Agenus Inc (AGEN) 2006 Q2 法說會逐字稿

Good morning. My name is Maleka and I will be your conference operator today. At this time, I would like to welcome everyone to the Antigenics Report Second Quarter 2006 Financial Results Conference Call. [Operator Instructions]

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

Thank you and good morning, everyone. Welcome to Antigenics’ conference call to discuss the financial results for the quarter ended June 301, 2006. With me today are Dr. Garo Armen, Chairman and CEO, and Peter Thornton, SVP and CFO.

We hope that all of you have had a chance to review the press release that was issued this morning. During this call we will review the financial results as well as provide a corporate update. We will then take any questions you might have.

Before we continue, I would like to remind you that this conference call will contain forward-looking statements, including statements regarding the Company's ongoing commitment to reduce cash burn, the Company’s potential revenue from development milestones, manufacturing fees and royalties under its QS-21 agreements with GSK; the development of products containing QS-21 by the Company’s collaborative partners and licensees and the expected net costs and instruments of such development; the Company’s ongoing collection of data from its Oncophage Phase III Part 1 kidney cancer trial and the future clinical development and commercialization of Oncophage; and its future preclinical and Phase I clinical programs involving Aroplatin and AG-707, and second generation Oncophage and their potential development paths. These risks and uncertainties include, among others, the risk of unfavorable data resulting from the analysis of the Oncophage Phase III Part 1 kidney cancer trial data; retention of key employees; clinical trial enrollment; decisions by collaborative partners and licensees; decisions by regulatory agencies; timing and results of clinical and preclinical studies; and the factors described under "Factors That May Impact Future Results in the Management’s Discussion and Analysis of Financial Condition and Results of Operations" section of Antigenics' Form 10-Q as filed with the SEC on May 12, 2006. Antigenics cautions investors not to place considerable reliance on the forward-looking statements contained in this call. These statements speak only as of the date of this document, and Antigenics undertakes no obligation to update or revise the statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. Antigenics' business is subject to substantial risks and uncertainties, including those identified above. When evaluating Antigenics' business and securities, investors should give careful consideration to these risks and uncertainties.

I will now turn the call over to Peter Thornton, who will review the financial results for the past quarter.

Thank you, Shalini, and good morning to everybody. I will now review our financial results for the quarter ended June 30, 2006.

For the second quarter of 2006 we incurred a net loss attributable to common stockholders of $14.3 million, or $0.31 per share. This is compared with a net loss attributable to common stockholders of $21.3 million, or $0.47 per share for the same period in 2005.

This reduced loss is primarily attributable to reduced operating expenses as clinical activities on Oncophage Phase III trials were completed during Q1 2006 and the positive impact of cost reduction actions, which the Company has taken to date. We anticipate the full benefit of these cost reduction activities to be seen as the year progresses, particularly those cost reduction activities undertaken in April 2006.

It's worth noting that with effects from January 1, 2006 we implemented SFAS 123(R) related to the exposing of stock-based compensation. This resulted in a non-cash charge for the second quarter of approximately $1.0 million charged to operating expenses and included in our net loss attributable to common stockholders mentioned previously.

Turning to our income statement, revenues are comprised primarily of the sales via QS-21, our vaccine adjuvant product for clinical development practices. Revenues amounted to $96,000 for the three months ended June 30, 2006, as compared to $85,000 for the same period in 2005. We anticipate revenues increasing above Q2 levels as the year progresses, as our partners continue and expand development of products containing QS-21 and order additional clinical supplies.

Total R&D costs for the quarter ended June 30, 2006 were $7.9 million, compared with $13.1 million for the same period in 2005. This reduction largely represents the initial impact of cost reduction measures taken in December 2005 and April 2006, resulting in lower payroll costs, the prioritization of programs and the completion or closure of Oncophage Phase III clinical trials over the last few months.

The second quarter of 2006 also includes the non-cash charge of the $100,000 related to expensing stock compensation.

Total G&A expenses for the second quarter were $5.4 million, compared with $7.5 million in the same period in 2005. The reduction was primarily due to reduced payroll costs and other cost containment actions as a result of cost cutting and prioritization of activities. The second quarter of 2006 includes a non-cash charge of $900,000 related to expensing stock option compensation.

Turning to our balance sheet, cash, cash equivalents and short-term investments amounted to $31.9 million as of June 30, 2006, as compared to $61.7 million at December 31, 2005. Shortly after the quarter-end, we received a milestone payment from one of our partners for QS-21 of approximately $3.0 million.

Over the last nine months, we have taken some very significant steps to reduce our operating expenses. We continue to remain focused on these cost containment activities so as to prudently manage our business. During the quarter and rapidly after releasing the Phase III results from Oncophage in kidney cancer, we implemented a restructuring of our business. This restructuring eliminated 42 positions, while further focusing activities on our earlier-stage programs.

As a result of these actions, we have significantly reduced our annualized projected net burn rate to approximately $30 million based on our current plans and projections. Given our current cash position and anticipated burn rate, we believe that we will have sufficient cash to fund our operations through June 2007.

This concludes the financial portion of the call and I will now turn it over to Garo to continue.

Thank you, Shalini and Peter and thank you, everyone, for joining us this today. Now I would like to update you on the Company’s operational highlights.

A few weeks ago we announced the expansion of our license and supply agreement with GlaxoSmithKline (GSK) for the development of our vaccine adjuvant QS-21. QS-21 is a key component in a number of GSK's vaccines in clinical development. Under the terms of the agreement, royalties due to Antigenics will extend to at least 10 years beyond the first product launch. In addition, Antigenics will earn revenues on the supply of a portion of GSK's QS-21 requirements to 2014, as well as milestone payments.

In addition to GSK, QS-21 is a key component in a number of vaccines being developed by our other collaborative partners and licensees, including Élan, Wyatt, Pharmexa, and Advanced Biosciences Laboratories. For these licensees we are the exclusive suppliers throughout the term of the agreements and earn royalty income, manufacturing payments and milestones.

There are two important things to note about all of these collaborative partnerships and licensees. First, royalties due to Antigenics on sales of vaccines containing QS-21 are tied to commercial introduction and time on the market as opposed to patent coverage. Second, development expenses are funded entirely by the licensee.

Fifteen prophylactic and therapeutic vaccines that contain QS-21 are currently in clinical trials by various companies, including GSK. They are used for a number of indications in infectious diseases, cancer and neurodegenerative disorders. The first of these vaccines is expected to come to market as early as 2010. We recently received a $3.0 million milestone payment from one of our QS-21 licensees.

Until now, QS-21 has been somewhat of a sleeper product in our portfolio and hasn’t received much attention externally. But we are very excited by the developments being made by our partners. Because QS-21, Oncophage, and AG-707 are three vaccine programs in our portfolio, we are poised to participate in the exciting growth of a new generation of high tech vaccines that is coming of age in our industry.

I will now turn to Oncophage. Oncophage is a product, which many investors and analysts have written off because we were not able to show significant activity in the overall patients studies in our Phase III trials. Nonetheless, these trials indicate significant activity in earlier stage patients and we will be exploring paths to registration of Oncophage and we’ll do this with very measured expenditures.

As you may recall, in June we announced the results from a further analysis of our Phase III of Oncophage in renal cell carcinoma (RCC) and metastatic melanoma. In the renal cell trials, patients who received Oncophage in a better prognosis subset showed a reduction of 43% in recurrence-free survival, with a hazard ratio of 0.567 and a p-value of 0.018, all of which indicate meaningful benefit to patients in this category.

This is a very substantial benefit in a very well defined group of patients that represents 60% of the 604 full analysis set patients. We continue to follow patients in this trial for survival and we have been encouraged by the trends to date.

In the melanoma trial, patients with Stage IV M1a, M1b disease who received at least 10 doses of Oncophage showed a 143% improvement in overall survival, with a hazard ratio of 0.427 and a p-value of 0.017. This data is very encouraging and confirms a vast body of preclinical research that indicates the better activity of cancer vaccines in healthier patients.

So, despite the fact that this is a subset analysis by standard criteria, it is one that is grounded in scientifically and biologically supported facts and data. Our path to commercialize Oncophage is likely to include Oncophage in small combination therapy trials measuring tumor response in advanced disease patients as well as Oncophage manufactured through an improved process.

Lastly, I would like to cover some of our activities in earlier stages of development. Our ongoing Phase I study of Aroplatin, a third-generation platinum chemotherapeutic, is enrolling very rapidly. The study is designed to find the maximum tolerated dose of Aroplatin and there is a backlog of patients currently waiting to enroll as we go through the dose cohorts.

To give more clarity in the future development of this product, we have preliminarily identified pancreatic cancer as a good target indication for three main reasons.

First, as you know, Aroplatin is a liposomal drug. This might confer a number of benefits, one of which is its preferential distribution in the liver, meaning that drug collects in that organ more so than in other organs. This is an advantage in pancreatic cancer and in other cancers that metastasize to the liver, primarily.

Second, the development field in pancreatic cancer has cleared up recently with the failure of two high profile drugs that were designed to show clinical benefit and both products failed.

Thirdly, because of the high, unmet medical needs, this indication represents a relatively fast route to approval. We will take these factors and the results of our Phase I trial into account when planning the future of Aroplatin.

Finally, our Phase I trial of AG-707 in genital herpes and the investigator-sponsored Phase I/II trial of Oncophage in recurrent glioma continue to enroll patients.

And lastly, what I'd like to reiterate is the point that was made by Peter, in that in the past 12 months we’ve taken significant steps to reduce our burn rate. And currently, we’re operating at a burn rate that is expected to continue to go down over the next few months for us to be able to sustain operations over the next 12 months.

And thank you very much. I think we’re ready to take questions, Shalini.

Maleka, could you please review the process for asking questions?

[Operator Instructions] Mark Monane with Needham & Co.

Thank you, good morning. I have a couple of questions. The first question, please, is for Garo and Peter and that is the $3.0 million that was received as a payment for the QS-21, how will the revenue recognition work in this case?

Hi Mark. I think basically that quite obviously we have actually received the cash into our bank accounts, so it's in our bank account. We will expense, or rather we will recognize that milestone payment over the life of the agreement, basically, over the expected benefit period.

And have you announced what that expected benefit is or maybe if you haven’t, can you tell me what the patent to QS-21, a little bit about the patent life?

Well, I think this would be independent of patent life in terms of how we would recognize the revenue and it’ll be based on the period in which we have significant activities ongoing and product licensee on QS-21.

And Peter, as long as we’re talking about patents, are you able to review with me what the patent life is, yourself or Garo, please, for QS-21?

Sure. I think that’s public information, Mark. We’ll be happy to review it. Before I do that, I just wanted to clarify a point that may have been implicitly implied in your question, in that. The receipt of this cash by Antigenics, while the revenue recognition is over a period of time, the receipt of this cash is not reversed. So that money, as Peter said, is in our accounts and irrespective of what happens with the program or programs, that money will not be returned to the licensee, as per the agreement.

The second question about patent life. The initial patent on QS-21 starts expiring in 2008 and that’s one of the reasons I made a point very specifically, both regarding our new life, new agreement with GSK as well as our existing partnerships with other licensees. In that these agreements cover the receipt for royalties, royalty income by Antigenics or starting with the first introduction of products by respective companies.

So, in essence, by doing this, particularly in the case of GSK, which covers a significant number of products in clinical trials today, we have extended the receipt period for the receipt of royalties by our licensee partners.

Got it. Okay. Thank you for that information. But I’m unclear about -- I’m sorry. Maybe I missed understood. You said the patent expires 2008, but that’s the initial patent but are there further patents around the QS-21 franchise?

No. We have other patents with respect to QS-21, some of which expand beyond 2020.

2020, great. Moving to the products that you talked about, that Aroplatin and Oncophage in glioma and the genital herpes study. I know these trials are underway. Do you have any more information for us, please, about when we might get to see some data from these products?

I think, reasonably, both from Aroplatin trials as well as the glioma trial, we will see data sometime around year-end.

Year-end, good and how about the genital herpes 707 trial? I know it’s underway.

I think that’s a trial that’s underway. However, because one of the key measures for activity in that trial is immunological activity and we don’t anticipate we will be done with patient enrollment until at least year-end with that trial. I believe that results are likely to come in more in the second quarter of next year or mid-next year.

Mid next year? And are you using the QS-21 product in the AG-707 product as well?

We haven’t disclosed that, Mark.

Okay. Very good. Thank you very much for the review and the added information.

Ren Benjamin with Rodman & Renshaw.

Hi, good morning and thanks for taking the questions. Garo, just a quick question on the regulatory strategy. Do you plan on waiting for the survival results from the RCC trial before going to the FDA? Or do you plan on meeting with the FDA ahead of that, once you’ve done some more in-depth analysis with the current results and data that you have? Can you expand on that a little bit more for us?

Certainly. I think, as we have said before, Ren, that we will be collecting additional data in our RCC trial, both with regard to survival as well as recurrence-free survival end points through, certainly, the end of this year and perhaps the beginning of next year. And I think we have additional work to do.

And as Peter indicated, while this work involves a lot of cohorts and advice from inside and outside of the Company, it is not the kind of expensive undertaking that we were incurring during the time of the active period of our Phase III trials. So that’s one of the reasons I indicated in my remarks, that the expenditures associated with these activities will be very modest.

We will go to the agency when we have additional clarity and additional data as to our strategy, because clearly Oncophage and targeting adjuvant patient populations represent a new paradigm in cancer treatment. And there are lots of things that need to be explored, both for our sake, the sake of the cancer vaccine field as well as for the FDA's sake. And so before we waste anyone's time, I think it would be prudent for us to work very seriously to see how we can scientifically explore a logical path that may be ahead for us.

Okay. And can you just give us an update on some of the other programs? So, I remember a while back and it's probably still ongoing, Son of Oncophage, I think was the name of the product, the next generation Oncophage product and then also any information you can give regarding timing of the combination trial with Oncophage.

Certainly. I think the first question about the second generation Oncophage, there are many generations of Oncophage that need to be explored. But currently, because of the prudence that we’re exercising in the way we go about our business, we have not pursued many other generations except an improved Oncophage process, which has shown to be nearly twice as active in preclinical models.

And so we are eager to see that product enter the clinic and under certain circumstances we may be able to get an improved process introduced into our Oncophage manufacturing some time this year. And so some of our development programs will incorporate product made from that process. That’s number one.

Number two, with regard to combination trials, we have been very prudent in exploring only those that are sensible, or at least I should say only those that have the highest probability of success in combination with Oncophage and we are eager to start those programs. In one specific case, we are in active discussions with a third party who has possession of this product or the combination candidate product and I hope that we will be able to enter the clinic with this very exciting program within the next several months.

Terrific. Thank you very much.

[Manny Ricer].

Good morning, Garo. Garo, in your introduction you indicated that there would likely be increasing revenues for the remainder of the year. Is that implicit that it’ll be more royalties from QS-21?

Okay, I think that was a remark made by Peter Thornton, Manny. The answer is yes, but Peter could elaborate.

Yes. It will be derived from QS-21 and basically, as our partners and licensees advance more product through the clinic, their demand for clinical supplies is increasing and therefore we anticipate the revenues from that going up. Not just through the remainder of this year, but in the future as well.

Yes. I mean, but what we’re doing, Manny, is making projections based on the input that we have received from our licensees as to their demand for QS-21 over the next several years. As Peter said, not only more programs are entering the clinic, but also existing programs are advancing into much larger trials and when that happens, clearly QS-21 demand will increase.

Okay and is one of those programs, Garo -- you mentioned also partners with Élan and I know in the past Élan was using QS-21 in the trial for Alzheimer’s, which they had stopped about a couple years ago. They’re resuming or they’ve continued work in the Alzheimer’s area. Is QS-21 part of their Alzheimer’s work?

It is. Élan, and this is public knowledge I believe, that has two programs in the clinic. One of the programs, which is the active vaccine, as opposed to the passive antibody, the active vaccine product in Phase I clinical trials, that’s been [inaudible].

Okay. Thank you very much, Garo and Peter.

Maged Shenouda with UBS.

Thanks for taking my question, just a follow-up on Mark Monane's question. You mentioned that the $3.0 million will be recognized over the expected benefit period. I was just hoping you could clarify what exactly is that expected benefit period.

I guess it would be more precise, Maged. It will be recognized over the period in which we have active, ongoing obligations to our licensees, basically. So I would -- obviously this is a third quarter item, from a revenue recognition point of view, and it’ll be fully disclosed in our 10-Q for the third quarter. But what you can expect to see is that over the period of time that we have day-to-day operational obligations, that we will recognize it over that time period.

Any further clarity?

What would you like to, Maged. Perhaps if you can clarify --?

I mean, just how many years would that be?

Okay. Are you trying to forecast our revenues?

Right, exactly, right.

Okay.

I think what you’d probably likely on that particular one to see it through to about 2014 or thereabouts.

Okay. Thank you.

And just again, once again for clarity, that money has been received and will remain with us irrespective of the revenue recognition criteria.

Thank you.

At this time, there are no further questions.

Well thanks for everybody's time on this brief call. Shalini?

Thank you, Garo. To close the call, a replay will be available approximately two hours from now, through midnight ET on August 15, 2006. Please dial 800-642-1687 from the U.S. or use the international number, which is 706-645-9291. The access code is 3169931 and the replay will also be available on our Company website in approximately two hours.

If you have additional questions after today’s call, please call us at 800-962-AGEN, or 2436. Thank you.

This concludes today’s conference. You may now disconnect.

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