Brickell Biotech Inc (BBI) 2006 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 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, Executive Director of Investor Relations. Please go ahead, sir.

Hello and welcome to our fourth-quarter and full-year 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 specific risks and uncertainties noted in Vical's news release on 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, and welcome to all our participants. In our call today, we will review recent events and provide an update in some of our key product development programs. We will begin with a review of our financial results for 2006 by Jill Church, our CFO. Jill?

Thank you, Vijay. Good morning. Earlier today we reported revenues of [$4.7 million for 2006], compared with [$12 million in 2005]. The increase in revenues was a result of shipments to the NIH under a $12 million production order for HIV vaccines in support of a large Phase II trial expected to begin in 2007. We have one additional shipment under the production order which we expect to complete in 2007.

Our net loss for 2006 was $23.1 million or $0.74 per share compared with $24.4 million or $0.99 per share in 2005. The reported net loss for 2006 included $1.8 million for non-cash stock-based compensation expense and was in line with the low end of our projected net loss range.

I would like to take a few minutes here and look at our -- spend some time on our outlook for 2007. We expect our net loss for the year on an as reported basis including non-cash stock-based compensation expense to be between $32 million and $35 million and our net cash burn for the year to be between $27 million and $30 million. The projected net loss range is somewhat higher than our typical net loss range over the last few years primarily because of our advancement of products through the clinical development process.

We now have an active Phase III trial with Allovectin-7, an active Phase II trial with our CMV vaccine, and an active Phase I trial with gene based IL-2 and electroporation. We are also on track to start a Phase I trial this year with our pandemic flu vaccine. Expenses for these clinical trials represents a majority of additional spending in 2007.

Our net cash burn typically has been several million dollars lower than our net loss each year. For example in 2006, the net cash burn excluding cash raised from sales of equity was approximately $21 million compared with a $23 million loss. For 2007 we are projecting a net cash burn of between $27 million and $30 million compared with a projected net loss of $32 million to $35 million. And therefore our net cash burn for 2007 is expected to be approximately $5 million lower than our projected net loss in part due to the cash portion of AnGes funding of our Allovectin-7 Phase III trial.

Remember, we ended the year with approximately $100 million in cash, cash equivalents, and marketable securities, up from $70 million at the end of September largely as a result of two registered direct offerings which we reviewed during our last conference call. Given our expected level of cash burn, we have sufficient cash balances for operations through the next few years.

I will now turn the call back to Vijay, who will provide an update on our development program.

Thank you, Jill. I'll start this morning with one of our key collaborative programs. We are pleased to learn from our partner AnGes MG, that enrollment in the Japanese Phase III angiogenesis trial has reached the number needed for a preliminary evaluation of efficacy. The data and analysis will be available in the future. While the trial will continue to enroll and treat additional patients, if the results of the present interim analysis is positive, AnGes hopes that it might be able to file an NDA in Japan based on this interim data. I think this is a very important development.

As a reminder, the Phase III trial involves injections of plasma DNA into legs of patients with advanced PAD or peripheral arterial diseases. These patients suffer from blockage of blood vessels to the lower legs, often resulting in gangrene and amputation. The injected DNA includes the proprietary growth factor called hepatocyte growth factor or HGF, which promotes the growth of new blood vessels around the area of blockage to restore blood flows to the legs.

AnGes has also completed a Phase II trial for PAD in the United States, as well as a Phase I trial for ischemic heart disease. We believe that this is the most advanced angiogenesis program in the world and AnGes has enlisted the support of a significant marketing partner, Daiichi Sankyo, a leading Japanese pharmaceutical company. This product has the potential to be the first using Vical's technology to receive marketing approval in Japan and potentially the first in the world for use in humans.

Our other angiogenesis partner, Sanofi-Aventis, recently provided details of their planned Phase III trial in up to 32 countries worldwide in approximately 500 patients with critical limb ischemia, an advanced stage of PAD that often results in amputation. It will be a randomized double-blind placebo-controlled study. The reduction of amputations over a twelve-month follow-up period will be the prior primary end point in this study.

Sanofi-Aventis has noted in their analyst day that the annual burden of amputations in the U.S. alone was $10 billion. Data from their Phase IIb trial supported their goal of reducing amputations by 30%, which would provide a major impact with this patient population. They plan to initiate a Phase III trial in the second quarter of 2007 with the projected BLA filing date of 2009/2010. This is from their analyst day.

Next, Allovectin-7. Allovectin-7 is our lead program in melanoma. We announced in early January the initiation of our Phase III pivotal trial of Allovectin-7 as a first-line therapy in chemo naive patients with metastatic melanoma. We have given this trial the acronym AIMM, which stands for Allovectin-7 immunotherapeutic for metastatic melanoma. The AIMM trial will be conducted up to 50 clinical sites in the United States. We have more than 10 sites open already and another 20 sites actively advancing toward initiation.

The AIMM trial was designed with advice from clinical experts and guidance from the FDA received through the special protocol assessment process to provide the primary basis to support a product license application. It calls for enrollment of 375 patients with recurrent metastatic melanoma who have not been previously treated with chemotherapy. The patients would be randomized on a two-to-one basis with 250 patients to be treated with Allovectin-7 and 125 patients to be treated with either dacarbazine or TMZ.

The primary end point is a comparison of objective response rate at six months or more after randomization. We believe this end point will highlight the durable nature of responses to immunotherapy which provide a real benefit to patients. This end point also will allow us to complete the trial without having to wait for long-term survival data. The full estimated cost of AIMM trial is being underwritten through a combination of cash payments and equity investments by our Japanese partner, AnGes MG. AnGes will have commercialization rights in selected Asian countries and Vical will retain full rights in the U.S. and the rest of the world.

Allovectin-7 has been granted an orphan drug designation for metastatic melanoma by the FDA because of the pressing need for a new treatment option. No new first-line therapies for metastatic melanoma have been approved in nearly 15 years. We believe Allovectin-7 may help address this dire need. Enrolling patients into the AIMM trial is one of our top priorities.

CMV. Next I will provide an update on our CMV vaccine development program. Our initial Phase II trial is being conducted in match related pair of donors and recipients in stem cell transplant. Patients undergoing this procedure are treated with immunosuppressive drugs to prevent graph rejection. The suppression of the immune system frequently allows latent CMV to reactivate, causing serious medical complications during the recovery period. Our vaccine is intended to reduce or eliminate the need for antiviral drugs to control CMV during this period.

As we have noted in our prior calls, enrollment in this trial has been progressing more slowly than originally expected. We have made good progress in implementing a series of changes designed to increase the enrollment. These changes were a result of ongoing communications with the sites conducting the trial and with CMV and transplant experts and were focused on overcoming the major challenges to enrollment. I will outline some of these challenges and the changes we have implemented.

First, we determined that transplant centers have detailed procedures designed to ensure best outcomes for patients. Vaccines are not a normal part of these procedures and have therefore been met with some reluctance on the part of patients and doctors. To counter this bias, we have undertaken an extensive program to educate site staff as well as stem cell donors and recipients about CMV disease and the potential benefits of a vaccine.

Next, we addressed an issue that was causing unnecessary inconvenience for stem cell transplant donors. While the donors and recipients in our trials are related, they often live in different areas so the donors must travel to the transplant site. We amended our protocol to better align our donor vaccination schedule with normal stem cell transplant procedures. By compressing our vaccination schedule, we are able to eliminate additional trips for the donor. This step alone makes the trial much more attractive especially for donors from distant parts of a country.

Next we looked at our enrollment criteria to focus on expanding the eligible trial population. Our original criteria called for a perfect match of six out of six genetic factors. The idea was to select donor/recipient pairs with the greatest chance for successful transplant. Our second amendment adjusted the trial protocol to allow matching on five out of six factors, which still maintains a high likelihood of success in transplant but the result is expansion of the eligible pool of donor/recipient pairs.

These three activities have now been implemented at the majority of our clinical sites and we have over a dozen clinical sites now up and running. We will be monitoring more closely the impact on enrollment. Based on the recommendation from our expert panel, we are also considering additional changes to the trial protocol including vaccination of recipients only in stem cell transplant patients from unrelated donors. Remember, this trial we are using only related donors. This will be recipients only and unrelated donors.

This expansion will open a much larger pool of patients and could serve as an indicator of potential effectiveness of the vaccine in sole organ transplants, in which donors typically are not related to recipients. We'll be monitoring the trial progress closely under the amendments recently put in place while exploring this new additional option that I just mentioned to expand our patient pool and further expedite enrollment.

The primary objective of the stem cell transplant trial is to demonstrate proof of concept for our CMV vaccine. We believe that successful completion of the trial will open the door to safety and efficacy testing in a much larger market for preventing congenital CMV disease.

Influenza. Next I will provide a status and an update on this program. As a reminder, our lead flu vaccine candidate include three genes. Two of those encode highly conserved proteins that do not change significantly from strain to strain, making them ideal targets for a universal influenza vaccine. The third gene encodes the H5 surface protein, which is the key glycoprotein of the circulating avian flu strains. Our vaccine is intended to provide underlying protection against severe disease and death from (indiscernible) and other flu strains that may arise unexpectedly in pandemic form.

We believe our vaccine may offer a level of protection they cannot be achieved with conventional vaccines. Our long-term goals for this program are both to provide a potential defense against a pandemic outbreak and to explore the potential for a seasonal flu vaccine using a similar approach.

We reported results from a series of animal tests last year and I want to summarize those because they are very critical as you look at some of the competitor programs that are going on. Two injections from our three gene flu vaccine provided 100% protection in mice and ferrets against a lethal challenge with a highly pathogenic Vietnam strain or H5N1 avian influenza virus. In a follow-on experiment, a single dose of our three gene vaccine provided 100% protection in ferrets against the same Vietnam strain or the H5N1 avian influenza virus.

In a separate experiment, the two gene version of our vaccine encoding only the conserved proteins provided high levels of protection in mice against lethal challenge with three widely divergent strains of influenza, the H1H3 circulating human flu strains and the H5 avian flu strain. A pandemic vaccine flu is formulated with our patented adjuvant Vaxfectin which was developed specifically to increase the efficacy of DNA vaccine. In mouse studies last year, we demonstrated that Vaxfectin also offers dose sparing potential with conventional flu vaccine and I think we used the Sanofi vaccine to demonstrate that, the conventional seasonal Sanofi vaccine.

To date, our advancement of our pandemic flu program has been largely supported by funding under a $3 million NIH plan. That funding is expected to carry us through the IND filing for a Phase I clinical trial. We continue to pursue additional dormant funding for this important program, but with the capital raised last year through a series of registered direct offerings we have sufficient funds to conduct an initial human trial. We are advancing toward that goal as quickly as possible and expect to begin a Phase I study in the second half of 2007, assuming everything goes well in our discussions with the FDA.

For 2007, I would like to highlight some of the potential things that are coming up. Our angiogenesis partner, AnGes MG, should announce results from their preliminary analysis or the interim analysis that I mentioned earlier for PAD patients already enrolled in their Phase III trial. And as I mentioned before, if that interim analysis looks positive, it is an opportunity for filing and approval in Japan, so we have our fingers crossed on that front. So we will give you an update as soon as we hear from them.

On our other angiogenesis partner, Sanofi-Aventis, is expected to begin a Phase III trial in the second quarter of 2007 in approximately 500 patients in PAD who are potentially facing amputations.

Another milestone among our collaborative programs is the pending USDA approval for Merial, our partner in the animal health sector for a therapeutic DNA vaccine designed to treat melanoma in dogs, the timing of the approval of course can only be determined by the USDA, but we are not aware of any outstanding issues that could cause any further delays.

From the NIH we should see data from our DNA vaccine clinical trials for HIV and SARS. In our independent development programs we are focused on enrollments for metastatic melanoma and increasing enrollment on our CMV Phase II trial. Finally we are working aggressively toward initiation of our Phase I trial for a pandemic influenza vaccine later this year.

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

(OPERATOR INSTRUCTIONS) Edward Tenthoff, Piper Jaffray.

Thank you very much and congrats on all the progress in 2006 looking for a fun and exciting '07. Real quickly, first on the AnGes, it definitely looks like the timeframe is accelerating there a little bit. Can you just remind us what the economics are for Vical for the PAD HGF vaccine?

As we have said publicly before, these are mid single digit royalties and milestones for us, whether it is in United States or Japan. Initially the application is going to be in Japan, so we are pretty excited. The fact that they're doing an interim analysis is a very positive note. Now they had put a press release out in Japan and there is an English translation that's available, which is hard to figure out. So what I've told you is the feedback that we got from our partners. So I think whatever the speculation was on that Japanese press release has now been officially translated here for our investors and our shareholders here today.

Okay great. Secondly and then I'll hop back in. With the Allovectin-7 program, what is your goal for enrollment there and when do you think we could see Phase III data from that?

I think it is a terrific question. As I told you, we have about 10 sites up. We should be in about three to six months give you a better idea of how the enrollment is going, how the centers are responding, what the competitive trials that are going on. But our focus right now is to focus the trial in the United States alone. So at this stage I'm not willing to give -- but we want to get it done as soon as possible. That is the goal.

All right.

George Fulop, Needham Investments.

It is actually Alan Carr calling in for George. I have a couple of questions. One of them is on the flu program. Do you have any more detail on I guess the design of this trial that you are going to be starting in the second half of the year? Are you going to be testing single injection, that sort of thing?

No, this is going to be more than single injection. I think we have not actually described the protocol in detail, but it will give more than single injection. We will be testing a single plasmid H5 on its own or we will be also testing the trivalent to see the value added of the other two genes. All those will be -- all those constructs will be formulated in Vaxfectin, but more than a single injection.

Okay, how about -- can you give us an update on the HIV program? How are your Phase II trials coming along? And when do you think you'll get around to the Phase III?

The Phase II trial, just to kind of give you an update, the Phase II trial that was recruiting in two countries in Africa and the United States has completed its recruitment. I think the recruitment closed at about 550 patients. Don't quote me on that plus or minus a few patients here or there. And we should expect data sometime in the first quarter at an appropriate conference. This is going to be continuing of the data that you saw at the Amsterdam conference. We are pretty excited.

Now the stuff that we are making for them or the material that we're making for them is for a much larger double-blind and efficacy study known as the PAV study, PAV. You can go to the NIH website and look at the design of that study and that really is a proof of concept and an efficacy study which would be going in high-risk HIV individuals where one of the partners is HIV-positive and the other is HIV negative to see the protection that this preventive vaccine offers. And that trial the last that we heard from NIH is expected to start sometime later this year. Am I right, Alan?

Yes, that's right.

All right, thanks very much.

Eric Schmidt, Cowen & Co.

Jill, I was hoping you could help me on the revenue recognition from AnGes regarding the AIMM Allovectin pivotal trial in melanoma and why is -- I guess we're led to believe that they're paying for the costs but the timing of the recognition might lead to an increase in your net burn for '07. Is that correct?

The timing of the recognition would not necessarily change the cash burn. It would change our net loss. We expect to receive monies next year. If the timing of the cash receipt occurs in 2008 instead of 2007, that could change the cash burn.

Maybe you could talk about why you're not being reimbursed as costs are accrued? I would have guessed it would be a more steady sort of quarterly reimbursement.

We have not given exact guidance on exactly how we are reimbursed, but we are reimbursed ahead of our spending.

Okay.

We do get the cash before we have actually incurred the expenses.

I think the bottom line, Eric, is without getting into the details of the agreement, they give us monies in advance of the expense, but we have to spend the money before the year's -- the next allotment. And since we have not spent the first allotment that they have given yet, they have not given us this next allotment. That is how it is going to work.

Okay, so it is true, Vijay, that they are paying 100% of the trial costs (multiple speakers) -- start to finish?

Absolutely, the only thing that we are paying is the manufacturing, the goods, the clinical supplies which we already made, as we said in a prior call.

Okay, on the CMV study, you mentioned that you had 12 centers up and running. Does that mean that the centers are open for business or the 12 centers have accrued at least one patient?

No, I think 12 centers are at various stages. I mentioned a series of amendments without getting into details, not all the amendments have been fully implemented at all the centers. In some of the centers that we opened, we are not really doing a lot of recruitment because some of those centers actually do a T cell depletion of the -- and the T cell depletion is countered to vaccination of donors. So of the actual 12 centers open, not all of them are effectively recruiting patients.

Is there any kind of update there on when -- I think we're looking for the first safety update on the first 20 out of 80 enrolled patient centers.

All I can tell you is we are not at 20. Our goal is to get there as soon as possible.

Do you think we might see that safety update in 2007?

In 2007? I hope so, absolutely. That is the goal, sooner than -- the answer to that question is yes.

The safety readout from those first 20 as well?

Absolutely.

Great, thank you very much.

Navdeep Jaikaria, Rodman & Renshaw.

Vijay, congratulations on a great year and I'm certainly looking forward to another good year from you. I have a question on your melanoma trial with IL-2. As I understand you initiated it some time last year, right?

Yes, correct.

(multiple speakers) So what is the enrollment kind of status and when do we expect to see something from this trial?

I think it was a dose escalation study. The trial is recruiting slowly since our focus has been primarily in terms of the AIMM trial and there is a slight overlap in both those trials. Remember, this was an investigative trial to evaluate the use of the electroporation device. I can tell you the trial is well past its 50% enrollment point. We should hopefully have some data for you by the end of the year assuming everything goes well in terms of recruitment progress that we're making in the trial.

But in terms of the tolerability of the device, we have garnered some valuable data. The device has been well tolerated. No patient treatment was discontinued because of any ill effects of the device. So I think really the goal of this trial was to evaluate electroporation in a cancer setting and if you are successful in this setting with IL-2 we then have other applications that we can think of in the future.

Okay, so this trial does not compete with your other Allovectin-7 trial, right?

Correct, the reason is because this trial focuses on chemo refractory patients where Allovectin 7 is going in chemo naive patients.

Thank you very much.

May-Kin Ho, Goldman Sachs.

Most of my questions have been answered, but can you tell us a little bit more on why the enrollment in dog product was delayed?

All I can tell you is all the data that we understand from the partner has been submitted. It is caught up in the normal Q&A discussions. Last-minute questions, the first kind of gene based therapy approved in dogs and this is going to be given for dogs -- lesions have been resected so the USDA wants be careful because this is really for companion animals. So this is just being a gene therapy kind of product the USDA is being more conscientious in terms of looking at the data. We have not heard of anything from our partner that is a show stopper at this stage.

Then for the CMV study, Phase II study, have the modifications been approved by the FDA?

All the modifications that I mentioned, amendments have been approved. The one that we have not talked about is the recipients only, which we are going to be in discussions with the FDA. So for example the fact that we had gone to an accelerated schedule to match the transplant settings, that has been approved, the move from six to six match to five to six match has been approved by the FDA.

And will the changes in this match meaning five out of six change the power to detect efficacy?

No, we do not believe so. By the way, those changes were implemented recently, so really the potential out -- the efficacy or the effect of those changes on recruitment is yet to be valued, so we are looking at this very optimistically. So we should have some good update for you in the next three months on this.

Thank you.

(OPERATOR INSTRUCTIONS) Edward Tenthoff, Piper Jaffray.

Vijay, I'm sorry to go back and cover some ground but I didn't fully understand the comments in question. On the IL-2 program, can you give us a status update there?

The IL-2 program which was an investigational trial where we were trying to evaluate the use of the electroporation device is recruiting at four centers, so we have not gone into a large number of centers spending a lot of money. That is why the recruitment has been slow. These four centers, they are also recruiting the AIMM trial. Our effort is right now on the Allovectin-7 trial. Hopefully we should have all the recruitment complete and have the data on this trial by the end of the year. Right now as I mentioned before, the device in these chemo refractory patients has been well tolerated.

The electroporation device?

Yes.

And then quickly, is -- with the Merck program, can you give us an update there and are they using electroporation as well?

Yes, to our knowledge they are using electroporation, the same, a very similar device, an electrode in their HER-2 CEA program and we expect some data from it in the second half of this year. That trial is recruiting in U.S. and Italy.

Great, thank you.

It appears we have no further questions at this time. I'd like to turn the call back to Mr. Samant for any additional of closing remarks.

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

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