Avid Bioservices Inc (CDMO) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Peregrine Pharmaceuticals Incorporated fourth-quarter and full FY14 financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the call over to Christopher Keenan of Peregrine's Investor Relations group. Mr. Keenan, you may begin.

Thank you, Eric. 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; and Steve Worsley, Vice President of Business Development.

Steve King will begin by providing a brief overview of the Company's progress over the last quarter, including the progress made in our SUNRISE Phase III trial, the achievements coming from our preclinical immunotherapy development program, and the Company's strategy for the coming fiscal year. Joe will then provide an update on our SUNRISE Phase III clinical trial achievements, and updates to our investigator-sponsored trials, or ISTs. Jeff Hutchins will review in greater detail recent data emerging from our immunotherapy program, with Steve Worsley providing an update on the business development activities, as well as the Company's strategies surrounding collaborations. Paul will then finish with a summary of our financial results for the fourth quarter and FY14 as well as provide our full year 2015 guidance of our wholly owned subsidiary, Avid Bioservices. After our prepared remarks, we welcome your questions.

Before we begin, we would like to remind you that during the 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 FY14 ended April 30, 2014, 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 duties to update forward-looking statements, whether as a result of new information, future events or otherwise. With that, I'll turn the call over to Steve.

Thanks, Chris, and thanks to all of you for participating in this afternoon?s call. This quarter capped off a busy year for Peregrine, including the many activities associated with running the bavituximab SUNRISE Phase III trial, the continued successful evolution of our bavituximab immunotherapy program that has yielded encouraging preclinical data, leading to our first immunotherapy combination clinical trial this quarter. We also have an expanding research program, including new collaborations, and another solid revenue quarter for our manufacturing subsidiary, Avid Bioservices. This helped us exceed our stated revenue projections.

As you will hear from Joe Shan, our VP of Clinical and Regulatory, during the quarter we focused on the continued execution of the ongoing SUNRISE trial, which is evaluating bavituximab plus docetaxel in second line non-small cell lung cancer. We now have over 100 global clinical sites initiated, speaking to the large scale of the trial, as well as the logistical challenges. We are happy with progress in the study, and look forward to completing enrollment in the trial by the end of next year.

As an aside, I've had a chance to meet many of the investigators and coordinators involved in this study, and really enjoyed seeing their enthusiasm for being involved in the trial. There is a strong recognition of the importance of this study, and general excitement in being involved in developing a new immunotherapy approach to lung cancer therapy. We look forward to continuing to update you as the study continues to expand, and as we move closer to interim data points for the trial. Joe will give an update on this in more detail, during his prepared remarks.

Besides the SUNRISE trial, we have also been very active on the clinical and preclinical research fronts. Our goal is to attract academic, clinical, and industry-led collaborations in order to explore the full potential of bavituximab as a novel immunotherapy. These efforts include our IST program, which already has ongoing trials in liver, front line non-small cell lung cancer, rectal cancer, and the new trial evaluating our first immunotherapy combination, with Yervoy in melanoma. We have already seen important data coming out of these studies with more expected in the future. Joe, again, will update us on these ongoing clinical studies shortly.

It is important to note that each of these clinical studies was supported by robust preclinical data, and as Jeff will cover during his remarks, we are expanding our collaborations to explore even more immunotherapy combinations that can result in future clinical avenues for development. We expect these efforts to be fruitful from the standpoint of expanding the potential indications for bavituximab and as a great source of news flow over the coming year.

Steve Worsley, our Vice President of Business Development, will update you on his efforts to help drive these important collaborations with potential partners, as well as the current progress in seeking development partnerships. Partnering remains a priority, with the goal being to use partnerships to continue expanding the bavituximab program, while we continue to execute the SUNRISE Phase III trial.

Turning to financials, while we utilize cost-effective strategies, such as employing the IST model as part of our Clinical Development strategy, there are initiatives, such as the SUNRISE Phase III trial, that we are advancing on our own terms and timeline. This approach allows us to continue adding value to the program on our timeline, and as new data supporting expanded combinations comes to light, and new uses of bavituximab are realized, we feel this value will only be amplified.

We continue to maintain a balanced financial approach to operating the business, and as Paul Lytle, our CFO, will explain, our contract manufacturing business, Avid Bioservices, had another strong year, one on which we can continue to build upon. I am pleased with the progress made throughout the pipeline, including the successful rollout to date of our immunotherapy development program.

With recent reports forecasting that the global market for cancer immunotherapies will reach almost $9 billion in 2022, compared with just $1.1 billion two years ago, we believe the potential of bavituximab to play a key role in this therapeutic area is greater than ever. I'll now turn the call over to Joe to discuss clinical progress. Joe?

Thanks, Steve. Let me first say how pleased I am with the progress of start-up activities for the SUNRISE trial over the past few months, which is a complex and lengthy process, especially in the European and Asia Pacific regions.

Our internal team and vendor partners have been working tirelessly to coordinate all the various submissions and timely responses, in order to obtain approvals necessary to conduct a global clinical trial. These approvals range from the national government level, to ethics committee and institutional approval, to shipment import permissions, and as a result, we have now activated over 100 clinical sites worldwide in SUNRISE trial, with more planned to come online over the next few months. We remain on track to complete enrollment of approximately 600 patients by the end of 2015, with two planned event-driven interim data analyses.

As part of these initiation activities, we are implementing an extensive education initiative for investigators and thought leaders. In conjunction with scientific and medical conferences such as the ASCO Annual Meeting, and at Peregrine-hosted events, we conducted several meetings where investigators and key opinion leaders reviewed details on the SUNRISE trial, as well as our overall bavituximab development pipeline. The attendance and active participation at these meetings, especially in cases such as ASCO, where many companies are vying for people's time, is a strong indicator of not only of the level of enthusiasm for the SUNRISE trial, but also for the bavituximab program overall.

We plan to continue expanding these initiatives, and increase bavituximab awareness at key conferences throughout the year. While we continue to execute our plans for the SUNRISE trial, we're also advancing bavituximab development as a novel immunotherapy in other solid tumor indications. Starting with breast cancer, we have now generated data from three separate clinical trials, combining bavituximab with taxane chemotherapy.

The most recent is from an investigator sponsored trial, or IST, by Dr. Alison Stopeck of the University of Arizona Cancer Center in Tucson, in which she previously reported an 85% response rate, including a 15% complete response rate in patients with HER2 negative metastatic breast cancer. Given these results in which approximately half of the patients were triple negative, an extremely difficult to treat disease, and the immune stimulatory synergies that exist between bavituximab and taxane, breast cancer is high on our list of next indications. We look forward to the publication of final data in a manuscript form from this trial from Dr. Stopeck in the near future.

Now we're also encouraged by what we're hearing from the liver IST, led by Dr. Adam Yopp of University of Texas Southwestern Medical Center in Dallas, and look forward to his presentation of the clinical results upon maturity. As patient enrollment and treatment continues, clinical samples are being collected and analyzed, to examine changes in patients' immune response to treatment. This translational work is designed to recapitulate the immunostimulating mechanism of PS targeted antibodies, observed in preclinical models, and we plan to present data at a future conference.

Furthermore, we announced this quarter the initiation of the first immunotherapy-only clinical trial combining bavituximab with an approved checkpoint inhibitor. A Phase I IST, sponsored by Dr. Art Frankel, Professor of Internal Medicine at UT Southwestern Medical Center in Dallas will test bavituximab in combination with Yervoy, an approved anti-CTLA-4 checkpoint inhibitor, in up to 24 patients with advanced melanoma. As you will hear from Jeff in a moment, this clinical trial represents the next stage in development of bavituximab with other immunotherapeutic strategies, and is directly supported by pre-clinical models with this novel combination.

As this is an open label two arm randomized single-center trial with numerous immune endpoints, we hope to provide interim data updates throughout the trial. And with that, I'll turn the call over to Jeff to review our pre-clinical initiatives, as well as our collaboration goals.

Thanks, Joe. In addition, we are very pleased with the data emerging from the bavituximab immunotherapy development program, and as such, continue to be aggressive in ensuring that we are presenting this to the most appropriate scientific and medical audiences.

This quarter, we had the opportunity to present at two Keystone Symposia and the AACR Annual Meeting, further validating the immunostimulatory mechanism of action of bavituximab, and its potential in both oncology and anti-viral therapeutic areas. At the Keystone Symposia and the AACR meeting, data was presented showing that a combination of a PS targeting antibody, equivalent to bavituximab, and an anti-CTLA-4 or an anti-PD-1 antibody exhibited greater tumor growth suppression and longer survival than an anti-CTLA-4 or an anti-PD-1 antibody alone. As well, these animals that survive the initial tumor challenge develop tumor-specific protective immunity that were resistant to rechallenge of the initial tumor.

In a separate study, also presented at the AACR conference, an equivalent antibody to bavituximab administered with stereotactic body radiation therapy showed 100% improvement in survival, and a favorable tumor eradication in a model of non-small cell lung cancer, compared to radiation therapy alone. As part of a broader strategy in the anti-viral area, researchers presented data showing that a PS-binding antibody inhibited HIV infection of cells by indirectly blocking viral receptors used by HIV to facilitate infection.

As you can see, these are very encouraging data that we have been able to share with the scientific community over the past few months, and serves as a very important step in validating our programs. As well, we continued to pursue new internal and collaborative efforts, to further evaluate and expand bavituximab combination opportunities.

These data, along with the translational work that our teams have done, have allowed us to execute the next step in our development program. The movement from the laboratory setting into the clinic, just as we did with the melanoma IST that Joe just discussed. With that, I'll turn it over to Steve Worsley, for a review of the business development and collaboration goals. Steve?

Thanks, Jeff. Today, I will speak to our strategy as it pertains to partnering, as it has greatly evolved over the last two years, part due to two events. The first of those being the Phase II experience in September 2012, and the second, the subsequent data from Phil Thorpe's lab validating the immune stimulatory mechanism of bavituximab.

When taken together, partnering should be thought of in a very different light than in early 2012. Essentially, there are two partnering buckets we would like to fill. As it is clear that we are able to efficiently execute the SUNRISE Phase III trial, our goal is to seek a partner to assist us in advancing bavituximab into indications into the mid-stage clinical trials that have shown early clinical promise that Jeff and Joe alluded to. We believe that data to date supports several indications, which we are including in our discussions.

We are also seeking collaborators that build on what we have just heard from Joe and Jeff, regarding other checkpoints of pathways such as PD-1, IDO, immunostimulatory drugs and even vaccines. These will be very early stage collaborations, aimed at enhancing the data to emerge from the ongoing Phase IB IST in advanced melanoma. We continue to have discussions with numerous potential partners, and updating them with new data as it emerges from the program. If they are in an immune oncology space or have a drug candidate that can be leveraged by the immunostimulatory mechanism of bavituximab, they are certainly on our radar.

This past quarter, with data from Keystone and AACR in hand, we were able to engage several prominent companies. This is a process that takes time, and should not be rushed. We have a clear idea of how we want to advance bavituximab, and a key will be to find a partner aligned with that vision.

We are working as efficiently as possible, we appreciate your patience, and we look forward to updating you as to the progress in this area. With that I'll turn it over to Paul for a review of the financials for the quarter.

Thanks, Steve. Let me shift gears now and spend the next few moments covering a few financial highlights, and our related financial goals.

Starting with our revenue-generating business, Avid Bioservices, a year ago, we guided that our FY14 contract manufacturing revenue was expected to be between $18 million and $22 million, and I'm pleased to say that we beat those expectations with $22.3 million in contract manufacturing revenue for the full FY14. This was partly driven by a strong fourth quarter, where Avid generated over $6 million in revenue.

We expect FY15 to be another good year, and project the contract manufacturing revenue will be between $19 million and $23 million based on our current commitments. Now in addition to providing clinical and commercial manufacturing to our clients, Avid is strategically aligned to support the commercial supply of bavituximab, and we are evaluating options that would support the potential commercial launch of bavituximab in addition to supporting the continued growth of Avid's business.

Now let me turn to our net loss and our operating cash burn, which is calculated by taking our net loss and deducting non-cash expenses. As expected, our net loss increased to $35.4 million in FY14, as we supported the Phase III SUNRISE trial and other corporate matters, but it's important to note that when you deduct non-cash expenses from this figure, such as depreciation and share-based compensation, our operating cash burn for FY14 was significantly reduced to $28.2 million. This compares to an operating cash burn of $24.8 million in FY13.

Now, funding our operating cash burn leads me to our financial goals. As we advance our Phase III SUNRISE trial, and prepare for potential commercialization of bavituximab, we are closely managing our operations, our cash position, and our various sources of capital. Over the past fiscal year, we have continued to strengthen our cash position to support these development goals, and reported over $77 million in cash and cash equivalents as of April 30, 2014. Last month, we raised an additional $9.5 million in net proceeds from the sale of Series E preferred stock at $25 per share, representing less dilutive capital, with a conversion price of $3 per share. Based on our current cash position, we have the needed capital to fund our operations for at least the next 12 months, based on our current financial projections.

Looking ahead, we will continue to closely manage our operations in line with our cash position, while maintaining and 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. Operator?

(Operator Instructions)

Our first question comes from Charles Duncan from Piper Jaffrey.

Congratulations on a good quarter of progress. So my first question is regarding SUNRISE. Appreciate all of the color on that, Joe, and what you've been doing to make that happen. 100 sites started up. Can you tell us what defines a site start up? Is it actual patients dosing, or is it just drug on board, and they're ready to go, and if it's not patient dosing, can you give us a sense as to what percentage of those sites have enrolled patients?

Charles, I think the short answer to that is a standard definition. The site is activated, meaning they are able to enroll, doesn't mean they actually enrolled. As you can imagine, this is a fluid process that the sites don't immediately necessarily have eligible patients the second they are open, so our definition of site activation is that they have all of the approvals, and drug on board, ready to go.

As far as, I think we're not going to comment on enrollment patterns or any specifics on that. I think if there's something material that necessitates that kind of information. In the meantime, I think I can say that enrollment is going well in all of the regions. It's not limited to a particular location.

Good and then let's see, just a clarification regarding enrollment. I think you said this during your prepared comments, but to complete enrollment by the end of next year, does that mean the end of fiscal year or calendar year, and which year are you talking about, 2016 or 2015?

Yes, that's the end of calendar year 2015.

And then you are including Asian sites as well. That's intriguing to me, because obviously this is a big challenge worldwide, but particularly in Asia. Can you tell us whether or not any of those sites are in Asia?

I'm sorry, what was the last part of your question?

Any of those sites have been Asian, in Asian countries?

Oh, yes, yes that's available on clinicaltrials.gov, so there's a few countries that we are activating in Asia, so yes, Taiwan, Korea, and Australia.

Okay, good deal. And then one question on ISTs, and then just one on business development. Regarding the ISTs, can you go back and review just briefly the evidence that there might be some synergies with taxanes for utility in breast cancer?

Sure. I think even before the ISTs, you'll recall we actually conducted two studies, Company-sponsored studies with taxane combinations, and those were signal seeking, and we saw, I think, very consistent results across not only those two, but there was a lung cancer trial that was similar in design as well, also with a taxane combination.

They saw high response rates, prolonged PFS, and then even very early on, prolonged survival, which at that time we did not quite understand the immune mechanism behind that, that might explain that. So I think taken together, first there was a clinical observation and now also, we now understand that taxanes themselves have some immunostimulatory mechanisms. Primarily they do have effects on suppressing or inhibiting these suppressor cells that bavituximab also works with, so I think there's mechanistic support for that synergy, as well.

Okay, my one question regarding business development for Steve is the way that you describe your efforts, and appreciate the need for patients, not that I detect any lack of patients, but it seems like the partnering efforts are more along the lines of strategic, rather than big source of cash or validation. It seems like you're more focused on partnering bavi with mechanistic rationale. Is that true?

Yes, that's fair. I think strategically, we're looking to add to the mix a company that's reflective of where we want to take the program, in multiple indications. Obviously, there's a strong bent towards looking at regional plays outside the US. Those companies tend to be a little bit more aggressive, in what they take on, so those are two main thrusts.

Just to expand on that Charles, I think the other aspect of course is that there are lots of studies that we could be running, and I think one of the other things we really want to look at in a partner is someone who can come in and really help us to expand the indications. As Joe mentioned earlier, we've got some nice data already generated in breast cancer, typically like the paclitaxel combination. We have another IST ongoing in liver cancer, and obviously, as you're talking about Asia Pacific again, that's a huge indication throughout that region. So we're also looking at it not just from a pipeline standpoint, which is very important, but also from the standpoint of companies that want to really help us to push the program forward in some of these new indications, giving us more shots for success, and increasing the value of the program at the same time.

That's helpful, thanks for the added color.

(Operator Instructions)

Our next question comes from George Zavoico from MLV & Co.

Good quarter. Congratulations. Paul, I have a question for you, because you said that you have capital, enough capital for 12 months, based on current finances, and then you mentioned you have an operating cash burn of about $28.2 million, and you also said you have a strong cash position of $77 million. So it seems based on current burn, you actually have more than two years of cash so that implies that in effect you're guiding to greatly increasing your R&D and your SG&A revenue. Can you speak to that discrepancy a little bit? Perhaps it has to do with starting the breast cancer trial.

Sure, in terms of my prepared remarks, George, I was saying that we had cash for at least the next 12 months, so we don't actually guide towards an operating cash burn, but we basically always want to tell shareholders that we have enough money to run our business for at least the next year. Obviously, if you look at the cash burn rate for the past year, and it's obviously going to be more than that, but we don't really guide towards the actual cash burn in our financials or our press releases.

And you said, based on your current finances, the 12 months in what your expenses are expecting to be, and then--.

Maybe what I should say, George, is that our burn rate for the past 12 months, we initiated the bavituximab SUNRISE trial in December of this past fiscal year.

Halfway through, a little more than half way through.

So you'd expect the cash burn rate to go up, just because we'll be enrolling a lot more patients this fiscal year than we did last.

Okay, and again, you've held out the prospect of potentially a breast cancer trial as well, so that's very interesting as well, of course to expand on your -- on the number of trials that you do, the Company-sponsored trials that you do. There's also an interesting comment in the press release about Avid that I wanted to follow-up on. You mentioned that you wanted to provide Avid with available capacity for continued growth.

Now the area of antibody production is now evolving more than just having antibodies, now there's antibody drug conjugates, there's engineered antibodies, that sort of thing. Is Avid intending to move into that area, where you might be able to do some post-antibody production modifications, as it were, to provide your customers with added services in that regard? And I imagine that would also increase your burn as well, as you expanded your capability there.

Yes, I think, as you know, we have grown Avid over the years, in a, I guess, a very targeted way, and it's really built around what our customer needs, where do we see the marketplace going, clearly antibody drug conjugates are a hot new area. That does require some specialized equipment and we have looked into that, and it is actually very doable within our business model, so I think we'll leave those options open.

And I think again, as we strategically want to continue to grow the business, obviously keeping in mind bavituximab also will have its own production needs down the road, we're really looking to the future as we have our current facility, which has gotten busier and busier over the years. We recognize the opportunity for expansion and looking at ways to accomplish that, and still maintain this balanced financial perch we have.

Yes, something I think strategically, we want to grow the business, we want Avid to be bigger and even more successful than it already is, we do view it as being a value driver, and of course the biggest value driver would be at some point making lots and lots of bavituximab for the marketplace. So we want to be ready for that opportunity as well. But antibody driven conjugates is a hot area, there's opportunities in fill finish, and there's a lot of things we can do with business and continue to grow with, and we think even really enhance its set of offerings to match what the market is asking for.

And do you have room for expansion at the current site?

We're looking at what the various options are for that. We have sold off a lot of our existing warehouse space, and with the current operations now reaching over $20 million-plus in annual revenue, and so we want to make sure again that we make the right decision when it comes to expansion. We don't want to try to do something in too small of a space, and then have issues with not being successful.

And final question regarding Avid, since it's obviously a very important part of your revenue stream. Is any single customer greater than say 10%, 20%, 30% or 40% of the business, that you're dependent on?

Currently, George, we have one customer that's disclosed in our segment reporting section of our 10-K, that makes up, I believe, it's over probably near 80% of our contract manufacturing revenue.

Okay.

And that's part of the nature of, because that customer has moved into commercial production, so naturally that becomes a much more consistent part and one of the reasons our revenues are much more consistent now than they were say three or four years ago, so I think it's just the very nature of that type of customer. And clearly, we want to bring in more of those types of customers, and really what it comes down to is our success is built on our customer's success, and biologics production is a very valuable asset, and one of those things that once you start production of a facility, it's very advantageous to keep producing there.

Absolutely.

Clearly, we want to have more opportunities like that.

Great, okay, that sounds really good. Good luck with that, and look forward to more progress announcements this coming quarters. Thank you very much.

I see no further questions at this time. I'd like to turn it back to Steve King, CEO, for closing remarks.

I'd like to thank you all again for participating in today's call. From our discussion, it is clear that we have had a very productive quarter and an eventful year. The strides we have made in our clinical pipeline, as well as advancing early stage work coming from our immunotherapy development program, position us for a strong 2015. Over the next several months, we look to share with you additional strategic decisions aimed at bringing increased value to our pipeline, patients, and to our shareholders. So again, thank you very much and we look forward to updating you with this progress on the next call.

Ladies and gentlemen, this does conclude today's conference. Thank you for your attendance. You may now disconnect. Everyone, have a great day.