Windtree Therapeutics, Inc.
Q2 2013 Earnings Call Transcript

Published: 8 Aug 2013

[Operator:]

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Discovery Laboratories' Second Quarter 2013 Update Conference Call. [Operator Instructions] Mr. Tattory, you may begin your conference.

[John A. Tattory:]

Thank you, Melissa. Good morning, and thank you for joining today's call. This call will provide an overview of second quarter financial results, as well as a business update followed by Q&A. Before we start, I will read the safe harbor statement. Today's conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or the company's future financial performance. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from any future results expressed or implied by such statements, especially those inherent in the process of discovering, developing and commercializing our pipeline products. The listener is cautioned not to rely on these forward-looking statements. Actual results could vary materially from those described as a result of a number of factors, including those set forth in our 2012 annual report on Form 10-K and any subsequent SEC filings as they may have been amended. On the call today, will be Mr. John Cooper, Chief Executive Officer; Dr. Tom Miller, Senior Vice President and Chief Operating Officer; and Dr. Rusty Clayton, Senior Vice President, Research and Development. I would now like to turn the call over to John Cooper.

[John G. Cooper:]

Thanks, John. Good morning, everybody. Thank you for taking the time to spend time with us and get to know our company better. I'd like to start the call kind of in a way, taking a little reflection for a moment. We're coming through a very, very important inflection point for our company. As you saw in our press release this morning, yes, of course, we released the earnings and we released our financial picture, and there's really nothing in that financial picture that I'm sure changes people's views towards the company right now. I mean, we put together financings over the last couple of quarters to make sure the company is solid. We have brought on some very important investors into the company. We've been burning on average $10 million per quarter, and that will continue into the third quarter. But what that represents, quite frankly, is an investment into a capability that we've been, for lack of a better word, I'll say chopping up a bit for a long time to take it to reality. And that's the combination of having our SURFAXIN, our lead product SURFAXIN go into the market, into the neonatal community. And number two, the beginning of developing our aerosol platform, starting with AEROSURF for neonates with RDF. We've been wanting to do that for a long time, and the inflection points that I mentioned earlier are coming up in the fourth quarter. And in many ways, that's what this call is all about. That's what the value of this company is about, today and in the future. One would argue is the value reflected today? Well, those arguments could be made pro and con. We won't get into that. I do know one thing, though, and I think our management team knows one thing, and that is we need to make sure we execute accordingly. We need to make sure that the FDA is happy with what we're giving them in order for that value to show itself. Now we're also talking, not just value for the company, value for shareholders, value for employees, value for others. I mean, we're talking also of value for the neonatal community. Let's kind of put our company into perspective for a moment. What do we have? I'm repeating things that I think many people know already. For those who are new, I think it's worth going through it. I think it's really important. It sets the stage. What do we have? We have a technology that mimics the surfactants that we all have in our lungs, and that technology allows us to produce a synthetic peptide-containing surfactant that could be ultimately be applied to a number of respiratory diseases, most of them, of course, in the critical care setting. We also have developed, over the years, a capability in device technology that's predominantly focused on the ability to deliver our surfactants as an aerosol ultimately to patients. And where are we focused? We're focused first and foremost in the field of neonatology and, specifically, infants with respiratory distress syndrome. It's a market that's not, I think, very well understood. And again, I use the term market. It's also an area of medical need. It's an area that, quite frankly, has been the same for many, many years. Now is that a fair statement? Well, one could argue that. There have been attempts to make the practice of neonatology improved for better clinical outcomes. But those attempts have been predominantly focused around existing capabilities

[Operator:]

[Operator Instructions] Your first question comes from Scott Henry.

[Scott R. Henry:]

I appreciated the prepared remarks, it answered a lot of my questions, but I did have a couple just modeling as well. First of all, AFECTAIR, should we expect revenues in the third quarter of this year, when do you expect you'd start reporting revenues?

[Thomas F. Miller:]

Scott, Tom Miller here. So you may recall in our last investor update, we indicated that the key components or a key step for us is the user experience program. This is a very typical tactic that's employed with medical devices, giving -- particularly new medical devices for which there are no alternatives, where you give the accounts the opportunity to trial the product in a free goods program. We've indicated previously that our goal is to have about 10% of our target accounts actively participating in that program, and we are there at this point, as we indicated that we would. While we ultimately expect AFECTAIR to be perhaps order of magnitude, $10 million product, the key piece for us in the immediate short term was to recognize that it was another entry point in the account to drive the SURFAXIN business, and it's been a very successful companion product in that regard. So as we move forward with user experience, we do expect revenues to begin in the second half of the year. And as we complete the user experience program, as we move through the summer months, we'll be in a better position to provide more granular guidance. But the consensus estimates for AFECTAIR revenues for 2013 were somewhat de minimis, but we do expect to see initiation of revenues in the second half of this year.

[Scott R. Henry:]

Okay. And then when we look at spending for the quarter, should that be reflective of at least third quarter and I imagine, a slight increase in the fourth quarter, as you prepare or actively launching SURFAXIN? How should we think about the expense items going forward?

[John G. Cooper:]

Well, from the launch of SURFAXIN, keep in mind, the capabilities are already in place. So the sales and marketing team, the medical affairs team, they're in place. Those expenses are in our P&L. So from a third quarter perspective, I think what you just said was true. It's really the R&D numbers that get focused on in the future. And if you think about what we've accomplished so far, what we've been working on, we've been investing in a lyophilized capability, and we've been investing with Battelle in making sure that our capillary aerosol generator, both of those components are ready for AEROSURF. So those investments are basically sunk investments now and already incurred and showed themselves on our P&L. So I would tend to think you're looking at something that's relatively consistent with what the third quarter -- what the second quarter looked like for both the third and the fourth. Scott, as the expenses for AEROSURF, what I just described, decrease now, what will increase, and therefore keep R&D flat, is predominantly the beginning of the trial.

[Scott R. Henry:]

Okay, that's helpful. And the final modeling question, given the recent financings, the interest expense line, is that now relatively predictive of the number going forward? And as well shares outstanding, have they fully incorporated the recent financing? Just trying to get any idea on those 2 numbers as well?

[John G. Cooper:]

Yes. The information in the press release indicates how many shares are outstanding now, and the interest expense for the second quarter is reflective -- there's 2 components. One is the cash component that we paid to Deerfield, which is 8.75% on the outstanding debt. And the other piece is an accounting mechanism for the value of the warrants that is described as interest expense.

[Scott R. Henry:]

Okay. And the final question, a little more big picture, a little more subjective, when we think about the SURFAXIN decision in approximately 4 months in terms of getting that product ramped, how can you -- I mean what are the key risks to that event? I mean do you look at most of this as a formality of going through the process? Or are there any significant risks that perhaps we should be focusing on more?

[Russell G. Clayton:]

Scott, this is Rusty Clayton. I think that given that when we first submitted our request to alter some of the specifications in December, we did so in a way that certainly made sense to us and we understood the rationale. We provided a very comprehensive package. But you can never anticipate all of the questions that a reviewer might have in looking at this. And that's essentially what happened to us where there were -- there was a viewpoint of the reviewer that said, "Well, geez, instead of doing this, why don't you do this, and I'd like a clarification on this, and I'd like to see a little bit more." So just the process of going from a submission that you think makes sense and you think it's going to answer the question to be able to respond to comments and suggestions in a very positive way, yes, we'll take your suggestion. Yes, good comment or just a request for more data puts you in a better stead. So being in that position reduces the risk a great deal. It's much more of a known quantity. We could provide that information very easily. There were certainly no showstoppers or areas for concern for us. So being in that position is a very low risk position to start with. Now having said that, the risk is the same in concept is that there can always be another question. When you provide more data or you provide more information, there could be another question. It's not likely that, that's going to be the case. Here we had a team of external consultants that did our submission as well and looked at it very carefully, to make sure that we anticipated any questions. So I think that overall, and the team in general looks to this overall as something that really should be a very -- that we've reduced risk as much as possible, let me put it that way. I certainly can't verbalize any risk that's coming to mind here that's keeping me up at night.

[Operator:]

[Operator Instructions] Your next question comes from Joel Sendek with Stifel.

[Joel D. Sendek:]

One of the things you touched on, John, is the fact that you're having ongoing discussions with the FDA. There's been back and forth. I mean we're 2 months into the 4 months. Can you give us any feel for what those conversations are like, number one? And number two, I think I heard you say that you're ready to go the minute you get the green light. And let's say you get that, what wheels are in motion or what wheels will be in motion when that happens?

[John G. Cooper:]

Well, on the first part, no, we won't be providing any color. What we just know is that when the FDA asks questions and commentary, we make sure that we're there to support them. So there's been a review. We feel good about it. That's all we can say right now. With respect to the second part of your question, we're prepared. We've been prepared. We've built -- when you think about what it takes to launch a drug, we've built all of the components necessary to effectively do that. So if the FDA were to show up tomorrow with a letter indicating that we're free and clear, we're ready to move. We're ready to move from all facets. The sales team, the medical affairs team are working in concert with each other in preparing hospitals for SURFAXIN. The team under Tom Miller have put together the contracting -- the contractual capabilities. Very, very important from a national accounts perspective with -- both with the group purchasing organizations, our arrangements are in place with distributors. We've covered all aspects. We're ready to launch the product. Now with that said, what we would then do is once we have clearance, we will go into the manufacturing process, and then we'll initial the first vial and shortly thereafter. But we're ready to do all that.

[Joel D. Sendek:]

Okay. And then I think you kind of touched on this too, and it certainly says in the press release with regard to AEROSURF, and we always love it when a biotech company sends less than we had predicted, which extends your runway and that sort of thing. But I just want to make sure that it's crystal clear in my mind that you're moving forward with AEROSURF without any delays and maybe even -- is there a possibility of any kind of expedited pathway to move forward into Phase II?

[John G. Cooper:]

Well, we are moving forward at the moment without any delays. We don't see any delays. So everything is moving accordingly. Yes, the press release specifically did indicate investment in that area. And by doing so, that means we're moving forward. Now as far as expediting, our goal is to make sure that what we put in front of the FDA, and the way we begin our trial, has the utmost quality attached to it. So I think the way of expediting what we're going to do is most likely going to happen when we see results, should those results be positive, where we can begin to expedite the Phase IIb and then going into the Phase III process. But I don't see any way, at this point in time, to accelerate what we're doing, other than, most importantly, to make sure what we are doing is right. We pay attention to the details. We make sure that all facets of our program are solid and sound. And many companies, we fell victim to this many, many years ago, tried to expedite certain programs only to find out that they caused more problems in the end. So maybe one way of saying and answering your question is, we're making sure to the best of our ability that we're buttoned up so that the program can move forward according to plan.

[Operator:]

There are no further questions.

[John G. Cooper:]

Okay. Well, thank you, everybody, for your time. We really appreciate it. Our next conference call will most likely be when we hear from the FDA and also then thereafter, our third quarter call probably towards the end of October, early November. There should be a lot more commentary at that point in time. We can also enlighten everybody at that time about what our AEROSURF program will look like in more detail. So we look forward to that, and I thank everybody very much for your time and attention. Have a great summer.

[Operator:]

This concludes today's conference call. You may now disconnect.