Acusphere, Inc. Q4 2007 Earnings Call Transcript

Acusphere, Inc. (ACUS)

Q4 2007 Earnings Call

March 17, 2008 8:30 am ET

Executives

Mary Conway – IR

Sherri Oberg – President, CEO

Larry Gyenes – SVP, CFO

Dennis Bucceri – SVP Regulatory Affairs

Analysts

Jason Napodano – Zacks Investment Research

Presentation

Operator

Good day ladies and gentlemen and welcome to the Acusphere fourth quarter 2007 results conference call. (Operator instructions). I would now like to turn the presentation over to your host for today’s call, Mrs. Mary Conway, investor relations.

Mary Conway

Thank you, hello and thank you for joining us for Acusphere’s fourth quarter 2007 financial results and business highlights conference call. On this call today from Acusphere are Sherri Oberg, President and Chief Executive Officer, Larry Gyenes, Senior Vice President and Chief Financial Officer and Dennis Bucceri, Senior Vice President Regulatory Affairs.

Please note that comments on this call by Acusphere representatives are qualified by the disclosures made in our annual report on form 10K filed this morning. During this call we will be making forward looking statements within the meaning of the Safe Harbor provisions of Section 21E of the Securities and Exchange Act of 1934. All forward looking statements involve risks and uncertainties that could cause actual results to differ materially.

The forward looking statements we make on today’s call are based on our beliefs and expectations as of today, March 17^th, 2008 only and are subject to change. Examples of forward looking statements include without limitation, statements regarding Imagify developments and related milestones and results, qualification of our commercial manufacturing facility, regulatory filings and approvals, prospects from market acceptance of Imagify, advancement of our product pipeline, levels of expense, cash requirements, commercial potential for our product candidates and partnering prospects.

The company disclaims any obligation to update or revise any statement made today to reflect any change of the company’s expectations of events, conditions or circumstances on which any statement may be based or that otherwise may affect the likelihood that actual results will differ from those set forward in the forward looking statements. In addition, while we believe that the recently announced Imagify trial results supported a strong NDA submission, we cannot control or predict FDA acceptance or approval. We refer you to our annual report on form 10K, in particular the risk factors section of the 10K for a further discussion of the company’s risks and uncertainties.

We caution listeners not to place undue reliance on any forward looking statements as there can be no assurances that the management team and these such statements will be achieved. Finally, note that this call is for informational purposes only and does not constitute an offer to buy any securities or a solicitation of any vote or approval. I now turn the call over to Sherri Oberg.

Sherri Oberg

Good morning everyone. Thanks for taking the time to join us today as we report our fourth quarter and 2007 developments. It was a very busy quarter for us, capping a year of significant development and progress. We continued work on our NDA position for our lead product candidate Imagify and simultaneously moved along on extensive partnership discussions, primarily focused on Imgify as we announced previously. Those continued and are at a sensitive point today, so I will caution you up front that I will tell you as much as I can, but I will not take any additional questions about it.

On the Imagify front, several of our most significant health conference presentations took place in the fourth quarter at the American Heart Association in Orlando Florida as we shared with you on our third quarter call in November as well as in Europe at EuroECHO in Lisbon Spain in early December. Attendees at both of these conferences who represent cardiologists and echocardiologists in the United States and Europe had keen interest in Imagify. Indeed, I’m told that our session at AHA was perhaps the most crowded one of the entire conference.

We take great pride in the medical community’s continued recognition of the dramatic benefits that we see Imagify providing for the diagnosis of heart disease. As a reminder, Imagify is a profusion stress echo imaging agent and we believe the first one to effectively detect profusion or blood flow through the muscle of the heart with ultrasound in addition to wall motion. The ability of an imaging agent to detect both wall motion as previous agents did and profusion is important to medical clinicians.

That combination enables them to accurately detect coronary artery disease. Coronary artery disease or CAD is as you know the leading cause of death in the United States, constituting more than 50% of all cardiovascular events for men and women and costing us in the United States alone more than $150 billion a year based on data for 2005. So its detection is critically important, since early detection saves lives and reduces health care costs. The goal of our two phase three clinical studies was to demonstrate that Imagify profusion stressed echo is not inferior to nuclear stress, the most frequently used imaging technique for CAD diagnosis, with more than 7 million such procedures done annually in the United States alone based upon data for 2006.

We continue to believe based upon these results that Imagify has the potential to overcome many of the disadvantages of nuclear stress and does become a real breakthrough in the detection of CAD. We see the comparison is clear, nuclear stress is expensive, costing about $870.00 a procedure. It’s time consuming, requiring five hours to administer and it involves radioactive contrast agents creating hazardous waste and the risks that accompany radiation exposure.

Compare that to ultrasound imaging with Imagify which we anticipate might cost about $470.00 per procedure, requires about an hour to administer and would use no radioactive material. We continue to believe that our data constitute a strong NDA filing and Dennis will review that in further detail with you momentarily. The data we shared at AHA and EuroECHO and the feedback we’ve received there increase our confidence in the strength of our NDA submission. While AHA focused on a compilation of the total data in a presentation by lead investigator Dr. Roxy Senior, the EuroECHO presentation was a peer reviewed analysis of our safety and efficacy data presented by Dr. Arian Pano our internal medical monitor.

I know many of you had a lot of questions about Imagify’s safety following news in the early fall about issues with products like DEFINITY and Optison, so I’m hopeful that this presentation addressed that issue squarely and completely. I also note some of you have asked about obtaining copies of the presentations at both conferences, but we can’t share them just yet since they are in the final stages of being considered by eminent medical journals. If we pre-published them, that will eliminate them from such consideration. We will of course let you know once we hear for certain about publication timetables. Now, moving on the manufacturing side, as you know the qualification of our commercial manufacturing facility is on the critical path for the NDA filing.

Recently, we successfully completed the crucially important aseptic validation, which is the process by which we verify that our equipment, personnel and environment are capable of reproducively manufacturing sterile products. As a result of this progress, we are now well positioned to manufacture full scale sterile batches of Imagify consistent with the requirements for the NDA filing. Aseptic validation was the final step required in terms of generating data for the NDA so we’re very pleased with this achievement. After completing the submission, we will continue work at Tewksbury on further process validation. Another critical development in the fourth quarter was our pre-NDA meeting with FDA.

Like many interactions with regulatory agencies, one approaches these meetings concerned about all the possible bad things that might emerge. We were therefore quite positively pleased and encouraged I’ll say that the meeting went so well. In a minute, Dennis will comment on our discussions with FDA as well as provide some additional insights into our expectations into what happens and when after the NDA is filed. Based upon our accomplishments thus far this year, we are today announcing that we anticipate filing the NDA for Imagify in late April 2008. Now, I’d like to give you an update on our partnership discussions which remain ongoing.

You will remember that we announced late in the third quarter that these discussions were absorbing a great deal of our time and focus. I continue to be pleased with the course of our discussions. I still believe that it’s critical for Acusphere to evaluate all of our strategic options carefully in light of achieving the long term value of the company. Certainly, partnerships remain among the most attractive options right now.

We recognize that our current investors have a range of opinions about our plans to consider partnership opportunities for Imagify at this stage as well as potential equity financing through our other strategic options, but I want to reiterate that we are carefully exploring the full range of strategic alternatives available to us now to secure the additional resources we need to push ahead with the NDA filing for Imagify as well as plans to prepare for its commercialization.

Larry has been a wonderful asset as we have engaged in these discussions, bringing his deep and successful financing experience to bear. And as I noted previously that’s all I can say today about strategic discussions. Lastly, as you probably have seen, we have called a special shareholder’s meeting for March 25^th to approve a reverse stock split of our common stock as recommended by our Board of Directors. As discussed in our proxy materials for this meeting, this proposal is intended to enable Acusphere to regain compliance with NASDAQ trading regulations and facilitate our efforts to raise capital to fund our planned operations.

We appreciate your support and I would refer you to the proxy materials if you have any questions. Before I turn the discussion over to Larry, I note several of you have asked about the recent announcement that Mona Haynes who was our Vice President of Marketing and Sales has joined [Organza]. We were very sorry to lose Mona but recognize that greater Boston is a very competitive market for biotech talent and the position she was offered is a great opportunity for her, so we wish her all the best. So in conclusion, we are very pleased by our progress.

The completion of the aseptic validation of our manufacturing facility is a critical accomplishment and we’re indebted to the team at Acusphere who made this happen. Now we are completely focused on pushing the ball over the goal line with the NDA filing for Imagify. Really, other than working on partnership and other financing alternatives, there is nothing more important right now for Acusphere than this milestone. And for some additional details on the financial side, I’ll turn the discussion over to Larry Gyenes.

Larry Gyenes

Thanks Sherri. Before I review our financial performance, I want to note that the information that I am discussing is included in our annual report on form 10K filed today. I refer you to that document for more detailed information. First, let me summarize our financial position as of the end of the fourth quarter of 2007.

As we previously announced in our annual letter to the shareholders early this year, we finished the quarter with cash and cash equivalents of $26.1 million, down from $39.5 million in the immediately preceding quarter. Net cash used in operating activities for the fourth quarter was $11.1 million which primarily reflects our net loss of $12.6 million, offset in part by certain non cash charges primarily for depreciation and amortization, interest and stock based compensation expense. We invested $0.2 million, primarily for the purchase of capital equipment in support of our manufacturing operations.

We also incurred $1.5 million in payments under our equipment lease lines and another $0.6 million in dividend payments on our preferred stock. Moving to the fourth quarter operating results, we recognized approximately $0.7 million in non cash revenue during the quarter related to the $12 million in licensing fees previously paid to us by our European partner Nycomed. In the prior year fourth quarter, we recognized a similar amount under the collaboration agreement. Operating expenses for the fourth quarter of 2007 totaled $13.1 million consistent with the guidance we offered in November versus $13.0 million in the prior year period.

The primary factors contributing to the increase were R&D expense which totaled $10.6 million for the fourth quarter of 2007, an increase of 7% offset by lower general and administrative expenses at $2.5 million in the fourth quarter of 2007 compared to $3.1 million in the prior year period, reflecting primarily the decision to not pay a bonus under the company’s management incentive compensation plan. Cash dividends paid on our preferred stock were $0.6 million in the fourth quarter consistent with the prior year period.

The net loss available to common stock holders for the fourth quarter of 2007 was $12 million or $0.26 per common share versus the net loss available to common stockholders of $12.6 million or $0.39 per common share in the prior year period. As of December 31, 2007, there were approximately 46.3 million shares of common stock outstanding and approximately 25.6 million in additional common stock equivalents, including 5.5 million shares reserved for issuance in connection with our outstanding convertible exchangeable preferred stock and related [maco] payments, 9.8 million shares reserved for issuance in connection with outstanding common stock awards and 10.3 million shares reserved for outstanding stock options as well as options yet to be granted and shares reserved for the employee stock purchase plan.

We estimate that our first quarter 2008 cash spending for operating activities will be in the range of $11-$14 million as we continue to complete the tasks necessary for the submission of the Imagify NDA. In addition, we anticipate quarterly payments of a little over $1.5 million for the repayment of debt. I trust you saw our filing in late February noting that the Board of Directors had elected not to declare a cash dividend on our preferred stock to conserve our critical cash resources while we seek financing. Capital spending in the first quarter will also be negligible.

I’d like to be clear that these spending plans support Imagify only as we have ceased other initiatives for the time being. As we have told you previously, we will require additional sources of funds during the second quarter of 2008. As Sherri described, we are considering a broad range of financing and other strategic options, including but not limited to strategic partnerships and other financing initiatives. In addition, form K, we filed this morning for the year ending December 31, 2007, included a going concern qualification from our independent auditors Deloitte & Touche. This qualification reflects our previously communicated need to identify and close funding sources through partnerships, financings or other means before the close of the second quarter of this year. With that, I will turn the microphone over to Dennis Bucceri to update you on the Imagify regulatory process.

Dennis Bucceri

Thank you Larry and good morning everyone. Our entire team continues to be focused on the preparation of the NDA for Imagify. As I’ve said before, the Imagify new drug application is a large and complex document. It’s our goal to work with our staff and consultants to assemble a convincing package. As Sherri noted, we have an effective ongoing pre NDA dialogue with FDA which is designed to acquaint reviewers with the data to be submitted, the content, the organization and the presentation of the data to identify and explain the data to be relied on to support the approval and to uncover any issues that might affect the review.

I’ll share with you some of the insights that have developed through these discussions. The most important fact is our belief in the data. We believe that we have a strong package and we can submit evidence to support approval of Imagify. We see the data as supporting our main contention that Imagify profusion stress echo is comparable to nuclear stress and can enable cardiologists to distinguish patients who have coronary artery disease or CAD from those who do not within the target population. Consistent with the presentation made at AHA, we believe Imagify has been shown across two pivotal clinical trials and these were multi center international trials with nearly 800 patients exposed to Imagify to be clinically equivalent to nuclear stress imaging.

Our two pivotal trials, ramp one and ramp two are being positioned as complementary and confirmatory. The triple end points, specificity, sensitivity and accuracy are challenging. We will emphasize that accuracy endpoint was achieved in six out of six readers and the superiority results in each trial are noteworthy and also reinforce our position that there is a tradeoff between sensitivity and specificity.

The methodology by which we present our data which we showed you previously in a reader operator characteristic or ROC curve provides strong support that Imagify is equivalent in terms of sensitivity and specificity to nuclear stress and that the missed endpoints in each of the trials are defensible because they were not caused by a deficiency in Imagify but rather were an artifact of a blinded reader environment. Since the readers did not have access to patient information that they normally would have in a clinical setting, their own natural bias informed their decisions about whether to be aggressive or conservative in reading ambiguous cases.

The ROC curve is an excellent simplified visualization of complex data and quantifies what can be a hard concept to communicate. This analysis will be featured in the integrated efficacy section of the NDA. The [NEU] will be based on the totality of the data, we have evaluated the data in several different ways, approached both pivotal trials and we believe it is clear that Imagify profusion stress echo was clinically equivalent to nuclear imaging in detecting coronary artery disease. Now let me update you to the degree I can on our discussions with FDA. We opened a dialogue with FDA last year in advance of the NDA submission. In early October we had our chemistry, manufacturing and controls or CMC meeting.

The meeting was positive and productive. We incorporated the agency’s comments on those aspects into the application. In late November we had what I would characterize as a positive and productive clinical meeting with FDA which also led to good feedback that is being worked into our filing. We had a good discussion of endpoints and win criteria and I believe we provided FDA with compelling analysis that supports Imagify’s efficacy. In addition to the NDA we continued to work closely with our colleagues from Nycomed on the marketing authorization application or the MAA process in Europe for Imagify for which Nycomed is responsible.

One of the key elements is a common technical document format for the US and EU applications to minimize the amount of work needed to convert the NDA into the MAA. This work will facilitate submission in Europe which we anticipate will occur some four to five months after our NDA submission. I know many of you are interested in what happens after the NDA is filed and the process by which FDA goes through its very comprehensive review. Most of that is not transparent to the public nor even to the company, other than scheduled events such as a site review, hearings and meetings.

We do anticipate that FDA will want to visit our Tewksbury facility and assess our manufacturing processes and programs. But that is not likely to occur in the next few months. To summarize I am very enthusiastic about the prospects for submitting the NDA for Imagify soon, I remain confident that the FDA will give it a fair review and I believe that they will agree with us that the substantial evidence exists to demonstrate the product to be safe and effective when used for the indication which we are seeking and that the benefit and risk balance is quite favorable. I can address any questions you might have during the Q&A, but first let me hand back the discussion to Sherri.

Sherri Oberg

Thanks Dennis. Before I open up the Q&A I want to summarize our key points today. The aseptic validation of our Tewksbury facility has been completed and that is a pivotal accomplishment, the last real new data we needed on our road to the NDA filing for Imagify. We now anticipate the filing of the NDA for Imagify in late April this year. We have held very productive and encouraging pre NDA meetings with FDA on both CMC and clinical aspects, we are completely focused on the NDA filing preparations, along with our strategic and financial discussions. Everything else has been temporarily set aside. We are in active discussions with multiple parties and anticipate moving to a conclusion soon which is why I cannot provide any more details about it.

We continue to be very pleased with the positive reactions from the medical community both at AHA and EuroECHO to Imagify and the important new data we presented at those scientific events which we hope will be published soon and we are moving quickly via a special shareholder’s meeting called for March 25^th to secure stockholder approval to affect a reverse stock split of our common stock, thus addressing our NASDAQ listing qualifications and facilitating our ability to raise capital to fund our planned operations. We appreciate your continued support through this long and winding road. With that, operator, let’s open the line for questions.

Question-and-Answer Session

Operator

(Operator instructions). And your first question comes from the line of Jason Napodano from Zacks Investment Research, please proceed.

Jason Napodano – Zacks Investment Research

Hi guys, thanks for taking my question. I just wanted to ask about the meeting that’s coming up next week and the potential for a reverse split. I understand your desire to regain NASDAQ listing but maybe you could talk a little bit about how you feel like that could increase your ability to get financing. It seems to me like if you take the shares down from the current level, $46 million and you do something like a 1:10 split you know now you’re down below 5 million shares and that would create a low float and almost an opportunity to or a harder opportunity to try to go out and raise capital with such a low amount of shares out there.

And you know to get the stock back above $1.00 it would seem to me like filing the NDA and getting a partnership and moving forward on the business front would be enough to get the stock heading in the right direction as opposed to the reverse split and you know now to, hopefully there’s no NASDAQ participants on the conference call but you know what really is the big deal about NASDAQ listing in the next couple months? If you guys meet all of your business goals with like I said, filing the NDA and securing a partnership, you’ll eventually hopefully move back above $1.00 without having to do a reverse split. So maybe you could talk to that a little bit.

Larry Gyenes

Yeah, Jason it’s Larry Gyenes, how are you today?

Jason Napodano – Zacks Investment Research

Good, thank you.

Larry Gyenes

Yeah, I think we’re taking the necessary precaution here to obtain shareholder approval to effect the reverse split which basically then puts it in the hands of our Board, okay who has a period of a year to act upon that. But I think it’s important right now that we take actions that leave us in a position where we can in fact avoid the delisting.

We should also make ourselves more attractive to a broader range of investors, some of whom, their requirements for investing do not permit them to invest in stocks that are at $1.00 or less. And as we also noted it will facilitate efforts if there is a need to, to raise additional capital through various means. Beyond that, I can’t comment on anything else beyond what’s in the proxy statement as you know.

Jason Napodano – Zacks Investment Research

Okay, let me ask a question about your R&D spend for the year. Where do you guys see spending your R&D dollars on besides the indirect costs, do you foresee any clinical programs going on or any additional programs either with HDDS or other technologies throughout the year?

Larry Gyenes

No, I think as we’ve indicated earlier the entire effort that we have and our entire monies are being directed towards Imagify and specifically Imagify approval activities. So in the months ahead we’ll be completing the process validation runs and doing a second aseptic validation activity so that our facility will be prepared for the FDA pre-approval inspection process which we expect to occur sometime in the second half of 2008.

Jason Napodano – Zacks Investment Research

Okay maybe just a quick question for Dennis, can you guys or do you foresee a panel meeting before the FDA decision or can you at least request a panel meeting?

Dennis Bucceri

Well we don’t anticipate a panel meeting but if the FDA were to call one we would certainly welcome it.

Jason Napodano – Zacks Investment Research

Okay, thanks guys.

Operator

(Operator instructions). At this time I’m showing you have no further questions, I would now like to turn the call back over to Ms. Sherri Oberg for closing remarks. Please proceed.

Sherri Oberg

Thanks so much for taking the time to join us today and we look forward to seeing you at upcoming events as well as continuing an active dialogue with the investment community in the meantime.

Operator

Thank you for your participation in today’s conference, this concludes the presentation and you may now disconnect.

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