Pfenex's (PFNX) CEO Bert Liang on Q2 2016 Results - Earnings Call Transcript

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Pfenex (NYSEMKT:PFNX)

Q2 2016 Earnings Conference Call

August 8, 2016 08:30 ET

Executives

Paul Wagner - Chief Financial Officer

Bert Liang - President and Chief Executive Officer

Hubert Chen - Chief Medical Officer

Analysts

John Scotti - Evercore ISI

Jason Butler - JMP Securities

Douglas Tsao - Barclays

Eric Criscuolo - Mizuho

Operator

Greetings, ladies and gentlemen, and welcome to the Pfenex Second Quarter 2016 Results and Business Update Call. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. [Operator Instructions] It is now my pleasure to introduce your host, Dr. Paul Wagner, Pfenex’s Chief Financial Officer. Paul, you may now begin.

Thank you, Andrew, and good afternoon. Welcome to Pfenex’s second quarter 2016 conference call. On the call today are Dr. Bert Liang, our Chief Executive Officer, and Dr. Hubert Chen, our Chief Medical Officer and myself. Bert will provide a key summary of events as well as provide a business update. Hubert will provide the clinical development updates and I will describe our second quarter financial results and then Bert will open the call up for Q&A.

Earlier today, Pfenex released financial results for second quarter ended June 30, 2016 and our earnings release and the corporate presentation are currently available on the Investor Relations section of the website. I need to read some Safe Harbor statements so bear with me for a moment. We’d like to remind you that some of the statements made during the call today are forward-looking statements, including statements regarding our expectations for the development plans and regulatory pathways for our product candidates, the expected timing of our clinical trials and release results, the initiation of additional clinical trials, and our potential to receive future milestones and royalty payments.

Actual results could differ materially from those contemplated by our forward-looking statements and reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ materially. Additional information will also be set forth in our quarterly report on Form 10-Q for the second quarter ended June 13, 2016 to be filed with the SEC. The forward-looking statements in this call are based on the information available to us as of today’s date, and we disclaim any obligation to update any forward-looking statements, except as required by law. Bert?

Bert Liang

Thank you, Paul. Good afternoon and welcome to the Pfenex quarterly conference call. This morning we announced that Pfenex will regain the full rights to PF582 based on our partner’s strategic revenue of the current therapeutic focus of the biosimilar pipeline. With Pfenex regaining the rights to PF582, we are now announcing the positive Phase 1/2 safety and efficacy data which underscores the value of the program. In a moment Hubert will provide an overview of this data we released this morning. As the program positions back to Pfenex, we will explore all strategic options for PF582.

Additionally this morning, we announced the positive results from our anthrax vaccine study. Hubert will review the results more fully following my remarks. Pfenex will be engaging BARDA in discussions and we will provide updates on next steps for the program over the remainder of the year. Given our highly efficient production process, we believe we could supply the U.S. government’s anthrax vaccine stockpile go quickly and very cost efficiently meeting a key need of the U.S. government. As you may have seen on June – I am sorry on July 28, we announced the collaboration on multiple preclinical hematology oncology product candidates with Jazz Pharmaceuticals. It may include and option for Jeff to negotiate a license with Pfenex for recombinant pegaspargase product candidate

Pfenex received upfront an option payment totaling $15 million and we may be able to receive additional payments of up to $166 million based on the achievement and certain milestones as well as tiered royalties on worldwide sales of any products resulting from this collaboration. As part of the Jazz Collaboration we have the opportunity to efficient develop a portfolio of hematology, oncology programs. Given this productive collaboration in our recent pipeline review, we announced this morning that we will be advancing these assets ahead of the PF530 biosimilar candidate to Betaseron opportunity which will result in a reduction in the expenses associated with PF530. The PF530 program is at an important inflection point having accessed an abbreviated biosimilar development path in the United States consisting of a pivotal PK/PD study in healthy subjects and an immunogenicity study in multiple sclerosis patients.

Regulatory feedback since our last update provided additional insights into the development timeline and as a result the PF530 program valid to Pfenex was refined which in part how to inform the decision to realign our portfolio by focusing on pipeline programs that balance value creation with development cost, we will continue to improve our capital efficiency. Potential strategic opportunities for the PF530 program will be explored given the successful advancement of PF530. We believe this realignment underscores our disciplined approach to capital allocation and our commitment to shareholder value creation. Now I would like to turn the call over to Hubert to review the recent data releases and provide an update on the pipeline.

Hubert Chen

Thank you so much Bert. Today we disclosed data from our previously completed Phase 1/2 study for PF582 our biosimilar candidate to Lucentis. Pfenex enrolled a total of 25 patients with neovascular age-related maculative degeneration naïve to VEGF inhibitor treatment. 13 patients including one subject received PF582 and 12 are randomized to receive Lucentis. All patients receive three monthly intravitreal injections. The primary endpoint of the study was safety and tolerability and as detailed in our press release, these study met its primary objective of demonstrating similar safety and tolerability between PF582 and Lucentis.

The study also demonstrated consistent pharmacological activity including best corrected visual acuity or BCVA and decreases in central retinal thickness between PF582 and Lucentis. Additionally, today we released data from the day 70 analysis of our Phase 1 anthrax vaccine study. The results demonstrate favorable safety profile and significant immunogenicity response after only two doses of PX563L. Now as a background for the immunogenicity endpoint, a touch initializing antibody or TNA NF 50 value that is greater than or equal to 0.56 has been correlated with significant survival after anthrax exposure in animal models.

After the administration of two doses 100% of PX563L subjects achieved the 0.56 threshold at day 70 for both the 10 microgram and 80 microgram cohorts and 87.5% achieved the target threshold in the 50 microgram dose cohorts. For a comparison, after the subcutaneous administration of three doses of BioThrax, which is the currently approved anthrax vaccine 57.9% of subjects achieved at TNA NF 50 value of 0.56 or higher at day 70. In terms of safety and tolerability findings in the study, only mild Grade 1 injections site were reactions were observed at the 10 microgram and 50 microgram PX563L doses doses as well as for all RPA563 doses. At the 80 microgram Px563L dose, in addition to Grade 1 findings, there were two Grade 2 reports of erythema or redness. However, there were no other Grade 2 or higher injection site reactions, specifically injection site pain, arm motion limitation, tenderness or swelling.

I would now like to turn to other candidates in our pipeline starting off with PF708 which we are developing as a therapeutic equivalent to Forteo. Last quarter we announced positive PF708 bioequivalents data in healthy subjects. We expect to initiate the pharmacokinetics and six month immunogenicity study in osteoporosis patients which we anticipate will satisfy the 505(b)(2) filings in the U.S., by the end of 2016. Process development for PF529, our biosimilar candidate to Neulasta is ongoing and we anticipate receiving regulatory feedback by the end of 2016. And as Bert had mentioned earlier, we are prioritizing the hematology oncology programs that are part of the Jazz Collaboration ahead of PF530 our biosimilar candidate to Betaseron. Given the regulatory feedback with respect to and ability to access the abbreviated biosimilar development path as well as the successful advancement of PF530 to-date, potential strategic opportunities for the program will be explored.

Paul Wagner

Great, thank you Hubert. I will now summarize financial results for the quarter. Revenue increased to $3.1 million in the three month period ended June 30, 2016 and that compared to $2.3 million in the same period in 2015. The increase in revenue was due to the state of development of our anthrax vaccine product candidates under our government contracts and that’s offset by decrease in product sales. So given the nature of the novel development process revenue fluctuate that depends on the stage of development. Cost of revenue of $1.4 million increased by approximately $0.5 million in the three month period ended June 30, 2016 that compared to $0.9 million in the same period in 2015. The increase in cost of revenue was due primarily to an increase in cost for our anthrax vaccine products candidates under our government contracts and that increase is offset again by decrease in product sales and that’s impacted by our customer’s product development and clinical progression.

Given the nature of the novel vaccine development process, these costs will fluctuate depending on the stage of development. Research and development expenses increased by approximately $4 million to $7.6 million in the three month period ended June 30, 2016 and that compared to $3.6 million in same period in 2015. The increase in research and development expense was due to an increase in the development activity of our product candidates PF708 and PF530 and the hiring of additional personnel dedicated to our research and development efforts. We expect R&D expenses to increase for the foreseeable future as we advance our lead candidates and pipeline product candidates.

Selling, general and administrative expenses increased by $0.6 million to $4.3 million in the three month period ended June 30, 2016 and that compared to $3.7 million in the same period in 2015. The increase in SG&A expenses during the periods presented were primarily due to an increase in headcount, as well as increases in salaries and other personnel costs. We do expect the general and administrative cost to increase due to an increase in headcount as well as increases in salary and other personnel cost and for activities associated with continuing to operate as a publicly-traded company.

The net loss for the second quarter was $10 million that compared to $6 million in the same period in 2015. The weighted shares outstanding for the three months period ended June March 30, 2015 was $23.4 million and the loss per share was $0.43 compared to a loss per share of $0.27 in the same period in 2015. Cash and cash equivalents as of June 30 was $89.6 million, it did not include the $15 million payments from Jazz which we have now been received.

Now I’d like to turn the call back over to Bert

Bert Liang

Thanks very much Paul. Andrew, could you open up the call for Q&A please.

Question-and-Answer Session

Operator

We will now begin the question and answer session. [Operator Instructions] The first question comes from Mark Schoenebaum of Evercore ISI. Please go ahead.

John Scotti

Congratulations on all the progress. This is John Scotti in for Mark today. I had a few questions on anthrax vaccine. So the first one is first of all congrats and then and so how do you see the program playing out from here in terms of next steps for funding, studies, would you have to do a head-to-head study against BioThrax and then specifically with the government have to stop procuring BioThrax in order to purchase your vaccine and is there money to do both? And then I guess on Lucentis then, could you just elaborate a bit more on Pfizer’s decision to give the rights back to you and would you go ahead with Phase 3 now as you look at other partnering opportunities or – and would you need to raise additional cash to do so? Thank you so much.

Bert Liang

Great, thanks very much for the question John, appreciate it. This is Bert Liang. With regards to the anthrax vaccine, with regards to the program steps, we need to have further discussions with BARDA they have seen the top line data and all of us are very excited about it, but when we need to go through the process and having further detailed discussion with BARDA with regard to the next step. As you recall, we do have a $143.5 million contract with them that allows us to move forward with that particular program. So, but in addition to that with regard to further studies the details around that will really be reflected in the next level of discussion.

With regards to the procurement, potential procurement I should say, the procurement of a anthrax vaccine that’s recombinant such as ours versus a vaccine that is non- recombinant are done using an extraction kind of technique. Those budgets are actually separate. So as a result, the government can certainly do both if they so desire. Obviously we’re not party to that but I can just tell you with regards to budgetary requirements, they have definitely line items for both of these things. So as a result, certainly the government commissioned decisions with regards to how they want to allocate those particular funds. With regards to our PF582 program, as has been noted in our press release, our partner had been – they had a strategic review with regards to you know the therapeutic area they’re interested in being in and one of the areas they decided they were no longer to be into was the same one where PF582 existed and as they had made a decision that in executing that particular strategy if they would be out of that particular therapeutic area. For us right now, the program decisions were communicated to us very late last week and we are still evaluating all strategic options going ahead. So currently that’s the status of where we are with regards to that program.

John Scotti

Thank you so much. Can I ask a quick follow-up?

Bert Liang

Certainly.

John Scotti

When will the discussion with BARDA be completed?

Bert Liang

That should be very shortly within the next few months, so that’s something that we all be or certainly updating everybody on, as we have those discussions going forward.

John Scotti

Thanks so much.

Bert Liang

Thanks John.

Operator

Your next question comes from Jason Butler of JMP Securities. Please go ahead.

Jason Butler

Hi thanks for taking the questions. I guess just one on the strategic decision for 582, do you think now and most reasonable scenarios let’s say this were any reasonable scenario that you can still complete the Phase 3 program and be ready to launch in time of the 2022 U.S. IP cliff?

Bert Liang

Jason, so I think that again, we’re looking at all various options here with regards to this decision to have this product come back to Pfenex and certainly our aim would be to access permission of the major markets going forward with regards to the options that we look at. Again we literally had this back into our area in like Friday. So I think that we are still looking at everything that’s possible with respect to the program but our aim is certainly to get to – to access the market formation going forward, you know the major markets.

Jason Butler

Okay, great. And then just a follow-up, you know when you look at the data you presented this morning for the candidate, it looks similar for the efficacy markers or parameters that you showed between 582, my sense is one 5 that looked possibly a little different was the antibodies with 582 having less anti-drug antibodies than Lucentis. Can you just comment on your thoughts of the clinical relevance there and specifically have you seen any neutralizing antibodies with either candidate in your study?

Hubert Chen

Hi Jason, this is Hubert. I will take those questions. I think in terms of the immunogenicity data, again you know the number of subjects are small. However, based on our review, there really are no clinically meaningful differences between a PF582 and then Lucentis treatment arms. So I think overall this is also consistent with the efficacy and safety data that we’ve seen in the sense that these findings of immunogenicity really do not correlate with safety or the efficacy finding, so overall we are quite pleased with the findings to-date and we believe that these really are the basis for advancing the program forward.

Bert Liang

And there was no neutralizing antibodies.

Jason Butler

Great, alright. Thanks for taking the questions.

Bert Liang

Thanks, Jason.

Operator

The next question comes from Douglas Tsao of Barclays. Please go ahead.

Douglas Tsao

Hi good morning, thanks for taking the question. So just in terms of you know the 582, you know what’s your sort of urgency or sort of the timeline that we expect to learn a little bit more about your sort of go forward plan with that asset and you know obviously given the fact that you, you were sort of progressing with the tech transfer and moving nicely towards the Phase 3 start and, do you see – still see yourself in position to get that product you know improved at time of market formation for Lucentis? Thank you.

Bert Liang

Hi Doug, this is Bert Liang. Thanks for the question. With regards to the timeline again, you know the – we are evaluating all the strategic options we can currently. As I noted earlier, we did receive this program back as of last Friday and certainly our goal is to be able to access the major markets on time with respect to being able to launch into the largest markets. So I can tell you that we will certainly let you know about our plans going forward with this as we continue to focus on the review of what we can potentially be doing with this particular program. Again, we’ve only had a couple of days to be able to go through some of our options. But certainly is something that we are spending a lot of management timeline currently. So all I can say right now is stayed tuned and we will certainly be communicating with your as quickly as we can.

Douglas Tsao

And then Bert, do you received any kind of termination fee from you know Pfizer in terms of the sort of them sort of stepping back from the program?

Bert Liang

We actually, I mean, we haven’t disclosed the aspects around this, so we – at this point, we had a number of different conditions that were associated with the return of the program back to us.

Douglas Tsao

Okay, great. Thank you very much.

Bert Liang

Thanks Doug.

Operator

[Operator Instructions] The next question comes from Eric Criscuolo of Mizuho. Please go ahead.

Eric Criscuolo

Hi good morning, guys. So I guess just on the collaboration with Jazz, wondering if you could talk about give any parameters around the preclinical assets that are involved? How many or when we could start to hear about the types of molecules that are involved there?

Paul Wagner

So this is Paul. And we have disclosed it, obviously there are some early stage HemOnc assets that are involved. We haven’t disclosed how many are involved. Of course, we did disclose that pegaspargase which is our Oncaspar product is part of the collaboration in terms of giving Jazz an option on that. You know we haven’t really disclosed our obligations are going to be incremental to the current R&D spend, it’s going to be a total of $41 million milestones that are pre-commercial and there will be offsetting milestones associated with the development as we move forward on that. And in terms of updates, we will be working with Jazz to providing you with updates of those programs going forward.

Eric Criscuolo

And I am assuming all those are biosimilar programs, correct?

Paul Wagner

So that hasn’t been disclosed. So when I said that they are early stage HemOnc products with Jazz.

Eric Criscuolo

Okay but they are coming out of your pipeline specifically?

Paul Wagner

Out of our pipeline you know again Jazz has the option on the – this pegaspargase, so which is the Oncaspar product within our pipeline.

Eric Criscuolo

Okay thank you and then just on the PF530, it seems like after you talked with the FDA the timelines might have been longer than initially expected, is that correct, and if it is can you maybe provide some details there?

Hubert Chen

No, I think you are right. So this is Hubert Chen. So I think you are right. I think previously as we have disclosed that we have access to the abbreviated biosimilar development path which is just PK/PD study in healthy subjects and an immunogenicity study in multiple sclerosis patients as Bert had mentioned earlier. However, based on the additional feedback from the FDA, we believe that the immunogenicity study may need to be longer than one year duration and this really helped to inform our decision in terms of prioritizing the Jazz collaboration programs ahead of PF530?

Eric Criscuolo

Got it. Thank you very much.

Paul Wagner

Thanks.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Dr. Bert Liang, Chief Executive Officer for any closing remarks.

Bert Liang

Again, we appreciate the support of everyone here and again we will be planning to update you periodically as we get more information. So thanks very much, appreciate it.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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