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 yourconference operator today. At this time, I would like to welcome everyone tothe Idenix Pharmaceutical Third Quarter Financial Results Conference Call.
All lines have been placed on mute to prevent any backgroundnoise. 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'sconference call to discuss our third quarter 2007 financial results. With metoday are Jean-Pierre Sommadossi, CEO, Ron Renaud, CFO and Douglas Mayers,Chief Medical Officer.
Today's discussion contains estimates and other statementsthat are forward-looking under the Private Securities Litigation Reform Act of1995. When we discuss our growth, science, products and prospects, our point ofreference is how we, as a company, think, expect or believe the future willlook based on information as we know it today. Accordingly, these statementsare based on current expectations and assumptions that are subject to risks anduncertainties, and involve a number of factors that could cause actual resultsto differ materially.
Additional information concerning these factors is containedin our filings with the SEC, including our annual report on Form 10-K, andquarterly report on Form 10-Q, which are available on the Investor section ofour website at www.idenix.com.
While we may elect to update forward-looking statements atsome point in the future, we specifically disclaim any obligation to do so,even if our estimates change, and therefore, you should not rely on theseforward-looking statements as representing our estimates as of any datesubsequent to today.
The agenda for our call is as follows: Ron will review ourfinancial results for the third quarter of 2007, and John-Pierre will providean overview of events in the quarter and conclude the formal portion of thecall 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, wereported total revenues of $10.9 million, compared with total revenues of $19.6million in the third quarter of 2006. Total revenues for the third quarter of2007 consisted reimbursement by Novartis of expenses incurred by Idenix in theconnection with the development of TYZEKA/SEBIVO, or telbivudine,valtorcitabine, and valopicitabine. Idenix product and product candidates forthe treatment hepatitis B virus, and hepatitis C virus respectively, and theamortization 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 $0.54per basic and diluted share for the third quarter of 2007, compared to a netloss of $19.7 million, or a loss of $0.35 per basic and diluted share for thethird quarter of 2006. Included in net loss for the third quarter was a $6.4million restructuring charge, primarily related to severance cost andimpairment of certain fixed assets related to the transition ofcommercialization, development and manufacturing activities for telbivudine to Novartis.
We currently expect to incur approximately $3 million to $5million, and additional charges relating to this restructuring over the nexttwo quarters. Additionally, in connection with the restructuring, weaccelerated the depreciation of certain assets equal to approximately $1.9million in the third quarter and expect to record approximately an additional$1 million of accelerated depreciation charges during the fourth quarter of2007.
We ended the third quarter with approximately $136.5 millionin cash, cash equivalents and marketable securities, which puts our cash burnfor the period at approximately $24 million. We continue to expect during 2007between $100 million and $110 million of cash, cash equivalents and marketablesecurities. Furthermore, we estimate that this restructuring will result insavings of $40 million to $45 million, including associated third-party andmarketing costs on an annualized basis
Our anticipated use of cash is comprised of expendituresrelated to our funding of development expenses for the HIV NNRTI program, HCVdiscovery efforts, G&A expenses, CapEx, working capital and cost associatedwith the restructuring. With this restructuring, we have taken the stepsnecessary to streamline our organization and significantly reduce our expenses,while continuing to maintain the strength of our balance sheet. We believe thatwe are now well positioned to fund the advancement of our HIV and HCV discoveryand development programs through 2009.
And with that, I am going to turn the call over to JP
Jean-PierreSommadossi
Thank you, Ron. This has been a challenging time in theevolution of our company and consequently we have reevaluated our strategicplan and our organizational structure. We made a strategic decision to focusall our resources on our hepatitis C and HIV discovery and development program.As such, we have discontinued the development of our valtorcitabine for thetreatment of hepatitis B and has amended our collaboration agreement withNovartis for TYZEKA/SEBIVO to a royalty stream arrangements. These decisionswill enable us to concentrate on what we believe is most critical to our futuresuccess, building and advancing our pipeline.
We currently have a non-nucleoside reverse transcriptase IDX899for the treatment of HIV, which is being evaluated in a Phase Ib/IIa clinicaltrial. We have submitted several abstracts for presentation at the conferenceon Retroviruses And Opportunistic Infections, or CROI, which would be held inFebruary, 2008, and look forward to presenting the first human data from theIDX899 program at that meeting.
We have also a comprehensive HCV discovery effort comprisedof next-generation nucleoside polymerase inhibitor programs, which include twocandidates IDX102 and IDX184, both are which are currently being evaluated inadvanced preclinical testing, as well as PI and non-nucleoside polymeraseinhibitor programs.
We realized that everyone is eager to hear more about all ofthese programs, and look forward to sharing additional information in thecoming months.
On that note I would like to end our formal remarks and openthe floor to Q&A. Operator, are there any questions?
Question-and-AnswerSession
Operator
(Operator Instructions). Your first question comes from MarkSchoenebaum with Bear Stearns.
Mark Schoenebaum - Bear Stearns
Hi guys. Thanks for taking my question, couple of quick oneson the pipeline. HIV, the non-nuc, can you remind us how frequently that'sdosed, JP?
Jean-PierreSommadossi
This is once-a-day drug, and actually, we have human datathat 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-PierreSommadossi
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 opposedto inducing it, which should make it a very different profile than either innevirapine or efavirenz in the clinic.
We also believe that it takes multiple mutations to get highlevel resistance, so we believe that it's going to look more like a proteaseinhibitor in terms of the development of resistance in the first generationagents.
And finally, I think one very interesting feature is, thatour early resistance mutations remain fully susceptible to efavirenz, whichwe've shown previously. So, you could potentially give this drug and follow itup with efavirenz, if that's confirmed in the clinic.
Mark Schoenebaum - Bear Stearns
Okay, great. And then, Novartis hasn't opted on this, butyou guys have said that Novartis has recently said that HIV is not a big focus,correct?
Jean-PierreSommadossi
Well, Novartis is the first right of refusal on the entirepipeline, so we cannot further comment on that, Mark.
Mark Schoenebaum - Bear Stearns
Okay. Fair enough. And then just really quickly, so I was upat 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 denythat?
Jean-PierreSommadossi
Well, right now we are not going to confirm, I am not sayingI'll give you any details. What we anticipate is we will give the first callson 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 pipelinethat you haven't even disclosed at all yet?
Jean-PierreSommadossi
That's correct.
Mark Schoenebaum - Bear Stearns
Okay. And you are ready to release that stuff in the BearStearns Conference, JP, not at JP Morgan Conference?
Jean-PierreSommadossi
Stay locked.
Mark Schoenebaum - Bear Stearns
Yeah.
Jean-PierreSommadossi
Okay. Let me just try to answer as much as I can. As we haveindicated, we have advanced program in our nucleoside polymerase that meansthat we have already clinical candidates and we anticipate that we will havedata in patients next year with the second generation of the nucleosidepolymerase. We have not, we have also advanced quite extensively the discoveryon new protease inhibitors and we are very excited about some of the leads thatwe have. We are going to give a little bit some colors at the JP MorganConference, and you can anticipate from a scientific point of view that thepre-clinical profile of those PI would be presented at EASL in the spring nextyear.
Mark Schoenebaum - Bear Stearns
Okay, great. I will hop back in the queue. I got a few morequestions. 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 - GoldmanSachs
Hi, JP.
Jean-PierreSommadossi
Hi, May-Kin.
May-Kin Ho - GoldmanSachs
Thank you. Since the Liver Meeting, it was up in Boston.
Jean-PierreSommadossi
Yeah.
May-Kin Ho - GoldmanSachs
There were quite a lot of data at this meeting. How do youthink that this might affect how you developed your HCV candidates?
Jean-PierreSommadossi
Well, I think that, first of all, we've had a lot ofexperience, as you know, in terms of nucleoside polymerase inhibitor--I thinkwe went further so long with both the number of patients and the clinicaldevelopment, we have learned a great deal, and that's why we believe that weare going to be able to move very rapidly.
We have a pretty straight, I would say, a very well-definedprogram; it was first our second generation of nucleoside polymerase. Webelieve that today, in the field of nucleoside polymerase inhibitor, there is alot of room. We believe that our second generation 102 and 184, several orderof magnitude more potent than the 283.
Obviously, until we are not in the clinic, we cannot saymore than that and we have to confirm with our clinical trials. But we are veryexcited about what we have. It is a totally new approach. It's clear as I haveindicated before we believe that once-a-day drug is going to be a paramount forthe future.
Therefore, not only the nucleoside polymerase, actually theyare very advanced as I said in late stage pre-clinical. They will be definitelyin patients and data will be obtained in 2008, with that second generation. Andwe believe that we will have fairly potent and we know and what we have beenlooking 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 toxicityprofile. I would like to remind is that 283 dose side effects were actuallytracked in the monkey animal model and we've basically learned a great dealthere.
We've looked for first relation in specific tissues where wecan affect the safety of those nucleoside, so we spent a lot of time, webelieve that essentially we are checking the boxes in terms of toxicity studiesto get to an IND,CTA and get to the clinic. And for the PI, we are striving for potent in the nanomolarrange against the target, a QD or BID at the most. Obviously, it was a highdegree of safety and tolerance, and as I have indicated to Mark, we are now atthe stage where we would be able to present scientific data at least an abstractwill be presented at EASL on the those new protease inhibitors.
May-Kin Ho - GoldmanSachs
And for the polymerase inhibitors, some data are from Roche?
Jean-PierreSommadossi
There will be also data, we anticipate we would submit abstractat EASL on those second generation of nucleoside polymerase both pre-clinicaland in vitro potentially also in animal models with those second generation ofnucleoside polymerase also for EASL.
May-Kin Ho - GoldmanSachs
And I might have missed this, did you indicate what thesales were for telbivudine?
Jean-PierreSommadossi
Ron?
Ron Renaud
Yeah. May, we just went through the, what we normallyreport, which is product sales in the United States which were $1.7 million.
May-Kin Ho - GoldmanSachs
Okay. Thank you.
Jean-PierreSommadossi
You are welcome.
Operator
Your next question comes from the Richard Smith with J.P.Morgan.
Jean-PierreSommadossi
Hi, Richard.
Richard Smith - J.P.Morgan
Hi. Can you hear me?
Jean-PierreSommadossi
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'sactually been dosed in monkeys as those [always] been done?
Jean-PierreSommadossi
You would be submitted as an Abstract to EASL
Richard Smith - J.P.Morgan
Okay. And just, secondly, on the restructuring, is thatexpected to be completed in two quarters as indicated?
Ron Renaud
Yes, Richard, we have some transition services that areongoing now. As you can imagine, with the restructuring we are obviouslyhanding a lot back to Novartis. So, in the course of doing that we have someemployees that are still here, that are ensuring that that the process goessmoothly. 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 theend of the first quarter.
Richard Smith - J.P.Morgan
Alright, thank you.
Ron Renaud
Yeah.
Jean-PierreSommadossi
You are welcome.
Operator
Your next question comes from Eugene Trogan with MorganJoseph & Co.
Eugene Trogan -Morgan Joseph & Co.
Hi, good afternoon, just one question. What kind of burnrate should we model in for R&D expense? And I was wondering if you cancomment as to how many employees you have that are currently engaged in R&Dand whether you will maintain those numbers at least for the foreseeablefuture?
Ron Renaud
Yes. We have not given any kind of guidance on burn rate ona going forward basis, except to say that for the end of this year we expect toend with about $100 million-$110 million. So, I will leave it at that. We willhave more to say at the end of the year or early part of next year. With regardto the R&D we ramped down a little bit on the development side and on thediscovery side we kept things pretty much same. So, that's really somethingthat we don't expect to change much over the next 12 months. As programs rampup, 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&Dat this point?
Jean-PierreSommadossi
On discovery we have about 60% of the employees indiscovery.
Eugene Trogan -Morgan Joseph & Co.
Okay. Alright, thank you very much.
Jean-PierreSommadossi
Welcome.
Operator
Your next question comes from Jason Kolbert with SusquehannaInvestment.
Jason Kolbert -Susquehanna Investment
Hi, JP. Sorry, we missed your AASLD this year. Questionswhat…
Jean-PierreSommadossi
You were watching, so it's okay and we have…
Jason Kolbert -Susquehanna Investment
Alright. Given our experiences with NM283, what have youlearned from that program on molecular level, on crystallography level, on[chemo IV] level in terms of designing the second generation targets, so youdon't run in to the same types of problems?
Jean-PierreSommadossi
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 doall our clinical trails with ribavirin--and not a single one withoutribavirin--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 wehave learnt not just from 283, but with several compounds that have been in theclinic and regardless of the class of drug, safety is going to be a major issuefor any hepatitis C drugs and then we can go over the details. So what we havereally focused is to make that we will have the sufficient safety, add lowdoses and we want as much as we can in that direction. And basically, to limitas much as possible the systemic exposure of those drugs and to maximize theliver exposure and I am not going to further in details on that.
So ,in the same time, what we are learning is that the repliconactually has been quite predictive, as you will see the second generation interm of the replicon data, a very potent to some extent in the same range, not exactlythan the PI but not too far.
And so basically, it was the second generation. We'll haveto see if we are correct. We anticipate that the triphosphate level that wehave seen with 283, was the first generation of nucleoside polymerase and we'llpresent all those data at EASL, have been multiplied by 100 times when wecompared those new nucleoside compared to 283 or older nucleoside, which are inthe 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 tobe 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 atEASL, and fortunately, we couldn't make it for AASLD, but we are very excitedabout our pipeline and both in terms of the PI and the nucleoside, we believethat dose compounds are differentiated and at least pre-clinically. And let'shope 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 polymerasedata 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 therereally seems to be a pathway forward with the right molecule.
Jean-PierreSommadossi
I think, Doug, as--and I think that especially there was theother classes--I believe, as I have said for quite sometime now, thatultimately a combination of PI and nucleoside polymerase will be reallyessential if we want to achieve very high as we are right in the 90% plus.
Jason Kolbert -Susquehanna Investment
Thanks JP.
Jean-PierreSommadossi
Thank you.
Operator
At this time, there are no further questions. Are there anyclosing remarks?
Amy Sullivan
Yes, thank you Christie. I just want to thank everyone fortheir time today and their interest in Idenix. If you have any additionalquestions, please feel free to call. Thank you. Bye, bye
Operator
Thank you. This concludes today's conference call. You maynow disconnect.
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