VIVUS Inc. Q4 2008 Earnings Call Transcript

VIVUS Inc. (VVUS)

Q4 2008 Earnings Call

March 9, 2009; 4:30 pm ET

Executives

Timothy Morris - Chief Financial Officer

Leland Wilson - Chief Executive Officer

Peter Tam - Chief Operating Officer

Analysts

Jason Butler - Rodman & Renshaw

Adam Cutler - Canaccord Adams

Ian Sanderson - Cowen

Marc Robins - Robins Group

Presentation

Operator

Good day everyone and welcome to the VIVUS fourth quarter and year end 2008 earnings results conference call. This call is being recorded. With us today from the company is the Chief Executive Officer, Mr. Leland Wilson; Chief Operating Officer, Peter Tam and Chief Financial Officer, Mr. Timothy Morris.

At this time, I’d like to turn the call over to Mr. Morris; please go ahead sir

Timothy Morris

Before we get started, I’d like to remind you that during the course of this conference call, VIVUS may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are just predictions and actual events or results may differ materially.

Investors should read the risk factors set forth in the VIVUS Form 10-K for the year ended December 31, 2007 and periodic reports filed with the Securities and Exchange Commission. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

I would now like to turn the call over to Mr. Leland Wilson, President and CEO of VIVUS.

Leland Wilson

Thank you, Tim. Good afternoon and thank you for joining us today. 2008 was a challenging and successful year for VIVUS. Despite a worldwide economic downturn, VIVUS has remained squarely on track with our corporate and clinical initiatives. During the fourth quarter of 2008 and the first few months of 2009, we achieved a significant milestone in both our Qnexa and Avanafil programs.

In addition, we have continued to conversely utilize our cash, which remain strong with nearly $190 million in cash and securities at the end of 2008. We believe strongly in the potential of our clinical portfolio and the data which we believe supports our opportunities to introduce new best-in-class therapeutic options for obesity, diabetes and sexual health disorders. We are particularly encouraged by the results we have seen in our Qnexa Obesity trials, which in our opinion are clearly best-in-class.

Based on the growing body of data from our clinical trials, we continue to believe the Qnexa has the potential to significantly impact both the treatment of obesity and diabetes. We are also confident that are experience as the management team will allow us to maximize the value of these large market opportunities, once we have the full Phase III data set for Qnexa in hand

On the management team front, we were pleased to announce two key promotions in January of this year. Peter Tam, who has been with VIVUS since 1993 and has been in the role of Senior Vice President of Product & Corporate Development since 2004, has been promoted to Chief Operating Officer.

As many of you know, Peter has contributed greatly to our success throughout the past 16 years. Peter was primarily responsible for in-licensing Qnexa, Avanafil, Evamist and Luramist. In addition, he has also played a significant role in the development of the rest of our clinical pipeline. Peter will continue to lead our development and partnering activities.

Dr. Charles Bowden was promoted to Senior Director of Clinical Development. Since 2007, Chuck has been a key member of our management team. Most significantly, Chuck has successfully led our experimental medicine program and most recently, assumed responsibility for the Avanafil Phase III clinical program. We look forward to the continued contributions of both Peter and Chuck in their expanded roles.

At this point, I’d like to turn the call over to Peter, who will review our ongoing Qnexa studies and the upcoming milestones for this program and the Avanafil development program. Peter will then turn the call over to Tim, to review our financial results for 2008 and our outlook for 2009. Peter.

Peter Tam

Thanks Lee. As Lee mentioned, 2009 will be a critical year for VIVUS and our recent progress, especially with Qnexa leads us to believe that 2009 will also be a historical year for VIVUS.

Starting with Qnexa, we recently released positive results from our Phase III program in obesity and our Phase II program in type 2 diabetes. In obesity, we released data from the first of our Phase III trials EQUATE or OB-301. In EQUATE study with a 28 week trial conducted at 32 sites designed to compare the efficacy of Qnexa to each of the two individual active agents at corresponding dose levels.

The study met the primary end point of demonstrating superior weight loss with both the full-dose and the dose of Qnexa, compared with individual components and placebo. Specifically, the primary end points for weight loss in the percentage of patients achieving in 5% of weight loss, the study randomizes 756 obese subjects.

As a reminder, Qnexa is a proprietary once-a-day pill containing a controlled release formulation of topiramate and immediate release of phentermine. The full-dose of Qnexa contains 92 milligrams of topiramate and 15 milligrams of phentermine and the mid-dose contains 46 milligrams of topiramate and 7.5 milligrams of phentermine. The mid and high dose of Qnexa contain only one quarter to one-half of the approved dose of phentermine and less than one-eighth to one-quarter of the approved top dose of topiramate.

On an intent-to-treat basis with last observation carry-forward, subjects treated with the full-dose of Qnexa experienced an average weight loss of 9.2% and subjects treated with mid-dose Qnexa, the dose that contains less than one-eighth of the approved top dose of topiramate had an average weight loss of 8.5%, compared with weight loss of 1.7% in the placebo group.

The p-values for these comparisons were less than 0.0001. Importantly, both the mid and full dose of Qnexa achieved significantly greater weight loss than the single agents at each corresponding dose level. Moreover, the weight loss achieved with the mid-dose Qnexa was significantly greater than both the high dose single agent arms of topiramate and phentermine.

For the full-dose group, the average weight loss was 20 pounds, and for the mid-dose group the average weight loss was 18 pounds compared with just three pounds in the placebo group over 28 week treatment period. The percentage of patients losing 5% or more of their initial body weight was 66% for the full-dose and 62% for the mid-dose group, both compares favorably to just 15% for the placebo group.

In addition, the percentage of patients losing 10% or more of their body weight was 41% for the full-dose Qnexa group and 39% for the mid-dose patient group. Again, this compares very favorably to just 7% for the placebo group. These data are all ITT LOCF analyses.

Qnexa was well tolerated with no drug related serious adverse event in the study. The most common drug related adverse events for all patients populations including the placebo group were paresthesia, which is off then characterizes mild tingling inflation of the extremities, dry mouth, altered taste and constipation.

At the end of last year, we also released data that demonstrated for the first-time. The Qnexa maybe able to advert the development of type 2 diabetes in obese patients who are pre-diabetic and on the verge of developing diabetes. The quick study, as you know enrolled patients without diabetes.

However, some of these patients have early signs of insulin resistance and pre-diabetes in our trial. The quick study demonstrates that subjects treated with Qnexa had a significant improvement in glycemic control, as measured by a reduction in HbA1c compared with placebo in a dose response manner.

This is an important finding in the understanding of the role that Qnexa place in the glycemic control and the treatment of type 2 diabetes. It is widely understood that obesity is the major risk factor for the development of type 2 diabetes and that if untreated many obese people will develop insulin resistant’s meeting to the development of type 2 diabetes. Based on these results to-date, we believe Qnexa may have the potential to avert or eliminate beyond set of type 2 diabetes in high risk individual.

As a reminder, our Phase III Qnexa program includes in addition to the EQUATE study, two one-year pivotal, double-blind, placebo-controlled trials. The EQUIP study is targeting morbidly obese individuals with or without controlled co-morbidities and the largest of our Phase III study, the CONQUER study is evaluating the safety and efficacy of Qnexa in overweight or obese patients with at least two weight related co-morbidities that are not well controlled.

We expect to realize top line results for both of these studies in mid 2009. In total, we have enrolled approximately 4500 subjects and our plan is to complete our MBA submission for the treatment of obesity by the end of this year. We also realized Phase II data from the one-year study in obese diabetes, DM-230.

DM-230 enrolled approximately, 130 patients at 10 sites in the United States. This study demonstrated a significant and continues reduction in HbA1c of 1.6% at one year and subjects treated with Qnexa, as compared to placebo. This significantly greater reduction in HbA1c achieved with Qnexa over placebo occurred in the presents of the placebo patients receiving three times more additional anti-diabetic medication and increasing doses of anti-diabetic medication during the study.

By contras concurrent anti-diabetic medications were actually reduced over the course of the trial in subjects treaded with Qnexa. In addition, over this one-year period, subjects treaded with Qnexa loss 9.4% of the baseline body weight or 20.5 pounds, compared with just 2.7% or 6.1 pounds for placebo group.

The p-value for this comparison was less than 0.0001 and again it was based on an ITT LOCF analysis. Notably, morbidly obese diabetics on Qnexa that had a based line BMI score of greater than 40 lost on average more than 40 pounds during the study. Overall, subjects treated with Qnexa also experience reduction in blood pressure, triglycerides and waist circumference.

This is first time that we are aware of in a double-blind placebo control trial that a weight loss agent has ever been able to achieve a continuous glycemic improvement in both HbA1c and Fasting plasma glucose at one year in a long standing obese diabetic patient population. In the presence of a reduction of contaminate diabetic mitigation.

We are very pleased with the results from this diabetes study and the Phase III EQUATE study as they confirm our hypothesis that treating obesity with Qnexa, is an appropriate way to treat or prevent the development of Type 2 diabetes and has importantly to reduce many of the other weight-related cardiovascular co-morbidities such as hypertension and dyslipidemia, which ultimately will lead to premature debt.

Turning to Avanafil; during the fourth quarter, we initiated Phase III program in Erectile Dysfunction also known as ED. Our Phase III program is being conducted following our discussion and agreement with the FDA, which include a special protocol assessment. Our first study, REVIVE or TA-301 with a randomized, double-blind placebo-controlled efficacy and safety study of Avanafil in men with a history of erectile dysfunction.

We initiate this trial in December, there will be a four week running period followed by a 12 weeks of double-blind placebo-controlled treatment. The primary end points are improvement in erectile function as mentioned by the sexual encounter profile diary, an improvement in the International Index of Erectile Function score for IIEF. We expect to enroll more than 600 patients through approximately 40 U.S. sites and we expect to report data from this study by the end of 2009.

Earlier this year, we initiated our second trial REVIVE-Diabetes or TA-302 of the treatment of ED in men with diabetes. Diabetes is one of the most common causes of ED. REVIVE-Diabetes is also a multicenter, randomized, double-blind, placebo-controlled trial that will evaluate the safety and efficacy of Avanafil and a treatment of ED in men with diabetes.

The trial design and end points are similar to the REVIVE study being conducted and patients with general erectile dysfunction. We expect to enroll approximately, 375 subjects for this study. We expect also to begin the one-year open-label safety study and the post-radical prostatectomy study this year.

I will now turn the call over to Tim to discuss our financial results. Tim.

Timothy Morris

Thank you, Peter. Let’s start with the balance sheet. We ended 2008 with cash, cash equivalents and available-for-sale securities of $189.2 million. At December 31, 2007, we had $179.5 million in cash, cash equivalents and available-for-sale securities.

The 2008 increase as compared with 2007 consists of $63.7 million in net proceeds received from a registered direct offering of our stock and the cash receipts of $17.2 million from the Deerfield financing transaction, offset by cash used in operations and other net cash uses for 2008 of $71.2 million.

Turning to the income statement, for the full year ended December 31, 2008 total revenues were $102.2 million, compared with $54.7 million for 2007. The increase in revenues is primarily due to the recognition of the K-V deferred license revenue. MUSE revenues were $18.1 million as compared with $19.4 million in 2007.

The net loss for 2008 was $9.9 million or $0.16 per share, compared with a net loss of $2.4 million or $0.04 per share in 2007. The increase in the net loss per share is primarily due to an increase in operating expenses related to our Phase III clinical trials of Qnexa. For more information on the financial results, please refer to the press release and the soon to be filed 10-K for the year ended December 31, 2008.

For an IR update, despite the negative investor settlement, we continue with an aggressive outreach program ahead of the expected data release from the remaining Phase III Qnexa studies. Scheduled presentations include the Cowen Healthcare Conference in Boston, March 18 and 19; the BioCentury Future Leaders Conference in New York City, April 21.

During the Cowen conference, we will also host a dinner Wednesday night, March 18. The dinner will feature a panel of MDs, including an investigator from the EQUATE study and a neurologist experienced in treating patients with topiramate. If you are interested in attending one of these events, contact myself or Brian Korb of the Trout Group.

With that, I’d like to turn the call back over to Le for a few additional comments.

Leland Wilson

Thanks, Tim. In 2008, we achieved significant milestones that we believe lay the foundation on which we can build a strong long term growth strategy. Over the past year, we successfully completed our EQUATE study, the first of our Phase III trials of Qnexa for obesity, fully meeting all study end point. We’ve also fully enrolled the EQUIP and the CONQUER studies. These later two studies will complete our Phase III program mid year of this year.

We also successfully completed a six month and a one year study of Qnexa in type 2 diabetes, both with unprecedented results. We are also granted a patent by the European Patent Office that broadly covers Qnexa and it’s used as a weight loss treatment. We also initiated the Phase III program for Avanafil and erectile dysfunction.

Looking ahead to 2009, we expect this year to be even more rewarding with several meaningful milestones on horizon. In 2009 we expect to release Phase III EQUIP and CONQUER top line data for Qnexa for obesity; we also expect to report data for our REVIVE study of Avanafil for the treatment of ED; and finally believe we’re on track to file our NDA for Qnexa for use in the treatment of obesity late in 2009.

Before I conclude, I’d like to update you on our plans for partnering Qnexa. We previously stated that we’ll begin discussions with potential partners after the release of the year long studies. We recognized that Qnexa could be an important treatment options for a broad population of Americans who are over weight or obese.

Choosing the appropriate commercialization strategy and partner is critical for Qnexa and for VIVUS. While we appreciate the numerous suggestions from our shareholders, please be reminded that our current management team has a successful history of completing excellent partnership arrangements, beginning with MUSE in 1995 and recently with Evamist, just to give two examples.

The partnership process will take time. We have received numerous, unsolicited partnering increase about Qnexa. We expect to complete our commercialization agreements ahead of our expected launch. In order to preserve the competitive nature of the process, we cannot discuss potential partners, nor give you an update of our discussions with these partners. When a deal is completed, the proper announcement will be made at that time.

In summary then for our call, we remain positive about our future opportunities. While the market environment is certainly challenging, we believe we are well positioned for success, as well now as ever before. We have a tremendous portfolio of assets that address unmet needs in patients and practitioner communities. A strong balance sheet and a strong management team focused on executing our growth strategy.

With that, I’d like to open the call up for questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jason Butler - Rodman & Renshaw.

Jason Butler - Rodman & Renshaw

I was just wondering if you could give us some background on the methodology you’re using to assess changes in cognitive function in the EQUIP and CONQUER studies and maybe point us to any historical examples, where the FDA has accepted the use of this methodology in the past?

Peter Tam

Yes Jason, this is Peter. We haven’t disclosed specific instruments that we are using to assess cognitive function, but one thing I do want to remind is we do have those tools in place in our trials.

What we’re going to do is that in addition to the adverse events, we will provide to the FDA the results of these cognitive instruments, but just right now we haven’t disclose the exact tool yet, but one thing I also want to remind you is that the incidence of cognitive events were very low in all the studies that we’ve conducted today, especially because of the low doses of topiramate that we’re using.

So in the grand scheme of things, I just really don’t see how much more we can provide or how much additional information we can provide in terms of cognitive issues that have already not been addressed by the label.

Jason Butler - Rodman & Renshaw

Okay great, and then maybe not specifically a partnership question, but maybe something that goes to the potential pro forma partner. Can you discuss what you guys view as the initial target physician population for Qnexa when assuming the drug’s launched?

Leland Wilson

Yes, well we believe that it will start with specialists; that will be to include diabetologist, endocrinologist and weight loss specialists, but also include cardiologist. They are a very powerful influential group in this treatment of treating metabolic disease if you will on cardiovascular risk and so that will be the start.

Clearly we’ll roll that out to primary care. 60% of the population of United States is over weight or obese and so that’s a very large target population, clearly covered by primarily by primary care physician and so we would very much like to have a very big partner to go reach that very large population.

Operator

Your next question comes from Adam Cutler - Canaccord Adams

Adam Cutler - Canaccord Adams

I’m wondering, can you give us an update on any discussions you’re having with European regulatory authorities about some of the studies you may need to be there in order to enable filing in Europe. I know you’ve mentioned in the past that there maybe some additional studies or some longer term studies that you may want to do to support filing there.

Leland Wilson

Yes Adam, we had really very good discussions with the European regulatory authorities and we believe that our U.S. clinical program is actually adequate for European filing. There will be perhaps a few short term animal tox studies that we would need to do. These are what we call the traditional box checking studies and from our strategic standpoint, we will have to make a decision; it’s not a requirement, but we will have to make a decision as to whether or not we want to do an active comparative trial as a clinical study.

Adam Cutler - Canaccord Adams

Okay and then in terms of studies to enable our filing for our diabetes label, can you give us a little bit of an update on where you stand there and when you might begin that program and whether you would wait for a partnership to occur before even for that?

Leland Wilson

Yes, it’s a bit of ‘all of the above.’ Right now we are primarily waiting for the conclusion of our Phase III obesity program and as you may recall the OB-303 study has a fairly large group of diabetic patients, which will give us further results as a dose ranging format as to the appropriate doses for our diabetes program. So, we’re going to wait for results of the 303 study, before finalizing our plan for the diabetes Phase III program.

Operator

Your next question comes from Ian Sanderson - Cowen.

Ian Sanderson - Cowen

First, can you give us some sense of what you’re looking at for cash burn for 2009 and secondly, can you remind us what the U.S. patent status is for Qnexa and then the third question is just a follow-up. Peter, you mentioned something about an active competitor trial for the EU filing that you’re deciding whether to do that, would that be a requirement in your view?

Peter Tam

The active competitive study is not a requirement; it is important from the marketing standpoint and also from a reimbursement standpoint. So, that’s a decision we will have to make eventually, but it is not a requirement.

Ian Sanderson - Cowen

In EU, it definitely is not?

Peter Tam

Correct, it’s just like rimonabant. Rimonabant never have to do an active competitive trial over there and got approval in Europe and then I think one part of your question has to do with the patent.

Ian Sanderson - Cowen

Yes, just remind us where the U.S. patent?

Peter Tam

Well we have an issued patent, the parent patent for the combination product, which encompasses a composition of matter claim, method of use, as well as formulation. We also have additional CIPs filed.

Ian Sanderson - Cowen

And then the cash burn, any guidance there?

Leland Wilson

Yes Ian, I think we gave guidance on the last call. We’d end the year at about $100 million, we haven’t changed that. The bulk of the spending will happen this year. We’ll obviously be in a better position to update you once all the studies are finished and have completed out and we kind of settled up the final bill, so that’s where we are.

Operator

Your next question comes from Marc Robins - The Robins Group.

Marc Robins - The Robins Group

Describe again the European patent situation, what was the filing, what were the claims and what are we protecting there? The second one is, one of the side effects with the Qnexa is insomnia, at lest from the topiramate. When you put those two together, that’s going to negate the topiramate of it’s time realized, being able to treat insomnia; any thoughts about how that might be attenuated other than just adding more bills?

Leland Wilson

Yes Marc, the European patent that has been allowed, granted in Europe, is actually a broader patent from some respect, I would have to check with our patent council on that, but it is granted as composition of matter, just in method of use and also includes a broader class of some [pathama] medic agents that could be used with the sulfamate antiepileptics. So, that’s over in Europe in terms of the patent situation over there.

In terms of the side effects, again the insomnia, we have reported a small percentage of patients experiencing insomnia as to whether one drag is countering the effects of the insomnia. Again the EQUATE study was not big enough to demonstrate that, so again these numbers aren’t large enough in a trial, a short term trial like this for us to make any claims, but all-in-all the thing is that there were very, very few dropouts as a result of insomnia in some of these more well known side effects associated with topiramate.

Operator

Thank you and with no further questions at this time, I’d like to turn the program back over to Mr. Wilson for any additional or closing comments.

Leland Wilson

Okay, well we’re coming down the home stretch here. I think everybody should know that we are aggressively working on our NDA as we speak. It’s amazing to understand how many consultations that you have to bring onboard to convert a traditional NDA into a computerized submission, but the board, we’re after it full time right now and it’s a very happy time at VIVUS. Working on these NDA is always a very pleasant experience. It clearly often comes down in the last few hours of a hectic Phase; that is what we all work for here.

Having an NDA to your credit is a very big deal in our industry. I’ve been blessed to do many of them and this is an exiting time for people that are rather new to it within our organization and so it’s a very good time.

We are very comfortable that the data that we’re going to receive here mid-year for our one year long studies is going to be very strong. We have completed four studies with Qnexa, all saying the exact same thing. This drug is a very prudent compound for the reduction of weight that has universally shown reductions and all cardiovascular risk factors and it has improved metabolic parameters, even in patients that have normal metabolic profiles.

As Peter said, the results that we saw in our diabetic patients profile are really unprecedented; that is, at one year HbA1c and fasting plasma glucose were continuing to go down at one year; that has never been done to my knowledge and this is in light of a reduction in other meds to treat oral medications to treat diabetes in this population. So it is truly phenomenal results. So we’re exited to get the Phase III results and get this NDA and to get an approval. So, we’re all about that at this time at VIVUS.

I’d like to thank everybody for your support, pray for the market to return and that our investors are successful themselves, so that we can have a place to call upon in the future. So, with that we’ll close out the call. Thank you all very much.

Operator

That does conclude today’s conference. You may disconnect your lines at this time.

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