Brickell Biotech Inc (BBI) 2007 Q1 法說會逐字稿

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

Thanks, Tony. Hello, everyone. Welcome to our first quarter 2007 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 first quarter 2007 financial results. These forward-looking statements represent the Company's judgment as of today. 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, Allen, and welcome to all our participants. We had an exciting quarter with important news flow and on our call today we will provide an update on some of our key accomplishments in the last three months. But first before we do that I want Jill Church, our CFO, to give you a financial update.

Thanks, Vijay. Earlier today we reported a net loss of $9.6 million or $0.24 per share for the first quarter of 2007, compared with a net loss of $4.5 million or $0.16 per share for the first quarter of 2006. The increase in net loss reflects the higher spending levels associated with the advancement of our product development programs, as well as the expected decline of contract manufacture and grant revenue. Spending increased in our pandemic influenza vaccine program as we advanced through preclinical testing and began preparations for a Phase I trial. Spending also increased in our Allovectin-7 program as we advanced into a Phase III pivotal trial.

On the revenue side our contract manufacturing shipments to the NIH under a $12 million production order for HIV vaccines were largely completed in 2006 with one shipment remaining in 2007. The large Phase II trial for which these materials were ordered is expected to begin later this year. We ended the first quarter with $91 million in cash, and we confirmed our forecast this morning for a full-year net loss of $32 million to $35 million and a net cash burn of $27 million to $30 million.

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

Thank you, Jill. I will start this morning with a very important milestone for the Company, the second product approval for one of our licensees that was the conditional approval of Merial's canine melanoma vaccine provides further validation of our technology and a future source of revenues for Vical. It also marks a significant event for the industry as the first ever U.S. approval of a therapeutic cancer vaccine in any species. There has been no therapeutic vaccines approved so far. So this is a great accomplishment by our partner Merial, which is a joint venture between Sanofi and Merck.

Canine malignant melanoma is an aggressive form of cancer and is the most common tumor in dogs. The Merial vaccine is approved in treatment of dogs with Stage II or Stage III melanoma, the most common treatments for this form of cancer are radiation, surgery and chemotherapy. But historically they have not been very effective. Dogs with melanoma that has progressed to Stage III or IV typically have a lifespan of one to five months with conventional therapies.

Clinical studies of the Merial vaccine in dogs demonstrated significantly longer lifespan even in dogs with advanced stages of melanoma. In the clinical study the median survival is over one year. That is a damn good accomplishment. This unique therapeutic vaccine is expected to be premium priced in this market segment, so we believe it would be an important contributor to Vical's future revenues. Currently the most expensive product in the animal health segment is about $500 per treatment. We hope that the pricing is better than that, and you should await Merial's announcement to that effect in the near future.

Allovectin-7. We also believe the approval of the canine melanoma vaccine bodes well for our Phase III human melanoma program with Allovectin-7, which is also an immunotherapeutic. At the beginning of the year we announced the initiation of our Phase III pivotal trial for Allovectin-7 in chemo naive patients with metastatic melanoma. The AIMM Trial is being underwritten through a combination of cash payments and equity investments under a collaborative agreement with AnGes MG. I am pleased to report that we are progressing according to plan in this pivotal Phase III trial, both with clinical sites and with patients. We now have more than 20 sites initiated and are actively pursuing initiation of another 20 sites across the United States and Canada by year end. Which was our original plan.

To speed our trial completion we are also exploring possible sites in Europe and Australia for up to a total of 50 sites in the key melanoma markets worldwide. We are encouraged by the progress to date, and we hope by the time our next quarterly call we will be able to provide you meaningful update in terms of the outlook for enrollment and trial completion.

CMV. Next I will provide an update on our CMV vaccine development program. We discussed at length in our last call the enrollment challenges in our Phase II trial in hematopoietic stem cell transplant patients, along with the measures we have taken to address those challenges. We undertook an extensive education initiative for our investigator site staff prospective trial participants and the trial participants are the hardest ones because vaccine intervention is not very common in this population, in this patient segment.

First, we amended our protocol to better align our donor vaccination schedule with the normal stem cell transplant procedures. Second, we amended our protocol to allow matching of donors and recipients on five out of six genetic factors rather than the perfect six to six match originally required. I am pleased to report that we have begun implementing a third amendment that we believe will provide a greater impact on enrollment rates. This latest amendment allows vaccination of recipients only in stem cell transplants from unrelated donors. Now this represents about half of the transplants that occur in the United States.

This expansion will open our trial to a much larger pool of patients. The amendment will introduce a new arm to the trial, enrolling up to 80 additional patients in this recipient only arm. The flexibility to enroll patients into either the donor recipient arm or the recipient only arm should provide a significant acceleration in enrollment at sites that allow the amendment. Right now only one site has adopted the third amendment, so we should have in the next three months almost of our 10 sites accepting this amendment.

This new group also could suggest the potential effectiveness of the vaccine in solid organ transplants, in which donors typically could not be vaccinated. We hope to see the benefit of these measures through increasing enrollments as the amendments are fully implemented across our network of trial sites.

The next item is at Vaxfectin, which is an important value driver among Vical's several technologies. In our pandemic influenza program we remain on track to begin a human trial in the second half of 2007. As we have told you before, that in ferret challenged studies we protected ferrets with one single injection when they were subjected to a 100 times lethal dose 50 of the Vietnam strain, and that is probably the best data that has been out there. An important component of our pandemic flu vaccine is the patented adjuvant Vaxfectin which was developed specifically to increase the efficacy of DNA vaccines.

However, can equally be used in protein vaccines. In mouse studies last year we demonstrated that Vaxfectin also offers dose-sparing potential with conventional flu vaccine. A recently completed follow on study showed up to 64 higher antibody responses with Vaxfectin formulated conventional flu vaccine than with unformulated vaccine, and allowed a nearly tenfold reduction vaccine dose. And I think we used the Sanofi seasonal influenza vaccine from this year to conduct the study.

The use of Vaxfectin, the stockpile pandemic influenza vaccine could help extend the supplies to compensate for any vaccine shortages, and I remind you that we are currently exploring the opportunity to test Vaxfectin with an existing H5N1 subunit vaccine that is being stockpiled.

During the first quarter we announced an agreement with U.S. Navy to explore the use of Vaxfectin with experimental DNA vaccines against malaria. If successful these studies could add to the growing body of data showing that Vaxfectin's broad applicability across a range of vaccine targets in a variety of animal models from ice to nonhuman primates will continue to encourage others to use Vaxfectin with vaccines that could benefit from either increased efficacy or dose-sparing. Just a reminder, the only approved adjuvant in the United States to my knowledge is alum. So far there is a lot of room to bring new adjuvants in the marketplace.

And finally, the most exciting news is in the field of angiogenesis from our partner, AnGes who announced that enrollment in the Japanese Phase III angiogenesis trial -- this is a pivotal trial in Japan -- has reached the number needed for a preliminary evaluation of efficacy. The trial was originally designed to enroll 120 patients with a two-to-one randomization to treatment versus placebo. The interim analysis, the number of patients in the interim analysis has not been disclosed, is based on those patients who have already completed the trial. And we understand from them that if those results are positive AnGes may be able to proceed to directly file an NDA in Japan. Hopefully that will occur this year since the interim analysis started early this year.

An important aspect of this trial is that each patient is unblinded as they complete their treatment follow-up. That unblinding is done to allow patients who had received placebo to gain access to the treatment. The decision to conduct the preliminary evaluation of efficacy therefore was made with good insights into the likely trial results. We don't know the results, so this is a mere speculation on our part. But we believe our Japanese partners are very savvy. We believe that this is one of the most advanced angiogenesis programs in the world, giving the AnGes product the potential to be the first using Vical's technology to receive marketing approval in Japan. And the first in the world potentially to receive marketing approval for use in humans.

Our other angiogenesis partner is Sanofi-Aventis who also provided an update in their program during the first quarter. They plan to initiate a Phase III trial in the second quarter of 2007, with the projected BLA filing date of 2009-2010. Their Phase III trial is designed for approval in the United States and Europe, primarily. It is designed to enroll approximately 500 patients with Critical Limb Ischemia, an advanced stage of PAD that often results in amputation. The randomized double-blind placebo-controlled trial will be conducted in up to 30 countries worldwide. The primary endpoint will be the reduction of amputations over the twelve-month follow-up period. It is a very exciting development that these two programs really moved forward very rapidly in the last 12 months.

Conclusion. In our news release this morning we listed some of our upcoming conferences at which we will be presenting important data from some of our ongoing research and development programs. I encourage you to watch for announcements around those events to monitor our continued scientific progress. In summary, we had a terrific quarter for advancement in our independent clinical and preclinical development programs. And exciting progress in some of our partnered programs.

Just to summarize, the conditional approval of Merial's canine melanoma vaccine, the initiation of Allovectin-7 Phase III pivotal trial that is the only trial under SPA where response rate is the endpoint; survival is not the endpoint. So the response rate is really a surrogate mark of survival. The decision by AnGes to conduct an interim evaluation of efficacy in the world's leading angiogenesis trial. This is being conducted in Japan. The announcement of definite plans by Sanofi-Aventis again to take our technology in a Phase III registration trial again in the field of angiogenesis.

The expansion of data of our patented Vaxfectin adjuvant and the U.S. Navy's plans to explore its use for malaria. And finally our plans to release new data to see at the upcoming scientific conferences. We look forward to continued progress for the remainder of the second quarter and beyond second half of the year. That concludes our prepared. Operator, we are now ready to open call for questions from our invited participants.

(OPERATOR INSTRUCTIONS) Alan Carr, Needham.

Thanks for taking my question. So I see that the angiogenesis programs are moving quite well along, and I wondered if you could tell us how we should think about milestones and royalty payments for these.

You know, as we have told people in the past in both those programs we stand to collect mid single digit royalties, and there are specific milestones in case one of the partnerships which are without getting into very specifics, what the quantities are, such as filing of BLA, approval of the BLA in Japan, approval of BLA in other country, approval of BLA in Europe. The bottom line is it is a big market in several billions of dollars. And if the royalty is going to be the driver in revenue as opposed to milestone payments which will be short-term gain for us.

And regarding the CMV program you think the changes that you made in enrollment earlier this year and late last year, have they had an impact, and where does enrollment stand on that?

Excellent question. I think the answer is yes, there is always a lag by the time you make the amendment and you are to go to [IRPs] and get those. So most of these amendments are becoming effective right now. We are seeing an update; hopefully by next quarter we can tell you, give you a more positive update on where the enrollment is. But we are not at the 20 patient safety review yet.

Not at 20 patients yet. Okay. Thanks very much.

Leland Gershell, Cowen & Company. (inaudible)

(OPERATOR INSTRUCTIONS) Shenji Wu, Rodman & Renshaw.

Congratulations on the great progress you have made. I have a couple questions. First one regarding your 2020 interim look. Now you have nine more patients only from the recipient side. So do you have anything planned for any kind of interim look for (inaudible). And also when do we expect to see some results from your 2020 preliminary analysis?

I think with all these amendments that we have put in place and most of them as I told you the last amendment just became effective only in one site. So these amendments take their (inaudible) in play. Particularly in the recipient arm alone we should get 50% more patients. We should pick up enrollment and hopefully we should give you an update sometime by the end of this year in terms of how the enrollment is going. Hopefully -- we haven't decided what our interim -- we haven't publicize what our interim analysis looks are. But if we achieve those milestones obviously we would be able to even share some interim data with you. But I can't commit to you today until I get a good handle on how the enrollment is going to go in the next two months.

So you are still into enroll the same amount of patients?

Yes, I think right now that is the plan.

I have another question for Jill regarding financial guidance. This year you're going to make a loss of $30 million to $35 million; the first quarter you already have close to 10. So are we expected to see lower operating expense going forward, or higher revenue? How to make numbers to be in line with your guidance?

We don't give specific guidance on revenues and expenses that -- historically if you look back over our quarters it has been cyclical. Mostly from the timing of revenue recognition.

So you will have some more revenue in the second quarter in the second half when you deliver the second batch for the larger trial?

Correct.

Okay. Thanks.

(OPERATOR INSTRUCTIONS) May-Kin Ho, Goldman Sachs.

I have two questions. One is on the canine vaccine by Merial. They have a conditional approval. What are the conditions?

I will give you the conditions in a minute. Alan, do you have those there?

Yes, the conditional approval means there are some time limitations and some marketing restrictions. For example, they are not allowed to name the product at this time. It is the one year conditional approval. That means within a year they have to collect enough additional data so that they can either file for an extension of that conditional approval or go for full approval. Just depends on how much data they collect.

So can they actually promote us?

In a somewhat limited fashion. They can make it available, but it is not -- without a product name, it is pretty tough to do a full promotion.

However, the word-to-mouth in this business segment is pretty hot and fast. We were inundated with calls; people asking us for product here. So I am sure with their press release and the fact that the U.S. Department of Agriculture put out a press release and our press release, there is a lot of awareness. The Animal Planet had a segment on them recently describing the success of this vaccine. The original research work done at Sloan-Kettering in New York which has put out a press release. So there is a lot of buzz in the pet market field.

So people are aware of it, so patients -- not patients -- individuals who have pets with canine melanoma are looking forward to getting this treatment, and they will get access to this treatment. So yes, it will be less effective without the product's name, but I do not think that should hold them back. I feel pretty confident that they will gather the data to submit in a year's time to get a full approval.

I think the key here is that vets are going to be the mechanism, especially oncology vets are going to be the mechanism by which this is distributed. And it is going to be full demand from consumers. There is nothing else out there that works for this patient population.

So you said that they need to collect more data in the next year. So what kind of data do they have right now and how should physicians or vets use this? What is the basis in terms of the dosing, etc.?

There is specific dosing guidance; I think there are two sets of injections. I don't know off-hand.

They actually haven't launched this product (multiple speakers) yet, but there is a label like with any other drug.

There will be an interim label available. There will be specific guidances giving to the vets in terms of -- and from my understanding is the largest component of the database would be safety [okay] in terms of field experience.

And the second question is a little bit more micro one. It seems like we are hearing more about people using electroporation for DNA vaccines. How would that compare to your approach, number one? And number two, are there any patent issues for people who are doing that? I know you guys have been working in this area for a long time.

The answer is actually we have licensed electroporation for a long time ago and we have several targets that we have under license which are not even publicized, and we have actually a trial going on right now with an [eye] to an electroporation. We should simply electroporation does give better expression in protein therapeutics. It remains to be seen, its long-term value in infectious diseases. But the tolerability is also a very big issue. And people may use electroporation to divide, but if they are going to use with DNA we absolutely believe that they require our intellectual property.

People are also using DNA with a needle free injection device such as BioJect to be in a license that ourselves. So we have rights bought for the needle free devices as well as electroporation devices. But you know, people are at exploratory stage. To give a good example, Merck's HER-2 trial that they are doing is being done with electroporation and DA. And Merck has taken a license from us and also got a license for electroporation.

So you are saying that people who are using electroporation of naked DNA has to get a license from you?

A good example Merck has taken one. The HER-2 new trial that is going on in breast cancer patients with an electroporation trial where they have taken a license from us, and they have taken a license for electroporation.

Right, what I am trying to say is that Merck's license is twofold, right? One is on the DNA and the other is on electroporation; I am trying to separate the two. For people doing electroporation, do they need a license from you?

No, Merck's license, when they did went into the HER-2 program; that is the only program they are doing. They are doing an electroporation DNA program. They are not doing a DNA alone HER-2 program.

Right.

So anybody who's doing electroporation with DNA has to eventually take a license from us.

With DNA, yes.

With DNA whether it is naked or formulated.

Okay, all right. Thank you.

Leland Gershell, Cowen & Company.

Good afternoon. I wanted to ask about your anthrax vaccine program, if there are any initiatives from government sources that might help that program move forward.

Excellent question, Leland. That's program is steady, it is packaged. As you know there was an RSP the government had put out known as the third generation vaccine which was withdrawn. So there is no active effort on part of the government to go after a next generation vaccine. I think with all the euphoria for anthrax I think my sense is at this point in time they are going to rely on treatment with antibiotics and a kind of get there, (inaudible) legislation in place, working smoothly before they put out another RFP for anthrax. But if and when they do put one, we are obviously a serious contender.

Great. Thanks very much for taking the question.

(OPERATOR INSTRUCTIONS) Shenji Wu, Rodman & Renshaw.

I have a follow-up question on your talk of myeloma. I now like it is very nice you have this condition approval and you are using both (inaudible) for the success of Allovectin-7 in humans. So forgive my ignorance. What is the chemical nature of the immunotherapy being used in dogs?

They are using human tyrosinase genes, so it is xenogenic response.

Okay. Thanks.

We are standing by with no further questions at this time. I would like to turn the conference back to Mr. Vijay Samant for any closing comments.

I think thank you very much for joining us on this call. We look forward to seeing you in the near future. Thank you.

This does conclude today's conference. We do thank you for your participation. You may disconnect at this time.