Neurobiological Technologies, Inc. F4Q08 (Qtr End 06/30/08) Earnings Call Transcript

Neurobiological Technologies, Inc. (NTII)

F4Q08 Earnings Call

September 16, 2008 10:30 am ET

Executives

Paul E. Freiman - President and Chief Executive Officer

Matthew M. Loar - Chief Financial Officer

Warren W. Wasiewski, M.D. - Vice President and Chief Medical Officer

Analysts

Stephen M. Dunn - Dawson James

[Michael Allacoster] - Paradigm Capital Inc.

Presentation

Operator

Welcome to Neurobiological Technologies fourth quarter fiscal year 2008 earnings conference call. (Operator Instructions)

Except for historical information the matters discussed on this call are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include those set forth in the company’s reports on Form 10-K and 10-Q as filed with the securities and exchange commission as periodically updated on Form 8-K.

Except as required by law, we undertake no obligation to update any forward-looking statement we make today to reflect events after today’s call. Further, we note that the information, data, and statistics presented on this call are those of the company alone and in no way should be attributed to any of the company’s corporate or strategic partners.

Now at this time for opening remarks and introductions I would like to turn the call over to the President and Chief Executive Officer, Paul Freiman.

Paul Freiman

You know somebody said timing is everything and what a weekend, what a Tuesday to have a conference call with the market collapsing all around our ears and company’s falling out of bed. And in the process of that our stock continues to take a hammering which is really causing ulcers amongst all of the management and board of this company and I am sure the shareholders, but the fact remains that we believe that there is light at the end of the tunnel, so let me make a couple of comments to you and share my own feelings with you.

This call is intended to report out the fourth quarter and the year-end financials for fiscal 2008 and probably the biggest event for us in 2008w as the raising of $55 million net in a public offering. We have been criticized from some investors for doing that. We certainly have diluted shareholders, which we never want to do, but we have felt and continue to feel that we have an asset that may be an unusual benefit to everyone at the end of the day; everyone being shareholders, employees and probably most important, victims of stroke.

The window for raising money has pretty well been closed. There are a few exceptions to that, but by and large being able to raise this $55 million in November has allowed us to continue to plow ahead in terms of recruitment of patients and moving toward a definitive moment in the life of the product Viprinex and that is really what is driving the company.. I will talk about a few other things, but the central piece is the fact that Viprinex is really the assets that this company has, a major asset that it has.

So, I think all of you as shareholders are aware of the fact that we surpassed a 500 patient enrollment back in August. That allowed us to move forward to an interim analysis which we are saying, conservatively, will take place in the first quarter of calendar 2009 and that is a conservative estimate.

The analysis itself is a futility analysis and that will be explained in a little more detail by my colleague on this call, Dr. Warren Wasiewski. Warren is a chief medical officer and is really driving this process forward very well.

I can say that the recruitment for the trial, which has been slow historically, has gained some legs over the past few months and in fact we are sitting in one of our best months this month.

Matt Loar will be on the phone to talk to you about the financial position of our company and share with you where we stand from a cat standpoint and from a burn standpoint.

In terms of other products beyond Viprinex, XERECEPT continues to be developed by the Celtic company. Celtic has told me that there will be some announcement before the end of this year with regards to the Phase III clinical trials for peritumoral brain edema and we do not have any more information then you do or they do at this point, because a trial can be disblinded and we continue to receive income from the sale of Mementine by Forest in the United States. But, you are going to see a decline in that amount of income, as we announced previously, based on a, we call it a settlement between our companies, or an agreement between Merz and ourselves where there will continue to be a declining rate of royalty payments made until 2010. There are special circumstances that would allow this to go further, but I would not count on that and I would rather not get into any detail on that at this point.

Again, our focus, as we move into questions and answers later on, is going to be on Viprinex. We will share that with you and try, in these very difficult times, to just let you know what is going on, to be as transparent as we can and to share what truly is an enthusiasm towards a very exciting stroke drug.

With that, let me turn this over to Matt Loar to talk about our financials. Matt joined us less than a year ago. He has done a fabulous job, in my eyes, with regards to hammering the cash, keeping the books balanced, and working very well with our auditors. So Matt, please add your words of wisdom.

Matthew Loar

I will try not to belabor points with your financial results so we can get to the Q&A session a little bit sooner, but let me hit certain highlights.

First I will talk about the fiscal fourth quarter. During that period we had revenues of $3.5 million with three major components to that. The first is the Mementine royalties and then two other components related to our sale of XERECEPT. There is revenue amortization for some up front consideration we received, as well as expense reimbursement. Turning to operating expenses for the fourth quarter, was $7.3 million. Most of that was research and development costs, which were $5.8 million and then general and administrative expenses of about $1.5 million.

For the quarter there was non-operating income of about $300,000.00, resulting in a net loss for the period of $3.5 million.

I will turn to the full fiscal year and for 2008 we had revenues of $14.8 million; same components for the full year as we had for the quarter. There was $8.3 million in Mementine royalties that we received, $5.5 million from our amortization of consideration received earlier for the sale of XERECEPT and about $1 million in expense reimbursement related to XERECEPT. Compared to the prior fiscal year we had Mementine royalties go up. XERECEPT

revenue amortization was the same and there was lower cost reimbursement from Celtic, namely because we had lower costs in that area.

Turning to operating expenses for the fiscal year, they aggregated about $31.5 million, $24.6 of that was research and development and $6.9 million was general and administrative expenses. Of the $24.6 million in research and development, $22.1 million was related to Viprinex, so you can really see that’s the bulk of our R&D costs. The remaining $2.5 million in research and development was a combination of costs we incurred related to XERECEPT, which were reimbursed by Celtic and then also funding preclinical programs for Alzheimer’s and Huntington’s disease at the Buck Institute.

Compared to the earlier fiscal year, Viprinex expenditures increased, because we had a greater number of net patients enrolled into the clinical trial during fiscal 2008 than fiscal 2007 and the other non-Viprinex related research and development costs went down/

General and Administrative expenses in fiscal 2008 went up about 5% from the prior fiscal year, mainly related to higher staffing that occurred in the later of half of fiscal 2007 and then additional legal costs related to a number of contracts that we entered into during fiscal 2008.

I am not going to belabor the non-operating expenses. Most of these are accounting concepts, but just to touch on them there was $2.5 million in an interest charge related to a bridge financing from September 2007; a $1.8 million charge for impairment of the auction rate securities; there was $1.3 million in interest income for the year; and a $3.4 million gain on the decrease in fair value of warrants that we had issued in a prior fiscal year.

I will turn to the balance sheet, which is always important in the biotech companies and in particular Paul mentioned our financing that we concluded in the early part of the fiscal year. As a result of that we ended the fiscal year with $41.8 million in net cash and short and long-term investments, $30 million of that $41.8 million was classified as current in cash and short-term investments and $11.8 to $11.9 million was classified as long-term and those are our auction rate securities holdings, which we earlier took a write down on.

Total liabilities were $22.9 million at the end of the fiscal year, of which $18.8 million is deferred revenue from an agreement with Celtic; so that is not something that is going to be repaid by us, but it will be recognized into income through 2011.

Cash flows, the important points to note are the $55 million net provided from the underwritten offering in November of 2007 and it is also important to note there was about $20.7 million in cash used in operations for the fiscal year.

I am going to talk a little bit about what to expect going forward, but not provide formal guidance for where specific numbers will be in fiscal 2009. We have an upcoming interim analysis of the data, which is now just months away, and the outcome of that interim analysis can significantly sway our operating expenses, both research and development, as well as general and administrative expenses. So, until we get to the interim in terms of operating expenses, you should expect to see research and development costs for fiscal 2009 to be more or less comparable to what it was in fiscal 2008.

General and administrative expenses will be down from where they were in fiscal 2008 and as Paul also mentioned, the revenue will decrease somewhat related to a staged reduction in the Mementine royalties, under the agreements with Merz and CMCC.

Finally, looking at the all important cash and investments balance going forward, expect roughly $30 million in cash and investments combined, which is both short and long-term investments, around the time of the interim analysis, which would be the early part of 2009 that we are targeting.

Please remember that these are forward-looking statements and before we get to the Q&A session, I will turn it back over to Paul to make some comments before he gives it over to Warren.

Paul Freiman

Yes I would like to spend a little time talking about the fact that I announced my retirement several months back. This retirement process really is a succession process for a guy that is aging. I am now at the age of 74 years. I feel vigorous, happy and excited and I am really a great supporter of both NTI and Viprinex. I think my name is associated with Viprinex and I believe in it fully, wholly and totally.

We are in the process of recruiting for a replacement CEO. A couple of the members of our board plus myself are working with one of the traditional global headhunters. We are in the middle of the process of interviewing people and the end of that process will be announced when we find the right candidate. It is too early to really comment on the process, because we are in a screening mode at this point in time.

My biggest disappointment, frankly, is to see the collapse of the stock, but I honestly, honest to God, feel that there is great light at the end of this tunnel. We have an asset of product on our hands that is kind of the last player standing from a group of five products that existed only 2 ½ years ago. I am an optimist, but the fact of the matter is, when this interim analysis comes through we will know whether we truly have an asset or not. We are feeling pretty good about it and with that I would like to move over to Warren Wasiewski, who really is the man who is driving this process, so Warren when you share the, you will look at the futility analysis.

Warren Wasiewski, M.D

As Matt and Paul have both alluded to, we are in the throws of performing the interim analysis and just to give you an idea of what that incurs, or means for us to do is that we have, as we announced, enrolled the 500^th patient back in August. Those patients now have to go through their 90-day follow up period and at that point I will begin to complete collecting all of the data. The data then needs to be what we call cleaned on the database and then the data will be delivered to the DSMB to review.

The Data Safety Monitoring Board has looked at the data on a number of occasions for safety already. There were five safety reviews so far and as you all know they have always continued as planned. This will be the first time that the Data Monitoring Board will get a look at efficacy. So, they have a plan in their hands that tells them which aspects of the efficacy we are going to look at. Of course the primary endpoint is the most important one and they will determine whether or not the study is futile, meaning that there is no difference between placebo and ancrod in outcome or if it is in fact superior to ancrod.

There are three possible outcomes. The first one would be that the study is futile and that no matter how many more patients you enroll in the study you will never be able to demonstrate that ancrod is better than placebo. The second outcome is that we will be told to continue as planned, which means the study is not futile and that in fact there is some difference and the difference may be significant at the end of the studies and then finally, the drug is superior to placebo, and again there are guidelines set forth for them to declare superiority. At that point the drug is considered superior; we will be instructed to consider closing the studies down and discussing with the agency the next step forward.

This is an important step for this company. It is an important step for this compound and for the patients involved in the study and as Matt indicated, we will be delivering that to the market sometime the first quarter of ’09.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Stephen Dunn with Dawson James.

Stephen Dunn - Dawson James

I guess in August when enrollment was complete for 500 patients you probably stated that you would expect the interim futility analysis to occur in January and now I am hearing Q1. Is that a slip or do you still think it is earlier in Q1 or?

Paul Freiman

There is no slip at all.

Stephen Dunn - Dawson James

So would you still feel comfortable saying January then?

Paul Freiman

I would.

Stephen Dunn - Dawson James

We have reduced the number of patients at the interim point from 650 patients to 500 patients. I was wondering if you could give me some color on what statistical hit that would incur and what P-values we’re looking at; what the DSMV is going to be looking at for efficacy and non-futility?

Warren Wasiewski, M.D

Well if you take a look at the two studies, each study contributes a certain number of patients to the futility analysis and it’s a little bit, the ’05, ’02 study, which was ahead on enrollment of ’05, ‘03’s contributing about 40 or 50 patients more to the interim. So, when we apply them to the individual studies for the adjustment in the P-value to take the studies all the way to completion, there would be no hit on the P-value because the interim is being done fairly early in the program. In other words roughly 250 patients in each study up against 650 for the final, so there will be very little adjustment in the P-value at the end.

In terms of how the futility is determined, it is based on a percent difference between the treatment effect for ancrod versus placebo for a low treatment effect for futility, less than a certain amount, and a greater than treatment effect for superiority.

Stephen Dunn - Dawson James

When would investors expect to see an announcement? Obviously you are off and the options are it is futile so the trial is suspended. If it is not successful then you have the trial continues on. Will any of the P-values or any of the top line data be revealed even though the trial would still technically be blinded?

Warren Wasiewski, M.D

No, we remain blinded to the study as well, so we will not see any data, we will simply get a recommendation from the DSMV, unless we have declared superiority, at which point the company individuals can get a look at the data. This is usually not published in a press release, but if we have a press release that says ancrod is superior to placebo, I think that would be quiet informative, just on face value.

Stephen Dunn - Dawson James

I am sure it is a high hurdle, but what would the P-value be for basically superiority at this early stage?

Warren Wasiewski, M.D

Since we have combined the studies, the P-value that we would have to hit is around 0.03 or 0.04 to declare superiority and again that is depending on what the final number of patient is. Again because now we are combining the two studies to make the analysis and so it is a little bit different than doing it for a study where you have individual studies where you have the P-value that would have to be around 0.001. So it gets a little bit better in terms of hitting that.

Operator

Your last question comes from [Michael Allacoster] with Paradigm Capital Inc.

[Michael Allacoster] – Paradigm Capital Inc

What is the rate of admission into the study now as compared to say a year ago as a percentage? Is it double, was it 50% greater?

Paul Freiman

It has actually doubled over the past year.

[Michael Allacoster] – Paradigm Capital Inc

Looking past the mid-trial point is there any way to project out when you would hit the final target?

Warren Wasiewski, M.D

As Paul indicated we are sort of ramping up now. The enrollment is increasing and we are on target to do better this month than any other month. So, in terms of projecting out where we are going to end, I need a couple more weeks or maybe months to get a better feel for that because the rate is increasing and I don’t know where it is going to top out. We hope that it doesn’t top out too soon, but we’re still looking at trying to get the enrollment up to 40 to 60 patients a month.

As Paul said we are ahead of schedule for this month and we have already actually reached the targeted enrollment for this month, so we are way ahead. I am hoping that as the stroke season kicks in that things will continue to pick up and we can make some better estimates of that once we gat a couple of months of September, October under our belt.

Paul Freiman

I also think it is fair to say that we are looking pretty hard at ways to not only improve enrollment, but to look at the actual structure of the trials. We are doing that with outside consultants, with regulatory agencies and so forth. I think this is still a work in process in terms of what this trial will look like going forward.

I really can’t say anything more than that, other than to say as we fine tune or adjust we will let you know, but we are not going to kind of speculate on any adjustments that we are trying to make right now. When the deal is done we will let everybody know, but there may be ways to truncate this trial, there may not. We will see.

[Michael Allacoster] – Paradigm Capital Inc

Financially are we secure in seeing the trial through at this point?

Paul Freiman

At this point, since we don’t know how many patients we are going to wind up with in terms of trial design, again that is the work in process, I think it will be difficult to say whether we have enough cash or not. We do know we have enough cash to get us into 2010.

Matthew Loar

Right now cash looks like it’s into the third quarter of fiscal 2010, but I have to hedge that somewhat in that the faster we get patients coming in the lower the overall costs of the clinical trial are, although in the shorter terms the short-term use also increases with the higher number of patients. So I think next step is really to get through the interim and see what kind of impact that has on the enrollment and at that point we’ll be able to tell in a better position whether we have sufficient funds to get through to clinical trial or whether there is some kind of shortfall and we need to seek funds elsewhere.

Paul Freiman

I think Matt and Michael, one of the last acts that I am going to get involved with as the CEO of the company is once we have this interim analysis I think it triggers the possibilities, at least, of a working relationship with a major pharmaceutical company. It would require a positive interim, it would require our going forward, but I think it is such an important inflection point for this company that I wouldn’t think that if there is a shortfall in funds that we would not be working with a major pharmaceutical company somewhere along the line. Those deals tend to take a lot of time so this is a forward-looking statement in its truest sense of the word, but our ability to find non-dilutive financing gets enhanced by positive interim analysis.

Operator

There are no further questions.

Paul Freiman

Let me just wrap up following an Austin Powers sort of way where all the clichés come out. I was just thinking that the facts in the fire at the moment of truth have arrived. This drive for Viprinex is going to lead us to a go, no-go point in time very, very soon. This is the culmination of a lot of hard work. We are optimistic, but we are also blind, so we don’t know what we have out there in terms of efficacy. We feel pretty good about the safety, because we have passed through these five DSMV safety reviews and by the way, the next review, the interim analysis is the 60^th MV safety review, so yet another look.

So, from the standpoint of the light at the end of the tunnel I think it is there. We hope we can make a positive announcement come January. It will make a major difference in the outlook of this company’s future. Right now the depression around every small cap company is extreme; you can cut it with a knife.

I was at a Merriman conference yesterday where the gloom and doom was incredible, but I learned that over 130 small biotech companies like ours are now trading well below cash. It is not a good time for any company. It is certainly not a good time for biotech, but the market tends to adjust itself to good news and the market is looking for products in phase III to work and if we can show some evidence of that at the interim futility analysis, we will be ahead of the game.

Keep tuned, that is all I can say and we will again keep everybody very well informed as to what our next steps are going to be. Thank you all for joining us and let’s hope it is a better day than yesterday.

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