Aradigm Corporation (ARDM.OB)
Wall Street Analyst Forum
May 22, 2007 2:00 pm ET
Executives
Igor Gonda - President and CEO
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Igor Gonda
Good afternoon and thank you very much for coming to our presentation. Aradigm is a Company that is located in Hayward, California. We have been around for about 16 years, but as you will see it's like a new house being built on a very strong old foundation. So, it's a restart and I will be telling you about what we're doing.
The company is listed. Although it's running over the counter, so it's a public company. We have been public since 1996. So, as I said we are starting on strong foundations. We've got a new leadership in the company. I will be telling you about that. We've got a very experienced development team, in fact, many of our scientist and engineers are people who were there when I joined the company in 1995 and I had some more people and the number of those people are still with the company. So, it's a very experienced team.
I joined the company, again, as an Executive in August last year, as CEO and President. I was on the board of directors since 2001 and I used to be the Vice President and Chief Scientific Officer of the company from 1995 to 2001. But, what I am going to talk about this primarily the system that we put in place since my arrival in August last year as a CEO and President of the company.
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We have got a lot of technology that has been now validated by us and our partners in multiple clinical trials. We conducted over 50 clinical trials with our technology and some of those clinical trials are very late-stage Phase 3 trials.
The business model is a two pronged model. The focus of the company today is the development and commercialization of premium priced products to be sold through a dedicated, well educated sales force to the US respiratory physicians.
We like to take drugs that have been proven already by others to be safe and efficacious, we are not a discovery company. We take proven drugs, put them in to proprietary delivery systems, proprietary formulations and that enables us very often to get through regulatory pathways that are short of us to avoid risk, then starting from leukemic lung disease.
We also have a history as a drug delivery partnership company, and the key partnerships that are in existence today that we believe have material importance for the company are the partnerships with Novo Nordisk, with Organics, and you will see that some of our other products have also the potential to generate future revenues from additional out-licensing of technology, and I will be giving you examples of those.
My work in industry as an employee of the industry as a Post 3 Consultant started in the early 90's at Genentech when I set up the inhalation delivery group and helped Genentech to put the first recombinant human protein to be delivered by inhalation to humans called Pulmozyme, a very successful product for the treatment of Cystic Fibrosis. I was also on the core team of Genentech, the team that developed the clinical regulatory in commercial strategy for that product, and is relevant to this presentation because as you will see, Aradigm is developing products for that particular indication and this whole area of severe respiratory interest is the focus of the company.
I then left Genentech at the end of '95 going to Aradigm as I mentioned, where I stayed for so many years. And then went to a startup company in Northern Australia called Acrux. That company went through a significant private financing and then through a public offering as we've seen on the Australian foreign exchange, and is doing very well in Australia. It does have a product in Americas with a partnership here and that product completed it's Phase 3 clinical trial successfully.
Last May, that was the time when I left Aradigm to get involved in another emerging company, being Aradigm and developing products from pre-clinical way to the market. So this is the kind of space that I like going early into product development and then seeing the company through other process.
The Head of our Development is Dr. Tunde Otulana. Dr. Otulana is a practicing pulmonologist. He goes once every two weeks to the University of California Davis, where he has a clinic, and he treats patients with severe respiratory disease. He was one of the pioneers in the treatment of another respiratory diseases not cystic fibrosis, but pulmonary arterial hypertension. He was one of the pioneers in the development of respiratory products in the United Kingdom. He then went to FDA. He, I believe, was the pulmonologist that FDA employed.
We were fortunate to hire him out of FDA for Aradigm and he is a very experienced person also in terms of running clinic. He was at FDA when product such as Pulmozyme went through approval. Tobramycin was being developed at the time when he was working as a medical reviewer in the pulmonology section.
Tom Chesterman, is our Chief Financial Officer. Tom Chesterman has worked in a number of public companies in senior finance responsibilities. His last job before Aradigm was Bio-Rad. And our board is small board for non-executive members and myself.
The strategy of the company is to use the experience the people, the expertise that we have built, the abilities. The large intellectual property estate to become the leading company developing and commercializing products for respiratory diseases in the United States.
We believe that our expertise in inhalation is particularly useful, if you look at the respiratory market today, the dominant note of delivery of respiratory products is by inhalation. When you breathe, it is the one activity that you can't control. You know you've got to breathe to stay alive. So, the incidence of respiratory disease is very high. Many of us already have or will develop respiratory disease. It continuous to be a serious medical problem for many people and delivering medication by inhalation turns out to be the best way to do this.
You have high concentration of the respiratory drugs inside the respiratory track were you have the disease and generally the concentration of the drug in the rest of the body is relatively low. So, the incidence and the severity of side effects from respiratory treatment is relatively minor and rare. So, it's a good way to treat respiratory disease.
It's well accepted now, of course, by patients and by doctors as a good way to treat respiratory disease. And one of things that is not widely recognized is that the nature of the molecule, the nature of the drug that you give for the treatment of respiratory disease, it really doesn't matter it can be a small molecule, water-soluble, fat molecule. It can be a biologic and fibers and quite a lot of work using gene therapy in the lung. So, the size of the molecule, the property of the molecule is really doesn't matter, as long as it is not toxic, of course, to the lung.
But, of course, we inhale all kinds of things. The lung is relatively robust organ. It's an open organ. It exchanges everyday environment. So, it's a relatively robust organ. And so there is now variety of drugs that has been approved for the treatment of respiratory disease.
The large pharmaceutical companies have done a very good job treating the mild-to-moderate disease. So, if you are an asthmatic, an mild-to-moderate asthmatic, your disease is usually treated quite well with the products that the large pharmaceutical companies are marketing. The costs, both human costs and financial costs of keeping people with severe respiratory disease is very high. There is a disproportionate cost to keep alive and well people with severe respiratory disease, and we believe that that's the opportunity that small companies like Aradigm can -- there is the niche that we can effectively fill.
An examples of that our cystic fibrosis, about 30,000 patients in the United States, bronchiectasis a little over 100,000 patients in the United States, pulmonary arterial hypertension the numbers vary. The estimates are not very good. But, again, it's still an open indication and also severe asthma. Severe asthma is not treated well yet by the current inhalation therapy. And these are the patients who end up frequently in hospitals, in the emergency rooms which is very good costly, so anything that we can do to keep them out of the hospitals is valuable.
Aradigm has got some interesting core technologies that we have developed over the years. We have got platform technology AERx. AERx is a technology that is based on liquid formulations. Basically, we take a drug and we dissolve it in water. So, it will be a lot of water with a little bit of drug in it and we use these devices and as you will see the devices have two clinical aspects for inhalation therapy.
What you need to do is to control the size of the droplets or size of the particles that you inhale, because that affects the way were they deposit into respiratory track and also delay breathe. If you don't breathe correctly you won't be able to get medication effectively and reproductively into the lung.
So, it's the breathe control and particle control and we use liquid formulations. We use typically water solution. Because, I went from Genentech to Aradigm, I was working with biologists. Most biologists today are formulated as we get solutions. So they are particularly useful for delivery of biologics. And I assure you how these technologies works.
Those people who will be listening to the webcast they will actually have to go to the next slide which is the video. So we take these packets, these little blister packets, we filled the blister, we fill them ASAP because it’s a stale out solution. We fill them and we seal them and we put these nozzles. These are single dose disposable packets, labeled and there is nozzle on them. We make these nozzles with the proprietary technology which is based on laser micro machinery.
We use lasers where we precisely drill these holes in these packets. Then we sell them into devices and the drug is delivered at the time when the patient is breathing correctly. When the patient breathes correctly, a little piston comes up and it will squeeze the packet. It will force the water or the formulation through the nozzle and form a fine aerosol. And then depending on the size of the particles on the way you breathe and the nature of the molecule the drug either stays in the lung or it will be absorbed from the lung into the systemic circulation.
So, it’s a powerful technology. The packets remain the same. These devices vary depending on what kind of level of sophistication you need to provide with the patient in order to treat the disease effectively. So this particular one is an all mechanical device. It doesn’t require any battery, so it (inaudible) will be low, and the packet is the size you insert it in the device, we close it and all that you need to do is to breathe, push a button and it will squash the packet and release the aerosol into my lung. So it’s very simple very easy part of the device.
The other technology that we have is called liposome. Liposomes have been around for a long time; is one of the oldest nanotechnologies that the pharmaceutical industry has been using. There are a number of liposomal products now approved of the market. These are small vesicles made out of phospholipids that are constituents of our own bodies, and by putting the drugs inside these small particles, we can release them slowly in the lung.
So these slowly released particles and they provide the convenience to the patients instead of using the medication multiple times a day. These will enable people typically to give the medication once, so it's a slow-release therapy, because it's a liquid. They can be used in our device. So it's convenient to combine the two products. And, of course, we need the people and the intellectual property to get to effectively develop and commercialize these technologies and recover in house.
As a managing company that aims to be and has got the ambition to be an independent company one day with around commercial and marketing's sales force, we've got two types of products those that are helping partners already, and those that we are keeping tracks. So let me tell you, first about our products that we keep to ourselves, and I will start off with a new antibiotic treatment that we are developing for cystic fibrosis.
Now cystic fibrosis is a disease of genetic origin, but is not the genetic aspect of the disease which is actually causing to barely trouble to the patients. It's the fact that they develop respiratory infections, these are recurrent respiratory infections that cause high mobility frequent admissions to the hospital, as well as the early and untimely risk or dispersions. There is only one antibiotic approved by inhalation for the treatment of these infections is Cystic Fibrosis. It's called TOBI. TOBI was developed by a guy that I used to work with at Genentech. His name is Bruce Montgomery.
Bruce Montgomery took a generic antibiotic called tobramycin, took a generic nebulizer from a German company called Pari. Put the two together and developed a product for cystic fibrosis inhaled tobramycin called TOBI and eventually started selling that throughout the world were the disease occurs and that company called PathoGenesis was eventually sold to Chiron for $800 million. So, clearly a very valuable product developed for this severe disease.
He than went ahead and started another company called Corus and Corus did something very similar. Corus took another generic antibiotic called aztreonam, put into another nebulizer from the same company. That company actually before it went commercial was bought a few months ago by Gilead for $350 million. So, clearly developing these products is valuable for the society and the investment community also than values the companies that develop them.
Now, the market potential in United States is about 30,000 patients, about 70,000 patients worldwide. Just to give an example the sales of TOBI a couple of years ago it was about $233 million and the product still continues to grow at a moderate still high single digits.
One of the interesting things about this severe pulmonary disease is that they are treated by relatively small number of doctors and relatively small medical centers. So, you don't need a very large sales force. Generally the sales force is sort of 10, 20, 30 sales people for the whole of United States. You don't have to develop. So, a small company can very realistically cater for the community of respiratory physicians who treat these diseases.
Why are we doing inhaled liposomal ciprofloxacin? Ciprofloxacin or as you may know it under name Cipro, is an antibiotic that was originally developed by Bayer in Germany, but it's now generic. It's a very well known, very well accepted antibiotic. It is used by the physicians who treat cystic fibrosis patients. Today already is used either as a tablet or is given by injection.
It's treated as a reserved antibiotic because the physicians are concerned if they are development of resistance when you give it systematically. They are also concerned about the side effects the antibiotic is causing. So, it's only used when everything else fails, when the patients need to be hospitalized, because the other antibiotics had not worked.
So, we believe that by giving it by inhalation we'll be giving a marginal dose. We expect the dose to be probably between one-tenth to one-twentieth of the overall oral injectables and also by giving it liposomal we will slowly release the drug from this formulation into the lung, into the airway and so we expect that the concentration of the drug in the rest of the body will be very, very well. So, we expect that the incidence and severity of side effects will be very rare and low.
This particular product has been already given orphan designation by FDA, both for cystic fibrosis and for bronchiectasis. We are not raising money at all at present, but we won't be raising money to build manufacturing capability, all of this can be manufactured through contract manufacturing. We in fact have a contract manufacturer, an experienced contract manufacturer for this product.
We've got a number of employees who develops similar products. As I mentioned the history of Tunde Otulana, Head of Development and myself, we have hired people from Genentech, we got some people from Chiron. So, we are familiar with the development of this kind of products. And as I mentioned, there are multiple benefications. In fact, the formulation came from us from the Canadian Ministry of Defense.
They brought the liposoma formulation of lipo processing because they wanted to use this devices, if you want to, for prevention and treatment of (inaudible). So if you suspect that you might have been help white part of the contents, Anthrax, then in order to prevent the development of the infection in your body, you would be -- once it gets approved, you would then use inhaled Liposomal ciprofloxacin to prevent the development of the infection.
We have not had discussions with FDA about the development of this drug, but we see that the development particles will be very similar to the development (inaudible) the product from the company, the risk to be caught close which is now part of (Agelab).
We are starting in the second half of this year phase 1 and phase 2A, clinical trials. These will all be done off shore initially in Australia and in Germany. These will be seeking IRB approval. The cystic fibrosis patients in this first starting in the phase 2A study will be treated for two weeks redeem how Liposomal Ciprofloxacin, and we will be looking at lung function and reduction in the colony forming you is reduction of the infections is the end point in the appropriate study.
We then expect that the Phase 2B study would be a pivotal study which will be treating roughly about 130 patients. They will be treated for three months; this is one month’s treatment, one month’s vacation from the antibiotic, one month's treatment, so this is a three month cycle of treatment with the therapy and these patients would be then rolled over in to the safety database as a pivotal study.
So we expect one year safety database with this phase. And then the Phase 3 study, if it's going to be the same as the Phase 3 study for aztreonam, it will be probably two Phase 3 clinical trials each one of them about 250 patients. And the treatment for aztreonam was one months of therapy and the measurement of time to the observation requiring hospitalization. So the phase 3 is actually relatively simple and short. It’s the Phase 2B which is the big beefy long clinical trial.
The upcoming milestones for the company are primarily, are at least those milestones that I can talk about publicly are about -- and those are under our as I can talk about them, is the development of this clinical based stuff, all the clinical trials and reporting of the results from those clinical trials we should have all the data back in house in the first quarter of next year.
We would like to be the best company treating cystic fibrosis patients in United States. So we are looking at adding products to our portfolio based through internal efforts. We are looking at the secondly liposoma product either different mechanism or action. We also like the mucolytic products. Pulmozyme was an example of the mucolytic product.
I remember Genentech when we started receiving reports from the clinical trials, latest from the patients telling how beneficial the therapy was for the mucolytic compounds. We had cleared the airways of these patients. So they give them practically an instant relief. So, patients and doctors very much like this therapy and they of course want to provide a real benefit to the patients as well.
We are looking at multiple indications for liposomal ciprofloxacin, of course to get the best out of the investment in to the particular type of formulation. We are also looking at the possibility of in-licensing or snooping products of companies that are similar to ours one product, maybe that they are European company where they would like to swap it -- they would like to take our product to Europe and we would take their product into the United States. So, we are looking at some creative ways of doing that. I would give an example of the company where we can provide them with a better delivery system and better formulation and that is the basis of the partnership.
We have looked into the past at expansion of our pipeline and we will look at that again by investigating drugs that have been approved for other indications for some other disease, not for respiratory disease and than by giving them by inhalation to see whether there is utility to develop those drugs as products for severe respiratory disease.
And the last category for our potential expansion of the pipeline is to discuss with companies that have good products, typically in Phase 2 studies. The early private companies that do not have good development mean they don't have the expertise to develop respiratory products or they simply don't have the resources. They are not a public company. They can't raise money to develop those further. So, we've built discussions with those kind of companies who might have potential nichebuster products that would be the leading products for the treatment of certain parts of respiratory disease.
So, the second category of products that we have are the products that are partnered with other companies. And the most important of those partnerships is the partnership with Novo Nordisk on inhaled insulin. Now, you have read, I'm sure and heard on the news, the news about AVANDIA, the GlaxoSmithKline oral hypoglycemic drug and inhaled insulin is in our view and in the view of Novo Nordisk, a great alternative to the oral hypoglycemic drugs. A lot of those patients should be on insulin anyhow and with some of the side effects that are evolving with the oral hypoglycemics, it's possible that more physicians and more patients will be inclined to switch to insulin. Of course, the big barrier to treatment of insulin is the fact that it needs to be injected.
Novo Nordisk is responsible for all the remaining clinical and developmental activities with inhaled insulin products AERx insulin and of course, they are responsible for commercializing. This slide is actually incorrect. I have just found out that there are 9 Phase 3 clinical trials. So, it's 6 it's 9 Phase 3 clinical trails underway. And they expect to launch the product in 2010.
Those of you who may have followed the story over the years, you may remember that Novo Nordisk is using an AERx 1, a first-generation AERx device is number of these clinical trials. They did say that the commercial launch will be with a much smaller device than the current device that is in clinical trials and they expect the commercial launch in 2010 to be with the second-generation significantly smaller device.
I can't show you that device. You have to wait until Novo Nordisk will be willing to disclose it. But, they did say it's a significant small and lighter device than the device that some of you may have seen already.
The economics of the partnership go as follows. Aradigm will receive on average throughout the lifetime of the product approximately 5% of the net sales. The market in our view is estimated to be greater than $2 billion. Novo Nordisk is the big insulin company, the big diabetes company, the all they have got. I believe more than 50% of the global market in insulin and they certainly want to stay to be the dominant insulin company.
If you have followed Novo Nordisk they recently, a few months ago, actually stopped all of the research and development on all oral hypoglycemic drugs. They believe that insulin is the right way to treat diabetes, so the inhaled insulin is a very, very important part of their business strategy. They are shareholders in our company. They are currently our contract manufacturers, so the strips are made by Novo Nordisk for us.
We also have a technology transfer agreement with them which means that anything that they invent or improve on the AERx technology, we can use outside glucose control and vice-versa. Whatever we invent we improve the technology, they get the benefit for it, for the treatment of diabetes and for glucose control in general. So it's a very valuable technology sharing agreement with Novo Nordisk.
Another collaboration that we've done is with the United Therapeutics. United Therapeutics is a leading company in the treatment of pulmonary artery hypertension. This is a very interesting market for us. It's a market that's rapidly growing. It's already over a billion of dollars per annum. There was some last chain. Treprostinil is currently delivered by intravenous or subcutaneous infusion, a rather difficult way of delivering these products. So more of the treatment of pulmonary artery hypertension these days, is with the very severe patients, who are really left with this kind of therapy by subcutaneous and intravenous infusion.
We, of course, would like to provide a convenient therapy to these patients, as well as, to the other patients for whom this kind of complicated methods of delivery wouldn't be particularly convenient.
Treprostinil is one of the process cycling that is approved for the treatment of this disease. The only approved that was in return for certain intellectual property that they bought from us to with the delivery insulin, $8 million -- cost was a reduction in (inaudible) from 6% to 5%. We had a 1% of reduction.
Novo Nordisk estimated in June last year, that the value -- that the risk adjusted net present volume for insulin obviously was $48 million. So as the $8 million behind we have got a 1% of reduction (inaudible) and then we received a $7.5 million loan from Novo Nordisk which is a 5% loan, and we start to get back in 2012 into franchise.
We have also announced that we have in the company a needle for injection called Intraject which was phase 3 ready for the treatment of migraine with Sumatriptan. Sumatriptan is the leading migraine drug. So, that product was phase 3 ready. It needed one bioequivalent study and some investments into the manufacturing. The asset went into a private company called Zogenix.
They did a $60 million of series of financing for that company to put the product on the market, and we expect that the product will be launched soon after the Sumatriptan product is passed in February 2009, and we will get one more milestone and a royalty stream from the product. So, 2009-2010 would be the years where we expect to start getting significant royalties from two sources.
We have reduced the staff. We used to be a very large company, about 350 employees. We now have little under 50. A lot of our employees actually worked just across the rope. Novo Nordisk, you may remember some of the both manufacturing facility moved into our laboratories and our offices across the rope, so a lot of those employees who used to at Aradigm now work for Novo Nordisk. They are now about between 350 and 400 employees working on the inhaled insulin product.
But, the staff that we have retained are effective to advance the internal programs, as well as serve in the partnerships. We have added some new blood into our Scientific Advisory Board. John Siebert is a recent addition to our board. Again, you may remember John he was the guy who transformed CIMA, a company that was on the verge of extinction with a market cover of about $20 million to a company that was sold eventually to Cephalon something like four years later, I think, for about $0.5 billion, a specialty pharma company.
John was also the head of technical at Dey Laboratories, a very successful specialty pharma in the respiratory area, so John has been a very valuable addition to our board. And our Scientific Advisory Board now has got the opinion leaders in cystic fibrosis and severe lung disease, the leading people in the United States, as well as some of the leading people in the inhalation treatment.
We have recently completed a public offering. It was end of January this year. We have raised about a little over $33.3 million net. All of our stock is now common stock, so it's at least about 54 million shares outstanding and all the warrants (inaudible) for all practical purposes it's 54 million shares of common stock.
At the end of last quarter we had cash and short term investment of over $56 million, so we've got a very strong cash position. The cash burn is under $2 million per month. We expect that to be till the end of the year. Obviously, we would like to spend as much money as we possibly can into product development, clinical trials in particular, but we expect that the cash burn will be about $2 million per month or may be a little less.
So, today we are a company with a strategic plan to become an industry leader and the leader, in particular, in the treatment of severe pulmonary disease in the United States. We've got validated technology that is already used in proprietary products by us and by our partners. We are reorganized under the new business model, reenergized the scientific advisory and we bought some board changes, and changes in the management team.
We are developing a pipeline of valuable products for cystic fibrosis. There are number of companies, I mentioned two of them to you are the PathoGenesis and Corus. That are good examples of that. There is a company in Australia called Pharmaxis. Pharmaxis has got its cystic fibrosis product in Phase 3. That company is valued at over $0.5 billion. And of course the companies in the pulmonary arterial hypertension space, as you know they also are viewed as being very valuable company for investors.
So, we are seeing that they are giving right space for the market and for the investment community. In addition to the portfolio that we are developing for these severe respiratory diseases, we do have the partnership in each space already. That’s the good legacy, the history of the company. So, we've got the Novo Nordisk partnership in particular and the partnership with Zogenix, plus potential for some others and a very strong cash position. Thank you very much.
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