Vaxart Inc (VXRT) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Biota Pharmaceuticals third-quarter 2014 financial results. (Operator Instructions). As a reminder, this call will be recorded.

I would now like to introduce your host for today's conference, Mr. Lee Stern at The Trout Group. Please go ahead.

Thank you. Hi, 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 third-quarter 2014 financial results and to provide an update on 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 forward-looking statements that involve risks and uncertainties. These risks and uncertainties are outlined in today's press release and in the Company's recent filings with the Securities and Exchange Commission, which we urge you to read. Our actual results may differ materially from what is being discussed on today's call.

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

Thanks, Lee, and for those of you listening this afternoon, thank you for joining us.

Due to the recent uncertainty around the status of our contract with BARDA that supports the development of laninamivir octanoate, or LANI, as we refer to it, I am going to be relatively brief in our review of our quarterly operating results and financial position so we can provide a more detailed update on that situation and the status of our other programs, and then open up the call for any questions.

Let me start by saying we're very pleased with our improved operating results for the quarter and the nine months ended March 31, 2014, and believe these favorable results, coupled with the $26.8 million net proceeds we received from the financing we completed in early January, put us in a strong financial position.

During the quarter ended March 31, 2014, we reported net income of $3.2 million, which was $3 million higher than the $200,000 recorded in the same quarter last year. The significant increase in net income for the quarter, as well as a decrease in our loss from operations year to date, was a result of three key factors -- one, our continuing effort to reduce our research and corporate overhead costs; two, a substantial increase in activities completed towards the development of LANI in 2014 that are reimbursable under the BARDA contract; and three, increased net sales of both Relenza and Inavir in 2014 as compared to last year, resulting in higher royalty revenues to us.

We are particularly pleased that on a year-to-date basis for the nine months ended March 31, our loss from operations has decreased to $1 million in 2014 from close to $16 million last year.

I want to highlight a couple of items from our operating results that we announced this afternoon. The press release is otherwise self-explanatory.

With respect to revenues, our revenue from services under the BARDA contract and the corresponding cost of revenue we record as a component of our operating expense increased significantly in 2014 as compared to last year, due to more activities being conducted in the LANI development program, particularly the Phase II and Phase I clinical trials that were ongoing during the first quarter of 2014.

These clinical trial activities included enrolling close to 500 patients in the Phase II IGLOO trial, conducting and completing the enrollment of a 180-patient Phase I TQT study and a 32-patient Phase I asthma study, as well as initiating a Phase I/II study in 48 pediatric patients.

We also commenced a number of advanced CMC activities during the quarter, including installation of a commercial-scale filling and finishing line. The net result of this increased activity is that the excess of the revenue we earned over the cost we incurred related to the development of LANI under the BARDA contract increased to $2.1 million in the quarter ended March 31, 2014, as opposed to $700,000 in the same period last year.

As I mentioned a moment ago, we are also experiencing higher royalty revenues this year from both Relenza and Inavir. Although we do not break out this information on the condensed statement of operations on our press releases, during the quarter our Relenza royalty revenue increased to $4.2 million from $1.7 million in the same quarter last year and our Inavir royalty increased to $3.9 million from $3.2 million a year ago.

This overall increase of $3.2 million in royalty revenue was offset largely by the fact that we earned a one-time commercial milestone of $2.8 million from Daiichi Sankyo for Inavir last year.

Turning to our operating expenses, our research and development expense decreased to $4.1 million in the quarter ended March 31, 2014, as compared to $4.5 million the same quarter last year. This $400,000 decrease, as we pointed out in our press release, was the result of a reduction in ongoing salaries, benefits, and share-based compensation due to fewer personnel.

Similarly, our G&A expense decreased to $2.5 million in the third quarter -- during this quarter of 2014 from $3.4 million the same period last year. This $900,000 decrease was also primarily due to a $0.5 million reduction in ongoing salaries, benefits, and share-based compensation as a result of fewer personnel, as well as reduction in other costs associated with smaller corporate administrative functions.

As reflected in our press release this afternoon, we ended the quarter with just over $80 million in cash and cash equivalents on hand, which was about $29 million more than we had on hand at December 31, 2013. In January, we completed a financing that provided us with net proceeds of $26.8 million. So the vast majority, but not all, of the increase in cash during the quarter can be attributed to this financing.

You should also note in our condensed balance sheet we also have an additional -- had an addition of $12 million in net working capital as of March 31, 2014. That is accounts receivable in excess of accounts payable and accrued expenses. We anticipate this net working capital position will convert to cash during the next quarter as we collect our receivables from royalty revenues earned to date and from net revenue earned under the BARDA contract.

Notwithstanding the current uncertainty surrounding our contract with BARDA, we have no reason to believe that the accounts receivable balance related to work performed under this contract with a Stop-Work Order date in late April will not be collected in the normal course of business.

Before I turn the call over Dr. Patti to discuss the status of the BARDA contract for LANI and our development programs, I would like to add that in light of the uncertainty of the timing of pending communications we anticipate from ASPR/BARDA, we declined an invitation to participate in an investor conference later this week that we had originally accepted, so we will now be making a webcast and the previously announced presentation on Thursday. Joe?

Thanks, Russ.

First, I'd like to take a few minutes to review the information we conveyed in our press releases last week regarding the Stop-Work Order received from ASPR/BARDA related to the contract that financially supports the development of LANI and provide what additional color we can at this time.

A few weeks ago, the US Department of Human Health and Services, or HHS, conducted an In-Process Review, or IPR, with an interagency committee that included representatives from ASPR, BARDA, the Centers for Disease Control, the Food and Drug Administration, and the Department of Defense, among other government agencies. The IPR is a contract-mandated meeting that occurs periodically or when key milestones under a government-supported contract have occurred.

This was our first IPR and it occurred around the end of the third year of the contract.

Our role in the IPR consisted largely of making a 45-minute presentation summarizing the status of the LANI program, including milestones, key clinical and manufacturing deliverables achieved under the contract to date, and how this status compared to the plan we had previously agreed upon with BARDA. The presentation also included an outline of our anticipated future development plans and timelines for LANI.

After a brief Q&A session with the government attendees, we were informed that a decision would be forthcoming. However, no timeline for the decision was provided.

Please note, the purpose of an IPR is not to provide BARDA an update, but rather it is a mechanism by which ASPR and BARDA's other HHS partners are updated on the status of the program and contract. We have a close working relationship with BARDA and they are kept well informed of the status of the program on a regular basis.

We are required to obtain written approval from BARDA and ASPR before making any material commitments to subcontractors. Once work is authorized, BARDA is kept informed in real time as the program progresses and the contract activities occur.

More specifically, current activities are discussed in weekly teleconferences and summarized in written monthly reports. BARDA representatives and its subject matter experts also actively participate in weekly and monthly internal update meetings, conference calls, and periodic site visits with our key subcontractors, where these representatives provide input into key decisions related to the LANI development program.

BARDA has been continually updated on the progress of the LANI program from its inception and has actively participated in a number of decisions that have been made regarding the overall development of the program.

Given BARDA's active participation in the LANI program, we were surprised when we were notified by HHS Office of the Assistant Secretary for Preparedness and Response and BARDA that pending a decision related to the recent IPR, ASPR/BARDA was issuing a Stop-Work Order notifying us to continue a number of activities under the contract.

As a point of clarification, a Stop-Work Order does not force us to stop developing LANI, but notifies us that if we continue to work on the activities covered by the Stop-Work Order, we will not get reimbursed under the contract. Further, a Stop-Work Order can remain in place for a period of 90 days and for any additional period to which we and HHS may mutually agree.

The material activities that the Stop-Work Order covered included those associated with the planning for and enrolling additional patients in the Phase II IGLOO, which is the adult study, and the FROSTY, the pediatric clinical trial, in the upcoming Southern Hemisphere influenza season, as well as activities related to advanced CMC development.

The Stop-Work Order does not cover activities related to the collection and analysis of data from the Phase II IGLOO trial, which we believe represents the most important critical path activities at this time.

As an overall update to the status of the Phase II IGLOO trial, we have completed enrollment in the trial at the end of the Northern Hemisphere flu season. 639 patients were randomized across 14 countries. Approximately 80% of the patients were enrolled in the Northern Hemisphere, with the vast majority of those being enrolled during the first quarter of 2014.

As we have previously disclosed, the observed PCR positivity rate, which was approximately 40%, was lower than we had planned, and as such, the intent-to-treat efficacy data set will be smaller than contemplated prior to the initiation of the trial. Therefore, we anticipate that approximately 80 to 85 patients per cohort will be in the ITT analysis.

In addition to the safety and efficacy analysis, we had 100 patients participate in the pharmacokinetic portion of the IGLOO trial and we will be analyzing this data in an integrated fashion with the other clinical data to assess whether there is a dose response.

While the statistical power in the IGLOO trial was less than planned, we believe that the robustness of the data available for LANI in Japan, taken together with placebo-controlled Phase III data from Tamiflu and Relenza trials, combined with the available data from the IGLOO trial, we should be -- it should be sufficient to inform us of whether or not to advance LANI into Phase III.

I want to remind everyone that laninamivir octanoate is the same drug that is marketed in Japan as Inavir by our partner Daiichi Sankyo. Inavir was approved in 2010, and since its introduction to the neuraminidase market, its sales have already surpassed both Tamiflu and Relenza. Further, we estimate that more than 10 million courses of Inavir have been administered in Japan without any unexpected issues, which gives us a high level of confidence in the safety and tolerability of LANI.

As we indicated in our press releases last week, we are waiting for ASPR/BARDA's official decision on the IPR, and therefore cannot speculate on its impact on the LANI development program or the Company at this time. In the interim, we intend to comply with the Stop-Work Order.

Regardless of the Stop-Work Order and the eventual IPR decision from HHS, our plans over the next several months with respect to the LANI program are as follows. First, we will continue to collect and analyze data from the IGLOO trial with a goal to lock the database and provide topline trial results in the third quarter.

Secondly, upon the availability of topline safety, efficacy, PK data from the IGLOO trial, determine which dose, if any, we plan to advance into Phase III clinical development.

And lastly, we also expect to lock the database from the Phase I asthma trial over the next several weeks. The Phase I TQT clinical database has recently been locked and the results are pending, and we intend to continue with the collection review of these trials and the preparation of their respective clinical study reports.

If the Phase II data supports advancing LANI into Phase III, we anticipate requesting an end of Phase II meeting with the FDA to discuss the future development plans for LANI. While it's difficult to predict when such a meeting may happen, we believe we could be positioned to request such a meeting in the fourth quarter of this year.

Before we open up the call to questions, I'd like to take a minute to discuss the progress we have made on our other development programs, namely vapendavir and RSV.

First for vapendavir, we anticipate initiating a Phase I bioavailability trial this month to evaluate the PK of a new tablet form of vapendavir. This study is a routine step to confirm that the PK of this tablet is adequate and comparable with the capsule formulation used in prior clinical trials. We also anticipate initiating a Phase I drug-drug interaction study of vapendavir next month.

Pending the successful outcome of the bioavailability study and FDA feedback on a proposed Phase IIb trial designed to evaluate the effect of vapendavir on asthma control following presumed human rhinovirus infection in moderate to severe asthmatics, we are considering the initiation of a Phase II trial in the fourth quarter of this year.

Finally, with our RSV fusion inhibitor program, we have successfully completed a seven-day dosing study and are currently finishing a 28-day multiple oral dosing study in animals with BTA-585. Subject to successful results from these ongoing non-GLP studies, we plan to initiate IND-enabling GLP studies in the third quarter of this year, with a goal of filing an IND for BTA-585 in the first half of 2015.

With that, I will turn the call back over to Russ.

Thanks, Joe.

So to summarize our remarks this afternoon, our operating results for the quarter and year to date reflect a marked improvement over our results from the same respective periods last year. These results, coupled with the financing we completed in the first week of January, gives us what we believe is a very strong financial position.

We have no update on when we may receive the government's decision stemming from the IPR. In the interim, we intend to comply with the Stop-Work Order, and as Joe mentioned, regardless of the Stop-Work Order and nature and timing of the government's decision, we plan to execute the near-term critical path activities for our LANI program, namely collecting, analyzing, and finalizing data from the Phase II IGLOO trial and the two recently completed Phase I trials.

We anticipate having topline efficacy and safety data from the IGLOO trial in the third quarter. Subject to this data, we will determine the next steps for our LANI program.

With that, I would like to -- that concludes our prepared remarks this afternoon and we will now open up the call for any questions. Operator?

(Operator Instructions). Bret Holley, Guggenheim.

Thanks for taking the questions. I guess one thing I wanted to get straight is you issued the press release on the Stop-Work Order, and then a subsequent press release described how BARDA explained the Stop-Work was not a contract termination. I'm just wondering, was that a separate communication or was that the source -- was that based on a conversation you had with BARDA? I am just trying to understand that timeline.

In a subsequent conversation, Bret.

Okay. And so, in that subsequent conversation, is that really the only, I guess, material development that you were able to glean?

Yes, I think basically one of the things that we had, at least when the initial press release was put out, we didn't really have any context whatsoever for the stop order indicating we had no reasons. I think while there was nothing concrete really about additional -- we did feel that it may, for some investors, shed maybe some additional light on some potential reasons that were articulated in that communication.

So that's why we thought it may be helpful to have that information out, but other than that, it probably doesn't -- didn't really add anything material to the situation in terms of work or the status of the program was.

Okay, very helpful. And I understand that you don't -- I guess you don't have a hard timeline on when an official response might be issued, but is there a typical timeline with stuff like this? Do you have advisers that have perspective on that?

We were advised initially that when asked -- when we asked the question, we were told it was probably a matter of weeks and not a matter of months. And that was about as definitive as we got.

We did understand or, again, were advised that, as of mid last week, it was likely that we should see something in the next week, but again, we really have no further update to that. Obviously, that's coming close to a week ago, so again, we really can't update and don't have any further information on that timing.

Okay, so you are not going to get a head's up. They are just going to send it, basically.

That is our understanding.

Okay, and is there a mechanism by which there is further discussion? I guess there is not really an appeal mechanism, but is there some kind of scheduled meeting or active discussion with BARDA that then you can respond to that and discuss it positively or negatively?

Yes, under -- if you go to -- just maybe to direct you, there is two mechanisms ongoing -- the Stop-Work Order, which is one mechanism, if you will, and obviously the decision from the IPR, which is separate. So again, I think the Stop-Work Order was an interim step that the government chose to take.

If you go -- if you care to go to the [files] in the various government documents, Subpart 42.13 describes what a Stop-Work Order is and what the various timing and obligations of the parties are under a Stop-Work Order and how long they could last. And there is some additional clarity to that in another section, which is 52.42-15, which again explains [that] a work order, as Joe described, could last up -- a Stop-Work Order could last up to 90 days, if the government chooses.

So its mechanism is a temporary stop where the government can control costs and tell you not to spend certain money on certain activities in the interim. But there is no real definitive timing, per se, other than that 90-day limit that we understand if we choose to mutually agree, it can be extended. But beyond that, there is -- I don't believe there is any definitive timing in terms of these types of decisions.

Okay.

Again, I think our consultants and advisers suggest that typically these decisions are a matter of weeks. They don't tend to drag out too long, is what we understand is the norm.

And then, I guess, one question I've definitely heard is whether it is realistic, should -- in the event that BARDA walks away, what are the paths forward here? Obviously, you could partner, potentially. I am just wondering, is it realistic that you could actually conduct a Phase III program for LANI yourself?

There is a number of alternatives, obviously, Bret, and you and I could probably list them. It is a little hard to speculate without seeing the Phase II data what path you would choose, and also, I think the end of Phase II meeting would be critical in terms of the number of Phase IIIs required, the extent of the Phase IIIs required, et cetera.

So, I think under certain circumstances, it is plausible that a company of our size could take it forward. Again, I think until we see it, it's very difficult.

But clearly, just to reiterate, it's our IND. It's our program. It is our asset and it is our rights to the asset, not a government program. So I think that to the extent that the Phase II data are favorable and support the continued development of LANI towards what has been achieved in Japan, then I think that the potential for partnering, if that's the way to finance the program going forward, is there.

But again, it's a little early to speculate. But I think all the alternatives you say are there -- to seek a partner, or consider a co-development type of arrangement, or to consider independent development, all depending on the extensive -- how extensive the Phase III program is.

Okay, and I guess my final question is you are referring to favorable data from IGLOO, and now what should our, I guess, not line in the sand, but what should our expectation be, given the fact that IGLOO is fairly substantially underpowered now? What are you looking for in those data that will shift the box for you guys?

This is Joe. I think we are looking for treatment different data that, again, in the ballpark of what we have seen for LANI in Japan, with Tamiflu and Relenza, so ballpark, something north of 18 hours to time to resolution of flu-like symptoms. 18, north of that number, I think, is comparable with the other products that are on the market, again given -- now also remember that those are all multiple times a day for multiple days.

And so, I think one-time treatment here with comparable efficacy; obviously, we feel pretty good about the safety that has emerged at least out of Japan. So I think that would be -- I don't know if it is a line in the sand, but that would be our current expectation of what we hope to see.

Okay. Thanks very much, guys.

(Operator Instructions). I am showing no further questions. I would now like to turn the call back to management for any closing remarks.

Thank you for joining us this afternoon and we will look forward to updating you on this situation with BARDA on future calls. Have a great day. Thank you.

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