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Cleveland BioLabs, Inc. (NASDAQ:CBLI)

Q2 2012 Earnings Call

August 6, 2012, 10:30 a.m. ET

Executives

Rachel Levine – Director of IR & Communications

Yakov Kogan – CEO

C. Neil Lyons – CFO

Andrei Gudkov – CSO

Michael Fonstein – President

Michael Kurman – CMO

Ann Hards – EVP of Regulatory Affairs & QA

Analysts

Walter Schenker - MAZ Partners

Chris Marai – Wedbush Securities

Robert Brous - Wunderlich Securities

Marty Meyerson - MH Meyerson & Company

Prashant Mehta - Netgain Financial

Bernie Brown – Private Investor

Operator

Greetings, and welcome to the Cleveland BioLabs Second Quarter 2012 Earnings

conference call. At this time, all participants are in a listen-only mode. A brief

question-and-answer session will follow the formal presentation. (Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Rachel Levine, Director of Investor Relations and Communications for Cleveland BioLabs.

Thank you, Ms. Levine. You may begin.

Rachel Levine

Thank you, and good morning, everyone. Welcome to Cleveland BioLabs’ Second

Quarter 2012 Investor conference call. Joining us today are Dr. Yakov Kogan, Chief Executive Officer; Dr. Andrei Gudkov, Chief Scientific Officer; Dr. Michael Fonstein, President; Neil Lyons, Chief Financial Officer; Dr. Michael Kurman, Chief Medical Officer; Dr. Ann Hards, Executive Vice President of Regulatory Affairs and Quality Assurance

Before we begin, I would like to remind all listeners that throughout this call, we may

make statements that constitute forward-looking statements within the meaning of the

Private Securities Litigation Reform Act of 1995. Investors are cautioned that any

such forward-looking statements are not guarantees of future performance or the

successful execution of the company’s strategic plan and involve risks and

uncertainties.

Actual results may differ materially from those forward-looking statements as a result

of various factors. Important factors that could cause actual results to differ materially

from those in the forward-looking statements are described in the company’s filings

with the Securities and Exchange Commission. I’d also like to note that any financials

discussed are based on unaudited results.

Dr. Kogan will open this morning’s call with a few operational highlights and hand the

call to Mr. Lyons to review the quarterly results. Dr. Hards will then provide an overview of progress with our development program, and hand the call back to Dr. Kogan for closing remarks and questions.

At this time, I’d like to turn the call over to Dr. Yakov Kogan, Chief Executive Officer. Please go ahead.

Yakov Kogan

Thank you, Rachel, and thank you to everyone for joining us for our Second Quarter 2012

Investor conference call. Before we get in to the details of the quarterly financials and the duration, I would like to update everyone on our progress with the FDA and federal funded agency.

As we discussed in our last call and at our June Investor Day, we had several meetings and communications with the federal funded agencies during the past few months. Including our two active constructive partners, that’s the Department of Defense and BARDA.

The purpose of this meeting was to ensure that the agency were up to speed on our most-recent FDA communications, especially conducting operations for our final [inaudible] animal and human safety study.

We also wanted the agency to have every opportunity to make their own inquest about our progress to date. All the meetings were already well attended by their appropriate ranking officials and achieved their respective goals.

We believe what we have done and continue to do everything we can to move forward with FDA and funded agencies, to complete 542 development as our [inaudible] counter measure in the most expedited manner.

I’m extremely proud of our large GUB efficacy study on CBLB502 and non-human primates, and the results of the recently-published biomarker study.

Andrei will review the details of this achievement later in the call, but I cannot think of two better examples over depth of our scientific understanding of 542. We will continue to keep all of the funding agencies informed of our progress with the FDA.

Our next step is to conduct a face-to-face meeting with the FDA in the coming weeks, and completion of additional requested data and protocols. We believe what – as we keep demonstrating forward movements with the FDA, funding agents will continue to support us.

I will leave it to our team to go for specific developments for our programs. However, I would like to highlight two key items. First, enrollment for Phase 1 CBLB502 trial, in advanced cancer patients, continues to progress in line with our expectations. I am pleased to say that those patients in the first two cohorts have been completed. And there have been no serious adverse events reported to date.

And second, we recently secured funding in non-dilutive funding for our 612 program for a contract with Russian industry and trade. This funding enable us to support completion of the clinical studies, finding over IND, and performance of Phase 1 and II clinical studies.

Now I will turn the call over to Neil, to go through the quarterly results.

C. Neil Lyons

Thank you, Yakov. Before I start reviewing details for the quarter, please note that all figures quoted in my talk this morning are approximate in value, and are based on unaudited results. Our unaudited financial statements for the quarter will be filed on Form 10-Q with the SEC shortly.

We ended the quarter with consulted cash, cash equivalence and short-term investment of 22 million. This amount includes a milestone payment of 6 million from Bioprocess Capital, our partner in Incuron.

In addition, Incuron’s research activities continue to qualify it under the scope of the grant, which has about 4 million still available. A recently announced CBLB612 contract is also valued at approximately 4 million on a pro forma basis, assuming the receipt of the full amount of each grant.

We have previously indicated we forecast CBLI’s standalone cash resources to last in to the third quarter of 2013.

Revenues for the quarter decreased to approximately 300,000 from approximately 600,000 for the same period in 2011, primarily due to a reduction in funding received from the federal government.

R&D expense increased for the quarter to approximately 6.1 million, as compared to approximately 5.2 million for the second quarter of last year. This increase was mainly due to the opening of the advanced cancers trial, with CBLB502 and other new development efforts including CBLB612 and compounds and the Panacela subsidiary. These cost increases are partially offset by a reduction in expenditures related to the development of CBLB502 as a radiation counter measure.

G&A expense increased to approximately 3.3 million for the quarter from approximately 2 million in the second quarter of 2011. The majority of this increase is associated with the G&A activities of Panacela and expanded new business development activities.

Net loss attributable to our common shareholders was approximately 5.1 million, or $0.14 per share as compared to net income attributable to our common shareholders of approximately 11 million, or $0.38 per share for the second quarter of 2011. This is a variance of 16.5 million, 15.3 million of this variance was due to the fair market value accounting of certain outstanding warrants, leaving a net loss increase of 1.2 million attributable to the other elements of our operations.

As of June 30, we had 35.8 million shares of common stock outstanding.

At this time, I’d like to hand the call over to Andrei, to provide you with more details on progress with our pipeline candidates. Andrei?

Andrei Gudkov

Thank you, Neil. I will start with a brief recap of some important developments for our 502 radiation countermeasure program.

We noted June, we were excited to report strong survival results for randomized, blinded,, placebo-controled efficacy study for 502 in 179 on human primates. This study was extremely challenging as it was conducted under the strictest standards of good laboratory practice, with elements of a good clinical practice as required by the animal rule.

Common knowledge of this trial is the very first of this scope and nature to be done with any radiation countermeasure. The study demonstrated with a high degree of statistical significance, that a single administration of 502, given 25 hours after, a 70% little dose of total radiation led to a nearly threefold increase in overall survivor compared to control animals.

We believe this study supports our methodology for dose conversion between animals and humans. We also plan on using the findings from this trial as the basis for finalizing our remaining development steps with the FDA, and ultimately submitting our BLA.

More recently, we added to this vote of knowledge with a publication study that identifying biomarkers of 502’s efficacy, as our addition counter measure in the journal of Pharmacology and Experimental Therapeutics, a leading peer review journal in the field of Pharmacology.

We believe that identificational bio markers for 502 represents a key step along the critical development path for 502’s radiation countermeasure. Our ability to define efficacy biomarkers for 502 reflects a greater understanding of the drug’s mechanism of action, and builds a more solid platform for determination of human efficacious dose of this drug.

We have submitted the results of the major experiment that formed the basis for this statement to the FDA, as previously reported. We have also received concurrence from agency that these biomarkers do plan important roles in the mechanism of 502 in [inaudible].

Since the act of [inaudible] update on the advanced cancer trial at Roswell Park, I’d like to spend a little time on some advancement with CBLC157 from our Incuron subsidiary. As we reported in the spring, a new IND for clinical testing of CBLC157 was open with a regulatory authority in Russian. As Phase 1 dose is [inaudible] study, or for orally administered CBLC157 in the refractory cancer patients with advanced solid tumors is being prepared.

We are currently walking through some of the processes required for exporting the drug to trial sites in Russia so that the enrollment may begin.

In the meantime, we have moved forward with the IV formulation of 157, and recently conducted a pre-IND meeting with the FDA. Our goal is to complete remaining pre-clinical steps necessary to file an IND and start Phase 1 clinical trial in early 2015.

In July, we announced the publication of a study demonstrating that 157 counteracts tumor formation in mice genetically pre-disposed to spontaneously developed breast cancer. This produced position is due to enforce expressional [inaudible], who’s express is strongly associated with aggressiveness of breast cancer in humans.

In this study, mice were continuously administered 157 orally, by drinking water, starting at 12 weeks of age. Overall, the tested regiment of 157 treatment had a strong preventive effect on cancer development in this model. Depending on concentration of 157 administered, results included inhibited tumor growth, inhibition of tumor onset, delayed term of progression, and prolonged survival among the study animals.

Importantly, continuous long-term 157 treatment did not cause any detectable damage to normal organs and tissues. If proven in future clinical studies, the potential ability of 157 to prevent tumor formation could have an enormous impact of the development of general cancer prophylaxis, especially in populations genetically predisposed to cancer.

Another study with 157 was presented at the Advances in Neuroblastoma Research Association in June, in Toronto. Professor Michelle Haber, Executive Director of Children’s Cancer Institute Australia, and President of the Advances in Neuroblastoma Research Association, shared studies demonstrating potentially curative effects of 157 in combination with standard chemotherapeutic agents for relapsed neuroblastoma treatment, in animal models of neuroblastoma.

Neuroblastoma is the most frequently occurring solid tumor encountered in early childhood and is often difficult to treat successfully. Professor Haber noted that her team has been working with this model for many years and tested numerous therapeutic approaches, but this is the first study in which they achieved completed regression in tumor bearing animals.

Incurons on-going Phase 1 clinical study, dose ascending trial of CBLC102 in refractory advanced cancer patients with liver metastases, is expected to complete its fifth cohort shortly. Depending on reports of dose limiting toxicities, it is anticipated that the trial with continue in to one additional dose-ascending cohort before adding patients to the selected therapeutic dose.

This trial has already advanced several cohorts beyond the original trial plan, which is encouraging.

We currently anticipate that this trial will complete dosing, sometime in early 2015.

Turning to our Panacela subsidiary, we are progressing through preclinical work with the five pipeline candidates in Russia, and filing for several state funded grants to further support these development efforts with non-dilutive funding.

Of note, the targeted grants are similar to the two we already won related to our correction research with [inaudible] and our recently awarded grant CBLB612.

With that, I’ll pass the call back to Yakov, for a few concluding remarks. Yakov?

Yakov Kogan

Thank you, Andrei. If our second quarter activities demonstrates anything, they demonstrate what our team, and most importantly, our sound and scientific concept, continues to deliver [inaudible] results.

We believe with the GLP annoument primates study results, and the [inaudible] biomarkers for 502 [inaudible] program, will be enormously useful as we finalize our development of plan with the FDA. And this results proved what our internal team and development of partners, successfully managed the project of substantial scope and complexity, [inaudible] believe to be equal to or greater than the work that remains to be done, for [inaudible] submission.

The advanced cancer trial for 502, is progressing according to schedule without any serious adverse events reported to date. We also secured approximately 4 million in [inaudible] funding for 612 development, enabling us to continue our work with this exciting compound.

CBL137 demonstrated significant potential as Oncology [inaudible] candidate, in to important and predictive animal models. And this advances in towards its second IND, which is to be filed in the United States.

We have instituted at full core press, to leases and commercially position our candidates, to potential strategical [inaudible].

Over the past two years, we have improved our bench strength, recruited significant high-level experienced industry talents, assembled the right team, and have worked entirelessly to achieve results.

As always, we thank all of you for your on-going support, and look forward to sharing our progress in the coming months.

We’ll now open the call to questions. Operator, please begin Q&A.

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from the line of Walter Schenker – MAZ Partners. Please proceed with your question.

Walter Schenker – MAZ Partners

Good morning, gentlemen. On the grant, Yakov, for 612, just a couple of questions. First, originally, the indication had been, or the thought had been that the progress made in China might help move things forward as you followed up outside of China. Can you use the drug you get that’s been produced in China for these trials?

And secondly, does this grant cover trials both in Russia and the United States? And thirdly, will this largely be done in healthy volunteers or not?

Yakov Kogan

Thank you, Walter. So I’ll answer your questions in the order rate have been up.

So the first question was about (Machito), which had been produced in China. The (machito) which was produced by our collaborator in China, was used in the R&D and Panacela non-GOP experiments, which were used to generate the results to [inaudible] for clinical development. In the (inaudible) we are going to use the drug [inaudible] compliant drug. This was manufactured by our sub-contractor which is compliant with [inaudible] requirements, and it’s different from one produced by our collaborates in China.

And the second question is about what kind of activity supported [inaudible] Russia supported by the grant. So I want to confirm. That grant for 612 will support activity in both United States and in Russia.

And the third question was about the Phase I clinical trial. We plan to perform our (inaudible) basic trial in healthy volunteers.

Walter Schenker – MAZ Partners

Okay, and just one other quick question. The delays in getting the human trial on 137, will you the IND approved in Russia, is something that coming near an end or – I’m somewhat surprised it’s taking this long to get that trial started?

Yakov Kogan

We finally received all the paperwork needed to export the drugs to Russia. So, as you remember the drug is manufactured, [inaudible] compliant drug is manufactured in the United States. It used to be exported in Russia to start the clinical trial.

Walter Schenker – MAZ Partners

Okay thank you.

Operator

Our next question comes for the line of Chris Marai – Wedbush Securities. Please proceed with your question.

Chris Marai – Wedbush Securities

Hi, Good morning guys. Thanks for taking my question. Just a quick question regarding your DOD funding? We noted recently that some companies are receiving funding from DOD had received a stop-work orders due to some budgetary constraints. We are wondering just your interactions with the DOD there on that front, if there’s been any noted changes, or if you guys have received any information, or what you anticipate could happen to the front should funding be constrained? Thank you.

Yakov Kogan

Thank you Chris, I will try to answer your question. As stated today during the call, and stated several times in the past. We continue to actually work as both (inaudible) to continue funding of status for 502. So both the (inaudible) have indicated in the past and continue commitment to the development of 502. And when quarterly report in our progress is both (inaudible). So in the current financial climate, it’s not surprise what DOD reviewing and (inaudible) the programs. In effort to focus, you know, I believe the budget we have and address of fiscal constraints. There are never any guarantees, but they (inaudible) interruptions. They believe with development of 502 as a medical relation counter measure.

To address the particular concerns, we make a high priority. (inaudible) 502 is the only additional counter measure currency funded by CBMS. And the only addition counter measure with the condition of (inaudible) from DOD. So we believe, again we couldn’t give any guarantees, but based on our interruption, we believe the development of 502. We’ll continue to support the (Inaudible) of 502.

Chris Marai – Wedbush Securities

Okay, great thank you.

Operator

Our next question comes from Robert Brous – Wunderlich Securities. Please proceed with your question.

Robert Brous – Wunderlich Securities

Hi, thanks for taking my questions. Yakov, could you provide us with more clarity as to the status of 502 defence funding activities for pivotal trials?

Yakov Kogan

I will ask our Chief Financial Officer, Neil Lyons to answer your question.

Neil Lyons

We continue to work with BARDA and the funding agencies. As we mentioned on the call, we have in the coming weeks a meeting with the FDA. Input from that meeting will be very helpful in continuing our discussions with the funding agencies. So no word is out there right now as far as any contract awards, but we’re working hard on the issue.

Robert Brous – Wunderlich Securities

Okay, and do you think that there’s enough funding opportunities outside of BARDA to fully fund or partially fund pivotal trials?

Neil Lyons

Yakov, do you want to mention your thoughts on that?

Yakov Kogan

Absolutely. So as we indicated several times during our previous phone calls, as well at the June investors meeting. Our additional funding opportunity outside BARDA, may provide some significant portion of the funding needed to complete 502 development. We continue working in (ball park) and Department of Defense to secure such funding, and they are very hopeful.

Robert Brous – Wunderlich Securities

And Neil, you previously gave guidance on the monthly burn of $800,000. Since you’re mostly through the third quarter, are you in line with that forecasted guidance?

Neil Lyons

Yes, our guidance still holds cash into Q3 of next year. Keep in mind all those are averages, and we just went through in the second quarter a pretty expensive plan, expensive quarter with the wrapping up of the NHP trial. Of course cost kind of spike towards the end of the trial with data analysis and statistics and all that stuff happening. So we are on plan.

Robert Brous – Wunderlich Securities

And then one last question, I guess this is for Ann. When will the re-updated final human protocol be submitted to the FDA? Or has it been submitted to the FDA?

Ann Hards

It has been submitted. So we are starting the clock with them reviewing. Although there is no formal clock for that type of submission, so I can’t even give you a projected date as to when it will be complete.

Robert Brous – Wunderlich Securities

Great work in the quarter, thank you for taking my call.

Yakov Kogan

Thank you.

Operator

Our next questions comes from the line of Marty Meyerson with MH Meyerson and Company. Please proceed with your question.

Marty Meyerson – MH Meyerson & Company

Good morning, everybody. Yakov, I have just two questions to ask. Of course, the non-human primates study recently published was remarkable and very, very exciting. But with your up-and-coming FDA meeting, I believe was indicated, what do you expect to accomplish at that meeting? And will there be additional meetings? And then I have one other question for you.

Yakov Kogan

EVP, I will have Ann Hards our EVP Affairs and Quality Assurance to answer your first question.

Ann Hards

So the upcoming meeting, as you said, we have released the results of one probably pivotal study. But that by itself does not make a complete program that FDA will use to look at the whether or not they will approve a BLA. So the next meeting is to finalize the number and designs of the additional studies in order to definitively give them comfort about the efficacy. And once that is over, then we can go forward with setting that program up and running it, and then completing the BLA.

Marty Meyerson – MH Meyerson & Company

When do you anticipate that meeting taking place?

Ann Hards

It is scheduled as, Yakov said earlier, it’s coming up in the next few weeks.

Marty Meyerson – MH Meyerson & Company

Oh, good, all right. And Yakov, just one other question, you had mentioned that in the 502 liver cancer studies being done at Roswell, two cohorts have been completed? That would be six patients?

Yakov Kogan

I would like to concern what’s [inaudible], so the first two cohorts have been completed and with no significant adverse events. But it’s important to the FDA.

Marty Meyerson – MH Meyerson & Company

Okay, fine. That takes care of my questions, thank you very much.

Operator

Our next question comes from Prashant Mehta with Netgain Financial. Please proceed with your question.

Prashant Mehta – Netgain Financial

Yes, thank you for the call. This is a follow-up on the non-dilutive Gorman grants. Just as a way of remark, you guys secured excellent Gorman grants and non-dilutive private investments. But any thoughts on achieving some sort of a formative collaboration because the power of validation from a former partner would be immense undoubtedly. Any thoughts along those lines?

Yakov Kogan

Thank you, Prashant, and I couldn’t agree with you more. We are not going to share any specific details of what have been discussed or is being discussed of the pharmaceutical partners. But as we indicated during the previous phone calls and during June meetings with our investors in Buffalo; back in December last year we have initiated a formal program and put together a very highly capable group led by (Dan Bowles) to educate our pharmaceutical partners and potential partners and educate them about programs we have in house and discuss potential future joint development of our products around this. But again, at this point I don’t want to share any details of our discussions.

Prashant Mehta – Netgain Financial

Okay, thank you.

Operator

(Operator Instructions). Our next question comes from the line of Bernie Brown a private investor. Please proceed with your question.

Bernie Brown – Private Investor

Yes, good morning. I just wanted to make sure I was clear in my mind as far as the 502 or the BAA solicitation number, is it 12-100-SOL-00011?

Yakov Kogan

Just give us a second.

Bernie Brown – Private Investor

I think it’s from July.

Yakov Kogan

There are several solicitations where simultaneously should [inaudible] at the same day. Give us one tiny second. We are checking right now. I think it’s 0012.

Bernie Brown – Private Investor

00012?

Yakov Kogan

I believe so. We are checking online right now.

Bernie Brown – Private Investor

While you’re doing that, could I ask another quick question? I was wondering, the last few or a couple of conference calls at least, I believe it was a Rear Admiral participating with regard to the DOD situation. Is that individual still associated with the company?

Yakov Kogan

Yes, the retired Admiral Ed Martin is still with the company. And today, he’s on vacation in British Columbia, and he has a minimal application. So he has no phone connection to join us today.

Bernie Brown – Private Investor

Gotcha, okay, thank you. Yes, so the only other question I had was just double checking on this solicitation number. Did you say it was 00012?

Yakov Kogan

The solicitation is part of it CBRMBA12100COL00011.

Bernie Brown – Private Investor

That’s what I thought.

Yakov Kogan

Sorry about this.

Bernie Brown – Private Investor

Very good. Thank you very much.

Operator

There are no further questions at this time. I’d like to hand the call back over to Yakov Kogan for closing comments.

Yakov Kogan

Thank you. I would like to thank everyone for joining us today. And I am willing to insure what we have done and continue to everything possible to increase our venue for our shareholders. Thank you everyone.

Operator

Ladies and Gentlemen, this concludes today’s teleconference. If you would like to hear a replay of today’s conference, please dial 877-660-6853 or 201-612-7415, and use the account numbers 286, and conference ID number 397689. You may now disconnect your lines at this time, and thank you for your participation.

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