Brickell Biotech Inc (BBI) 2006 Q2 法說會逐字稿

Good day and welcome, ladies and gentlemen, to this Vical Incorporated 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 the Company, we will open up the conference for questions and answers from invited participants after the presentation.

I will now turn the conference over to Mr. Alan Engbring, Executive Director of Investor Relations. Please go ahead, sir.

Hello and welcome to our second-quarter 2006 financial results conference call. Participating on the call today are Mr. Vijay Samant, our President and Chief Executive Officer and Ms. Jill Church, 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 2006 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. Welcome to all our participants in our quarterly review of recent events. But before we begin with the review, I would like to have Jill Church review the quarter's financial results. Jill?

Thank you, Vijay, and good morning. We are pleased to report revenues of $7.3 million for the second quarter of 2006, compared with $4.8 million in the second quarter of 2005. The increase in revenues was primarily a result of our shipments to the NIH under the $12 million production order for HIV vaccines in support of a large Phase II trial. We expect to shift the balance of that order in the remainder of the year.

Our net loss for the second quarter of 2006 was $3.2 million or $0.11 per share, compared with $5 million or $0.21 per share in the second quarter of 2005. We ended the second quarter with approximately $60 million in cash, cash equivalents, and marketable securities, thanks in part to the initial $6.9 million equity investment from AnGes under our Allovectin-7 collaboration. We also received payments of approximately $4 million from the NIH in the second quarter for bulk HIV vaccine product that was shipped in the first quarter. We expect to receive additional payments of approximately $6 million in the third quarter from the NIH orders shipped in the second quarter.

Those payments were reflected as receivables at the end of the second quarter driving our working capital up to approximately $64 million compared to $63 million at the end of 2005. For the full year 2006, we continue to project an adjusted net loss of $22 million to $26 million excluding an estimated $2 million to $3 million for non-cash stock-based compensation expense.

For details, please refer to this morning's financial results news release, which has been posted to our website. I will now turn the call back to you, Vijay.

Thank you, Jill. In addition to our strong financial performance through the second quarter we made significant progress in some of our key product development programs. In early May, we announced that our three component flu vaccine provided 100% protection in mice and ferrets against H5N1 avian influenza strain in studies conducted at St. Jude’s Children's Research Hospital. Simplified versions of our vaccine using only two of the three components provided high levels of protection in mice against multiple human flu strains and against the H5N1 avian flu strain.

These data provided straightforward and compelling proof of concept based upon feet up and feet down observations that our vaccine has the potential to protect against emerging pandemic flu strains even before the specific claim H5 or a new strain is known. These data were sufficient to meet milestone requirements under our plan from the NIH, giving us accelerated access to the remaining $2.6 million needed to make this program through IND filing. We are now conducting the preclinical safety testing to pave the path forward toward the initial human study.

Collaborations. Next I will review the development since our last conference call in May beginning with our collaborative programs. One highlight in the second quarter was our collaborative agreement with a Japanese company, AnGes MG, for the future development and commercialization of Allovectin-7, our cancer immunotherapeutic. Under the agreement, AnGes will provide up to $100 million in clinical trial funding and future sales based milestones as Allovectin-7 is successfully commercialized. This is a key win-win deal for both the companies.

First of all, we keep marketing rights for the United States and the rest of the world. AnGes has the marketing rights in Japan and other key Asian markets and pays us royalties on product sales in those markets. We conduct the Phase III pivotal trial in the United States. AnGes covers our cost for the trial through a mix of equity investment and cash. This trial was designed in agreement with the FDA through a Special Protocol Assessment. It is a small trial of 375 patients randomized two to one, Allovectin-7 to chemotherapy control.

We are treating chemo naive patients this time, not refractory patients with beaten down immune systems and the primary end point is durable response rate after 24 weeks, which should favor our immunotherapeutic approach. We expect to begin the trial soon.

Under our original agreement with AnGes MG, AnGes has an ongoing Phase III trial in Japan with the HGF angiogenesis treatment for PAD, which began over two years ago which could be the basis for approval in Japan. It is a pivotal efficacy trial. AnGes is conducting additional trials in the U.S. based on a recently released data from the Phase II trial in the U.S. AnGes has already announced plans to advance to a Phase III trial in the U.S. next year.

Our other angiogenesis partner, Sanofi Aventis, released positive data from their Phase II PAD trial in Europe and the U.S. earlier this year. They expect to begin a pivotal Phase III trial in the fourth quarter of 2006.

Our collaboration with the Vaccine Research Center at the National Institutes of Health has four programs in human clinical trials fully funded by the NIH. Two of these programs, Ebola and West Nile virus, generated Phase I data already this year and the third, SARS, is expected to generate Phase I data by year-end. The Ebola vaccine was safe and well-tolerated and produced both antibody and T-cell responses in all healthy volunteers who received the full three doses. This remains the only human trial for an Ebola vaccine. This vaccine may be eligible for the part of the $350 million earmarked for Ebola under project BioShield.

The West Nile virus vaccine was safe and well-tolerated, producing neutralizing antibody utilizing early specific to West Nile in all volunteers who were tested after receiving full three doses. Data from our Phase I SARS vaccine trial are expected later this year.

The NIH also started a multinational Phase II HIV vaccine trial in October. We understand that enrollment of the plan, 480 healthy volunteers is going well and we look forward to seeing the data early next year.

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

(OPERATOR INSTRUCTIONS) Navdeep Jaikaria, Rodman & Renshaw.

Actually this is Sean Wu standing in for Navdeep. Congratulations on a great quarter this quarter. I have a couple questions. First can you provide some updates on the CMV trials in terms of patient enrollment and do you have any (indiscernible) how soon we can see some preliminary results? Or do we have to wait for the whole trial to conclude?

As we have told you before, that we expect to announce when we reach the 20 payer milestone. We're not there yet, but let me give you -- share a few observations on where we are with the CMV trial. We currently have eight sites open and we expect to have approximately twice that number open by the end of the year.

Second, you need to know we are dealing with transplant centers that do not have any significant vaccine experience. Vaccines are not a part of our normal transplant procedure. As a result, we have to engage in extensive education with site staff as well as the donors and the patients. You know transplant is a very complex procedure. This effort is clearly front-end loaded in the trial and it is very site-specific. So once we do that and we have that experience, then the recruitment at that site will obviously progress very well.

As site gains more experience with our vaccine, we should be able to enroll a higher percentage of screened patients. So really increasing the number of clinical sites coupled with increasing the experience at each site should allow us to meet our enrollment objectives.

Excellent. Maybe I'll just ask another question about the procedural thing about this pandemic flu stuff. You know, GSK has some nice results off of this (indiscernible) base. They have one component which is their adjuvant appears not have been approved. So will this be some problem for them to getting approval and also how this situation applies to your adjuvant?

Excellent question. First of all what GSK demonstrated and I'm telling you what I heard in the press release because I have not seen their actual published data is that with their adjuvant they were able to show antigen sparing capability with their H5N1 vaccine. Remember, that is only antigen sparing and as we know right now that the strains that are circulating in Southeast Asia are much different from the H5 strain on which the vaccine was developed. Antigen sparing and cross protection are two different things, so antigen sparing is good enough as long as you know what the exact strains are circulating. It does not provide any cross protection.

So our vaccine approach is based on cross protection. So we are a little bit of step ahead. As I said in my conference call script that we have the ability if we are successful to actually protect people even before knowing what the strain is.

Now the second part of your question is Vaxfectin. We are also conducting, and again, the internal research and hopefully funded in the future from NIH, to (technical difficulty) be antigen sparing capability of Vaxfectin for conventional vaccines such as the Glaxo vaccine or Sanofi-Aventis vaccine. We do not have data in hand but if we can prove the Vaxfectin as a adjuvant is antigen sparing, that gives another avenue for us in the influenza field.

Excellent. That is great.

(OPERATOR INSTRUCTIONS) George Fulop, Needham.

Thanks for taking my question and congratulations on the progress, especially the AnGes trial. Speaking of collaborations in general, can you go over the Corautus trial and the status of that and as you see it going forward, given the recent reports by Corautus on the collaboration?

We have not heard much other than what we have seen publicly announced by Corautus. As you know, they went on clinical hold. Subsequently I understand they announced that they may be able to get a clinical hold. So other than that, I don't have much to add other than the fact that they are also doing a study in PAD, which is the same indication that AnGes is working on and they are using their VEGF factor. So I don't have any update for you.

If you can go back also to the avian flu and the flu development program, can you comment on some of the next steps and milestones on the way to getting a Vical vaccine into man and what sort of timeframe are we thinking about now?

Okay, first of all as we have told you before that based on the data that we had on ferrets and mice we got accelerated access to the NIH funding to conduct a preclinical study, which are key to getting the vaccine into humans. We are actively engaged in getting those clinical, preclinical studies complete that we can get into humans as soon as possible. I am not today able to tell you exactly what that data is, but trust me, we're putting all efforts behind it.

Very good. Also there's been some recent data on some HIV vaccines and I know you have mentioned the trial is going well, etc. Can you give us some thoughts on some of the recent announcements of, say, the implications for some of the response we see to some of the HIV envelope and gag and other proteins in recent announcements by -- and the implications for you if any?

You know, I think it is an excellent question. First of all you need to understand that for all the major HIV clinical trials that are going on, DNA is a key component of almost 75% of the trials. I may be off by plus or minus 10% but you can do the math that tells you that DNAs ability to prime in HIV is absolutely amazing. So despite HIV being such a very hard target, DNA continues to be a key component. Most of the work that Gary Nabel has done in nonhuman primates and eventually it should translate into humans in the study that he is doing in Africa and the United States will show that a prime DNA in boosting in modality with its protein and other, we will give good -- and I'm projecting, I don't know the data yet, but I am projecting -- will show that the priming effect of DNA will indeed give the boost the right impetus to give the zero convergence that you are required to potentially lead to an effective HIV vaccine.

So DNA is a key component of all the HIV programs and everything that we have seen is heading in the right direction. (multiple speakers) to the target, yes.

Very good. Thank you.

(OPERATOR INSTRUCTIONS) Edward Tenthoff, Piper Jaffray.

Thank you very much. Can you hear me okay? Congratulations on all the progress. I'm looking forward to a pretty busy back half. I guess two quick questions. One just to kind of clarify with respect to the NIH delivery, did Jill say that the remainder of the $6 million would ship in the third quarter?

Jill, can you answer that please?

Yes, actually we expect to ship the remainder of it in the latter part of 2006, but we have not given guidance whether or not it is third or fourth quarter, but it will ship before the end of the year.

I'm sorry, then. I have to ask. What was the comment that you are making about $6 million with respect to the NIH then? Or maybe how some of it was being recognized?

For the shipments that occurred in the second quarter, we did not collect the cash. We will collect the cash in the third quarter.

I see.

It will be reflected on a cash balance. For P&L purposes we recognized the revenue but we did not receive the cash. The cash will be recognized in the third quarter cash balance.

I got you. Okay. Good. That's helpful. Shifting gears a little bit but kind of decorative sticking with the P&L, as you look at the AnGes collaboration, obviously we have to get the Phase III up and running and you went into some detail on that. But could you just revisit the timing and then also how the payment of the Phase III works and how that will be recognized?

First of all, let me talk about the operational aspects of (indiscernible), and I'll Jill talk that the financial aspects of it. Operationally they are going to fund this trial all the way up to the point of the data being unblinded, okay? Post the unblinding of the data, the BLA filing is our responsibility. The way they are funding the trial is a combination of cash and equity. It is approximately 50-50 -- correct me if I'm wrong. The number is about $24 million. If we go over $24 million, there is a mechanism for us to share the overrun of the cost. And the only thing that we do in this period is supply the actual clinical material. Okay? So that is the operational aspect of the trial. Now Jill, do you want to talk about -- he had a question on the P&L impact of that?

From a cash standpoint, this is a cash neutral deal. The amount of costs we expect to spend for the Phase III trial is equal to the amount that we expect to receive from funding. However as Vijay said, 50% is in equity and 50% give or take a few percentages is in cash. We do not provide detailed breakdowns of our forecasts and we do expect some spending for Allovectin-7 in 2006; however, we do not believe that it is going to be significant enough to cause a change in our forecasts for this year.

Got you. Great. That's very helpful. Thank you.

Leland Gershell, Cowen Company.

Earlier in the call you had mentioned briefly the HGF program with AnGes in angiogenesis. Just wondering what we might see more specifically in the coming year in that program?

All I can tell you is our partners tell us the trial is going well and I've said before on this call that the way the protocol has been designed, from what we understand is the trial is unblinded after every patient is evaluated. That way the people getting placebo can get it to attach a protocol. So as Alan mentioned or I mentioned, that the trial is almost close to about two weeks in recruitment so we are hoping the fact that they have real data on hand their hands that the trial must be going well, but I don't have any facts to that effect.

They have been pretty quiet in terms of predicting the timing because Daiichi is their formal partner. We should expect some update from terms of how the trial is going sometime in the fourth quarter of this year.

Okay, great. And you had mentioned plans for additional trials next year in '07?

Yes, they have announced that they will do the same PAD trial of a similar design in the United States for the U.S. market. This trial right now is very Japan's specific, agreed with the [Pessicio]. It is a pivotal efficacy trial in Japan. So they intend to start a Phase III trial in the United States next year.

Okay, great. Thanks very much.

Navdeep Jaikaria, Rodman & Renshaw.

A question to ask Jill. It is an easy question about financial treatment. You said that funding would be 50% cash, 50% equity. I suppose in this case for the 50% of equity you will still record as -- you would still have to record that component of (indiscernible) expense and it will go down to your net loss or net gain, right? In terms of the other 50 cash, are you going to record -- can I call it revenue and then net out from the R&D side or what?

With regard to the first question, with recording the equity, yes, that will be recorded as equity. A small portion may be recorded as revenue, but for the most part our expenses will reduce our -- or increase I should say our net loss. Your second part of the question for the cash payments, yes, we will recognize that as revenue; however, we do not intend on giving forecasts at this time for 2007 or future years.

All right, thank you very much.

(OPERATOR INSTRUCTIONS) If there are no questions at this time, I will now turn the conference back over to Mr. Samant.

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.

This does conclude today's conference call. You may disconnect at this time.