Avid Bioservices Inc (CDMO) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Peregrine Pharmaceuticals Incorporated second quarter fiscal year 2013 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions)

Today's conference is being recorded. I would now like to turn the call over to Jay Carlson of the Investor Relations department. Please go ahead, sir.

Thanks, Jamie. Good afternoon, and thank you for joining us.

On today's call, we have Steve King, President and Chief Executive Officer; Paul Lytle, Chief Financial Officer; Joe Shan, Vice President of Clinical and Regulatory Affairs; and Rob Garnick, Head of Regulatory Affairs. Steve will begin by providing a Company update and how these events set the stage for the numerous near term clinical data milestones. Rob will then discuss our clinical and regulatory plans as we advance our Cotara program. Joe will provide an update as to our recent clinical activities, and Paul will then finish with a summary of our financial results for the second quarter fiscal year 2013, ended October 31, 2012. After our prepared remarks, we welcome your questions.

Before we begin, we would like to remind you that during this call, we will be making forward-looking statements that are subject to risks, uncertainties, that may cause actual results to differ. These forward-looking statements reflect our current views about future events and financial performance and are identified by the use of terms and phrases such as believe, expect, plan, anticipate, on target, and similar expressions identifying forward-looking statements. These risks include, but are not limited to, the risk factors detailed from time to time in our filings with the Securities and Exchange Commission including, but not limited to, the annual report on Form 10-K for our fiscal year 2012 ended April 30, 2012, and quarterly report on Form 10-Q for the second quarter ended October 31, 2012, which was filed today. 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 our expectations, and we expressly do not undertake any duty to update forward-looking statements, whether as a result of new information, future events or otherwise.

I'll now turn the call over to Steve.

Thanks, Jay. During the quarter, we continued to make progress in all areas of our business, with the regulatory developments for Cotara, continued growth of the Avid manufacturing business, and continuing clinical development and approaching milestones for the bavituximab program. I will briefly discuss each of these areas before turning the call over to the rest of the management team for a more indepth discussion.

The recent agreement with the FDA on a pivotal trial design for Cotara was an important development for the program and for the Company. In the end, we believe we have achieved our goal going into the end of Phase II discussions, namely, a trial that is appropriately sized for the patient population and a trial that can execute in a reasonable time frame. With this agreement in hand, we can now escalate partnering discussions while we engage worldwide regulatory agencies and continue making preparations for the study. Partnering is a key priority for this program and we remain very active on that front. Rob will talk a little more on this regulatory development shortly.

This is another solid quarter for Avid, with strong revenues and a continuing solid backlog of future work. Avid has become a self-sustaining business with significant future growth opportunities. Paul will talk in more detail about the revenues and future projections for Avid a little later in the call.

On the ongoing clinical front, we remain enthusiastic about our bavituximab oncology clinical program, with important clinical milestones on the horizon, including overall survival data from randomized pancreatic and front line non-small cell lung cancer trials, possible data from five ongoing ISTs, as well as resolution of final results from our ongoing internal review of discrepancies we discovered in our second line non-small cell lung cancer study. We recognize that many parties, including investors, potential partners, and even ourselves, are anxious to learn the final results from this review. Completing the review is a high priority throughout the Company and we are trying to complete this work as soon as possible. We are conducting a thorough review of this trial, including over 15 vendors and 40-plus clinical sites at which patients were treated, and the testing of thousands of samples. The execution of this high priority plan has required a great deal of forethought, cooperation from our vendors, and internal expertise and resources. The goal of this review is to be able to generate a final data set that we believe could be used in discussions with the FDA to support advancing the program into a pivotal trial. Our partnering strategy for bavituximab has not changed. The partnering discussions are still ongoing, with potential partners remaining engaged and, like all of us, awaiting the outcome from this review of the second line non-small cell lung cancer study.

Overall, we are continuing to move the Company forward on multiple fronts and to see advancements in all of our key value driving programs. I'll now turn the call over to Rob for a regulatory discussion. Joe will then provide an update on ongoing clinical trials, and Paul will finish up with a discussion of financials. Rob?

Thanks, Steve.

I'm pleased to report that, as we announced last week, Peregrine has reached an agreement with the FDA on the clinical design aspects of the single registration trial for Cotara in patients with recurrent Glioblastoma multiforma, or GBM. As such, this represents a major step towards proceeding with our proposed randomized trial design, which compares two dose levels of Cotara in up to 300 patients. The trial design allows for multiple interim analyses, with the potential to stop patient accrual based on predicted success or futility. This in turn could result in an improved development timeline. With this news, and having been granted orphan drug status and fast track designation for the treatment of GBM by the US FDA, and orphan drug designation by the EMA, Cotara has a much clearer path towards a pivotal Phase III trial.

I'll now turn the call over to Joe.

Thanks, Rob.

Across the remainder of our pipeline, we're set for key clinical milestones in the coming months, including overall survival data from both our randomized Phase II trials and front line non-small cell lung cancer, and in front line pancreatic cancer. As you may recall, our front line lung cancer trial completed enrollment in September, 2011, and our pancreatic trial completed patient enrollment in June of 2012. Recognizing that these are event driven endpoints, we plan to provide updates once the data has matured.

We also continue to cast a broad net for bavituximab in a variety of oncology indications as part of our ISD program, including advanced liver cancer in combination with sorafenib, second line castration resistant prostate cancer with cobavitaxel, previously untreated stage four non-small cell lung cancer with carboplatin and pemetrexed, HER2 negative metastatic breast cancer in combination with paclitaxel, and stage two or three rectal adenocarcinoma with [capesydoben] and radiation therapy. And we anticipate data from some of these trials in 2013.

Lastly, we continue with our experimental imaging program that examines whether our molecular candidate, iodine 124 labeled PGN-650, a first-in-class, fully human PS-targeting monoclonal antibody fragment, could be utilized for PET imaging of solid tumors.

I'll now turn the call over to Paul, who will review the financial results for the quarter.

Thanks, Joe. Shifting gears now, I'd like to spent the next few moments covering a few financial highlights and our related financing goals. As I mentioned on the last call, it's important to understand that we operate a hybrid business model that includes a revenue generating contract manufacturing business and an advancing drug development business. Let me first focus on our contract manufacturing business. During the recent quarter, Avid generated $6.1 million in contract manufacturing revenue and an aggregate of $10.2 million for the recent six-month period. As a result of the mutual successes of both Avid and its customers, we are raising our revenue guidance from $15 million for the entire fiscal year 2013 to at least $18 million. This would represent revenue growth of over 20% compared to fiscal year 2012. In addition, Avid also continues to build its backlog for future services. As of October 31, 2012, Avid had customer commitments in excess of $30 million covering services to be delivered during the remainder of fiscal year '13 and fiscal year '14.

Now turning to our net loss, we saw a 27% decrease in our net loss this quarter, to $8.8 million, compared to $12.1 million reported in the same quarter last year. This was primarily driven by the increase in Avid revenue combined with the decrease in research and development expenses. In addition, this reduction in our net loss translated into a 33% reduction in our cash burn rate during the quarter, to $7.4 million, representing our reported net loss less non-cash expenses.

Let me shift gears now to talk about our financing goals. As discussed in the last earnings call, on August 30, we secured initial funding of $15 million under a $30 million term loan; and during the same quarter, we had to repay that loan due to the major discrepancies we had announced on September 24 with respect to the second line non-small cell lung cancer trial, which triggered an event of default under the loan agreement. As a result, we had to replace those repaid funds with new capital, in order to continue to advance our clinical pipeline and to meet our contract manufacturing commitments. So subsequent to the payoff of the loan, and through October 31, 2012, we raised $16.2 million in net proceeds under our existing at-the-markets issuance agreements, and we ended the October quarter with $24.4 million in cash and cash equivalents. It's important to note that we raised this additional capital at market prices and without the issuance of warrants.

Looking ahead, we will continue to closely manage our operations in line with our cash position, while balancing our various sources of capital. We look forward to keeping you updated on our progress, and we will now open the call up for your questions. Jaime?

(Operator Instructions)

The first question comes from Joe Pantginis from Roth Capital Partners.

Hello, guys. Good afternoon. Thanks for taking the question. A couple questions, if you don't mind. First, on Cotara. Since you now have this visibility out of the FDA -- and I'm sure it's been a lot of work, and so congrats on getting this, finally -- you did mention partnering is a high priority here. Can you define a little bit more of your goals with regard to what you're looking for in a partner? It's basically run the study, or geographical, or just general goals? Thanks.

Yes, sure. Thanks for the question, Joe. So I think our goal is to really find the partner of this event form for this drug. It's a specialty pharmaceutical. Clearly, it is in an area of orphan drug nature. And so what we want to do is really find companies that are focused in that area, that will put the right amount of attention into the program and that, of course, can be involved in helping run and fund the Phase III trial. Whether it will be one global partner or regional partnerships at this point is not clear. I can say that there's a lot of interest from regional partners with some of the criteria I just mentioned, where we have focus in orphan drugs as well as the ability to help with the Phase III trial.

So I think that's our goal is to really move pretty quickly here on the partnering front. We've had a lot of active discussions, a significant amount of interest in the program, and this is really what everyone has been waiting for is a clear pathway forward. Now as we go into continuing preparations for a Phase III as well as continuing our regulatory discussions worldwide, we should be able to, again, really push on the partnering front, because everyone -- it's clear what they're getting into. And we think, again, we really achieved our goals here, which was reasonable size [trough] of the patient population and one that can be executed in a reasonable time frame.

Sure. And then the other two questions that I have is, you mentioned with regard to front line lung and also the pancreatic data, about just saying in the coming months. Just wanted to know if you have any further granularity on timing, especially since, I guess, well, I don't know what sort of disclosures you guys are getting with regard to the event rates in those studies.

And then the second part of my question -- or the second question that I have is, without making any assumptions on the outcome of your investigation for second line, how are you going to look to manage your strategic decisions as well as your financial decisions going forward, as you get these data catalysts from the other studies in hand, as well as what to bring Cotara forward now?

Sure. I can try to address all that in one response here. So basically, I think the way we look at this is obviously, as we laid out before we had learned about the discrepancies in the second line study, partnering is a big part of our strategy for moving the bavituximab program forward as well. I don't think any of those goals have changed. I think the timing has obviously changed a little bit, but bottom line is we want to bring on board a partner that can really help fund that and can fund that Phase III clinical study. We're still moving forward in thinking about a pivotal study in second line non-small cell lung cancer. All along, of course, the front line data and pancreatic data have been sort of looming out there, and obviously, over time, will mature.

As far as the trigger points for those data points, it's really just these are event driven endpoints and it's good for patients the longer they go out. Having said that, when we do reach what we think is a good solid result from the study, then we will be in a position to put those out, kind of as they become available. And obviously, there will likely be a disconnect between those two particular clinical results. Independent of that, we think is equally important is the outcome of the second line non-small cell lung cancer internal review. That really will put us in a position for continuing toward an end of Phase II meeting, we believe, with the FDA. And again, with that still being our lead indication. So I think as we think about what potential partners are looking for, it's obviously the data from the other trials, but it's also what is that clear path toward the pivotal study, and because that's really what drives the most interest from them.

Okay. Thanks a lot, guys.

Okay. Thanks, Joe.

The next question comes from George Zavoico from MLV and Company.

Hello, everyone. Thanks for taking my questions. I hope everybody is well.

A couple questions. With regard to the Phase III in Cotara, I think you previously said that you would not move it into Phase III without a partner. Would you consider now, with Avid doing better, and perhaps starting the Phase III before you have a partner?

Yes. I mean, I think our goal is still to have a partner or partners on board to begin that study. And there's a few reasons I really think that's important. There's obviously funding the study and the logistics of a large multi-national effort. And this would obviously include quite a number of clinical sites. So I think our goal hasn't changed. It's bring on board the partners. We, in the meantime, continue the regulatory discussions with the EMA and other territories where we feel it's advantageous to run the study, so that we can keep it on track for, hopefully again, being in a position to start that study some time late in 2013, possibly.

But again we do want to bring on board the partners, because I think also for our drug, a specialty drug like Cotara, which clinical sites were involved in the Phase III, which key opinion leaders are involved is all going to be very important in how this drug not only gets through the Phase III, but then assuming positive results, eventually will be marketed. So I think that's our focus. In the meantime, we're continuing preparations, and as we get further down the road, then we'll be able to adjust how we look at that going forward. So I think it's business as usual from what we had laid out earlier. And again, now we have a firm starting point and we think we'll be successful.

So I suppose the bottom line is that there's still a whole lot you can do alone, to get set up for this Phase III trial before you actually get a partner on board and then hand it over, because at some point the partner is going to want to have input on how the trial is going to go.

Yes. I think that there's an awful lot of work we can do engaging, again, all these different worldwide regulatory agencies. The package, obviously, is somewhat similar from region to region; however, it's not just a copy and paste. It's really where everyone has a different format, and it's much more complex than that. So I think that there is a lot of work we can do. And again, we can bring on a partner really right at the beginning of the Phase III, potentially, but the earlier we can get a partner on board, or partners on board, then they can start to have more of an influence in their particular areas without any potential delay to the program moving forward, ending up, and being completed.

Rob, I don't know if you had anything on the regulatory effort that will go into it and the complexities there?

I think as Steve alluded, the efforts of conducting a global trial means that we not only have to have agreement on the trial design from FDA, but as well as from EMA, which has a very different process than FDA does, as well as potentially other sovereign entities around the world. And the key to conducting this trial, given its size, is to have enough sites enrolled with enough patients in as short a time frame as possible. So we're pivoting right now and following the discussions with FDA to discuss the same trial design planned with the European agency, and as well as potentially other global regulatory authorities. So it's going to take a lot of effort and a lot of time, but we're very confident that we're going to be able to come up with one unified trial that will accomplish all of our goals.

Great. With regard to Avid, congratulations on growing that business and having a nice backlog. The cash that's generated by Avid, are you plowing that back into Avid to perhaps expand your capacity to reduce the backlog, or is that cash going to go into the general funds?

Yes, that's a great question. So obviously, as we grow the business, there's more and more, if you will, pressure on the internal systems. We actually have been very actively working to make adjustments, whether it be in infrastructure or personnel to meet the demand, and to make sure, number one, that we can deliver in a timely fashion on the backlog of business. And I think we feel very comfortable with that. But secondly, as you said, to not just meet the current demand, but to make more space and more production capacity available for continuing to expand the business.

So we're certainly investing back in. As Avid is generating revenues, we're putting money back into the business to continue to grow that, because we see that as a solid base for the Company. It has so many different positives about it. Obviously, when we think about Cotara as well as bavituximab, the manufacturing will be primarily done at Avid for our own products, and obviously, meeting the needs of all of our clients. So definitely, gross business, we want to make sure that we support that and to continue to meet, not just meet the demand but also be able to grow the business.

Okay. Now a sensitive question about the investigation of the second line non-small cell lung cancer trial, because your wording in the press release was very different than at first. You mentioned that the goal is to generate a final data set, which implies, reading between the lines, that there will be a final data set generated, which is a little different than when you first announced it, it wasn't clear whether there would ever be a possibility of generating a data set, if the discrepancy was so severe that you wouldn't be able to figure out who got placebo and who got bavituximab. So fully understanding that you might not be able to add much more detail to what you've already said, is that a fair sort of reading between the lines, I suppose?

Well, what I can say is that we're really obviously well into the review. We're leaving no stone unturned, really trying to understand, down to testing of individual vials related to individual patients and really to understand as much of this trial as we can at the end of the day. I think what we feel is that, basically, we will have data from this trial that we'll be able to put into a package for a discussion with the FDA about moving this program into a pivotal study. And I can't really say a lot else, other than I think that that's still our goal for the program, and that's where we see the next clinical data points coming, and that's what we're shooting for as an outcome of this investigation. Now of course, it's an ongoing process and you learn more as you go through, but I think that that's where we're putting our effort at this point is really how are we going to put those together to move the program forward.

You've been at this now since late September. Can you provide at all any clarity as to when you might be able to have an answer?

I mean, it's a little difficult. Believe me, no one is more motivated than this group here to have this completed and just to move forward. We're anxious to see this go to the next level, and hopefully, to help a lot of patients still.

That's enough said, Steve. I understand that you're anxious, and it has to be as rigorous and as well validated as possible. And we all want it to be like that and we don't want any short cuts taken to get there.

Yes. I think that's exactly the key point is that we're going to do this once and we're going to do it right, and then from there we'll be able to move forward.

And finally, one last question, if I may. On the imaging, I mean this could be a third business for you guys. I know it's still kind of early and the regulatory process for the imaging is a little bit different than, obviously, for the therapeutics. When do you expect the next catalyst for that program?

So that trial is obviously ongoing. Again, these are sort of we need to accrue enough patients and get enough images to start to make sense out of them, and then we'll be in a position to start to talk about the data. But I think we're all pretty excited about it. I think just because, almost of the visual nature of the type of testing that's done and the ability to really see what's happening. But as you said, there's a lot of business implications of this as a stand alone development effort or agents that would be able to not just image tumors but to potentially monitor the effectiveness of therapy, obviously, could be a great tool for us to use in conjunction with the bavituximab or future PS targeting programs, as far as where the opportunities lie. So that's one we're obviously excited about, and again, as soon as we feel like we have a good set of data, we'll be out talking about it.

Okay, looking forward to that. Thank you all very much.

Thanks, George.

I am showing no further questions. I would now like to turn the call back over to Steven King.

Okay. I'd like to again thank everyone for participating in today's quarterly conference call. We look forward to continuing to update you on activities of the Company as we go forward. Particularly as we finish our internal review of the second line non-small cell lung cancer data, we'll be able to provide that information in an interim basis. So with that, thank you again, and we look forward to speaking with you again at the next call.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.