Armata Pharmaceuticals, Inc. (ARMP) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Targeted Genetics first quarter 2006 financial results conference call.

Today's presenters are Stewart Parker, President and CEO of Targeted Genetics and David Poston, Targeted Genetics' Chief Financial Officer.

Ms. Parker will open today's call with recent highlights from the first quarter and a brief discussion of goals and objectives for the remainder of the year. Ms. Parker's comments will be followed by a financial update from Mr. Poston. The call will then be opened up for a question and answer session.

At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. [OPERATOR INSTRUCTIONS]

As a reminder this conference is being recorded this Tuesday morning, May 2nd, 2006. I would now like to turn the conference over to Ms. Stewart Parker.

Please go ahead, ma'am.

Thanks, Scott.

Well, good morning and I'd like to welcome you to the Targeted Genetics 2006 first quarter financial results conference call. Today I'll review our accomplishments from our first quarter and discuss what you can expect us to achieve in the coming months. Then David will review our financial results for the quarter.

Before I begin, 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 annual report on Form 10-K; we also plan to file our quarterly report for the first quarter of 2006 on form 10-Q later this week.

I'll start this morning's call by discussing the progress we've made in our lead clinical program in inflammatory arthritis as well as our partnered product development programs.

Our lead product candidate, tgAAC94 for the treatment of inflammatory arthritis is a therapeutic product candidate which consists of an AAV vector containing a gene sequence encoding TNFRFC. We believe that tgAAC94 has significant clinical and commercial potential in a variety of inflammatory disease, and we continue to make significant progress toward this end. In March, we received approval from the FDA to amend our ongoing Phase I clinical trial of tgAAC94 and I'll take this opportunity to review the design of the trial in a bit of detail.

This new study design now includes a third higher dose and increases the number of patients targeted for enrollment from 40 to 120. Under the amended protocol, the study was redesignated a Phase I/II trial. In each of three segments of the double blinded placebo controlled study, subjects will receive a single interarticular injection of tgAAC94 or a placebo in the affected joint and will be monitored until symptoms in the target joint reach predetermined criteria for reinjection. At that time those who receive drug as well as those who initially received placebo will be given a second injection of tgAAC94 in the affected joint as part of the open label segment of the study.

Now the primary endpoint of the study is establish the safety of higher doses and of repeated administration of tgAAC94 into the joints of subjects with and without concomitant TFF Alpha inhibitor therapy.

Secondary endpoints, however, include evaluation of pain, swelling, duration of response, and overall disease activity following interarticular administration of tgAAC94 to the affected joints.

Subjects enrolled in the latter half of the study will undergo more extensive evaluation, including additional target joint assessments such as functional measures, tenderness and swelling evaluation by a second examiner, and MRI scans. This larger study should help us to better understand the safety of therapeutic index of tgAAC94 and is intended to help us establish efficacy end points for future clinical trials. We believe that this approach potentially accelerates the clinical development of this therapy and ultimately lays the foundation for commercialization of the first gene based therapy for rheumatoid arthritis. We're encouraged by our progress and we're scheduled to present interim data on the first cohorts of patients at the American Society of Gene Therapy meeting in early June. We also expect to present additional data at appropriate scientific conferences in 2006 with anticipated completion of this study in mid 2007.

Now let me turn to partnerships. In addition to our inflammatory arthritis program, we continue to advance our partnered programs in HIV/AIDS, congestive heart failure and Huntington's disease.

First, tgAAC09 our AAV based vaccine candidate, is designed for high risk populations in the developing nations to protect against the progression of HIV. As I've noted in the past, we are developing this product in collaboration with the international AIDS vaccine initiative, Children's Research Institute of Columbus and Children's Hospital of Philadelphia and it is currently in Phase II clinical trials. In addition to ongoing Phase I studies in Belgium, Germany and India, in November of last year, we initiated a Phase II trial of tgAAC09 in three sites in South Africa. The trial is designed to assess the safety and immune stimulating activity of the vaccine in 78 HIV negative volunteers at higher doses than those evaluated in the Phase I study. This is the first Phase II HIV AIDS vaccine trial to be held in South Africa and in the first quarter, this Phase II study was extended to include sites in Uganda and Zambia. This trial is also expected to take about 18 months to complete.

We believe that international collaborations of this kind are really critical to an expedited pursuit of an effective HIV vaccine and we're very pleased to be working in partnership with IAVI and respective government agencies of these countries in our fight against AIDS. Near term milestones for the program include first, the release of preliminary date are that from the Phase I study in Europe and India in the third quarter of 2006; and second; completion of enrollment for the South African arm of the Phase II study also anticipated for the third quarter. These current clinical trials of TGAAC 09 are initial steps in the comprehensive development strategy of this vaccine program. While these clinical trials are underway, we continue to pursue the development of additional vaccine candidates including vaccines based on different zero types or strains of AAV particularly AAV-1. We're also developing HIV vaccine candidates for the developed world as part of an NIAID contract awarded November last year to us and our research collaborators at Children's Research Institute of Columbus and the Children's Hospital of Philadelphia. Under this contract, Targeted Genetics is expected to receive up to $18.2 million over five years to optimize manufacturing and conduct preclinical development of AAV based HIV AIDS vaccines. This contract validates our AAV based vaccine approach, highlights our extensive capabilities in the manufacture and development of AAV based product candidates and demonstrates the growing appreciation for AAV as a platform for product development.

We now have a significant funding mechanism that expands our development of AAV based HIV vaccines against other HIV strains expanding our development efforts beyond the scope of our original collaboration with IAVI. Research and development activities are well underway this quarter and are expected to contribute a significant portion of the $9 million in revenue expected from our partnerships in 2006.

In another of our collaborations we're working with Celladon Corporation to develop a gene -- to develop gene based therapies for congestive heart failure or CHF, a condition that is a leading cause of morbidity and mortality in the United States. The partnership is pursuing novel AAV delivered product candidates that would improve contractility of heart muscle in patients with congestive heart failure. Celladon plans to develop a combination product composed after therapeutic agent, AAV 2, circa 2A, and a delivery device which enables delivery of the therapeutic agent to the heart. Given positive results from ongoing preclinical studies, AAV circa 2A is anticipated to move into human clinical studies as early as the first half of 2007. This product is using our AAV 1 serotype as well.

In our collaboration with Sirna Therapeutics, we're pursuing a new class of therapies for Huntington's disease, a devastating neurodegenerative disorder for which there is as yet no cure and very few treatment options. We're working with Sirna to develop an AAV-RNAi based therapy for this disease and it's our goal to develop a solution design to inhibit the production of the Huntington protein to treat the approximately 250,000 people who carry the gene and are at risk for developing the disease. Preclinical studies to select a lead AAV-HD-SIRNA clinical candidate are ongoing, and the program is anticipated to enter human clinical studies in the first half of 2008.

Now collaborations like these not only validate the broad applicability of our AAV manufacturing and development capabilities in multiple disease settings, but they also provide substantial revenue and upside to the company. The addition of similar strategic partnerships is a key element of our business strategy and we'll continue to seek these opportunities in 2006 and beyond. Now before I turn the call over to David to go over first quarter results, I'd also like to note that we have further strengthened our AAV leadership position this quarter with the issuance of two additional patents covering our AAV technology platform. Our AAV manufacturing competence fills our ability to attract corporate and academic partners and enables us to undertake and aggressively advance our product development efforts.

I'll now turn the podium over to David Poston, our Chief Financial Officer. David?

Thanks, Stewart and thanks to everyone for joining in this morning.

As Stewart just noted, we've made good progress in the first quarter, in particular in our lead program in inflammatory arthritis, and we've also reached important milestones in our partnered projects in HIV/AIDS, congestive heart failure and Huntington's disease. Also as I noted in our year end conference call in March, we restructured operations in January and then in early March, we raised $5 million in a common stock offering. Over the next several months, we hope to announce progress in a number of initiatives -- additional initiatives that will extend our cash horizon into 2007, and position us well to meet our upcoming challenges.

First, I will cover our cash position and fundraising activity in the quarter and then I will highlight our financial results for the quarter. I'll finish my remarks with an overview of our action to effect a reverse stock split.

We started 2006 with $14 million in cash; during the first quarter, we added $5 million of cash as the result of the sale of $12.8 million shares of our common stock, and we used about $3 million to fund operations net of first quarter funding from our collaborators, Celladon, IAVI and the NIAID. As a result, we ended the quarter with approximately $16 million in cash.

As a reminder, in addition to our congestive heart failure program work with Celladon, and our HIV/AIDS vaccine development work with IAVI, we will also be earning revenue for our HIV vaccine development work in support of an NIAID contract awarded late last year. This project leverages our established development platform and is valued at $18 million to target over a contract span of five years. Our current NIAID contract work includes up to $3 million of revenue for 2006, with considerably higher revenue expected in 2007. We are excited to be working closely with Children's Hospital of Philadelphia and Children's Research Institute of Columbus on this project, and welcome the financial stability introduced by this five-year project.

This morning we announced our first quarter 2006 financial results which included a net loss of $3.7 million or $0.04 per common share compared to a net loss of $4.7 million or $0.05 per common share for the first quarter of 2005. Our revenue in the first quarter of 2006 was $2.4 million compared to $2 million in the first quarter a year ago. Revenue in the first quarter of 2006 primarily reflects amounts earned under our congestive heart failure collaboration with Celladon and our HIV/AIDS vaccine collaborations both with IAVIand as a subcontractor with the NIAID. Last year, the IAVI vaccine project drove our Q1 results as we were supporting the ramp up of the TGAAC, HIV/AIDS vaccine and developing additional vaccine constructs. For 2006 we are budgeted for approximately $9 million of revenue from our partnered programs.

Operating expenses for the first quarter of 2006 were $6.2 million compared with $6.6 million for the first quarter of 2005, as significant reductions in both R&D expenses and G&A expenses were offset by a noncash, $1 million first quarter charge to our restructuring reserve to account for changes in our assumptions with respect to our Bothell facility lease. R & D expenses decreased to $3.7 million for the first quarter of 2006, or approximately 19% less than R & D expenses of $4.5 million in the first quarter of '05. These results reflect decreased personnel expenses in the current year resulting from the 2006, the January 2006 restructuring and decreased outside costs as we focus our energies on the clinical trial portion of our inflammatory arthritis program.

General and administrative expenses decreased to $1.5 million for the first quarter of 2006 or down approximately 21% compared to G&A expenses of $1.9 million in the first quarter of '05. These results primarily reflect decreased expenses associated with intellectual property and end licensing.

And finally, expenses in 2006 include a $1 million, noncash charge related to restructure charges on our Bothell facility. This charge reflects updated assumptions first with respect to the length of time it will take to sublease the facility, and second for the amount of sublease rent that we expect to receive on the facility during the sublease period. As previously announced, in January 2006, we restructured operations to reduce staff count and decrease our outside costs, in an effort to realign our resources to focus predominantly on advancing our inflammatory arthritis program. As Stewart mentioned this effort has already begun to bear fruit as we make progress in our Phase I/II clinical trial.

As a result of our first quarter net burn of just $3 million, we finish the quarter with $16 million of cash. We are hopeful that we will be able to maintain the cash flow momentum already experienced in this quarter and we continue to target a cash burn for 2006 in the range of $13-16 million.

While this has been a good quarter for us from a cash perspective, we continue to pursue additional capital to expand our cash horizons. Through a combination of sales of stock or placement of debt, additional revenue or funding through expanding or extending our current collaboration, extending -- excuse me -- entering into new product development collaborations or strategic transactions and initiatives to leverage our manufacturing capabilities and product development infrastructure. An additional step that we've taken this quarter is to recommend that our shareholders authorize Targeted Genetics' board of directors to effect a reverse stock split of our common stock in a ratio of either one for five, one for seven or one for ten. Our primary objective for this proposal is to maintain compliance for continued listing on the NASDAQ capital market. A reverse stock split will decrease the number of outstanding shares of Targeted Genetics' common stock and thereby increase the per share market price of our common stock. We believe that maintaining our listing on the NASDAQ capital market provides a broader market for trading our common stock and increases our ability to use common stock for strategic or financing transactions. Our shareholders will vote on this proposal at our upcoming 2006 annual shareholders meeting to be held in Seattle on Monday, May 8th.

All of these efforts are designed to maintain and build shareholder value while supporting our efforts to move our inflammatory arthritis program forward. Be assured that we continue carefully manage our cash position while continuing to advance our proprietary and partnered programs and continuing ways -- and continuing to pursue ways to further leverage our capabilities into additional opportunities.

And with that, I'll turn the call back to Stewart to wrap things up. Stewart?

Thanks, Dave.

So we have a number of important clinical, business development, and financial management milestones ahead and we're very much intently focused on achieving our near and long term goals, so I'll end today's call with a review of the primary areas of focus for 2006.

First, we will continue to pursue development of our inflammatory arthritis program. We are really excited about early human data generated in the advancement of this product, tgAAC94 as a therapy to treat inflammatory arthritis and we're excited with the opportunity ahead to present data and also participate in numerous upcoming scientific meetings. We focused our resources as much as we possibly can to advance this clinical program as quickly as possible.

During 2006, we plan to continue to deliver on the current partnered opportunities. Our product development collaborations focused on HIV/AIDS, congestive heart failure and Huntington's disease continue to progress and they'll generate important clinical and preclinical data in 2006. These collaborations serve to further validate the broad applicability of AAV in multiple disease settings, and they do provide, as we've said, important revenue to the company. They also allow us to really monetize our earlier investment in AAV scale-up, manufacturing and product development and do provide significant upside on the long return basis for the company.

We'll also seek additional product opportunities. We intend to pursue additional opportunities in therapeutic areas of interest that are complementary to our lead product opportunity in inflammatory arthritis, potentially in the context of mergers and acquisitions as well as general product end licensing. The company is also pursuing opportunities to further leverage its investment in AAV manufacturing and scale up through additional product collaborations, or even through strategic relationships with contract manufacturers to create additional value for our shareholders. We will continue to closely scrutinize our cash and we're going to take advantage of every opportunity to extend our runway through whatever means, be them equity raises, partnerships, grants and other opportunities that will increase our cash on hand.

So before I close, I'd like to take this opportunity as well to let you know that we've been invited to present at the Rodman and Renshaw health care conference in Monaco in May and at the Needham health care conference in New York in June. Both presentations will be webcast live and also archived on our website and I hope that you'll be able to join us.

So in closing, I want to thank you all for your continued support and for your time this morning and at this point we'd be happy to answer any questions you might have. Scott?

Thank you.

[OPERATOR INSTRUCTIONS].

Our first question is from David Miller with Biotech Stock Research. Please go ahead.

Great, thanks for taking my call. Good morning.

Hey, David.

A couple of quick questions, with this trial expansion for the AAC 94 product, are you still planning on going to a broader randomized Phase II as the next step after this trial or does this expansion change your thoughts on that?

Well, the benefit this trial gives us is much more potential for evidence of a substantiated treatment effect with 120 patients and so our plan is really to monitor the data and evaluate the data and make decisions from that. So there is potential for accelerating things, but, you know, we just have to see the data.

At some point, you know, before you get into -- before you get into approval, are you going to run this trial in combination with Enbrel or with this drug in combination with it or is it going to be kind of in refractory patients?

No, this trial -- let me be very clear, this product is meant to be as a complementary therapy to the anti-TNF protein therapies, whether they be Enbrel or any others and the trial that is currently ongoing does include patients on current anti-TNF protein therapy.

And the cash burn you have in the press release, the $13-16 million is your net burn, correct?

That's correct.

Okay, great. Thank you very much.

Thank you.

[OPERATOR INSTRUCTIONS]

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

Okay. Well, as you can see, I think we're off to a solid start in 2006 and we do have a number of important clinical business developments, financial management milestones ahead that we're going to be working very hard to accomplish so we look forward to reporting to you about those and thanks again for joining us and stay tuned.

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