Heron Therapeutics Inc (HRTX) 2008 Q2 法說會逐字稿

Welcome to the A.P. Pharma second-quarter 2008 financial results conference call. At this time, all participants are currently 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, August 14, 2008. I would now like to turn the conference over to Mr. 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 Ron Prentki, President and Chief Executive Officer; Gregory Turnbull, Chief Financial Officer; and John Barr, Senior Vice President of Research and Development.

Earlier this morning A.P. Pharma reported financial results for the second quarter of 2008. If you have not received this news release or if you'd 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.APPharma.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 operations 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 a full 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 broadcast, August 14, 2008.

The Company undertakes obligation to revise or update any statement to reflect events or circumstances after the date of this conference call. I'll now turn the call over to Ron Prentki. Ron?

Thank you, Don. Good morning, everyone. It's a real pleasure for me to host my first quarterly update since joining A.P. Pharma as CEO. I'd like to thank you all for taking the time from your busy schedules to participate in the call.

As Don previously mentioned, with me today on the call are John Barr, our Senior Vice President of Research and Development; and Greg Turnbull, our interim CFO and former CEO, both of whom you know from previous calls. During today's call we will review the financials for the second quarter of 2008; we'll be providing a project overview and update; and at the end we should have time for a Q&A.

But before we get off to the official agenda I thought I'd take a few moments maybe to give you a little bit of background on myself. As you may know, I'm new to the Company and I haven't had a chance to meet many of you. I joined the Company in July after working in biotechnology pharmaceuticals for approximately 30 years. During this time I've held positions in sales, marketing and business development at large pharmaceutical companies including Bayer, Bristol-Myers Squibb, Sanofi and Hoffman-La Roche.

For seven years I was the President of Progenics Pharmaceuticals, a New York-based biotechnology company. And while at Progenics I negotiated the license for methylnaitrexone which is now known as Relistor, a supportive care product for opioid induced constipation being marketed by Wyeth.

When I meet investors, or the few investors I've met so far, the first question I typically get is why would you join this company now before the Phase III results are available. And it was really my experience with methylnaltrexone that attracted me to A.P. Pharma. When I was first approached by the Company I was initially doubtful, as you might expect. I saw a company with 50 employees and a market cap of $40 million.

But my interest grew when I heard they had a Cancer supportive care product in Phase III development -- late Phase III development and planned to file an NDA in 2008. And it was very similar to the situation with methylnaltrexone. APF530 appeared to be an elegant solution to a significant and an often underappreciated problem.

If you speak to oncologists or to oncology nurses you'll hear that despite the availability of new anti-emetics, including Aloxi, this is still a major unmet medical need for a better therapy to control chemotherapy induced nausea and vomiting, particularly the delayed onset nausea and vomiting.

(inaudible) there's always risk in drug development. With APF530 I saw that A.P. Pharma had a lot of factors working in its favor. First, the fact that the active ingredient, granisetron, is a known molecule; it's been safely administered to thousands of patients and it's clearly established to be an effective drug.

Second, and although the trial was relatively small, proof of concept was clearly established in the Phase II study in terms of the PK profile, the safety and, importantly, the efficacy that was observed.

And finally, design of the basic three study made good sense. It was a logical trial. The use of Aloxi as a comparator -- as the control agent was the right decision. It was probably powered as far as statistics on the number of patients involved. And importantly, the FDA provided input and support for the trial design.

Too often we see that when companies undertake Phase III trials they try to take shortcuts, either in time or money, which often can have disastrous results. This definitely was not the case with A.P. Pharma and APF530.

So in APF530 I saw a very near-term product opportunity which addressed major unmet medical needs and had a significantly greater probability of success than other products in similar stages of development. And when I looked deeper in the pipeline I found APF112 and APF580, which although they were earlier stage products they still had some significant value. And the Company's core technology also presented the opportunity for future products. And in my view these assets were really totally ignored or significantly undervalued by many investors who just focused on the APF530.

It was also very reassuring to me and additional validation that some of the largest and, I guess in my view, the smartest life science investors had taken large positions in the Company, and many of these individuals continue to grow their positions.

So that was kind of a long-winded answer to the first question, why did I join the Company. The second question I typically get usually has two parts -- how's it going so far and have your impressions changed since you entered the Company?

I guess the simple answer is there's a lot of work to be done here, I'm putting in long hours, but things are going great and I'm enjoying working with the team. And really none of my underlying assumptions or impressions have significantly changed. My biggest concern when I joined the Company was could a company with 50 employees continue to meet the aggressive timelines for APF530 which we've laid out for our shareholders and we've committed to.

I'm pleased to say that the Company, after being here for a month, I do believe the Company has the ability to meet these objectives. And as you'll hear today from John, we are remaining on target for the timelines for APF530. And following some modest adjustments we'll also be on track for our other pipeline projects. And all of these projects are critical for the Company.

Before I wrap up my initial comments I'd like to briefly review our business strategy. I want to make it clear that our top priority remains APF530. The goal here is to maximize the value of our lead product and that's by successfully moving it forward through the regulatory process and on to commercialization. And this path along the way will include significant milestones in the near term.

With the completion of the Phase III trial, which we achieved in June of this year, we're in the process of collecting the data and analyzing the data from the trial. We will be announcing those results before the end of the third quarter or late in the third quarter. And the filing of the NDA is still planned for late 2008. We continue to be on track for this program and our target of filing the NDA or submitting the NDA in 2008 is unchanged.

We're also committed to finding the right partner for the commercialization of APF530 and we're speaking to several companies who have strong interest in cancer, cancer supportive care, but also APF530. We've elected to wait until we really enter seriously negotiations with partners until after the Phase III data becomes available and we think that's the right business decision.

Finally, we can't ignore other products or pipeline products that the Company will build on, both APF112 and APF580, and we are looking for additional opportunities in new molecules which will further leverage our technology. With that as an overview Greg will review the financials for the second quarter in greater detail.

Good morning, everybody. Let me just go off the agenda for just a second here and insert a comment which is really on behalf of the Board. We're very pleased to have Ron in place, as he said, he's been here for a month, and working with enthusiasm, as you heard in his previous comments. So Ron, speaking on behalf of the Board, welcome.

Thank you.

Now turning back to the financial report -- our revenue for the second quarter was $152,000 derived from our ongoing development program in partnership with a major animal healthcare company. This represents a decrease of $8,000 compared to the second quarter of last year.

As many of you know, this is the program utilizing our Biochronomer technology to develop a presently undisclosed opiate to treat pain in companion animals over an extended period of time. And we intend to utilize the acquired knowledge in our own product, targeted for human application, to treat particularly intense pain.

R&D expenses for the quarter were $5.5 million, which represents an increase of $1.8 million versus the second quarter of 2007. The increased expenditures were primarily due to an increased level of costs of our APF530 CINV product's Phase III trial as well as other costs related to that program.

In addition, there were also increases associated with APF112, our post-operative pain product, and increases for preclinical work on APF580, the product I mentioned just a moment ago focused on delivering the undisclosed opiate for treatment of extended treatment of intense pain. To a lesser extent the increase reflects the additional R&D headcount needed to support the expanded level of activity within the Company. Relative to G&A expenses, they decreased slightly from the second quarter of last year, that being a mix of offsetting variances year to year.

As a result of the previously mentioned items, our operating loss for the quarter was $6.2 million compared to $4.5 million for the comparable quarter of last year. Dropping down to our total net loss for Q2 of this year, it was $6.1 million compared to a net loss of only $1.8 million in the same period of 2007.

A significant factor in the increased net loss is the result in 2007 of a $2.5 million payment received in that year in June which was recorded as a gain on the sale of interest and royalties. This payment was made upon the achievement of a certain milestone which is part of the January 2006 transaction we completed for the sale of our rights to royalties on sales of Retin-A Micro and Carac. There remains outstanding another $2.5 million potential milestone payment under this sale contract.

The balance sheet changes show the increased investment which we are making in the development of three different products with the bulk of those cumulative expenditures dedicated to the APF530 CINV program for which there is currently no revenue to offset those outflows.

Cash, cash equivalents and marketable securities totaled $27.8 million at the end of the first quarter and we've earned approximately $6.3 million during the second quarter of this year leaving a balance of $21.5 million at quarter end. Most importantly, we continue to maintain cash resources which are sufficient to complete the APF530 clinical program and also continue with the other new product development programs currently underway.

Now we'll turn to John to pick up on the product development activities in much greater detail. John?

Thanks, Greg. First let me reiterate our long-standing commitment to the successful development of APF530. As Ron and Greg have indicated, this clearly remains the top near-term priority for the Company.

APF530 contains the widely used 5HT3 antagonist granisetron and our proprietary polymer formulation. APF530 has been designed and has been currently tested clinically for the prevention of both acute and delayed nausea vomiting following chemotherapy. Our Phase III clinical study compares the efficacy of APF530 against Aloxi following both moderately and highly emetogenic chemotherapy.

Aloxi, as you well know, 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.

In June we announced the achievement of a major milestone, the completion of enrollment in the pivotal Phase III trial for APF530. The trial, initiated in May 2006, was a major undertaking for the Company. We enrolled approximately 1,400 patients in what we believe is one of the larger trials ever conducted in the area of chemotherapy induced nausea vomiting. We are diligently working to complete the data collection process and remain on track to announce topline data from the trial late in the third quarter.

In parallel, we are pushing forward in many aspects of our NDA which are not dependent on the clinical results and our team is firmly committed to achieving our goal of submitting the NDA later this year.

I'd like to move on to a topic we discussed in some detail at our first-quarter call in May. At that time we announced that batches of our semi-solid polymer, AP135, which were being produced for our APF112 clinical trial, were physically different from other previous batches, having a slight yellow color and a distinct odor. Other than these physical differences the batches tested within our current specifications.

The quality systems in place at A.P. Pharma, and at our contract manufacturing partners, allowed us to track all lot numbers and the testing data for the raw materials and solvents used in the production of AP135. Based on our investigations we have identified the extraneous material and traced it to one lot of solvent used in the synthetic process.

From our investigations we are confident that no cosmetically questionable AP135 has entered a pivotal clinical trial as APF530; nor do we believe this issue affects in any way our submission of the NDA for APF530. We have taken the necessary steps to make sure there is no reoccurrence of this or similar problems.

Although we aggressively pursued a solution to this problem there has been some impact to the timelines of the APF112 Phase II program. The corrective actions taken in the production of trial materials resulted in a deferral in the planned initiation of the APF112 Phase II trial into the fourth quarter of 2008. We are continuing to make progress with APF580 which incorporates an as yet undisclosed opiate in our polymer formulation to provide up to seven days relief of intense pain.

Animal studies with APF580 are currently being conducted and data from those studies are being supplemented with additional preclinical data from an ongoing research and development agreement with a major animal health company. We are completing our preparation of the IND for APF580.

The submission of this IND, which was originally planned for late in the second quarter of 2008, is now expected in this, the third quarter of 2008. The delay was largely due to an extended period of time for the collection of certain preclinical information and not a result of the above-mentioned issues involved in APF135. With that said I will now return you to Ron.

Thanks for that update, John. As you've heard, the Company has made significant progress in the first half of 2009. Our programs continue to advance to achieve major milestones including the completion of the enrollment in our Phase III pivotal trial for APF530, and this will allow us to achieve our remaining milestones for this year -- the announcement of topline results late this quarter and the filing of the NDA late this year.

Despite the challenges in advancing multiple programs which are either in the clinic or nearing the clinic, we have maintained a secure financial status which will be sufficient to allow us to complete the APF530 program including the NDA submission and move forward with our other programs. We also continue to evaluate strategic partnership opportunities that may provide non-dilutive funding in addition to important development, marketing and other assistance which we will need for our products.

I'd like to thank you all for your participation in the call. And in particular I'd like to thank our shareholders for their continued support of A.P. Pharma. I'm making an effort in the upcoming weeks to meet as many of you as possible either by phone or in face-to-face meetings. And I would encourage you to contact me if you have questions on anything you've heard in today's presentation or if you want to discuss the Company in general.

I'll now turn it over to the operator for the question-and-answer session. Thank you.

(Operator Instructions). Stephen Dunn, Dawson James.

Good morning and welcome aboard, Ron.

Thank you.

Just some housekeeping questions. When you release the trial result data in late Q3, meaning September, will you be releasing data on all six arms or what will we be seeing?

Yes, we would release data on both sides of the trial, the moderately emetogenic which contains three arms and the highly emetogenic which contains three. So you're right, Steve, we would report the entire trial.

I should say though, it's likely not going to be the full data with all of the primary and all of the secondary endpoints. What we'll try and do -- it will be topline data which is typical for a trial like this, and we'll try to pick data that gives a real feel for the results of the trial.

Okay. And we're expecting a standard 10-month review on this?

We're expecting a standard review, 10, 12 months is generally the norm.

I guess, Ron, with regards to a partnership, would you say it would be likely that we would see a partnership announcement during that FDA review period?

I really can't give specific guidance on timing of partnerships. We have been in discussions; we continue to be in discussions with companies. We've decided to put off any serious negotiations until after the Phase III results are in, but we have encouraged companies to initiate their due diligence process so once the data becomes available they can be competitive in pursuing rights to the product.

So I really can't say much more than that. It's likely -- I'll say definitely a partnership would be after results. And again, we'll try to move it forward as fast as reasonably possible.

Philosophically do you favor a global partnership or by geographic region?

Philosophically I like a global partnership, but I'm not committed to it. I think there are some advantages to having a single global partner, a global brand name. I think that allows you to best leverage additional clinical studies and development efforts and coordinate those. But that's not set in stone.

I want to move on to the mepivacaine real quick. If we initiate in Q4 we would expect results around Q2 '09?

I think we could provide greater guidance on that once the trial starts.

Okay. Well, I'm going to go to 580 then --.

I should say with the mepivaccine product, we are trying to address in the protocol not all potential issues, but really reduce the risk in the trial and to make sure we answer the key questions the right way. So the results we get -- we think this product has a lot of potential. We think some of the issues with the previous trial led to the results we did get, so we're trying to make sure that doesn't happen again. And we're confident that the trial design we will use will make sure that the results are significant.

Two more questions. On APF580, would we expect to begin enrollment in Q4 and that should be a relatively quick Phase I, shouldn't it?

It may be slightly longer than your typical Phase I because of the duration of anticipated effect. But you're right; it will not be the same duration as our Phase III trial. So we'll probably give guidance in the next call when we would anticipate providing the results of the Phase I.

And I guess, Ron, just one overarching question since you would tend to favor a good global partnership. If you enter a global partnership wouldn't that really open a door to just a full acquisition of A.P. Pharma?

That's not something we're pursuing. If somebody made us an offer we couldn't refuse we'd have to consider that, the Board would have to consider that, but that's not our goal. Our goal is to find the best partner for the product that maximizes the value. And I would point out again we're not a one product company. APF112 -- we've had a lot of interest in the project and we continue to have people who are interested in the product. So I think that's unlikely to happen.

All right. Well, we're looking forward to an exciting September, guys.

It's coming on us quickly.

Thank you.

Stephen Handley, J.M. Dutton Associates.

Good morning. Thank you. My partnership questions have just been answered I guess. But let me just ask relating to the deferrals -- timeline deferrals on APF112 and 580, you cited factors there. Is there any element also in that of let's say a purposeful deferral in order to conserve cash? And apart from that question, have you taken any other steps, specific steps to conserve cash? Okay?

I think it wasn't a purposeful deferral. I think there were real factors. I think if anything else possibly contributed I think my joining the Company may have delayed things a bit as I got up to speed and wanted to make sure things were going forward in the proper way. So that could be a contributing factor. But there were real delays and they aren't significant delays. I mean in a lot of cases these delays are a month or so.

As far as the financial controls, I think given our cash position we have to be aware of what we're spending. We are trying to control expenses, but that didn't lead to the decision either. I think if you look where we spend our money though, obviously we're making decisions to focus our resources on APF530 at this point, but that's not at the total exclusion of other programs.

Let me just ask if you were to obtain a partner related to -- essentially cover the continuing cost of APF530 let's say beyond this year, what kind of additional funding would you need to proceed as you would like to with your other programs?

Greg, do you want to address that?

That's a very broad question. But in our modeling we have looked at what I'll call typical kind of partner structures and parameters and within the scope of what we would deem to be an appropriate and an acceptable deal. We think that that kind of funding would carry the Company for a considerable period of time. You can always make a case that it would be into perpetuity which one never believes.

I'm not sure if I heard --.

In other words, you would expect a partner related to 580 would let's say theoretically -- it might be an upfront payment or something that would also -- could be used to fund your other activities. Is that what you're suggesting?

Let me just clarify (multiple speakers).

My question was sort of thinking in terms of if a partner was only going to be focused on the 580 -- or 530 I should say, and would take care of that, how much additional capital would you need to proceed with the other two major programs?

Your question is what is the burn rate on those other two programs.

Yes, I guess that's a simple way to put it.

I think actually we're in the process of doing our budget going forward, so I can't give you specific numbers. But as we stated in this quarter, APF530 is the major investment for us that we're putting out resources. So I think we could probably give additional direction later but I don't think we're prepared right now. And we are doing our budgeting process for 2009 already.

Okay. Thank you.

(Operator Instructions). There are no further questions at this time. Please proceed with your presentation or any closing remarks.

I guess the only closing remarks here are thank you again. I look forward to meeting you in the future, many of you in the future. Again, please give me a call if you would like to discuss the Company. And thank you for your participation and we look forward to speaking with you either at the time of results or at the next quarterly call. Thanks again.

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