Brickell Biotech Inc (BBI) 2002 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Vical2002 third quarter conference call. At this time I'd like to inform you that this conference is being recorded and all participants are in a listen-only mode. There will be a question-and-answer session. To ask a question during this time, invited guests may simply press star and the No. 1 on your push button telephone key pad. I will turn the call over to Allen Engbring (ph). Please go ahead, sir.

I'm Allen Engbring, Director of Investor Relations at Vical. Welcome to our third quarter financial results conference call. Participating in the call today are Vijay Samant (ph), our President and Chief Executive Officer, David Kaslow (ph) our Chief Scientific Officer, and Martha Dempsey (ph) our Chief Financial Officer. I will begin with a brief notice concerning projections and forecasts. This call includes forward-looking statements including estimates for 2002, and research and development programs which are subject to risks and uncertainties that could result in actual differing results, including the risks set forth on our Form 10-K and quarterly reports on form 10 Q filed with the Securities and Exchange Commission, as well as the specific risks and uncertainties noted in Vical's news release on third car results. These forward-looking statements represents the company's judgment as of today. The company disclaims, however, any intent or obligation to update they forward-looking statements. Now, I would like to introduce Vical's President and Chief Executive Officer, Mr. Vijay Samant.

Thank you, Allen. Good morning, and welcome. I'd start the call with some comments on recent events and results, and then we'll open the session to questions. If time permits, we may also address some questions that were submitted in advance. Since our last quarterly conference call, we have made several changes consistent with the product development strategy that we detailed this year. First, we refocused our entire oncology efforts on our (inaudible) program, and I'll briefly review our rationale and progress to date. Second, we have clearly stated that our focus on product development is on the vaccines for infectious diseases. The key, is we are a vaccine company with the emphasis on development. Third, I would like to discuss the benefits of our revenue-producing contract services in managing our bone (ph) rate. In addition, I would like Dr. David Kaslow, our Chief Scientific Officer to provide details concerns or anthrax vaccine research effort. He'll explain why this is an important program to Vical. I'll address each of these items briefly and review the results. First, it is Allovectin program. We remain enthusiastic on Allovectin 7 because of the survival we have seen in the trial. Our entire oncology severity is focus on the high-dose Allovectin program. I would like to remind you of our rationale for the high-dose Allovectin-7 program. First, our earlier trial started more than five years and used a 10 microgram dose. Subsequently, we have learned in other human clinical trials that T-cell responses are dose-related and now we're using two milligrams, which represents a 204-dose increase. It shows that about 25% of the injected tumors regress by 50% or more. Another 40% of the injected tumors stabilize. That means in approximately 65% of the injected tumors in the end-stage refactory patients, Allovectin 7 either slowed, stopped, or reversed tumor growth. On the basis of these observations, we believe that injecting multiple tumors may increase overall response rate. Third, the safety profile of Allovectin-7 is excellent.

We have one of the largest safety databases in gene therapy, in our low-dose trial, only 1% of the adverse events were considered serious and drug related. In contrast to (inaudible) or DTIC has created a 50 percent (inaudible) with a significant number of them life threatening.. To date, our safety experience with high-dose trial is consistent with the safety and low-dose trials. Finally, we are pleased about the beneficial trend in the survival data low-dose base to trial. At the last data analysis, seven of the eight responders were alive almost three and 11/2 years. Our oral estimated median survival is 14.3 months, compared with six to 11 months in the historical controls. Our recruitment in the high-dose trial is progressing well. We have now enrolled 96 patients and interest in the trial remains strong among both doctors and patients at our 16 centers nationwide. This continued interest and the strong safety profile of Allovectin-7 have allowed expansion of our high-dose trial to accept as many as 124 patients. Even though the original 80-patient trial designed was sufficient to evaluate the rate, the expansion will give us greater confidence in any conclusions we may draw from the non-registration trial, and we plan to provide an update at the ASCO meeting in May 2003.

Second, our vaccine research program. Although we continue to support our oncology programs, especially Allovectin-7, and pursue new opportunities for cancer vaccines, we have now focused most of our research and development efforts on infectious disease vaccines, because they offered us the most expeditious way to bring products to the market. These include most HIV vaccine involvement program, and our collaboration with the navy on the Malaria (ph) vaccine. Our technology can bring about a paradigm shift in the traditional model for vaccine development. Traditional vaccine development requires a huge infrastructure, substantial Capital investment and significant no-how. This has limited the number of players in the substantially commercially potential market. A DNA lowers the bar to entry, and offers faster development time lines with much lower capital equipment needs, simpler manufacturing, greater product stability, and includes safety compared with conventional vaccine approaches. Our technology is unique, and based on the (inaudible) use can (inaudible) responses brought from the (inaudible) immune system. Further, when developing vaccines against highly infected pathogens, Vical's technology does not require any handling of the pathogen itself. We believe infectious disease vaccines represent one of the most promising product development opportunities for Vical.

By year-end, we intend to select two programs to advance from research into preclinical development. Third, our contract services businesses. Last year, in 2001, we limited our net loss to just $9.2 million, largely because we generated a record $11.4 million of revenue. Our revenues consist of two major components. Milestone payments in contract revenues. Over the years, the focus has been on our milestone payments. To date, we have received more than $60 million from our various collaborations, but the contract revenues are becoming a more important factor. Last year, accounting for one third of our total revenues. I would like to take a minute to describe the business. At Vical, we view contract services as a means of leveraging the expertise we have developed in our own programs and expanding the application of our core technology by providing services for government agencies and other contract basis. We entered into the arrangements in the three closely connected areas with our technology, and their research, regulatory services and manufacturing. These are critical functions for our own development, and our success depends on maintaining the leading-edge capabilities in these areas. By providing these services, we can recur some upper (ph) investment in these function (ph) areas and we can generate revenues to help manage our cash burn. Some of our customers for these services include the Mastle Institute for Health (ph), for whom we provide multiple R&D, and manufactured several DNA plasmic (ph) several constructs. The vaccine research center within the NIH, for which we are providing DNA vaccines for Ebola (ph) and HIV. The office of naval research, for whom we have provided regulatory manufacturing connections, in connection with our Malaria (ph) vaccine program. The international AIDS vaccine initiative IRV for whom we have provided vaccine-manufacturing support, and other governmental, academic and corporal clients working on a variety of programs. In summary, our contract services business helps us expand the market for technology as well as provides revenues. Fourth, I would like Dr. David Kaslow to fill you in our on biodefense programs.

Thanks, Vijay. As you know, we announced in the second quarter two programs in the biodefense area. The first is our collaboration with Ohio State University under a small business technology transfer research or STTR grant from the NIAD, to conduct a preclinical studies of DNA vaccines against anthrax. I'd like to focus on that program today to help our listeners better understand our approach and differentiate the Vical program from others that may by under development. First, the currently approved vaccine for anthrax has several shortcomings, including a complex vaccination regimen involving six injections over an 18-month period. Incomplete characterization of vaccine composition, and significant lot-to-lot variation. These issues, along with local reactions, at the injection site and product availability have resulted in public concerns about the vaccine. The institute of medicine published its findings after a 17-month review, and concluded, "the production, testing and licensure of a new vaccine requiring fewer doses and producing fewer local reactions, is needed". As a result of these limitations and heightened awareness of the potential use of anthrax as a bioterrorism agent, several companies have begun developing improved anthrax vaccines.

Vical's naked DNA technology allows us to address some of the shortcomings of these conventional approaches. Unlike the other programs focused on a single anthrax protein, our vaccine would target two proteins, lethal factor and protective antigen, produced by the anthrax bacteria. The combination of these proteins causes the toxic effects associated with anthrax infection. Vical's patented DNA technology allow us for rapidly test, so product discovery is more rapid with our technology than others currently available. Leveraging this inherent (ph) advantage with the potential application of U.S. Food & Drug Administration's new two-animal rule may offer the opportunity for rapid advancement from concept to product of high-priority vaccines development programs such as anthrax. Our goal is to provide equivalent or better protective effect than the existing vaccines but with fewer doses. Results with multiple formulations of our vaccine in initial small-animal studies have been encouraging. While this program is important on its own, we believe that the knowledge we gained from you're work on the anthrax vaccine should be applicable to the rapid development of other vaccines. Our biodefense program is a contract from the vaccine research center to manufacture clinical grade supplies of investigational vaccines against the Ebola virus.

Since that announcement, an MCRADA, has been improved between the VRC and Vical to explore the use of our technologies in the delivery of these Ebola DNA vaccines. Vical would have the commercial rights as to any products resulting from the MCRADA. Ebola and other viruses in the hemorrhagic (ph) fever virus family are deadly in the naturally occurring form and potentially even more so if they are used as bioterrorism agents. DNA vaccines have been successfully demonstrated to protect animals against lethal challenge by Ebola. Because of the similarities between Ebola and other hemorrhagic viruses, it is reasonable to expect one successful approach will work against others. We are pleased to be part of this high-priority national defense program. Both the anthrax and Ebola programs allows us to expand or experience in infectious disease development and manufacturing, and should contribute to better execution in our own development programs. With that, Vijay, I'll turn it back to you.

Thank you, David. That really summarizes our entry into vaccine research for infectious diseases, and that's going to be our core limits of Vical's research program from now on. Let me summarize the third quarter financial results as reported yesterday, the results for the second quarter of 2002 were consistent with our forecast. We reported a net loss of $10.2 million for third quarter 2002, compared to the net loss of $2.6 million for the same period in 2001. The single, largest factor, increase in net loss compared to Q2 in '01was previously announced $4.2 million write-down for an investment in VGI. The merger announcement between VGI and Phenstar Therapeutics (ph) allowed us to reassess the value of the investment The other significant factor is driving the increase in net loss for a higher spending in research and development programs in lower - investment income. As of September 30th, 2002, we had cash and equivalents in marketable securities in $119 million, compared with $134 million at the end of 2001. That means we burned about $15 million in the last nine months. This was sufficient to support our current programs and plan new ones that we have in our pipeline. Forecast, finally, we have confirmed our forecast for a net loss of between $28 million and $32 million for 2002, including the write-down of our investment in VGI. I think this is very important, and I want to clear any confusion here. It's important to know that this write-down was only a paper loss and has no impact on our cash balances. We've been able to maintain our forecast range because of the reductions in spending and increases in contract revenue that we described before. These items are expected to generate a fair impact on the company's cash position. That means the year-end position should be stronger than we originally expected. That concludes my prepared comments. I would like the operator to open the call to questions from participants.

Thank you. The question-and-answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star 1 on your push button telephone. If you'd like to withdraw it, please press star-2. Please stand by for your first question. Once again, if there are any questions at this time, please press star 1 on your push button telephone.

There are a couple every presubmitted questions, which I wanted to answer if we're ready for questions from the audience, and the first question is the recent two-animal rule which the FD (ph) has erupted would seem to be an invitation for companies to seek treatments and vaccines for lethal diseases that have in the past been too risky. Will this be an area of special focus for Vical either for in house development or up licensing especially considering the (inaudible) and potential for various hemorrhagic fuel viruses. David, do you want to answer that?

Sure. As we announced in July, we're working on two programs on a contract basis. As we mentioned, we're manufacturing clinical supplies of the Ebola and DNA research, and we're researching anthrax DNA vaccines with a grant from NIAD. Both of thinks programs could benefit from the two-animal rule. While this rule in itself does not establish Vical's independent authorities, it could be a factor, and we expect to name the first two targets that we plan to advance from research into preclinical development by the end of the year.

Thank you. Another presubmitted question was, you have announced that you're going to be making an announcement that relates to two vaccine programs by the end of the year. Why can't you do that right now? And the answer to that question is very simple. We want to make sure that before we announce our preclinical programs that we have a clear pathway defined with the FDA. So we will have pre IV (ph) meetings with the FDA to make sure we have a clear pathway, and once that's been done, we'll announce those programs. So that's really the regulatory step as to why the announcement is held up. Any other questions from the audience?

As a reminder, if you do have a question, please press star-1 on your telephone at this time. I'm showing no questions in cue at this time.

Well, if there are no questions at this stage, I want to thank all of you for joining us for this conference call this morning. We hope to see some of you during our upcoming road show, or when you visit us here in beautiful San Diego. We'll see you during the next quarter's conference call. Thank you.

Ladies and gentlemen, this concludes our conference call today. Thank for you participating and have a wonderful day. At this time, all participants may now disconnect.