Sarepta Therapeutics Inc (SRPT) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2011 AVI BioPharma, Inc. Earnings Conference Call. My name is Kendall, and I will be your operator for today. (Operator Instructions) I would now like to turn the conference over to Mr. David Walsey, Senior Director of Investor Relations and Corporate Communications. Please proceed.

Thank you. Thank you for joining today's call. Earlier today we released our financial results for the first quarter of 2011. The news release is available on our website at www.avibio.com. Our 10-Q will be filed early next week.

Joining me on the call are Chris Garabedian, our President and Chief Executive Officer; Dave Boyle, our Senior Vice President and Chief Financial Officer; and Peter Linsley, who recently joined AVI as our Senior Vice President and Chief Scientific Officer.

First, I need to inform you that during this call we will make a number of statements that are forward-looking. These forward-looking statements include statements about the development of AVI's product candidates, including NDA-enabling activities and the initiation of a Phase II clinical trial of our lead candidate eteplirsen; the initiation of a pivotal Phase III of eteplirsen in the second half of 2012, and the development of AVI's leading anti-viral product candidates for the treatment of Ebola, Marburg, and H1N1 influenza viruses; the efficacy of AVI's PMO chemistries and other RNA-based technologies; AVI's ability to qualify for additional government contracts, expectations regarding collaboration opportunities and other strategic transactions and expectations regarding future successes; clinical results, revenues, expenses, and funding from governments and other sources. These forward-looking statements involve risks and uncertainties, many of which are beyond AVI's control. Any of such risks could materially and adversely affect our business, results of operation, and the trading price of AVI's common stock. For a detailed description of risks and uncertainties we face, you are encouraged to review the official corporate documents filed with the Securities & Exchange Commission. With that said, let me turn the call over to Chris Garabedian. Chris?

Thank you, David. Good afternoon, everyone. I am very pleased to provide you an update and overview of our activities and accomplishments since our last earnings call. We have continued to build on our new vision for the Company that I shared with you on the last call, and we have made significant progress in executing on this new strategy across many areas of our business.

Just yesterday we announced that we have started dosing two new drugs for the treatment of hemorrhagic viruses in healthy volunteers, which means AVI now has three products in active clinical development and represents the achievement of two significant milestones that were met within the time frame that was promised at the beginning of the year. And just today we received a letter from the FDA removing our clinical hold of AVI-7100, our drug for the treatment of influenza, which allows us to move forward with our plans to initiate a Phase I clinical trial in healthy volunteers by the end of June.

While these announcements represent important milestones, we have also made other significant achievements since our last earnings call. Specifically, we have advanced our Duchenne muscular dystrophy clinical program and are poised to begin a US Phase II placebo controlled study in the coming weeks. And we are on track with activities that will enable a pivotal study in 2012.

We have continued to execute on our government-sponsored contract for Ebola and Marburg, which, as I just mentioned, began dosing. These activities have produced another strong quarter of revenues that have allowed us to keep our operating losses manageable while we move the Company forward on many fronts.

We continue to prepare for an upcoming influenza RFP, which could lead to another government contract for the treatment and prophylaxis of H1N1 influenza through an NDA and FDA approval. And, as I just mentioned, we have been cleared by the FDA to proceed with our Phase I safety study with AVI-7100 for the treatment of influenza and expect we will begin that trial by the end of June.

On the corporate front we have made good progress with a recent equity offering that strengthened our balance sheet, attracted new investors and sell-side analysts to AVI, and allows us to drive our research and development programs forward.

And we also added a new chief scientific officer, who will help us to identify and prioritize the best applications of our technology platform to drive our internal early development and enable collaborations and development partnerships with pharma and biotech. I will talk about each of these areas in more detail.

First, let me provide an update on our Duchenne muscular dystrophy, or DMD program. I mentioned on the last earnings call that we were putting plans in place on a critical path toward getting into a pivotal study in the second half of 2012. I am happy to say that we are making great progress toward that end. Our drug, which now has a new nonproprietary name, eteplirsen, is poised to begin a US Phase II study with Dr. Jerry Mendell at Nationwide Children's Hospital, a Muscular Dystrophy Association Center of Excellence based in Columbus, Ohio.

Specifically, we have finalized the protocol for this Phase II study and are on track to begin dosing by the end of June. This study is now a randomized, placebo-controlled study which will provide us with higher quality data in identifying a treatment effect and the potential clinical benefit of our drug versus an untreated patient group.

As we reported previously, this is a three-arm, 12-patient study evaluating once-weekly infusions of 30 milligrams and 50 milligrams per kilogram of eteplirsen or placebo over a period of six months. We have designed this study to evaluate improvements in biochemical biopsy markers of efficacy and will be collecting a series of endpoints to determine the potential effect on clinical outcomes, such as walking tests and tests of muscle strength and function.

Because this is now a randomized, placebo-controlled study, we believe the results will be more meaningful to the FDA and other global regulatory authorities, and will help us guide our pivotal study as well as provide supportive data for the ultimate registrational approval of eteplirsen.

Pending FDA and IRB approval of this study design, the final study results should be available by the end of the first quarter next year, and we will have preliminary biopsy data with biochemical responses from our 50 milligrams per kilogram cohort by the end of this year.

While we were in the planning stages of our nonclinical activities for DMD when I spoke to you on the last earnings call, I am happy to announce that we have begun dosing all of the monkeys in our nine-month primate study and are on track to complete dosing in that study by year-end with a full analysis of our full long-term toxicology program in the first half of next year. This safety data will support longer term dosing of eteplirsen, which will be important in this disease, which is expected to require chronic lifelong treatment in these patients.

Additionally, we have made good progress in finalizing our plans for scaling up manufacturing and are on track to produce large scale batches of eteplirsen early next year to support our pivotal trial drug requirements and other supportive studies.

On the topic of our DMD program, I would lastly like to note that we had an oral podium presentation of the Phase Ib-II data for eteplirsen in DMD patients by Professor Francesco Muntoni, the principal investigator at the 63rd Annual Meeting of the American Academy of Neurology last month. The results of that study, which we released previously, showed that eteplirsen was well tolerated and resulted in increased dystrophin production in all of the patients who received 10 milligrams per kilogram and 20 milligrams per kilogram. And also showed reductions in inflammatory markers in the muscle tissue in these dose cohorts.

Both of these are biochemical markers that suggest improvement in the health of muscle tissue, and we have included them as key endpoints in our upcoming US Phase II study. Having had an opportunity to review other DMD programs presented the AAN Neurology Meeting, and otherwise recently published data from competitive DMD products, we increasingly believe in the potential that eteplirsen represents as a disease-modifying therapy for DMD.

Now, I will turn my focus to our infectious disease programs, which we are developing drugs to treat the viruses of Ebola, Marburg and influenza. As I mentioned, we just announced yesterday that we started dosing in two Phase I studies in healthy volunteers evaluating AVI-6002 and AVI-6003, our drugs for the treatment of Ebola virus and Marburg virus, respectively. Both of these drug candidates are the first in humans utilizing our advanced PMOplus chemistries. These are also the first AVI drug candidates to enter clinical trial with financial support from the joint project manager of the Transformational Medical Technologies Program of the US Department of Defense.

Under a 2010 contract, AVI will receive up to $291 million to develop both of these candidates through NDA submission with the FDA. The primary goal of these Phase I studies is to determine tolerability and pharmacokinetics of the drug candidates in healthy volunteers. These studies are double-blind, placebo controlled trials and involve single escalating doses to assess the safety, tolerability and pharmacokinetics of each drug candidate.

Each study will enroll five volunteers into one of six cohorts for a total of up to 30 healthy volunteers. The cohorts will include four volunteers who receive the drug and one who will receive placebo.

Initial results of these Phase I studies will be available around year-end. By demonstrating the safety profile of our drugs in these safety studies, each of which target a different viral sequence, we may show that our PMOplus chemistry is a safe backbone chemistry that can easily be modified to treat a variety of other viral targets.

The other antiviral drug that we expect will enter the clinic this year is our influenza drug, AVI-7100, which would become our fourth drug under active clinical development. We are awaiting a formal RFP from the Department of Defense through the Defense Threat Reduction Agency for a contract that would support the full clinical development of an influenza drug for the treatment and prophylaxis of H1N1 influenza. We have been preparing a proposal for this expected RFP that would encompass this full development program with AVI-7100. We expect to begin dosing in a Phase I study with AVI-7100 by the end of June.

Assuming a formal RFP for influenza development will be posted soon, we expect that a response will be due in the next couple of months with the potential for a government contract award to occur in the second half of this year. Based on the scope and size of the government contract for Ebola and Marburg, which were both nearly $150 million each for a program that applies for an NDA under the animal rule, we expect that an NDA program that involves human patient trials for influenza that also supports indications for both treatment and prophylaxis would be larger, more complex, and would require a much larger contract award than our Ebola and Marburg NDA contracts.

Over the last quarter we have also made progress on corporate development activities. Most recently, we closed an underwritten equity financing that brought the Company gross proceeds of approximately $35 million. We completed this offering without the need to offer warrants as an incentive to invest, and attracted new investors who believed in the long-term business opportunity of the Company. This financing was important in providing us with additional financial resources to support our overall corporate activities, including our DMD NDA-enabling activities that will prepare us for our pivotal study in the second half of next year. The financing was also instrumental in raising corporate visibility with the financial community among a new group of institutional investors and research analysts.

On that note, we are also very pleased to have received the initiation of new research coverage from Piper Jaffray and Wedbush Securities, and we have developed relationships with other research analysts that provide AVI an opportunity for additional research coverage from other analysts as we move forward.

We have also been invited to more high profile investment conferences to which AVI has not traditionally been invited, like JPMorgan at the beginning of the year, Citibank, Cowen and Company, and Deutsche Bank. While it is nice to use these conferences as general updates, the greater value of participating is the chance to meet new potential investors. We take full advantage of scheduling one-on-one meetings with these investors who are new to the AVI story and to build AVI's visibility among institutional investors.

Lastly, I would like to talk about how we intend to leverage our platform technology and the increasing body of data that demonstrates the activity and safety of our morpholino drug chemistries. The potential of our morpholino chemistries across a variety of therapeutic applications is a renewed focus for AVI. The ability to better prioritize in advance the early development of our technology for other applications beyond DMD and antiviral targets will enable us to feed our internal pipeline as well as drive multiple business development opportunities with both academic and industry partners.

To help in these efforts, AVI recently recruited Peter Linsley as our chief scientific officer. Peter is an expert in RNA-based therapeutic research and development and possesses a broad set of skills, experience and knowledge gained from working at both major pharmaceutical companies such as BMS and Merck, and biotechnology companies, such as Rosetta, and most recently in the CSO role at Regulate, a joint venture between Isis and Alnylam, another RNA-focused company. His addition to the team brings considerable depth to our already strong research group and our existing senior scientific team. It is Peter's first week with the Company and he is here, so I thought I would give him the opportunity to say a few words. Peter?

Thank you, Chris. I wanted to say a few words on why I decided to joint AVI. I have worked with RNAI antisense technologies for nearly 10 years now, and during this period I have become intimately involved with some of the challenges in the slow development of these technologies in the therapeutic, namely, off-target activities and delivery challenges.

I became excited about AVI when I learned about their proprietary PMO chemistry and how it was designed to address these limitations. I believe this novel chemistry will allow AVI to produce therapeutic molecules for treatment of significant human diseases. I joined AVI because I believe that our technology has the potential to enable transformation to the field of RNA therapeutics.

Thank you, Peter. For the remainder of the year, we maintain ambitious goals and we intend to make significant progress on multiple fronts including continued execution our clinical programs, additional government-supported activities, and advancing business development opportunities with a range of pharma and biotech partners, as well as collaborations with academic institutions and nontraditional partners, such as patient advocacy groups.

We are also continuing to build out a first-class management team to help reshape the Company and support our vision of building an industry-leading company. I will now ask Dave Boyle to review our financial results.

Thanks, Chris. The first quarter of 2011, AVI reported an operating loss of $5.5 million compared with an operating loss of $7.7 million in the first quarter of 2010. The reduction in the operating loss is primarily the result of a $13.1 million increase in government research contract revenues, offset by an $8.7 million increase in research and development expenses, and a $2.2 million increase in G&A costs. The increase in the government research contract revenues and the increase in R&D costs were primarily related to the Ebola, Marburg, and H1N1 government contracts that were new in 2010.

R&D expenses were $14.8 million in the first quarter of 2011 compared to $6.1 million in the first quarter of 2010, an increase of $8.7 million. The increase, again, was due primarily to the increases in the research costs to the Ebola, Marburg and H1N1 contracts, partially offset by lower spending on the DMD program and other research programs.

G&A expenses in the first quarter were $5 million compared to $2.8 million in the first quarter of 2010, an increase of $2.2 million. The increase was attributed to higher compensation costs and employee-related costs resulting from an increased headcount, accrued severance and stock compensation expense associated with the expected departure of a senior officer, legal expenses, and consulting costs.

Revenue for the first quarter of 2011 increased to $14.3 million from $1.2 million in the first quarter of last year, an increase of $13.1 million as a result of the net increase in the revenue from the Ebola, Marburg and H1N1 government research contracts.

Net income for the first quarter of 2011 -- and it actually nice to say net income for a change -- was $1.8 million, or $0.02 per share compared to a net loss for the first quarter of 2010 of $0.6 million, or $0.01 per share. The $2.4 million increase in net income was primarily due to the reduced operating loss caused by the higher revenue from the new Ebola, Marburg and H1N1 contracts, and the change in the valuation of certain warrants described below.

In connection with prior equity financing, AVI issued warrants that are classified as liabilities and are adjusted to fair value on a quarterly basis impacting net income to loss. The amounts of the warrant liability is primarily affected by changes in the AVI stock price during each financial reporting period, which causes the warrant liability to fluctuate as the market price of AVI's stock also fluctuates.

In the first quarter of 2011, the warrant valuation decreased by $7.3 million compared to a decrease in the warrant valuation of $7.1 million in the same quarter of 2010. AVI had cash and cash equivalents of $23.3 million as of March 31, 2011, a decrease of $10.3 million from December 31, 2010. The decrease was due primarily to the $10.1 million of cash used in operations during the first quarter of 2011, and cash used for property and equipment and patent related costs of approximately $0.3 million. And was partially offset by cash inflows from the exercise of warrants of $0.1 million.

Importantly, accounts receivable increased by $10.4 million to $13.6 million, and accounts payable also increased $5.2 million to $6.5 million. Both of these increases are the result of the increase in revenue and activities related to the Ebola, Marburg and H1N1 contracts.

As Chris previously mentioned, in April 2011, that is, after the close of Q1, AVI sold 23 million of its shares of common stock at a price of $1.50 per share in an offering registered under the Securities Act. The offering generated gross proceeds of $34.5 million. And I do want to point out to everyone that the previous discussion regarding the warrants does not relate to this offering, as no warrants were issued in this recently completed offering.

And, lastly, regarding our financial guidance, for 2011, AVI confirms its previously provided guidance for revenue of approximately $50 million to $60 million, and cash expenditures for operations net of government funding and other collaborative efforts to be approximately $23 million to $28 million. AVI believes it will continue to receive funding from government contracts and has assumed certain revenues from these awards in providing this guidance. If AVI does not continue to receive the funding from its current contracts, its guidance may change. And now back to you, Chris.

Thanks, Dave. Operator, I would now like to open the call to questions.

(Operator Instructions) Your first question comes from the line of Ted Tenthoff with Piper Jaffray. Please proceed.

Great. Thank you very much, and congrats on an incredibly productive first quarter. You guys were busy.

We're trying.

So, looking at the DMD program getting started next month, I think you guys have done a good job laying that out. Maybe give a little bit more detail for me around this staggered biopsy protocol and what you hope to achieve by looking at that.

Yes, Ted, so our previous Phase Ib-II study was a 12-week study, and we did biopsies in six different dose cohorts, and so we have a lot of good kind of dose response data going from 25 milligrams per kilogram up to 20 milligrams per kilogram at 12 weeks based on biopsy results.

What we wanted to do was we wanted to answer two questions with this study. The first was will higher doses produce a significantly greater dose response at 12 weeks? And that is why we wanted to look at 50 milligrams per kilogram at 12 weeks to compare that to 20 milligrams, 10 milligrams, and then the lower dose cohorts from the previous study.

But the more important question we wanted to answer was would dosing over a longer duration, in this case, 24 weeks, would that get you more dystrophin in the muscles even at lower doses? And so we kind of split the difference. We went higher than the previous high dose cohort of 20 milligrams per kilogram, we increased that 50% to go to 30 milligrams per kilogram, and wanted to know if six months, or 24 weeks of treatment would produce a more robust dystrophin response than what we were seeing at 12 weeks, either at higher doses or lower doses.

Thanks, that's super helpful. And then we should get, just walk us through -- I know you mentioned it, but we should get that chemical data or biochemical data by year-end and full data by early next year; is that accurate?

Yes. We will have -- it is a blinded study, and so the data we will have around year-end will be limited to -- because we don't want to break the blind, but we believe that we will be able to present meaningful or have available meaningful biopsy data that doesn't break the blind. Because the biopsies of the untreated cohorts and the baseline biopsies will see very little dystrophin, and we expect that you are going to see some levels of dystrophin in the treated patients after 12 weeks at those high doses. So, that is the data we expect to have around year-end. The full data analysis will be prepared and the unblinded data would be available around the end of first quarter next year.

Excellent, that's super helpful and congrats on the clinical hold getting lifted on 7100.

Great. Thanks a lot, Ted.

Your next question comes from the line of Yale Jen with Maxim Group. Please proceed.

Good afternoon and thanks for taking the call.

Thanks, Yale.

Sure. I'd just like to get a little bit more on the 6002 and 6003 regarding the timelines in terms of other data release and follow-up effort after you started [clinical] studies.

Yes. So, I described the details of the Phase I healthy volunteer studies that we are about to embark on, and we should have dosing completed around year-end. And, again, shortly after dosing is completed we will have that preliminary safety data released.

So, again, we will have final study reports early next year sometime. And these programs are in stages, and so we have to complete each stage at a time before we get approval to go to the next stage of development. And so, again, right now our focus is getting through the healthy volunteer studies.

We will begin planning on the animal studies, the animal efficacy studies with both of those compounds, and we will begin preparing activities in the second half of this year. And you'll hear more about guidance and timing and data release on additional elements of these programs when we have them ready.

Okay, great. Thanks, that's very helpful. And just as a quick follow-up in terms of the influenza program. And, again, congrats on that liftoff, that (inaudible). Could you just give a little bit more color in terms of the RFP, the potential timeline you anticipate? I believe you said you anticipate to get potential approval in this year and any more color on that?

Yes, sure. So, again, as far as I know it may have been posted while we're on this call. But, basically, we expect the formal RFP to be posted any day or week now, okay? So, we expect that coming soon. So, we are basing the response to the RFP and the preparatory work we are doing based on the draft RFP that was posted late last year, and we had time to review that and start thinking about what they were looking for in a clinical program for H1N1 influenza for treatment or prophylaxis. So, we continued to shape what that development program will look like.

Once the formal RFP is posted, and we expect that imminently, we expect that they will require a response to the RFP sometime between 45 and 60 days from posting the formal RFP. So, that puts us around the end of June, early July time frame.

This is speculative, but based on past experiences, we expect that those contracts would be awarded maybe sometime between 60 and 100 days after they receive all of these RFP responses. So, that would put us out in the late summer, early fall for the possibility of a contract award for influenza. But, again, it is speculative to know what timeline they are going to have, but those are the assumptions we are working under.

Okay, great. Thanks a lot, and I'll get back in the queue.

Thank you, Yale.

(Operator Instructions) Your next question comes from the line of Richard Deutsch with Ladenburg Thalmann. Please proceed.

Yes, thanks for taking my call. Again, congratulations in getting a lot done. I have a question for you on the Ebola and the Marburg in that I'm trying to understand exactly what has to be done and why it would take so long to finish dosing in the study, seemingly a small group of people just being dosed for safety. Could you explain why it would take towards the end of the year to get it done?

Yes. This is what the FDA is requiring, and this isn't uncommon. It is a requirement of sequential dosing. So, again, I mentioned a six-dose cohort, so therefore we have to escalate one dose at a time. So, they want to make sure that we don't see any safety signals with the low dose cohort before we proceed to the next. So, again --

So, you don't dose them all at once; you've got to dose and wait, dose and wait, dose and wait, I got it.

Yes, that's right.

That clarifies it. Also, this appealed to me in the first place because it seemed like your platform was capable of being able to treat viral infections on a broad basis for the first time ever. And you've tackled the most dangerous and virulent of the cases. What is the scenario now in terms of being able to get interest in further other viral diseases, Dengue and Junin, and I know you're starting with flu. But what do you see as other viral targets?

Yes. So, you highlighted on a couple of the ones that we have already started some activities on. And Dengue, for one, is an area of great interest from a variety of agencies. And we have good relationships and good communication with many of the agencies that support these types of emerging infectious diseases.

So, the other thing that we have noticed is that much like we had Ebola rapid response exercise that was real world exercise, that led to a contract for a full NDA program for Ebola. Then they asked us to do an H1N1 rapid response, and then we saw it followed by an RFP for a contract through NDA for influenza. They have now asked us to do a Dengue and we have completed that, and so it's not surprising that they are talking to us about what a Dengue program would like, but no RFP has been posted at this time. And then we continue to engage them in other rapid response exercises, and so there is interest in other areas like antibacterials, etc.

So, I think we are seeing a constant stream of interest and I just say stay tuned for where the government programs and infectious disease programs might lead.

The other thing I would add is that we don't have to simply wait for the government to be interested. We think there are other applications of this technology that we might be interested in. And this is evidenced by the collaboration we did with Karolinska on tuberculosis. So, I think we continue to try to look at other viral opportunities with the government and at a proprietary basis to continue to advance this chemistry forward.

Just one follow-up on that, because you are just onto where I was going on the extremely drug-resistant tuberculosis. Can you tell us what the first objectives are and when you expect to be able to get results?

Yes. Again, this is an early research collaboration, and we are screening a variety of chemistries. Some of our earlier stage but more advanced in terms of characteristic chemistries. And, again, there is a lot of screening, there is data that is being generated, and as soon as we have data that is meaningful to present, we will. But we, again, we are very excited and encouraged by Karolinska's interest, and as soon as we identify a good product with activity, we think that could be right for development.

The other thing I'll mention is there are other means of funding for a program like extremely resistant tuberculosis beyond the government. As you know, the Gates Foundation supports a lot of product development partnerships such as the TB Alliance, and there are plenty of opportunities if we have a good drug candidate identified through the Karolinska collaboration That could open the door for other funding sources to move the development forward.

Thank you.

Ladies and gentlemen, there are no further questions. I would now like to turn the call back over to Mr. Chris Garabedian for closing remarks.

Okay. Thank you, Operator. Everyone here at AVI is excited about the progress of the Company. I was very happy to talk about some of the activities and milestones that we met recently. We have made significant progress in the first quarter and we have ambitious but achievable plans for the rest of 2011. So, we look forward to reporting on our progress at upcoming conferences and our next quarterly call. Thank you all for joining us today.

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