AVEO Pharmaceuticals Management Discusses Q4 2013 Results - Earnings Call Transcript

| About: AVEO Pharmaceuticals, (AVEO)

AVEO Pharmaceuticals (NASDAQ:AVEO)

Q4 2013 Earnings Call

March 13, 2014 4:30 pm ET

Executives

Robert Kloppenburg - Vice President of Corporate Communications and Public Affairs

Tuan Ha-Ngoc - Chief Executive Officer, President, Principal Financial Officer and Director

Jeno Gyuris - Chief Scientific Officer

Michael P. Bailey - Chief Business Officer

Analysts

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Anupam Rama - JP Morgan Chase & Co, Research Division

Brian Klein - Stifel, Nicolaus & Company, Incorporated, Research Division

Operator

Thank you for holding for the AVEO conference call to discuss 2013 financial results and an update on 2014 strategy. [Operator Instructions]

Following the formal report, AVEO management will open the line for a question-and-answer period. Please be advised that this call is being taped at the company's request and will be archived on the company's website for 2 weeks from today.

At this time, I would like to introduce Rob Kloppenburg. Please go ahead.

Robert Kloppenburg

Thank you, operator, and good afternoon, everyone. We are pleased that you could join us today for AVEO's fourth quarter and year-end 2013 conference call. With me today is Tuan Ha-Ngoc, President and CEO; Michael Bailey, Chief Business Officer; and Jeno Gyuris, Chief Scientific Officer.

Let me begin by noting that the slides that support this earnings call can be found on our website at www.aveooncology.com. On Slide 2 of our presentation, we have our forward-looking statements. For those who do not have access to the slides, please note that some of the information that you will hear during our discussion today will consist of forward-looking statements, including, without limitation, those statements regarding the company's financial position and cash balance, potential partnerships and collaborations, the results of preclinical and clinical studies and future strategic opportunities. Actual results or trends could differ materially from our forecast. These projections, predictions and statements are based on management's current beliefs, as well as on a number of assumptions concerning future events. The forward-looking statements are subject to many risks, uncertainties and contingencies, and stockholders and others should recognize that actual results may differ materially from the company's expectations, whether expressed or implied. We refer you to the company's periodic reports filed with the SEC, including the company's Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of these forward-looking statements, risk factors and other factors that could affect these forward-looking statements. The information being provided today is as of this date only, and AVEO expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect changes in expectations.

And now, I will turn the call over to Tuan.

Tuan Ha-Ngoc

Thank you, Rob, and thank you all for joining us today. Let me begin by providing a brief update on our recent activities at AVEO and then outlining our strategy going forward.

Over the last 8 months, the focus of the company has been on 3 areas outlined on Slide 3: Strengthening our balance sheet, assessing our internal pipeline assets and developing our strategy going forward to create shareholder value.

Next slide, strengthening the balance sheet. As you recall, last June, we announced a restructuring of the company of 62%, a difficult but necessary move. And over the last 6 months, the staff was further reduced by approximately 10%, reflecting the wind-down of our tivozanib-related activities.

Over the past few years, we have reduced operating expenses by approximately 50%, which includes a 51% cut in R&D spending from the fourth quarter of 2012 to the fourth quarter of 2013, and a 52% reduction in G&A spending over the same period. As a result of these effective cost containment efforts, we ended 2013 with $118.5 million in cash, cash equivalents and marketable securities.

Moreover, we now have a nimble organization, leveraging external resources that complement internal capabilities, well-positioned to execute our strategy going forward. We expect to end this year with between $50 million and $55 million in cash, excluding any potential additional capital we may generate as a result of business development or other strategic initiatives.

Moving to Slide 5. We have completed a comprehensive assessment of our pipeline. First, let's review where we stand with tivozanib. As you know, we ended both the colorectal and triple-negative breast cancer trials, and consequently, AVEO and Astellas announced the decision to terminate our alliance. This August, we will regain rights to tivozanib.

Last year, we also continued to review and analyze the results of our Phase II study of ficlatuzumab, in combination with tivozanib in non-small cell lung cancer. Based on this exploratory analysis, we have identified a biomarker to select patient in non-small cell lung cancer who could potentially benefit from ficlatuzumab, in combination with an EGFR TKI.

We also completed the dose escalation Phase I study of AV-203. And there were no dose limiting toxicities. We identified a patient population for study in an expansion cohort. However, we have decided not to go forward with this trial at this time. I will speak more about that decision shortly.

On the preclinical front, we have initiated IND-enabling activities for AV-380, our GDF-15 inhibitor for the treatment of cachexia. Later in today's presentation, I will speak further about this program and why we are excited by its potential.

Turning to the next slide, 6, our strategy going forward is to focus internal resources, our people, cash, scientific platform to advance potential first-in-class opportunities, and at the same time, utilize external collaborations to further develop our clinical stage assets. We design first-in-class opportunities as those assets that can address diseases where there are no other therapies, or whether it's well-defined patient population with clear medical needs. These opportunities should provide a clear path to proof-of-concept, and ultimately, regulatory approval with a reasonable probability of success.

Importantly, we will be pursuing programs that we believe can deliver value within our projected financial framework. This strategy is based on the same core values that have guided our development as a company, leveraging our innovative science and unique biological insights to meaningfully impact the lives of people with cancer.

So how does this approach translate into our strategy for 2014 and beyond? Slide 8 is a practical presentation of our strategy going forward.

In summary, we believe that we can create value using 3 approaches. We will focus our internal resources on the development of AV-380 cancer cachexia program. We will actively seek partners to support the development of our clinical stage assets, AV-203, ficlatuzumab and tivozanib. And we will continue to be opportunistic about accessing external compounds that meet the same criteria that we apply to our own internal assets and that offer the potential to further accelerate value creation.

So let me do a quick review of our clinical stage programs and how we intend to advance them through partnerships. First, on Slide 10 is a summary of our ErbB3 program, AV-203. As I noted earlier, last year, we completed the dose escalation stage of the Phase I trial. AV-203 is well-tolerated, and the recommended Phase II dose was identified at 20 mg [ph] per case [ph]. These results will be presented at a scientific meeting later this year.

We also completed clear validation for our patient selection biomarker. However, we have decided to discontinue the single-agent expansion cohort as we believe that the best way to realize the value of AV-203 is through a more comprehensive clinical program which will benefit from additional resources to be provided by our partner. As you know, Biogen Idec currently has an option on this program for the territory outside North America. Before we enter into a third-party collaboration, we would need to amend the agreement with Biogen.

Turning to ficlatuzumab on the next slide. We conducted an exploratory analysis of Phase II study in non-small cell lung cancer, utilizing a serum-based molecular diagnostic test. That analysis identified the patient sub-population, which benefited from the ficlatuzumab combination as measured by both PFS and OS. The data from the Phase II trial, including the biomarker design patient population, will be presented at the 2014 medical meeting. We are very actively seeking a partner that will support the clinical development of ficlatuzumab and expect to initiate in context of that partnership of Phase II trial to confirm the sub-population findings.

Moving on to tivozanib on Slide 12. That's the approximately 150 patients who are likely to remain on tivozanib therapy. Therefore, we have budgeted $12 million to wind down our trials and partnership-related activities this year and to support the ongoing investigator-sponsored studies. Biomarker data from the BATON-CRC study will be presented at the 2014 medical meeting. As I stated earlier, we will regain rights for tivozanib from Astellas in August. We believe that tivozanib is an active VEGF inhibitor, and look forward together with our potential new partner to pursue further clinical development.

Now on Slide 14, let me introduce you -- to you, AV-380, our anti-GDF-15 antibody program in cachexia which, we believe, will present a major opportunity. Cachexia is a complex metabolic syndrome associated with several underlying chronic illnesses and is characterized primarily by a loss of muscle mass and strength, loss of whole body fat, inflammation and anemia.

Approximately 50% of cancer patients have cachexia present at the time of their death, and about 2/3 of those patients actually die from cachexia. In some indications, such as gastric and pancreatic cancer, estimates are that cachexia may be present in up to 80% of the patients. It is estimated that we have about 400 cancer patients with cachexia in the U.S. alone.

Next slide. The GDF-15 target was discovered through AVEO's Human Response Platform. We have identified a key tumor signaling pathway whose activation triggers a genetic program that results in cachexia. And we believe that GDF-15 is the key mediator. GDF-15 is a divergent member of the TGF-beta family and is a soluble factor found in serum and plasma.

Significant experimental validation, both cumulative and quantitative, linked GDF-15 to the onset of cachexia. In particular, elevated levels of plasma GDF-15 correlate with the cachexia phenotype both in animal models and in cancer patients. Injecting GDF-15 in normal animals induce cachexia with the same phenotype as human cachexia. And inhibition of GDF-15 reverses body weight loss in cachexia tumor models. Data presented at last year's scientific meetings is available on our website.

We have a strong exclusive intellectual property position for method of targeting GDF-15 for treating certain symptoms associated with cachexia. Our issued patents are valid until 2029 in the U.S. or 2034 with a patent extension of 5 years, and 2025 in EU or 2030 with a 5-year supplemental patent certificate. In addition, we signed a composition of matter patent on our antibody which is issued, has an expiration date through 2033.

Moving on to Slide 16. AV-380 is a potent humanized GDF-15 inhibitory monoclonal antibody. Its unique mechanism of action has the potential to address multiple, key underlying mechanisms of cachexia, including increased calorie intake, reversal of body weight loss and restoration of normal body composition. We believe that this unique mechanism of action of AV-380 addresses cachexia as a syndrome rather than as particular symptoms, a key differentiator from other approaches.

As you may know, hormonal or metabolic agents such ghrelin and SARMs are primarily focused on stimulation of appetite or muscle protein synthesis. Likewise, muscle regulation-directed agents such as myostatin and activin primarily address the muscle-wasting aspect of the disease. And finally, early cytokine inhibitors such as TNF alpha, IL-6 and IL-8 do not have a well-established mechanistic link to the disease.

Based on a mechanism of action of GDF-15 and what we believe are the limitations of other approaches to treating cachexia, we believe that AV-380 represents a first-in-class opportunity in the management of cancer cachexia.

As indicated on Slide 17, data generated by our own labs, as well as others', suggest that GDF-15 may play a role in cachexia, in other chronic diseases such as congestive heart failure, chronic kidney disease, chronic obstructive pulmonary disease, as well as other indications. The total market for the treatment of cachexia could be up to 5 million patients in the United States. We are exploring partnerships with companies who have expertise in this field and can better lead development in these indications. Our focus will remain cancer cachexia where we have substantial expertise and experience.

On Slide 18, our 2014 goal for AV-380 program are: To complete GMP manufacturing in the third quarter; to conduct a pre-IND meeting to Garner FDA feedback on proof-of-concept development plan in the fourth quarter. This will allow us to be in position to file IND in the second half of 2015. In addition, we will be exploring a partnership to develop potential indications beyond cancer cachexia.

Turning to additional strategic initiatives on Slide 20. As I stated earlier, we intend to continue to be opportunistic in leveraging our existing financial resources and internal capabilities to access new compounds that meet our strategic criteria, meaning a clear unmet medical need, a clear path of proof-of-concept and approval and that can offer the potential for accelerating value-creation.

As stated on Slide 21 (sic) [22], because of our aggressive cost containment measures in 2013, we entered 2014 in a strong financial position that will allow us to execute our strategy.

Let me summarize the outline of that strategy. First is to invest in AV-380, a potential first-in-class opportunity in cachexia, with a goal to have IND in the second half of 2015. Second, we will seek partnerships to advance our existing clinical trial -- clinical stage assets. For AV-203, it's to pursue external collaboration to advance clinical development, subject to our ability to regain certain rights from Biogen; for ficlatuzumab, to evaluate external collaborations to advance clinical development; for tivozanib, to wind down tivozanib studies and regain rights from Astellas and then evaluate external collaborations for further development. Third, we will continue to evaluate additional strategic opportunities to access compounds with potential to further accelerate value-creation.

We believe that the strategy we outlined today represents the optimal path that can leverage us -- our expertise, our science and our resources to address areas of real patient need, and ultimately, create value for shareholders.

Before concluding, as noted in our press release, Bill Slichenmyer, our Chief Medical officer, will be leaving AVEO after a 2-month transition. I would like to thank Bill for his efforts on behalf of AVEO and on behalf of patients. Bill earned the respect and admiration for all of us at AVEO during his time here and we'll miss his commitment, intelligence and perspective. As I noted, Bill will work with us during our transition period, during which we will we will pick [ph] a senior clinical advisor who will be providing support and leadership until we hire a full-time CMO.

Thank you. And now we will open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Adnan, please proceed.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

It's Adnan from RBC Capital Markets. First question, Tuan, what led AVEO to decide on AV-380 or the other assets that are in the pipeline?

Tuan Ha-Ngoc

As I mentioned in my remarks, we look at -- we conduct a comprehensive review of our assets. And we decide that the best strategy is to invest in first-in-class opportunity, and that we have defined to have addressing unmet medical need or where there's a basic patient understanding with minimum therapy that exists today, with a clear proof-of-concept, path to prove concept, as well as approval, and AV-380 fits perfectly that criteria for us. As you know, AV-380 is derived from a Human Response Platform, and it address the market, cachexia, that currently is unmet with many other -- despite many other attempts. So that is our primary focus, to make sure that we invest in areas that fit exactly our strategic criteria. Now in parallel with that, we also look at our clinical stage assets, and we believe that those assets can be more effectively developed, with the addition resources to our partnership. And therefore, we continue to have the opportunity to realize the value in the best way from those clinical stage assets.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

So Tuan, what gives you confidence that this is a good target for this disease, that it's something that can be targeted. And is there a proof-of-concept from anybody else at this stage?

Tuan Ha-Ngoc

Yes. Jeno, would you like answer?

Jeno Gyuris

Yes, thank you. So as Tuan mentioned in the presentation, we have a fairly significant amount of experimental data that links GDF-15 to the onset of cachexia. Some of those data are correlative data where we show, in anyone with us [ph] and in cancer patients, that elevated levels of serum GDF-15 levels correlate very strongly with the phenotype of cachexia. And also, in any more experiments, we demonstrated the GDF-15 elevated levels of circulating GDF-15 can trigger the cachexia phenotype. And this phenotype is very reminiscent of what is seen in cachexic human patients. And finally, in loss of function type of experiments using a broad range of tumor-driven cachexia models, we demonstrated that the inhibition of GDF-15 can revert the body vehicle phenotype, can restore the lost tissues of muscle and fat and can help to restore normal body composition. So based on these experiments, we believe that GDF-15 is a potential driver -- essential driver of the phenotype. And I think, based on this mechanism of action, we think it's quite unique and different from the approaches that have been tried or being tried right now in the clinic.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

So just a last follow-up. So where do you think -- first, where's the target present? And where do think that potential antibody has an impact? And then how does it have an impact? And then secondly, when you think about developing this, do you see a development path that's by itself? Or is it in combination with other approaches?

Jeno Gyuris

So taking the first part, the target present. As I mentioned, GDF-15 -- and Tuan mentioned in the presentation as well, GDF-15 is a circulating cytokine. It's present in circulation. And its level is elevated in cachexic cancer patients, significantly elevated in cachexic cancer patients. And I think it's, right now, too early to talk about the potential development for this agent. But we can imagine different approaches to developing it, either as a single agent or in combination with other therapeutics.

Tuan Ha-Ngoc

However, in our own animal models, it is active as a single agent. As Jeno mentioned, that it does reverse cachexia in cachexic tumor models. And in a normal animal model, it does induce cachexia.

Jeno Gyuris

And one more thing that, I think, we have very nicely demonstrated that elevated GDF-15 itself can be used as a biomarker to identify patients who might be actually benefiting from a GDF-15 inhibitor, the antibody.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Okay. And the last question, then I'll get back in line. For the -- are any partnering discussions ongoing at this time? Or is that something that the company plans to focus on going forward?

Tuan Ha-Ngoc

Michael?

Michael P. Bailey

This is Michael Bailey. Yes, we're in partnering discussions with several companies. They've been proceeding well. We'll make an appropriate announcement at the time that we've come to agreement with a company. What's critical to this, though, is that we're really looking to partner this in a strategic way. We're looking for a company that can enable us to realize the full potential beyond cancer cachexia into COPD [ph], CHF [ph], and chronic kidney disease. But -- which the market opportunities, or at least the patient numbers that are dramatic, upwards of 5 million in just the U.S., if you included all these other diseases.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

I'm sorry. You prompted my thought here. But the pathway is the same in the other diseases as it is in cancer? Do you see GDF-15 levels that are more elevated?

Jeno Gyuris

We had ongoing efforts, right? So we have demonstrated using patient-derived plasma from cachexic cancer patients and cancer patients without cachexia. And using these patient cohorts, we were able to demonstrate the correlation with GDF-15 with the cachexia phenotype. So we have ongoing efforts using patient samples from chronic heart failure and COPD and potentially from chronic kidney disease where we can look patient cohort, patients cohorts with cachexia and without cachexia, and try to correlate elevated serum levels of GDF-15 to cachexia in those diseases as well. So these are actually ongoing efforts as we speak.

Operator

Our next question will come from the line of Anupam Rama from JPMorgan.

Anupam Rama - JP Morgan Chase & Co, Research Division

I just wanted to follow up a little bit on the earlier question, on AV-203. You seem to have a partnership already. You have a partnership already in place with Biogen. You've seen no dose-limiting toxicities in a Phase I. I mean, could you -- why not move that program forward as your lead, seeing that you've already had sort of maybe proof-of-concept established? And then just a second question, just on expenses. You mentioned $12 million in -- to those that have wind-down. So we should assume that the remaining expenses in R&D are deploying to AV-380, basically?

Tuan Ha-Ngoc

Michael, what don't you answer the first question, and I will answer the second question.

Michael P. Bailey

Sure. So the question being why not move forward with AV-203 with our own resources. I think Tuan touched on this in the prepared presentation. Specifically, we feel that finding a partner that can bring additional resources to accelerate the program more comprehensively than we could by ourselves, since we're focusing our resources right now on the GDF-15 Program. So we feel that an external partner could really help us move this forward more rapidly.

Tuan Ha-Ngoc

And as you know, Biogen, although the partner, having the option for territory outside of North America, is no longer involved in the oncology area. So after the -- second question, the -- in our projection for 2014, we shared with you that there is -- we have budgeted $12 million for all the activities, and mostly, on the wind-down of tivozanib trials. And the remaining covering all the other programs that we have. And yes, maybe 380 is a big part of it.

Operator

[Operator Instructions] Our next question will come from the line of Brian Klein from Stifel.

Brian Klein - Stifel, Nicolaus & Company, Incorporated, Research Division

So first, I just want to explore a little bit this idea of value-creation, which you presented as a theme today. And just going off of the last question, if I do the math here, it looks like you're planning to spend about $50 million in 2014. And I'm just trying to understand what that spend is really going to. Why does it cost $50 million to develop a preclinical asset, in which you won't even have -- be approaching the IND until the middle of next year? Could you give some more color there?

Tuan Ha-Ngoc

Yes. So assuming you're referring to your calculations on the basis of our guidance that we will be ending the year between $50 million and $55 million, and part of that will be -- the bigger part of that is R&D, obviously, and the $12 million that we already refer to. We believe that the exploration of the additional potential indications of AV-380 is very important part of value-creation. And that is, as Michael suggested, that could be a basis for partnership that can bring shorter-term value to the company, as well as ability to address a much larger market. So that's -- and then there's still other expenses going on with the ficlatuzumab and AV-203 as well, even though it would be -- it will be undertaking a bigger expansion of those programs in the context of future partnerships.

Brian Klein - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. I guess then the next point is, it seems like the future of the company is highly dependent on you establishing partnerships for all of your programs. And again, I'm not quite clear how that is really an enticing theme for investors to want to invest in the company. So maybe you can talk a little bit about how you can become more directed in terms of your own destiny?

Tuan Ha-Ngoc

Yes. I think that we do have -- as a key part of our strategy, our continued investment in AV-380, and moving that program to other clinics, and that is something that we have earmarked the resources to do so. When I mentioned about the partnership, it is for a potential expansion outside of [indiscernible] cancer cachexia. With regards to the clinical stage assets, we believe that the -- as we mentioned before, those are very valuable assets, but it probably will benefit from additional resource to be provided by the partners. So it is very important for us to calculate the best return on investment on behalf of the shareholders, and invest where we believe that is the better return at this point in time.

Brian Klein - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. I guess, last question then is, was there ever any thought between you and the Board to essentially shut down all clinical activities that are being sponsored by AVEO and just out-license all of your products and return the cash and anything else you'll get from partners back to investors?

Tuan Ha-Ngoc

Obviously, we're -- as we defined our strategy together with the Board, we have looked at all the past value creation. And obviously, that's our responsibility, to look all the various paths. And we agree, together with the board, that the path that is outlined today with our strategy will present the optimal path for value creation.

Operator

With no further questions in the queue, I would now like to turn the call back over for closing remarks.

Tuan Ha-Ngoc

Thank you all for listening to this call. I hope that the path forward has been clear with you, and we look forward for future interactions with many of you. Thank you.

Operator

Ladies and gentlemen, that concludes today's presentation. You may now disconnect. Have a great day.

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