Avid Bioservices Inc (CDMO) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Peregrine Pharmaceuticals Incorporated first quarter fiscal year 2014 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 follow at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Jay Carlson from Peregrine's Investor Relations Group. Please go ahead.

Thanks, Kate. 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; Jeffrey Hutchins, Vice President of Preclinical Research; 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 our Company's sponsored trials, as well as investigator sponsored trials, or ISTs, and how these events set the stage for numerous near-term clinical data milestones. Jeff will then discuss our preclinical development program, with Joe then reviewing the clinical developments of the quarter. Paul will then finish with a summary of our financial results for the first quarter fiscal year 2014, and some insight into our subsidiary, Avid Bioservices. 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 are identified by the use of terms and phrases such a 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 3, 2013, and quarterly report on Form 10-Q for the first quarter ended July 31, 2013. 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. And thank you to everyone who is participating in today's quarterly call. This quarter we were very active on multiple fronts. including research, clinical, and manufacturing. Our key focus is to advance the bavituximab clinical program, building on recent promising clinical data, as well takes exciting data showing that bavituximab primarily works through an immune stimulating mechanism of action. Most of this data is set for print publishing in October, but is already available online through the publisher's website, prompting our news release today. These results have spurred new preclinical research activities that include exploring exciting new combinations and different ways to use bavituximab. In particular, the new mechanism data has sparked interest from both academic and industry collaborators to explore combinations with other immunotherapy agents not previously considered.

Dr. Hutchins will talk more about our ongoing efforts in this area, including highlights from his recent presentation at the Immunotherapy Congress in August during his discussion later in the call. Over the last few months, we have been building on the excitement created by the immunotherapy mechanism data, and have been actively engaging scientists and key opinion leaders in the field of immunology with the goal of engaging their expertise as we advance the bavituximab program. We have been extremely pleased as to how these data have been received and the enthusiasm exhibited for the potential of bavituximab. We are looking forward to continuing these activities and supplementing these discussions with preclinical data from ongoing studies expected to come out in the next few months. In addition to the immunotherapy research, there's been significant interest in the results presented at ASCO showing an 84% tumor response rate in HER2-negative breast cancer patients, highlighting the potential of bavituximab in this difficult-to-treat indication.

Of course, our key Company goal remains initiating the Phase III second line non-small cell lung cancer study, which we have named the SUNRISE trial, by year end. Lots of activities on the clinical front that Joe Shan will cover during his prepared remarks. While moving forward on the science front, we have continued to see strong performance from our contract manufacturing business, Avid Bioservices, with another good revenue quarter. All of this while strengthening our cash position, which allows us to advance our programs to our upcoming milestones, while we continue to engage in active partnering discussions for both our bavituximab and Cotara programs. Paul will talk about these developments during this prepared remarks. With that, I'll now turn the call over to Dr. Jeff Hutchins.

Thanks, Steve. This has been a busy and exciting time for the preclinical group, as bavituximab's new mechanistic findings have enhanced the way we are thinking about the future development of this novel drug candidate. From a preclinical perspective, our mandate was to chart a translational path that would best leverage these results within the most efficient time frame, and yielding definitive results to allow for consideration in further clinical development. Beginning in June, we executed the first studies within an intensive preclinical program that utilizes a team comprised of Peregrine and academic scientists. These initial studies could provide preclinical proof-concept support for the clinical development of bavituximab in combination with other immunotherapy drugs, much in the same way as we have seen with the complementary immunostimulatory combination with docetaxel.

These ongoing studies are expected to read out over the next several months, with potential to generate the necessary data to further our clinical investigations. In addition, we are leveraging our ongoing investigator sponsored trials to provide translational clinical data reflective of the preclinical findings. For example, as part of our liver IST, we are collecting patient tissue samples with the goal of assessing changes in cytokines that could help us understand bavituximab's mechanism of action in patients. Over the last few months, I've had the chance to present these data to scientific leaders, investigators, and most recently to the immunotherapy industry leaders at Cambridge Health Institute's Immunotherapy Congress in August. The interest and response from these interactions has been overwhelmingly positive, opening up many new collaborative opportunities that we will explore.

We have now begun to appropriately insert ourselves into the very exciting and topical immunotherapy discussion. As such, you can expect to see us at scientific venues in the coming months as we continue to share this exciting data to the scientific community. In parallel with these efforts, our academic collaborators have been actively pursuing a publication strategy to showcase this data. Their success has been realized with the publication of a manuscript in the American Association of Cancer Research's peer reviewed journal, Cancer Immunology Research. This journal's aim is to report major advances in cancer immunology that span multiple disciplines within the oncology research community. Overall, these data have already garnered a great deal of interest in the immunology community. We look forward to updating you on potential developments in that area, apprising you of preclinical development decisions, and expanding the immunology discussion in the coming months. With that, I will turn the call over to Joe.

Thanks, Jeff. The clinical activities during the quarter focused on preparations for the start of our pivotal Phase III trial in non-small cell lung cancer and supporting the preclinical proof-of-concept program that Jeff just outlined for you. The Phase III trial is named SUNRISE, an acronym which stands for Stimulating Immune Response Through Bavituximab in a Phase III Lung Cancer Study. SUNRISE is a randomized double-blind placebo controlled trial evaluating bavituximab plus the chemotherapy docetaxel versus docetaxel plus placebo in approximately 600 patients at over 100 clinical sites worldwide. These sites will enroll patients with stage 3B or 4 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 the same docetaxel regimen, but in combination with placebo weekly until progression or toxicity.

The primary endpoint of the trial will be overall survival. Secondary end points include progression-free survival and overall response rates based on immune-related response criteria, given our current understanding of the action mechanism. In addition, we plan to collect exploratory biomarker samples that may support and enhance our understanding of bavituximab's immune MOA in the clinic. There is increasing rational for combining bavituximab and docetaxel, as not only is a standard treatment for second line non-small cell lung cancer that increases PS, docetaxel also decreases immunosuppressive cells, known as myeloid-derived suppressor cells, which could complement bavituximab's immune mechanism, as Jeff described earlier. SUNRISE will also have an independent data monitoring committee that will assess safety on an ongoing basis, as well as the planned interim and final efficacy analyses.

Over the coming weeks, our team will be working towards selecting investigators, obtaining regulatory approvals with global health authorities, ethics committees, and clinical trial sites, and finalizing necessary operational details to initiate the trial by year-end. As Steve mentioned, we are making the necessary additions to both internal headcount, as well as outsourcing partners to ensure a well-executed program. While our immediate clinical focus is on executing the SUNRISE trial, we are continuing to work closely with the preclinical group as the potential immunotherapeutic applications of bavituximab are both exciting and numerous. We anticipate some of the ongoing ISTs may begin to yield some immune correlative data over the coming months, and look forward to providing updates as soon as they become available. I'll now turn the call over to Paul, who will review the financial results from the quarter and update you on Avid Bioservices.

Thanks, Joe. Shifting gears now, let me spend the next few moments to cover a few financial highlights and our related financial goals. As Joe just emphasized, our clinical and regulatory teams are extremely busy with advancing bavituximab into Phase III development for the treatment of second line lung cancer, representing a major market opportunity. And to achieve these goals, we are carefully managing our resources and our various sources of capital, including the capital generated from our contract manufacturing business. During the recent quarter, our contract manufacturing business, Avid Bioservices, generated just over $4.5 million in contract manufacturing revenue. This is a solid start to fiscal year '14, and we expect contract manufacturing revenue for the entire fiscal year '14 to be between $18 million and $22 million, based on current commitments. Along with the work being done for our third-party clients, Avid continues to be instrumental in providing drug supply for the bavituximab Phase III trial, while also preparing bavituximab for potential commercialization.

Now turning to our cash position. We continue to maintain a balanced financial approach, ending the quarter with $41.6 million in cash, compared to $35.2 million in cash at fiscal year-end April 30, 2013. This provides us sufficient capital to fund our operations through at least the first quarter of fiscal year '15, 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 opportunities, including ongoing partnering discussions. We look forward to keeping you updated on our progress, and we will now open the call up for your questions. Kate?

(Operator Instructions)

Our first question comes from the line of Joe Pantginis with ROTH Capital Partners. Your line is open.

Hey, guys. Good afternoon. Thanks for taking the question. Couple questions, if you don't mind. First, with regard to your stated goals of starting the SUNRISE study before the end of the year, and then you also say that your partnering discussions remain active. How tied together or not are these two different goals? Do you require a partner to be in place prior to the start of the study, or can you start the study independently?

Sure. Thanks for the question, Joe. Yes, I think we put ourselves in a position where it's our intention to go ahead and be able to start the clinical study, and to in fact complete the clinical study if necessary on our own. Our, of course stated goal is to continue the partnering discussions. Obviously, I think it is a driver for many of the partners to potentially be involved in the Phase III trial and the operation of the Phase III trial. So it becomes, I think, a positive from a partnering standpoint. We also recognize that we want to be able to control what we can control, and right now we can control getting that trial up and running and executing. I think we have a good solid team in place, brought on board some individuals with significant experience in running Phase III clinical trials. Of course, a lot of experience on the regulatory side as well. So I think we're in a good position to execute on the clinical study, continue those partnering discussions, and hopefully under the right deal terms be able to bring those two things together.

Okay. That makes sense. And then I guess I want to have a little bit of immunotherapy discussion regarding the SUNRISE trial, and especially after your growing database and today's publication in the AACR journal. The way Joe described the study is that you're going to be giving bavi in these patients until progression or toxicity. Is that what I heard correctly?

Yes, that's pretty standard. So basically it's a maintenance phase after the patients receive the maximum cycles of chemotherapy.

Sure. So I guess the nuance that I wanted to bring up here is like if you were to consider the guidance that the FDA has previously written regarding immunotherapy approaches, regarding progressive disease, and also clinical experience for drugs like Yervoy, for example, where you would see potential progression followed by regression. I was just wondering, are you looking to have some sort of monitoring of this, or educate the physicians based on these new immunological data that you're finding here? Where you might see progression in patients but that you'd leave it enough time for the immune system to act.

Yes. In a nutshell, yes, we have incorporated that feature into the protocol. We will be utilizing the immune related response criteria and building in extensive training. We also have some central radiology interpretation as well.

So in the sense that, I mean even to be more simplistic on it too, and that's a great answer, thank you. Would you basically tell physicians almost directly, you're almost paraphrasing what's in the FDA guidance for the industry to say, don't necessarily rush to take your patients off therapy, because of the delayed separation of Kaplan-Meier curves? That's the nuance I'm sort of looking for.

Yes, absolutely. That's described in the criteria that I mentioned.

Okay. Understood. And I guess just the last question is, as part of the Phase III, are you planning to have an interim analysis?

Yes, we are.

Are you disclosing the time point, point of enrollment or events?

Not at this point.

Okay. All right. Thanks a lot, guys.

Okay.

Our next question comes from the line of George Zavoico with MLV and Company. Your line is open.

Hi, everyone. Good afternoon. Thanks for taking my questions. A couple of questions about SUNRISE. Are you going to be using a lot of the same sites that you used for the Phase IIb trial to help accelerate getting the trial going?

Yes. absolutely. We're looking at leveraging experience. I think some of the sites will be able to come up and get activated, maybe a little bit faster because they had prior experience. Some other sites might have other competing trials, but that's definitely in the strategy, leveraging it.

Okay. In that regard, can you provide any guidance as to how long you project the enrollment may take, and how long the whole trial may take?

Yes, I think we've stated previously that our goal was to get a trial that can be done and enrolled in two years' time. I think we are monitoring that and selecting the best sites that we can to achieve not only that enrollment [rate], but also get the highest quality possible. Kind of to the other question by Joe, making sure we get as many sites that are really familiar with immunotherapy. That's important too.

And can you say -- can you guide to how much you might expect the trial to cost?

Paul, you want to address that?

Generally these Phase III trials, George, are approximately about $100,000 a patient. So at 600 patients, you're looking around $60 million. That being said, these costs are going to be spread over a pretty long period of time with a two-year enrollment, probably a one-year follow-up, and then you even have longer periods of time in terms of other costs that come out of the trial. So those are probably going to be spread out over 3.5, 4 years period.

Okay. And in that regard, Paul, you mentioned since you're on the phone now, sort of a balanced financial approach. I mean, you've clearly used the ATM. Are you considering as well, I mean, last year you tried a debt offering, which unfortunately didn't work because of what happened with the mixed up arms of the trial. Avid is clearly a revenue-generating arm. Maybe you could leverage some debt off of that?

Yes. I mean, our goal has always been to look at non-dilutive capital for the Company. Looking at a term loan or some type of leveraged debt makes a lot of sense, assuming it doesn't have to be paid back in a relatively short period of time. So longer payment terms, maybe something to get you past kind of the Phase III read-out. Obviously leveraging Avid is key. So I think looking at those type of options, obviously revenue growth, looking at potentially new services that's Avid could offer, expanding that revenue offerings and potential is also going to be a key driver for the Company, and then obviously we go back to the equity markets when we need to, to maintain that balanced financial approach. So that we can meet our commitments and meet our timelines based on what we've laid out.

Okay. Finally, one last question with regard to SUNRISE. It looks like essentially, apart from perhaps new -- looking at new biomarkers, how different, other than of course the number of sites and the number of patients, is it going to be from the Phase IIb trial, any other differences?

It's very similar. We're only looking at one dose level of bavituximab, and that's really the only difference. And then, of course, the sample size. As is by design, right, Phase III is a confirmatory statistical exercise. So I think that gives us the best chance of replicating what we think we saw in the clinical data from the Phase II in a larger patient experience.

You mentioned in your prepared remarks, Joe or Jeff, I forget who, that you're going to be looking at the cytokine, cytokines in tumor samples. Some of the other markers you looked at that were published today looked very interesting. Are you going to be able to do that as well? For example, confirming the macrophage phenotype switch?

Sure. George, that's certainly our goal. We're looking at the quality of those samples first, and -- but that's certainly the goal is to look at MDSC levels, macrophase, whether it's an M-1 or an M-2 switch during time. It is quite nice that we do have before treatment and after treatment samples. We feel like we're well-positioned to make those kind of measurements.

So there will essentially be two biopsy samples, before and after treatment?

Specifically regarding the SUNRISE, that's not --

Not the SUNRISE, no.

Beg your pardon?

SUNRISE, they're going to be exploratory. They're not going to be tissue-based, necessarily.

Okay.

So George, I think we've got a lot of things going on with regard to our clinical studies. So we have a number of ISTs that have been ongoing. I think that was what Jeff was referring to, the fact that we have been collecting tissue biopsy samples from some of those studies, like the liver cancer study, our rectal cancer study, that's been built into the trial as well. I think those are things that we can do now. Those tissue samples have been collected, and based on the appropriateness we can now look for some of these phenotype changes and macrophages and other cell types associated with bavituximab therapy. As far as the kind of go-forward plan, one of our other stated goals is to really potentially look at some combinations with other immunotherapies.

Of course, in those clinical trials we would want to build in the ability to collect tissue samples, further validate in the clinical setting what we've seen so nicely in the preclinical study that was published today. But as far as the SUNRISE trial, we obviously don't want to add a lot of complexities into our Phase III, and tissue biopsies certainly fall into that category. We'll be looking at things like potentially peripheral blood and things that are easy to collect and look at from a clinical setting. So I think taken all together, we've got a lot of opportunities to generate data over the coming months that will, again, further help corroborate what we're seeing in a clinical setting with what we saw in the preclinical setting, but also really help to guide the program into some exciting new combinations.

Okay. Great. Thank you very much, gentlemen.

Thanks, George.

Our next question comes from the line of Charles Duncan with Piper Jaffray. Your line is open.

Hi, guys. First of all, congratulations on a nice article in Cancer Immunology today, and thanks for taking my question. Many of my questions were asked, but perhaps I could ask a few more details on SUNRISE. With regard to statistics, I'm wondering what you're assuming in terms of kind of a clinical benefit that kind of drives the size of the trial, if you could help us out with those powering assumptions.

Hey, Charles. I think we've guided in the past but we haven't released the exact Hazard ratio they're powering for, but I think we're looking probably for about a few months difference in meeting overall survival. It's pretty typical. We're talking in the Hazard ratio of between 0.75 and [1].

You said two months, Joe?

Two months, yes, for median estimate.

That makes sense. And then in terms of, I know you're not really disclosing the details around the interim analysis, but can I assume that to occur at roughly 50% or 60% of the events? And then also do you accommodate an adaptive design? Is there any way to change the sizing of the trial prospectively?

The way the trial is designed and agreed upon by the FDA is not adaptive in nature in terms of sample size re-estimation. It's a pretty standard classic pivotal type of trial design. I think something the Agency is very familiar and comfortable with. Your assumption about the interim analysis is pretty close, so.

Okay. That makes sense to me. Also, in terms of the percentage of patients, I guess one of the risks that I've seen in some other lung cancer trials is percentage of patients here in the states versus other areas of the world, and being able to control whether or not a patient really is a stage 3B or 4. I know you've given some thought to that. What are the percentages that you'd like to see in terms of the number of patients, and then how have you controlled, or how do you plan for control for patients actually coming in with -- at later stage of lung cancer?

Sure. Without going into too much detail, there's several design features, including the way we stratify our randomization to ensure some balance. Obviously, it's a large enough study that a lot of prognostic variables should balance out, like age or gender for example. There are other features, both from the randomization standpoint, as well as we can control capping the amount of patients from any particular country or region, and that's something that we have some control over. So again, earlier, our goal is two-year enrollment. Of course, we're going to see how that goes. If there's a particular region that's enrolling much faster than others, that's something we'll evaluate along the way. So I guess there's several features that we think that we've incorporated already into the trial design and execution of the plan.

And then my final question is on collaboration. I realize that, as Paul said, you can start and possibly finish this trial with the capital resources you have. It seems to me there is potential for collaboration that might have -- interest might have increased since all the immunotherapy focus in ASCO. Has there been an increase in bavituximab since then? And what is the feedback? And then finally, is Cotara still on the table as a potential source of collaboration?

Sure, I can take that one. So yes, Cotara certainly on the table as a good collaborative discussion point with potential partners. So that's certainly there as another source of partnering activity. There's been -- I would characterize as a tremendous amount of interest with the new immunotherapy mechanism data. I think there's a lot of collaboration interest with companies. They're actually very active in the immunotherapy space. Because of the nature of our upstream target, the fact that we're going after really a primary point of controlling the immune response to the tumor, it really creates a lot of opportunities with these downstream affecters, and of course PD1, PDL1 and PTLA4 were certainly hot topics at ASCO. But there's a lot of other opportunities with downstream inhibitors that we think are a great fit with bavituximab. So yes, I think that this opens up a whole new world of collaboration opportunities well outside just kind of the where we've been historically with chemotherapy and other types of treatment like radiation, and really opening up a whole bunch of new doors that are really a very intense area of research right now.

Thanks for the added color, Steve and Joe.

I'm not showing any further questions at this time. I'd like to turn the call back over to Steve King, President and CEO, for closing remarks.

Okay. Thank you, operator. As you have heard, this is a busy time at Peregrine with a lot of exciting and promising activities under way. Our goal over the next few months will be to continue to actively engage multiple audiences, the scientific, clinical, and investment communities, as well as potential partners. The recent bavi immunotherapy data has transformed our thinking about the program, opening up an abundant number of partnering and collaborative opportunities. We look forward to updating you on these activities as we continue preparations to initiate the SUNRISE trial, and add value to the Company and our shareholders. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a good day.