Oruka Therapeutics Inc (ORKA) 2002 Q4 法說會逐字稿

Good afternoon and welcome, ladies and gentlemen, to the Nuvelo Strategy fourth quarter and year end 2002 financial results call. At this time I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. Should you wish to access replay of this call you may do so by dialing (800) 428-6051 or (973) 709-2089 using pin number 286609. At the request of the company, we will open the conference up for questions and answers following the presentation.

Statements contained in this press release which are not historical in nature are intended to be and are hereby identified as forward-looking statements for purposes of the Safe Harbor provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as believe, expect, anticipate, should, may, estimate, goals and potential, among others. Such statements are based on our management's current expectations and involve risks and uncertainties. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors including without limitation the risk that we may not successfully integrate Variagenics business following our recent merger. Uncertainties related to drug discovery, clinical development processes and the development and commercialization of our molecular diagnostic technology.

Changes in relationship with strategic partners and dependence upon strategic partners for the performance of critical activities under collaborative agreements, the impact of competitive products and technological changes, uncertainties relating to patent protection and regulatory approval, and uncertainties relating to our ability to obtain substantial additional funds required for progress in drug and discovery development. These and other factors are identified and described in more detail in Nuvelo, Hyseq, Variagenics' filings with the SEC including without limitation our respective annual reports on form 10-K for the year ended December 31, 2001, our most recent quarterly report on form 10-Q, and the joint proxy statement fresh perspectives filed in connection with the merger. We disclaim any intent or obligation to update these forward-looking statements.

I will now turn the conference over to Dr. Ted W. Love, president and CEO of Nuvelo. Sir, the floor is yours.

Thank you, and good afternoon. Joining me today are members of our senior management team and Dr. George Rathmann, our chairman.

Today I am going to spend some time discussing our progress over the past year and our strategic focus moving forward. I will start with our 2002 progress followed by a review of our financials for the fourth quarter and year end 2002 by Pete Garcia, our CFO. We will then turn to an outline of our strategic focus and plans to execute on this strategy. Finally, we will close with financial guidance for 2003.

Over the last year we have made measurable progress in transitioning from a technology platform company into a biopharmaceutical development business. First, we entered into a major collaboration with Amgen to develop and commercialize alfimeprase, a novel (inaudible) for the treatment of acute peripheral arterial occlusion and any other potential indications. We initiated a Phase I trial for PAO in the first half of 2002 and we plan to initiate two Phase II trials in both PAO and a second indication in catheter care in the first half of this year.

Second, we accelerated completion of our agricultural gene discovery collaboration with BASF Plant Science resulting in a cost savings to both companies and strengthening our biopharmaceutical focus and our financial position.

Finally, in the fourth quarter, we announced the merger between Hyseq and Variagenics, creating Nuvelo. Following the close of the merger, the combined company changed its name to Nuvelo and began trading on the NASDAQ with the symbol NUVO on February 3, 2003.

I will now turn the call over to Pete to discuss our fourth quarter and year end 2002 results.

Thank you, Ted. Good afternoon, everyone.

I would like first to turn to our Q4 results for the three months ended December 31, 2002. Nuvelo reported a net loss of 16.5 million or 72 cents a share, compared to a net loss of 11.4 million or 61 cents per share for the same period in 2001.Our revenues for the fourth quarter were approximately 3.5 million compared to revenues of 7.1 for the same period in 2001. This was lower due to our accelerated termination of our BASF collaboration.

Our total expenses for the quarter were $19.7 million. They included a one-time expense associated with the termination of our lease on a building and a option to purchase that building. That was approximately 6.2 million of the 19.7. And then there were also restructuring costs associated with the anticipated merger with Variagenics of 1.5 million. The increased expenses were offset by reduced R&D expenses related to our accelerated completion of our BASF collaboration.

Turning to our full year results for the 12 months ended December 31, 2002, we've reported a net loss of $45 million or $2.08 per share compared to a net loss of $36.5 million or $2.26 per share for the same period in 2001.Our net loss for the year ended December 31, 2002 included a one-time non-cash charge of $10 million for the issuance of warrants to collaboration partner Amgen. This $10 million one-time non-cash expense accounted for a loss of 47 cents per share of the $2.08 lost per share reported.

In terms of revenue for the 12-month period ended December 31, there were $26.4 million compared to revenues of about $24.6 million for the same period in 2001. Revenues for both years were primarily related to our BASF collaboration. Operating expenses for the year were $70 million in 2002. This excluding the warrant expense and one-time lease termination expense and restructuring expenses, our operating expenses were $52 million.

Turning to cash as of December 31, 2002, Nuvelo had approximately 2.2 million in unrestricted cash compared to approximately 12.3 million of cash at the end of December in 2001. In addition, as of December 31, 2002, Nuvelo had $10 million available through a line of credit from Dr. Rathmann, chairman of Nuvelo board of directors. Our cash burn excluding financing activities for 2002 were approximately $33 million.

I should note that these numbers that are being discussed are pre-merger and exclude the consolidation of Variagenics' operations. As Ted mentioned at the close of our merger on January 31, the combined companies had approximately $53.2 million in cash. Currently, there is also $9 million available under our chairman's line of credit.

I will now turn the call back over to Ted to discuss Nuvelo's strategy, strategic focus and our plans to execute on this strategy.

Thank you, Pete.

As many of you may recall, we announced that our management team would undertake a complete review of all of our assets and programs following the close of the merger in order to define our strategy and goals for the company going forward. It is clear that the combined company has many promising, intriguing and valuable programs and technologies which address several different areas.

We determined that given the market, the size of our company it will be difficult for us to provide the resources and support necessary to ensure the success of all of these emerging product development programs. From this assessment it was clear that we would have to refine our focus. We would need to direct our energy and resources to a few select opportunities where we believe we have the greatest chance for success in developing a biopharmaceutical product-based company. We based our resources, areas of expertise and ongoing programs and decided to define our focus on biopharmaceutical development.

Turning to our strategic overview, the cornerstone of our development program is alfimeprase which we are in the process of moving through Phase I trials into Phase II trials this year. I'll discuss our progress with that molecule in a moment.

We also have an excellent drug discovery engine that will continue to provide us with promising development candidates. We will be strategic in building our pipeline. We want to ensure that we are supporting development of high value, novel biotherapeutics. We are going to deploy an active business development strategy to build upon the pipeline and maximize the value of this drug discovery engine.

In terms of end licensing, you can expect that we will continue to evaluate the universe of clinical and pre-clinical candidates to see if there are any opportunities that would represent an attractive addition to Nuvelo's pipeline.

In terms of out licensing, we expect to capture the value of and accelerate the progress of our drug discovery efforts. We plan to partner our outline, some of our promising candidates. This may include some of our promising candidates beginning to emerge from our ongoing amero (ph) therapeutic portfolio.

Finally, we have several very exciting programs and technologies that fall outside of our focus on therapeutics. We have decided that we do not have the resources to fully maximize the value of these assets, and so we have decided to capture their value in the near term and deploy that capital back into our developmental programs. We plan to monetize non-core assets including our pharmaco-genomics program, our cancer diagnostics program, as well as our micro (inaudible) business.

Concurrent with our refined development initiative, we are also planning to manage our finances in a manner that would allow our current cash position of approximately $53.2 million to fund our operations through 2004.

Let's talk a bit about alfimeprase. It is our most exciting opportunity in the company right now. We are committed to driving the development of this product through the clinic. Our first target indication is acute arterial occlusion. This is a common and serious problem that affects more than 100,000 people annually in the U.S. alone. The market is both large and underserved.

In terms of our clinical status, as I mentioned we are currently in Phase I clinical trials in eight centers across the United States. We expect to complete this effort in the coming weeks and initiate an aggressive Phase II program, which I will describe. Based upon the encouraging information we have seen so far with alfimeprase in the clinic, we are pursuing a second indication in catheter occlusion and we recently filed an IND.

In terms of the market for catheter occlusion, there are more than 1 million cases in the United States again annually. Turning to the timing, we plan to initiate two Phase II programs with alfimeprase in the first half of this year, one in PAO, one in catheter cleansing. The Phase II of Q PAO program will examine the safety and efficacy of three doses of alfimeprase in centers across the U.S. and Europe. The Phase II catheter occlusion program will examine the ability of three different (inaudible) alfimeprase to restore function in occluded central venous catheters in 20 centers across the United States. We expect to complete at least one of these Phase II proof of concept programs by the end of this year.

Let's turn to our internal drug discovery efforts. Nuvelo has a large collection of proprietary genes with a strong patent position. We are in the process of validating our secreted protein genes through our partnerships with both Kirin (ph) and Deltagen (ph). In addition, we have an emerging collection of immuno-therapeutic product candidates for a variety of cancers and other indications. We are currently looking at these candidates and will seek strategic partners to speed development of these immuno-therapeutics. Based upon these products, we think Nuvelo has the capacity to sell INDs.

I will now turn the call back to Pete Garcia to discuss financial guidance for 2003.

Thanks, Ted.

As previously mentioned, we have financial plans that allow us to fund our current operations without the need for additional financing through 2004. With the current cash on hand, our line of credit and revenues related to business development deals, we expect to achieve this goal. This is not to say we won't raise additional capital during the next two years, but rather we may be more able to raise money on the heels of positive value creating events that we expect to be substantive during the next two years. As an example, as Ted outlined we expect to complete at least one Phase II proof of concept program by the end of 2003. Assuming positive results on this program, we believe we would be able to raise additional capital at that time.

In terms of a 2003 forecast, we will have no additional revenues related to BASF, but we do expect to bring in additional revenue related to our licensing and partnering of programs. We expect to continue to reduce our ongoing burn rate through program reductions and continued renegotiation of our facilities obligations. With this we expect our 2003 net burn to be about $35 million with the monthly burn higher in the first half of 2003 due to lower revenue and increased one-time merger related costs related to both integration and restructuring.

We expect to continue to update guidance on burn rate based upon progress with alfimeprase and our business development efforts. Our current financial projections assume completion of two alfimeprase Phase II programs by the year end.

In closing, I would like to say that the company is poised to build value for shareholders. On January 31 of this year at the close of the merger, Nuvelo had approximately $53 million in cash available with a market cap of $50 million. Previously, lack of cash was a key concern addressed by shareholders. We have effectively answered that as a near-term concern and the company and senior management are focused on executing the strategy outlined by Ted as we expect to report many positive events in 2003.

At this time, we would now like to open it up to questions.

Thank you, sir. The question and answer session will begin at this time. If you are using a speaker phone, please pick up the hand set before pressing any numbers. Should you have any questions, press star one on the push button telephone. If you wish to withdraw your question, please press star two. Your questions will be taken in the order they are received. Please stand by for the first question.

First question comes from Edward Tenhof (ph) of Think Equity.

Congratulations on completing the merger and getting through 2002. Best of luck into next year. Two quick questions for you. What is the pro forma share count now with the Variagenics inside? Secondly, Ted, maybe you can dig a little bit more into that drug discovery capability and the emerging therapeutics where you said you had the capacity to file INDs. Is that events that we should be looking for in 2003 or beyond? Thanks.

I'll start with the second question and have Pete answer the second question -- the first question, actually. In terms of the programs that I alluded to, we are not at a point yet where we are presenting full data on those programs. But I think it's fair to say that we basically have been applying a strategy here to take the genes that Hyseq had a proprietary position upon and study those genes across a number of cancers and identify if these genes are encoding proteins which uniquely expressed on these cancers. Based upon that effort, we have had tremendous success in identifying a number of opportunities which look ideal in terms of development of antibodies. We think those will be the basis for INDs going forward. There will be more data as the year comes forward with specific details.

Just specifically, I'm sorry, is that something that we should look for this year or further in the future?

It's actually something that you should be expecting to hear about this year.

Okay.

Ted, in terms of the number of shares outstanding we would have approximately 62.9 million outstanding. We currently have 62.9 million outstanding after the merger.

Great. Thanks so much.

You're welcome.

Our next question comes from Roy Freedman (ph) of EMC Bloom (ph).

A few questions about alfimeprase. In the Phase II trials, do you expect to have control arms and if so, what would the control arms look like? Secondly, where and when do you anticipate announcing the Phase I results? Thank you.

Good question. We expect to announce the Phase I results at the end of March. We have actually had a tremendous amount of investigator enthusiasm based upon what they have been seeing in the Phase I trials. We submitted it for a late-breaking meeting at the end of March. We expect to announce that when all of it is confirmed.

In terms of the Phase II program, those trials will be controlled. First, I will tell you that the goal is to look at in catheter clearance, the rate at which our drug is able to life clot and restore function to these catheters in several doses compared to probably the gold standard, which is TPA or activate.

In terms of the catheter - in terms of the PAO program, we are again looking at several doses. The objective here is to simply look at the rates at which the drug is able to life clot and restore patency (ph) to the occluded artery. We have a wealth of historical data about how effective comparative drugs like TPA and Urokinase (ph) are and we will be comparing it to that historical data, and internally there will be the control of the various arms.

Okay, thank you.

Our next question comes from Donald Baumgard (ph) of R and R Enterprises. Please pose your question.

I just wonder if you can tell us if there's a possibility that Nuvelo stock would be de listed? If so, when?

Well, I think that - the way I'd probably like to approach that question is focusing on the two universes of things. There are things that Nuvelo and its management can control and there are things like the political and risk of war and other things that we have no control over. What we have done internally is recognize obviously that our stock is trading below a dollar and focus on executing events that should draw up the value of the company and communicating those events. That's why we are here today, telling people about the progress that we're making with alfimeprase. The molecule is going extraordinarily well and we are being very aggressive.

Our first priority is to focus on the execution of value driving events. The other thing that we announced here that we expect to execute is focusing the business on the things which are most value driving and taking other programs which we think are very valuable, but not our core focus, and monetizing those. We think that's the primary objective in terms of trying to build a company to focus on the whole issue of de listing since again those are the things we can control. We think that should be an effective strategy.

As a follow on, the reason I asked the question is I have seen numerous accounts that de listing rules have been liberalized and under those rules if the proposed rules were approved, it would provide considerably more time prior to a de listing event. Has it been approved? If so, how long would it be?

Don, this is Pete.

Our understanding is the 90-day notice or deficiency notice which was previously 90 days has been approved to go up to 180 days by NASDAQ, but it still has to get approval through the SEC. That's our understanding. We obviously will monitor that situation.

So that hasn't been approved as yet. The extension?

That's our understanding.

If it were, how long would the extension be until?

The deficiency notice, it would go from 90 days to 180 days.

What would that represent with Hyseq?

It would be through approximately July 30.

Thank you.

Our next question comes from Roy Freedman of EMC Bloom.

Hi, more questions on alfimeprase. How big do you see the market for catheter occlusion being relative to the market size for PAO? And secondly, in a webcast some months ago I heard you refer to a possibility of filing at some point down the line for DVT. I wonder if that's still a possibility. Also, I saw in an interview back in November in "Bio IT World" Dr. Rathmann mentioned that Amgen had been very up front with the company about mentioning all the warts with alfimeprase. I wonder if you could give us any color as to what those warts might be? Thank you very much.

I'll start maybe in the order that I think I heard your question. It first related to the market for catheter clearance. Maybe I'll give you all the data and rather than try to pick a number. There are approximately 5,000 -- 5 million central venous catheters placed into patients each year in the United States. Approximately 25% of those result in occlusions caused by clots. So the total market, if you will, of patients who have catheters which clot up is somewhere in the range of one to 1.25 million. So then it becomes an issue of figuring out how low to price it and, based upon pricing, what kind of penetration would you get into the market?

I think the bottom line is that it really is a substantial problem where if you do the numbers, the market becomes certainly what we would call non-trivial. If you put all of the markets together and you did ask about DVT, it is fairly easy to envision how alfimeprase could be a product with U.S. sales in excess of $500 million a year.

Now, turning to DVT, we have though obviously a great deal about which indication represents the optimal pathway for approval and we have certainly thought about DVT. What we thought and recognized is that catheter clearance certainly has the most straightforward pathway to approval, and so we've added that as a second indication. Peripheral arterial occlusion also is an area where we think that has emerged as a pathway for approval, although no drug has been approved for that specific indication in the past. But it's an area of tremendous unmet need and all of the regulatory guidance that we received suggests that really should be one of the areas that you would focus on.

DVT would be something, I think, we might pursue at a later point. But we want to make sure that we've established the safety of the drug before you enter an indication like DVT where the risk of the patient having a terrible event due to the DVT itself is low. Therefore, the safety profile of the drug needs to be established to be highly safe. That's an indication we will go after, but not in the short-term.

Turning to the last issue that you raised which was the warts of the molecule, I'm not sure if I can describe specific warts based on any data that we have seen. Quite frankly, the data that we have seen has been essentially wart free. That doesn't mean that will hold up. I will tell you that theoretically the drug is a clot dissolver. Any clot dissolver could dissolve a clot and result in bleeding, including intra-cerebral hemorrhage. We think that because alfimeprase has such a short half life that, that could be a very minimal to a nonexistent problem. Until we prove that is not a problem, it certainly is theoretically a risk for our drug like all the other clot dissolvers, even though we believe we have an advantage there that we have yet to prove.

In terms of other theoretical warts, it is a protein which is of non-human origin, so in theory there is a potential of immune response to it. All the pre-clinical data suggests that again because the drug is sequestered so rapidly, it is a very, very, very non immuno-genic molecule. In fact, we were not able to produce an immune response until such massive quantities of the drug was provided that all of the (inaudible) globulin of the animals was consumed. So that gets you far beyond the doses that we would expect to dose in humans. I think any drug could also produce unknown safety effects that we've never envisioned, but I would say if you go back to the warts that we've seen so far, it really is a very clean looking drug that works extremely well.

Okay, thank you for that. Regarding catheter clearance being an easier path to approval than PAO, could you explain that just a little bit, please?

In catheter occlusion, the end point is certainly restoration of flow. So just to put things in perspective, these are generally patients who are getting continued doses of chemotherapy indications, and so they need a continuous indwelling central venous access device. Due to this inherent capacity of our blood to clot, particularly in the presence of a foreign device like these catheters, sometimes a clot develops inside or at the end of these catheters. From a medical perspective, the idea of giving a drug to dissolve that clot and restore function is dramatically more attractive than taking that patient back to the operating room and re-planting a new catheter.

So what I would say is that the pathway is clear because all you need to do in these trials is identify these patients which are readily identifiable, give them the drug in the catheter, a very small amount of drug likely, and observe and see if the catheter function has been restored or not. And you can do that literally within minutes of, if not hourly after you give the drug. It's a clean population of patients. It is a very clean end point that is readily measurable within minutes after administration of the drug.

Okay. One housekeeping follow-up. Do you anticipate giving a combined company post merger balance sheet any time soon?

We will present in our 10-K some pro forma financial statements. I don't think we are required to do a balance sheet. So it may be a statement of operations. Those will be in our 10-K that we'll file by March 31.

In the worst case we would have to wait for the -- excuse me?

Yes, worst case would be the first quarter -

10-Q?

Right.

Thank you.

Your next question comes from Donald Baumgard of R and R Enterprise. Please state your question.

Ted, could you give us the summary of the total number of employees in both companies pre-merger and what the current count is?

Prior to the merger, the operations here in Sunnyvale (ph) had approximately 120 people and the operations in Cambridge had approximately 80 people. So the total would be approximately 200. We announced that immediately following the merger we would reduce that number to 110 to 120, and we've done that.

Could you tell me how you achieved that? What programs were eliminated?

I probably don't want to go through an exhaustive detail the programs that we have either shelved or hibernated. But what I can tell you we did is looked very carefully at all the programs and made an assessment of which programs do we think are going to build value for our shareholders and build a significant business in the short-term. The program that came immediately to the top was obviously alfimeprase. What we have done is execute a strategy which says alfimeprase gets what it needs, when it needs it so it can move forward and drive value for the company.

Last part of the question is how many are in each of the two locations?

As of today we have approximately 65 to 70 people here in Sunnyvale and approximately 50 people in Cambridge.

Thank you very much.

Ladies and gentlemen, should you have a question please press star one on your push button telephone. If you wish to withdraw your question, please press star two. Once again, ladies and gentlemen, should you have a question, please press star one on your push button telephone. If you wish to withdraw your question, please press star two.

If there are no further questions, I will turn the conference back to Dr. Love.

I'm wondering if we should a wait a few more moments to allow people any other questions.

Certainly, Doctor. If you have a question, press star one on your push button telephone. If you wish to withdraw a question, press star two.

Our next question comes from Rick Panter (ph) of Quick and Reilly (ph). State your question.

Gentlemen, do you plan any conference calls in the near future so we can keep up with developments?

What I can tell you is that I am doing a presentation which I think has already been announced at the Bio CEO conference this coming Thursday. And at this point we have not announced any additional calls, but you can certainly rest assured that there will be additional calls for us as we have key events and milestones and we'll announce those obviously in advance.

Thanks very much.

Ladies and gentlemen, the question and answer session is still open at this time. If you are using a speaker phone, please pick up the hands set before pressing numbers. Should you have a question, press star one on the push button telephone. If you wish to withdraw the question, please press star two.

Gentlemen, there appear to be no further questions.

Well, I would like to close by saying that we are really very excited about our strategic focus on the discovery and development of Nuvelo pharmaceuticals and the strength it brings to Nuvelo as well as our shareholders. We are committed to aligning the company's assets and resources to provide our key development programs with the greatest chance of success, specifically alfimeprase. We plan to complete the Phase I trial of alfimeprase in the first quarter of this year and initiate two Phase II trials in both PAO and catheter clearance in the first half of this year. To that end, we intend to outly (inaudible) partner therapeutics from our emerging research portfolio.

We also plan to monetize non-core assets and redeploy this capital into biopharmaceutical development programs. In addition, we will support our efforts to build upon our pipeline of attractive therapeutic candidates by utilizing our proprietary gene collection coupled with an opportunistic end licensing and partnering strategy. We are looking forward to executing on this plan and reporting our progress in future calls.

I would like to thank each of our shareholders for joining us here on the call today and for your support of the company. Thank you.

Ladies and gentlemen, if you wish to access the replay for this call you may do so by dialing (800) 428-6051 or 973-709-2089 with an I.D. number of 286609. This concludes our conference for today. Thank you all for participating. Have a nice day. All parties may now disconnect.