XOMA Corporation
Q4 2009 Earnings Call Transcript

Published: 12 Mar 2010

[Operator:]

Good day, ladies and gentlemen, and welcome to XOMA Limited fourth quarter 2009 financial results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator instructions) As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Carol DeGuzman, Senior Director of Investor Relations.

[Carol DeGuzman:]

Thank you, operator. Good morning and welcome to XOMA’s call today. Some 30 minutes ago, we issued a news release, which included our financial results for the fourth quarter and 12 months ended December 31, 2009 and a general business update. Our annual report on Form 10-K has been filed with the Securities and Exchange Commission this afternoon. Each document will be available on the XOMA website, www.xoma.com. Today’s webcast can be accessed via our website and will be available for replay until the close of business on May 11, 2010. The telephone replay will be available beginning later today until the close of business on March 18. Access numbers for the replay are listed in today’s news release. On today’s call will be Steven Engle, Chairman and Chief Executive Officer, and Fred Kurland, Vice President and Chief Financial Officer. Also joining us today is Dr. Allen Solinger, our Vice President of Clinical Immunology. We wish to remind all listeners that certain statements concerning conduct or availability of results of clinical trials, entry into a XOMA 052 development partnership or potential licensing and collaboration arrangements or other aspects of product development, or that otherwise relate to future periods, are 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. These statements are based on assumptions that may not prove accurate. Actual results could differ materially from those anticipated due to certain risks inherent in the biotechnology industry and for companies engaged in the development of new products in a regulated market. Among other things, the conduct or availability of results of clinical trials may be impacted by, or delayed or may never occur as a result of, unavailability of resources, actions or inaction by our present or future collaboration partners, insufficient enrollment in such trials or unanticipated safety issues; and a XOMA 052 may not be entered into in the timeframes indicated or at all. These and other risks, including those related to inability to comply with NASDAQ's continued listing requirements; the generally unstable nature of current economic conditions; the results of discovery research and preclinical testing; the timing or results of pending and future clinical trials, including the design and progress of clinical trials; safety and efficacy of the products being tested; action, inaction or delay by the FDA, European or other regulators or their advisory bodies; and analysis or interpretation by, or submission to, these entities or others of scientific data; uncertainties regarding the status of biotechnology patents; uncertainties as to the cost of protecting intellectual property; changes in the status of the existing collaborative and licensing relationships; the ability of collaborators, licensees and other third parties to meet their obligations; market demand for products; scale up and marketing capabilities; competition; international operations; share price volatility; XOMA's financing needs and opportunities; and risks associated with XOMA's status as a Bermuda company, are described in more detail in XOMA's most recent annual report on Form 10-K and in other SEC filings. Consider such risks carefully in considering XOMA's prospects. I will now turn the call over to Steven Engle, XOMA’s Chairman and Chief Executive Officer.

[Steven Engle:]

Thank you, Carol. Good afternoon, everyone, and thank you for joining our call today. XOMA is leading the charge for targeting the pro-inflammatory cytokine, interleukin-1 for the treatment of diseases, Type 2 diabetes, cardiovascular and other. XOMA today is in an excellent position to ride the wave of increasing excitement in the scientific and medical communities for the role of IL-1 targeting as a general anti-inflammatory approach to a wide range of disease. This year and next, we expect to see substantial news flow with important new clinical results from IL-1 targeting agents announced from companies including Novartis, Lilly, and Regeneron, as well as from XOMA itself. At the same time, the number of scientific publications demonstrating the potential of IL-1 targeting in diseases ranging from cardio-metabolic disease to auto-inflammatory diseases to cancer to transplantation is growing every week. Moreover, we aren’t just riding the wave. We are playing an important role in creating it, as evidenced by the substantial progress with our anti-IL-1 beta monoclonal antibody XOMA 052. Last July, we announced positive Phase 1 clinical results demonstrating that diabetes patients treated with XOMA 052 exhibited reductions in glycosylated hemoglobin levels or HbA1c. Reduction in A1c is the key endpoint that the FDA uses to judge success in Phase 3 trials in diabetes. We were also pleased to see favorable effects on other diabetic outcomes and on markers of cardiovascular risk and an excellent safety profile. We’ve now moved on to the next step, our Phase 2 program, that is designed to generate data from longer treatment periods, different dosing schedules and larger patient populations to fully understand how XOMA 052 would work as a therapy for Type 2 diabetes. I will now discuss the two trials that are the centerpiece for Phase 2 diabetes program. The Phase 2a trial is an 80-patient extended safety study, in which 60 patients will receive XOMA 052 and 20 will receive placebo. All the patients on XOMA 042 treatment will receive the same dose of XOMA 052 for the first three months and then will have been pre-randomized the same, a higher or a lower dose for another three months. Diabetic outcomes to be measured with will include hemoglobin A1c and fasting blood glucose. We will also evaluate inflammatory biomarkers, including C-reactive protein or CRP. We expect, as a result of an interim analysis from the first three months treatment in the fourth quarter of this year, the larger Phase 2b trial will enroll 325 patients who will be randomized to one of four doses, the XOMA 052 or placebo, dosed monthly or six months. The patients must be on stable metformin therapy, which is the standard of care for initial treatment of diabetes. The primary endpoint of the study will be mean change to very fine in hemoglobin A1c at six months. Secondary outcomes will include additional diabetic inflammatory cardiovascular disease markers. We anticipate the topline results will be available in the first quarter of next year. The Phase 2 trials were designed after multiple discussions with internationally recognized thought-leaders in the fields of endocrinology and cardio-metabolic disease. We have also met with the premium leaders of the cardiovascular field and gain valuable insights and recommendations for our emerging XOMA 052 cardiovascular disease program. We announced late last year our intention to broaden the XOMA 052 program to include studying the effects of IL-1 targeting in the treatment of multiple cardiovascular diseases. The strategy was based on work conducted both at XOMA and in other labs. We expect to build upon this work and present new clinical results at major medical meetings throughout 2010. This coming weekend, results will be presented at the American College of Cardiology meeting on an animal model simulating heart attack. It will show the effect of XOMA 052 in reducing the adverse consequence of cardiac remodeling that can lead to congestive heart failure. We also expect to see the first clinical results of IL-1 targeting with anakinra in heart attack patients at the ACC meeting this weekend. Dr. Antonio Abbate of Virginia Commonwealth University was the principal investigator for both the anakinra clinical trial and the XOMA 052 animal study. The abstracts of the ACC meeting just became available today on the ACC website. Needless to say, we are tremendous excited about the XOMA 052 program and look forward to sharing our results of the program throughout 2010. Before I hand the call over to Fred Kurland to discuss our financial results, I want to outline the progress we made in other areas of our business. XOMA today is a leading independent monoclonal antibody developer. Our technology has generated proprietary pipeline, including XOMA 052. Our technology also provides revenues from product discovery, development and licensing collaborations by growing biodefense business and royalties. We have made much progress towards achieving our objective of refocusing the company on proprietary product development. We have made this progress in difficult circumstances and included the removal Raptiva from the market in early 2009 as well as the particularly challenging economic environment. I’m pleased to say that XOMA entered 2010 with an improved financial position compared to the beginning of 2009, a stronger, cleaner balance sheet and having a substantial clinical progress with XOMA 052. We also advanced our XOMA 3AB anti-botulism antibody for biodefense into pre-IND studies and continued to develop our proprietary preclinical pipeline in inflammatory, cardio-metabolic, infectious and oncologic diseases. With this brief summary, I will turn the call over to Fred to review our financials.

[Fred Kurland:]

Thanks, Steve. XOMA had record total revenues in 2009 of $98.4 million compared with $68 million in 2008. Total revenues in 2009 included $43.8 million in license and collaborative fees, $25.5 million in contract and other revenue, and $29.1 million in royalty income. In 2008, revenues included $16.4 million in license and collaborative fees, $30.5 million in contract and other revenue, and $21.1 million in royalties. XOMA's research and development expense in 2009 was $58.1million compared with $82.6 million in 2008. This decrease was due to reduced personnel costs as a result of the January 2009 workforce reduction and multiple additional cost control initiatives. Selling, general and administrative expenses in 2009 were $23.7 million compared with $24.1 million in the year earlier. As Steve mentioned, in September 2009, we fully repaid the Goldman Sachs loan, including the outstanding principal balance of $42 million, accrued interest of $2.4 million, and a prepayment penalty of $2.5 million. With this repayment, XOMA's sole long-term debt obligation at the end of 2009 was a $13.3 million long-term note into Novartis. This note was established to facilitate XOMA's participation in its collaboration with Novartis, including the development of the HCD 122 antibody. The Novartis loan is secured by XOMA's interest in the collaboration and is due in 2015. Cash provided by operating activities during 2009 was $7.4 million compared with cash used in operating activities of $33.0 million in 2008. This change is primarily due to the sale of the LUCENTIS royalty interest to Genentech and license and collaborative fees. In December 2009, we had cash, cash equivalents and short-term investments of $23.9 million compared with $10.8 million at December 31, 2008. In January and February of 2010, we received approximately $21 million in proceeds from financing transactions, after underwriting discounts, expenses and an amendment fee to certain existing warrant holders. Consistent with last year, we will not be providing guidance on revenues or cash receipts for 2010 so as to best manage our ongoing negotiations for XOMA 052 and technology licensing. The company expects the cash used in operating activities may range from $45 million to cash neutral or positive. As previously announced, in September 2009, we received notice from NASDAQ that we were out of compliance with the $1 per share bid price required by NASDAQ’s continued listing rules and that we have until March 15, 2010 to regain compliance. We anticipate receiving a letter from NASDAQ on or shortly after March 16th, indicating that we have not regained compliance with this requirement. We intend to request a hearing before the NASDAQ Listing Qualifications Panel, which request will stay de-listing pending the panel’s decision following the hearing. At the hearing, XOMA intends to request continued listing based on a plan for regaining compliance. Although the panel has the authority to grant the company up to an additional 180 days from the date of the forthcoming NASDAQ notice to implement its plan, there can be no assurance that the panel will grant XOMA’s request for continued listing. We will advise you of the results of this hearing. I’ll now turn the call back to Steve for some final comments.

[Steven Engle:]

Thanks, Fred. As you can see, we made significant progress in 2009, closing the year with our highest revenues ever. More importantly, the progress we made in our IL-1 program has built value in XOMA 052, the therapeutic candidate that has meant the potential to treat many diseases, including Type 2 diabetes and cardiovascular disease. With our continued efforts to build other areas of the business such as biodefense and antibody development collaborations, we believe that 2010 will see continued growth for the company. Operator, this concludes our prepared remarks. Please open the call for questions.

[Operator:]

Thank you. (Operator instructions) Our first question comes from Richard Lau from Wedbush Securities.

[Richard Lau:]

Hi, everyone, this is Richard Lau calling in for Liana Moussatos. Thanks for taking my question.

[Steven Engle:]

Sure, Richard.

[Richard Lau:]

I just want to clarify – do you guys plan on waiting until the initial interim three-month Phase 2a data before initiating the larger Phase 2b?

[Steven Engle:]

No, sorry, Richard. The Phase 2b has already – we have already started the action to move that trial forward. That’s what we said over a month ago. And the intent here is to have it finished by the first quarter of next year, but it is a study that’s ongoing.

[Richard Lau:]

Okay. And then also, is there any sort of update in terms of partnering discussions or are you guys not talking about that at this time?

[Steven Engle:]

Yes. Generally our policy, as we’ve said in the last call or two, is that we are not going to speak directly about that. But we continue on with conversations and so there are discussions ongoing. But as far as timing and so forth, we are not providing any specific guidance

[Richard Lau:]

Okay. And then what meetings are you guys targeting for the presentation of the Phase 1 trial?

[Steven Engle:]

In terms of the medical conferences, there are several there. We believe that we will be at the ADA Conference, for example. Obviously, the ACC that’s going to be something, as I mentioned. And then there are other conferences coming up during the year that we will be at. So it’s more a question of you look at the cardiovascular, you look at the diabetes conferences, and we certainly plan to submit articles for those.

[Richard Lau:]

Okay. Thank you, guys.

[Steven Engle:]

Of course, thank you, Richard.

[Operator:]

Thank you. Our next question comes from Ritu Baral from Canaccord.

[Ritu Baral:]

Hi, guys. Thanks for taking my question.

[Steven Engle:]

Hi. Sure.

[Ritu Baral:]

My question is on the doses that you are using for the Phase 2a and the 2b, and basically how those doses, which I don’t think you released, compared to the doses used in the Phase 1b and the rationale behind that as well.

[Steven Engle:]

Right. So if I could, let me let Alan speak to that. Dr. Solinger?

[Alan Solinger:]

Yes. Hi, Ritu. Thanks for being on the call. The doses have not officially been announced, but I think you can probably gauge from the results that we’ve presented from the Phase 1 studies that we have pretty much settled on an effective dose that we think is worth using, and we will be dosing up and down from that dose.

[Ritu Baral:]

As in up and I guess above or in both directions?

[Alan Solinger:]

Up and below that dose, yes.

[Ritu Baral:]

Okay.

[Steven Engle:]

So the basic idea is there is a single dose for the first three months. It’s the same across all 60 patients. And then at the end of that point, there will be three groups, 20, 20 and 20, and a higher dose and a lower dose and that center dose will be used in the 20 and the 20 group and of course the middle group will continue on.

[Ritu Baral:]

Got you. And these diseases are always doses, doses that have been used before or are there some sort of new increments that you will be using?

[Alan Solinger:]

You’re correct. This is in the same range that we’ve used previously.

[Ritu Baral:]

Got you. And you had previously announced plans to do a cardio-metabolic risk trial at some point in the future. Can you tell us how – what those plans are, the status of those plans currently?

[Alan Solinger:]

That’s a very good question. Obviously at this point in our study, we do not have specifics on that trial. This is part of our plan. We do have other cardiovascular studies that are commented on, but the actual risk study is something that will take place a little further out of the development plan.

[Ritu Baral:]

Got you. And last question, going back to the partnership, I know you don’t want to comment too much, but in sort of an ideal case, how much data do you think that you might want in hand to negotiate your partnership? Is this something that the 2a data could provide? Do you feel that 2b data would be necessary to get the ROI that you are expecting?

[Steven Engle:]

Sure, Ritu. That’s a good question. Basically some people will need more data and some people will need less. But from our point of view, there are people we are talking to right now on an ongoing basis. There are people who when the Phase 2a data comes, depending upon of course exactly how the results come out, we think that they could move forward at that point. And then of course there will be people who want to see the full six months kind of data from all the dosing groups. And so as you can imagine, it depends on which company you are talking to.

[Ritu Baral:]

Great, thanks.

[Steven Engle:]

Great, thank you.

[Operator:]

Thank you. Our next question comes from Jason Kantor from RBC Capital Markets.

[Jason Kantor:]

Great. Thanks for taking my question. Couple of things. In the Phase 2a, what level – you have done obviously a lot of animal modeling and you’ve had some good human experience now. What amount of HbA1c reduction do you think that you could expect to see from the Phase 2a or Phase 2b study?

[Steven Engle:]

Jason, it’s a good question, and I’ll let Alan answer it further in a second. First of all, the interim data, just to be sure everybody understands, would be coming out on the first three months of what is possible. So it won’t be the full six-month period in the group of patients. So part of the question is what we see at that point, and then the question will be what we see when you finish the whole thing. But anyway, Alan, I’ll let you talk to this.

[Alan Solinger:]

Hi, Jason. I think that – it’s a good question. It’s one that we wish we could answer with some assurance. I don’t think the animal models in and off themselves will tell us what we will see in the clinical trials. However, I do think we have enough evidence from the preclinical trials to say that we have more than just a direct effect on glucose on hemoglobin A1c as isolated parameters. But we are likely to see other features that will only show up in the longer ranging studies. So in the presence of metformin, which is the background medicine for all these patients, we feel we should have a very good gauge as to the true effect of our drug in the majority of patients out there. And we anticipate a very significant improvement, especially when compared to the initial findings in most of the other agents that are on the market.

[Operator:]

Thank you. Our next question comes from Matt Kaplan from Ladenburg.

[Matt Kaplan:]

Hi, guys. Thanks for taking my questions.

[Steven Engle:]

Sure, Matt.

[Matt Kaplan:]

Following up a little bit on Ritu’s question associated with the cardio-metabolic study, some of the discussions you had last year or conversations you had last year were changing a little bit of focus or expanding the focus of 052 into the cardiovascular space. And I guess some of the partners were potentially interested in the data in that space as well. Does this tell us – since you’re pushing out the start of the study, does this does this tell us anything about the discussions that you have ongoing or –?

[Steven Engle:]

Sorry, say the last part, Matt.

[Matt Kaplan:]

Since you’re pushing out the start of the study it seems, does this tell us anything about the discussions you have ongoing with potential partners?

[Steven Engle:]

I don’t think so. I mean, it’s been in our plan all along to move this out. I think, as you know, last year we were very careful at the beginning to talk about diabetes, but not focus on cardiovascular until we have the results out of the Phase 1 studies. Once we had that, then we brought people into that conversation. Since that time, we’ve now met with thought-leaders in the cardiovascular area. People like – so the people involved with the Crestor study and so forth. And those folks coming back to us have been very excited about moving forward. As you might imagine, there is a range of possibilities from looking at lipid lowering to looking at acute coronary syndrome, all the way over acute myocardial infarction type patients. And what you’re trading off is the incidence rate of those events against also being able to run the trial in a controlled manner so you can get the right kind of read on the drug. So what we are doing is we are looking at both the ACS and the AMI-type patients and doing pre-work, both pre-clinically as well as looking at the clinical side, to be prepared to move forward in that area. So at this point, in terms of those things, there are plans from our side moving forward to do that work, but just haven’t said specifically exactly what we are going to be doing, yes.

[Matt Kaplan:]

Okay. So when do you think that design kind of locked and loaded to move forward?

[Alan Solinger:]

Hi, Matt, this is Alan. I don’t think that we’re talking about a specific trial. So part of the thing is we have several smaller trials that will lead us into better design of the future large scale trials. So the individual smaller trials usually we don’t announce. So these are a series of events that lead up to the bigger studies that are going to be needed for licensing.

[Matt Kaplan:]

Okay, great. And then in terms of – in the diabetes space, has the Phase 2 in Type 1 started at all with the Juvenile Diabetes Research Foundation?

[Alan Solinger:]

Yes, it has.

[Matt Kaplan:]

Okay. And when should we potentially expect some data from that?

[Alan Solinger:]

Actually it’s hard to say. I mean, since this is a blinded study and it’s also being done pretty much under the control of the individual investigator, the unblind data probably will take certainly more than a year. So we see it. And I think – I wouldn’t think we will have much to say before that.

[Matt Kaplan:]

Some kind of first half 2011 type of thing?

[Alan Solinger:]

It’s hard to say. It might be the second half since the data obviously will have to be analyzed and critiqued before anything is presented publicly.

[Steven Engle:]

Matt, before we can really start predicting that, we need to watch the trial and how it performs and see how fast it’s going to enroll. This is a new area for us and we need to get a sense of it. And as Alan said, we are not really right there with the study yet. We’re just not at a point where we can call the enrollment rate over the longer term.

[Matt Kaplan:]

Fair enough. And just can you give us a sense, not specific on quantitative numbers, but in terms of – maybe more qualitative, in terms of biodefense revenues and licensing revenues for this year versus last year, up, down –?

[Fred Kurland:]

Yes. This is Fred. I can actually be a bit more specific than perhaps you are expecting. Just by comparison, the 2009 figure within our – you will see within our 10-K is in the neighborhood of $6 million for biodefense. And we project a more than tripling of that number in the neighborhood of $20 million. We are particularly pleased about that because it enables to have a continued development and move into the manufacturing area. And this increase enables us to absorb, otherwise unabsorbed overhead, which is very helpful to our burn rate going forward.

[Matt Kaplan:]

And then what about licensing revenues?

[Fred Kurland:]

We’ve not given guidance as to how much to expect. As you know, we had a very big year last year, $43.5 million in revenue from technology licensing. We expect to do more such deals, but we’ve not provided a precise guidance as to how much that’s going to be.

[Matt Kaplan:]

Great. Thanks for taking my questions.

[Steven Engle:]

Thank you, Matt.

[Operator:]

Thank you. I’m showing no further questions in the queue at this time.

[Carol DeGuzman:]

Operator, thank you very much. And thank you all for joining us today and this concludes our call.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the conference, and you may now disconnect.