Sarepta Therapeutics Inc (SRPT) 2008 Q3 法說會逐字稿

Welcome to the AVI BioPharma third-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 and will be available for replay both by phone shortly after this call and on the company's website beginning tomorrow, August 11, 2008. I would now like to turn the call over to Julie Rathbun, at investor relations at AVI. Please go ahead.

Thank you for participating in today's call. Earlier this morning we released our financial results for the third quarter of 2008. This press release is available on our website at www.AVIbio.com. If you would like to be placed on AVI's press release distribution list, please e-mail me directly at investor relations at AVIbio.com. Joining me this morning from AVI BioPharma are Dr. Leslie Hudson, President and Chief Executive Officer and David Boyle, Chief Financial Officer. Before we begin I'd like to remind you that comments made by management during this conference call will include forward looking statements within the meaning of Federal Securities laws. These forward looking statements involve material risks and uncertainties. For a discussion of risk factors I would encourage you to review the AVI BioPharma annual report on form 10-K and subsequent reports as filed with the SEC. Furthermore the content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, November 10, 2008. The company undertakes no obligation to revise or update any statement to reflect events or circumstances after the date of this conference call. With that said I would like to turn the call over to our CEO, Les Hudson.

Thanks, Julie, and good morning everybody for joining us on this call. Let me start by apologizing if there is background noise to me that it sounds like I am in an airport it is because I'm in an airport. I just flowed into Newark, and I am very grateful to have this, the first conference call with David Boyle, our new CFO, who will be covering our third-quarter financial results. What I would like to do, though, is start by reviewing some of the recent and third-quarter highlights from AVI and then we will look at upcoming milestones and then finally open the call to questions.

As you know the first three quarters that I have been on board with the company this year have marked a transformation of AVI. We've transitioned from an antisense pioneer into a world class company specializing in the discovery and the development of RNA-based drugs. We've continued our momentum and I am pleased to review our most recent highlights. As many of you will have seen I am sure this morning our partner, Global Therapeutics at Cook Medical Company announced it has initiated the world's first clinical trial of a drug-eluting stent, that uses an antisense RNA therapeutic agent, this is AVI-5126. The drug is aimed at silencing one of the genes c-MYC responsible for causing arteries to close after stenting. This is the process known as restenosis. AVI-5126 is an enhanced antisense agent that causes, that targets the key regulatory gene involved in cardiovascular restenosis and [science] is the gene before the biochemical pathway can be triggered.

The antisense compound is based upon our new generation or PPMO chemistry and has both increased potency and bioavailability compared to its predecessors, allowing for a DES system which has less drug and excipient than has been seen previously. You will remember that in the analyst breakfast for example that we held earlier in the year, we reviewed some of the preclinical data in which Cook had seen a 30% improvement in their GTX DES system using AVI-5126 versus a bare metal stent. It is really on this basis that they felt very confident to go forward into the trial that they have just announced.

Another highlight that has happened during the last quarter was that the European Medicine Agency, the [MEA] the committee for orphan drug medical products of the agency has put forward a positive opinion recommending orphan medicinal product designation for AVI-4658. This is our drug intended for the treatment of Duchenne muscular dystrophy and the one for which we are about to open a clinical trial. Additionally, the Company received a notification from the gene therapy advisory committee in the United Kingdom granting provisional approval for the company's planned clinical trial for AVI-4658. The trial approval was provisional.

There were some wording changes asked for which we've already complied, and also we have to complete the site-based ethics committee review which happened last Thursday. Now it should be an automatic progression for full approval. The company believes obviously that the COMP opinion towards the award of orphan status will be quite important under these circumstances as it will allow the European Commission to designate the drug as an orphan indication, which brings us several benefits, some of which in fact are the same as one would get in the US for which we already have this designation.

But in addition, there are certain waivers of fees, protocol assistance and product development as well as market exclusivity for up to 10 years. This is an AVI sponsored trial with Francesco Muntoni acting as our principal investigator. Francesco has been a long-term collaborator with the company and is based in the UK. AVI has also hosted a conference at Cold Spring Harbor looking at the use of exon skipping to pursue strategies for the treatment of Duchenne muscular dystrophy. The conference was cohosted with the foundation to eradicate Duchenne. The CureDuchenne Foundation, as well as Prosensa, and it drew participants from all over the world and from all areas of research, clinical, development, regulatory affairs as well as the key DMD disease foundations to review the advances in oligonucleotides as therapeutic agents for DMD. Members of the senior management of AVI were there, as well as several of the key company collaborators to present update on our work.

David Boyle, as I said earlier, joined the company as senior vice president and also chief financial officer, and this is David's first call with analysts. He previously held senior positions in biotechnology and specialty pharmaceutical companies, including XOMA, which is a California-based company leading the discovery and development of therapeutic antibodies, as well as Salix Pharmaceuticals and Ares Serono in both the US and in Switzerland.

Finally, the company hosted a breakfast meeting for analysts, brokers and investors on the 10th of September 2008. It was extremely well attended and gave us the opportunity of updating not only our own programs, but also those being carried out in collaboration with Cook, which actually gave a prescience of the fact that they were going to start their clinical trial, as well as the work we've been covering with USAMRIID on Ebola, Marburg, and Dengue in particular.

Now David Boyle will provide you with an overview of our financial results and I shall return to talk about our upcoming milestones. Dave.

Thanks, Les, and good morning, everyone. Earlier this morning AVI issued a press release highlighting our third-quarter financial results. A report on form 10-Q will be filed with the SEC and available later today. As reported in the release, revenues for 2008 third quarter were $5.2 million, up from $2.9 million in the prior year quarter, reflecting increases in research contract revenues of $2.3 million. Revenues for the nine months ended September 30, 2008 were $15.8 million, up from $5.8 million for the comparable period in 2007, primarily reflecting increases in research contract revenues of $10 million.

Revenues in 2008 are derived primarily from our five active government funded research contracts. We expect revenues from current contracts to continue through the first half of 2009. As part of our business we continue to seek opportunities for future awards of a similar nature to move forward development of these important projects, including treatments for the Ebola and Marburg viruses. The net loss for the third quarter of 2008 was $6 million or $0.08 per share compared with a net loss for the third quarter of 2007 of $7 million or $0.13 per share. For the nine months ended September 30, 2008 AVI BioPharma recorded a net loss of $22.8 million or $0.33 per share compared with a net loss for the comparable period in 2007 of $23 million or $0.43 per share.

Research and development expenses for the third quarter of 2008 decreased to $7.9 million from $9.9 million during the third quarter of 2007. The decrease in R&D expenses was due primarily to decreases in contracting costs for the production of GMP subunits. R&D expenses for the first nine months of 2008 decreased to $23.6 million from $25.4 million in the prior year period. This decrease was due primarily to decreases in contracting costs for the production of GMP subunits and a decrease in government research contract expenses, partially offset by increases in net clinical expenses, compensation costs and professional consultants.

During this period the company completed an asset acquisition of Ercole Biotechnology Inc. resulting in an additional expense of $9.9 million relating to acquired in process research and development. General and administrative expenses for the third quarter of 2008 increased to $3.2 million from $1.5 million for the third quarter of 2007. The increase in G&A expenses was due primarily to an increase in compensation costs, including severance for the company's former president and chief operating officer who resigned during the quarter. G&A expenses for the nine months ended September 30, 2008 decreased to $6.9 million from $7.9 million in the prior year period. The decrease in G&A expenses for the nine-month period was due primarily to a decrease in compensation costs. This decrease in compensation reflects year 2007 expenses related to the separation and release agreement with the company's former chief executive officer.

AVI had cash, cash equivalents and short-term securities of $14.4 million as of September 30, 2008, a decrease of $10.7 million from December 31, 2007. This decrease was due primarily to $9.9 million used in operations and $783,000 used for the purchases of property and equipment and patent related costs. As you will see later today in the form 10-Q cash used in operating activities for the nine months ending September 30th is $9.9 million in 2008 or $7.5 million less than the $17.4 million used in the same period last year. This positive trend is primarily due to increased revenues and controlled spending. Management continues to seek non-diluted sources of cash through government and foundation funding of our product development projects as well as through collaborative agreements.

With these comments I'd like to turn the call back to Les.

Thanks Dave. So while I am pleased to report on the progress to date with AVI, I am even more pleased now to have the chance of reviewing the many and important milestones that we look forward to sharing with you in the upcoming months. In the exon 51 intramuscular trial, which you will remember also involves AVI-4658 both the lowest and the highest dosed patients have now completed dosing. You will remember we had permission from the MHRA to miss out the intermediate dose. Data will be available later this quarter.

Splice shifting as well as protein expression is being assessed both in the UK and in the US, and is using blind samples in both cases. The only member of the team that is currently unblinded as the data becomes available for ethical reasons, this is the principal investigator and attending physician, Francesco Muntoni. Again, on exon 51 in the intravenous trial study 28 of AVI-4658, an open ethical extension to the principal investigator allowed prior screening and assessment of the first cohort of patients.

Conversion of the GTAC approval required that we complete review of the ethics committee, which I've already reported on from last week at the beginning of the call, and also to undertake some wording changes in the patient and parent information leaflets to achieve greater clarity. Conversion to full approval will be by an automatic office action. We believe the first patient will be dosed before the end of the fourth quarter in 2008, and we expect the first data released to be somewhere around the end of the second quarter 2009, when the third cohort of patients will have completed their initial assessment. This is approximately what we believe will be the predictive therapeutic range.

On the same timescale we will also complete studies on exon 23 in the mdx mouse, exon 23 you will remember is a mouse-specific exon. It isn't related with human MDM, and AVI-4225 is being used for a three-month mechanistic toxicology study of the mdx mouse. This is actually required for US clinical studies and is one part of the work that is ongoing to expand this program, which also you will remember we have a collaboration ongoing with Charley's Fund for exon 50. That also is progressing well.

Business development activities concerning our potential DMD franchise are critical to the future development of this franchise, and this is a key objective for the company in the coming months and represents a large time commitment to date, as well as in the future, I suspect for the management team.

Turning to the biodefense area, we are on track to file INDs for AVI-6003 for the treatment of Marburg Musoke virus and for 6002 for the treatment of Ebola Zaire virus. We have an additional series of projects to be completed during the next few months for the Department of Defense. These include Dengue, [Hunin], a project by the name of Host Defense Factors which is primarily IL-10, as well as ricin and anthrax, and we would be happy to answer any questions that you may have on those as we come to the Q&A session.

Business development activities with our TMTI studies are also important as we move towards approval under the animal rule. There are a number of specialist companies who are focused in this area mostly on vaccines, but we believe there is a growing interest and certainly a growing opportunity for therapeutics, especially for Marburg, Ebola and Dengue for obvious reasons. First place because we've actually been able ourselves to show such spectacular results; but secondly in the case of Dengue, as you know, the priority review voucher has made the economics of that particular virus infection, the treatment of it, extremely attractive.

In the context of PRV I'm sure many of you are aware that there is a very important FDA consultative meeting coming up later this year. We expect to actually be part of that meeting. It certainly will actually submit arguments as to why we believe both Ebola and Marburg qualify for the reasons that Dengue has already been named. In other words, they fit squarely into the frame of the intent of Congress when they actually pass that legislation.

So as you can see, we are now definitively engaged in the transformation of AVI into the company that its technology and intellectual property will allow it to be. We have a small number of highly focused corporate goals. First, to capture the catalyst proven by the two-year goals that we've set ourselves, which we've been constantly communicating and updating as we've actually moved through the last three quarters and as we will move forward as a company.

Secondly, we want to complete the transition of the company to be a leader in the field of RNA-based therapeutics. I think there has never been a better time to do this successfully. We want to finalize the new high-performing and flexible management team, flexible in the sense because we've actually started to draw on now a lot of external expertise including Cato Research and also we are starting to look now at outsourcing of some of our manufacturing requirements.

And in terms of an internal goal for our chemistry and biology programs, we wish to continue to improve the bioavailability and therapeutic utility of our TSO and SSO drug candidates. I think we've seen very solid progress in this regard and look forward to building on it. Now we will take questions, and I would like to turn the call over to our operator, Gabrielle and ask her to guide us through the Q&A, please.

(Operator Instructions) Yale Jen, The Maxim Group.

Good morning, and thanks for taking the questions. Just quickly a few things. Number one, you mentioned about the Marburg and filing for the IND. Is any sort of additional, can you elaborate a little bit more on that?

Yale, do you want to go all your questions at once or do you want to take them one at a time?

The second one is that TNF for the exon skipping and I know it is in preclinical stage, but do you have any sort of update on that or plan for that moving forward?

Got that one. Anymore?

Let me just go back to queue up with this.

Okay, that's great. The reason I was asking you is Dave is going to handle both the financial questions and the biodefense area. He has that as his specific area of responsibility, and I guess like a good CEO I will try and collect all the rest. Dave, do you want to start us off on biodefense on the IND submissions please?

Sure. Thanks, Les. And yes, Yale, just to reiterate what we've been saying, we do plan to file both the INDs as these are obviously separate INDs for the Ebola and Marburg work later this quarter. We are very hopeful that the filing of those INDs will be a catalyst event so that we can look to and get future funding for those projects to carry forward through development work going towards an NDA filing.

And if I can follow up on that, let's assume the IND was completed and you were start of Phase I study. Any colors in terms of the study design and anything on both programs?

Sure. Keep in mind that both of these are likely to be subject to the animal rule type of testing. The IND filings specifically would be to initiate first in human clinical trials, which would be done primarily to look at safety in PK. Initially these studies would be designed as single dose, dose escalation type of studies.

So Yale, picking up your question on the TNF and if I may just remind everybody listening that effectively this is a program which was initiated by Ercole in collaboration with Sentara's looking at the ability to release a soluble form of the TNF receptor. This, as you know, is an early research program with us and it is in fact something which we are extremely interested in being able either to pursue an LNA or possibly more likely one of our new PPMO compounds.

The reason why in fact it has remained one of very great research interest is that the original concept had been that one would release the TNF receptor and then would basically compete with soluble TNF. I mean certainly Enbrel and Humira and Remicade do exactly that and seem to work quite well and we don't believe that the approach would have the same problems that have elicited the blackbox warning for those compounds.

I think, though, given that it is still an early program for us, the other thing that we are looking at very actively is would it not be better to down regulate the receptor in the responsive cell? As you know, formerly it is actually a much more thermodynamically favored competition if you can take away the receptor in the cell that is in fact responding to the TNF rather than trying to compete with the total pool. So still very active as a program, still very much in research, but we are still very interested and committed to it.

Okay, great. Going back to queue; I probably have some follow-up afterwards.

(Operator Instructions) Kevin, a private investor.

I apologize if I am a little late to the party here. I didn't recognize the timing here. I do have a question at the annual shareholder meeting, I kind of got the impression that you felt comfortable that a partnership was on the horizon here. I was wondering if you had discussed this a little earlier in your presentation and if it is possible to get any type of update on this. Thank you.

Thanks, Kevin. No. You are not late to the party. It is also always nice to be able to repeat things. It is a situation where clearly there are two major areas where we believe we have partnership opportunities. One is in biodefense, and the other one is in Duchenne muscular dystrophy. I think there are different rationales driving both of them as I was explaining earlier. I think in the case of DMD, it is now clearly seen as a very major opportunity to build a specialty pharma franchise. Really the leverage that has actually brought focused interest in that area was the deal that was actually executed earlier this year with Genzyme Therapeutics, where they basically were looking at a drug for treating nonsense mutations, which is about at best 15% of the total of DMD.

In the case of exon skipping in principle it can actually address 85% of DMD. I'm sure you know there are now three or four really quite prominent companies that are making extremely viable businesses from the specialty pharma arm of treating these very severe genetic mutations. And the reason why in fact they are very valuable businesses that one can actually convert a very high proportion of the annual health-care delivery costs which in the case of Duchenne muscular dystrophy is in the order of about $400,000 to $500,000 a year to actually a drug price. So it is not unusual now to see drugs that are actually annually priced at between $100,000, $200,000 or $300,000 a year; when they work they clearly, the microeconomic argument is very, very strong under those circumstances.

We have been very clear that this is a direction that the company chooses to go, needs to go and will go not just for clinical development, but also for commercialization on a global scale of our DMD franchise. So that is in fact one of the very highest priorities that we have. That is something which actually the management team has been constantly engaged on since I actually came aboard.

In the biodefense area I think the argument there is somewhat different. There are a small number of companies who have been specializing in biodefense, and I think they actually have a capability of being able to work with the government which would actually add value to what AVI itself can do. As you know, it is a very different type of interaction that one actually has in doing government contracting and something which in fact was one of the reasons why I was especially pleased to be able to get David Boyle onboard, because from his XOMA experience he really had had a lot of success in that regard. David, may I ask if you want to add anything to that, please?

No, I just think the government area is an area that can be very important to the company. I think to add to that, the company with its compounds in Ebola Marburg has just had tremendous success which has been unprecedented. And I think that has put us in good stead with the government and we look forward to hopefully growing and expanding that business but then that could be a basis for an important partnership somewhere. So we are always looking at those opportunities.

Yale Jen, the Maxim Group.

Thanks for taking my follow-up questions. For the intramuscular injected exon 51's data anticipated at the end of this year what should investor look for? What kind of (inaudible) you anticipate, or you hope to accomplish for that? And a similar question will be also to the IV drugs when they come out, when the data come out in the midyear in second quarter of next year.

Obviously, Yale, the first thing that one is looking for is exon skipping. In other words, an effect at the level of the formation of a different type of messenger RNA than exists in DMD patients as evidenced that indeed exons are being skipped. And secondly, evidence that there is protein expression; initially it will be by immunofluorescence. And in the IM trial that really is the limit of what one is actually looking for. Remember the reason why we did that trial more than anything was actually engendered by the need to actually look to see whether one had any indications of an immune response.

So in terms of curing the disease it is really more oriented at do we actually get expression of dystrophin, and when we do is there any evidence of an immune response? And as you know, both the initial studies which we've talked about already at the low dose and also the Prosensa studies that there was no evidence at that stage seeing an immune response against dystrophin.

When one gets obviously to the intravenous studies, then under those circumstances it is a more intensive series of injections over 12 weeks. It is in fact to look at dystrophin expression as well as exon skipping; but then in terms of the overall safety assessment there is indeed in the protocol the ability to actually look at not only clinical improvement, but also the sustainability of all those parameters. And so I think in terms of the IV study, we probably will look to get out some of the data around the fact that there is expression of dystrophin.

And that the expression is sustained; we probably will actually do it as two releases and clearly at the same time have an opportunity actually looking at clinical functionality as well as the other safety parameters.

In terms of clinical functionality, any sort of elaboration on that or what could be anticipated and realistic at this moment for that study?

I can certainly tell you what types of measures will be used because as you know, they've become quite standardized now and PDC use exactly the same measures. So basically it will be a time to walk test because this is being done in ambulatory [boys] and also a grip strength test. As you know these are well validated clinical scales for Duchenne muscular dystrophy; thanks largely through the work of Eric Hoffman and his consortium.

Okay, great. Thanks a lot. Again, appreciate it.

Pleasure. Thanks for your questions.

Larry, an individual investor.

Thank you for taking my question. My first question is, is it really a single mouse toxicology study that is kind of the gating factor for the various exon? A related question is, is there any takeaways from your recent Cold Harbor conference that you can share? Third part, kind of the same general area is what will be the point at which you make a switchover to the PPMOs for the DMD? Thank you.

Thanks, Larry. First of all, in terms of the mdx mouse study, it is a three-month study and like all of these things with the FDA what one does is one negotiates a clinical pathway, but one has the opportunity which we will take of actually having a, if you like a second round of discussion with the FDA. The reason why we want to do that is that we are expecting by the time we complete the mdx mouse study, we also will have clinical data from the United Kingdom. And I believe that the FDA will take cognizance of that data, particularly if it is positive data.

So I think I understand what is behind your question, and I think what I am alluding to is the fact that that single mouse study really starts the US process but I think the annealing of that process will actually come from the human data. The takeaway from the conference I think it was first of all extremely well attended. As you know, the Banbury Center always does an extremely good job in putting together people for a concentrated discussion starting early in the morning, going on late at night in a relatively geographically isolated environment.

I think it is true to say that there was a great deal of excitement and interest in exon skipping in DMD, and that was really engendered by the fact that the data that was being presented not just by us but actually also by our collaborators around the PPMOs points to a new generation of compounds with increased potency and also by availability. They are compounds, though, that are approximately two years behind the lead compounds which are actually PMOs for which there is very good preclinical data, which actually supported us going into the clinic.

I think the question that again behind the question you actually asked is, are PMOs going to work, and shouldn't we just get on looking at PPMOs as fast as possible. I think the answer is that clearly to accelerate a drug development program one can only go at a certain rate. I think it is actually extremely important that we fully test the PMOs, the clinical trial design that we actually had allowed by the MHRA in the United Kingdom allowed us to in fact go not only with a series of doses, but also a variation in terms of intensity of number of injections as you well know, I'm sure. The half-life of these drugs are quite favorable such that one can actually build up quite a high tissue compartment load of these drugs.

And so I think the evidence that we have both from mouse as well as dog studies suggest that in Duchenne muscle in particular there is actually every reason to expect that one will be able to get PMOs on board. Will PPMOs be better? I sincerely hope so, but as you know, all the history of drug discovery and development and commercialization has been precedented by a first, second and third generation series of drugs. And clearly I think at the present time the important thing that we have to do is to actually get these drugs through the clinic and onto the market where they can do some real good as quickly as possible for this terrible disease. Thank you for your questions.

Richard Popp, Advanced Associates.

Thank you. Congratulations on all the great work, and the refocus you give into the company is more than appreciated. The concern, though, is that some of the issues have been lingering for a while and looking at reviewing the financial information in this release, one looks at the cash burn obviously in 2009 some form of financing has to be done. And I just want your current thoughts on what various alternatives and strategies you all are evaluating at this time to meet your future cash needs. Thank you.

Les, why don't I take this one then?

By all means.

Obviously we have talked about some of the alternatives in the course of the conference call specifically collaboration events around some of our products, certainly Duchenne's muscular dystrophy is an opportunity to bring in non-dilutive cash to the company. We also view the biodefense projects as a good way to bring in non-dilutive cash. Clearly with the stunning data that we have in Ebola and Marburg we are very hopeful that we will get significant follow on contracts that will bring us significant revenue. I just want to remind everybody of the significant reduction in cash used from 2007 to 2008 to this point again primarily due to revenues from those biodefense contracts.

If we are successful in getting future revenues that should continue a very positive trend in that vein. So there are a number of opportunities through collaboration funding, through biodefense awards, but also through collaborations potentially on the biodefense project should we end up carrying those forward, as well. Certainly you know we are evaluating a number of different opportunities to both bring in revenues and to control spending. I think anybody would have to admit that the markets right now are very difficult, and I think to the extent that we can reduce through non-dilutive ways our cash needs, I think we'll all be the better for it. Hopefully that answers your question.

It does. What would you see the timing, I mean you certainly in your current cash burn what would be the timing of something would have to be done by a certain deadline?

Again, it depends on a number of factors. We have taken sort of a two-year look -- that is not something that we give details on publicly but in fact with some good events we could have cash to take us out a good ways. We've projected the cash -- we've got $14.4 million now. We've are burned about 10 through nine months. We are hopeful with growing revenues and potentially some collaboration deals that the remaining cash could take us out for a good while.

Okay, great. Thank you.

So I notice we've actually passed the 40 minute mark, which probably means that if there are any burning questions we should take them. Otherwise Gabriella, perhaps we could try to wrap up at this point.

We have no questions; I will turn the call back over to you.

Thank you all for joining us today to hear about AVI's progress and prospects. We greatly look forward to keeping you updated as we obtain our near-term catalysts like the one we announced today with our partner Cook Medical. And also I will look to be able to actually bring greater prominence from other members of the management team as we have these analyst calls and also investor meetings. Thank you for your time, and thank you for your questions. Good morning. Thank you.

This concludes today's conference. Thank you all for joining. You may now disconnect.