Armata Pharmaceuticals, Inc. (ARMP) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Targeted Genetics fourth quarter and full year 2007 results financials 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 business and clinical highlights for the quarter, and close the call with a 2008 outlook. Her comments will be followed by a financial update from Mr. Poston. The call will then be opened up to questions 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, March 25, 2008.

We'd now like to turn the conference over to Stewart Parker, please go ahead, ma'am.

Thank you, Michael. Good morning, everyone. Thank you very much for joining us. Before we begin, I would like to remind that you during the course of the call we may make projections and other forward-looking statements regarding future events or future financial performance of the company. We 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 do see our documents that we file from time to time with the SEC for information about risks that may affect the company. Certainly including our most recent form 10-K for 2007 which actually will be filed later today.

So during this morning's call, I'll review the progress we made in 2007 and then David Poston, our Chief Financial Officer, will provide a financial update. Then I'll close with an overview of our upcoming goals and milestones for 2008. We made significant progress on the objectives we laid out at the beginning of the year, the first of which was to further the clinical development of tgAAC94, our product candidate to treat inflammatory arthritis.

This has been an intense year for us as it relates to tgAAC94. As we reviewed on many prior calls, in other communications, in July 2007, our Phase I/II trial was placed on clinical hold when a patient who was participating in the study experienced a serious adverse event, or SAE, and subsequently passed away. An independent and in-depth review of available product and clinical data was conducted to determine whether tgAAC94 contributed in any way to this patient's death. In evidence found and presented at the September and December 2007 meetings of the National Institutes of Health Recombinant DNA advisory committee, or RAC, supported our position that tgAAC94 did not contribute to or cause the patient's death. The committee determined that the patient died of an invasive fungal infection and in November 2007, the U.S. Food and Drug Administration removed the hold on the study.

You'll recall that enrollment was completed in May 2007. All 127 subjects had received an initial dose of active drug or placebo, and 74 subjects had received their second dose of active drugs. In spite of this tragic event, we have stayed the course in pursuing the completion of this trial. All dosing is now complete, and patients are being followed for the duration of the study in accordance with protocol. Now in November 2007, we also reported additional data from this ongoing Phase I/II clinical trial at the American College of Rheumatology Meeting. The data indicated that tgAAC94 is well tolerated at highest dose tested in the trial and also demonstrated that a higher percentage of subjects who received tgAAC94 showed improvement in function and pain compared to results from the placebo-injected group.

Looking ahead, we expect additional interim results in 2008 at both the American Society of Gene Therapy or ASGT, and the European League Against Rheumatism or EULAR meetings in May and June, respectively. And finally, based on encouraging data produced so far in the program, we're currently designing the protocols for our next additional studies and plan to initiate next trials later this year, or early next year . Another of our objectives for 2007 was to deliver on our current partnered opportunities, securing revenue for the company, and allowing to us leverage and monetize our advantages in AAV scale up, manufacturing and product development. To that end, we accomplished multiple clinical and preclinical milestones in our HIV/AIDS vaccine program and our congestive heart failure program in particular.

In February 2007, we reported results from the complete Phase I clinical trial conducted in Germany, Belgium and India of our investigational HIV/AIDS vaccine candidates, partnered with the International AIDS Vaccine Initiative, or IAVI. The results of this study indicated a favorable safety and tolerability profile, consistent with the results earlier reported, and provided the rationale for the ongoing Phase II study to evaluate the vaccine at higher doses and different dosing intervals. In addition in August of 2007, we presented interim results from that Phase II clinical trial being conducted in South Africa, Uganda and Zambia to evaluate a higher dose and to systematically evaluate the utility and optimal timing of boost vaccinations.

The study demonstrated that the vaccine was safe and well tolerated at doses higher than in the Phase I trial, and that modest immune responses to the HIV antigens were shown in some recipients who received the higher doses. The results of both of these studies support further evaluation of HIV/AIDS vaccines using AAV and this will be done in conjunction with our NIAID-funded vaccine program. This AID-based HIV vaccine program is focused on developing a multi-component vaccine that will contain various antigens from different HIV strains and is expected to be tested in the prime boost approach also using different AAV serotypes.

Going to our congestive heart failure program, in May, Celadon, our partner on this program began to dose patients in the Phase I/II clinical trial of Mydicar, a potentially ground-breaking therapy that is designed to improve calcium uptake in the heart at the cellular level. We expect initial clinical data from this program to be reported by Celadon in the second half of 2008. Also this year, we're working to establish proof of concept using gene therapy for treating eye disease. In May 2007, we announced that in collaboration with the University College of London's Institute of Opthalmology and Moorfield's Eye Hospital, a Phase I/II clinical trial was initiated to test the use of an AAV vector to deliver RPE 65 to treat laborous congenital amaurosis , which is a degenerative disease that results in severe loss of vision and blindness. This is a congenital form of childhood blindness for which there are no current treatments. Preliminary data from this study will presented in the first half of 2008.

In terms of other significant events, in September 2007, we received a milestone payment from Amsterdam Molecular Therapeutics, or AMT, upon initiation of a clinical trial by them for AMT011, an AAV-1 based therapy for lipoprotein lipase type one deficiency, a genetic disorder caused by the reduced or absent activity of an enzyme called lipoprotein lipase, which results in accumulation of lipids in the blood. During 2007, we also received issuances of additional patents related to our AAV technology platform, which obviously expands the potential applications of AAV-based gene delivery.

So at this point, let me turn the call over to David Poston, who will review our financial results and provide an update on our financial position and outline our financial expectations for 2008. David?

Thanks, Stewart. Thanks to everyone for joining in this morning. As Stewart has highlighted, we reached important milestones in 2007 across our product platform. We advanced our arthritis program, extended our product reach to include the promising area of eye diseases, advanced our intellectual property positions, and helped Celadon move the congestive heart failure product into the clinic. We also raised significant capital in 2007, and have practically eliminated our debt.

In addition to the product development milestones that Stewart just covered, we also reached the following financial milestones. Our highest fiscal year revenue results since 2003, our largest amount of cash raised during any year since 2004, and our lowest debt balances in seven years. Today, I will review our financial position, outline some of our financial expectations for 2008, and wrap up with a review of our fourth quarter and full-year financial results.

We began 2007 with $6.2 million of cash and cash equivalents, and as of December 31, 2007, we have $16.4 million in cash and cash equivalents. This increase is the result of private equity financings and cash generated from our collaborations. Our leading source of cash in 2007 was two private financing offerings, which generated a total of $26 million. With these financings, we added several leading institutional shareholders to our shareholder list, including Special Situations and [Orbymen]. As a result of these financings, 50 to 60% of our shares are held by a combination of institutional investors and biotechnology and pharmaceutical companies.

Our equity financing transactions were augmented by cash we generated from our partnered product development programs, in congestive heart failure with Celadon and in HIV/AIDS vaccines with both an NIAID-funded subcontract, and with the International [86 Union] Initiative. As a result of the combination of these cash sources, our cash burn for 2007 was $13.9 million, at the lower end of our expected range. We continue to believe in the power of collaborations to generate nondilutive cash to fund our operations, leverage our product development and manufacturing infrastructure, and build shareholder value through meaningful interest in downstream product revenue, milestones and royalties.

Our congestive heart failure collaboration with Celadon is emblematic of this type of program as we contribute our AAV intellectual product, our product development skills and manufacturing prowess in return for a healthy economic interest in the Mydicar product candidate, through royalties, milestones, and manufacturing profits, and while the heart failure product candidate is under development, we also earned revenue for our FTE time and manufacturing suite reimbursements. For 2007, this program generated $4 million of revenue which includes a milestone payment earned as Mydicar entered clinical trials. For 2008, we are currently planning for $4 million to $5 million of revenue from this program as we work with Celadon to prepare for the next clinical trials of this promising drug candidate.

The largest contribution to revenue amongst our collaborations in 2007 was our NIAID- funded HIV/AIDS vaccine collaboration. This project generated $5.4 million of revenue for 2007, and has generated $6.9 million of revenue for us since we initiated the program. This project provides funding for our day-to-day operations, leverages our established development platform and complements the work we have done with the International Aids Vaccine Initiative. This program could result in a total of up to $18 million of revenue to Targeted over the contract span of five years. We expect to earn about $3 million of revenue from this collaboration in 2008, and anticipate that it will continue to contribute to our financial stability during its remaining three years.

This morning we reported financial results for the fourth quarter and 12 months ended December 31, 2007. We reported fourth quarter revenue of $3.2 million compared to revenue of $4 million for the same quarter in 2006. For the full year ended December 31, 2007, our revenue was $10.3 million, up from $9.9 million for 2006. Our 2007 revenue results for both the quarter and the year primarily reflect development and manufacturing activities under our NIAID-funded HIV/AIDS vaccine program and development efforts on our congestive heart failure collaboration with Celadon. Our 2006 revenue results for both the quarter and the year reflected manufacturing and development activities for the heart failure collaboration and our HIV/AIDS vaccine program efforts with both the NIAID and the International Aids Vaccine Initiative. Our results for both 2007 and 2006 also included licensing revenue generated from our nonexclusive license to Amsterdam Molecular Therapeutics.

Research and development expenses for the fourth quarter of 2007 increased to $4.9 million from $4 million in the fourth quarter of 2006 and increased to $17.7 million for the 12 months ended December 31, 2007, from $14.5 million for the same period in 2006. The revenue drivers for 2007's higher R&D expenses are higher development and vaccine candidate manufacturing costs in support of the NIAID-funded HIV/AIDS vaccine project, higher clinical costs to support more subjects in our Phase I/II inflammatory arthritis trial and increased research and development activities in support of our congestive heart failure collaboration, which is currently in Phase I clinical trials.

Our general and administrative expenses for the fourth quarter of 2007 were $2.2 million, compared to $1.6 million for the fourth quarter of 2006 and were $7 million and $6.4 million for the years ended December 31, 2007 and 2006 respectively. The increases for both periods over prior year results were primarily related to higher compensation costs, patent issuance costs and noncash stock-based compensation expense. Our net loss for the fourth quarter of 2007 was $5.1 million or $0.26 per common share, compared to a net income of $808,000 or $0.08 per share for the fourth quarter of 2006. For the 12 months ended December 31, 2007, we reported a net loss of $16.1 million or $0.98 per share compared to a net loss of $34 million or $3.47 per share for the same period in 2006. Our net loss for last year's 12-month period included a $23.7 million goodwill impairment charge and our per share results for 2007 reflect the issuance of 2.2 million shares in January 2007 and 6.7 million shares of stock in June of 2007.

Entering 2008, we start the year with $16.4 million in cash and revenue expectations for 8 to $9 million of revenue. We are currently targeting 2008 cash burn in the range of 12 to $14 million, which translates into a cash horizon of at least a year. We were focusing our financial attention on carefully stewarding the funds we raised in 2007 and on extending our cash horizon. Our financial plans are consistent with past years. We aim to raise additional capital through a combination of additional product development collaborations or strategic transactions, additional revenue through expanding or extending our current collaborations, sales of stock or placement of debt, and new initiatives to capitalize on our manufacturing capabilities and product development expertise. We maintain our commitment to achieving our scientific, clinical, and financial milestones and will report progress on these fronts in upcoming updates.

At this point, I'll turn the call back over to Stewart, who will highlight some of our program plans moving through the rest of the year. Stewart?

Thanks, David. So we basically have three primary objectives for 2008. The first is to continue the aggressive development of our pipeline and our current priorities are the advancement of tgAAC94 as a therapy to treat inflammatory arthritis and the advancement of our partner programs, which include the development of an HIV/AIDS vaccine for the developing world and developed world, and product candidate for the treatment of heart failure and Huntington's Disease.

Secondly, we plan to maximize the value of our manufacturing and development expertise and our IP. We continue to believe that our manufacturing capabilities and intellectual property are premier in the sector and we're seeing increasing interest from our colleagues in this field in accessing those capabilities. We're working on a number of AAV manufacturing partnerships which could provide both short-term revenue and longer term upside to the company. In certain cases, we may also elect to pursue opportunities to license our technology and leverage our portfolio of AAV-related intellectual property assets to generate revenue and additional value for our shareholders.

Third, we will pursue additional product initiatives, particularly opportunities to exploit our leading IP position in expressed RNAI. AAV's attributes of safety and long-term expression capability make it a key system to overcome RNAI's issues with delivery and we're currently evaluating a number of product opportunities in this area, including progressing our product effort currently ongoing in Huntington's Disease. In the meantime, we have a number of upcoming milestones. In 2008, we plan to initiate additional studies of tgAAC94 in inflammatory arthritis, and we'll report final data from the Phase I/II trial. We also anticipate Phase I/II data on Mydicar and congestive heart failure from our collaboration with Celadon, early clinical data from our LCA collaboration, and pre-clinical data from our research and development program in Huntington's Disease.

We look forward to updating you on all of this progress to meet these objectives and milestones in the coming months, and we really appreciate you all for your continued support. So at this point, we'll give you an opportunity to ask questions. Michael?

(OPERATOR INSTRUCTIONS). Navdeep Jaikaria, please state your company named, followed by your question.

Hello, this is Sean Wu standing in for Navdeep at Rodman and Renshaw. I just have a simple question about the Huntington's Disease. Today on the of (inaudible - accent) yours, so now that has been acquired by Merck, how do you find that relationship has evolved now that is a part of Merck?

That's a very good question, Sean. This year, the brunt of the research actually has been conducted in our academic collaborator's lab, Dr. Bev Davidson in the University of Iowa. Dr. Davidson is doing preclinical studies with various construct candidates to look at first initially to look at which candidate was the optimal construct to take into the clinic, and then to look further at longer term preclinical studies first in smaller animals then the next plan will to be move that into nonhuman primates, larger animals. We are very excited about this program, and we are in discussions with Merck about possibly retaking full rights to this program since Merck's focus with Sirna has been mostly chemical based RNAI, we feel we can move this program quite nicely and get data very quickly if we are able to control it ourselves. We are in discussions about that.

You are trying to acquire access space?

That's correct.

Are we going to see any publication of the preclinical data?

Yes, we expect publications in the first half of '08 and possibly again second half of '08.

Thank you very much. I'm going back in the queue now.

Thank you. David Miller, please state your company name followed by your question.

Hi, this is David Miller from Biotech Stock Research. Good morning.

Hey, David.

First question is, about how many patients were left to dose after the halt was lifted?

About 35 patients total.

Okay. And in the press release, talking about the potential presentation of the data, it mentioned three presentations potential did I misunderstand? Is it only going to be ASGT and EULAR? Or was there another one thrown in there?

The final presentation would be at the American College of Rheumatology in November.

Essentially we're looking at May, June, and November?

That's correct.

Can you give me some idea of what kind of data we would see where? Particularly which one of those would end up being the final data and how the data was different between the three presentations?

Having just announced fairly recently that we've completed doing of all of the patients remaining to be dosed, there was a follow-up period for those patients. The final data would be in November. We still won't have completed complete follow-up for the patients by the middle of the year. So the middle of the year publications are really targeted for more interim data, further analysis of what we've been able to see so far but not the final data.

Okay. All right. And so essentially so May you'd have -- it would be kind of stepping through to the final. So May you'd have some final data on some patients, June you'd have a bit more, a bit more data on some more patients or are you going to focus on different aspects of it in the May and June presentations.

I think more likely it would be different aspects of the data that we've seen with the final wrap-up in November. Also, I don't want to mislead you. I think the data in June would be similar to what we have in May, just different presentations.

Yeah. That would be my guess. So you mentioned that you would look to launch the next step in this trial program in late '08 or early '09. Can you talk to me about what the rate limiting step is? Is it getting the full data back towards November?

That's exactly it. We've made products, we're ready to go, but really, we want to make sure we optimize the trial design as efficiently as possible, so we're working with our rheumatology advisors now to really look at that, look at the data, figure out what the next step would be.

Okay. Then finally, I got distracted while you were talking about the drugs for the eye stuff. I apologize. So can you talk about the time lines with that with the eye program?

Sure. This is a collaboration with the University College of London and Moorfield's with Dr. Robin Ali, and the study started last year, and we -- it's a 12-patient study so fairly small. Obviously starting first in older patients so if a safety standpoint, you want to make sure that you're not getting into the kids, but as we go younger and younger, we think the data should be very interesting. The first data would be actually coming out the first half of this year at an eye meeting. And then we'll go from there.

Okay. Great.

Thanks.

Thank you very much.

(OPERATOR INSTRUCTIONS). At this time, Sean Wu, please go ahead with your follow-up.

Yes. I do have a question about your Phase II trial. You say you're going to try to do it this year or early next year? Like a preliminary idea how big the size the trial will be and how long will it take? Also, use some pawns in Phase III studies.

Sean, I'd love to be able to give you that, but I don't have that ready. It's not fully baked yet. So we'll be hoping to give guidance on that later in the year.

Okay. Do you have any kind of financial guidance for the year just for $16.4 million is going to be enough for the whole year?

Yes, Sean. The cash horizon is at least a year.

Okay. Thanks.

Sure.

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

Okay. Well, thank you all very much. We appreciate your attendance today and we look forward to speaking with you in the coming weeks.

All right. Thank you, ladies and gentlemen. We thank you very much for your 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 presentation. Have a very pleasant rest of your day.