Brickell Biotech Inc (BBI) 2004 Q4 法說會逐字稿

Good day and welcome, ladies and gentlemen, to the Vical, Inc. financial results conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions and answers from invited participants after the presentation. I will now turn the conference over to Mr. Alan Engbring. Please go ahead, sir.

Hello. I'm Alan Engbring, Executive Director of Investor Relations at Vical. Welcome to our fourth-quarter and year-end 2004 financial results conference call. Participating on the call today are Mr. Vijay Samant, our President and Chief Executive Officer; Ms. Jill Church, our Chief Financial Officer; and Dr. David Kaslow, our Chief Scientific 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 fourth-quarter and year-end 2004 results, and its recent news release on the completion of its Special Protocol Assessment.

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

Thank you, Alan. We will provide an update on our key programs and recent progress today before opening the call to questions from our invited callers. If time permits, we may also address a few questions that were submitted in advance. First, I'll ask Jill Church, our CFO, to review the financial results. Jill is calling from a remote location, so we want to make sure she's on. Jill, are you on there?

Yes, I am. Thank you, Vijay. This morning we reported a net loss of $4.5 million for the fourth quarter of 2004, compared with a net loss of 6.9 million for the fourth quarter of 2003. The decrease in net loss was due primarily to the timing of revenues under our contract manufacturing agreement with the NIH, which we noted as a possibility in our last conference call. For the full year 2004, we had a great year in revenues which reached a record $14.5 million compared with $8.1 million in 2003. Our 2004 revenues were driven by increased contract manufacturing shipments for the NIH, a milestone payment received under our FGF-1 angiogenesis agreement with Centelion, and increased grant revenues from our CMV vaccine program.

This brings our cumulative revenue since inception from licensing, contract, and grant activities to approximately $107 million. We held the net loss for the full year 2004 down to $23.7 million compared with our forecast range of 26 to $29 million and a net loss of $24.5 million for 2003, despite the nonrecurring charge of $1.5 million in the first quarter for settlement of the WARF litigation. For 2005, we're projecting a net loss range of 23 to $26 million. And as of December 31, our available cash, cash equivalents and marketable securities were approximately $74 million.

I will be leaving the call now for another commitment. So with that, I will turn the call back to you, Vijay.

Thank you, Jill. Now let's move on to real key programs; first to high-dose Allovectin-7. We will start with our lead program in metastatic melanoma. I'm sure all of you saw this week that we've completed our Special Protocol Assessment with the FDA for a Phase 3 trial for high-dose Allovectin-7. We're very pleased to have received the approval for a small trial of 375 patients with the response rate as the primary endpoint. We believe the objective establishing the SBIR (indiscernible) based on the results we have seen in our prior studies. I will ask David Kaslow, our Chief Scientific Officer, to provide some additional details of this SPA.

Thank you, Vijay. The starting point of the Special Protocol Assessment was our End-of-Phase 2 clinical review meeting with the FDA. Immediately following the End-of-Phase 2 clinical review, we met with our expert panel of melanoma specialists led by Dr. John Kirkwood and, in parallel, initiate a detailed exploratory analysis of the high-dose Phase 2 trial database which was audited and locked in September 2004. As we have discussed previously in this venue, the key points from the-end-of- phase 2 clinical review meeting with FDA were that, 1, a meaningful response rate with a reasonable duration of response would be acceptable as the surrogate endpoint for efficacy. And 2, for efficacy, approval would require at least 25 responders in the Allovectin-7 arm of a new registration trial.

With our expert panel, we then reviewed in detail two critical trial parameters. First, identifying a well-defined patient population for which we could easily conduct a relatively small controlled, randomized, multicenter trial and a population for which Allovectin-7 would provide the best opportunity to achieve clear evidence of clinical benefit. Second, identifying a primary clinical endpoint that would detect a clinically meaningful response and identifying the time points at which the response would have the greatest opportunity to be maximally different from the selected control intervention.

For each of these critical trial parameters, we went back to the clinical data from the high-dose Phase 2 trial, and we compared it to recent clinical experience. We also conducted additional analyses. Several notable results emerged. First, with respect to the patient population, prior chemotherapy appeared neither to help nor to hurt subsequent response to Allovectin-7. In fact, only 1 of 4 complete responders had received dacarbazine therapy. Given the need to identify a feasible well-defined population to conduct this relatively small Phase 3 trial and to identify a control intervention to demonstrate superiority of Allovectin-7, we chose to conduct the trial in chemo naive subjects and to compare Allovectin-7 to physicians' choice of dacarbazine or temozolomide, and FDA agreed.

Second, with respect to the primary clinical endpoint, we noted that two-thirds, that is 10 of the 15 responders in the Phase 2 trial, required at least two cycles or 16 weeks of therapy before responding. Once patients responded, however, the responses appeared quite durable. If one were to take a snapshot in the high-dose Phase 2 trial of the response rate at 24 weeks or greater, all of the 15 responders would still be classified as responders. Said another way, none of the responders progressed before 24 weeks.

What can we expect from dacarbazine treatment in the control arm? Well, in the dacarbazine control arm of a trial recently reported at the May 2004 ODAC, the independent assessment of the response rate was only 3.6 percent, and a response of 6 months or more was observed in only 1.3 percent of subjects treated with DTIC. For Allovectin-7 in our recent high-dose trial, 9.5 percent of all high-dose subjects had responses of 6 months or more. Clearly, some of these differences in duration and response can be explained by differences in the patient populations. Nevertheless, the finding that DTIC responses are relatively short-lived is not new.

We believe that by setting the primary clinical efficacy endpoint to be a comparison of objective response rates at 24 weeks or more after randomization, we may maximize the response rate differences between Allovectin-7 versus the control arm. This anticipated difference and the need to have at least 25 responders in the Allovectin-7 arm was used to calculate the sample size of 250 patients in the Allovectin-7 arm. Using a 2 to 1 randomization, in addition to keeping the trial relatively small, may be attractive to recruiting patients to this trial as they have twice the chance of being randomized to Allovectin-7, which is not otherwise available.

Third, with respect to the RESIST criteria we intend to use. We noted in our high-dose Phase 2 trial that early tumor burden assessment knocked many of the subjects out of the trial during the first 16 weeks of therapy. We believe that the tumor burden changes that resulted in some of these patients being classified as having progressive disease were, in fact, clinically insignificant. Furthermore, our investigators noted that for some of the partial responders that after multiple cycles of Allovectin-7, the subjects' lesions did not appear to completely regress but look benign. In 3 cases, surgical resection of these injected regions revealed that the lesions were essentially scar tissue and contained no detectable metastatic melanoma.

Based on these findings, we have modified the RESIST criteria to be used in our Phase 3 trial to begin formal tumor burden assessment starting at 16 rather than 8 weeks, and to allow surgical resection results to be used in determining the best response achieved. Fourth and finally with respect to administering high-dose Allovectin-7 to one or more than one lesion, 14 of the 15 responders in the high-dose Phase 2 trial were assigned to having a single rather than multiple lesions injected. We have decided to limit injections of the 2-milligram dose to a single lesion in the Phase 3 trial. We do not intend to discuss any further details of the Phase 3 trial at this time. We have submitted an abstract for a presentation at the May 2005 ASCO meeting, in which we intend to review in more detail the further exploratory analysis of the high-dose Phase 2 trial and the design clinical end points and planned analyses of our Phase 3 trial that would be needed to apply for product approval.

In short, we believe that the trial objectives and designs, the clinical end points, and the plan analyses are a win for the subjects of this trial. They are a win for Vical and its shareholders, and they are a win for any potential partner. Our next goal is to find the best partner to help us with this Phase 3 trial and drive this program forward to establish the safety and effectiveness of Allovectin-7. We're looking for a strategic fit, a company that can provide meaningful support for the continued development and commercialization of Allovectin-7.

Our ongoing discussions with several potential partners are encouraging and certainly should be enhanced by the successful completion of the SPA. With that said, I will turn it back to you, Vijay.

Thank you, David. Next I will provide a brief update on our independent vaccine program, starting with our DNA-based immunotherapeutic vaccine against CMV. We're currently conducting two separate Phase 1 trials for -- one is a bivalent and the other is a trivalent vaccine. Both are candidates right now, and we expect to present safety and immunogenicity data from both the trials at the proper scientific forum this year, and we will select a vaccine candidate to advance into Phase 2 testing and transplantation. This Phase 2 trial will be approximately a 160-subject study, including controls who would not receive the vaccine. We intend to complete the design and start the trial in the second half of 2005.

Anthrax. Given the uncertainty in biodefense funding, we announced early in our anthrax vaccine program that we would only proceed as long as we could secure additional government funding. We were fortunate to have received government grants of almost $7 million to support much of our preclinical work, in addition to government support of our Phase 1 clinical trial at the vaccine treatment and evaluation units funded by the NIH. With this support, we have completed enrollment for our Phase 1 study in our anthrax vaccine program, and we expect to present safety and immunogenicity data at an appropriate scientific meeting in 2005.

We plan to complete any remaining non-clinical development work with the support of the unused portion of our monies under the existing grant. However, based on our discussion with government agencies, it appears that funding for a Phase 2 trial will not be available in the foreseeable future. Therefore, other than the ongoing non-clinical research supported by the SBIR funding, we do not intend to pursue further clinical development at this time. Our other program in melanoma. Running our internal development efforts, we expect to begin a trial this year with a gene-based IL-2, an elect (ph) operation for solid tumors, which will have its initial application in metastatic melanoma patients. Our experiments in small animals have been very encouraging, and preclinical data will be presented at the ACR meeting in mid April. We look forward to starting the initial human study this year.

We have a number of collaborative programs with several partners. Let me just go through some of those. The NIH began human safety testing of the DNA vaccine for SARS in December of 2004, and enrollment up to 10 healthy volunteers is underway. This is the first SARS vaccine to advance to human clinical testing in the United States, further confirming the ability of our technology platform to compress the development timeline. The NIH expects to begin human testing of this vaccine for West Nile Virus in the first half of 2005, and clinical supplies for the study have been manufactured and shipped to the NIH. This disease continues to spread across the United States and poses an ongoing threat to birds, horses, and humans.

The DNA vaccine for Ebola began human testing in November of 2003. This is the only clinical stage vaccine for Ebola which has been allocated about $90 million for initial stockpiling and $260 million for long-term procurement in the project by (indiscernible). We look forward to seeing results from this study presented by the NIH sometime this year. There are multiple DNA vaccine programs for HIV based on our technology currently being studied in human clinical trials. The NIH is currently in a Phase 1 testing with their multivalent HIV vaccine. And assuming everything goes as planned, we expect NIH to advance into Phase 2 testing of that vaccine.

Merck continues its Phase 1 human testing of HIV vaccine, using our multiple approaches -- using multiple approaches, and DNA being one of them. The International AIDS Vaccine Initiative is supporting several programs, including one by the Aaron Diamond Institute which has advanced into Phase 1 testing, in preparation for a larger study to be conducted in China. As previously disclosed here at Vical, we are exploring opportunities to apply HIV vaccine, our technology for HIV vaccine in a therapeutic setting. Several of our collaborators are also pursuing other opportunities with potentially large commercial markets, and these programs could generate additional milestone payments as well as royalties.

Our angiogenesis partner, Centelion, that's their new name, a subsidiary of Aventis Pharma which is now a part of Sanofi-Aventis Group is conducting two Phase 2 trials, one in Europe and the other in the United States. This program is targeting PAD, peripheral vascular diseases, using the gene FGF-1. We expect results from at least one of these trials in 2005. Corautus Genetics is working with a strong support from Boston Scientific on a gene-based delivery of VEGF-2 as a treatment for severe cardiovascular diseases. In 2004, Corautus announced the initiation of a Phase 2(b) clinical trial, and that trial is ongoing.

Finally, our partners at Aqua Health, a division of Novartis, are awaiting approval in Canada of what could be the world's first marketed DNA vaccine. This is a vaccine to protect salmon from a particular infectious disease that strikes when fish are transferred from the protective environment of fish ponds into pens in the ocean. Extensive field trials involving 3 million fish have been completed at the Canadian fish farms, and data have been submitted to the regulatory agencies for review, which is the Canadian Food Inspection Agency. This vaccine has been sold on a pre-approval basis. Vical has already received initial royalty payments. Our latest information suggests that the decision approval could be reached in the near future. We eagerly await further news from our partner on this very important milestone for Vical technology.

This concludes our prepared comments. Operator, we are now ready to open the call for questions.

Thank you, Mr. Samant. The question-and-answer session will begin at this time. (OPERATOR INSTRUCTIONS) Eric Schmidt of SG Cowen.

Good morning. Let's see, maybe a question for David if I can start on the SPA. David, it seems that you're coming sort of close to the edge in terms of the required responses, the 25 required responses that the FDA wants you to have from this trial, assuming a valid 10 percent response rate and about 250 patients exposed to Allovectin-7. Can you just comment on that?

Yes. I think we haven't gone into the details of the target population including the exclusion criteria, but we feel that by tightening those inclusion/exclusion criterias somewhat will select a population where we can expect a slightly higher response rate. So we feel comfortable with the sample size.

The other thing also is that in the prior Phase 2 trial, a lot of patients as you know dropped off early on because they were progressors, because they were actually evaluated very shortly at the first cycle of the treatment. Here we are saying that we're not going to really evaluate the patient for 24 weeks. And as you know, immunotherapy takes time to work. So I think we lost almost 60 percent of the patients before the first cycle; right, David, after the one cycle? So we expect a lot of those patients to respond. And we actually saw some of those patients who actually responded who went into the catch-up protocol and then further benefited from this therapy. So that 10 percent response was a pretty tight response based on the criteria for that trial. So we expect that response rate to even improve. That's the goal.

Just one last comment. We have worked with the FDA to modify the RESIST criteria in a way that I think are favorable for detecting responses due to Allovectin-7.

And the FDA has accepted our modified RESIST criteria.

Great. Then, Vijay, could you talk a little bit about the financial terms of the potential partnership around Allovectin-7? What type of deal makes sense for Vical at this stage?

Let me just remind you that we had a very good End-of-Phase 2 meeting which led to this SPA, and in the process we captured really a lot of knowledge in terms of how to position this Phase 3 trial, particularly the SPA, so that we can achieve our end points. Now the future of this trial really depends on our partnering efforts, whether we are going to do this trial, whether the United States or including some Europe (indiscernible). So I think in terms of what the financial terms are, it is not just finances. What does the partner bring to the table and the partner's capabilities in terms of allowing us to extend this trial in Europe, allow us to recruit this trial faster. And so how can we use the partner's resources more synergistically. So there are a number of things that go into evaluation of the partners, but there is no one single financial term that I can put my finger on at this stage.

Eric, did you have another follow-up question?

I do. Vijay, maybe you could just talk whether you're looking for a true partnership in terms of the 50-50 type profit loss and sharing collaboration, or more just handing over this product and collecting a royalty?

Again, it is hard to answer that question, simply because it depends on the type of partner. Remember, it is hard for anybody, any partner other than maybe a partner such as a large pharma company, even to make this product. We will have to continue to manufacture this product because we have all of the manufacturing process pretty well-validated. To transfer this process to somebody else at this stage would be a huge task. So we need to look at partners' capabilities before we can decide whether it is 50-50 or they are under the clinical trial. If the size of the partner is larger, obviously, the partner would more like to control the clinical trial. If the partner is a moderate, midsized partner, then we will probably do it in a collaborative effort.

Does that answer?

Yes, that's very helpful. Are you hopeful of completing that deal in the first half of the year, or don't you want to set any expectations for when in '05 the deal might happen?

All I can tell you is that we're working with a number of companies, and with the fact that the SPA is in now has allowed us to even accelerate some of those discussions. You know how these partnership discussions are. So, at this point, it is hard to predict the exact time.

Anything else?

No, thank you. Good luck.

Operator, do we have any other questions?

Not at this time.

There were one or two questions that were pre-submitted by our investors, and I just want to cover those, okay? First question was, Merck recently announced the start of a Phase 2 trial with their adenovector vaccine for HIV. Do they plan to start a Phase 2 trial with a DNA vaccine for HIV? And I'm just giving you the exact comment that we got from Merck based on their written communications. And Merck has basically assured us that they continue to evaluate the potential for use of all their HIV vaccine candidates, and that further decision regarding any of these programs will be made after all of the data from their ongoing clinical trials are evaluated. So there is -- that is exactly what Merck has told us as of last month. Is there any other question? Joy, do you have a question?

Joy Michalus (ph), Invest (ph) Investments.

Thanks so much. I just wanted to know if Dr. Kaslow could go over the modified RESIST criteria again. I wasn't clear whether the first evaluation was going to be at 16 weeks or at 24 weeks, if you could just clarify that?

Sure, I can clarify that. The two major changes are obviously that the first tumor burden assessment, formal tumor assessment, will be done at 16 weeks. Normally, it is done at 8 weeks, or in prior trials it's been done at 8 weeks. Then the second part that is changed is how we can classify responses based on histologic examination of the resected lesion, if it is resected, and whether or not we can upgrade it from a partial response to a complete response. Those are the two major ones. There are some other differences, and we'll save those to ASCO.

Does that answer your question, Joy?

Sorry, does the response rate -- the response rate has to last until 24 weeks; is that --?

Yes. In other words, we will count responders at or after 24 weeks. So if their best response is a partial responder, a complete responder, at or after 24 weeks, then that counts as a responder.

So if there's a responder before 24 weeks and he or she progresses, it is not counted.

Did you have a follow-up on that?

Yes. Then regarding the single-lesion injections, I was just wondering, it sounds kind of odd or I just would not understand why a single lesion would lead to better responders than multiple-lesion injections. I just wondered if you had some explanation for that or hypothesis?

Right. The way that the trial was done in the 208 was that the 2-milligram dose was split over multiple lesions. So those other lesions were getting a substantially smaller amount of drug product. So by limiting it to one lesion, they get a full dose of the drug product.

This is based in part on the results we saw, 14 out of the 15 responders were in the single-lesion injection group. Does that help clarify it?

Yes, but was there any discussion of injecting multiple lesions with 2 milligrams each, or was that not even on the table?

That was discussed at the End-of-Phase 2 meeting, but the safety database that would be required for that gets to be very complex, because you have different doses going into different patients, and so that was not pursued.

Does that help?

Yes, it does. Thanks very much.

There's one more pre-submitted question that I want to answer before I close this conference call. The question was, your second elect operation target of HIV, doesn't Merck have the exclusive worldwide rights to your technology for HIV? How are you able to work in this area and what is your commercialization plan? I think it is an excellent question. Merck has licensed our technology for HIV, and it has worldwide exclusive rights for HIV. But a number of non-commercial HIV vaccine development programs based on our technology are underway. But Merck and Vical have supported these programs (indiscernible) medical need. And if he is successful, Merck has the ability to participate in our success.

Operator, do we have any additional questions at this time?

May-Kin Ho of Goldman Sachs.

Hello. The partnership, obviously to define exactly when you would do it would be difficult. However, what is your plan in terms of starting cycle enrollment here versus ex-U.S., because it's a little bit chicken of the egg?

I think to answer your question on the European side, since we have not done any trials in Europe with Allovectin-7, that is going to be a much longer-term option. So even if we go (indiscernible) partner (indiscernible), it will be -- the trial will have to start in the U.S. first. As you know, we have done a lot of work on Allovectin-7, both pre-clinical work that came out of the -- some of the feedback that we got from the (indiscernible) and things that we needed to complete to go to the Phase 3, that work is already underway. We really have to work with a partner in terms of how many centers we go. We obviously have the ability to go to Canada, besides going into United States. So a lot of prep work has been done, but what role the partner is going to play in the study is going to be important before we embark on the study, okay?

Does that help?

(indiscernible) you'll be delayed?

I beg your pardon?

Does it mean that you have to sign up somebody in the first half of the year; otherwise, you will be delayed in terms of the study?

I think a lot of prep work has been done, and assuming how our partnership discussions come to a logical conclusion and what the partner brings to the table, I don't expect any delays. But what the partner brings to the table is really critical in terms of accelerating the study. And also we have a whole bunch of other programs that we need to weigh in against in terms of our own internal resources, as to how quickly we want to accelerate the Allovectin-7 program on our own. So we have a Phase 2 trial that's coming up with CMV, and we need to titrate how we spend our resources. So that is the reason these discussions had to be brought to logical conclusions very quickly, so that we can make those right decisions. This is not a two-year project to find a partner, if that is what your question was.

Does that answer your question?

Yes. In your prior studies, how many percent of the patients actually that you have the resection done?

We will cover that at ASCO.

Okay, thanks.

Do we have any further questions at this time?

Not at this time.

Thank you very much for attending this conference call. We look forward to seeing you in the near future on our individual roadshow trips or at the next conference -- the first-quarter conference call. Thank you.

Ladies and gentlemen, this concludes our conference for today. All parties may now disconnect.