Anadys Pharmaceuticals Inc. Q4 2007 Earnings Call Transcript

Anadys Pharmaceuticals Inc. (ANDS)

Q4 2007 Earnings Call

February 20, 2008 5:00 pm ET

Executives

Steve Worland, Ph.D. - President and Chief Executive Officer

James T. Glover - Senior Vice President, Operations and Chief Financial Officer

Jim Freddo, M.D. - Chief Medical Officer

Elizabeth Reed - Vice President of Legal Affairs and Corporate Secretary

Analysts

Richard E. Smith, Ph. D. - J.P. Morgan

Brian McCarthy, Ph. D. - Merriman Curhan Ford

Edward A. Tenthoff - Piper Jaffray & Co.

Presentation

Operator

Good afternoon ladies and gentleman and welcome to the Anady's Pharmaceutical's fourth quarter and 2007 Yearend Conference Call. My name is Fab and I will be your coordinator for today.

(Operator Instructions).

I would now like to turn the call over to Elizabeth Reed, Anadys Vice President of Legal Affairs and Corporate Secretary. Please proceed.

Elizabeth Reed - Vice President of Legal Affairs and Corporate Secretary

Good afternoon and thank you for joining us. On behalf of Anadys Pharmaceuticals, I would like to welcome everyone to our conference call for the fourth quarter and year ended December 31, 2007. I hope you have all had the chance to review today's press release. If you have not and you need a copy, you can visit our website at www.anadyspharma.com.

Before we get started, I would like to call your attention to the Safe Harbor statement. This conference call webcast contains certain forward-looking statements within the meaning of the Federal Security Clause These forward-looking statements include but are not limited to references to be expected, achievement and timing of future milestones for ANA598 and ANA773 and the expected net cash utilization for 2008. Forward-looking statements also include references to the company's timing and plans for clinical investigation of ANA773, the company's belief that TLR7 agonist offers therapeutic potential for cancer, the believed effect of using alternate dosing schedules with TLR7 agonist and the scope and structure of future development activities with ANA773 as well as the company's timing and plans for filing an IND for ANA598 and pending FDA expectant initiating clinical investigation of ANA598. Beliefs about the future treatment landscape for HCV, the favorable pharmaceutical properties seen in pre-clinical studies of ANA598 and the belief that these pharmaceutical properties provide the potential for ANA598 to successfully compete as a direct anti-viral in hepatitis B. Investors are cautioned that all forward-looking statements involve risks and uncertainties that could cause actual results to differ, perhaps materially, from those anticipated or suggested by such forward-looking statements. For example, results of pre-clinical studies may not be predictive of future results and Anadys cannot provide any assurances that ANA598 and ANA773 will not have an unforeseen safety issue, will have favorable results in future clinical trials or will receive regulatory approval. In addition, Anadys’ results may be affected by risks associated with clinical trials and regulatory approval, Anadys' effectiveness at managing its financial resources, the scope and validity of patent protection as well as competition from other biotechnology and pharmaceutical companies. These and other risk factors are discussed in more detail in our SEC filings including our Form 10-K for the year ended December 31, 2006 and our Form 10-Q for the third quarter of 2007.

With that said, I would like to introduce the members of our management team who will be speaking today. With us are Steve Worland Ph. D., our President and Chief Executive Officer; Jim Glover, our Senior Vice President, Operations and Chief Financial Officer; and Jim Freddo, M.D. our Chief Medical Officer.

First, Steve Worland will provide a brief introduction. Jim Glover will summarize our fourth quarter and yearend 2007 financial results, then Jim Freddo will review the status

of ANA598 and ANA773. Following your questions, Steve Worland will then wrap up the call. At this time, I would like to turn the call over to Steve.

Steve Worland, Ph.D. - President and Chief Executive Officer

Thank you, Elizabeth and thank you everyone for joining us this afternoon. The fourth quarter capped the year with significant change in progress for Anadys. We are now positioned to move forward with the focus on ANA598 and ANA773, our two wholly-owned product candidates in the serious disease areas of hepatitis C and oncology. Importantly, we have the necessary resources both experienced people and cash to advance both programs with significant milestones in the coming year. In a moment, Dr. Freddo will give you an update on the status of ANA598. ANA598 is our non-nucleoside polymerase inhibitor intended for treatment of chronic hepatitis C infection. The pre-clinical data we have accumulated for ANA598 today including in vitro anti-viral potency and recently announced in vivo activity in the chimp model, ANA598's pharmacokinetic profile in multiple animal species and its early safety profile, continue to support our plan to advance ANA598 into clinical trials as quickly as possible. As we complete the IND enabling studies, we are excited about the prospects of taking this compound into the clinic next quarter.

Jim will also provide you an update on ANA773, our oral TLR7 agonist prodrug. The IND is active and clinical sites are actively screening for eligible patients. Pre-clinically, we have demonstrated immunological responses in vivo that suggest the potential utility of ANA773 in a number of treatment settings, both as a single agent and in combination with other cancer therapy. We have also reported data showing that altering the schedule of administration can significantly modulate the profile's immunological response. We look forward to exploring clinically the full impact of these scheduled differences in different treatment settings. I will now turn the call over to Jim Glover for our financial update.

James T. Glover - Senior Vice President, Operations and Chief Financial Officer

Thank you Steve and good afternoon everyone. I will begin with an update of fourth quarter 2007 financials then review the results for the full year and finish with our cash utilization outlook for 2008. In the fourth quarter, Anadys reported revenues of $200,000 compared to $1.2 million for the same period in 2006. This decrease in the reported revenues for the quarter was the result of the termination of activities under the company's collaboration with Novartis. Operating expenses for $8.8 million for the quarter compared to $9.9 million for the fourth quarter of 2006. The decrease was the result of a reduction in non-cash share-based compensation and lower overall operating costs stemming from our restructuring in 2007. This decrease was partially offset by an increase in the development costs associated with ANA773 and ANA598 programs. Included as a component of operating expenses was a non-cash share-based expense of $600,000 and $2.2 million for the three months ended December 31, 2007 and 2006, respectively.

The company had a net loss of $7.8 million for the fourth quarter of 2007, compared to $7.6 million loss for the same period in 2006. Basic and diluted net loss per common share was $0.27 for the fourth quarter in 2007 and 2006. Included in the net operating loss for the fourth quarter 2007 was a non-cash share-based expense of $0.02 per share. For the similar period in 2006, net operating results included a non-cash share-based expense of $0.08 per share.

Looking at the full year ended December 31, 2007, revenues were $24.1 million compared to $5.4 million in 2006. This significant increase in reported revenues for the year was almost entirely the result of the termination of activities under the company's collaboration with Novartis. As a result of this termination, the company recognized $21 million of previously deferred revenue representing the remaining unrecognized portion of the $20 million up-front payment and the $10 million IND milestone payment that were previously being recognized into revenue over the estimated development period of ANA975. We received both these payments from Novartis in 2005. The recognition of deferred revenue is now complete.

For the year ended December 31, 2007, we reported a net loss of $9.2 million compared to a net loss of $26.8 million for the same period last year. The reduction in our cumulative operating losses year-over-year was almost entirely attributable to the termination of ANA975 and the related recognition of the deferred revenue. Included as a component of the net loss in 2007 was severance related cost of $1.3 million associated with our previously announced restructuring and other personnel changes. Basic and diluted net loss per common share was $0.32 for the twelve months ended December 31, 2007 compared to $0.94 for the same period 2006.

For the year, the company had cash utilization of $25.7 million. As of December 31, 2007, the company's cash, cash equivalents and securities available sale totaled $56.5 million.

Looking forward into 2008, we believe our total net cash utilization for the year should be in the range of $25 million to $27 million. This estimate reflects our focus in 2008 on the development of ANA 598 in hepatitis C, and ANA773 in oncology in our smaller overall cost footprint.

Now, we will turn the call over to Jim Freddo, to discuss ANA598 and ANA773.

Jim…

James L. Freddo, M.D. - Chief Medical Officer

Thank you, Jim.

ANA598 is a non-nucleoside inhibitor of the hepatitis C virus polymerase. In June of last year, we announced that we have selected ANA598 to development as a direct antiviral to the treatment of chronic hepatitis C infection. This selection represented the culmination of an intensively resource program aimed at identifying optimized inhibitors of the HCV NS5B polymerase an enzyme essential for replication of the virus. The selection of ANA598 was based on several important properties including inhibitory potency against genotype 1 replicon, favorable pre-clinical pharmacokinetics, early safety pharmacology testing, and in vivo tolerability.

Last fall, we reported key pre-clinical properties of ANA598 including sub-nanomole of inhibition at the enzyme level and replicon EC50s of 5 and 50 nanomolar for genotypes 1b and 1a respectively. We also reported oral bio-availability of 50% to 70% in multiple animal species. Working day dose range finding toxicology studies have showed ANA598 to be well tolerated at all doses tested ranging from 1 mg to 1,000 mg per kilogram. Following one's daily dosing, plasma concentrations of the ANA598 well in excess of replicon EC95 values were maintained at 24 hours. We also reported favorable outcomes of several in vitro predictors of safety including: target specificity, cellular cytotoxicity, genotoxicity, and cardiotoxicity.

Lastly, we reported excellent microsome stability in the absence of meaningful cytochrome P450 inhibition critical parameters that will confer flexibility in constructing combination regimens to treat hepatitis C infection.

Last month, we reported data from two studies of ANA598 in a primate model of chronic HCV infection.

In the first study, designed to assess the pharmacokinetics, safety, tolerability, and preliminary antiviral activity of ANA598 to HCV genotype 1a infected animals received the single oral dose of 30 mg per kg. At 24 hours after dosing, plasma levels of ANA598 exceeded the replicon EC95 values. At 48 hours after dosing, the mean viral load decline in the two animals was one log.

In the second study, two animals chronically infected with HCV genotype 1b each received once daily oral doses of ANA 598 at 30 mg per kg for four days. A rapid viral load decline was seen in both animals at 48 hours, which was 24 hours after the second dose. Viral load declines were 2.2 and 2.6 logs in the individual animals. In one animal, the viral load reduction was sustained throughout the remaining dosing period. While in the second animal, a modest rise in viral load was seen over days 3 and 4, although the rise observed 0.6 log was within the baseline variability seen in these animals prior to dosing. ANA598 was well tolerated by all of the animals in both studies. This positive animal efficacy data reinforces our enthusiasm for developing ANA598 and we look forward to exploring the potential clinical utility of this exciting new direct antiviral.

We continue to make good progress advancing 598 toward the clinic. Many of the IND enabling studies have of ANA598 and ANA773. Following your questions, Steve Worland will then wrap up the call. At this time, I would like to turn the call over to Steve.

Steve Worland, Ph.D. - President and Chief Executive Officer

Thank you, Elizabeth and thank you everyone for joining us this afternoon. The fourth quarter capped the year with significant change in progress for Anadys. We are now positioned to move forward with the focus on ANA598 and ANA773, our two wholly-owned product candidates in the serious disease areas of hepatitis C and oncology. Importantly, we have the necessary resources both experienced people and cash to advance both programs with significant milestones in the coming year. In a moment, Dr. Freddo will give you an update on the status of ANA598. ANA598 is our non-nucleoside polymerase inhibitor intended for treatment of chronic hepatitis C infection. The pre-clinical data we have accumulated for ANA598 today including in vitro anti-viral potency and recently announced in vivo activity in the chimp model, ANA598's pharmacokinetic profile in multiple animal species and its early safety profile, continue to support our plan to advance ANA598 into clinical trials as quickly as possible. As we complete the IND enabling studies, we are excited about the prospects of taking this compound into the clinic next quarter.

Jim will also provide you an update on ANA773, our oral TLR7 agonist prodrug. The IND is active and clinical sites are actively screening for eligible patients. Pre-clinically, we have demonstrated immunological responses in vivo that suggest the potential utility of ANA773 in a number of treatment settings, both as a single agent and in combination with other cancer therapy. We have also reported data showing that altering the schedule of administration can significantly modulate the profile's immunological response. We look forward to exploring clinically the full impact of these scheduled differences in different treatment settings. I will now turn the call over to Jim Glover for our financial update.

James T. Glover - Senior Vice President, Operations and Chief Financial Officer

Thank you Steve and good afternoon everyone. I will begin with an update of fourth quarter 2007 financials then review the results for the full year and finish with our cash utilization outlook for 2008. In the fourth quarter, Anadys reported revenues of $200,000 compared to $1.2 million for the same period in 2006. This decrease in the reported revenues for the quarter was the result of the termination of activities under the company's collaboration with Novartis. Operating expenses for $8.8 million for the quarter compared to $9.9 million for the fourth quarter of 2006. The decrease was the result of a reduction in non-cash share-based compensation and lower overall operating costs stemming from our restructuring in 2007. This decrease was partially offset by an increase in the development costs associated with ANA773 and ANA598 programs. Included as a component of operating expenses was a non-cash share-based expense of $600,000 and $2.2 million for the three months ended December 31, 2007 and 2006, respectively.

The company had a net loss of $7.8 million for the fourth quarter of 2007, compared to $7.6 million loss for the same period in 2006. Basic and diluted net loss per common share was $0.27 for the fourth quarter in 2007 and 2006. Included in the net operating loss for the fourth quarter 2007 was a non-cash share-based expense of $0.02 per share. For the similar period in 2006, net operating results included a non-cash share-based expense of $0.08 per share.

Looking at the full year ended December 31, 2007, revenues were $24.1 million compared to $5.4 million in 2006. This significant increase in reported revenues for the year was almost entirely the result of the termination of activities under the company's collaboration with Novartis. As a result of this termination, the company recognized $21 million of previously deferred revenue representing the remaining unrecognized portion of the $20 million up-front payment and the $10 million IND milestone payment that were previously being recognized into revenue over the estimated development period of ANA975. We received both these payments from Novartis in 2005. The recognition of deferred revenue is now complete.

For the year ended December 31, 2007, we reported a net loss of $9.2 million compared to a net loss of $26.8 million for the same period last year. The reduction in our cumulative operating losses year-over-year was almost entirely attributable to the termination of ANA975.

ANA773 hopes promise in the treatment of a range of malignancy and may have utility when combined with targeted agents, therapeutic antibodies and chemotherapy. We hope to utilize our ability to shape the immune response by varying schedule to maximize the desired pharmacology and demonstrate clinical benefit to cancer patients.

Now we will turn the call back over to Steve.

Steve Worland, Ph.D. - President and Chief Executive Officer

Thank you, Jim. I will provide a quick summary before we turn to question. Today we have provided an update on our planning and system review the status of our program. We begin 2008 with $56.5 million in cash, cash equivalents and securities available for sale. We project cash utilization in 2008 of $25 million to $27 million. In our development programs, we expect to follow the IND for ANA598 and initiate clinical studies in the second quarter followed by a phase IB study in HCV patients projected to start in the third quarter of this year. We anticipate having a viral load data for ANA598 from this first basic trial in the first quarter of 2009. For ANA773 during 2008, we expect to identify the dosing schedule or schedules as well as tumor types intended for phase II study. Looking beyond 2008, we anticipate beginning 2009 with a phase II ready oncology program and our HCV program on the verge of obtaining viral load data. Throughout 2008, we expect to report continued progress for this year-end profile at both scientific and investor conferences.

On that latter note we will be presenting on Tuesday, March 4 the Susquehanna Second Annual Significant Options and Health Care Conference in New York, on Tuesday, March 18^th at the 28^th Annual Cowen Health Care Conference in Boston and in May at the JMP Securities Research Conference in San Francisco. We will look forward to interacting with you at these or other conferences and we thank you again for listening today. We are now ready for questions.

Question-and-Answer Session

Operator

(Operator instructions).

And your first question comes from the line of Richard Smith from JP Morgan.

Richard Smith

Yes. Good evening. Just a couple of quick questions, one on 598, can you just give a sense, if the activity of seeing the early trials against genotype 1a and 1b, are they similar or is there any difference between those two?

Steve Worland

Richard, we are having a great deal of trouble hearing you.

Richard Smith

Can you hear me now?

Steve Worland

Yes, better. Thank you.

Richard Smith

Okay. Just wondering from the early studies that you have done on 598, are you seeing differences in activity against genotype 1a and 1b, and just a second question on 773, have you envisioned the dose and dosing schedule differing from between different kinds or types?

Steve Worland

So Richard, I will talk about the activity as we do see about a 5 nanomolar EC50 against genotype 1b and a 50 nanomolar EC50 against genotype 1a. Both of those are well covered by the plasma levels and anytime we cite an IQ, a plasma drug level relative to EC50 we are always using the least sensitive genotype 1a number. So there is a difference but they are both very well covered by the plasma concentrations we have. And I think your other question was...

Richard Smith

Schedule for 773.

Steve Worland

And if I understood your question correctly Richard, yes I do think that there is a likelihood that we would have a different dose or scheduled administration and in part for different cancer types, and apart of it will depend on whether or not you were trying to set the stage for boosting cytotoxic T lymphocytes and NK cells prior to treating with a therapeutic antibody or whether you were trying to give it to have a different type effect for example in malignant B cells in either lymphoma or leukemia.

Richard Smith

Okay. Alright. Thank you.

Operator

(Operator instructions).

If there are no further questions, I would like to turn the call over to Dr. Worland for any concluding remark.

Steve Worland

We thank you again for listening today. We are excited about our focused plans to develop ANA598 and ANA773. We anticipate advancing both programs to important milestones in the coming year and it looks like we have a couple of more questions. Is that true?

Operator

Yes, you do have.

Steve Worland

Go ahead.

Operator

You have a question from the line of Brian McCarthy from Merriman Curhan Ford.

Brain McCarthy

Hi! Good afternoon. I want to ask regarding update on the enrollment, exactly how many patients may have enrolled at this point in 773?

Jim Freddo

Yes. So we have not enrolled and dosed the patient yet. We have sites that are actively screening for patients. I expect the first patient to be dosed shortly and we will send out an announcement when it happens.

Brian McCarthy

Okay. Thank you. And the second question in regards to the potential collaborative revenue in the upcoming ’08.

Jim Freddo

So at this point Brian as you know, we do not have any active collaboration and there is obviously interest in the part of other companies in our programs, but we have not projected any revenue for this year. Just depending on the vagaries of how business discussions go and what our interests are relative to hanging on to the program versus partnering now.

Brian McCarthy

Okay. Alright. Thank you very much.

Operator

(Operator instructions).

And your next question comes from the line Ted Tenthoff from Piper Jaffray.

Edward Tenthoff

Hi guys. Sorry if some of my questions have already been answered but I actually just hopped back into the call, can you just give us an update, I know you were mentioning earlier about the HCV program but just to remind us what kind of next steps are there and what the milestones are through yearend if you would?

Steve Worland

Right Ted. So we are just completing the IND enabling activities right now as Jim Freddo have said, many of those studies are already complete and the remainder are underway at this point leading to an IND filing and projective starting trials next quarter, so you can tell that we are very near the end of that IND preparation process. And then the idea would be to start a healthy volunteer study and followed by a short-term mild therapy study in HCV patients in the quarter of this year.

Operator

(Operator instructions).

And there are no further questions at this time.

James Glover

Okay. Let me just thank everybody again for listening today and we look forward to interacting with you throughout the year.

Operator

This concludes the Anadys Pharmaceuticals Fourth Quarter and Yearend 2007 Conference Call.

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