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PharmAthene (NYSEMKT:PIP)

Q2 2013 Earnings Call

August 07, 2013 4:30 pm ET

Executives

Stacey Jurchison - Director of Corporate Communications

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

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 Second Quarter 2013 PharmAthene, Inc. Earnings Conference Call. My name is Shakwana, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Ms. Stacey Jurchison. Please proceed.

Stacey Jurchison

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

Before we begin, I would 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 urge you to consult PharmAthene's filings with the SEC for additional information, including the joint proxy statement prospectus that PharmAthene will file with the SEC in connection with its special meeting of stockholders relating to the proposed merger with Theraclone as it will contain important information about the merger.

In addition, this communication may be deemed to be a solicitation in respect of the merger. The directors and executive officers of PharmAthene and Theraclone may be deemed to be participants in the solicitation of proxies from PharmAthene and Theraclone common stockholders in respect to this proposed transaction. 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 an overview of our second quarter operating and financial results.

It has been a very productive and eventful time for PharmAthene with significant, positive news flow. During the quarter, we were pleased to announce the FDA's decision to lift the clinical hold previously placed on our proposed Phase II clinical study of SparVax, our next-generation recombinant anthrax vaccine. In its letter to the company, which we received in late May, the FDA acknowledged that we had satisfactorily addressed all of the agency's clinical hold issues, and we could proceed with our proposed Phase II clinical trials.

We continue to have a productive dialogue with our development partner, BARDA, regarding the clinical trial design. We are also discussing additional, nonclinical studies BARDA would like us to undertake. Our plan is to commence both the Phase II clinical trial and additional non-clinical studies in the fourth quarter.

While this is the first Phase II clinical trial to use material manufactured in the United States, it will be the third clinical trial of SparVax. As you know, SparVax has previously been studied in 1 Phase I and 2 Phase II clinical trials involving 770 subjects. Newer anthrax vaccines, which are based on modern recombinant and vaccine technology, offer the potential for significant advantages, including improved convenience and cost effectiveness, and also the flexibility for rapid scale-up and production, which is important in the event of a national emergency. I believe that SparVax has features that should make it highly desirable as a candidate for inclusion in the Strategic National Stockpile.

Importantly, BARDA continues to be very supportive of our efforts to develop next-generation anthrax vaccines to address urgent national security imperatives, and, together, we are making good progress towards this objective.

Moving on, progress in our recombinant bioscavenger program continues to be very strong in 2013. So far this year, all technical milestones under our contract with the Department of Defense have been reached on schedule.

Before I turn the call over to Linda to discuss our quarterly financial results, I would like to provide a brief update on the status of the litigation with SIGA. As you may be aware, the case has been remanded to the Delaware Chancery Court for reconsideration of the remedy. We believe we could get a resolution from the Delaware Chancery Court likely by year end.

In its quarterly call with investors earlier this week, SIGA reconfirmed that they had completed delivery of approximately 590,000 treatment courses of Arestvyr to the government, which qualifies for payment to SIGA of approximately $79 million.

To date, SIGA has billed or received payments of approximately $140 million under their current BARDA contract. Based on SIGA's most recent public disclosures, it is expected that the full 1.7 million treatment courses under this contract will be delivered by the end of 2014.

I'll now turn it over to Linda Chang to proceed. Linda?

Linda L. Chang

Thank you, Eric, and thank you all for joining us today. I'll focus my comments on the highlights of our financial performance in the quarter and will refer you to our 10-Q and press release for more details. We'll start with the revenue.

We recorded $4.3 million of contract revenue in the current quarter compared to $6.3 million in Q2 of last year. Our revenue this quarter was lower than what we have recognized in recent quarters largely as a result of the timing of the Phase II clinical trial and related activities under our SparVax program. With the clinical hold now lifted by the FDA, we look forward to proceeding with our proposed Phase II clinical trial and related activities, which we anticipate will commence later this year.

Our R&D expenses tend to move in tandem with revenue due to the cost-plus fee nature of our SparVax program. In the second quarter, R&D expenses were $3.4 million as compared to $4.9 million for the same period in 2012.

Our G&A expenses decreased to $2.3 million in the current period compared to $2.8 million in Q2 of last year due to a reduction in labor and professional services.

Now in terms of cash, we ended the second quarter with approximately $15.8 million of cash compared to $12.7 million at December 31, 2012. Our combined cash and accounts receivable balance totaled approximately $21 million at the end of the second quarter as compared to $19.2 million as of December 31, 2012.

Year-to-date June 30, our cash usage from operating activities was approximately $235,000, while our total cash has increased by approximately $3 million as a result of proceeds from the use of our ATM [ph] facility.

Over the last 1.5 years, PharmAthene has embarked on a path to improve upon our operational capabilities and financial position. Today, PharmAthene is an efficient organization that is focused on execution and disciplined resource allocation. We will continue to leverage our capabilities and expand our government contracting business while, at the same time, investing in innovative technologies to broaden our markets and achieve greater value for shareholders.

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

Eric I. Richman

Thank you, Linda. As you've heard, we're off to a very good start in 2013 meeting our business and financial objectives. Before I close, I would like to say a few words about last week's announcement regarding the proposed merger of PharmAthene and Theraclone Sciences.

Over the past few days, we've had many discussions with investors, and I'm very pleased by the positive reception, enthusiasm and support for this transaction. Our long-term strategic vision has always been focused on building a solid foundation in biodefense with future diversification in broader commercial markets. Our proposed merger with Theraclone, which we announced last week, is directly on point with this strategy. The combined company will feature a broad portfolio of promising clinical and preclinical product candidates with dual applications. A prime example is Theraclone's flu antibody, which is being developed to serve both government and commercial markets.

The new company will also have an innovative discovery engine based on Theraclone's I-STAR proprietary monoclonal antibody platform. I-STAR will have promising potential to generate value for shareholders through both partnership funding and innovative new product development. For example, Theraclone's cytomegalovirus, or CMV antibody, is one of the few biologic approaches in development for the management of CMV disease. It is currently nearing the initiation of Phase II development and addresses a very significant market opportunity.

In summary, we believe that combining PharmAthene's government contracting expertise in vaccine and monoclonal antibody development capabilities with Theraclone's strong research and development capabilities and discovery platform is a win-win scenario that should enable us to build shareholder value today with future upside potential.

That concludes my formal remarks today. Thank you for your continued interest in and support of our company and our plans moving forward. We will now open up the call for your questions. Operator, could you please instruct the audience on the Q&A procedure?

Question-and-Answer Session

Operator

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

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

So just a couple of quick follow-up questions from Tuesday's call. The -- what's the guidance to receive additional funding for SparVax? And when do you expect the Phase III study to start? What's sort of the process there?

Eric I. Richman

We haven't provided any official guidance on that, but I can tell you in round numbers we have approximately $20 million left on the current contract that we're executing on, and we're in negotiations now with BARDA to do additional clinical and nonclinical work. So we would expect that we would have some additional funding under the current contract for some additional work that they would like. And our expectation is that both the preclinical -- I'm sorry, not the preclinical, the nonclinical work and the clinical study will begin in the fourth quarter.

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

Okay. Now is that the larger safety study, the Phase II study, that you're expected to commence? Or that is just additional ongoing data that you have?

Eric I. Richman

The study that we are expecting to begin at the end of this year is a third Phase II clinical study, and it will measure both safety and immunogenicity of the anthrax vaccine. The previous 2 Phase II clinical studies were conducted using material that was made in the U.K., and this study is different in that it will be using material made in the United States.

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

Okay. And then on Judge Parson's ruling, what is the basis that he will be ruling on, on this -- in this scenario? Expectation damages, is that what's in play here or...

Eric I. Richman

Well, let's just review where we are in the proceedings. So the Delaware Chancery Court ruled in our favor and awarded us a 50-50 net profit split after an initial $40 million was paid to SIGA. And then that decision was appealed to the Supreme Court, and the Supreme Court has remanded that remedy back to the Delaware Chancery Court. And so that's the decision that we're waiting for by the end of this year. We would expect by the end of this year is the Delaware Chancery Court to either reaffirm the remedy that they had in place or another remedy, which could be a variety of things. And there was a conference that was held a couple -- I guess it was in early June, where the judge had indicated that all options were back on the table, and he was not bound by any previous decisions. And that included everything from lump sum payments to revenue streams. So we believe that we will have a remedy by the end of this year, and it can be a variety of options that would be available to the judge.

Operator

Your next question comes from the line of Yi Chen representing Aegis Capital.

Yi Chen - Aegis Capital Corporation, Research Division

First question is, when will the proxy be filed with SEC?

Eric I. Richman

Well, thanks for joining us this afternoon. The proxy will be filed most likely within the next few weeks. So we're busy working on that right now. It will be available in the next few weeks, targeting early September.

Yi Chen - Aegis Capital Corporation, Research Division

Early September, okay. Second question is, do you expect to get additional procurement award from the government for Theraclone's TCN-032 candidate?

Eric I. Richman

First of all, that's a question that really should be addressed by Theraclone. As it stands today, we are 2 separate entities. This is a product, the flu monoclonal antibody product, which could be developed for both a commercial market and a government market. BARDA has listed criteria that they would like to see for making a selection for future funding for that product, and our belief is that Theraclone's candidate, their flu monoclonal antibody, meets the criteria of the government. But that will certainly be the government's decision. And if they are successful and are awarded funding from BARDA, that will be announced at some point in the future.

Yi Chen - Aegis Capital Corporation, Research Division

Okay. So I have a follow-up question, which is also, maybe you will say, better answered by Theraclone, but I'll just ask. What affinity enhancement technology does Theraclone is current -- utilize in their products?

Eric I. Richman

I think that would be best answered by Theraclone. And certainly, a detailed discussion with Theraclone would be able to provide that information. A lot of their technology is based on screening and -- for a variety of things, including affinity. And they do have the ability to increase or enhance the affinity of their monoclonal antibodies. But how they do it, I think, is something that Theraclone's Chief Scientific Officer would be in the best position to address.

Yi Chen - Aegis Capital Corporation, Research Division

Okay. My next question is, can you tell us when clinical studies are supposed to restart with Valortim?

Eric I. Richman

With Valortim?

Yi Chen - Aegis Capital Corporation, Research Division

Yes.

Eric I. Richman

Yes. Right now, Valortim has completed 2 Phase I clinical studies. And before we initiate any additional work on that product, we are awaiting additional funding from the government. So it's unlikely that we'll begin any additional clinical studies with Valortim until we receive additional government funding.

Yi Chen - Aegis Capital Corporation, Research Division

Okay. Final question. Could you tell us or give us an approximate idea of the combined cash position of the 2 companies?

Eric I. Richman

I'm going to turn that over to Linda Chang, our CFO.

Linda L. Chang

As we discussed during the conference call relating to the merger announcement, we can't really go into the details in terms of the cash balance.

Yi Chen - Aegis Capital Corporation, Research Division

I'm not asking for details. I'm asking, say, even an approximate range of numbers.

Linda L. Chang

Well, I can tell you that you just heard about our current cash position, and Theraclone has raised -- has -- did their most recent round in March. So...

Yi Chen - Aegis Capital Corporation, Research Division

March this year?

Linda L. Chang

Yes.

Yi Chen - Aegis Capital Corporation, Research Division

Okay.

Linda L. Chang

So that -- I think if you use -- take a -- if you add the 2 numbers together, that would give you a rough order of approximation.

Operator

There are no further audio questions. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.

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