Avid Bioservices Inc (CDMO) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Peregrine Pharmaceuticals Inc. fourth-quarter fiscal year 2013 results conference call. At this time, all participants are in a listen-only mode. Later, we'll have a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

And as a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Jay Carlson. Sir, you may begin.

Thank you, Mary. 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 brief overview of the Company's progress over the last quarter, including the Company-sponsored trials, as well as the investigator-sponsored trials, or ISTs, and how these events set the stage for numerous near-term clinical data milestones. Joe will then review the clinical developments of the quarter, with Rob then discussing our regulatory plans as we advance our bavituximab and Cotara programs. Paul will then finish with a summary of our financial results for the fourth-quarter and fiscal-year 2013. 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 and uncertainties that may cause actual results to differ. These forward-looking statements reflect our current views about future events and financial performance and 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 2013 ended April 30, 2013, which was just filed earlier today. Investors should not rely on forward-looking statements, because that 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 will now turn the call over to Steve.

Thank you, Jay, and thank you to everyone who is participating in today's quarterly call. We've had a number of important events take place since our last quarterly call in March. These events started with an important revelation, further defining bavituximab's immunotherapy mechanism of action. They extended to compelling final data from our Phase II second-line non-small cell lung cancer study that was the cornerstone for our successful end of Phase II discussions with the FDA that resulted in approval of our Phase III clinical trial design. The better understanding of the mechanism of action has given us a completely new insight into recent clinical results, and even further strengthened our excitement about the Phase III trial design combining bavituximab with docetaxel, based on its immune adjuvant characteristics. Joe will cover the Phase II clinical data in more detail, as well as our plans for advancing the program to Phase III later during the call. Rob will highlight the regulatory aspects of developments over the past few months. And Paul will give us an update on the great year at our contract manufacturing business, Avid Bioservices, and on efforts to strengthen the cash position as we look to advance the bavituximab program to Phase III while continuing partnering discussions.

Before turning the call over to my colleagues, I will briefly discuss the importance of the elegant data presented at AACR that firmly established the immunotherapy mechanism of action of bavituximab. This data is given as a completely new viewpoint on the bavituximab program, and valuable insight as we review the clinical program and make plans for the next set of studies. Data from a series of pre-clinical studies exploring the mechanism of action for phosphatidylserine PS-targeting antibodies, such as bavituximab, were presented at the annual meeting of the American Association for Cancer Research. Results of these studies demonstrated that PS-targeting antibodies mediate immune stimulatory changes in tumors by acting on an upstream immune checkpoint, resulting in the transformation of inhibitory immune cells known as MDSCs, and to tumor-fighting immune cells known as M1 macrophages, while simultaneously starting changes that lead to the formation of tumor-fighting cytotoxic T cells.

Based on these findings, we have reviewed the entire clinical program and are working with our clinical investigators to collect samples that may provide immune-correlative data from three ongoing clinical trials in breast, rectal, and liver cancers. This mechanism of action insight has also opened the door to completely new combinations not previously explored. Bavituximab acts on an upstream immune checkpoint, and thus, makes a potentially ideal combination with downstream-acting immune checkpoint inhibitors, such as anti-PD1 antibodies and CTLA-4 targeted approaches, just to name two. Pre-clinical studies are well under way to explore these combinations, and we look forward to generating and reporting data later this year that could support moving these concepts into the clinic.

This has also allowed us to put clinical results to date into a clear perspective by allowing us to understand which combinations and dosing regiments are the most attractive. And perhaps more importantly, strengthening the rationale behind the planned Phase III trial combining bavituximab with docetaxel. These recent developments have also generated new partnering opportunities, as well as increasing interest in our ongoing partnership discussions for the bavituximab program. And will continue -- which will continue while we execute in advancing the program on multiple fronts.

I will now turn the call over to Joe Shan for an update on the clinical program. Joe?

Thank you, Steve. Certainly the clinical highlight for the previous quarter were the encouraging results from the bavituximab Phase II trial in our lead indication of second-line non-small cell lung cancer. These data led to an agreement with FDA on the pivotal Phase III trial design, which Rob will discuss later on in the call. The final data from the randomized double-blind placebo-controlled Phase IIb trial presented at ASCO demonstrated a median overall survival of 11.7 months in the 3 milligram per kilogram bavituximab plus docetaxel arm, compared to 7.3 months in the combined control arm, with a persistent separation in the Kaplan-Meier survival curves. Subgroup analysis of overall survival by key patient characteristics, including age, gender, ECOG status, ethnicity, and prior treatment favored bavituximab 3-milligram per kilogram containing arm, and there were no significant differences in adverse events between the trial arms. Importantly, the recent understanding of bavituximab immune action mechanisms Steve described earlier further reinforces the rationale of combination treatment with docetaxel. As not only does docetaxel up-regulate PS, it has also been shown to exert immunostimulatory effects.

The pivotal Phase III trial design that we proposed, and the FDA agreed to, is a randomized, double-blind placebo-controlled trial evaluating bavituximab plus docetaxel, versus docetaxel plus placebo in approximately 600 patients at clinical sites worldwide. It will enroll patients with advanced non-squamous, non-small cell lung cancer who have progressed after standard front-line treatment. Patients will be randomized into one of two treatment arms. One treatment arm will receive up to six 21-day cycles of docetaxel at 75 milligrams per meter squared, in combination with 3 milligrams per kilogram of bavituximab weekly until progression or toxicity. The other treatment arm will also receive up to six 21-day cycles of docetaxel at the same dose, but in combination with placebo weekly until progression or toxicity. The primary end point of the trial will be overall survival.

This Phase III trial design in the bavituximab immunotherapy mechanism were extremely well received at our clinical advisory board meeting at ASCO, which comprised a group of leading oncologists who specialize in the treatment of lung cancer. The group was excited by bavi's unique upstream immune mechanism of action and believes we have a very special drug with future potential synergies with downstream immunotherapies in clinical development. These experts also provided insightful feedback on the Phase III trial to help facilitate timely patient enrollment and differentiate it from potentially competing trials.

Based on these encouraging data, the reaching of agreement on the pivotal Phase III trial design and discussions with our medical advisors, our primary focus in the near term was to initiate the bavituximab Phase III trial in second-line non-small cell lung cancer by the end of this calendar year. Meanwhile, we continue to learn about bavi's effects on tumor immunity, both pre-clinically and clinically. The current investigator-sponsored trials in lung, breast, liver, and rectal cancers include imaging, laboratory, or tissue-correlative studies, which should inform future clinical development of bavituximab as a novel upstream immunotherapy. We look forward to providing an update on these efforts in the coming months.

With that, I'll turn it over to Rob.

Thank you, Joe. From a regulatory standpoint, I'm very pleased with the progress made during this quarter, as we achieved two major goals in our most advanced program. First, positive data that emerged from our second-line non-small cell lung cancer trial provided additional safety, as well as clinically meaningful efficacy data needed to advance the program. Second, the reaching of an agreement with the FDA on our proposed clinical trial design was the result of a very successful and highly collaborative effort with the agency, which allowed us to proceed. Since our last quarterly conference call, we have had very positive interactions with the FDA concerning our production processes and capability to manufacture Phase III material, and ultimately, bavituximab for the market, as a prelude to the end of Phase II meeting, which was by design focused on our Phase III clinical plans. We believe this Phase III trial, along with a large amount of supporting data to date, could be sufficient to support a future biologics license application submission. The next steps, from a regulatory perspective, are to initiate discussions with ex-US regulatory agencies, such as the EMA, in order to facilitate the start of the global Phase III by year's end.

With that, I'd like to turn it over to Paul.

Thank you, Rob. Shifting gears now, I'd like to spend the next few moments covering a few financial highlights and our related financial goals. As I mentioned on the last call, it's important to note 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 revenue-generating business, Avid Bioservices. There are three important topics to discuss with respect to Avid, including fiscal-year '13 revenue growth, future revenue potential, and Avid's strategic importance in preparing bavituximab for late-stage clinical development and potential commercialization.

Starting with revenue growth, during the recent quarter, Avid generated $4.2 million in contract manufacturing revenue and $21.3 million during fiscal-year '13. This represents revenue growth of 44% over the prior fiscal year, and is in line with our increased revenue guidance we provided in March of this year. Second, Avid's revenue potential is closely tied to its current committed backlog for future services. We began fiscal-year '14 with over $27 million in manufacturing commitments that currently cover services to be provided in fiscal '14 and into fiscal '15. Based on this, we expect contract manufacturing revenue for fiscal '14 to be between $18 million and $22 million, based on our current commitments. And third, it's important to emphasize Avid's continued contributions toward preparing our novel immunotherapy bavituximab for Phase III clinical development and for potential commercialization. There is a tremendous amount of ongoing effort in preparing a novel monoclonal antibody for commercial manufacturing.

Now let me turn to our net loss. Strong revenue growth combined with an expected decrease in R&D spending has significantly reduced our net loss, decreasing 29% in fiscal-year '13, compared to fiscal-year '12. And this reduction in our net loss has translated into a 35% reduction in our cash burn rate during the recent fiscal year to $24.8 million, representing our reported net loss, less non-cash expenses.

Let me now talk about our financing goals. As a backdrop, let me emphasize that we are closely managing our business, our [cash] position and our various sources of capital as we prioritize and advance our later stage clinical pipeline. Investing in our clinical program is the most important and significant potential value driver for Peregrine. Over the recent period, we have strengthened our cash position and reported over $42 million in cash and cash equivalents as of June 30, 2013. We now have the needed capital to fund our operations for at least the next 12 months, based on our current financial projections, giving us the needed flexibility to initiate the upcoming Phase III trial in second-line lung cancer, while strengthening our position as we evaluate other potential opportunities.

Looking ahead, we will continue to closely manage our operations in line with our cash position, while balancing our various sources of capital. We have invested in these programs using a balanced financial approach by closely matching our capital needs with 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. Mary?

(Operator Instructions)

And our first question comes from Joe Pantginis from Roth Capital. Your line is open.

Thank you for taking the question. Little bit of a -- well, one macro question and one specific to your programs. First, obviously, you've generated a lot of your new mechanistic data for the immunotherapy aspect of bavi. Can you give a little forward-looking statements with regard to potential plans regarding combinations with some of the checkpoint inhibitors you mentioned? And then I have a follow-up.

Yes, sure. I think obviously, with the information we now have on the mechanism of action, it really gives us a whole new insight into how we should be using the drug and what kind of combinations we should be looking at. I think you've hit the nail on the head that one of the big focal points is, number one, a new indication, such as melanoma, for instance, or renal cell cancer, which are known to be more immunotherapy sensitive. And then the second is of course what you combine with the drug. Obviously, at ASCO this year a lot of excitement about the combination potential of agents that act on the immune system. And again, with a lot of the excitement being around the combination of PD1 with (Inaudible). And so I think we're looking at that very heavily. We're well into pre-clinical programs that would help to answer the questions around how to best combine an early checkpoint inhibitor like bavituximab with some of the later checkpoint inhibitors, and it just makes perfect sense. So one of our goals is to hopefully be able to complete and actually even potentially start a clinical trial, combining our drug with other immunotherapies by the end of the year.

Okay. Great. And just staying on the immunotherapy theme, this is more of a macro comment than question that I'd like to tie into your lung cancer program. Obviously, whether it's cancer vaccines or other immunotherapy approaches such as yours, the PD1 inhibitors or what have you, there's still a lot of questions that still need to be answered and questions that we're just starting to answer and scratching the surface on. And one of those things have to do with chemotherapy combinations, sequencing, concurrent, all the different things that could potentially negatively impact the potential efficacy of a drug, as we've been learning about different combinations. So with that said, regarding your first-line lung program, I guess the question would be any thoughts hindsight about why the study might not have impacted survival? And did it surprise you? And the crux of the question is when you look at the immunotherapy space, the general concept is now that the earlier stage patients should perform better with immunotherapy approaches. So the question would be, why didn't it here? And then, did the chemotherapies have any potential impact on that?

Okay. Sure. Yes, I think this is really at the crux of our complete review of the clinical program, so taking a step back. So when we started the bavituximab program in the clinic, we were really focused on the effects that we were seeing in pre-clinical studies, primarily around effects on vasculature. We knew there was some immune component, but it was really thought to be more of a vascular acting agent. I think that is completely changed now. We recognize that while there are effects on the vasculature, those are downstream effects that are really mediated through inhibiting this early checkpoint. And it makes a world of difference in the way we look at the drug, because when we started the program, we were looking at chemotherapy as killing tumor, up-regulating the target. And so, you'd get these kind of combinatorial effects. What we now recognize is we have to be a lot more careful when selecting indications as well as chemotherapy combinations.

One of the things that I think has us so excited about the docetaxel study is docetaxel is one of the stronger adjuvant-type therapies that really enhance, if anything, the immune response. And so, when we think about our -- the other two results we had this year, the pancreatic cancer data. Gemcitabine, again, is a good chemotherapy combination potential with bavituximab. It's known to be immunostimulatory, however, just perhaps not in pancreatic cancer, where you have very fast progression, and patients who are beginning to die from the disease within five months to six months. And if you look at immunotherapies and the general theme at ASCO this year was that you really see the separation and survival curve starting in four to five months. So if you're already almost at your median, then you're really going to have difficulty showing an effect on survival in such a fast-acting disease.

In the case of the front-line non-small cell lung cancer data, again, while we didn't see much of an impact on overall survival, I think in retrospect, maybe that wasn't as surprising as it could have been, because there have now been published reports showing that a combination of ipilimumab with carboplatin and paclitaxel, that staging was very important. In fact, they found that when they gave concurrent therapy with the chemotherapy and the immune-activating drug, that they basically had no effect. And when they staged it and gave chemotherapy first and then started with the immunotherapy treatment, then they saw, actually, quite good results.

So in retrospect, if we had thinking about this at immunotherapy, we might have designed those studies a little bit differently. But I think it opens up a lot of doors for us now in development and being able to think about those combinations and what we want to move forward. But clearly, right now it's all about Phase III, which if anything, I think it's been strengthened by what we now know. And looking at some of those immunotherapy combinations and getting those in the clinic and seeing how that goes.

Right, no, that makes perfect sense. And I guess your -- if the example is obviously very well taken, because again, we're really at the just scratching the surface on being able to answer these types of questions. So now with this kind of knowledge and answers that we have with regard to the staging of various therapies, is this something that either based on what you'd plan to do or also in the hands of a partner you would now potentially pursue in a front-line setting for lung again?

Yes, I definitely think that's one of the things we want to do is really take a look at the studies we've run, what we've learned from those, and potentially eve go back, like you said. And just with now all the knowledge at hand, design the study that's more likely to be successful.

And I guess I have to ask the question, since you talked about it again during this call, it's very simplistic. How are your partnering discussions going?

Well, I think one of the great things here is that this has really opened a lot of doors for potential partnerships, for collaborations. There's so many things that we can now do with the drug that we didn't really have at our hands before. The partnering discussions are going well. I think that it's the same strategy we've been laying out before. Goal will be primarily US partnership to bring in someone with commercialization expertise, but also be able to maintain as much US rights as we can to advance the program and to still have a big piece of the upside at the end of the clinical process.

Thank you. Our next question comes from George Zavoico from MLV and Company. Your line is open.

Congratulations on the progress you've made this quarter, and especially the Avid growth is pretty impressive, which is my first question. Based on your projections, it looks like for 2014, fiscal 2014, that the Avid revenue is going to be pretty flat. I imagine that doesn't take in account any new -- obviously, any new customers that you might bring on. So two questions. One, do you have room for new customers, in terms of doing production runs? And has the record of Avid been excellent in terms of delivering the production runs on time? Is there any backup there?

As we mentioned -- thanks George, for the question. As we mentioned on the script, we're guiding between $18 million and $22 million, and that is purely based on what has been committed as of the beginning of the fiscal year. So there is a lot of potential for additional upside as we book additional potential customers as they request additional business. But this is truly just committed business that's currently on the schedule as of today. So I think there is some upside. If you look at our guidance last year, we increased, I believe, a couple of times last year, as we gained additional business and delivered on that business. So I think there is some potential upside, and we do have some additional capacity to grow that number. In addition, I think it's important to note that we also -- Avid did approximately $10 million in equivalent services for Peregrine last year, which does not get reflected into the financial statements. It's eliminated in consolidation. But they're also doing a tremendous amount of work, really preparing bavituximab for Phase III trial for potential commercialization, and those efforts will also be ongoing through this next fiscal year.

George, I think to answer your other question about the timing of release, I think one of the -- as we've gotten busier and busier, of course, improving operations has become more and more important. And so we've absolutely been focused on success rates of production runs because as we get the reactors more and more full, there's less and less space to have mishaps in the reactor. The second being that we've really been pushing very heavily on the timing. That's the reason you've seen really over the last couple of years, again we're busier, but also we're releasing lots on time. We're getting those out to the customers. It's become a much more reliable flow of production and release and shipment to the customers. So I think we've been very successful on both those fronts, and the group at Avid has done a great job in responding to the increased business demands.

Okay, one more Avid question. Your biggest Avid customer is responsible for what percentage of the revenue?

If you look at in our 10-K, we actually break out segment reporting by customer.

Okay.

And it's included in the footnotes of the financials. But yes, one of our major customers is a major player in our revenue and growth, and their successes are directly aligned with our successes.

Okay. So moving on to bavituximab then. You mentioned you were going back to the patients that are already in the trials, or ongoing trials. You're going to be doing some additional sampling. Does this require any amendments to the protocols? Is it strictly an investigational approach? What do you need to do to be able to make those -- take those samples?

George, this is Joe. So some of the protocols are already included, these immune-correlates. Obviously as our understanding of the immune effects of bavituximab increases, there are additional things we're looking at. So some of these will have to be amended into the ongoing trials to collect the samples appropriately to be able to answer some of these other questions, but it's a combination of both.

And then for the Phase III, I imagine it's going to be -- the amendment's going to be written into the initial protocol.

Yes. We're still finalizing what's practical to do in the Phase III study versus in the sub-study of some sort.

I'm trying to remember from some of the survival curves that you showed in the meetings, one of the elements that shows up often in Kaplan-Meier curves is a tailing plateau, suggesting that the immune system has kicked in and has kept the tumor in check. Did you see anything like that? I'm trying to remember. I can't remember offhand.

Yes, I think on both our second-line trial, as well as the pancreatic trial did have a tail on the right in the treatment arm. And I think it is consistent in terms of the shape. Obviously, we'll have to run more studies to prove that. They are separating around the time you'd expect, around four or five months. I think going back to the pancreatic, this is a much more aggressive disease than even second-line non-small cell lung cancer, and so the overall survival there was shorter. So I think that's an indication maybe it's too far. We talked about earlier that the earlier stage, in theory, the more the immune system can play a role. I think that's something that you'll have to evaluate on a case by case. Certainly at the one-year survival rates, we definitely see a difference.

It doesn't -- it's certainly a clue. It doesn't prove anything. It's just nice to see that, I guess. Finally, final question is about the imaging program. What are you thinking going forward in terms of being able to monetize that? And are you going to use that imaging agent as part of the Phase III, upcoming Phase III, is there still going to be a separate track for development?

We're continuing the Phase I program with the imaging product, learning as we go along. And certainly, no intention to implement that into the Phase III. At this point, I think we have a pretty clean design, and it's pretty clear what we need to do. I think certainly, our goal is to be able to implement that into potentially some of the other clinical trials, as well. And of course, again, with the immune therapy focus now, it really has changed the way we look at a lot of different things, because we recognize that while it's great to up-regulate PS, we also need to make sure we select agents that don't just up-regulate PS but also don't inhibit this immunostimulatory effect of bavituximab. So it changed the way we looked at it a little bit, but think as a standalone, it's still potentially got a great future in just monitoring the effectiveness of therapies. And again, if there's a way to implement it into our earlier stage development programs, learn more about it, we're certainly going to take advantage of that.

Is the imaging program on the partnering table, as well, right now? Or is it we want to gather more data?

It's going to depend on the partner. Some were highly interested in it; others don't really have as much of a diagnostic imaging type clinical point. So obviously, if we start to show some great correlation with clinical results, then it will certainly be something which will tick up in interest levels.

Thank you. Our next question comes from Charles Duncan from Piper Jaffray. Your line is open.

It's Roy in for Charles. Thanks for taking the question. First question, you could remind me the Phase III, is that sequential chemo and bavi, or is it concurrent?

This is concurrent. There's no data that suggests that induction chemotherapy would make a difference in the combination with immunotherapy.

Is it maybe can consider it sequential, considering it's second line? And are you taking all comers? Is it EGFR mutant patients first line, erlotinib treated?

We're not selecting for -- they're unselected patients, second line.

Great. Can you remind me the, you mentioned the ipilimumab studies. What indication; was it -- were they looking at the sequential versus concurrent?

That was actually in front-line non-small cell lung cancer.

That was also. Okay.

Something to follow up on that, I think with carboplatin and paclitaxel, there's been shown to be this correlative with giving the staged administration of the chemotherapy followed by the ipi. Then you see the enhanced activity. Now, I think that may not be true with every combination. I think docetaxel, again, is an adjuvant for I think slightly different reasons from the literature. And so I think the key there is it's really a much more effective or much more active adjuvant, and so the timing may not be as critical as it is with other combinations. But again, I think that what we've seen up to now has all been with sequential dosing. We've seen very positive results from the Phase IIb study, positive results from an earlier Phase II study, and so I think it's -- at this point we have no reason to want to start to adjust the treatment regiment for that particular combination.

Okay. Great. And I wondered if you guys could go into a little more detail on the end of Phase II talks with the FDA. I know the conclusion was good. I just -- if there were any points of concern that the agency brought up, and if there were any key points that won them over, convinced them that bavi was ready for Phase III. Thank you.

There was no -- really, it was quite benign. They liked the plan we proposed. There were -- they thought it was well thought through, and there were no really -- there was absolutely no sticky issues whatsoever.

Thank you. I show no further questions at this time and would like to turn the conference back to Mr. Steven King for closing remarks.

I'd like to thank you all again for joining us on today's conference call. I hope from today's call you get a clearer sense of why we are so excited about the prospects of bavituximab, given our increased understanding of its mechanism, but also how this is fueling additional opportunities for our pipeline. We believe the strategy we have outlined to simultaneously advance bavituximab into Phase III and leverage potential new applications will offer new treatment options for patients participating in our trials, bring a higher profile to the Company, and increase the prospects for our valued shareholders. Thank you again, and we look forward to updating you on our progress over the coming months.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.