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Nastech Pharmaceutical Q3 2007 Earnings Call Transcript 1 comment

October 29, 2007 | about: NSTK

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Nastech Pharmaceutical Company, Inc. (NSTK)

Q3 2007 Earnings Call

October 30, 2007 4:30 pm ET

Executives

Ed Bell - IR

Steven Quay - Chairman, President, and CEO

Gordon Brandt - EVP, Clinical Research and Medical Affairs

Phil Ranker - CFO

Analysts

Mark Monane - Needham & Company

Bino - Thomas Wiesel Partners

Robert Uhl - FBR

Presentation

Operator

Good day ladies and gentlemen, and welcome to the third quarter 2007 Nastech Pharmaceutical Earnings Call. My name is Katina, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Ed Bell, Director of Investors Relations. Please proceed.

Ed Bell

Good afternoon and thank you for joining today's conference call to discuss Nastech's highlights and financial results for the quarter ended September 30, 2007.

With us today are Dr. Steven Quay, Nastech's Chairman, President, and Chief Executive Officer; Dr. Gordon Brandt, Nastech's Executive Vice President of Clinical Research and Medical Affairs, and Phil Ranker, Chief Financial Officer.

At 4:00 pm Eastern Time today, we released financial results for the third quarter ended September 30, 2007. During today's call Dr. Quay will review recent corporate activities, Dr. Brandt will review the clinical and regulatory updates, and Mr. Ranker will discuss our third quarter financial results. Following our formal remarks, we will open up the call to your questions.

Before we begin, I would like to note that comments made during this call may include forward-looking statements regarding future events or the future financial performance of the company. Such statements are predictions only, and actual events or results could differ materially from those made in any forward-looking statements due to a number of risks and uncertainties, including assumptions about future events based on current expectations; planned business development efforts; near and long-term objectives; potential new business strategies or organizational changes; changing markets; future business performance; and outlook.

I refer you to our most recent filings with the SEC including, without limitations, Forms 10-K, 10-Q and 8-K, which contain all material information about us including risk factors.

I will now turn the call over to Dr. Quay.

Steven Quay

Thank you and good afternoon. During the third quarter of 2007, we continued to make significant progress on our programs with the initiation of two new Phase 2 trials; one with our PYY Nasal Spray Program for obesity; and the second with our Insulin Nasal Spray Program for diabetes.

We’ve also continued to work closely with our partners to progress our programs, including helping P&G Pharmaceuticals to evaluate available biomarker data and then determine the appropriate next steps in the clinical program for PTH Nasal Spray for osteoporosis, and performing significant development work with Novo Nordisk.

On the RNA front, we continue to build and develop our technology platform, and take steps to increase shareholder value for the assets we have developed and acquired.

Let me welcome and tell you a little about a new member to Nastech’s Executive Team. This month we announced that Rick Costantino was promoted to Chief Scientific Officer of Delivery. Rick has been with Nastech in a senior management role since 2003.

Prior to joining Nastech, he spent about five years at Alkermes, Inc. working on research and development of polymer-based technologies or a sustained delivery of peptide and protein therapeutics, and served as a key member in managing external collaborations.

Prior to that, he spent about three years in Genentech, Inc. as a research scientist in their pharmaceutical research and development group. Rick will lead our delivery programs, including nasal peptide and protein delivery, as we further advance our current technologies. Rick’s presence at Nastech and his prior leadership role will ensure continuity in our research and development programs.

Now I'd like to turn the call over to Gordon for a discussion of current clinical and regulatory programs.

Gordon Brandt

Thanks Steve. Let me begin the discussion with our PTH Nasal Spray Program. As previously mentioned, P&G continues to work on the Phase 2 development program, and we are helping them to evaluate available biomarker data and then determine the appropriate next steps in the clinical program for PTH Nasal Spray for Osteoporosis.

The market for PTH treatment continues to expand. The injected form of PTH recorded annualized sales of $720 million and a 21% increase year-over-year in the most recent fiscal quarter for Lilly. A nasal spray form of PTH should be well received; for example, the views of Dr. Robert Lindsey, osteoporosis expert at the Helen Hays Hospital, were expressed at our recent Analyst Day.

He reviewed the efficacy and potential future use of PTH in treating osteoporosis, and identified the daily injections required by the currently marketed product as one of the key barriers to significantly expanding its use. He also confirmed the only bone growing or anabolic therapy is the PTH class of drugs.

Finally the safety concerns with development stage products that are administered through the lungs reduces the probability of success for these earlier stage Inhaled PTH programs, making an intranasal PTH program that much more attractive.

In the second program to discuss today, we continue to work closely with Novo Nordisk, as one could surmise from the fact that Novo contributed 48% of our contract research revenue this quarter. We are pleased with the way this program is advancing through development.

Moving onto our Insulin Nasal Spray program, as we announced we've initiated a Phase 2 glucose tolerance study. The study will be a randomized cross-over study, evaluating insulin nasal spray versus a rapid-acting injectable insulin on post-meal glycemic control in patients with type 2diabetes.

As many of know, hemoglobin A1c is a measure of glycemic control. The higher it is, the worst the glycemic control, and thus more likely of diabetic complications, including renal failure, heart attacks, blindness, and even premature death.

Diabetics typically start on oral medicines and long-acting insulins. These medicines take care of average glucose level, but tend not to work very well on the post-meal glucose excursions. Therefore diabetics run into a limit on how much their A1c can be reduced with current therapy.

The goal of our nasal insulin is to decrease the glucose rise after a meal, thus helping diabetics reach their A1c goal. The glucose tolerance study which is ongoing will compare the nasal spray insulin with a rapid-acting injectable insulin.

These types of studies were not lengthy, so we would expect it to be available from the study in the first half of 2008. As most of you are aware, Pfizer announced in their third quarter report that they will discontinue marketing Exubera, an inhaled form of insulin that is delivered to the lungs.

I believe that some of the market issues that contributed to Pfizer's decision were concerns over the long-term pulmonary safety, modest meal time efficacy, issues with the somewhat cumbersome device, and finally the price. We tested Exubera in a head-to-head study against our intranasal insulin, and confirmed Exubera's low bioavailability and slow onset of action.

As a reminder, one of the key parameters designed in to all nasal spray products is the demonstration of the lack of delivery to the lungs, thereby eliminating safety concern in the lungs.

So the issues about a decrease in pulmonary function or the requirement for periodic pulmonary function testing simply don't apply to a nasal product. As you know our device is the size of a lipstick applicator or a pack of gum, compared to the tennis ball can size of the Exubera device.

For all these reasons, we believe the discontinuation of Exubera further supports the intranasal route of delivery, and may bring in to question the likelihood of success for some other inhaled program under development.

Although pulmonary delivery might still have application for certain therapies, such as short-term delivery of therapeutics for pulmonary disease including influenza. We believe that Nastech's intranasal technology is well suited for systematic delivery of peptides.

With respect to PYY for obesity, we announced that we've initiated a multi-centered Phase 2 study. The study will enroll approximately 500 obese patients at 29 centers around the country in a six months randomized placebo-controlled dose ranging study, including an active treatment arm with an approved oral medication, with weight loss as the primary end point.

The Phase 2 study design will evaluate a 200, 400 and 600 microgram dose of PYY nasal spray. The study design will enable patients to undergo an initial dose titration period to establish an optimal dose for each patient to continue over the duration of the trial.

So, for example if a patient is randomize into the 400 or 600 microgram dose group, they’ll first start to 200 micrograms for one week, and then advance to 400, and then to 600. If the higher doses are not tolerable for the individual, they will revert to the previously tolerated dose.

Biologically active peptides, particularly the GI peptides often require dose titration to enable the body to adjust to the medication, as is typically done, for example, for the marketed products Byetta or Symlin.

Therefore the goal of this dose optimization period is to identify a dose that the patient can stay on for the full length of the trial. Patient enrollment is going rapidly with over 250 patient screened and over 50 having received drug as of this morning, pointing at the critical need for improved obesity treatments.

Next, let me discuss our Carbetocin nasal spray for autism. We’ve now completed two Phase 1 clinical studies of Carbetocin for the treatment of the core symptoms of autism. The purpose of these trials is to test multiple formulations with tolerance and bioavailability as the endpoints.

We’re currently completing an IND-enabling toxicology program, so that we can begin to do trials in the US. There are total of 16 pre-clinical toxicology studies for that IND, and we’ve completed 10 of those studies with no unusual or unexpected findings.

Next up our dose ranging studies in healthy volunteers. At this time, we plan to conduct brain imaging studies to evaluate the doses at which Carbetocin increases activity in areas of the brain known to be important in autism.

We also plan to conduct additional neuropsychological studies, with rising dozes of Carbetocin, to evaluate the doze response for tasks such as correctly interpreting emotional content of images or voices. The study design of these complex trials is being assisted by working with experts in the field. We would expect to begin Phase 2 trials in the first half of 2008.

Finally, with regard to our generic calcitonin program, we've answered all issues and questions from the FDA. The ball is in their court, and we continue to wait for the outcome of FDA's review of our abbreviated new drug application.

At this point I would like to turn the call back to Dr. Quay for an update on the RNA based programs.

Steven Quay

Thanks Gordon. Nastech is focused on becoming a leader in the area of RNA based therapeutics, by developing a proprietary package to deliver this therapeutics to silence gene expressions for the treatment of both acute and chronic diseases.

Nastech has developed a second generation technology platform for the three key components of RNA-based therapeutics. Namely; the building blocks, comprising rival thymidine modifications which reduce toxicity, the therapeutic cargo, using Dicer-substrates to improve efficacy and also reduce toxicity, and finally delivery, using covalent peptides and lipids for getting RNAs into tissues and organs.

In therapeutic areas, we want to develop and partner above RNA therapeutics initially in rheumatoid arthritis and influenza, and also MicroRNA therapeutics in cancer and heart disease. And finally, we want to participate in a collaborative fashion with the development of In-vitro Diagnostics based on disease-specific expression profiles of messenger RNA, MicroRNA, and other sequences to assist in both clinical development and in market adoption of these new medicines.

We will continue to collaborate with leading companies and academic and government laboratories. Our past and current collaborators include the Hellenic Institute in Greece, the Mayo Clinic, University of Washington, Dharmacon in Colorado, City of Hope and ISIS in Southern California, the Universities of Iowa and Michigan, the CDC in Atlanta, the Universite Laval in Quebec, MIT, Galenea and Alnylam in Cambridge Massachusetts, Cogenics, NIH, and finally the Carnegie Institute.

With our platform capabilities, we've demonstrated in pre-clinical models. One, efficient knock in the (inaudible) range of siRNAs. These are doses that are approximately one million times more potent and currently used risk substrates, efficacy against the influenza virus including H5 and 1 Avian flu, and the ability to reduce TNF-alpha expression and thus the inflammation associated with rheumatoid arthritis through systemic delivery. These advances are important as we move towards the clinic with our siRNA programs

MDRNA, Inc. is Nastech’s wholly-owned subsidiary focused on developing RNA-based therapies. The Board of Directors has been provided with management's recommendation as to the process of increasing shareholder value for this set of assets, and they will be making their decisions on next steps in due course. We will update you on our future plans when their decisions is made

I'll now turn the call over to Phil for comments on the third quarter's financials.

Phil Ranker

Thanks, Dr. Quay. We will start with the Phase 2 studies for PYY and insulin, the efforts are underway to design the Carbetocin Phase 2 program, and the further advancement of our technologies for the delivery of biotherapeutics demonstrate that Nastech is successfully executing our business strategy by taking our products further in development

We believe the investments we are making in these programs and to broaden our technology base, are important to create a long term shareholder value. We now review the results of the third quarter of 2007.

Revenue for the quarter ended September 30, 2007 was $1.9 million compared to $5.5 million for the third quarter of 2006. The 2006 period included higher revenues primarily due to the development activities Nastech was conducting under the collaborative agreement at that time.

Revenue for the current quarter is associated primarily with reimbursement revenue from our partners and product manufacturing revenue for Nascobal. The net loss for the current quarter was $16.5 million or $0.66 per share, compared to net loss of $7.8 million or $0.36 per share for the prior year period.

The increase in our net loss results from a combination of lower revenue due to the timing of reimbursed collaboration activities, higher spending due to increased clinical activities, which included the Phase 2 trails of PYY and insulin, as well as headcount growth and expenses related to our other R&D projects.

Specifically, our total R&D expenses increased by $3.3 million to approximately $13.8 million for the current quarter compared to the same period of 2006. Selling, general and administrative expenses for the current quarter increased by $1.6 million from Q3 of 2006, to approximately $5.1 million for Q3, 2007.

This increase is primarily due to the patent and legal costs necessary to support our business model and corporate structure, as well our growth. With respect to our current financial resources, we ended the third quarter of 2007 with approximately $58.1 million in cash, cash equivalents and investments compared to approximately $51 million at December 31, 2006.

This concludes my comments. We will now open today's call to your questions.

Question-and-Answer session

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Mark Monane representing Needham & Company. Please proceed.

Mark Monane - Needham & Company

Hey, thank you. Good afternoon and thanks for taking my call. Congratulations on your progress so far.

Gordon Brandt

Thanks Mark.

Mark Monane - Needham & Company

With respect to progress, could you outline for us what’s the great learning step on the P&G program, the PTH. Is the biomarker data necessary for moving a trial forward, are there other limitations there, and what would be the rate limits there for starting a Phase 3 trial here?

Gordon Brandt

Thanks Mark, this is Gordon Brandt. I am sure you will appreciate that it's difficult for us to comment more. We are obviously working closely with our partners Procter & Gamble, and they are really controlling the information flow on this program for commercial and scientific reasons.

So as we said last year, biomarker studies are starting, then studies with an additional endpoint will follow thereafter, and those would be expected to model the Phase 3 studies. So it’s an ongoing process, and we’re actively working on it, but unfortunately beyond that I am afraid I can’t share too much additional.

Mark Monane - Needham & Company

That’s fair. And in terms of the dose response curve for PYY program. We’ve heard that the curve for satiety goes from hunger satiety, nausea and vomiting, where if you have too high doses you start to get side effects; whereas smaller dose might give you the satiety without the nausea and the vomiting. For many of your earlier biomarker studies, is there any indication which dose might be the preferred dose at this point and how longer [guessing], of course this will influence how longer trial takes?

Gordon Brandt

Sure. The collected information that we have on PYY so far suggests a couple of things. Number one; whether it’s delivered IV or intranasal one gets the same kind of efficacy. Number two; each individual patient may have a different doze, which works best for them, and that’s why we have emphasized the doze optimization aspect of this study.

So again depending on what group you randomized to. If you get randomized to one of the higher doses of nasal PYY, you will be given a week at each of the lower doses to try to get accustomed to it. So, we've seen differences at least in the pharmacokinetic profiles, the amount of drug in the blood from one patient to the next, given the same dose, and so we want to give the patient an optimized dose for each individual person. I am not sure that that captures the answer to your question. Did you have a more specific question in mind?

Mark Monane - Needham & Company

Not really. I am interested in the variability from person to person. What's the basis of that variability? Is the PK difference or is it a PD difference to your knowledge?

Gordon Brandt

I think on this particular program, since the new molecule, the PK – PD pharmacokinetic, pharmacodynamic relationship is still being determined. But what we find is that the effect from patient to patient seems to vary, and some we expect will do better on 200 and some better on 400. So, again we want to give the patient the optimal chance here.

Mark Monane - Needham & Company

Terrific. Thanks for the added information.

Gordon Brandt

Sure.

Operator

(Operator Instructions). Representing Thomas Wiesel Partners, your next question will come from the line of Bino. Please proceed.