Brickell Biotech Inc (BBI) 2005 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 all participants are in a listen-only mode. At the request of the Company, we will open the conference for questions and answers from invited participants after the presentation. I will turn the conference over to Mr. Alan Engbring. Please go ahead, sir.

Hello and welcome to our year-end 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 program 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 2005 financial results. These forward-looking statements represent the Company's judgments 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, and welcome to all our participants. Today we will review recent events and provide and update on our key independent and partnered product development programs. We will discuss some of the unique features of our recently started Phase II CMV vaccine trial for transplant patients and report our progress towards a potential vaccine for pandemic influenza.

But first I will ask Jill Church, our Chief Financial Officer, to review the financial results for our fiscal 2005. Jill?

Thank you, Vijay, and good morning. Earlier today we reported revenues of $12 million for 2005, compared with $14.5 million in 2004. Revenues for fourth quarter 2005 included $1 million milestone payment from Merck for the initiation of a Phase I cancer vaccine trial. Merck had paid us $3 million earlier in 2005 to exercise cancer vaccine options. In 2006, we expect to ship the full $12.1 million HIV vaccine production order for a large Phase II trial planned by the NIH.

Our net loss for 2005 was $24.4 million or $0.99 per share, compared with $23.7 million or $1.05 per share in 2004. These results were consistent with our forecast for a net loss of 23 to $26 million for the full year 2005. We ended the year with $66 million in cash, cash equivalents, and marketable securities. For 2006, we are projecting an adjusted net loss of 22 to $26 million, excluding an estimated 2 to $3 million for non-cash stock based compensation expense. Please refer to our news release this morning which has been posted to our website for details.

I will now turn the call back to Vijay.

Thank you, Jill. Next I will review some highlights for the fourth quarter of 2005 and early 2006. I will start with an update of our collaborative programs, beginning with NIH. As mentioned in our last call, NIH started a Phase II HIV vaccine trial last October. This is a significant multinational trial that will enroll about 480 healthy volunteers. The trial uses the prime-boost approach combining [key] doses of DNA vaccine followed by a single-boost with an adenoviral vector vaccine. DNA vaccines as you may know continue to be a key component in a number of active HIV vaccine development programs.

Looking forward for 2006, NIH has placed a 12.1 million order for production of additional supplies of DNA vaccines against HIV in support of a second, much larger Phase II trial. As Joe mentioned, we have begun production and expect to complete shipments under this order in 2006 and this large trial is expected to start in early 2007. Our collaborative programs with the NIH have progressed well and we expect updates from the NIH on their Phase I programs for Ebola, SARS, and West Nile virus. We supplied the vaccines for all of these programs and we have the option to secure promotional rights for these vaccines if they successfully complete development.

Merck. Next we saw significant progress in our collaboration with Merck in 2005. Merck exercised its option on three cancer vaccine targets in the second quarter of 2005. In the third quarter, we granted Merck an option for the additional cancer vaccine target. In the fourth quarter, Merck initiated a Phase I clinical trial of a cancer vaccine including two of its three licensed targets, HER-2 and CEA. The third licensed target has not yet been disclosed.

HER-2 and CEA are both tumor antigens that are all expressed in a variety of cancers including breast, colorectal, ovarian, and non-small cell lung cancer. The 30-patient dose escalation trial is actively enrolling patients with any of these types of cancer in Italy as well as the United States. Patients will be evaluated initially for safety, tolorability, and immunogenicity and will be monitored long-term for disease recurrence or progression. We are excited by Merck's rapid advancement of this program into initial human study and we look forward continued progress.

Angiogenesis. We signed in new angiogenesis partner last year, the Japanese company, AnGes MG, who is fast approaching completion of their Phase II trial in the United States and their Phase III trial in Japan both for peripheral arterial disease or PAD. They are also conducting a Phase I U.S. trial for ischemic heart disease. Their marketing partner, Daiichi, which is a large Japanese pharmaceutical company, has projected the launch of their PAD product in Japan in 2007.

We also expect updates soon from our two ongoing angiogenesis partners, Sanofi and Corautus. The sizable market served by these programs could be an important source of revenues in the years ahead.

Our own independent programs, influenza. We have completed the first milestone of our 2.9 million NIH grant for pandemic flu. We have now successfully constructed and manufactured plasmid DNAs that include five distinctive influenza targets. Let me just go through them systematically. The avian flu HA surface protein; the avian flu NP conserved protein; the avian flu M-2 conserved proteins, the humans flu NP conserved protein; and the human flu M-2 conserved proteins. So there are five constructs that we had constructed.

We have shown that our avian flu HA surface protein vaccine is immunogenic in animals, and this was done internally here at Vical. We are now working towards the second milestone in this program that includes challenging the DNA vaccinated mice at (indiscernible) with a very virulent Vietnam strain of H5N1 avian flu. This work is being conducted by St. Jude Children's Research Hospital in their BSL3 facilities in Memphis. For these studies we are using our proprietary Vaxfectin cationic lipid formulation as of adjuvant, as we believe this will significantly enhance the protective immune responses from DNA vaccinations.

As I mentioned in our last earnings conference call, our flu vaccine approach is designed to work on the major shortcomings of the currently [kill] license vaccine. Just to highlight some of those, production of the current vaccine depends on chicken eggs, which are not available on short notice. Our production uses easily scaled simple equal E. coli based fermentation. Secondly pandemic strains of flu may be toxic to the eggs and the [mouth]. It may not go in those eggs. Our process is the same for any pathogens. First of all, we don't handle live pathogens.

The manufacturing cycle times are long for the conventional vaccines. We can manufacture very quickly and can produce conserved vaccine components before a specific strain is identified. That means we can make the MPs and M2s well ahead of an outbreak of pandemic flu. Kill vaccines provide only antibody media to production. DNA vaccines are designed to induce both an antibody and cellular immune response.

On this last point, let me quote a significant conclusion from an article in the September 21 issue of the proceedings at the National Academy of Sciences. I quote from that article and this is very important, "The antigenic diversity of the viruses circulating currently in Southeast Asia and Southern China challenges the wisdom of reliance on a single human vaccine candidate for pandemic preparedness." This article really is based on the fact that it was written by about 20 scientists who actually did genetic mapping of all the various flu strains and found that there is a very broad diversity of flu strains and there is no one single candidate emerging that you can develop a vaccine against. Our approach exactly mirrors that finding that we want to develop a vaccine which elicits broad across protection.

You remember from our last conference call a position that conventional flu vaccines which provide symptomatic relief through antibodies are unlikely to protect against severe disease and mortality if the strain match is not correct. This is exactly what the PNS article is saying and therefore the (indiscernible) approach is to include vaccine components designed to provide a potential cross protection particularly against the disease and we do that by including the conserved proteins. Our program is advancing according to the milestone specified under our initial NIH funding. We continue to seek additional U.S. government funding to support further development and we will keep you posted as we achieve progress in this area.

IL-2/Electroporation. Next to our IL-2/Electroporation program. It is our first clinical trial using electroporation enhanced DNA delivery and that began in July of 2005. We have now progressed to the initial dose escalation stages. We are actively recruiting patients with advanced metastastic melanoma for the treatment of the five milligram dose of the study and expect to complete enrollment this year.

Allovectin-7, just to give you a quick update, finally as we stated before we do not intend to proceed independently with further development of Allovectin-7, however we continue to explore potential opportunities for partnering this program. If these efforts are successful, we will announce the agreement when it is signed.

Next I will have David Kaslow give your a quick update on our recently started CMV Phase II vaccine trial, which is one of the most exciting programs.

Thank you, Vijay. As we announced at the beginning of the month, we have opened enrollment in our placebo-controlled randomized Phase II CMV vaccine trial, the only CMV vaccine trial in stem cell transplant patients we know of that is currently enrolling in the United States.

Our first three participating transplant centers are actively recruiting subjects, and we have IRB approvals completed or pending at an additional five sites which are due to start enrolling soon. Our target is to have 15 to 20 active transplant centers to enroll approximately 80 donor/recipient pairs for a total of approximately 160 subjects. The design of this Phase II trial was based on results from our Phase I trials and a total of 84 subjects. As we have reported previously, we are advancing our vaccine, [VLC CV O1] which combines genes for a surface protein, glycyl protein B, and an internal protein, phosphoprotein 65. CV01 was found to be generally safe and well tolerated and at the five milligram dose elicited both cellular and/or antibody responses in 50% of CMV seronegative volunteers and detectable responses in many of the other subjects.

There it is growing body of evidence that makes us optimistic that CV 01 will prepare the immune systems such that when the vaccine sees CMV for the first time after immunization, a rapid, robust, and potentially protective immune response will result.

First, several recently published studies have indicated that cellular immune responses to CMV are associated with less severe CMV associated disease in transplant patients. As I have mentioned previously in this venue, infusion of ex vivo CMV activated donor T-cells has also been associated with less severe disease. In addition, vaccination studies conducted more than a decade ago by [Platkins] and others with a highly attenuated CMV virus suggested protection against severe disease in renal transplant recipients.

Finally recent results from studies we conducted in a nonhuman primate anthrax challenged model demonstrated protective efficacy in DNA vaccinated animals which had shown only modest immune responses prior to exposure to a lethal dose of bacterial pathogen. So taken together, these data and data from other pre clinical and clinical studies suggests that DNA vaccination will prepare the immune system for protection against disease from a natural viral challenge. We believe this relatively small, short duration human Phase II trial will allow us to evaluate safety and protective efficacy in immunocompetent donors and immunosuppressed recipients.

For both donors and recipients, safety and efficacy of the vaccine will be compared against placebo. The primary efficacy end point will be the occurrence rate in recipients of clinically significant CMV levels.

We will also assess the immune response both before and after CMV reactivation and the rate of CMV associated diseases and other early and late complications. Details about this trial including major inclusion and exclusion criteria and the active enrollment centers are available on the clinical trial's .gov website.

In addition to this trial in stem cell transplant patients, we also are exploring options for a Phase II trial in solid organ transplants including potential funding from government sources. Both the stem cell and solid organ transplant indications for our CMV vaccine have orphan drug status designation by FDA.

I would like to close by thanking the CMV product development team here at Vical and our investigators and consultants for their valuable input and enthusiasm for this program and I would also like to thank again the 84 healthy subjects who participated in the Phase I trials. With that, I'll turn it back to you, Vijay.

Thank you, David. One last item before we open the call for questions. In January of this year, we announced academic licenses of our core technology to three leading research institutions, Stanford, Harvard and Yale. I'm pleased to report that a fourth institution, the Massachusetts Institute of Technology or MIT, is also signed up for academic license agreement as we continue to expand this university licensing effort. These are nonexclusive licenses allow the universities to use our technology for academic research purposes, not for company sponsored research. In exchange we have the option to exclusively license resulting commercial applications.

We are offering identical terms to all the universities to encourage broader use our technologies while protecting our intellectual property.

This concludes our prepared statements. Operator, we are now ready to open the call to questions from invited participants.

(OPERATOR INSTRUCTIONS) Eric Schmidt, SG Cowen.

Good morning, everyone. David, with the Phase II CMV study up and running, can you estimate what the recruitment timelines might be and when furthermore we might actually see some initial data?

Since we just opened the trial for enrollment, we don't really have enough information right now to predict with any certainty how long this trial may take to enroll or even to complete. But as we are ramping this up and bringing on transplant centers online, we're going to try obviously as quickly as possible to get this thing enrolled. I think it is a little bit hard to predict just yet, but as we get further along I think we will be able to make more accurate predictions.

Ballpark are we talking year-end this year or do you think it could potentially drag on longer than that?

Again, a good question. I think one of the things you have to realize is that this trial has two stages to it. The first stage is to recruit 10 donor/recipient pairs who are going to get the vaccine and 10 who are going to get the placebo. We then have a pause to do a safety analysis. It has to go through a DSMB and then we can go in and initiate the second phase of it. So some of that timing depends on when that pause occurs.

Okay, that's helpful. And Vijay I'm wondering if you could prioritize for us the programs in terms of importance to Vical. At this stage what I'm getting at is how important if it all Allovectin still is in the grand scheme of things. Obviously CMV has come on strong here and I assume is your number one priority, but how should we think of Allovectin in the greater context of all the other things that you are supporting now?

Allovectin continues to be an important program. But as we have said before that given the outlay of expenditures that is required to do the trial on our own, the only way we could do this trial is through our partnering effort. So it continues to remain an important effort. It continues to be an important partnering activity for us and as I said in today's call, as soon as we have a signed agreement, we will let you guys know when that occurs.

CMV obviously is the number one program. It's our first program that we have put into clinic once we steered the Company toward infectious diseases. The IL-2/Electroporation program is also an important program simply because it allows us to test this new electroporation delivery system in a cancer setting but obviously the applications are in the infectious disease area.

As we alluded in our last conference call, one of the areas we were looking at is applying the electroporation technique in an HIV therapeutic setting, because right now there is nothing going on as it relates to a therapeutic vaccine in an HIV setting. And if we can show good response rates in the IL-2 trial that will allow us to accelerate the HIV effort under -- as you very well know we have a (indiscernible) with the NIH. Our program on influenza is also a very important program particularly the pandemic aspects of (indiscernible). It all depends on how the data pans out, Eric, on our challenges and continued funding from the U.S. government.

Beyond that our partnered programs with NIH, all of them are very important because if any of our programs gets outstanding data, we have the commercial rights to drive the program. West Nile is a good example. If the data comes good and there is a commercial justification for it, we can move on it. So is Ebola, where there is money in Project BioShield. So we have a variety of opportunities through the NIH including our own pool. That leaves us aside and then we have all our other major partnered programs including the ANGes program which I am very excited about because they are very close to completing their Phase II trial. They are rapidly recruiting completion to the pivotal Phase III trial and they have done the program very systematically. And, as you know, there was a lot of talk about other angiogenesis activities based on other vectors. Those are all gone. So it's only our DNA platform which is being used in that field. So we are pretty excited of how that particular field is going.

On that point, Vijay, can you just remind me what Vical's economics would be on either the AnGes program or the Sanofi and Corautus programs?

All those programs we stand to collect milestones and mid single-digit royalties depending the milestones are pretty much aligned as most development milestones are. In the case of Corautus, we don't have any milestones but we only have royalties.

Great. Thanks a lot.

[David Clayton], Goldman Sachs.

Thanks for taking the question. On the CMV trial, can you just comment briefly on the power of the trial and how many events you are actually going to need to see in both groups to show efficacy in that 160 patients? Also how long you plan to follow the patients post transplant.

I'll that that one. This is our first Phase II trial. It is an exploratory trial. This is the first time that we have been into donor and recipient with this vaccine, so the primary end point is safety. The secondary end point is the occurrence rate of clinically significant CMV viremia and a lot of it depends on what we see there. What was the second part of your question?

How long post transplant?

Right. The follow-up is for a year and part of the reason why we designed that trial there is we want to look at the late complications of CMV-associated disease and some of those things occur after let's say, day 100, day 126. So the trial and we follow these patients closely for those late complications through day 365.

It also allows us by following them for almost a year to try to take the vial loads in the treatment group because there is a well-established base line for people who don't get such a vaccine. So we will get an idea of how long term this immunity of the vaccine lasts and how long these viral titers are suppressed. That is a very important finding for us.

Thank you. Just a follow-up on the avian flu. It sounds like you are making some significant progress in the animal studies. Can you just comment, just put a little more color on what needs to transpire as that goes forward into the clinic?

I think the key thing is we've got to pass the ferret challenge because that's absolutely the gold standard. That model translates well to humans. It is going to be done with a very hard strain and if the animal survives on the ferret challenge, that will be the critical step to move forward. Also it will bring financing because if we pass the ferret challenge, there is no reason we can't get money. We should get money because it will be a demonstration of the very important critical aspect.

Now as you know, the ferret challenge is being done with conserved protein with and without the Glyco protein on the outside. So we will get data with the conserved protein on its own as well as conserved proteins plus Glyco protein for both human and avian. Am I right, David? So we will have multiple combinations that will be tested in this challenge study. Right now as you know ferrets are in short supply because the World Health Organization has taken most of the ferrets. That is really the real limiting step.

Just on that note if you were then to -- it sounds like your timeline might allow Phase I trials in '06. Would you if that were to occur -- you mentioned getting more money. Would that be from partnering or exclusively from the NIH and other grants? Would you consider more capital raising?

I think the answer to the question is all of above. Money is always important, but NIH really is the key source because as you know there's a statement coming out every day from NIH and from the HA Chair in terms of more funding available so obviously we need to tap the funding. And potential opportunities if the data really looks good and the investors are willing to invest, obviously that is an open opportunity.

Thank you.

(OPERATOR INSTRUCTIONS) Navdeep Jaikaria, Rodman & Renshaw.

This is Vernon Bernardino for Navdeep Jaikaria. Just really one question. Could you just provide more details on the $12.1 million in 2006 from the NIH, such as the timing of contract manufacturing shipments?

It's a great question. We expect the contract manufacturing to occur during the shipments occur in the first three quarters of 2007 is actually the goal, okay? Because we need to get the material in hand by third quarter of '07.

Okay. Just wondering if you could give a little more color as to perhaps the challenge and how the ferret challenge and how the results went with the pandemic flu vaccine.

We have not -- for just clarity we have not run the ferrets challenge as yet. The ferret challenge will be run at St. Jude's. We have made the constructs. The animals will be vaccinated in those different constructs that I mentioned in my talk this morning will be all tested in multiple combinations to evaluate the conserved proteins on their own with and without the Glyco protein. Both for the avian and the human influenza.

So most of the studies that we have done for immunogenicity have been mice here to make sure -- the mouse model is the first model to make sure the constructs are immunogenic because if the constructs are not immunogenic you go through all this effort in the ferrets, it's worthless. But always you need to do ferrets. Mouse data is encouraging but it is not prove of concept.

For the mouse studies then, what parameters did you look at? Weight loss, titers?

We typically use and we had actually got in house a very nice mouse model where we can look at both weight loss and survival, kind of feet up/feet down. What we see is that those conserved proteins provide solid protection, survival protection. We do see some weight loss when the animals gets vaccinated with MP and M2 but that weight comes right back up again after about a week or so.

With the surface protein, as Vijay was saying, that gives protection against both. It gives protection against weight loss and provides survival.

Thank you very much.

At this time if we have no further questions, I will now turn the conference back over to Mr. Samant. Please go ahead, sir.

Thank you all for participating. We hope to see some of you individually at one of our scheduled presentations before the next conference call. Thank you again.

Ladies and gentlemen, this concludes today's conference. All parties may now disconnect.