Brickell Biotech Inc (BBI) 2002 Q4 法說會逐字稿

Good afternoon. Ladies and gentlemen and welcome to the Vai cal incorporated fourth quarter and year end 2002, financial results conference call. At this time I'd like to inform you that this conference is being recorded and all participants in a listen-only mode. Following the company's presentation there will be a question-and-answer period. To ask a question press star and the No. 1 on your telephone keypad. You'll turn the conference over to Mr. Allen Engbring, please go ahead.

I'm Director of Investor Relations of Vical. Welcome to our fourth quarter year end financial results conference call. Participating on the call today are Vijay Samant , President and Chief Executive Officer. David Kaslow our Chief Scientific Officer, and Martha Demski our Chief Financial Officer. I'll begin with a brief notice on our projections.

This call includes forward-looking statements including information regarding expectations for 2003, and for our Research & Development programs that are subject to risk and uncertainties that could cause actual results to differ materially from those projected including the risks set for in Vical's annual report on 10-K and quarterly reports on 10-Q filed with the Securities and Exchange Commission as well as the risks and uncertainties noted in Vical's news release in fourth quarter and full year results. These forward-looking statements represent the company's judgment as of today. The company disclaims, however, any intent or obligation to update these forward-looking statements. Now I would like to introduce Vical's President and Chief Executive Officer Mr. Vijay Samant.

Thank you. I'll start the call with some comments on recent events and open the session to questions if time permits. We will may also address a few questions that were submitted in advance. First we announced yesterday a fourth quarter and full year 2002 financial results which reflected careful management of our resources with a commitment to advancing programs. Second we have focused of the application of our sources according to the product development strategy we introduced last year and we announced last week the selection of CMV as our first vaccine target. We'll provide an overview of our approach in some details. Finally I'll provide a brief update on the Allovectin-7 program before opening the call to questions.

Financial results, yesterday we reported a net loss of $28 million for 2002. We're pleased to note that this was the low end of our forecast range of $28 million to $32 million. We're able to meet that forecast despite the $4.2 million write down of our investment in vascular genetics. We limited our net cash burn for 2002 to $22 million, as of December 31, 2002, we had cash, cash equivalents and marketable securities of $112 million. compared to $134 million in the end of 2001 Revenues of $7 million in 2002 included a mix of milestone payments and contract revenues.

For 2003 we're forecasting a net loss, a net loss of 24 to $28 million. This forecast range is based on our plans to advance two vaccine candidates into human clinical trials.

Our product development programs. We told you last year that our focus would be on infectious disease vaccines. First we believe that vaccines offer the best application of our technology because of its ability to illicit important immune responses. Second, there's an untapped commercial opportunity and tremendous unmet medical need in the field of infectious disease vaccines.

Third as we pursue our new in-house programs we have the opportunity to incorporate some of the advances we have made to our core technology. Fourth there's a considerable evidence of that efficacy in both large and small animals. Finally our technology may offer a significant competitive advantage in development costs and time lines in comparison to conventional vaccine technologies based on tentative vaccines and other vaccines.

Consistent with that plan we announced last week the selection of CMV as our first independent vaccine program. We believe CMV offers an excellent platform to leverage our vaccine technology in an area of substantial unmet medical need and a commercial opportunity. There are no approved vaccines for CMV today and no vaccines were aware of in advanced development. Currently there are limitations and they're not universally effective.

Let me report you to the 1999 report by the National Academy of Sciences Institute of Medicine or IOM entitled "Vaccines for the 21st century, a tool for decision-making." This report is available on our website if you want to access it. In preparing this report the IM developed an analytical model to prioritize on vaccine development based on cross ward suspicion benefit and grouped the vaccines according to the annualized cost per quality. CMV was included in level one highest priority class. Meaning an effective vaccine for CMV would both improve all out-patient health and save total healthcare dollars. The IOM is submitted the healthcare infection of more than $4 billion per year in the United States alone. We certainly believe a vaccine for CMV presents an attractive market opportunity.

Let me describe our strategy. Our initial focus would be on transplantation patient population. The immune suppressive drug required for these vaccines leave patients vunerable to reactivation of latent disease or quiet infection through transplanted cells. We believe the opportunity in the patient population presents the fastest efficacy of vaccine and our analysis of the markets suggested that this market segments alone could support a profitable vaccine based on our technology. In addition programs based our technology should achieve a proof of concept in a [INAUDIBLE] compared to other approaches. We reacquired the rights to CMV vaccine target from Van Test a year ago. To be exact in December of 2001.

Since then we've been able to advance very quickly from an initial concept through a pre-ied meeting with FDA, a plan is to advance CMV vaccine candidate into human trials. We're already in the process of aligning some of the leading transplant centers in the United States to work with us on the design and execution of our clinical trials. Beyond the transplant market there's a significant medical need for CMV vaccine to protect newborn children of mothers who become infected during pregnancy. One out of every 100 children in the United States is born with CMV and results in serious birth defects or death, an effective vaccine would be an important medical breakthrough to protect pregnant women against infection.

In the broader vaccine marketplace it's important to note the changing dynamics. Traditionally vaccines have been predominantly focused on the pediatric market intended to protect children from diseases that could cause them serious harm. Today there's a growing interest in vaccines against disease that may affect adolescence and adults. For adolescence and adults these include both sexually transmitted disease and infections that strike opportunistically during pregnant. The opportunity in the geriatric market is even broader. Development of vaccines based on conventional methods requires significant infrastructure and research and manufacturing.

In addition, the safety risk associated with conventional vaccines may offset the potential benefits for a large percentage of the population and David may talk a little more about that in his piece. We believe our technology because of its safety and development time line advantages could be ideally suited for the development of this new generation of vaccines. If our CMV vaccine is proven safe and effective for clinical trials it could eventually expand to be used by general adult and adolescent population as a part of this new class of vaccines. Collectively these factors offer compelling reasons to use this as an initial infectious disease vaccine target. So what gives us the confidence that our technology is appropriate for this mission? For that discussion I'll ask Dr. David Kaslow, our Chief Scientific Officer to comment on our unique approach. David?

The selection of CMV as Vical's product development lead really started in December of 2001 when we successfully negotiated the reacquisition of the rights of this target from [INAUDIBLE]. With the full endorsement of our scientific advisory board and several critical opinion leaders we embarked on a preclinical product development program that led to a pre-ind meeting in less than a year. What we've learned through this effort is although development of a new CMV immunotherapeutic vaccine may not make sense for a big pharmaceutical company it does make sense for the Vical and it does make sence for the patient population at risk and it does make sense in leading healthcare specialists who fear CMV and have dubbed it the trol of transplantation.

To review why CMV makes sense for Vical I'll review the biology of the virus, what we know about the immunology and then Vical's approach to developing this immunotherapeutic vaccine product. As most of you know cytomegalovirus is a [INAUDIBLE] human herpes virus which is among the most well study viruses that affect humans. Cmv and other herpes virus that called chicken pox, shingles and infectious mononucleosis are extremely difficult for even the healthy human body to completely eradicate. Many rise up and strike when the immune system becomes weakened by disease, by the aging process or by the need to use [INAUDIBLE] suppressive drugs to treat other illnesses.

CMV infections become major medical problems, for example, during the early stage of bone marrow and organ transplantation when lifesaving but antirejections medicines are used to allow the graft to take or during fetal developoment. As Vijay mentioned CMV has been identified as a top tier and high-priority vaccine candidate by a be recent report published by the U.S. institute of medicine because CMV disease as important unmet medical need in the United States, and it is a severe or life-threatening illness, cmv as target that makes sense for Vical. The most successful efforts to date to develop a vaccine against CMV have used life [INAUDIBLE] CMV virus.

This conventional approach started in the mid 1970's, and a series of clinical trials indicated that the vaccine generated both antibody responses and cellular immune responses and did prevents severe disease in the organ transplants population. Unfortunately the vaccine did not provide protection against natural infection in an adult women and was not developed further in part because of some of the safety issues identified during clinical trials.

Subsequent studies including passive transfer of high tighter CMV antibodies and administration of activated and specific t cells has shown it is biologically possible to protect organ transplants patients from CMV disease. Thus the picture that is clearly emerging from years of research indicates that both arms of the immune system, t cells and b cells are needed to provide optimal protection against CMV infection and disease. Several CMV genes have been identified and have been shown to end code very [INAUDIBLE] proteins. They provide a scientific base for developing a subunit [INAUDIBLE] vaccine. The biology and the immunology of CMV make logical sense for applying Vical's technology platform.

Based on these scientific data Vical has begun developing a CMV immunotherapeutic vaccine lead although I'm not disclosing today the gene components of our product candidate are plasma based formulation is specifically designed to induce both antibody responses and cellular immune responses. We have worked with experts as well as FDA to plan our clinical development program. We have had our pre-ind meeting. We received clear guidance from FDA on both preclinical and clinical activities.

As a result, we have defined a pathway to the clinic and we anticipate administering our vaccine to the first cohort of human subjects before year end 2003. Once we have established the safety profile the product in healthy adults we anticipate moving directly into the at-risk population which includes both CMV negative as well as CMV positive transplants recipients. The clinical setting of bone marrow transplantation in essence a challenge model for CMV. We know when these patients are at risk for CMV disease. We know when and for how long there will be at highest risk for complications. And we know that the incidents of this disease is quite high. Therefore, the clinical trials are expected to be much smaller and shorter than for a universal vaccine indication. This clinical program makes sense for Vical.

Before I end my formal comments I want to recognize the contribution of the Vical CMV team. Two new leaders have joined Vical. Dr. Tom Evans, our Executive Director of Infectious Disease Clinical Research, and Infectious Disease Specialist and Vaccanologist who joined us from [INAUDIBLE] School of Medicine where he was head of the Infectious Disease Division. And doctor [INAUDIBLE], our Vice President of Product Development of [INAUDIBLE] where he was Senior Vice President and Site Head of Atlantis. Both Dr. Evans and [INAUDIBLE] have contributed significantly to the efforts I've just reviewed and I want to thank the whole CMV team for their initial teams in advancing our first independently developed infectious disease vaccine candidate towards the clinic. With that I'll turn it back to you, Vijay.

Thank you, David. I would like to provide a previous status of report on our Allovectin-7 program. Patient recruitment in the trial continues progress well as we announced yesterday we have 112 patients enrolled versus a total target enrollment of 124 patients. We remain on track to provide results at the meeting in May of 2003. This concludes my prepared statements. I would like now the operator to open the call for questions from the participants

Thank you. The question-and-answer session will begin at this time. If you're using a speaker phone pick up the hands set before pressing any numbers. Should you have a question please press star and the number one on your push-button telephone. If you'd like to withdraw your question please press the star and the number two. Your questions will be taken in the order they're received. Please stand by for your first question. Our first question comes from Eric Schmidt with SC Cohen. Please state your question.

A question for Vijay or David. Could you review other vaccine candidates that are early stage development whether they're attenuated viruses or naked type DNA and whether you think anyone else can competitively develop a drug, a vaccine candidate using naked DNA in this indication or do you think you have this fully locked up.

There's a two part question, so I'll qualify the question. First question what is the competitive landscape of vaccine development. I'll ask David to answer that question and then the second question after David he finishes answering that is do we have freedom to operate and I'll take care that have question. So why don't you give them, David, what has occurred historically with CMV and what's going on with the programs particularly downstream.

In the initial effort, Eric, was focused primarily on trying to develop a live intenuated CMV vaccine and there's been two approaches, one is the town strain which is brought to the clinic in the 1970s and developed over a series of clinical trials. Subsequent to that another strain called a Toledo strain has been looked at and is in early clinical development. Obviously these are some difficult live viruses to handle and you want to make sure the attenuation is appropriate including the virus to be shed from the vaccine recipients. The other approach is the conventional subunit approach and what's been taken are two approaches. One is to use viral vectors such as canary [INAUDIBLE] and the other as protein approach where in particular GB made is a subunits to be taken to the clinic by a varieties of people and those are not progressed into late stage programs to date.

Eric, just to summarize, there are a number of live attenuated approaches that have been tried. To our knowledge none are in any advanced stage. DNA offers the best approach particularly in the transplants seating because the transplants selling the as beautiful challenge model for the vaccine. The question do we have freedom to operate, the answer is yes, but we have announced such a program without doing good thorough due diligence on intellectual property and, yes, we do have freedom to operate.

Does anyone else have freedom to operate as well, Vijay?

Not without getting a license from us. Remember this license was given to Van Test and we acquired the rights back from Van Test.

Our next question comes from Patrick Snaigelby.

Thanks for taking my call. I have sort of a couple of general questions about cmv trials. Could you educate me a bit more on specifically the duration and design of these trials that you are planning specifically on treating I guess transplant recipients. You said that some of these trials the way you're looking at them they're fairly expedited specifically with respect to design and so on. I just walk me through this with a bit more detail.

Patrick, thanks for your question. You know,, you know, at this time really we are not going to give specifics on the individual trials that we have planned. I want to assure all of you that the transplant setting as great challenge model that doesn't require a large study to run this challenge so they're not going to be big triumphs. We have clarity from the export panel which includes both CMV transplantation which have blessed our [test] We have run the concept by the FDA at least once informally to get their guidance on it so getting into exactly who's going to be vaccinated, how it's going to be done, what the patient setting is, that's a little bit of know how and propriety information we'll release that in time but we have thought it through.

Which is fair enough. But can you just give me some guidance in terms of when you're saying this is a small or it's not a large trial. What does that mean in numbers? A thousand, 10,000 people or--

No, it is not. It's -- remember, as we developed our product development strategy we told you that we will only embark on those vaccines where there's a challenge model and a challenge model requires numbers which are relatively small, not in thousands. Those are universal vaccines. We're talking for the personal discussion a challenge model in a hundred patient as challenge model. 10,000 patient trial that's a much larger trial. So challenge models are small patient population to establish proof efficacy.

Okay. Thank you.

Thank you.

As a reminder if you have a question please press star 1 on your telephone at this time.

As I'm waiting for questions, go ahead. I got some-is there somebody? Is there any more questions.

Yes, we do have a question with Victor Marshal from SunTrust Capital. Please state your question.

We shareholders of Vical, and one thing that's really somewhat disturbs me as a shareholder and I'd like your explanation for that -- is what positives have happened in the company in the last two years that you have seen fit to almost triple the boon weight and you continue to do so?

What-could you repeat your question. I lost it.

I say what positives have happened in the company in the last two years that led you to increase the boon weight almost triple and you continued to do so for the next year? You don't have a product yet or anything.

I think a number of positive things have happened. First of all, most of our vaccine targets were given to Adventist and were reacquired back. Our technology platform has now really advanced to appoint where it's commercially feasible compared to the earlier products. We have hired a number of great people who have come on board who believe in this technology, a number of, a number of great infrastructure have occurred. As a result we do contract manufacturing for the [INAUDIBLE], a manufacturing as major source of revenue and acquired technologies to make this a technology as viable technology. This is a he growth period a. I appreciate your disappointment but this is the pain that we have to go through before we build this company again, and we are disappointed that some of the programs that we were working on didn't pan through.

Well, let me just suggest, there seems to be a a disconnect between what you are saying and wall street. I mean, the stock is selling less than half the cash. Obviously what the street is saying that this company may run out of cash before they get anything, and whatever technology they have is really worthless because, because the price of the stock is almost 40% of the cash forgetting about what other assets you have and what I'd like to ask you, if you believe in the company, and all this, have you thought of using some of the money that you have, $112 million, maybe use $10 million of that which isn't much to buy some shares of the company to at least show the street out there that you believe in what you're saying, because what's happening it seems to me, -- and I've been following Vical for some time, is that neither the board or management on own any substantial shares in the company and that's something that maybe you should have ask one of your major shareholders such as singer or some of the others toe either come on the board or have somebody appointed by them to come on the board so that the shareholders will have a voice in there because I tell you there's something between what you're saying and I've heard your presentations before and they all seems hunky dory and everything but somehow or other the wall street doesn't believe it.

I think first of all, your comment on the stock prices is a reflection on what the market condition is and it's prevalent for a lot.

Not as bad.

Second question is buy-back, I have shown not historically to be effective particularly in a market of this nature and cash is King. I think with programs that we have and if you believe, we believe that we have we will not run out of the company before we establish proof of our products.

I just have to tell we're very disappointed.

Thank you. Okay.

If there are any further questions at this time please press star 1 on your push button telephone.

There are a few questions that were submitted by people who are not in the conference call and I will give an update and let me start with the question could you give us an update on the your status of usual licensee programs. And let me walk you through that. Let me start with our two cardiac licensees are progressing well. We have licensed rights to deliver an unspecified and I don't growth factor gene in 2002. They are advancing to a phase two testing. Also in 2000 we licensed the rights to deliver the gene to vascular genetics which completed a modular with general star to form a new product. We're working towards advancing that program to phase three testing. Centocor which is a division of j and j have been a licensee for specific cancer vaccine since 1998. They expanded agreement last year. They have a program in phase one and as soon as they complete the phase one program they will make a decision whether to advance that program to phase two. In the animal a licensee manager yell which is a joints venture between Merck and Adventist, they entered into agreement in 12995 paid sus $7 million to expand their rights for selected markets. They have multiple programs in clinical testing and that's probably where the first DNA vaccine will get agreed. I'm not saying Merel, but that's our goal. Merck is an important licensee. In that presentation Merck confirmed that their HIV vaccine program continued to show promise and note that had phase one clinical studies were ongoing with single vaccine using DNA delivery. The head of Merck's reach also noted plans to initiate phrase phase one trials of a vaccine. From all the talks we go that Merck's phase one trials include a regimen, and boost uses a. Beyond that I would refer you to Merck, Merck's program as we know are going reasonably well. Second question that comes, with the Allovectin's trials start at 124 patients and can you predicts when that will be. We're actually looking for 14 valuable patients in the trial so we're likely to enroll at least 130 patients to ensure that we reach the desired target number. Prediction again is difficult to you know can't really predict when it occurs but we remain committed to provide data at the May meeting. The question that I think Eric asked are there any intellectual property object stack it is to work on the vaccine and the question to that as with any product development program it requires due diligence we are confident that we thoroughly research the landscape and we have the necessary freedom to operate in the target area with our intended approach. Those are some of the questions that were submitted. Are there any questions from the audience?

Sir, I'm showing no other questions in queue at this time.

In that case I want to thank all of you for joining us in the conference this morning and look forward to seeing you in the near future. Thank you.

This concludes our conference call. Thank you all for joining and have a wonderful day. All participants may now disconnect.