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Executives

Eric Steiner - VP of Operations

Solomon Steiner - Chairman and CEO

Gerard Michel - CFO

Analysts

Liana Moussatos - Pacific Growth Equities

Geoff O'Brien - Punk Ziegel

Willis Taylor - Gagnon Securities

Steven Harr - Morgan Stanley

Bill Tanner - Leerink Swann

Sarine Yves - JPMorgan

Biodel Inc. (BIOD) F2Q08 (Qtr End 03/31/08) Earnings Call May 9, 2008 8:30 AM ET

Operator

Welcome to Biodel's second quarter and fiscal year 2008 financial results conference call. (Operator Instructions).

I would now like to turn the conference over to Eric Steiner, Biodel's Vice President of Operations.

Eric Steiner

Thank you. Good morning and welcome to Biodel's 2008 second quarter Earnings Call. With me today are Dr. Solomon Steiner, Chairman and CEO of Biodel and Gerard Michel, Biodel's Chief Financial Officer and Vice President of Corporate Development.

Before we begin, I would like to take a moment to note that our discussion today will include forward-looking statements. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements. Additionally, information about these factors is detailed in the company's press releases and public filings with the SEC.

Solomon Steiner

Thank you, Eric. Good afternoon, everyone, and thank you for joining us today. I will begin by reviewing recent company developments and our progress during the second quarter. Gerard will then discuss our second quarter financial results, after which we'll open up the call for questions.

During the second quarter, we continue to make significant progress in our VIAject program. Both of our pivotal Phase III trials of VIAject continue on schedule and will be completed this July. We expect to report top line data late in third or early fourth quarter calendar of 2008.

We will file a new drug application in December including a suite of presentations featuring a 100 IU single-vial liquid presentation, which will reduce injection volume by 75% from the 25 IU presentation, which we are currently using in the pivotal trials.

In the last quarter we conducted extensive market research to better understand physician's perceptions of existing rapid acting insulin analogs. It is clear that physicians based on both clinical data and personal clinical experience buoy the existing rapid acting insulin as essentially equivalent and have a need for alternative treatment options to mange the high percentage of patients experiencing frequent hypoglycemic events.

When presented with our anticipated profile physicians viewed VIAject a significantly differentiated and reported they would prescribe VIAject to both new patients and patients experiencing frequent hypoglycemic episodes.

The VIAject, profile was based on existing Phase I and Phase II data, which demonstrated a more rapid pharmacokinetic and pharmacodynamic profile and superior glycemic control after a meal, compared to the best selling rapid acting analog in the US Humalog, as well as presume Phase III result versus regular human insulin. Like all other approved rapid acting insulin and after request of the FDA VIAject, Phase III studies are against regular human insulin.

We believe VIAject's ultra rapid pharmacokinetic and pharmacodynamic profile will demonstrate a competitive advantage in safety and weight of regular insulin, never before achieved by any meal time insulin.

In February we successfully completed our second public offering and significantly increased our financial strength. A total of 3,260,000 shares of common stock were sold by the company at $15.50 per share. Net proceeds to the company were $46.8 million.

We will use these proceeds to fund additional clinical research and development to support VIAject's commercialization while advancing and broadening our pipeline. Funds will also be used to build a laboratory facility and other general corporate purposes.

With the addition of $46.8 million from our follow-on offering in February 2008, we ended the quarter with $111.7 million in cash, cash equivalents and marketable securities. We believe our cash run rate will last until at least the end of fiscal year 2009.

Now I would like to turn the call over to Gerard to review our financial report for the quarter.

Gerard Michel

Thank you, Sol. In the second quarter we incurred a net loss of $9.6 million or $0.43 per share, compared to a net loss applicable to common shareholders of $9.7 million or $1.79 per share for the same period last year.

Biodel reported no revenue in the second quarter and for the same period last year. The net loss for the quarter ended March 31st, 2007, included a $4.5 million deemed dividend charge. The 2008 second quarter net loss includes $1.7 million of non-cash stock based compensation expenses.

R&D expenses for the second quarter were $7.1 million compared to $3.8 million for the same period last year. The increase in quarterly expenses is primarily due to $2.4 million increase, related to the pivotal Phase III clinical trial program, evaluating VIAject and $900, 000 increases in personnel related expenses.

G&A expenses for the second quarter were $3.5 million, compared to $1.5 million for the same period last year. The increase in quarterly expenses is primarily attributable to $1 million increase in personnel related expense, which includes $700, 000 in stock based compensation expense.

The stock-based compensation expense includes $500,000 charge for options awarded to the Board of Directors and $400,000 in stock-based compensation income for non-employee options that were revalued to reflect a lower stock price.

The company periodically revalues the fair value of options awarded to non-employees. In periods in which the company experiences a decline in the price of its stock, the company will record income as these options are revalued to reflect the lower stock price. The balance of the increase was due to increases in accounting, legal and consulting fees associated with operation as a public company.

For the six months ended March 31, 2008 we incurred a net loss of $20.6 million or $0.97 per share compared to a net loss applicable to common stockholders of $13.3 million or $2.48 per share for the same period last year. Biodel reported no revenue in the six months ended March 31, 2008 and for the same period last year. The net loss for the six months ended March 31, 2007 included a $4.5 million deemed dividend charge. The six months ended March 31, 2008 net loss includes $4.2 million of non-cash stock-based compensation expenses.

R&D expenses for the six months ended March 31, 2008 were $14.7 million compared to $6.3 million for the same period last year. The increase in expenses is primarily due to a $5.9 million increase related to the pivotal Phase III clinical trial program evaluating by VIAject, a $600,000 increase related to the scale-up and manufacture of commercial batches of VIAject to support the company's clinical trials and regulatory submissions and $600,000 on personnel-related expenses.

G&A expenses totaled $7.7 million for the six months ended March 31, 2008, compared to $2.8 million for the comparable period in the prior year. The increase was primarily attributable to $3.5 million in personnel related expenses, which includes $1.8 million in stock-based compensation expenses and $600,000 in stock-based compensation and salary and benefits continuation charges related to the severance agreement with the company's former Chief Financial Officer.

The stock based compensation expense includes $700,000 of stock-based compensation charge for options awarded Board of Directors and $400,000 in stock-based compensation income for non-employee options that were revalued to reflect a lower stock prices. The balance of the increase was due to increases in accounting, legal and consulting fees associated with operating as a public company.

As of March 31, 2008 Biodel had 23.6 million shares outstanding and $107.9 million in cash, cash equivalents in short-term marketable securities.

This concludes the financial report for our second quarter. I will now turn the call back to Sol.

Solomon Steiner

Thank you, Gerard. In closing I would like to remind you that we will complete our two pivotal Phase III three clinical trials for VIAject in July and announce top line results by late Q3 or early Q4 this calendar year, followed by an NDA submission for a suite of VIAject presentations featuring of 100 IU liquid formulation by the end of 2008.

We will now open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). We will take our first question from Liana Moussatos with Pacific Growth Equities.

Liana Moussatos - Pacific Growth Equities

Can you comment on your progress for commercial partner for VIAject? And are you going to publish the physician survey that you mentioned?

Solomon Steiner

With respect to comment we are meeting with what we usual suspects we are talking to large pharma, potential partners in the insulin space and in the diabetes space as well as others. It's going along as expected. We have always advised, that we do not expect to, assign a corporate partnership until after, we have released our Phase III data and so and that hasn't changed from the beginning of the inception of the company.

So that, I think that answers your first question. At this point we have no plans to publish our marketing data.

Liana Moussatos - Pacific Growth Equities

Thank you.

Operator

And now we will move to next question that will come from Geoff O'Brien, Punk Ziegel.

Geoff O'Brien - Punk Ziegel

Good morning, guys. Just wondering if you are planning to present any new data at the ADA meeting this June?

Solomon Steiner

We have no plans to present new data at ADA this June. Hopefully, we don't know, but we maybe presenting something that EASD in the fall.

Geoff O'Brien - Punk Ziegel

Okay, great.

Solomon Steiner

We do, we will announce it with the press release.

Geoff O'Brien - Punk Ziegel

Okay, great. And also just wondering Sol on with VIAject and maybe get real time updates on adverse events in trial. I just wondered if you could update us, as far as, if you have gotten any updates, any calls regarding adverse events during the last couple of months.

Solomon Steiner

Really the FDA frowns on us talking about an ongoing clinical trial for the fear that it may influence the investigators, should they hear it. So, I am afraid I am going to have to just pass on that question.

Geoff O'Brien - Punk Ziegel

Okay. That is fine. And then lastly are you still planning to file all six formulations of VIAject at the same time?

Solomon Steiner

Well there are four formulations and the vials are different on two of them. So, they are, six in that sense. And that we will have vials and cartridges. It depends, but of those four two vials, two cartridges, it's the same formulation, a liquid 100 IU and a liquid 25 IU per cc. Is that clear?

Geoff O'Brien - Punk Ziegel

Yes. So, in other word, you still plan to file all those simultaneously?

Solomon Steiner

Well the way it works is, you file on the formulations of which there are four. And then it is the part of the formulations which you file on. And then you show that it can go in different containers and the containers, in this case, is a vial or a cartridge that goes in a pen. I am just trying to be precise about the way you deal with these things in the regulatory world. So, that would be what we file on, we don't file on the pen, we file on the liquid that is in the cartridge and the fact that it can go in a cartridge.

Geoff O'Brien - Punk Ziegel

Okay. Great, thanks guys.

Solomon Steiner

Yes.

Operator

Now moving to John Robaum with Gagnon Securities.

Willis Taylor - Gagnon Securities

Hi. This is actually, Willis Taylor in for John Robaum. You are conducting two separate trials, is this going to be a combined NDA or there will be a two separate NDAs?

Solomon Steiner

No, it's one NDA, two pivotal trials, that's typical for most NDAs. And I believe that's the way the regulations were written. It's based on two well controlled trials, which we typically call the two pivotal trials. And that's what we've been doing it that way. That's the standard way and that's what the FDA would like us to do.

Willis Taylor - Gagnon Securities

Okay, great. And then could you talk about the dose response relationship you saw in previous trials with VIAject?

Solomon Steiner

I think what we've reported is that, you can get a very good glycemic control, and still reduce the dose at the same time.

Willis Taylor - Gagnon Securities

Okay.

Solomon Steiner

That's what we've reported and there is nothing, we're not changing that advisement, still the case.

Willis Taylor - Gagnon Securities

And over what period of time do you dose down or were you able to and still..

Solomon Steiner

In our meal study what we showed was that with a reduced dose, we could get comparable glycemic control for the time of the meal, which is about four hours. What we monitored for long than that. It takes about four hours for the prandial insulin to go back to baseline, for our prandial insulin to go back to baseline. It actually is half way out by two hours, is more than half way out by two hours. And that's a part of the advantage of our VIAject, is that it does come in very rapidly, so it covers the hyperglycemia. We believe it shuts hepatic glycogenesis from the liver, further reducing, the load so to speak of the glucose load, because there is no glucose come in from the liver. And it also goes out faster which is good, because carbohydrate digestion is over and about two hours. So by that time you really wanted it to be well on its way out. And our data from the meal studies said that it's more than half way out by 118 minutes, which is pretty good.

Willis Taylor - Gagnon Securities

Okay. That's very helpful detail, thank you.

Operator

Now Steven Harr with Morgan Stanley will have the next question.

Steven Harr - Morgan Stanley

I don't understand Sol your plans, the types of trials you want to run for VIAject versus the current market leaders Humalog and Novolog?

Solomon Steiner

I'm sorry, you said, what are our plans?

Steven Harr - Morgan Stanley

Yes, what types of studies, are those the studies that, it seems clinicians are most interested in rather then….

Solomon Steiner

Sure. I would start off by saying we've already gone head-to-head with Humalog, the largest seller in the United States, in our Phase I trials. And we showed that we had sophistically, significantly superior, PK and Person 3:. We also went head-to-head with Humalog in our Phase II meals studies, where we showed we had better glycemic control, less hypoglycemia, less variation in glycemic control. So, we've already gone there.

In addition, all of the other rapid-acting analogs of Apidra, Humalog and Novolog, when they did their registration trials, they compared to regular human insulin as we are doing. So, we have a common yardstick and we can see how well we did against Humulin or regular human insulin compare to how the analogs did against regular human insulin. And what we see is that they are significant differences that we see compared to regular human insulin that the others were not able to report.

We are not going to rest on our laurels, when we get these trials finished we are planning to conduct a Phase IIId trials and those will be going only head-to-head with the analog perhaps Humalog, perhaps Novalog perhaps Apidra as one we choose. We are going to have all the trials. I will be looking at things such as Beta Cell Function, euglycemia or [thiamine] euglycemia, glycemic control, the effects on the microvasculature and perhaps glucogenesis direct measurement of glucogenesis. So, those are the kind of things, we will be looking at. In addition, we will be taking advice from our Scientific Advisory Board as what to do, from a marketing research and from our discussions with the potential corporate partners.

Steven Harr - Morgan Stanley

When say that your data insulin, I think, commissions have been clinical outcomes and to really influence the market I would think you want to have clinical outcomes as well against the analog. Is that now part of the program or you're continue to expect just be PK is theoretic style?

Solomon Steiner

I thought when I mentioned [thiamine] euglycemia that's a clinical outcome that according to the new guidance, the FDA is very interested in. And variability, how high and low do you go after a meal, which is related to the damaging effects of out of control insulin on circulatory system, that's something else that's a clinical outcome effect, that the FDA is very interested and that we are interested in. So, I expect we will be doing study such as that.

Steven Harr - Morgan Stanley

Fine, thank you.

Operator

And now we will take the next question, that question will come from Bill Tanner with Leerink Swann.

Bill Tanner - Leerink Swann

Thanks. Sol, on the I guess the recent Mannkind call, they talked about that they have reassessed was their word, on talking the potential partners in light of the Exubera that the cancer signal and just curious if and its obviously been relatively recent, if there has been any change in the types of discussions. You guys are been having or are you talking the same types or was there the same interest or is there comparable interest in both and do you think this is something that could ultimately play to your advantage perhaps just fewer assets out there?

Solomon Steiner

Yeah, I mean basically I mean we appear to be the one still standing with a rapid profile with a new PK/PD profile. I really don't know how to response to that and look at the data that's been presented and what I can say what we can say for sure is that if you'll take pulmonary insulin it doesn't prevent you from getting lung cancer if you were smoker. That's all we really say about the data that we have.

What else it means I don't know, but the perception is certainly not good and I believe that would be very difficult for pulmonary insulin to gain traction at this point in time regardless of its merits. I don't think it's a matter with us it's really a non-issue. We don't have pulmonary insulin. We have an injectable insulin. We give a lower dose not a higher dose. We're going for an existing market of people who take insulin by injection, which were the so for us it's a non-issue.

Bill Tanner - Leerink Swann

Right, and then, okay that's good and then just in terms of I don't know if you want to provide any color whatsoever as to the types I mean it sounds like I think you said the usual suspects, but these would be inclusive of companies that already have exposure to the diabetes market perhaps sizeable exposure as well as those are maybe looking to gain, to increase our footprint again in on tray.

Solomon Steiner

Sure. I mean you can basically divide it into at least three categories, major pharmaceutical companies that have insulin products of which there are three. Major pharmaceutical companies, worldwide pharmaceutical companies that are in the diabetes space in one way or another and sometimes, the one way is very interesting compared to another.

You can have an oral drug in diabetes or loosen the oral drug in diabetes or you have devices that of the diabetes such as insulin pumps and glucose monitoring devices. So, they are all of diabetic space. Then of course, there are other companies that are hungry for new products and we do a very credible job, put a lot of energy into it so they have decided. So, those are the, if you wish the three categories of potential corporate partners that we are having discussions with. And I'm a big talker, so we speak to a lot folks and we'll talk to them anytime they want.

Will Tanner - Leerink Swann.

Okay, great. Thank you.

Operator

And now we'll move to next question. Next question will come from Liana Moussatos with Pacific Growth Equities. Please go ahead.

Liana Moussatos - Pacific Growth Equities

A follow-up question, when would we expect Phase I data from VIAtab?

Solomon Steiner

It's hard to say at this point in time. I really can't give you an answer to that, because the trials are ongoing and I don't when they will be complete. Our real focus at this point, I am sorry for VIAtab, because right now, we're really focused on getting VIAject approved. And it always becomes a poor second when it's a matter of allocating our resources. And I'm not talking about the money, as much as, I'm talking about the resources in terms of people. So, its something we love to get to but it's hard to say right now exactly when we'll be presenting that data.

Liana Moussatos - Pacific Growth Equities

So, we shouldn't expect that by year-end?

Solomon Steiner

I'll just give no advisements at this point.

Liana Moussatos - Pacific Growth Equities

All right. Thank you.

Operator

And now we are with Cory Kasimov with JPMorgan.

Sarine Yves - JPMorgan

Hi, this is actually [Sarine Yves] calling for Cory Kasimov. Hi, guys. Thanks for taking my question. I have a quick question as a follow-up to one of the earlier questions about formulation, with Novo and Lily having sophisticated pen devices, you'll probably need the pen devices growth to compete in the market. And we wanted to know what needs to be done to complete the formulation for this [slow working] pen?

Solomon Steiner

I was kind of alluding to that earlier, with one of the follow-up call or the questions, it was, they said six, and I said it's really four. And of the four two are liquid, that's a 25 IU per cc and 100 IU per cc. Whether it goes in a pen, or whether goes in a vial, that's simply a matter of the container. And what you have to do to show I mean for practical purposes? There is very little that you have to do to show that it works in a pen, cartridge. It's a glass cartridge with a neoprene stopper. And the vial is a glass cartridge with neoprene stopper and they may have the same kind of glass and treated the same way. So there is not much that you have to do, to show comparability.

What do you do? You have to show stability, and you have to show compatibility these are easy things that are ongoing, they are really not hurdles. They are checking the box. And then the cartridge, there are pens that one can use to deliver insulin at 1 IU per increment in a 100 IU per cc, 3 cc cartridge, right now off the shelf. And you could do that right away and if you want to put your logo on it and your colors on it, you file a 510(k), which is relatively simple device, filing with the FDA. So, that you can get and off the shelf pen with your colors and your logo.

Sarine Yves - JPMorgan

Okay. Thank you very much

Operator

[Operator Instructions]

Solomon Steiner

I could also add that we can go in a standard Lily path. And the only difference between the cartridges going out there, there are very pretty pens that they have. A relatively simple modification of the cartridge would allow it to go in to a Novo pen.

Operator

And we have a follow-up question from John Robaum with Gagnon Securities.

Willis Taylor - Gagnon Securities

Hi this is Willis Taylor again actually. Could you tell us what the non-inferiority boundary is in the trial?

Solomon Steiner

Sure. It is, you have to show that you can pick up a difference in hemoglobin A1c as small as 0.4%, between the regular insulin treated group and the VIAject treated group in each trial separately. That you can do it at the 5% statistical, an alpha of 0.05 for a two-tailed test, if that is not too much jargon.

Willis Taylor - Gagnon Securities

No that makes sense. Thank you so much.

Solomon Steiner

Okay. Sure and you have to have a power of better than 80%, 85%.

Operator

And at this time there are no additional questions. I will turn the call back over to Mr. Steiner for closing remarks.

Solomon Steiner

Well thank you for joining us today and for your continued interest in Biodel. We look forward to updating you on additional developments throughout the year and please have a good day.

Operator

And that does conclude your conference for today. Everyone have a wonderful day. Thank you.

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