Vaxart Inc (VXRT) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Biota Pharmaceuticals' fourth quarter and fiscal 2013 financial results conference call. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session, and instructions will be given at that time. (Operator Instructions).

As a reminder, this call may be recorded. I'll now introduce your host for today's conference, Lee Stern with The Trout Group. You may begin.

Thank you and good morning. This is Lee Stern of The Trout Group, and I would like to welcome you to the Biota conference call and webcast to review the Company's fourth quarter and fiscal year-end financial results, and provide an update on a number of recent corporate developments. With me today from Biota are President and CEO Russ Plumb, and Executive Vice President of Corporate Development and Strategy, Dr. Joseph Patti.

Before we begin the call, I would like to remind you that today's discussion will contain a forward-looking statements that involve risks and uncertainties. These risks and uncertainties are outlined in today's press release and in our recent filings with the Securities and Exchange Commission which we urge you to read. Our actual results may differ materially from what is discussed on today's call.

I will now turn the call over to Biota's CEO, Russ Plumb.

Thanks, Lee, and thank you all for joining us this morning. Today I will provide an overview of our fourth quarter and fiscal year-end operating results, as well as an update to our financial guidance, then turn the call over to Dr. Patti, who will provide an update on our development programs.

Before I jump into the numbers, I thought it would be helpful to remind everyone that Biota Pharmaceuticals was formed in November 2012 as a result of a reverse merger between Biota Holdings Limited, an Australian biopharmaceutical company that had been listed on the Australian Stock Exchange for over 20 years, and Nabi Pharmaceuticals, a NASDAQ-listed, US-based biopharmaceutical company that had been publicly traded for over three decades.

Although Nabi was technically the legal acquirer in the transaction, following the completion of the reverse merger, Biota Pharmaceuticals was predominantly comprised of the staff, operations, and development programs of Biota Holdings Limited. Furthermore, because Biota Holdings was considered the acquirer for accounting purposes, historical financial statements that we include in our public filings and to which we compare our current operating results, reflect the historical financial and operating results of Biota Holdings and not those of Nabi.

Therefore, other than the impact on our stockholders equity section that accounting for the business combination had, the comparison of current historical operating results is generally apples to apples. I also want to remind you that our fiscal year end is June 30.

With respect to our financial position, the end of the year was $66.8 million in cash and cash equivalents on hand. Due to a significant increase in the relative value of the US dollar to the Australian dollar during our fourth quarter of fiscal 2013, and the fact that we held a sizable portion of our cash in Australian dollars during 2013 and at June 30, 2013, our total cash balance as expressed in US dollars was lower than anticipated.

Due primarily to the strengthening of the US dollar, we have also revised our financial guidance with respect to our anticipated cash on hand at the end of fiscal 2014, which I will touch on in a few moments. We do not plan on reiterating on the call today all the details that we provided in the press release this morning with respect to our operating results, and you can read those at your convenience.

However, before I provide a brief overview of our results for the fourth quarter, I want to note that at a high level for both the fourth quarter and fiscal year ended June 30, 2013, our loss from operations was similar to the results we recorded in 2012, though our net loss in fiscal 2013 narrowed significantly over 2012 due to changes in our nonoperating income items.

In the fourth quarter of fiscal 2013, we recorded a net loss of $6.5 million, which was approximately $600,000 more than our net loss of $5.9 million in the fourth quarter of last year. This increase was primarily the result of a $2 million increase in operating expense, $500,000 decrease in interest income and a $300,000 increase in income tax expense, offset in part by a $2.2 million increase in revenue.

We record the amounts we are reimbursed under the BARDA contract related to the development of laninamivir octanoate, or as we refer to it, LANI, as revenue from services. The advancement of LANI into a multinational phase 2 clinical trial under the BARDA contract results in our revenue from services increasing by $4.6 million for the quarter ended June 30, 2013, as compared to the same quarter last year, as reimbursements under the contract increase. This increase was offset in part by a $2.2 million decrease in royalty revenue on net sales of Relenza and Inavir.

As we highlighted on our release this morning, we have recorded virtually no royalty revenue in the fourth quarter of fiscal 2013, due to a recent increase in the amount of returns of Relenza and the change in estimates we made with respect to these returns. Royalties from Relenza were, therefore, slightly negative in the fourth quarter due to this change in estimate, while royalties from Inavir were slightly positive and similar to last year.

Please recall that sales of influenza therapies are highly seasonal and are generally low during the quarter ended June 30 as the Northern Hemisphere flu season typically ends in February or March, and the Southern Hemisphere flu season does not normally begin in earnest until July.

At this time, we anticipate that this increased level of Relenza returns may continue through part or all of 2014 and, therefore, royalty revenue from net sales of Relenza in 2014 will likely be equal to or possibly lower than in 2013. However, we are not anticipating a material change in royalty revenue from net sales of Inavir in fiscal 2014 from 2013.

We also anticipate that revenue from services for reimbursements under the BARDA contract, will increase in 2014 as development activities under the LANI program intensify.

On the expense side of the equation, our cost of revenue primarily reflects costs we incur on our LANI program end of the BARDA contract. Our cost of revenue increased by $3.9 million in the fourth quarter of 2013 as compared to the same period in 2012, due to the advancement of our LANI program and the phase 2 clinical development. We anticipate that our cost of revenue associated with the development of LANI under the BARDA contract will increase in 2014 as compared to 2013.

Our R&D -- research and development expenses decreased to $5.5 million in the quarter ended June 30, 2013, from $6.3 million in the same period last year. As described more fully in our release this morning, this $800,000 increase was primarily a result of a decrease in salaries and benefits as well as lower direct development costs related to vapendavir and some of our preclinical programs, offset in part by a $1.1 million charge for termination benefits that we recorded in 2013 associated with a reduction in force.

Based on the strategic and operating plan we adopted in April 2013, we will reduce the scope and number of our active preclinical programs and we anticipate that research and development expense will continue to decrease in 2014 from 2013 levels.

Finally, general and administrative expense increased to $4.3 million in the quarter from $3.6 million in the same period of 2012, primarily due to a significant charge that we recorded in 2013 related to termination benefits associated with a reduction in force and, to a lesser extent, increased salaries and benefits and share base compensation associated with adding new personnel and directors in the US during 2013. This was offset, in part, by a decrease in not recurring merger-related expenses that were incurred in late fiscal 2012.

In general, during all of fiscal 2013, general and administrative expenses were unusually high due to a significant amount of share-based compensation recorded from the accelerated vesting of prior option equity grants upon the merger, and initial equity grants made to newly hired US-based executives after the merger. Termination and severance obligations we incurred, merger-related fees and costs, as well as the cost to carry duplicative personnel during the year to affect a smooth transition post-merger.

We currently anticipate that general and administrative expense will decrease in 2014 from 2013.

As we outlined in our release this morning, as I mentioned briefly a few minutes ago, primarily due to a very rapid and significant 12% increase in the value of the US dollar relative to the Australian dollar in the fourth quarter of fiscal 2013, and, to a lesser extent, subdued expectation with respect to Relenza royalties this coming year, we revised our financial guidance for fiscal 2014 which basically consists of an estimated cash on hand amount at the end of fiscal 2014.

The majority of our operations and staff continue to be based in Melbourne, Australia. Accordingly, we held a sizable portion of cash and cash equivalents in Australian dollars in 2013, and we expect to continue to maintain this practice in the future, albeit at a lower level as we expect more of our total costs will be incurred in US dollars in the future.

Consequently, the amount of cash we report on hand in US dollars at the end of fiscal 2013 was lower than we had anticipated in April, and we continue to be subject to future changes in the foreign exchange rate of the US dollar relative to the Australian dollar, which we cannot fully anticipate. Based largely on these factors, we now believe we will have between $57 million and $62 million as expressed in US dollars, in cash and cash equivalents and short-term investment on hand at June 30, 2014, which reflects a net use of cash during 2014 of between $5 million and $9 million.

None of the other operating assumptions we have used with respect to our operations or financial position in fiscal 2014 have materially changed. Between one-third and one-half of this projected net use of cash in 2014 will be used to meet accrued severance obligations and similar other obligations as of June 30, 2013, while the remainder is expected to be used in operations during 2014.

With that, I will now turn the call over to Dr. Joseph Patti, our Executive Vice President.

Thanks, Russ. And good morning to everyone who has joined us this morning. As Russ pointed out at the outset, today I wanted to take an opportunity to provide a brief update on the status of our development programs, including a summary of the design of our phase 2 clinical trial of LANI, which we are currently conducting for the treatment of influenza A and B; our plans for other clinical trials of LANI this year, our future plans for the development of vapendavir and an update on our clinical, preclinical RSV F-protein antiviral program.

In mid-June, we announced we had initiated a 636 subject multi-national randomized, double-blind, parallel, phase 2 clinical trial of LANI, a potent, long-acting neurominidase inhibitor that we are developing as a one-time treatment delivered via the dry powder inhaler twin caps for uncomplicated influenza A and B.

The phase 2 trial, which we have named Igloo, began enrolling subjects with symptomatic influenza in three countries in the Southern Hemisphere, namely South Africa, Australia, and New Zealand. The Igloo trial is designed to evaluate the safety and efficacy of two dose strengths of LANI -- 40 grams and 80 milligrams compared to placebo.

The primary endpoint for Igloo is the time to the alleviation of influenza symptoms, namely cough, sore throat, nasal congestion, headache, body aches and pains, feeling feverish, and fatigue and fever for greater than or equal to 24 hours. The time of symptom alleviation is defined as the period from the start of the study drug to the start of the first 24-hour period in which the influenza symptoms are scored as mild or absent and fever is also absent.

With the influenza season now winding down in the Southern Hemisphere, we are actively preparing for the upcoming influenza season in the Northern Hemisphere, namely in the US, Europe, Canada, and Mexico. Our goal is to have over 140 sites in these various countries ready to enroll subjects in the trial by December, which typically is when the influenza season begins in the Northern Hemisphere.

With respect to providing updates on the status of enrollment in our current ongoing clinical trials, our practice is not to provide such updates on a regular basis unless actual enrollment is materially different than projected, thereby requiring us to revise any guidance we have publicly provided as to the expected timing for the completion of the trial and the availability of topline data.

As we indicated in our press release this morning, our guidance for the Igloo trial remains unchanged and our goal continues to be complete enrollment in the trial around the end of the first calendar quarter of 2014, with top line efficacy and safety data available by midyear 2014.

In addition to our ongoing Igloo trial, we also anticipate initiating three additional clinical trials with LANI over the next several quarters. These trials include a phase 1-2 in children aged 5 to 16, with confirmed influenza; a phase 1 trial in adults with mild to moderate asthma; and, finally, a phase 1 TQT study.

I would like now to shift our clinical stage -- I would like to shift to our clinical stage vapendavir program for human rhinovirus and our preclinical program focused on developing oral antivirals for the treatment of respiratory syncytial virus infections, or RSV.

Over the past several quarters, we have been evaluating multiple paths for the continued development of vapendavir, an oral antiviral for the treatment of enteroviruses or, more specifically, to reduce exacerbations triggered by human rhinovirus in patients with moderate to severe asthma or COPD. For this indication, vapendavir would be used to treat subjects with moderate to severe asthma and presenting to a physician with presumptive HRV infection.

Based on our previous phase 2 trial in asthma patients, only about one-third of the randomized subjects had PCR-confirmed HRV infections. Accordingly, the number of subjects that need to be enrolled in additional phase 2 or phase 3 clinical trials in this patient population is considerably larger than would otherwise be required to appropriately power a trial for efficacy purposes.

Although we have evaluated several diagnostics available in the marketplace that can detect HRV and maybe amenable to trials conducted in an acute care hospital-based setting, none of these currently available diagnostics for HRV are rapid point of care tests and, therefore, appropriate for clinical trials in a general community setting. Further, the regulatory path to getting an antiviral approved to reduce exacerbations in either asthma or COPD patients is still rather novel.

All things considered, we believe the cost and uncertainty of independently pursuing such a novel development path could place disproportional risks and undue financial burden on Biota. Accordingly, we have decided to seek a third-party collaboration or partnership that can provide additional resources and expertise needed to assist in the clinical and commercial development of vapendavir, rather than developing it independently.

I will wrap up my prepared comments this morning with a brief update on our preclinical program focused on developing antivirals for the treatment of RSV infections. Historically, we have focused our development efforts in RSV on compounds that are inhibitors of the F or fusion protein. We have identified two RSV fusion inhibitors that have demonstrated strong nanomolar potency in vitro and excellent oral bioavailability in animals that suggest that these inhibitors may be amenable to once daily dosing.

These compounds are currently being scaled up for additional non-GLP animal toxicology as well as other critical preclinical studies. We anticipate that subject to additional preclinical efficacy, and nonclinical toxicology data that continues to support the development of these compounds, we may be in a position to nominate a lead compound nominate for formal IND enabling studies in the first half of calendar year 2014.

With that, I'll turn the call back over to Russ to close out our formal prepared remarks.

Thanks, Joe. As we envision when Biota Pharmaceuticals was formed in November of last year, we have been focused on transforming the organization into a more capital efficient, clinically focused, data driven biopharmaceutical Company. I believe we have made great strides in that regard.

While a significant amount of unseen effort has gone into transitioning and integrating the Company post-merger, some of the more visible changes we have implemented over the last five nine months include conducting an intensive, strategic, and operational review of the Company which has resulted in a reduction in a number of our internal early-stage preclinical programs from 6 to 2, as well as a decision to seek partners for -- in our independently advanced (inaudible) clinical development of vapendavir.

We have better aligned our resources, operations, and burn rate with the timing and status of what we believe will be clinical stage value inflection points in the future. We have made significant progress in populating our board of directors with individuals that have significant experience and expertise in successfully directing the growth of US-based, NASDAQ-listed development stage biopharmaceutical companies.

And, finally, we have implemented an extensive clinical development program for LANI in concert with BARDA, including initiation of our phase 2 Igloo trial, and the plan to initiate three additional supporting clinical trials over the next several quarters. We believe these developments leave us well-positioned to continue our evolution, to increase the visibility of Biota and its development programs to new investors and to create value for our shareholders in the future.

That concludes our prepared remarks this morning. We will now open up the call for any questions you may have. Operator?

(Operator Instructions) Bret Holley, Guggenheim Securities.

Yes. Hi. Thanks for taking the questions. I guess the first question that I have is, have there been any projections at this point on how the flu season might -- may or may not be shaping up for the Northern Hemisphere, based on how the Southern Hemisphere season went over the last several months?

Bret, this is Joe Patti. No, I have not seen any projections to date for the Northern Hemisphere. I think, from the Southern Hemisphere, I think South Africa was fairly robust. I think the flu season in New Zealand and Australia was somewhat milder than in previous years.

And then, as far as the 140 sites that you have in the Northern Hemisphere, how sensitive to -- I mean, how much wiggle room do you have relative to the severity of the Northern Hemisphere flu season as far as enrollment into Igloo?

Can you -- define wiggle room for me.

Well, I mean, involved in the trial or assumed in the trial, is it assumed as a mild season and you are hoping, obviously, it's a severe season? Just give me some idea of how you are thinking about -- how you plan for that.

Yes. I got you. So, no, I think we are anticipating a moderate or average flu season. So this number would -- we could flex if it turns out to be less than moderate, we could flex with a little bit more sites, I think.

Over half of those sites, 140 -- more than half are going to be in the United States. So I think based on previous trials done in this space, we think that this is a good amount of sites to capture and complete the trial.

Okay. And then, I just want Russ -- I am not sure if I understood, but did you say that you anticipate the fiscal year 2014 Inavir royalties are going to be flat with fiscal year 2013? Or did I just misunderstand that?

[We don't know if it'll] materially change. We don't have any visibility that it will materially change one way or the other. So as we have noted the last several years, Inavir has done very well in Japan in its first several years of launch and already has, actually, I think the largest market share in the Japanese market.

So again, unless it increases dramatically from that, that we would not anticipate, again, a material change. We get a 4% royalty, as you know, Bret, so for the sales -- for that to move materially one way or the other, the sales would have to change relatively dramatically. So again, we just don't have visibility, so right now our assumption is there will be materially the same.

Okay. And I guess from that I can read that you are assuming that you are near peak -- or Inavir is near peak penetration in the Japanese market, correct?

I am not sure I would go that far. Again, I think it has done very well. We believe it has in excess of 40% of the market. That's for several years. Now, whether that will go to 50% or 60%, we just don't have the visibility at this point in time to make that determination, but -- so again, I think just to be conservative, we will assume that they will be relatively similar to last year.

Okay. Thanks very much, guys.

Thanks, Bret.

(Operator Instructions) Graeme Wald, Bioscience Managers.

Thank you. Good morning, Russ. I just wanted to check on your forex status with the Australian dollar and the US dollar. Does the Company have any proper forex hedging in place? And what are you doing to try and match US dollar expenses with Australian currency, so you can try to get a better handle on what may happen to your cash balance in 2014?

Sure, Graeme. Good morning -- or good evening; sorry. Yes, again, I think -- obviously what we are looking at, as you well know, significant amount of our operations in Melbourne. We always [encourage] a significant amount of our expenses -- our fixed expenses and even probably our direct expenses in Australian dollars. So the best natural hedge there is to match the cost estimates of what we will spend in Australian dollars with Australian dollars in hand.

As I mentioned, what we intend to do is to begin to move -- and we have already started to begin to move more of those proceeds into US denominated counts. Because, again, as we saw this dramatic change in the fourth quarter of about 12% of relative value, which I think everybody a little bit off guard.

So from the standpoint of going forward with sort of using a natural hedge and that we try to match on hand balances with the operating expenses in Australian dollars, we do receive some income in Australian dollars. But as the laninamivir trial gears up, as you will, we anticipate that more of those costs will be incurred at clinical sites and with our CROs, which are ex-Australian expenditures and are dominated largely in US dollars.

So we've got a handle on it to try to essentially form a natural hedge relatively speaking. And I think from a standpoint of, obviously, we won't do any speculative hedges, but we do operate and do utilize some hedging techniques to try to manage the differences that we can't do with our natural hedge.

Thank you. Just, if I can turn quickly to Relenza and Inavir, the previous question about Inavir revenues from Japan, you did make a bit note in the results that in the fourth quarter there was a reduction in revenues from Inavir, but for the year, revenues were up. Can you just try and give a bit more flavor as to what caused the reduction in the fourth quarter?

Yes. Graeme, just to be clear, the reduction was not Inavir; it was Relenza. So Inavir sales were fundamentally the same as -- materially the same as last year quarter over quarter, so the difference was really in Relenza.

And what has happened with Relenza is that GSK has indicated to us that some of the returns have been a little bit higher than normative the last several months. And their expectation is that may continue for some period of time. We have not gotten much better visibility than that from them.

But so we have, just to be, again, conservative, we increased our estimate of the returns which effects net sales for 2014, which would result in a lower net royalty to us, again, just to be conservative. So as I mentioned, I think that we would anticipate Relenza sales to be similar to this year, potentially slightly down. Again, depending on the actual results of those returns.

For the year, again, net royalties and milestones were up in that we did receive throughout the year a milestone payment. And I believe we recorded, as mentioned, disclosed in the third quarter of close to $3 million relative to achieving sales targets on Inavir in Japan during 2013.

Okay, thank you very much.

Okay. Thank you, Graeme.

Thank you. I'm not showing any further questions in the queue. I'd like to turn the call back over to management for any further remarks.

Okay. Thank you. I just wanted to once again thank you all for joining us this morning. We look forward to updating you on future calls. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.