Armata Pharmaceuticals, Inc. (ARMP) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Targeted Genetics 2004 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. [Caller instructions.] At this time, I'd like to introduce today our first presenter, Stewart Parker. Stewart?

Thanks, Marie. Good morning, and thank you all for joining us as we take some time to look back on 2004 and discuss plans for the coming year. 2004 was a very important year for Targeted Genetics and a year in which we successfully achieved our goals across several areas of our business. We made significant progress in advancing all 3 of our core product development programs. We strengthened our financial position and expanded our patent portfolio. I'll discuss these achievements with you this morning in greater detail and will provide an overview of our plans and objectives for 2005. You'll also hear from Todd Simpson our Chief Financial Officer, who will review our financial accomplishments in 2004, numbers for the fourth quarter and year end and some guidance for 2005. 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. 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 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. And we also plan to file our 2004 form 10-K later this week.

So we started 2004 within an all encompassing focus on advancing the clinical development of our 3 core product development programs. Cystic fibrosis, AIDS prophylaxis and arthritis. And I'm very pleased with the progress we have made in each of these programs. Now, these product candidates are designed to address diseases with significant unmet medical need. And we believe that they have significant clinical and commercial potential. Our product for the treatment of cystic fibrosis or CF, is called tgAAVCF. Now, CF is a genetic disease caused by a defect in the CFTR gene and those who have CF ultimately suffer from lund failure and die at an earlier age. In fact, the median age of survival for patients with CF is in the early 30s. With the use of tgAAVCF, we hope to address the underlying cause of disease and prevent progression, unlike currently available therapies, which only address the symptoms of CF.

In 2004, we continued to enroll and dose patients in a randomized double blind, placebo controlled, Phase IIB study of tgAAVCF in patients with mild to moderate CF. Now. this study is the most advanced and largest gene therapy clinical trial in CF to date. And its primary goal is to monitor change in one function in patients receiving tgAAVCF compared with a placebo group. The study also will assess how long the effects of the drug persist after treatment and will monitor other biological markers, as well as safety. In June 2004, an independent data monitoring committee or DMC, recommended continuing this trial based on its analysis that upon complete enrollment, the study could show us statistically significant positive impact on lung function measurements in patients receiving tgAAVCF compared with placebo. So we're on track to report data from this trial in mid to late March and we hope to confirm what we have seen in our previous Phase II clinical trials.

Complete results from this earlier trial were published this year in the Journal Chest. And data from this study showed a statistically significant improvement in lung function after 30 days, along with a clean safety profile. In addition, the study demonstrated positive trends in various measurements of lung function after 60 and 90 days. In a subset analysis we saw that 22% 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 this product candidate sustained a 10 percent or greater improvement in lung function at 90 days. While no patients receiving placebo achieved this level of response. So we look forward to getting the data from this larger Phase II study. And we'll then be in a position to determine our next steps for the program. And once we've determined those steps, we will share them with you.

We've made significant progress in the clinical development of tgAAC09, our vaccine product candidate designed to protect against AIDS. In collaboration with the Internation AIDS Vaccine Initiative, or IAVI, and researchers at Columbus Children's Research Institute, or CCRI, we completed enrollment and dosing in a Phase I trial of the vaccine in Germany and Belgium. This double-blind placebo control does escalation study is to assess the safety and immune response to tgAAC09 in healthy volunteers who are not infected with HIV. Now we presented top line data from this trial last week. And the trial met its primary safety end point and had a clean safety profile that is consistent with what we have observed in the nearly 200 people who have participated in trials of our AAV based product candidates. No meaningful immunological responses against HIV antigens were observed at the doses tested. Which doesn't necessarily come as a big surprise.

This is the first recombinant AAV based prophylactic vaccine ever evaluated in human trials. As such, we began dosing at doses lower than the doses that stimulated T-Cell and B-Cell responses in preclinical studies. Now, based on the preliminary safety data reported to date, we believe that it is appropriate to begin evaluating higher doses. Which may be more likely to elicit stronger, positive immune responses. Additionally, pending regulatory approval, a subset of patients in the study will receive a second, or boost dose of the vaccine. We believe that data from the subset of patients will expand our understanding of how to stimulate the most robust immune response possible against HIV. As we expand the clinical development of our AIDS vaccine program, we intend to evaluate higher doses, prime boost administration, multi-antigen vaccine constructs and vectors containing sequences from AAV serotype 1 which may confer higher expression levels in muscle.

The results we received from last week's announced - - that were announced last week from the study are important and allow us with IAVI's continued commitment to now move forward with our comprehensive vaccine program development strategies. Now in, February of 2005, the Collaboration announced the initiation of an expansion of the original Phase I clinical program for tgAAC09 into India. And this trial will follow the same protocol as the trial ongoing in Europe. And it's considered an expansion of the current Phase I clinical trial program. The trial in India will expand our understanding of the potential of tgAAC09 in a country where HIV/AIDS has reached pandemic proportions. HIV/AIDS is a significant and growing problem around the world, particularly in developing nations. Latest statistics show that more than 40 million people worldwide suffer from AIDS or are infected with HIV. So we believe and IAVI believe that our approach to developing a vaccine against HIV/AIDS has the potential to make a real difference in the fight against this disease for several reasons.

As reported last year at the Seventh Annual Meeting of the American Society of Gene Therapy and several other scientific meetings, we've observed robust and durable immune responses after injections of a single dose of an AAV-based vaccine in animals subsequently infected with SIV an HIV-like virus. Second, in preclinical studies, tgAAC09 has been shown to induce both a T-Cell and a B-Cell immune response. Many experts in the field believe that this dual response is necessary and required to develop a successful vaccine. In addition to advancing the clinical development of tgAACO9 in 2004, we also extended our collaboration for another 3 years with IAVI and CCRI. And we added The Children's Hospital of Philadelphia, or CHOP, to the partnership so that Dr. Philip Johnson, who is formally of CCRI and now with CHOP can continue his work, in HIV, as part of the collaboration. Under the collaboration, IAVI covers all program development costs. And we look forward to continuing to advance the development of AAV based vaccines against HIV/AIDS.

tgAAC94 is our product candidate for the treatment of inflammatory arthritis. It's designed for injection directly into affected joints of those suffering from inflammatory arthritis. A chronic disease that causes pain, stiffness, swelling and loss of function in the joints. AntiTNF therapies have been very successful in treating this disease. However, rheumatologists estimate that 15 to 40 percent of the patients currently treated with these therapies have one or more joints that do not respond to treatment. We believe tgAAC94 may serve as a potential alternative or supplement to these therapies in patients where one or several joints do not respond to protein therapy. In 2004, we initiated a Phase I trial of tgAAC94 in patients with inflammatory arthritis. The double blind, placebo controlled, dose escalating study is assessing safety and molecular markers of disease following a single injection of tgAAC94 or placebo into the affected joints.

This study is ongoing at 8 sites in the United States and Canada and we expect to report results from this study in mid 2005. Targeted Genetics presented positive preclinical data from our inflammatory arthritic program at the Seventh Annual Meeting of the American Associate of Gene therapy this past June. These studies evaluated multiple routes of administering tgAAC94 and demonstrated complete suppression of inflammatory arthritis over 3 months of study in an animal model of the disease. Now, turning to more business matters, in the area of business development, the Company made significant progress as well. In June 2004, we announced the sale of our majority owned cell therapy subsidiary, CellExSys to Chromos Molecular Systems. And this sale provided a mechanism to accelerate the development of our very promising body of cell therapy assets. While enabling Targeted Genetics and the other CellExSys shareholders to have a long-term investment in the potential success of CellExSys' product development efforts.

Also in 2004, we stepped up an effort to leverage our manufacturing product development infrastructure into additional revenue-generating opportunities would take advantage of our leadership capabilities in the field and provide new product prospects for the Company. As a result in late 2004, early 2005, we established 2 new product focus research collaborations in accordance with this strategy. These deals are part of our strategy to leverage the investment and the capabilities that we have in developing AAV based products. And we think they are a testament to our leading position in AAV development. AAV is now showing significant utility in targeting diseases that are not drugable by standard small molecule or protein based approaches. We can utilize AAV to deliver genes, RNAi's, or other nucleic acid sequences to achieve very targeted and sustained levels of expression. We're very excited about some of the new opportunities that this is creating for us. Opportunities that leverage this capability and create significant opportunities for the Company without distracting us from our core program focus.

Now, the first of these new relationships is with Celladon. And Celladon - - and the collaboration is focused on developing AAV based therapies for congestive heart failure, utilizing Celladon's portfolio of genes and gene variants. Congestive heart failure is a serious condition in which the heart loses its ability to pump blood efficiently. And according to the National Heart, Lund and Blood Institute, about 5 million people in the United States alone have heart failure. And another 550,000 new cases are diagnosed each year. CHF contributes to or causes about 300,000 deaths annually. Now, Celladon has established academic collaborations with 2 distinguished leaders in the field that are targeting the PLN and [Circa 2A] pathways to mediate contractility of the heart. Dr. Kenneth Chien is a Professor of Medicine at UCSD School of Medicine and Director of the Institute of Molecular Medicine. And Dr. Roger Hajjar is the Director of the Cardiovascular Laboratory of Integrated Physiology and Imaging at Massachusetts General Hospital and Associate Professor of Medicine at Harvard Medical School and Staff Cardiologist in the hEart Failure and Transplantation Center at MGH. Preclinical data to date has been very encouraging and we're thrilled that Celladon has selected us at its AAV development partner.

The second collaboration also announced in January of this year is with Sirna Therapeutics. Sirna is a leader in RNA interference technologies. And we're working with them to utilize our AAV vectors to deliver small, interfering RNA's targeted against the Huntington's Disease gene. Huntington's Disease is a devastating degenerative brain disorder for which there is at present no effective treatment or cure. And according to the National Institute of Neurological Disorders and Stroke, 30,000 people in the United States alone have HD and at least another 150,000 are at risk for developing the disease. Sirna's scientific advisor and collaborator Dr. Beverly Davidson at the University of Iowa has published data demonstrating that the delivery of small inhibitory RNA using an AAV vector efficiently inhibited gene expression it in an animal model of spinocerebellar ataxia 1, a member of a class of inherited human neurodegenerative diseases that includes Huntington's Disease. Now, these data were published last year in Nature Medicine. Sirna and Targeted Genetics will jointly develop this product, sharing costs and potential upside from revenues generated.

So, all in all, we believe that these 2 collaborations validate our position as the leader in AAV manufacturing and product development. And we intend to continue to pursue additional such relationships in 2005. Now, before I turn things over to Todd to discuss our financial successes in 2004, I'd like to highlight enhancements in our intellectual property portfolio during the year. Along with an update on the additional program progress as well. Targeted Genetics continues to aggressively pursue intellectual property protection of our key technology assets. In 2004 we obtained an exclusive license from the National Institutes of Health for patents that cover the use of the AAV inverted terminal repeat, or ITR, as a promoter when utilizing AAV vectors for any product indication. The ability to use the ITR provides additional flexibility when designing AAV vectors. And may reduce the amount of exogenous sequence needed to regulate genes delivered with AAV vectors. We also broadened our AAV patent portfolio with the issuance of a patent covering AAV vectors that contain sequences from AAV serotype 1. This patent, issued to the University of Pennsylvania, is exclusively to Targeted Genetics. AAV vectors containing AAV 1 sequences may have particular utility in product candidates that are administered to muscle. Such as our HIV vaccine, tgAAC09, the brain, heart and other tissues.

We also continued our efforts to develop additional intellectual property around our other technology platforms. Such as adenovirus sectors and non-viral technologies, such as DC cholesterol and Lipid Polycation DNA or LPD delivery system. Each delivery system provides different assets that are applicable to a wide range of diseases. And some of this additional technology allows Targeted Genetics to consider new disease categories going forward, like cancer, where Gene therapy may have unique potential. I'll now turn to Todd Simpson, our Chief Financial Officer, to discuss accomplishments made in 2004 with regard to our financial picture. Todd?

All right. Thanks, Stewart, and thanks, everyone, for joining in this morning. So as Stewart just highlighted 2004 was a year of significant progress and not just our 3 core development programs. But was also a year where we strengthened the Company financially and were able to initiate additional collaborations. So this morning I'll go over a couple things. I'll cover our financial results for the fourth quarter and year. But I'll also cover our cash position, improvements made to our balance sheet during 2004. As well as provide you with some of our projections for cash needs and expenses throughout the course of 2005. So just to start off, we began 2004 with approximately $21 million in cash on our balance sheet. And ended the year with just over 34 million. In February of last year, we raised $25.5 million through a public offering taken down off of our shelf registration statement. And in December, we raised an additional $6 million through a common stock investment made by Venrock and enterprises. Again, as part of the new relationship with Celladon.

We'll use $2 million of this towards work activities under the collaboration. And remainder will support our other development programs. Combined, these financial resources will help support our programs in CF and arthritis. As well as provide us with the flexibility to evaluate additional areas of research that have the potential to create new product opportunities for the Company. Earlier in the year, we also extended our collaboration with IAVI, which provides full program funding for all of our AIDS vaccine work. To date this, funding has totaled over $20 million. This doesn't, however, include the cost of clinical development. As IAVI manages and funds those activities separately. This continues to be a significant source of funding for us. And we expect to receive up to $5.6 million from IAVI to support the program in 2005.

Now, earlier this morning we also announced our 2004 and fourth quarter financial results. Our net loss in the fourth quarter of '04 was $2.2 million, or 3 cents per share compared to $6.3 million, or 10 cents per share for the fourth quarter of 2003. And our net loss for the year in 2004 was $14.3 million, or $0.18 per share compared to $14.8 million, or $0.26 per share in 2003. Revenue in the fourth quarter of 2004 was $3.2 million compared to $1.4 million in the fourth quarter of last year. And was $9.7 million for the year in '04 compared to 14.1 million in 2003. Revenue in 2004 primarily reflects amounts earned under our AIDS vaccine collaboration with IAVI. Which increased to $2.7 million in the fourth quarter of '04 and $8.4 million for the year. Revenue in 2004 also includes $1.3 million in contract manufacturing and other service revenue.

Total revenues in 2004 decreased by $4.4 million compared to 2003. And reflects $9 million of revenue in 2003 earned under our former collaborations with Biogen and Wyeth. Both of which ended last year. Our operating expenses for the fourth quarter of '04 were $5.4 million, down from $7.6 million in the preceding yea. Expenses were 2.8- - $24.8 million for the year in 2004, down from 27.9 million for the year in 2003. R&D expense decreased to $4 million in the fourth quarter from 4.4 million in 2003. And was essentially flat for the year at just over $17 million in both years. G&A expense decreased to 1.4 million in the fourth quarter of 2004 compared to 1.6 million in 2003. But increased to $6.7 million for the year in 2004 from $5.5 million in 2003. The decreases in researchers - - expenses, I'm sorry, during the fourth quarter of 2004 reflect the sale of CellExSys last July. This also resulted in a gain on the sale of $1 million recorded and reported in our third quarter. The increase in G&A expense for the year in 2004 is largely the result of higher patent costs, personnel costs and regulatory compliance costs.

And finally, expenses in 2003 include $1.6 million in Q4 and $5.2 million for the year in charges related to our Bothell and Sharon Hill facilities. So significantly higher than the 884,000 incurred for the entire year in 2004. Through these charges and similar charges in 2002, we have accrued a total of $6.3 million in future rent on the Bothell facility as of the end of 2004. And this will be reduced over time now as we make scheduled lease payments on the facility. In previous calls, I've also talked about our Sharon Hills facility and our efforts to terminate that lease and can report that in the fourth quarter of last year, we successfully negotiated a termination agreement with the owner of that facility. So as a result, we have no further obligations with respect to the Sharon Hill facility. Now, with respect to guidance for 2005, assuming that each of our programs progresses as currently planned, we expect that our G&A and R&D expenses will collectively increase by about 20 percent over 2004 levels.

This reflects the activities under our AIDS vaccine program, expanded clinical trials for our arthritis program, manufacturing campaigns planned for each of our programs this year. And to a lesser degree, support of our new collaborations with Celladon and Sirna. Offsetting some of this is up to $5.6 million in funding that we expect to receive under the IAVI collaboration. So therefore, we're targeting a cash burn for 2005 in the $22 to $24 million range. So just to close up, 2004 was certainly a strong year for us, both financially and from a program standpoint. And we're looking forward to now reporting data from our clinical trial programs and continuing to leverage value out of our AAV development capabilities. So with that, I'll turn the call back over to Stewart and wrap things up.

Okay. Thanks, Todd. So I'll close with a brief overview of 2005 objectives for our clinical programs. First, we expect to report clinical trial data from the Phase IIB cystic fibrosis study, the Phase I HIV vaccine European trial and the Phase I inflammatory arthritis trial; in the first half of 2005. Subsequent to reporting those data, we will determine the next steps in each of the development programs and will work to in initiate additional trials as appropriate. We're also working to obtain regulatory approval to dose a subset of patients from the Phase I European HIV vaccine trial with a boost dose. Hoping to complete this additional dose regime during the first half of 2005. And to have data from this extension of the study by the end of the year.

During 2005, we'll also continue to look for opportunities to leverage our technology assets, manufacturing capabilities, and gene therapy product development expertise to create additional value for our shareholders. As we've previously discussed, Targeted Genetics has generated proof of concept data in several other diseases, including hemophilia and cancer. And we believe these programs provide opportunities for establishing outlicensing agreements or partnerships that could provide us with additional revenue or sources of funding. So we continue to seek partnership opportunities for all of our assets. And are pleased with the progress we've made already in 2005 with our collaborations with Celladon and Sirna. So, I would like to thank everyone on the Targeted Genetics team for their ongoing commitment to helping us achieve our goals and really for the enthusiasm they bring to their jobs each day. I believe we have the team we need to realize the potential of our product candidates as commercialization opportunities.

And I'd also like to thank every one of you for your continued support and for your time this morning. We really look forward to another successful year and we'll continue to provide Company updates as we move forward. In addition to our planned first quarter earnings call, Targeted Genetics is scheduled to present at additional investor conferences in the coming months. And for details on our latest calendar of events, please visit our Website. So at this point, we'll be happy to answer questions you have. And I'll turn it over to Marie.

[Caller instructions.] The first question comes from the line of [Derek Jelenex]. [Derek], your line is open.

I know you're not a soothsayer but I just wanted to know, as far as your next step as far as a CF program, I know you said you don't know the next step's pending data release. But I'm just trying to get my hands around the commercialization pathway. If you show good efficacy at the 30 day or 90 day time point in FEV-1, where does it go from there?

Well, I think once we have the data in hand, we'll be able to analyze it in full and we'll also be meeting with CF experts through our collaboration with the CF Foundation Therapeutic Development Network. So I, I think that the best answer I can give you is that having those experts collaborating with us has been very important for us. And we'll determine the strategy in concert with them. And obviously if the data is positive, we'll be able to move forward more aggressively. But it's just a question of looking at the data and deciding the path we take.

Right. Have you talked at all to the FDA as far as looking at FEV-1, percent of lung improvement, judged to be clinically relevant or a possible end point for approval?

Well, we obviously have sign off from the FDA for the design of our clinical studies. And no reason to believe that FEV-1 would not be considered an appropriate end point.

Right.

It's an end point that's been used in other CF studies as approvable end points.

Okay. Moving to your RA program, can you give us an update on your discussions with Amgen?

Well, we continue to have discussions with Amgen. And unfortunately and fortunately, that's my update. You know, I feel confident we'll be able to conclude these discussions, but we're still in discussions.

Okay. Great. That's all I had. Thanks.

Thanks.

The next question comes from the line of Kevin [Dejeser] with Dawson James. Kevin, you're line is open.

Hi, guys. Good morning. A quick question here. On the HIV program, it sounds like we're going to be doing some additional work here with an expanded Phase I. Can you give me a sense, you know, what to developing pathway looks like there? Are we going to perhaps even do some additional Phase I beyond what we discussed here in terms of maybe some AAV 1 before moving on to Phase II? Or just give me a better sense based on your first read.

Sure. Okay. Kevin, this is a complicated program, a complex program. It has a number of moving parts to it and it's a real multi-pronged effort. So IAVI is in control of the clinical design and the clinical plan. So we comment on that but it's not really in our hands. But you're right. The plan does include multiple trials. We'll be looking at, as I said, higher doses of the current vaccine structure, product configuration. We will be looking at using AAV 1 as a potential follow-on, AAV vector for the product because of its much higher efficiency in muscle. We'll be looking at giving boost doses and potentially even looking at prime boost, which is slightly different. It's the concept is using multiple vaccines to provide sort of a double whammy of immune response. And ultimately most likely, we will look at multicomponent vaccine that contains multiple antigens. So I can't give you guidance on a time line for each of these. Just let's say it's an aggressive effort on the part of IAVI. And IAVI is very committed to it and is funding it.

I might just add that the lion's share of the work that we'll do this year will be on the multicomponent approaches and the AAV 1 approaches.

Okay, and just sort of on the R&D line in terms of 2005, can you just give us a general sense in terms of, you know, incrementally where the bigger components are relative to 2004? I guess what I'm really getting at is trying to piece together the partnerships you have signed and figuring out how that's going run through the P&L here.

Yes, I think the growth that we'll see will be in the arthritis area around some of the clinical trial expansion that we've talked about. The HIV work will continue to be a significant component of what we do but of course that's fully funded under the collaboration. Manufacturing is planned for each of the programs this year. So that's a significant piece of the R&D burn. And then, again, to a limited degree, our support of the new Celladon and Sirna relationships kind of round things out.

Okay. That's it. Thanks a lot.

Thank you.

The next question comes from the line of Lei Zhong with Natexis. One moment, please. Your line is open.

Hello?

Yes, can you hear me.

Yes, we can. Good morning.

Good morning.

Quick question on the CF trial. Isn't this trial powered enough to detect a P value?

Yes. It's powered for- -

- - it's powered at 30 days at 5 percent FEV, is that correct?

That's correct.

What would you do if one of the things building into the product code that calls for some backup measures if you - - should you missed end point?

Well there, are a number of end points we'll measure and other improvements and other lung function measurements aside from the primary end point, which is FEV-1. We'll measure the presence level of in inflammatory hormones, like IL8, where we've shown in earlier studies that we can reduce their presence in studies using our product. Obviously the 90 day end point for lung function is important for us too. But the study is powered for statistical - - for primary end point statistical significance at day 30.

Were any measurements to measure the AAV antibodies in these patients?

Yes. We look at antibody samples in in all of our patients. And as I think you may know, Lei, that in our earlier studies, we've seen no correlation between levels of antibodies and FEV-1 responses.

All right. Thank you.

Thank you.

One last opportunity, ladies and gentlemen. [Caller instructions.] We have no further questions at this time, Stewart.

Okay. Well, again, we appreciate everybody joining us this morning. Thank you very much.