Molecular Insight Pharmaceuticals, Inc.Q4 2008 Earnings Call Transcript

Molecular Insight Pharmaceuticals, Inc. (MIPI)

Q4 2008 Earnings Call

March 16, 2009, 10:00 am ET

Executives

John Babich - CEO, President and CSO

Debbie Lorenz - Senior Director IR and Corporate Communications

Don Wallroth - CFO

Jim Wachholz - VP, Regulatory Affairs and Quality Assurance

Analysts

Marko Kozul - Jefferies & Company

Debjit Chattopadhyay - Boenning & Scattergood

George Zavoico - Westport Capital Markets

Aaron Reames - Wachovia Capital Markets

Presentation

Operator

Good morning and welcome to the Molecular Insight Pharmaceuticals Fourth Quarter and Year End 2008 Financial Results Conference Call. My name is Dan and I will be the operator on today's call.

I will now turn the call over to Dr. John Babich, Chief Executive Officer and President of Molecular Insight. Please proceed.

John Babich

Thank you, Dan. Good morning. Thank you for taking the time to join us today for our 2008 fourth quarter and year end conference call. I am John Babich, CEO and President of Molecular Insight.

I am joined on today's call by Mr. Paul Looney our Chief Operating Officer, Mr. Donald Wallroth our Chief Financial Officer, Dr. Norman LaFrance our Senior Vice President of Clinical Development and Chief Medical Officer, Mr. Jim Wachholz our Vice President of Regulatory Affairs and Quality Assurance, and Ms. Debbie Lorenz our Senior Director of Investor Relations and Corporate Communications.

First it is important to let you know that we will be making forward-looking statements on today's call. Debbie is going to recite a brief Safe Harbor statement and then we will proceed with the rest of the call.

Debbie Lorenz

Thank you, John. This is just a reminder that statements made on this call that are not strictly historical in nature constitute forward-looking statements. Such statements include, but are not limited to statements about the development of Azedra, Zemiva, Trofex, Onalta and Solazed and our early-stage candidates.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results of Molecular Insight to be materially different from historical results or from any results expressed or implied by such forward-looking statements.

These factors include, but are not limited to risks and uncertainties related to the progress, timing, cost, and results of clinical trials and product development programs; difficulties or delays in obtaining regulatory approval for product candidates; competition from other pharmaceutical or biotechnology companies; and the additional risks discussed in filings with the Securities and Exchange Commission.

All forward-looking statements are qualified in their entirety by this cautionary statement, and Molecular Insight undertakes no obligation to revise or update this call to reflect events or circumstances after the date hereof.

I will now turn the call back to John.

John Babich

Thanks, Debbie. Next Don Wallroth our CFO will summarize our financial results for the fourth quarter and for the year 2008. I will then review our recent research and development and corporate highlights. Then I will open up the call to our audience for a question-and-answer period. Don?

Don Wallroth

Good morning everyone and thanks John. As we noted in today's press release, Molecular Insight's fourth quarter 2008 net loss was $15.8 million or $0.63 per share on a basic and dilutive basis, compared to a net loss of $21.6 million or $0.87 per share on a basic and dilutive basis on the fourth quarter of 2007. Total revenue for the fourth quarter of 2008 was approximately $236,000 compared to the total revenue of approximately $151,000 in the fourth quarter of 2007.

Company received funding under various research and development grants. This increase in revenue for the quarter is due primarily to the timing of grant-related activities. Operating expenses for the fourth quarter of 2008 reflected a 44% decrease from the same period in 2007. Research and Development expenses, which represent 60% of total operating expenses, was $6.7 million for the quarter, as compared to $13.4 million for the same period last year.

Key components of this 50% spending decrease are associated with the conclusion of the Zemiva trial and the timing of activity surrounding the Azedra clinical efforts. Operating expenses reflected a 31% decrease in G&A expenses. This decrease was due to the aggressive implementation of operating efficiencies including a reduction in legal fees, use of consultants and a workforce reduction.

Other expenses, net was $5.1 million for the three months ended December 31, 2008 as compared to $2.2 million for other expense for the same three-month period in 2007. This increase in interest expense for the fourth quarter of 2008, compared to the fourth quarter of 2007, was due primarily to the $1.3 million in payment-in-kind interest accrued on the company's $150 million Senior Secured Floating Bonds.

For the twelve-month ending December 31, 2008, the company reported a net loss attributive to common shareholders of $81.3 million, or $3.25 per share on a basic and diluted basis. This compares with a net loss of $61.2 million for the same twelve-month period in 2007.

Included in the net loss for the twelve months ending December 31, 2008 is revenue of approximately $500,000, which represents grant revenue from various research and development grants and compares with approximately $700,000 for the same source, during the period ended December 31, 2007.

Operating expenses for the twelve months ended December 31, 2008 increased by 6% to $62.4 million, up from $58.4 million for the same period in the previous year. R&D expenses, which accounted for 62% of the company's operating expenses for the twelve months ended December 31, 2008, decreased 5% to $38.7 million from $40.5 million in the same period last year.

This decrease was due primarily to reduced manufacturing and clinical trial costs associated with the Zemiva program and reduced license fees for Onalta and Azedra. This decrease was offset by increases in clinical trial spending for the Azedra and Trofex program and a compensation-related expense.

The 32% increase in G&A took $23.7 million for the twelve months of 2008, as compared to $17.9 million for the same period in 2007 is attributable to stock-based compensation costs, severance costs related to employee terminations, and fees associated with the company's compliance under Sarbanes Oxley.

The increase in other expense, net for the twelve months ended December 31, 2008 is attributable principally to $18.3 million payment-in-kind interest accrued on the company's $150 million Senior Secured Floating Bonds.

As of December 31, 2008, the company had approximately $105.8 million in cash, cash equivalents, and short and long-term investments, which are invested in US Treasury securities.

As we mentioned on prior calls, we continue to review our operating expenses to determine further appropriate adjustments to our G&A expenses. As a result of implementing our cash optimization strategies, we will reduce our projected cash burn by 10% to 20% in 2009 and 2010 as compared to 2008 by reducing expenses not directly related to our clinical development programs. We therefore are financially situated to continue development of our core clinical programs.

With that, I will now turn the call back to John Babich.

John Babich

Thank you, Don. Now I would like to review some of our recent corporate developments and research and development highlights, as well as our near-term clinical goals for 2009. Since last we spoke, our board moved to bring better definition and clarity to our management structure.

Dr. Tony Martin was elected Non-Executive Chairman. I was elected CEO and retain the titles of President and Chief Scientific Officer. Mr. Paul Looney was elected Chief Operating Officer.

Dr. Martin is recognized industry-wide for his success in building early stage life science companies. I have been helping him gain access to capital. Mr. Looney has brought invaluable breadth and depth of experience in developing and managing pharmaceutical and biotech companies. Both gentlemen have been instrumental in helping us develop strategic and operational plans that will enhance the value of the company.

With respect to our drug development programs, I would like to begin by emphasizing that through successful clinical trails, our lead clinical programs continue to increase in value and we continue to see reduced regulatory risk associated with these programs.

I would like to briefly review the clinical development and our regulatory highlights for 2008. In regards to Azedra and pheochromocytoma. In June 2008, we defined a maximal tolerated dose of Azedra in adult patients with the neuroendocrine cancer pheochromocytoma. This dose will be used in the upcoming pivotal Phase 2 trial, which I will discuss in a moment.

You may have seen in the New York Times' article, in the magazine section yesterday, a article describing how insidious pheochromocytoma can actually be. In regards to Azedra and neuroblastoma, in May of 2008, we began to separate maximal tolerated dose study of Azedra in children with high risk neuroblastoma.

The dose defined in this study will be used in the upcoming pivotal Phase 2b neuroblastoma trial, which is anticipated to begin in the second half of 2009, pending FDA agreement on the final protocol design.

In regards to Zemiva, in December 2008, we reported positive Phase 2 trial results for Zemiva. The results from this 510-patient study demonstrated that Zemiva provided a significant clinical benefit in the rapid diagnosis of the chest pain patients.

A Zemiva scan, when combined with the current standard of care, which includes ECGs, cardiac enzymes, physical exam and medical history improves diagnostic sensitivity for cardiac ischemia by more than 50%, when compared to the standard of care alone. This result was highly significant.

This improvement was evident even in patients whose symptoms have subsided up to 30 hours prior to the Zemiva scan. Importantly, in patients with the normal Zemiva scan no myocardial infarctions, heart attacks or cardiac-associated deaths occurred in the 30-day period following discharge from the hospital.

In regards to Trofex, Trofex is our molecular imaging pharmaceutical for detecting prostate cancer. Trofex entered the clinic in June of 2008. This study demonstrated Trofex is able to detect tumor metastasis in both soft tissues such as the lymph nodes and bone, as rapidly as one hour after the drug was administrated to the patient.

We believe the ability to rapidly detect metastatic disease, in both soft tissue and bone is a true advance in prostate cancer imaging and should have significant impact on disease management and patient outcomes.

I would now like to review the upcoming clinical and regulatory milestones for 2009. Last week we announced that we received written agreement from FDA on our special protocol assessment for accelerated approval of Azedra for the treatment of malignant pheochromocytoma in adults.

The SPA, our special protocol assessment means that the FDA is comfortable with major study features such as patient population, choice of control, primary efficacy and point safety monitoring plans and statistical analysis plans of the clinical trial to be used as pivotal evidence of safety and efficacy in support of regulatory approval.

This particular SPA reflects a lot of extremely hard work by our clinical and regulatory groups. It clarifies our path to approval for Azedra and should significantly reduce our regulatory risk. I just want to walk through the highlights for 2009.

First, we plan to initiate our planned pivotal Phase 2 trial referred to as IB-12b for Azedra. This pivotal Phase 2 study will be a single-arm trial conducted in 58 patients with pheochromocytoma.

The primary endpoint of the study will be the ability of Azedra to show a sustained improvement of severe hypertension, a prominent sign of pheochromocytoma due to the abnormal release of large amounts of hormones by the tumor. This will be measured as a 50% reduction in the anti-hypertensive medications for a period of six months and at least 18% of the patients treated.

Secondary endpoints will include demonstration of overall anti-tumor response and the improvement in the patients' daily functioning and performance including improvements in quality of life.

We anticipate the trial will begin in the second half of 2009 at approximately 15 sites from the US, Canada and Europe. If successful, Azedra would be the first anti-cancer therapy in the United States approved for the treatment of pheochromocytoma.

Next, we will complete the currently enrolled Phase 2 maximum tolerated dose study for the treatment of neuroblastoma in children. This study is to determine the safety of Azedra and to define the maximum tolerated dose. We will also be obtaining data on efficacy in this trial.

We expect this trial to be completed in the second half of 2009. The optimal dose determined in this trial will be used in the subsequent pivotal Phase 2b trial for neuroblastoma.

Next, we anticipate obtaining FDA agreement on a special protocol assessment for acceleratory approval for the treatment of high-risk neuroblastoma in children. The company is currently engaged in discussions with the FDA regarding the design of the pivotal Phase 2b trial to support approval for Azedra in relapsed neuroblastoma in children. We anticipate that agreement will be reached in the second half of 2009.

In regards to Zemiva, we are looking forward to Zemiva, we are planning to reach agreement with the FDA on our Phase 3 protocol design. Following on our results from the BP-23 trial which I mentioned earlier, our recently completed Phase 2 study in 510 patients and based on our recent discussions with the FDA, we believe the requirements of Phase II clinical development have been met and that we can proceed to Phase 3.

Further to our recent discussions with FDA, we anticipate that a single Phase 3 trial with robust results will support Zemiva's registration. We will continue to work with the FDA to reach agreement on a Phase 3 protocol and expect the Phase 3 trial to begin in early 2010.

In regards to Trofex, we will conclude the Proof of Concept and Dosimetry Trial for Trofex. As you may recall, Trofex is being developed for the detection of metastatic prostate cancer, and we will also be initiating two pilot studies, which will allow us to design our Fast Track development strategy.

Based on very encouraging initial results for Trofex in men with prostate cancer, we will initiate studies to define key parameters for Phase 2 clinical trials. In particular, we will be comparing Trofex to other conventional imaging techniques such as prostesant, bone scanning and MRI in order to establish the regulatory strategy for the Phase 2 and Phase 3 programs.

We will also be studying Trofex in normal men to establish normal organ and especially normal prostate gland uptick in kinetics. These are our development objectives for 2009. In conclusion, we have defined our product pipeline clearly, prioritized our target markets, reduced operating expenses, established clear clinical milestones, secured program development goals, and identified strategies to help finance our drug discovery and development programs.

Therefore, we are well positioned to achieve the upcoming milestones for both 2009 and 2010 that will continue to create significant stockholder value.

This now concludes our prepared remarks. I would now like to open the floor to questions. Operator?

Question-and-Answer-Session

Operator

Thank you, Mr. Babich. (Operator Instructions) Your first question comes from the line of Marko Kozul from Jefferies. Please proceed.

Marko Kozul - Jefferies & Company

Hi, congratulations on your recent progress.

John Babich

Thank you, Marko.

Marko Kozul - Jefferies & Company

John, first question for you, can you give us the sense of what was discussed in your recent meeting with the FDA, specifically any clues that would suggest to reinforce that the Phase 2 BP-23 trial serves as one of the two pivotals?

John Babich

Well, the BP-23 trial really serves as a completion of the Phase 2 development program, and I believe, from our discussions and I will ask Jim Wachholz to comment, but from our discussions, I believe that we have shown unequivocally that Zemiva brings a clinical benefit to the triage of the chest pain patients. I think the agency is comfortable with that. Right now, we will be working with the design, the statistical plan for the primary endpoints for the Phase 3 program.

Jim Wachholz

Yeah. The meeting was really extremely positive and we are very gratified by the support that we got from Food and Drug. What we were looking for was their acknowledgement that we had in fact successfully completed the requirements of Phase 2 in preparation to progress to the Phase 3 studies and then we discussed with them the design of the Phase 3. And along those discussions was our position and the program that we had laid out for them, which is a single Phase 3 trial that will support the NDA.

So that's what we have been looking for all along. The large Phase 2 that we recently completed is a study that supports the single pivotal Phase 3 trial. And that is an agreement that we were able to secure at this meeting. So, we think looking forward it is looking very, very good for an NDA that will be based on a single robust Phase 3 trial.

Marko Kozul - Jefferies & Company

A quick follow up there, do you have any plan, future meeting with the FDA?

Jim Wachholz

We do not because we just met with them in the past week we do not have any additional meetings planned. We did discuss with them the possibility of additional meetings and we are considering that in terms of whether we will go forward immediately with an SPA proposal or whether we will met with them again prior to submitting the SPA. And those were the types of discussions that will be held.

Marko Kozul - Jefferies & Company

Perfect, thanks for answering my questions.

John Babich

Thank you Marko.

Operator

Your next question comes from the line of Debjit Chattopadhyay from Boenning & Scattergood. Please proceed.

Debjit Chattopadhyay - Boenning & Scattergood

Hey good morning and congratulations on the progress.

John Babich

Thank you.

Debjit Chattopadhyay - Boenning & Scattergood

Hey John could you specify what’s going to happen with Azedra in terms of the broader market once you get the SPA for Neuroblastoma, as well what's the post-marketing plan for a Phase 3 trial?

John Babich

That's a great question, obviously the Phase 2 pivotal trial needs to be backed up with a Phase 3 program. And in both cases we have designs that we will be submitting to the FDA. So in regards to Neuroblastoma, there are a number of options for us. We have been working with the children's oncology group as well as new approaches to Neuroblastoma therapy group which is really sub group within COG to define the use of Azedra earlier in the treatment paradigm for children with Neuroblastoma.

In pheochromocytoma, we will also be looking at a comparison right now in patients with earlier stage -- feel basically earlier diagnosis. Right now we are looking at both populations and the relapsed populations. We are looking to move the treatment up earlier more proximal to diagnosis of the metastatic disease. So our expectation is that we won't be involved in a larger comparison trial against standards of care with or without Azedra in the children, and the expectation is that we could be in a similar situation with field program.

Debjit Chattopadhyay - Boenning & Scattergood

And as far as the field trial, the Phase 2 field trial, how soon do you think you could finish enrollment?

John Babich

In our planning, we have a year for enrollment, we are going to obviously do everything we can to shorten that timeframe. We have 15 sites that have already been communicated with the user groups that we have been working with on and off on multiple programs, predominately in the field area and characinoid. And we actually have protocols in their hands right now as well as contracts. So as soon as we can get this going, it’s a top priority for us to finish recruitment as soon as possible.

Debjit Chattopadhyay - Boenning & Scattergood

And in terms of cash burn given the slightly slower clinical program that should be kind of modeled based on the fourth quarter run-rate?

Don Wallroth

I think what we had stated is that our cash burn, our cash burn in 2008 was $56.4 million. We expect to reduce our cash burn by 10% to 20% from that in 2009 and 2010 by implementing these operational efficiencies and non-development programs related to cost cutting measures.

Debjit Chattopadhyay - Boenning & Scattergood

And one final question, Onalta, is that kind of put in the back runner right now, or do we see progress from Europe on that?

John Babich

No, we are still moving that forward. We have had multiple meetings with the European agencies to define what our Phase 3 program would like. And we are still moving forward with the Dosimetry Trial that we talked about in the past regarding defining the renal toxicity and renal safety for Onalta.

Debjit Chattopadhyay - Boenning & Scattergood

Thank you so much and congratulations.

John Babich

Thank you, Debjit.

Operator

Your next question comes from the line of George Zavoico from Westport Capital Markets. Please proceed sir.

George Zavoico - Westport Capital Markets

Hi, John, congratulations on a good year and good quarter. I have a question regarding the Zemiva trial, you just met with the FDA you said, but you are projecting start of the trial in the beginning of 2010 that’s nine months to maybe 12 months before you start the trial. Could you just comment perhaps, I know it's going to be complicated trial, why it might take that long to set it up and get it going?

John Babich

I will comment and then I will ask Jim Wachholz our Head of Regulatory jump in as well. Fundamentally George, if you look at the time it will take in between interactions with the agency to get a decision is probably about two month step between us going back from this meeting, doing the work we have to do to come back to the FDA with plans.

So if assuming that we have a month of work or four weeks of work, we then ask for another meeting, you are on a 45 day clock. You really, you are talking about two, two and a half months in between meetings. And our expectation is that it would probably take two more face-to-face meetings before we have signed off.

If you look at how long it takes to get the bulk of centers up, it probably averages about 5 months from the time they get their, protocol and their contracts to get through IRB and through the legal. So if you put those back-to-back you can see how, the reminder of the year will be spent completing our discussions with the FDA and getting sides lined up and ready go and you certainly are not going to start it, a trial between Thanksgiving and New Year probably. Jim?

Jim Wachholz

Yeah I mean you guys are aware and you hear from the other drug companies that you are working with about the process of engaging in these types of interactions with FDA. So what you see in that timeline is a timeline that we really believe at this point is a conservative estimate over the time it will take to get through, completion of the negotiations with FDA around some of these details of the trial design. That will allow us to complete and secure the special protocol assessment agreement and then following that the initiation of the trial. So we are looking at the possibility that the number of iterations of the SPA could be two or even more, and that there would be another meeting that would occur during that process, and that is what you see reflected in the bulk of that lag time leading to the actual participation in.

George Zavoico - Westport Capital Markets

I think you just answered the rest of my, the other part of my question is whether, considering what's happening at the FDA right now with the delays and PDUFA date and everything else that, that you factored that in as well and it sounds like you have?

Jim Wachholz

Yeah we, we definitely have.

George Zavoico - Westport Capital Markets

Thank you very much.

John Babich

Thank you, George.

Operator

(Operator Instructions) your next question comes from the line of Aaron Reames from Wachovia Capital. Please proceed.

Aaron Reames - Wachovia Capital Markets

Thanks for taking my questions. I just wanted to find out what plans you had in place or if there are specific plans about how you might be able to address the debt position, and then I was also wondering if you could remind us of any particular covenants that might be in place in terms of the amount of cash burn that has to be on-hand. And then, what those might be in and if you can fully meet those requirements?

Don Wallroth

Sure good questions. I think we are always looking at ways to finance ourselves in the future. I think what we have got right now is a run rate that we feel very comfortable of getting us out for at least two years. Within that timeframe, there are a lot of things that can happen. John you can comment on some of them as well. But we feel very comfortable that we have enough capital to get through that timeframe. As you know, the capital markets are uncertain at this point. Hopefully in that timeframe things will start to firm up, but we have a number of other options that we can consider. And we are constantly looking at new ways of financing and taking out debt. John, you want to comment a little.

John Babich

Sure, Aaron thanks for the question. You know we are certainly looking at all of our options. We are very keen to meet our milestones and to really succeed on the clinical development side because that's really where the value sits in this company. And that should drive the stock price. Obviously, the capital markets, as Don said are not a great place to go for cash right now. We are certainly looking at all our opportunities and they could be partnering on earlier assets or later assets in the pipeline as well as strategic initiatives.

So, I think we are looking in the company and the board are looking at all our opportunities right now. In regards to the covenant questions, I think Don can answer those.

Don Wallroth

Sure. Right now, we are well ahead of our stated requirement for the covenant. We were in excess of $20 million above the covenant balance that we needed and we will be in that shape before the end of 2009. So, we are in a very comfortable shape as far as the covenant is concerned.

Aaron Reames - Wachovia Capital Markets

Okay. And so I assume then that the options that are being evaluated specifically be around potentially, that the value of finding a partner on something like Zemiva most likely, or is there enough -- cash can be brought up from an earlier stage opportunity to make it worthwhile to go down that path?

John Babich

Sure. Yeah, obviously strategic partnering certainly is an attractive option for us, because it would provide value in multiple ways, obviously validating our technology and our compounds to investors. It could also offset development cost and give us more run rate to see these compounds to the commercials success that we think they will be.

Aaron Reames - Wachovia Capital Markets

Okay. And then just the last question that I had, when the conference call was hosted to discuss the Zemiva results previously, you haven't had enough time to spend, a great amount of time with all the data, so some of the questions that we had at that time were how the drug performed in obese patients?

And then some of those outliers women, things of that sort where you may have a little bit more difficulty in getting a good image, and I was wondering if you now have had the time to look at the data and then see how the drug has performed in some of those patient subsets?

John Babich

Yeah, so the answer to the question is yes. And the BP-23 data will be presented in detail at the time of ACC meeting later this month, Aaron.

Aaron Reames - Wachovia Capital Markets

Okay, all right, thank you. Thanks for taking my questions.

John Babich

Always a pleasure.

Operator

There are no more questions at this time. I will now turn the call back to Mr. Babich. Sir?

John Babich

Thank you, Dan. Once again, thank you all for joining us on the call. As you have heard, we have made substantial progress on our clinical development programs. We have seen successful completion of several trials that increased the value of not only these development programs, but the portfolio as a whole, all while reducing regulatory risks.

The organization is keenly focused on our key objectives for the coming year with a strong sense of commitment and urgency and we certainly appreciate your time and look forward to speaking with you again in the months ahead. Thank you very much. Dan?

Operator

This concludes the call today. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you!