Favrille Inc. Q4 2007 Earnings Call Transcript

Favrille Inc. (FVRL)

Q4 2007 Earnings Call

February 19, 2008 05:00 pm ET

Executives

Pete De Spain – Director of Investor Relations

Tamara Seymour - CFO

John Longenecker Ph.D. - CEO, President

Daniel Gold Ph.D. - Co-Founder and Chief Scientific Officer

Tamara Seymour - Chief Financial Officer

Analysts

Mark Monane - Needham & Company

Ren Benjamin - Rodman & Renshaw Llc

Robyn Karnauskaus - Bear Stearns

Bret Holley - Oppenheimer & Co.

Presentation

Operator

Good day ladies and gentlemen and welcome to the Q4 2007 Favrille Incorporated Earnings Conference Call.

(Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Mr. Pete De Spain, Director of Investor Relations, please proceed, sir.

Pete De Spain

Good afternoon ladies and gentlemen and thank you for joining us. On behalf of Favrille, I would like to welcome everyone to our conference call for the fourth quarter and yearend 2007. Hopefully, you have all had the chance to review today’s press release, if not and you need a copy, you can visit our website at www.favrille.com. Before we begin, please note that this conference call will contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. During the course of this call, we may make forward-looking statements regarding future events and the future performance of Favrille Inc. that involve risks and uncertainties that could cause actual results to differ materially. These risks include but are not limited to our ability to successfully continue and complete the development of our lead product to candidates. Specifid, our ability to raise additional funds, our ability to manufacture our products, our ability to achieve projected operating metrics and fund operations to the primary endpoint analysis in our Phase III trial, our dependence on single source suppliers for critical raw materials, our reliance on third parties for clinical testing and marketing, market acceptance of our products and competition from other pharmaceutical and biotechnology companies. These and other risks are described in further detail in our quarterly report on Form 10-Q which was filed with the SEC on November 14, 2007.

Now with that said, I would like to introduce the members of our management team who will be speaking today. With us, we have Dr. John Longenecker, our President and Chief Executive Officer and Tamara Seymour, our Chief Financial Officer, Dr. Daniel Gold, our Chief Scientific Officer and David Guy, our Chief Commercial Officer are also with us and available to answer questions at the end of the call. Tamara will begin the discussion with an overview of our fourth quarter and yearend financial results after which John will present an update on the status of our pivotal Phase III trial before we open the lines for your questions.

At this time, I will now turn the call over to Tamara Seymour.

Tamara Seymour

Earlier today, we reported our financial results for the fourth quarter and full year of 2007. I will highlight just a few of these financials on this call. For additional results, I encourage you to refer to the press release that we issued this morning.

Our net loss for the quarter was $7.8 million or $0.21 per share compared to $10.2 million on $0.35 per share for the fourth quarter of 2006. Our net loss of the full year of 2007 was $43.1 million or $1.28 per share compared to $40.5 million or $1.49 per share for 2006. As of December 31, 2007, our cash, cash equivalents and short term investments were $29.9 million compared to $42.4 million at December 31, 2006. The decrease is primarily due to the net cash used to fund ongoing operations offset by the $33.5 million in net proceeds from our registered direct offerings in February and November of 2007.

Our cash burn for the fourth quarter ends with a full year of 2007 with $10.8 million and $46 million and the reconciliation of the cash burn to net cash use in operating activities can be found in the 8-K that we filed this morning and there is a link to that filing on the Investor Relations page of our website. We believe that our cash on hand is sufficient to fund operations through the primary endpoint analysis of our Phase III clinical registration trial which we expect no later than July of this year.

Now, I will turn the call over to John Longenecker for a brief update on the status of the trial.

John Longenecker

I want to thank you all for joining us this afternoon. The New Year marks an exciting time at Favrille as we eagerly anticipate the primary data analysis from our Phase III clinical registration trial Specifid. As you may recall from our last discussion, we determined that April is the appropriate time for data cutoff for this trial and as Tamara mentioned, we anticipate that the analysis of the data will be completed and made available no later than July. I am pleased to report that we are on track with the schedule. Our clinical team is working diligently having already collected the vast majority of the case report forms in the trial with the remainder expected shortly.

In addition, review of CAT scans for patients who have progressed on trial have been performed by our third party central radiology team and we continue to receive extraordinary cooperation from our investigators in the collection of remaining site data. In the meantime, we are preparing for future commercialization while managing our resources responsibly. We have completed construction of our commercial scale manufacturing facility and are currently validating the facility to comply with CGMP requirements. We plan to complete this validation in time to file our BLA by yearend.

As for the Phase III trial itself, we continue to believe that we have enrolled an optimal patient population to maximize prospects for demonstrating a clinical benefit of Specifid and as we reported previously, the rate of disease progression continues to be slow.

We look forward to sharing the data with you as soon as it is available.

That concludes my prepared remarks and now we will open the lines for your questions.

Question and Answer Session

Operator

(Operator Instructions)

Your first question comes from the line of Mark Monane from Needham & Company, please proceed sir.

Mark Monane - Needham & Company

Good afternoon and greetings from New York City. Two questions, one is on the manufacturing program. Could you update us on the status of the facility and preparation going forward given the late stage of the trial?

John Longenecker

Sure, we have completed the construction of our facility about this time last year. Since that time, we have validating the facility, utilities and the process, so we are well on our way to completing all of those validation studies and beginning to write reports for the BLA around the CMC side, so we think we are well ahead of the curve on the CMC side of the BLA preparation right now.

Mark Monane - Needham & Company

The second question is on the clinical program. Maybe you could give us your overview of the state of the art of active immunotherapy as a whole and comment a little bit about the recent trial from Genitope in NHO.

John Longenecker

Yes, well, I guess this is the first time that we have spoken publicly since Genitope announced their data in December. We think that there is very little published data available right now with respect to Genitope. All we really know is that they did not meet their primary endpoint and there is a subgroup analysis that they believe is positive based on immune response, but it is very difficult to know exactly what that means since there is really no detailed data being made available.

I think from our point of view, we have always felt that there are a number of areas of differentiation between ourselves and the approach that the Genitope people have taken. Both in terms of our products at the molecular level, as you know, we make product in insect cells, this results in an idiotype protein which only contains sugars and we have demonstrated and showed that this past year that product made in that way is much more immunogenic than that made in a mammalian cell process. Our formulation of course is very different as well. We have a formulation which is stable at two-day degrees and consistent nano particulates. Particle distribution as nano particles, and then of course there are a lot of differences in our clinical approach. We are using our product two months after a course of therapy of Rituxin instead of some five to six months following chemotherapy regime. We are using our product therefore early that is earlier in the stage of the disease than the approach choosing chemotherapy by others, and our dosing regimen is also very different. We continue does until relapse so apart from others working in this area who use either five or seven doses of Id/KLH vaccine.

We have six doses once a month for the first six months and then (inaudible) for a year after that and then quarterly thereafter until relapse, so our dosing frequency is much higher.

One final thing of note perhaps is the control arm in our study consist of placebo which is buffer plus co-administration with Leukine as opposed to others working in this area who have used KLH as part of their placebo arm and if KLH does make a difference that would not be seen in our control arm. Our view has always been that the active ingredient in our product is a chemical conjugation between patient specific idiotype and KLH so it did not make sense for us to think about putting KLH in the placebo arm.

So there is not much I can say I suppose than that, we will just have to wait and see how all the situations play themselves out, but there are some significant differences between our approach and our product and that of others working in the Id/KLH area.

Mark Monane - Needham & Company

Thanks for the added information, we look forward to future events.

Operator

And from Rodman & Renshaw, your next question comes from the line of Ren Benjamin, please proceed, sir.

Ren Benjamin - Rodman & Renshaw Llc

One for Tamara, can you talk a little about the burn going forward. I know that I think the previous call that you mentioned that the total operating expenses for the year 2007 was going to be about $50 million or so and you guys actually beat expectations and came in at about $46 million, can you give us any sort of guidance as to how the next several quarters are going to look?

Tamara Seymour

We have put in a number of significant cost control measures. We did that during the fourth quarter and that is the reason that you saw the difference in the $46 million actual cash burn from our original guidance of about $50 million and we are continuing to control cost through the first half of 2008 so that we have cash on hand to fund operations through the data analysis the middle of the year. Really the burn in the second half of 2008 will depend on the data results and so once we have those results, we will be prepared to give guidance. I think, just overall, we can expect the burn to increase as we begin marketing activities for February.

Ren Benjamin - Rodman & Renshaw Llc

I guess, just to dig down a little bit deeper, how much more could the cost cutting results for the next two quarters, right? Because you need to get to I would say July for sure and you clearly want more runway than that. Could you give us some more sort of specificity there?

Tamara Seymour

Yes, what we are looking at is about 15% cost savings over the burn for the first half of 2007 and so, we are looking at a cushion that allows us to go out and raise money immediately after data and it is obvious that we will need to raise money soon after we see the data analysis.

Ren Benjamin - Rodman & Renshaw Llc

Next question for John or Dan, you mentioned the placebo how a buffer and Leukine versus against it was Genitope which had KLH and Leukine, can you give us some comments as to how you might think Leukine, GM-CSF by itself may function, is there any data out in the literature that address these cytokine as a placebo or as a treatment option?

John Longenecker

There have been some attempts to look at GM-CSF on its own, perhaps following Rituxan, I guess even in that case. However, that data is very difficult to draw any conclusions from largely because in the case of a study with Rituxan plus GM-CSF the doses used and the schedule used were so very different from what we are doing. The big issue is that Rituxan was given and then GM-CSF was given immediately after Rituxan, sort of interspersed between the weekly infusions of Rituxan, given out a much larger dose than what we are using. So essentially, they were used in combination in that early study. Whereas, our patients to do not see GMC-CSF or leukine until eight weeks after their last does of Rituxan, so it is difficult to draw any conclusions. Having said that, the data of using GM-CSF interspersed between Rituxan infusions did show a marginal increase in median time to progression in a small number of patients.

Ren Benjamin - Rodman & Renshaw Llc

You know off hand what that marginal increase was?

Daniel Gold

I think the data that we know of from the literature that we can draw our conclusions from, the hypothesis where the GM would increase the tail-mediated or ADCC activity of Rituxan and which it apparently did. The abstracts should have been published on those seem to show an increase in the response rate over what one might expect from Rituxan alone. But it was very hard to tell if it has really any impact on the direction of that response or the immediate sign of progression, so the sort of the combined wisdom is that there maybe an effective GM when given concurrently with Rituxan in driving up the response rate seen with Rituxan, but there is really no indication one way or the other that translates to an improvement in time to progression.

Ren Benjamin - Rodman & Renshaw Llc

I guess, one final question, can you give us an update on what is happening with the rest of the pipeline, whether it is Phase 201 or the anti-CD20 monoclonal antibodies.

John Longenecker

Well, it is very difficult to get to a 15% reduction in cost by expanding those programs aggressively and so, really most of that stuff is on hold. We do have a couple of clinical programs including the use with maintenance of Rituxan for example that we are continuing to support, but we are not initiating any new trials right now and we are not aggressively going after either the T-cell program or the anti-CD20 beyond all the pre-clinical work on the anti-CD20s.

Ren Benjamin - Rodman & Renshaw Llc

So, are there any other drivers or data analysis or results to be presented between say now and July at any of the upcoming meeting?

John Longenecker

Not from Favrille. As you maybe aware, BioVest or Accentia are planning to do an analysis of the shortened trial with Id/KLH in patients in complete remission following base chemotherapy in April. I think that is probably the only relevant data, well, I do not even know how relevant it is, but it is the only Id/KLH data that I know of that will be presented prior to the end of June. Others maybe planning to do something at ASCO, which is now, I think is the last week of May and the first week of June, but we are awaiting for our Phase III data.

Ren Benjamin - Rodman & Renshaw Llc

Well, is there nothing from the maintenance trials or anything like that?

John Longenecker

No, we have presented the data from the maintenance trial last year and I do not think there is any intent. I do not know of any abstracts that have been submitted of additional follow up data that will be coming up at ASCO.

Ren Benjamin - Rodman & Renshaw Llc

Thanks guys very much and good luck.

Operator

Your next question comes from Robyn Karnauskaus from Bear Stearns.

Robyn Karnauskaus - Bear Stearns

I guess my first question is, can you give us a little bit more color around the timing of the data. You said that the trial would be halted in April 2008 and I was just wondering what will be an exact event and how much leeway do you have between the data release coming in July. I guess, I am asking if the data could come sooner, what is the process? Is there is another DSMB Board meeting?

John Longenecker

Yes, with respect to the process, there is not another DSMB meeting. We will unblind the data as soon as we have the data quality control checked and audited and we know that the data set is the final data set and we will not need to make any changes to it. We will unblind, we will request the code, unblind the data and then we will let all of you know as soon as possible because clearly that data is a material event for us. So, that is a process we do not need the DSMB to do that.

The data cutoff in April just means that we will stop collecting data. Anything that happens to patients in the trial after that date will not go into the data set. The time between that data cutoff and the time we announce data is the time we think that will be required to bring all the data in from the sites including all of those patients who have not progressed in this period of time, get all of their final scans read by our third party radiology service and then have all of that data from those scans entered into our database.

Once all of that data is entered in and we have a quality control check on the date of transfer and so on, then we will be prepared to unblind the data and run the analysis. So, we will have this data before July. We are well on our way. We have an internal schedule which gives us that point and there is some cushion built into it, so at best, it could be a little bit earlier than that but we will not really know that until all of the data is in. I mean, all it takes is one site to have a delay on one patient to add time into the schedule, but that is why we built enough cushion into this to ensure that we would have data by mid summer.

Robyn Karnauskaus - Bear Stearns

And the other question I have is just a follow up on the BioVest, I know the trial went on for a very long time, but what do you think we might be able to learn from the results from that trial that might be pertinent to Favrille?

John Longenecker

It is difficult to know, I mean, I do not know what they are going to present. I do not know how you could interpret it. We understand they are going to try to draw the correlation to Bcl-2 as a potential surrogate endpoint, but the trial only enrolled, I think something like 180 patients by the time they stop enrolling patients last September as I understand it. It was begun in 2000 and it was intended to enroll as of the last updates, something about 500 patients. I think it is very difficult to know what that might say. There maybe some interesting correlations that can be drawn from it but I do not know what it means given that patient size and a 2:1 randomization of treatment arm to control arm. Dan, anything else you can add to that?

Dan Gold

I think, certainly as a class of products, we certainly would be hopeful if there would be a single effect activity. Just as in the Genitope case, whether they have reached some level of significance, now it is not clear like John said, but I think as a type of therapy, especially an immuno-type therapy, we would be looking for some signals of their effect to reassure us all that we are all heading down the right path.

Operator

(Operator Instructions)

Your next question comes from the line of Bret Holley from Oppenheimer, please proceed.

Bret Holley - Oppenheimer & Co.

I had a question about the number of events, it seems from your prepared remarks that the events have perhaps slowed even further and I am wondering now that we are into February and your targeting data in April, where do you project the total number of events to come out relative to your original expectation of 240 days?

John Longenecker

It is going to be quite a few less. I think based on the current rate of progression, somebody calculated the other day that it would take another ten years or something to get to that number. That does not tell you very much because you have to add up what the differential rates have been over time to get to any number. We are trying not to give out that number. All I can say is that the rate of progression has slowed down very significantly. We think that we are definitely out on that flat part of that Kaplan-Meier plot that out in that percentage of patients now who are not progressing and the key of course is that when we would blind those studies that those patients we hope will mostly be in the treatment arm as opposed to anything else, but the decision we made at the end of last year to go on total study follow up was absolutely had been reinforced with the event rate that has occurred since then. We really could not have gotten to 248 progressions in any reasonable period of time. My granddaughter will be three pretty soon and she would probably be sitting in this chair waiting for those events.

Bret Holley - Oppenheimer & Co.

That gives us some sense of the scope. I guess, a follow up question is based on additional outage of the Phase II data, are you still expecting essentially a fairly tight correlation between the progression curves in the beginning of the progression kind of between the two arms and then kind of a separation at the very end, have you updated that expectation at all?

John Longenecker

I mean that trend is probably accurate in general terms. There will be some patients who you may not be able to differentiate from the control arm in the early part of the curve, but trying to sort out, based from the Phase II data where the Phase III is going to come out, it has to be set in the appropriate perspective of patients enrolled in those trials. The Phase III trial registration trial is about 80% in patients who are treatment naïve whereas the Phase II trial was only about 40% patients who are treatment naïve and of course, we had a lot more factors in the Phase III than in the Phase II and how any of those factors might bias patient selection in that trial. We just will not know until after the fact, but we do expect there would be some overlap at the point at which there is divergence and how big that diversions will be still remains to be seen.

Operator

And Mark Monane has a follow up question from Needham, please proceed sir.

Mark Monane - Needham & Company

In the ASH data that we saw this year and in previous years, there seems to be a significant population that is slow to progress in the very long tail just from the Phase II data, can you talk about the use of the Log-Rank Wilcoxon Test to analyze the data. Will you be looking at the point estimates or the area under the curves or both and how you are dealing with the variability of patients that we know that exists when being treated with NHL and who have NHL with Rituxan?

John Longenecker

I have to preface this by saying I am not a statistician, so if any statisticians are listening on this call right now, I apologize for oversimplifying the fact, but my understanding of this situation is that the Log Rank allows us to look at the two curves for the treatment arm and the control arm throughout the entire curve as opposed to any point estimates, so we will be looking at the overall effect on the Kaplan-Meier curve of the treatment arm relative to the control arm so that is what that analysis is intended to give us.

Dan Gold

That is the primary endpoint, Mark.

Mark Monane - Needham & Company

That is the primary endpoint of the trial. Thank you very much.

Operator

We have no further questions in the queue. I will now turn the call back over to Mr. De Spain for closing remarks.

Pete De Spain

Thank you. I just wanted to thank you all once again for joining us this afternoon and for your continued interest and support. We will continue to keep you all apprised of our progress. In the meantime, if you have any questions, please feel free to give us a call. Thanks again.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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