Armata Pharmaceuticals, Inc. (ARMP) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Targeted Genetics conference call. I would like to now turn the conference over to Ms. Stewart Parker, President, CEO of Targeted Genetics and Mr. David Poston, Targeted Genetics, Acting Chief Financial Officer. Please go ahead with your conference.

Thank you, JR. Well, good morning, and thank you for joining us for Targeted Genetics' 2005 third quarter financial results conference call. Today, I'd like to review the recent developments in our inflammatory arthritis program as well as update you on our other clinical and pre-clinical programs. And I'll also summarize some additional business achievements and then give you some insight on what you can expect us to achieve for the remainder of the year.

Now as many of you know, Todd Simpson recently stepped down as our Chief Financial Officer and I'd like to take this opportunity to introduce David Poston, who is serving as our Acting CFO. David has been with Targeted Genetics for the past seven years. He has done a good job of leading our finance and accounting operations during that period. He has over 20 years of financial experience and has handled public company financial disclosure matters since 1993. So we're very pleased that David has stepped up to assume this important role for the company. And later in the call, he'll review our financial results for the quarter and year-to-date.

Now before we begin today's call, I'd 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 do 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 for the third quarter of 2005 which was filed earlier this morning.

I'm very pleased to open this morning's call with a discussion of the progress we're making in our lead program in inflammatory arthritis. And let me start by reviewing the results of our Phase I study which was designed to evaluate the safety of a single dose of tgAAC94, our drug name, injected locally into the arthritic joint of subjects suffering from inflammatory arthritis. TgAAC94 utilizes our adeno-associated viral or AAV vector technology to deliver a DNA sequence encoding an inhibitor of TNF-alpha, a potent pro-inflammatory cytokine that plays a major role in inflammatory arthritis. And as such, tgAAC94 creates tiny factories that block local production of TNF-alpha and thereby reduce or eliminate inflammation and associated pain and swelling.

This experimental drug candidate is being developed initially as a complementary therapy for patients who may not achieve adequate relief with existing arthritis treatments or other patients with disease limited to a few joints who therefore may not need systemic protein therapies. Enrollment for the first study was limited to volunteers not currently on concomitant TNF-alpha antagonist therapy. Eleven of the 15 subjects who enrolled in the study were randomized to receive one of two escalating dose levels of tgAAC94, while the other four received a placebo.

The trial contained a placebo arm at each dose level, which was included to assess safety and to determine whether any adverse events that might be seen in the study were attributable to an intra-articular injection itself, as opposed to an intra-articular injection of tgAAC94.

In the summer, we provided preliminary data after all subjects had been evaluated for four weeks after administration as well as data for a subset of subjects that had completed up to eight weeks of follow-up. At these time points, we were encouraged to see an indication of sustained improvement in signs and symptoms of disease in infected joints.

Now all subjects have been followed for at least 12 weeks since injection of tgAAC94 or placebo. Dr. Barrie Carter, Targeted Genetics Chief Scientific Officer presented an update on trial results at the 13th annual Congress of the European Society of Gene Therapy in Prague, Czech Republic.

The 12-week data reported demonstrate an intra-articular injection of tgAAC94, continued to be safe and well tolerated at doses up to 1 to10 to the 11 DRP per mL of joint volume and that tgAAC94 was administered safely to subjects currently taking conventional disease modifying anti-rheumatic drugs. Importantly, there have been no reports of drug-related serious adverse events.

Dr. Carter also presented data on secondary parameters including changes in tenderness and swelling in injected joints, using standardized arthritis index scores and other parameters such as aad2 neutralizing antibodies and levels of tgAAC94 in systemic circulation. In those treated with a single dose of tgAAC94 and followed for least 12 weeks after injection with drug, continued measurable improvements in swelling and tenderness were observed. We also had found that the reduction of mean scores appear to be greater at the higher dose, suggesting a dose to response correlation.

Now in the non-injected joints of the treated group, there also appears to be a decrease in mean tenderness and swelling scores over time. This observation may indicate the potential of a systemic effect and certainly merits further evaluation. There was some improvement noted in mean tenderness and swelling scores in subjects receiving placebo, however, these subjects were only included for safety analysis.

So we are very encouraged that the results continue to indicate that delivery of the drug directly into affected joints is not only safe but that sustained improvements and tenderness and swelling can be seen at least 12 weeks after a single administration of tgAAC94. So we're continuing to follow up these patients for up to 24 weeks post-administration. But given our encouraging pre-clinical and clinical results of the program so far, in October, we initiated a follow-on Phase I clinical trial of tgAAC94. The primary difference of this trial from our first Phase I is that it now includes subjects who are already receiving anti-TNF-alpha therapy, our ultimate target market. In addition, we will be evaluating a higher dose and multiple doses in the study.

So the study is a double-blinded placebo controlled study intended to enroll up to 40 subjects to evaluate tgAAC94 at two dose levels in patients with rheumatoid arthritis, psoriatic arthritis or ankylosing spondylitis. In the first segment of the study, participants will receive a single intra-articular injection of the drug or placebo in the affected joints and will be monitored for either 12 weeks or until swelling in the targeted joint reaches pre-determined criteria for re-injection. At the later of those time points, the study will become an open-label study, and the subjects initially injected with drug as well as those initially injected with placebo will receive an injection of tgAAC94.

Now, the primary endpoint of the study is to establish the safety of a higher dose and of repeat administration of tgAAC94 into the joints of participants either with or without concomitant TNF-alpha inhibitor therapy. Also, in an effort to fully expand our clinical knowledge of the drug candidate, we'll be collecting data on a number of secondary endpoints, including changes in pain, swelling, duration of response, overall disease activity following intra-articular administration of tgAAC94 to affected joints and molecular markers of disease, as well as assessing changes in joint inflammation and joint damage in a subset of patients using magnetic resonance imaging or MRI.

Although this new study has only recently begun, we are already experiencing positive patient interest and we're very pleased with enrollment rates to date. We believe that tgAAC94 has significant potential to treat a variety of inflammatory diseases in this large and growing anti-TNF alpha therapeutic market. And our targeted localized approach may come to play an important role in helping patients live with arthritis.

I'll now turn your attention to the progress we're making on our clinical development of our HIV vaccine. We continue to move forward on our multifaceted development strategy of tgAAC09, an AAV-based prophylactic vaccine candidate, designed to guard against the progression of HIV infection to AIDS. AAV vectors are used to deliver specific genes encoding HIV proteins that are intended to stimulate the immune system and fight against the HIV virus. We believe that using our AAV technology as a delivery platform in a vaccine setting is compelling because we've been able to confirm in animal studies that AAV-delivered antigens stimulate both T-cell and B-cell immune response, which as you know, is critical for effective prophylactics against AIDS. This effort is in collaboration with the International AIDS Vaccine Initiative and researchers at Columbus Children's Research Institute Research and Children's Hospital of Philadelphia.

In partnership with IAVI, we are conducting Phase I HIV vaccine clinical studies in three countries, including Belgium, Germany and India. Currently, we're finishing up an additional dose regimen in a subset of subjects from the Phase I boost study in Europe and completing enrollment in the India arm of the Phase I. We're very pleased with the preliminary data to date, which demonstrates the vaccine is both safe and well tolerated at initial dose levels. Given this clean safety profile, we're continuing our multifaceted approach meant to define the optimal dose and course of therapy required to stimulate an immune response against HIV antigens using AAV. We'll be fully evaluating data from both early and later time points on the three sites from the Phase I and we'll report data once we've collected and analyzed all three arms of the study.

As far as the next step in the program, we're very excited to report that we're on track to initiate a Phase II clinical study in Southern Africa, and we plan to announce the details of this important advance in the very near future.

Now switching to our late pre-clinical programs, let me start with a review of our collaborations with Sirna Therapeutics and then talk about a recent exciting pre-clinical advance in our congestive heart failure collaboration with Celladon. We're working with Sirna to develop a product candidate to prevent the progression of Huntington's Disease, a progressive neurological disease. Unfortunately, once a patient is sick with Huntington's Disease there are no available treatments to halt disease progression. And its damaging effects cannot be reversed.

However, remarkable technological advances now tend to allow the detection of certain changes in the brain that are believed to indicate Huntington's Disease progression. So we're working with Sirna to develop an AAV based delivery of small interfering RNAI, RNA, excuse me, to inhibit the expression of the HD gene so that the 120,000 to 250,000 people who are currently at risk of progression can potentially be spared from its symptoms.

As part as this collaboration, last quarter we announced breakthrough pre-clinical results of studies conducted by Dr. Beverly Davidson, our academic collaborator at the University of Iowa, and although much pre-clinical work remains necessary, small interfering RNA as a potentially new approach to treating Huntington's Disease appears promising. We're very excited to be working in partnership with Sirna and the University of Iowa towards the development of this therapeutic and it's our goal to enter into human clinical trials in 2007.

I'll now bring you up to date on our work with Celladon. Now, in this collaboration we're combining our expertise in the manufacture and clinical evaluation of AAV technologies with Celladon's portfolio of gene candidates to pursue AAV-delivered product candidates for congestive heart failure. Most recently, Celladon academic collaborator Dr. David Kaye of the Baker Heart Research Institute presented very positive results at the Transcatheter Cardiovascular Therapeutics meeting in Washington DC from a pre-clinical study of Mydocar (ph), Celladon's combination of a biologic with a device to treat heart failure.

The study involved sheep whose heart failure was introduced by rapid and particular pacing producing a reduction in heart function similar to that found in patients with Class III heart failure. Compared with six control sheep, six animals treated with Mydocar showed a significant improvement in fractional shortening or FS, which is a measurement of cardiac contractility and function. In fact, average FS in the treated animals improved one month after treatment while the average FS of the control animals declined.

Celladon's Mydocar system contains a copy of the gene for Circuit 2a, an important regulator of myocardial calcium levels. Circuit 2a is inserted into a recombinant AAV vector for uptake of the myocardium. The AAV Circuit 2a gene transfer system is delivered to the heart percutaneously using a device that selectively recirculates the biologic through the coronary vasculature while minimizing delivery to other organs. Over 5 million people in the US alone suffer from congestive heart failure and there really is no cure for the disease.

Now Celladon intends to follow up with more information on this recent sheep study, but these exciting pre-clinical results are very encouraging and do suggest that gene therapy targeting the calcium handling system may improve myocardial contractility and reverse the progression of congestive heart failure. We believe that given these positive results and positive results from other pre-clinical studies, the project team could move this program into human clinical studies as early as the second half of 2006.

Let me now direct your attention to a few business highlights for the quarter. We recently appointed two seasoned, biopharmaceutical veterans to our Board of Directors, Mr. Roger Hawley and Dr. Michael Perry. Roger Hawley brings over 18 years of expertise in the pharmaceuticals industry coupled with broad sales, marketing, business development, and financial management experience. Roger is currently Executive Vice President of Commercial and Technical operations for InterMune Pharmaceuticals, a biopharmaceutical company cycle from the research development in commercialization of innovative therapies in hematology and pulmonology. Roger has held various management positions at several leading companies including Prometheus Labs, Elan Pharmaceuticals and Glaxo.

Mike Perry has a proven track record in research and development innovation with special emphasis on driving shareholder values through a focus on product development and approval, strategic portfolio management, integration with company mergers and acquisitions, and business and corporate development. Mike brings over 18 years of successful biotechnology and pharmaceutical management experience to our board of directors. He is currently Chief Development Officer at VIA Pharmaceuticals, a company that is developing therapeutics to treat cardiovascular inflammation. Previously, Mike held a number of management positions in leading bio technology and pharmaceutical companies, including Baxter Biopharma, Sandoz, Novartis Pharma and Schering-Plough to name a few. He has also held multiple board positions with leading pharmaceutical companies.

We believe these two independent directors' extensive knowledge and experience in strategic acquisitions, business development transactions and deal implementation will be invaluable as we continue to execute on our partnership and broader business strategies. So we're really pleased to have them join us.

Now I'll finish my remarks this morning before turning it over to David by summarizing our continued focus to strengthen our intellectual property estate. This quarter we were issued two additional important patents, one covered additional approaches to the production of AAV vectors during the manufacturing and design process and another relates to our AAV vector technology platform in general. Our IP strategy focuses on establishing a broad patent estate for taking the technology inventions and improvements to inventions that would be important for developing our business.

Our intellectual property provides a very strong foundation to attract corporate and academic partners and in turn our partnerships validate our portfolio and our strategies. To date, we filed or licensed numerous patents and patent applications including foreign counterparts of some of these applications in Europe, Japan, and other countries. Of these, more than 100 patents have been issued or allowed to protect our technology. So we've accomplished a great deal in the quarter and for the year. And I'll now turn to David Poston to discuss our third quarter financial results.

Thank you, Stewart. And thanks to everyone for joining us on the call this morning. Earlier today, we announced our 2005 third quarter financial results, which included a net loss of $5.7 million or $0.07 per share, compared to a net loss of $2.7 million or $0.03 per share for the third quarter of 2004. For the nine months ended September 30, 2005, we reported a net loss of $15.6 million or $0.18 per share compared to $12 million or $0.15 per share for the same quarter in 2004.

Revenue in the third quarter of '05 was $1.5 million, compared to $2.4 million in the third quarter a year ago. And revenue was $4.9 million for the first nine months of '05, compared to $6.5 million for last year. These revenues primarily reflects amounts earned under our AIDS vaccine collaboration with IAVI, which are down from 2004 levels as planned. At the end of 2005 we are starting to see revenue from our collaborations with Celladon and Sirna. 2004 results also reflect contract manufacturing revenue recorded in the second quarter of 2004.

Now, operating expenses for this year were higher for both the third quarter and for the year-to-date. Operating expenses for the third quarter of 2005 were $7.3 million, compared to $6.1 million a year ago. And were $20.6 million in total for the first three quarters compared to $19.4 million for the same period in 2004.

Notably, our third quarter results and our year-to-date results include a $1.1 million non-cash restructuring charge related to updating our estimate of the costs associated with exiting our leased facility in Bothell, Washington. This charge represents a revision to the number of square feet that we are seeking to sublease and to the brokerage costs associated with securing a sublease tenants, as well as an update to the time it will take to secure a sublease tenants. The increase in 2005 operating expenses also reflects higher pre-clinical development costs for our congestive heart failure and Huntington's Disease collaborations as well.

During the quarter, we entered into an agreement with Biogen Idec to modify the terms of our two loans payable to them. As you know, the $10 million note payable was originally scheduled to mature in August 2006, and a smaller third $650,000 loan, was to mature in September 2005. Under the modified terms, we paid Biogen $2.5 million of the outstanding debt on September 1, 2005 and we agreed to repay the remaining $8.2 million of loan principal and a $3.2 million installment in August 2007, and two installments of $2.5 million each in August of 2008 and August of 2009. We also granted Biogen a right to co-sale in certain equity financings approved by our Board of Directors before November 30, 2005. And Biogen agreed not to sell any of its shares of Targeted's common stock until the earlier of November 30, 2005 or the completion of such a stock sale.

We are obviously pleased with the revised debt payment schedule, which gives us the flexibility needed to pay down the debt in a more manageable way. Now, while this quarter's $2.5 million principal payment to Biogen was not included in our 2005 cash requirement forecast, we do remain on plan with our previous full-year guidance of operating cash needs in the $20 to $22 million cash range for 2005. We entered the quarter with $17.2 million in cash, and project that this is enough to fund our programs as currently envisioned until mid next year.

Now under the Celladon collaboration to treat congestive heart failure, we committed $2 million in efforts towards the program as part of a $6 million equity investment paid by (inaudible) associates with Enterprise Partners last December. We fulfilled this commitment in the third quarter and have begun recognizing revenue as we perform research and development work to advance this program.

Now in regards to IAVI, we are in our sixth project year and we and IAVI have agreed to extend this collaboration through the end of 2006. While we have not yet received IAVI's formal approval of the 2006 budget we have not -- therefore we have not made -- we have not yet included funding that we will receive from IAVI in 2006 in our cash horizon forecast. So, we will be updating our cash projections as final 2006 budgets of our partners are firmed up.

So, in closing, we continue to keep a careful watch over our cash position and the capital market. And we'll continue to look for ways to leverage value from our capabilities and to generate additional capital for the company along with building our financial resources. So with that, I'll turn the call back to Stewart to wrap things up.

Thanks David. So (inaudible - background noise) quick overview of our objectives for the remainder of 2005 and some 2006 first half milestones. In our HIV AIDS vaccine program, we're working to complete an additional dose regimen in a subset of patients from the Phase I European HIV vaccine trial with a boost dose and also to complete enrollment in the Indian arm of the study. We're also preparing to initiative a Phase II clinical trial in Southern Africa and we are excited about the important progress we're making in the program. Now, as I mentioned earlier, we will be collecting with IAVI data from the three arms of that Phase I study. We'll be reporting all that data together, anticipated to be in the first half of 2006.

We'll continue to work aggressively at meeting or hopefully exceeding our project patient accrual rates in our tgAAC94 trials for inflammatory arthritis. And again, we are targeting the announcement preliminarily of the first data from that trial in the first half of '06 as well. Also during the remainder of 2005, we'll continue to look for opportunities to further leverage our technology assets, manufacturing capabilities and gene therapy product development expertise to create additional value for our shareholders.

Now, before we close, I'd like to take this opportunity to let you know that we'll be presenting at the Rodman and Renshaw Health Care Conference in New York next week. The presentation will be Web cast live and also archived on our Web site. And I hope that you'll be able to join us. In closing I'd like to thank everyone for your continued support and for your time this morning. And at this point we'll be happy to answer any questions you might have. JR?

Thank you. (Operator Instructions). Our first question is from Mark Monane from Needham and Company. Please go ahead with your question.

Hi. Good morning and thanks for taking my call.

Hi Mark.

Could you comment little bit on the role of the localized anti-TNF therapy? I know when systemic therapies is given, there is often a flare or marked increase in TNF levels right after the -- as a result of the therapy. Could you comment on that as well as what your assumptions are or expectations or hopes on the durability of response in patients?

Sure. So I'm getting to your first question about whether there is a flare, and I'm assuming your question is are we seeing that in the first clinical trials that we've been conducting.

Right.

And frankly, we haven't seen it, but we haven't -- this is just 15 patients so far. So, I think, if we see anything like that we'll be able to measure it more effectively in this next Phase I study.

Okay.

Okay. So the premise that we're targeting is based on what our rheumatology experts tell us which is that although, the protein therapies, be they hemera (ph) or eternacept or whatever, are very successful, but somewhere between 15% to 40% of responders to those therapies still have residual disease, unresolved disease in one or two or multiple major joints. And that's most likely related to the limitations we find in terms of delivering proteins that occur in localized ways, as therapeutic products systemically.

So, we're dealing with -- the initial study within people that were not on current protein therapy, but now, our next study, which we're well on track for is in patients who are or can be on current protein therapy. And so, we see this as a complementary therapy to protein therapy and not necessarily as a competitive product. How long are we going see that? Well, we're measuring for 24 weeks. Ideally, we'd like to have a -- see a scenario, where we have a down regulation of size and symptoms for least 12 weeks, if not longer. There is no reason really, to think from our animal study at least that it won't not go longer, but we don't have that data, yet.

That's fair. That's very helpful. There is a lot going on at Targeted Genetics, it's been a relatively small company. You have the clinical programs moving forward, in inflammation and HIV. I know, you're still doing manufacturing, as well. How are you prioritizing the different programs and activities at Targeted Genetics and thinking about increasing the value of the company?

I think that's a very fair question. And our primary emphasis is on this inflammatory arthritis program. This program has our greatest mind share, it's the one we're working hardest on. Luckily and fortunately, for us, our other programs have - are sources of funding for the company. Our HIV program is completely funded and all the FTEs are funded by the International AIDS Vaccine Initiative. Our Celladon program now, has reached the threshold where it is funded. And most of our other programs have come about because of our distinctive competency in manufacturing and in our development infrastructure. And that's something we know how to do very well, whether it's congestive heart failure construct or an HIV vaccine construct. So, I have to say that the mind share of the company and the thing that we're really excited about as a priority is this inflammatory arthritis program.

That makes a lot of sense. Stewart, thanks for the added information. Congratulations on your progress.

Thanks Mark.

Thank you. Our next question comes from Derek Jelinek from Roth Capital Partners . Please go ahead with your question.

Good morning.

Hi Derek.

Hi. So -- in relation to your inflammatory arthritis program, could you speak to the contra-lateral effect you observed in your treated patients? Did that until all 11 patients? And how large was the trend?

It was - you know what? I'm going to have to get the data out to be able to answer that question. We looked at the scores added together from all the patients that were in the study. And -- let me just pull it up here, sorry. And again, this is -- we should post this now that it's on - now that it's been presented. But, we saw a trend, I would have to say, again, small numbers of patients, but especially at the higher dose we gave, which was 10 to the 11th DRPs per mL. We saw a nice reduction and, and again, did not see anything remotely like that in placebo.

Was in the lower dose cohort?

It was seen in the lower dose cohort as well. But, just more dramatically at the higher dose.

Right, right. Okay. And in the same study, could you speak to the placebo effect that seemed to be observed in the control group, noted at the 12-week timepoint?

Yes. The placebo group was mixed, was up and down. But, there was a placebo effect. There tends to be at least a 25% placebo effect in these anti-arthritic or anti-inflammatory studies in general, historically. So I think, there's not much we can read into the placebo at this point, given that statistical commonality, but the larger study will more certainly allow us to differentiate that better.

So was there any contra-lateral effect seen -- placebo effect seen in the control group?

No.

No. When and where will the data be presented for the 24 week follow-up?

We don't have that set yet. We're continuing to follow-up. It could be at the American Society of Gene Therapy or if it's later, it will be at a - we'll find the appropriate rheumatology conference, but I don't know that answer yet, Derek.

Okay. And we will see biomarker data then? Or will investigators actually assess synovial fluid for the expression of the construct?

Well, that's awfully hard to do because it's very invasive. And you confound the data if you're in -- you're taking fluid out to look at that. So that will not be a part of this current study. Now we are measuring in serum from blood any increasing level of TNF RFP, and we've not really seen anything meaningful.

Right. Okay. Regarding the Phase II HIV study you plan to start in South Africa, could you give us a glimpse of the study design? Will it use a higher dose, two doses, prime boost and will it use AAV1?

It will use AAV2 and it's modeled after the current studies that we've done. We're contemplating whether we might go to a higher dose however. That's -- we're still in the finalization process of that with IAVI.

So that will commence at the end of this year.

We expect that to occur, yes.

One more quick question. What about your hyperlipidemia program? Are you planning on moving that forward into clinic at all?

Well, our earlier questioner commented, we've got a lot going on. And so - it's going to be a question of resource allocation. Also, we are currently finishing up some pre-clinical studies with the Dan Writer (ph) who's the principal collaborator there at Penn who we work with on this, looking at both the VLDLR for down regulation of LDL and also APO-E (ph) for up-regulation of HDL. And, we'll see how the data turns out before we make those decisions.

Right. Okay Stewart. Thank you so much.

Thanks, Derek.

Thank you. (Operator Instructions). Management, at this time, there are no further audio questions. Do you have any further comments?

No I don't. We just very much appreciate everyone joining us this morning and thank you very much for your attention.

Ladies and gentlemen, this concludes today's teleconference. We appreciate your participation. You may now disconnect.