Second Quarter Financial Results Conference Call Transcript
Moderator: Jody Cain; August 5, 2004, 10:00 am CT
Operator: Welcome to the AVI BioPharma Second Quarter Financial Results conference call. At this time all participants are in a listen-only mode. Following management’s prepared remarks we’ll hold a Q&A session. To ask a question please press star followed by 1 on your touchtone phone. If anyone has difficulty hearing the conference please press star 0 for operator assistance.
As a reminder this conference is being recorded August 5th, 2004. I would now like to turn the conference over to Ms. Jody Cain. Please go ahead, ma’am.
Jody Cain: This is Jody Cain with Lippert/Heilshorn & Associates. Thank you all for participating in today’s call. Joining me from AVI BioPharma are Denis Burger, Chairman and Chief Executive Officer, Alan Timmins, President and Chief Operating Officer and Mark Webber, Chief Financial Officer.
This morning AVI BioPharma released financial results for the second quarter of 2004. If you’ve not received this news release or if you’d like to be added to the company’s distribution list, please call Lippert/Heilshorn in Los Angeles at 310-691-7100 and speak with (Eleanor Tang). This call is also being broadcast live over the Internet at www.avibio.com and a replay of the call will be available on the company’s Web site for the next two weeks.
Before we begin I’d like to note that comments made by management during this conference call will include forward-looking statements within the meaning of federal securities law. These forward-looking statements involve material risks and uncertainties. For a discussion of risk factors I encourage you to review the AVI BioPharma annual report on form 10K and subsequent reports as filed with the Securities and Exchange Commission.
The content of this conference call will contain time sensitive information that is accurate only as of the date of the live broadcast August 5th, 2004. The company undertakes no obligations to revise or update any statements to reflect events or circumstances after the date of this conference call.
With that said I’d like to turn the call over to Denis Burger. Denis?
Denis Burger: Thank you, Jody, and my thanks to each of you for joining us. Today’s call will follow our standard format. Following my opening comments Mark Webber will summarize our financial results. Alan Timmins will then provide an update on recent business and clinical accomplishments and I will conclude the prepared remarks with a review of our upcoming milestones.
At AVI we are positioned to pursue numerous very promising drug development opportunities based on our highly versatile third generation NeuGene Antisense technology. We have built a solid framework for proceeding with our NeuGene programs based on numerous clinical and pre-clinical studies.
These studies have generated favorable results in a broad array of indications including cardiovascular restenosis, viral diseases and cancer as well as in important targets of opportunities. Importantly, our NeuGene clinical trials support an unprecedented safety record for our technology with no reported drug-related serious adverse events in more than 250 patients. This safety record clearly distinguishes NeuGene technology from all other Antisense technologies.
Our strategy is to dedicate internal resources to drug candidates that can be developed relatively quickly and target large market opportunities while seeking corporate partners for other longer-term programs.
With those brief remarks I will now ask Mark Webber to review our recent financial performance. Mark?
Mark Webber: Thanks, Denis. Today I’d like to review our second quarter financial results and our cash position and then I’ll confirm our financial guidance for 2004.
Our revenues for the second quarter of 2004 were $36,000, which compares revenues of $162,000 reported in the second quarter of 2003. The decrease in revenues was due primarily to lower grants and research contracts revenues.
Property expenses in 2004 second quarter were $7.3 million compared with $3.7 million for the comparable quarter in 2003. The increase was due primarily to higher research and development expenses of $6.2 million, which reflects an increase in manufacturing costs associated with our clinical development efforts.
Approximately $3 million of the R&D increase reflects contracting for the production of GMT subunits or precursors. These precursors will be converted into finished compounds by AVI or by others and are suitable for use in human trials. We expect these expenditures to lessen significantly in the second half of this year.
The remaining increase in second quarter expenses was due to increases in outside collaborations and regulatory affairs costs, an additional pre-clinical and clinical testing of our products. The increase in R&D expenses was anticipated and was included in the calculation of our 2004 financial guidance.
Our net loss for the second quarter of 2004 was $7.1 million or 20 cents per share, which compares with a net loss of $3.5 million or 12 cents per share for the second quarter of 2003.
Revenues for the first half of 2004 were $136,000, compared with revenues of $420,000 reported for the first half of 2003 again reflecting lower grants and research contracts revenues.
Operating expenses increased to $15.1 million from $7.5 million for the first half of 2003. The increase in operating expenses was due primarily to an increase in R&D costs up to $12.8 million, compared with $5.2 million in the 2003 period.
Our net loss the first half of 2004 was $14.7 million or 41 cents per share, which compares with a net loss of $6.9 million or 25 cents per share for the first half of 2003.
In reviewing our balance sheet at June 30, 2004, we reported cash, cash equivalents and short-term securities of $29.2 million, a decrease of $8.4 million from December 31, 2003. This decrease is attributed primarily to $14.7 million used in operations and $628,000 used for purchases of property and equipment and for patent-related costs.
This was offset by the receipt of $7 million in net proceeds from the exercise of warrants issued to several institutional investors for the purchase of 1.6 million shares of our common stock at $4.62 per share. These warrants had been issued pursuant to a direct equity placement of the company’s common stock in December 2003. Total shareholders’ equity at the close of the 2004 second quarter stood at $36 million.
We are confirming our previous 2004 financial guidance. We expect expenses to increase compared with 2003 and the cash burn for 2004 to be in the range of $23 million to $25 million. This cash burn could be offset by partnering activities.
With that overview I’d like now to turn the call over to Alan Timmins. Alan?
Alan Timmins: Thanks, Mark. And let me add my welcome to those of you that are joining us on today’s call and via the Internet.
In reviewing our recent activities I’d like to focus on our viral disease program. This program is one of the research areas at the forefront of our internal development work.
Through our clinical and pre-clinical development programs with West Nile Virus and SARS, we’ve proven our ability to develop and manufacture drugs for treating viral infections at breakneck speed. Further, clinical trials associated with viral diseases have comparatively short time durations and are thus often less expensive than trials for other indications.
Importantly, many widespread viral diseases present an urgent need for novel therapeutic drugs. In several circumstances no approved therapy currently exists. All these factors taken together represent a significant market opportunity for our company.
The success with what we refer to as our rapid response therapeutics program has not gone unnoticed. In June the U.S. Senate Committee on Appropriations in recognizing the potentially significant role that NeuGene compounds could play in the future of bio-terrorism defense, approved the appropriation of $10 million to fund two AVI infectious disease projects.
Subsequently this allocation of the company was modified to $5 million subject to final approval by the President. This is a government fiscal year 2005 allocation thus we anticipate that the funding will be received in the government’s ’05 fiscal year. This funding extends our programs beyond viral diseases to include toxins. We’re slated to receive $3 million for the development of a technology to test for and (therapeutic) agents for viruses including Ebola virus and Marburg virus and an additional $2 million targeted for battling Anthrax and Ricin toxins and the like.
We expect that research for the Ebola/Marburg project and the Anthrax/Ricin project will take up to three years each and we are positioning ourselves to receive additional funding allocations in 2006 and 2007 based on ongoing program successes and future legislative actions.
These are the first such monies of this type to be asked for by and awarded to the company and we believe that they reflect the government approval of the legitimacy of what AVI is doing in the viral arena.
As discussed in last quarter’s call we’ll be focusing on developing drug candidates to combat Hepatitis-C and Dengue virus. Hepatitis-C virus or HCV is the most prevalent chronic blood-borne infection in the United States. A disease of the liver, HCV is often associated with blood transfusions. It is the principal cause of chronic liver disease and is the 10th leading cause of death among U.S. adults and it’s the Number 1 cause of liver failure.
According to the Centers for Disease Control and Prevention an estimated 3.9 million Americans have been infected with HCV and 2.7 million are chronically infected. We have solid data from our pre-clinical studies that support development of a drug for the treatment of HCV. We plan to file an investigational new drug submission or IND with the Food & Drug Administration when we finish our pre-clinical studies and we expect HCV to be among our most active future programs.
Like HCV, Dengue virus also represents an unmet medical need with no currently available therapy. Dengue virus has historically been a disease of subtropical and tropical climates though the disease, much like West Nile virus, has been broadening its effective areas most recently toward the Southeastern United States.
It currently effects between 50 million and 100 million people worldwide. Dengue produces a spectrum of illnesses ranging from a non-specific viral syndrome to severe and fatal hemorrhagic disease. Dengue fever and Dengue hemorrhagic fever are caused by one of four closely related but distinct viral serotypes.
Interestingly infection with one of these serotypes does not provide cross protection (immunity to) the other three. So a person living in a Dengue endemic area can have four different Dengue serotype infections during his or her lifetime.
We recently presented results from a pre-clinical study conducted in cooperation with the CDC that showed the ability of our NeuGene compounds to inhibit replication of all four strains of Dengue virus.
In addition to focusing on clinical programs, we’ve also taken steps to protect our intellectual property. Last month we received a notice of allowance from the U.S. patent office for a patent application covering a large portion of our NeuGene Antiviral technology. This patent covers 14 single-stranded RNA viruses from 4 families including HCV, Rhinoviruses, (unintelligible) viruses and the Norwalk virus, which is responsible for the high profile viral outbreaks on cruise ships and in retirement communities.
In addition to chronic hepatitis, these viruses are among the causes of intestinal diarrhea, myocarditis and the common cold among other diseases. We filed a supplement to this application to claim additional RNA viruses including SARS and West Nile virus.
We note that the West Nile virus season has arrived early this year. During the West Nile virus season last year AVI conducted a 10-patient trial, which was the largest clinical trial to-date for the treatment of this disease. However West Nile virus represents a small and unpredictable market. For this reason and consistent with our corporate strategy, we came to the decision only to proceed further in clinical development in this application with outside sponsorship.
We can report however that we provided our West Nile virus drug, AVI 4020, in June 2004 for use under an emergency investigator initiated IND for a patient with documented West Nile virus, neuro-invasive disease. We’ve been advised that this patient whose initial outlook was bleak, survived the West Nile virus and is doing well.
With that overview I’d like to turn the call back to Denis.
Denis Burger: Thanks, Alan. In reviewing our milestones I would like to begin by commenting on our intentions for our cardiovascular program. As we’ve discussed in the past, we have reported excellent clinical results from our trials with our flagship cardiovascular drug, Resten-NG in treating Restenosis, the reclogging of arteries following balloon angioplasty or stent placement.
Unlike other drugs used to treat this disease, Resten-NG is designed to address the underlying genetic mechanism that leads to this pathology by selectively targeting cellular proliferation potentially without impeding vascular healing. Our Phase-II study results reported last year indicate Resten-NG provides a substantial statistically significant benefit for patients at high risk of Restenosis.
In May 2001 we announced an exclusive worldwide agreement to license a family of Antisense compounds including Resten-NG to Medtronic for loading on medical devices including stents. In late June of this year we terminated our licensing agreement with Medtronic due to insufficient Medtronic technology, regaining full rights to the development of Resten-NG in all cardiovascular applications including delivery via medical devices like stents.
We now have a greater opportunity to move forward with this important program. We intend to commercialize Resten-NG products for the treatment of cardiovascular disease through a combination of internal development programs and partnering activities.
We’re delivering Resten-NG via stents. We have identified a stent and balloon delivery system which already has a CE Mark for European marketing approval and which is currently marketed outside the U.S. We intend to initiative clinical trials in Europe later this year with Resten-NG coding on this stent platform ultimately leading to a CE Mark approval within 18 months if clinically successful. During the CE Mark approval process we will focus on developing a partnership for U.S. studies and commercialization.
We also have an ongoing clinical study underway at the University of Nebraska Medical Center with Resten-MP. Resten-MP is Resten-NG delivered via intravenous injection using our patented micro particle delivery technology. The delivery of Resten-MP is systemic and as such, addresses certain limitations of drug-alluding stents mainly local delivery that is limited to a single application. Systemic delivery could vastly expand the market in this and related clinical indications.
We also plan to initiate a more extensive Phase II clinical study with Resten-MP at additional sites later this year to complement the ongoing study at the University of Nebraska Medical Center.
Addressing our infectious disease programs, as Alan indicated, we plan to file an IND to initiate the clinical trials of Hepatitis-C virus as our pre-clinical studies wind up later this year.
We also are moving forward with our Dengue virus program in collaboration with the CDC and expect that program to follow closely on the heels of our HCV program.
In our oncology programs we have conducted multiple pre-clinical and clinical studies with our NeuGene compounds and with our Avicine therapeutic cancer vaccine in treating various cancers. Both technologies have produced very promising results that indicate a basis for broader investigation however as we have previously stated, human clinical trials for cancer are typically lengthy and costly. As such, we are seeking pharmaceutical partners to move our oncology programs forward.
We also plan to initiate a trail later this year for the (childhood) form of polycystic kidney disease. This will begin as a Phase 1b trial in adolescents, then move into infants as additional safety data are gathered.
To keep you updated on our many programs we are issuing a mid-year letter to shareholders. The letter will be available on the latest news section of our Web site at avibio.com in about a week. We are in the process of updating our Web site and moving it from an in-house to a commercial server so some interruptions in service over the next week are to be expected.
An electronic or hard copy of the mid-year letter to shareholders will be available next week upon request by contacting Michael Hubbard at 503-227-0554.
In closing, we have exciting programs underway that can improve the lives of large numbers of patients and we are pursuing a careful and calculated path to bring these drugs to market in a rapid and cost-effective manner. Our focus is on accomplishing our drug development goals while building shareholder value.
We are comfortable with our cash position including committed cash and licensing potential for our drug candidates and therefore have no plans to raise funds by going to the financial markets this year.
At this time I’d like to open the call to your questions. Operator?
Operator: Ladies and gentlemen, if you wish to register for a question for today’s question and answer session you will need to press star, then the number 1 on your telephone. You will hear a prompt to acknowledge your request.
If your question has been answered and you wish to withdraw your request you may do so by pressing star, then the number 2. If you are using a speakerphone please pick up your handset before entering your request. Again we request that if you have pressed star 1 to ask a question before this time, please press it once more to insure that you enter into the queue.
One moment please for the first question.
Denis Burger: While we are waiting for a few questions to enter the queue, I might advise you that we have an exciting schedule this fall for conferences. We’ll be at the UBS Conference in New York September 27 to 30, at the TCT meetings in Washington, D.C. in the last week of September and the first of October. We’ll be attending BioPartnering Europe in London October 10 to 12, the Bio Investor conference in San Francisco mid-October and the Rodman & Renshaw Techvest Conference in New York October 26 to 28.
Operator: Our first question comes from Ren Benjamin of Rodman and Renshaw.
Ren Benjamin: Morning, thanks for taking the call.
Denis Burger: Morning, Ren.
Ren Benjamin: Denis, can you take us through the amount of cost that the drug and the subunits are, you know, how much drug does the $3 million actually buy? How much is required going forward?
Denis Burger: Thanks for the question. It’s a good one. If you looked at our financial expenditures over the last two or three fiscal years you’ll see that in the first half about every other year we go into an outside supplier of subunits and it sort of skews our financials to look as if we’re expending larger amounts than normal in research and development. But that’s really how we account for that.
The answer to your question is that the expenditure in the range of $3 million to $6 million on subunits in the first half of every other year covers our clinical development prelimerization (sic) of our Antisense agents to make the drugs for the next two years.
Those subunits are used not only for the prelimerization of the Antisense drugs for research and development but also pre-clinical development, clinical development and they’re made in a process that also allows us to go into GMP manufacturing for late stage clinical development.
So they provide, this expenditure really sets us up in good shape for all of the drugs we need to make throughout our program both in clinical development of Resten-NG, Resten-MP, the viral programs through the end of 2005.
Ren Benjamin: So just to be clear this includes enough material for the upcoming Phase III trials?
Denis Burger: And commercialization.
Ren Benjamin: Okay. The second question is, can we go over all the clinical activity that’s going on in AVI as of now? Not the upcoming trials but what’s going on right now and in that question I’m sure you’ll bring up the Nebraska trial. Like to know when the data is expected from that trial.
Denis Burger: In talking about clinical activity we can talk about patient enrollment and also the activity that leads up to patient enrollment. So first off one of our largest activities is getting ready for our use of Resten-NG on coded stents for our European study. Now that has not begun.
In terms of Resten-MP in the Nebraska study, that is underway. As you know, we don’t comment on enrollment but we will expect results from that study in 2005. We don’t expect to be able to release results from that study later this year.
We plan to initiate a study with our c-myc target, Oncomyc, in cancer later this year. We plan and are in the process of putting together our program for PKD in adolescence moving into infants as I described. And we are underway with our final stages of pre-clinical development for Hepatitis C which should be followed by Dengue as we mentioned.
And as Alan mentioned, we’ve also in a compassionate use IND, treated a patient this year in June for the neurologically impaired segment syndrome of West Nile virus. And as he mentioned, that patient had a dim outlook and based on both clinical observations and all the observations available from blood chemistries, et cetera, it looked like a positive outcome.
Ren Benjamin: Okay. Going forward can you talk to us a little bit about the timing involved in the Phase III trials? In your up - this was supposed to be in mid-2004 and I guess we can consider ourselves in mid-2004 right now. Can you give us some more clarity? Is it going to be more third quarter or is it going to be, you know, more fourth quarter?
And then also, can you comment a little bit on the strategy regarding the partnership? Initially we were thinking that there might be a partnership before the European trials and then that was changed to, you know, definitely a partnership before the U.S. trials. And some clarity on that would be great.
And then when do you think you might start the U.S. trials?
Denis Burger: Okay, you’ve asked three questions that come under the category of very forward-looking statements so I’m going to give you conservative and cautious answers.
We are moving as fast as we can forward to initiate the human studies with Resten-NG on stents. And that requires a number of elements to come into place. We had to identify the stent and balloon delivery system, look at various coatings. Our big advantage of course is that we’ve had an efficacious drug in Phase II from our previous studies.
So we’re moving forward as fast as we can. I’m going to carefully avoid commenting on whether or not the studies will be initiated in the third or the fourth quarter because it’s sort of a no win situation for us.
Partnership activities are underway. We’re aggressively seeking a partner for the U.S. studies and for commercialization but we’re not going to let that stand in the way of moving forward with our European program.
Towards the European program, not only have we identified the stent and the complete delivery platform for our drug but we’ve also identified principle investigators and sites. So we’re well on our way to initiating that program and of course, we understand the importance of both treating the first patients in that program and further developments along the lines of a U.S. partnership.
Ren Benjamin: Can you tell us who the manufacturer is of the stents and delivery system?
Denis Burger: There will be a point when we’ll release that information. Because of the competitive nature of this business it’s not in our best interest at this point to go into any details in that regard.
We will tell you that this is a stent and delivery system that currently has a CE Mark and that is marketed outside the U.S. around the world.
Ren Benjamin: Okay, fair enough. And one final question. Absent a partnering opportunity, how long do you feel your cash will last?
Denis Burger: We have an ability of course to manage cash and if you consider cash and the committed cash from programs that we believe are like our Bio-to-stents programs where we’ve already got indication that we’re going to receive funding, we expect we have resources without any partnering activities for approximately 18 months.
Ren Benjamin: Thank you very much. I’ll let, you know, my other colleagues ask questions. Thanks for answering the questions.
Denis Burger: (Thanks), Ren.
Operator: Our next question is from Jason Aryeh of Jalaa Equities.
Jason Aryeh: Good morning, guys.
Denis Burger: Good morning, Jason.
Jason Aryeh: A question regarding your ability to structure the government funding through the Defense Appropriations Bill. Are there other areas of bio-terrorism that the government might have interest in funding other AVI projects in the future?
I know Alan in his remarks said you guys could possibly receive additional funding but is that for the program you have already received funding on or might that be for additional programs? Thanks.
Alan Timmins: Jason, thank you for the question. It’s a good one because it comes to the heart of sort of the government appropriations process. We embarked on a, for lack of a better term, a relationship-building campaign this year meeting with several key senators both the senators from the State of Oregon as well as senators from key defense states and worked very hard to show them pre-clinical and clinical data from our work and show its applicability in the bio arena.
I think obviously the fact that we were on our first try we were given some funds or we’ve been appropriated some funds pending the President’s approval, I would call that first shot out of the barrel by us successful.
So the direct answer to your question is both we have possibilities and we’ll continue to garner support for ongoing funding of the two projects that monies have been allocated for in 2005 plus we’ll be working harder this year to expand our support, expand our relationships within the Senate and the House such that we may garner additional funding for additional projects.
Those projects specifically relating to our technology, we would be harkening back to clinical or actually pre-clinical efforts across a number of viruses and viral families which we believe show that we have, reason to believe we have efficacy, capability, promise and a number of the Department of Homeland Security’s identified list of potential bio-terrorism agents or viruses.
So any one or groups of those may be subject to additional funding for us as we go forward. And certainly we’ll be working hard to get that.
I want to make a key distinction though that this is the Defense budget appropriation. It’s not BioShield, which you’ve heard about and the President signed recently. BioShield I as they’re now calling it and they’re, you know, much like MGM pictures, they’re coming out with a sequel, BioShield II here in the near-term. BioShield I is a procurement program. The funds that we are promised from the government are development funds working on specific viruses and toxins.
BioShield then, BioShield I, will enter into the process potentially as a procurement. Once we’ve completed or come near completion of those projects, show efficacy – BioShield I can then provide funding to manufacture, have final clinical approval and then stockpile by the government compounds for things such as Ebola or other things where there isn’t really a commercial market available.
BioShield II just to finish the story on BioShield, BioShield II is now being designed and maybe almost retrofitted such that it is an incentive package including funding for research types of things including some patent protection sorts of things, patent holidays is what they’re referred to, such that firms like ours and also bigger pharmaceutical companies have incentive at the front end to investigate some of these bio-terror areas – agents, toxins, et cetera.
So we feel good about what we’ve achieved but we’re just really getting started and encouraged by our successes in that area.
Jason Aryeh: Great. Thank you.
Operator: We have time for one more question and that is from Elemer Piros of Rodman and Renshaw.
Elemer Piros: Yes, good morning, gentlemen. Denis, can you hear me please?
Denis Burger: Hi. Yes.
Elemer Piros: Okay. About six months ago, Denis, you communicated to the investors that you were talking or you were actively negotiating with the large stent manufacturers excluding Medtronic obviously. In today’s press release you state – and I just wanted to get some clarity on it and what you mean by this sentence – that during the CE Mark approval process AVI intends to seek partnership opportunities for U.S. studies and commercialization.
Now what does CE Mark approval process mean in your dictionary? Does it mean that once the study is completed and submitted to regulatory agencies or once you begin this study – I think what I’m getting at is the timing of a potential partnership. Is it this year, next year – what is your best, best expectation or estimate on that please?
Denis Burger: I understand your question and we are time wise committed aggressively to initiate our clinical program for the Resten-NG drug alluding stent in Europe. And we don’t expect to finish a U.S. partnership until after that program clinically is underway. So I don’t mean that by the approval process, I mean the initiation of the clinical studies in Europe rather than the end of those studies.
Elemer Piros: I see.
Denis Burger: Okay?
Elemer Piros: Now so once the first patient is treated, investor could expect an announcement from that point on, if you could reaffirm that please. And the question is why? What would make more comfortable a potential U.S. partner or a partner anywhere with the fact that the first patient has been actually treated?
Denis Burger: It’s not a question of whether we treat the first patient; it’s more a question of the time and effort that it takes to undertake a complex clinical program that involves our Antisense drug, involves codings, involves the stent and the balloon delivery system. And at the end of the day all of those components have to come together. We have to get the principle investigators, the sites lined up and get underway.
Once that program is underway it allows us internally the time to spend on looking at the larger U.S. potential partnerships. That doesn’t mean we haven’t already been involved in such applications but we’re focusing on the very near-term which is getting this program into the stages that will lead to an approval and will lead to eventual revenue to the company.
Elemer Piros: Thank you very much, Denis.
Denis Burger: M-hmm.
Operator: That is all the time we have for questions today. Please proceed with your presentation or any closing remarks.
Denis Burger: Well, just in closing, I’d like to make just a final comment that there’s a lot of excitement here at AVI in all of our programs and that we’ve really done I think an appropriate job in these sort of difficult times for small biotech to conserve our resources and invest in the kind of programs that have the shortest term clinical potential with the largest potential markets and that’s in our Resten-NG cardiovascular program and in our infectious disease viral program.
Thank you very much for listening in. Bye-bye.
Operator: Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your line.