Heron Therapeutics Inc (HRTX) 2008 Q1 法說會逐字稿

Welcome to the A.P. Pharma first-quarter 2008 financial results conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. (OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded today, May 15, 2008. I would now like to turn the conference over to Don Markley. Please go ahead, sir.

Thank you. This is Don Markley with Lippert/Heilshorn & Associates. Thank you for participating in today's call. On the call this morning from A.P. Pharma are Gregory Turnbull, President and Chief Executive Officer, and John Barr, Vice President of Research and Development.

Earlier this morning, A.P. Pharma reported financial results for the first quarter of 2008. If you have not received this news release or if you would like to be added to the company's distribution list, please call Lippert/Heilshorn in Los Angeles at 310-691-7100 and ask for [Amy Higgins].

This call is being broadcast live over the Internet, and the recording will be available for 30 days on the Company's website at www.ap.pharma.com. A telephone replay will be available for 48 hours.

Before we begin, I'd like to caution you that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operation and future results of A.P. Pharma. We encourage you to review A.P. Pharma's filings with the Securities and Exchange Commission, including and without limitation the Company's Form 10-K and 10-Q, which identify specific factors that could cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, this conference call contains time-sensitive information. It is accurate only as of the date of the live webcast, May 15, 2008. The Company undertakes no obligation to revise or update any statement to reflect events or circumstances after the date of this conference call.

I will now turn the call over to Greg Turnbull. Greg?

Thank you, Don, and good morning, everyone. We appreciate you joining us for this first-quarter update. As Don previously mentioned, with me today on this call is John Barr, our Senior Vice President of Research and Development, whom you know from previous calls.

During our March conference call, we reviewed several operational projects where we were approaching the realization of targets established about 12 to 18 months ago, depending upon which one is being discussed. Today, we will again examine our progress against those targets, wherein we expect to meet two of three objectives, and we expect to experience a modest deferral on the third.

The agenda today will cover, first, financials for the first quarter of 2008, a business overview, and then to a question-and-answer period. Now let's discuss the financials.

Our revenue for the first quarter was $133,000, resulting from our ongoing development program in partnership with a major animal health care company, and we had no such revenue during the first quarter of last year, as it preceded the implementation of this program. This is a program utilizing our Biochronomer technology to deliver a presently undisclosed Opiod to treat pain in companion animals over an extended period of time. And we intend to leverage the acquired knowledge into our own product destined for human applications to treat particularly intense pain.

R&D expenses for the quarter were $6.1 million, an increase of $1.2 million versus the first quarter of 2007. The increased expenditures were primarily due to the costs of preclinical work on APF580, the product I mentioned just a moment ago, focused on delivering the undisclosed opiate for extended treatment of intense pain.

To a lesser extent, the increase was attributable to higher expenditures on APF112, our post-operative pain product, to an increased level of costs on our APF530 CINV product's Phase III trial, and to an increase R&D headcount to support the expanded level of activity.

G&A expenses decreased slightly from the first quarter of last year with a mix of offsetting variances year-to-year.

As result of the previously mentioned items, our operating loss for the quarter was $7.1 million compared to $6.1 million for the comparable quarter of last year. Our total net loss for Q1 of this year was $6.8 million compared to a net loss of $6 million in the same period of 2007.

Interest income on liquid assets provided most of the differential between operating and net loss for both periods.

The balance sheet principally reflects the reality that we are investing our liquid assets in the development of three different products, with the bulk of those expenditures dedicated to the CINV product. And for now, there is minimal revenue to offset those outflows.

Cash, cash equivalents and marketable securities were just over $35 million at the 2007 year-end, and we consumed approximately $7.2 million during the first quarter this year, leaving a balance of $27.8 million at quarter end. Importantly, this provides us with the cash resources to complete the APF530 clinical program and also continue with the other new product development programs currently underway.

Now it's time for operational comments. As stated multiple times before, our overall strategy continues to be, one, maximize the value of our lead product, APF530, by successfully completing its Phase III trial and by obtaining a partner for the commercialization of the product. Two, to expand our product pipeline by leveraging our existing technology. And three, to enter into strategic partnerships in collaborations for future product development programs.

We continue to assert our target of submitting our NDA for APF530 late in 2008, preceded, obviously, by the successful and timely completion of the Phase III trial and the announcement of that trial's results. All of those targets remain valid today.

We are, we believe, within weeks of completing the enrollment of patients in the APF530 trial, and will share that event with an appropriate announcement at that time.

The early completion of enrollment of patients receiving highly emetogenic chemotherapy, with the resultant need to limit new enrollments to those receiving only moderately emetogenic chemotherapy, has reduced our enrollment rates below levels that we had anticipated. Nonetheless, we still expect to finish enrollment activities this quarter, and are still targeting the announcement of our trial results in the third quarter, followed by submission of our NDA by year-end.

Now we are going to turn to John to discuss our product development activities. As a segue to that discussion, I want to mention that in late April of this year, we discovered that recent batches of our basic semisolid polymer, AP135, which was being produced for our planned APF112A trial, were physically different from other previous AP135 batches. An example would be color. These most recent batches have a slightly yellow color and a distinct odor. Other than these physical differences, these batches test within our current specifications, and I am going to ask my colleague, John Barr, to elaborate. John?

Thanks. First, let me reiterate our long-standing commitment to the successful development of APF530. This remains the top priority of the Company. Although we have encountered some technical difficulty in recent weeks -- and I shall return to those in some detail later -- let me clearly state these difficulties do not impact the current clinical study with APF530, nor do they impact the study completion or data availability in the third quarter, or our goal of submitting an NDA before the end of the year.

APF530 contains the widely-used 5HT3 antagonist Granisetron and our proprietary polymer formulation. APF530 has been designed and is currently being clinically tested for the prevention of both acute and delayed nausea vomiting following chemotherapy.

The current Phase III clinical study compares the efficacy of APF530 against Aloxi, following both moderately and highly emetogenic chemotherapy. Aloxi is currently the only drug of this class which has shown beneficial effects in both acute and delayed nausea vomiting, but has shown this effect only in patients receiving moderately emetogenic chemotherapy.

The objective of this study is to show that APF530 is effective in preventing acute and delayed onset nausea vomiting both in those patients receiving moderately emetogenic chemotherapy, and especially in those patients receiving highly emetogenic chemotherapy.

We are working diligently and expect to complete this study during the second quarter and to announce the data in the third quarter, and what proceeds in all other sections of the NDA.

As stated in our press release, we have encountered, and we now believe all but overcome, a technical issue with our proprietary polymer manufacturing. Specifically, an extraneous material had found its way into some of our polymer and changed the odor and color of our polymer.

As background, we have been making AP135, a triethylene glycol polyorthoester polymer, or as Greg referred to it, as our basic semisolid polymer, which is, as you know, the main ingredient in all of our most advanced formulations -- we have been making this with the same manufacturer since 2002, and can demonstrate consistent quality in more than 50 batches over this timeframe.

By way of a reminder, AP135 is the result of a synthesis of three component parts, diketene acetal, triethylene glycol, and a chemical we refer to as latent acid. All of these materials have been sourced from the same primary supplier since 2002.

The polymer containing the extraneous material is consistent with all previous lots of polymer in regard to the pivotal analytical tests, namely the molecular weight of the polymer and the expected low levels of solvents. Further, in-vitro release testing demonstrates that the presence of this artifact does not interfere with the overall drug release from those formulations, even though they were prepared with these anomalous lots of polymer.

The quality systems in place here and at our contract manufacturer have allowed us to trace all lot numbers and the associated testing performed on all raw materials, solvents and equipment used in the production of AP135. Consequently, based on the work performed here and confirmed at our manufacturer, we strongly believe that we have isolated the source of this extraneous material.

Based on our investigation, we have now localized the material to one lots of solvent used in the synthetic process for the diketene acetal. We are now taking the necessary steps to avoid the recurrence of this problem.

So to summarize our current status, we became aware of a difference of AP135's physical characteristics in late April. By the results of our investigation, we are now confident that this unfortunate situation will not occur again. I'd like to assure all of you that based on our understanding of this production issue, it will not impact the polymer manufactured for our Phase III clinical trial.

In short, no cosmetically equivocal or questionable AP135 has entered into our pivotal clinical trial as APF530 in either the U.S. or Poland or India. We do not believe and have no reason to believe that this issue will affect our timelines as they relate to the submission of the NDA for APF530. However, this issue will have short-term repercussions on the timeliness of the APF112 Phase II program, which, because of a lack of clinical trial material, will be delayed until the next quarter.

As for the APF580 Phase I program, which incorporates, as you know, a yet undisclosed opiate, we are comfortable there will be no delay in the initiation of that Phase I study in this quarter. With that said, I will return it to Greg. Greg?

Thanks, John. Let me mention our recruitment situation. As was the case in our March conference call, we want to touch on these succession activities. Stated previously, we announced in late last year we had initiated an executive succession program to recruit a well-qualified successor to myself in the CEO position. This resulted from intensive conversations with the Board, sponsored by myself, exploring the belief that over the long-term, the company would be best-served by having at its head a CEO with significant operational and business development expense within the pharmaceutical industry. My background and business experience is quite different than that, and I continue to be a strong proponent of this action.

Again, I intend to serve actively in the CEO position until we have successfully engaged my successor, at which time I would plan to remain an active director of the Company. Our recruitment program has reached the stage of very serious conversations with a small number of candidates. This is within the timelines that we expected when initiating the program. We hope to reach a successful conclusion of this search within the next few months.

Thank you for your attention. I will now turn us over to the operator for our Q&A session.

(OPERATOR INSTRUCTIONS) Russell McAllister with Merriman, Curhan, Ford.

Good morning. Thank you for taking the question. I was wondering if you could talk for a moment about your current cash position and how far you think you could take the 112 and 580 programs with the resources that would be remaining after completing the 530 trial.

Well, let me back up a moment and try to answer that. If you look back at our numbers, I believe in the third and fourth quarters of last year our cash burn was about $5 million per quarter. As expected, it stepped up a bit this last quarter to about $7 million, as we continued to prosecute a larger 530 trial and as we stepped up expenditures on 112 and 580.

That will, in the current quarter we are in now, the second quarter, the burn rate will obviously continue to support those same activities. You can expect that as we go into the third and fourth quarter, the 530 cash expenditures will come down somewhat as we conclude enrollment and go into the data collection and filing timeframe.

Now in answering your question, I believe we publicly indicated literally over a year ago at the time of our financing, the cash we raised at that time would be adequate to carry us through completion of the 530 trial -- that means through NDA submission -- and somewhat beyond, inclusive of prosecuting those other two products.

Relative to where it would carry us in those two products, we would expect to, on the 112 product, have the Phase IIb completed and be moving past that on into early next year. We would expect to have initiated the Phase I trial on 580 before this current quarter is over, and moved to a Phase II trial before the end of the year. So as you move into 2009, you would C580 still in an active phase -- an active level in its Phase II trial.

Without trying to be too precise there, we also did indicate we would look to the partnering event for commercialization of 530 as an important source of funding for the Company. So, the answer to your question is the cash balance clearly is not enough to carry us on into the future ad infinitum without additional capital, but we do expect to be sourcing that capital by virtue of our partnering activities.

Terrific. Greg, that was exactly the answer I was looking for. Thank you.

(OPERATOR INSTRUCTIONS) At this time, there are no further questions. Please proceed with your presentation or any closing remarks.

All right. Very short conference call, but I'm sure everybody is waiting furthermore specific news as we progress into the rest of this very interesting second quarter.

Thank you very much for being with us today. As promised, when we do have significant events, in the near future we hope, we will be surely in front of you with announcements on those. Thanks for participating today.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.