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Biodel Inc. (NASDAQ:BIOD)

F4Q 2012 Earnings Call

December 18, 2012 8:00 am ET

Executives

Paul Bavier - General Counsel, Secretary

Errol De Souza - President, Chief Executive Officer, Director

Gerard Michel - Chief Financial Officer, Vice President - Corporate Development, Treasurer

Alan Krasner - Chief Medical Officer

Analysts

Jason Butler - JMP Securities

Matthew Kaplan - Ladenburg Thalmann Securities

Liana Moussatos - Wedbush Securities

Richard Reznick - William Blair & Company

Marc Stutman - Trimark

Operator

Welcome to Biodel's fourth-quarter fiscal-year 2012 financial results conference call. At this time, all participants are in a listen-only mode. After opening remarks, we will open up the call for your questions. Instructions for queuing up will be provided at that time. I would also like to remind you that this call is being recorded for replay.

I will now turn the conference call over to Paul Bavier, Biodel's Corporate Secretary and General Counsel.

Paul Bavier

Thank you. Good morning, and welcome to our fourth-quarter fiscal-year 2012 conference call. On the call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that are described more fully in our filings with the SEC, which are also available on our website.

Forward-looking statements represent our views only as of today, and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so even if our estimates change.

Joining us on today’s call are Dr. Errol De Souza, Biodel’s President and Chief Executive Officer; Gerard Michel, our Chief Financial Officer and Vice President of Corporate Development; and Dr. Alan Krasner, our Chief Medical Officer. After their prepared remarks, we will open the call to your questions.

Now I will turn the call over to Errol.

Errol De Souza

Thank you, Paul. Good morning, everyone. Since the last quarter we have continued to build on the momentum in advancing our three key programs. In today's call, we will discuss details regarding the ongoing Phase 2 clinical trial of our ultra-rapid acting formulation of recombinant human insulin or RHI, the Phase 1 clinical trial of our ultra-rapid acting insulin analog-based formulations and developments in our liquid glucagon program.

Allow me to begin with the RHI based component of our ultra-rapid acting insulin program. In September, we announced the initiation of a Phase 2 clinical study of our lead candidate BIOD-123. As a reminder, in a Phase 1 clinical trial, BIOD-123 demonstrated a pharmacokinetic or PK and pharmacodynamic or PG profiles similar to Linjeta and absorption rates significantly faster than insulin lispro sold as Humalog, while demonstrating injection site toleration superior to Linjeta and similar to Humalog.

The Phase 2 trial is a randomized, open label parallel group study being conducted at approximately 30 investigative centers in the U.S. Subjects with Type I diabetes are being randomized to receive either BIOD-123 or Humalog as their mealtime insulin. Both arms of the study use insulin glargine, sold as Lantus, as the basal insulin.

The 18-week treatment of approximately 130 subjects will evaluate HbA1c control as the primary endpoint and secondary endpoints include postprandial glucose excursions, glycemic variability, hypoglycemic event rates and weight changes. Even though we nearly doubled the number of subjects reported in our original trial design, site initiation and enrollment has been progressing well and we remain on track to report top line data in the third calendar quarter of 2013.

Turning now to the insulin analog-based prong of ultra-rapid acting program. We are pleased to report that we successfully initiated a Phase 1 clinical study in Australia of BIOD-238 and BIOD-250 to evaluate the pharmacokinetic and injection site toleration profiles of these formulations relative to a marketed rapid acting insulin analog using a crossover design in approximately 12 patients with Type I diabetes. These formulations are manufactured from a marketed presentation of the analog using our proprietary excipients.

In parallel, we are continuing our formulation development work to improve the stability characteristics of our ultra rapid acting insulin analog-based formulations as well as developing formulations using the active pharmaceutical ingredient rather than a marketed presentation of insulin analog which will enable us to bridge two commercial candidates for subsequent clinical development. Patient enrollment in the study has progressed well and we remain on track to report Phase 1 clinical top line data in the first calendar quarter of 2013.

In addition to our ultra rapid acting insulin formulation program, we are developing a liquid glucagon formulation for use as a rescue treatment for diabetes patients experiencing severe hypoglycemia of very low concentrations of blood glucose. Our minimum target product profile for this indication has been a liquid glucagon formulation in an autoinjector presentation with at least 18 months of projected stability under refrigerated conditions.

As we mentioned during our analyst and investors' day meeting in October, we are also working on a room temperature stable presentation that might represent a follow-on product. We previously anticipated submitting an NDA by the end of the second calendar quarter of 2014. In the course of our development efforts, we have continued to deepen our scientific knowledge and understanding of the potential competitive landscape in the liquid glucagon market.

Based on this, we have determined that it is in our best interest to prioritize our efforts on developing room temperature presentations that we believe would penetrate the market to the greatest extent. We have deferred manufacture of the registration lot of a refrigerated liquid glucagon formulation which was a key determinant of the timelines for submission of an NDA.

Instead we intend to continue our preclinical study in order to achieve a combination of pharmacokinetic, pharmacodynamic and stability characteristics that we believe would be required for the product to be commercially successful. We will provide you with updates on our progress and timelines in subsequent calls.

Stabilized liquid glucagon formulations have potential utility in a bihormonal pump, which is a critical component of some prototype artificial pancreas systems, also known as a closed loop system. On September 24, we announced an NIH small business innovation research grant award for approximately $600,000 to develop novel and stable glucagon formulations for use in an artificial pancreas. Among other potential uses of stabilized glucagon in a pump setting is the treatment of congenital hyperinsulinism or CHI for which we received open designations both from the FDA and European Medicines Agency Committee for Orphan Medicinal Products.

These uses of glucagon were among some of the topics covered by the distinguished independent diabetes expert panel at our analysts and investors' research and development seminar in October. As also discussed by the panel, another potentially critical component in the development of an artificial pancreas is the development of concentrated ultra-rapid acting RHI in insulin analog-based formulations. Concentrated formulations could be used in artificial pancreas systems, as well as for the treatment of insulin resistant patients. Our efforts in this endeavor were also recognized by the NIH in the form of a small business innovation research grant award of approximately $600,000.

Let me take a moment to further elaborate on the unmet medical need for a concentrated ultra-rapid acting insulin formulation. There exists a subset of Type II diabetes patients that demonstrate severe insulin resistance and require greater than 200 units of insulin daily to meet their insulin needs. There was one concentrated RHI product on the U.S. market today, Humulin R U-500 marketed by Eli Lilly.

The use of Humulin R U-500 almost doubled between August 2008 and September 2010 reflecting the growing obese and/or insulin resistant segments of the diabetes population requiring high doses of insulin. However, Humulin R U-500 concentrated insulin has a suboptimal pharmacokinetic and pharmacodynamic profile with a more prolonged onset and duration of action than U-100 insulin or insulin analog formulations.

Thus patients face a trade-off between multiple large volume injections or more rapid absorption profiles. A more rapidly absorbed formulation of concentrated insulin could enable patients to minimize the required number of injections and injection volume while benefiting from the more rapid onset of action associated with the currently available analog prandial insulin preparation.

Biodel has utilized its proprietary technology to develop several concentrated RHI based insulin formulations and a concentration of 400 IUs per mil. These formulations contain EDTA and citrate. They show promising stability profiles and have demonstrated a more rapid absorption profile in diabetic swine when compared to Lilly's concentrated Humulin R U-500. We also see a more rapid absorption profile when we compare our preclinical formulations to Humalog. We look forward to updating you further on the progress of this early stage with exciting opportunity in subsequent call.

While our grant funding success has provided external validation and obvious physical utility, we continue to employ our resources judiciously and pursue cost-cutting opportunities. Our current cash run rate forecast extends at least until the second calendar quarter of 2014.

That concludes my introductory remarks. Now I am going to turn the call over to Gerard for a review of our fourth-quarter 2012 financial results.

Gerard Michel

Thank you, Errol. Biodel reported a net loss for the three months ended September 30, 2012 of $5.9 million, or $0.42 per share, compared to net income of $4.1 million or $0.43 per share for the same period in the prior year. When comparing GAAP results across quarters, it is important to note that the fourth-quarter 2012 included a modest $156,000 increase on warrant liability compared to a rather large $8.7 million decrease in warrant liability in the same period in 2011.

Research and development expenses were $4.6 million for the three months ended September 30, 2012 compared to $2.6 million the same period in the prior year. The increase in research and development expenses was primarily attributable to increase in clinical trial work. We received $88,000 in research and development grant revenue in the three months ended September 30, 2012. No grant revenue was received in the same period in 2011.

General and administrative expenses were $1.2 million for the three months ended September 30, 2012, compared to $2.1 million for the same period in the prior year. Expenses for the three months ended September 30, 2012 and 2011 included $300,000 and $1 million, respectively, in stock-based compensation expense related to options granted to employees and non-employee directors. Aside from the grant revenue previously mentioned Biodel did not recognize any revenue during the three months ended September 30 2012 or 2011.

At September 30, 2012, Biodel had cash and cash equivalents of $39.1 million. At the end of the quarter, we had 14.2 million shares of common stock outstanding and an additional 4.1 million shares of common stock issuable upon conversion of outstanding preferred shares.

That concludes our prepared remarks. Now we would like the operator to open the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Jason Butler of JMP Securities. Please go ahead.

Jason Butler - JMP Securities

Thanks for taking the question. Could you maybe dig in a little bit more about you’re your thought process was in switching the focus of the glucagon program from refrigerated to room temperature? What drove the change from the previous strategy where you bridged from one to the other versus just going with the room temperature formulation now? Then if you could just give us any insight that you can in to the next steps for that program?

Errol De Souza

Good morning, Jason. Let me make a couple of comments and then Gerard can add to it. Looking at the market opportunities that presents itself in the glucagon rescue product, our first determination was that our target product profile of the 18-months refrigerated would be competitive given the timelines of entry into the market.

As we have stayed abreast of the competitors that are out there in terms of other formulations that are being developed and as we get a better feel for the market, the feedback that we are getting is that, while an autoinjector presentation with 18 months, I should say, refrigerated stability could be a competitive product if it gets in the market quickly, the preferences in terms of really growing the market is for portability and a smaller size which really require room temperature stability.

Given that feedback that we have received and given the potential for us in terms of developing room temperature based formulations, we really thought it would be in the best interest to take a little bit of time to further develop these room temperature formulations rather than just putting registration lots of the refrigerated formulations. We will come back with more guidance when we meet the optimal characteristics which would the PK, PD and stability.

Gerard, anything to add?

Gerard Michel

No, I think we are looking around bulk of what the market wanted as well as the probability of there being some room temperature competition for some period of years after we launch. There is a minimum amount of time we would want to be out there on our own to recoup our investments for developing a refrigerated product. I think although one can never have a perfect crystal ball, we decided the chances of there being some room temperature competition within a finite period after our launch for the refrigerated product and I don’t know what that is, six months or four years, but the probability of there being something within a reasonable timeframe is great enough that we decided we might not get the return on investment on just a refrigerated product. Therefore it made sense to probably use our finite resources to develop a room temperature product instead of trying to make that a fast follow on.

Operator

Our next question comes from Matt Kaplan of Ladenburg Thalmann. Please go ahead.

Matthew Kaplan - Ladenburg Thalmann Securities

Good morning, guys. Thanks for taking my question. Just a follow-up on Jason's question, digging in a little bit more to the glucagon strategy with respect to the room temperatures stable. Can you give us a sense in terms of where you are in achieving the desirable formulations from a preclinical point of view? What the next steps are to get there and giver us a little bit of the timeline with respect to that?

Errol De Souza

Good morning, Matt. Just in terms of, for those of you who attended the analyst and investors' day meeting in New York, you will note that and it's on our website. We presented both data on some of our earlier formulations under refrigerated conditions which is longer term as well as some shorter term data and both at 25C as well as 37C.

We were looking at 37C as accelerated stability but also the utility in the pump setting for the artificial pancreas, which was the subject of a couple of talks there. So we already have some short-term data on some of the formulations, Matt. We just need to take it out longer to give us a comfort level.

At the same time, what we need to with these formulations that we have some short term real time stability on is to evaluate them in animal models in terms of looking at PK and PG in comparison with the comparative which would either be Lilly's product which is on the market, the glucagon rescue kit or GlucaGen, which is Novo's product. That’s going to take just a little bit of time in terms of giving us the comfort level in terms of real time stability and we look forward to coming back in subsequent calls and really giving you precise timelines on that.

Matthew Kaplan - Ladenburg Thalmann Securities

Just in terms of, can you give us a sense of the delay, let's call it, in terms of you are anticipating being able to file an NDA with the refrigerator stable formulation in 2014. What are your thoughts now in terms of timing?

Errol De Souza

At this time, I think it would be premature for us to give you a guidance on the NDA timeline. As you may recall, the one thing that determines the NDA filing is when you put up those registration lots. At this time it would be premature until we had nailed down the formulation to be able to project our particular timelines. But we will come back, Matt. We are working very actively in this area. We will come back soon but I wouldn’t want to just speculate until there is data out there and we want to nail down the formulation and then with all the experience that we have in this area, then those timelines can fall into place very quickly.

Just as a reminder, our plan has always been to file with about 12 months of data. So whenever we would put up those registration lots through NDA timing is about 12 months from there.

Matthew Kaplan - Ladenburg Thalmann Securities

Just one last question on it. You mentioned in your prepared remarks that you are looking at perhaps a smaller injector profile as well. Is that something that you had already contemplated or is that something that you have to also work towards?

Errol De Souza

What I mentioned was, is that our research from meeting with diabetes educators and patients have given us feedback that portability is really critical. So given what we know about this program we are really taking that feedback seriously and looking at the smaller kind of presentation that might be available while we are developing the room temperatures formulation and we would like to come back on what those presentations look like in subsequent calls.

Operator

Our next question comes from Liana Moussatos of Wedbush Securities. Please go ahead.

Liana Moussatos - Wedbush Securities

For the Phase 1 with the analogs, what do you need to see to make that trial successful and move forward?

Errol De Souza

Good morning, Liana. The Phase 1 trial for the analog, Alan, why don’t you comment on what we would be looking for in terms of BIOD-238 and 250?

Alan Krasner - Chief Medical Officer

Good morning. We are basically looking for an ultra-rapid absorption both offset, onset relative to the marketed analog that is our comparative on this trial. We are also interested in showing that the peak levels achieved are comparable between the formulations because that’s also an important determinant of postprandial glucose control.

We also want to carefully look at the offset phase relative to our formulation of the analog relative to the marketed analog. The offset phase is relevant in different situations. We want to see how it compares to the marketed analog as well. Of course, toleration is an important endpoint in this study. So we are hoping that these formulations are comparably tolerable to the marketed formulation when injected.

Errol De Souza

Liana, just to add to Alan's comments, a great use for the analog formulations would be in the pump setting, which is a growing segment of the use in that setting, rapid on and at least equivalent off to the analog are really critical characteristics. That’s the target product profile that we have for the data from the upcoming trial.

Operator

(Operator Instructions) Our next question comes from Richard Reznick of William Blair. Please go ahead.

Richard Reznick - William Blair & Company

This is Rick Reznick for John Sonnier, William Blair. You may have just answered this a little bit but a quick question about the strategy with the two ongoing insulin programs. I know you have talked about having the Phase 1 data from the insulin and analog formulations in the first calendar quarter of the year. After that data reports, assuming its positive, would you considered going to Phase 2 development before the BIOD-123 Phase 2 is reported in the third quarter of would you want to wait and see how that data looks and then determine a path forward for two insulin programs?

Errol De Souza

Good morning, Richard. Great question. We had some details in my introductory comments, but let me takes this opportunity to elaborate on it. The ongoing studies with BIOD-238 and 250 are made with the marketed presentation. So, in other words, what we have done in the studies we are doing in Australia is taken the analog presentation that’s on the market and then formulated with our excipients in order to do the trials. That was the easiest way we could get the trials done.

In parallel, as I mentioned in the comments, we are continuing to do two things. We are continuing to improve the stability profiles of these formulations. If there is a hurdle here, it's really high given that we are using them in the pump the stability that we are paying most attention to is at 37 degrees that would be relevant in terms of a pump setting.

We are also making the formulation from the active pharmaceutical ingredients that has been made available to us by one of the large pharmaceutical manufacturers. That combination, right stability and formulation should then allow us to bridge to the commercial formulation and we anticipate, if we move forward, for example, in the U.S., we would also require a toxicology study and then we could do a very simple bridging study and then think about moving into either a Phase 2 or maybe even a parallel study with BIOD-123.

So I don’t anticipate any studies in the U.S. starting before we had the BIOD-123 data which are targeted for the third quarter. But it defines a path forward for us very quickly in terms of the analog based formulations.

The other reasons we are working with the analog is the utility in the pumps but also ultra-rapid acting versions of the analog are, as you might imagine, of high interest to the players out there that market these analogs.

Operator

Our next question comes from Marc Stutman of Trimark. Please go ahead.

Marc Stutman - Trimark

I believe to follow-up to the last question to make sure I understand this. You just said that the analog formulation you are working on now that you will release the results in the first quarter that is intended more for the pump?

Errol De Souza

No, we could use it in all different presentations, Mark. I just mentioned that some low hanging fruit in terms of utility of a rapid on or more rapid off formulation would be the pump. But we would evaluate it in the MDI setting as well as the pump setting.

Marc Stutman - Trimark

Okay. Unfortunately I missed the first part of the call. Did you discuss chronic mini-dose as you did during the analyst investor day? You had mentioned that you felt that the overall market might be $200 million to $350 million. Could you give us some idea of how you came to those numbers and how realistic that market is?

Errol De Souza

Mark, we didn’t any discussion in terms of the mini-dosing. I will let Gerard comment on the market analysis but one of the things that we mentioned that is a little bit related to the mini-dosing is we have got ongoing work in terms of the artificial pancreas which is in a pump setting, both for the glucagon program and for the insulin program and both of these have been the subject of two separate SBIR grants, which is a real testament to the utility and interest level in this area.

Gerard, maybe you can provide a little more color in terms of the market analysis in terms of the mini-dosing?

Gerard Michel

The mini-dosing market is the first thing for a potential new use for therapeutic, once projected potential market size is to probably pay attention to the number of zeroes. And not necessarily the specific first number whether it is $250 million or whatever. The way we get to that order of magnitude potential is the following. Most, if not all patients we spoken to, especially Type 1 would be very interested in being able to bring their glucose level up in some manner other than taking incremental calories, if there was a therapeutic available to do so that was easy to take, i.e., not another injection.

So whether or not that is a bihormonal pump using glucagon or whether or not that is a sublingual or an intranasal formulation is undetermined. It could be two or three of those but if there was something like that available, patients on prandial insulin who suffer the most frequent lows, almost universally they would be interested in doing something besides grapping a glucose tab or a snickers bar.

Now there are about 2 million patients in the U.S. on basal bolus regime or a pump. All right. There is 2 million in the U.S., probably a similar number in Europe. So you have about 4 million patient pool who are on basal bolus or pump insulin. So from the 4 million potential user base, you can make penetration and pricing assumptions from there to get into the several hundred million dollar range in terms of a market potential.

Marc Stutman - Trimark

Okay, and then just one follow-up in terms of the, it had been discussed earlier, the refrigeration version versus just the room temp version. You had something about moving more quickly forward on the room temp version because of potential competition. You said six months to four years, you don’t know when someone would come out. That was concern that someone would be out earlier with a shelf life version?

Errol De Souza

Go ahead, Gerard.

Gerard Michel

Sure. What I was referring to at that point was if you are going to launch a product you want to make sure that you can get a reasonable payback for it. Our critical assumption for the refrigerated product was that we would be out on our own without room temperature competition for a minimum number of years. We have never said how many we used in our assumptions. But there was a minimum number required in terms of getting an adequate payback an investment for a refrigerated producer.

When we re-run the analysis based on the relative timing of our launch for refrigerated product, the probability of a room temperature competitors and some scenarios as to when they might come, we don’t have a perfect crystal ball, it's somewhat of a Monte Carlo simulation, we have come to the conclusion there are too many seminars where we don’t get an adequate payback and therefore its not a prudent use on investors' resources to push forward on that path.

Instead it is a more prudent use investors' resources to set the hurdle a bit higher admittedly then go for a room temperature formulation in a presentation which we think will be highly competitive and it helps expand the market regardless of whether we are out there on own more or we are facing competition.

Errol De Souza

I think just to add to Gerard's comment, is the payback that we might need with a refrigerated formulation but it's also the opportunity that we have in terms of developing a room temperature formulation which I think certainly deserves taking a little bit of time to make sure if we can get on the market with a truly competitive product that penetrates to the greatest extent. We think that’s the most prudent thing to do at this time.

Okay, go ahead.

Operator

That concludes the Q&A potion of the call. I will now turn the call back to Dr. De Souza.

Errol De Souza

Great. Thank you so much for joining us at this hour of the morning. I want to wish everyone happy holidays and thank you for your questions and have a great day.

Operator

Ladies and gentlemen, this does conclude today's conference. You may now disconnect and have a wonderful day.

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