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Executives

Erik Steiner - VP of Operations

Solomon Steiner - Chairman and CEO

Gerard Michel - CFO and VP of Corporate Development

Analysts

Cory Kasimov - JPMorgan

Corey Davis - Natixis

Sarah Jessica - Morgan Stanley

Liana Moussatos - Pacific Growth Equity

Geoffrey O'Brien - Punk Ziegel

Biodel Inc. (BIOD) F3Q08 (Qtr End 06/30/08) Earnings Call August 6, 2008 4:45 PM ET

Operator

Welcome to Biodel's third quarter fiscal year 2008 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will open the call for your questions. Instructions for queuing up will be provided at that time. Today's call is being recorded.

Now at this time, I would like to turn the conference over to Mr. Erik Steiner, Biodel's Vice President of Operations. Please go ahead, sir.

Erik Steiner

Thank you. Good afternoon, and welcome to Biodel's 2008 third 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 remind you that our discussion today will include forward-looking statements subject to risks, uncertainties and other factors that can cause actual results to differ materially from those statements. Additional information about these factors is detailed in the company's press releases and public filings with the SEC.

I will now turn the call over to Sol.

Solomon Steiner

Thank you, Erik. Good afternoon, and thanks for joining us today. I will begin by reviewing our recent clinical and corporate activities, and then have Gerard discuss third quarter financial results. After his remarks, we will open up the call to your questions.

To begin, we have continued to make great progress with VIAject, our ultra rapid acting injectable insulin. We recently completed 2 pivotal Phase III clinical trials with this product candidate and planned to report top line results from these studies later this year. The interim results published by the EASD in July were encouraging and we believe the final results will be positive.

As a reminder, these international multi-center open-label six months studies compare the effects of VIAject to Humulin R, the leading recombinant human insulin in patients with type I and type II diabetes. These non-inferiority studies compare VIAject to Humulin R in terms of hemoglobin A1c levels, safety and other measures.

The recent publication of positive findings from Phase I and Phase II glucose clamp studies with VIAject also gave us confidence in the design and potential outcome of the Phase III studies. We are currently working to file an NDA for VIAject by the end of 2008, but it is possible we will file in the half of 2009 to augment the package with additional data beyond what is required for approval, which may be required by potential partner. We will keep you posted on our plans, which are currently on track.

As a reminder, our pivotal Phase III trials tested it through vial 25 IU/cc dose formulation, for which we will be prepared to file an NDA. We will also file an additional 100 IU/cc single-vial liquid formulation. By bridging to the 100 IU dosage form, we will allow patients to reduce the dosing volume to a quarter of the 25 IU/cc formulation.

In addition to our clinical progress, we are also making good progress preparing for commercialization of VIAject. Organon recently agreed to supply Biodel with recombinant human insulin for use in our VIAject insulin formulations. The supply agreement will help ensure that we have a technical manufacturing support we need to defend our marketing application, and that we have sufficient finished product on-hand for launch and several years after VIAject's approval.

We also made some key appointments in recent months. Dr. Alan Krasner joined us in May as Chief Medical officer. Dr. Krasner is a Board of Diabetologists who was Director of Clinical Research and Metabolic Disease at Pfizer and brings great expertise in clinical trials design and execution. He will play a key role in the development of our product candidates going forward and continue to work with Dr. Andreas Pfutzner, who is now our Senior Vice President of Medical Affairs in Europe and a member of our Scientific Advisory Board.

We also named Dr. Barry Ginsberg to our Board of Directors. Barry has more than 25 years of experience in diabetes from his work in academia, clinical practice and industry, most recently as CEO of Diabetes Technology Consultants and as the Vice President of Worldwide Medical Affairs for the Diabetes Division of Becton Dickinson.

I am pleased that we continued to attract experts in this field and believe we have a very strong team to guide the development and commercialization of our product pipeline. As Gerard will describe in a moment, we are managing our cash carefully and believe we have sufficient funds on-hand to take us through the NDA submission and finalization of our commercialization plans.

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

Gerard Michel

Thank you, Sol. We reported a net loss for the third quarter of $10.1 million, or $0.43 per share, compared to a net loss of $5.3 million, or $0.30 per share, for the comparable period in the prior year. Our net loss for the quarter includes $1.9 million of stock-based compensation expenses. R&D expenses were $6.9 million for the three months ended June 30, 2008 compared to $2.6 million for the comparable period in the prior year.

The increase in quarterly expenses was primarily due to a $1.3 million increase related to the pivotal Phase III clinical trial program evaluating VIAject, $1.5 million related to increase manufacturing expenses for the process development, scale-up and manufacture of commercial batches of VIAject to support our clinical trail and regulatory submission, and $800,000 in personnel-related expenses.

G&A expenses totaled $4.2 for three months ended June 30, 2008 compared to $3.3 million for the comparable period in the prior year. The increase for the quarter was primarily attributable to $700,000 increase in personnel-related expenses and $500,000 in professional fees. The increase was offset by a decrease of $900,000 in stock-based compensation expenses.

The three months ended June 30, 2007 include $1.7 million in stock-based compensation expense related to the options granted to the Board of Directors in May 2007.

Our nine months results are reported in today's press release and I am happy to answer any question on those results after these prepared remarks or at a later time. At the end of the third quarter 2008, Biodel had $101.9 million in cash, cash equivalents and marketable investment securities, and 23.7 million shares outstanding.

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

Solomon Steiner

Thanks, Gerard. I think we are in a sound financial position to execute our plans and programs this year, particularly our preparation for filing an NDA for VIAject. We will keep you apprise of our progress and we will now open up the calls for questions.

Question-and-Answer Session

Operator

(Operator Instructions). We will go first to Cory Kasimov of JPMorgan.

Cory Kasimov - JPMorgan

Hello and good afternoon. Thank you for taking the question. First of all, Sol, can you give us a little bit more of a specific progress report on the formulation work you are doing with VIAject, in other words what else needs to be done to go to the 100 unit liquid?

Solomon Steiner

Well, what you do to be done and good deal of which has been done as you make 3 commercial batches of it. Then you do stability work on the batches that you make, and you do a bioequivalent study where you compare the various formulations to each other and a crossover design using glucose clamp technique. Does that answer of your question?

Cory Kasimov - JPMorgan

Yes. Well, let me put it in another way. When do you expect to be done with all this work?

Solomon Steiner

Let's say, it is a good question, I am thinking because they are several different batches, they will have different times. Suffice it to say that all the manufacturing is either complete or will be completed in relatively short time.

Cory Kasimov - JPMorgan

Okay. Are you happy with everything you have seen to-date?

Solomon Steiner

Yes, that is right. The bioequivalent study should be completed in time. Well, the bioequivalent study should be completed before the end of the year, including the report. So that could be dropped into an NDA filing.

Cory Kasimov - JPMorgan

Okay. Next, could you still elaborate a little bit on your thinking these days regarding the partnership, how things may or may not have changed and now that you are six weeks from the data, within six weeks from the data?

Solomon Steiner

There is a lot more interest now than there was a year ago. I think that is a fair statement to make. We are in discussions with a number of potential corporate partners. You never know how it is going to come out until it is over even then you are not so sure. We are pleased with the discussions that we are having and we think that the highest probability is that when we launch, we will launch with a corporate partner, doing great majority of the sales, distribution, and marketing.

Cory Kasimov - JPMorgan

Okay. Now that you have completed these 2 pivotal Phase III trials, how should we be thinking about R&D going forward? As part of that question, assuming that these two trials are positive, how soon would you be launching subsequent studies versus the analog?

Solomon Steiner

Okay. Let me answer the second part first, subsequent studies versus the analogs, one is already underway, several more are well into the planning stage. Those are Phase IIIB studies really, they are not required for filing, and probably would not be in the package in the NDA they would be there. They are essentially designed to further differentiate ourselves in the marketplace against the all 3 of the currently market rapid acting analogs, that is Novolog, Humalog and Apidra. What was the other part of the question?

Cory Kasimov - JPMorgan

How we should be thinking about R&D going forward now that you have completed the two pivotal…?

Solomon Steiner

So, that is one way of focusing right, and you have to understand that we do not drop patients from the study when they are big two pivotal trials. When a patient finishes the six month trial, we do not just drop them. We offer them the opportunity to go into expansion protocol, where all patients are switched to VIAject.

Cory Kasimov - JPMorgan

Okay.

Solomon Steiner

That is an ongoing activity. This is fair to the patient to do that because if someone adopted and went through the trial either in the control group or in the VIAject group, you want to give them the benefit of having participated in that trial, and if they are doing well on VIAject, you certainly do not want to take it away. Its advantage, the agency wants you to do this, because it shows more exposure overtime and it is advantageous for us as well, because we have additional data. So that is going on, so we have the expansion protocols, we have the Phase IIIB protocols that are further differentiates itself in the market place and that is what is consuming, and then of course filing of the NDA, which is a monumental effort even for [505B2]. So that is consuming the majority of our attention, finance and time.

Gerard Michel

And, I think you also have to keep in mind that the recruitment profile was such that the majority of the patients came in the last three months or so of the trial or significant portion of them. So, you would expect the expenses for the pivotal trials to be heavily back ended. So from the cash run rate perspective, you need to factor that and in addition sometime in the next couple of quarters, we will start making significant purchases of API for stockholder purposes, and that will be an incremental expense that we did not have previously.

Cory Kasimov - JPMorgan

Okay, that is very helpful. I will hop in the queue, Thank you.

Operator

We will take our next question from Corey Davis with Natixis.

Corey Davis - Natixis

Thanks. I will follow right on to that last answer so, the API that you start buying gets book to R&D until the drug is approved, is that correct?

Solomon Steiner

Correct.

Corey Davis - Natixis

The supply agreement that you have with Organon, is it a fixed price for the insulin or is the pricing terms for you get better with increasing volume, and why I am going with this is thinking about ultimate gross margins on the product and how that might factor into the economic attractiveness of this two potential partners?

Gerard Michel

To be honest Corey, I do not recall in the redraft agreement whether or not it is clear that it is a fixed-to-variable price when we redrafted. So I want to careful in terms of sign supplement something that is not out there yet. It is wiser to say it is a really short-term agreement, although it gives us plenty of quantity for at least three years. I think, this is what we said in the Q in terms of our revenue. It is fairly short-term. You know the margin issue really will come into play. When we signed a longer-term agreement either with Organon or either with another third party or fourth, I think that that question probably will come into play.

Corey Davis - Natixis

I see, so do you do not get to buy this for the next three years, you got to buy it soon and…?

Gerard Michel

Its front end loaded, so we will end-up with a year or more of inventory at some point of API, year and half or so at some point.

Solomon Steiner

That is really prudent though, because I mean, the last thing you want to do is launch a product and then run out of it.

Corey Davis - Natixis

Sure. Update on the construction of your new facility

Gerard Michel

We are going to take that slow until we have the commercialization's strategy nailed, and understand financial requirements of the commercialization strategy. There are two facilities we have discussed in the past, one is the Lab, and that is something we are looking forward to getting started as soon as possible, but again we are going to go slow until we have the NDA filed and the partnership and everything is nailed.

The manufacturing facility is contingent upon what the need of our partner is, if our partner can do fill and finish on their own, then they by definition will be our second source to fill and finish. If our partner is not in a position to do differential fill and finish, then we will probably breakdown on a fill and finish facility ourselves.

Corey Davis - Natixis

Got it. Sol your comments about maybe the NDA gets pushed into '09, because the partner might want additional studies filed. It sounds like the bridging study to the 100 IU unit is not that possibility, so question A; is what types of studies would those be given it sounds like Phase III B studies would not be done by then?

Solomon Steiner

There are some Phase III B study, well, there are some Phase III B study that you may wish to give in to the NDA, and that would push you back because while we expect that the once that we have started or contemplated in the near future will be finished in a timely fashion. They would not be finished by the, the final report would not be ready by the end of this year, so that might push it into the following year.

Corey Davis - Natixis

Right, so which Phase III B studies might go into the packages?

Solomon Steiner

I do not want to discuss that the design of the Phase III B studies. At some point we will, but I think what we will, when they are a little further along. I think that we usually do not talk about them.

Gerard Michel

Corey for instance, you might have had, there are couple of player we are talking to, are in this space, who all have, who have their respective ideas of what they like us to do in Phase III B

Corey Davis - Natixis

Yes.

Gerard Michel

It is a little awkward for us to go through that.

Corey Davis - Natixis

Understood well, it kindly answers my next question is, were those comments driven by just a hypothetical or there are specific requests of some of the potential partners, and it sounds like the answers is more the later.

Gerard Michel

Yes, It is a package that a small company without a market would not be quiet happy with. It is different then what the package, which some I would not say all but some of the larger companies would like to go market with. We are trying to be flexible.

Corey Davis - Natixis

Last question, should top line results within the next six weeks - I am assuming that it will just be a press release. How much can you put into that beyond just it hit the primary end point and here is the P value? Will there be more details than that at first?

Gerard Michel

It will be, either we made it and here is the P value or a little more but we are going to keep the powder dry for the appropriate scientific forum.

Solomon Steiner

We like to present this data at an appropriate medical scientific forum. It is good from to do so, and at the same time we make all those available, all the information available to financial community.

Corey Davis - Natixis

So you are guarding the place holders.

Solomon Steiner

The old army approach, we will tell you when we are going to tell you then we will tell you and then value that we told you.

Corey Davis - Natixis

I do not know, if I should ask the next question and you have already got place holders at EASD, could you present the full data package their.

Gerard Michel

Possibly.

Solomon Steiner

That is a possibility yes.

Corey Davis - Natixis

Okay. Thanks that is all I have got.

Operator

We will take our next question from Steve Hurr of Morgan Stanley.

Sarah Jessica - Morgan Stanley

Hi this is actually Sarah Jessica for Steve Hurr. I was just wondering if you can give us an update on where you stand with IP world wide?

Solomon Steiner

Well if you know the major US, the first patent that is issued, we have many other CIP's, there is many other CIP’s filed both nationally and internationally, forgive me if I do not use the right magic words. I think CIP is the correct, continuation in part, we have additional patents filed nationally and internationally, but none of those have issued at this point in time, so we have one issued patent and a picket fence of patents filed around that.

Gerard Michel

The next most critical thing Sarah is the European filing, and we are still waiting for the European filing to come through. We are confidant we will do so, but we have to wait patiently.

Sarah Jessica - Morgan Stanley

Do you have any idea when we will get an update about that or will know if that will improve?

Gerard Michel

It is, we will let you know when we know, but it is not up to us.

Solomon Steiner

Bit of a black box.

Gerard Michel

Yes, we do not have control over it, so when it happens, they tell us and then we tell you.

Sarah Jessica - Morgan Stanley

Okay great thank you.

Operator

We will take our next question from Liana Moussatos of Pacific Growth equity.

Liana Moussatos - Pacific Growth Equity

If there was a delay in filing the NDA, would it be a quarter delay or two quarters or three quarters, what do you think?

Solomon Steiner

A long and pregnant silence. I mean, it would depend on what the circumstances where that would require a delay, and I mean and it could be no delay, it could be one quarter, it could be two quarters it really depends on the circumstance. It is hard to guess.

Liana Moussatos - Pacific Growth Equity

So, would not be year delay, would not be three quarters delayed, but probably the most would be two quarters?

Gerard Michel

If we judge the point where we know we are contemplating a delay of, like the number you have said three quarters or more, I believe that falls in the realm or we would give you a pretty quick update, if that was the case. So, I think the guidance we gave of sometime mid next year, it would be delayed up to sometime mid next years is where our front thinking is and I must hate to use the word delay. It is more along the lines of why I have submitted robust package as possible. We really could submit something that we get approved and we could launch, the question is after discussions with partners and looking at differential landscape, whether or not it is prudent to get a little bit more on the package, and again that really is a commercial call and as you well know we have a number of different parties with whom we are discussing commercialization. So, we need to leave the options open for them.

Liana Moussatos - Pacific Growth Equity

Okay, based on where you on your discussions, do you think it is possible you have a partnership announced by the end of this year or is 2009 more likely?

Gerard Michel

I have the faith to give you a specific timeline. What I will tell you is that I do not think any large pharma is going to step up in front of some of data coming on the few weeks out, I mean they may not even step up until they see the final BE data. There have been a couple of recent fields where people paid large upfront, and they refer the data only to which they have not off-late. If one makes the assumption and they are not going to finalize terms until they see all the data, then one needs to go from that point and turn a bit with several telephone books account to the license agreement nowadays. That takes many, many months. So I will let you handicap as to when you might think you see a deal, but that is to help you understand the overall process and where we are.

Liana Moussatos - Pacific Growth Equity

When do you think you would have the final BE data?

Gerard Michel

As Sol said earlier on, we would have that by the end of this year in time for the earlier NDA filing date.

Liana Moussatos - Pacific Growth Equity

Okay.

Gerard Michel

Precisely, when we have dependent on a number of factors, I am not going to go into right now, but just suffice it to say that we can not paint an exact date right now, but we are very confident before the end of the year at least.

Liana Moussatos - Pacific Growth Equity

Okay, great. Thank you very much.

Operator

(Operator Instructions). We will go next to Geoffrey O'Brien of Punk Ziegel.

Geoffrey O'Brien - Punk Ziegel

Hi, Sol, just a quick question on the weight gain data. You reported the interim data recently that showed about a three-pound reduction in weight gain in the VIAject group versus Humulin R group in both type I and type II diabetics after six weeks which I thought was pretty impressive. What is the range that you are looking for as far as the reduction in weight gain at six months?

Solomon Steiner

We have not looked at that data yet. So it is there but we do not know what it is yet, because we have not locked the database, not the analysis. What it is, what will be, will be. Frankly, not gaining weight, taking insulin and not gaining weight is very big positive step from the point of view of patients who take insulin.

If we showed, for example, weight stasis with the VIAject compared to the typical gaining of weight the patients experienced when they take insulin, especially type II patients, that would be a very big, I think a very significant finding in patients who take insulin. I do not know if that answers your question, but if they just did not gain weight and because if you take insulin, you do gain weight and you continue to not gain weight over a period of six months, that is a lot.

Geoffrey O'Brien - Punk Ziegel

Well, how about if they gain, how about if the VIAject patients gains let's say half the amount weight that Humulin R patients gain, how would you and what do you think about that data?

Solomon Steiner

Yes. It is hard, I mean, I really hate to make hypotheticals. We are close to analyzing a data. The data is what it will be. What we reported is that at six weeks, there was a delta of three pounds, and approximately three pounds for both the type I patients VIAject versus Humulin and the type II patients VIAject versus Humulin. So what will happen, will happen and we will report it out as soon as we know it.

Geoffrey O'Brien - Punk Ziegel

All right, great. Thank you.

Solomon Steiner

Thank you.

Operator

Gentlemen, we have no further questions at this time. Dr. Steiner, I will turn the call back over to you for any additional or closing remark.

Solomon Steiner

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

Operator

That does conclude today's conference all. Thank you for your participation. You may disconnect at this time.

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Source: Biodel Inc. F3Q08 (Qtr End 06/30/08) Earnings Call Transcript
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