Arrowhead Pharmaceuticals, Inc.
Q3 2009 Earnings Call Transcript

Published: 11 Aug 2009

[Operator:]

Good afternoon ladies and gentlemen. Thank you so much for standing by. Welcome to the Arrowhead Research third quarter fiscal year 2009 conference call. (Operator Instructions) I will now turn the conference over to Ms. Brandi Floberg with The Piacente Group. Please go ahead.

[Brandi Floberg:]

Thank you, operator. Good afternoon everyone, and thank you for joining us today to discuss Arrowhead Financial results for the fiscal third quarter ended June 30, 2009. With us today from management are President and CEO, Dr. Christopher Anzalone and Chief Financial Officer, Paul McDonnel. The management will provide a brief overview of the quarter and we’ll then open the call up to your questions. Also on the call for participation in the Q&A session is Dr. Mark Tilley from Unidym and Thomas Schluep, Chief Scientific Officer from Calando. Before we begin, I would like to remind you that comments made during today’s call may contain certain forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact including without limitation those with respect to Arrowhead’s goals, plans, and strategies are forward-looking statements. Without limiting the generality of the foregoing words such as may, will, expect, believe, anticipate, intend, could, estimate, or continue or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of Arrowhead’s future financial performance, trends in businesses, or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements represent managements’ current expectations and are inherently uncertain. You should also refer to the discussions under Risk Factors in Arrowhead’s annual report on Form 10-K and the Company’s quarterly reports on Form 10-Q for additional matters to be considered in this regard. Thus, actual results may differ materially. Arrowhead undertakes no duty to update any of the forward-looking statements discussed on today’s call. With that said, I would like to turn over the call to Dr. Chris Anzalone, President and CEO of the company. Chris?

[Christopher Anzalone:]

Thanks Brandi. Good afternoon everyone, and thank you for joining us on our call today. Over the past year, one of our key initiatives has been to refine our business model and to take a more active role in controlling the operations of our subsidiaries to more effectively manage the business. These moves have been both defensive and offensive in nature, and that they are a reaction to the deterioration of the capital markets, but also intended to enable our companies to move more quickly and efficiently to market. Over the past quarters, in particular, we have made tremendous headway accomplishing this transformation to streamline our business. During the fiscal third quarter and subsequent to its close we believe we have made significant progress on a number of fronts, including the following

[Paul McDonnel:]

Thank you, Chris. As we reported earlier today, on a consolidated basis, Arrowhead finished its third fiscal quarter ended June 30, 2009, with a consolidated net loss of $2.5 million compared to a consolidated net loss of $7.5 million for the same period in the prior year. On a consolidated basis, net cash used in operating activities during the quarter totaled $1.5 million compared to $7.7 million for the same quarter of the prior year. Cash and receivables on hand as of June 30, totaled approximately $2.3 million compared to $10.2 million as of September 30, 2008, the end of the last fiscal year over nine months ago. The head count reductions and cost saving actions taken since the end of the last fiscal year and throughout the first three quarters of the current fiscal year, resulted in a $5.1 million reduction in total operating expenses in the current quarter compared to the same quarter in the prior year. Including the recently completed offerings Arrowhead has raised approximately $7.3 million of cash from outside investments since the beginning of the current fiscal year. During the third quarter Unidym and Calando negotiated a conversion of a combined $3.6 million in debt to equity. Another $500,000 of consolidated debt was converted to equity after the end of the quarter. Arrowhead’s stockholder equity increased to net $3.3 million during the quarter, bringing the total consolidated stockholders’ equity balance to $3.7 million as of June 30. During the quarter, the company had consolidated operating expenses of $4.96 million compared to $10.1 million in the year ago period. The 51% decline in operating expense is attributable to the head count and other cost saving actions mentioned earlier. Calando’s cash required for its research and development activities was approximately $1.6 million during the third quarter compared to $1.8 million of cash required during the second quarter or an 11% decline quarter-to-quarter. Of the $1.6 million in cash required by Calando’s at operations during the quarter, over $600,000 were used to satisfy payables and include expenses from the prior quarter. As Chris has highlighted, Calando’s expenses and its resulting cash demands are expected to continue to decrease as Calando utilizes the benefits of its partnership and licensing initiatives and the closure of its Pasadena facility. Consolidated operating expenses also included a $1.7 million non-cash charge to record purchased and processed research and development. This charge is the result of Arrowhead issuing Arrowhead’s stock to acquire additional shares in Unidym from Unidym right order stockholders. Unidym’s cash required by operations was approximately $830,000 in the third quarter, compared to $1.7 million during the second quarter and $2.4 million in the first quarter of the fiscal year. If we exclude the one time benefit of the $700,000 of cash received from the sale of [Insize] and the $200,000 from licensing of certain intellectual proprietary during the first quarter, Unidym has reduced its quarterly cash consumption by nearly $2.4 million since the beginning of the fiscal year. This represents a greater than 70% decrease in cash required by operations of Unidym. The decrease in cash required by operations was due to the elimination and the closure of two Texas facilities, reductions in head count, reductions in salaries and other cost containment measures, and we anticipate Unidym’s cash burn to continue to decline. I’ll now turn the call over to Chris for concluding remarks.

[Christopher Anzalone:]

Thanks Paul. Before opening the call for questions, I would like to thank Paul for his exceptional work with the company. Last month we announced that he will be leaving Arrowhead to assume an operational role in a company out of state. While we certainly will miss Paul, it is a fantastic opportunity and a one on which he will excel certainly. I would like to take a moment to thank him for his contributions for the company and his assistance through our quarterly reporting cycle. It has been a true pleasure working with Paul and we are pleased that he will continue to have access to him as a consultant as needed as we look for a replacement CFO. In the interim, we welcome back Joseph T. Kingsley into the company who has joined our team as Vice President of Finance and Accounting, as you may recall Ted is Arrowhead’s former President and CFO and we expect him to be our interim CFO while we look for permanent replacement. We are extremely excited about the near term opportunities of our subsidiaries. As we look to the next stage of Arrowhead’s evolution we are optimistic that our more mature subsidiaries, Unidym and Calando, will serve as near term value drivers for our shareholders while we develop follow-on value engines such as Nanotope. I believe that these three companies are highly representative of our model. One, we look to develop platform technologies that maybe monetized across multiple markets or product offerings to effectively give us multiple short-term goal. Two, we look to address large and current market opportunities. Three, we are maximizing the efficiency of our structure to create lean businesses capable of growing with limited capital, and four we are increasing the leveraging of established partners to limit our capital requirements and speed on to market. We remain highly optimistic about the transformative nature of nano technology in general and about the growth prospects of our subsidiaries in particular. We believe that our model and current assets are well positioned to create significant shareholder value in a short as well as long-term. With that I would like to open the call to questions. Operator.

[Operator:]

(Operator Instructions) There do not appear to be any questions at this time. With that this will conclude today’s conference. We do thank you very much for your participation. If you would like to listen to a replay of today’s conference, you could do so by dialing 1800-406-7325 or 303-590-3030 and put the access code 4134570. We thank you very much for your participation. Have a very pleasant rest of your day.