Brickell Biotech Inc (BBI) 2003 Q1 法說會逐字稿

Good afternoon.

Welcome, ladies and gentlemen to the Vical Incorporated first quarter 2003 financial results conference call.

I would like to inform you that this call is being recorded and all participants are in listen-only mode. At the request of the company we will open the conference for questions and answers following the presentation.

I will now turn it to Mr. Alan Engbring. Please go ahead, sir.

Hello, I am Allen Engbring, Director of Investor Relations at Vical.

Welcome to our first quarter conference call.

Participating are Vijay Samant our president and chief executive officer, David Kaslow, our chief scientific officer, and Martha Demski, our chief financial officer.

I will begin with a brief notice concerning projections and forecasts.

This call includes forward looking statements including financial expectations and projections of progress in our research and development programs that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Including the risks set forth in Vical's annual report on form 10-K and quarterly reports on form 10-Q filed with the SEC as well as the specific risks and uncertainties noted in Vical's news release on first quarter 2003 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 want to introduce Vical's president and chief executive officer Mr. Vijay Samant.

Thank you, Alan.

I will start the call with some comments and recent events and then we will open the session to questions. If time permits we may address a few questions submitted in advance.

Let me start with Allovectin-7, our ongoing [INAUDIBLE] program for the treatment of advanced [INAUDIBLE] melanoma.

The patient recruitment of this [INAUDIBLE] trial has gone very well and is nearing completion with 122 patients enrolled today. We are scheduled to present interim data in the ASCO meeting at the end of the month and look forward to providing you with a full update at that time.

During the first quarter we announced two new infectious disease vaccine programs for CMV and Anthrax. For CMV there is no approved vaccine or even a late stage vaccine development program.

By the way, several attempts by big pharmaceutical companies to make vaccines have not been successful in this area. We intended to focus first on people at high risk of serious complications from CMV infections. Patients undergoing bone marrow or [INAUDIBLE] organ transplantation.

Our initial program for the transplant indication should allow proof of concept that could lead to the opportunity to develop a CMV vaccine for other high risk groups such immuno-compromised individuals and women of reproductive age. We expect our formulated DNA vaccine to offer a level of safety that is critical for immuno-compromised patients we will be treating and we believe the know CMV immunogens can provide the desired level of effectiveness. For Anthrax we believe that we can develop a safe and effective DNA vaccine that will validate the potential advantages of a proprietary technology while addressing pressing public need.

The key Anthrax immunogens have been identified. We verified in small animal studies they can be delivered effectively by formulated DNA. Our technology allows us to readily combine two Anthrax immunogens. Protective antigen and needle factor that together it may provide broader protection than the currently licensed Anthrax vaccine or the proposed single recombinant protein vaccine.

[INAUDIBLE] lipid formulated DNA delivered technology has established an excellent profile in various clinical studies and an important goal of the program is to extend the safety profile to vaccine applications.

Another important goal of the program is to demonstrate that DNA vaccines can induce protective antibodies in humans and can do so with fewer injections than the currently licensed Anthrax vaccine offering a potentially shorter time to protection.

Also, the potential stability of [INAUDIBLE] formulation may offer advantages in handling and storage which would be important considerations for national stockpiling.

Both programs are progressing according to plan and we are on schedule to start clinical testing by year-end 2003. In a moment I will ask Dr. David Kaslow to provide a detailed update on both of these programs. In March we completed the first phase of a move to a new facility in northern San Diego.

We are enjoying the benefits of closer proximity among various functional areas, construction of the manufacturing section of the building should be completed this summer and production operations are expected to start early next year. We have subleased all vacated research space and are now in the process of subleasing the vacated office space.

Our contract manufacturing business is progressing well and continues to be a valuable source of revenue to the company. Production activity and their existing agreements [INAUDIBLE] are more than $1 million the first quarter and as our new operations come on-line we anticipate opportunities for growth in this area.

I would like to respond to numerous questions about our potential involvement with the international outbreak of SARS. We were pleased to be invited to an information sharing meeting in early April with officials from the CDC, the NIH and the Department of Health and Human Services. We were in good company with representatives from the major vaccine companies. Merck was there, Wyeth was there, Glaxo was there, everybody was there.

We were one of the few biotech company there. We believe our DNA delivering technology can be used with the sequencers made available to develop a SARS vaccine. Our vaccine approach could offer both safety and timeline advantages compared with conventional vaccine technologies.

However, we need to have a reality check here.

The SARS outbreak is still in the early stages and the SARS transmission cycle is not fully understood. We don't know whether this is the beginning of an epidemic or it will be contained.

As of yesterday we know it mutates and we don't know how fast it will mutate. If so, how quickly and how much will it mutate? Does SARS affect some population segments more than others?? It is still not fully understood. Is there a nonhuman host for this pathogen? We don't know.

These unanswered questions make it a difficult target for vaccine development because you need to understand the pathogen and the transmission of the pathogen before you embark on a program.

As a result, at this time we don't intend to launch a formal SARS vaccine development program without confirmed funding and we are seeking such funding. In the meantime, we are preparing, I repeat we are preparing plasma [INAUDIBLE] for a SARS vaccine for rapid progress should financial support become available and then we will announce a full blown program.

Now I want to provide a brief update on our partner programs. During the first quarter we received progress report under our agreement [INAUDIBLE] regarding the Angio-Genesis program. Based on our technology, I am pleased to report the program is advanced to phase two clinical testing and it is progressing well.

Our DNA vaccine technology continues in phase one testing in Merck's HIV vaccine development program, plans for further development are expected to be announced in 2004. [INAUDIBLE], a division of J & J, the vaccine program based on our technologies in testing currently in phase one.

At this point, I will ask Dr. David Kaslow, our chief scientific officer to provide you a status update on our independent, infectious disease vaccine programs. David?

Thank you, Vijay.

First, our Anthrax vaccine program.

In March we presented at the American Society of Microbiology meeting in Baltimore, Maryland immunogenesity and effectiveness data from our initial rabbit study. In this study over 140 rabbits were tested with a variety of formulated DNA vaccines encoding detoxified forms of two proteins produced by the Anthrax bacteria. Protective antigen and lethal factor. These are the two proteins that combined to form [INAUDIBLE]-toxin, which contributes to disease and death from Anthrax.

In this study we looked at both [INAUDIBLE] and in-vitro protection against a lethal challenge by [INAUDIBLE] inhalation with aeresolized Anthrax spores. We found that 80 of 80 rabbits vaccinated with a protective antigen DNA vaccine formulated with [INAUDIBLE] lipids stimulated a potent antibody response equal to or greater than the currently licensed Anthrax vaccine.

In 40 of 40 rabbits immunized with [INAUDIBLE] lipid formulated DNA vaccines encoding protective antigen either on its own or in combination with lethal factor survived the inhalation challenge indicating protection equal to the currently licensed Anthrax vaccine.

In 50 of 50 rabbits immunized with lethal factor DNA vaccines, stimulated in anti-lethal factor immune response and even when used alone provided five of nine rabbits with complete protection. It extended survival in the other four animals when given an inhalation challenge.

Our conclusions from this study are that DNA vaccines combining protective antigen plus lethal factor provide complete protection in an animal model likely to be accepted as one of the two required by the new FDA two animal rule. And, that lethal factor provides a potential second means of protection, supporting its inclusion as a component of a bi-valent Anthrax vaccine candidate advancing into human trials.

I want to point out that this study was completed within ten months of starting research at Vical on Anthrax and that we completed our pre-IND meeting with FDA within 12 months of initiating the program. This is a rapid pace compared with development cycles using conventional vaccine technologies.

We have also completed several other important preclinical milestones including the dosing and in light phases of our preclinical safety studies to support an IND filing. Blood samples from the rabbit safety study have been tested for Anthrax antibodies. We have found that levels of antibodies elicited in the safety study were similar to those in the challenge study.

We also followed the persistence of the antibody responses in the original rabbits vaccinated and they are holding at levels where we have seen protection in the past. We have also begun manufacturing the DNA for our phase one trial.

We remain on track to file our IND and begin human safety and immunogenesity testing of our Anthrax vaccine in the second half of 2003.

With respect to our cytomegalo virus immunotherapeutic vaccine program, we are making great progress. We selected two key gene sequences based initially on immunogenesity data from the scientific literature and we have now verified in our own laboratories that the formulated delivery of the two selected CMV sequences elicits potent antibody and T cell responses in animal studies.

Based on these and other studies we started our preclinical safety studies in animals and have begun manufacturing clinical materials. Again, I want to point out we have taken the CMV program from initial experiments to start a preclinical safety study in less than a year.

As with our Anthrax program, we remain confident in our plans to file our IND and and begin clinical trials of the CMV, immunotherapeutic vaccine in human subjects in the 2003.

I would also like to add we are nearing completion of patient enrollment for our high dose Allovectin-7 program and are excited to have a key investigator, Dr. [INAUDIBLE], a melanoma specialist at MD Anderson Cancer Center presenting the interim data from this study at the ASCO conference at the end of the month.

And with that I'll turn it back to you, Vijay.

Thank you, David.

I'll wrap up the financial highlights before we open the call for questions.

Yesterday we reported a net loss of $6.6 million for the first quarter of 2003. This is consistent with our forecast of the full year of net loss of $24m to $28 million.

As of March 31 we had cash and cash equivalents in marketable securities of $102 million compared with $112 million at the end of 2002. Approximately $3 million of this difference was a result of a simple timing issue. We paid for capital equipment in the first quarter. We will be reimbursed for it in the second quarter.

I would like to point out our cash balances are conservatively invested primarily in the U.S. government obligations[INAUDIBLE] and Martha pays very special attention to our cash balance.

The revenues of $1.6 million in the first quarter of 2003 were consistent with revenues in the first quarter of last year. Our revenues this year were driven primarily by ongoing manufacturing contract activity which I mentioned earlier. This activity continues to be a growing contributor to our revenue stream.

That concludes my prepared comments.

I would like now to ask the operator to open the call for questions from participants.

The question and answer session will begin at this time.

If you are using a speaker phone pick up the hand set before pressing any numbers. Should you have a question, please press star 1 on your push button telephone. If you would like to withdraw your question, press star 2. Your questions will be taken in the order they are received.

Please stand by for your first question.

As a reminder, ladies and gentlemen, if you have a question, please press star 1 on your push button telephone at this time.

As we are waiting for our questions from the audience, there were presubmitted questions and let me go through those questions. The first question is, can you explain further what's behind the write-down of [INAUDIBLE] and how much exposure you have there? Martha, do you want to comment on that?

Of course.

We received our initial -- our original investment in the preferred stock of Vascular Genetics which is a privately held company in exchange for a license to use our technology for a specific angiogenesis application. Last year VGI, or Vascular Genetics, announced plans to merge with Gemstar Therapeutics which was a publicly traded company.

At that time, we were able to determine a market value for our investment which caused us to take the initial write down in the third quarter. After completing the merger in February the shares of the new entity, [INAUDIBLE] were also publicly traded allowing us to track the ongoing market value of our investments. At the end of the first quarter, the value of our shares was substantially below the value carried on our balance sheets. Reflecting the market's assessment of the company's prospects.

As a result, we wrote down the difference between the book value and the market value.

Thank you, Martha.

And that write down has no impact on our cash balance. Okay, questions from the audience.

Our first question comes from Graham Spence with Central Securities. Please state your question.

Hi, Graham.

Actually this is Wilmot Kidd with Graham.

Okay. Well, we are here listening to you.

You talk about your projected net loss for the year, do you have a net cash out flow for the year that goes along with that net loss?

It is a good question, but it is our -- but it is our practice we don't forecast cash balances or cash out flows okay? But we project net loss.

Just to kind of give you an idea not of this year, but of last year our cash bond rate was $202 million and our net loss, Martha, was worth, $24 million or $26 million. Okay? So we -- so it is not our practice to really focus on cash balances.

But you may draw your own conclusions from our prior performance. Okay?

Also, I notice that you're into contract manufacturing and you talk about it increasing.

Can you give us any kind of feel for what ultimately in the next -- or in the foreseeable future we might be able to expect financially from contract manufacturing?

Well, first of all, we -- the loss that we are projecting includes whatever revenue projections we made at this stage in time. Okay? Which includes contract manufacturing projections.

Those are likely to change and if our net loss was going substantially be different we'll let you know. At this stage go with our current guidance. The manufacturing activity on the other hand is expected to increase because, a, we're betting a larger scale -- but as I said in my talk, the new facility does president come on stream until early next year -- doesn't come on stream until early next year. We are constricted by our older facility. Okay?

Okay. Hello?

Yes, I'm here.

But, I mean, is this a business that could be doing $10 million next year?

You know, I don't want to get into exact -- giving you exact numbers, but all I can tell you is the number for the first quarter was about a million bucks.

So, yes there is potential, but I don't want to give you an exact number. Remember, we have 100 liter ferment for 30 and we are putting a 500 liter fermentation to put on stream next year to give you the scale impact.

Okay, well, that's -- that's helpful. What would -- you are going to talk about Allovectin -- the Allovectin trial in may. Can you give us anymore thoughts about the timeline on Allovectin?

First of all all you know the trial -- first of all you know the trial -- there was -- there was a report and it was a nonregistration trial. So I urge you to wait until our ASCO presentation in terms of the data shows and at that point in time it is always -- we haven't had a discussion with the FDA and time lines can't be predicated until you have a discussion with the FDA to answer your question, wait until ASCO and look at the data and when we have discussions with the FDA we will be in a better position for time line.

When will you have discussions with the FDA?

You know, when we have the discussions, we'll let you know. Otherwise it becomes an event where people --

Fair enough.

Anticipate. So we have not scheduled time with the FDA, at this time. I can tell you that.

Are you in discussions about making any acquisitions?

We are always looking for opportunities.

So if you are asking me specific opportunity have I in mind, the answer is no, but we always look for opportunities to increase shareholder value.

Thank you very much.

Thanks.

Thank you. Our next question comes from Alex Hittle with AG Edwards.

Please state your question.

Good morning. I have three questions here.

Okay, Alex. Shoot.

First, could you give us a little more detail on the [INAUDIBLE] trials and that in phase 2 in peripheral vascular disease?

We are bound by our confidentiality agreement. You need to do some leg work to find out where they are.

The answer is, there are two applications, pan and kat. I can't tell you which applications they are entering into phase two, but I'm sure it is available somewhere, published in the public domain.

Okay?

Okay.

Second question is, when -- it has sort of been nagging on the CMV trial. If you are going to be going into people have transplants, won't they be immune suppressed to begin with, and doesn't that complicate the trial design?

Do you want to comment?

Let me take a stab at that. First of all, particularly in [INAUDIBLE] stem cell transfers, you have the opportunity vaccinate donors as well as recipients.

It is more difficult to do in the solid organ transplant where have you cadavers, obviously as donating organs. There is an opportunity in those programs to go into immuno competent individuals and to mount a strong immune response.

So the immunosuppression that goes with avoiding organ rejection is not a strong enough factor to throw the trial off?

It is something we want to keep our eye on. But remember they are immuno suppressed where they don't reject the organs, but are somewhat protected from infectious diseases.

So it is not like the immune system is complete plea knocked out in the individuals.

It is titrated down. Okay?

Uh-huh. Okay.

And finally, to ask a question that may just be a rephrasing of the question that was asked before, but can you give us some sort of "if-then" scenarios regarding the data we will see at ASCO?

Have you internally got any go/no go kinds of lines that you are drawing?

I don't follow your question.

You mean, have we laid out a logical pathway in terms of what we would do with a vaccine, Allovectin-7 program in the long run?

Yeah, I guess that's another way of putting it, particularly with the increasing focus on vaccines for infectious diseases.

This is something that -- let's assume the data is positive. Would that be something you would be interested in partnering out in order to focus more on the other things you have got going?

Well, the answer to your question is, -- first of all the yes is premature.

The data, by the way that you are going to get will not have the survival data. Because the survival data is not going to be mature.

Okay.

So the complete data will only be available probably I'm guessing now when the [INAUDIBLE] marker matures which will be almost 12 to 18 months from May and that will be the complete set of set of data that will give you a real indication of the value of that trial.

So, we have not laid out any groundwork in terms of what we're going to do with the program because of the ASCO meeting. The ASCO meetings is one of the meetings we present data and it is an ongoing Allovectin-7 program we let the audience know as far as the progress. But the complete date on survival doesn't come for 12 to 18 months.

And the answer to your second question, are we looking to partner the program? We are always looking for opportunities to partner programs and do collaborative programs. Okay?

Okay. Thank you.

Thank you.

Our next question comes from Aaron Schwimmer with Goldman Sachs.

Thank you for taking my question.

I I don't know if you disclosed what your target enrollment is for the high dose Allovectin trial, and if you could tell us how many patients we will see data on at ASCO and secondarily for the Anthrax program, do you -- can you give us insight into what kind of trials you see necessarily once the ind has improved second half of the year in terms of maybe design, size, number of trials?

Okay.

Well, I'll have David kaslow answer the question, Allovectin-7 and then we'll take a stab at the Anthrax question.

David, do you want to dot recruit meant issues?.

Sure.

You may recall the high dose Allovectin-7 study included a dose escalation stage and it was originally designed for up to 80 patients. We expanded that trial last fall to allow enrollment of up to 124 patients at the highest 2 milligram dose. Where if you include the six patients that were in the dose escalation phase that would be 130 patients total.

Our current enrollment is at 122 patients and it is obviously approaching completion. So about 8 patients away from completing the enrollment target.

Does that answer your question?

Yes.

When did you start the trial or start enrolling patients?

February.

February 2001?

Feb, 2001.

Thanks.

Your second question was regarding Anthrax. And your question was size of trials and things of that sort.

First of all, let me tell you, the way Anthrax is going to be approved is going to be the two animal rule where we have to demonstrate efficacy in two animal models and then do a safety and immunogenistic study in human population and then get approved. There is no blinded control study to get approval.

Having said that, the real issue in Anthrax is the size of safety study and that size of safety study is going to be dependant upon the type of the vaccine that's being used and there haven't been discussions on the FDA as to the size of the safety study and how small or how large they are to be.

The actual study we will do in humans is a relatively small study. That's right.

We had great discussions with the FDA with respect to the phase one study, the initial study.

I think what they are telling us is that we need to see the results of that phase one study, particularly the safety profile, to determine what the phase two expanded safety study is going to look like.

As a reminder, ladies and gentlemen, if you do have a question, please press star 1 on your push button telephone.

Gentlemen, I'm showing no further questions in queue.

Well, I will thank all of you for joining us for this conference call and we look forward to seeing you, some of you individually on our road trip or if you come and visit us in our new facility in San Diego or the conference call in the second quarter.

Thank you very much.

Ladies and gentlemen, this concludes our conference call for today. Thank you all for participating and have a wonderful day.

All participants may now disconnect.