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Biodel, Inc. (NASDAQ:BIOD)

F4Q08 Earnings Call

December 10, 2008 8:00 am ET

Executives

Solomon Steiner - Chairman and Chief Executive Officer

Erik Steiner – Vice President of Operations

Alan Krasner – Chief Medical Officer

Gerard Michel – Chief Financial Officer

Analysts

Liana Moussatos - Pacific Growth Equity

William Ho – Banc of America Securities

Pamela Bassett – Cantor Fitzgerald & Co.

Unidentified Analyst

Operator

Good day ladies and gentlemen, and welcome to the Biodel’s fourth quarter and fiscal year 2008 financial results conference call. (Operator Instructions). I would now like to turn the presentation over to Erik Steiner, Biodel’s Vice President of Operations.

Erik Steiner

Good morning and welcome to our fourth quarter and year-end conference call. Before we start, let me remind you that we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995, and that all of our projections and forward-looking statements represent our judgment as of today. 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. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates changes, and therefore you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

Joining us on today’s call are Dr. Sol Steiner, Biodel’s Chairman and Chief Executive Officer; Dr. Alan Krasner, our Chief Medical Officer; and Gerard Michel, our Chief Financial Officer. After their prepared remarks, we will open the call to your questions. Now, I’ll turn the call over to Sol.

Sol Steiner

Since we reported results of our Phase III studies with VIAject in September, we have continued to analyze the data, work with regulatory consultants to prepare for upcoming discussions with the FDA about our findings, and initiate other important activities to expand the clinical potential of VIAject.

Our ongoing analysis of the Phase III trials suggest that there are specific factors inherent in our patient population that explain our results and support our treatment of data from India which were inconsistent with results from the United States and Europe. We believe there is a good case for approving VIAject with the analytical method we used, and we look forward to meeting with the FDA next month to discuss it. That meeting will determine whether we proceed directly toward an NDA filing for VIAject or conduct another study before we file. We are already planning to do another study with VIAject in patients with type 1 diabetes. In addition, we are completing the bioequivalent study of VIAject which Alan will describe in a moment.

In the meantime, we are keeping a tight lid on expenses to ensure that we can execute our clinical program effectively in this challenging financial environment. I believe we have the resources to advance our pipeline and execute our current plans over the next two years. In closing, I wish to reiterate our belief that VIAject has unique clinical benefits, safety advantages, and commercial potential, that the data from our studies are compelling, and that we are working diligently to prepare for several key value-creating milestones in the months ahead. They include our meeting with the FDA, the completion and analysis of our bioequivalent study, and the launch of the next type 1 study.

Dr. Alan Krasner will now describe our clinical plans in more detail.

Alan Krasner, M.D.

We recently began enrolling patients in a single-center double-blind study to show the bioequivalence and pharmacokinetic profiles of 4 different formulations of VIAject in patients with type 1 diabetes. As a reminder, our Phase III study tested a two-part 25 IU/mL formulation of VIAject which required reconstitution, compared to the 100 IU/mL formulation of regular human insulin which does not. The purpose of this study is to demonstrate the bioequivalence of a one-part liquid 25 IU/mL formulation, a two-part 100 IU/mL formulation, and a one-part liquid 100 IU/mL formulation compared to the two-part 25 IU/mL formulation of VIAject used in the pivotal trial.

We chose a crossover design, so each patient can act as his or her own control. This strategy increases the power of the study. Each patient will be randomized to receive a single subcutaneous injection of one of the 4 dose formulations on four different visits. We are enrolling approximately 40 patients in this study and expect to complete the trial for topline results during the first calendar quarter of 2009. We believe this study will demonstrate that the 100 IU/mL liquid formulation of VIAject has a PK and PD profile that is not significantly different than the 25 IU two-part formulation of VIAject which has already been shown to have meaningful clinical benefits versus regular human insulin.

VIAject has also shown favorable effects on microvascular blood flow in patients with type 2 diabetes. These findings were reported last month at the Diabetes Technology Conference by Dr. Thomas Forst from the Institute for Clinical Research and Development in Germany.

We’re also planning to launch a study with VIAject in type 1 patients next year, but I’ll reserve my comments on the design and size of that study until we get closer to the start of patient enrollment.

Now, I’ll turn the call over to Gerard Michel to review our financial results.

Gerard Michel

Our results for fiscal year 2008 reflect the intense levels of activity around our Phase III clinical program with VIAject. Our 2008 net loss of $43.4 million was substantially higher than our $27 million loss in 2007 for this reason. R&D expenses in 2008 were $32.6 milllion compared to $15.9 million in 2007, again principally due to higher clinical trial, manufacturing, and personnel expenses to support the two Phase III studies we conducted during 2008. G&A expenses were also higher, $14.8 million in 2008 versus $8.4 million in 2007, primarily as a result of increases in personnel expenses. As a result of our stock offering at the beginning of calendar year 2008, we ended fiscal year 2008 with a solid cash position of approximately $90 million. This represents approximately 2 years of cash under current plan assumptions. These projections could change based on the outcome of our upcoming discussions with the FDA. That concludes our prepared remarks. Now we will open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions). We will take our first question from William Ho with Banc of America Securities.

William Ho – Banc of America Securities

Can you give us anything at all on what kind of study you are going to have to do if the FDA does not except your analysis, and how long that study could take?

Solomon Steiner

Well, you are asking me to project what a regulatory agency is going to do. I’d rather predict the stock market. They could be satisfied with what we have which we think is the likely outcome and we would file. They may require another study. That study could be a 3-month study. At worst case, it would be a 6-month study, and they can do anything that they choose to do in addition to that. I don’t know how helpful that is, but I think its accurate.

William Ho - Banc of America Securities

I heard that several companies developing drugs in the diabetes space have received letters from the FDA surrounding cardiovascular risk and requiring analysis of their data. Have you received such a letter or do you expect to receive such a letter?

Solomon Steiner

No, we have not received such a letter. I do not expect to receive such a letter. Most of what you are talking about Bill is mostly drugs that are new chemical entities. We are not a new chemical entity. We are regular recombinant human insulin and mostly for the treatment of type 2 diabetes, and furthermore, we have a cardiovascular signal in our studies, and that is that we’re better, we’re safer, so for all of the above reasons, I doubt that we will get such a letter, but one never knows.

Operator

Our next question comes from Liana Moussatos with Pacific Growth Equity.

Liana Moussatos - Pacific Growth Equity

Gerard said that the $90 million at the end of the quarter represents about 2 years cash under current assumptions, and I wondered if you could review those assumptions, and then I have a couple of other questions.

Gerard Michel

I’ll give you the categories of assumptions, and there are some I cannot give you adequate detail on, but the first assumption has to do with our extension trial which is ongoing and how long that will last. The second assumption has to do with the size of an additional type 1 trial that we want to conduct for commercial purposes. Third critical driver of expense is our purchase commitment which we have in there right now under a scenario that we are commercializing the drug in the near term. Those are the three biggest drivers of the 2-year cash flow. The overall scenario that we’re projecting under is that we file, we run another trial, but I’m not going to put numbers around to those categories for you.

Liana Moussatos - Pacific Growth Equity

Which formulation do you think you are going to use in the new type 1 trial?

Solomon Steiner

The one-part 100 IU liquid.

Liana Moussatos - Pacific Growth Equity

You are going to meet with the FDA in January, and in the press release it said that you would announce the results from this sometime in Q1, would that be in February or are you going to wait for your quarterly call?

Solomon Steiner

Well, it would be wise to see the minutes, and we have no control over when they are going to come back from the FDA, so it’s nice to say what happened at a meeting, but it’s even nicer if you know what the other party said, and so we are going to wait till we get the minutes from the FDA, and that’s under their control, not under our control. If we get information, let’s say in late February, we would probably do it in late February, but we don’t have control over when we are going to know, so we certainly think that would be by the end of first quarter.

Liana Moussatos - Pacific Growth Equity

You wouldn’t necessarily wait till your quarterly call to announce this; it would be a separate announcement?

Solomon Steiner

That’s our current thinking that we would announce because that’s important information that we would announce it in a timely fashion and not wait for the earnings call.

Operator

Our next call comes from Pamela Bassett with Cantor Fitzgerald & Co.

Pamela Bassett – Cantor Fitzgerald & Co.

I would like to know whether the microvascular trial will be extended or expanded, and how those positive results that have been seen so far might impact the filing if at all.

Solomon Steiner

Let me answer it backwards. When we file, that study will be part of the filing. It will be part of our NDA filing. We’ll have a final report on it that will be part of it. If it’s a positive outcome, and that’s good. Whether or not how it’s going to impact the filing is really up to the agency, and how much weight they put on it. It could be from nothing to considerable. What they typically do is they look at the risk-benefit analysis, and the more benefit you have relative to any risks, more likely you are to get approval, so we are very excited about it. We think it’s a positive thing. It’s hard to say how much it’s going to affect, and whether we do another trial with this, we are not planning one at this moment, but that doesn’t mean we wouldn’t do another one later on.

Pamela Bassett – Cantor Fitzgerald & Co.

Might independent investigators be interested in pursuing trials along those lines, looking at microvascular function?

Solomon Steiner

They very well might, and we would be delighted to work with our scientific colleagues to get answers to these questions.

Operator

(Operator Instructions). Our next question comes from [inaudible]

Unidentified Analyst

Now that you had a little bit more time to think about what happened in India. Can you give us a little more color in terms of what you found and what you are thinking right now in terms of any thesis with the type 1 study?

Solomon Steiner

We prefer to discuss these things with the FDA before we make public announcements. As we said in our prepared statement, we have found factors that we analyzed very thoroughly that we believe explain differences that we saw in some of type 1 patients in India, and we think that we have a thorough analysis that we’d take to the FDA, and we’ll get their input, and then we will disclose the results of that before the end of the first quarter of ‘09.

Unidentified Analyst

This is more of a question for Gerard. You mentioned in your prepared remarks controlling expenses. Could you give us a sense in terms of what you are doing to control the expenses going forward? Obviously there is a lot of moving parts in terms of your conversations with the FDA, but give us a sense in terms of what 2009 could look like.

Gerard Michel

I’m not going to give you specific guidance for 2009. I don’t expect 9 being terribly greater than 10 or vice versa, but we’ve given you under current plan projections that our current cash would last two years. In terms of controlling expenses, this was a pretty lean shop going into the announcement of our topline or preliminary topline data. There have been some headcount adjustments, nothing terribly significant because the company again was very lean going into that data, but you can expect the headcount not to grow and probably being a bit lower than it was before. We are actively having discussions with some vendors where we have some commitments, and I think we’ll probably be successful in getting a bit more flexibility in some of those commitments that will be detailed and updated in the K. We are looking carefully at things such as the extension trial and trying to understand what scientific benefit do we get for additional patient data and trying to see if we can create some savings there. We are also carefully looking through the staging things such as validation loss, trying to ensure we have the data that the FDA needs, but we postpone as much of the expense till after we have some clarity as possible. Those are the types of activities we are undertaking, but you’ll forgive me for not giving you specific dollars, but the last thing, which I think we signalled pretty clearly to people is there will be no significant capital expenditures on plants, property, etc., so we initially had hoped to put up a new laboratory because scientists are literally sitting on top of each other right now, but unfortunately we are going to continue to ask them to sit on top of each other. We’d also thought that it might make sense for our second [inaudible] on site here, and that has been postponed for the foreseeable future.

Unidentified Analyst

Just one last followup question to actually a question that Will So asked. In terms of the design of the type 1 study that you are thinking about, you spoke about length of the study, perhaps 3 to 6 months. What do you think the comparator arm is going to look like in that study versus how that’s going to be run?

Alan Krasner

I think it’s likely to be Humalog or a similar insulin analog that’s in common clinical use. For regulatory reasons in the pivotal trials, we had to compare against regular human insulin. Unfortunately, regular human insulin is not as clinically relevant as it used to use because it’s not commonly used, so we are hoping going forward, in such a study, it would be an analog like Humalog.

Operator

Our next question comes from (inaudible).

Unidentified Analyst

I think you may have partially answered my question already, but we are looking at some of your recent financial disclosures in the contractual obligations table which summarizes your significant contractual obligations as of June 30th, so it’s like this would have been your last Q, and it says that you got purchase commitments due in less than one year of about $6 million, so presumably that’s before June 30, 2009, and then within one to three years, nearly $26 million, so is that API and things like that which you are obligated to purchase? How can those payments be staged because obviously we are all concerned about your cash position.

Gerard Michel

The 2-year projection number did indeed include all those payments in case that’s a question. That’s in that 2-year projection. We have in public webcast presentations in the past said that the bulk of that is indeed API, and we probably have additional flexibility beyond what’s in that number, although we are not banking on that flexibility, but what we have done is try to take a pretty conservative approach. These contracts sometimes aren’t quite so simple to interpret in terms of what would GAAP require you to disclose, so we probably have a bit more flexibility than we’re showing there in terms of minimum purchase requirements, but with that said, we decided to be on the conservative side and show that number. We are actively trying to work to push that down. I don’t want to get into the exact machinations of how that might occur, but we’ll try to get that down if possible. On the flip side if we get a very clear signal from the FDA, it may not be prudent to try to get that down, so we are trying to maintain balance, so we have an adequate API stock pile so that we can have a meaningful launch and not face a stockout situation.

Unidentified Analyst

Reading between the lines in what you are saying, assuming that the guidance you get from the FDA is that they would welcome an NDA filing and would likely look upon favorably based upon whatever flaws or issues you found in the conduct of the trial in India, if that wouldn’t be a big deal, you would basically make the API payments by the API because you are assuming you are going to need it. If it looks like you’ll have to do, in worst case, a complete repeat of the pivotal trial, you could delay those purchases to some point in the future. Is that basically what you are telling us?

Gerard Michel

We believe we have flexibility to delay or lower those if necessary.

Unidentified Analyst

The obligatory question is can you characterize any partnership discussions that may be ongoing and some of the various permutations that may be occurring based upon this FDA meeting. Are people basically waiting for the outcome of this meeting? Does it really matter? Maybe they are thinking this would just mean a delay, but still there is an interest in licensing VIAject. Can you just kind of give us a flavor of what is going on there?

Solomon Steiner

That’s an obligatory question, and I’ll give my obligatory response. As we said before and it’s logical. Every party who voiced some interest in this program is very interested in seeing both the bioequivalency data because the 100 IU liquid formulation is critical to turn this into a very large billion dollar plus product, and they are very interested in what the FDA would like to see, the other current data if anything going forward, so they would like to see the outcome of the minutes, so we need to have all that digested, and that’ll probably take till the end of this first calendar quarter before all that is 100% clear and we are in a position to really try to move forward with some robust discussions.

Operator

Our next question comes from Pamela Bassett with Cantor Fitzgerald & Co.

Pamela Bassett – Cantor Fitzgerald & Co.

About how many patients will be included from the extension trial and to what extent might this pact may be overall filing?

Solomon Steiner

The extension trial is ongoing, and it’s been ongoing for some time because as patients who finish the 6-month period, they’re called to the opportunity to go into the extension trial. We have had over 400 patients in the extension trial already. Certainly, we’re not going to need any new ones because the trial over, and it goes for some period of time and then it stops. In terms of impacting the filing, it is customary and required that you give a safety update even after you file, a 3-month safety update of all patients, and we certainly do intent to do so, and the data from the extension trial is an additional data that gives the FDA comfort that patients can be treated over long periods of time with VIAject effectively without adverse events and with some safety advantages, so I don’t know if that answers your question Pamela?

Pamela Bassett – Cantor Fitzgerald & Co.

Should the impact is based primarily on safety, will they look at efficacy from the extension trial as well?

Solomon Steiner

They look at everything, and that information is presented as well, and of course one of the main concerns is safety, and yes, they get efficacy data as well.

Pamela Bassett – Cantor Fitzgerald & Co.

So, it’s an additional 400 patients. It sounds pretty meaningful.

Solomon Steiner

Yes, it is meaningful. They are not different patients. They are same patients but continued on, but additional data from these patients.

Operator

It appears that at this time we have no further questions, I’d like to turn the call back to our speakers for any additional or closing remarks.

Solomon Steiner

Thank you for joining us today and your continued interest in Biodel. We look forward to updating you on additional developments throughout the year. Have a good day!

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Source: Biodel, Inc., F4Q08 (Qtr End 10/31/08) Earnings Call Transcript
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