Moleculin Biotech, Inc.
Q4 2007 Earnings Call Transcript

Published: 18 Mar 2008

[Operator:]

Good day ladies and gentlemen and welcome to the fourth quarter 2007, Metabasis Therapeutics Earnings Call. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I will now turn your call over to Ms. Constance Bienfait, Vice President of Investor Relations and Corporate Communications. Please proceed.

[Constance Bienfait:]

Thank you Judy. Good afternoon everyone and thank you joining us for a discussion of our fourth quarter and year end 2007 results. In a moment, John Beck, our Senior Vice President of Finance and CFO, will provide a review of our 2007 financials. After John's remarks, Dr. Paul Laikind, our President and CEO, will go over the events of the quarter and year and discuss some of our near term goals. We will then take your questions. Dr. Mark Erion, Executive Vice President of Research and Development and Chief Scientific Officer is also here to help answer your questions. Before we begin I would like to remind everyone that this call may include forward looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to be materially different from historical results or from any results expressed or implied by the forward-looking statements. Please refer to our SEC filings for a more detailed discussion of these risks. This conference call is taking place on March 17, 2008 at 4.30 p.m. eastern time. Please note that this information including forward-looking statements is accurate only as of this date. You can access our fourth quarter and year end earnings release on our website at www.mbasis.com. In addition this conference call is being webcast though the company's website and will be archived there for future reference. Now, I'd like to turn the call over to John Beck.

[John Beck:]

Thank you, Connie. Good afternoon everyone. Following is a brief overview of our full year 2007 financial results. Revenue for the year ended December 31, 2007 was $9 million, compared with $4.4 million in 2006. The $4.6 million increase was mainly due to $2.8 million increase in license fees and sponsored research revenue from our hepatitis C collaboration with Idenix. And $1.8 million upfront license fees received from Schering-Plough in connection with our former collaboration agreement for the development of Pradefovir for hepatitis B. Research and development expenses were $40.9 million for 2007, compared with $29.9 million for 2006. The $11 million increase was mainly due to increased clinical development costs for MB07803, MB07811 and MB07133, increased employee headcount and an increase in stock based compensation expense in 2007. General and administrative expenses for the year were $12.4 million compared with $11.3 million for 2006. The $1.1 million increase was primarily related to costs associated with an increase in general and administrative headcount and employee related expenses as compared to 2006. Stock-based compensation expense included in research and development and general and administrative expenses was $3.1 million and $1.9 million respectively in 2007 as compared to $1.9 million and $1.8 million respectively in 2006. The increase in 2007 was primarily related to the impact of annual employee option grants. Net interest income was $2.5 million for 2007 compared to net interest of $3.5 million in 2006. The $1 million decrease was due to lower interest income as a result of decreasing average cash balances for the twelve months ended December 31, 2007. Net loss for the year ended December 31, 2007 was $41.8 million or $1.37 per share compared to a net loss of $33.3 million or $1.15 per share for the prior year on approximately the same weighted average share count. As of December 31st, 2007, we had $42.4 million in cash and cash equivalents and securities available for sale as compared to $77.9 million as of December 31, 2006. The $35.5 million decrease was primarily due to the use of cash for operating activities. You may recall that our revised strategic plan contemplated securing non-diluted sources of additional funding in 2008 to augment our year-end 2007 cash position. We are pleased today to announce that on March 14, 2008, we entered into $5 million growth capital loan with our Oxford Finance Corporation. I'd like to now take a moment to compare certain actual year-end results to previously provided financial guidance and then provided forward-looking guidance for certain of our expected 2008 financial results. Our previously provided financial guidance indicated that we expected our year-end 2007 operating expenses to range between $55 million and $57 million and our year-end 2007 cash balance to be between $38 million and $40 million. Our actual operating expenses for the year ended December 31, 2007 were $53.4 million and our actual year-end 2007 cash balance was $42.4 million. The approximate $3 million positive variance in operating expenses in the corresponding positive cash balance variance in the mid range of our previously provided guidance was mainly due to greater than expected savings in clinical and preclinical costs arising from the cost containment efforts of our revised strategic plan and secondarily to minor delays in certain clinical activities which effectively moved a portion of these costs into 2008. With respect to 2008 and consistent with our previously announced revised strategic plan, we expect overall operating expenses to remain relatively unchanged from 2007 levels despite expected increasing costs associated with the continued clinical trials of MB07811. Accordingly, we anticipate 2008 operating expenses to range between $51 million and $56 million. Further we expect to receive significant cash inflows in 2008 from existing and forecasted new corporate collaborations as well as other sources of funding. However, excluding all inflows except the recently executed $5 million venture loan and contractually obligated proceed from existing corporate collaborations the company expects 2008 cash usage to range from $40 million to $45 million. I would now like to turn the call back over to Paul to discuss business progress and highlights.

[Paul Laikind:]

Okay, thanks John. I'll now update you all on the projects with an emphasis on our core metabolic disease program. I will also go over many exciting value driving milestones we expect to achieve during 2008. I'm going to start with MB07803. We look forward to soon discussing the results of our Phase 2a, 28-day proof of concept clinical trial on our second generation fructose-1,6-bisphosphatase inhibitor for the treatment of Type 2 diabetes MB07803. Full enrollment of over a 100 patients was achieved three weeks ago and we are on track to deliver top line results next quarter as planned. MB07803 is an oral product candidate for treating Type 2 diabetes that we discovered using our NuMimetic technology and is designed to inhibit gluconeogenesis by targeting the enzyme known as fructose-1,6-bisphosphatase. MB07803 has been selected as a second generation product candidate based on pre-clinical studies that showed it has a surely more favorable pharmacokinetic profile and enhanced potency compared to the first generation compound CS-917, which was discontinued last year in favor of MB07803. The improvements include once a day dosing, increased bioavailability, improved potency and reduced metabolism and variability. The results seen thus far in multiple completed Phase 1 trials are consistent with these findings. We believe that the results from our currently ongoing Phase 2a clinical trials MB07803 may provide evidence for the strong potential of this compound as an important new approach for treating diabetes with an improved profile relative to CS-917. We also expect to complete a potentially important trial this year that will provide initial information on the ability to combine 7803 with Metformin. We believe that the results from the key trial this year will support partnering efforts of MB07803, as well as provide the information needed to launch a Phase 2b clinical trial with three months dosing. On a related note we recently terminated the agreement we had with Daiichi Sankyo for the development and licensing of the first generation compound CS-917. As a result all rights and related material were returned to Metabasis. Although it's previously reported despite missing the primary end point a subgroup analysis of CS-917 Phase 2b trial that Daiichi Sankyo completed last year, provides evidence of efficacy. Metabasis does not plan to continue development of CS917, given the progress we have been making with MB07803. Still, the data and information that is being transferred back to us is important, as we continue to develop MB07803 and helpful, as we seek a strategic partner for this potentially important approach to treating diabetes. I will now move on to a product candidate that is generating a lot interest for both scientific and commercial reasons, MB07811. MB07811 is our internally discovered product candidate for the treatment of hyperlipidemia. If approved, MB07811 could be an important new approach, which may help patients better reach targeted cholesterol levels, either as first-line therapy or in combination with statins, while simultaneously reducing serum and liver triglyceride with Lp(a) level. MB07811 is an internally discovered HepDirect pro drug of a novel TR beta receptor agonist, that is designed to deliver the agonist to the site, or cholesterol that's producing [metabolized] the liver. While reducing the exposure of the agonist to other tissues, this last point is important. Just getting a TR beta Agonist delivered is not enough in our opinion. It's important to limit its activity to that organ. The combination of proprietary HepDirect technology and structural features we built into the agonist itself is designed to do just that. We believe that liver targeting may help us avoid safety concerns previously seen with other TR beta agonists, and thus unlock the therapeutic potential of this approach. Data suggests that MB07811 could be an effective approach for lowering cholesterol with the added benefit of reducing serum triglycerides, as well as lipoprotein A. In addition, MB07811 has shown the reduced liver fat in certain animal models, a condition that may be associated with the increased risk of diabetes and chronic liver disease. Importantly, based on preclinical studies and a variety of species, including primates, MB07811 appears top have an added effect in reducing cholesterol when used with statins. MBO7811 has successfully completed a rising single dose Phase 1a clinical trial in healthy volunteers. We initiated a rising multiple dose Phase 1b clinical trial in the second quarter of 2007 that was designed to evaluate the safety and tolerability of MB07811 in healthy volunteers with modestly elevated cholesterol. The goal of the current Phase 1b clinical trial to evaluate the dose that could be administered without evoking a therapy limiting side effects. Recently, we announced preliminary results from this ongoing trial, that indicate MB07811 was safe and well tolerated at the first four dose escalations, dose cohorts. Each cohort included 8 volunteers, two on placebo and six who received 07811. We also evaluated the efficacy of MB07811 at the first four dose study. While these observations should be considered preliminary, the results were encouraging with clinically relevant reductions in LDL cholesterol and triglycerides observed relative to the changes seen in patient treated with placebo. Based on the finding that the first four doses were safe and well tolerated, we are able to initiate and have now completed a fifth dose cohort and are now dosing a sixth. There has been some confusion regarding the reason for continuing to escalate the dose in this trial. The purpose of this trial is to determine the range of doses at which 07811 is considered safe and well tolerated. The goal is to define as broad a dose range as possible. Thus the higher we can go safely, the better. This will allow us to select the doses for further study and also help us to understand the potential therapeutic index for the product candidate. Depending on how many additional dose escalations we conduct, we expect to complete this trial around the middle of this year and we will report final results after all dosing cohorts are completed. In the meantime, we are gearing up to initiate an important 12-week Phase 2a proof-of-concept clinical trial around the middle of this year. Also, before the end of the year, we expect to complete an important drug interaction trial, to show that MBO7811 could be used in combination with a statin. Okay, I'm now going to turn and talk about our non-core liver product candidates, and give an update on those. As previously reviewed, we are focusing the majority of our internal resources on our core metabolic disease assets. However, we remain enthusiastic regarding the potential of our non-core liver disease product candidates, MB07133 and Pradefovir for primary liver cancer and hepatitis B respectively, and we look forward to seeing the developments of these products continue. We intend to license both these candidates. MB07133 has successfully completed the Phase 1, 2 clinical trials designed to evaluate the safety and preliminary efficacy in non-terminal patients with primary liver cancer. Last year, we received Orphan Drug Designation from both the FDA and European Commission for MB07133, and we are finalizing plans for the next step in the clinical development of the candidate. We are planning to license MB07133 and have the next trial, likely a combination trial with Nexavar, initiated by the licensee. Licensing discussions for 07133 are underway. Pradefovir, is the company's product candidate for the treatment of hepatitis B, that successfully completed a Phase 2b clinical trial. As previously reported, Schering-Plough like did not proceed with the development of Pradefovir, and has now returned all rights and related assets to us, subject to certain milestone royalty payments we may require to make to our former partner Valeant should Pradefovir be developed. At this time we do not intent to independently develop Pradefovir as we discussed previously, but we do intend to license this product candidate for further development and commercialization pending the final outcome of an evaluation of data that was returned to us from Schering that we are conducting right now. Finally, the same talented team that discovered each of our current development candidates is currently working on a number of important metabolic disease advanced research programs. As a result, Metabasis is poised to recommend up two more product candidates from development this year. The first is likely to be a metabolic disease program focused on developing glucagon antagonists for treating Type 2 diabetes. Type 2 diabetes has long been considered a bihormonal disorder with the insulin-dependency or insensitivity and a relative glucagon excess. Glucagon opposes the action of insulin leading to an inappropriate increase in glucose production by levering other metabolic disturbances. We have an advance research program focusing on identifying chemically novel potent orally by available glucagon antagonists for treating Type 2 diabetes. Our most advanced compound has shown significant consistent lowering like glucose, when dosed orally in numerous diabetic animal models. Finding an affective and orally active glucagon antagonist has been a goal for many companies; that's why our work has attracted intensively, a number of prominent pharmaceutical companies. We have opened discussions with many of these companies and we are actively seeking a strategic partner to help us maximize benefit of our work in this area and further support our metabolic disease efforts. We also have an advanced research program to identify a second generation TR beta agonist for treating hyperlipidemia. This program may yield additional development candidates at lower cholesterol and triglycerides by the same mechanism as MB07811, but with potential improvements. Finally, we have an advanced research program being conducted in collaboration with Merck, which is focused on identifying drug candidates that activate AMPK to treat Type 2 diabetes and potentially other metabolic diseases. AMPK is an enzyme that plays an important role in regulating carbohydrate and fat metabolism. Activation of AMPK switches cellular metabolism from an energy consuming state to an energy sparing one. Accordingly diseases manifested through overproduction of biochemical end products by energy consuming pathways, such as glucose, cholesterol, fatty acids and triglycerides, are potential disease targets for AMPK activators. This program may yield additional development candidates to further expand our product pipeline. All of our clinical candidates along with the promising preclinical candidates, not only represent a significant development pipeline we have, but also represent potential partnering opportunities. We have an excellent opportunity to establish important strategic partnerships that will allow us to accelerate the development of our portfolio while participating in the value creation. In fact, we already have significant interest from potential partners for each of our products both core and non-core. So just as I finish up here and to recap the goals for 2008, with regards to MB07803 our clinical candidate for Type 2 diabetes; we're looking forward to completing the 28-day proof-of-concept Phase 2a clinical trial and reporting out the data. As we said we've completed enrollment in that trial and expect to report the top line results in the second quarter and we also expect to complete a Metformin drug interaction clinical trial this year. With regards to 7811 our drug for hyperlipidemia we're looking forward to completing the 14-day Phase 1b clinical trial that we've given some preliminary results on and report top line results on that trial around mid-year and are very much looking forward to initiating this Phase 2a proof-of-concept clinical trial again towards the middle of the year and completing a statin drug/drug interaction clinical trial. With regards to MB07133 and Pradefovir to liver focused non-core assets we're in the process of seeking licenses for those programs. In terms of discovery, we are looking to recommend the glucagon antagonist for clinical development and also recommend a second generation TR beta agonist for clinical development. And on the business development side, we expect to complete one or more strategic partnerships on our discovery program, as well as on our non-core assets. In closing let me reiterate our expectation that 2008 will be an exciting year for Metabasis and their shareholders with a number of important value driving milestones and events as the pipe line progresses as data is made available and its partnerships are merged. Metabasis has many important assets including multiple product candidates at the clinical stage of testing and additional preclinical candidates expected to enter development soon to address the important Metabasis disease category and we invite you to follow our progress. With that I would like to turn it back to the operator and open the call for questions.

[Operator:]

(Operator Instructions) Your first question will be from the line of Vernon Bernardino of Rodman & Renshaw.

[Vernon Bernardino:]

Hi everyone. Thanks for taking my question.

[Paul Laikind:]

Hi Vernon

[Vernon Bernardino:]

Hi. Just wondering if there are any plans and when would you plan to disclose any more data on the data you received from Daiichi Sankyo on CS-917?

[Paul Laikind:]

We gave a pretty thorough review of that, wherein at the last earnings call, the third quarter earnings call. I don't think there is too much more to review on that at this point.

[Vernon Bernardino:]

Okay. So there are no plans?

[Paul Laikind:]

Yeah, we don't have any further plans to go over that data at this time.

[Vernon Bernardino:]

Okay. And then do you still have plans, I know the timing is tight, but plans to try to submit the 07803 data for the Late-Breaker at ADA, or have you just decided to release top line?

[John Beck:]

Yeah, obviously we are going to release top line results, and we are looking for the best avenue in which to release the 07803 data. It's possible that obviously we will be at the ADA and able to discuss the top line results; how far we will go beyond that, we haven't decided yet. Certainly our goal right now is to release this data as soon as we can at the most appropriate place.

[Vernon Bernardino:]

All right. And one last follow-up if I may. At what stage are the efforts optimization still preclinical with the Glucagon Antagonist, as well the Merck AMPK program on product candidates?

[Paul Laikind:]

Well, those are two separate product programs, it will start with Glucagon.

[John Beck:]

So we have fairly substantial effort in the discovery group on the optimization of the Glucagon Antagonist project and our view is during the course of this year, we expect to find that development candidate as Paul mentioned. And I think we can say that with some degree of confidence, based on the compound series that we have discovered at this point. How well it's been characterized, both in in-vitro and in a variety of different animal models and some early safety studies, and I think all of that suggests, based on our experience, that we should be in a good position to identify that compound and nominate for development later this year. On the AMPK side, really can't comment too much on that, because of the sensitivity. Fact is the program is partnered with Merck, and I can say that I think the two teams have worked extremely well together. We remain very excited, as I believe, our partner is doing well on the AMPK program and we remain optimistic that we will find a development candidate in that program.

[Vernon Bernardino:]

Great. Looking forward to 2008. Thanks for taking my questions.

[Paul Laikind:]

Thanks.

[Operator:]

Your next question will be from the line of Andrew Fein of Collins Stewart. Please proceed.

[Paul Laikind:]

Hi, Andrew.

[Caroline Meller:]

Hi, it's actually Caroline. We just wanted to hear your thoughts on how far you intend to take 07811 as well as 07803 into the clinic before considering partnering opportunities?

[Paul Laikind:]

Yeah, it's a good question. With regards to 07803, we really look at both programs and say what data set do we think makes the most sense to drive the most value for these projects? In both cases, when you're talking about a diabetics compound or a hyperlipidemia compound, you clearly are going to need a partner to maximize the value of these projects for the company. So, it's all a matter of timing. As we look at 07803, we believe that having the Phase 2 proof-of-concepts data, the 28-day data, which we have now completed the stay, we completed enrolled on. Having that data in hand, which we expect to have next quarter. We also think that the Metformin drug/drug interaction study will be an important one for partnering. Those pieces of data will support partnering. So, we haven't gone out and thrown a wide net yet in terms of partnering 07803. Although, we have had a few companies, big companies have come to us and we've given our current situation, we decided to be opportunistic on that and opened discussions with those companies. So we do have some going on now. But once we have the Phase 2 data in hand, next quarter we expect to throw a much broader net on that project in terms of finding a partner. 07811, same concept. But in that case where we really think the data is going to drive a very strong kind of transforming partnership, would be having the data from the Phase 1 study that we are completing right now, showing we hope a wide dosing range that can be given safely and be well tolerated with this. And then coupling that with the Phase 2 data that we expect to be generating the second half of this year, and then finally a drug/drug interaction study with a statin, showing that it can be used in combination with a statin, that coupled with the primary data and all we have that shows that it is effective with the statin and what's known about thyroid hormones. We think that then makes a very strong package for doing a partnership on that. So we would expect towards the end of the second half of this year be out, initiating those discussions with the idea that we would be potentially closing a partnership on that after we have that dataset in hand. So, does that answer your question?

[Caroline Meller:]

Yeah, thank you.

[Operator:]

Your next questions will be from the line of Salveen Kochnover of Jefferies. Please proceed.

[Salveen Kochnover:]

Great. Thank you for taking my questions. Paul for 07811, could you disclose the doses under evaluation in the fifth and sixth cohorts?

[Paul Laikind:]

Sure, I'll let Howard do that.

[Howard Foyt:]

You recall, the four cohorts we discussed previously went up to 5 milligrams. In the fifth cohort we went with 10 milligrams, and the sixth cohort we're going with 20 milligrams.

[Paul Laikind:]

We are obviously defining a pretty broad dose range at this point, 0.25 milligrams.

[Salveen Kochnover:]

Okay, thank you.

[Operator:]

(Operator Instructions). Your next question will be from the line of Leah Hartman of CRT Capital. Please proceed.

[Leah Hartman:]

Thanks for taking the call and thank you for the disclosure. There are so many programs, so that's very helpful. I was hoping that you could review your expected presence at upcoming conferences throughout the rest of '08?

[John Beck:]

Well as I mentioned it depends on the timing of our results in 7803 and a variety of other factors when we'll be able to really come out with that data. Our plan is to get into a conference that we think is appropriate for the study and we fully intend to have that announced sometime during the course of this year, but we have not defined which conference we're sure we would present that. In terms of the 7811 initial Phase 1 study we are looking at the conference we presented at last year the ATA conference and that would certainly be one that we would potentially target possibly also AHA.

[Paul Laikind:]

And we've other publications.

[John Beck:]

Well just to remind, we have a variety of different publications that have been submitted or being submitted on the program itself that I think will give good color in terms of the strategy as well as the results of the final list pre-clinically. Now as we expect to be coming out over the course of this year.

[Leah Hartman:]

Okay got it terrific. And then turning back to the financial guidance John I wasn't sure if I got it correctly the $48 million or $45 million of cash burn expected for '08 excluded the $5 million gross loan that you just received this month and was that also excluding any prospective dollars from new partnerships?

[Paul Laikind:]

Well no actually the $40 million to $45 million that we provided, actually included the inflow from that $5 million of gross capital loan. It really only includes those items that are in the bank or contractually obligated now. For example, we have certain contractually obligated sponsored research payments from our AMPK collaboration with Merck. Those are included, but it's not speculative, it doesn't include any of the other things that we've talked about like additional corporate partnerships. Any additional financing.

[Leah Hartman:]

Okay. That was helpful. I just missed the direction on the loan. And then just for conservatives, and it may be in the K that you filed tonight, about the securities available for sale. Nice safe liquid instruments.

[John Beck:]

You know there were no auction rate securities, nothing that is any way related to some of the troubled institutions. We actually checked that today.

[Leah Hartman:]

Great. That's good to know and not all of your peers are in that good shape. So congratulations, and we look forward to the upcoming calls.

[Paul Laikind:]

I would like to add one last thing in terms of your question related to the conferences.

[Leah Hartman:]

Yeah.

[Paul Laikind:]

We actually have two oral presentations coming up in the first half of this year on preclinical data with 07831, at the American Chemical Society meeting, where there is going to be a preliminary lecture describing the program, the design of the compound. And then we also know they need an oral presentation at the American Diabetes Association. Both of those talks are primarily focused on the preclinical data.

[Leah Hartman:]

Okay. That's helpful. Thank you.

[Operator:]

And we have no more questions at this time. I would turn the call back over to Dr. Paul Laikind for closing remarks.

[Paul Laikind:]

Okay. Well in closing, let me just thank everybody for being on the call today. We are very excited about the potential projects and data that we are going to be seeing in 2008 and look forward to giving an update on the next call. Thank you.

[Operator:]

Thank you for your participation in today's conference. This concludes our presentation and you may now disconnect. Have a great day.