Avid Bioservices Inc (CDMO) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Peregrine Pharmaceuticals, Inc. second-quarter fiscal year 2014 financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Jay Carlson, of 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; Jeff Hutchins, Vice President of Preclinical Research; Steven Worsley, Vice President of Business Development; 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 SUNRISE Phase III trial, investigator-sponsored trials, or ISTs, and our preclinical immunotherapy development program, and how these events set the stage for numerous near-term clinical data milestones. He will also introduce a new member of the Peregrine executive team. Joe will review the recent developments related to our SUNRISE Phase III clinical trial, with Rob providing insight into recent regulatory achievements. Jeff will then discuss the proof-of-concept program including the first data coming from it. We will then hear again from Joe on the remainder of the clinical update. Paul will then finish with a summary of our financial results for the second quarter of 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 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, and quarterly report on Form 10-Q for the second quarter ended October 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 duties 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.

Thanks, Jay. And thanks to all of you for participating in today's quarterly call. This quarter we continued to build on momentum from activities started earlier in the year, on the research, clinical, and manufacturing fronts. Initiation of the SUNRISE Phase III trial for bavituximab in second-line non-small cell lung cancer is by far the biggest single ongoing activity.

Initiating and operationalizing a Phase III study is a huge undertaking. And Joe Shan, our Vice President of Clinical Affairs, along with Rob Garnick, our Head of Regulatory Affairs, will provide an overview of efforts to initiate this worldwide study, which remains on track to be initiated by the end of the year. Joe will continue with a discussion of other ongoing bavituximab clinical trials that could yield important clinical data over the coming months, as well as a brief discussion of potential new studies that are on the horizon. These studies are expected to explore the immunotherapy potential of bavituximab in combination with other immune checkpoint inhibitors. And to build on our ongoing clinical program driven by the recent clinical data in breast cancer, as well as new immunotherapy combination data presented at the Society for the Immunotherapy of Cancer conference.

Following the clinical update, Jeff Hutchins, our Vice President of Preclinical Development, will provide an overview of our preclinical and translational research programs, which include a recent publication, a high-profile symposium at a major lung cancer conference, presentations of new data at the Society for the Immunotherapy of Cancer conference, and the addition of new scientific and clinical thought leaders to help guide and expedite the program. The preclinical development program, the publication of peer-reviewed data, the continuous presentation of the immune stimulatory mechanism at conferences, and the addition of key opinion leaders are all important incremental steps in raising awareness for the program within the immunotherapy community. This recognition has already resulted in many new opportunities for collaborations, heightened interest from clinical investigators, and increased interest from potential partners.

Taken together, we believe that Peregrine is uniquely positioned among the companies developing immunotherapies based on our stage of clinical development and combination potential with other drugs in the space. And that because of our current valuation we represent a unique investment opportunity. And while we have been extremely pleased as to how the data supporting bavituximab has been received to date, we are looking forward to continuing ongoing research and clinical activities that are expected to add to and supplement these discussions over the coming months.

On the corporate development front, we are pleased to announce the addition of Steve Worsley as Vice President of Business Development. Steve comes to us with a great track record of business development, particularly in the monoclonal antibody space, and will be briefly introduced. Last but not least, Paul Lytle, our CFO, will discuss the continued solid revenue performance from our manufacturing subsidiary, Avid Bioservices, along with an overview of the Company financial outlook. Avid remains an important piece of our overall business model with continued growth potential.

Now I will turn the call over to Joe for the clinical update. Joe?

Thanks, Steve. Clinical activities during the quarter focused on preparations for the start of the SUNRISE pivotal Phase III trial in non-small cell lung cancer. Efforts to increase awareness of bavituximab's immune mechanism and plans for a clinical trial combining bavituximab with an approved immunotherapy. Beginning with our SUNRISE trial, our clinical and regulatory teams are completing the final operational pieces for this pivotal Phase III trial which we anticipate to initiate by the end of the year. As this will be a global study involving well over 100 US, European and Asia-Pacific sites with various regulatory and ethics approval time lines, the process of site activation will occur over a number of months. We're taking great care to ensure the right balance between delivering on our two-year enrollment goal and overall study quality. I've been very pleased with the positive response for the protocol design and mechanism of action through the site identification and selection process to date. Even in the current competitive lung cancer landscape. This has allowed us to adjust our country and site mix towards the US and EU and be in a position to select the highest quality site.

You may recall that SUNRISE is a gold standard randomized, double-blind, placebo-controlled trial evaluating bavituximab, plus the chemotherapy docetaxel, versus docetaxel plus placebo, in approximately 600 patients. The sites will enroll patients with stage IIIb or IV non-squamous, non-small cell lung cancer, but progressed after standard front-line treatment. Patients will be randomized to received standard docetaxel of up to six 21 day cycles, 75 milligrams per meter squared, in combination with either 3 milligrams per kilogram of bavituximab or placebo weekly until progression or toxicity. As SUNRISE is a pivotal trial intended to support product approval, the primary end point is overall survival. For additional information about the SUNRISE trial, please visit clinicaltrials.gov.

Now let me ask Rob to say a few words on recent regulatory activities.

Thanks, Joe. As you've just heard from Joe, the SUNRISE global Phase III trial is close to the beginning of its enrollment. This is an exciting time for this program, a point that we achieved following the execution of a great number of activities that relied on close collaboration with many worldwide regulatory agencies. From a regulatory perspective, this global trial is set to roll out first in the United States, followed by sites throughout Europe and the Asia-Pacific region. Our interaction with these countries and regions has been a major focus for our regulatory department for the past several months.

These discussions, including those with the FDA and various European regulatory agencies, have been extremely positive. And I am pleased to say that the process of globally filing our Phase III study protocols is moving ahead very smoothly. We are also looking forward to further meetings with these regulatory authorities throughout the course of the trial. I am very pleased with how these tests have been executed to date and believe that we have the necessary people and qualified third parties in place to support the SUNRISE trial.

With that, I'll turn it back to Joe.

Thanks, Rob. In addition to the work on initiating the SUNRISE trial, we have been expanding our internal capabilities in the area of translational medicine, augmenting our advisory board with prominent clinical immunotherapy experts, such as Drs. Scott Antonia and David Carbone, just to name a couple, in raising awareness of bavi's novel immune mechanism at key medical and scientific conferences.

In late October we sponsored a symposium titled Immune Checkpoints In the Tumor Environment, Novel Targets and the Clinical Promise of Combined Immunotherapies, which was presented at the International Association for the Study of Lung Cancer's 15th World Congress on Lung Cancer. This is the world's largest meeting dedicated to lung cancer and other thoracic malignancies in a symposium focused on the identification of new immunosuppressive targets in tumors and the potential for improved clinical outcomes through multiple immune checkpoint blockades. A section of this presentation was dedicated to the discussion of phosphatidylserine or PS, and its role as an immunosuppressive checkpoint in the tumor micro environment that induces multiple downstream effects. This was the best attended symposium of the morning. And a number of experts and investigators followed up immediately with ideas for collaborations or interest in a clinical trial participation.

More recently, preclinical data combining PS-targeting and anti-CTLA-4 antibodies were presented at the Society of Immunotherapy of Cancers annual meeting, which Jeff will discuss later in more detail. These results support advancing this novel immunocombination into clinical development in patients with advanced melanoma. And we're working with collaborators to initiate an IST in the coming months.

Lastly, as you've heard from Steve, we are continuing to explore the potential of bavituximab in treating breast cancer. Interim data from an IST with paclitaxel and bavituximab with patients HER2-negative metastatic breast cancer presented at this year's ASCO meeting demonstrated an encouraging 85% response rate in 11 of 13 evaluable patients, with 2 of those 11 responders achieving a complete response. These results and our prior clinical experience in breast cancer makes this a high priority development area. We're actively evaluating opportunities to move this program forward as resources permit. And we'll provide an update in the future.

I'll now turn the call over to Jeff who will review the preclinical highlights for the quarter.

Thanks, Joe. Today I want to provide an overview and update on our ongoing preclinical proof-of-concept program designed on exploring the full immunotherapeutic potential of bavituximab. This program was created to capitalize on the data that emerged from Dr. Phil Thorpe's lab last spring, and was presented first at the AACR and later published in the peer-reviewed journal, Cancer Immunology Research. This is a broad program designed to answer key questions surrounding the potential of bavituximab combinations with therapies that target various immune checkpoints. And to define and translate the most effective future clinical development candidates. As Steve mentioned, this program is now receiving guidance and hands-on input from well-known experts in the field of immunotherapy who are now part of our scientific advisory board.

Dr. Dmitry Gabrilovich is a worldwide expert in the immunotherapy field who discovered and identified the role of myeloid-derived suppressor cells. Dr. Scott Antonia has developed strategies designed to thwart the various immunosuppressive mechanisms used by tumors. Dr. David Carbone has advanced the understanding of cellular genetic markers common in each patient's lung cancer, and how to develop specific cancer treatments. And finally, Dr. Hakan Mellstedt is an expert in tumor immunology and immunotherapy, incorporating cancer vaccines, antibody and cytokine treatments. We're very pleased to have these esteemed thought leaders assist us as we advance this exciting program. Of note, two of these individuals were able to participate as speakers in our sponsored symposia at the World Lung Conference, as Joe mentioned.

Recently, we announced the first set of data to emerge from this preclinical program. At the Society of Immunotherapy of Cancers' annual meeting, we presented very encouraging preclinical data, demonstrating that in a mouse melanoma model, a mouse version of bavituximab, combined with an anti-CTLA-4 antibody, resulted in superior growth inhibition, compared to either antibody alone. And importantly with no additional toxicity with multiple treatment cycles. These data have been well-received by the scientific community, with considerable interest. And our goal is to have additional data from this expanded preclinical proof-of-concept program in the coming months. As mentioned, these activities were designed to provide a translational bridge to our clinical program with other immunotherapies. We, along with our newly aligned scientific advisors, believe that these data present a strong rationale to proceed into a Phase I B study with anti-CTLA-4 antibodies in combination with bavituximab, in patients with advanced melanoma. As Joe mentioned, we anticipate that our academic collaborators will initiate this IST in early 2014.

Also, as part of this robust proof-of-concept immunotherapy program, we are examining other immune checkpoint blockade treatments in combination with bavituximab, including anti-PD-1 antibodies, anti-PD-1 ligand antibodies, and vaccine approaches. These targets have shown promising potential as therapeutics in oncology, as well as infectious disease. We expect data from these studies involving our multiple collaborators in the coming months. In short, it is important to note that with the breadth of these preclinical activities, we continue to learn more about bavituximab's immunotherapeutic mechanism of action and therapeutic potential, providing a very directive contribution towards the translational design of our future clinical programs.

With that, I will turn the call back over to Steve.

Thanks, Jeff. Today we also announced that Mr. Steven Worsley has joined Peregrine as Vice President of Business Development, as a member of our executive team. Steven brings with him over 15 years of business development experience within the biotechnology and pharmaceutical worlds. And we expect his addition will significantly augment and expand the ongoing business development discussions around our bavituximab, the broader PS-targeting and Cotara platforms.

I will now turn the call over to Steve for a brief introduction.

Thanks, Steve. It's a pleasure to be here. As background, prior to joining Peregrine I was Chief Business Officer at Centrose Pharmaceuticals, an antibody drug conjugate company developing new ADC drugs for cancer. Prior to that I was Vice President of Business Development at Intrexon, as well as numerous other antibody-focused firms. Leading the business development effort at Peregrine with respect to bavituximab will mark the sixth clinical level drug licensing program I've led and closed. Of those deals, two opportunities led to an acquisition by a larger partner. In the case of the Vectibix deal, it was a key element in the buyout of Abgenix by Amgen for $2.3 billion. I also led the licensing of antibody for RAV12,and B7-H3 antibody for Raven Biotechnologies, which evolved into and acquisition of Raven by MacroGenics in 2008.

All in all, I've been licensing antibodies in the oncology space for the better part of the last 15 years. And very much look forward to executing the business development strategy for Peregrine, especially as our efforts to get to a Phase III up and running, as well as a number of proof-of-concept studies, will add even more value to the bavituximab program. 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, Steve. Since our detailed financial statements on Form 10-Q have been filed today, let me spend just a couple of minutes on a few important financial highlights. As a backdrop, the Phase III SUNRISE trial is on track to start soon. And the research team continues to explore the immunotherapy potential of bavituximab. In order to advance these and other goals, we have been carefully managing our business and enhancing our financial position with our various sources of capital.

Regarding our financial position, it's important to note that we have increased our cash position steadily over each of the last six quarters to $44.4 million, in anticipation of starting the Phase III SUNRISE trial. This provides us the financial flexibility to initiate this trial while also allowing us to evaluate other opportunities, including ongoing partnering discussions. In addition to our enhanced cash position, our cash burn rate from operations, which represents our net loss minus non-cash expenses, decreased $2 million, or 26%, this quarter to $5.8 million, compared to $7.8 million in the same quarter last year. This was primarily driven by an increase in third-party revenue generated from our contract manufacturing business, a key non-dilutive source of capital for us.

Now turning to revenue, contract manufacturing revenue increased 21% this quarter to $7.4 million, as a result of the greater demand for services and the timing of completed projects. In addition, we maintain our initial contract manufacturing revenue guidance of $18 million to $22 million for the entire fiscal year 2014. I would also like to emphasize that we have a strong backlog for future services in the amount of $21.5 million as of October 31, covering services to be completed during the remainder of this fiscal year and into fiscal year 2015.

Looking ahead, we will continue to maintain a balanced financial approach, seeking non-dilutive capital first, including contract manufacturing revenue, a potential debt offering, and potential partnering opportunities as we continue to advance these important programs. We look forward to keeping you updated on our progress. And we will now open the call up for your questions. Kate?

(Operator Instructions)

Charles Duncan with Piper Jaffray.

Hi, guys. First of all, congratulations on the progress with regard to the platform in this quarter and getting ready for the start of SUNRISE. Secondly, thanks for taking my question. I wanted to ask a couple questions about SUNRISE. First of all, Joe alluded to this, but I'm wondering really how you think about geographic enrollment challenges that have beset other lung cancer trials, and how you're going about trying to avoid them.

Sure. Hi, Charles. Yes, I think obviously that's something that we strategize about quite a bit. As you know, it's quite competitive in the major geographies, the ICH regions. But as we've been going through this process of site identification, as I mentioned earlier, the interest level has been extremely high in particularly EU and US. And so I think our strategy is to enroll obviously the maximum number of patients from those regions. And we're confident the majority of the patients will in fact come from there. I think, having said that, when we look back at our prior studies, and we look at various geographies, it didn't appear that there was significant differences based on region. But that is something that we are trying to manage as best we can.

And then Joe, I'm not sure if I caught this or just missed it, but I'm wondering if you could remind me of the powering assumptions given the results from Phase II. What would you like to see? And then if there is an interim analysis. Thanks.

Sure. So, yes, on the Phase II we saw, I think, very positive estimates but because it's Phase II the sample size was smaller and not quite as statistically robust. So, taking that into account, we did more conservatively power this. And you can tell based on the sample size of roughly 600, this is pretty standard fare for an oncology pivotal study. The sample size and obviously the power assumptions behind that are, at the end of the day, agreed upon with numerous regulatory agencies. And we feel confident that if, obviously the results are positive, that would support a marketing application.

Okay. But just to clarify, your results from Phase II you basically discounted them a little bit in terms of setting up expectations for the Phase III; correct?

Yes, absolutely. And I didn't answer your other part of the question. When you do that, we feel that it's possibly even a little bit overpowered. And so, as a result, we have built in -- again, this is pretty standard -- a couple interim looks so that if early on your magnitude effect is really good, then you can maybe take advantage of that during the interim analysis.

Okay. I'll hop back in the queue. Thanks for the added color.

George Zavoico with [Premier] Consulting.

Hi. Congratulations, everyone, on moving along with the elucidation of the mechanism of action. A couple other questions about SUNRISE, following up on Charles' comments. When you say you're going to start the trial before the end of the year, do you mean you're going to open the sites for recruitment, or do you mean you're going to actually announce the first patient in?

We're not getting into that level of detail but suffice it to say we're really looking to get a very fast start, so we're getting a number of sites ready before we initiate trial.

Yes. I think just to expand on that a little bit, I'll say we'd love to announce both those by year end. I think, more importantly, what we're trying to do is make sure when we get the trial up and running it really is up and running with a good start, so that we can influence enrollment upfront in the study because, of course, the earlier in the trial you enroll the study, the sooner you get to end points, and the sooner you hopefully complete enrollment. We are looking at the big picture, also, of making sure we can meet our overall enrollment goal, and clearly having a good start to the trial we think is imperative. So, we really believe we're on track for that.

Okay. In regard to the design, are you incorporating an adaptive component, assuming you have an interim look, that also looks not only at safety but also at efficacy, perhaps with an early termination in the best case scenario? Is there going to be an option to, say, increase the number of patients to increase the power, should you need to do something like that if the interim look suggests that?

The way it's designed it's not adaptive in that sense. It's pretty classic design with interim analyses. It's not adaptive in terms of sample size, prospective sample size reestimation.

Okay. Lately with all these lung cancer trials and the selective patient classifications, as it were, are there any limitations in that regard to what the inclusion/exclusion criteria may be in terms, of, like, six months from recurrence or creatinine failure or anything like that? And, if not, then I presume you're going to look at those as subtypes, to analyze if there are any subtype of patients that respond particularly well.

Yes, we do have some provision in the inclusion and exclusion criteria, which I think when the trial goes live will be further clarified. Obviously we don't want very rapid progressors, meaning patients who didn't even get to the first evaluation time point on front-line therapy. But, beyond that, there's no requirement that they have stable or responding to these for six plus months. And of course there are subset analyses that are going to be preplanned to try to adjust for any kind of imbalance that might occur on the trial.

And finally, with regard to the duration of enrollment -- and I haven't looked at the clinicaltrials.gov so forgive me if it's already on there -- I imagine the overall survival look is about a year. So, with a two-year enrollment if you meet that, then top-line results in about three years then?

Again, it's event driven so that's, like Steve mentioned earlier, a function of enrollment is the enrollment curve, more of a hockey stick, or more of a flat line, straighter line slope that will determine when we think the number of events necessary will hit. But it's really hard to say right now when exactly it will reach the final number of events. And of course the interim analyses are another factor.

You mentioned a number of events. Have you identified how many events will unblind the trial? Can you say that yet?

Again, we haven't gone to that, we haven't announced that level of detail. All I can say is that it's pretty standard Phase III typical study fare. Not going to look at it too early. It's not informative. And you're not going to look at it too late that it doesn't help you.

Okay, thank you very much. I'll get back in the queue.

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

Okay. As you heard today the advancements made during the last quarter have been really placing us in a strong position as we move into late stage development, and continue to execute on a well thought out proof-of-concept program aimed at enhancing shareholder value. We believe that the efforts we are making in aligning bavituximab within the promising area of immunotherapies will broaden both potential applications, as well as increase awareness amongst the scientific, medical industry and investor communities. And we look forward to continuing to update you as we reach additional milestones in the future. Thank you again.

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.