Brickell Biotech Inc (BBI) 2005 Q2 法說會逐字稿

Good day and welcome, ladies and gentlemen, to the Vical Incorporated financial results conference call. At this time, I’d like to inform you that this conference is being recorded and that all participants are in the 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 second quarter 2005 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 forward 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 2005 financial results. These forward-looking statements represent the company’s judgement 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, Alan. I want to begin today by recognizing a significant milestone to our DNA vaccine technology. In July, we announced that our licensee Novartis Aqua Health received marketing approval for a DNA vaccine for salmon in Canadian fish ponds. This approval is an important validation of our technology in the animal health area, and a logical step towards human validation.

Aqua Health helped develop a novel DNA vaccine to protect farm-raised salmon against infectious haematopoietic necrosis virus, or IHNV, a highly lethal and commercially devastating infectious disease. When the young salmon are transferred from the protected environment of fish farms into pens in the ocean, as many as 90 percent can be lost to this disease. This disease has a significant impact on the Canadian fishing industry.

Aqua Health licensed Vical Technology for this vaccine because conventional vaccine approaches could not provide effective and economical protection. The large numbers of fish that must be vaccinated, and the competitive profit margins in this industry, demanded a vaccine that is efficient as well as effective. Very low doses of the DNA vaccine are providing the needed protection on a highly cost-effective basis. We are truly excited to have reached this landmark approval for our technology.

Before I provide an update on our other key programs, I’ll ask Jill Church, our CFO, to review the financial results for the first quarter of 2005. Jill?

Thank you, Vijay. Good morning. We’ve had a very exciting quarter once again and today I want to review our financial results for the second quarter, 2005. Today, we reported revenues of $4.8 million for the second quarter of 2005 compared with $5.7 million in the prior year. Revenues for the quarter included $3 million received from Merck upon its exercise of 3 cancer vaccine options. In addition, we completed a licensing deal with AnGes in the second quarter which resulted in an up-front payment of $1 million. Revenues for the prior year included $3.8 million recognized for contract manufacturing shipments for the NIH and $1.2 million for license fees from Sanofi-Aventis.

Year-to-date revenues for the second quarter 2005 were $7.5 million compared with $6.7 million in the prior year. The net loss for the quarter ending June 30th 2005 was $5.0 million, or 21 cents per share, compared with $5.3 million, or 23 cents per share, in the prior year. The net loss for the 6 months ended June 30th, 2005, was $12.6 million, or 53 cents per share, compared with $14.4 million, or 66 cents per share, in the prior year.

We ended the quarter with $59.1 million in cash, cash equivalents, and marketable securities. We continue to forecast a net loss of $23 to $26 million for the full year 2005.

I will now turn the call back to Vijay to discuss the product development updates and events since our last conference call. Vijay?

Thank you, Jill. Let’s move on to our other key programs. I’ll start with our development program for exploring enhanced delivery of the gene coding interleukin 2 or IL-2. In this program, we’re injecting a plasmid encoding IL-2 into a tumor and then applying electroporation locally at the site of the tumor using the technology licensed from Inovio Incorporated.

Our goal is to express enough IL-2 in the tumor to obtain its clinical benefit but avoid the toxicity associated with systemic protein delivery. And that’s one of the reasons systemic use of interleukin 2 for melanoma is rare. We presented animal data at AACR on April which showed a 2- to 3-fold increase in IL-2 expressions from the electroporation and significant tumor reduction and tumor survival benefits. By mid-July, we were able to start a Phase 1 clinical trial for patients with a current metastatic melanoma. We believe this is the first company-sponsored human trial using plasmic DNA in combination with Inovio’s electroporation technology.

Next, I’ll provide a brief review of our immunotherapeutic DNA vaccine, or CMV [ph]. In June, we received an orphan drug designation for the use of this vaccine in at-risk haematopoietic cell transplant and solid organ transplant populations. The orphan drug status offers us potential market exclusivity along with some financial and tax advantages -- specifically, the opportunity to eliminate the substantial producer fees normally associated with product approval. As unique [ph] success in the transplant indication, we may have the potential to investigate the utility of this vaccine approach to address the significant health care burden of congenital CMV disease. We expect to begin Phase 2 human trial in transplant donors and recipients before the end of 2005.

Rounding out our independent program is the high-dose Allovectin salmonal [ph] lead program from metastatic melanoma. As you know, we completed a special protocol assessment with BFE [ph] in the first quarter. This process resulted in the carefully designed Phase 3 trial which we described in detail at ASCO this year. The data from hydospace [ph] to trial, the design of our Phase 3 trial, and the potential path forward have been the focus of our discussions with prospective partners for the continued development and potential commercialization of Allovectin 7. We are encouraged by the progress of these discussion to date. In parallel, we have continued our preparations to allow prompt initiation of Phase 3 trials if we successfully reach an agreement.

Now I’ll briefly discuss some of our collaborative programs. In June, our longstanding partner Merck exercised 3 options for cancer vaccine application. We received payments of $3 million in option, excise fees, and could receive additional milestone and royalty payments. We also have certain co-promotion rights in the United States. We are delighted that Merck has expanded application of our technology from the infectious disease sphere into oncology. They’re excited to have our technology included as a part of Merck’s cancer vaccine development program.

Next, NIH. Over the past few years, the Vaccine Research Center at the NIH has become a major collaborator with Vical. In June, we received a $12 million production order for clinical launch of DNA vaccines against HIV in support of a planned Phase 2 study. We expect to begin production and make initial shipments in 2005, and those shipments will continue through 2006. For the NIH, we also produce multiple DNA vaccines against other infectious disease targets, including Ebola, SARS, West Nile, all of which are in Phase 1 testing. The NIH is fully funding these programs, providing partial funding for some of our other programs through grants and cooperative research and development agreements.

Our final focus is today’s angiogenesis, a field of novel therapeutics designed to promote the localized growth of new blood vessels. With a new license announced in late May, we now have 3 partners actively working in this area. Our newest partner, AnGes MG, is a Japanese company using our technology in a DNA-based product encoding a proprietary growth factor called hepatocyte growth factor, or HGF-1. HFG-1 or HGF, David?

HGF.

HGF. We received an initial up-front payment of $1 million, and further development could lead to milestone and royalty payments.

Even more important is the advanced stage of the development for the AnGes programs. They are now more than a year into a Phase 3 trial in Japan using gene-based HGF to treat peripheral arterial disease, or PAD. AnGes also has a Phase 2 trial for PAD underway in the United States, as well a Phase 1 trial for CAD. We believe this is the most advanced angiogenesis program in the world, and AnGes's marketing partner Daiichi, a leading Japanese pharmaceutical company, has projected a Japanese launch of this product in the 2007 timeframe. This could make it the first product using Vical’s technology to receive marketing approval in Japan, and potentially the first in the world for use in humans.

Another angiogenesis partner, Centelion, is a part of the Sanofi-Aventis group. They’re conducting Phase 2 trials in Europe and in the United States targeting severe PAD using the gene for SGF-1 [ph]. We expect results for at least one of these trials in 2005. Centelion started a third Phase 2 trial in 2004 targeting intument floridication [ph] in earlier stages of PAD.

Our third angiogenesis partner, Corautus Genetics, with the assistance of their partner, Boston Scientific, is conducting a Phase 2-b testing with a gene-coding VEGF-2 for treatment of coronary artery disease, or CAD.

With three partners rapidly advancing towards product approval for some of the largest potential market opportunities for our technology, we are very excited with the prospects for this emerging [inaudible].

That concludes my prepared remarks. Operator, we are now ready to open the call to questions from our invited participants.

Thank you, Mr. Samant. [Instructions] Our first question comes from Eric Schmidt with SG Cowan.

Good morning. Vijay, I was hoping you could just update us on the objectives you hope to achieve with the Phase 1 trial on IL-1 gene therapy -- the electroporation. Whether you’re hopeful of looking at any tumor response rate data, or whether this will just be a dose-rate gene study or safety study, or-- what are you hoping to get from this trial?

You answered my question. All the things that you said are covered in the study. But really, the goal really is to-- electroporation has been talked about a lot and never been really systematically evaluated in combination with our technology. So this is a first, systematic way of evaluating the use of electroporation with plasmic DNA in a clinical setting.

And the answer to the question, are we going to be looking for tumor response rate? The answer is yes. Are we looking for safety? The answer is yes. Are we looking for dose impact or dose ranging? The answer is yes. So there are a variety of attributes that are built into to the study, and so the answer to all your attributes is yes. This is really the first systematic evaluation of electroporation.

Okay. And then, a second question on the CMP vaccine. Obviously, the potential markets, in some indications, could be very large, and I was hoping to get an update on your intention to potentially partnering the program.

I think it’s an excellent question. I think our goal really is to really get the proof of concept, which really the Phase 2 study that we’ve designed will, indeed, allow us to do that in the haematopoietic transplant setting. And then work with the NIs [ph] to do a solid organ transplant study. But for the large trials, particularly for the congenital defects, whether they are infants or females of childbearing age, we certainly have to have partners. And we’ve had some discussions, both with government agencies and nongovernmental agencies. But it’s a little too early, because we really need to get our proof of efficacy data in hand before those partnering decisions get any serious--

Right; thanks a lot.

Let’s take our next question from Megan Hull [ph] with Goldman Sachs.

Hi, Vijay. Can you tell us a little bit about the royalty rate on the DNA vaccine stuff, or agricultural or veterinary uses, as well as the angiogenesis program?

Just to give you a broad range of what the royalties are, in most of our human health applications other than angiogenesis, they’re high single digits. In angiogenesis, they are in the mid-single-digit range. And in the animal health area also, they’re in the mid- to low single-digit range.

And what would be coming out of the salmon DNA vaccine?

We are in discussions with our partner and that’s not publicly disclosed. But if you look at the whole field of aquaculture, fish aquaculture, there are so many opportunities for infectious agents where there are no vaccines available, or the current vaccines have a lot of side effects or poor efficacy. So it’s a pretty wide-open field for us to work with them. And this has been accomplished very economically in this particular tough competitive business environment, so we’re pretty excited with how our partner has gone about doing this program.

How are things going with the Allovectin partner?

As I told you, we’re encouraged by the progress of our discussions in that we’re continuing-- the discussions are going, and the discussions are not at a standstill; they’re progressing. We’re also continuing preparations to offer the Phase 3 to begin promptly after reaching agreement with a partner. Our goal is really to select the most appropriate partner, negotiate mutually beneficial terms. And, as I told you -- and I’m telling all the investors who call me -- we are in active discussion with these prospective partners, and we intend to conclude those discussions as soon as possible, but we cannot project the timing in terms of the ultimate outcome.

Thank you.

We’ll take our next question from Michael Zasloff with Ferris, Baker, Watts.

Thank you. Thank you, Vijay. I had, really two question. One of them deals with the Merck relationship and the other with the NIH relationship. Could you tell us a little bit more about-- first question is, really, whether you could tell us a little bit more about the sorts of medical problems that Merck would like to develop vaccines against?

And the second is, what do you see the NIH relationship growing into? How extensive a potential opportunity will this NIH relationship evolve into?

So the first question is regarding Merck. Merck is primarily interested in two areas -- they’re interested in infectious diseases and their goals right now there are HIV, where they’re partnering with us as well as hepatitis C, which is at a research stage. Those are their two active programs that we know.

But the other new interesting thing is Merck has developed, through various acquisitions that they’ve done recently, a core competency in the field of cancer vaccines. And there’s an important effort going on within Merck to develop cancer vaccines, and we’re pretty excited, because in their cancer vaccine development program, our technology’s an integral part. So Merck licensed these 3 cancer antigens from us. A significant number of years after our original license, in a completely different field, we know the status of where the program is. We’re pretty excited how that program is going. But I think further details about what those antigens are and what exact targets they are going after is something that you need to ask them. But we’re very pleased how the program is progressing.

Great. The second question really--

Second question was the NIH.

Yes.

The NIH is really a partner with us. Now, within the NIH is an entity known as the Vaccines Research Center, which is an entity that has been developed in the last, I guess, 6 years, David? Where a lot of funding has been provided to this entity, including a manufacturing research facility, to primarily focus on vaccine development as opposed to the NIH’s primary effort of giving our monies to other peoples to develop vaccines. So this is an internal development company, as you may call it, which actually takes vaccines beyond Phase 1 to Phase 2 and maybe potentially to Phase 3.

And the exciting part for us is that almost 80 to 90 percent of their effort in vaccine development is based on our technology. Because what the VRC decided that-- are they going to use conventional methods for developing technology or are they going to go and look at a new technology which is going to create a paradigm shift in the industry? And after looking at several technologies, they came to the conclusion that this is the technology which has the greatest opportunity to create a paradigm shift.

And so, programs that they’re working for us right now are Ebola, West Nile, SARS, HIV. And in addition, the NIH (not VRC) has funded a program in anthrax. We also got funding from them for flu. We also got finding from them for herpes simplex. So this relationship, which started as a simple manufacturing support, has gone from manufacturing support to collaborative research and development agreement. Cross-licensing, in some cases. I mean, we are getting technology and licenses from them, so if they are successful, we can commercialize them.

My guess would be -- and I could be wrong on it; I don’t have the exact number -- but in excess of $30 million are being spent this year on clinical trials based on DNA vaccines which are based on our technology. And the role is very straightforward. We provide manufacturing support, we provide research support. It’s our intellectual property, they conduct the clinical trials, they pay for the supplies. And we have a collaborative relationship. It’s like being in-- working with another Merck, except much more friendly.

So for example, in the most recent-- the world seems to be very frightened about the Avian Influenza and the potential for a pandemic. And discussions within the NIH have obviously focused on new ways to produce vaccines against this flu. Does Vical play a role, do you think, in--?

I think the answer to that question is yes. First of all, we have a half-million dollar grant to work on influenza -- this is conventional influenza. However, that research grant allows us to do a lot of experimental work that leads us to a potential developing a vaccine for a pandemic flu. All that’s being done that I hear in the public domain now on pandemic flu is, people are making H-5 [ph] by the conventional vaccine manufacturing methods in chicken embryos. That vaccine will basically give you an antibody-mediated response.

We really don’t know what is going to protect you from the pandemic flu. Do you need a much broader cross-protection which is both an antibody-mediated response, or T-cell response? And that’s where we come in. Because if we put a plasmid which has both an H-5 encoded in it -- and this is just talking at the conceptual state -- as well as the internal proteins, which are pretty well concerned [ph], we can mediate both the B-cell [ph] and T-cell response against that particular pathogen.

And ideally, our technology allows the government or whoever decides that this vaccine is indeed successful to prime people well in advance of the pandemic coming. So if the pandemic really arrives, people are primed and the actual infection itself will boost it.

So the long answer to your question is yes, we are working in influenza at the research stage; we already have a grant. David Kaslow and his team have some great ideas in terms of how to translate that half-million dollars into a potential pandemic flu vaccine. And we’re awaiting-- assuming we get more funding in the future, indeed that’s an area we’ll be working on.

Thank you.

[Instructions] And we’ll take our next question from Will Kidd [ph] with Century Securities.

Vijay -- hello?

Yes, sir; I’m here.

Why is the NIH revenue so lumpy?

Lumpy?

Well, you had revenue last year, then you’re not having it this year--

I think it’s an excellent question. There are a combination of things. The NIH revenue is a combination of grant money and the second component of the money is money for supplying manufacturing goods.

The current accounting environment, recognition of revenue for supplying manufacturing goods, is so stringent. So unless the goods are completely quality-controlled received at the other end, you cannot recognize the revenue. So you could have made the stuff in 2 quarters and not shipped it, so you don’t recognize the revenue. That’s why the revenue comes in lumps when you complete the entire manufacturing cycle and ship the goods out.

The grant money is also pretty-- you bill them as you complete the work. So if you did a long nonhuman primate study and it took 6 months to complete it, then you bill them at the end of 6 months and you’re spending money for 6 months, but you don’t get the revenue until the end of 6 months. That’s the reason. It’s not a traditional sales kind of revenue where you have quarter-by-quarter consistent revenues. But the more important thing is, on a consolidated basis year to year, our revenue base continues to grow.

Good. I think you should make that clear to stockholders.

Thank you; we’ll do that.

We’ll take our next question from Ken Luskin with Intrinsic Value Asset Management.

Yeah, Vijay, I’d ask a question about the angiogenesis partners. The AnGes people are in Phase 3, but there are no published Phase 2 results. Is that correct?

That’s correct. Even the trial design has not been described in public.

So in the US, is there no requirement that Phase 2 results be published before Phase 3? Is that true in this country also?

David?

I don’t think it’s a requirement to publish the results of the trial. There may be some new requirements to make public the protocol design or the trial design, particularly for a life-threatening or serious disease.

Okay, so--

But Ken, just to-- since you asked the question, the trial is almost over a year in recruitment in Japan.

I realize that. I guess what I was trying to understand was, a lot of people are very intrigued in this area, but they seem to-- are asking for some more results they could put their hands around. That’s kind of what I was getting at. And I guess I was guessing at, maybe for competitive reasons-- I mean, they are not-- don’t want to release these Phase 2 results. And I was wondering whether the same would hold in this country -- whether, when they move into Phase 3s, which we’re hopefully expecting both AnGes and the Sanofi-Aventis division to do, they would not have to then publish their Phase 2s if they didn’t want to?

I think they’re a pretty savvy company; they’re a pretty sophisticated company. This company AnGes MG is partially owned by Daiichi, some of the founding members are ex-Genentech Japan guys. Their Chief Scientific Officer has trained in the United States for several years. They have a data management safety board. So obviously, they must have looked at their safety incidents. So I think it’s mainly for competitive reasons.

Right, okay. That’s what I was wondering, because it all looks very promising. I guess another question on your partner programs. Of all the NIH clinical trials, the one that’s moving into Phase 2 definitely is the HIV. Do we have much information about the Phase 1 results?

All I can tell you is the Phase 1 is complete, and the results will be published some time this year. Right, David?

Yes; the manuscript has been submitted.

The manuscript has been submitted, so the data will be in the public domain in the next several months. So you’ll get a chance to see what the data is.

Okay. But that’s exciting, though -- they’re moving into Phase 2 on an HIV--

Absolutely. It’s a 6 plasmid count [ph] drug, which has envelope protein into it. It uses 3 clays [ph]. And knowing the status of all the HIV programs, this will probably be one of the larger trials that I’ve seen done in a very systematic fashion.

Okay. One further question about partner programs. I saw that Enovia received a $2 million milestone from Merck for starting a Phase 1. They didn’t mention what they were doing it in, but they said it was plasmid-based. So that would, no doubt, be using your technology, correct?

If that’s what they said. Enovia has their own relationship with Merck, and we have our own relationship with Merck. So we’re not really privy to what Merck is doing with them. So that’s a question that you need to ask them; I can’t really comment on that, Ken.

But--

Mr. Samant, there appear to be no further questions at this time.

Ken, you had-- Ken Luskin got cut off. Can you-- Ken, if you’re still there?

[Instructions] Ken’s line is open.

Hello?

Yeah, go ahead.

No, I guess I was just wondering -- if they did start with what they have licensed from you in the cancer area, they would not have to notify us of this? Or-- could they have started-- because it sounds like they paid Enovia. And so that’s why I was wondering whether they could have actually started--

Ken, I can’t really comment on that. Because every company has different milestones for what they get their monies for. So I don’t know what their milestone was. Maybe their milestone was because they had a great handshake with them -- who knows what their milestone--?

[Laughs] Okay.

We have a very systematic milestone laid out with Merck, as it normally is. And you can go back and look in the prior years what kind of milestone payments we receive, and those are the kinds of payments we’ll receive from them in the future -- for those kinds of clinical milestones.

Okay. So I guess, last question, back to the angiogenesis folks. What I had read was they started their trial around the beginning of ’04. So they’re maybe over a year and a half into both these trials in Japan and the US. The same thing with Aventis -- they’re, I think, a year and a half, two years, or more into their Phase 2. Would you expect, based upon your knowledge of these programs, that they would be close to moving into either filing for approval in Japan and Phase 3s in the United States?

In Japan, if you go to Daiichi’s website, and that’s really our source -- Daiichi is their senior partner. Daiichi is claiming that the approval could be in the 2006-2007 time frame. In my script today, I basically took the 2006 out, because I’m more practical in drug development, so I put a time of 2007. But Daiichi is pretty optimistic about it. So I’ve got to go -- Daiichi has a lot more experience than either us or AnGes combined. And Centilion, all I can tell you of the Centilion stages -- they will be publishing at least trial from one of their datas this year; that’s what they’ve told us.

Okay, this year -- that’s wonderful.

And if the data is good, they’ve move forward, obviously.

That’s very exciting; thank you very much.

Thanks, Ken.

Thank you.

If there are no further questions, I would like to turn the conference back to Mr. Samant.

Well, that concludes our conference today. Hopefully, I’ll meet some of you in Lester's [ph] on my road show, which is coming up pretty soon. Or if you have any questions, you can always call Alan and ring on my cell directly. Thank you.

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