Oruka Therapeutics Inc (ORKA) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nuvelo second quarter 2007 financial results conference call.

(OPERATOR INSTRUCTIONS)

Joining us today on the call is Dr. Ted W. Love, Chairman and CEO, Dr. Michael Levy, Executive Vice President, Research and Development, Ward Wolff, Senior Vice President, Finance, and CFO, and Lee Bendekgey, Senior Vice President and general counsel.

I would now like to read the following statement. Presentations by Nuvelo management on this conference call will include statements regarding anticipated use of cash in fiscal years 2007 and beyond, our anticipated financial results in the fiscal year 2007, the timing and progress of Nuvelo's clinical stage and research programs, the potential benefits that patients may experience from the use of our clinical stage compounds, the potential market for our clinical stage compounds and the expenses, revenues and potential for profits from sales of any drugs, products resulting from such programs, which statements are hereby identified as forward-looking statements for purposes of the Safe Harbor provided by the Private Securities Litigation Reform Act of 1995. 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, uncertainties relating to drug discovery, clinical development processes, enrollment rates for patients in our clinical trials, changes in relationships with strategic partners and dependence upon strategic partners for the performance of critical activities under collaborative agreements, stock market conditions, the impact of competitive products and technological changes, and uncertainties relating to our ability to obtain funding. These and other factors are identified and described in more detail in Nuvelo's filings with the SEC, including, without limitation, Nuvelo's quarterly report on Form 10-Q for the quarter ended March 31, 2007 and subsequent filings. We disclaim any intent or obligation to update these forward-looking statements.

At this time I will turn the call over to Dr. Ted W. Love. Sir, you may proceed.

Thank you all for joining us today. We are pleased to share with you our second quarter accomplishments and to provide an update on our strategy moving forward.

Following my introductory comments, Dr. Michael Levy, our Executive Vice President of R&D, will discuss our research and development programs and then Ward Wolff, our Senior Vice President of Finance and Chief Financial Officer, will provide an overview of our second quarter financial results and updated guidance for 2007. Finally, I will conclude with the milestones that remain ahead of us in 2007.

I am pleased that we are now able to move forward, unencumbered by the uncertainty of the first six months with a clear strategy and renewed energy. As announced today, we have made significant decisions to realign our organization and to focus on programs we expect to yield the nearest term proof-of-concept data. These decisions also help to ensure that we maintain Nuvelo's strong financial foundation.

In reviewing each of our programs, we evaluated the development and regulatory pathway, anticipated costs, probability of success, commercial opportunity, unmet medical need and alignment with our expertise and core competencies. As a result, we have decided to continue development of alfimeprase, NU206 and NU172 and to suspend development of rNAPc2 in all indications, including cancer and acute coronary syndromes.

Having made these decisions, we have a more focused business strategy and are best positioned to create momentum with alfimeprase, NU206 and NU172. We are aggressively moving forward with the development of alfimeprase with the benefit of all that we have learned over the last six months from analyzing our Phase 2 results.

We all know from experience that failed trials can often yield information that leads to new and ultimately successful development strategies. This was the case for Embrel, [Zaldiar] and Avastin, to name a few. I believe that alfimeprase may turn out to be another such example of this and Michael will describe in a few minutes how we have revised our alfimeprase development strategy based upon what we've learned from our previous Phase 3 trials.

As announced in June, we plan to reinitiate the SONOMA-3 trial in catheter occlusion, or CO, and to begin the Phase 2 CARNEROS study in acute ischemic stroke. For a company of our size, CO is an attractive opportunity with a U.S. market of approximately $100 million today with the potential for growth. And in stroke, we are all aware of the unmet medical need and the associated significant market opportunity.

I will now turn the call over to Michael to discuss our development programs in detail.

Thank you, Ted.

Let me begin with a review of our decision to suspend development of rNAPc2. As Ted mentioned, there were multiple factors that formed our decisions about which programs to move forward. While we continue to believe that tissue factor is a compelling target in both cancer and thrombotic conditions and we remain excited about the science behind rNAPc2, we needed to carefully prioritize and focus our development efforts.

As you know, the development and regulatory pathway in colorectal cancer is complicated and the competitive landscape is rapidly evolving. We therefore decided to discontinue the ongoing Phase 2 trial in metastatic colorectal cancer and to suspend development of rNAPc2 in all indications in order to focus our energy and dollars on the programs where we can most efficiently generate proof-of-concept data.

I'll now focus the rest of my comments on our high priority programs, mainly alfimeprase, NU206 and NU172. Having recently acquired full global rights to alfimeprase, we're exciting to be moving forward and expect to reinitiate the SONOMA-2 trial in catheter occlusion and initiate the Phase 2 proof-of-concept CARNEROS trial in acute ischemic stroke soon.

The information we learned from our previous Phase 3 trials was critical to informing our revised strategy in catheter occlusion and stroke. Analysis of the Phase 3 SONOMA data provided further evidence of alfimeprase's thrombolytic activity, but also showed that the dosage regimen we used did not support the target product profile we believe necessary for commercial success.

Fortunately, our preclinical experiments provided us with guidance on a potential strategy for achieving the target product profile in CO. In these studies, we saw marked improvement in clot dissolution when increasing the concentration to 5 mg/ml. Armed with these data and data from our Phase 3 trials, we have decided to investigate a single higher, more concentrated dose of alfimeprase. We will reinitiate the SONOMA-3 trial, evaluating a single dose of 10 mg with a concentration of 5 mg/ml of alfimeprase in up to 100 patients. We have approval from the FDA to reinitiate this trial and expect to dose the first patient soon. Because this trial is open label, we expect it to enroll quickly and, based on our current projections, anticipate data in 2008.

From our Phase 3 experience we also gained a great deal of insight for our plans in acute ischemic stroke. We and experts in the stroke research community believe that the similarities between catheter occlusion and stroke are very compelling. The clots seen in stroke and CO tend to be relatively small, freshly formed and not typically associated with underlying atherosclerosis. We therefore believe that a relatively small dose of alfimeprase may be effective.

As you know, stroke is the third leading cause of death in the United States and the leading cause of severe long term disability. Therapeutic options for patients with stroke are limited and we believe that a safer, more efficacious intraarterial therapy has the potential to change the treatment paradigm for stroke patients. A product candidate such as alfimeprase could provide the opportunity to rapidly restore flow and expand the treatment window beyond the three-hour timeframe approved for thrombolytic therapy today. The CARNEROS study will evaluate this in a multicenter open label study of escalating bolus doses of 1, 5 and 10 mg of alfimeprase in approximately 100 patients.

Turning now to NU206, we had planned to begin a Phase 1 trial with this gastrointestinal growth factor the first half of 2007. The discussions with the FDA have taken longer than we initially expected, but we remain excited about the potential of this novel approach to treat serious medical conditions including cancer therapy-induced mucositis and inflammatory bowel disease, or IBD.

While our original research was focused on mucositis, we also continued to generate compelling preclinical data in IBD. Current therapies for IBD all focus on reducing the underlying chronic inflammation while NU206 has the potential to offer a novel and synergistic approach to treatment by stimulating healing and growth of normal gut epithelium. We think the path ahead for NU206 is a promising one and look forward to updating you once we've concluded our discussions and have finalized our timelines for initiating clinical trials.

Finally, we remain on track to begin a Phase 1 trial with our short acting direct thrombin inhibitor, NU172, in the fourth quarter of 2007 or first quarter 2008. Because we can investigate in healthy human volunteers whether NU172 can quickly anticoagulate blood and then quickly reverse back to a normal coagulation stage, a Phase 1 trial should provide us proof-of-concept of the drug's potential therapeutic utility. We expect to provide data from this trial in 2008.

In closing, we've taken a hard look at our development programs, prioritized our efforts and are excited to be moving forward aggressively with a more focused development pathway.

I'll now turn the call over to Ward.

Thank you, Michael, and good afternoon, everyone. After the close of the market today we released our financial results for the second quarter 2007 and I will review the highlights of those results.

Revenues in the second quarter of 2007 were approximately $45.8 million compared to $1 million for the same period in 2006. The increase in 2007 is a result of the recognition of $45.8 million of deferred revenue, representing the unamortized portion of the $50 million upfront license fee received from Bayer, which was triggered by the recent termination of our collaboration agreement with them. We had previously been amortizing the upfront payment into revenue over a 15-year period, or approximately $800,000 per quarter.

Operating expenses for the second quarter of 2007 were $18.5 million compared to $22 million in the 2006 quarter. Research and development expenses were $11.2 million in the 2007 quarter and $14.7 million in the prior year quarter. These amounts were net of collaboration partner cost sharing credits of $1.4 million and $8.2 million respectively. The decrease in net R&D expenses in 2007 is primarily due to lower spending on alfimeprase as a result of the suspension of the Phase 3 programs in December 2006.

General and administrative expenses were $7.3 million for both the second quarters of 2007 and 2006. While total G&A expenses were flat, the 2007 quarter included a non-cash charge of $1.1 million for the impairment of software and implementation costs. For the second quarter of 2007 we reported net income of $29 million, or $0.54 per share, compared to a net loss of $18.9 million, or $0.36 per share, for the second quarter of 2006.

With respect to the balance sheet, we ended the second quarter 2007 with $120.2 million in cash, cash equivalents and short term investments, which does not include the $15 million in cash we had received from Bayer in the third quarter with respect to the termination of the collaboration agreement. That amount will be included in the balance sheet as deferred revenue. We will not recognize any of this $15 million as revenue until Bayer makes its decision whether to opt back into the agreement at the time of initiation of a pivotal trial in stroke. Our net cash used in operating activities was $13.6 million for the second quarter of 2007 and $30.8 million for the first six months of 2007.

Also announced today, we have taken important measures to realign our organization, including a reduction in personnel, reprioritization of programs and a thorough review of all of our discretionary spending in order to most efficiently drive the attainment of key milestones in the next 12 to 18 months.

Following the restructuring of the organization we will have less than 80 employees, a reduction of 45% from year-end. We expect this realignment of personnel and reprioritization of programs to result in reduced annual expenses of approximately $15 million from current levels. We also expect to record a restructuring charge in the third quarter 2007 of approximately $2.5 million, primarily associated with severance costs.

I would now like to turn to our financial guidance. You will recall that pending clarification of our path forward on alfimeprase we had previously given guidance for the first half of 2007 for both operating expenses and net cash used in operating activities. We are now providing guidance for the full year 2007.

We expect operating expenses to be between $65 million and $70 million for the full year 2007, including the restructuring charge. We expect net cash used in operating activities for 2007 to be between $45 million and $50 million, after taking into account the $15 million we received from Bayer in the third quarter. We expect this $15 million termination payment will substantially fund the anticipated alfimeprase development spend over the next 12 to 18 months.

Even though the alfimeprase programs are now 100% funded by Nuvelo, keep in mind that the majority of the trial initiation costs for both CARNEROS-1 and SONOMA-3 were incurred in 2006 and we are now in the process of reopening the trials that had previously been on hold.

With respect to revenue, we expect amortization of deferred revenue will decrease to approximately $100,000 per quarter in the second half of 2007 due to the continued recognition of an upfront fee received from Kirin in 2005.

In summary, we believe we have taken the near term financial measures to position the Company to achieve its operating goals and to facilitate our ongoing objective of having at least two years of operating cash on hand.

Thank you and I will now turn the call back over to Ted.

Thank you, Ward.

As you've heard today, we have realigned the organization while maintaining the capabilities and resources necessary to develop drugs efficiently. Over the next several months we will remain focused on achieving our key value driving deliverables. For alfimeprase, we will reinitiate the SONOMA-3 trial in CO soon and provide data from this trial in 2008. The Phase 2 CARNEROS trial in acute ischemic stroke should also begin shortly.

We plan to initiate a Phase 1 trial with our direct thrombin inhibitor, NU172, in the fourth quarter of 2007 or the first quarter of 2008 and expect to see data from this trial next year as well. In addition to these milestones, we will keep you apprised of our updated timeline with our NU206 program for GI disorders.

The team and I have had to make difficult decisions regarding the organization and our programs. We now feel that we have the appropriate team in place for our new path forward and are confident that our strategy focuses our resources on the highest priority programs that will allow us to maximize shareholder value.

I would like to publicly thank our Nuvelo employees for their contribution and excellence. They have worked incredibly hard and we wish those who have been affected by the reduction announced today great success in their future endeavors.

I also want to take this opportunity to recognize members of the senior management team who will be leaving the Company, Ward Wolff, Shelly Guyer and Walter Funk. They have all made significant contributions and have been a valuable part of the Nuvelo team during their time here. I wish them the best as they move on to their next opportunities.

In closing, we are now able to move forward with focus, energy and commitment to advancing our pipeline and look forward to reporting our progress throughout the year.

Operator, can you please poll for questions?

(Operator Instructions)

And your first question comes from the line of Jim Birchenough representing Lehman Brothers. Please proceed.

Hi. This is actually Bud [inaudible] sitting in for Jim Birchenough. A couple of questions, first one on the CARNEROS trial. Could you give us -- could you shed some light on what the endpoints are and the powering assumptions? What do you have to show in this trial to have a successful outcome?

Hi. Thanks for the question. Yes, with the CARNEROS trial the key primary endpoints focus on safety and the safety endpoint we're principally looking for is avoidance of hemorrhagic transformation. I think as you know, the really rate limiting adverse event with currently available thrombolytic therapy is the significant rate of hemorrhagic transformation or hemorrhagic conversion and one of the real potential benefits for alfimeprase is the ability to deliver a drug that clears blood clots and does not lead to hemorrhage. So we'll be looking for that.

And in terms of the efficacy, we're focusing on angiographic clearing of the thrombus and restoration of blood flow to the affected part of the brain. So we'll be looking at clinical outcomes only as a secondary endpoint in this trial because it's relatively small, as you know, with around 100 patients, and really focusing for proof-of-concept on can we remove blood clots effectively and, of course, without causing significant hemorrhage.

Okay. And just a quick follow-up there, just on I guess CARNEROS and SONOMA-3 as well. In terms of Bayer opt-in, are there any specific criteria or thresholds they've set in terms of what might have to be achieved for them to come back in?

So the Bayer opt-in really relates to stroke and that opt-in is triggered by the initiation of a pivotal trial by Nuvelo. And there is no specific set of data necessarily that would drive their decision. The agreement really speaks to what we need to do to trigger the timeframe for them making that decision.

Great. Thank you.

And your next question comes from the line of Geoff Meacham representing JPMorgan. Please proceed.

Hi, it's [Tace Ford] here for Geoff. Just a couple of questions for you. The first question is you mentioned that you've done sort of a portfolio reprioritization. I'm just trying to figure out what the -- what your hurdle rate or threshold is for percent probability of success in terms of why you've chosen the two -- or the three compounds you've chosen to proceed with.

This is Ted. Well, I don't think -- I mean it's a good question. I'm not sure if I can answer it quite the way you posed it because at the end of the day what a company tries to do is only focus on compounds that they think have a chance of working in the beginning. So there needs to be a preponderance of data that gets you excited about going into the area.

That was the case in the beginning for rNAPc2. That remains the case today for rNAPc2. The real issue for our Company, and any company for that matter, is you have limited resources. At Genentech we had limited resources. And so with those limited resources you're forced, and there's nothing wrong with this, you're forced to make decisions about how you will allocate those resources across a portfolio which you think is interesting.

And when you do that, you're trying to allocate resources based upon probability of success. You're trying to do it based upon what you think may be your particular -- your therapeutic strength. You're trying to do it based upon what you think may be big opportunities and small opportunities to try to develop a blend. And we really did that.

But there's really nothing in our portfolio that we don't feel very good about from a probability of success standpoint. It is obvious, though, that the earlier stage of compounds, the lower the probability of success because there's simply less known.

Sure. Thank you. And just a second question about the upcoming trial that you have, CARNEROS. What's the number of sites and the breakout between international and U.S.?

That's a good question. So we're enrolling on the order of 40 sites, all in North America at this time.

Okay, thanks a lot.

From the line of Bank of America Securities with the next question we have William Ho. Please proceed.

Great. Thank you very much for taking my call. Quick question. We haven't seen much data from the Phase 3s that had failed. Can you tell me why you're comfortable that you're going to see success either with the catheter occlusion by simply increasing the dose, as well with the -- in the stroke trial -- with stroke, especially since we've several companies fail recently?

Thanks for the question. It's a good question. It's a large question, too, with many parts to the answer. Let me stand back a minute and say why we think we'll be successful within the stroke arena, then come back and address the specific questions you have regarding our Phase 3 data.

So with stroke, you're right to point out that many trials have failed. I think something like 50 trials have probably failed in stroke at this point. And it's important to recognize that those trials that have failed have all been, for the most part, with neuroprotectives, so with drugs that seek to act on the biology of the brain after the injury has happened.

And in fact, the only drugs that have been successful in this therapeutic area to date have been the thrombolytics, which I think at some intuitive level makes sense because if you clear away the blood clot which is blocking the flow of oxygen and nutrients to the brain, if you can clear that away, it seems intuitively right to most people that you would have the opportunity to cause some good and perhaps restoration of neurologic function.

And what's limited the use of thrombolytics to date isn't the efficacy or the activity. It's the side effect profile in that it's been hard to restore blood flow to the brain without at the same time giving patients the risk of having a terrible hemorrhagic bleed into the brain, which can be devastating. And that's really why we think alfimeprase is potentially so important in that it allows us to clear away the blood clot and hopefully with a much reduced risk of causing bleeding into the brain based on its unique mechanism of action. And we've discussed that in the past and we can go through it again at a later stage.

I mean Paion recently failed and that's a --

Desmoteplase did fail. That's one of the noted exceptions for a thrombolytic that failed. And I think there are reasons for that. Desmoteplase is a very good plasminogen activator and it has the same strength as the other plasminogen activators and probably has similar liabilities to the other plasminogen activators.

And I think we know that, for example, if you look at the case of TPA, it's approved to be used in the zero to three-hour timeframe because the FDA anyway feels that beyond that timeframe you're at risk of causing greater harm than good. And what people tried to do with Desmoteplase was use a special type of scanning, perfusion/diffusion mismatch scanning to select for a group of patients that they thought would do especially well and avoid side effects even being treated later than the zero to three-hour time window. And there are a variety of reasons in retrospect why that didn't work out. It's probably not appropriate to discuss in any length on this call, but there's a variety of reasons why that didn't work out.

Now, with alfimeprase there truly is a novel mechanism of action. It's clearly not a plasminogen activator and we feel that it has the potential to benefit patients beyond the three-hour timeframe, even without special scanning, so even without trying to cherry-pick the patients that could potentially do well.

Great. And why do you think the catheter occlusion will work just at the higher doses?

Well, I think it's important to recognize that on some level, catheter occlusion did work in the preceding Phase 3 trial. It worked to the extent that we were able to confirm it was an active thrombolytic. It worked to the extent that we were able to get a p-value better than 0.05, which is the standard test for scientific significance.

But what it didn't do was at the p-value that we set for regulatory approval with a single trial and it didn't hit the target product profile that we were looking for to be successful in this marketplace. Clearly, the marketplace today is only around $100 million and to be successful, you really have to have a very good product profile. And we feel that by raising the concentration of the dose that we will have a good chance of hitting that product profile.

And the reason we feel that is it's generally true with enzymes that if you're able to raise the concentration, you can get better activity levels. And specifically in the case of alfimeprase, as we highlighted, we have a number of preclinical studies and we were able to show just that, that if we raised the concentration to something like 5 mg/ml, you really do see a strong inflection point and a strong increase in activity. And we're hopeful that that will translate into the clinical trials. But to be fair, we'll only have good data to support that when we complete these trials, which we're beginning very soon and hope to enroll relatively quickly.

And what's the p-value this time?

Well, we don't have a p-value for this trial going forward. This is a proof-of-concept study. And remember, it's open label without a comparator arm.

Okay.

Nothing to have a p-value against.

And last question, when can we expect to see the full release of the data?

Well, Ted mentioned we hope to complete this trial and share the data with you in 2008.

Not this data, but the prior Phase 3s that --

Oh, the prior data from the previous Phase 3 trials. So we're working with our key opinion leaders and with the principle investigators to present the data at a relevant medical meeting in the near -- in the future. So we'll get back to you when we have more information on which meeting that will be at.

Thank you.

I mean I'll just add, William, to that. It really hasn't been that long since we unblinded the data and ended our discussion with the FDA. It wasn't entirely clear what would be the fate of those trials, whether they would be reinitiated. And so we just completed that process and, as Michael said, look forward to getting the data out there publicly. But I think the essence of the data we have presented, just the specifics we have not presented.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Greg Suvannavejh representing UBS. Please proceed.

Good afternoon. Thank you for taking my question. I have a -- actually I've got a couple of questions. My first, actually, I'd love to revisit what's happening with NU206. I think you made some comments that your discussions with the FDA were taking longer than you had anticipated. So my first question with regards to that program is that you do still plan on moving into a Phase 1 trial but only once those discussions are complete? And then the follow-up to that is what exactly is the reason for the holdup?

We're still very excited about NU206. I mean the potential for this drug to be an important agent in GI disorders, in particular inflammatory bowel disease, we think is very real. And when we discussed the project with thought leaders in the field, they share our excitement that this is a totally novel approach that could potentially be very synergistic to the prevailing therapies today.

As you know, inflammatory bowel disease is principally treated by anti-inflammatory agents such as corticosteroids or TNF blockers and NU206 has the potential to be an agent which can work with these other agents and cause the re-growth of normal gut epithelium and speed healing. So we are pushing full steam ahead.

As I say, it's a novel agent and the FDA had a number of questions for us on the preclinical data. And it's very hard to time how long it will take to work through discussions with regulatory agencies. This took a little longer than we expected, but we're still optimistic that we'll resolve the discussions and move forward into a Phase 1 trial in due course. And you know what? Frankly, we look forward to getting back to you and being able to tell you what our plans are for the Phase 1 trial and when it will start.

Is there -- you had made a reference to some questions about the preclinical data. Can you characterize those questions as being relative to the novel mechanism of action or is there something perhaps in the safety or the toxicity profile that might have been seen?

Well, typically we don't share most of our discussions with regulatory agencies while they're in progress, but I think it's fair to characterize that they naturally have questions because this is a novel approach and they want to make sure that it's safe and effective and appropriate to test in human beings. But as I say, we're very confident that we can work through these discussions and move forward.

Thanks. And just one last question, if I may. It actually has to do with the trial, the Phase 2 trial I think you had in metastatic colorectal cancer. I know that you're kind of shutting that down. Can you just give us a sense of how many patients you had gotten enrolled at that point in time? I'm curious as to whether the reason why is simply just resource allocation or perhaps it had something to do with the speed of enrollment, it just didn't make sense to continue this further. Thank you.

Well, I'll just step back in to say that the decision around rNAPc2 was really a corporate decision really based upon where the Company is post December 11th. And we were looking at kind of the resources that we've got, both financial and personal, looking at our portfolio, really feeling that we need to get the Company on a track to drive its value forward, drive its value up and in the shortest possible timeframe.

So what we really did then was look at the programs that we think can get us there most rapidly. And we don't comment on the specifics of enrollment rates on our trials. We've done that as policy. But I think it is fair to say that typically these trials start off with slow enrollment. You have to put in a lot of resources to get them going. And in fact, that was one of the issues for us right now. We want to put our resources behind alfimeprase and CO and stroke and put it behind NU206 and NU172. And we really didn't have the availability of extra resources today to put the effort behind rNAPc2.

Thank you.

Ladies and gentlemen, this now concludes the question and answer session. At this time I will turn the call over to Ted Love for closing remarks.

I'd like to close by thanking you all for joining us on the call today. We hope to see many of you soon at upcoming conferences and I'd like to wish you all a good day.

Thank you for your participation in today's conference. Ladies and gentlemen, this concludes the presentation. You may all disconnect and have a good day.