葛蘭素史克 (GSK) 2005 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the ID Biomedical Corporation second-quarter earnings results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference called is being recorded on Monday, August 15, 2005, at 5 PM Eastern Time, and I will now turn the conference over to Dean Linden, Director of Corporate Communications. Please go ahead, Mr. Linden.

Thanks very much, Mark. Good afternoon and thanks for joining us to discuss ID Biomedical's quarter ended June 30, 2005. As Mark said, my name is Dean Linden, Director of Corporate Communications, and I am joined today by Dr. Tony Holler, ID Biomedical's Chief Executive, and Richard Bear, ID Biomedical's Chief Financial Officer. They will begin with a report on the Company's 2005 second-quarter financials, and then Tony will take us through a general overview of the Company's activities over the quarter. Finally, we will open the call to your questions.

In a moment, I'll turn the call over to Richard. However, first, if you can bear with me, I'll make a brief comment regarding forward-looking statements. The information in this conference call contains so-called forward-looking statements about ID Biomedical's expectations, beliefs, intentions or strategies for the future, which may be indicated by words or phrases such as anticipate, expect, intend, plan, will, we believe, ID Biomedical believes, management believes and similar language.

All forward-looking statements are based on ID Biomedical's current expectations and are subject to risks and uncertainties and to assumptions made. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include the Company's ability to successfully complete preclinical and clinical development of its products; the Company's ability to manufacture its products; the seasonality of the flu vaccine business and related fluctuations in the Company's revenues from quarter to quarter; decisions and timing of decisions made by the health regulatory agencies regarding approval of its products for human testing; the Company's ability to enter into distribution agreements for its products and to complete and maintain corporate alliances relating to this development and commercialization of its technology and products; market acceptance of its technology and products; and the competitive environment and impact of technological change and other risks detailed in the Company's filings with the Securities and Exchange Commission.

ID Biomedical bases its forward-looking statements on information currently available to it and assumes no obligation to update them.

With that, I'm happy to turn the call over to Richard Bear to report on 2005's second quarter financials.

Thank you, Dean. The Company recorded a net loss of 32.5 million or $0.75 per share for the three months ended June 30, 2005, compared to a net loss of 10.9 million or $0.26 per share for the three months ended June 30, 2004. The net loss for the six months ended June 30, 2005, was 60.1 million or $1.40 per share, compared to a net loss of 21.8 million or $0.52 per share for the same period in 2004.

The Company's business follows a seasonal pattern with sales of FLUVIRAL, the majority of the Company's product sales, occurring only in the third and fourth quarters. The seasonality of the Company's FLUVIRAL sales may result in performance in any one quarter that may not be necessarily indicative of performance for the entire year.

Included in revenue are product sales from our two marketed products, FLUVIRAL and NeisVac-C, research and development contract revenue, deferred licensing revenue and other revenue. The Company recorded product revenue of 7.6 million and 14.5 million for the three and six months ended June 30, 2005. This revenue primarily relates to the sale of the Company's NeisVac-C vaccine to the Canadian government. There was no product revenue during the first quarter for the first three or six months of 2004.

The Company recorded research and development contract revenue in the amount of 3.9 million for the three months ended June 30, 2005, compared to 2.0 million for the same period in 2004. Research and development contract revenue for the six months ended June 30, 2005, was 8.3 million, compared to 2.9 million for the same period in 2004. Research and development contract revenue includes revenue recognized as a result of the Shire funding facility to support the development of the pipeline vaccine candidates acquired from Shire. The Company determined that these amounts are appropriate to recognize as revenue, since the amount and date of repayment of these advances are not known at this time.

The Company recorded cost of product sales of 6.9 million and 13.1 million for the three and six months ended June 30, 2005. Cost of product sales includes the expenses related to the distribution of NeisVac-C, the cost related to pandemic readiness fees and other revenue-related expenses. There was no cost of product sales for the three and six months ended June 30, 2004.

The Company recorded research and development expenses of 23.5 million for the three months ended June 30, 2005, compared to 8.2 million in the same period in 2004. For the six months ended June 30, 2005, the Company recorded research and development expenses of 45.8 million, compared to 18.3 million for the same period in 2004. These increases are a result of the clinical development programs acquired from Shire, predominantly the costs being incurred in support of the U.S. licensure of the Company's injectable influenza vaccine.

Also impacting research and development expenses is the clinical cost associated with advancing our other lead development programs. As we have previously guided, we expect our research and development expenses to continue to be substantial for at least the remainder of this year related to the potential licensure of the Company's injectable influenza vaccine in the United States.

The Company benefited from research and development tax credits and grants in the amount of 2.5 million and 4.0 million for the three and six months ended June 30, 2005, compared to 0.2 million and 0.5 million for the same periods in 2004. Included in research and development tax credits are amounts received or receivable from Technology Partnerships Canada, National Institutes of Health and provincial government investment tax credits.

The Company recorded selling, general and administrative expenses of 8.7 million and 15.6 million for the three and six months ended June 30, 2005, compared to 2.7 million and 5.0 million for the same periods in 2004. These increases are primarily the result of the selling and administrative costs acquired in the Shire acquisition. Also contributing to the increase is cost related to our Sarbanes-Oxley reporting compliance and stock-based compensation.

Interest expense and other finance charges in the amount of 4.4 million and 8.3 million were recorded for the three and six months ended June 30, 2005, compared to 8000 and 21,000 for the same periods in 2004. The increase in interest expense and other finance charges is a direct result of the flu advances received under the Shire funding facility and the interest expense and finance charges associated with the loan payable used to repurchase the Shire subscription receipts.

The Company had cash and short-term investments of 113.3 million at June 30, 2005, compared to 105.1 million at December 31, 2004. Included in cash and cash equivalents and current liabilities is US$30 million held in escrow and payable to Shire on September 9, 2005.

The Company's net working capital increased to 63.1 million at June 30, 2005, compared to 53.7 million at December 31, 2004. The increase in working capital is primarily the result of the sale and leaseback transactions completed during the first quarter of 2005, plus funding of the Company's development, manufacturing clinical trials, facility expansions and to expand (ph) research.

That concludes the financial highlights for the second quarter.

Thanks, Richard. I guess I'll call on Tony to give his report on the activities of the Company during the quarter.

Thank you, Dean. In the second quarter of 2005, our main focus was advancing the BLA filing of our influenza vaccine in the U.S. market. I am happy to report we are on track with the work required to complete this filing and that we also made progress in advancing our three key products in clinical development and are on schedule with each of these programs.

Let's first look at FluINsure, our internasal influenza vaccine. We recently met with Health Canada and received a positive reception to the design of our clinical trial in children. Consequently, we will initiate this first pediatric study in the fourth quarter of this year as planned.

Looking at our StreptAvax vaccine program, we have completed a series of clinical trials in healthy adults and are in discussions with regulatory authorities in the U.S. and Canada, seeking permission to begin testing this vaccine in children. We expect to begin our pediatric clinical trial in the second half of this year.

Regarding our pneumococcal vaccine, PGCvax, we have completed a series of clinical trials in adults, the elderly and toddlers. The next developmental step will be to enter Phase I safety and immunogenicity studies in infants, which we are on track to do before the end of the year.

Also in the second quarter, we continued our discussions with the Canadian government regarding funding to conduct clinical trial on a pandemic mock flu vaccine based on the H5N1 strain. This is the strain that most experts believe could cause the next worldwide flu epidemic. We expect to conclude our discussions with the Canadian government shortly.

IDB continues to be a leading company in terms of pandemic preparedness, and with the expansion of our manufacturing facility, we will be well-positioned to supply this important product to the Canadian government, as well as other potential parties in need of pandemic vaccine, such as governments in Southeast Asia or the United States. Early in the year, ID Biomedical began work on a pandemic flu vaccine based on the H5N1 strain of influenza.

Now let's turn to the number-one priority for ID Biomedical in 2005, the commercial development of our injectable influenza vaccine for the U.S. market. I'm pleased to report that so far, everything is on schedule to file the BLA in the fourth quarter of this year. We are progressing well with the expansion of our Québec City and Laval manufacturing facilities. In Québec City, the construction phase of the expansion has been successfully completed on time, and our efforts are now concentrated on the validation of the equipment and processes.

In the second quarter, we also began the upgrade of our Laval manufacturing facility. This work was initiated in June, right after we completed the upstream steps of the production of this season's influenza vaccine for the Canadian market. This comparatively small project will be completed and validated by year end. Thus, both of these facilities will be completed in time for our BLA filing. By using both facilities, we can maximize our production capacity. We believe that our total production capacity will exceed 75 million doses in 2007 and beyond.

On the regulatory side, we continue to receive very positive news. After the FDA had made our flu vaccine eligible for accelerated approval and priority review in late January of this year, the FDA granted our flu vaccine fast-track status in early July. With this newly obtained status, ID Biomedical has access to the major regulatory mechanisms put in place by the FDA to facilitate rapid licensure. These programs are applicable due to the ongoing shortages of influenza vaccine in the United States.

Accelerated approval, priority review and fast-track are not easy to differentiate and understand. Let me explain what each of them means to ID Biomedical's BLA filing process and how they positively impact us.

First, accelerated approval. This mechanism allows companies to license and market a product while conducting postmarketing studies to verify clinical efficacy. This means we can conduct certain studies after the product is approved instead of having to conduct all studies prior to approval.

In our case, as part of this accelerated approval process, the FDA requested that we expand our initial clinical trial in the U.S. from 300 to 1000 subjects. We now have completed this Phase III study, and the data is being compiled and analyzed so that it can be included as planned in the BLA filing towards the end of the year.

The priority review mechanism gives the FDA up to six months to review the BLA as opposed to 12 months under normal circumstances. Priority review can be as early as four months, depending on the FDA's priorities. The timing of the BLA filing is important because with a six-month review time, we would expect to hear from the FDA, if the review is positive, toward the end of the first half of 2006 or within our manufacturing window for the 2006-2007 flu season. The earlier we can hear something positive, the better, obviously; but this timing would be sufficient to allow the Company to potentially manufacture 20 to 25 million doses for the U.S. in the 2006-2007 flu season.

Our distribution partners, Henry Schein, AmerisourceBergen and McKesson, have a contractual obligation to purchase these doses if we get licensure of our flu vaccine by April 1. But we believe, even if we go past that date, so long as approval looks to be imminent and we are having positive feedback from the FDA, we will be able to sell out our entire capacity.

Finally, the fast-track designation allows for frequent communication with the FDA and the possibility of submitting portions of the marketing application before the complete BLA is submitted. The benefit for us is to have increased interactions with the FDA. We expect that the submission of a portion of the BLA will aid the authorities in meeting the priority review timelines. We are very pleased with our collaborations with the FDA to date and are delighted to report that we are on track to filing our BLA before the end of the year with a view to be on the U.S. market next year for the 2006-2007 flu season.

That concludes our report for the period ending June 30, 2005. We look forward to reporting on additional progress throughout the year.

Thanks, Tony. Mark, if I could ask for your assistance in opening the call up to questions, if you would?

(OPERATOR INSTRUCTIONS). John Melletic (ph), Scotia Capital.

Could we maybe get some more detailed guidance with respect to R&D and SG&A for the remainder of the year, and possibly going into early next year, and just maybe how the new clinical trials that are set to start at the end of the year will impact that?

We are not providing any guidance for the remainder of the year or for 2006, but we expect our spending to be in line with what it's been the last two quarters.

And that assumes that all the program start on time?

Yes.

Matthew Geller of CIBC World Markets.

Great progress on all fronts, guys. You are really doing great. Congratulations. Can you talk a little bit in terms of -- just two questions -- in terms of FLUVIRAL, can you kind of trace the timeline from manufacturing and getting the product on the market in the U.S., starting from the time, assuming that you get approval some time in the second quarter of next year?

And the second question is for FluINsure. Can you kind of trace us through the clinical trial program that we will be seeing in the United States and in Canada in terms of what we need in order to file for that vaccine?

In terms of FLUVIRAL, basically, we start the beginning of the manufacturing process near the beginning of the year, when we start growing various strains, really in preparation for commercial production in February. We typically, as you know, have been manufacturing for the Canadian market during February, March, April, and our plan would be to continue manufacturing during that period of time into June and July for the U.S. market. And that would give us enough time essentially to get -- remember, what we have to do is begin shipping to both markets in early September, through the month of September, through the month of October. That's the shipping period. And then, of course, then the distributors would distribute it to the physicians, public health units, et cetera. So that's really the timetable for next year.

In terms of FluINsure, we're starting our first pediatric trial here in Canada, and that will be a trial that runs over this coming flu season. We then would anticipate a much larger clinical trial, probably done in both Canada and the U.S., in the following flu season, where we would get actual initial efficacy data. And that's really as far as we have gone so far.

Jennifer Chao, Scotiabank.

Great. Thanks for taking the call. Just a few questions first on the FLUVIRAL front, and then wanted to wrap up on NeisVac-C. First, Tony, if you could just walk us through the specific clinical work still to be completed for the FLUVIRAL BLA filing, if you could just give us a sense of what the comprehensive BLA filing will include, and then also maybe just walk us through specific steps with respect to the manufacturing approval process, getting you to the 35 million doses?

Okay. Let's start with the clinical data that we need for our BLA filing. The clinical data we need for our BLA filing really is the clinical data we generate from the 1000-patient study that we did in Florida. So all that clinical data is now in, it's being compiled and analyzed, and obviously we expect in the coming month to two months we'll have all that data in our hands. That's really the data that we need for approval under the accelerated approval mechanism.

Now, as you know, Jennifer, I just want to go a step further, because that's not the end of it. We get approval, but starting this flu season, this coming flu season, we are doing efficacy trials in the U.S. to confirm efficacy. But those trials will start and obviously go for a couple of years to confirm efficacy. But for the BLA filing, this 1000-patient study is the data we need. Does that answer your question?

It does, it does. So the follow-up efficacy work that you are doing is not a contingency for approval?

No.

Okay. Understood. And then, with respect to timing on the manufacturing front?

Right. So the major portions of the BLA filing really involve the clinical data, they involve our process data and our manufacturing facilities. And so we have to have all those parts of the BLA completed by year end. And so, obviously, those are also on track. So as we are getting all the clinical data, all these other areas are also on track in terms of filing our BLA.

The one thing that will occur later than the end of the year is the inspection of our facilities by the FDA. As you know, the FDA is moving to inspecting facilities when they are in full manufacturing mode. So think of it February-type timeframe.

I see. So we would not, then, expect to see any kind of formal announcement on completion of FDA inspection until sometime in February? Is that fair, Tony?

That's correct. You know, February and March, because you saw with Chiron that they didn't even want to inspect the Chiron facility until they were in full production, and we anticipate from our discussions with the FDA that that is exactly how we will be treated as well.

Got it. And when do you actually need to -- what is your drop-dead date for getting an approval for the BLA so that you can get into full-throttle manufacturing?

Well, we are probably going to have a lot of information right at the beginning of the year, so we believe that by the beginning of the year, we'll have a very good indication and will have the information necessary to make a decision on manufacturing.

Okay, great. And just one final follow-up on NeisVac-C. Obviously, nice revenue this quarter. How do we think about NeisVac-C for the remainder of the year?

As we've talked about this before, we received a tender for $10 million a year. So we are pretty happy where we are at right now, with close to 15 million for the first six months of 2005. We don't have insight to what the government -- what the provinces plan to buy, so I don't think we'll continue to see this trend, but I think we'll obviously see the $10 million a year that we thought was going to be part of the original tender.

David Dean, Sprott Securities.

Thanks for taking my questions. I've got a couple here. First of all, I'd just like to confirm that I heard correctly regarding capacity in 2007. It seems to me like -- which is a change from previously -- that you might be in the position to supply the full 38 million as the minimum starting in '07. Previously, I think that was in '08. Was that correctly?

No. We have always said 2007, and we've talked about the 2007-2008 flu season. So we've always said that we would be in the position to supply that 38 million doses as per our contract with the distributors. The only difference -- I'll just explain. The only difference is we made a decision to upgrade our Laval facility, and that really gives us additional capacity, and that is where the difference between what we said at the beginning of the year, the 50-million-dose capacity, and now we're saying 75 million doses because of that strategic decision to upgrade the Laval facility to meet FDA standards. And you know the decision behind that relates to the fact that we have a worldwide flu vaccine shortage.

Sure. Okay. And can you run through just your thinking around -- getting back to the manufacturing, did I hear you right in saying that the FDA is going to inspect the facility, most likely while you are manufacturing doses for the Canadian market? I guess my question is, at what point do you start manufacturing doses for the U.S. market, and thus, that would be the risk around an approval position.

We would just follow -- we would produce for the Canadian market first and follow that -- I can't tell you exactly the time timing on it, but follow that with the U.S. market. So typically, we would start in February our first manufacturing, and we would end sort of probably the end of July with our last bit of manufacturing.

The end of July for the Canadian market only?

No, for all markets.

At what point would you typically end manufacturing for the Canadian market?

Well, this year we ended, I believe, June, beginning of June. We ended beginning of June.

Okay.

(multiple speakers) manufacture with a significant increase in production.

Yes; remember, our capacity is constrained this year.

Sure. Okay, that's great. Thanks, guys.

Cory Kasimov, Oppenheimer.

Thanks for taking these questions. Good afternoon. A few questions for you. First of all, more on a macro level, Tony, for you, if you could discuss just for a minute trends you expect to see regarding the pricing of flu vaccines. Obviously, there's a lot of debate out there. Prices jumped pretty significantly this year, but that's with a real notable lack of supply. What happens next year, assuming you guys are on the market, Chiron comes back, and then in future years, if you could talk about that a little bit?

Yes. Well, I think when you look from a macro level, you have to look -- I mean, I think it was a year ago that I said that one of the big advantages ID Biomedical has is that we have a brand-new, high-capacity flu vaccine manufacturing facility onstream. And we'll be the first in the world to have something like this. I think you've noticed over the last, I guess it's been six to eight months, that all the major flu vaccine manufacturers are pumping huge dollars into new facilities -- Chiron, GSK announcement and LAS (ph) facility announcement.

So you have these -- here's how I look at it. You have these big companies investing a lot of money into this business. That tells me that very sophisticated parties who have been in this business for a long time are willing today to make those big, major investments into this business. That suggests to me that nobody is thinking that pricing is going down. I think it probably suggests the very opposite. But as you know, we maintain the status quo as for this next flu season, which is approximately US$10 -- I wouldn't say it's a great price, but it's a satisfactory price.

So I think you can only look at the actions of the major players in the business today and conclude that they must think this is a pretty good market, or they wouldn't be making this investment.

All right. Great. That's some very helpful insight. Now, a couple questions on a more Company-specific level. First of all, sort of in relation to your manufacturing, your cost of goods sold, in terms of what it costs you right now per dose of FLUVIRAL and what you would anticipate those costs would look like a few years out when you guys are operating at maximum capacity?

Well, we don't give specific cost per dose information because we consider that commercially sensitive. You can look at our prior filings and kind of get a sense of what our margins are. And we would only expect those margins to increase as we went into the U.S., as we took fixed costs, spread them out over a lot larger number of doses, and then, obviously, increase the revenue per dose component of the transaction.

Fair enough. And with regard to the topline data from your 1000-patient study that is necessary for the BLA filing, are you guys going to announce those topline results in September or October, whenever they become available?

We're going to announce those results in conjunction with filing our BLA clinical data. I think that's how to look at it.

All right, so there will be one announcement; you guys have filed the data, and these are what the safety and immunogenicity data look like?

Right.

Okay. And then final question with regards to FluINsure, could you talk a little bit about the design of the study in pediatrics for this upcoming flu season?

You know, I can't talk about that study, and the reason being is this is a recent event that just occurred with the Canadian regulators on this study, and so I can't comment on that. In the news release that actually announces the beginning of that study, we'll have all the design and everything for you at the time.

Quynh Pham, Delafield Hambrecht.

Most of my questions have been answered, but I was wondering if you could provide me a little bit more clarity on the potential contract that you could have with the Canadian government concerning the clinical development of your pandemic flu vaccine?

Yes, I can talk about that. You probably are aware that we have been in discussions with the Canadian government in terms of pandemic preparedness and the new sort of worldview that I call it, which is to get a mock pandemic flu vaccine approved by the Canadian regulators in advance of any flu pandemic. That would save a lot of time, and so that is really what we're talking about. We're talking about manufacturing a mock flu vaccine for clinical trials and carrying out those clinical trials. That would expedite, if there were a worldwide epidemic of pandemic flu, that would expedite the availability of the product to the general public, both here and in other countries. And we expect those discussions to be concluded shortly, as I mentioned.

Any guidance as to the size of the grant for clinical development of this vaccine?

We will announce that when we get the grant.

And finally, does the vaccine include the infiltration process that the FDA would require for a U.S.-based pandemic vaccine?

Yes, it does. All our flu vaccines, whether we produce them for the Canadian market or the U.S. market or any other market, are all made with the U.S. process, which include sterile filtration.

And actually, finally, do you have any indication that your flu vaccine is any more or less efficacious than the one that was manufactured by Sanofi-Aventis?

We don't have any indication. We have not tested our vaccine at all, our pandemic flu vaccine.

Cosme Ordonez, GMP Securities.

My question is with regard to the BLA. Do you, Tony, do you plan to file the complete BLA before year end, or are we talking about the clinical charter of the BLA and then most of it would be -- or I mean, the rest of it would be completed early in 2006? Is this the complete trial of all charters that we're talking about before year end?

Yes. We're talking about the complete filing of all sections of the BLA before year end. And the only reason I mention the clinical file is it's likely to be the first that we file.

For the clinical section.

My second question is with regard to the guidance on full capacity. That's FLUVIRAL I'm talking about. You mentioned that in 2007, the plans are to have full capacity for 75 million doses. What happens for 2006, assuming that you get the FDA approval on time?

Our previous guidance remains in effect, which is that we will have a maximum capacity in 2006 of 35 million doses with approximately 10 going to the Canadian market, and we believe approximately 25 to the U.S. market.

Are there any chances that this might change over the next 12, 18 months?

Absolutely no chance.

Russell Gilbertson, Caris & Company.

Most of my questions have been answered, but I do have a question regarding the pediatric trials that you anticipate starting before year end. Could you give us any more detail on the design of those studies?

Russ, I apologize because this is a very new development, and I haven't seen the design myself. But it's designed as an age stepdown study and a dosing study. The initial Phase II study in children is really age stepdown and dosing. And as I mentioned, we will have a complete -- that completely detailed when we begin the study and we have a news release associated with that.

And in terms of the potential Phase IV efficacy studies of FLUVIRAL, how large do you expect those studies to be?

We think in total, it will involve approximately 5 to 6000 patients.

And you said two years, is that what I heard?

Over two years, that's right. Over two years.

Very good. Thank you for answering my questions.

Prakash Gowd, Canaccord Capital.

Just a couple of small questions. First of all, can you give some guidance on capital expenditures for the rest of this year and then '06 and '07? And then the second question is, the 25 million extra doses that you have recently guided, up to 75 million in '07, can you give some sort of idea of what you are thinking about in terms of where those doses will likely go?

In terms of specific guidance, as we've mentioned earlier, if we look at going back to probably the end of '03, to the time that all of our current capacity expansion projects are completed, we'll spend about 80 million, and that includes the Québec facility that we acquired and the expansion up to from 120 to 200,000 square feet. That includes about -- that includes the Québec QC facility. In addition to that, the major capital investment in '06 in '07, primarily in '06, will be going from the 50 million capacity that we talked about at the beginning here to the 75 that we talked about, about a month ago, which is primarily production equipment, and that would be about 20 to $25 million.

In terms of the additional 25 million doses and where that might go, we believe some of that could go into the U.S. market, because, as you know, our U.S. distributors currently could probably sell more than the 38 million doses they're committed to buying. But you have to look at the overseas market, countries like China, where the flu vaccine market is growing rapidly. As you know, there are major concerns there. And what we are discovering is that pricing can be attractive in these foreign markets.

Is it possible at all that the U.S. may approach you to assist in pandemic preparedness?

I think, given the situation of our plant in North America, I think it is very likely that we would be approached to assist in pandemic preparedness.

Mr. Linden, there are no further questions at this time. Please continue.

Thanks, Mark. I really have nothing left other than to thank you all very much for participating on this conference call today. On behalf of management of ID Biomedical, I wish you all a very good evening.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.