Sarepta Therapeutics Inc (SRPT) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2010 AVI BioPharma earnings conference call. My name is Katrina, and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). I would now like to turn your call over to your host for today, David Walsey, Senior Director Corporate Communications and Investor Relations. Please proceed.

Thank you. Thank you for participating in today's call. Earlier today we released our financial results for the first quarter of 2010. The press release is available on our website at www.AVIbio.com, and the 10-K that is filed with the SEC. Before we begin, I would like to remind you that comments made by management during this conference call will include forward-looking statements within the meaning of the Federal Securities law. These forward-looking statements involve material risks and uncertainties.

For a discussion of our 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, May 10th, 2010. The Company undertakes no obligation to revise or update any statement to reflect events or circumstances after this conference call. With that said, let me turn the call over to Dave Boyle, AVI's Interim President and CEO, and Chief Financial Officer. Dave?

Thank you, David. Good afternoon everyone. Thank you for joining us on AVI's 2010 first quarter earnings call. I am pleased to report that AVI is making progress on its various development programs. In my prepared remarks, I will review this progress, our first quarter financial results, and some upcoming milestones on these programs. We will then open the call to your questions. First, however, I would like to acknowledge the AVI team. As you know, we recently announced a leadership transition at AVI. I have been very proud of the way that the management team and the employees throughout the Company have responded.

The transition is going smoothly and we are all focused on the possibilities represented by our current programs, as well as the broader potential applications of our RNA-based therapeutic technologies. With respect to our Duchenne Muscular Dystrophy, or DMD program, we have had several developments over the last few months. On February 4 we announced the results and scientific findings of GLP compliance, safety pharmacology, and genotoxicity evaluations of AVI-4658, our lead PMO drug candidate being developed for the treatment of DMD, were published in The International Journal of Toxicology. The data demonstrated no study-related effects on health status, even when dosed at the maximum feasible dose, and there were no reports of injection site reactions. It was also reported that the genotoxicity evaluation of AVI-4658 revealed no genotoxic potential even at very high concentrations.

These results suggest AVI-4658 may have a wide therapeutic window for chronic dosing. We also completed the IND enabling studies requested by the FDA, involving 12 weeks of dosing at up to maximum feasible dose in dystrophic and normal mice and in nonhuman primates. The PMO was given both by intravenous and subcutaneous injections and was well-tolerated, with no injection site or infusion reactions, no evidence of complement activation or change in blood coagulation. The results from these studies have recently been submitted to the FDA as part of our preparation to conduct a clinical study with AVI-4658 in the US later this year.

On February 5th, we announced that AVI-5038, a preclinical drug candidate using our PPMO chemistry and being developed for DMD received an Orphan Drug Designation from the Committee for Orphan Medical Products of the European Medicines. AVI-4658 received its European Orphan Drug Designation in 2008, and both of these drug candidates also have US Orphan Drug status. Also with regards to AVI-5038 on April 14th at the 2010 American Academy of Neurology Annual Meeting, we presented a poster entitled AVI-5038 initial efficacy and safety evaluations in Cynomolgus Monkeys. The poster contained a preliminary summary of findings from an ongoing 12-week preclinical study, in which Cynomolgus Monkeys were dosed intravenously with AVI-5038 at doses of 1.5, 6, and 15 milligrams per kilogram. The poster notes toxicological findings observed following bolus intravenous administration at 6 and 15 milligrams per kilogram.

The preliminary results suggest that the toxicity seen in this study are dose-dependent and primarily involve the kidney. Since the collection and analysis is ongoing, the data set is not yet sufficient to determine the ultimate impact of these findings, as they might have on the future development of AVI-5038. It is important to understand that AVI-5038 utilizes our PPMO chemistry, which is distinct from our PMO chemistry.

In fact, our lead PMO drug candidate is AVI-4658. AVI-4658 is aimed at the potential treatment of DMD by skipping exon 51. AVI-4658 is currently being evaluated in an ongoing Phase 1b/2 clinical trial at two sites in the United Kingdom, and has been generally well-tolerated to date in all patients dosed up to 20 milligrams per kilogram for 12 weeks. On February 15th, we announced that we received $250,000 in grants from both Cure Duchenne and the Foundation to Eradicate Duchenne to support continued research and development of our exon skipping drug candidates for the treatment of DMD. Cure Duchenne and The Foundation to Eradicate Duchenne, are US not-for-profit foundations, fully dedicated to supporting the research and development of a cure for DMD.

In our Influenza program supported by the US Government, we recently announced that AVI was awarded up to another $4 million to continue preclinical development of our lead influenza drug candidate against H1N1, as well as expanded preclinical evaluation against H5N1, or Avian flu, drug-resistant strains of H1N1, and H3N2 flu strains. This $4 million of funding is in addition to the $4.1 million that AVI received under the initial contract from May 2009, and brings total funding for this agreement up to $8.1 million.

AVI's lead influenza drug candidate utilizes AVI's proprietary PMOplus chemistry, which is the same chemistry used by other AVI lead anti-viral candidates, including the candidates in our Ebola, Marburg and Dengue programs. The funding for influenza is under an agreement with The US Defense Threat Reduction Agency, in cooperation with the Transformational Medical Technologies Initiative, or TMTI of The Department of Defense, to develop one or more of our nucleotide-based drug candidates to target influenza.

Earlier this year TMTI announced that it successfully partnered with us on a rapid response exercise against the pandemic H1N1 virus, also known as Swine flu. The intent of the exercise was to demonstrate the capability to rapidly respond to emerging infectious diseases by producing multiple therapeutic candidates and preclinically testing their efficacy. TMTI stated that the exercise demonstrated, at a preclinical level, the ability to rapidly respond to a real world viral threat utilizing our RNA-based therapeutics platform, including the preclinical evaluations of RNA-based drug candidates.

TMTI further noted that in a preclinical model evaluating our lead candidate against a fully virulent human pandemic H1N1 virus, we demonstrated a statistically significant reduction in virus levels that exceeded the reduction using Tamiflu, a current standard of care drug. We greatly value TMTI's increasing recognition of the utility of our technology, and our potential to help TMTI meet their needs to be ready and able to respond quickly and effectively to viral threats.

Also with respect to our other US Government-supported programs, on February 1, 2010, 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 hemorrhagic fever viruses. These proposals are backed by our successful research that has culminated in Open INDs for our therapeutics targeting both the Ebola and Marburg viruses.

Lastly, we recently announced with respect to our anti-bacterial program, the publication on line in The Journal of Infectious Diseases, of new data demonstrating the potential utility of PMOs as anti-microbial agents. The publication describes preclinical studies demonstrating the in-vitro and in-vivo efficacy of PPMOs against the Burkholderia cepacia complex by targeting ACPP, a protein known to be important for bacterial growth. Published in conjunction with the study is an editorial entitled 'New Horizons in Treating Burkholderia Species Infections,' which addresses these studies and the underlying PMO technology opportunity as anti-microbials.

Having reviewed recent program announcements, now let me turn to our financial results and guidance. Revenues for the first quarter of 2010 were $1.2 million, down from $3.1 million in the first quarter of 2009 reflecting a decrease in government research contracts revenues of $1.9 million. The net loss for the first quarter of 2010 was $0.6 million, or $0.01 per share, compared with a net loss for the first quarter of 2009 of $0.9 million, or $0.01 per share. The operating loss increased to $7.7 million in the first quarter of 2010, compared to $3.6 million in the first quarter of 2009. The increase in the operating loss is the result of lower revenue and higher research and development expenses, and higher general and administrative expenses.

Research and development expenses increased to $6.1 million in the first quarter of 2010 from $4.5 million in the first quarter of 2009. The increase in research and development expenses was due primarily to increases in research and development costs related to the advancing Duchenne Muscular Dystrophy programs. General and administrative expenses increased to $2.8 million in the first quarter of 2010 from $2.2 million in the first quarter of 2009. The increase in G&A expenses was due primarily to higher legal costs, rent for the new Bothell, Washington location, and employee relocation expenses.

The decrease on warrant liability of $7.1 million in 2010, was the result of the decline in the Company's stock price. In 2009 the warrant liability decreased $2.6 million as the result of the decline in the Company stock price, subsequent to the issuance of warrants as part of the equity financing that closed in January 2009. The decrease or increase on warrant liability fluctuates as the market price of the Company stock fluctuates.

The net loss decreased to $0.6 million in the first quarter of 2010 from $0.9 million in 2009. The net loss decreased slightly primarily due to the increase in operating loss offset by the decrease in warrant liability, a noncash gain that resulted from the fluctuation in the Company's stock price. Cash, cash equivalents, and short-term securities were $41.6 million as of March 31, 2010, a decrease of $6.8 million from December 31, 2009. This decrease was due primarily to the cash used in operations during the first quarter of 2010 and cash used for property and equipment and patent-related costs of approximately $500,000.

For 2010, AVI is confirming our previous guidance for expenditures for operations, net of government funding and other collaborative efforts, to be approximately $23 million to $27 million. We believe we will continue to receive funding from government and other sources to pursue the development of product candidates and have assumed certain revenues from these awards in providing this guidance. If AVI does not continue to receive funding from our current contracts, we may change our guidance.

Now turning to some expected upcoming corporate events, we are very committed to the efficient operation and execution of our business with a continued focus on our DMD and biodefense programs, including our influenza, Ebola, Marburg, Junin, and Dengue programs. With regard to DMD, as we have previously stated, we have completed the treatment and laboratory part for all patients in the final two cohorts of Study 28, our phase 1b/2 trial for AVI-4658, our PMO drug candidate to skip exon 51. We continue to look forward to announcing initial RNA and dystrophin expression laboratory data for these patients in this quarter. We also expect to announce complete clinical data in the third quarter, after all patients have completed their follow-up period. With respect to the preclinical studies for AVI-4658 US IND, we submitted the IND data package to the FDA. Our plan is to start a US-based clinical trial this year, after the FDA opens the IND.

As noted earlier, AVI-5038 is our lead preclinical PPMO DMD drug candidate. It is intended to skip exon 50 in the gene coding for the protein dystrophin, and is currently in an ongoing series of GLP studies. When we complete the studies and our evaluation of the data, we will provide an update on this candidate which we expect to do around mid-year. The PPMO is one of the different chemical analogs being developed from AVI's core PMO chemistry. The PMOplus is another chemical analog we are developing. The PMOplus is the primary chemistry employed in our biodefense and anti-viral programs. We believe the PMOplus chemistry may have broad utility in a range of indications.

Identifying opportunities for collaborative development of our DMD program remains a priority. We are continuing to have a variety of discussions with potential partners, and believe there is genuine interest in our DMD programs. Regardless of the ultimate outcome of these discussions, we believe the data generated to date in the program is encouraging for our DMD program.

Moving on to our biodefense programs. As I discussed earlier, our influenza program is progressing under the Department of Defense's TMTI initiative. We have completed a second study of our lead therapeutic candidate in a standard ferret model, utilizing a fully virulent human pandemic H1N1 virus. We currently expect to be able to announce the top line results from both ferret studies in the second quarter. We also plan to present more complete data from the study at an upcoming medical conference in 2010. Keep in mind, however, that any announcement or presentation of these results must be done in coordination with the Department of Defense. So the timing of these announcements is not solely in our control and may shift.

We are also conducting additional preclinical studies with our lead influenza drug candidate against H1N1, H5N1 or Avian flu, drug-resistant H1N1, and H3N2 influenza strains. These studies are being conducted under the increased government funding that we announced previously. We believe our lead influenza drug candidate may have good potential as a broad spectrum influenza therapeutic, and we look forward to continuing to work closely with TMTI on this program and others, and support our national preparedness against viral threats.

Moving on to the Ebola and Marburg programs as previously mentioned, we submitted two proposals in response to an RFP published by the DoD for medical countermeasures against Ebola and Marburg viruses. 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 five to six years from the date of contract with the DoD. For purposes of clarity, please note 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 award recipient must agree to the terms of the contract. That process may take some months until the contract is finalized and executed by both parties.

In conclusion, I would like to reaffirm our commitment to all of our stakeholders, including patients, families, clinicians, shareholders, and employees, to act in a manner that not only enhances the Company value, but positions us to successfully research, discover and develop new treatments for patients that have the potential to provide truly novel medical outcomes. Over the near to mid-term, we will remain highly focused on progressing our DMD program and our US government-supported programs, including our influenza, Ebola and Marburg programs. The data we have generated to date on these programs and others, we believe provides significant validation of our leading RNA-based technology platform, and provides the basis to reconfirm our commitment to the development of anti-infective therapeutics.

We are particularly encouraged by the success we have had with our PMOplus chemistry, which appears to be a particularly well suited chemistry to apply across a broad range of applications. We plan to explore more actively opportunities for leveraging the success we have had in our anti-infective R&D efforts, and more generally the capabilities of our RNA-based platform and various chemistries through strategic collaborative arrangements. As we move ahead, I look forward to sharing our progress with you in a clear, consistent and timely manner. Thank you very much for joining our call today. We will now ask our operator, Katrina, to take questions.

Thank you. (Operator Instructions). Our first question will come from the line of Ren Benjamin from Rodman. Please proceed.

Hi, good afternoon. Thanks for taking the questions. Maybe just starting off with the recently filed IND, can you just talk us through again, what were the issues that needed to be satisfied for the Agency, and is this the typical sort of timeline we should be expecting, meaning you filed the IND, within 30 days if you don't hear back from the FDA, you are cleared to begin clinical trials, and if that is the case, will you start clinical trials right away or will you wait until the end of the year?

Thanks for the question. So the FDA had requested some additional tox data. As you are aware, we were able to open a clinical trial in the UK with more limited tox information. The FDA had requested the studies that we described previously, both in the mdx mouse and the wild type mouse, as well as the nonhuman primates. Those study data have now been provided and we have a couple of administrative submissions that we are following up currently. We would expect that we would start a study in the US later this year. The exact timing, of course, will depend upon the FDA opening the IND, and of course consideration of the biological data that we are taking a look at from our current ongoing Study 28 in the UK.

Presumably, the 30-day time clock is correct, right? Once the IND is submitted you have 30 days or is there something different here?

That is consistent with my understanding, yes.

Okay. Regarding the additional funding that has been awarded for the H1N1 program, can you just talk a little bit more about what are your plans for that additional funding? What additional work will get done? And then, what is the end goal for the program? Is it to secure stockpiling, is it to maybe move to seasonal influenza and make a therapeutic out of it? Can you comment a little bit on that?

Let me just back up and remind everybody what we are doing under the contract. Obviously, we have tested in the ferret against H1N1. We now have additional monies to do other testing in the ferret against various influenza strains. We believe the target we are going after is well conserved across the different strains, and we expect to have effect against H5N1, probably a Tamiflu-resistant strain of H1N1, and H3N2 or seasonal flu as well. In fact, you may recall that our screening model was actually a mouse-adapted H3N2 strain that resulted in a drug candidate that we have now used in the initial ferret studies.

These studies clearly would put us into a situation to understand that we may have a very interesting product that could be carried forward. The Company is currently considering appropriate plans to look at an accelerated preclinical program, as we get the results from these various studies. I think with the broad applicability of a drug, if that proves to be the case, certainly you have a commercially interesting drug that would be something beyond simply a stockpiling compound as you made your Ebola and Marburg drugs. So we have given you this as both a very interesting biodefense but also commercial opportunity against a broader set of influenza strains.

Switching very quickly to the biodefense program, you mentioned that you had submitted the RFPs, and I probably missed this in your prepared remarks, but can you give us an idea as to the timing, as to when you might hear back from the government agencies?

Yes, I think probably going out on a limb to predict exactly when we may hear. The thing I will say is, it would appear the process is moving forward. We would hope to hear about an award sometime in the next upcoming months. It may be soon, it may be longer. We have seen with the best of intentions that there can sometimes be procedural delays. I hesitate to give you any sort of firm guidance. Let me just say though that the Company has been very proactive in responding in a timely way to any questions that have come back about these particular proposals.

Okay. And have the questions been primarily procedural, or pretty academic, or are they more involved? Will there be additional work that needs to be done?

I think I won't go into the nature of the questions. I think I will say only that we feel we have satisfactorily answered all of the questions put to us about the proposals.

Okay. The revenues this quarter were decreased, of course, compared to the fourth quarter of 2009, as well as I think the first quarter of 2009. How should we be, I know your burn guidance is staying the same, but there may be some partnerships or some payments in there that we are not taking into account. How should we be thinking about the amount of research contracts and reimbursement revenues that should be coming in for the rest of 2010? Will it be less than what it was in the previous years, or last year?

So you know we don't give specific guidance on revenues. We have confirmed on that burn guidance. Let me just say that the revenues are variable from quarter to quarter, depending on the timing of performance in a number of the animal studies. I think if you look back at our contracts, you will understand that we have significant contracts actually in place that we are not waiting for, including the total now $8.1 million in influenza.

The Ebola, Marburg and Junin contract is up to about $45 million with the last award on that being about $11.5 million for Junin. We have a substantial amount of that work still to do. We are still doing some work as well on the Dengue earlier contract. So I think for the year, you will probably see revenue even out over the various quarters. Again, we are not giving specific guidance, but the Q1, I think, was a bit of an anomaly just simply based on the timing of the work that we do.

Okay. So there is a nice backlog of work that is getting done.

Yes. Again, already under contract.

Right. And I guess just one final question. There has been a change in leadership as you mentioned, and you have mentioned the programs that we already know is under way. Will there be a shift in the priorities of these programs within the Company? Is there a favorite program of yours that you would like to pay more attention to? How are you guys deciding how the AVI ship goes forward?

Our priorities really remain the same. I think we are looking to add something to that. So let me just reiterate, DMD, certainly our lead program with AVI-4658. We are obviously working hard on evaluating 5038 as well, our PPMO candidate. And of course our biodefense programs remain very important to the business as we build on our partnership with the US Government. I think the Ebola and Marburg programs have shown great success. We are optimistic that we may have a positive outcome to our proposal submitted this year to the Government to continue with the advanced development of those, and those would of course be very important programs.

I think in addition the opportunity to work with TMTI on the influenza program has created a very unique opportunity for us, with a great success in a therapeutic against H1N1 that we look to carry forward as well. And the one thing that I would say that is a difference from where we have been, because a lot of those things, all of those things actually have been ongoing. We really believe that our anti-infective platform has an opportunity to be leveraged. We will be looking more proactively for collaboration partners from various stages of work, including research and development collaborations in that area. I think that focus, which obviously involves some of our discovery research capabilities, but our business development group headed by Paul Medeiros, I think can really add a lot of value, allowing a smaller company to really leverage a platform technology with appropriate collaboration. So I think that is probably the biggest change you are going to see on a going forward basis.

Terrific, guys. Thanks very much and good luck.

Thanks very much. Take care.

And our next question will come from the line of Yale Jen from Maxim Group. Please proceed.

Good afternoon. I think most of my questions have been answered, I just have a few follow-ups with that. The first one is in the anti-bacterial data you have published which is based on the PPMO chemistry, would you subsequently or in the future probably will redo some of the MD PMOplus, or some other chemistry antisense compound, confirm that, and maybe moving some of those forward?

I think it really depends on data as we move forward. As you might imagine for early stage candidates, we take a look at them with some of our various chemistries. I think the PPMO chemistry will have some significant applications as we move forward, whereas the PMOplus chemistry has clearly demonstrated its utility in a number of areas.

Before we get too far down in the development pathway with these candidates, we will take a look internally at the different chemistries, and make a development decision based on, of course, those data, but also the particular application, the suitability of the chemistry for that application.

I appreciate that. The second question is in the influenza, and I know that you have the new funding coming in. Is there any insight we might get, in terms of the data released from the influenza side, say in this year or maybe some time next year? Do you have any timelines you can share with us?

Well, as we have mentioned, we have actually completed the second, the confirmatory study. We have a contractual arrangement with the Department of Defense, where we need to coordinate and have approval for data release. We are planning a press release in the upcoming period of time. It should be within the next couple of months, and full data disclosure at an appropriate scientific conference later this year.

Okay, great. And the last one is a housekeeping question. You reiterated the guidance for the cash used this year, expenditure this year. Is that already accounted for the $4 million you just recently received, or was that not included in that guidance?

It actually does account for it. I won't go into, of course, all the detail of our assumptions besides inside of that guidance. The $4 million is nice to have. We did give a range of about $4 million, so you can imagine we have some ups and downs with respect to the guidance. We have looked at the balance of the year, and of course the results of Q1 with respect to our planned results, and we felt very comfortable with the confirmation of the guidance, and the range that we mentioned.

Okay. So certainly the update of the guidance is at least you have the chance to realize that $4 million that you received?

Sure.

Great, thanks a lot. Appreciate it.

Thanks very much, Yale. Thanks for the questions.

(Operator Instructions). And our next question will come from the line of Kevin McCarthy. Please proceed.

Thanks for taking my call, David. We are looking for some really great data here in the next few weeks. With that said, the RFP announcement, and then there is a lag between that obviously and when you sign the actual contract, were you planning on announcing via a press release that you were selected, or is this because it is a government you wouldn't announce it until the contract has been signed?

My belief is that the award would actually be a public announcement, and therefore we would be doing an appropriate press release around that. The negotiation process that takes place after that may have an impact on the amount of the particular contract as we go through that, but certainly the award is something that we feel would be very important for everybody to understand, and again, I would expect that would be the basis for a public announcement.

Great. And then also kind of a follow-up, and I think I am riding on Yale's back here a little bit with this question. I think this is what he was asking, these additional studies with the other strains of influenza, when do you anticipate completing those preclinical studies?

The additional strains of influenza studies in the ferret models, and these are by the way all in the ferret models, will be completed over the next couple of quarters.

Okay. And it would probably be at that point that you would be in a better position for collaboration or a partnership with these candidates then, I would assume?

We haven't made any specific plans around collaboration or partnership. At this point we are looking to get the best data that we can with positive outcomes of course, and we will consider all appropriate partnerships and/or deciding to take the drug forward to a certain point by ourselves.

Okay. The final question I have is that Les had talked about there was some preclinical work being done with HCV, and I believe at the last year's Shareholder Meeting that one of the members of the management team there kind of mentioned that there was actually a company that came to AVI, asking them to restart the trials using a different platform I guess. Les also had mentioned that we would hear something by the end of 2009 about an update with HCV. Is this program still live, or where are we at with this?

The HCV program is still live. We are doing some very good work, and you should expect an update from that program later this year.

Later this year. Okay, thanks for taking my questions.

You are welcome. Thank you.

And our next question will come from the line of Bob Koch. Please proceed.

The Dengue program, has it yet been determined what the appropriate animal models will be for that?

I see you have a commentator there.

That is Big Chessy.

Actually there is currently an animal model study ongoing, and we haven't disclosed the nature of that study, so I am not going to do so right now. But to answer your question, yes.

Okay. My question, so you are saying yes, there has been an animal that has been designated as being an appropriate animal model to clear it through an IND process?

There is an appropriate animal model that we are looking at for preclinical efficacy for proof of concept.

Okay. Well, the reason I ask the question was because CDC was at one point on, being charged to designate that animal.

I see. Well, as I mentioned, we have a study ongoing.

Okay, thank you, sir.

You are welcome. Thank you very much.

And that concludes the Q&A portion. I will now turn the call back to Dave Boyle for closing remarks.

Okay. I would like to thank everybody very much for joining us today. I think we are all here very enthusiastic and excited about the future of AVI. Again, the message is, we want to maintain our focus on moving forward our current programs as well as realize the potential valuation related to our platform technologies. Thanks again very much, and I look forward to talking to you on future calls.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.