Anadys Pharmaceuticals Inc. Q2 2008 Earnings Call Transcript

Anadys Pharmaceuticals Inc. (ANDS)

Q2 2008 Earnings Call

July 30, 2008 5:00 pm ET

Executives

Elizabeth Reed - Vice President, Legal Affairs & Corporate Secretary

Steve Worland - President and CEO

Jim Glover - SVP, Operations & CFO

Jim Freddo - Chief Medical Officer

Analysts

Eric Schmidt - Cowen & Company

Jason Kolbert - SFG

Presentation

Operator

Good afternoon, ladies and gentleman, and welcome to the Anadys Pharmaceutical's second quarter 2008 conference call. My name is Nakeita, and I will be your coordinator for today.

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

Elizabeth Reed

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 second quarter ended June 30, 2008. I hope you have all had a 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 and webcast contains certain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include but are not limited to references to future development plans for ANA598 and ANA773 including their current case, timing and design of clinical trials and other development activities as well as the company's projected cash utilization for 2008.

More specifically forward-looking statements include the company's expected timing for and ability to achieve its projected milestone events, including commencing dosing HCV infected patients in the ANA598 and ANA773 program, the expected timing for obtaining viral load data for both programs, and the ability to transition the company's clinical program in to Phase II studies during 2009.

Forward-looking statements also include references to the company's beliefs regarding the expected clinical attribute of ANA598 based on clinical results including the potency, tolerability profile, oral by availability, and potential for the combining of ANA598 with multiple other anti-HCV agents. The expected benefits of accelerating certain ANA598 development activities, expectations about the future treatment landscape for HCV and ANA598 and ANA773's potential role in that treatment landscape, the belief that the TLR7 mechanism will potential be complementary to ANA598 as well as the belief that TLR7 agonist offer therapeutic potential for HCV and cancer. The believed effect of using alternate dosing schedules with TLR7 agonist and the potential for ANA773 to demonstrate benefit in patients infected with HCV as well as the belief that ANA773 agonist to immune stimulation of a magnitude sufficient to convert therapeutic potential without adverse safety issues and the ability for ANA773 to have utility for cancer patients when combined with targeted agents, therapeutic antibodies and chemotherapy.

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 preclinical studies may not be predictive of future results, and Anadys cannot provide any assurances that ANA598 and ANA773 will not have unforeseen safety issues, 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 approvals, Anadys' effectiveness that 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, 2007, and in our most recent Form 10-Q.

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., President and Chief Executive Officer; Jim Glover, 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 second quarter 2008 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

Thank you, Elizabeth, and thank you everyone for joining us this afternoon. In the second quarter, we continued to make important progress in our clinical development program, especially in the hepatitis C area. Following allowance of our IND by the FDA, we commenced dosing healthy volunteers with ANA598, our non-nucleoside HCV polymerase inhibitor. In a minute, Jim Freddo will update you on our progress in this study.

We also initiated the accelerated investment in certain non-clinical aspects of the ANA598 program, which we announced in April, and have made significant progress in this endeavor. Our decision to accelerate these non-clinical activities was based on the pre-clinical profile of ANA598, including replicon potency, excellent pharmacokinetics, and safety through a 28-day GLP toxicology study in animals.

We expect that the successful conclusion of these non-clinical activities will position the ANA598 program for a rapid transition to Phase II studies, in combination with interferon and ribavirin, in mid-2009.

In early July, we announced the expansion of our efforts in HCV, reporting that we had submitted a clinical trial application in the Netherlands to investigate ANA773, our TLR7 agonist prodrug in HCV, and that we had received clearance to initiate this study.

I am happy to report today that we have now commenced dosing healthy volunteers in this study under two-part protocol, which will enable us to transition to HCV patients in the same study, once we have observed safety, tolerability, and immune stimulation in healthy volunteers.

With ANA598 and ANA773, we have now to the state, but potential complementary mechanisms under investigation for the treatment of HCV. We and others in the field expect future treatment of HCV to involve combination regimens with agents acting by independent mechanisms.

With the direct antiviral in ANA598, and a stimulator of interferon production in ANA773, we have an opportunity to provide two components of such a future combination regimen. We believe that ANA773 offers the potential for a regimen that will avoid injectable interferon, while providing antiviral and immunomodulatory benefits comparable to interferon with an oral pill and potentially cleaner side effect profile.

Furthermore, like interferon, TLR7 agonists act on a host target and reduce multiple mechanisms of antiviral activity. Because of this, we believe it is unlikely that resistance to ANA773 will evolve on therapy because several mutations would all have to appear simultaneously or within a very short period of time. This low likelihood of resistance to ANA773 adds potential attractiveness as a combination partner with direct antiviral.

Turning back to ANA598, we believe this agent may had direct antiviral power to any regimen, be it interferon-based, ANA773-based, or even comprised of all direct antiviral. We believe that having two distinct mechanisms in our portfolio increases our chances of playing an important role in future HCV therapy, and offers the potential for combination regimens containing two Anadys product candidates.

We also continue to develop ANA773 for cancer treatment. The potential benefits of the TLR7 mechanism in cancer therapy arise from the fundamental role of this receptor in immune activation. To the extent of pre-clinical investigation that we have conducted with ANA773, we have learned much about the pharmacology of orally-administered TLR7 agonist, including the importance of scheduling and shaping the profile of immune activation.

Later on the call, Jim Freddo will update you on the status of the ANA773 oncology trial. With ANA598 and HCV, and ANA773, in both HCV and cancer, we now have three active clinical programs. We anticipate important milestones for each program in the coming months. For ANA 598, we anticipate transitioning from the healthy volunteer study to a study in HCV patients by early fourth quarter, leading to viral load data in the first quarter of 2009.

With ANA773 in HCV, we anticipate transitioning to part two of the protocol dosing in HCV patients also early in the fourth quarter, leading to viral load data in the second quarter of 2009.

With ANA773 in cancer, we expect to have identified an immunologically active dose by the end of this year. In all three programs, we expect to have the clinical and non-clinical data in hand within the next 12 months that will support aggressive pursuit of Phase II activity.

Before we move on to the financials, I want to make one organizational note. Jim Freddo has been named Senior Vice President, Drug Development and Chief Medical Officer. Since joining Anadys two years ago as Chief Medical Officer, Jim has contributed significantly to the strategic and clinical objectives of the company, particularly with the progress we made in the last year with three programs now dosing in the clinic.

In addition to his pre-existing responsibilities for pre-clinical development, clinical development and regulatory affairs, Jim's new role will now also accomplish responsibility for pharmaceutical sciences and project management. I'm confident that, as we advance these pre-clinical programs, having a single drug development group operating under Jim's leadership will facilitate our continued progress toward our ambitious goal.

I'll now turn the call over to Jim Glover for more detail on our finances, after which Jim Freddo will provide more detail on our clinical program.

Jim Glover

Well, thank you, Steve, and good afternoon, everyone. I'll begin with a review of our second quarter 2008 financials, and finish with our cash utilization outlook for the remainder of the year. In the second quarter of 2008, Anadys had no reported revenues, compared to $1.3 million in revenue for the same period in 2007, which was primarily derived from the amortization of an upfront payment and a milestone payment under a prior collaboration.

Operating expenses were $7.5 million for the quarter, compared to $9.3 million for the second quarter of 2007. The decrease was a result of lower overall operating costs stemming from our restructuring in 2007, and a reduction in non-cash share-based compensation. This decrease was partially offset by an increase in the development costs associated with the ANA773 programs.

The company had a net loss of $7.1 million for the second quarter of 2008, compared to a $7 million loss for the same period in 2007. The basic and diluted net loss for common share was $0.25 for the second quarter of 2008, compared to $0.24 per share net loss in 2007. This higher net loss primarily reflects the lack of collaboration revenues in 2008, and lower interest income.

For the quarter, the company had a cash utilization of $6.7 million and $14.4 million for the six month period ended June 30, 2008 respectively. As of June 30, 2008, the company's cash, cash equivalents, and securities available-for-sale totaled $42.1 million. As a reminder, we began 2008 with a cash position of $56.5 million. We continue to project cash utilization for the entire 2008 year of $29 million to $31 million.

And now, I'll turn the call over to Jim Freddo, to discuss ANA598 and ANA773. Jim?

Jim Freddo

Thank you, Jim. ANA598 is our non-nucleoside inhibitor of the hepatitis C virus polymerase. In June of last year, we announced deflection of ANA598 as a development candidate based on several important properties, including inhibitory potency against genotype 1 replicon, favorable preclinical pharmacokinetics, early safety pharmacology testing, and in vivo tolerability.

The IND was submitted in April of this year and dosing began in the first human study at the end of May. This trial was designed to evaluate safety in pharmacokinetics and healthy volunteers, and is nearing completion. Based on preclinical PK data, the protocol was designed to investigate doses from 400 milligrams to 3000 milligrams. We have completed doses from 400 milligrams to 2000 milligrams.

ANA598 has been well tolerated to-date. It has been well observed, and the immune PK data is consistent with twice daily or once daily dosing. We look forward to presenting a complete data from the study in the future. While we continue to analyze the data, we believe we have enough data in hand to design the short-term model therapy study in HCV patients, which we expect to, begin by early fourth quarter of this year.

At the 21st International Conference on Antiviral Research in April, we reported several preclinical attributes that support the potential for beneficial combination of ANA598 with other anti-HCV agents. Specifically ANA598 was reported to be highly synergistic with interferon-alpha and non-antagonistic with ribavirin in cell-based assays. Furthermore, the data show that ANA598 retained full activity against a number of replicon mutations known to confer resistance to other anti-HCV agents currently in clinical development, including protease inhibitors and nucleoside polymerase inhibitors.

We believe this data confirms the broad potential for ANA598 to be used in combination with other anti-HCV agents from multiple distinct classes. We previously stated our plan to accelerate some key ANA598 development activities into 2008, including earlier manufacturer of drug substance, and initiation of the next series of toxicology studies.

We are now completing manufacture of sufficient materials to initiate chronic toxicology studies before quarter-end. These toxicology studies are designed to give us long-term safety data in animals, and are expected to support clinical trials evaluating the combination of ANA598 with interferon and ribavirin.

If ANA598 is successful in early stage clinical trial, it is anticipated that the acceleration of these non-clinical activities into 2008 will enable a more rapid continuous development path into mid-stage clinical trials during 2009.

Let me now turn to ANA773. As you all know ANA773 is our TLR7 agonist prodrug that is in a Phase I trial to support oncology indications. We began dosing cancer patients with ANA773 in February of this year. Later in the call, I will comment on the current status of the Phase I oncology trial

In July, we announced that we will be testing ANA773 for the treatment of HCV patients, an important expansion of our clinical development activities for hepatitis C. We have reported that we had filed the clinical trial application or CTA in the Netherlands and had received clearance to begin clinical investigation.

Dosing of healthy volunteers is now underway. This Phase I protocol will be conducting in two parts. Part A is a single and multiple ascending dose study in health volunteers. The objectives of Part A are to assess safety, tolerability, and immunological effects.

Part B is a study will be conducted in patients with chronic HCV infection. Patients will be dosed with ANA773 every other day, over 28 days. The primary objectives of Part B are to assess safety, tolerability, and viral load decline.

Dosing in Part A started 200 milligrams per day. It is expected that the two part protocol will allow us to initiate dosing in patients at a dose level that will have already demonstrated a desire magnitude of immune stimulation in the healthy subject, thereby reducing the number of patients required to test proof of concept in the study.

We anticipate enrolling approximately 40 healthy volunteers and 24 patients in this trial. Dosing of HCV infected patients is expected to begin early in the fourth quarter of this year, leading to viral load data in the second quarter of 2009. We have shown preclinically that ANA773 can elicit desired immune responses, and components of the response can be modulated by both dose and schedule of administration.

Importantly, we have seen that the desired cytokine and cellular effects can be generated without the need for daily dosing. Our completed 13-week GLP toxicology studies were conducted within every other day dosing schedule and confirmed that desired levels of immune stimulation can be achieved in animals without adverse toxicology consequences.

Expected findings induced by the pharmacologic effects of turning on the Toll-like receptor were shown to be reversible during the recovery period. The favorable toxicology profile since to-date, coupled with the stable induction of interferon-alpha and interferon-alpha dependent responses when ANA773 is dosed every other day over 13 weeks, have convinced us that ANA773 has the potential to demonstrate benefit in patients infected with HCV.

With diseases such as hepatitis C, where we and others expect future treatments to include combination therapy, ANA598 and ANA773 represent separate or potentially complementary mechanisms that may be included in future combination studies. A great deal of attention has been focused on direct antivirals currently in development for HCV. We share that enthusiasm, which is reflected in our development plans for ANA598.

It should be noted, however, that to-date no agent has demonstrated long-term clinical benefits in hepatitis C, except as a part of an interferon-based regimen. While there is a possibility that future regimens combining multiple direct acting antivirals may avoid interferon, this potential has not yet been demonstrated and does not appear to be imminent today.

Furthermore, a TLR7 agonist offers the potential to provide the benefits of the interferon products without the limiting side effect profile or the need for injection. Such in all, well-tolerated immunomodulator may in fact provide an appropriate complement to future direct antivirals. The hope is to develop all-oral, well-tolerated HCV treatments that maximize cure rates by incorporating multiple agents with complementary mechanisms of antiviral activity.

Allow me to summarize the opportunity in hepatitis C. This is a serious disease with inadequate treatment options. Direct antivirals offer the potential to improve this situation by improving efficacy and possibly reducing side effects. Based on the pre-clinical and early clinical data we have seen to-date, we believe that ANA598 has properties consistent with an important role in future combination regimens. In addition, ANA773 will allow us to test clinically whether an oral TLR7 agent maybe better tolerated than interferon, yet still provide the benefits of activating interferon dependent pathways that are known to contribute to viral clearance.

Now let me turn to the ongoing Phase I oncology study for ANA773. We are continuing to enroll cancer patients in this study, and ANA773 has been well tolerated to-date. We are in the process of setting up the final two sites planned for this trial, which should add to the pace of enrollment. We expect to identify a pharmacologically active dose by the end of this year, and data from this trial will be used to select the dosing schedule for Phase II trials.

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

Let me now turn the call back over to Steve.

Steve Worland

Thank you, Jim. Before we entertain questions, let me summarize our current position and our expectations for the near future. We now have three clinical programs underway, two in HCV and one in cancer. The data collected to-date from our ANA598 healthy volunteer study is very encouraging, suggesting twice-daily or once-daily dosing. For all three programs in the next 12 months, we expect to gather the data required to support initiation of Phase II development activity.

In the shorter-term, we expect each program to produce important milestones in the coming months, including initiating HCV patients dosing early in the fourth quarter for both ANA598 and ANA773, identifying an immunologically active dose in cancer patients with ANA773 by the end of the year, determining viral load data with ANA598 in the first quarter of 2009, and determining viral load data with ANA773 in the second quarter of 2009. We look forward to reporting the outcome of these activities to you in the coming months.

We are now ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Eric Schmidt of Cowen & Company. Please proceed.

Eric Schmidt - Cowen & Company

Good morning. Thanks for taking the question. I missed the number of patients who have been dosed to-date in the ANA598 Phase I study if you need to disclose them?

Jim Freddo

We have not discussed the number of patients. I am doing some quick arithmetic in my head. We have gone through multiple cohorts. The design of the study is that we have 6 healthy volunteers and then 2 subjects on placebo in each one of those cohorts.

Eric Schmidt - Cowen & Company

Okay. You said well tolerated, has there been any drug related serious adverse event, or any drug related adverse event?

Jim Freddo

There have been no serious adverse events. The adverse events that we have seen have been mild and Bob, I have not been fully adjudicated in terms of the investigators assessments. We have seen nothing of concern.

Eric Schmidt - Cowen & Company

Okay. Do you know whether the drugs get in to liver?

Steve Worland

We do not have any biopsy data. We have done in animal, but obviously human, we do not have any direct data.

Eric Schmidt - Cowen & Company

Okay.

Steve Worland

Again we have animal biopsy showing liver extraction showing the anti-drug out there. We have a chance efficacy model showing we have antiviral effect. So, we have every reason to believe the drug has to liver. It does not require any metabolism to end up the liver or anything like that.

Eric Schmidt - Cowen & Company

Got it, and last question, are you those things with or without food?

Jim Freddo

In a typical Phase I study like ours, we start with fasting, there is a food effect cohorts, so we take a dose that, we had dosed in the fasted state bring those same subjects back after a couple of weeks to dose with food. So, we will get some indication of food effect in the study.

Eric Schmidt - Cowen & Company

Right, thanks for the details.

Jim Freddo

Sure.

Operator

(Operator Instructions). Our next question comes from the line of Jason Kolbert of SFG. Please proceed.

Jason Kolbert - SFG

Hi, I would like to ask my favorite hobbit, Jim Freddo, a question on 598? No, fooling around just when we talked about the dosing at 400 mg to 3000 mgs, first of all that is the total dosing you are talking about regardless of whether its QD or BID right?

Jim Freddo

That is the dose that we have given those subjects over one day. So, this is a one day dosing study in healthy volunteers.

Jason Kolbert - SFG

Okay. So, regardless of whether it is split up or not. Do you have any read on which one of, what the range is looking more like, is it looking more like the lower end of the range in terms of where you draw concentrations or you just have no idea, yet?

Jim Freddo

We have not discussed the design of the study that we will take into the HCV patients, which will be dosing over a period of days. We have the information in hand now, without having completed the study to be comfortable and designing that protocol.

Jason Kolbert - SFG

Obviously you understand why I am asking the question because it is becomes critically important, particularly if you are talking about 3000 milligrams per day with a patient; it is a lot of drug.

Jim Freddo

Yes. So, let me make sure that you clear. What we did was based on the preclinical pharmacokinetics. We designed a study that we thought would make sense in human. So, that just to allow for a thorough PK assessment of dose proportionality over a number of different doses, has no reflection that, we thought we needed to go with high as the upper end to that study to find doses that we would then taken into a study in HCV patients.

Jason Kolbert - SFG

Maybe you could expand upon that a little bit. So, where the 3000 at the upper end come from? Is that two or three times based on what is on animal data, was that canine, with the monkeys, with the rats?

Jim Freddo

So, the preclinical pharmacokinetics that we have, were coming from rat and monkey. We also had a little bit from the chimp study that we have done. Again, when you are designing a Phase I single dose study in healthy volunteers, you want to make to sure that you have a high multiple in terms of exposures. So, you have some safety information above which that you think you will need to see the antiviral response in a patient study.

Jason Kolbert - SFG

Okay. Can you expand a little bit on what the 1b element of the program is going to look like? We learned on your Idenix call that, they were talking about three-day mandate in terms of testing as a mono therapy. So, I am just wondering if you are talking about the same type of Idenix here.

Jim Freddo

We are familiar with what said on the call from Idenix. We have been in conversation with the FDA about the design of the study. We have not publicly disclosed yet how many days that will be, but three-days will probably be adequate for us to answer the questions that we would need to answer in such a study.

Jason Kolbert - SFG

If you were to get the answers you wanted, what might the next like of the program look like, are you thinking 14 days in combination with standard of care?

Jim Freddo

One of the important things that you heard in previous calls and today's call Jason is that we accelerated the pre-clinical program and that includes initiation of chronic toxicology studies this quarter that will allow us to move into longer duration than your describing studies in combination with standard of care next year.

Steve Worland

Jason just to add to that. So we expect to, as I mentioned we are completing manufacturing of material right now that allows us to start that chronic dosing. So we expect to be in a position to at least initiate longer-term studies in combination with interferon, ribavirin. We expect to have the chronic talk completed by the time; we will be ready to start those Phase II combination trials with PEG, RIBA.

Jason Kolbert - SFG

Okay, got you. That is pretty exciting stuff. Just help me understand in terms of the prioritization with 773 being developed both in HCV and in oncology. At one point, it looked like you are backing off the 773 and focusing on 593. So should we adjust that burn? I do understand you did not change your year-end guidance for cash consumption. I am just trying to understand how the burn rate will be affected as 773 starts to take hold in both oncology and the HCV space?

Steve Worland

So, Jason again the spending will not change. In terms of prioritization, most of them are very important to us. I think you will see in our Q, you will see some detail about standing on each of the programs, 773 and 598, and they are roughly comparable and they will stay in that similar range going forward. So, they are both important and we are not going to let either one of them, 773 or 598, getting away at the other program. We feel comfortable we have the cash resources to push both of those programs to the points that we talked about.

Jason Kolbert - SFG

Okay, terrific. Thanks, Steve. I appreciate it.

Operator

(Operator Instructions). If there are no further questions, I would like to turn the call back over to Dr. Worland for any closing remark.

Steve Worland

Thank you again everybody for listening today. We are excited about our plans for ANA598 and ANA773 programs, and we look forward to reporting our progress to you throughout the year.

Operator

This concludes Anadys Pharmaceuticals second quarter 2008 conference call. You may disconnect at this time.

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