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Biodel Inc. (NASDAQ:BIOD)

F1Q2013 Results Earnings Call

February 12, 2013 5:00 PM ET

Executives

Paul Bavier - Corporate Secretary and General Counsel

Dr. Errol De Souza - President and CEO

Gerard Michel - Chief Financial Officer and VP, Corporate Development

Dr. Alan Krasner - Chief Medical Officer

Analysts

Matt Kaplan - Ladenburg Thalmann

Jason Butler - JMP Securities

Richard Reznick - William Blair

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Biodel’s First Quarter Fiscal Year 2013 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 afternoon. And welcome to our first quarter fiscal year 2013 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’ll turn the call over to Errol.

Dr. Errol De Souza

Thank you, Paul. Good afternoon, everyone. Since the last quarter we continue to steadily advance our pipeline candidates with particularly emphasis on our three prong ultra-rapid-acting insulin program.

Today, we will discuss details regarding the recent topline data from a Phase I study of our ultra-rapid-acting insulin analog-based formulation, our ongoing Phase II clinical trial of BIOD-123, our ultra-rapid-acting formulations of recombinant human insulin or RHI, and developments in our concentrated ultra-rapid-acting insulin formulations. We will also provide a brief status report on our glucagon program.

Let me begin with the latest news generated by our ultra-rapid-acting insulin analog-based formulations, BIOD-238 and BIOD-250. During our last earnings call in December, we announced the initiation of a Phase I clinical trial designed to evaluate the pharmacokinetic or PK and injection site toleration profiles of BIOD-238 and BIOD-250 relative to Humalog, a rapid-acting insulin analog.

Both of our formulations were manufactured using a marketed presentation of Humalog together with our proprietary excipients which we designed to increase the rate of absorption of Humalog and to address injection site toleration using two different approaches.

BIOD-238 contains a reduced concentration of EDTA compared to our prototype RHI-based ultra-rapid-acting formulations, BIOD-100 also known as Linjeta.

BIOD-250 contains twice the concentration of EDTA than the BIOD-238 but also contains magnesium sulfate which were shown in the previous study to mitigate the injection site tolerability issues we identified with BIOD-100.

The single-center, randomized, double-blind, three-period crossover trial in 12 patients with Type 1 diabetes was conducted in Australia. Each study drug was administered subcutaneously on separate days.

Pharmacokinetic measurements were made using an assay to quantify lispro the active pharmaceutical ingredients in the study drugs and Humalog. The trial was powered to measure differences in time to half-maximal insulin concentrations.

The study sought to test the hypothesis that Biodel’s formulations of Humalog would have ultra-rapid absorption profiles with comparable or faster declines from peak concentration and comparable injection site tolerability profiles relative to Humalog. In January we recorded very encouraging results particularly with regards to BIOD-250.

The pharmacokinetic profiles of BIOD-238 and BIOD-250 prove to be consistent with our target product profile for an analog-based ultra-rapid-acting insulin. Absorption rates of BIOD-238 and BIOD-250 were significantly more rapid than that of Humalog as indicated by 35% to 45% reductions in the meantime to half-maximal insulin concentrations and times to maximal insulin concentrations.

The total amount of insulin absorbed over the first 30 minutes following injection of BIOD-238 and BIOD-250 was approximately double that seen for Humalog. The decline from peak concentration as indicated by time to half-maximal concentration after the peak was significantly shorter for both BIOD-238 and BIOD-250, compared to Humalog. All of these comparisons were highly statistically significant.

Local injection site tolerability was measured with a 100 millimeter visual analog scale or VAS and patient questionnaires. 100 millimeters is defined as the worst possible discomfort and zero millimeter is defined as having no discomfort.

In the trial, BIOD-250’s mean VAS score of 2.7 millimeters was numerically lower than Humalog mean VAS score of 8.2 millimeters was not statistically significant. BIOD-238 mean VAS score of 24.2 millimeters was significantly higher than that associate with Humalog which suggest that reducing EDTA concentration alone is not sufficient to achieve our desired injection site toleration characteristic.

Furthermore, the data with BIOD-250 which contains twice the concentration of EDTA as BIOD-238 but also contains magnesium sulfate replicates our earlier finding with BIOD-123 that magnesium sulfate can improve injection site discomfort that some patients experience with Linjeta.

In summary, the Phase I clinical trial of BIOD-250 demonstrated a rapid-on and rapid-off PK profile as indicated by the significantly faster absorption and decline from peak compared to Humalog with comparable injection site tolerability.

We presented additional details and graphical representations of these results yesterday at the BIO CEO and Investor Conference in New York City. An archive of the webcast audio and slide presentation is currently available on our website at biodel.com.

With the proof of principle demonstrated in men we are now focus on replicating the PK and tolerability profiles of BIOD-250 utilizing lispro, the active pharmaceutical ingredient in Humalog and achieving commercial stability to advance into later stage development.

The study clearly demonstrates our ability to enhance the absorption of a rapid-acting insulin analog to achieve ultra-rapid-acting PK profiles without adversely impacting injection site tolerability.

Our pre-clinical studies in diabetics line suggest that our proprietary excipients formulations can also enhance the pharmacokinetic profiles of other insulin analog such as Novolog and Apidra. We look forward to providing updates on the progress of our insulin analog-based ultra-rapid-acting formulations in the future.

Allow me to turn to the RHI-based component of our ultra-rapid-acting insulin program. In September 2012, we announced the initiation of a Phase II clinical study of our lead candidate BIOD-123, which demonstrated a PK and pharmacokinetic -- pharmacodynamic or PD profile similar to Linjeta, and absorption rate significantly faster than Humalog, while demonstrating injection site toleration profile superior to Linjeta and similar to Humalog.

The Phase II is a randomized, open-label, parallel group study being conducted at approximately 30 investigated centers in the U.S. Subjects with Type 1 diabetes are being randomized to receive either BIOD-123 or Humalog to use as mealtime insulin. Both arms of the study use insulin glargine, sold as Lantus, as basal -- as the basal insulin.

The 18-week treatment of approximately 130 subjects will evaluate HbA1c control as the primary end point and secondary end point include postprandial glucose excursions, glycemic variability, hypoglycemic event rates and weight changes.

Even though we nearly doubled the number of subjects proposed in our original trial design, enrollment has been progressing well and we remain on track to report topline data in the third calendar quarter of 2013.

More recently, we added a third prong to our ultra-rapid-acting insulin program by developing new concentrated insulin formulations. BIOD-530, a prototype concentrated U-400 formulation of RHI, disodium EDTA and citrate is under evaluation as an alternative to regular human insulin U-500 Humulin-R.

U-500 Humulin R is currently used in the treatment of insulin resistance patients with diabetes who require large daily doses of insulin. The segment of the market is growing rapidly as the incidence of obesity, a common factor associated with insulin resistance growth.

In preliminary testing, the rate of absorption and onset of action of BIOD-530 in diabetic swine are similar to or faster than Humalog and more rapid than those of U-500 Humulin R. Furthermore, BIOD-530 appears to reduce the elevator in glucose concentration seen in diabetic swine faster than U-500 Humulin R.

We look forward to providing updates on the progress of this program in the future, as we move to product candidate selection and clinical trial. Let us turn briefly to our program to develop a glucagon rescue presentation for diabetic patients experiencing severe hypoglycemia or very low concentrations of blood glucose.

As we described in December, we made a strategic decision to address a dynamic competitive landscape by focusing our efforts on the development of room temperature product presentations. We continue our preclinical studies focused on achieving a combination of pharmacokinetic, pharmacodynamic and stability characteristics that we believe would be required for a product candidate to be commercially successful.

Our minimum target product profile for this indication is a glucagon product in a user-friendly presentation with room temperature stability. Our formulation development work is ongoing and in parallel, we are addressing drug device combination compatibility issues and negotiating agreements with vendors. We will provide you with updates on our progress and projected development timelines in subsequent calls.

Finally, we continued to employ our resources judiciously and pursue cost-cutting opportunities. Our cash run rate forecast extends at least until the second calendar quarter of 2014.

That concludes my introductory remarks. Now, I will turn the call over to Gerard for a review of our first quarter 2013 financial results.

Gerard Michel

Thank you, Errol. Biodel reported a net loss for the three months ended December 31, 2012 of $3.7 million or $0.26 per share of common stock, compared to a net loss of $4.5 million or $0.47 per share of common stock for the same period in the prior year.

Research and development expenses, net of $196,000 of grant revenue, were $4.5 million for the three months ended December 31, 2012, compared to $2.4 million for the same period in the prior year. The increase in research and development expenses was primarily attributable to expanded and later stage clinical development activity.

General and administrative expenses were $1.4 million for the three months ended December 31, 2012, compared to $2 million for the same period in the prior year. The decrease in general and administrative expenses was primarily attributable to a decrease in stock based compensation expense.

Expenses for the three months ended December 31, 2012 and 2011 included costs of $0.5 million and $0.8 million, respectively, in stock-based compensation expense related to options granted to employees and other non-employee directors.

In addition, the results for the three months ended December 31, 2012 and 2011 included a decrease of $2.2 million and an increase of $100,000, respectively, in the fair value of the company’s common stock warrant liability.

Aside from research and development grants previously mentioned, Biodel did not recognize any revenue during the three months ended December 31, 2012 or 2011. At December 31, 2012, Biodel had cash and cash equivalents of $34.3 million. We got 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’d like the operator to open the call for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Matt Kaplan from Ladenburg Thalmann.

Matt Kaplan - Ladenburg Thalmann

Hi, guys. Good afternoon.

Dr. Errol De Souza

Hey, Matt.

Matt Kaplan - Ladenburg Thalmann

A question about, again, grant from the results with the rapid acting Phase 1 announced earlier this year. Can you help us understand in terms of what the next steps are that you need to do to move 250 -- BIOD-250 into further development?

Dr. Errol De Souza

Sure. Matt, as a reminder 250 and 238 were manufactured using commercial preparations at Humalog.

Matt Kaplan - Ladenburg Thalmann

Okay.

Dr. Errol De Souza

That is -- we just took the values of Humalog, added our excipient and manufactured that in terms of the clinical trial conducted in Australia. What we need to do now is to go back and manufacture the material, utilizing the active pharmaceutical ingredient which is lispro and replicate what we saw with 250. But the second hurdle that we need to achieve is to make sure that we have commercial stability that would be required for a product like this.

And those current -- those studies are currently underway. As we previously mentioned, we’re working with one collaborator who is provided a source of lispro while we are also sourcing other sources of lispro. So when we are close to doing a candidate then we can outline sort of the timelines in terms of moving forward.

Matt Kaplan - Ladenburg Thalmann

And what do you think the risks are at this point in terms of being able to transition from the commercial preparations to the API and having a similar profile to what you saw in Phase 1?

Dr. Errol De Souza

Right. I think, we are always cautiously optimistic in terms of our ability to replicate the formulation and move forward but it really depends on the hurdle. I mean, if you look at the hurdle that we are currently setting for us, it’s really the highest hurdle which is utility for this type of a formulation in the pump setting.

And that hurdle requires stability to be demonstrated at 37 degrees and a pump setting under shaking condition et cetera. So that is the highest hurdle. On the other hand as you well know the largest population that’s out there is the MDI population, multiple daily injections and there we would be looking at stability at 5C for one to two years, and then you’d be looking at room temperature stability.

So really, you are looking at different hurdles for different segments of the market that are out there. The hurdle that we’d like to achieve is the highest hurdle at 37 degrees and that’s what we’ve said ourselves in the short-term, obviously the other hurdles would be slightly lower.

Matt Kaplan - Ladenburg Thalmann

And we should now in terms of the stability commercial but you can’t commercial stability, which obviously you are setting for the other -- if you chose the pump setting you are also going to achieve the multiple dose setting as needed. When should we know if you’re able to see that stability?

Dr. Errol De Souza

I don’t -- I can’t comment at this point because it’s a little more complex in just giving you a timeline.

Matt Kaplan - Ladenburg Thalmann

Yeah.

Dr. Errol De Souza

As we mentioned before, we’re working with a collaborator that is providing the lispro to as currently that we’re working on. Part of that collaboration agreement is requirement to share some data with them. And that has sort of limitations in terms of disclosure which I hope you can appreciate.

Matt Kaplan - Ladenburg Thalmann

Okay. Excellent. That’s fair enough. Talking a little bit about the next steps and timing for the glucagon since your decision to move to -- the room temperature is stable is I think is a good one. Where are you now, I guess, you know, it’s only a few months later but can you give us an update with respect to that?

Dr. Errol De Souza

Sure. We are continuing to make progress but not enough progress to announce the timelines and let me give you a little bit of color in terms of what we’re looking at now. As I mentioned in my introductory remarks, we are looking at formulations and presentations that would achieve our target product profile.

In essence, we’re looking at a variety of presentations, all of which would have drug device combinations. Now, given the fact that their device combinations, devices involve, we have to negotiate agreement related to these specific devices. And those negotiations are currently underway which would really limit being able to give you sort of timelines and to give you exactly what needs to be done in terms of going all the way to the goal line which in our case would be NDA filing until we have negotiated these agreements.

Matt Kaplan - Ladenburg Thalmann

Okay. Good fair enough. I guess, the question -- thank you for the update. Question for Gerard, in terms of R&D expenses, roughly $4.7 million for the fourth quarter, quarter ending December. Do you expect that kind of rate to maintain during 2013, calendar 2013 quarterly or is that…

Gerard Michel

I mean, that’s $4.7 million and $4.6 million, I think, it was the last quarter, that’s quite a bit of bump over what was probably $2.5 million to $3 million for proceeding quarters and that’s primarily driven by. We had a Phase 1 running and the Phase 2 that’s ongoing right now.

We no longer have that Phase 1 running. So that will take a bit of the burn down and the Phase 2 is almost fully up and running. So the cost there probably is only going to go one way and that will probably be down. So I don’t expect that we’re going to maintain that level of research burn unless we announce additional things to put in development, we don’t have any plans at this moment to put anything in addition to development.

Matt Kaplan - Ladenburg Thalmann

Do you expect as you complete the Phase 2 data in the third quarter. So fourth quarter would be a bump down again?

Gerard Michel

Yeah. And it will probably bump down prior to that just as patients come off drug.

Matt Kaplan - Ladenburg Thalmann

Great. Thanks guys.

Dr. Errol De Souza

Thanks, Matt.

Operator

Thank you. Our next question comes from Jason Butler from JMP Securities.

Jason Butler - JMP Securities

Hey guys. Thanks for taking the question. Just on your concentrated insulin candidate BIOD-530, you have some animal data -- PK data in animals. Could you talk about what the profile you’re aiming for here as in what you still think you need to work on before moving the candidates into the clinic?

Dr. Errol De Souza

Hi Jason. Thanks for the question. The concentrated insulin program, we’ve got some very nice data that we’ve shared with you in terms of having an ultra rapid component that is at least as fast in terms of absorption as Humalog and significantly faster than the competitor space which is U-500, Humulin R.

We also have a nice suppression of the high levels of glucose that are seen. And that happens immediately by comparison with the lag that you see with U-500, Humulin R. So the PK profile looks good. As usual, the other kinds of studies that we’re doing in parallel in terms of moving towards selection of final candidate is to the stability studies at different temperatures, which will give us a sense for the final candidate selection.

The other kinds of things that we are doing, Jason, just to give you a little bit of a sense, BIOD-530 has EDTA and citrate that we’ve talked about. The recent study that we talked about, I mean, we clearly see the benefits of magnesium sulfate from an injection tolerability issue.

So we are adding magnesium sulfate to the formulations. We’ve got preliminary PK data suggesting that we see comparable pharmacokinetic characteristics but as we’ve done in the past, we need to repeat those studies and then to look at stability before we select a final candidate.

Jason Butler - JMP Securities

Okay. Great. Thanks a lot for color.

Dr. Errol De Souza

Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from Richard Reznick from William Blair.

Richard Reznick - William Blair

Hi guys. This is Rich Reznick for John Sonnier, William Blair. Thanks for taking my question.

Dr. Errol De Souza

Hi, Rich.

Richard Reznick - William Blair

I guess, there has been a lot of focus obviously on the clinical side of things but especially in the last -- yesterday and then even in last month or so, there has been obviously lot of regulatory news coming out of the FDA with diabetes drugs and even with the insulin drugs in particular.

So I guess, I was just wondering if you guys have any updated thoughts on the regulatory strategies for insulin drugs. And if there is any concern or if you think that based upon the Linjeta database you have, you still feel pretty confident that you’re comfortable with the strategy that you have or the strategy that would be going forward with insulin drug, especially the short acting drugs. Thanks?

Dr. Errol De Souza

Yeah. Great question, Rich. I think the comfort level that we have is in the 505(b)2 and that we are dealing with products that have had a lot of clinical experience in terms of being in the market for years. Like RHI and like Humalog is an example, unlike what you’ve heard over the last couple of days, we are not dealing with a new molecular entity in terms of moving forward.

So as far as we’re concerned, the path that we’re looking in terms of following and the path to approval has not changed given the 505(b)2 path that we’re following and the comfort level is in the strategy that we built for Biodel is to really focus as much as we can on a 505(b)2 pathway.

Richard Reznick - William Blair

Great. Thanks.

Operator

Thank you. I’m showing no further questions at this time. That concludes the Q&A portion of the call. I’ll turn the call back over to Dr. De Souza.

Dr. Errol De Souza

Great. Thank you all for attending today’s call and for your questions and have a great day.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may all disconnect.

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