Armata Pharmaceuticals, Inc. (ARMP) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Targeted Genetics third quarter 2008 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 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, the instructions will be given for the question-and-answer session. (Operator Instructions).

As a reminder, this conference is being recorded, this Wednesday afternoon, November 5, 2008. I would now like to turn the conference over to Stewart Parker. Please go ahead, Ma'am.

Thanks, Nicole. Good afternoon, 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. And we do wish to caution you that such statements are only predictions. 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 Form 10-K for 2007 and our third quarter Form 10-Q, which was filed today after market close.

As we near year-end, we continue to accomplish important business and clinical objectives and are pleased with our progress. However, this progress has been made in an environment that does not readily recognize it. So we are continuing to push hard to overcome the challenges we and others in the biotechnology industry are facing today.

I will start my summary for the quarter with an update on our development program for tgAAC94, our investigational agent designed to inhibit activity of tumor necrosis factor alpha, or TNF-alpha, which is a key mediator of inflammation.

Our principal investigator, Dr. Philip Mease of Swedish Medical Center, Seattle Rheumatology Research recently reported complete data from our Phase 1, 2 clinical trial at the American College of Rheumatology annual meeting. We were encouraged by our clinical findings that tgAAC94 is well-tolerated and showed improvement of injected joints, based on patient reported outcome measures which is considered one key gauge of efficacy.

These data suggest that further study in this program is warranted and we are evaluating our next clinical steps. We are also considering partnering this program, based on the data in hand, in order to further leverage our financial resources.

Turning to our congestive heart failure program, we are also excited about the progress being made in this program and a collaboration with Celladon Corporation. Celladon initiated the second stage of its Phase 1, 2 clinical trial, evaluating MYDICAR, the product candidate that targets the key enzyme deficiency in advanced heart failure.

MYDICAR is designed to regulate calcium cycling in contractility in heart muscle cells. We are expecting initial clinical data from this first program in heart failure to be reported at the American Heart Association meeting later this month. We are currently working with Celladon to manufacture additional product for future trials of this exciting potential treatment for congestive heart failure.

During this quarter, we also began work in our Amyotrophic Lateral Sclerosis or ALS program under the $2.4 million grant awarded in September to fund the program's preclinical development costs. ALS, more widely known as Lou Gehrig's disease, is a progressive neurodegenerative disease affecting neurons in the brain and spinal cord and is a disease for which there is no cure.

Dr. John Inglehart of the University of Iowa, our collaborator on this project, observed that genetic mutations known to be associated with ALS lead to overactivation of NADPH oxidase, which is associated with the pathogenesis of ALS. As a result a small molecule product candidate has shown delay in onset and progression of disease in tests and animal models. And 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 LCA, earlier this year we reported exciting and promising results from the first gene therapy trial for this disease, also known as Leber's Congenital Amaurosis. As the year progresses, we continue to work in partnership with leading researchers from the University College of London and Moorfield Hospital to advance this clinical study in young children -- younger children with LCA who have lost less visual function and who we believe have a greater chance of being positively impacted by the treatment.

In addition to LCA, we believe these results represent the potential for use of AAV to treat other diseases mediated through introduction of genes or gene silencing agents into the retina. Diseases with larger patient populations.

We have also filed an electrical property around this program which we believe strengthens our position in general in retinal diseases. And we are working to identify our next disease product candidates in this area.

Before I turn the call over to David to review our financial results, I would also like to make smut special note of the significant achievements we've made in the area of AAV scale-up and process optimization. This is critical as we move our and our partners' programs through into later, larger scales clinical trials. We're now manufacturing AAV product candidates at the 250 liter volume, which from a cost-effectiveness standpoint can unlock significant opportunities to address larger markets.

Finally, we also received issuances of -- or an issuance of an additional patent in this quarter, a move which strengthens our AAV vector patent portfolio and expands the potential applications of AAV-based gene delivery. Both of these are significant achievements as we focus on strategic licensing and additional product development collaborations.

At this point, I will turn the call over to David.

Thanks, Stewart. Thanks, everyone, for joining in this afternoon.

As Stewart has highlighted, we continued to make good progress in 2008 from a product development and clinical perspective. We also continued to be on plan to achieve the revenue and expense goals we outlined in our prior calls.

This afternoon, we reported financial results for the third quarter ended September 30, 2008. We reported third quarter revenue of $1.7 million compared to $2.4 million for the same quarter in 2007.

The decrease in third quarter revenue primarily reflects lower R&D and manufacturing activities under the NIAID-funded HIV AIDS vaccine program and lower licensing revenue. These results were partially offset by higher R&D activities under our congestive heart failure collaboration with Celladon.

Revenue for the nine months ended September 30th, 2008, was $6.5 million compared to $7.1 million for the same period last year, also driven mainly by lower licensing revenue.

Research and development expense for the third quarter of 2008 decreased to $3.2 million compared to $3.9 million in the same quarter of 2007. R&D expenses decreased to $11.3 million for the nine months ended September 30 compared to the $12.8 million for the same period last year.

This decrease reflects lower clinical trial costs as our Phase 1, 2 inflammatory arthritis trial is now completed. The R&D expense decreases in both periods were partially offset by increased 2008 activity, related to our partner [at heart failure] product candidate.

Our G&A expenses for the three months ended September 30, 2008, were $1.2 million compared to $1.7 million for the same period in 2007. This decrease reflects lower intellectual property charges for the quarter related to patent issuances in Europe, lower shareholder costs and decreased use of external consultants.

G&A expense increased slightly in 2008 -- $4.9 million for the nine-month period compared to $4.8 million for the same period in 2007. This increase primarily reflects higher intellectual property charges in the first part of this year, related to our progress with several European patent filings.

Our net loss for the third quarter was $2.7 million or $0.13 per share compared to a net loss of $3 million or $0.15 per share for the third quarter of 2007. Our net loss for the first nine months of 2008 was $9.9 million or $0.50 per share compared to a net loss of $11.1 million or $0.72 per share for the same period in 2007.

As reported in the tax regulatory filings, we must maintain specific quantitative standards to maintain a continuing listing on the NASDAQ capital market, including a minimum bid price of $1.00 for our common stock. Due to market conditions, the NASDAQ suspended the enforcement of the rules requiring this minimum $1.00 closing bid price.

NASDAQ will not take any action to delist any security during this extension which will remain in effect through Friday, January 16th, 2009. Under the terms of this extension if we have not regained compliance with the bid price requirement or met the requirement for an additional 180-day compliance period by January 26, 2009, the NASDAQ would then provide us with notice that our securities will be delisted.

For now, we are obviously pleased to be able to focus on important strategic and operational objective, beyond this delisting issue. We started 2008 with $16.4 million in cash and revenue expectations of $8 million to $9 million. We are tracking towards the higher end of the revenue range and we finished the third quarter of 2008 with $9.2 million of cash which places us on track for a 2008 cash burn in the range of $11.5 million to $12.5 million.

This year's forecasted cash burn is on the low end of the previous -- range previously estimated yet translates into an unencumbered cash horizon that only extends into the first quarter of 2009. This very short cash horizon has us intensely focused on carefully managing our current cash funds and on extending our cash horizon of critical importance to the Company.

I will now turn the call back over to Stewart who will review our efforts to extend our runway, as well as additional activities for the remainder of 2008. Stewart?

Thanks, David. So our current product priorities are centering on advancing our LCA programs through the clinical trials at the [UCL] Moorfield's operation and on moving our Huntington's disease and ALS product candidates through preclinical studies towards the initiation of clinical trials.

Our near-term priorities also include the evaluation of next steps for our tgAAC94 product candidate based upon the data that we've been able to generate now in the recently completed Phase 1/2 trials. And as I have said earlier, potentially accelerating efforts to partner that program.

Secondly, we are working to maximize the value of our manufacturing and development expertise and our intellectual properties. We continue to believe that our manufacturing capabilities in IP are premier in the sector and we are seeing interest from our colleagues in the field in accessing these capabilities.

We are working on a number of avenues to capitalize on our AAV manufacturing expertise, including partnerships, which could provide both short-term revenue and longer-term upside to the Company.

In certain cases, we may pursue opportunities to license our technology and leverage our portfolio of AAV-related intellectual property assets, again to generate revenue and valued for our shareholders.

Third, we are planning to pursue and are pursuing additional product initiatives, particularly opportunities to exploit our leading intellectual properties position in Xpress RNAi. AAV's attributes of safety and long-term expression capabilities make it a key system to overcome RNAi's issues with delivery. And we are currently evaluating a number of product opportunities in this area -- subject, of course, to resources being available.

Finally, as David said, in this very difficult environment, we are keenly focused on initiatives to extend our short cash horizon. As we discussed in past status calls, we have a number of initiatives ongoing in this area. But it must be said that these initiatives have obviously not been helped by the unprecedented levels of volatility and disruption experienced in the financial markets in recent weeks.

We are doing everything possible to carefully navigate through these times, stewarding our cash and evaluating all possibilities as to how to best move forward to capitalize and deliver on the promise of AAV delivery.

So in general, these initiatives to extend our cash horizon include many of the following. Strategic transactions; mergers or acquisitions; licensing or selling our technology capabilities or product candidates; entering into additional product development collaborations; consideration of sales of stock or placement of debt; additional revenues through expanding, augmenting, or extending our current collaborations; and entering into new initiatives to capitalize on our intellectual property, manufacturing capabilities and product development expertise.

We are indeed committed to delivering on the promise of AAV as a therapeutic modality. We are excited about this product development progress we've made so far this year and very much remain committed to achieving our scientific, clinical, and financial milestones.

However, we are concerned about our ability to raise additional capital or secure other financial resources in the near term. And we must be successful in our current multiple initiative to alleviate the situation. We have a lot of work in front of us. And we look forward to reporting our progress on these fronts as we move ahead.

So again we look forward to updating you on our continued progress. And at this point we will give you an opportunity to ask questions. Nicole?

(Operator Instructions). [David Miller] with [Boyer Stock Research].

It's Biotech Stock Research, but good morning or afternoon. Can we talk a little bit about -- I want to start out with talking about tgAAC94 and rheumatoid arthritis and understand how you are looking to move this product forward?

We're just -- as you know, David, we just presented some of the data at the American College of Rheumatology and we are continuing to look at the full data. But, again, I think that given our current resources it would be hard to initiate another clinical trial without really knowing that the comprehensive picture financially is sound.

So I think that you won't see that starting until we either partner the program, based on the data we have generated, or the financial picture changes for the Company. So that's really where we are right now.

And can you characterize partnership interest in that?

Yes, I think it's -- we are having good discussions with companies that either don't currently have an anti-TNF product in their portfolio and would like one, or companies that -- some companies in certain cases that have those types of products, but see this as a complementary therapy.

We are having lots of discussions with other types of companies as well, including non US-based companies. So we are just really working hard on trying to maximize the chances of this product moving forward.

Can you place this product in the realm of the other -- of the rheumatoid arthritis area and the competitive landscape?

Yes. It's a crowded field, no question, but again the unique opportunity I think around this product is, it's used as an interarticular injection.

So the fact that it has not been shown to have a systemic distribution throughout the body means that it can be used in cases where the joints are single joints, or at issue first. Even potentially we see it as an ultimately potentially useful product for pediatrics who first present with local disease.

So for situations where local disease is a real issue, where certain joints haven't responded for whatever reason.

So I think it's really -- we see it and our experts see it as a complementary therapy to other therapies, given that it's used as a monotherapy or a multiple therapy in terms of interarticular (inaudible).

Can you talk about, with the heart drug, can you talk about the dollars necessary, you think, to be able to get that drug to a partner (inaudible) status?

That product is partnered. That product is in a collaboration with Celladon Corporation. So all that is -- our work is completely funded on that program by Celladon.

Okay. But you do -- so you pay no money into that program?

(multiple speakers) We pay zero. No, no. We are completely funded by Celladon for that program.

Similar question for the -- you highlighted the ALS and the LCA programs.

A large amount of the ALS program is funded from the Department of Defense grant that we have, the $2.4 million grant. There were some manufacturing costs that we will incur upfront that are not covered, but otherwise that program is covered through to really proof of concept and preclinical studies.

Then, did you ask about the Huntington's or --?

Yes. The LCA.

LCA. That, we are not spending significant researches on that program right now because work is being done in the clinical setting by our collaborators under grants. So that's not a significant impact.

Are there -- other than the dollar share price level, are there any other issues with the NASDAQ listing with those asset to debt or anything like that? Or is it just the share price that had the listing endangered (multiple speakers)?

At this time, there are no issues relating to the NASDAQ other than that. However, as we proceed forward, we are watching the network threshold, which is $2.5 million.

All right. Those were my questions. Thank you.

Reni Benjamin. Rodman.

David asked all the smart questions. So I'm going to try to hit you with a couple. Help me understand the financial picture here.

Just by eyeballing it, it looks to me like you burned about $2.5 million or so in cash for the third quarter. You have about $9 million at the end of the third quarter. So if I assume that things stay roughly the same it seems to me that you have about three-quarters worth of cash so certain cash to take you into the third quarter of '09.

But, David, I think you mentioned that you have enough cash to get you through the first quarter of '09. Can you help me understand where I see a disconnect or where the disconnect is?

Sure. We watch unencumbered cash, No. 1. What that means is we remove from our cash balance for cash horizon purposes the accrued payables and employee accruals, vacations and such. And our cash, as you'll notice if you go back to the beginning of the year, it ebbs and flows with respect to how our receivables see cash or consume cash.

And as this year has unfolded we've actually done very, very well in collecting cash in advance of the work being performed (inaudible) liabilities and such. That balance has increased some off and on.

So going into early '09, how are you seeing this unfold?

We are seeing this unfold that our unencumbered cash balance during the first quarter is -- during the first quarter that'd be unencumbered cash balance hits zero.

So the strategic alternatives that you mentioned are -- it's pretty exhaustive, and a lot of companies are going through, given the market environment right now, are going through similar steps. So is there a preference? Is there something that you are pursuing more than, let's say, the others or is everything pretty much on the drawing table right now?

I would say pretty much right now everything is on the drawing table. Everything from partnering earlier than maybe we had originally planned for some of these programs; possibly even selling some of the programs, leveraging the manufacturing infrastructure into additional opportunities.

We are looking at a lot of different things and when I say looking I don't mean sitting back and looking. We are really working hard on these, obviously. This is critical for us.

Great. Thank you very much and good luck.

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

Thanks, again, to you all for joining us and we really look forward to speaking with you soon and we will continue to work hard on meeting these objectives. Thank you.

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 presentation. You may now disconnect.