Theriva Biologics, Inc. (TOVX) Q3 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to Synthetic Biologics Third Quarter 2013 Investor Conference Call. [Operator Instructions] Please note, this event is being recorded. At this time, I would like to turn the call over to Kris Maly, Vice President, Corporate Communication at Synthetic Biologics. Ms. Maly, please go ahead.

Thank you, Amy, and good morning, everyone. Welcome to Synthetic Biologics Third Quarter 2013 Investor Conference Call. Today, I'm joined by our CEO, Jeff Riley; and our CFO, Evan Ballantyne. Pre-market this morning, we issued a press release summarizing our recent operational highlights and reporting our third quarter financials. That release can be found in the Investors section of our website. On our call today, Jeff will provide an update on the progress of our development and clinical program and on the advances we have made to our upcoming milestone. Evan will then provide a brief overview of our third quarter financials. After the formal portion of the call, we will offer the opportunity for Q&A. In addition to the phone line, we're streaming this call live over the Internet today, and a replay of the webcast will be archived on our website for 30 days. During the call, we will be making forward-looking statements regarding 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 and 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 can be difficult to predict. No forward-looking statements can be guaranteed, and actual results may differ materially from these statements. The information in this call 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 conference 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 morning, everyone. It's my pleasure to update you on our continued efforts at Synthetic Biologics. It seems every day in the news we hear that outbreaks of infectious diseases are on the rise worldwide. Super bugs are becoming multidrug resistant, and antibiotics are not cutting it today. To fight these nasty super bugs, we see an opportunity to build a broad and deep pipeline of novel anti-infective biologics to prevent and treat infectious diseases and hopefully address these significant unmet needs. Our lead anti-infective product candidate, SYN-004, is in development as the first and only medication to potentially prevent the devastating effects of Clostridium difficile, or C. diff for short. This is a multidrug resistant bacterium that has surpassed MRSA as the #1 hospital-acquired infection in the United States. In fact, back in September, the CDC identified C. diff as an urgent public health threat, particularly given it's resistant to many drugs used to treat other infections. Designed to be given orally to protect the gut while certain IV beta-lactam antibiotics fight the primary infection, SYN-004 is believed to have a similar profile to its first-generation predecessor, which, in Phase II trials, demonstrated favorable protection of the gut flora, or microbiome, during treatment with certain penicillins. It is expected that SYN-004 should have the added ability to act against a broader spectrum of IV beta-lactam antibiotics than its predecessor. This quarter, we were pleased to announce the successful completion of a protein expression evaluation for SYN-004. The evaluation demonstrated a greater than 20-fold improvement in expression titers with consistent biological activity, utilizing an E. coli system. This increase is in comparison to the Bacillus platform previously employed by Ipsat for the expression of the first-generation candidate of SYN-004. As a result of the successful evaluation, we…

Thank you, Jeff, and I'd like to thank everybody for attending our call this morning. Our Q3 2013 financial statements were included in the press release, which distributed over Newswire early this morning. Our September 30, 2013 10-Q will be filed with the SEC this afternoon. For the 9 months ended September 30, 2013, our general and administrative expenses were $4.3 million compared to $3.7 million for the same period a year ago in 2012. The increase of 15% is primarily the result of $763,000 in bad debt expense we recorded as a result of the determination that the note receivable and interest receivable from the sale of the Adeona Clinical Laboratory was uncollectible. G&A expense also included noncash charges related to stock-based compensation of $916,000 for the 9 months ended September 30, 2013, compared to $1.1 million for the same period a year ago. Our research and development expense increased to $3.8 million for the 9 months ended September 30, 2013 from $1.7 million for the same period a year ago. This increase of 124% is primarily the result of increased program costs and additional employee costs associated with our infectious disease programs. R&D expense also includes noncash charges related to stock-based compensation of $286,000 for the 9 months ended September 30, 2013 compared to $238,000 for the same period in 2012. I'd like to point out that our Phase II MS trial evaluating our product candidate Trimesta is being conducted under an investigator-initiated IND by Dr. Rhonda Voskuhl at UCLA and is funded by grants from the National MS Society and the NIH. Further, our Pertussis and Acinetobacter monoclonal antibody development programs are being funded from our prepaid account established with Intrexon last year. This has helped limit our 2013 cash burn required to fund these programs. Cash at September 30, 2013 was $5.1 million compared to $10 million at December 31, 2012. This represents an average monthly burn of approximately $560,000. At this point, I'd like to turn the conference back to Kris Maly. Kris?

Thanks, Evan. Before closing, I would like to let everyone know that we were pleased to announce today that SYN-004, our candidate for the prevention of C. difficile infections, was selected as a 2013 Top Project to Watch in infectious disease area by Elsevier Business Intelligence. And related to this, we will be presenting at the 2013 Therapeutic Area Partnerships Conference next Tuesday, November 19, in Boston. As we look forward, we will also be presenting at the LD Micro Conference in early December out in LA. And with that, we'd like to open the line to questions. Amy, would you please describe the procedure to ask questions for our listeners?

[Operator Instructions] Our first question is from Kaey Nakae with Ascendiant Capital.

Jeff, as you move closer to beginning first man study for your mAb therapy in Pertussis, can you tell us a little bit about the proposed trial design?

Kaey, at this point in time, we haven't released any information on what that design will look like. I think everyone's aware that we are going into a non-human primate study coming up shortly. We're getting -- scaling up a little bit of the antibody now to do those trials. And once those trials are complete, obviously, we'll have a very good picture as to whether this product will work in human infants. If it works in baby monkeys or baboons, it should -- it's highly likely they will work in infants. But the discussions are going back and forth right now as to what and how many of those patients would actually need to be treated because they will likely be going directly into patients and not into a safety trial in infants.

Okay. And then with respect to SYN 004, obviously, you're making good progress there. What will be the gating item before you move into your next preclinical study there?

Well, we just passed the primary hurdle, which was the manufacturing piece. We switched from -- the prior company that did the Phase II studies was using, it was called, B-cell line with a group called Lonza over in Europe. And we switched from that line to an E. coli line and ended up getting 20-fold better productivity out of that cell line, which means the cost of goods for this product is going to be minimal, which will allow us to have a lot of pricing flexibility. So the goal for us, at this point in time, the FDA has given guidance to that we need to do one bridging study, so we're scaling up the product now. First half of next year, we'll be going into design the enabling -- that IND study, which is just a bridging tox study, the bridging tox study which takes 28 days, and then we'll be filing the IND and jumping right into the Phase I at that point in time. We've not designed what that Phase I, Phase II protocols are going to look like quite yet. We're in discussions with various groups to figure out the optimal way to move the product forward. Does that answer your question, Kaey?

Yes, that's all I had.

[Operator Instructions] And our next question is from Jason Kolbert with Maxim.

Jeff, can you touch a little bit on Effirma? We're expecting a Phase II readout second half 2014. Have you gotten any update from Meda Ab on that program?

So for everybody else out there on the call, we have partnered the called flupirtine to a Swedish company called Meda, M-E-D-A, in 2010, and that program is in the Phase II at this point in time. We have not received any feedback. I did meet with them a couple of weeks ago, and they said the program was on schedule, but they did not give the specifics.

Okay. And can we go back to SYN-004? Now that you've got the manufacturing cracked, can you just remind us a little bit about what the other advantages are of this third generation versus the prior version, prior molecule? And also, can you touch on the IP and how that's different?

Okay. The first generation was -- they called it P1A, and basically, it was a fairly targeted enzyme for penicillin-based beta-lactams. So great, fairly large market, but penicillins frankly aren't used as much as the cephalosporin class. And so what we did was we changed one amino acid in the sequence for the drug itself, which is essentially the same drug but with broader spectrum activity against more antibiotics. So it takes us out into the world of ceftriaxone and other heavily used hospital-based IV antibiotics. So we've broadened the spectrum and made it much more potent, and that's why we went ahead and did that. In addition, we've filed brand-new composition of matter patents on that pack in 2011, and those are, obviously, going to reset the clock for us with respect to good intellectual property around the use and composition of matter for that -- this drug.

That's really helpful. And then, the other -- and the last question I have is, you ended the quarter with $5 million in change on the balance sheet. And am I right that on a cash basis, you're saying you burned about $1.5 million? How are you managing to keep that burn so low?

As Evan mentioned, we -- most of the burn rate is actually off-balance sheet. So the -- again, the MS trial would have cost us substantial amounts of capital, but that is being funded almost, in its entirety, by both the MS Society and NIH foundation -- or the MS foundation society and the NIH. So that's roughly $8 million that is coming in from external sources directly to UCLA to fund those programs. So we're not -- we don't have to fund it other than the HR component of the clinical development piece that -- to manage and look at the regulatory components of the program. So the same as with the Acinetobacter program, and to a lesser extent, the Pertussis program and that we have a prepaid with Intrexon that come -- we book against that on a monthly basis as we go forward. So the cash burn that you see, the $560k or so a month is directly related to primarily the C.diff product overhead, et cetera.

Great. I mean, I appreciate the explanation. I think it's important for people to appreciate that, that cash burn doesn't really reflect the amount of development money behind what you're accomplishing. My last question has to do with where you go with Trimesta. You have to be watching what Teva is doing. There's a lot of internal chaos, and Teva certainly seems to be scrambling to put together a life cycle management strategy around Copaxone. Have you had any discussions with Teva? Are they looking at estriol at all?

We've had multiple discussions with multiple companies that have an interest in that particular drug, both in the United States and outside the U.S.

[Operator Instructions] Our next question is from Daryl Weber with Wells Fargo.

Just a quick question. In the past, you guys have talked about potential licensing opportunities. Is that still on the table? Are you still looking to bring other programs in house, or do you feel your plate's pretty full right now?

Daryl, we have a very active set of BD groups, both of the board level, as well as within the management team itself looking at a variety of products. Our primary focus, I guess, I'd even say an obsession, is product set impact or revolve around, obviously, infectious disease, but probably even more specifically around the franchise that we're building in the world of the microbiome, right? So products that have -- as you know, the microbiome itself appears to be -- I made the comments earlier, it appears to be when you disrupt that in some way, shape or form, there's a whole plethora of things that can occur, both in the metabolic disease area, inflammation area, you name it. And so we're looking at products that we can further deepen and broaden our impact in that area specifically. So we're looking at probably about half a dozen projects right now that I think would fit into that bucket. We're trying to find things that are, obviously, either late in the clinic or late preclinical. Again, we're a small biotech company and we can't have too many early-stage discovery programs at this -- we have those ongoing with Intrexon since there are R&D engine, but we are looking at products. Sorry for the long-winded there, but yes, correct, I just said yes.

This concludes our question-and-answer session. I would like to turn the conference back over to Kris Maly for any closing remarks.

Thanks, Amy, and thanks, everyone, for joining us this morning. We certainly look forward to updating you again next quarter. Have a great day.

Thank you, everyone.

The conference is now concluded. Thank you for attending today's presentation. Please disconnect your lines.