Brickell Biotech Inc (BBI) 2003 Q2 法說會逐字稿

Good afternoon, and welcome, ladies and gentlemen to the Vical, Incorporated financial results conference call. At this time, I'd like inform you that this conference is being recorded and all participants are in a listen-only mode.

At the request of the company, we will open up the conference for questions and answers following the presentation. I'll now turn the conference over to Mr. Alan Engbring. Please go ahead, sir.

Hello. I'm Alan Engbring, Director of Investor Relations at Vical.

Welcome to our second quarter financial results conference call.

Participating in the call today are Vijay Samat, 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 Securities and Exchange Commission, as well as the specific risks and uncertainties noted in Vical's news release on second 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 would like to introduce Vical's President and Chief Executive Officer, Mr. Vijay Samat.

Thank you, Alan. Good morning to some of you and good afternoon to some of you on the East Coast.

I'll start the call with some comments on recent events and then we'll open the session to questions. If time permits, we may also address a few questions that were submitted in advance.

Let me start off with Allovectin-7.

I'm pleased to report that the patient recruitment in this trial has progressed very well and that we have now achieved full enrollment with 127 patients in the high-dose portion of the trial.

During the second quarter we presented interim data from this trial at the ASCO meeting. These data were based on an interim analysis of the first 91 patients enrolled in the high dose portion of the trial.

Let me summarize those data first and provide you an update on some key points.

12 of the first 91 patients or 13% (1-3) had an objective response consisting of two complete responders and 10 partial responders. So, we had 13% total objective response rate. This compares favorably with recently published response rates of 10 to 12% for chemotherapeutic agent (INAUDIBLE) and these were done in two large trials. So, this is not a small study.

I just also want to caution that the patient population with the (INAUDIBLE) is much more diverse, slightly comparing apples and oranges here, okay? 22 additional patients or 24% had stable disease for a total of 37% of the patients deriving some potential clinical benefit.

Allovectin-7 continues to demonstrate excellent safety and tolerability. As a reminder, the median age of our 91 patients was 60 years and the median age of our 12 responders was 57 years. Nine of our 12 responders had stage 4 disease and 3 had stage 3 disease.

Clearly this is a very challenging group in terms of both the stage of the disease and the distribution of the -- the median age of the patient in this particular trial. So, we're encouraged with the results so far of this trial.

In early March when data were obtained at the ASCO conference, only one of the 12 responders had experienced progressive disease. The reported median estimated duration of response was three and a half months.

I'm pleased to report that in our latest update the median duration of response has now increased to 6.4 months. With seven of the 12 responders still progression-free, and David, I think all 12 are still alive. Am I correct?

Yeah.

So all 12 of are still alive.

Seven of the 12 responders are still progression-free.

The (INAUDIBLE) survival curve are still maturing and we expect to provide an update by the fourth quarter of 2003 on survival.

The safety (INAUDIBLE) file for Allovectin-7 continues to be excellent. Our safety database now includes more than 600 patients treated at various dose in multiple trials with less than 2% of patients of treated with Allovectin-7 experiencing serious adverse events.

That's the update on Allovectin-7. Let me now focus on some of the other recent events.

Besides Allovectin, we have progress with a number of scientific and business developments since our last call.

First, on our anthrax vaccine development program, we secured a new source of funding in the form of $5.7 million, three-year SBR grant from the U.S. government. We are pleased to receive this financial backing.

Let me, however, be very clear that our development of this program is contingent on continued availability of government funding, okay? And we have so far been very fortunate in our dealings with the U.S. government on this trial.

Our anthrax vaccine is a unique catonic lipid DNA formulation that includes detoxified forms of both protective antigen and lethal factor anthrax proteins by targeting both proteins which combine to form lethal toxin. The goal is to develop a vaccine that provides broader protection against anthrax than any - than the other vaccines which target only protective antigen.

In our challenge study in rabbits, our protective antigen vaccine provided 100s% protection against lethal inhalation challenge, while unvaccinated rabbits died in two to four days.

We continue to make good progress in our anthrax program. We have completed preclinical safety studies in rabbits.

We have manufactured initial vaccine supplies for our Phase I trial and we are on track to begin human clinical testing in the second half of 2003.

We are also making good progress with our CNV vaccine. I'll ask David Kaslow, our Chief Scientific Officer, later to provide a detailed update on that program.

Contract manufacturing is a significant and growing part of our business strategy. We continue to manufacture ebola DNA vaccines for the VRC, which is a part of the NIH, under a contract awarded in July of last year.

This July we received an order to provide the VRC with clinical great supplies of an investigational DNA vaccine against West Nile virus. Both these contracts are being fulfilled out of our existing manufacturing facilities.

I want to make that point clear because we have an existing manufacturing facility and we have a new facility which is under construction.

Just a comment on the West Nile virus vaccine. The DNA constructs have been tested by the CDC and have shown protection in horses. So, this is something that has already been tested by the CDC.

I think, David, that was from the Fort Collins group, right?

That's right.

If the VRC successfully develops this vaccine for humans, it's our goal to commercialize this product. The regulatory pathway for this vaccine is not yet clear. We haven't had any discussions with the F.D.A., so I just want to be clear on that point.

In May we signed an agreement to manufacture both DNA vaccines for the vaccine research center of the NIH with a guaranteed minimum annual production orders beginning next year when we expect our new manufacturing facility to come on-line.

Under this agreement the VRC, which is again a part of the NIH, has agreed to finance the purchase of a (INAUDIBLE) fermenter and related purification equipment in the new facility, including (INAUDIBLE), which are really state of the art enclosed centrifusion that allow you to do close processing, which is a requirement at GNP these days. Contract services are a significant and a growing source of revenues for the company.

For the last five years we have generated more than $12.5 million in contract revenue. Our new agreement should sustain and extend the importance of this business in the years ahead.

In recent months we have announced the issuance of five European patents relating to our core DNA delivery technology, advancements of that technology and applications of that technology. Some of these patents are divisional patents derived from the same application as the core DNA delivery patent that is progressing through the European operation proceeding.

This is a patent that was revoked. We have a divisional patent based on that original patent that is a shootout this year. (INAUDIBLE) pending patents worldwide, we have broad protection for our discoveries, we intend to continue aggressive prosecution and defense of our intellectual property. That goes without saying.

We also received an important U.S. patent on our lipid-based vaccine, (INAUDIBLE) known as Vaxfectin. The only adjuvant currently approved in the United States for (INAUDIBLE) if you're not aware of this, is Allum, which has been in use for the last 50 years. The major obstacle for approval of traditional adjuvants has been safety. And the immune reaction they cause at the injection site, the adjuvant SID, as it's known as. Vaxfectin has been widely tested in animal models, including a recent HIV study in baboons, and it has demonstrated accuant activity in DNA vaccines, offering the potential to enhance immuno responses or reducing dosing (INAUDIBLE) forward to the opportunity to indicate Vaxfectin into future vaccine development programs. At this point, I would like Dr. David Kaslow to report on the statis of (INAUDIBLE) CMV program. David.

Great. Thank you , Vijay.

We announced the selection of Cytomegalovirus as the target of our first independent vaccine program in February of this year because we believe that a vaccine, a CMV vaccine, is a good match between the strength of our technology, the immunobiology of this herpes virus, the importance of the unmet medical need and the commercial potential.

Let me describe our strategy for developing a CMV vaccine through a tiered approach. Our initial focus will be on the transplant population.

We believe the opportunity in this patient population presents our fastest potential path to proof of concept and market approval for a CMV vaccine. And our analysis of the market suggests that this market segment alone could support a reasonable return on investment based on our technology.

And beyond the transplant market there's a significant medical need for a CMV vaccine to protect newborn children of mothers who become infected with CMV during pregnancy. One out of every 100 children in the United States is born with the CMV infection. Approximately 1 in 10 of which will result in serious birth defects or death. An effective CMV vaccine could be an important medical breakthrough to protect pregnant women against CMV infection.

Our CMV vaccine development continues to make great progress. We noted last quarter that we had selected two key gene sequences based on inmumogenicity data from the scientific literature and had verified in our own laboratories that the formulated delivery of the two selected CMV sequences elicits ponent antibody and T-cell responses in animal studies.

We also noted the start of our preclinical safety studies in animals and manufacturing of clinical materials. And I should point out that we have secured the intellectual property rights to the selected gene sequences, giving us the necessary freedom to operate.

We've also established collaborations with three leading transplant centers in preparation for a Phase I human trial. We intend to initiate by the year end 2003.

We also have worked with the clinical centers to design the initial proof of concept trials in bone marrow transplant patients. Our current plan is to vaccinate the donors four and two weeks before donation and then boost that response by vaccinating the recipients approximately four to six weeks later, which is just about the time it is safe to give intramuscular injections and before the risk of CMV-associated diseases begins to dramatically increase.

Because the incidence of CMV associated disease is so high in the transplant population and it occurs predominantly in the first three to four months, the proof of concept trials will likely be relatively small in size and short in duration.

In the last 18 months we have developed a formulated bi-valient DNA vaccine for CMV, advanced the CMV program from initial experiments through preclinical safety studies and designed the initial human safety and immunogenicity trials. At the same time we have established a tiered product development approach and identified the initial target population and selected the most appropriate clinical centers for that population.

We remain confident in our plans to file our IND and begin clinical trials of our CMV immunotherapeutic vaccine in human volunteers in 2003.

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

Thank you, David.

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

This morning we reported a net loss of $6.9 million for the second quarter and of $13.9 million for the first half of 2003. This is consistent with our forecast range for the full year for a net loss of $24 to $28 million, which we announced early in the year.

Revenue $1.5 million in the first half of 2003 were lower than revenues in the first half of 2002. This difference reflects the timing of revenue recognition and we are to be very careful when we recognize revenue given the current accounting standards.

In particular, about $2.5 million of contract manufacturing work completed in the first half of 2003 that we expect to recognize as we reach contract milestones in the second half of the year.

I should also point out that revenues in the second half will increase as a result of the SBR grant for our anthrax vaccine program which goes to the bottom line. As you know, that vaccine grant occurred on July 1 of this year, which is really third quarter. As of June 30th we had cash and cash equivalents in marketable securities of $98 million compared with $120 million at the end of 2002.

That concludes my prepared comments, I would now ask our operator to open the call for questions from participants. Thank you.

Mr. Samat?

Yes.

We're taking questions at this time, sir?

Correct.

The question and answer session will begin at this time.

If you're 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 would like to withdraw your question, please press star 2.

Your questions will be taken in the order they are received.

Please stand by for your first question.

Our first question comes from Eric Schmidt with S G Cowan. Please state your question.

Good morning.

My first question is just on the revenue recognition of these contract milestones or contract manufacturing work that was completed in the first half.

Martha, could you explain why it's not booked as completed and what the milestones are in the second half of the year that are remaining for you to book those revenues?

It's primarily due to the delay in delivery in relation to one of them. It's not a delay on our part. It was at the request of the party -- other party.

And also with respect to the SBIR grant, as Vijay mentioned, where it was not signed until - effective until July 1st. So, although we had incurred the expenses up to July 1st, we are not able to recognize the revenue until after July 1.

Okay.

Thanks. And then a question for Vijay.

You mentioned that it's Vical's goal with the West Nile vaccine, should development be successfully completed, it's Vical's goal to commercialize that vaccine. Are there terms in the original contract that give you the right to do so, or is that something that would have to be negotiated later on or how does that work?

Two things: first of all, the core technology that's being used is our technology, okay? Obviously we're in the process of getting access to some of the gene sequences. And our goal is -- that's why I use the word "goal." Until all that's complete. We are also in the process of negotiating (INAUDIBLE) with VRC. So, all three activities are in place, and that will allow us to achieve that goal very shortly.

Great.

And then just the last question is on the Allovectin high-dose Phase II study. Can you give us the future time lines for closing out the data, having a complete data set and possibly even, you know, having discussions with the F.D.A. should those data be positive?

That's an excellent question, and I expected that from you.

As I just told you, we just completed the enrollment, so we have patients still in treatment, okay?

As you know, a single treatment cycle takes approximately 10 weeks and patients can get cycles as much as two or three weeks. So, it's hard really to predict when the treatment of all the patients in the trial is going to be completed.

We hope that all the data will be enhanced sometime between first and seconds -- in the first and second quarter of '04. And at that point in time, we should be in a better position to announce the next steps. Obviously one of the steps will be reviewing the data with the F.D.A.

Great. Thank you.

Thank you. Our next question comes from Aaron Schwimmer with Goldman Sachs. Please state your question.

Hi.

I see that you had completed enrollment of 127 patients. Is that the target relative to 130 that was discussed at ASCO, or is there just a disconnect there?

Let me -- no, the question is right on the money. David will explain to you what the difference is.

In the initial target of 130 included six patients that were in the dose escallation part of it, that got the lower doses. The 127 patients that we announced are those that are enrolled in the high-dose and which we will base our efficacy estimates on. So, the target of 130, the original one, that included the dose escalation.

What we're telling you now is that we've completed enrollment in the efficacy stage of it. And that enrollment is 127 patients.

What were the actual number of patients including the dose escalation stage?

It will be 133.

133 is given low altogether.

So you basically went three over your goal for the high-dose alone?

No.

Yes, you're absolutely right.

Absolutely right.

We enrolled them, and if they, you know, met the enrollment criteria, we were obligated to put them on study.

Remember, the patient prep goes on almost seven weeks before you enroll them. And once you get them in the patient prep, you just can't tell them no.

And, can you remind us, this may not be applicable anymore, but can you remind us of the threshold that the F.D.A. set a while back for this program in terms of response rate and duration?

The duration of response in the low dose trial was four months. And the objective response rate was a 15% number, absolute 15% number.

And I guess it might be too early, but is that still applicable once you guys wrap up the high-dose trial, or is this just pending discussion?

So you understand, at that point the 15% number was based -- this goes back several years and before my time.

Right.

It was based on a potential objective response rate of Dicarbsin of 20%. People thought Dicarbsin did 20%, if you could do a 15% immunotherapy, that was a reasonable hurdle. Since then two lab studies on Dicarbsin have shown the response rate is about 9 to 10%. But this all has to be discussed with the F.D.A. and ultimately if we go forward to the next step to the advisory panel.

Okay.

And lastly, the three-year, $5.7 million contract, can you just maybe, if you can, describe some of the milestones that revenue recognition will be tied to?

It's basically, with respect to that particular contract, the actual expenditures have been incurred on a lot of the portion of the first year, and we will have the ability to recognize the revenue once the contract was signed. So, the contract was signed on July 1st. So, we will be able to begin recognizing the revenue immediately after that.

Let me just weight in here for second. Realize that these are kind of conventional research grants that don't have the same milestones that you would associate with a contract.

As soon as we do the work, we have -- we have the ability to recognize a significant portion of our expenses that have been incurred in this instance. So, we will be billing the NIH in the third quarter of this year.

As you know, in conventional research grants, you just have to show good progress and you get the funding for the next year.

Do you expect to be able to deliver all the -- I mean, do you expect to be able to deliver the contracted amount in the second half of the year?

If your question is are we going to be able to recognize the revenue in the second half of the year, the answer is yes.

Okay. Thank you.

Thank you. Our next question comes from John Lanfear, A. G. Edwards. Please state your question.

Hi.

Thank you for taking my call, some of which has been answered already. Could you refresh my memory?

I missed it when you said we would get survival updates on Allovectin-7 sometime this year. And also, can you provide any color to what the CMV trial might look like, how many patients or anything like that?

Let me take the Allovectin-7 question and I'll pass the CMV question to David.

What I said in my script is that the survival data is based on a Kaplan-Meyer block, okay. In order to predict median survival, you need to make sure 50% of the patients has passed or are beyond the median data point. So, the curve right now is not mature.

I'm hoping that the curve reaches maturity at least by the end of the year or first quarter of 2003. It's hard to predict. Because it depends on how patients - quickly patients die. The longer they live, the longer it's going to take for the curve to mature.

As soon as we are able to predict a reasonably solid firm in the ground median survival rate, we will announce if. Right now there's no way to predict it. But my prediction is end of the year, first quarter '03. CMV.

Just to clarify that, the - what we're talking about is a Kaplan-Meyer on the first 91 patients, right? That same cohort that was described at ASCO.

With respect to the CMV program, we are still discussing with the F.D.A. the fine details of that Phase I trial, but it's a classic small Phase I trial.

Great. Thank you very much.

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

I have a couple of questions that were submitted to me. Let me just go to those questions, okay?

The first question was, "Could you comment on the benefit to Vical of the recently announced alliance between Corautus and Boston Scientific?"

I don't know whether you folks noticed that. Vical has licensed various aspects of it's technology to Boston Scientific and Corautus Genetics, okay? Corautus Genetics is the subsequent entity to Vascular Genetics. We actually did the licensing original work with Vascular Genetics.

Vical also owns a minority interest in Corautus Genetics. The immediate benefit to Vical of this alliance really is the fact that Corautus has announced, or secured funding allows them to progress to a Phase IIB and a phase 3 trial eventually. So, if they're successful in this very important application, we stand to collect royalties.

Plus there's an opportunity, that our equity grows in value in that company. I just want to remind the group also that we have a similar arrangement with Avantis Pharma. The gene sequence that's been used in that particular corroboration is not publicly disclosed, but that trial is for a pad as opposed to CAD in the case of Corautus meaning coronary arterial disease for Corautus, as opposed to peripheral artery disease with Avanits. That trial is also progressing very well.

In that relationship we stands to collect both milestones and royalties, and this is Avantis Pharma out of France, so, we are encouraged that we have two shots on the goal particularly in this therapy. And as you know, our therapy is known to have an excellent safety profile in treatment of these patients.

Any other questions?

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

Well, if there are no more questions, thank you very much. And we look forward to seeing some of you on our next road trip. Or else we'll see you at the next third quarter conference call.

Thank you.

Ladies and gentlemen, this concludes our conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.