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Avicena Group Inc. (NASDAQ:AVGO)

Wall Street Analyst Forum

May 22, 2007 2:40 am

Executives

Belinda Tsao-Nivaggioli - CEO

Presentation

Belinda Tsao-Nivaggioli

Thanks for the introduction and the opportunity to tell you something about Avicena. Avicena was incorporated at the Delaware Company in 99. We filed a SB-2 to go public, and we started trading on the Bulletin Board under the ticker symbol AVGO in March of '06. Our market cap is about 265 million-300 million. Very clean cap structure, 51 million shares outstanding, 21 million under float and we are based in Palo Alto.

We have two different divisions, a pharmaceutical division that focus in neurology, with pretty late-stage pipeline. By quarter one of '08, we are going to have three drugs in Phase III; one in ALS, one in Huntington's, one in Parkinson's. We also have a second division, our dermaceutical division that's generating revenue.

All of our technology is patent protected and is based on our knowledge on how to optimize cellular energy modulation and transport.

We have an experienced management team, and we also believe that we have a very different business structure, which has allowed us to minimize our burn rate and preserve shareholder equity.

Just to give you a bit of my own background, I did my Ph.D. in Bioorganic Chemistry in the University of Toronto, post-doctored MIT working on chemical nucleases, started my career at Gillette Corporate Research, working on general process of anti-microbial for shaving systems and oral care. Then moved on to Oral-B, where I managed the entire dental business. I joined Avicena in 99, at that time they needed someone with more product [dominant] experience and I became CEO in '05. The rest of the management team also has a lot of experience, not only in pharmaceuticals, but also consumer goods marketing, and that's the reason why we have this group of individuals.

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As I mentioned, we have a very different business model. We have been able to structure a three way agreement for all of our clinical studies, where a funding agency, like an NIH, or ALS Association or Muscular Dystrophy Association will fund the clinical. The lead investigators get to run it and publish the result. Avicena will supply drugs and placebo, but we own the data for FDA filing. To-date, we have received the benefit of about $70 million of government funding to move drugs through the clinic and this is totally non-dilutive cash.

This list, our closest clinical collaborators, their affiliations, as well as their areas of focus. We have worked with these key individuals from Phase I to II to III over the years and these are really strong ties that we have built into our neurology community.

Our drugs increase the production of ATP, which is the energy currency through the Creatine Kinase System, and in turn slow down (inaudible). The Creatine Kinase System is only present in tissues with high and changing energy demands, such as the brain, the heart and the muscle, and those are really the areas that we work on.

The drugs are safe and versatile. The other system that we work on, is the Creatine Transporter System. As you know all essential metabolites are actively transported across the blood-brain barrier. In this case the Creatine Transporter. Once the substrate gets inside the brain, it can then be used by Creatine Kinase System to produce energy.

So what are some of those potential applications of a Cellular Energy Platform? You can imagine, if you could deliver more energy to neurons that are dying, such as neurodegenerative diseases. These neurons should be able to live longer and we should be able to slowdown the disease progression. For dermaceuticals, if we can supply more energy to skin cells, the skin cells should become healthier, and we should be able to slowdown the skin aging progress.

The Creatine Kinase System is well known, but the use of Creatine Analogues, as well as Creatine Kinase Modulators and modulators are those that can upregulate the system or downregulate the system, for various disease application such as diseases of the nervous system, for skin, for Glucose Metabolic Disorder, for obesity, that consists the core of our patent portfolio.

The older patents are still having 10 plus year of 'life' left in it. And so working in dermatology and neurology, you can see that we are only touching the tip of our IP portfolio, when we actually a potential to expand into much larger opportunity.

The product pipeline, this chart shows you that we do have a number of late-stage programs. And today I am going to highlight the ones in ALS, Huntington's, Parkinson's, Creatine Transporter Defect. We have a second division which is the dermaceutical division, we have one ingredient that we have been selling Estee Lauder since 2001.

We are locked in the midst of launching Nurigene, which is our own branded line. And we've created a third generation ingredient, which I'll tell you more about.

In the pharmaceutical program, the focus is on Orphan Drugs. Orphan diseases are those that affect less than 200,000 Americans. We like it because of the niche market. Although it's a niche market, it's not a small opportunity. Genzyme built the entire company on Orphan opportunity. We also get market exclusivity and claim protection. Seven years in the US, 10 years in Europe, and a shorter regulatory approval process.

The Orphan programs include ALS, Huntington's disease, and Creatine Transporter Defect. The only non-Orphan program that we are working on right now is Parkinson's.

ALS or Lou Gehrig's disease, is a progressive degenerative disease that affects voluntary motor system. So as the disease progresses, these patients lose the ability to move. But they are cognitively aware of what's happening. Towards the end stage of this disease, most of them die from not being able to breath, because their chest muscles collapse.

There are 30,000 patients in the US. Median age of disease onset is 55 years old and the median survival three years. And as you can see, there is a large global market opportunity of over $750 million.

There is only one drug in the market, it's Rilutek by Aventis. And the only ability of Rilutek is to extend survival by 60 days, two months.

AL-02 is our drug candidate. They received Orphan Drug designation in February of '02. We have completed a number of clinical studies, the most recent being Phase IIb/III. What we found was that we could increase median survival from 27 months for the placebo group to 87 months for the active group three times. With the key value of 0.0567.

If you look at probability of survival, which is called as kappa maya curve, showed about 20% difference in survival between active and placebo, and just to put this in perspective, riluzole gave about 5% difference in the survival.

So what are the next steps for AL-02? First we think that we may be able to magnify the effect by giving a higher dose. Well, we've actually started a dose escalating study, which led by Alicia DiBernardo from MassGeneral. We have a schedule meeting with the FDA to discuss the survival data, and also propose a prospective analysis of the survival benefit. And if so, we are asking for an NDA submission.

Following closely behind AL-O2, we have two combinations, AL-08 with a Cox-II inhibitor and AL-08 with minocycline. There are many different causes of ALS; energy deficit is one, which is addressed by AL-02 and AL-08 a theory. But, inflammation is another as well as overfiring of neurons. Very much like what happen to HIV, where the ultimate therapy is a combination drug. We think that for ALS, a combination therapy is probably going to be the ultimate treatment.

We started this trial in July of last year; it's led by Paul Gordon from Columbia here. The study is designed to basically head-to-head comparison between the two different combinations. The study will be completed middle of next year, and depending on which combination shows the better function in terms of ALS functional score, we will then go into a traditional Phase II double blind placebo-control study.

The next area is Huntington's disease. It's a genetic disorder. These patients have uncontrolled movement, loss of intellectual capacity, emotional disturbances. 35,000 patients in the US, 175,000 with genetic risk, if the person has the mutated Huntington gene, he or she will develop the disease by about 37 years old and they can live for 10 to 15 years. And there are currently no approved therapies for Huntington's disease. Global market opportunities is over $860 million.

HD-02 is our lead drug candidate. It received Orphan Drug designation in February of '05. We completed 3 Phase II studies; the safety and tolerability, dose ranging, and in open-label, treating over 74 Huntington's patient. What we found is that the drug was safe and well tolerated. In fact, after only 16 weeks of use, we could reduce the oxidative marker, which is a measure of brain injury substantially. And that these patients become very stable over the course of the year.

The other thing that we found was that, measured by MRI, we could reduce the rate of disease progression measured by rate of cortical thinning by about 30% over the course of the year, which is dramatic. As disease progress, the neurons die in the cortex of these patients, and that's why the cortex starts thinning out.

So, what are some of the next steps for HD-02? We will be starting a Phase III trial in Quarter 1 of '08. The FDA has agreed not only on the primary endpoints but also on the secondary endpoints, but also all the interim analysis. This study will consist of 650 Huntington's patients. It will be an international study drawn by the Huntington Study Group.

It's fully funded by NIH and we will built the interim analysis, so that we can have the opportunities to file for an NDA before the end of the trial if the results look good.

Because we were able to stabilize the patients so well over the course of the year, we are actually going to start a Phase II trial on the presymptomatic patients. So, these people have been tested positive for the Huntington gene. They have an elevator of the disease marker, but they have not shown disease symptoms yet. They are about a year away from developing diseases. The idea is to try and postpone disease onset as much as possible and keep them in the healthy state. This trial can be led by Steve Hersch from MassGeneral. He is starting enrollment in June of this year, next month.

The next area is Parkinson's disease. Parkinson's is another neurodegenerative disease that affects neuron that produce dopamine. There are 1.5 million patients in the US, average age of onset is 50 years old and median survival is 10 to 15 years. As you can see, there's a huge global market opportunity over $8 billion. There are a number of treatment options to Parkinson's patients but really the biggest problem is drug resistance overtime for once based on Levodopa.

Back in 2003, NIH initiated a systematic analysis of 59 potential neuroprotective agent and the idea was to try and find a neuroprotective agent that can perform the use of Levodopa as much as possible and also to try and stabilize the Parkinson's patients through the on and off cycle of the disease.

Out of that study based on preclinical data as well as safety and tolerability of PD-02 and minocycline were effect, we then man a Phase II futility trial which we published in neurology last year. It's basically a head-to-head comparison between PD-02 and minocycline that gave predetermined threshold which is the Unified Parkinson's Disease Rating Scale.

We know that within the course of the year, the placebo group will decline by about 30%. So either the drug is better than placebo, they could not be rejected at futile. PD-02 was better tolerated and also has a much more significant impact on the Unified Parkinson's Disease Rating Scale not only on the total score but also on the motor function. We met with the FDA last year, presented the Phase II study. We actually just started Phase III trial in March of this year. It's the largest Parkinson's trial. It's also the largest NIH funded trial. It's a $40 million study. It will involve 1,700 Parkinson's patients over 50 sites in the US and Canada. These are early Parkinson's patients diagnosed less than 5 years, but on a stable dopaminergic therapy. Again, we are building an interim analysis, so we more have the opportunity to file for an NDA before the end of the trial, if the results look good.

The next area is Creatine Transporter Defect. It's a defect that we discovered with our collaborators at the University of Cincinnati in 2001. It's an x-linked defect. So, the male patients exhibit the symptoms and the females are carriers. These male patients have a completely defective creatine transporter in the brains. If there's no creatine in the brain, normal creatine level everywhere else in body, is severely mentally handicapped, also show some autistic behavior.

There about 120,000 patients in the US. Global market opportunity is estimated to be over $500 million but that could increase once we have confirmed the incidence rate. And there's currently absolutely no therapies for them.

We have two different developmental path. We have one for the female carriers that have a partially defective transport system. So, they can transport some but not effective. For them, we are looking at a drug, CT-09. We are about close to completing the bioequivalency study within next two weeks. We are then going to do a dose escalation, and then file for orphan drug. Since, we are replacing a normal metabolite, we think the approval will be quite fast.

For the male patients, we're exampling an animal model, because the drug has to go through a different transport system or through a device. We actually also teamed up with Autism now, which is a non-profit in LA, and we just presented a screening study where we found several hits in the database.

At the same time, we are developing a diagnostic kit. You can imagine that if a pregnant woman has suddenly given treatment of CTD, she probably would want to screen, if she is a carrier, whether her child has the defect. By developing the detection kit, we're also going to expand the screening to other population such as people with learning disabilities and autistic children.

So in summary for the pharmaceutical program, we are going to have three programs on quarter 1 of '08 with a combined annual market opportunity of over $10 billion. We like Orphan Drug because of faster FDA approval. The drugs are safe and well tolerated with secure patent position, and we're actively working on second and third generation drugs.

And with that, we are going to change over to the dermaceutical business. As you know, the skin care market is huge. It's going to grow to over $22 billion by 2010. We're also in dermaceutical to leverage the technology platform and to try and generate revenue before the drugs come into market, since typical dermaceuticals don't have to go through the entire FDA approval process.

The skin is the body's largest organ, has a huge requirement of energy to protect itself. We also know that as people age, the amount of ATP production declines and the amount of toxin increases. On top of that, Creatine Kinase System is actually really active in skin. So, if you form a blister and you extract the blister fluid, analyze the Creatine Kinase activity, the activity is extremely high. As the blister continues to heal, the activity declines, because the skin actually needs the energy to heal itself.

When we first got into this, it was through an R&D collaboration with Estée Lauder. The idea was, if you can increase cellular energy delivery to skin cells, they should become healthier and we should be able to slow down the skin ageing process.

We have a two prong business in the dermaceuticals business. We have an ingredient business, with Estée Lauder being our biggest client and we continue to supply a specialty ingredient to them. We have since then developed, and the bottom shows a few of the brands that the ingredient has gone into.

We have since then developed a second and third generation specialty ingredient and we are a few weeks away from announcing a distribution partner. This business comes with a 90 plus percent profit margin, but Estée Lauder represents only 5% of the cosmetic market. So, we really do need larger distributors to go into the rest of the companies.

We've also developed Nurigene, because proprietary branded line would give us a much higher margin. Nurigene is formulated with a focus in therapeutic benefits, and it is in production right now. When we first developed Nurigene, we did a before and after test and what we found was that after only 4 weeks of use, we could substantially reduce fine lines and wrinkle.

After the before and after tests, we then did a clinical study. We know that as people age, the rate of cell turnover starts slowing down and with this line, we could increase our turnover up to 43%. We were also able to significantly improve skin barrier function and skin firmness and elasticity.

We know that clinical performance is important. But for consumer use test, how consumers feel about the product is just as important. So we did a consumer use test, where we asked the consumers to use the product for about four weeks and then we ask several questions. Top Box scores refers to strongly agree which is a measure of repurchase.

A brand, a good marketing person can always sell you a product one. The strength of the brand is really how and it's a measure of the repurchase, how many time people would go back and buy the product? When I was at Oral-B 25% top box scores considered high and we would be ready launch products. So these numbers are extremely high for us.

The next step for Nurigene is we are in production. We are in final discussion with a multilevel marketing partner, and we plan to launch Nurigene in quarter three of this year.

This shows you our 12-month milestone, as you can see we have a number of news coming out with CTD Bioequivalency study, initiation of the dose escalation, which we've actually just started, would present at the CTD's data at the Pediatric Neurology Meeting we are going to be launching Nurigene, we are going to start the Huntington's Presymptomatic trial as well as starting as of largest Huntington's trial beginning of next year.

And in summary, we are going to have three drugs in Phase III by quarter one of '08; one in ALS, one in Huntington's, one in Parkinson's. We have a dermaceutical business that's generating revenue and we'll continue to grow. All of our technology is patent protected and it's based on knowledge of how to optimize cellular energy, modulation and transport, and we think that we have a very different business model, which has allowed us to minimize burn rate and preserve shareholder equity. Thank you.

Question-and-Answer Session

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

So the question is do we have any theory of why these drugs work in Huntington's, ALS. Okay. So I am going to go back a little bit. The Creatine Kinase System is very active in the brain. It sits right at the mitochondrial form, which is cell organs, the organ that produces energy. Its only ability is to generate more of phosphocreatine which can then donate its phosphate group ADP to form ATP.

So it's a natural system that you have in your body. What happens to some of the neurogenerative diseases, like ALS, Huntington's and Parkinson's, is that as the neurons degenerate, as they continue to die, the energy demand and requirements for them to live actually increase it. And so what we are doing is applying extra reserve of fuel if you will, to these cells, so that they can live longer. So these, by no means, are the drugs reversing the condition completely. But we are slowing them down, stabilizing them as the neuron, so that they stay at a certain stage for a longer period of time.

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

We have not tested on a college students.

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

Financial needs. Our burn rate is about 5 million to 7 million a year, which is extremely small, and that's because we received the benefit of about $70 million of funding to date. Although the funding, it doesn't come through our balance sheet, and for that $70 million, $40 million goes directly to the Phase-III Parkinson's Trial. We have raised from 99 to-date about 15-20 million. We are about to close another 10 to 15 million of preferred convertible. And, that gives us a year and half of burn rate. And then obviously we will then go back out to or later on possibly for a larger financing.

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

Partners, we are in discussion talks with several partners, larger pharmaceutical companies. We did not need to get partners earlier on, because most biotechnique that the pharmaceutical companies just pay for half of their clinicals. But, since we have government funding, we can afford to wait till the late-stage, so we get more value out of our drugs, yes.

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

The question is, is the medical community's response. Throughout the years, we have actually built a very strong ties to various academic institutions. So, the idea is also that once we have finish the trial, they will be eager to prescribe the drug. For example, for the Parkinson's study, it involved 50 centers across the US and Canada. We have probably all the top neurologists involved in the trial. And I am sure that if the drug gets approved, they will be eager to use it. We are so involving, for example, for the ALS trial, two separate Phase III studies, one has 9 ALS centers in the US, the other one had 7 centers. So, 15 centers across the US, I think, we've touched almost all of the neurologists working in this space.

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

That's right.

Unidentified Audience Member

Can you comment on the marketing strategy behind Nurigene?

Belinda Tsao-Nivaggioli

The question is about marketing strategy. So, the Nurigene is being produced right now. We are having a discussion talks with several partners. And one is a multilevel marketing opportunity to go into that area. And the other one through a more concentrated version. It's with another partner that would sell directly to dermatologists. So, I think, Avicena will always stay as an R&D company. We are not going to hire a huge sales force to go after these markets and we'll always use our partnership strategy. Thank you.

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

You mean the pharmaceutical company, will give you money in front?

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

Okay. So question is about the money that we are closing right now. Why would we need to close that much money? We need to pay for manufacturing of the drug. We also need to pay for a lot of ancillary studies to go with all the Phase III trial. So, it's not just because NIH pay for the majority of the trial, we don't have to spend money. We still have to do stability. We still have to do auditing, data monitoring. And for Nurigene, to manufacture for launch.

So a lot of this is for operating, as well as to continue to spend on our patent position. I think, once we have develop Nurigene and have products out there, when we start doing the marketing, yeah, maybe will sell that line for certain amount the money.

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

Sure. But you need to get there first.

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

Sure. But you need to produce enough to get their first.

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

The question is about shareholder base. We have a lot of high network individuals. We have a number of funds that have come in, several from the UK, several from Canada, and several from the US. But we do have older shareholders, they are high network individual. And they are other institutions including MITN and MassGeneral, they are our shareholders. Yeah.

Unidentified Audience Member

[Question Inaudible].

Belinda Tsao-Nivaggioli

So, the question is about the value of the company and whether we want to separate the two different division. I think the ultimate value of the company is definitely in the pharmaceutical business. The only reason why we ended to get early revenue, we always have the opportunity to sell this business. And we will never give out too much resources to dermaceutical and we'll focus in the pharmaceutical side for sure.

Okay. I think that's it. Well, thanks for coming.

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