Final Event Transcript of GLFD conference call, 6-Aug-03 11:00am
2003-08-07 14:11 (New York)
Q2 2003 Guilford Pharmaceuticals Inc. Earnings Conference Call
Boston, Aug 7, 2003 (CCBN StreetEvents) -- Event Transcript of Guilford
Pharmaceuticals Inc. conference call, 6-Aug-03 11:00am ET.
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Corporate Participants
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* STACEY JURCHISON
GUILFORD PHARMACEUTICALS - Company Representative
* CRAIG SMITH
GUILFORD PHARMACEUTICALS - CHAIRMAN, PRES. & CEO
* ANDY JORDAN
GUILFORD PHARMACEUTICALS - EVP, FINANCE&CFO
* MIKE KELLY
GUILFORD PHARMACEUTICALS - HEAD OF SALES
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Conference Call Participants
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* MATT DUFFY
BLACK DIAMOND RESEARCH - ANALYST
* STEPHEN LOREN
LEGG MASON - ANALYST
* STEVE SABA
KILKENNY CAPITAL - ANALYST
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Presentation
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Operator [1]
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At this time, I would like to welcome everyone to the Guilford Pharmaceuticals
second quarter earnings conference call. (CALLER INSTRUCTIONS). I would now like
to turn today's call over to Ms. Stacey Jurchison. You may begin, ma'am.
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STACEY JURCHISON, GUILFORD PHARMACEUTICALS - Company Representative [2]
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Good morning, and thank you, Brandy. Welcome to Guilford Pharmaceuticals second
quarter 2003 earnings conference call. With me this morning are Dr. Craig Smith,
Chairman, President and Chief Executive Officer, and ANDY JORDAN, Executive Vice
President of Finance and Chief Financial Officer.
Before we begin, I will remind you that during today's call, we will be making
forward-looking statements or projections that carry risks that could cause the
Company's actual performance to differ materially from these forward-looking
statements. I refer you to our recent SEC filings for a more thorough discussion
of these risks. Now, I will turn the call over to Dr. Smith. Craig?
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CRAIG SMITH, GUILFORD PHARMACEUTICALS - CHAIRMAN, PRES. & CEO [3]
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Thank you, Stacey. During today's call, Andy Jordan and I will review
Guilford's financial and operating results for the second quarter, and provide
guidance regarding our expectations for the remainder of the year. This morning,
Guilford issued a press release publicly disclosing our financial results for
the second quarter. I hope you've a chance to read it, and that you share my
opinion that Guilford had an outstanding second quarter.
I will begin today's conference call with a brief overview of our
accomplishments and then explain each in more detail. Our major accomplishments
for the quarter were first, GLIADEL's sales increased by more than 40 percent.
Second, Pfizer licensed our NAALADase inhibitor technology. Third, $555,000 was
received from our partner, Daiichi Radioisotope Laboratories, for the filing of
an NDA for DOPASCAN in Japan. Four, as result of certain decisions we
implemented last year, we reduced total operating expenses during the first half
of 2003 by $10.7 million compared to the same period last year. Five, the Phase
II clinical trial of AQUAVAN injection in patients undergoing coronary bypass
graft surgery was completed. Six, our Phase II AQUAVAN development program for
conscious sedation was revised to accelerate the transition to Phase III trials.
Seven, the GPI 1485 IND for post-prostatectomy erectile dysfunction was filed
with FDA, and cleared regulatory review. Eighth, the synthetic lease for our
major researc
h and development building was refinanced, eliminating a $40 million cash
covenant on our balance sheet. And nine, we raised a net $61 million in cash
through a convertible debt offering.
As you can see, major progress was made in several areas of our business,
including commercial sales, business development, research and development and
finance. Let's take a closer look at each of these accomplishments.
I'll start with the GLIADEL story. As you know, late in the first quarter of
this year, we received FDA approval for an important label expansion to include
use of GLIADEL in patients with newly-diagnosed malignant myeloma as an adjunct
to surgery and radiation. As a result of this approval, the number of patients
in the U.S. eligible for treatment increased from approximately 3500 patients
per year to approximately 11,000, representing a market potential of
approximately 120 to $130 million. Upon receipt of the new indication, Guilford
sales and marketing group launched an aggressive campaign to drive awareness and
understanding of this survival benefit of GLIADEL when used in patients with
newly diagnosed malignant glicoma. Our results from the second quarter suggest
we're making solid progress. Net product sales of GLIADEL increased over 40
percent to $5 million compared to 3.5 million in the same period of 2002.
At the American Academy of Neurological Surgeons' annual meeting in April, the
Company launched the new indication. There were three GLIADEL presentations. Two
discussed the results of our Phase III trials. These presentations highlighted
the following points. First, a 20 percent increase in median survival. Second,
an increase in long-term survival, with nine of eleven survivors after three
years having been GLIADEL patients. And finally, a 27 percent reduction in the
risk of death three to four years post-treatment.
One presentation discussed an ongoing study of GLIADEL used in the setting of
newly diagnosed, operable metastatic brain cancer. Thus far in this patient
population, there have been no local tumor recurrences.
We were encouraged by the receptiveness of the neurosurgical community to the
evidence that GLIADEL adds meaningful survival with patients with a malignant
glaucoma. We will continue to aggressively bring this message to the
marketplace, and hope to position GLIADEL as a part of the standard of care for
this condition. If we continue to be successful with this effort, we can expect
to see GLIADEL sales continue to grow.
We continue to work towards submitting an application for market authorization
for first-line therapy with GLIADEL in Europe. Our expectation is that the
filing will occur before the end of the year. During the quarter, GLIADEL was
launched in Portugal and Spain for second line therapy, and the initial results
look very favorable. Our plan is to obtain European approval for first-line
therapy through the decentralized procedure, and to launch the new indication
through our network of distributors next year. If successful, we believe our
revenues from European sales could grow to 5 to $10 million over the next three
years.
Our second major accomplishment in the second quarter was signing a licensing
contract with Pfizer for our NAALADase inhibitor technology, a promising new
class of drugs to treat acute and chronic neurodegenerative disorders. Pfizer
agreed to pay us up to $15 million in cash, including 5 million we received at
signing, and 10 million that can be paid by March 31st, 2004. If Pfizer does not
elect to make the $10 million payment, all rights to the NAALADase technology
revert to Guilford. Pfizer will conduct and pay for all costs associated with
the research, development, manufacturing and commercialization of any products
that may emerge from this agreement. As part of the agreement, Guilford is
eligible to receive royalties on future product sales and milestone payments
related to the successful development of compounds covered by this agreement.
The schedule of milestone payments calls for a total of $42 million to be paid
for each compound developed through commercialization, as well as one additional
set
of milestones totaling $20 million for an additional indication for the same
compound. Guilford retains the right to continue to conduct and pay for the
development of certain drugs from this program for prostate cancer, head and
spinal cord injury, and drug addiction. We expect our agreement with Pfizer will
accelerate the development of our NAALADase technology, while minimizing the
impact that this development program will have on our profit and loss statement.
It's our plan to obtain research grants to fund much of the development work we
intend to carry out for the indications we've retained in the agreement.
Next, I would like to highlight recent developments in our AQUAVAN injection in
GPI 1485 programs. The clinical and pharmacological profile for AQUAVAN
continues to come into sharper focus, as the results of the ongoing dose-finding
Phase II studies in patients undergoing colonoscopy proceed. Our experience to
date suggests that AQUAVAN has a rapid onset of action, provides high-quality
sedation for the duration of the procedure, and has a rapid recovery time
without the hangover affects commonly seen with Midazolam. This profile may make
it ideally suited for use in sedating patients who are undergoing many
outpatient medical or surgical procedures.
During the second quarter, we revised our development plan for Phase II. Based
on expert advice, and the results we've obtained to date, we decided to increase
the number of patients in the open-label dose finding study to include elderly
patients, and to fully and more precisely characterize the optimal dose of
AQUAVAN when it is used with differing doses of fentanyl. Fentanyl is one of the
parenteral narcotic analgesics used widely with sedatives in patients undergoing
colonoscopy. The doses of fentanyl used vary from physician to physician. Based
on the prior experience of other companies with the development of Propofol and
Midazolam, we want to be certain we've developed AQUAVAN dosing recommendations
that are designed to maximize AQUAVAN's effectiveness and minimize any risk of
side effects when used with varying doses of fentanyl.
We also want to be certain to consider that the dose of AQUAVAN may need to be
reduced in the elderly as it is with other sedatives used in this setting,
including both Propofol and Midazolam.
Furthermore, the accumulating efficacy and safety data suggests to us that
AQUAVAN will likely compare very favorably with Midazolam, the drug use most
commonly for conscious sedation for outpatient procedures. As evidenced by the
large number of patients -- of papers -- excuse me -- at the recent Digestive
Diseases Week, there's a lot of interest in replacing Midazolam with a drug that
is more rapid acting, and especially one with a more rapid recovery time. At
this time, we plan to use Midazolam as the comparator (ph) arm in our Phase III
trials. Obviously, our plans may change as we work through the Phase II and
Phase III planning process with FDA. We continue to be actively engaged with
FDA, and will update you on any material events as the story unfolds.
The next result -- the net result -- of these decisions is to increase the
likelihood we will complete our Phase II studies of AQUAVAN this year, and be
able to have an end of Phase II meeting with FDA, hopefully early next year.
I'm pleased to report that patient enrollment and data collection for the Phase
II trial of AQUAVAN in patients undergoing coronary artery bypass graft surgery,
was completed at the end of June. A total of 16 patients were enrolled, eight
received AQUAVAN and eight received Propofol. We are now actively working on
finalizing the database with the investigator, and conducting the data analysis.
We hope to have results to report to you later this year.
I will now turn to a discussion of our GPI 1485 Phase II program. We are
presently completing enrollment of patients with stable Parkinson's disease who
are currently being treated with dopamine agonists into this trial. We expect to
complete the enrollment of 200 patients later this month. Patients will receive
GPI 1485 or a placebo for two years, and will have disease progression measured
over the course of the trial.
In addition, during the second quarter, we filed an IND to begin a Phase II
clinical trial of GPI 1485 for the treatment of post-prostatectomy erectile
dysfunction, a condition which is caused by peripheral nerve injury during
surgery. Recently we learned that the IND had cleared regulatory review, and we
can begin enrolling patients into the protocol we filed with the IND. We expect
enrollment to begin early in the fourth quarter.
We continue to pursue other strategies to enhance our revenues and reduce
costs. Recently, Daiichi Radioisotope Laboratories, or DRL, a partner of ours,
filed an application for marketing approval of DOPASCAN injection with the
Japanese health authority, triggering a milestone payment to Guilford of
$555,000. We granted DRL exclusive marketing sales and distribution rights to
DOPASCAN injection in Japan, Korea and Taiwan, in December, 1995. DRL is seeking
approval of DOPASCAN injection to detected the generation of dopamine nerve
cells seen in Parkinson's disease. The marketing application is based on a Phase
III clinical trial DRL completed in Japan in July of 2002.
Outside Japan, MAP Medical Technologies holds exclusive Europeans sales,
marketing and distribution rights to DOPASCAN injection. In 2002, MAP filed the
regulatory submission in Finland for European approval of the product. Based
upon information provided by these partners, if DOPASCAN injection is approved
for marketing in Europe and Japan, it is anticipated that Guilford will receive
up to an estimated $5 million in combined milestone payments and royalty
revenues over the next four years.
I will now turn the call over to Andy Jordan, who will provide you with the
financial results from the second quarter, and describe the restructuring of our
synthetic lease, and the convertible debt we issued during the quarter. Andy?
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ANDY JORDAN, GUILFORD PHARMACEUTICALS - EVP, FINANCE&CFO [4]
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Thanks, Craig, and good morning, everyone. Today Guilford reported a net loss
of $5.4 million, or 18 cents loss per share for the quarter ended June 30, 2003.
This compares with a net loss of 16.8 million or 57 cents loss per share for the
corresponding period in 2002.
A few comments on several accomplishments. During the second quarter, we
completed an $18.8 million refinancing agreement with Wachovia Bank to
restructure our synthetic lease obligation, which we had established in 1998 to
fund construction of our then new research and development facility. The primary
financial benefit of this refinancing is that it enabled the company to
eliminate a $40 million unrestricted cash covenant which was part of the prior
financing arrangement. Also during the quarter, the Company raised gross
proceeds of more than $69 million in a very successful convertible notes
offering, including an initial tranche of $60 million completed in mid-June and
an additional 9.4 million raised last week. The Company expects to use the net
proceeds of approximately 61 million from the offering for general corporate
purposes, including working capital, and the potential acquisition of products
or technologies.
In addition to these significant accomplishments, the financial results for the
quarter and first-half, we believe, were very strong. Total revenues in the
second quarter were 10.6 million, compared to 3.6 million in the second quarter
of 2002. Revenues from the sale of GLIADEL increased approximately 41 percent to
5 million in the second quarter of 2003 compared to $3.5 million for the
corresponding period in 2002, and also compared to 3.4 million in the first
quarter of this year. The increase in total revenues in the second quarter of
2003 results primarily from the increase in quarterly GLIADEL sales, together
with 5 million in revenue associated with the license to Pfizer for our
NAALADase inhibitor technology, and an earned milestone of 555,000 from our
Japanese partner, DRL.
Our cost of sales in the second quarters of both 2003 and 2002 was exactly the
same, at $1 million. Gross profit in the second quarter of 2003 was
approximately 79 percent, which compared to 72 percent in the second quarter of
2002.
About this time last year, we made an important decision to concentrate our R&D
activities on our most promising pharmaceutical programs. If you recall, this
meant decreasing spending on our Park., NAALADase and polymer drug delivery
technologies. As a result, our R&D costs have decreased to 7.4 million in the
second quarter of '03 compared to 12.6 million in the second quarter of '02.
Most of the decrease in our R&D expenditures is related to reductions in
expenses in our polymer drug delivery, NAALADase and Park. inhibitor programs,
offset in part, by increased spending in our neuroimmunophilin program. Also,
part of the quarter-over-quarter decrease in R&D spending related to about a
$0.75 million milestone payment we made to ProQuest in 2002, related to a
milestone -- related to the AQUAVAN technology. This amount, obviously, is
non-recurring, in 2003.
For the remainder of 2003, we expect R&D expenses to be incurred primarily in
conjunction with further clinical development of AQUAVAN and GPI 1485. SG&A
costs were 8.1 million and 8 million, for the three months ended June 30, 2003
and 2002, respectively. Selling, marketing and distribution costs for the second
quarter of '03 and '02, respectively, were 4.1 and 4 million, and G&A costs were
consistent at $4 million each in '03 and '02.
At the end of the second quarter of '03, Guilford had $132.5 million in cash,
cash equivalents and marketable securities on our balance sheet, reflecting the
completion of a convertible bond offering, which raised net proceeds of 51.9
million, after taking into account stock repurchases done in connection with the
offering, as well as various transaction expenses.
Now, I'd like to take a moment to discuss our financial outlook for the
remainder of 2003. Please be aware, however, that this forward-looking
information is being provided as a convenience to investors, and that these
projections are based upon numerous assumptions which Guilford cannot control,
and which may not be realized. Consequently, our actual results may differ
materially from these forward-looking projections.
Since receiving expanded labeling approval for GLIADEL on February 28, our
sales and marketing team has done a tremendous job generating awareness and
interest in GLIADEL among our target audiences. As we mentioned, product sales
of GLIADEL in the second quarter increased approximately 41 percent over Q2,
2002 to $5 million. And we remain optimistic about the second half of the year.
Consequently, our guidance for the year remains unchanged, and we're forecasting
revenue from the sales of GLIADEL to be in the range of 20 to $25 million. We
expect R&D expenditures in 2003 to be approximately 30 to 35 million. This is a
decrease in R&D expenses for the year compared to prior guidance of 35 to 40.
You should anticipate that SG&A costs would remain flat in '03 compared to '02,
and should expect SG&A expenditures to be in the range of 29 to $32 million.
With two financings completed during the quarter, we expect that interest income
and expense will both increase during the second half of the year. These increas
es are attributable to the net increases in working capital and long-term debt.
Short-term interest rates on invested capital have been in the 1 to 1.5 percent
range, while our cost of debt would average slightly in excess of 5 percent
related to the financings.
Lastly, many of you will want to know about our cash burn, which is non-GAAP
financial measure. We have generally tried to define it as the net change in
cash balances, period over period. However, with the net proceeds of the
convertible notes offering, that definition will not provide much value this
quarter. So, for this discussion purpose, I'd like to define our cash burn as
net loss, adding back non-cash items, namely depreciation and amortization, less
repayments of that. Net loss prior to the adjustment is a GAAP measure that we
believe is the most comparable GAAP measure to the non-GAAP measure of cash
burn, which we're presenting. So, for the first half of 2003, our cash burn
would be reconciled to our GAAP net loss as follows. Our GAAP net loss of $16.5
million, reduced by non-cash expenses of approximately 2.5 million, and
increased by principal repayments of the same number, of 2.5 million, which
results in a cash burn equal to 16.5 million. For the full year of 2003, we'd
expect that cash burn
will be in the range of 32 to $37 million.
I'd like now to turn the discussion back over to Craig. |
