Armata Pharmaceuticals, Inc. (ARMP) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Targeted Genetics second quarter 2008 financial results call. Today's presenters are Stewart Parker, President and CEO of Targeted Genetics, and David Poston, Targeted Genetics' Chief Financial Officer. Miss Parker will open today's call with business and clinical highlights for the quarter and close the call with a summary of milestones for the remainder of the year. Her comments will be followed by a financial update from Mr. Poston. The call will then be opened 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 call is being recorded today, Wednesday morning, August 6, 2008.

I would now like to turn the call over to Stewart Parker. Please go ahead, ma'am.

Good morning, everyone, and thank you very much for joining us. Before we begin, 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. 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 form 10-K for 2007 and form 10-Q which will will filed later today.

We achieved a number of important business and clinical objectives during the first half of the year and are very pleased with our continuing progress. Just last month, the Department of Defense, amyotrophic lateral sclerosis, ALS research program of the office of the congressionally directed medical research program recommended grant funding to us for the development of new therapies in ALS, adding up to $2.4 million in revenue to our product development resources for use in that program. Commonly known as Lou Gehrig's disease, ALS is a progressive, neurodegenerative disease, affecting neurons in the brain and spinal cord.

Degeneration of these motor neurons limits communication from the brain and spinal cord to muscle fibers throughout the body, leading to the inability of the brain to initiate and control muscle movement. Early symptoms of ALS often include muscle weakness resulting in loss of control in arms and legs, speech, swallowing or breathing. Sadly, there's no cure for ALS.

We're very excited to take part in this important area of development and our focus will be to develop a small molecule for investigational new drug submission. Our long-term collaborator, Dr.John Englehardt of the University of Iowa, observed that genetic mutations know to be associated with ALS lead to overactivation of NADPH oxidase which is associated with pathogenesis of ALS. This product candidate has shown the delay in onset of progression of disease in animal models. If we can reproduce this in people, the molecule has the potential to have a dramatic impact on survival and quality of life.

Turning to another program, in the spring, we debuted exciting and promising results from the first gene therapy trial for Leber's congenital amaurosis or LCA at the leading association meeting for research in vision and opthamology. There is no treatment currently available for this inherited retinal degenerative disease characterized by severe impairment of vision from birth and total blindness by the third decade of life. In partnership with leading researchers from the University College on London and Morefield Hospital, we reported ground-breaking data, demonstrating proof-of-principle and early clinical benefits in LCA.

Targeted Genetics manufactured the [adeno]-associated viral, AAV vector containing the RPE65 coating sequence for this ongoing phase 1/2 clinical study and also collaborated on earlier preclinical studies that showed that AAV mediated delivery of RPE65 can indeed improve and preserve vision. The study is open label and currently being conducted at a single center. Data were presented for the treatment of three young adults between the ages of 17 and 23 years of age with early onset severe retinal dystrophy.

These patients administered sub-retinally, a single injection of the AAV vector expressing RPE65. The primary end point of this study was to determine whether gene therapy for retinal dystrophy caused by RPE65 mutations was associated with any immediately obvious adverse events. The the secondary end point was whether efficacy could be achieved.

In these subjects, the eye with the worst acuity was selected as the study eye, and the other was used as a control. We've seen no adverse events. And in one subject, there was a consistent improvement in visual function as measured by visual responses and improvement in tests of visual mobility. It is believed that this subject who showed the objective response probably had less advanced retinal disease at baseline than the other two subjects.

This is an important observation that suggests that AAV-based delivery of genes in the eye can be accomplished safely and offers hope of providing efficacy. Based on these findings, our collaborators are advancing the study to younger children with LCA who have lost less visual function and who we believe have a greater chance of being positively impacted by the treatments.

These results that were presented ARVO were also published in the prestigious New England Journal of Medicine online on April 27, coauthored by Dr. J. W. Bainbridge, who is a study surgeon from Morefield's Hospital, Professor Robin Ali of University College London, and Dr. Barry Carter, Targeted Genetics Chief Scientific Officer, among others on the publication.

From a commercial standpoint, LCA represents a small patient population that is likely less than a few thousand patients. However beyond the primary signs of efficacy seen in this study, we believe these findings also represent proof-of-concept for the use of AAV to treat other diseases of the retina with larger patient populations. We also believe that our intellectual property filed around this program will potentially strengthen our position in retinal diseases. We're working now to identify our next disease target for this area.

Also during the quarter, we secured full exclusive rights to develop AAV vectors for the delivery of express RNAi to treat Huntington's Disease or HD from our former partners, [serna] therapeutic, a wholly owned subsidiary of Merck & Company. This agreement puts all the key pieces of this program together and provides a path of direct collaboration with the University of Iowa to expedite the program. This research is our primary proof of concept now in expressed RNAi, which we believe presents multiple product opportunities to help patients who currently have little hope for treatment such as those with HD.

In April, our preclinical data characterized into novel uses AAV vectors to deliver small interfering RNA for the treatment of HD were published in the proceedings of the National Academy of Sciences or PNAS. The goal of this research is to assess the use of interfering RNA to silence the mutant Huntington gene and thus, reduce the level of the defective protein. The paper published findings that AAV RNAi vector efficiently aggregate disease and mouth models of Huntington's Disease.

Moreover, we believe the results show that our new approach to RNAi delivery may effectively overcome both the delivery limitations of RNAi related to off-target effects and the resulting nonspecific toxicity. These new AAV RNAi vectors embedded in synthetic micro RNA structures retain the efficiency of delivery and biologic efficacy, while having a greatly enhanced safety profile. While early, we believe this new design concept is of great importance to the entire RNA therapeutic field.

In general, we believe that the use of AAV vectors for delivery of express RNAi does have advantages over alternatives RNAi delivery approaches, due to AAV's proven long-term expression capabilities, stability, and safety profile. In the case of our proof-of-concept Huntington's program, we've identified and are currently evaluating lead candidates and long-term product pre-preclinical studies which are necessary prior to moving forward into clinical trials.

Moving to our inflammatory arthritis program, we competent interim phase 1/2 data at two key scientific conferences, the European League Against Rheumatism, or EULAR, and the American Society of Gene Therapies or ASGT. Our clinical findings demonstrated that tgAAC94, our investigational agent designed to inhibit activity of tumor necrosis factor alpha, which is a key mediator of inflammation, is well tolerated and may improve disease symptoms in patients refractories of other arthritic therapies including systemic TNF antagonists. We continue the follow patients in the study and are currently evaluating our next clinical steps.

Before moving to our financials, I'll summarize our product development program in heart failure. In collaboration with Celladon, the heart failure program continues to progress as Celladon studies patients in the phase 1/2 trial of Mydicar, a potentially ground-breaking therapy that is designed to improve contractility by increasing recycling of calcium in the heart at the cellular level. We expect initial clinical data from this first gene therapy program in heart failure to be reported at the American Heart Association meeting in November. Now at this point, I'll turn the call over to David Poston who will review our financial results, provide an update on our financial position, and outline our financial expectations for the rest of the year.

Thanks, Stewart. And thanks to everyone for joining in this morning. As Stewart has highlighted, we continue to make good progress in 2008 from a product development and clinical data perspective. We also continue to be on plan to achieve our financial goals that we outlined in our prior calls.

This morning, we reported financial results for second quarter of June 2008. We reported second quarter revenue of $2.2 million, compared to $3 million for the same quarter in 2007. The decrease in second quarter revenue primarily reflects lower R&D and manufacturing activities under the NIAID funded HIV AIDS vaccine program, partially offset by higher research and development activities under our Celladon congestive heart failure collaboration.

Revenue for the six months ended June 30, 2008 was $4.7 million, about even with revenue for the same period last year as increases in this year's Celladon product development efforts were offset by decreases in our HIV AIDS vaccine program activities. Based upon completion of planned development activities for our funded projects and licensing technology, we believe we are on track for 2008 revenue from our collaborative partners of approximately $8 million to $9 million. This revenue plan for 2008 includes the expectation that we and our partners achieve our respective 2008 product development work plans. Based on our projected revenue range, we are also on track with our multiyear trend of funding a quarter to half of our cash burn via revenue from our partnered programs.

Research and development expenses for second quarter of 2008 decreased to $4.2 million, compared to $5.3 million in the same quarter of 2007. R&D expenses decreased to $8.1 million for the six months ended June 30, 2008, compared to $9 million for the same period in 2007. The decrease in both periods reflects lower clinical trial costs as our phase 1/2 inflammatory arthritis trial reaches completion. The R&D expense decreases in both periods were partially offset by increased 2008 activity related to our partnered congestive heart failure product candidate.

Our G&A expenses for three months ended June 30 were $1.8 million, compared to $1.6 million in the same period in 2007. General and administrative expenses also increased to $3.6 million for the six months ended June 30, 2008, compared to $3.1 million for the same period in 2007. The increases in both periods reflect higher patent costs and higher legal fees as compared to last year. Our patent cost increases reflect the maturation of our IP portfolio as several key patents are advancing towards European issuances.

Our net loss for the quarter was $3.8 million or $0.19 per share, compared to a net loss of $4.2 million or $0.31 for the second quarter of 2007. Our net loss for the first half of 2008 was $7.2 million or $0.36 per share, compared to a net loss of $8 million or $0.61 for the first half of 2007. Our per share results for 2007 reflect the issuance of 2.2 million shares of stock in January of 2007 and 6.7 million shares in June 2007.

We started 2008 with $16.4 million in cash and revenue expectations of $8 million to $9 million. We finished the second quarter of 2008 with $12.7 million of cash, which places us on track for a 2008 cash burn in the range of $12 million to $14 million and translates into a cash rise into the first quarter of 2009. We are focused intently on carefully managing the funds we raised last year and on extending that cash horizon.

Over the next several months we hope to announce progress on our initiatives to extend our cash horizon further into 2009, and position ourself to capitalize on our research and development progress. As reported in past regulatory filings, we must maintain specific quantitative standards to maintain a continuing listing on the NASDAQ capital market, including a minimum bid price of $1 for our common stock. This past April 23, we received a deficiency notice from the NASDAQ informing us that for 30 consecutive business days, the bid price of our common shares had closed below the minimum $1 per share requirement for continuing inclusion under their rules.

Under the NASDAQ rules, we have been provided with 180 calendar days or until October 20, 2008 to regain compliance with this $1 per share price rule. To regain compliance, the bid price of our common stock must close at $1 or more per share for a minimum of 10 business days. If on October 20, 2008, we meet the NASDAQ capital market's initial listing criteria which include a shareholder's equity requirement and a publicly held shared market value requirement, but have not regained bid price compliance, we may be provided with an additional 180 calendar days to demonstrate such compliance. We are monitoring our NASDAQ situation closely, but maintain our primary focus on building the value of the Company and advancing our product candidates into and through clinical trials.

As I mentioned earlier, we have a number of initiatives underway to extend our cash horizon. These could include one or more of the following; strategic transactions, mergers or acquisitions, licensing or selling our technology, capabilities or product candidates, entering into additional product development collaborations, additional revenue through expanding or extending our current collaboration, new initiatives to capitalize on our intellectual property, manufacturing capabilities, and product development expertise, and sales of stock or placement of debt.

We are excited about the product development progress we've made so far this year and remain committed to achieving our scientific, clinical, and financial milestones. We look forward to reporting our progress on these fronts through the rest of the year. I'll now turn the call back over to Stewart who will review our strategic goals for 2008. Stewart?

Thanks, David. For our first product related goal is to continue moving ahead our pipeline. And our priorities in the clinic include the advancement of the programs including product candidates for the treatment of LCA, heart failure, and Huntington's Disease, and the advancement of tgAAC94 as a therapy to treat inflammatory arthritis

Secondly, we're working very hard to maximize the value of our manufacturing and development expertise, and the related intellectual property there. We continue to believe that our manufacturing capabilities and IP are premiere in the sector. And we're seeing increasing interest from our colleagues in the field in excess of these capabilities. We're working on a number of avenues to capitalize on our AAV manufacturing expertise, including partnerships which could provide the short-term revenue and longer-term up side to the Company.

In certain cases, we may also pursue opportunities to license our technology and leverage through that route our portfolio of AAV-related intellectual property assets to generate revenue and value for our shareholders. Third, we're pursuing additional product initiatives, particularly opportunities to exploit our leading IP position in express RNAi. Again, AAV's attributes of safely and long-term expression capability make it a key system to overcome RNAi's issues of delivery. And we're currently evaluating a number of product opportunities in this area.

And finally, as David said, we're keenly focused on initiatives to extend our cash horizon. We look forward to updating you on our continued progress to make these objectives and milestones throughout the year. We very much appreciate you all for your continued support. At this point, we'll give you an opportunity to ask questions.

Thank you. Ladies and gentlemen, at this time, we'll begin the question-and-answer session. (OPERATOR INSTRUCTIONS.) Our first question comes from the line of Ren Benjamin. Please state your company followed by your question.

Hi, this is Ren from Rodman. Thanks for taking my question. Just very quickly if we can go through each of the programs. Just trying to get a status of each of the programs and more importantly, the timing as to when either those new trials will begin or when we will see data. Can we start with the ALS program? Can you give us an update as to what exactly is happening right now. And what else is going to happen for the rest of 2008?

The ALS program is actually -- we haven't even received the grant yet. We've been recommended by the Department of Defense to receive the grant. However, we are doing some preliminary work on that.

Most of it really relates to sourcing product for preclinical studies. Based on an assumption about when the grant will be actually awarded, I would say that the preclinical work on that will start in 2009. But without knowing exactly when the grant is going to be granted, it's a little hard to say. We're putting the plans together for that right now, but that's a 2009 preclinical activity program.

Okay. Great. And then regarding the LCA program, you mentioned that the collaborators are looking at younger children. Can you give us a status update on that? How many new patients have been enrolled? And when do we think we might see some updated results?

We are waiting to hear back from the European regulatory authorities about the change in the protocol. That would probably be a September re-initiation event for adding younger patients in the study. Once we get the go-ahead, I think we can add them fairly quickly. I would imagine that the next data point for that trial will probably indeed be the next ARVA meeting which will be April of 2009.

Okay, great. And then what exactly is happening -- I know you mentioned quite a bit of work, regarding the IP and stuff regarding delivery of SRNA. What will happen now for the rest of the year? Is it the number one goal to find a collaborator or another company to advance this? Or is there more preclinical work that's being done?

I think the answer is yes to all. For the Huntington's program, we're in preclinical studies working with the University of Iowa. We're evaluating these constructs and toxicity studies. We'll have to do -- because it's Huntington, first time in man for AAD RNAi, we'll have to do longer-term studies in both small animals and large animals.

How long will those tox studies take?

Six to eight months most likely. We're seeing the Huntington's program as an early 2010 clinical initiation right now. We might be able to move it up a little bit, but the animal studies are the animal studies. It's a 2009 finish-up long-term talks, put the package together, and then file for IND to begin studies in early 2010. Otherwise, we're in a lot of discussions. We're doing a lot of analysis about what other targets we might want to look at. We have a lot of interest in using AAD for RNAi. On more of the business development side, there's a significant amount of activity there.

How about potential for preclinical results from the program?

I'm sure we'll have publications and presentations. I'm not sure exactly when the next one is going to be, but sometime around early the first of the year.

Okay. The rheumatoid arthritis program. When might we see updated results there?

At ACR in November, we have a presentation.

And then, let's see. From the financial side, how should we be -- in order to manage this burn, should we be looking at sequential decreases in R&D and SG&A at least for the next couple of quarters?

I think our cash horizon estimates are pretty clear from the data that we're providing, that we're expecting to burn $12 million to $14 million cash during the year with the revenue being somewhat front- loaded as you can tell. Our revenue estimate is $8 million to $9 million during the calendar year.

Okay. Okay. That's it for me. Thank you.

Thanks, Ren.

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

Okay. Thank you all for joining us and we do look forward to speaking with you in the coming weeks.

Ladies and gentlemen, thank you for your participation 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.