Sarepta Therapeutics Inc (SRPT) 2009 Q4 法說會逐字稿

Good day ladies and gentlemen. And welcome to the AVI BioPharma fourth quarter and full year 2009 earnings conference call. My name is Chanel and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. David Walsey, Senior Director of Investor Relations, Corporate Communications. Please proceed.

Thank you, Chanel. Good morning, everyone. Thank you for participating in today's call. Earlier this morning we released our financial results for the fourth quarter and full year 2009. The press release with some detail is available on our website at www.AVIbio.com, and a 10-K will be filed later today with the SEC. Joining me this morning from AVI BioPharma are Dr. Lesley Hudson, our President and Chief Executive Officer, and David Boyle, our Senior Vice President and Chief Financial Officer.

Before we begin, I would like to remind you that comments made by management during this conference call will be forward-looking statements within the meaning of the federal securities law. 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, March 16, 2010. The Company undertakes no obligation to revise or update any statements to reflect events or circumstances after this conference call.

I would now like to turn the call over to our CEO, Les Hudson. Thank you.

Thank you, David. Good morning, everyone, and thank you for joining us today. I should begin by providing a review of 2009 and recent developments and then turn the call over to David Boyle, our CFO, to review the quarterly and full year 2009 financial results. After that, I shall come back to review upcoming corporate milestones, before opening the call to your questions.

2009 was a year of significant activity for AVI, in which we actually advanced our drug development programs. Perhaps most notably, we announced the first clinical data in our Duchenne Muscular Dystrophy program from two UK trials for AVI-4658, which is our drug candidate to skip exon 51. We announced data from the Phase I intramuscular injection trial in January 2009 and initial data from four of the six cohorts in the systemic Phase Ib/-2 trial in December 2009. Both trials yielded encouraging data, demonstrating the existence and accuracy of the intended RNA exon skip and also evidence of dystrophin protein expression. With respect to AVI-5038, which is our lead drug candidate to treat the MD by skipping exon 50, we recently announced receipt of a European orphan drug designation. Now both AVI-4658 and AVI-5038 have orphan designations, both for the US and for Europe.

Our biodefense business also enjoyed considerable success in 2009. Based on favorable data and earlier biodefense successes, we garnered up to $22.5 million in new government R&D support. This additional research support included a new contract worth up to $5.1 million with DTRA, the Defense Threat Reduction Agency, for the development of RNA-based drugs targeting pandemic H1N1, or swine flu virus. In partnership with the government, we successfully conducted an exercise demonstrating the ability to rapidly respond to a real world emerging viral threat, in this case using H1N1 as a target virus sequence. Also, the scope of our existing DTRA contract for the research and development of RNA-based drugs targeting the Ebola, Marburg, and Junin viruses was expanded to include up to $17.4 million in additional contract-based work.

These additions specifically $1.5 million for Junin and $5.9 million for Ebola and Marburg take that total contract amount up to $45.4 million. Based on our successful research culminating in open INDs for our therapeutic targeting Ebola and also our therapeutic targeting Marburg viruses, on the first of February 2010 -- that's this year -- we submitted two proposals in response to an RFP published by the Department of Defense to develop FDA-approved medical countermeasures against Ebola and Marburg viruses. In 2009, we understand that our partner, Cook Therapeutics decided to discontinue development of its cobalt-chromium stent coated with AVI-5126 because of an unexpectedly high rate of restenosis.

Notable corporate events in 2009 include moving AVI's headquarters to the greater Seattle area, here in Bothell, to build our business development, clinical operations, and drug discoveries capabilities. 2009 also saw hiring of two C-level executives. Dr. Steve Shrewsbury came on board as our Senior Vice President of Preclinical, Clinical, and Regulatory Affairs. And Paul Shrewsbury came on board as our SVP of Business Development. Lastly, we also completed two offerings of common stock, providing approximately $50 million in aggregate gross proceeds, gaining a significantly improved financial runway, with which to advance our programs and our business objectives.

Now I should like to turn the call over to Dave Boyle, our CFO, who will provide an overview of our financial results, after which I shall return to talk about our upcoming corporate milestones. Dave?

Thank you, Les.

Revenues for the fourth quarter of 2009 were $5.1 million compared to $5.5 million in the fourth quarter of 2008. Revenues for the full year ended December 31, 2009 were $17.6 million, compared to $21.3 million in the full year ended December 31, 2008, reflecting decreases in research contract revenues of $3.7 million. The operating loss for the fourth quarter of 2009 was $4 million compared to an operating loss of $2.9 million from the same period in the prior year. The operating loss for the fourth quarter of 2009 was more than the loss from the fourth quarter of the previous year, as the result of higher research and development costs associated with our Duchenne Muscular Dystrophy program. The operating loss for the full year ended December 31, 2009 decreased to $15.5 million from $27.5 million for the prior year period. In 2008, the operating loss included a charge of $9.9 million for acquired in-process research and development associated with the acquisition of Ercole Biotech. The operating loss in 2009 also decreased compared to 2008, as a result of lower research and development and general and administrative expenses.

The net income for the fourth quarter 2009 was $3.5 million, or $0.03 per share compared with the net loss for the fourth quarter of 2008 of $1.1 million, or $0.01 per share. The net income for the fourth quarter of 2009 includes a non-cash income for warrant liability of $7.8 million compared to a gain from the same source of $1.7 million during the fourth quarter of 2008. For the full year ended December 31, 2009, the Company reported a net loss of $25.2 million, or $0.27 per share compared with a net loss for the comparable period in 2008 of $24 million, or $0.34 per share. The net loss for the full year ended December 31, 2009 includes a non-cash expense for warrant liability of $9.2 million compared to a gain of $3.2 million during the same period of 2008. These are non-cash liabilities. The Company does not expect to expend any cash to settle these liabilities.

The increase on warrant valuation is a non-cash expense and is the result of the increase in the Company's stock price subsequent to the issuance of warrants as part of the equity financing that closed in January and August of 2009. The increase or decrease on the warrant valuation will fluctuate as the market price of the Company's stock. Research and development expenses for the fourth quarter of 2009 increased to $6.6 million from $5.1 million during the fourth quarter of 2008. R&D expenses for the full year ended December 31, 2009 decreased to $24.4 million from $27.3 million in the prior year period. The increase in R&D expenses for the fourth quarter 2009 was due primarily to increases in spending for the Duchenne Muscular Dystrophy program. The decrease in R&D expenses for the full year ended December 31, 2009 was due primarily to decreases in government research contracting costs associated with the decline in government research contract revenue.

General and administrative expenses for the fourth quarter 2009 decreased to $2.5 million from $3.3 million in the prior year's fourth quarter. G&A expenses in the year ended December 31, 2009 decreased to $8.7 million from $11.5 million in the prior year period. The G&A expense decreased for the current year versus the prior year timeframe, was due primarily to stock compensation expenses incurred in the prior year quarter related to the Ercole acquisition, the resignation of former executive officers, and relocation costs of new officers. Net interest income and other expenses declined primarily due to declines in market rates of interest on the Company's interest-earning investments, and the write-off of valuations for patents, property, and equipment.

AVI had cash, cash equivalents, and short-term securities of $48.4 million as of December 31, 2009, an increase of $36.9 million from December 31, 2008. This increase was primarily due to two equity financings that raised aggregate net proceeds of $47.8 million. Partially offset by cash used in operations of $8.8 million, property and equipment and patent-related costs of approximately $2 million, and debt repayments of $0.1 million. For 2010, AVI is providing guidance per expenditures for operations, net of government funding and other collaborative efforts to be approximately $23 million to $27 million. The Company believes it will continue to receive funding from government and other sources to pursue the development in the product candidates and has assumed certain revenues from these awards in providing this guidance. If the Company does not continue to receive the funding from its current contracts, we may change our guidance.

Les?

Thanks, David. Before opening the call to your questions, I would like to update you on the status of our programs and review our upcoming corporate milestones in 2010.

We are completing the treatment and laboratory part for all patients in the final two cohorts of study 28. Our Phase Ib/2 trial of AVI-4658. This is our PMO candidate to skip exon 51. We look forward to announcing initial RNA and dystrophin protein expression from these patients in the second quarter. We expect to announce completed clinical data in the third quarter after all patients have completed their follow-up period. With respect to the preclinical studies for the same drug for AVI-4658, for the US IND, we have completed the FDA-requested studies in normal and MDX mice, as well as in non-human primates. Each was a 12-week study conducted under GLP conditions and demonstrated the PMO to be well tolerated up to the maximum feasible dose. In this case, it was approximately 300-milligrams per kilogram in non-human primates.

We plan to submit the IND data package to the FDA shortly, likely before the end of this quarter or soon in the next. We plan to start the US study subsequent to the FDA accepting our data package and removing the program from its full clinical hold. I would just like to remind you that in the -- with the absence of this requested pre-clinical data that led to the clinical hold, no patients have been dosed in the US, nor have they been dosed in the US to date, even though we've completed 12 weeks of dosing up to 20-milligrams per kilogram in DMD patients in the UK. Moving on, we expect that we will also initiate the AVI-4658 UK extended use study - that will be study number 301-X in the third quarter. That will be for patients who have already been treated under the previous trials.

Turning to preclinical evaluation of AVI-5038 -- so 5038 is our lead candidate to skip exon 50. It's a PPMO, a pet guide link PMO, and represents a potential new class of drugs being developed by AVI and for the first time, this drug class is being studied for exon skipping. Currently AVI-5038 is in its first and ongoing series of GLP studies. When we complete these studies and have our evaluation of the data complete, we'll provide an update. We are continuing to assess our business options for the DMV program, including opportunities for strategic collaborations. We've had a variety of discussions with potential partners. We believe there is a genuine interest in our DMV program. However, we've yet to finalize any decisions regarding these collaboration alternatives. Regardless of our ultimate partnering strategy, we believe the data generated to date is encouraging for our DMV program and should be seen against the competitive landscape to be well positioned.

Moving to our biodefense programs, our H1N1 program is progressing under a contract with the transformational medical technologies initiative, that's TMTI, of the Department of Defense. The preclinical in vivo results to date for multiple mouse studies in seasonal flu and thus far a single completed ferret study utilizing a fully virulent human pandemic H1N1 virus, demonstrated a statistically significant reduction in virus numbers that exceeded the reduction of a positive control using Tamiflu, as well as saline and scrambled controls. Also, the candidate drug-treated group displayed none of the clinical signs of respiratory distress, weight loss, sneezing, or nasal discharge that's normally seen with untreated influenza infection in ferret models.

We are in the process of completing the second study of our lead H1N1 therapeutic candidate in a standard ferret model. The end life phase is complete and we expect to have results shortly and to subsequently share more detailed data over the next several weeks. It's important to note, though, because this program is conducted under our contract with the Department of Defense, that timing of the announcement needs to be coordinated with the DOD. So while we expect an announcement over the next several weeks, we don't have independent control over the precise timing.

Moving on to Ebola and Marburg programs, as I noted in my introductory comments, we recently submitted two proposals -- two proposals in response to the RFP published by DOD for medical countermeasures against Ebola and also Marburg viruses. Under the terms of the RFP, we understand the Department of Defense may award up to six contracts over the next few months. However, the granting and timing of any awards are wholly in the government's control. Each proposal we submitted, if granted, is expected to be worth a substantial amount of funding over the next five to six years from the date of contract with the DOD.

Let me just remind you that there's a distinction between the announcement of an award under the RFP and the date of contract. Under the RFP process, the government may announce an award. At that point, the DOD and the award recipient, hopefully us, must agree to the terms of a contract. That process may take some months until a contract is finalized and executed by both parties. From the corporate level in 2010, we expect to continue a modest build in our new bottle-based biology and chemistry research group, as well as our development capabilities. If one or both of our RFP proposals are granted, that will require an expanded hiring program to meet our commitments to the government.

Thanks very much for listening. Now we'll take questions. And I shall hand over the control session of the Q&A session to our operator, Chanel. Chanel, please.

(Operator Instructions) Your first question comes from the line of Yale Jen of Maxim Group.

Good morning, gentlemen.

Good morning.

Just first start with a housekeeping question, in terms of the revenue guidance, the expenditure guidance for 2010. When you indicated the government contract was not excluded, was that mean the new government contract, but not the existing government contract in terms of revenue perspective?

Well, first of all, we provided guidance on net burn, not specifically to any revenues. I just want to be very clear about that.

Yes.

And in doing our guidance, we've actually considered current contracts. Of what we have not considered, and I think Les addressed it well in his comments, we did not consider revenues from the two proposals that we just submitted. I think the timing of that is very difficult to predict and so we felt it was conservative to take a look at things we had in hand and what we're much more secure about. Should we get significant revenues from these two proposals, that may impact our guidance going forward.

Okay, great. The second one is for H1N1. After you release the data, which in this case will be a government dictated, what will be the potential follow-up -- advanced activity would be -- at least from your point of view?

Sure. Well, a couple of different things. I think we anticipate doing some additional work on the same product candidate to look at other influenza viruses in the ferret models. Specifically we would anticipate taking a look at chemical resistance strains of H1N1, looking at strains of H5N1 and also H3N2 or seasonal flu. We believe the target that we're going after is well conserved across these different forms of viruses. So that would be a likely next step. We have to take a look and assuming confirmatory data from our current ferret study, we would expect to move the product into preclinical development. Obviously if we could do that in collaboration with the government and in accelerated fashion, that would be excellent. But certainly from our perspective, an influenza product candidate has proprietary interest as well in something that we would take a look at on our own accord.

And the last question before I go back to the queue, is that in terms of the US study for the DMD at the moment, should it be approved, the submission you issued -- submitted -- could you describe a little bit to us as to in terms of the clinical side preparation or do you already have candidates and could you just give me -- give us a general description of that?

Yes, of course. This is Les. Working backwards, so first of all, we haven't disclosed, but we have actually picked and are working with the potential site. So that's already in place in the US. As you can imagine, it's obviously one of the DMD specialist areas that provide treatment for children already, so the DMD patient base is already formed. Secondly, the precise nature of the trial will be informed by our ongoing study 28. That's quite important, looking at particularly dose selection, but also frequency and duration of dosing. And so from that point of view, the substantial answer to your question is -- that site selection has already occurred and we are already working with a site.

Okay, great. Thanks a lot. Appreciate it.

Thanks.

Your next question comes from the line of [Eagal Noshovitsch] of Rodman & Renshaw.

Hi, good morning, Les and David. This is Eagal standing in for Ren.

How are you doing?

Good, thank you. Maybe we could start with the [BMV systemic ] study. I know you mentioned the top line efficacy will be available in 3Q 2010. I'm wondering if there's any anecdotal signs of efficacy from the investigators so far, or if you're really so in the dark and we need to wait for third quarter.

Yes, thank you for the question. So clearly, the first point of new data will be to complete the laboratory observations and analysis, particularly looking at the expression of protein and new MRNA. You remember, this is actually a Phase Ib/2 primarily safety study, and so even during the follow-up period, it would be extremely fortunate for us to actually see some good clinical outcomes that could actually be recorded reliably.

In terms of the anecdotes that one is actually seeing, is very difficult, and I would rather not speculate on what we're hearing back anecdotally. People with Duchenne Muscular Dystrophy have no disease modifying alternative. So being part of a clinical trial really does bring a very biased series of attentions, when patients who have no other options are being given an experimental drug. And so, from that point of view, we're very excited about the laboratory data, which we've already announced and disclosed, simply because that is objective and not subjective to the psychological feeling of the placebo effect in any clinical trial.

Okay, great. And then just following up on Yale's question in terms of the United States and the lifting of the clinical hold, have you settled on a trial design in the states? And is it going to look a lot like what's being done in the UK?

So as I was saying, obviously in terms of dose selection and also the potential duration, that will be very much informed by what we actually will see in the UK. And obviously that is not going to be a very long time period. We'll wait from that point of view. I think the actual details of the design have yet to be finalized. We have some options in terms of whether we look purely at an intravenous presentation. In other words, a complete repeat of the slow intravenous infusion we are using in the UK -- that seems most likely. We may also look at the option of including a subcutaneous arm. And those are decisions which are best made once we have the data from study 28.

Very good. And then just turning to a more big picture question, as we all know, the recent failure of [asolerin] in DMD, I'm just curious, if you could comment there what we might learn from that result and what that could potentially mean for AVI. As we know this asolerin is a different chemical class, it's a small molecule and works to potentially ignore certain [stop codons] but not all with equal effects.

No, good question. I think that for at least for us, there are two major learnings. Obviously first of all, there is a feeling of sadness that one of the pioneers in the field, PTC, did a lot of work with the 6-minute walk test. We were very, I guess impressed by the fact that even after all that work, it looked like the 6-minute walk test continued to be problematic, to really get it under good control. So that is one thing which we've been thinking about very, very hard and what to take the opportunity of having a discussion with both the clinicians in the field and also with the regulatory authorities, to whether there is in fact any alternative to the 6-minute walk test that would be acceptable.

I think secondly, and this is really only from rumor, we actually have not had any disclosure of data from the PTC trials -- one here is that in fact the expression of dystrophin was actually not enormously high. That we actually believe that it may have been equivocal. That for us at least was pleasing in the sense that they didn't see huge expression of dystrophin, but then the 6-minute walk test was not improved. I think one really looks forward to having all that data being presented at a clinical or a scientific meeting. It is quite important in the field and I'm sure under those circumstances we have a lot to learn from what PTC has done.

Terrific. And then maybe just turning to the biodefense program quickly, you mentioned that on February 1, the two RFP -- proposals for the RFPs -- were submitted. Do you have a sense for the time line when we could see this come through, at least the award potentially in 2010, or do we need to look beyond that timeframe?

Well, this is Dave.

Hi, Dave.

The award could come in the next few months. Again, it's very difficult with the government, because of their process to predict accurately when these things may happen. We're optimistic. It may happen sooner rather than later, but that remains to be seen. Obviously, we've done everything we could in putting together two extensive -- and I think quality submissions and responses to these RFPs -- and we look forward to the government's review and hopefully awards.

Great, thank you very much.

-- underline what Dave said, we actually believe we're very well placed. We have, two open INDs, one for Ebola, one for Marburg. We put together under Dave's leadership an extremely good proposal for both of those viruses. Now it's in the government's hands.

Terrific. Thanks for taking the questions, and good luck.

Thank you.

Thank you.

Your next question comes from the line of Alan Carr of Needham & Company.

Hi, good morning, everyone.

Good morning.

Regarding the Duchenne program, can you -- is the trial in the US, could that be designed as a Phase IIb/3? I'm wondering how far along that trial would bring you.

Well, again, I said that the design of that trial in the US will be absolutely informed by the data we actually get out of the top two cohorts -- the 10-milligrams per kilogram and the 20-milligrams per kilogram -- of the ongoing study, and so it opens up a series of options, which in advance of seeing the data, they remain just options. Seeing the data, there's no substitute for that.

If you -- if there was a positive response, though, one option is that they would be able to move into a registration trial, do you think?

I think in any case in the US, we would like to be able to actually get some Phase II experience. I think there are some useful things that one could look at. Obviously if we get a dose from study 28, that is one of the check boxes, if you like -- that one is an absolute requirement for moving forward. Personally, I think also the intravenous slow infusion with the subcutaneous possibility is also something we might want to look at. The decision is data-driven.

Sure. On the other side of the business, I'm wondering if you've seen any shift in attitude by the government when it comes to H1N1 in terms of any sense of urgency in terms of funding some of these alternative strategies for dealing with flu.

This is Dave. The government seems to be very interested in the program. We have regular conference calls with them to update them on progress and then they continue to appear very anxious to move programs forward. So from our perception -- and of course we know a limited amount of what they are doing -- there appears to be great interest and urgency.

Can you remind me again the scale of funding you might be able to get -- or you're anticipating around the flu programs over the next year or two?

We actually haven't provided that information. It will depend on success and data and obviously the government's ability to obtain funding, should we have a positive outcome in our current studies.

Okay. Thanks very much.

You're welcome.

Thanks, Alan.

Your next question comes from Yale Jen from Maxim Group.

Thanks for taking my follow-up questions. I would just like to know a little bit about the two RFPs you submitted. Would you be able to review potential size of that in terms of dollar valuation -- should those be granted -- I understand maybe there's some negotiation subsequently, but at this moment, what can you reveal?

Well, this is Dave, Yale. And I hesitate to say too much. Let me just say that for each program, we're talking the RFP-requested development through to NDA approval. So it's a drug development program, in both cases under the animal rule. And as you might imagine, that's a fairly expensive proposition. You -- if you have seen the RFP, which was a public document, you will notice it was actually structured in four sections, called [clins]. And we believe that it was structured such that the government has an important decision point after clin 1, which was really the end of some Phase I safety tests and the initial animal efficacy testing. It's difficult for us to predict what the nature of the award may be -- if it will be for the full four clins all the way through NDA approval, as you might imagine, that would be substantial amount. We would certainly expect that for the full thing to be in excess of $100 million for each.

On the other hand, if the award, say clin 1 and take options on the other, the actual award may look different and of course lesser in overall value if they elect to go that way. Right now, we don't know. We know what we've submitted. Again, for the full development costs for each of these over the next six years, it's a number in excess of $100 million. But again, if we get the first portion of that, it will be significantly less. We're just waiting to see exactly what the structure of the awards should be if we're fortunate enough to gain the awards.

Okay, great. Thanks for the clarity on that. And another question, in terms of [ponder] -- potential pondering for the 4658 products -- I assume that many ponders -- prospective ponders due anticipate for the data is to thinking about their next move. The question I have is would the Company be willing to ponder this product early assume that the nickname that is coming coming out or you will have other consternation in terms of wanting to move the program for the more with your own resources and the potential to get greater economy from that going forward?

Thanks, Yale. This is Les. First of all, the partnership that already was formed between Prosensa and GSK was something which has figured quite importantly in our thinking as to how we will develop not just one drug, but actually a number of franchise for DMD -- and it just being five drugs ultimately to treat over 50-odd percent of DMD patients. One of the major things to be able to capture value for our shareholders from the franchise is the ability to get rapidly onto the market. And from that point of view, the Prosensa GSK partnership for us was a potential game changer in the sense that it made us think about being able to bring our programs to the market in a much more near simultaneous matter -- manner. And so it's not just money. It's also bandwidth you get from a partner.

Now, what we will actually do will depend on what we are able to negotiate from a potential partner that could add value. And you remember both for PTC with Genzyme and also Prosensa with GSK, their partnerships actually were announced about six months after they had their first Phase II data. And so, for us, what we really are reaching a pivotal point. What I think is important, and Dave alluded to this, in the sense that if you look at our net burn and you also look at our cash runway, part of the reason we went through the pain of raising money last year was to have exactly the option you've just alluded to.

And so I think the Company is well positioned to be able to make a responsible decision in terms of how we are going to partner, if we're going to partner, and when we're going to partner. And like most things, those are very data-driven events, particularly when you have a program at the stage that we have our current DMD program.

Okay, great. Thanks for the clarity, and good luck.

Thanks, Yale.

That's all the time we have scheduled for today. I would like to turn the call over to Les Hudson for closing remarks.

Thanks, Chanel. What I would like to do, if I may briefly wrap up, in fact, if I may pick up just one of the points made by Alan Carr from Needham -- he referred to the other side of our business from biodefense. It's quite important to realize that we actually run this as an integrated effort, quite simply because the biodefense provides us tremendous technology leverage. The PMO-plus chemistry only came about because of the work that we were doing funded by the US government.

The H1N1 came about because the US government wanted to know how fast one could put together a response in place of a new -- in this case antiviral threat -- H1N1 for us therefore represents an opportunity which on the one hand is definitely an opportunity for further government funding. But also in itself, it's a very valid commercial opportunity. We've achieved significant progress in our DMD program, as I think you've heard. We've also been really advancing our government programs quite well.

Coupled with the move to build our business development, clinical operations, regulatory affairs and discovery chemistry capabilities here in Bothell, it's my sincere desire to be able to report continuing progress to you in 2010. Thanks for listening to our update. And we look forward to providing further updates in the future. Thank you all.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.