Nexmed, Inc. Q3 2008 Earnings Call Transcript

Nexmed, Inc. (NEXM)

Q3 2008 Earnings Call Transcript

November 11, 2008, 10:00 am ET

Executives

Linda Burns – Senior Director of Corporate Relations

Vivian Liu – President & CEO

Hem Pandya – VP & COO

Mark Westgate – VP & CFO

Presentation

Operator

Greetings and welcome to the NexMed third quarter 2008 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Linda Burns, Senior Director of Corporate Relations of NexMed. Thank you. Miss Burns, you may begin.

Linda Burns

Thank you, Latania. Welcome to NexMed's third quarter conference call. I am Linda Burns, Senior Director of Corporate Relations. On the call with us today are Vivian Liu, our Chief Executive Officer; Hem Pandya, Chief Operating Officer; and Mark Westgate, Chief Financial Officer.

Before we begin, I will read the forward-looking language statement and then turn the call over to the executives. Following their remarks, we will be happy to answer your questions.

Just a reminder to everyone that during the course of the call, the management team will make forward-looking statements regarding future events or the future financial performance of the company. Please keep in mind that such statements are predictions based on current expectations and actual results could differ materially. You should refer to our most recent filing with the Securities and Exchange Commission for additional discussion on factors affecting our business. Now, I will turn the call over to Vivian. Welcome, Vivian.

Vivian Liu

Thank you, Linda. Good morning, everyone. Thank you for joining us today. I will focus my discussion this morning on our two lead products, Vitaros for ED treatment and our antifungal product that is partnered with Novartis.

First, about Vitaros. As many of you know, last month, we met with the FDA to discuss the major deficiencies cited in the action letter we received in July regarding our NDA filing for Vitaros. The meeting was very productive as we were able to reach consensus on the necessary actions for addressing the FDA's concerns as cited in their action letter. Specifically, several key regulatory concerns and agreements were reached at the meeting, notably the FDA agreed to our request for a meeting of the Carcinogenicity Advisory Committee or CAC prior to submitting our actual reply for their action letter.

The purpose of the CAC meeting will be to review and assess the data from our two new two-year carcinogenicity studies in mice and in rats that were completed earlier this year. We anticipate that at the meeting of the CAC, the toxicology reviewers will reach a conclusion that the totality of data from our entire carcinogenicity program which also includes the results from a third two-year study of rats that was completed in 2003 can and should alleviate the FDA's concern over the positive results from the transgenic mouse study that was completed in 2002.

The FDA has stated that they could hold the CAC meeting within 60 to 90 days of our submission of a briefing package to the CAC for review, which we plan to do before the end of the year. In addition, the FDA agreed with our proposal to conduct one Phase I study in healthy volunteers to assess the transfer to the partner of the NexACT technology with the design of the trial to be determined. This type of study usually takes about six months to complete.

As to how to best address the FDA's concern of possible promotion and transmission of sexually-transmitted diseases, we have agreed on a plan to conduct one additional pre-clinical study in one species with the animal model to be determined. Depending on the model that's selected, this type of animal study can take up to a year to complete. However, according to our regulatory consultant, we believe that there is an opportunity for the FDA to permit us to file our actual response before the study is completed.

At the same October 15th meeting, the FDA also confirmed the revision on the status of our manufacturing facility from withhold to acceptable. This status change was due to us being able to adequately address the deficiencies cited in their preapproval inspection of our facility in January of 2008. The purpose of the inspection was to ensure that our facility is in compliance with good manufacturing practices as defined by FDA regulations and also to determine if we have the ability to begin commercial manufacturing upon approval of the NDA.

Consequently, we feel that we now have more clarity on the regulatory path going forward than we ever have before. Warner Chilcott, who's our partner in the US for Vitaros, estimates that they will have to spend $4 million to $5 million for the Class 2 resubmission. We estimate that the time frame for filing our Class 2 response and starting a six-month review clock can be as early as fourth quarter 2009 assuming the FDA permits us to submit without the final data from the animal study.

Warner Chilcott, who was actively involved in the recent meeting with the FDA, are currently assessing the situation and deciding on the next step. We don't have anything concrete to share with you at this time. We will keep you updated as we move forward with them.

In terms of our filing in Canada, we recently had a teleconference with Health Canada and expect to receive a notice of deficiencies which we've been told will cite the same regulatory concerns cited by the FDA or primarily stemming from the results of the 2002 transgenic mouse study. We have up to 90 days when we receive the notice of deficiencies to reply to them.

Our plan is to address their regulatory concerns by providing them with the same briefing package that we plan to submit to the FDA for the CAC meeting. We believe that with the weight of evidence based on the totality of our carcinogenicity program, we will be able to satisfactorily address the regulatory issues cited by Health Canada. In the meantime, we continue to be engaged in active negotiations with potential Canadian partners in order to ultimately bring product to market in Canada.

For antifungal product that's licensed to Novartis, we announced in October that we received a notice of allowance on our U.S. patent application for the product and trigger the long awaited $3.5 million from Novartis. This patent when issued provides Novartis important protection on the commercial product. In light of the significant delay in the review and approval of our product, the U.S. Patent Office added 756 days to the life of the patent coverage for protection that's now out to April of 2026.

Novartis recently completed their analysis of two Phase III studies. They have agreed that they would share the data with us with the provision that for competitive reasons we cannot share the data with anyone outside of the company. Contractually, the data is theirs, so we have to abide by their wishes. In the meantime, they have assured us that they will complete patient testing and ongoing Phase III comparative study in Europe, which is scheduled to conclude in early 2009. They are also very actively exploring various options for the U.S. and we will keep you updated as we progress with Novartis.

In closing, the past three months have been very challenging for NexMed. We’re very realistic about the short-term bumpy road ahead of us and are proactively preparing ourselves for the future. Our mandate is very clear. We must remain financially viable through these challenging times. As such, we are aggressively and creatively working on bringing down our burn rate and stretching our cash reserves as best as we can. Our goal is to emerge as a better company.

Now, I’m going to turn the discussion over to Mark, who will comment on the financial aspects of the company.

Mark Westgate

Thank you Vivian. Let me focus my discussion today on our current cash balance and our plans going forward. As in previous years, we recently have been approved by the State of New Jersey to sell a portion of our state tax credits and net operating losses or NOLs pursuant to the Technology Tax Certificate Transfer Program in the State of New Jersey.

We do not know yet the exact amount of the NOLs that we will be permitted to sell in 2008, but based on our recent discussion with the program administrators, we expect to receive at least $600,000 in proceeds from the sale.

With the receipt of the $3.5 million milestone from Novartis in October, our current cash balance of approximately $4.4 million along with the anticipated proceeds from the sale of the NOLs should provide us with cash reserves of approximately $4 million by year-end.

As Vivian noted, we are in the process of evaluating and implementing ways to cut our monthly expenditures with the goal of reducing our operating expenses like 30% or to about $350,000 per month, which we expect to achieve before the end of this year.

At this time, it’s difficult for us to reduce our expenses further due to the operating expenses associated with owning the 32,000 square foot building and the costs associated with maintaining our public listing. Along with bringing our monthly operating expenses down to $350,000 per month, we will need to renegotiate or refinance our $1 million mortgage payment due at the end of this year so that our current cash reserves will provide us sufficient capital through the end of 2009. If we are able to sell our building during 2009 to satisfy the current $5.7 million mortgage, we would further reduce our monthly operating expenses by approximately $70,000 per month or $840,000 annually.

Finally, Vivian, Hem, and I are actively examining and pursuing potential new business partnerships and growth opportunities which could further strengthen our cash reserves. Our goal for 2009 is to maintain a strong cash position as we work towards the eventual marketing approval of our Vitaros ED product and the European filing for antifungal product with Novartis.

As Vivian just stated, our top priority is to remain viable and emerge as a stronger company. At this time, I would like to turn the call over to the operator to take questions.

Question-And-Answer Session

Operator

Thank you. We will now be conducting the question-and-answer session. (Operator instructions).

Vivian Liu

Well, operator, it doesn't look like we have any questions this morning. I just wanted to close and thank everybody for joining us today as we look forward to sharing new developments with you as they occur. Feel free to call any of us if you have any additional questions. Thank you.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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