and discuss plans for the coming year.

2003 was a really successful year for Targeted Genetics. Over the last several quarters I've consistently reported on significant progress made by the Company on several fronts. Our team at Targeted Genetics worked to advance all three of our core product development programs. We strengthened our financial picture, we strengthened expertise and resources in the area of manufacturing, and we both expanded and established new collaboration to support our clinical programs.

I look forward to discussing these successes with you this morning in a bit more detail as well as providing an overview of plans for 2004. You'll also hear from Todd Simpson, our Chief Financial Officer, who will review our financial accomplishments in 2003 along with numbers for the fourth quarter and year end.

So before I go any further 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. And we do wish to caution you that such statements are only predictions and that actual events or results may differ materially from the statements we make. So please do 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 as many of you already know, at the beginning of 2003, Targeted Genetics focused its commercialization priorities on three core product development programs -- our cystic fibrosis program, our age (ph) prophylaxis program and our arthritis program. We believe these products are the best opportunity right now to continue to build value for the Company and to realize the full potential of our technology.

These candidates also represented disease categories for which there is still significant unmet need and we feel our product candidates may represent a whole new way of either preventing or treating disease. Our product for the treatment of cystic fibrosis or CF is called TGAAVCF. CF is a genetic disease caused by a defect in the CFTR gene and those who have CF ultimately suffer from lung failure and die at a young age. In fact the median age of survival for patients with CF is only in their early 30s.

With the use of TGAAVCF, we hope to address the underlying cause of disease and prevent disease progression unlike currently available therapies which only address symptoms of CF. In June of 2003 Targeted Genetics presented positive results from a Phase II safety clinical trial at the annual meeting of the American Society of Gene Therapy. These data confirmed a statistically significant improvement in lung function after thirty days, along with a clean safety profile.

In addition, a full analysis demonstrated positive trends in various measurements of lung function after 60 and 90 days. Twenty-two percent of patients treated with TGAAVCF sustained a 5 percent or greater improvement in lung function at 90 days while no patients receiving placebo achieved this response.

And 17 percent of patients treated with the product candidate sustained a 10 percent or greater improvement in lung function at 90 days while, again, no patients receiving placebo achieved this level of response. Just a few weeks ago, these data were published in the February 9th issue of CHEST which is the official publication of the American College of Chest Physicians. Now earlier in 2003 Targeted Genetics had secured a partnership with the CF foundation to support external costs related to our next stage of development of this product.

This collaboration provided us with a nondilutive way of financing the next phase of our product development efforts and the CF Foundation provided value in other aspects as well. One of the CF Foundation's unique assets is its therapeutic development network or TDN. This is a network comprised of CF care centers selected from the Foundation's existing network of more than 115 accredited CF care centers. The TDN helps to streamline the clinical trial process and ensure that uniform data are collected.

We began working with the CF Foundation therapeutics division to prepare for our next phase of product development and in the summer of 2003, Targeted Genetics announced the initiation of a larger scale Phase II b clinical trial. This is the most advanced and largest gene therapy trial -- gene therapy clinical trial in cystic fibrosis to date.

The primary goal of the study is to monitor change in lung function and to assess how long the effects of the drug persist after treatment. We are also building our body of data on dosing regimen. We will also continue to monitor other biological markers of the disease, while monitoring safety at the same time and we hope to confirm what we've seen in our previous Phase II clinical trials.

This is significant progress in one year. And we're pleased to have advanced this program into the next stage of development. TGACO9 is our vaccine product candidate designed to protect against AIDS. The latest statistics show that more than 40 million people worldwide suffer from AIDS or are infected with HIV and the numbers continue to grow at an alarming rate with no preventive vaccine currently available.

Targeted Genetics is in a partnership with a group called The International AIDS Vaccine Initiative or IAVI, and the Columbus Children's Research Institute or CCRI to develop this vaccine. The partnership is primarily designed to address this pandemic in Third World countries.

Now, you're probably heard a lot of news recently on AIDS vaccines but unfortunately not much has been particularly good so the logical question that is why do we think this approach would be different? And we believe there are a couple of reasons for this differentiating factor. And first because of the robust and durable immune response observed after injection of a single dose of an (indiscernible) vaccine, our approach may represent a singleshot strategy in which is particularly important in lesser developed nations which is the focus of IAVI's organization.

Now secondly and very importantly, our vaccine approach results in both a T-cell and a B-cell immune response. Many experts in the field believe that this dual response to the immune system is necessary to develop a successful vaccine. Now as you will recall, earlier in 2003, we worked with our collaborative partners IAVI and CCRI to extend this collaboration through the end of 2003 and this provided us with extended funding to continue working on the program and meet milestones for the year which included transition into the clinic.

At the same American Society of Gene Therapy annual meeting last June we reported very encouraging preclinical results testing our AIDS vaccines in nonhuman primates. Data suggested sustained dose dependent antibody and antigen specific T-cell responses of our six-month period. Extensive safety studies also were conducted and the product candidate was found to be safe and well tolerated.

At the same time data were being presented, Targeted Genetics was working diligently with regulatory authorities to move through the process of submission to begin human clinical trials. So, together with our collaborators, we achieved another significant milestone in 2003, by initiating our first clinical trial to test our AIDS vaccine candidate in humans.

This trial began in December and is being contacted in Europe. This dose escalation trial will ultimately enroll up to 50 healthy volunteers uninfected with HIV. Each participant in the study receives a single injection of the vaccine candidate. The primary goal of the Phase I clinical trial is to determine safety but we also will monitor immune responses as well.

In addition to meeting clinical milestones in the second half of 2003 we also worked to negotiate an additional extension of our collaboration with IAVI. In the beginning of 2004, we announced an extended agreement that covers more through 2006. Financial plans for 2004 have been determined and IAVI has committed up to $10.7 million in funding to support work for the first year of this extended collaboration. We are very pleased to continue work with this group and really would like to thank IAVI and CCRI for their ongoing commitment to realizing the potential of an AAV base vaccine to prevent AIDS.

Our rheumatoid arthritis product candidate -- tgAAC94 is designed for injection directly into affected joints of those suffering from rheumatoid arthritis. RIA is a chronic disease that causes pain, stiffness, swelling and loss of function in the joint. Now anti TTNF therapies have been very successful in treating the disease and yet rheumotologists maintain about 25-40 percent of those patients currently treated with these still suffer from pain in one or more joints. We believe tgAAC94 may serve as potential alternative or supplement to these therapies in patients where one of several joints do not respond to protein therapy.

As in our other programs Targeted Genetics presented positive preclinical data from its rheumatoid arthritis program at the gene therapy conference in June. To briefly summarize, we saw no safety issues at any dose levels after treatment with the product candidate, local TNF are the expression was confirmed in the injected joint after it in particularly in charge securely administration of the product candidate in both normal and arthritic (ph) with that significant systemic (ph) pretty level. These preclinical data were part of an overall package used in our regulatory submission to begin a clinical trial.

In the second half of 2003 then, we submitted our regulatory filings in both the USA and Canada, respectively, and just recently we announced regulatory approvals to proceed with our clinical trial in both countries. We're very pleased with this move and now are in the process of preparing to initiate the trial. The study with utilized Targeted Genetics AAV technology to deliver the DNA sequence encoding of soluble tumor necrosis factor receptor or TNFR as a treatment for RA. This dose escalation safety trial is designed to enroll up to 32 patients with RA. and will be conducting in up to eight sites in both countries. Patients will be monitored for safety and improvement in arthritis sign and symptoms.

We have targeted the first quarter of 2004 to initiate the trial so I imagine you will be hearing from us relatively soon on this progress. Now in addition to progress made in all our programs, Targeted Genetics was moving forward on some other projects in 2003. As many of you are aware Targeted Genetics announced its intent to utilize any excess manufacturing capacity to generate additional revenue for the Company in the beginning of 2003.

In March we formed a contract manufacturing collaboration with GenVac to do an initial feasibility study for potential manufacturing of GenVac's oncology product candidate TNFRA.

In October we announced our first phase was successful and that we were moving forward to manufacture TNFRA for use in GenVac's clinical trials. Our contract manufacturing program was very successful and benefited the Company for several reasons and in several ways. First, we were able to generate additional revenue and leverage some excess capacity that we had in 2003 at our manufacturing state.

We were able to maintain and continue to build our team of experts (ph) within the field of manufacturing and this infrastructure is really critical to our business. This program not only advanced our knowledge and understanding of product manufacturing but our teams gained invaluable experience that will no doubt help us as we move forward and our facilities were also enhanced to meet the needs of this program and beyond.

Now while we do not really expect to have excess manufacturing capacity for the near-term we will continue to evaluate contract manufacturing opportunities should additional capacity become available.

Now before I turn things over to Todd, so he can discuss so he can discuss our financial successes in 2003 I want to highlight enhancements in our intellectual property portfolio during the year along with some updates on additional program progress as well. Targeted Genetics continue to expand its overall body of intellectual properties and one patent in particular that I would like to highlight this morning is a patent supporting our new development in AAV manufacturing.

This patent describes the process in which the growth conditions used to culture production cells lead to the release of that product particles into the sales culture medium without the need for breaking open the host cell membrane. This all translates into an approach that leads to improved production quality and should allow for a more cost effective approach to large-scale manufacturing of AAG vectors. 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 provides the competitive edge for the Company.

Targeted Genetics now has over 400 patent or patent applications under file with the U.S. Patent and Trademark offices for its counterparts covering various technologies, genes, factors and manufacturing processes.

Now because our current core programs utilize AAV as a delivery vector we spent more time in 2003, working on and at this call discussing the use of AAV. But it is important to note that Targeted Genetics has a diversified technology platform that includes additional technologies such as Adeno viral spectors and non viral technologies such as DC cholesterol and lipid (ph) (indiscernible) DNA or LPT delivery systems. Each delivery system provides different assets that are applicable to a wide range of diseases. Some of this additional technology allows Targeted Genetics to consider in the future additional disease categories going forward like cancer where gene therapy may have unique potential.

I will now turn it over to Todd Simpson, our Chief Financial Officer, to discuss accomplishments made in 2003 with regard to our financial picture.

Todd?

Thanks, Stewart and thanks to everyone for joining in this morning. As Stewart just highlighted, 2003 was a year of significant progress in our three core development programs and this progress allowed us to make considerable progress from a financial perspective. So I want to cover a couple of things this morning. I will go over our financial results for the fourth-quarter and the year but I also want to cover our recent financing, our cash position and improvements made to our balance sheet over the year. Recall that coming into 2003 we talked about our focus on our CS (indiscernible) vaccine and our arthritis programs.

This focus was the result of a careful look at each of our product areas, some tough decisions and the conclusion that advancing these programs in a significant way could best position us for growth. Our teams executed what were pretty ambitious development plans and we are now moving three programs forward clinically.

This focus also allowed us to decrease our R&D and G&A expenses by about 40 percent in 2003 over 2002. We presented scientific data midyear and at about the same time, the capital markets began to turn and with that we were able to raise $22 million in new equity capital for the Company ending the year with about $21 million with cash on our balance sheet.

As we also look for a creative nondilutive way as Stewart mentioned to fund specific programs we entered into a new development collaboration with the CF foundation bringing $1.7 million of funding to fully fund all the external costs of our current ongoing Phase 2b clinical trial. And we extended our collaboration with IAVI in early 2003 and then again just recently extending that collaboration through the end of 2006. And as Stewart mentioned, the budgeted work activities for 2004 will bring funding of up to $10.7 million for the Company this year. Both of these allowed us to move specific programs forward and still retain downstream value for the Company.

We also leveraged some excess capacity that we had with our manufacturing groups through a contract manufacturing agreement with GenVec. This allowed us to generate some additional cash for the Company as well. But we had talked in our earlier call about the need to still do more and in February of this year we were able to raise $25.5 million in new equity capital. This was an offering of common stock taken down off our shelf registration statement that priced at 235 per share and allowed us to further expand our institutional shareholder base and add to our cash reserves in a pretty significant way.

Just to put this into context, we're in perhaps the best cash position that we have ever been in in our twelve year history and now should be in good shape to fund our programs at least until the beginning of 2006. Even though we have extended our collaboration with IAVI through the end of 2006, this projection does not include any funding assumption for 2005 or 2006, since we established the work plan and budget on an annual basis for the collaboration.

Later in the year we should have a better sense of the development plan for 2005 and we will be able to share more information as the plan and budgets are approved. The objective of our February financing was to have enough cash to not only complete our current clinical trials, but to evaluate the results and initiate the next series of clinical trials and continue to build value. We now feel that we can accomplish those.

As discussed in last quarter's call, we also converted all of our outstanding debt with Alon (ph) and shares of common stock during the quarter of 2003 further simplifying our capital structure. More importantly, though, it allows us to focus all of our cash resources on our core programs and eliminates further substantial interest charges that would have otherwise been incurred on what was pretty expensive debt for us -- it carried about a 12 percent interest rate.

Lastly, our equity has increased from about $6 million at the beginning of 2003 to about $33 million at year end. Since then, of course we have added another 24 million or so with the February financing. So again significant improvement from a financial perspective really driven by advancement of our programs. Now earlier this morning, we announced our financial results for the fourth quarter and year ended December 31, 2003 and this included a net loss of $6.3 million in the fourth quarter of '03 or 10 cents per share compared to $6.1 million or 12 cents per share for the fourth quarter of 2002.

We reported a net loss of 14.8 million or 26 cents per share for the year end 2003 compared to a net loss of 23.8 or 52 cents per share in 2002.

Our revenue in the fourth quarter of 2003 was 1.4 million compared to 4.5 million for the fourth quarter in '02 and was 14.1 million for the year end 2003 compared to 19.3 million in 2002. Revenues in 2003 came primarily from four sources.

First, 4.4 million in revenue that we earned under our AIDS vaccine collaboration with IAVI. These revenues were lower in 2003, compared to 2002, as development activities decreased and the program moved into clinical trials in December of last year.

Second, the recognition of previously deferred upfront and quarterly payments received from Biogen of $5.1 million as part of our collaboration with them, that concluded in September of last year.

Third, $3.9 million in termination-related revenues from our Wyeth collaboration recognized during the first quarter.

And, finally, contract manufacturing revenue recognized in the fourth quarter.

As Stewart said, this work is now pretty much complete and final lot releases are expected shortly. Once this has taken place, we will recognize the remainder of this revenue. Our operating expenses for the fourth quarter of 2003 were 7.6 million down from 10.3 million in the fourth quarter of '02.

Expenses were 27.9 million for the year in 2003 down from 42.1 million in 2002. These decreases reflect our planned efforts to reduce our burn at the end of 2002 that we have talked about.

Operating expenses include restructured charges of $2.3 million in 2002 and $5.2 million in 2003, related to our facility leases that I will come back to in a minute.

R&D expense decreased to 4.4 million in the fourth quarter of '03 down from 6.6 million in the fourth quarter of '02, and decreased to 17.2 million for the year in 2003, down from 29.4 million in 2002.

Similarly, G&A expense decreased to 1.6 in the fourth quarter of 2003, down from 1.8 million incurred in the fourth quarter of '02 and decreased to 5.5 million for the year ended 2003 down from 8.1 million incurred in 2002.

Now I briefly mentioned the lease accruals that we recorded in 2002 and 2003. Remember that when we decided in late 2002 to stop the build out of our Bothel (ph) facility for large-scale manufacturing, we adopted what were then recently issued accounting principles specifically, FAS 146 which requires that we accrue all remaining rent due under the leave less estimated sublease income.

So it is important to keep in mind that this accounting method really does not change what we owe under the lease, we're just now accruing these amounts net of sublease rents.

We periodically look at the sublease rental assumptions and update the accrual as necessary. Throughout the year, the sublease market continued to deteriorate with high vacancy rates and as a result, we increased the accrual for the Bothel (ph) facility which now stands at $6.4 million. Now assuming the programs that we are now developing move into larger clinical studies and towards commercialization, we may indeed need to resume the construction and build out of this facility. We already completed much of the design rate for the facility and may look to update our plans and resume construction once we have additional clinical data from our programs and financing is available.

If we decide to move forward we will reverse the remaining accrual on the books and record a onetime credit to our P&L -- again the accrual on the books right now stands at $6.4 million for the Bothel (ph) facility in addition to $.5 million related to our (indiscernible) facility that we closed early last year.

Our R&D and G&A expenses in 2003 were about $23.5 million -- again, about a 40 percent reduction from 2002 reflecting the focus over the last year on our three lead development programs. Offsetting some of these expenses we received about $8.5 million in cash funding from our partners last year.

Now heading into 2004, we intend to keep things fairly lean but do expect an increase in our overall cash requirements in '04 of about 20 percent. This reflects expanded activities in our AIDS vaccine program, clinical trial cost for our arthritis and CF programs and manufacturing campaigns for each of our program areas this year.

Offsetting some of this though is up to $10.7 million in collaboration funding we expect to receive from IAVI in 2004. So we're targeting our burn this year at about $14-$16 million. We will know more about the level of funding from IAVI in 2005 and 2006, later in the year, as we finalize the development plan for the AIDS vaccine program with them.

So just to close up, 2003 was a great year for us, both fiscally and from a project standpoint and we think it has really now set us up nicely with each of our programs for it in generate clinical data. So with that I'm going to turn the call back over to Stewart who will wrap things up.

Thanks, Todd.

So I will turn to a brief overview of what is to come in 2004 as far as program progress. First we continue to accrue patients at our CF Phase 2b clinical trial and we expect to be done with patient dosing by the end of 2004. In the meantime the independent data safety monitoring committee or DMC will review safety data every four months during the enrollment, a planned interim analysis is scheduled halfway through the study. At that point the DMC will review lung function data.

The analysis is structured so that if there is no observed difference in lung function between PGA, VCF and placebo, the DMC will recommend discontinuation of the trial but the data will remain blinded as long as the study continues.

We should complete the dose escalation portion of our AIDS vaccine Phase I clinical trial currently underway by the end of 2004. IAVI has actively accruing patients in Belgium and recently announced that dosing has begun in clinical sites in Germany as well. While we continue with our Phase I trial of tGAACO9 Targeted Genetics and IAVI will actively pursue our multicomponent AIDS vaccine strategy.

The collaboration believes that a multicomponent AIDS vaccine provides the best hope for preventing AIDS. We will explore the use of various HIV antigens to determine the optimum protective vaccine against AIDS so that we can begin to advance with the best AAV based candidate.

Now we're still scheduled to initiate our Phase I clinical trial of tGAAC94 in patients with rheumatoid arthritis in the first quarter of 2004. We estimate that the trial will take about one year to complete so we're targeting first quarter of 2005 for trial conclusion. For this program going forward we will also take a look at additional disease categories for which tGAAC94 may hold potential. We will consider scoriatic arthritis, (indiscernible) spondolitis (ph) and eye diseases such as uveitis (ph) as potential opportunities.

During 2004 we will also continue to seek ways to best maximize the potential of our additional technology assets and other product development opportunities. As you are probably aware, Targeted Genetics has generated proof of concept data in several other diseases with other products. We believe these programs provide opportunities for establishing outlicensing agreements or partnerships that may provide us with additional revenue or sources of funding.

We continue to seek partnership opportunities with interested parties about all of these assets and in the meantime we've been very pleased with the work done in 2003 to establish the new partnership to support our CF program and extend our collaboration with IAVI and CCRI into 2006 to support our AIDS vaccine program.

I think with that I'd like to wrap up by really expressing our gratitude to the team at Targeted Genetics that worked unbelievably hard in 2003 to meet very aggressive goals and succeeded in achieving each and every one on a very tight timeline. Because of all of this work we've laid the foundation to achieve our product development goals in 2004, obviously allowing us to continue to focus on the Company's top priority which is to realize the potential of these product candidates as commercialization opportunities.

I would also like to thank everyone for their continued support and for your time this morning. We look forward to another successful year and we will continue to provide Company updates as we move forward. In addition to our plan for (indiscernible) earnings call Targeted Genetics is scheduled to present at additional investor conferences in the coming month. We will also hold our annual shareholder meeting here in Seattle on May 20th, almost marking the 10th anniversary of our Company as a public company.

So check out our website for the latest calendar of events and details associated with each presentation and at this point we would be very happy to answer any questions that you may have.

(Operator Instructions) David Miller, Biotech Monthly.

Congratulations on a wonderful year. Can you give us some timelines for when we might see data for the Phase I AIDS trial and the arthritis trial?

Sure. Our plan right now is to finish up in the AIDS program. The dose escalation portion of that trial and we believe we will be able to find a venue and an appropriate opportunity to talk about the data sometime in the first half of 2005. And the arthritis trial is anticipated to complete patient accrual on the fist quarter of 2005 and so we will do our best to analyze the data and be able to talk about that sometime we hope by the middle of 2005.

For the CF trial are you using the same mechanism of delivery that your delivery mechanism that you used in the Phase 2a?

Yes, we are using a peryalstic + nebulizer (ph) currently to deliver that product.

And then, in term analysis on that trial, are you going to release the data on that in term analysis or is going to be only for internal use?

Well, we won't actually be privy to the data ourselves, so unless the data is profoundly negative, which we don't anticipate, we won't really be able to say much about that other than that you will know that if the trial is continuing that things are looking good.

'09 is not multivalent (ph) now. Is that correct?

Correct. The current product configuration has a single gag antigen.

So what you're looking to do if I understanding you correctly is you're looking to get some safety data on this? And then you would not advance on (ph) you would advance on the multivalent, is that correct?

We would follow on with the multivalent vaccine and that is really the broad of a lot of the work being done under that 10.7 million work plan in 2004 from IAVI in addition to manufacturing.

(Operator Instructions). Ladies and gentlemen, it looks like we have no more questions at this time.

Thank you all very much and we look forward to talking with you again soon.

Ladies and gentlemen, thank you for participating in today's 2003 fourth-quarter and year end 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.