Agenus Inc (AGEN) 2006 Q4 法說會逐字稿

Good morning. My name is Kathy and I will be your conference operator today. At this time I would like to welcome everyone to the Q4 and year-end 2006 Antigenics Inc. earnings conference call. (OPERATOR INSTRUCTIONS). Thank you. Mr. Anstey, you may begin your conference.

Thank you, Kathy, and good morning, everyone. Welcome to Antigenics' conference call to discuss the financial results for the quarter and year ended December 31, 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 provide 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 ongoing commitment to reduce cash burn, the Company's anticipated sufficiency funds and ability to bolster its cash position, the potential market for and the growth and development of products containing QS-21 by the Company's collaborative partners and licenses, the current and future preclinical and clinical development and commercialization activities and time lines for Oncophage and the Company's Phase I clinical programs involving Aroplatin and AG-707 and the potential development patents. These risks and uncertainties include, among others, the risk of the inability of the Company to operate within its targeted burn rate and identify additional means of cost savings, 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, timing and successful development of QS-21 manufacturing capabilities and the factors described under "factors that may impact future results and management's discussion and analysis of financial condition and results of operation" section of Antigenics' Form 10-Q as filed with the SEC on November 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 of these risks and uncertainties.

Before we move on I would like to note that for the purposes of this call, the phrase net burn rate means cash used in operating activities plus cash from investing activities less debt repayments and dividend payments.

With that, I will now turn the call over to Shalini Sharp, who will review the financial results for the fourth quarter and fiscal year.

Thank you, Robert, and good morning, everybody. I will now review our financial results for the quarter and year ended December 31, 2006.

For the fourth quarter of 2006, Antigenics incurred a net loss attributable to common shareholders of $11.7 million or $0.26 per share. This is compared with a net loss attributable to common shareholders of $17.9 million or $0.39 per share for the same period in 2005. For the year ended December 31, 2006, Antigenics incurred a net loss attributable to common shareholders of $52.7 million or $1.15 per share, compared with a net loss attributable to common shareholders of $74.9 million or $1.64 per share for the full year 2005. The decreased loss reflects the Company's restructuring efforts, completion of most Phase III clinical trial activity and ongoing cost savings measures, among other factors. Effective January 1, 2006, we implemented Statement of Financial Accounting Standards No. 123(R) related to the expensing of stock-based compensation. This resulted in a non-cash charge for the year ended December 31, 2006 of approximately $3.3 million. This charge is reflected in operating expenses and in our net loss attributable to common shareholders for the year ended December 31, 2006. For the fourth quarter of 2006, this non-cash charge amounted to $1.2 million.

Turning to our income statement, revenues are comprised primarily of the licensing, sale, and supply of QS-21, our immune adjuvant to our collaborative partners. Revenues amounted to $320,000 for the three months ended December 31, 2006 as compared with $348,000 for the same period in 2005. For the year ended December 31, 2006, revenues amounted to $692,000 as compared with $630,000 in the year ended December 31, 2005. Total research and development costs for the quarter ended December 31, 2006 were $6 million compared with $10.7 million for the same period in 2005. R&D costs for the year ended December 31, 2006 were $28.6 million as compared with $47.1 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.

Total general and administrative expenses for the fourth quarter were $5.3 million compared with $6.4 million for the same period in 2005. Total G&A expenses for the year ended December 31, 2006 were $21.3 million as compared with $25.9 million for the same period in 2005. This reduction was primarily due to our ongoing commitment to reducing cash burn.

Turning to the balance sheet, cash, cash equivalents and short-term investments amounted to $40.1 million at December 31, 2006 as compared with $61.7 million at December 31, 2005. The year-end 2006 balance reflects the proceeds received from an agreement to sell $25 million of convertible notes to a group of private investors in October.

Subsequent to the end of the year, we disposed of our interest in Applied Genomic Technology Capital Fund or AGTC, a limited partnership. This resulted in $1.5 million in net cash proceeds. The selling process for AGTC resulted in a write-down in the value of this asset at December 31, 2006 of approximately $806,000. This non-cash charge is reflected in the G&A expenditure line on the income statement.

Also subsequent to the end of the year, Antigenics completed the transfer of manufacturing technologies and know-how related to QS-21 to GlaxoSmithKline. We have received a $2 million payment in connection with this milestone.

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

Thank you, Shalini, and thank you, everyone for joining us today. I would like to start out this morning by giving you a comprehensive update on our products through which we expect to participate in the growth of the emerging cancer market. I'm sorry, the emerging vaccine market.

As you may be aware, there has been a lot of excitement with the introduction of Gardasil, a novel vaccine for the prevention of cervical cancer. The vaccine marketplace is now proclaimed as the highest growth segment of the pharmaceutical market over the next 10 years in recent reports published by several dominant brokerage houses and consulting firms.

In addition, and more specifically for cancer vaccines, there are positive hints of potential for regulatory reform. An indication of this was the recent two-day work shop, held jointly by the FDA and the NCI, the National Cancer Institute, during which the FDA Commissioner and the NCI director directly addressed the needs for regulatory reform to bring about this new class of products to patients.

Among the points that emerged at the FDA NCI workshop were, number one, that cancer vaccines are most appropriate for use in patients with less disease burden, as there is a strong biological rationale for activity in this patient category. Two, given this fact, current regulatory guidance translates into the need to very large and long trials to support the approval process of cancer vaccines in earlier stage patients. And three, current regulatory guidance primarily addresses development of cancer drugs targeted for treatment of later stage disease.

Both of these trends are encouraging. Firstly, an emphasis on the growing vaccine marketplace with the introduction of a new generation of preventive and therapeutic vaccines is likely to address major unmet needs in health care today. And secondly, the FDA NCI incentive initiatives to advance regulation in tandem with advances in technology and science are likely to benefit patients with the introduction of this potentially important new class of medicine.

Let me now take a few moments to outline how we participate in this new era of vaccines with our two important and tangible platforms. The first is through Oncophage, based on our heat stock protein technology platform, and the second is QS-21, based on our saponin adjuvants platform.

Let me start with the second one, our QS-21 vaccine adjuvant platform. Since most of you may not be familiar with what QS-21 is, and what it means to the success of a substantial number of high-tech vaccine candidates that are presently undergoing clinical trials by GlaxoSmithKline, the world's largest vaccine company with the most robust vaccine pipeline, as well as other companies in academic centers.

QS-21 is Antigenics' powerful vaccine adjuvant and a key component of GlaxoSmithKline adjuvant arsenal. This point was made in a presentation by GSK's head of vaccine research at the recent FDA workshop. QS-21 is used in a number of GSK's adjuvant cocktails and is also a critical component of a very advanced adjuvant formulation, called AS-15, designed to generate powerful CD4 and CD8 t-cell responses, which are considered necessary in generating protective and therapeutic immunity.

It is important to note the following in the context of QS-21. One, that QS-21 is used as an adjuvant in many vaccines undergoing clinical trials for the prevention and treatment of diseases. These include vaccines for cancer, infectious diseases, as well as degenerative disorders. Two, we have agreements to supply QS-21 to five companies engaged in vaccine development. Three, while our initial patents on QS-21 expire starting in 2008, we receive royalties for a minimum of 10 years post product launch. Four, our royalty rates are 2% to 4.5% of sales, depending on the Company and/or product. Five, there are currently about 15 products formulated with QS-21 in clinical development and 20 plus products in preclinical development. Six, the first set of products formulated with QS-21 is expected to be launched in the 2010 time-frame, with a ramp-up of launches expected in the period from 2010 to 2015. And seven, QS-21 is a profitable business for Antigenics today because we sell products to all our licensees at a profit for clinical trial purposes. In addition, we receive milestone payments prior to launch like the one that we received yesterday, for example, that Shalini talked about, in the amount of $2 million, followed by royalties upon launch.

I hope this summary on QS-21 has provided you with a better understanding of the facts and opportunities regarding this very important adjuvant in the development of a new generation of vaccine product candidates by some of the world's leading participants.

Let me now turn to Oncophage, our own cancer vaccine product candidate. As most of you know, last year, we announced results from a very large randomized Phase III trial in kidney cancer. More specifically, renal cell carcinoma or RCC. While the analysis was ultimately performed on less than mature set of data, and that this trial did not meet its intended endpoint, the results from the trial provides us with very important insights into the stage of RCC patients who are most likely to benefit from Oncophage. These findings are also consistent with the biological rationale suggesting that patients with lesser disease burden are the right population for cancer vaccine treatment. If you remember, this is also consistent with the opinion of the experts from the NCI FDA vaccine workshop that I spoke about earlier, including comments made by the director of the NCI.

In our initial analysis of our large randomized trial we observed a recurrence-free survival benefit in patients with lesser disease burdens. With a nominal p value equaling 0.018 and a hazard ratio of 0.56, suggesting a reduction of approximately 44% in disease recurrence in patients treated with Oncophage. These lesser disease patients in whom a benefit was observed accounted for 60% of the total adjuvant population enrolled in our trial. These patients with lesser disease burden are also classified as intermediate risk patients by the Eastern Cooperative Oncology Group, otherwise known as ECOG. So therefore, they represent a well-defined patient population.

It is important to note that patients with intermediate risk of recurrence are an important and growing population of renal cell carcinoma patients, growing in numbers primarily because of earlier diagnosis of disease. It is also important to note that there are no treatments currently available for these patients other than surgery. Although there have been recent product approvals for renal cell carcinoma, these approvals have been for patients with metastatic disease only.

Now, where do we go from here? Certainly, due to financial constraints and the impracticality of timelines associated with a second such trial, we have made a strategic decision not to initiate another large renal cell carcinoma trial. We will close our current RCC study at the end of March and provide an updated data on both recurrence-free survival and survival, overall survivor, after the analysis is complete in mid 2007. After the March close we will open a patient registry for the study. This allows us to track recurrences and survival for a number of years at a relatively modest cost to Antigenics.

The primary purpose of the analysis after the close of the study in March 2007 and the survival registry that will follow is to track the outcomes in a large patient group who has yet to recur or die. Our expectation is that more mature data will strengthen the benefit we are already seeing in this population. Once again, a trend that would be consistent with both the biological rationale and the consensus of the key experts at the [SCI] and NCI workshops I mentioned previously.

The next question is, what does all of this mean from a regulatory and commercialization perspective? In the United States, we are encouraged by the efforts at the FDA in collaboration with the NCI to adopt more appropriate guidelines for registering cancer vaccines. However, based on the current regulatory framework, our Phase III trial is unlikely to be sufficient for U.S. marketing approval. Because of this, in the near term, we will focus our efforts in kidney cancer on exploring the possibility of making Oncophage available to patients in countries outside of the U.S. through various pathways. These geographies include Canada, Japan, Russia, and Europe.

Outside of kidney cancer, Oncophage is moving forward in clinical development in recurrent glioma. Enrollment is almost complete in the last cohort in the Phase I portion of the investigator-sponsored study and updated data from the trial will be presented at the American Association of Neurological Surgeons in April. We will move on to the Phase II portion of this trial soon, which, if positive, may be used as the basis for developing a registrational strategy in this indication. We are also wrapping up the preclinical evaluation of Oncophage in combination with other agents, with the goal of launching in 2007 one or more clinical trials in stage 4 patients. We also continue to refine our [in cure] process for purification of Oncophage, which may allow for vaccine manufacture from smaller tumor masses.

Now, a very quick update on our Phase I program. Completion of the dose ranging study of Aroplatin is imminent. We will initiate a second trial in combination with another chemotherapy [date] shortly after reaching the maximum tolerated dose in the current trial. The lead candidate targeted indication is pancreatic cancer in combination with gemcitabine because of the high unmet need this indication represents.

With regard to our infectious disease program, enrollment continues in our ongoing Phase I AG-707 study in genital herpes. To date, we have enrolled about one-third of the patients in the study and expect to kick off immunological testing around year-end.

With regard to our cash position, we took two important steps in 2006. One was the raising of $25 million via the sale of convertible debt. This 8% note is convertible at $3.50 a share, representing a 74% premium to our market price at the time. With this financing, our cash balance at the end of 2006 was approximately $14 million.

The second step was a significant reduction of our burn rate while allowing for the realization of value from our pipeline and programs. We have reduced our annualized net burn rate to between $30 million and $35 million. We have been operating within that range for the last several months and going forward, our goal for 2007 is to upgrade at the low end of this range and to continue to look for additional savings. This represents over a 50% reduction in our annualized burn rate prior to the implementation of our cost-cutting initiatives.

That concludes my prepared remarks. Now, Shalini and I will be happy to field any questions that you may have. Robert?

Thank you, Garo. At this time we are ready to take questions. Kathy, could you please review the question-and-answer process one more time?

Kathy? The process?

(OPERATOR INSTRUCTIONS). Mark Monane.

Regarding QS-21, I heard you say 15 products in 15 trials using the product in clinical development and 20 in preclinical. Does that 20 include the 15 or is it 35 in clinical and preclinical testing?

That 15 is strictly clinical and the 20 is preclinical.

Okay, so that's 35. And I know you probably love all the children but is there one program or two programs that you think will lead to real value creation at Antigenics?

Could you repeat that, Mark, because I think you spoke while I was finishing your question.

Oh, I'm sorry. Maybe I didn't hear your answer. I apologize. Did you say (multiple speakers)?

Just to clarify, there are 35 different programs -- 15 in clinical and 20 plus in preclinical development.

Great, thank you. Now, I know you must love all the children the same but, are there one or two programs that we might be able to highlight from the platform QS-21 that will provide value creation at Antigenics?

I think we are not privy to or at least allowed to openly discuss the programs of other companies. But I will tell you that most recently, GlaxoSmithKline highlighted its lung cancer program that incorporates QS-21 as an adjuvant that will be initiating Phase III development imminently. And in separate published articles, their malaria vaccine, also using QS-21, has been highlighted. So those two programs are in the public domain and, therefore, I mentioned them.

And how about the Alzheimer's disease program with QS-21? I know that has previously had results in there and I believe the trial is being redone now. Do you have any comments on how QS-21 might add value to that program and if any -- do you have any update on the state-of-the-art there?

So, right, so if your question is, is the reformulated cancer -- I'm sorry, Alzheimer's vaccine used QS-21 as an adjuvant, the answer to that question is yes.

And do you have any updates on that program or --? That you could provide to us?

I believe it has been publicly indicated that the program is in Phase I development being ready to go into Phase II.

(OPERATOR INSTRUCTIONS). At this time, there are no further questions.

Well thank you very much for all of your time. We appreciate your attendance, and these comments will be posted on our Web site and I believe (technical difficulty) you know for accessing them as well. Robert?

Thank you, Garo. To close the call, a replay will be available approximately two hours from now through midnight Eastern time on March 7, 2007. Please dial 1-800-642-1687 from the U.S. or use the international number, which is 706-645-9291. The access code is 8810929. The replay will also be available on our Company Web site 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 call. You may now disconnect.