Executives
Amy Sullivan - VP, Corporate Communications
Jean-Pierre Sommadossi - CEO
Ron Renaud - CFO
Douglas Mayers - CMO
Analysts
Mark Schoenebaum - Bear Stearns
May-Kin Ho - Goldman Sachs
Richard Smith - J.P. Morgan
Eugene Trogan - Morgan Joseph & Co.
Jason Kolbert - Susquehanna Investment
Idenix Pharmaceuticals, Inc. (IDIX) Q3 2007 Earnings Call November 6, 2007 4:30 PM ET
Good afternoon. My name is Christie and I will be your conference operator today. At this time, I would like to welcome everyone to the Idenix Pharmaceutical Third Quarter Financial Results Conference Call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you.
Ms. Sullivan, you may begin your conference.
Amy Sullivan
Thank you, Christie. Good afternoon and welcome to Idenix's conference call to discuss our third quarter 2007 financial results. With me today are Jean-Pierre Sommadossi, CEO, Ron Renaud, CFO and Douglas Mayers, Chief Medical Officer.
Today's discussion contains estimates and other statements that are forward-looking under the Private Securities Litigation Reform Act of 1995. When we discuss our growth, science, products and prospects, our point of reference is how we, as a company, think, expect or believe the future will look based on information as we know it today. Accordingly, these statements are based on current expectations and assumptions that are subject to risks and uncertainties, and involve a number of factors that could cause actual results to differ materially.
Additional information concerning these factors is contained in our filings with the SEC, including our annual report on Form 10-K, and quarterly report on Form 10-Q, which are available on the Investor section of our website at www.idenix.com.
While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change, and therefore, you should not rely on these forward-looking statements as representing our estimates as of any date subsequent to today.
The agenda for our call is as follows: Ron will review our financial results for the third quarter of 2007, and John-Pierre will provide an overview of events in the quarter and conclude the formal portion of the call with brief remarks. We will then open the call to Q&A.
I'll now turn the call over to Ron.
Ron Renaud
Thanks a lot, Amy. For the third quarter of 2007, we reported total revenues of $10.9 million, compared with total revenues of $19.6 million in the third quarter of 2006. Total revenues for the third quarter of 2007 consisted reimbursement by Novartis of expenses incurred by Idenix in the connection with the development of TYZEKA/SEBIVO, or telbivudine, valtorcitabine, and valopicitabine. Idenix product and product candidates for the treatment hepatitis B virus, and hepatitis C virus respectively, and the amortization of upfront fees receive in connection with Novartis license of telbivudine, valtorcitabine, and valopicitabine, as well as product sales of TYZEKA/SEBIVO.
We reported a net loss of $30.5 million, or a loss of $0.54 per basic and diluted share for the third quarter of 2007, compared to a net loss of $19.7 million, or a loss of $0.35 per basic and diluted share for the third quarter of 2006. Included in net loss for the third quarter was a $6.4 million restructuring charge, primarily related to severance cost and impairment of certain fixed assets related to the transition of commercialization, development and manufacturing activities for telbivudine to Novartis.
We currently expect to incur approximately $3 million to $5 million, and additional charges relating to this restructuring over the next two quarters. Additionally, in connection with the restructuring, we accelerated the depreciation of certain assets equal to approximately $1.9 million in the third quarter and expect to record approximately an additional $1 million of accelerated depreciation charges during the fourth quarter of 2007.
We ended the third quarter with approximately $136.5 million in cash, cash equivalents and marketable securities, which puts our cash burn for the period at approximately $24 million. We continue to expect during 2007 between $100 million and $110 million of cash, cash equivalents and marketable securities. Furthermore, we estimate that this restructuring will result in savings of $40 million to $45 million, including associated third-party and marketing costs on an annualized basis
Our anticipated use of cash is comprised of expenditures related to our funding of development expenses for the HIV NNRTI program, HCV discovery efforts, G&A expenses, CapEx, working capital and cost associated with the restructuring. With this restructuring, we have taken the steps necessary to streamline our organization and significantly reduce our expenses, while continuing to maintain the strength of our balance sheet. We believe that we are now well positioned to fund the advancement of our HIV and HCV discovery and development programs through 2009.
And with that, I am going to turn the call over to JP
Jean-Pierre Sommadossi
Thank you, Ron. This has been a challenging time in the evolution of our company and consequently we have reevaluated our strategic plan and our organizational structure. We made a strategic decision to focus all our resources on our hepatitis C and HIV discovery and development program. As such, we have discontinued the development of our valtorcitabine for the treatment of hepatitis B and has amended our collaboration agreement with Novartis for TYZEKA/SEBIVO to a royalty stream arrangements. These decisions will enable us to concentrate on what we believe is most critical to our future success, building and advancing our pipeline.
We currently have a non-nucleoside reverse transcriptase IDX899 for the treatment of HIV, which is being evaluated in a Phase Ib/IIa clinical trial. We have submitted several abstracts for presentation at the conference on Retroviruses And Opportunistic Infections, or CROI, which would be held in February, 2008, and look forward to presenting the first human data from the IDX899 program at that meeting.
We have also a comprehensive HCV discovery effort comprised of next-generation nucleoside polymerase inhibitor programs, which include two candidates IDX102 and IDX184, both are which are currently being evaluated in advanced preclinical testing, as well as PI and non-nucleoside polymerase inhibitor programs.
We realized that everyone is eager to hear more about all of these programs, and look forward to sharing additional information in the coming months.
On that note I would like to end our formal remarks and open the floor to Q&A. Operator, are there any questions?
Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from Mark Schoenebaum with Bear Stearns.
Mark Schoenebaum - Bear Stearns
Hi guys. Thanks for taking my question, couple of quick ones on the pipeline. HIV, the non-nuc, can you remind us how frequently that's dosed, JP?
Jean-Pierre Sommadossi
This is once-a-day drug, and actually, we have human data that will be presented at Kaui, which confirm that once-a-day administration.
Mark Schoenebaum - Bear Stearns
Okay, great. And other than the once-a-day administration, what do you think could be a key differentiators from Sustiva?
Jean-Pierre Sommadossi
Doug, why don't you?
Mark Schoenebaum - Bear Stearns
I mean once-a-day is important, but beyond that?
Douglas Mayers
Sure. At this point, we are still evaluating the product. It's in early development, but it looks like it does inhibit P450, as opposed to inducing it, which should make it a very different profile than either in nevirapine or efavirenz in the clinic.
We also believe that it takes multiple mutations to get high level resistance, so we believe that it's going to look more like a protease inhibitor in terms of the development of resistance in the first generation agents.
And finally, I think one very interesting feature is, that our early resistance mutations remain fully susceptible to efavirenz, which we've shown previously. So, you could potentially give this drug and follow it up with efavirenz, if that's confirmed in the clinic.
Mark Schoenebaum - Bear Stearns
Okay, great. And then, Novartis hasn't opted on this, but you guys have said that Novartis has recently said that HIV is not a big focus, correct?
Jean-Pierre Sommadossi
Well, Novartis is the first right of refusal on the entire pipeline, so we cannot further comment on that, Mark.
Mark Schoenebaum - Bear Stearns
Okay. Fair enough. And then just really quickly, so I was up at the Liver Meeting earlier this week and there were some physicians up there, saying that you guys have a protease inhibitor for HCV, can you confirm or deny that?
Jean-Pierre Sommadossi
Well, right now we are not going to confirm, I am not saying I'll give you any details. What we anticipate is we will give the first calls on the entire pipeline at the JP Morgan Conference, so stay tuned.
Mark Schoenebaum - Bear Stearns
Okay, got it. So, there could be things in the HCV pipeline that you haven't even disclosed at all yet?
Jean-Pierre Sommadossi
That's correct.
Mark Schoenebaum - Bear Stearns
Okay. And you are ready to release that stuff in the Bear Stearns Conference, JP, not at JP Morgan Conference?
Jean-Pierre Sommadossi
Stay locked.
Mark Schoenebaum - Bear Stearns
Yeah.
Jean-Pierre Sommadossi
Okay. Let me just try to answer as much as I can. As we have indicated, we have advanced program in our nucleoside polymerase that means that we have already clinical candidates and we anticipate that we will have data in patients next year with the second generation of the nucleoside polymerase. We have not, we have also advanced quite extensively the discovery on new protease inhibitors and we are very excited about some of the leads that we have. We are going to give a little bit some colors at the JP Morgan Conference, and you can anticipate from a scientific point of view that the pre-clinical profile of those PI would be presented at EASL in the spring next year.
Mark Schoenebaum - Bear Stearns
Okay, great. I will hop back in the queue. I got a few more questions. I will get in the back queue. Thanks a lot. I appreciate it.
Operator
Your next question comes from May-Kin Ho with Goldman Sachs.
May-Kin Ho - Goldman Sachs
Hi, JP.
Jean-Pierre Sommadossi
Hi, May-Kin.
May-Kin Ho - Goldman Sachs
Thank you. Since the Liver Meeting, it was up in Boston.
Jean-Pierre Sommadossi
Yeah.
May-Kin Ho - Goldman Sachs
There were quite a lot of data at this meeting. How do you think that this might affect how you developed your HCV candidates?
Jean-Pierre Sommadossi
Well, I think that, first of all, we've had a lot of experience, as you know, in terms of nucleoside polymerase inhibitor--I think we went further so long with both the number of patients and the clinical development, we have learned a great deal, and that's why we believe that we are going to be able to move very rapidly.
We have a pretty straight, I would say, a very well-defined program; it was first our second generation of nucleoside polymerase. We believe that today, in the field of nucleoside polymerase inhibitor, there is a lot of room. We believe that our second generation 102 and 184, several order of magnitude more potent than the 283.
Obviously, until we are not in the clinic, we cannot say more than that and we have to confirm with our clinical trials. But we are very excited about what we have. It is a totally new approach. It's clear as I have indicated before we believe that once-a-day drug is going to be a paramount for the future.
Therefore, not only the nucleoside polymerase, actually they are very advanced as I said in late stage pre-clinical. They will be definitely in patients and data will be obtained in 2008, with that second generation. And we believe that we will have fairly potent and we know and what we have been looking for is obviously to increase the safety of those nucleoside polymerase. So far, we have had I would say a positive view in terms of the toxicity profile. I would like to remind is that 283 dose side effects were actually tracked in the monkey animal model and we've basically learned a great deal there.
We've looked for first relation in specific tissues where we can affect the safety of those nucleoside, so we spent a lot of time, we believe that essentially we are checking the boxes in terms of toxicity studies to get to an IND, CTA and get to the clinic. And for the PI, we are striving for potent in the nanomolar range against the target, a QD or BID at the most. Obviously, it was a high degree of safety and tolerance, and as I have indicated to Mark, we are now at the stage where we would be able to present scientific data at least an abstract will be presented at EASL on the those new protease inhibitors.
May-Kin Ho - Goldman Sachs
And for the polymerase inhibitors, some data are from Roche?
Jean-Pierre Sommadossi
There will be also data, we anticipate we would submit abstract at EASL on those second generation of nucleoside polymerase both pre-clinical and in vitro potentially also in animal models with those second generation of nucleoside polymerase also for EASL.
May-Kin Ho - Goldman Sachs
And I might have missed this, did you indicate what the sales were for telbivudine?
Jean-Pierre Sommadossi
Ron?
Ron Renaud
Yeah. May, we just went through the, what we normally report, which is product sales in the United States which were $1.7 million.
May-Kin Ho - Goldman Sachs
Okay. Thank you.
Jean-Pierre Sommadossi
You are welcome.
Operator
Your next question comes from the Richard Smith with J.P. Morgan.
Jean-Pierre Sommadossi
Hi, Richard.
Richard Smith - J.P. Morgan
Hi. Can you hear me?
Jean-Pierre Sommadossi
Yeah.
Ron Renaud
Richard, we can hear you.
Richard Smith - J.P. Morgan
Yeah. Okay, great. I am just going to check two things. One, with the HCV second generation HCV polymerase inhibitors. Did you say that's actually been dosed in monkeys as those [always] been done?
Jean-Pierre Sommadossi
You would be submitted as an Abstract to EASL
Richard Smith - J.P. Morgan
Okay. And just, secondly, on the restructuring, is that expected to be completed in two quarters as indicated?
Ron Renaud
Yes, Richard, we have some transition services that are ongoing now. As you can imagine, with the restructuring we are obviously handing a lot back to Novartis. So, in the course of doing that we have some employees that are still here, that are ensuring that that the process goes smoothly. We expect that to be windup probably by the end of the first quarter. So, as I mentioned, we will have anticipated charges that continue through the end of the first quarter.
Richard Smith - J.P. Morgan
Alright, thank you.
Ron Renaud
Yeah.
Jean-Pierre Sommadossi
You are welcome.
Operator
Your next question comes from Eugene Trogan with Morgan Joseph & Co.
Eugene Trogan - Morgan Joseph & Co.
Hi, good afternoon, just one question. What kind of burn rate should we model in for R&D expense? And I was wondering if you can comment as to how many employees you have that are currently engaged in R&D and whether you will maintain those numbers at least for the foreseeable future?
Ron Renaud
Yes. We have not given any kind of guidance on burn rate on a going forward basis, except to say that for the end of this year we expect to end with about $100 million-$110 million. So, I will leave it at that. We will have more to say at the end of the year or early part of next year. With regard to the R&D we ramped down a little bit on the development side and on the discovery side we kept things pretty much same. So, that's really something that we don't expect to change much over the next 12 months. As programs ramp up, we'll revisit them when we get to those points.
Eugene Trogan - Morgan Joseph & Co.
Okay. And how many employees do you have focusing on R&D at this point?
Jean-Pierre Sommadossi
On discovery we have about 60% of the employees in discovery.
Eugene Trogan - Morgan Joseph & Co.
Okay. Alright, thank you very much.
Jean-Pierre Sommadossi
Welcome.
Operator
Your next question comes from Jason Kolbert with Susquehanna Investment.
Jason Kolbert - Susquehanna Investment
Hi, JP. Sorry, we missed your AASLD this year. Questions what…
Jean-Pierre Sommadossi
You were watching, so it's okay and we have…
Jason Kolbert - Susquehanna Investment
Alright. Given our experiences with NM283, what have you learned from that program on molecular level, on crystallography level, on [chemo IV] level in terms of designing the second generation targets, so you don't run in to the same types of problems?
Jean-Pierre Sommadossi
We are not going to give you all secrets. But, first of all, what we have learnt is definitely that we will confirm. We will definitely do all our clinical trails with ribavirin--and not a single one without ribavirin--that's clearly we learnt that. And so, coming back to what you asked, in terms of nucleoside polymerase, I think what we are trying to achieve, really, is we need have a once-a-day drug. I think one of the issues that we have learnt not just from 283, but with several compounds that have been in the clinic and regardless of the class of drug, safety is going to be a major issue for any hepatitis C drugs and then we can go over the details. So what we have really focused is to make that we will have the sufficient safety, add low doses and we want as much as we can in that direction. And basically, to limit as much as possible the systemic exposure of those drugs and to maximize the liver exposure and I am not going to further in details on that.
So ,in the same time, what we are learning is that the replicon actually has been quite predictive, as you will see the second generation in term of the replicon data, a very potent to some extent in the same range, not exactly than the PI but not too far.
And so basically, it was the second generation. We'll have to see if we are correct. We anticipate that the triphosphate level that we have seen with 283, was the first generation of nucleoside polymerase and we'll present all those data at EASL, have been multiplied by 100 times when we compared those new nucleoside compared to 283 or older nucleoside, which are in the clinic today.
So the interaction at the molecular level, well, you know, essentially, when we talk about triphosphate ,unless I am missing something, when you got in the range of 15 nanomolecular, or in that range, it's going to be very hard to get more potent than that. And that's basically where we stand. And then after it's really to maximize the safety.
So, we look really forward to present the scientific data at EASL, and fortunately, we couldn't make it for AASLD, but we are very excited about our pipeline and both in terms of the PI and the nucleoside, we believe that dose compounds are differentiated and at least pre-clinically. And let's hope that we get the results we hope when they will go in patients.
Douglas Mayers
Thanks JP. We were very excited by some of the polymerase data that we saw coming out of Roche and particularly one of the competitors' compounds had not reached the dose limiting toxicity, so it shows that there really seems to be a pathway forward with the right molecule.
Jean-Pierre Sommadossi
I think, Doug, as--and I think that especially there was the other classes--I believe, as I have said for quite sometime now, that ultimately a combination of PI and nucleoside polymerase will be really essential if we want to achieve very high as we are right in the 90% plus.
Jason Kolbert - Susquehanna Investment
Thanks JP.
Jean-Pierre Sommadossi
Thank you.
Operator
At this time, there are no further questions. Are there any closing remarks?
Amy Sullivan
Yes, thank you Christie. I just want to thank everyone for their time today and their interest in Idenix. If you have any additional questions, please feel free to call. Thank you. Bye, bye
Operator
Thank you. This concludes today's conference call. You may now disconnect.
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