Sarah McCabe - Stern Investor Relations Joseph Patti - President and Chief Executive Officer Russell Plumb - Executive Chairman Anna Novotney Barry - Vice President, Clinical Development.

Maurice Raycroft - Guggenheim Securities.

Good morning, ladies and gentlemen. Welcome to the Biota Pharmaceuticals’ Second Quarter Fiscal Year 2015 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Following the formal remarks, we will open the call up for your questions. I would now like to turn the call over to Sarah McCabe of Stern Investor Relations.

Please proceed..

Thank you, operator. My name is Sarah McCabe of Stern Investor Relations. I would like to welcome you to the Biota conference call and webcast to review the company’s second quarter fiscal year 2015 financial results and to provide an update on a number of recent corporate developments.

This morning, we issued a press release which outlines the topics we plan to discuss today. The release is available at www.biotapharma.com. With me today from Biota are President and CEO, Dr. Joseph Patti; and Executive Chairman, Russell Plumb; and Vice President of Clinical Development, Anna Novotney-Barry.

Before we begin the call, I would like to remind you that today’s discussion will contain forward-looking statements that involve risks and uncertainties. These risks and uncertainties are outlined in today’s press release and the company’s recent filings with the Securities and Exchange Commission, which we urge you to read.

Our actual results may differ materially from what is discussed on today’s call. With that, I will turn the call over to Biota’s CEO, Dr. Joseph Patti..

Thanks, Sarah and thank you for joining us this morning. Today, on our call, Russ will start by reviewing our second quarter results including an update on the status of our settlement with BARDA. I will then provide an update on the vapendavir Phase 2b SPIRITUS trial, our RSV program, and finally the LANI program.

We will then open up the call for your questions.

Russ?.

Thanks Joe. Before I start, I just want to remind everyone that the quarter we are reporting on today which ended December 31, 2014 is our second fiscal quarter as we have a June 30, fiscal year end. From a 40,000-feet perspective, we had a very good quarter financially, primarily due to three factors.

First, we were able to successfully settle the vast majority of our standing claims with BARDA will lead to revenue from our contract that was terminated in May 2014. We are pleased to report that from October 1, through December 31, 2014 we received $15.9 million in cash proceeds from BARDA related to these settled items.

Further, in early January 2015, we received another $5.4 million from BARDA that was included in our accounts receivable balance as of December 31, 2014.

Based on the receipts of these proceeds, we were able to recognize $4.9 million of contract revenue in our second fiscal quarter that we had previously deferred recognizing over the prior two quarters ended June 30 and September 30, 2014.

We still have few outstanding items to resolve with BARDA namely exit windup costs associated with the contract inventory and severance costs, and others items like that which as we outlined in our press release amount to around $2 million.

We are pleased with how the financial aspects of the BARDA termination have been resolved to date and look forward to resolving the few remaining items. The second factor favorably impacting our financial results is that we enjoyed unexpectedly strong royalty revenues from seasonal retail sales of Relenza and Inavir during the quarter.

I will go into details in a moment, but it appears to us that the impact of the mismatch of the flu vaccine with the prevalent strains of flu this year as well as more severe influenza season in Japan and the U.S. have resulted in increased sales of antiviral therapies so far this flu season.

The third major factor favorably impacting our financial results for the quarter, due to the strengthening of the U.S. dollar against the Australian dollar, we recorded a fairly significant increase in our gain on foreign currency during the quarter as compared to a year ago.

So the net results of these three factors are today we report net income of $6.5 million for the three-month period ended December 31, 2014, as compared to a net loss of $100,000 in the same period last year.

The $6.6 million increased net income was primarily a result of [$4.8 million] increase to the net earnings we recognized on the BARDA contract which in our statement of operations is easily calculated as revenue from services less cost of revenue as well as $1.4 million gain in our foreign currency exchange, $0.5 million increase in royalty revenue, $0.5 million increase in general and administrative expense, which was offset in part by $600,000 increase in research and development expense.

The $4.8 million increase in net earnings from BARDA contract activities in the quarter, which was the same quarter of last year is largely due to us being able to recognize the $4.9 million in previously unrecognized revenue during the quarter, as I just mentioned.

You will notice that our overall revenue from services performed under the BARDA contract is lower than last year, and our costs associated with that revenue are substantially lower due to the activities under the BARDA contract being largely completed.

Therefore, we expect revenue and costs associated activities under the BARDA contract will diminish significantly going forward, and we expect they will be negligible by our fourth fiscal quarter of 2015.

As I touched on the outset, we enjoyed unexpectedly strong royalty revenues in our second fiscal quarter that we attribute to higher seasonal sales of antiviral for flu this year. Specifically, of the $6.5 million in royalty revenue we recorded in the quarter, $4.2 million was from sales of Relenza and $2.3 million was from sales of Inavir.

While we are not privy to the exact amount of seasonal sales versus government orders generated by our partners, we estimate that approximately half of the Relenza royalties this quarter came from net sales in seasonal markets, while the other half likely came from government orders.

For the same quarter last year, Relenza royalties were $5.4 million of which we estimate that over 90% came from government orders and Inavir royalties were about $600,000 last year with no government orders.

As such, we estimated the net seasonal sales of Relenza and Inavir in October/ December quarter of 2014 appear to be up three to four fold over the same quarter a year ago.

We currently do not have any visibilities to whether this upward trend will continue for the remainder of the flu season, but I do want to point out that we generally record about 75% to 80% of our annual royalty revenue from seasonal sales of Relenza and Inavir during the quarter ended March 31.

The other thing I'd like to highlight this morning for our second fiscal quarter financial results are the increase in our R&D expense and the decrease in our G&A expense.

The $600,000 increase in R&D expense was a result of $1.7 million increase in preclinical, clinical, and manufacturing costs related to advancement of vapendavir and RSV programs, offset in part by $1.1 million decrease in salaries and other research cost expenses due to various preclinical programs that we have discontinued over the past year.

Our G&A costs decreased by $0.5 million due to lower salary, overhead costs, and professional fees. On December 31, 2014, we held $76.6 million in cash, cash equivalents, short-term investments, and long-term investments, which is about $1 million less than we held at September 30, 2014. and about $15 million less than we held at June 30, 2014.

This slight decrease in cash and investments during our second quarter was the result of $7.7 million decrease in accounts payable offset largely by a combination of $2.9 million decrease in other current assets, mainly accounts receivable and from other cash generated from operations during the quarter.

On a year-to-date basis, since June 30, we were able to use cash primarily to reduce our accounts payable and accrued liabilities by $15.3 million.

Combined, our accounts receivable and prepaid balances have decreased by about $4 million during that time, but that decrease has been essentially offset by cash used to support our operations over the first six months of the year. As I alluded to earlier, we did collect another $5.4 million from BARDA in early January.

So we're off to a very good start in the ongoing quarter from a working capital perspective. That concludes my prepared remarks on our financial results. I'll now turn the call back to Joe..

Thanks Russ. We're happy to report today that this week we initiated the screening of patients for our vapendavir Phase 2b SPIRITUS trial in the United States.

To refresh everyone's memory, vapendavir is a potent broad spectrum capsid inhibitor of enteroviruses in development for the treatment of human rhinovirus infected patients with underlying respiratory illnesses such as asthma and COPD.

In the seven major markets which consist of Japan, the EU, and the U.S., there are approximately 64 million individuals of all ages that have asthma. Further, approximately 24 million of these individuals can be classified as having moderate-to-severe asthma, and this is the specific patient population we are targeting in the SPIRITUS trial.

There is growing evidence that suggest upper respiratory infections are a significant factor associated with loss of asthma control and exacerbations. In most cases, human rhinovirus or HRV is the dominant viral pathogen detected in both children and adult asthmatics experiencing an exacerbation.

Additionally, asthma patients are more likely to have an HRV related lower respiratory infection with symptoms being much more severe and lasting longer, so there is clear unmet need in this patient population.

The screening process for the SPIRITUS trial involves identifying asthma patients with a history of an upper respiratory infection leading to loss of asthma control or exacerbation and are classified as having moderate-to-severe asthma defined by the level of inhaled corticosteroid they are routinely taking.

Once screened, the patient will be randomized and initiate study treatment if they subsequently present to the clinic within 48 hours of onset of symptoms consistent with the rhinovirus upper respiratory infection.

The goal of the study is to enroll approximately 150 laboratory confirmed HRV infected patients over the next 12 months and to report top-line data during the second quarter of 2016.

The primary endpoint of the international multicenter, randomized, double blind, placebo controlled, dose ranging study is the change from baseline to study day 14 in asthma control questionnaire 6 or ACQ-6 total score, which is a validated tool that includes both an objective measure of lung function and patient reported data reflecting asthma symptoms.

Key secondary endpoints include asthma exacerbation, lung function assessments such as FEV1, and virology endpoints such as viral load and viral shedding.

Now transitioning to our RSV program, we have completed all the requisite in vitro studies required for the filing of an IND application for BTA-C585 an orally bioavailable F protein inhibitor we are developing to treat patients infected with RSV. In progress are nonclinical in vivo studies that we anticipate will be completed next quarter.

Pending the successful outcome of these ongoing nonclinical studies, our goal is to file an IND in mid 2015 and initiate human clinical trials in Q3 of this calendar year. In addition to our F protein inhibitor, we have identified a series of non-F protein RSV inhibitors that demonstrate a potent in vitro antiviral activity.

We plan to pursue the development of this series of compounds that exhibit a different mechanism of action from BTA-C585. Should a clinical candidate emerge from this series, our vision is that may be used independently or in combination with 585 for the treatment of patients infected with RSV.

And finally, next quarter we plan to discuss the results of the LANI Phase 1 asthma and TQT studies, the Phase 1/2 pediatric study, and the Phase 2 IGLOO study with the FDA to determine the appropriate primary endpoint for prospective registration trials of LANI to treat uncomplicated influenza and A and B.

We believe that a single dose of LANI exhibited antiviral activity and clinical benefit similar to that observed in clinical trials of other FDA approved neuraminidase inhibitors. And as a result on the business development front we are pursuing partnering activities for LANI for Phase 3 development and commercialization outside of Japan.

To wrap up, we have been successfully executing on the strategic and financial plan we adopted in August of 2014, and we are very pleased with our progress to date. I look forward to updating you on our continued progress in future calls. That concludes our prepared remarks this morning. I will now open the call for questions.

Operator?.

[Operator Instructions], our first question comes from the line of Bret Holley from Guggenheim Securities. Your line is open..

Hey guys, this is Maury Raycroft on for Bret. Thanks for taking my question..

Maury, how are you doing?.

So, coming into the call, I was modeling 375 patients in 12 months, and I was wondering if that has changed or so you mentioned you're going to do 150 now over 12 months?.

Right, right. The difference Maury is that the -- our previous guidance of 300 to 400 was a randomized, total randomized patients of which we only need a 150 HRV positive patients.

So you know, the 150 is the absolute number around there for the statistical analysis and depending on what our PCR positivity rate, our ability to detect the virus that will detect what the upper limit of total randomized patients will be..

Okay, makes sense.

And then for the PCR, I assume that you guys get a number of false positives and false negatives with that, and do you have an idea what that percentage is and is there a way to mitigate for that?.

Well, it's not so much false positive, false negative, what it is, is that because PCR is very good, if it's there you're most likely going to get a positive.

What I think the nuance that you're trying to get at is what happens if it's not HRV, and we're actually running another diagnostic test that should be able to detect or tells us what other virus it would be other than HRV, but to increase our odds in probability of getting the highest level of HRV positivity we have techniques to get specimens including nasopharyngeal swabs as well as collecting blown mucus from the patients, so our sampling techniques are very robust here to give us the best opportunity if there is HRV to detect it.

In addition, what we're doing is we're actually using a rapid antigen test for influenza, so that will be able to throw those folks out right at the beginning, and so they wouldn't be included in the randomization process..

Great, okay. And then also you mentioned there's probably about 24 million people with moderate to severe asthma, and then I think you guys were estimating about 40% that have HRV.

So, is that representative of that total population and you're anticipating that percentage in the trial too right?.

Well, 24 million is the overall at-risk population. Actually, HRV is typically 50% to 60%. So in an upper respiratory infection, 50% to 60% of the time, the patients are infected with HRV.

The 40% I believe is perhaps coming from some of our previous calls where that is our current best level of HRV positivity that we've model in the study for the 12 months of enrollment.

If that increases and we're hopeful that it does based on our screening techniques that perhaps the enrollment could go a little quicker, but to be conservative at the beginning, we're using a 40% positivity rate..

Great. And then one more question.

As far as retrospective studies go, are you guys going to be looking at different biomarkers from the patients afterwards?.

We are actually collecting, not prospectively, but we are collecting specimen that is depending on the outcome result that we'll be able to go and look at certain biomarkers such as cytokines and interleukins, etc. Yes, that would be a plan pending the outcome of the study..

Great. Okay, thank you very much..

Thank you. [Operator Instructions], And it looks like we have no other questioners in the queue, so I would like to turn the call back over to Dr. Patti for closing remarks..

Thank you. So to summarize the key elements of our call today, we have successfully resolved the vast majority of financial terms related to the termination of our BARDA contract last year. During our second fiscal year, we had strong royalty revenue associated with seasonal sales of Relenza and Inavir.

This week, we initiated the Phase 2b SPIRITUS trial of vapendavir in patients with moderate-to-severe asthma. We continue to progress with RSV program toward our goal of filing an IND application by midyear, and finally we ended the quarter with a strong financial position to support the development of our pipeline and other corporate initiatives.

Thank you for joining us this morning and have a pleasant day..

Ladies and gentleman, thank you again for your participation in today's conference. This now concludes the program, and you may now disconnect your telephone lines. Everyone have a great day..