Novacea Q3 2007 Earnings Call Transcript

Nov.12.07 | About: Novacea, Inc. (NOVC-OLD)

Novacea, Inc. (NOVC-OLD) Q3 2007 Earnings Call November 12, 2007 4:30 PM ET

Executives

Paul Laland - Vice President of Corporate Communication

John Walker - Chief Executive Officer

Ed Albini - Chief Financial Officer

Analysts

Akhtar Samad - Bear Stearns

Operator

Good day, ladies and gentlemen, and welcome to the ThirdQuarter 2007 Novacea Earnings Conference Call. My name is Lisa, and I'll beyour operator for today. At this time, all participants are in a listen-onlymode. We will conduct a question-and-answer session towards the end of thisconference (Operator Instructions).

As a reminder, this conference is being recorded for replaypurposes. I would now like to turn the presentation over to Mr. Paul Laland,Vice President of Corporate Communication. Please proceed sir.

Paul Laland

Thank you, and thank you for joining us today afternoon forour third quarter 2007, financial results conference call. Joining me on ourcall today, are Novacea’s CEO, John Walker and Ed Albini, our CFO.

Before we begin, I’d like to make a brief statementregarding forward-looking remarks that you may hear today during thepresentation. During the course of this presentation, the company may makeprojections or other forward-looking statements regarding, among other things,the progress, timing, and completion of our research.

Development and clinical trials for our product candidates;our ability to market, commercialize, and achieve market acceptance for ourproduct candidates; our ability to protect our intellectual property andoperate our business without infringing on the intellectual property rights ofothers; our estimates for future performance and our estimates regardinganticipated operating losses, future revenues, capital requirements; our needsfor additional financing; and our collaboration agreement with Schering-Ploughrelated to Asentar.

These forward-looking statements are based largely on theCompany's current expectations and are subject to a number of risks and uncertainties.We urge you to review the factors discussed under the caption risk factors inthe Company's filings from time to time with the Securities and ExchangeCommission.

In light of these risks and uncertainties, there can be noassurance that the forward-looking statements made during this presentationwill in fact be realized.

Except as otherwise required by applicable securities law,we disclaim any intention or obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents, or otherwise.

Let me now turn the call over to Ed Albini, our ChiefFinancial Officer.

Ed Albini

Thank you Paul. Thank you all for joining us this afternoon.Following my review of the financials, John Walker will provide some commentson the terminated of our ASCENT-2 Phase 3 trial and other development programsin support of our second product AQ4N.

We’ve reported today a net loss for the third quarter of2007 of $3.2 million or $0.13 per share, as compared to a net loss $6.9 millionor $0.30 per share for the third quarter of 2006.

As of September 30, 2007, cash, cash equivalents andmarketable securities totaled $103.8 million plus we had an additional $6.1million in accounts receivable. As a reminder, during the third quarter, wereceived $67 million in cash, which was net of our sub-licensing obligations.We got that from Schering-Plough under the worldwide developmentcommercialization agreement for Asentar.

Our net operating capital usage during the third quarter wasapproximately $4.5 million. Revenue for the three months ended September 30,was $8.6 million, which includes $2.5 million attributable to the recognitionof a portion of the upfront payments under the development and commercializationagreement with Schering and $6.1 million related to reimbursement by Scheringfor our research and development efforts on Asentar during the third quarter.

The revenue for reimbursement comprises our entire accountsreceivable balance as of September 30 2007. With the related payment expectedto be received during the fourth quarter of 2007, in accordance with the termsof our agreements with Schering.

Total research and development expenses for the thirdquarter of 2007 were $9.6 million compared to $4.7 million for the same periodin 2006. The increase in R&D expenses from 2006 to 2007 was due primarilyto the higher level of clinical development activities in the ASCENT-2 Phase 3trial for Asentar and that’s in patients with AIPC.

The cost associated with preparation for the initiation ofour Phase 2 clinical trial for Asentar in advanced pancreatic cancer anddevelopment activities and product manufacturing expenses related to AQ4N. Theoverall R&D expense increase from 2006 to 2007 was offset partially byimmaterial R&D expenses associated with vinorelbine oral in 2007.

As a result of the termination during the fourth quarter of2006 of our then-existing agreements related to vinorelbine oral, and thereturn to the licensor of all the related product rights for the United Statesand Canada.

Total general and administrative expenses for the thirdquarter of 2007 were $3.6 million compared to $3.2 million for the comparable2006 period. The increase in G&A expenses from 2006 to 2007 was dueprimarily to an increase in stock-based compensation and other employee-relatedexpenses. This was offset partially by reduction in marketing and communicationexpenses.

As we look ahead, we projected revenues in 2007 under thedevelopment and commercialization agreement with Schering will include aportion of the total of $60 million received in upfront payments.

And we’re currently expecting to recognize that $60 millionratably over an approximately six-year period of time that began on June 26thof 2007, which would be effective dated agreement and that period with that sixplus year period will end on June 30, 2013. The other revenue that we expect toreceive is revenue from cost reimbursement related to our development effortson Asentar, that’s based on our direct cost incurred and also the efforts ofour employees who are working on Asentar.

As we look ahead, we currently estimate that our cashbalance at December 31st 2007 will be approximately $100 million andthat includes the estimated reimbursement by sharing of our Asentar developmentcost that we incurred in the third quarter of 2007, that the receivable of$60.1 million that’s on our balance sheet. Based on our current plans, weproject that our net usage in 2008 will be in the range of $20 million to $25million.

I will now turn the call over to John Walker, who willprovide you with the few comments on the news of last week about Asentar aswell as the brief overview of our development programs for AQ4N.

John Walker

Thank you, Ed. As many of you are aware we announced lastweek that Novacea and our partner Schering-Plough accepted the Data SafetyMonitoring Board substrate and recommendation to immediately terminate theASCENT-2 Phase III of the Asentar for the treatment verification with androgen-independentprostate cancer.

Due to an imbalance of debt between the two treatments arms,given the promising clinical activity observed in our Phase II trial we areclearly very surprised to disappointed by these findings. However we andSchering-Plough are actively analyzing the clinical data in an attempt tounderstand the cause of the higher death rate in the Asentar plus Taxoteretreatment group.

As I mentioned last week, it is important to note that ourpreliminary analysis has not identified any unexpected safety concerns withAsentar and unless we discover any unanticipated safety issues with our productcandidates, we believe the Asentar remains the late stage asset and viablecancer product candidates.

We believe that our partnership with Schering-Plough remainstrong and our actively working together to evaluate to results of ASCENT-2 andto determine next steps. We intend to be patient and take the time necessary tounderstand the imbalance of debt in ASCENT-2 and we hope to update the marketon our findings within the next few months.

Following completion of our analyses of the ASCENT-2 data wealso hope to resume enrolment in our Phase II trial in advanced pancreaticcancer as well as several investigators sponsor trials that we had under way.

As we continue our diligence with Asentar, let me nowprovide you with the few comments on our development product AQ4N. AQ4N has anoble mechanism of action and we are developing it as a tissue-targetedcytotoxic prodrug, particularly for use in the oxygen-starved regions of solidtumors, where radiation in chemotherapy have very little affect.

The AQ4N clinical program consist of three ongoing studiesincluding Novacea's Phase I/II trial in the glioblastoma multiforme or GBM aswell as two European Phase I/II studies in bladder cancer and in solid tumorwith cisplatin.

We expect to have preliminary safety data from our GBM studyin the next few months and plan to present data from our European Study as ASCO2008. Many of you are aware that we are also moving AQ4 in hematologicalmalignancies; to that end we recently initiated a Phase II study in patiencewith Relapse Acute Lymphoblastic Leukemia or ALL. We also plan to start PhaseII trial in B-cell Lymphoma during the first quarter of 2008.

Let me briefly explain the rationale behind our expandedclinical program for AQ4N; laboratory studies under normal oxygen conditionshave indicated that AQ4, the active cytotoxic drug has the ability to killtumor cells derive from hematological malignancies including lymphoma andleukemia at very low concentrations.

Non-clinical toxicology studies have indicated that AQ4Ncould target lymphoid associated tissues and induce lymphoid white blood cells.In other words AQ4N has the ability to target lymphoid cells with probesensitivity. Although, the rate of success in the treatment of adult ALL hasincreased in the last 20 years, the therapeutic options are still very limitedand the majority of adult patience diagnose die fairly quickly.

The presence of co-existing medical disorders and olderpopulation may also lead to decrease tolerance of chemotherapy agents. Theyreported cure-age for adult ALL seldom exceed 40%; despite, the use of newermedical advances and the five-year event pre-survival is approximately 40%.Clearly, there is a need for better treatment options for Adult ALL patients.

With that in mind, we initiated in October a Phase IImulti-center single arm open label study of AQ4N to evaluate the safetytolerability and efficacy as a monotherapy in people with relapse B-Cell ALL.

This study will be conducted in two stages at a total of 56variable patients will be enrolled. The study will be conducted inapproximately 30 clinical trail sights in North America and Germany. Wecurrently anticipate data from this trial in mid-2009.

Before I open the call up for questions, let me summarize bysaying that while we had setback with termination of our ASCENT-2 Phase IIItrail, we are fortunate to be in the strong financial position that we’ll notnecessitate us going back to the capital markets in the near future.

Depending on our full analysis of the ASCENT-2 data, westill believe Asentar is a late stage asset and that one day this product willbenefit cancer patients.

We also have in place a broad clinical development programand supported AQ4N and we will continue to actively evaluate licensingopportunities as well as a wide range of strategic business initiatives.

I'll now be happy along with my colleagues to answer anyquestion that you may have.

Question-and-Answer Session

(Operator Instruction) Your first question comes form theline of Akhtar Samad with Bear Stearns. Please proceed.

Akhtar Samad - Bear Stearns

Yes, hi. John this is a question for you about the timelinesfor some of the programs you’d indicated. I’m just wondering, if you could giveus a little bit more color on the timelines potentially from data from bladdercancer study and also a little bit more detail on the kinds of patients thatyou’re looking for in the B-cell lymphoma study that will be started in thefirst quarter next year?

John Walker

Let me take the later question first, which is regarding theB-cell lymphoma study. That specific protocol is currently being worked onAkhtar. So it will be a little premature for me to describe specifically thenature of the inclusion criteria that we would have for that study.

So that would be something that we will need to update as wemove a little bit further along in our specific planning as I indicated theprotocol is currently being as they worked on actively.

Secondly, as it relates to timeline, we are anticipatingthat during the first six months of next year or over the next six months Ishould say more appropriately leading up to the ASCO Presentation that we willhopefully be able to report out a number of activities associated with AQ4N.

These relate to the results of our Phase 1B portion of theGBM study as we previously indicated as well as an update on primarily safety,but also we hope some efficacy evaluation as well in regard to both the bladdercancer study that you alluded to, which is in combination with radiationtherapy as well as the solid tumor with cisplatin study, which is also beingconcluded as this point in time.

So, what we are hoping is to be able to provide top-linedata to the market but a more definitive analysis for submission at ASCOpresentation in 2008.

Operator

(Operator Instructions) There are no additional questions atthis time. I’d now like to turn the presentation back over to Mr. John Walker.

John Walker

Thank you very much again for everybody to participatingtoday. We currently anticipated that in regard to the news that we had lastweek that this might be somewhat in anticlimactic (ph). But let me make surethat everyone is fully aware of the obvious purpose for this call was clearlyto provide the financial information for our third quarter.

As you know, when we made the announcement last weekregarding the sensation of the ASCENT-2 study. We were very clear to indicatethat we would finish the third quarter and then we had finished the thirdquarter was approximately $110 million in cash. You’ll note that that actualnumber is closer to $109.9 million, I’m sorry.

When one combines both the receivable as well as the cashmarketable securities etcetera, and importantly, there are burn rate for thethird quarter came in at $4.5 million. That is a significant change from whatpeople have seen with the company previously, and is more indicative of thegoing forward burn rate that we had alluded to in providing guidance to you for2008 where we would expect that our burn rate would be between $20 and $25million.

And this point in time, our annualize rate as you know iscloser to $18 million based on the third quarter number. So this reallytranslates into a situation were we have the cash reserves and the burn rateappropriate to allowing the company along with our partner Schering-Plough tofully analyze the ASCENT-2 data and to make the right decisions regarding thefuture development of Asentar.

We feel that we’re in a very fortunate position as a resultof that. And we want it to take this opportunity and having the call associatedwith our third quarter financials to provide that very important update to themarket in regard to the financial liability of Novacea at this point and ourability to continue to move our programs forward. And importantly, ourcontinued believe that Asentar will, in fact, continue to move forward anddevelop.

Again, we have not seen anything today that indicates thatwe any safety signals associated with Asentar in the ASCENT-2 study. There wasclearly an in-balance and we have a fail study but we are very hopeful as we’veindicated that we do not have a fail drug or rather we continue to have a latestage asset that along with Q4 and we’ll be in full development as we gothrough 2008. Thank you very much for your time.

Operator

Thank you for your participation in today's conference. Thisconcludes the presentation. You may now disconnect. Good day.

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