Avid Bioservices Inc (CDMO) 2008 Q2 法說會逐字稿

Hello and welcome to the Peregrine Pharmaceuticals second quarter 2008 financial results conference call. There will be an opportunity for you to ask questions at the end of today's presentation. (OPERATOR INSTRUCTIONS) I would like to turn the call over to Barbara Lindhime. Miss Lindhime

Good morning and thank you for joining us on today's call with the management of Peregrine Pharmaceuticals. We're here today with Steven King, President and Chief Executive Officer, and Paul Lytle, Chief Financial Officer of Peregrine, to discuss the company's results for second quarter of fiscal year 2008, reported this morning. Before I turn the call over to Steve, I would like to read the cautionary note regarding forward-looking statements.

This conference call may included statements that are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect Peregrine pharmaceutical's current views about future events and financial performance. These forward-looking statements are identified by the use of terms and phrases such as believes, expects, plans, anticipates, on target, and similar expressions identifying forward-looking statements. These factors include, but are not limited to, the risk factors detailed from time to time in Peregrine Pharmaceuticals filings with the Securities and Exchange Commission including but not limited to the annual report on form 10-K for the year ended April 30th, 2007.

Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from Peregrine Pharmaceuticals' expectations and Peregrine Pharmaceuticals expressly does not undertake any duty to update forward-looking statements whether as a result of new information, future events, or otherwise. I'd like now to turn the call over to Steven King. Steve, you may begin.

Thank you, Barbara, and everyone, for joining us today for our second quarter conference call. I would first like to highlight some of the key accomplishments since the last conference call. Paul will then go over the financial highlights for the quarter, and I will conclude with a status update of our product development efforts in greater detail.

In the second quarter we have continued to advance a number of programs that are strategic priorities for the company. We believe these advancements have set the stage for significant progress in 2008. Specifically, we have continued to advance each of our three clinical programs. First, we initiated patient enrollment in dosing in a Phase II trial of Cotara in patients with glioblastoma. Secondly, we began dosing patients in a Phase I trial of bavituximab in patients co-infected with HCV and HIV at St. Michael's hospital in Newark. In addition we recently added the prestigious AIDS clinical unit at the Johns Hopkins Medical Center and a third site just down the road from us in Newport Beach, California, for the trial. We believe these three sites will be adequate to enroll the trial in a timely fashion.

Third, in our bavituximab cancer program we received clearance to open patient enrollment in a Phase II trial in patients with metastatic breast cancer. In addition we have submitted two additional Phase II protocols that we expect to be approved shortly. In addition to these clinical developments, we also obtained further scientific validation for our product pipeline through several peer-review publications and presentations, in addition to making good progress in working with the defense threat reduction agency to finalize a substantial contract award to study bavituximab and human anti-P S antibodies for the treatment of viral hemorrhagic fevers. Paul will speak more about this process during his update. As you can see, this quarter was very productive. Before going into more detail on these advancements I would like to hand the conference call over to our CFO, Paul Lytle, for a financial summary. Paul.

Thank you, Steve. Thank you, Barbara. And thank you, everyone, for joining us. This morning, you may have seen our second quarter earnings release. This release outlines the financial results in greater detail and include financial tables, so I encourage everyone to ready the entire release for additional information. We also plan to file our Form 10-Q later today and both of these documents will be on our website. Now, during the next few minutes, I will take you through our financial results for the second quarter of fiscal year 2008. I'll then briefly discuss our current financial position, and we'll conclude with a discussion of several other important topics.

Now let me begin with the financial results for the second quarter of fiscal year 2008, starting with revenues. Total revenues for the quarter ended October 31st, 2007, were up 177% to $1.9 million compared to total revenues of $.7 million reported in the same prior year period. This increase was mostly driven by increased revenues coming from third party customers of Avid Bioservices, our wholly owned contract manufacturing business. I believe it's note worthy to mention that the revenues generated by Avid in the past six months of $3.4 million were just slightly less than the total Avid revenues generated for the entire 12 months of fiscal year 2007. Based on the six-month numbers, and our current projections, we remain on track to achieve record revenues in fiscal year 2008.

Now let me turn to expenses. Total costs and expenses increased to $8.4 million for the quarter. This compares to total costs and expenses of $6.1 million reported in the same prior year quarter. This increase was primarily related to an expected increase in the cost of contract manufacturing directly related to higher reported revenue from Avid, in addition to an increase in research and development costs as we continue to advance our product pipeline. Steve King will discuss our R&D progress in more detail in a few minutes. In addition, we saw a modest increase in SG&A expenses in the current quarter of $273,000. This increase partly reflects our increase investment in business development, including the expansion of our business development team and licensing efforts. In addition, we recorded an increase in the costs associated with our enhanced participation in nondeal road shows and investor conferences during the quarter. We also had higher costs as a result of greater marketing and business development efforts by Avid, which is reaching out to more potential customers and becoming a known player in the contract manufacturing industry, through its enhanced participation in trade shows and conferences. The impact of these efforts is evidenced in Avid's growing revenues and by its success in attracting new customers such as the recent contract signed with ARIUS research.

Now let me turn to the bottom line. For the second quarter of fiscal year 2008, Peregrine reported a net loss of approximately $6.2 million, or $0.03 per basic and diluted share, compared to a net loss of approximately $5.1 million or $0.03 per basic and diluted share in the same prior year period. The increase in our net loss of approximately $1.1 million was primarily related to the increase investment in research and development as previously discussed.

Now let me shift your attention to the balance sheet. We ended the quarter with approximately $26.1 million in cash and cash equivalents compared to $16 million in cash at our fiscal year end April 30th, 2007. With our current cash position is good, we also are actively pursuing opportunities to monetize our rich asset base. Our significantly expanded business and corporate development team is leading the charge in this campaign, and we are optimistic that our efforts will ultimately help to further enhance our cash position.

Now let me turn to a few additional points. We have previously announced that we were selected to negotiate for a five-year contract with the Defense Threat Reduction Agency, or DT RA, which is an agency of the Department of Defense. This potential contract was initially valued at up to $44.5 million to study our antiviral agent bavituximab and other anti PS antibodies as potential therapies for hemorrhagic fever virus, a deadly virus that potentially can be weaponnized. We are working with the DTRA and its audit agency DCAA or Defense Contract Audit Agency, on various steps in the process.

Now what have we accomplished so far? We have submitted a revised cost proposal now valued at more than the initial amount per the request of the DTRA. We have also passed two separate internal audits performed by DCAA and a third audit and hopefully final pre-award audit is scheduled for this week. As Steve previously mentioned there are a number of steps in the government contract award process and we have continued toe successfully check them off.

Now let me discuss some of the opportunities from this potential contract as we know them today. First, this proposed contract allows the company to request a profit on the contract as a percentage of the contract fees. This would potentially provide nondilutive capital to the company. Second, the proposed contract allows us to recover a percentage of our G&A expenses, potentially reducing our G&A burden. And third, the proposed contract would fund manufacturing scale expenses, product formulation expenses, as well as drug supply needed for these efforts. Costs that we would otherwise incur for these activities in essence potentially lowering our capital requirements for these activities. All of these financial opportunities, of course, is pending successful conclusion of negotiations with the DT RA, and we will update everyone as soon as we have more definitive information in hand. At this point, we are anticipating that the process could be complete within the next couple of months.

The next topic I would like to address pertains to our NASDAQ listing. Let me first state the facts as we know them today. In July 2007, we received a letter from the NASDAQ stock market stating that we did not meet the $1 minimum bid price requirement. In that same letter, we were automatically given an initial 180 calendar days to regain compliance with the minimum bid price requirement, and that initial period ends on January 22nd, 2008. It is important to reiterate that the only listing standard that we have not complied with is the $1 bid price. Now, what do we need to do to regain compliance? Under the rules, in order to regain compliance the closing bid price of our stock must be $1 or more for at least 10 consecutive trading days. And NASDAQ can request to increase the number of days but generally not for more than 20 days in total.

I know a number of shareholders are concerned with the approaching January 22nd date, so I want to explain future potential steps under the NASDAQ listing regulation. In the event we do not meet the $1 minimum bid price requirement by January 22nd, 2008, we are eligible to be afforded an additional 180 calendar days to regain compliance. This would take us into late July, 2008. For our discussions with NASDAQ and our listings qualifications analysts, the day after our first 180-day period expires, or January 23rd, NASDAQ will commence a review to determine whether we are in compliance with all other initial listing requirements in order to determine whether to grant us the additional 180-day compliance period. As of today, I can say that we meet all the other listing requirements.

The initial listing requirements include the following. A company must have stockholders' equity of at least $5 million. At October 31st, 2007, our stockholders' equity balance was over $27 million, so we do not anticipate not meeting this requirement. In addition, the market value of our publicly held shares must be $15 million or more, a requirement we meet. We must have at least two years of operating history. A requirement we meet. We must have at least 1 million shares that are publicly held. Again, a requirement we meet. We must have at least 300 stockholders. A requirement we meet. We must have at least three market makers. A requirement we meet. And we must have corporate governance policies in place and operational, another requirement we meet. As you can see, we currently meet all initial listing standards other than the minimum bid price requirement. We, therefore, believe we are currently in a good position to be afforded the additional 180 calendar days to regain compliance. And let me assure you that maintaining our NASDAQ listing is extremely important to us, and we will do everything in our power to maintain our listing.

Let me conclude now with our investor outreach objectives. We have made a lot of progress in product development, and we are making a difference in people's lives. And while we are happy with those efforts, we are not happy with the price of our stock. We are all shareholders, and we want nothing more than a higher stock price. This is one of the main reasons we have brought an investment bank on board, our first investment bank, Rodman & Renshaw. And Rodman is proving to be an effective vehicle to driver our investor outreach program. In the past quarter we have been on four separate nondeal road shows covering the West Coast, the East Coast, and the Midwest. We have met with a number of analysts, institutional investors, and fund managers, and they all like the story.

In addition, we have recently presented at two investor conferences, the bio investor forum in October, and the Rodman & Renshaw Healthcare Conference in November. And our goal is to raise our profile with institutional investors in order to ultimately increase our institutional shareholder base. And another important service that an investment bank can provide, and also to raise our profile, is independent research, or analyst coverage. I can tell that you we are actively working with Rodman's analyst team on almost a daily basis, and that we are hopeful that an analyst report on Peregrine is near.

I would like to thank you for your time and support of the company. This concludes our discussions of the financial results. Steve will now continue to update everyone on the company's recent achievements and our major objectives for the upcoming months. Steve.

Thank you, Paul. The major focus of our product development activities in the second quarter was advancing our three clinical programs, and I will now discuss these efforts in more detail starting with our Cotara brain cancer program. Since Taking Over the Phase I Delsymmetry and Dose Confirmation Clinical Study From NABTT a few months ago we have been able to make significant progress in the trial. We were able to complete the cohort of patients that had been underway for some time. We have also now completed the review period between cohorts of patients and have been able to escalate to the next dose level.

As a reminder, all three dose levels in this study are considered to be within the potential therapeutic dose range for Cotara. Our clinical group has been working on a more formal update of the study, which we plan to release over the next few weeks. I can say; however, that we are very pleased with the results of the study so far, and that all of the patients in the study to date are still surviving. As we move forward, we are planning to add new sites to the trial that have had previous experience with Cotara. This should allow to us move the trial along at a better pace, so that we can advance to Phase II studies in the U.S. Again, we will give more details on this study in an upcoming update.

Now let me provide an update of our Phase II Cotara trial. We initiated patient dosing in the study during the quarter. We expected to have up to seven clinical sites involved in the trial to meet our enrollment goals. While we were able to get two sites running in the trial quickly, the remainder of the sites were delayed in joining the trial because of internal political challenges, personnel changes, as well as coordination hurdles between departments within the institutions. While this has taken a toll on our enrollment rates, the sites that have been opened have been treating patients, and we have made good progress in the study. In order to get the trial on track, our clinical affairs team and our CRO in India assisted the sites in overcoming their internal hurdles. I am happy to report that we now have expanded the number of potential clinical sites to eight, and now have seven of the eight sites up and running, with the eighth site expected to be on-line shortly. As a result, patient screening has significantly increased over the past month or so.

With the trial now running at full strength, we still expect to meet our initial goal of completing patient enrollment in the study by midyear and to provide an interim update on the study results early in 2008. We recently had a chance to meet almost all of the investigators in person during a recent medical conference in India. And I was very pleased to hear their continued enthusiasm to be involved in the trial, and that their internal issues have all been resolved. We will provide periodic updates as the trial progresses.

Now let me shift gears and talk about bavituximab clinical programs starting with the bavituximab antiviral program. Our bavituximab HCV program has progressed nicely since our last teleconference. With initiation of patient enrollment in a Phase I trial assessing bavituximab in patients co-infected with HCV and HIV at St. Michael's Hospital in Newark. Thus far, the trial is progressing as planned, and we are very happy with the activity level and interaction coming from St. Michael's. But because this is a challenging patient population, we have added two additional clinical sites to the Phase I trial to ensure we can screen an adequate number of patients to meet our enrollment goals.

We were very pleased to add the prestigious AIDS Clinical Unit at the Johns Hopkins Medical Center as a second study site for this trial. The trial will be conducted under the direction of Dr. Mark [Solkowsky], a recognized leader in the treatment of HCV/HIV co-infected patients. And his expertise in this patient population will be a great asset to the program. Additionally, we recently added a third study site to this trial, a private clinic located just down the road from us in Newport Beach, California. With three study sites screening patients, we expect to see steady enrollment over the coming months, and look forward to providing an update on this trial next spring.

In another development for the HCV program we were invited to give an oral presentation of the final results from our Phase I B repeat dose trial to a large audience of liver disease experts at the prestigious AASLB liver meeting in November. The presentation was well received, and highlighted the positive dose-dependent signs of antiviral activity, a positive safety profile, as well as initial positive trends in immune response markers. In addition to the clinical study, we are continuing a significant amount of preclinical work in the anti-viral area. Our leading collaboration is with researches at Duke University and a number of other institutions including Harvard. This collaboration is progressing very nicely, and we are highly encouraged by the results we have seen. As a reminder, we are exploring the potential of bavituximab and several other anti-PS antibodies for their potential in the treatment and prevention of HIV infections. This collaboration is particularly important because without the collaboration, we would not be able to conduct this informative research into the potential of our anti-PS platform for the treatment of HIV. Both we and our collaborators believe we are getting close to being able to share results of these studies either through publications or presentations in the upcoming months.

Next, I would like to update you on our bavituximab anti-cancer program. As we announced last month, we achieved an important milestone by receiving regulatory clearance to begin a Phase II trial of bavituximab in combination with chemotherapy in up to 46 patients with metastatic breast cancer. The primary objective of this trial is to assess the overall response rate of bavituximab in combination with docetaxel, a chemotherapy drug commonly used in the treatment of metastatic breast cancer. We are currently focused on getting this trial underway, and we are currently in the process of finalizing study documents, building our database, preparing study drug, procuring chemotherapy and training study sites. All of these activities are well underway, and we expect to begin patient enrollment in very early 2008. Based on historical enrollment rates we expect the trial to ramp up quickly and then enrollment will proceed well.

During the quarter we also submitted two additional clinical protocols to study bavituximab in combination with chemotherapy in patients with lung cancer and with metastatic breast cancer. Both of these studies are currently in review by the office of the Drug Controller General of India, the equivalent to the S E A in U.S. Although we expected to have approval to initiate the trials by now, new regulatory procedures that were implemented earlier this year, ironically to accommodate the increased number of clinical protocols being submitted in India, inadvertently led to delays in review of our protocol. We have been in constant communication with our representatives and consultants in India who have been working directly with the regulatory reviewers through this process. We recently provided additional information to the DCGI office that we believe adequate to allow them to complete the review process. Our agents have assured us that the delays were logistical in nature, and that they now expect the approval process to proceed smoothly. Although we are frustrated by the slow pace of the regulatory review process, we remain confident that we are nearing completion of the process, and that once the trials are running, that enrollment rates will proceed quickly. We recently had an opportunity to visit with some of the investigators that will be involved in the study, and they are enthusiastic to begin the trial.

Now moving to the Phase I bavituximab trial in the U.S. We finally seem to be gathering momentum in this trial. Now that we have reached dosing levels we expect to have anti-cancer activity based on preclinical studies. As a result, we have seen increased patient screening activity at the current sites. In addition, we are looking at the possibility of adding new sites to the trial just to ensure that we will be able to complete the trial in a timely fashion. Another positive development for this program recently occurred when one of our clinical investigators was invited to present interim results from this study at the prestigious 10th annual International Symposium on Antiangiogenesis Agents in San Diego in February. Dr. Allison [Stoepeck] of the Arizona Cancer Center in Tucson, Arizona will present data gathered from the U.S. Phase I trial and our other clinical experience with bavituximab. This is an excellent opportunity to raise the profile of our bavituximab program with influential scientists and clinicians. It will also give us the opportunity to provide an update to the investment community on progress in the bavituximab cancer program. As you can see, we are extremely active on all fronts with our clinical programs. We are very happy with the results obtained so far from each of the clinical programs and look forward to the upcoming clinical updates for our Cotara and bavituximab cancer programs.

Turning to partnering in business development. During the quarter we ramped up our proactive partnering activities. Our expanded business development team has been very active in meeting with a wide variety of prospective partners. Not only for our clinical programs, but also for our preclinical programs and our other strategic assets. We are in active discussions with a variety of potential partners and expect to make progress on monetizing a number of our assets. This is part of our overall goal to reduce our dependence on the capital markets for funding. While serving to further validate the inherent value of our intellectual property, our product pipeline, and other strategic assets. As Paul noted, we were very active during the quarter in reaching out to the investment community, presenting at several major investor conferences, and meeting with institutional investors on road trips organized by our bankers and Rodman. We anticipate continued active outreach in the coming months. With that, I would now like to open the floor to questions.

(OPERATOR INSTRUCTIONS) Our first question is from Steven Dunn, Dawson James.

Good morning, Steven.

I guess I have one question. I'll make at big question. I guess on kind of the news (inaudible) going into calendar year 2008, you indicated we'd have interim data for Cotara, and then the other -- bavituximab and HCV and oncology, you kind of indicated you'll have updates, let's say in spring, or whatever. Will that be interim data, when you say updates, or what do you mean?

Yes, I think that could be interim updates as well as updates on overall patient enrollment. Certainly I think on the anti-viral front as a whole, again, we do feel like, and our collaborators at Duke feel like we will have some news flow coming from our collaboration in the HIV area. But on the clinical front, yeah, but primarily be an update on overall patient enrollment as well as some interim results of how the trial is progressing and how the drug is looking in this patient population.

Will we have any interim results on the Phase II in oncology?

We do anticipate -- again, there's two separate Phase II programs, so there's the Cotara Phase II program. We've previously said we do plan on making a -- kind of an update, if you will, on the Phase II Cotara program when we've treated 20 to 25% of the patients. Because it is a single-arm study we can do that without taking any hits on the overall trial design. In the bavituximab programs, each of the trials that have been submitted are two-phase programs. So in the initial phase there's 15 to 21 patients, depending on the trial. So after that set of patients, we will be able to provide an update on how the trial is progressing, how patients are doing, safety profile, so on and so forth. So we-- we certainly will provide interim looks into the data from those trials as well.

All right, thanks very much.

Our next question is from Richard [Syracusea], Merrill Lynch.

Congratulations. Listen, the first is a clarification so don't count this as question. In the release it states that you dosed your first co-infected patient, and some people have called me and said, is that all they did, one patient? And I said, no, you've done multiple patients. Is that correct?

That's correct.

Okay. My question now is, I would imagine when you discuss with your potential partners you sign non-disclosure agreements, is that correct?

Well, in general it's a multistep process, so the initial step is sort of a general non-confidential overview, and then if they have an interest, it progresses under a confidentiality agreement to more information being able to be provided by the company. So when we're talking about actual discussions, in general I don't consider that active discussions until you've put a confidentiality agreement in place then you're in that level of discussion.

So my question is how many confidentiality agreements have you -- do you have in place?

I don't have a number at hand, but it's lots.

Okay. Thank you very much.

Our next question is from Michael [Chisweck]-- private investor.

Hi, guys. Thanks for taking my question. I guess my question is, since R and R has been on board with us it seems that our stock price, instead of going up, I guess it was mentioned that we did four Road shows already. But instead of our stock price going up with all that's new investors, it seems to be going down. Do you have any comment on that?

I think our goal with Rodman & Renshaw is really to get the story out there to get the story in front of existing and potential investors. What we can do is-- we can get out and tell the story to as many people as possible, but, unfortunately, we can't control the stock price. Our goal is really just to get -- to tell the story, to make progress internally and make progress with events that potentially can influence the stock price. But our real goal with Rodman and Renshaw is to tell the story to as many people as possible to make sure they know the story and that we're on their radar screen. I think the market in general has taken hits especially in the small cap and micro cap companies and we have spoken to our-- many fund managers who believe that biotech will be coming in favor here in the near term.

Do you think that people are really interested in looking at a stock that's at $0.50? That's-- I thought -- most managers are looking at stocks that are above $5.

Absolutely. I think the potential behind the company and the pipeline that we're developing has tremendous potential. I think anyone is interested in hearing that story. Everyone that we have spoken to really likes the story, likes the technology. It's a first-in-class technology that no one else is developing and it makes us very unique.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question is from Sheldon Traub, with W Equities.

Congratulations, guys, on all the progress you've made to date. Question regarding the defense department proposals. You mentioned that the size of that proposal is now larger than the initial proposal. Could you give some color to that, perhaps?

Sure. We've been working with the DTRA, or Defense Threat Reduction Agency, for a number of months now. And, we're going back and forth with them. They have actually asked to us do some more work up-front than previously planned, so there's additional experiments, additional studies that are being planned sooner rather than later. In addition, we have modified some of our assumptions and cost reimbursement assumptions where we could potentially recover more from a profit standpoint and more from a G&A standpoint. So a number of those things has driven the proposal at a higher level than previously submitted. Next question?

(OPERATOR INSTRUCTIONS) Thank you. This concludes today's question and answer session. I would now turn the conference back over to Mr. King.

Despite turmoil in the capital markets during the past month, which we believe has adversely affected our stock price, we remain very positive about the company's future. We have important clinical studies underway for each of our three clinical programs. We're in active discussions with a wide variety of potential partners concerning our clinical programs, pre-clinical programs, intellectual property, and other strategic assets. We are making good progress in concluding a large contract award with the DTRA, and continue to see positive results from our pre-clinical collaborations. We believe these efforts represent multiple opportunities to create significant value for the company.

We intend to continue to work closely with our bankers and analyst team to promote our story to institutional investors and are optimistic that the combination of delivering on our product development milestones, executing our business development initiatives, and continuing to ramp up our investor outreach efforts should result in significant value creation for our stockholders going forward. Thank you again for your support. This concludes the prepared remarks.