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PharmAthene (NYSEMKT:PIP)

Q1 2013 Earnings Call

May 08, 2013 4:30 pm ET

Executives

Stacey Jurchison - Director of Corporate Communications

Eric I. Richman - Chief Executive Officer, President and Director

Arthur Y. Elliott - Acting Chief Scientific Officer

Linda L. Chang - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Nathan Cali - Noble Financial Group, Inc., Research Division

Yi Chen - Aegis Capital Corporation, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2013 PharmAthene, Inc. Earnings Conference Call, hosted by Eric Richman. My name is Andrea, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

And now, I'd like to turn the call over to Stacey Jurchison. Please go ahead.

Stacey Jurchison

Thank you, Andrea, and good afternoon, everyone. Joining me on the call today are Eric Richman, President and Chief Executive Officer; Dr. Arthur Elliott, acting Chief Scientific Officer; and Linda Chang, Senior Vice President and Chief Financial Officer.

Before we begin, I'd like to point out that during today's call, we will be making projections and other forward-looking statements which are based on our current beliefs and expectations. Please be aware that these statements are subject to certain risks and uncertainties. We advise you to consult PharmAthene's filings with the SEC for additional information.

I will now turn the call over to Eric to begin.

Eric I. Richman

Thank you, Stacey, and good afternoon, everyone. We are pleased you could join us today for a review of our first quarter operating and financial results. Linda will take you through a summary of our financial results in just a moment. But first, let me provide a brief operational update, after which I'll turn it over to Dr. Art Elliott to review progress in our biodefense programs.

During the quarter, we submitted our complete response to the FDA's clinical hold notification for SparVax. As Art will discuss in more detail shortly, we have had a very productive interaction with both the FDA and our partner, BARDA, which has furthered our ability to prepare and submit what we believe is a comprehensive and thorough response that fully addresses all of the FDA's questions. We are very satisfied with the content of our response and look forward to a decision from the FDA on the clinical hold very soon.

Before I turn the call over to Dr. Elliott, let me give you a brief update on the status of the appeal in our litigation with SIGA. As you know, oral arguments in the case were presented in the Delaware Supreme Court on January 10. The court recently advised the parties that due to the Chief Justice's illness on January 10, he was unable to be present during the oral arguments. The Chief Justice subsequently reviewed the audio proceedings on March 5, and consequently, the court reset the submission date for our case to March 5. At this time, we continue to anticipate a ruling from the high court by the end of the second quarter.

SIGA recently announced that BARDA has accepted its first delivery of approximately 190,000 treatment courses of Arestvyr into the civilian Strategic National Stockpile. On their first quarter conference call on Monday, SIGA said they expect to deliver quantities over the next 2 months and reach the 500,000 core threshold for invoicing in the second quarter. SIGA stated that at the present rate, it anticipates fulfilling delivery under the initial contract within approximately 2 years.

With that, I will now turn the call over to Dr. Art Elliott to briefly recap progress in our biodefense programs during the quarter.

Arthur Y. Elliott

Thank you, Eric, and good afternoon, everyone. We made important progress in each of our biodefense programs in the first quarter of this year. Let me start with our rPA vaccine program. As Eric just mentioned, during the quarter, we submitted to the FDA our complete response to the SparVax clinical hold notification. Our goal was to ensure that we fully addressed all of the FDA's questions and concerns. I am confident we have achieved this objective. We have had a productive dialogue with the FDA and our partner, BARDA, which has yielded important feedback about our product. We know that the FDA has accepted comparability between our U.K. and U.S. manufactured bulk drug substance. As you may recall, in 2011, we completed the technology transfer of our manufacturing process from the U.K. to a U.S.-based contract manufacturing facility. We also have confirmation that the FDA has accepted the use of our immunopotency assay as the recommended potency test for final drug product release and product stability. The IPA is a newer assay with improved sensitivity and specificity that we believe is a significant scientific advancement over the mouse challenge assay which had been used in the past. At this point, we have obtained stability data up through 15 months for the engineering lot of the final drug product and 12 months for the GMP lot, the final drug product, manufactured in the United States. Based on these data, we know that through these time periods, SparVax is both potent and stable. This is a notable achievement as stability has traditionally been the Achilles' heel of rPA-based anthrax vaccine development. We anticipate a decision from the FDA on our clinical response soon and look forward to moving ahead with our advanced development activities for

SparVax. In the meantime, we have continued to advance all of our efforts and milestone activities under our current SparVax contract. We look forward to providing updates as we continue to meet these milestones.

Turning to our chemical defense and nerve agent recombinant bioscavenger program. We are making good headway in 2013. In-vitro testing conducted by the U.S. Army Medical Research Institute for Chemical Defense has recently shown that our recombinant bioscavenger successfully binds to a broad spectrum of nerve agents, including sarin and tabun. As you know, there is widespread reporting in the media about the pre-use -- presumed use of these agents in Syria.

In addition to the latest binding data, we have also recently demonstrated that rBChE produced using the PER.C6 human cell line is readily scalable, resulting in a product with greater than 99% purity and exceptionally high yields. To give you some idea of the magnitude of this achievement, we are able to produce the equivalent amount of BChE in a single 50-liter bioreactor, equal to the amount obtained from 4,000 liters of fractionated human plasma. We are excited about this progress and are moving forward with considerable enthusiasm. Pharmacokinetics and efficacy testing is currently under way, and we expect to have the results early this summer.

Our next-generation human cell approach for the manufacture of recombinant BChE has many advantages, including for streamlined and cost-effective development and production. We are continuing to work collaboratively with the DOD to execute on this contract and position the recombinant platform for the future funding to initiate Phase I clinical development.

That concludes my remarks. Linda, the floor is yours.

Linda L. Chang

Thank you, Art, and good afternoon, everyone. Thank you all for joining us today. We issue our first quarter 2013 financial and operational results press release at 4:00 p.m. today. It is now available on our website for those who have not yet seen it. I would now quickly take you through the highlights.

Our revenue in the first quarter of 2013 was $6.5 million compared to $6.1 million in 2012, up slightly as a result of increased activity in our bioscavenger program. Research and development expenses in the first quarter was similarly higher, at $5.2 million versus $4.7 million for the same period in 2012, this being the natural outcome of increased activity in our programs during the first quarter. General and administrative expenses decreased from $2.9 million to $2.3 million in the first quarter, largely as a result of reduced labor, professional and consulting expenses.

Our net loss in the first quarter of 2013 was $2.1 million or $0.04 per share compared to $2.7 million or $0.06 per share in the first; quarter of 2012. The year-over-year difference was attributable to increased revenue and lower overall operating expenses.

At the end of the first quarter, our cash and cash equivalents was approximately $12.9 million compared to $12.7 million at December 31, 2012. As you can see, we achieved slightly positive cash flow this quarter. This is in addition to having $5.6 million in U.S. government accounts receivable at the end of the first quarter. Based our current cash, government receivables and available funding are -- under our contracts, we believe we have a solid financial base to execute our business strategy.

With that, I will turn the call back over to Eric to wrap up.

Eric I. Richman

Thank you, Linda. As you've heard, we're off to a good start in 2013, meeting our business and financial objectives for the year. We feel confident in the scope and quality of our complete response submission to the FDA and look forward to a decision from the agency soon. Once the clinical hold has been lifted, we plan to work closely with BARDA, with the intent of initiating a Phase II clinical trial as quickly as possible.

We are pleased about the progress we're making in our chemical defense and nerve agent bioscavenger program, which continues to demonstrate its potential utility as a more robust and cost-effective solution for nerve agent prophylaxis and treatment.

Finally, we anticipate a ruling on the appeal from the Delaware Supreme Court later this quarter.

Thank you for your attention today, and for your continued interest and support of our company. I'll now turn the call over to the operator to advise on the Q&A procedure.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Nathan Cali from Noble Financial.

Nathan Cali - Noble Financial Group, Inc., Research Division

So once SparVax, and if and when SparVax comes off of a clinical hold, could you just go over what the next steps forward are for SparVax?

Eric I. Richman

Sure. So as we mentioned on the call, we expect that the FDA will release the program from clinical hold in the near future. And at that point, we'll be working with BARDA to identify the most expeditious route to initiating the clinical study. So at this point, the first thing we have to do is get off clinical hold. We have had discussions with BARDA. They have made it very clear that they are interested in generating human clinical data as soon as possible. And we have had some preliminary discussions about moving forward, but we don't have details as far as timing and agreement with BARDA just yet. That will be the primary objective of the company as soon as the clinical hold is lifted.

Nathan Cali - Noble Financial Group, Inc., Research Division

Okay. Any thoughts around an RFP coming out once you guys start to move forward with that study?

Eric I. Richman

Well, that's a good question. And I can tell you from the strategic plan that BARDA laid out toward the end of last year, there certainly is interest in procurement of a next-generation anthrax vaccine. And the timing of which, we believe, will be related to generating clinical data that supports procurement. So I think the first thing that has to be done is get off clinical hold, generate positive clinical data, which we're quite confident that the third Phase II clinical study for this product will demonstrate, and then BARDA will decide what the most appropriate time for issuance of an RFP. I think that if we were to think about timing, the clinical hold has been a period of somewhere around 6 to 9 months. And our estimation was that we would be likely or able to deliver our product to the Strategic National Stockpile under EUA in the 2015, 2016 timeframe. That was pre-clinical hold, so I would expect that to be delayed, certainly, by the same period that we've been on clinical hold.

Nathan Cali - Noble Financial Group, Inc., Research Division

Okay. Under -- if you guys win the appeal decision or if the things continue to go in your favor in that regard with SIGA, they're going to finish delivering second quarter to start to receive revenues, I think, of about $90 million. Will you begin to start to receive revenues roughly around the same time period? Will you begin to build them for the profit split?

Eric I. Richman

I'm going to actually let Linda address that, who's most familiar with the contract and how the chain of events will occur. Linda?

Linda L. Chang

Sure. Hi, Nathan. As you know, we're still expecting a decision from the Delaware Supreme Court. So obviously, the final, I guess, arrangement would have to be subject to what the Supreme Court provision sets. However, based on the current arrangement, the current profit split calls for our participation of 50% once SIGA reaches or collects the initial $40 million in that process. So I guess if that -- by that, it would have to be after they deliver the initial 500,000 courses, at which time they can begin to invoice the government. And then once they reach the $40 million threshold and then giving us a, in essence, a report, then we will begin, able to collect. The normal arrangement, as I recall, is we will get our share 60 days after the quarter within which we are entitled to our share.

Nathan Cali - Noble Financial Group, Inc., Research Division

Okay. And then on the rBChE study, will that be an annual study? Or what kind of Phase I study will that be if you guys do move that forward?

Eric I. Richman

Well, there's actually a couple of activities that are going on with that product. As you can imagine, this is a product that has generated quite a bit of interest over the last few months. And we have provided material to various agencies in the U.S. and in the U.K. where they test the material, they continue to test the material. These are animal studies at this point, looking at binding the enzyme to nerve agents as well as looking forward to finalizing some PK studies, which will be done later this year. So these are not human clinical studies at this point.

Operator

Your next question is coming from the line of Yi Chen of -- from Aegis Capital.

Yi Chen - Aegis Capital Corporation, Research Division

My first question is do you expect the G&A expenses to remain at the same level going forward for the rest of 2013?

Linda L. Chang

That is certainly our anticipation. Now, obviously, as you know, in our business, it's very dependent on the level of activity. So in the event if there are significant changes in our program or a number of contracts in general, obviously, we would have to revisit that. But our anticipation right now is that our current G&A level is sufficient for this year.

Yi Chen - Aegis Capital Corporation, Research Division

How about the R&D expenses for the rest of the year?

Linda L. Chang

As you know, we're a development-stage biodefense company. So we -- our revenue is associated with our R&D expenses. So therefore, you can probably expect that there to be a correlation between our [indiscernible] as well as the increase G&A -- in R&D, that given the fact that a substantial chunk of our R&D expense is form of subcontracts.

Operator

We have no further questions. And thank you very much for your participation in today's conference call. This concludes the presentation. You may now disconnect. Have a good day. Thank you.

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