Agenus Inc (AGEN) 2002 Q1 法說會逐字稿

Good morning. My name is Michael and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Antigenics first-quarter financial results conference call. All lines have been placed on mute to prevent any background noise, and after the speakers' remarks, there will be a question and answer period.

If you'd like to ask a question during this time, simply press star, then the number 1 on your telephone keypad and questions will be taken in the order they are received.

If you'd like to withdraw your question, press the pound key.

Thank you. Ms. Lipsey, you may begin your conference.

Thank you, Michael. I'd like to welcome everyone to Antigenics conference call to discuss our corporate and clinical progress, as well as the financial results (inaudible). My name is Linda Lipsey, manage of investor relations, and with me are Garo Armen, chairman and CEO of Antigenics, Russell Herndon, our president and chief operating officer, and Jonathan Lewis, our chief medical officer. We hope that you have all had a chance to review a copy of our earnings press release that went out this morning. We will review these results as well as the highlights of the quarter in this call and then as Michael said, open it up for questions. Before I turn the call over, I do want to remind you that during this call, we will make forward-looking statements that may include statements regarding intents, beliefs, or current expectations of the company and its management. These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause the company's actual results to differ materially from the results discussed in these statements. Factors that might cause such differences include, but are not limited to, a successful development of Antigenics current development stage products, continued success of our commercialized patriots, the uncertainties of strategic alliances and other risks and uncertainties detailed in the company's filings with the SEC. I will now turn the call over to Dr. Armen.

Thank you, Linda. First I will provide an update on the company's progress. Next, Dr. Lewis will report on our clinical trial program, and our lead clinical candidates, and lastly, we will review our financial results in the first quarter and then we'll open it up to questions.

Before I go to turn to talk to Dr. Lewis, let me summarize the key events of the first quarter.

Firstly, in January, we completed a 60 million-dollar follow-on offering. This gave us more than $110 million in cash and allowed us to continue our tradition of operating with a strong balance sheet. We were successful with our financing and amid very difficult condition in the financial markets and the biotech sector and we thank our shareholders for their continuing confidence in Antigenics and our important mission.

Secondly, we had a very favorable review in the journal of the National Cancer Institute in which John Sownof the NCI called our technology "the best in cancer vaccines."

Thirdly, we implemented several parallel track clinical trials in cancer programs to create redundancy and ensure that we meet our commercialization time line. These include the development of Oncophage (inaudible) and Aroplatin a high effect chemotherapy product in colorectal and pancreatic cancers. Fourthly, we made significant progress with our next generation immunotherapy products and (inaudible) the treatment of cancer. This could potentially expand our target markets by five-fold or more, and allow us to treat sicker patients more effectively. Fifth, we're progressing well with our first HSP-based (inaudible) infectious diseases product, AG-702, for the treatment of genital herpes. We expect to have interim results of this trial later on this year.

Sixth, we have successfully achieved the first (inaudible) principle in the application of our heat shock protein technology in the prevention and treatment of AIDS. This was accomplished in collaboration with Dr. Bush Walker , a preeminent clinician at Harvard. In these experiments, we demonstrated that (inaudible) protein complex to HIV antigens are powerful activators of both types of T-cells that are believed to be crucial in targeting HIV.

And seventh, Antigenics and our corporate partners continue to progress with our adjuvant technology, QS-21, which is now an established key component of preventive and therapeutic vaccine formulations, targeting diseases which are not being effectively dealt with presently. In the past year, there's been substantial confirmation of these points and significant new interest by potential new partners for QS-21.

I will now turn the call to Dr. Jonathan Lewis. Jon?

Good morning. We are moving at considerable speed on all fronts with Oncophage and heat shock protein technology as well as our other cancer product portfolio, which includes a new and exciting platin therapeutic agent called Aroplatin. In addition to clinical progress, we are actively and successfully developing the next generation of heat shock protein vaccine therapies. We also have methods in development that will make Oncophage even more potent in advanced cancers. These data will be reviewed with you in the next 12 months.

In terms of the clinical progress, I will first update you on the Oncophage renal and melanoma programs. The (inaudible) cancer program continues to make significant progress in both Europe and the U.S., with the phase 3 randomized trial. We have enrolled more than 200 patients to date. Again, to review with you that in this trial, we are treating patients with stage II and III kidney cancer. Presently, there is no treatment available for these patients after surgery, and therefore, if approved, Oncophage will be the very first and only product used in these patients and will represent a significant advance in the treatment of kidney cancer.

In the melanoma program, we have opened enrollment for a multicenter phase 3 randomized trial in metastatic melanoma. This represents our second clinical trial with Oncophage. The trial design built on our strong phase 2 data that was presented at the AACR meeting in October, and also the subject of a press conference as selected by the AACR and ERTC committees. Similarly to kidney cancer, there is a major unmet need in treating this disease, and currently used products are not very effective.

In January, the FDA designated Oncophage for fast track (inaudible) and this was our second designation for Oncophage, the first being in kidney cancer.

I'm not going to speak to you about Aroplatin.

There has been a tremendous amount of excitement around Aroplatin. This product has an active metabolite that is identical to Oxyplatin which is a third generation platin drug licensed in Europe to treat colon cancer. Aroplatin may have an added advantage over oxyplatin because of its liposome encapsulation, which may include the drug's bioavailability and safety profile. We are initiating Phase II trials with Aroplatin in colon cancer and pancreatic cancer and in both metastatic colon and pancreatic cancer, there is a substantial need for a new and more effective product.

Next, I will speak to you about AG-702. We have initiated our first study in genital herpes, for which there is no cure and is a major problem in U.S. and other developed countries. This represents Antigenics' first application of HSP infectious disease. This study is progressing well and uses a herpes simplex peptide antigen together with recombinant heat shock protein in an off-the-shelf product for a potentially curative treatment of genital herpes. This trial is being conducted at the Fred Hutchinson cancer center, which is the preeminent center in the world for herpes clinical trials.

Next, I will review and summarize with you our recent presentations at the AACR meeting in San Francisco.

There are three points I wish to make. First, there were 35 presentations given from us and several major academic institutions on heat shock protein. Up considerably from years before. The implication of this is that there is now increasing and widespread interest in heat shock proteins.

Second, we presented data in colorectal cancer and melanoma that shows that the mechanism of immune response is the same in both, and the same as extensive preclinical laboratory models in several species. The implication of this is that the Oncophage effects seen in the lab are being seen in human cancers.

Third, we presented data showing that alpha-2 macroglobulin has the exact same mechanism of action on the CD91 receptor as does Oncophage. This is one of the bases for extensive ongoing work that will be part of the development of the next generation of Oncophage.

Let me summarize by saying that this has been a very successful quarter in the clinical development program. We are well on the way with our clinical heat shock protein infectious disease program. The FDA has designated Oncophage a fast-track product for the treatment of melanoma, and we are on track with our goal of commercialization of Oncophage in 2004. That concludes the clinical development update.

Thank you, John.

I will now review the financial results very briefly. Antigenics incurred a net loss of 11.8 million, or 37 cents per share, which includes a noncash charge of 1.3 million for depreciation and amortization, as well as compensation-related option grant expenses.

This compares with a net loss in the first quarter of 2001 of 7.3 million, or 27 cents a share, which also included noncash charges of approximately 1.4 million.

The R&D costs in the quarter were 8.2 million. This compared with 6.2 million in the first quarter of 2001. And increased losses reflect the further advancement of clinical trials of Oncophage, our lead product, coupled with the evolution of the development of other projects. Cash and cash equivalents equaled 102.7 million at the end of the first quarter of 2002 compared to 60.9 million in December 31st, 2001.

Now, I think we're all ready to open up any questions that you may have.

At this time, I would like to remind everyone in order to ask a question, simply press star and then the number 1 on your telephone keypad.

We'll pause just a moment to compile the Q and A roster.

Your first question comes from Martin Roth of FerrickCapital Management.

Good morning, gentlemen. There was one thing that I tried scribbling down and I think I missed it. Garo referred to a five-fold market opportunity. Could you repeat that statement and elaborate on it? And then the other thing I wanted to ask is: Can you comment about how the second generation HSP differs from the first and whether you're into preclinicals on that? Thank you.

Okay. Let me tackle the first question. I made a reference to the fact that the new generation HSP based or HSP technology products for the treatment of cancer may increase our market share by five-fold or more. Or market potential by five-fold or more. This is strictly due to the fact that we'll be able to tap into making product from much smaller tumors with the new technology. That increases the number of different types of cancers that we can treat.

For example, right now, being able to target prostate cancer is difficult in spite of the fact that it's a huge market opportunity because prostate tumors are too small for us to make vaccine. That's one of the reasons we've concentrated on melanoma and renal cell and colorectal cancer and so on and so forth.

In addition to that, we'll also be able to treat earlier-stage disease. Meaning sometimes you'll find that in melanoma, stage 2 and stage 3 tumors are too small for us to treat, and with the new technology, we'll be able to do that. In terms of what the new technology encompasses, without giving you too much detail, which we haven't disclosed, it basically allows us to work with potentially biopsy-size tissue samples in order to be able to make the kinds of product that will be efficacious in a clinical setting.

And lastly, the answer to your question, have we started up our clinical experimental work in this, the answer is yes. We've just started it and this will progress throughout this year into early next year.

Your next question comes from Jim Rodiousof Olian.

Good morning, Garo. A couple of questions. Have you begun the enrollment on the melanoma trial?

Well, the trial just opened for enrollment, and we expect enrollment to begin imminently.

Within the next week or so.

Okay. And in regards to Oncophage for the pancreatic indication, where do we stand today on that particular trial?

I will pass this to Dr. Lewis to answer.

Jim, the first trial, five patients were treated and followed. Because of the outcome there being much more favorable than expected, an additional five patients were treated. Those five patients were successfully treated, and the big difference between that and the initial five was the success rate in terms of making vaccine. Where with the second group it was 100%.

Those patients have been vaccinated and are currently being followed, and data will be presented on these patients, we expect, sometime within the next 12 to 24 months.

And that's in the -- in the first phase? Phase 1 of that trial?

It's a phase 1-2 trial and data will be presented on all 10 patients.

On all ten.

Yeah.

And Garo, just one final one. Can you give us an update on the litigation surrounding the question in regards to, I guess, the IPO and that matter?

Okay. There are -- to my knowledge, there's one litigation that we're involved in that involves a class action suit which primarily targets Wall Street underwriters, and secondarily, targets some 200 companies that were IPO'd by those underwriters in the course of about 18 months.

So we're not the only one. We are in the company of many, many companies. And the charge basically involves preferential treatment by those underwriters of certain clients, and the only reason the companies are dragged into it is because the litigators state that we should have had the risk of such an occurrence as a risk factor, among many risk factors, in our underwriting document.

So that's the only reason we're involved as a company among others.

I believe that there are a number of motions and this does not represent a very big cost for us. We're trying to handle this because the allegations are somewhat frivolous and we're trying to contain this with minimal legal costs in collaboration with other companies that are targeted.

So there isn't much progress to report to you other than the fact that we're awaiting the decision on a number of motions that have been put into place.

But for the most part, this would seem to be a nonissue with -- with you guys?

That's correct.

Okay. Thank you.

Your next question comes from Ren Benjamin of Needham and company.

Good morning. Just have a couple of quick questions for you. One is a general question. You alluded to this earlier but there's been an increased attention and effort surrounding the heat shock protein arena, and as obviously you pointed out, you can see the number of abstracts and, you know, discussions concerning heat shock proteins increasing in the leading scientific conferences.

Can you please comment on how this is affecting Antigenics and your progress?

Sure. Let me -- just as Dr. Lewis mentioned, there's been literally an explosion in the field of heat shock proteins. Most of the work that's been done has been by academic and clinical centers, and obviously we are very gratified that we're in the company of now many outstanding scientists and clinicians who are doing work in this area.

Now, to our delight, when we started working in the field of heat shock proteins, there was literally nobody seriously pursuing anything. That was in 1993/'94, when we formed the company. And we filed all the intellectual property that could be -- we had practically speaking in the field and we possess now the key intellectual property position in heat shock proteins. We've got well over 20 patents that have issued. Our nearest competitor (inaudible) but still involves heat shock proteins has only two patents issued and none of the other companies have patents issued in the field of therapeutic uses of heat shock proteins so far. So we own the bulk of the intellectual property and literally nearly all of it and we benefit clearly because all the work done by others falls into coverage by our intellectual property.

So while we're very pleased with the progress made in the field, we feel very secure that Antigenics owns all of the rights to this field going forward.

Terrific. Thank you very much for answering that question.

One last question. Can you please just reiterate your upcoming milestones for the quarter and for the year, please?

Going forward for the balance of the year, we have a number of key milestones that we've articulated to the investment community. Among them are starting several clinical trials such as the one we talked about, the melanoma trial, which is now open for enrollment. We will be initiating, very shortly, two trials in Aroplatin, one for colorectal cancer, the other one for pancreatic cancer followed by, in the mid to second half of the year, some results coming out of clinical trials. We have results coming out of our QS-21 trials as well as the interim results of our herpes trial towards the end of the year and some final results of our colorectal trials. So it's a busy clinical schedule for us between now and year-end in terms of both initiation of new trials as well as results from some clinical trials.

Terrific. Thank you very much.

Your next question comes from Pat Vessmanof PaineWebber.

Good morning, guys. A couple of quickies. Could you first explain the investment in the applied genomic (inaudible) and secondly could you explain sort of what strategic focus you've got in terms of future alliances and strategic acquisitions since you're raising the share count as announced in the proxy.

Sure. Let me ask the last -- answer the last one first.

We have decided to put into our proxy a change in our share count strictly because when we attempted last year to potentially do a convertible offering, because of the few number of shares authorized, this would have involved a very complex ADR structure in order to price the deal at an point that we would have liked.

Obviously, we never ended up doing the deal, but it brought to our attention that should we do a convertible offering in the future, it would be prudent for us to have additional shares authorized so we don't have to go through this complex structure, which adds to our expenses, by the way. It's expensive to do.

So that's the only reason. We currently are not contemplating on doing any convertible offerings in the foreseeable future. It's just that this will provide us the flexibility, should we decide to do it, a year or two years down the road.

In terms of the AGTC investment, several years ago, along with other companies in the field, we decided that instead of having an in-house effort in genomics -- and as you know, the genomics field was quite exciting and still remains exciting in many ways. Instead of having an in-house effort, which would have been very costly and very expensive, we would invest in a fund called the AGTC, along with other companies in the industry who have invested in it, and we would have basically our tentacles in the field, should anything develop in the field that came to our attention through some of the companies that are in this fund or are investments in this fund, that we would have the ability to have a first look and potentially a first pick.

So we've been actively monitoring progress in this area and will report to you when anything exciting develops, but it's a modest investment that is certainly much less than the cost of doing this would have been in-house.

And in terms of our acquisition strategy, as you know, we've made acquisitions of two companies, two public companies, one in the area of adjuvants and the other one in the area of cancer therapeutics. Both have been integrated into our structure. There's now a lot on our plate. Unless something exceptional comes by, near-term, we're not contemplating on doing any major acquisitions. Should a product-related acquisition opportunity develop that could bring us to the market in terms of commercial presence sooner, so that that would be a prelude to the introduction of our own products and would have an established infrastructure to do that, we would seriously consider something like that.

Thanks a lot.

Again, if anyone would like to ask a question, please press star, then the number 1, on your telephone keypad.

Your next question comes from the line of SchlatkoToddrayof Adam, Harkness and Hill.

Hi, there. Just have a question. On the 1.3 million charge that you said you incurred. Is that including the general and administrative line, or any R&D expenses?

That charge is across the board in all areas. The only reason we broke it out is so that people understand what is a cash hit to our earnings and what is a noncash, because sometimes unless there's a tendency to take the net income and multiply it by a certain quarterly figure to figure out our burn rate. We wanted to make sure that the two are segregated, that the burn rate should be calculated based on the cash charges, not the noncash charges.

Uh-huh. So probably that explains why we kind of saw some up tick in the G&A line, right?

That's correct, yeah.

Okay. And the R&D expenses, you mentioned that you didn't start any new trials in the first quarter, so that would be explained somewhat lower on the expenses for the first quarter?

We didn't start any new trials in the first quarter except that we got set up for the melanoma trial. But compared to last year, there's been a fair amount of activity in (inaudible) in R&D expenses. So perhaps we're slightly below budget, but we expect to be on target for the year.

Okay. And then I just have a question on the just-begun melanoma trial. John mentioned that (inaudible) phase 2 melanoma trial. Could you go over again the design of the trial, how many patients you plan to enroll, what are you going to be looking for, is that an open-label trial, and the time lines for the trial as well?

Certainly. I'll let Dr. Lewis answer that question.

This is a phase 3 randomized trial, and it's a randomization between treatment with Oncophage versus treatment that will be physician's choice with a threshold set for two different agents. Either IL-2 or DTIC, decarbozine.

The trial is set to evaluate a minimum of 230 patients, with a primary end point of survival, and the time line for the trial, the first time line is that we're looking to accrue these patients within 12 months, and then because these events are happening fairly rapidly in these patients with stage 4 disease, we expect to obtain an answer within 12 months thereafter.

Uh-huh. Okay. Great. And you just expect the study to -- the Aroplatin trials in colorectal and pancreatic cancer and what is going to be the design for these?

These trials will be starting within this quarter, and once we start them, we will go into a lot more detail with you just in terms of the design. But I will tell you in broad-brush strokes that both of them are going to be combination trials, so it will conform with the standard of care in terms of what currently is being done. The colorectal will be in refractory patients. The pancreatic will be in first-line patients.

By saying that they're going to be combination trials, that will be with chemotherapy.

Sure.

Okay. You mean like without chemotherapy like Taxol or just as mono therapy for Aroplatin?

Well, no. inaudible) pancreatic cancer it will be with Gencedopine and with colorectal cancer it will be together with another agent.

Okay. Like Irene-oh-T-cam?

Correct.

Okay. And you're still on track to begin in ovarian cancer this next quarter with Aroplatin or you haven't decided.

Well, no. Yeah, at this time, what we've decided is that the highest priority is going to be with pancreatic and colorectal. The next priority is going to be ovarian. The time line for starting that will not be during this next quarter, and depending on the initial results that we see, it may be sometime in the second half of this year.

Okay.

Yes, we are, and again the timing of that we expect will be at some time most likely in the second half of this year.

Uh-huh. Okay. Great. Thank you very much.

Your next question comes from Greg Akesianof Goldman Sachs.

Hey, good morning, Garo.

Good morning.

With respect to the earlier comments about some of the work that's being done on heat shock protein, where is this being published? Maybe you can give a sense of maybe not now, but later, where we can find some of this work and access it.

There has been a considerable amount of abstracts, Greg, that have been published in the AACR abstract book, and there will be quite a few in the ASCO abstracts as well. But certainly we can provide you with a list of these references, some of which are highlighted, by the way, on our website.

Yeah.

But we'll be happy to give you a list of references because we have an active means of monitoring all the efforts in heat shock protein. And the full publications are available upon request from Antigenics.

Right. Yeah. If you'd put them on the website, that would be terrific.

Thanks.

Your next question came from Khalil Barageof Olian.

Hi, Garo. Garo, can you share with us the reasons that led you to go out with the Wall Street Journal Piper Jaffray story?

Well, as you know, Khalil, at the time of the offering, Piper Jaffray had publicly dropped coverage of our company, with no reason articulated, and subsequent to that, I suspect there were leaks, and we got contacted by the Wall Street Journal and a number of other publications as well.

After repeated contacts, we decided that it was the responsible thing for us to share what had happened because in our opinion and in the opinions of many, what had happened was inappropriate, at a minimum, unethical, possibly beyond that. But -- so we shared our story with the Wall Street Journal and they did a very diligent job of checking the story from multiple sources to make certain that it was accurate, and the rest of it is said very well in that publication.

And are you happy with the feedback that you have gotten so far?

We have gotten very complimentary feedback from essentially everyone.

Uh-huh.

Basically, complimenting us on the fact that this was a gutsy thing to do for a company because a small company like ours could be strong-muscled by the big financial institutions, but that we stood for our rights and that this is something that should not repeat itself going forward in this industry, because it's not in the best interests of shareholders, certainly, and also not in the best interest of the biotechnology companies who are on track for pursuing their worthy work in the field.

So, yes, we are very pleased with the feedback we've gotten.

Okay.

There are no further questions at this time. Do you have any closing remarks, sir?

Thanks very much, everyone, for participating, and we always look forward to your ongoing questions and dialog, so if you have any inquiries, please do not hesitate to call us at Antigenics. We'll be happy to accommodate you in every way possible.

So thanks once again for everyone participating.

This concludes this morning's conference call. Thank you for participating. You may now disconnect.