Vaxart Inc (VXRT) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2010 Nabi Biopharmaceuticals earnings conference call. My name is Janeda, and I will be your operator for today.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Greg Fries, Manager of Investor Relations. Please proceed.

Thank you, Janeda, and good afternoon, and thank you for joining us today. The news release announcing our first quarter 2010 financial results is available on our website at www.nabi.com.

I would also like to remind you that today's call may include forward-looking statements. These forward-looking statements and related risk factors are more fully discussed in our Annual Report on Form 10-K for the fiscal year ended December 26, 2009 filed with the Securities and Exchange Commission. Additional information is available on our website, again, at www.nabi.com.

Now I will turn the call over to Dr. Raafat Fahim, President and Chief Executive Officer of Nabi.

Raafat?

Thank you, Greg, and thank you all for participating in the call.

Joining me for today's call are Dr. Paul Kessler, Senior Vice President of Clinical, Medical and Regulatory Affairs; Dr. Matthew Kalnik, Senior Vice President of Strategic Planning and Business Operations; and Mr. Ron Kocak, Controller and Chief Accounting Officer.

The first quarter of 2010 was very active and productive for Nabi. Early in the year we were actively preparing for our important shareholders' meeting and simultaneously preparing for the close of our transformational NicVAX agreement with GSK, both of which were successfully accomplished in March. Upon closing the exclusive worldwide option to license agreement for NicVAX with GlaxoSmithKline Biologics, we received the initial $40 million nonrefundable upfront payment. We again thank our shareholders for their overwhelming support of this agreement.

On March 17 we initiated the second Phase III NicVAX clinical trial, the results of which we are anticipating in early 2012. You may recall that we initiated the first Phase III trial in November of 2009. Accordingly, we are now fully engaged in this final, pivotal clinical phase of the first-in-class NicVAX development. Participant recruitment is progressing well for both of these trials that will enroll 1,000 participants each. These trials are double-blind, placebo-controlled studies. You may know that we are conducting these trials under a Special Protocol Assessment or SPA agreement with the FDA, and in accordance with the scientific advice that we received from the European Medicines Agency that confirms and supports the trial protocol.

I'd like to spend a few minutes highlighting some important aspects of the Phase III trials that we believe should optimize the outcome.

First, the two Phase III trials will enroll approximately 2,000 participants in total. The dose regimen includes six injections of 400 mcg. Participants are being dosed at weeks 0, 4, 8, 12, 16 and 26 in the Phase III trials. This six-injection regimen demonstrated in a clinical trial that it generates significantly higher anti-nicotine antibody levels much earlier and a greater percentage of subjects than in our successful Phase II proof-of-concept trial. In fact, at the target quit date, which is now week 14, 83% of subjects achieved antibody levels above the target threshold.

Standard of care counseling will be implemented for the Phase III trials and will be aligned with the target quit date and with the high antibody levels. Counseling to overcome the behavioral aspects of smoking is an important complement to smoking cessation therapy such as NicVAX, which treats the addiction component of smoking.

Finally, we designed a long-term smoking cessation endpoint that exploits the advantage of the NicVAX mechanism of action. We believe that these changes will improve our chances of success in the Phase III trial.

Separately, we have already transferred the commercial manufacturing technology of NicVAX to long-term contract manufacturing organizations and are on track to manufacture the commercial consistency lots of NicVAX and clinically test them in a consistency lot clinical trial, as required by the regulatory agencies to support the license application.

We significantly expanded our share repurchase program in late March to a total of approximately $61 million so as to enhance shareholder value. The board authorized adding $50 million to the $10.9 million remaining balance from the repurchase program initiated in December 2007. I'll discuss this in more detail in a few minutes.

In early April we announced that the European Patent Office, or EPO, upheld our opposition to a patent held by Xenova Research Limited for using Hapten Carrier Conjugates in drug addiction therapy. Xenova was acquired by Celtic Pharma, one of three other companies developing a smoking cessation vaccine. We and others filed our opposition in February 2008 requesting revocation of the patent in its entirety. This means that Celtic has lost its patent rights to nicotine conjugate vaccine technologies throughout Europe.

As the proprietor of the patent, Xenova may file an appeal within two months of the patent office decision that was written on March 29. Assuming this revocation decision stands, and when one couples this with the 2008 EPO decision upholding our patent for exclusive use of NicVAX for treating and preventing nicotine addiction, we have secured -- securely positioned NicVAX for our opportunities in the European market.

Now let's review the first quarter financial results.

For the first quarter ended March 27, 2010, net income from continuing operations was $5.5 million, or $0.11 per share, compared to a net loss of $7 million, or negative $0.14 per share, in the first quarter of 2009.

Revenue for the first quarter was $13.7 million. This reflects payments recognized under both the PentaStaph sale and the NicVAX option and license agreement with GSK. This includes $4.6 million from the initial $21.5 million payment for PentaStaph and $0.2 million from the $40 million upfront payment received from GSK at the close of the NicVAX option and license agreement. Revenue of these payments is being recognized ratably over the terms of the agreements, currently expected to be 14 and 190 months, respectively. Revenue also includes $8 million for achieving a second performance milestone under the PentaStaph as well as $0.9 million for services to GSK under the PentaStaph transition services agreement.

General and administrative expenses was $1.8 million, compared to $3.1 million in 2009, reflecting our effort to further reduce expenses as well as reduced legal and facilities costs. We expect our G&A expenses for the full year to be lower than in 2009.

Total research and development expense was $5.9 million, compared to $3.8 million in 2009. This increase is primarily attributable to increased activities associated with the NicVAX Phase III trials as well as manufacturing-related activities and is net of approximately $1.1 million of cost reimbursement from previously awarded grants from the National Institute on Drug Abuse and the Department of Defense. We expect R&D expenses will continue to increase in 2010.

Net cash provided by operating activities in the first quarter of 2010 was $48.6 million, compared to a net cash use of $6.5 million in 2009. We ended the quarter with cash, cash equivalents and marketable securities totaling $158.1 million, compared to $119 million at December 24, 2009. The principal components of the increase include $55.4 million of payments received at the close of the NicVAX agreement and for achieving two PentaStaph performance milestones. Partially offsetting these amounts were payments of $9.6 million to settle common stock repurchases, as well as our operating expenses.

We repurchased 1.8 million shares of our common stock for $9.2 million during the first quarter of this year at an average price of $5.03 per share, and we have repurchased an additional 3.6 million shares for $20.7 million in the second quarter through April 30, at an average price of $5.67 per share. Since the inception of the share repurchase program in December 2007, we have repurchased a total of 17.6 million shares of our common stock for almost $75 million, at an average price of $4.25 per share, and we have reduced the number of shares outstanding by 27%. As of April 30, there were 44.8 million shares of Nabi common stock outstanding, while approximately $40.2 million of the recently expanded $61 million repurchase program remains available for share repurchases. We also repurchased the remaining $6.1 million of our outstanding Senior Convertible Notes in April, so we are now debt free.

In summary, we continue to make great progress with the NicVAX Phase III trials and are now fully focused on this program. We have repurchased a significant number of our outstanding shares and have further improved our financial condition by eliminating the remainder of our debt while maintaining fiscal discipline, thereby significantly enhancing shareholder value.

That concludes our prepared remarks. Operator, let's open the call for questions.

Thank you.

(Operator instructions).

Your first question comes from the line of Jeffrey Cohen, with C.K. Cooper. Please proceed.

Oh, hi, and thank you for taking my call.

Thanks, Jeff.

I have just a couple of questions. So, as it relates to revenue, I'm trying to look at the -- what was the actual service revenue? Was it $1.13 million? Because you had $12.61 million in milestones. Could you break that down for me again?

The service revenue was close to $1 million, at $0.9 million, so it's close to $1 million.

Okay. And you had the $4.6 million and the $8 million, and then there was a small other charge, $0.02 (sic - see prepared remarks), you said?

Yes, that's the ratable amount of the $40 million upfront for NicVAX. The $4.6 million, that is the ratable amount for the -- coming from the $21.5 million that we received in 2009 for the sale of PentaStaph.

Okay. And so the $40 million is over, you said, 190 months?

Correct.

Okay. Fantastic. And my second question is, as it relates to G&A, I'm trying to get some sense as far as the rest of 2010, it was a little lower than I had expected. Would you expect it would continue around this rate or perhaps revert back to where it was Q3, Q4 of '09?

I would imagine overall it will be less than 2009, Jeff. As you can imagine, some of these expenses in G&A are related to timing, so I would not indicate that it will continue at this rate, but it certainly, in our view today, it will be less than 2009.

Okay. And one more question, I saw that Intercell acquired some of the platforms from Cytos today regarding their -- some of their antibody platforms. Does that affect their conjugate for smoking cessation at all?

I actually didn't see that, Jeff, I must say. But I doubt that that part of it was for the nicotine vaccine. It just -- because that's owned by Novartis.

Okay. Perfect. Thank you very much.

Thank you, Jeff.

Your next question comes from the line of Richard Mansouri, with DellaCamera Capital Management. Please proceed.

Yes, thank you. One question, it says here that you purchased 3.6 million additional shares through April 30 of 2010. Can you tell us, please, how many shares you repurchased today?

Today? Well, we don't talk about it on a daily basis, Richard, but I'm assuming you're asking that because of how the -- that we are down around $5 or so. But we don't talk about it on a daily basis, as you know.

Okay, well, then, can I amend that? Can we talk about it on a weekly basis? Can you tell us how many shares you've bought since the end of April 30, so for the last week?

So, again, we actually talk about the share repurchase only on a quarterly basis with the release of the earnings call.

Okay. Well, let me ask you this. Is there anything that precludes you from aggressively repurchasing shares in light of the what seems to be precipitous stock price decline?

So the only thing that prevents us is really the 10b5-1 rules, in a way. As you know, there are rules by SEC that we have to follow. And, no, you cannot go and purchase every share you can put your hands on. There are rules of how many shares you can purchase in a day.

Right. So then can I just ask your opinion so that I'm doing -- tell me if you agree with this math. You said that there were 44.8 million shares outstanding.

Correct.

And the stock price at $4.98.

Correct.

Correct? You said you had $158.1 million in cash and marketable securities at the end of the quarter and you used $20.7 million to repurchase shares and $6 million to repurchase convertible notes. Is that correct?

Your math is very good.

Okay, so by my math, taking 44.8 times $4.98, which would be the market value, okay, of $223 million, subtracting $131 million gets you to about $92 million. Would you agree with that approximation?

I agree with that.

Okay. So what the market is basically saying is that for $92 million one would get, based on today's prices, the PhosLo royalty stream, the additional milestone payments that you might get, plus NicVAX. Is that a correct way of looking at it, in your opinion?

Yes, and I'm just as flabbergasted as you are, Richard --

Understood.

-- (inaudible) go down.

Understood, no, that's -- the reason why I wanted to understand the mathematics here is to get your opinion, and I take it your degree of being flabbergasted would imply that you think that the stock is undervalued.

Yes, it goes without saying.

Okay, so then, so query whether, and maybe there's not an answer at this particular juncture, query whether there's anything you can do to greatly accelerate the number of shares that you can purchase?

Yes, okay, I'll query that, yes.

Okay, thank you.

Thank you very much, Richard.

Your next question comes from the line of Nathan Cali, with Noble Financial. Please proceed.

Hi. Good afternoon. Thanks for taking the questions.

Hi, Nathan.

Hi. On the share repurchase, is there any time frame of when that'll be completed?

No, when we finish the money is that will -- that's when it will be completed. There is no time frame.

Okay. And the $40 million in cash, are you going to recognize that all in 2010, or --

No. As we mentioned, this is -- we recognize it over the life of the program, which is 190 months.

Okay.

So we recognize, for example, in this quarter, recognize only $0.2 million, $200,000 of that, in the first quarter of 2010.

Okay. What was the life of the program? I'm sorry.

The life of the program is 190 months.

190 months, okay. And so that's going to be recognized as revenue, is that correct?

It's recognized as revenue, yes.

Okay. All right. Thank you.

Thank you.

Your next question comes from the line of Bob Wasserman, with Dawson James. Please proceed.

Thanks. Hi, Dr. Fahim.

Hi, Bob. How are you doing?

Good. I promise I won't ask any share repurchase questions.

It's okay. Go ahead and ask.

I do have a couple of questions. The first is about Chantix and Champix. I've seen some kind of renewed marketing activity there and wondering if -- how you're -- if you're following that market and how that's doing, and also a little about PhosLo and the reformulation and whether you could have a comment on how that is going.

So I can tell you what I can -- what I know. So, on Chantix, obviously we are following it a little bit, and, yes, there has been a slight surge in sales, not much, but a slight surge in sales. So it's not continuing to decline. The -- it looks like the increase in sales is coming from the international market, not from the US market. Looks like the US market is still declining, but the international market, particularly Japan and some European countries, is actually making headways with Chantix, or helping them. Having said that, if I recall correctly, they have not increased dramatically from where they were, as I'm saying. So it's not declining, but increasing every so slightly. So that's what we know, and our data, our information comes from the IMS, assuming that is correct data.

Now, on the question you had -- you had another question, sorry, about PhosLo.

PhosLo, yes.

And on the PhosLo, what we know is what they indicated in their call, so what Fresenius indicated in their calls. And, again, all that we know from that is that they expect to have a response from the FDA in 2010.

Okay.

Beyond that we really don't know any more. Our agreement with them does not obligate them to reveal any information about the new formulation.

Okay. Thanks.

Thank you, Bob.

Your next question comes from the line of Robert Chapman, with Chapman Capital. Please proceed.

Hi, Raafat, how are you?

Hi, Bob, how are you doing?

I'm doing well. I'm going to take a very different perspective regarding the buyback, and it doesn't require comment from you, but there's no need for you to be aggressive buying back the stock whatsoever from my standpoint, and today's movement in the market is an excellent example as to why.

If this product NicVAX works, the shareholders are going to do fantastically. The upside is tremendous. It's into the multiples of where the stock is now. So why not just be opportunistic? If it's relatively speculative stock, and in a bad market it's going to be one of the first stocks that fast money or even individual retail investors are going to puke out of their portfolio, so if you don't buy back any stock for months and months at a time, much less a tender offer, which I think would be a horrific idea, just wait for the opportunities. And if there's a window open, it's not blacked out, then you can be opportunistic.

There's a good year now before we really have any good data on what's going to happen with NicVAX, and during that period, especially with the Russell having doubled in the last year and a quarter, there are going to be market downturns, and I don't think the shareholders should be anything but impressed with your patience buying back stock rather than buying back at two or three times where it traded just a few months ago. So that's just my own perspective, and I know you're getting pressure from other people to buy back stock, mostly because they want to sell you their positions close to $6 per share, but the remaining shareholders will benefit from your being opportunistic, and I personally support it with a pretty large position in the Company.

I appreciate your comment, Robert, and certainly take that in advisement.

We have a follow-up question from the line of Jeffrey Cohen with C.K. Cooper. Please proceed.

Hi, Jeff.

Mr. Cohen, your line is open.

Oh, thank you. Sorry about that. On the press release today you said "initiated the second of two Phase III clinical trials for NicVAX, the results of which are anticipated by -- in early 2012." So I had assumed that the second of two trials may be enrolled toward the end of 2010. Are you assuming just in this comment that that would be a result of both trials or result of the first trial by early 2012?

No, no, we're talking about the results of the second. The second one started about four months after the first, or four and a half months or so after the first one, so that's the one we are anticipating early in 2012. The results of the first trial should be available, as we indicated earlier, by the second half of 2011, Jeff.

Okay. So no change there on that bullet point, then.

No, no change in any of them. It's -- what we are referring to there is the second trial, not the first. The first is [still] the second half of '11, but the second trial, since it started four and a half months after the first one, it's just the time to finish that.

Okay. Thank you very much.

Thank you.

Your next question comes from the line of John Francis, with Francis Capital Management. Please proceed.

Hello, John?

Mr. Francis? Mr. Francis, your line is open.

Hi. I had two questions. The first one was related to PhosLo. Can you tell us what is the rate of the royalty on that? And the second is related to the future milestone payments to be received potentially, and if you could give us a briefing on exactly what we can look forward to in the future.

So on the PhosLo the rate, the royalty rate is 12% through to 2016. If and when they license and if and when they achieve certain sales that has been specified, any sales above that we get 12% royalty for. So that's on the PhosLo, and it's only on the liquid PhosLo, not on all PhosLo. So that's the PhosLo question.

On the comment about the milestones, I'm assuming you're referring to the PentaStaph milestones, and we have two remaining, one of them for the technology transfer, as we indicated previously, and the second one is for completion of the current clinical trial that we are conducting in collaboration with the Department of Defense. Those two we anticipate towards the end of '11, beginning of '12.

And what is the total amount?

$13 million remaining, one-three.

Thank you.

Thank you.

(Operator instructions).

At this time we have no further questions. I would now like to turn the call back over to Dr. Fahim for any closing remarks.

Thank you very much.

In closing, we believe we have made significant progress so far this year. We closed the NicVAX deal with GSK after a successful shareholders' meeting and received $40 million upfront payment. We initiated the second Phase III NicVAX trial. We expanded the share buyback program and significantly reduced our shares outstanding. We became debt free and continued to reduce our general and administrative expenses. We believe that these accomplishments will enhance shareholder value.

Thank you all for joining us today, and for your continued support.

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