Agenus Inc (AGEN) 2006 Q3 法說會逐字稿

Good morning. My name is Jody and I will be your conference operator today. At this time, I would like to welcome everyone to the Antigenics Report Third Quarter 2006 Financial Results Conference Call. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to Mr. Robert Anstey. Please go ahead, sir.

Thank you, Jody, and good morning, everyone. Welcome to Antigenics' conference call to discuss the financial results for the quarter ended September 30, 2006. With me today are Dr. Garo Armen, Chairman and CEO; and Shalini Sharp, Vice President 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 have a corporate update. We will then take any questions you might have.

But before we continue, I would like to remind you that this conference call will contain forward-looking statements, including statements regarding the Company's convertible note financing; the Company's ongoing commitment to reduce cash burn; the QS-21 option agreement with Acambis; the Company's potential revenue from option fees, development milestones, manufacturing fees and royalties under its QS-21 agreements; the potential market for and the growth and development of products containing QS-21 by the Company's collaborative partners and licensees; the current and future clinical development and commercialization of Oncophage; and the Company's Phase I clinical programs involving Aroplatin and AG-707 and the 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; timely and successful development of QS-21 manufacturing capabilities; 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 Securities and Exchange Commission on August 9, 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 call, 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 Shalini Sharp, who will review the financial results for the third quarter.

Thank you, Robert, and good morning, everybody. I will now review our financial results for the quarter ending September 30, 2006.

For the third quarter of 2006, Antigenics incurred a net loss attributable to common stockholders of $11.2 million, or $0.24 per share. This is compared with a net loss attributable to common stockholders of $17.5 million, or $0.38 per share for the same period in 2005. The reduced loss is primarily attributable to the Company's ongoing commitment to reducing cash burn.

With effect from January 1, 2006, we implemented Statement of Financial Accounting Standards Number 123-R related to the expensing of stock-based compensation. This resulted in a non-cash charge for the third quarter of approximately $1 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 sale and supply of QS-21, our vaccine adjuvant product for clinical development purposes. Revenues amounted to $216,000 for the three months ended September 30, 2006, as compared to $77,000 for the same period in 2005.

Total Research & Development costs for the quarter ended September 30, 2006 were $6.3 million, compared with $12 million for the same period in 2005. This reduction largely represents decreased clinical trial expenditures related to our Phase III clinical trials and other decreases in both the clinical and preclinical areas related to our commitment to reduce cash burn.

The third quarter of 2006 also includes a non-cash charge of $300,000 related to expensing stock compensation.

Total General & Administrative expenses for the third quarter were $4.7 million, compared to $5.2 million for the same period in 2005. The reduction was primarily due to our ongoing commitment to reducing cash burn. The third quarter of 2006 includes a non-cash charge of $700,000 related to expensing stock compensation.

Turning to the balance sheet, cash, cash equivalents and short-term investments amounted to $24.4 million at September 30, 2006, as compared to $61.7 million at December 31, 2005. After the quarter-end, we executed an agreement for the sale of $25 million of convertible notes to a group of private investors.

Over the last twelve months, we have taken significant steps to reduce our operating expenses. As a result of these actions, we have significantly reduced our annualized projected cash burn rate to approximately $35 million based on our current plans and projections.

We continue to remain focused on cost containment measures and hope to reduce our burn rate further on a going-forward basis.

Given our current cash position, the $25 million recently raised, and our goal of reducing our burn rate further, we believe that we will have sufficient cash to fund our operations through mid-2008.

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

Thank you, Shalini, and thank you all for joining us this morning.

Now I'd like to provide an update on our key programs as well as some additional information on the recent financing.

This morning, we were pleased to announce that we have completed a $25 million financing in a convertible note offering with a group of private investors. Our cash balance is now sufficient to advance our operations, as Shalini said, for approximately one and a half years. This run rate would extend further with our goal of lowering our net cash burn below the current rate of $35 million annually, as Shalini pointed out.

This transaction is the first step in building the financial base for Antigenics to bridge the gap for the maturity of our QS-21 franchise around the turn of the decade. In the meantime, we will make prudent, focused investments in exploring, development and registration opportunities for Oncophage and our other ongoing clinical research of Aroplatin and AG-707.

I'd like to make it clear that our cash will not be put forward in additional large trial of Oncophage in kidney cancer or melanoma. Instead, we will be pursuing development of registration opportunities in both RCC and perhaps other indications on the basis of our past trials, and we'll do so in a financially prudent manner. Any future Antigenics-sponsored trials in these indications would likely be in the metastatic setting and in combination with other agents.

Now, turning to the terms of the deal. As I mentioned, we're receiving the $25 million in exchange for an 8% convertible note maturing in 2011. We made great efforts in the process of considering this investment to make sure that shareholder dilution and cash burn, when structuring the note, is a primary objective of how we'd like to go forward. Accordingly, we have secured a convert price of $3.50 per share, representing a premium of about 75%, and negotiated to make interest payments in the form of additional notes, as well as cash, but we can decide this at our own option at each payment period.

In addition to the common stock conversion, the note holders have the option to convert into ownership of our QS-21 and AG-707 subsidiary, which constitutes now our non-cancer business. The $25 million principal can convert into a 30% stake of the subsidiary. This is significant. We now have an outside validation of the value of those two assets, especially QS-21, something that we feel investors had not valued very much in the past at all.

Now, I should also point out that this conversion of the note holder into the QS-21 asset is also countered by our ability to purchase their right to do so in cash within proper notice to [us]. So it is not a full-gone conclusion that the investor of these notes will convert into QS-21 at that -- when they decide to do so.

On the topic of QS-21, in today's release, we announced the signing of also a two-year option agreement with a company called Acambis, and received an upfront option prepayment. Under the terms of the agreement, we have the right to receive an option maintenance fee after one year if the option is extended, or an upfront license fee if the option is exercised.

During the option period, Acambis will evaluate QS-21 for use in its innovative M2e influenza vaccine, as well as in its more traditional influenza vaccine. If the option is exercised, we have the potential to earn development milestones, sublicense fees, annual -- minimum annual payments, manufacturing payments as well as royalty upon commercial sale. We are highly excited with this opportunity to participate in the flu market, one that has recently received significant public attention and investor interest.

Now that I've updated you on our recent developments with QS-21, I think it's worth taking a minute to outline the key points of this program, since it is one that is of increasing importance to us.

First, as many of you know, the vaccine business is poised for significant growth by as much as 13% or more per year through the year 2010 and beyond. There have been five reports published in the last four months, by both brokerage houses as well as consulting firms, on the exciting growth opportunity that's presented by vaccines for the industry. And this is obviously against the background of most pharmaceutical industry businesses have been lagging, and the key players in vaccines are expanding their development and commercialization activities. Antigenics, with our [inaudible] of QS-21, has a stake in this growth via our license agreements with the market leader, GlaxoSmithKline, Wyeth, Elan and others.

There are two important aspects of our exposure to this market and with regard to our QS-21 business that I think is worth pointing out.

First, we do not have all of our eggs in one basket with QS-21 because it offers potential utility in practically any vaccine or with any antigen. So QS-21 is currently included in more than a dozen vaccines in clinical development for a variety of indications as well as ten preclinical development programs. So our development risk here is very diversified.

Second, these programs don't put a financial burden on us. As we noted in the past, our licensees fund all of the clinical development of vaccines containing QS-21.

And the last point I'd like to make is with regard to QS-21 is that we participate in the success of more than a dozen clinical stage products, as I said, in ten preclinical stage vaccine products, being developed by half a dozen companies in the form of manufacturing revenues, milestone payments and, most importantly, royalty payment after product launch, which will allow us the opportunity to track the growth in the overall vaccine market.

To move on to other areas this quarter, we also made important portfolio management decisions to allow us to continue our progress in the development of Oncophage, Aroplatin and AG-707, our herpes vaccine.

To focus and conserve resources, we have deferred activities on AU-801, our autoimmune program, for the time being.

We continued our Aroplatin trial and expect to reach the maximum tolerated dose in this study as early as the first quarter of 2007, at which point our goal is to launch a second trial. Enrollment in the second cohort of investigator-sponsored trial of Oncophage and glioma is also [going] done. It's been completed and the presentation of early data by the investigator is likely to happen before the end of this year.

We've narrowed our list of candidates for combination with Oncophage and are planning a first trial launch in approximately mid-2007.

And lastly, we continue to enroll patients in our genital herpes trial, AG-707.

And with all of that, I'd like to end my prepared remarks and see if we have any questions from the audience that we can answer. Robert?

Thank you, Garo. At this time, we are ready to take questions. Jody, could you please review the question and answer [inaudible]?

Yes, sir. [OPERATOR INSTRUCTIONS] Your first question comes from Mark Monane of Needham & Company.

Hi. Actually, this is Richard in for Mark. Good morning, everyone. Thank you for taking the question. First question I want to ask Garo, if he can make some general comments of any of the QS-21 deals with the different companies, and do you have a general guideline, what type of prompt payment of royalties are you going to receive or milestone payments?

Is that the question?

Yes.

Okay. Well, we have disclosed limited information on the financial structure of our QS-21 deal, but as I said in my presentation, they involve manufacturing fees, milestone payments as well as royalties. Now, the royalties associated with this product line per deal and per product category start at first commercial launch and typically continue for ten years or more, and the typical royalty range anywhere from 2% to 4.5%. But in terms of the specifics of what kinds of milestone payments we will get, we haven't disclosed those, with the exception of the fact that we've already received a milestone payment this year, and if you analyze our financial statements, you may be able to figure it out, depending where you look, but I think it's fair to say that we don't really have the freedom to announce the payment, the dollar amount of the payment, per deal.

Thanks. A second question also related with QS-21 is are your collaborations with Wyeth -- does that QS-21 which included in Wyeth's upcoming Alzheimer's vaccine?

Yes.

Okay.

QS-21 is in an essential component in the [inaudible].

So is that the deal -- is it comparable to other deals that you just mentioned?

I think it's within the range of the number that I provided you.

Okay. Thanks very much.

Your next question comes from Ren Benjamin of Rodman & Renshaw.

Hi. Good morning and thanks for taking the question. Just on Oncophage, Garo, if we can just talk a little bit about what's happening with the development program there, and I'm sorry you kind of quickly ran through it so I couldn't copy it down on my notes. Can you just review first again what -- where we are with the RCC trial? You mentioned in the press release that there will be some follow-up analysis by the middle of 2007. What kind of analyses would -- could we expect? Would it be updated progression-free survival analysis? Would we be looking at survival? If you can just expand on that. And then, if you can give us a little clarity as to what you may be thinking as far as the melanoma trial is concerned as well.

So let me elaborate on the RCC trial. What I said during my presentation on this occasion is that we are not going to spend money to do another large randomized trial in any of the past indications like melanoma and renal failure carcinoma, only because of two considerations -- that they take a very long time to complete, and the reason they take a very long time to complete is the inherent nature of the patient population that we're targeting. As you may know, most cancer products are targeted for late-stage patients, and to complete a trial in a last-stage patient population is relatively quick, but if you are targeting patients in the adjuvant disease setting with an intent to potentially cure them, those trials are lengthy, and to do two such trials is not just financially prohibited, but also a timeline prohibited exercise.

However, it is our strong belief that our existing -- the data that we have generated so far and the data that we will generate with additional follow-up, as you said, through the end of the first quarter of next year, both with regard to survival and with regard to recurrence-free survival, will be strongly indicative of activity of our products. That is our belief. And, to the extent that the additional data, as the data matures, strengthens the earlier data that we have gathered and analyzed, that should make the point a bit more clear.

So with that in mind, we are attempting to -- in a responsible fashion, to explore the registration of Oncophage, in particularly renal cell carcinoma, in various geography. And we don't know the outcome of those efforts, but certainly, exploring those pathways are not anywhere near as costly as starting a brand new trial, consummating that trial.

With regard to other Oncophage programs, we have a glioma trial ongoing. We are -- it's early in the process, but we have reasons to believe that that effort should be continued. It's a small trial, and even if it's expanded because of its indications, it will still be a small trial, because glioma is a smaller [inaudible]. And tertiarily, with regard to Oncophage, we are also pursuing the potential of combining Oncophage with other agents that we believe can be justified based on synergistic rationale. As you know, not very many cancer drugs are used as single-agent products. And while we believe that Oncophage is effective as a single-agent product in the adjuvant disease setting, we believe that its efficacy could be significant enhanced in the late-disease setting with the use of combination drugs. And so those programs I expect to be launched sometime mid-year next year, and once again, we're talking about small trials that are not going to be very cash-consuming. These are typically going to be 20 to 30-person trials, not 7, 800 patient trials.

So that's the recap on Oncophage strategy. It's a three-pronged strategy -- pursuing registration based on existing data renal cell carcinoma; pursuing glioma; and therapy pursuing combination drugs.

So just as a follow-up to that. The melanoma trial -- is that pretty much put on the back burner while these -- this strategy is focused on?

I think to the extent that we can use the melanoma trial results as supportive evidence, we will do that. But for now, we have no immediate plans to pursue another melanoma trial as a single-agent approach.

Got it. Just a final question. Can you highlight for us any milestones, presentations that may be coming up for the remainder of the year or the beginning part of the first half of next year?

The closest one would be presentation of the glioma data by the end of the year. Then there will be -- beyond that, at various times over the next twelve months, there will be milestones associated with development of our QS-21 programs by partners and, while we don't have any exact information as to the timelines associated with that, I think we can expect that to happen. I think you can expect additional data on the more mature analysis of Oncophage in renal cell carcinoma to be presented over the course of the next six months or so. And then certainly, the maximum tolerated dose of Aroplatin having been established [inaudible] expect some time in the first quarter will give us an indication on the development path of that product in diseases such as pancreatic cancer where there's a major [inaudible].

Perfect. Thank you very much.

[OPERATOR INSTRUCTIONS] Your next question comes from Kevin Williams of [Perceptive].

Hi. I guess this is a question for Shalini. If I look at the Q from 6/30, it looks like around $53 million in long-term liabilities and convert -- you add the new $25 million, so you're going to end the year -- call it 80-ish, a little under 80 for long-term liabilities and convert?

Well, the original $50 million convert, obviously will remain on the balance sheet as it is, and -- sorry, excuse me for one second. Oh, I apologize. I'm told that [inaudible]. As I mentioned, the $50 million convertible note will obviously remain on the balance sheet at the end of the year. Then there is a new convertible note which will be classified as a long-term liability so the two of those are obviously almost $80 million on their own, and the rest of the items are obviously much less material.

Okay. And can you remind us again what the fully-diluted share count is with equity incentive plan, stock options, warrants and preferred equity, and then, I guess, this new convert. What's fully-diluted all in?

The approximate number is about 60 million. If you want to give us a call after this call, we can give you a more exact count.

Okay. That's helpful. Thank you.

Also, the one reminder -- and I had a couple questions about this from various parties, is that our earliest debt payment due date is five years from now, and the second one is approximately five and a half years from now. So nothing matures until 2011, 2012. And there is no early put option associated with these obligations.

[OPERATOR INSTRUCTIONS] At this time, sir, there are no further questions. Are there any closing remarks?

Yes, there are. So, to close the call, a replay will be available approximately two hours from now through midnight eastern time on November 14, 2006. Please dial 800-642-1687 from the U.S. or use the international number which is 706-645-9291. The access code is 8954597. The replay will also be available on our company website in approximately two hours. If you have any additional questions after today's call, please call us at 800-962-AGEN. Thank you.

Thank you. This concludes today's Antigenics Report Third Quarter 2006 Financial Results Conference Call. You may now disconnect.