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Idenix Pharmaceuticals, Inc. (NASDAQ:IDIX)

Q4 2008 Earnings Call Transcript

February 17, 2009 4:30 pm ET

Executives

Amy Sullivan – IR

Ron Renaud – CFO and Treasurer

Jean-Pierre Sommadossi – Founder, CEO and Chairman

Analysts

Davis Bu – Goldman Sachs

Howard Liang – Leerink Swann

David Moskowitz – Caris & Company

Ryan [ph]

Jim Molloy [ph]

Operator

Good afternoon. My name is Christie and I will be your conference operator today. At this time, I would like to welcome everyone to the Idenix fourth quarter financial results call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Ms. Sullivan, you may begin.

Amy Sullivan

Thank you. Good afternoon and welcome to Idenix’s conference call to discuss our fourth quarter and year-end financial results. With me today are Jean-Pierre Sommadossi, CEO; Ron Renaud, CFO; and David Standring, our Executive Vice President of Biology.

Before we begin, let me review our Safe Harbor statement. Today's discussions contain estimates and other statements that are forward-looking under the Private Securities Litigation Reform Act of 1995. Such estimates and statements are based on current expectations and assumptions that are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially.

Additional information concerning these factors is contained in our filings with the SEC, which are available on the investor section of our website at www.idenix.com. While we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change. You should not rely on these forward-looking statements as representing our estimates as of any date subsequent to today.

The brief agenda for today’s call is as follows. Ron will quickly review our results for the quarter and provide an overview for the 899 licensing agreement, then JP will provide a brief update on our HCV program, and we will then open the call for Q&A for which David will also be available.

I will now turn the call over to Ron.

Ron Renaud

Thanks, Amy. Now let’s quickly review our financial results for the fourth quarter. For the fourth quarter of 2008, we reported total revenues of $4.3 million compared with total revenues of $12.6 million in the fourth quarter of 2007. The decrease was mainly due to $10.1 million in lower reimbursements of research and development costs from Novartis. We reported a net loss of $13.9 million or a loss of $0.25 per basic and diluted share for the fourth quarter of 2008 compared to a net loss of $17.5 million or a loss of $0.31 per basic and diluted share for the fourth quarter of 2007.

For the year ended December 31, 2008, we reported total revenues of $10 million compared with total revenues of $68 million for the year ended December 31, 2007. The majority of the decrease was due to $40.6 million in lower reimbursements of R&D costs from Novartis, a decrease of $10 million due to the lack of milestone payments in 2008 as compared to 2007, and $8 million due to lower license fee revenues.

For the year ended December 31, 2008, it’s also important to note that we reduced our operating expenses by 48%. We reported a net loss of $70.2 million or a loss of $1.24 per basic and diluted share for 2008. This compares with $82.5 million or a loss of $1.47 per basic and diluted share for 2007. The net loss reported for the 12 months ended December 31, 2007 included $8.7 million in restructuring charges.

Now for our 2009 financial guidance, we ended 2008 with approximately $46 million of cash, cash equivalents and marketable securities totaled. Including the $34 million that we should receive as an upfront payment for IDX899, we expect our current cash, cash equivalents and marketable securities to fund operations to at least the next 12 months. It’s important to note that this guidance assumes no milestone payments, additional license fees, reimbursement for development programs, and no financing activities during 2009.

And I just wanted to recap some of the IDX899 partnering terms from the announcement that we made about 1.5 weeks ago. If you remember, we licensed IDX899 to GSK subject to certain closing conditions. This transaction not only led cash to the coffers, but more importantly, we believe it puts IDX899 in the best hands to maximize the value of this asset for our shareholders. The GSK successfully develops IDX899, the total deal value before royalties could reach $450 million. This, to our knowledge, is one of the largest HIV licensing deals done to date, and needless to say we are very pleased with the outcome.

With that, I’m now going to turn the call over to JP.

Jean-Pierre Sommadossi

Thank you, Ron. We began 2008 with a renewed focus on our discovery and development programs. Over the course of the year, our focus paid off with the efficient discovery and development of a broad pipeline of drug candidates. During 2008 we successfully completed of IDX899, a non-nucleoside reverse transcriptase inhibitor for the treatment of HIV/AIDS.

And as Ron mentioned earlier, we recently announced that we have licensed our HIV program to GSK, which is a very positive outcome for this program. Very importantly, during 2008 we built a robust pipeline of HCV programs spanning three major classes of direct-acting antivirals. We advance our lead HCV nucleotide polymerase inhibitor, IDX184, to a Phase I in healthy volunteer study and advanced the drug candidate into proof-of-concept testing in treatment-naive HCV genotype-1 infected patients.

We started enrollment in this clinical trial about two months ago, and we can say that based on the environment, this has been quite challenging in the US. We have ten sites that we have initiated and screening of candidates for the trial in progress. We anticipate that we will have a large number of sites in Europe and South America on board in the next month. When these additional sites would be activated, we expect the enrollment rate in this trial to definitely accelerate. And as we have indicated before, we anticipate to have data by mid-2009 for this proof-of-concept.

Additionally, during 2008 we selected clinical candidates and continued IND enabling preclinical studies for our lead HCV non-nucleoside inhibitor and protease inhibitor program. As we begin 2009, the recent execution of the license agreement for IDX899 enables us to focus all of our resources on the advancement of our HCV programs, with the goal of having a drug candidate from each of the three major classes of direct-acting antivirals in the clinic.

On that note, I would like to end our formal remarks and open the floor to Q&A. Operator, are there any questions?

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from May-Kin Ho.

Jean-Pierre Sommadossi

Hi, May-Kin.

Amy Sullivan

Hello?

Jean-Pierre Sommadossi

Hello?

Davis Bu – Goldman Sachs

How do I get on –?

Operator

Your line is open.

Ron Renaud

Your line is open.

Davis Bu – Goldman Sachs

I can’t see barge in. Hello?

Amy Sullivan

Hello.

Davis Bu – Goldman Sachs

Hi, can you hear me?

Jean-Pierre Sommadossi

Yes.

Ron Renaud

Yes.

Davis Bu – Goldman Sachs

I’m sorry. This is Davis Bu from – speaking for May-Kin Ho. Sorry about the confusion there.

Jean-Pierre Sommadossi

Okay. Hi, Davis.

Davis Bu – Goldman Sachs

Yes. So unfortunately, she couldn’t make it and apologizes.

Jean-Pierre Sommadossi

That’s all right.

Davis Bu – Goldman Sachs

So for – just looking ahead in 2009, for EASL, what sort of data might we expect – will you be presenting any data for EASL?

Jean-Pierre Sommadossi

We will have presentations at EASL and we will update you guys in the next month or so.

Davis Bu – Goldman Sachs

Okay.

Jean-Pierre Sommadossi

We will have the presentations on 184, on NNI and the PIs.

Davis Bu – Goldman Sachs

Okay. Well, I guess we will look forward to some more update there. The second – so, as I understand your guidance for cash burn that does not include any milestone payments. I guess I was just wondering how you guys are thinking about your cash burn over the next 12 months and what we can look forward to there?

Ron Renaud

Davis, basically the way I would point it is with our year-end results, you can see by and large what we burned last year from a cash flow perspective. I would say that there is a good chance we won’t burn more cash than we burned last year. So we have a very good sense of what we need to do this year from a budget perspective. And as we look out over the next 12 months, we believe that our balance is more than sufficient to fund all the programs in a way that we need to fund them to move everything forward.

Davis Bu – Goldman Sachs

Okay, great. I think that’s it for now. Thanks.

Ron Renaud

Thanks.

Operator

The next question comes from Howard Liang.

Howard Liang – Leerink Swann

Thanks very much.

Jean-Pierre Sommadossi

Hello.

Howard Liang – Leerink Swann

Hi. Regarding 184 enrollment, I guess you mentioned you look forward to the European and North American sites. My question is, how would the European sites be different? It seems like there would be Phase III trials –

Jean-Pierre Sommadossi

We have more sites in Europe than in the US. We initiated about ten sites in the US. And look, we have a lot of the competition. We have 25 studies in treatment-naïve genotype-1 patients right now in the US. And so it’s – again that’s a pretty significant competition. We have about 50% screening rate that has entered the trial. Let’s not forget that basically the entire trial is for the individuals. So we are talking about not a large study. And between Europe and South America we have 2X the number of sites we have in the US. So definitely we will accelerate that involvement. And as we indicated before, we anticipate to be complete in mid-2009, and we believe that we will be there.

Howard Liang – Leerink Swann

Okay, that’s very helpful. So did you – can I ask whether you submit an abstract for Phase Ib data for EASL, a regular abstract?

Jean-Pierre Sommadossi

Well, look, we are – again, right now, as you know, the late-breaking is not due yet. Until the beginning of March we are going to evaluate where we stand in the beginning of March. And what we will do is we’ll give you an update definitely at the EASL time where we stand.

Howard Liang – Leerink Swann

Okay. And the mid-2009, that’s for the complete –

Jean-Pierre Sommadossi

(inaudible).

Howard Liang – Leerink Swann

Okay, great. Okay. And just one question regarding cash, I think at some point there was a consideration that you can always try to sell the royalties to the HBV compound. Is that still on the table? Is that something you will consider?

Ron Renaud

I mean, Howard, I think we’ve talked in the past, we’ve been approached by a few of the different well-known groups out there that do this kind of thing, and we’ve kept those discussions very much alive. It’s not something that’s on the front burner at this point, but it’s definitely something what we would consider, something we’ve talked about in here, but I wouldn’t characterize it as anything that’s imminent. We believe that where we are right now with our current cash balance and with the cash expected from the upfront payment in the GSK deal that we are in good shape to get through the next 12 months.

Howard Liang – Leerink Swann

Okay, great And then just lastly on the non-nuc and HCV protease programs, can you update us on where you are–?

Jean-Pierre Sommadossi

We are – I know it’s a phase where we cannot say much, Howard. And as I have indicated, we have – we will have presentations at EASL on all three classes. And we are right now basically in the IND enabling pharmacology and studies for the NNI. We have produced sufficient material. We have several kilos of API. And related to the PI, we basically are in the production stage so that we can initiate those two weeks chronic tox in two species. So as we have indicated before, we basically will execute around mid-year. We will be at IND with 375, and then for the PI, we would be around the end of the year, as we have indicated, JP Morgan and before as well.

Howard Liang – Leerink Swann

Great. Thanks very much.

Jean-Pierre Sommadossi

Thank you.

Operator

Your next question comes from David Moskowitz.

Jean-Pierre Sommadossi

Hi, David.

David Moskowitz – Caris & Company

Yes, thanks very much. Good afternoon. Couple questions. Starting on the GSK deal for 899, could you give us a little bit more on some of the terms of the deal? I recognize it’s confidential. But I guess my most important question is, when could we see the next potential milestone? Also in combination with that question, who is paying for the further development of 899? Is that fully the responsibility of GSK? And I guess the other question is, with the primary NNRTI and AIDS on the market as part of a combination product with Gilead, how do you see that market flushing out going forward with your NNRTI?

Jean-Pierre Sommadossi

That’s – I will address that. Actually the second question is easy. And it’s 100% on GSK now. So it will not cost us a penny moving forward in terms of drug development. So it’s basically we will get 100% of the milestones we will get and revenues will be basically added to our balance sheet without any basically expenses. The first question – I will address the third one. Ron will address the first question.

Ron Renaud

Yes. So David, I think, as we mentioned a couple of weeks ago, with regard to the milestones and the timing of milestone payments and so on and so forth, we are not at liberty to discuss that. I mean, this program is now in the hands of Glaxo and we are going to work with them to give them everything they need, but at the same time we are not going to try to time or get into the nitty-gritty of the milestones and when we would expect those payments. So the best I can say there is just stay tuned. But we are not able to provide any granularity on that front. I would say – I would just – to add a little bit of extra color to it, I would say that the milestone payments are split between regulatory, clinical and sales milestones. So you will have these milestones kind of spanning out over the mid and longer-term as these things play out.

David Moskowitz – Caris & Company

So there are opportunities for multiple milestones along the way?

Ron Renaud

Absolutely.

Jean-Pierre Sommadossi

Yes. There is multiple milestones at every, I would call, significant stage of clinical development. So you don’t have to wait until NDA filing before we will have significant milestones. So there is – every significant clinical development stage, there is significant milestone associated with those objectives.

David Moskowitz – Caris & Company

Got it.

Jean-Pierre Sommadossi

And then I think, look – I think that treatment for HIV are going to move forward and they are not going to basically remain static over the next five to ten years. It’s clear that why we believe that IDX899 will have a great opportunity to be part of the arsenal, both in terms of first line treatment and resistant patients. What I’d like to also indicate is, in terms of clinical development, there would be a full development in several patient populations with HIV. And it’s clear that that’s what was very attractive to us when we selected GSK as a partner of choice, because we believe that IDX899 has really a major role both in first line and also in treatment resistance of (inaudible) basically and second line and third line. You have to think about that, why we believe that we are going to replace it still [ph]. First of all, it’s clear that a trip line [ph] in the next ten years, I wish they would be there, but there tends to be a lot of changes. And the reason I believe there is going to be a lot of changes is let’s not forget that you have 20%, 30%, 40% of individuals with CNS side effect due to Sustiva.

We have about 15% to 20% of treatment-naïve to date already resistant to Sustiva or (inaudible), mostly Sustiva in developed countries, in the US, in Europe and South America. So you have already 15% to 20% that basically do not respond to Sustiva. In the same time, what we have shown is that 899 on those second generation of NNRTI have a very high barrier to resistance. The potency is exquisite; 100 milligram with maximum suppression. I think that on pound for pound, regardless of classes of drug, this is probably the most potent drug candidate in clinical development. So I think – and actually there is already some report that suggests that it’s clear that the future is going to be a combination of maybe two or three candidates with very low doses. So it’s a very good convenience, and not a gram or 1.2 gram even once a day, which is not easy to swallow.

Two, with very high barrier to resistance, all the new generation and new drugs that will come on board definitely will have a direct result that there will be crippled only after three or four mutations. And then in the same time, it’s clear for safety. So we believe that IDX899 is one of those new drugs with those attributes, and we believe that the combination of two or three of such drug will change the treatment paradigm in HIV.

David Moskowitz – Caris & Company

Okay, thanks very much. And just one question about 184 and the coming EASL meeting. Did I hear you guys right that proof-of-concept would be ahead of that meeting or correlate with that meeting and that we could see that proof-of-concept data at EASL? And –

Jean-Pierre Sommadossi

First of all, I have indicated that the proof-of-concept will be completed sometime in mid-2009. So we are talking about June, July 2009. We are going to see where we stand by EASL time. We will update the Street and scientists at EASL. As I have indicated, we have a presentation for each drug candidate. And we’ll let you know where we stand during EASL and then depending – let's not forget, this is a blinded study also and we know what we are looking. And what we are looking is the 50 milligram, the 75 milligram and the 100 milligram. So let us enroll the patients. Let’s get the data. And as soon as we have a critical mass of data that we can share, we will do so.

David Moskowitz – Caris & Company

Thank you.

Jean-Pierre Sommadossi

Thank you.

Operator

The next question comes from Brian Abrahams.

Ryan

Hi, guys. This is Ryan [ph] in for Brian. Just a quick question on 894, has your goal for viral load reductions for the three-day study shifted at all based on what you guys have been learning from the healthy volunteer study or from what you guys have seen from other antivirals?

Jean-Pierre Sommadossi

No. First of all, I don’t think that our goal has shifted. It’s clear that we always indicated that our goal is to be around 1, 1.5-log at three days. We know we are not at steady-state. After three days with a drug that has an half-life of 24 hours, it’s the first one as part of the nucleoside preliminaries that we believe in three days will be within that range, with a dose that is 10 to 34 and less any nucleoside that has been tested before. And we believe that the maximum that we will see in terms of potency will be probably after five or six days. So that’s why we have indicated that as soon as we have completed the proof-of-concept we believe that we should be within that range and that we will go straight into a two-week triple combination. And our goal is to demonstrate that in two weeks triple combination. We will have to have one of the highest percentage of PCR negative as any triple combination out there today.

Ryan

Great. Thanks a lot, guys. I appreciate taking my question.

Jean-Pierre Sommadossi

Thank you.

Operator

(Operator instructions) We do have a follow-up question from David Moskowitz.

David Moskowitz – Caris & Company

Hi again. Just a couple financial questions for Ron. So it looks like you guys burned about $15 million in the fourth quarter. And I guess my question is, is that the run rate you would expect on a quarterly basis? It looks to me like R&D was a little bit lighter than the trend, and SG&A as well? Can you talk about sort of the trends of those components off of the fourth quarter?

Ron Renaud

Yes. So it’s a good question. Actually if you’d back up some of the non-cash stuff, it’s more about – it's more like $14 million was our net cash burn for the fourth quarter. It’s hard. Our business is too lumpy to draw any conclusion from one set quarter. What I would tell you, David, is we know that we burned roughly $65 million in cash last year. I mean, just look at where we started the year and where we ended the year. And what I would tell you from that perspective, we feel pretty good about what our burn rate is going to be this year. And as I pointed out I think to someone else on the call a little bit earlier, I don’t expect to burn more cash this year than we did last year. And I think – to put it in perspective, remember, in 2008 we were running the 899 program and we were just starting to get the HCV clinical programs up. The HCV programs are up – at least for 184 is up, proof-of-concept is up and running, but the other programs are a little bit earlier. So I think what you’re going to see from an expense perspective is basically a wash in terms of the cash burn. So again, I don’t have any concerns about our cash burn this year being more than last year. And I think that’s probably a good reference point to start with.

David Moskowitz – Caris & Company

So can I take – so that’s $65 million or less is the way I take that?

Ron Renaud

Yes.

David Moskowitz – Caris & Company

Okay. And just on the revenue side, it looked like a pretty good quarter on that side. Is that all, the 4 million and change? I know there is a small amount of other. Is that all related to Tyzeka royalties?

Ron Renaud

Yes. So we did have a slight tick-up in our Tyzeka royalties during the quarter. The royalties for Tyzeka, you will see them in the 10-Q that – the 10-K that we are going to file here in a couple of weeks, but we are just a little under 900,000 for the quarter. And then remember the rest of it is, we defer our revenues that we receive as part of the Novartis collaboration. So largely what you see there are the deferred revenues from the Novartis collaboration and then there are some – we have some anti-dilution calculations that go into that number as well. I can explain some of that to you offline. It’s not terribly material, but it does factor in to the number. But the royalties are in there as well.

David Moskowitz – Caris & Company

Great. Okay, I appreciate the help. Thanks.

Ron Renaud

David, on that – I would just point out on that from that perspective, the royalty line, we don’t expect that to change too dramatically either.

David Moskowitz – Caris & Company

Meaning, for the rest of the year, off of the fourth quarter or essentially year-over-year?

Ron Renaud

Yes. I’m saying year-over-year. It’s that we will factor in what we defer out from the GSK payments.

David Moskowitz – Caris & Company

Okay, thanks a lot.

Ron Renaud

You bet.

Operator

Your next question comes from Jim Molloy [ph].

Jim Molloy

Hi, guys, thanks for taking my question. Ron, just a quick question for you on the milestones that are coming in. I appreciate the color on the split between regulatory and sales milestones. Is there any way to characterize on a percentage basis sort of how much that may be coming in on regulatory milestones versus sales?

Ron Renaud

That would certainly make it easier for you, but unfortunately, I can’t do that. I understand where you’re going with that, but the granularity that I’ve given you is about as deep as I’m going to go.

Jim Molloy

That’s quite all right. I understand the partners have their rules as well. Maybe quick thought on – on the cash basis, you bring in $34 million. When will that come in actually? When –?

Ron Renaud

It’s subject to certain closing conditions. So you can imagine we are going through a Hart-Scott-Rodino review of this transaction. So our view is once that’s clear, we are good to go.

Jim Molloy

That puts it about – this $41 million as of fourth quarter plus $34 million, about $75 million, $76 million –

Ron Renaud

It’s about $46 million at year-end plus the $34 million.

Jim Molloy

Okay. And I guess what level of cash do you feel comfortable with? And some CFOs will want to have at least a year of cash, a couple years of cash on board. Your thought I guess within a quarter, so you have inside [ph] of a year’s worth of cash?

Ron Renaud

I always feel comfortable as much as possible. I mean, we don’t have a set threshold here where – we built a budget. We know what we need to do to advance our pipeline forward and give it the best chance to succeed. We know what kind of cash we need to have to do that. And we are well positioned to do what we need to do to get to the next level. So above that, there is no clear or defined threshold. I think there was probably a time where a lot of companies could draw a line in the sand. It was easy to go out and draw those conclusions in set thresholds on cash levels. But here we have to be prudent. We look at the budget closely. As you can see, we reduced our expense base last year by about 48%. We are going to continue to watch our expenses as we go forward. But again, with the license – licensing on the 899 asset, we are well positioned to really push our HCV program forward and again give it the absolute best chance to succeed.

Jim Molloy

Thank you.

Ron Renaud

Yes.

Operator

There are no further questions. Ms. Sullivan, do you have any closing remarks?

Amy Sullivan

Yes, thank you. We’d just like to thank everyone for their time today and their interest in Idenix. And if you have any additional questions, please feel free to call. Thank you.

Operator

Thank you for participating in today’s conference. You may now disconnect.

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