Emergent BioSolutions Inc (EBS) 2007 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Trubion third quarter 2007 earnings conference call. Today's conference is being recorded. At this time I'd like to turn the conference over to Trubion's Senior Director of Corporate Communications, Mr. Jim DeNike.

Thanks, Katie, and thanks, everyone, again for joining us. On the call today from Trubion are Dr. Peter Thompson, President, Chief Executive Officer and Chairman, and Michelle Burris, Senior Vice President and Chief Financial Officer. Also joining the call for the Q&A are Dr. Dan Burge, Chief Medical Officer, and Dr. Ken Mohler, Senior Vice President of Research and Development.

Earlier today we issued our third quarter 2007 financial results, and a copy of our release can be found on the Trubion Web site at Trubion.com.

I'd like to remind each of you that today's conference call may contain forward-looking statements based on our current expectations. These statements are only predictions, and actual results may vary materially from those projected. Please refer to Trubion's documents filed with the SEC concerning factors that could affect the company, copies of which are also available on our Web site. I'd now like to turn the call over to Peter.

Thank you, Jim. Thank you for joining us again so soon after our ACR call last week. Since we discussed ACR results last Thursday, most of my comments will focus on our other key initiatives. Michelle will then provide a summary of our third-quarter financial results, and we will then welcome your questions.

Many of you participated in our conference call on November 8, during which we provided an update on TRU-015 for RA and the data that we presented at the ACR annual meeting. For those of you unable to attend the call, we have posted our ACR poster presentations on our Web site, and the archived conference call and Q&A Webcast is available for replay in the investors section of our Web site.

As we stated on the call last week, we believe the data presented at the ACR annual meeting demonstrates TRU-015's ability to significantly improve RA signs and symptoms following a single infusion, and therefore, could represent a new level of convenience for patients and physicians. The data presented at ACR also suggests that clinical responses may be maintained during B-cell recovery, which could represent an attractive alternative to current therapies.

We and our partner have agreed on the design for our next study that we believe could be supportive of a registration package, and we look forward to TRU-015's continuing development. Both companies are working to finalize protocol details and plans for study initiation, and we will provide additional information after patient dosing has begun.

As we also stated on the call last week, we have already begun retreatment of RA patients from the TRU-015 Phase IIb trial. 80% of those subjects who received initial therapy in the Phase IIb study have already been retreated, and we expect nearly all of the original participants to register for retreatment.

Looking ahead, we expect to begin TRU-015 Phase I clinical trials for both systemic lupus erythematosus and non-Hodgkin's lymphoma. These programs are the most recent expansions of our CD20 collaboration with Wyeth, and we look forward to sharing more with you as these and other product candidates progress.

I am also pleased to inform you that we have filed an IND application for our proprietary TRU-016 product candidate, a novel CD37 targeted therapy for evaluation in patients with B-cell malignancies. This is an important milestone for us, and we will issue a press release and provide final trial protocol details once patient dosing has begun.

Before we open the call to questions, I would like to turn the call over to Michelle for a summary of our third quarter 2007 financial results.

Thanks, Peter. I'll take a moment to review our financials and then reviewed our guidance. Revenue for the third quarter and nine months ended September 30, 2007 was 4.6 million and 14.5 million, respectively, compared to 16.5 million and 30.2 million, respectively, in 2006. The three and nine-month decreases were due to decreased milestone revenue, reduced reimbursement revenue from the Wyeth collaboration as a result of the successful transfer of manufacturing activities for TRU-015 from Trubion to Wyeth during 2007, and decreased revenue from the recognition of the 40 million upfront fee from Wyeth due to a change in the estimated research and development period.

The estimated term of the research and development service period is reviewed and adjusted on a quarterly basis as additional information becomes available. After review, we have revised the length of the service period to reflect our commitment to conduct the TRU-015 RA Phase IIb retreatment study. These decreases were partially offset by an increase in reimbursable clinical costs that were related to our Phase IIb clinical trial for TRU-015 that we completed in July 2007.

Total operating expenses for the third quarter and nine months ended September 30, 2007 were 11.5 million and 35.9 million, respectively, compared to 11.6 million and 30.6 million, respectively, in 2006. The three-month decrease was primarily due to the decrease in outside manufacturing costs for TRU-015 due to the successful transfer, again, of the manufacturing activities to Wyeth during 2007. This decrease was partially offset by increased clinical costs related to the Phase IIb clinical trial for 015, increased personnel-related expenses due to increased headcount, and increased outside manufacturing costs related to our own proprietary product candidate, TRU-016.

The nine-month increase was primarily due to increased clinical costs that are related to TRU-015's Phase IIb study, increased personnel-related expenses reflecting increased headcount, and increased outside manufacturing costs related to 016. These increases were partially offset by lower outside manufacturing costs for 015, due, again, to the successful transfer to Wyeth of that manufacturing, and lower non-cash stock-based compensation charges.

Net loss for the third quarter and nine months ended September 30, 2007 was 5.9 million, or $0.33 per diluted common share, and 18.4 million, or $1.04 per diluted common share, respectively, compared to net income of 5.4 million, or $0.40 per diluted common share, and 871,000, or $0.06 per diluted common share, respectively, in 2006. We had 86.6 million in cash, cash equivalents and investments as of September 30, 2007, compared to 90.3 million as of June 30, 2007.

As a result of the lower anticipated reimbursement revenue and lower expenses due primarily to the successful transfer of the manufacturing activities for 015 from Trubion to Wyeth, we now expect 2007 results to fall within the low-end of or slightly below all of our previously provided guidance ranges. As a reminder, the ranges we have previously provided were revenue of 20 to 25 million -- revenue, again, being generated from fees, milestones and reimbursements earned through the Company's Wyeth collaboration -- total operating expenses of 55 to 60 million, and operating cash requirements of 28 to 32 million.

That concludes my update on our financials, and I would once again like to thank all of you for joining us today, and we look forward to updating you again on our next earnings call. As we open the call for Q&A, we would be happy to (technical difficulty) you may have about the data presented at ACR last week. And I'd also like to remind you that Doctors Burge and Mohler are also available for questions as needed.

Katie, please go ahead.

(OPERATOR INSTRUCTIONS). Steve Harr, Morgan Stanley.

I've got a couple of questions. Michelle, I guess I'm somewhat surprised (inaudible) to pay for the retreatment trial yourself (inaudible) understanding that Wyeth was going to pay for the development of this drug. What -- are there any other studies that Wyeth is -- that you are going to have to pay for between now and registration?

Actually, Steve, I'm sorry if I left the impression that we are paying for that study. We are not paying for that study at risk. We are reimbursed by Wyeth.

That makes more sense. You're just paying for it and reimbursed.

So what that means is that's why we have to adjust the recognition period of the 40 million upfront, because we're conducting that study.

But you will be reimbursed?

Absolutely.

Any update on 016, in terms of when we're going to see any clinical data from that drug?

As noted, Steve, we have filed the IND for that. So assuming that there isn't a holdup there, we would anticipate trying to get clinical activity started probably, accounting for the holidays, in the first part of next year. And as is our practice, we would be providing more details about the initial clinical experience we anticipate with that drug at that time.

Thank you.

William Sargent, Banc of America Securities.

Michelle, I was wondering, could you tell us what the new duration of the recognition period is at this point?

The recognition period -- it will be, I believe, detailed out in our 10-Q. We have currently estimated that to be six year and three months from the time of signing. And again, that speaks of our estimate of the retreatment and the number of retreatments; that can, obviously, change, as can the need to evaluate that timeline going forward should we conduct additional studies, or should retreatment be accelerated or some other events come up under our research and development agreement that we take on.

So the new recognition period is six years three months?

Correct.

I was wondering, in thinking about the design for this additional dose-ranging trial, is there the potential that you could get information that you would find sufficient in order to potentially start an additional Phase III in parallel with this trial? Or is the anticipation right now that this trial would need to be completed and [let] out before an additional registrational level trial would be started for RA?

We're still working with Wyeth to fully establish the plans for the timing of the additional studies, and we'll release that information when we're able to do so with our partners.

Is there a possibility that the two trials could be running in parallel at some point?

I think we'd prefer to comment on that after we've completed and finalized the trial designs and further discussions with our partner.

One quick question, Michelle, for stock option expense in the quarter.

Yes? What was (multiple speakers)

I didn't hear it in the comments.

We actually -- that is not in the press release specifically. It is in the Q that will be filed, of course. The non-cash stock comp for the three-month was just under 1 million, and for the nine months ended was 2.7.

Thank you very much.

(OPERATOR INSTRUCTIONS). Joel Sendek, Lazard Capital Markets.

Two questions. First, (inaudible) on the financial side. If I look at the -- even the low end of the operating expenses, at your current run rate, it would seem that you would have a significant jump up in expenses in the fourth quarter just to meet the low end. Am I calculating that right?

To meet the low end, you are calculating that correctly. Typically what you see in the fourth quarter -- we could be slightly under that burn rate. It depends upon [AT] and how much we carry over on the balance sheet into the beginning of '06. That's really just a cutoff issue.

I'm wondering -- I know you're not giving '08 guidance or whatever, but we normally use the fourth quarter as kind of a run rate. And if it's ramping up substantially, that's going to impact -- I just want to make sure that --

Keep in mind that it's going to be difficult to use a Q4 run rate for '08, because our own proprietary asset, which is 016, will begin clinical studies in '08. And that really won't be reflected in '07. While some of the manufacturing cost, as explained in the text, or our prepared remarks -- that manufacturing occurred in '07, obviously, the clinical studies will occur all throughout '08.

Okay. That's helpful. As far as the reimbursement, as the trials continue with Wyeth, should we model in a slight increase in sequential reimbursement, or should that be more aggressive as we model it out?

I think (technical difficulty) let's look at the fact that the Phase IIb study was fully enrolled about the end of -- at the beginning of the year, and the retreatment is 80%. You could probably suppose those are going to be fairly similar since we're going to be treating the same number of patients.

That's it. Thanks.

Shiv Kapoor, FBW.

First, can you talk about some of the endpoints that are being used currently in RA trials and what you're using? What do you think is going to evolve as the leading endpoint? We've got ACR scores. We've got DAS-28. We've also got some longer-term endpoints, the one-year and the two-year endpoint. Could you comment upon what's more important and what should we be focusing on with regards to TRU-015 and competition in the biologic?

Shiv, I'll let Dan answer that question. He can talk from his perspective of the overall field. But, obviously, with respect to this next study, it awaits finalization of protocol details.

Certainly the endpoints that have been used predominantly for approval, at least in the United States, has been the ACR 20. The regulators don't have any firm requirements for which endpoint you use; these are individually negotiated between the Company and the regulatory authorities. I think that would go -- be true for also ex-US. I still think the predominate endpoints that we're seeing used are ACR response measures for approval these days.

For signs and symptoms.

For signs and symptoms. Correct. The longer-term endpoints, clearly, are necessary for physical function and radiographic endpoints. Everybody is, obviously, always interested in seeing the longer-term clinical [efficacy] ACR responses, but those have not yet been the approval endpoints for clinical response.

With regard to the competitive dynamic emerging with regard to biologics in RA, were there any substantially newer therapies that you thought were impressive, or does the competitive dynamic look pretty stable with methotrexate, followed by anti-TNF, followed by, perhaps, or in conjunction with, anti-CD20?

I think that the paradigm that you've just proposed is still the current clinical paradigm that people are considering right now, just as you described.

Thank you. We have no further questions at this time. I'd like to turn the conference back over to Dr. Thompson for any additional or closing remarks.

I'd like to thank everyone again for your continued interest in and support of Trubion, and we look forward to speaking with you again soon.