Theriva Biologics, Inc. (TOVX) Q2 2013 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Synthetic Biologics Second Quarter 2013 Investor Conference call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kris Maly, Vice President of Corporate Communications of -- at Synthetic Biologics. Please go ahead.

Thank you, Laura, and good afternoon, everyone. Welcome to Synthetic Biologics Second Quarter 2013 Investor Conference Call. Today, I'm joined by our CEO, Jeff Riley; and our CFO, Evan Ballantyne. This afternoon, we'll provide a brief overview of our second quarter financials then update you on the progress we have made across our pipeline and the advances we have made toward our upcoming milestone. After the formal portion of the call, we will close with a Q&A session. This morning, we issued a press release summarizing key events -- recent key events and reporting our second quarter financials. That release can be found in the Investors section of our website. In addition to the phone line, we're webcasting this call live today, and the replay will be archived on our website for 30 days. During this call, we will be making forward-looking statements with regard to Synthetic Biologics' current expectations and projections about future events. Generally, the forward-looking statements can be identified by terminologies such as may, should, expects, anticipates, intends, plans, believes, estimates and similar expressions. These statements are based upon current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, including those set forth in Synthetic Biologics' filings with the SEC, many of which are difficult to predict. No forward-looking statements can be guaranteed, and actual results may differ materially from such statements. This information -- the information in this conference call can be -- is provided only as of the date of this call, and Synthetic Biologics undertakes no obligation to update any forward-looking statements contained on this call on account of new information, future events or otherwise, except as required by law. With that, I'd like to turn the call over to Jeff.

Thanks, Kris, and good afternoon, everyone. It's our pleasure to update you on our continued efforts at Synthetic Biologics, the cornerstone of which is our development portfolio of 3 anti-infective product candidates, 2 of which are being developed in collaboration with R.J. Kirk's company, Intrexon, and our exciting oral MS multiple sclerosis therapeutic candidate, which is expected to complete Phase II early next year. Before I begin the general overview, I'll turn -- I'd like to turn the call over to Evan for a brief discussion of our financials. Evan?

Yes. Thanks very -- Jeff, thanks very much, and I'd like to thank everybody for attending the call today. Our Q2 2013 financials were included in the press release, which was distributed over the wire earlier this morning, and our June 30, 2013, 10-Q will be filed with the SEC this afternoon. Starting with general and administrative expenses. Our general and administrative expenses were $2.4 million for the 6 months ended June 30, 2013, compared to $2.6 million for the same period in 2012. These expenses included noncash charges related to stock-based compensation of $652,000 for the 6 months ended June 30, 2013, and $786,000 for the same period a year ago. Research and development expenses. Our research and development expenses increased to $2.3 million for the 6 months ended June 30, 2013, from $933,000 for the same period a year ago. This change was primarily the result of increased program costs associated with our infectious disease programs. Please remember, R&D expenses also include noncash charges related to stock-based compensation of $212,000 for the 6 months ended June 30, 2013, and $122,000 for the same period in 2012. It's important to note that the Phase II MS trial evaluating our product candidate, Trimesta, and being conducted by Dr. Rhonda Voskuhl at UCLA, is funded by grants from the National MS Society and the NIH. Furthermore, our Acinetobacter and pertussis mAb candidate programs are being funded from a prepaid account established with Intrexon last year. This has helped us to limit our 2013 cash burn required to fund these programs. Cash. Cash at June 30, 2013, was $6.9 million compared to $10 million at December 31, 2012. This represents an average monthly burn of approximately $500,000. At this time, I'd like to pass the call back to Jeff Riley. Jeff?

Thanks, Evan. I'd like to begin with a discussion of our MS oral candidate, Trimesta, which is currently in a Phase II trial. Trimesta is being evaluated in a randomized, double-blind, placebo-controlled, 15-center Phase II clinical trial for the treatment of relapsing-remitting MS in women. Patient enrollment is complete, and per FDA guidance for MS trials, the patients are dosed and monitored over a 2-year period of time. The primary endpoint for this trial is relapse rate at 2 years. In June, we hosted an investor day to promote MS awareness and the market potential of our unique oral estriol candidate, Trimesta. We were pleased to welcome Dr. Rhonda Voskuhl as the keynote speaker. Dr. Voskuhl holds the titles of Professor, Department of Neurology at the Jack H. Skirball Chair in MS Research and is a Director of the MS Program at the UCLA School of Medicine. And important to us, she is the lead investigator of the Trimesta clinical trials. During the event, Dr. Voskuhl led an in-depth discussion about the MS space and the role of estriol in the treatment of multiple sclerosis. In April 2013, we announced that our U.S. patent was issued to the regents of the University of California, which includes claims to the use of our drug candidate, Trimesta, in combination with glatiramer acetate injection, more commonly known as Copaxone, to our wholly owned subsidiary. We hold the exclusive worldwide license to this patent for multiple sclerosis and other autoimmune diseases covering the uses of Trimesta. In the ongoing Phase II clinical trial, our Trimesta is administered in combination with the Teva product, Copaxone. Copaxone is the #1 selling drug for MS with approximately $4.2 billion in annual sales. It is currently marketed exclusively by Teva Pharmaceuticals Industries, and Copaxone is expected to face…

Thank you, Jeff. And before our Q&A session, I would like to let everyone know that we'll be presenting at the Rodman & Renshaw Conference sponsored by H.C. Wainwright on September 9 in New York City. And with that, we'd like to open the line to questions. Laura, would you describe the procedure to ask questions for our listeners?

[Operator Instructions] And our first question is from Kaey Nakae of Ascendiant.

Jeff, 2 questions. The first one is can you tell us once the last patient in the MS study has their last visit, what are the mechanics to lock down the database, do the analysis and then be able to report the top line results?

The answer to that question -- I don't think everybody heard that -- essentially, Kaey, toward the end of January, the last patient will be looked at. They have been scrubbing the database as they -- the patient data as they have been going along. But then we'll lock up the database and go from that point in time and let the statisticians do their work. We don't have a feel thereafter about how long it's going to be. We're saying second half of next year, but it's likely to be earlier than that.

Okay, very good. And then second question is simply maybe more for Evan. But how should we think about the burn rate? You gave us what the current rate is. But how should we think about that for the balance of the year?

It should increase modestly, Kaey, as we go into further studies for the C. diff program and for the Acinetobacter and Pertussis programs. But those would just be the preliminary work we've done on INDs.

And our next question is from Jason Kolbert of Maxim Group.

Jeff, this is actually Dr. Shefford Han [ph] calling in for Jason. I have a really quick question about Trimesta. I know that estriol has been used in postmenopausal women. But now with MS, you're talking about a woman who will be from 8, 20 and older. In these premenopausal women, do you know safety profile of estriol in these patients?

We -- it's a fairly disparate database, to be honest with you, Dr. Han. It's been given over in Europe in 2-milligram doses to patients for 30-plus years. And of those millions of women that received that for, primarily, PMS, there really haven't been a lot of reports that there was any adverse side effects. It's a fairly benign member of the estrogen family. The dose that we're giving is 8 milligrams. So it's 4 times as high as what you would normally find in the PMS dose, but that our dose is specific to what the circulating levels of estriol are in women that are in their third trimester of pregnancy. That's how we arrived at the dose. But we felt it's extremely safe. I mean, the Phase I trials that have been done up to this point in time have been very -- very few side effects have been reported.

Okay. And the second question about your SYN-004 program. I know that from your earlier P1 programs, the SYN-004 actually has more -- you could target more antibiotics. But exact -- could you just frame for me exactly what the market of these IVs are that are being used in hospital setting, these antibiotics?

Well, the top line level for the United States is there's roughly 13 million. So our drug would be used in conjunction with penicillin and cephalosporin-based antibiotics, things that have beta-lactam rings in the hospital IV environment at this point in time. So that market today or the number of folks in the U.S. that have received those antibiotics is 13 million people. So you can do the math, depending upon how you want to try and market this and commercialize this particular product. You can either price it relatively high or you can price it relatively low for maximum penetration. But again, from our perspective as a company, commercially and strategically, you'd really want to get this in the hands of hospital administrators as quickly as possible, given the fact that a lot of the nosocomial or hospital-acquired infections, the burden of that cost is going to shift to the hospitals in the next couple of years, so away from Medicare, Medicaid, private insurers to the hospitals. And that's going to be a huge problem. So we look at our drug as, obviously, it's pseudo-therapeutic, if you will, than it's preventing the disease from happening to begin with. But it's also a hell of an insurance policy if you look at it that way. If I'm a hospital administrator, why would I not give our drug to every single one of those 13 million patients to prevent C. diff from occurring? Does that answer your question, Dr. Han?

Yes, it does.

Jeff, I'd like to just add to what you said. The actual total market, though, for IV antibiotics is close to 24 million patients in the United States. So our expectation is that while 13 million patients get IV antibiotics with beta-lactams in them, that market could shift, and you could see increased use of IV beta-lactam-based antibiotics, so taking a larger chunk of that total $24 million patient -- or 24 million-patient population.

And our next question is from Daryl Weber of Wells Fargo.

So I was -- one of my questions was just, I guess, asked and answered, but maybe you could give maybe a little more detail. You say 24 million potential people take different antibiotics. So in essence, this drug would be used as a prophylactic. Do hospitals want to use this drug to prevent the C. diff? What is the -- what is a model that you could put on penetration for that particular market?

The model is really based, Daryl -- thanks for the question, Daryl. The model is really based upon almost on a hospital-by-hospital basis. So there is the IMS Data Group has put together a set of 600 hospitals in the United States as an example. And each one of those hospitals has a fairly specific recurrence rate of C. diff or an occurrence rate of C. diff within each of those hospitals. And the rates are pretty broad, actually. I mean, you get everything from hospitals in New York City, which tend to be fairly high rates of infection, all the way to some of the other hospitals in the Midwest that are not as high. And you really need to look at it on a hospital-by-hospital basis. But in general, if you take these -- I'm going to give you some generalized numbers, Daryl. But let's say 1 out of every 10 patients that gets an IV antibiotic, whether they're having a hip surgery or pneumonia or whatever, they're in the hospital environment or the dentist environment or wherever it happens to be where you're giving an IV antibiotic, and 1 out of 10 folks is going to develop C. diff. Why would you not give every single patient? Oh, let's say you give all 10 patients our drug. Our drug is just a preventative. Again, it doesn't -- there's no systemic exposure that we've seen historically. It sits in your intestinal tract. As those antibiotics are excreted into your upper GI tract, our drug only works on those antibiotics. So it breaks those down, disables them so that they're just a bunch of aminos, and nothing really happens at that point in time. Why would you not give that drug to every single patient? Because, again, it's like an insurance policy. If that 1 patient out of 10 gets C. diff, that hospital is now going to have to take that individual, put them in isolation. And they're going to spend another 4 to 7 days in the hospital recovering from that disease state or trying to recover from that disease state with the current therapy being stronger antibiotics. So you're really doing a fair amount of damage to the patient for the next several months, even after they get out of the hospital. But if you could avoid that expense of that patient, 1 out of 10, let's say, being in the hospital, that is a huge savings. And you can back into some fairly simple numbers as far as pricing this product as to what you could -- we could do. And that's basically how we're looking at it at this point in time. The initial set of things we're going to look at, that were the hospitals that, obviously, have the higher rates of infection. And if we can pull those down significantly, we're in pretty good shape.

Well, it sounds like it could be a blockbuster-status kind of drug. The other thing just to note is that Optimer was just acquired recently by Cubist. And I believe their drug was just basically some other antibiotic. So I mean, you don't want to give that drug, I guess, if you had C. diff. In your case, you're giving the drug when you don't have it to prevent it from happening?

That's correct.

Yes. So...

So for example, one of the primary culprits in the cephalosporin world of causing C. diff is a drug called ceftriaxone. And ceftriaxone is given pretty broadly. It's a $1 billion plus drug out there, and it's given pretty broadly in the hospital environments. In -- if we are able to ameliorate the problem in the GI tract when you give that drug to patients, the infectious disease docs in those hospital settings, in theory, could give much more of the antibiotic to the patient because they do not have to worry about the side effects downstream. And that's good for everybody because that will help kill the infection faster and get the patient out of that hospital environment as quickly as possible, which I think is -- the entire industry is moving toward as short a hospital stay as humanly possible. And I think our drug fits that. The other piece of the equation, Daryl, just it's a server-based ware. We're going after C. diff and antibiotic-associated diarrhea. I mean, that is what this drug is going to prevent. But the reality is, you really don't want any disruption of that microflora in your gut if you can avoid it because it causes a whole slew of other issues, and there's a lot of scientific data and studies going on right now showing that everything from type 2 diabetes to a variety of other metabolic diseases are potentially caused or exacerbated by heavy antibiotic dosing -- usage when we're young. I'm 50 and I used to get antibiotics all the time for ear infections and whatnot. And that just basically causes that entire microenvironment in your intestines to change, and that change is not necessarily a good thing. So our drug not only will prevent potentially C. diff and antibiotic-associated diarrhea, which is a fairly well-defined regulatory pathway, but I think we'll see in the future as well that you really want to take an approach of this nature going forward for a variety of other indications and not just C. diff and hospital-acquired infections.

All right. Just want to follow -- one further follow-up regards to the instruction relationship. Could you just kind of maybe go into little more detail what your relationship with Intrexon is? And how many different drug targets are you ultimately going to work on jointly?

So we inked the deal with R.J. Kirk and company almost 2 years ago. It'll be 2 years in November coming up. We were one of the first deals. I think ZIOPHARM was the first one out of the blocks. And the goal at that time in multiple discussions with R.J. and his team were, can we access your platform of technologies to really make some novel new drugs for anti-infective usage? Today, most anti-infectives, as you know, are small molecules. There's only one biologic in -- out there, and that's for RSV and it's biomedic. That's a fairly large drug. But there really are no targeted approaches to taking out this bacterium. And what your lead system and a variety of systems internally to Intrexon do is they allow us to really be very targeted as to how we attack these particular bugs. And we're fairly agnostic whether it's an antibody or a protein or a soluble receptor or genes -- gene therapy. It really doesn't matter to us. We just want something that works and is fairly well targeted. So the deal that we inked with R.J., the current deal we have with him is for 3 targets, 3 programs. We are moving 2 forward at this point in time. Again, the Pertussis program is going into IND-enabling studies a little bit later this year, which means that we'll be in the clinic more than likely next year for Pertussis. And that's a pretty nice market outside the United States and a fairly well-defined market in the U.S. So we will be in the clinic with an Intrexon-sponsored drug early next year, some time. Again, I don't know exactly. It depends on how long the animal study, that large animal study goes. The second program we have, as…

[Operator Instructions] And our next question is from Paul Teleki [ph] of Carter Terry.

Jeff, all my questions really been answered really except one. I guess I just want to follow up. I know it's a ways off, but that Phase II trial in Europe, just wondering what the endpoint is on that and what end -- primary endpoint you'd be going for on your trial?

Are you talking the Phase II trial for MS?

I'm sorry, for C. diff.

Okay. The C. diff, the trials are going to be done here in the United States. They're not going to be done in Europe. The prior program was done over there, and they spent a fair amount of money working through those. The endpoints here that we're looking at -- and this is not 100%, and still yet we've not had a meeting yet with the FDA. That will be later. But we're looking at C. diff and probably antibiotic-associated diarrhea as well as a secondary.

And next, we have a follow-up question from Jason Kolbert of Maxim Group.

It's me again. I just wanted to talk about Trimesta and Copaxone. 2 questions. First of all would be are you looking at any other oral drugs, maybe of using it in combination with their oral drugs since I think the capacity of Trimesta to increase cognition is, I mean, you kind of -- in any other drug, we haven't seen that. So this is, I mean, I -- for me, that's such a big positive of estriol. And secondly, has there been any discussion of partnering Trimesta with Copaxone when it goes generic?

Yes to all those, Dr. Han, to be honest. So the -- we -- as you can imagine, we're doing a variety of formulation work at this point in time. And I think we'll see some interesting things pop out of that here shortly. We can't, obviously, go into detail on that. That's number one. Number two, we have started several business development discussions already. You can probably figure out who would probably have an interest. Again, Copaxone goes off-patent here early. So there's the usual set of players, I'm assuming, in specialty pharma world that would like to get their hands on a $4 billion drug and at least get a piece of that action. And I think, as you pointed out, Trimesta is -- we're not taking a slice of that $14 billion market pie. We're really making that pie bigger because at this point in time, we believe that you can co-administer this, our drug, probably with a variety of the other MS drugs. And we've not done the trials on that side. I want to give the disclaimer there. But it's likely that we can probably give that drug with just about everything. So you'll have more of an assortment of drugs. From a neurologist's perspective, when he or she is prescribing these for their patients, Copaxone may work sometimes, BG-12 may work other times, Tysabri at other times. They typically aren't all given at the same time, right? It's not a cocktail. However, I think we think that our drug will be in that mix significantly, and we'll probably be able to give it in combinations downstream. Those trials have to be done and looked at. But as you pointed out, again, the potential neuroprotective or disease-modifying effects, which we'll be looking at hereafter we get the data, are really, really encouraging. And we saw hints of that under Phase I.

And at this time, we show no further questions. I would like to turn the conference back over to management for closing remarks.

Thanks, Laura. And thanks, everyone, for joining us today. We look forward to updating you during our next quarter. Thank you very much. Have a good afternoon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.