Theriva Biologics Inc (TOVX) 2011 Q2 法說會逐字稿

Good afternoon and welcome to Adeona second quarter 2011 investor conference call. All participants will be in listen-only mode. (Operator Instructions) At this time, I would like to turn the call over to Kris Maly, Senior Director of Corporate Communication at Adeona.

Thank you, Denise. Good afternoon to all of our listeners. Welcome to Adeona's investor conference call for the quarter ended June 30, 2011. Before we begin, I will read the Company's Safe Harbor statement. This conference call will include forward-looking statements on Adeona's current expectations and projections about future events. Generally, the forward-looking statements can be identified by terminology such as may, should, expects, anticipates, intends, plans, believes, estimates and similar expressions. These statements are based on current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, including the risks and uncertainties set forth in Adeona's filings with the SEC, many of which are difficult to predict.

No forward-looking statements can be guaranteed and actual results may differ materially from such statements. The information included in this conference call is provided only as of the date of this conference call and Adeona undertakes no obligation to update any forward-looking statements stated on this conference call on account of new information, future events or otherwise, except as required by law. I would now like to introduce Adeona's CEO, Jim Kuo. Jim?

Thank you, Kris. Good afternoon everyone and thank you for joining our second quarter 2011 call. In addition to Kris Maly, I'm pleased to be joined today by my colleagues, Dr. George Brewer, Senior Vice President of Research and Development; Julie Caudill, Vice President of Finance; and Lara Guzman, Vice President of Administration. We are also pleased to welcome our special guest, Dr. Ananda Prasad. Today, we will take the opportunity to review in greater depth one of our major programs that illustrates the depth of Adeona's pipeline. First, Julie Caudill will lead off our call by taking you through our second quarter 2011 financials. Second, Dr. Brewer will provide updates of our clinical development program for Alzheimer's disease.

Third, I will provide an update on our multiple sclerosis, fibromyalgia and ALS clinical development programs and our near term product, reaZin and wellZin that we intend to make commercially available. Fourth, Dr. Prasad will provide an overview of his experience in utilizing a particular zinc lozenge to combat symptoms of the common cold. We'll end our call today with a question-and-answer session during which time registered callers on the toll-free phone line may queue to ask questions. Now, let me turn over the call to Julie Caudill, our Vice President of Finance and Corporate Controller. Julie?

Thank you, Jim, and good afternoon. Total net revenue for the three and the six months ended June 30, 2011, were $356,000 and $679,000, respectively, compared to $2.2 million and $2.3 million for the same periods in 2010. For the three and the six months ended June 30, 2011, total net revenues included $2.1 million in the flupirtine sublicense fee with total net revenues from Meda AB. Laboratory revenues for the three and the six months ended June 30, 2011, increased 409% to $356,000 and 422% to $679,000, respectively, from $70,000 and $130,000 for the same periods in 2010. These significant changes resulted from an increase in the client base and the expansion of in-house diagnostic testing services to include a full array of microbiology testing at Adeona Clinical Laboratory.

During the second quarter ended June 30, 2011, the laboratory reported an approximate 9% increase in net revenue for the first quarter ended March 31, 2011. Total cost and expenses for the three and the six months ended June 30, 2011, were $1.3 million and $3 million, respectively, compared to $1.2 million and $2.4 million for the same periods in 2010. General and administrative expenses for the three and the six months ended June 30, 2011, were $694,000 and $2 million, respectively, compared to $663,000 and $1.4 million for the same periods in 2010. For the three and the six months ended June 30, 2011, general and administrative expenses included a non-cash charge relating to stock-based compensation expense of $52,000 and $810,000, respectively, compared to $32,000 and $184,000 for the same periods in 2010. The stock-based compensation expense for the six months ended June 30, 2011, includes the one time charge of $398,000 relating to the modification of certain stock options prior to expiration held by a member of the Board of Directors.

Research and development expenses for the three and the six months ended June 30, 2011, were $280,000 and $512,000, respectively, compared to $427,000 and $734,000 for the same periods in 2010. These decreases are primarily the result of decreased costs associated with our drug product candidates. For the three and the six months ended June 30, 2011, research and development expenses included a non-cash charge relating to the stock-based compensation expense of $6,000 and $15,000, respectively, compared to $18,000 and $53,000 for the same periods in 2010. Cost of laboratory services for the three and the six months ended June 30, 2011, were $301,000 and $545,000, respectively, compared to $132,000 and $238,000 for the same periods in 2010. These increases are primarily the result of increased costs associated with the increased client base, the expansion of in-house diagnostic testing services to include a full array of microbiology testing including and also includes salary and supply costs.

Other expense for the three and six months ended June 30, 2011, were $760,000 and $1.5 million, respectively, compared to $6,000 and $7,000 of other income for the same periods in 2010. For the three and the six months ended June 30, 2011, other expenses included $760,000 and $1.6 million, respectively, relating to the estimated fair value of the warrants associated with the January 2011 and April 2011 financings, adjusted for the change in their fair value at June 30, 2011. Other income for the six months ended June 30, 2011, included $63,000 relating to the settlement of accounts payable, previously accrued in prior periods.

The net loss for the three months ended June 30, 2011, was $1.7 million or $0.06 per share compared to a net income of $980,000 or $0.05 per share for the same period in 2010. The net loss for the six months ended June 30, 2011, was $3.9 million, or $0.15 per share, compared to $108,000 or $0.00 per share for the same period in 2010. Our cash position was substantially strengthened during the second quarter as a result of the financing we completed in April of 2011. The sale of approximately 1.69 million shares of common stock at $2.07 per share in a registered direct offering provide gross proceeds of approximately $3.5 million.

As of June 30, 2011, Adeona had approximately $8.4 million in cash compared to approximately $2.6 million on December 31, 2010. As of July 31, 2011, we had approximately $8.1 million in cash, cash equivalents and investment in debt securities. Our cash position should allow us to meet our currently planned operating needs for at least the next 12 months. While we are in a strong financial position and continue to preserve our cash by seeking grants as well as minimizing infrastructure and personnel in comparison to our industry peers, for the quarter ended June 30, 2011, our cash burn was approximately $1 million. George, I'll turn the call over to you.

Thank you, Julie, and good afternoon, everyone. I would now like to turn our attention to Alzheimer's disease and to our planned clinical trial for Alzheimer's disease I will evaluate our drug candidate, AEN-100. AEN-100 is our proprietary once daily gastroretentive, sustained-release oral tablet formulation of zinc. After presenting the results from our recent clinical study of mild to moderate Alzheimer's in April 2011, we conducted further analyses of the data and found that the older the reaZin treatment patient, the greater the amount of cognitive benefit compared to the disabled patients of the same age, and this reached statistical significance in those patients aged 70 and over. Based upon the current cognitive benefit observed in these older patients who were managed with reaZin in comparison to patients who received the matching placebo, we are preparing a larger clinical study protocol to evaluate patients diagnosed with mild to moderate Alzheimer's disease who are age 70 and older.

It is anticipated that the clinical study will enroll over 100 patients and that the evaluation period will be at least 12 months. It is our intention to develop our proprietary zinc-based tablet, AEN-100, as a drug. In parallel with making reaZin available as a prescription medical flu. We intend to conduct this new clinical study under an investigational new drug application to be filed with the FDA. With over 10 million people affected by Alzheimer's disease in the United States, this disease is not only stealing years in the lives of these patients but robbing their families and loved ones of precious time.

Alzheimer's is also financially demanding due to its huge economic costs as well as it's putting tremendous burden from stress and time usage on caregivers. We believe zinc has the potential to prevent or at least slow the loss of cognition in Alzheimer's patients and therefore, helps stem the tide of this epidemic. We note that the pipeline of promising Alzheimer's candidate drug is nearly empty and accordingly, believe our competitive position is quite strong. We look forward to updating you on the progress of our planned Alzheimer's clinical study as important events occur. I'll now turn the call back over to Jim.

Thank you, George. Before I move on to the commercialization plans for reaZin and wellZin, I would like to spend a few minutes updating our multiple sclerosis, fibromyalgia and ALS drug development programs. Our drug candidate, Trimesta, is being developed for relapsing, remitting multiple sclerosis in women. This is a randomized, double-blind, placebo-controlled clinical trial currently underway at 15 centers in the United States. As of August 1, 2011, 140 patients out of 150 patients have been enrolled in the trial and enrollment should be completed by the end of 2011. You will recall that Dr. Rhonda Voskuhl, the principal investigator of this trial, joined us on our last conference call. Dr. Voskuhl stated that the goal of this clinical trial is to demonstrate a statistically significant reduction in the rate of relapses in female multiple sclerosis patients with a treatment regiment of oral Trimesta added to the standard of care of Copaxone.

MS is a debilitating disease and Dr. Rhonda Voskuhl believes that the slowing of the progression of the disease could potentially allow these patients to achieve a more normal quality of life. In addition, most people are not aware that cognitive loss has been noted in about 50% to 65% of multiple sclerosis patients. In a previously conducted investigator initiated 10 patient, 22-months, single-agent, crossover clinical study conducted by Dr. Rhonda Voskuhl, a statistically significantly working percent improvement from baseline in Paced Auditory Serial Addition Test, PASAT, cognitive testing scores were observed in the multiple sclerosis patients after six months of Trimesta therapy.

PASAT is a routine cognitive test performed in patients with a wide variety of neuropsychological disorders such as multiple sclerosis. We are exploring the sponsorship of a larger randomized, double-blind, placebo-controlled pivotal trial to evaluate the effect of our drug candidate, Trimesta, on cognizant and female multiple sclerosis patients. We look forward to providing updates as this clinical program progresses.

Some of you may have noted that another major oral MS drug, recently failed to meet its primary end point. According to the Wall Street Journal, Teva and Active Biotech's Laquinimod, failed to significantly reduce the number of relapses of multiple sclerosis when compared to placebo. As a result, we strongly believe that our candidate, Trimesta drug, remains one of the most promising oral MS drugs currently in development. It's not just us that believes in the potential of Trimesta. To further remind investors, Trimesta's current clinical trial has benefited from $8 million in third-party grant funding to date, the amount that should allow completion of the current clinical trial. According to the Wall Street Journal article on Laquinimod's most recent clinical trial results, quote, The setback for Laquinimod is a positive for other oral MS treatments, end quote.

Moving onto flupirtine for fibromyalgia, I would like to remind everyone of our $17.5 million corporate partnership with Meda that we announced in May 2010. Meda assumed all future development costs and it is estimated that the US market of fibromyalgia to be near $1 billion at the time of potential launch. Upon receipt of certain milestone results, we are eligible to receive up to $15 million of additional milestone payments royalties on sales. In its 2010 annual report that was publicly disclosed in May 2011, Meda stated that flupirtine for fibromyalgia was in Phase II development.

Now, let me talk about our ALS, or Lou Gehrig's disease, program. In June 2011, we were pleased to announce plans to sponsor a Phase IIB clinical trial for patients suffering from ALS. The trial is intended to evaluate the safety and efficacy of our proprietary drug candidates, AEN-100, a gastroretentive, sustained-release zinc-based tablet, and AEN-200, a copper tablet, in a multi-center, double-blind, placebo-controlled clinical trial in ALS patients. Preparation of the planned Phase IIB clincal protocol is currently ongoing. It's intended that an amendment will be filed to current IND application. Efforts are also underway for the manufacturing of clinical trial medications and protocol review by the Institutional Review Board. This multi-center trial is intended to take place at up to 6 major ALS centers in the United States.

It is anticipated that the trial will enroll at least 60 ALS patients who will continue on Rilutek as a standard of care treatment. Cases will be randomized in treatment and matching placebo groups and it is expected that they will receive clinical trial medications or matching placebo for up to 12 months with periodic monitoring. The trial will be led by the neurological team at the PNA Center for Neurological Research and is based on the Center's hypothesis of giving high doses of zinc to ALS patients may decrease the amount of toxicity from unbound glutamate and thus prevent neurotoxicity. These same clinical investigators are currently conducting a Phase I/II open label study of zinc therapy in ALS patients to determine the safety of zinc in conjunction with low doses of copper. To date, no safety issues related to zinc therapy have been observed in ALS patients. We look forward to moving this clinical trial forward and making further announcements about this program as they occur.

Now, let me talk about our near-term product development programs. In April 2011, clinical study results were presented that demonstrated the cognitive function of the placebo group on average declined over six months in comparison to patients managed with reaZin, our medical food product candidate. The cognitive function trend favoring the patients managed with reaZin were observed in all 3 standardized cognitive tests utilized in our study and suggests that reaZin may provide an important benefit for the dietary management of zinc efficiency associated with Alzheimer's disease. As previously announced, based on the results of our clinical studies, we are developing reaZin as a medical food for the dietary management of zinc deficiency associated with Alzheimer's disease. As we further our efforts toward commercialization, we look forward to sharing our progress.

I would like to now talk about our zinc lozenge program for reducing the duration and severity of symptoms associated with the common cold. In July 2011, we were pleased to announce our acquisition of exclusive access to two of Dr. Prasad's statistically significant clinical studies that demonstrated with a particular zinc acetate lozenge, a reduction in the duration and severity of symptoms associated with the common cold. Common cold, as I think I don't need to say to everyone, is one of the most widespread illnesses as the leading cause of visits to the doctor and absenteeism from school and work. Based upon findings from Dr. Prasad's clinical studies and his expertise as a pioneer in the field of zinc, he believes that many of the zinc preparations currently available in the market include a sub-optimal formulation and/or doses of zinc and also include flavors and binders that diminish the effectiveness of the treatment for the common cold.

With clinical data supporting the reduction of common cold symptoms shown in these two clinical studies conducted by Dr. Prasad, we intend to commercialize a similar oral zinc lozenge as a homeopathic over-the-counter drug under the brand name, wellZin. Currently, we are working on the manufacturing of the zinc lozenges as well as distribution marketing of our wellZin product for the reduction in the duration and severity of symptoms associated with the common cold.

Now, it is my great pleasure to introduce our special guest, Ananda S. Prasad, MD, PhD, a Distinguished Professor of Internal Medicine at Wayne State University School of Medicine. He is also an Adeona Scientific Advisory Board Member and the Principal Investigator of two separate clinical studies that evaluated a particular zinc lozenge for reducing symptoms of the common cold. Dr. Prasad recently received the 2010 Mahidol Award in the Field of Public Health for his groundbreaking research. Among his many achievements, he is credited with identifying zinc deficiency as the underlying cause of growth retardation and hypogonadism that has afflicted millions of children in the developing world.

Dr. Prasad estimates that over 2 billion people worldwide currently suffer from zinc deficiency. For over five decades, he has been a vocal advocate of zinc supplementation for diseases characterized by zinc deficiency. Dr. Prasad is the 2007 recipient of the American College of Physicians Award for Astounding Work in Science as related to Medicine and he has over 200 peer-reviewed publications. Dr. Prasad? I'll now turn the call over to you.

Thank you, Jim. As you know, that adults and children experience 2 to 6 episodes of the common cold per year. The morbidity and loss of working hours due to common cold are substantial and treatment remains elusive. (Inaudible) in '84 reported for the first time that zinc lozenges in reviews the duration of severity of common cold. This observation remains very controversial for many years. Our first study demonstrating the zinc acetate lozenges that are effective in reducing the duration and severity of common cold was published in 2000 in Annals of Internal Medicine. We conducted a randomized, double-blind, placebo-controlled trial in 50 volunteers from Detroit Medical Center. Two subjects in the placebo group dropped out on day two. We, therefore, had complete data in 25 zinc treated and 23 placebo group.

Our study protocol was approved by the Human and Animal Investigation Committee of Wayne State University. Volunteers were recruited if they had cold symptoms for 24 hours or less and had at least two of the following term systems -- cough, headache, hoarseness, muscle ache, nasal drainage, nasal congestion, scratchy throat, sore throat, sneezing and fever. We excluded subjects who were pregnant, had a known immunodeficiency disorder, had a chronic illness, had symptoms of the common cold for more than 24 hours or had previously used zinc lozenges to treat the common cold.

Participants took one lozenge containing 12.8-milligrams of elemental zinc as zinc acetate or placebo every 2 hours to 3 hours while awake as long as they had cold symptoms. Subjective symptoms scores were recorded daily for 12 days. Plasma zinc and proinflammatory cytokines were measured on day one and after participants were well. Compared with the placebo group, the zinc group had significantly shorter mean overall duration of cold symptoms. 4.5 days versus 8.1 and decreased total severity of scores for all symptoms. The total duration of cough and nasal discharge were also decreased significantly. Plasma zinc was increased in the zinc group. The zinc group received approximately 80-milligram of elemental zinc per day for 4 days to 5 days.

Our second study was reported in the Journal of Infectious Diseases in 2008. Our study plan was similar and we, again, recruited 50 volunteers with a randomized, double-blind, placebo-controlled drug. In this study, we drew blood on days 1 and 5 for measurement of plasma zinc and inflammatory cytokines. Again, in this study, compared with the placebo group, the zinc group had a shorter meaningful overall duration of cold and significantly decreased symptom severity as course. Duration of cough and nasal discharge were also significantly decreased in the zinc group on the fifth day. ICAM 1 on day 5, significantly decreased in the zinc group in comparison to the placebo. The decrease in the ICAM is very important because in [plasma] human rhinovirus type 14 docks with ICAM-1 on the surface of the somatic cells, we hypothesized that the zinc may be functioning also as an antiviral agent.

So far, 13 placebo-controlled comparisons have examined the particular effect of zinc lozenges on the duration of cold episodes of natural origin. Total number of common cold episodes in this trial were 1407. All of the 13 comparisons were double-blind. 7 comparisons found a statistical significant benefit from zinc lozenges but 6 did not. A substantial proportion of the variation in the results could be explained by daily zinc doses. None of the 5 comparisons that used less than 75-milligram daily zinc found an effect of zinc lozenges. There are 7 of the 8 comparisons that used 75-milligram or greater elemental zinc found a statistically significant benefit.

There's a recent meta-analysis report from Dr. Harri Hemila from Helsinki which was published very recently and she found that the benefit of zinc was restricted to trials where the dose of zinc was greater than 75-milligrams per day. A significant defect of zinc lozenges were seen separately in 3 high dose trials where zinc acetate was used and in 5 high dose trials when used zinc dose other than acetate. Including the 3 high dose zinc acetate trials gave a mean effect of 42% reduction in the duration of common cold. Some lozenges contain citric, tartaric, or glycine, which decreased the level of free zinc ions but even though the same dose of zinc was used in 2 different lozenges, other constituents may have led to substantial differences in the levels of free zinc ions. In one study, zinc lozenges contained palm kernels and cottonseed oil and at the high temperature used in the manufacture of the lozenges, these ingredients reacted with zinc ions, making insoluble compounds.

Although the solution chemistry of zinc may offer more detailed explanations for the variation between the trial results, the power of the dose response analysis were seen by counting the total daily doses of elemental zinc obtained from the lozenges. This year, two major meta-analysis reviews, one by Cochrane review and the other, Hemila from Finland, have concluded that there is evidence of benefit of zinc administration from treatment of common cold. Our studies show that zinc acetate lozenges are effective in decreasing duration and severity of common cold. In order to maximize the optimal effect, the treatment must be started within 24 hours of the onset of common cold and the total daily dose of elemental zinc should be greater than 75-milligrams. It is also critical that proper attention is given to the solution chemistry of zinc in preparation of the zinc lozenges. Thank you. Back to Jim.

Thank you, Dr. Prasad, for that excellent overview of your own clinical studies and that of the entire field of zinc lozenges for the common cold. For those interested in asking questions related to Dr. Prasad's clinical research on zinc lozenges for the common cold, he will be available during the Q&A session at the end of our call. At Adeona, we are dedicated to addressing the unmet needs of critical diseases and illnesses that currently have limited treatment options. We are currently pursuing new treatment options for multiple sclerosis and in the next several months, we are planning to initiate 3 new clinical trials under INDs and make 2 products commercially available. I would like to take at moment to summarize our upcoming milestones. On the drug development side, we look forward to reporting the completion of patient enrollment in the Trimesta MS trial and to the initiation of a new clinical trial to evaluate Trimesta's effect on cognitive loss in MS patients. We are also planning to initiate drug trials for our ALS and Alzheimer's clinical programs.

On the near term product development side, we are preparing for the commercial launch of reaZin, our medical food for the dietary management of zinc deficiency associated with Alzheimer's disease and for the upcoming cold season, we're preparing the commercial launch of wellZin to reduce symptoms associated with the common cold. Although adding on the clinical lab is not our core business, we are pleased to have this subsidiary and that makes us very unique since we actually have a stream of recurring revenues coming into the Company. With Adeona, shareholders have invested in a portfolio of programs and that includes from a business prospective, a profitable and growing clinical reference laboratory that supports several of our programs. Now, let me open up the floor to any questions. Would the call moderator please describe the procedure to ask questions for our listeners?

Thank you, Dr. Kuo.

(Operator Instructions)

Barry Lieberman, who is a shareholder.

Good afternoon. I was just curious if you could comment on the wellZin, and how it's going to differentiate from some of the other zinc products that have been on the market for a while -- like a Cold-Eeze, for example.

That's a great question, Barry. Thanks for asking. I've been asked that question by a few investors, who just called up the company also wondering about the same thing. Our goal, simply stated, is to have the best product out there. We're not interested in competing with other existing products. So while we normally don't proactively talk about other companies like that, since you asked the question, we will discuss it. That is, that Cold-Eeze seems to be based on old technology and seems to be less effective than what we're doing. Let me tell you the reasons why.

Cold-Eeze, from what we can tell, has basically on zinc gluconate, which, as Dr. Prasad talked about, is not probably, in our view, the best for liberating ionic zinc, which is how zinc is thought to work for ameliorating the symptoms and the duration of the common cold. So there's other research out there that shows that zinc gluconate, I think, is only, releases 75% ionic zinc; versus zinc acetate, which is our product, releasing 100%. I think Cold-Eeze is also a big compromise by including glycine, which is thought to also further reduce the liberation of ionic zinc. And in reviewing Cold-Eeze's data, as I mentioned, it seems old; so they base it on a study that was done in Dartmouth in 1992, as well as another one done at the Cleveland Clinic in 1996, and I don't they have done anything since then.

The way I look at it is, it's an old generation product. They haven't really invested in it, updated it at all and it is, in our view, less effective than what we're doing. We are basing our product on the best research out there and surprisingly, no one else was doing that and that's what compelled us to really bring wellZin to the market. And we think we'll have the best product out there if you believe the scientific data. If you want to take anything that has zinc, then you can.

Dr. Prasad, do you have anything to add to that.

No, I think that you summarized it very nicely. I think the fact that gluconate with glycine affects the zinc solution chemistry, and I think the release is a major problem. And my guess is that it's not as effective as zinc acetate.

Can I just ask you a quick follow-up?

Sure, absolutely.

Will wellZin appear in places like CVS and Target and at the supermarket alongside other cold remedies like a Cold-Eeze?

I don't think so, at least initially. It may be in very limited availability. We're really trying to figure out what markets are most willing to accept the product. The low-hanging fruit -- but I think the idea of basically manufacturing lots of products and then putting it on the store shelves is not effective for us at this time. So we'll make it available on our own website, and we'll possibly explore making it available on certain sites. It could be at college bookstores and things like that as a possibility, for example; but none of that has really been determined yet. But not generally available -- most likely in CVS or places like that.

(Operator Instructions)

I'm showing no additional questions in the queue. I would now like to turn the conference back over to Dr. Kuo for any closing -- one moment, we have a question from Javier [Montaz], who is also a private investor.

Good afternoon. I'm a long-term shareholder. What is your answer to the critics that say that why you haven't done any insider buy-in after the price has been more than halved?

Yes, so, no, Javier; thanks for asking that question. I would just say stay tuned to it to see what may be happening there. So, as you may be aware, for any publicly-traded Company, there are a lot of restrictions for when officers and Directors are allowed to buy stock. Some of the general restrictions are -- not allowed to buy until our Q is out; and then we have to wait another 48 hours after that. Then there's a window beyond that and we're also restricted in the case of our knowing if there's material inside information.

That's a tricky subject, because sometimes we're aware of it and it may happen or may not happen. It's a judgment call; and frequently, we have to basically have a Board discussion about that subject as well as ask our external legal counsel whether it is acceptable. So I would say, stay tuned. I think your point is, the stock is low. I would agree; and I would also agree it's a great buy opportunity for people, including management of the Company. So I don't disagree with you about those observations.

(Operator Instructions)

I'm showing no further questions in the queue. I would like to turn the conference back over to Dr. Kuo for any closing remarks.

Yes -- let me just say that we are very excited about all of the things that are happening within the Company. It's a very, very busy time for us with several programs that we are developing as drugs, as well as making it commercially available; and we look forward to making press releases about these milestones as we achieve them. So thank you very much for your attention, and stay tuned. Bye-bye.