Michael Hubbard – Director of Corporate Communications
Dr. Leslie Hudson –CEO
Alan Timmins –President & COO
AVI BioPharma, Inc. (AVII) Q2 2008 Earnings Call Transcript August 11, 2008 9:30 AM ET
Good day and welcome to the AVI BioPharma Incorporated second quarter earnings conference call. Today’s conference is being recorded. At this time I would like to turn the conference over to your host Michael Hubbard. Please go ahead, sir.
Thank you, Rochelle. This is Michael Hubbard, Director of Corporate Communications for AVI BioPharma.
Thank you for participating in today's call. Earlier this morning we released the financial results for the second quarter of 2008, which will be available on our website at www.avibio.com. Joining me this morning from AVI are Dr. Leslie Hudson, Chief Executive Officer, and Alan Timmins, President and Chief Operating Officer.
Before we begin, I'd like to remind you that comments made by management during this conference call will include forward–looking statements within the meaning of federal securities laws. These forward–looking statements involve material risks and uncertainties. For a discussion of risk factors, I'd encourage you to review the AVI BioPharma Annual Report on Form 10-K and subsequent report as filed with the SEC. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 11th, 2008. The Company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
With that said, I'd like to turn the call over to Dr. Hudson.
Dr. Leslie Hudson
Thanks Michael, and good morning and thank you all for joining us. This morning in addition to the financial commentary, which Alan will provide in a second, I would like also to provide you with some richness on behalf of the new management team of AVI as we progress in our plan to convert an antisense pioneer into a world-class Company specializing in the discovery and development of RNA-based drugs. Then we’ll have a question-and-answer session.
So, let’s start with Alan. Alan, please, could we cover the second quarter financials?
Thanks, Les, and good morning to all of you joining us on the call and over the Internet. Today, I would like to review our 2008 second quarter and six month financial results, including our current cash position, and also discuss our continued 2008 financial guidance.
Revenues for the 2008 second quarter were $5 million, up from $2.4 million in the prior year quarter, reflecting increases in research contracts revenues of $2.6 million. The net loss for the second quarter of 2008 was $1.8 million, or $0.02 per share, compared with a net loss for the second quarter of 2007 of $7.8 million, or $0.15 per share.
Research and development expenses for the quarter decreased to $8.2 million from $9.2 million during the second quarter of 2007 and general and administrative expenses decreased to $1.7 million from $2 million in the prior year’s second quarter. The decrease in R&D expenses was due to decreases in government research contract expenses of $1.75 million, decreases in contract manufacturing costs of $330,000, and decreases in amortization of leasehold of $135,000.
These amounts were partially offset by increases in professional consultant cost of $300,000, increases in purchases of government contract related equipment of $290,000, increases in net clinical expenses of $230,000, severance payments to certain former Ercole employees of $216,000, and increases in employee cost of $140,000.
On June 10th, the Company announced its intent to close down its CABG trial and anticipates the savings from this ceased trial will be realized in subsequent quarters of 2008. Decrease in G&A expenses was due primarily to decreases in legal expenses of $215,000, employee cost of $52,000, and public and investor relation cost of $51,000.
Revenues for the first half of 2008 were $10.6 million, up from $2.9 million in the first half of 2007, reflecting increases in research contract revenues of $7.7 million. For the six months ended June 30, 2008, AVI BioPharma reported a net loss of $16.8 million, or $0.25 per share compared with a net loss for the comparable period in 2007 of $16 million, or $0.30 per share.
During the first quarter of 2008, the Company completed an asset acquisition of Ercole Biotechnology Inc., resulting in additional expenses of $9.9 million related to acquired in-process research and development. R&D expenses for the first six months of 2008 were stable at $15.6 million compared to $15.5 million in the prior year period. However, G&A expenses decreased to $3.7 million from $6.3 million. The R&D expenses reflect increases of $770,000 in compensation cost, $617,000 in severance payments to certain former Ercole employees, $570,000 in net clinical expenses, and $65,000 in the purchases of government contract related equipment.
These amounts were offset by decreases of $950,000 in government research contract expense, $300,000 in contract manufacturing cost, $270,000 in amortization of leaseholds, $250,000 in chemical cost, and $125,000 in professional consultant cost. The G&A expenses decrease was due primarily to a $2.2 million decrease in employee cost, of which $1.6 million was related to the separation and release agreement with the Company’s former Chief Executive Officer during the first quarter of 2007 as well as a $600,000 in SFAS 123R expenses. G&A expenses also included a $360,000 decrease in legal expenses, and a $76,000 decrease in public and investor relations cost.
Company anticipates continuing on course with its government contracts through the remainder of 2008, and into 2009.
AVI had cash, cash equivalents, and short-term securities of $18.8 million as of June 30th, 2008, a decrease of $6.3 million from December 31st, 2007. This decrease was due primarily to $5.7 million used in operations and $603,000 used for the purchase of property and equipment and patent-related cost. This decrease includes approximately $900,000 paid to Ercole for it’s use in retiring certain of its debt prior to closing of the Ercole acquisition.
In response to the effective actions taken by management in the past quarter, we modified the range of our 2008 financial guidance. We expect our net cash burn for the year to be in the range of $12 million to $14 million.
With those comments, I would like to turn the call back to Les.
Dr. Leslie Hudson
Alan, thanks very much indeed. So, as a Company, we are gaining traction. We are narrowing our guidance, as you heard. I think you will see many of the key indicators in our financial presentation are also compatible with that. Let me just pick up some of the key points in the corporate update and give you some richness there because I think it’s equally apparent that we are beginning to gain that traction in the other areas of our business.
So first off, in terms of the announcement that the MHRA in the United Kingdom has given clearance for the Company to move forward with the Company-sponsored systemic trial of AVI-4658, this is the first Company-sponsored trial that we will be running with this drug. Francesco Muntoni will act as our principal investigator, and the trial will be open label and will involve up to 18 boys. The MHRA is of course the most important step in clearance for us to obtain. We are waiting a GTAC, which is the Government Advisory Committee on Genetic Manipulation. Even though in fact we have drug it’s not really gene therapy in the sense that we are not changing the DNA makeup of these boys. What we are doing is changing the readout from the RNA. And so under those circumstances the fact that we were able to get an open ethics extension allowed us to select and screen trial candidates in advance of GTAC approval, which we are formerly expecting to get early in the fourth quarter.
Now, we have also an ongoing trial, which is the intermuscular study of AVI-4658. This was actually a Medex sponsored trial which the Company is supporting, obviously with drug substance and supply, and the update there concern the agreement from the MHRA that our collaborators can actually go from the lowest dose group, which is 0.09 milligrams, up to the highest dose, missing out the intermediate dose. They have also agreed that we can actually increase the size of that largest group from 3 to 4 boys. So, from that point of view, we are expecting then the progression of that trial to continue in parallel with the start of our own systemic study.
The Medex consortium, as many of you will know, has had funding from the Department of Health in the United Kingdom on the DMD project, which began in January 2005. And there has been considerable progress in the last 20 months, not least of which now is our ability, we believe, soon to start the systemic trial.
There has also been some publications, which we mentioned, and all of those now are listed on our new website, which we hope will become a routine and reliable source of references that are published by the Company.
Secondly, in terms of our partner, Global Therapeutics, which is the cardiology unit of Cook Medical, we announced earlier that they have received CE mark approval of their new cobalt chromium bare metal stent and the drug which is being tested there, AVI-5126, is a c-myc down-regulating drug. Our collaborators, our partners in Cook have characterized this as a breakthrough technology, which I agree with, because it’s looking to treat the cause of restenosis rather than its implications, looking rather at cell proliferation, which can cause stenosis rather than inflammation, which is a result of that process. The data which supported that was a 30% improvement characterized previously as a 10% lower luminal stenosis in their GTX drug eluting stent using AVI-2126 versus the bare metal stent when they looked at it preclinical animal models.
The Company’s antiviral focus has been primarily around the Department of Defense, in cooperation with USAMRIID in the TMTI program and in particular the Company’s work on Ebola has been highlighted not only in the Biodefense symposium at which we presented, but actually also what’s been recently unfortunately in the newspapers around the whole of the biodefense situation. The Ebola work which was being cited as one of the successes of the program we believe in fact alludes to the work that we have been doing.
The changes in the Company’s management team have really been quite considerable. In addition to the new CEO we announced that in fact David Boyle will be joining the Company from the 18th August as CFO, and in addition to that Shirley Leow had joined the Company as Vice President of Clinical Operations and Project Management. You will remember also that we have a new head of research, discovery research, Ryszard Kole, who was in fact one of the founding fathers of alternative splicing. Ryszard sold his Company to AVI and then felt so positive about the technology that he resigned his professorship at North Carolina – at the University of North Carolina, to come and join the Company here in Corvallis. That change allowed Patrick Iversen – so, Pat was previously the head of R&D. Pat assumed a new role of Head of Strategic Alliances. This is very important because in the world that we are operating now, the ability to bridge from our R&D group to our external collaborations is really a very, very important facet of business development. So that is being a part of the Company which is being considerably strengthened.
When I first was invited to look at the Company in September last year what I saw was a Company that actually had promising technology. What I have seen were also changes in the environment in which the Company was operating not least of which was the work that is being done around, for example, familial hypercholesterolemia by ISIS, by Centoris [ph] in the deals that they had announced. The beginning of what looked like a sea change in the application of antisense.
I saw also companies operating in what was characterized as RNAi and giving the impression that RNAi really was only addressable by siRNA technologies. What’s become apparent I think to everybody that RNAi really encompasses the whole of this field, the ability to actually up- and down-regulate both mRNA and pre-mRNA is very important to the pharmaceutical promise that this whole field actually can bring.
I think under those circumstances then AVI is positioning itself in a very effective way and I greatly look forward to how this plays out over the next 6,12, and 18 months. It’s going to be a very interesting time not only for the Company, but also for the field.
With that said now, I’d like to turn the call back to Rochelle, our operator and also invite you to pose any questions you may have for the management team.
Thank you. (Operator instructions).
Given that we have no questions currently, we thank you all for participating and I’ll turn it over once again for final comments by Dr. Hudson.
Dr. Leslie Hudson
Well, thank you for listening. We had quite a number of callers and I hope at least it actually is a testimonial to the clarity of the new format of our press release that in fact it raised no questions. Hopefully though it did raise some interest. If I may end with a notice, we have an Analysts and Investors Breakfast on the 10th of September from 7:30 until 10:30. It will be at the Harvard Club of New York City. In addition to members of the management team, in particular the R&D leadership, because we want to take the opportunity of giving some depth around our new programs and their implications, also the ability to meet with the new CFO, we will actually have a presentation in the field of exon skipping particularly as it’s applied to DMD, and it will be given by Professor Francesco Muntoni, who although he is a collaborator of the Company in fact is also a well-recognized international expert in DMD. We look forward to you joining us there. We thank you for your courtesy and listening. And we wish you all a very good morning. Thank you very much indeed.
And that will conclude today’s call. We thank you for your participation.