Agenus Inc (AGEN) 2008 Q2 法說會逐字稿

Good morning, my name is Rodney, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2008 Antigenics Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to our host, Mr. Robert Anstey. Sir, you may begin your conference.

Thank you, Rodney, and good morning, everyone. Welcome to Antigenics' conference call to discuss the results for the second quarter ended June 30, 2008.

With me today are Dr. Garo Armen, Chairman and Chief Executive Officer; and Shalini Sharp, Vice President and Chief Financial Officer.

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 have the Q&A session.

But before we continue, I would like to remind you that this conference call will contain forward-looking statements, including but not limited to statements regarding the Company's financial position, the current and future development, regulatory and commercialization activities and timelines for Oncophage, including our strategies for commercialization in Russia, the decision and timing for filing a marketing application for conditional authorization in Europe, the potential for filing in other territories, and present and future clinical trials and product candidate developments by the Company and its licensees including Antingenics' QS-21 licensees.

These risks and uncertainties include, among others, the risk of the inability of the Company to successfully implement a product launch strategy for Oncophage in Russia, the potential failure to operate within the Company's targeted burn rate and identify additional means of cost savings, decisions of regulatory authorities, including the FDA with respect to the export license for Russia, decisions of doctors, patients and our collaborative partners and licensees, geopolitical developments, unfavorable data, retention of key employees and the factors described under the "Risk Factor" section of our Annual Report on Form 10-Q filed with the SEC for the period ended March 31, 2008.

Antigenics cautions investors that we do not expect to generate significant revenue from sales of Oncophage in Russia for several months, if ever. The amounts of revenue we generate will depend on, among other things, securing reimbursement mechanisms and physician and patient assessment of the benefits and cost effectiveness of Oncophage. Antigenics also 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

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 capital expenditures, 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 quarter.

Thank you, Robert, and good morning, everybody. I will now review our financial results for the quarter ended June 30, 2008.

For the second quarter of 2008, Antigenics incurred a net loss attributable to common stockholders of $12.2 million, of $0.19 per share. This is compared with a net loss of $10.1 million, or $0.22 per share for the same period in 2007. For the six months ended June 30, 2008, Antigenics incurred a net loss attributable to common stockholders of $23.4 million, or $0.39 per share. This figure includes approximately $7.5 million in noncash charges related to depreciation, amortization, share-based compensation, and noncash interest. The company incurred a net loss attributable to common stockholders of $18.9 million, or $0.41 per share for the same period in 2007, which includes $6 million in similar noncash charges.

Additionally, in the first half of 2007, we received $3 million in nonrecurring QS-21 milestone payments.

Revenues for the second quarter of 2008 were $595,000 generated from QS-21 license fees, royalties, and product shipments. Revenues were $1.4 million for the same period in 2007.

In the second quarter of 2007, we received and recognized a QS-21 milestone of $1 million. Revenues for the first half of 2008 were $1.4 million compared with $3.8 million in the first half of 2007. Again, the 2007 figure includes $3 million of nonrecurring QS-21 milestone payments.

Research and development expenses for the quarter ended June 30, 2008, were $5.8 million compared with $6.1 million for the comparable period in 2007. This decrease primarily reflects the reduction in clinical trial and share-based compensation expenses. General and administrative expenses for the three months ended June 30th were $5.7 million, compared with $4.4 million in 2007. This increase is attributable to registrational and prelaunch activities in Russia as well as noncash stock-based compensation expenses.

Our net cash burn for the second quarter of 2008 was $6.9 million compared with $6.8 million for the same period in 2007. Net cash burn for the six months ended June 30, 2008 and 2007, was $16.3 million and $15.2 million, respectively. The 2008 results reflect, among other things, the Company's efforts in Russia and Europe, while the 2007 results reflect significant nonrecurring milestone payments received from the Company's QS-21 licensees.

We have $49 million in cash, cash equivalents, and short-term investments at the end of the second quarter. We believe our current cash balances are sufficient to fund our operations into the second half of 2009.

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

Thank you, Shalini, and good morning, everyone. Most of the progress in the second quarter of 2008 is related to advances we had made towards the commercialization of our lead product, Oncophage.

In April of this year, Russia approved Oncophage for the treatment of non-metastatic renal cell carcinoma patients at intermediate risk of disease recurrence. These are patients who have approximately a 40% chance of relapse after the surgical removal of their tumor. This particular patient group, who were treated with Oncophage showed nearly a 50% decrease of their cancer returning in comparison to patients who are not treated with Oncophage.

This means that intermediate-risk patients in Russia who normally run a significant risk of their cancer coming back in the form of metastatic disease now, based on the approval of Oncophage in Russia, can expect to lower this risk substantially. As you are aware, once patients progress with metastatic disease, even the newly approved treatments cannot reverse the course of metastatic renal cell carcinoma.

Since the Russian approval, we have focused the bulk of our efforts on the launch of Oncophage in Russia. I can report that significant progress has been made, and that we are progressing towards commercialization before the end of the year.

In preparation for launch, we are working with a number of prestigious cancer treatment centers in Moscow and other major Russian cities, which have been identified as centers of excellence. These centers will be some of the first to make Oncophage available to patients. As part of these pre-launch activities, we are training working groups comprised of surgeons, pathologists, coordinators, and urooncologists conducting general marketing activities throughout Russia and working on other logistical issues that are necessary for launch.

We have organized and participated in presentations and symposia at important scientific and medical meetings within Russia that focus on urology and oncology. At these meetings, we have presented our data and conducted focus groups with some of the most prominent key opinion leaders in Russia.

One of our goals is to build on the groundswell of support for Oncophage in hopes that doctors will better understand and the beneficial impact of Oncophage that it could have on patients.

We also continue to work with the FDA on a license for the export of the finished Oncophage product to Russia after its manufacture at our Lexington, Massachusetts, facility. So far, based on our deliberations, the FDA has not identified any issues regarding the content of our application. However, the bureaucratic workings of the agency remain a challenge, and we are working with them to move forward as expeditiously as possible.

While most of our team is focused on the operational and marketing efforts in Russia, our regulatory group is working diligently on our efforts in the European Union, where we are on track to submit a marketing application authorization filing under the centralized review procedure. We have already completed a number of the steps in this process, and our target filing date is before the end of 2008. As a reminder, our filing will be under the conditional approval pathway as we believe this mechanism is ideally suited for promising technologies such as Oncophage.

Beyond Russia and Europe, we are reviewing the possibility of making additional regulatory filings in other countries. These countries include additional BRIC countries such as Brazil, India, and China. Since our Russian approval, big and small companies located in these markets have inquired about the possibility of taking Oncophage to market there.

Additionally, we are in the very early stages of contemplating a filing in the United States. We have recently met with a number of very high-profile key opinion leaders in the field of oncology here in the U.S. including at the recent ASCO annual meeting in Chicago. Their feedback has been encouraging, and a consensus has emerged that we should consider a BLA filing with the U.S.

While we are not quite ready to pull the trigger on this, we will consider and further evaluate such a step very, very carefully.

I will now turn briefly to the rest of our pipeline once again focusing on recent progress. Our licensees, GlaxoSmithKline, Elan, and Acambus are moving a multiple of development programs containing our vaccine adjuvant, QS-21, forward. In total, there are 16 clinical stage vaccines currently under evaluation that contain our QS-21 vaccine adjuvant.

These vaccines cover a number of indications including melanoma, non-small cell lung cancer, malaria, and influenza, among many others.

Most recently, GlaxoSmithKline presented Phase 2 data from their MAGE-A3 antigen specific immunotherapy for metastatic melanoma that contains QS-21. The data they presented indicate that a number of clinical responses and a high proportion of immune responses to the vaccine were seen in this historically very difficult-to-treat patient population.

This most recent palliative data adds to the abundance of evidence from a number of studies concluded in the last 12 months regarding the immunostimulatory effects and clinically significant outcomes from various vaccines containing QS-21. This enthusiasm was reflected in comments made just yesterday by the newly appointed CEO of GlaxoSmithKline who said, "One of GSK's most promising new areas of drug research is therapeutic vaccines."

Now turning to our Phase 1 programs, we are in the process of wrapping up the initial studies of AG-707 and Aroplatin. We are evaluating blood samples collected from the genital herpes patients who were treated in the AG-707 trial to see if an immune response occurred against the viral antigens contained in this (inaudible) heat shock protein-based vaccine. We expect to have data from this trial by the end of this year.

Aroplatin Phase 1 study, we have reached a maximum-tolerated dose of Aroplatin in solid tumors and B-cell lymphomas and are reviewing this data so that we can determine the path forward for this compound.

Oncophage is undoubtedly our primary focus and the consumer of most of our resources and energy at the moment. We believe that Oncophage is an exquisitely attractive asset with meaningful near-term but also very significant long-term potential. We are working very diligently and deliberately on unlocking this potential currently in Russia and moving forward in Europe where the economic opportunity of this product is abundantly apparent.

We will also proceed with exploring additional filing and commercial opportunities where we might be able to make Oncophage available to patients in the near term. In addition to these efforts in kidney cancer, we are committed to the expansion of this broadly applicable product into new indications. Development is ongoing in glioma as the Phase 2 study continues to evolve, and we are investigating a number of additional clinical opportunities.

We are also confident that the QS-21 pipeline will continue to mature in the hands of our licensees and look forward to determining the next steps for our other pipeline products.

In closing, I want to point out that the fundamentals of our company have strengthened since the start of this year and continue to strengthen as we move closer to unlocking the significant value associated with Oncophage not to mention the low-risk, yet enormous upside potential of QS-21 asset.

I look forward to updating you soon as we make further progress. I hope that this update has been useful, and I will now open up the call for questions you may have. Robert?

Thank you, Garo. At this time, we are ready to take questions. Rodney, could you please review the Q&A process?

(Operator Instructions) Aaron Lindberg, William Smith & Company.

Thanks for the update. A couple of quick questions for you -- what caused you to elect to conduct additional immunology analysis on the AG-707 data?

Your question is -- what caused us to conduct immunology in the AG-707 trial?

Additional immunology -- that was one of the things that you had in your release there was that Antigenics had elected to conduct additional immunology analysis there, and so I guess my thought is there something beyond what you typically do as far as aggregating that data?

Well, as we go along, as you know, this is a small study, and we are trying to gather as much information as we can physically gather from the trial. So as new technologies become available that allow us to look at additional data, it would be prudent for us to do it, because it is an exploratory trial, it is a Phase 1 trial, and would like to have as much scientific and clinical information as possible for us to smartly design and figure out what the next steps will be with AG-707.

Okay, and so just due to technical advances since you started the trial, there is additional information that you can gather that you just didn't originally plan on? Am I getting that right?

That, plus the fact that as you do a trial and find out the realities of how many blood samples you can accumulate, and what else you can do with it, it has become clear that we may be able to look at additional data to provide more clarity to the trial.

Okay, great. And then on Aroplatin, how is the toxicity profile looking at this point?

As you know, when we started our efforts, we expected Aroplatin to have a better toxicity profile, but we also expected that we would reach the maximum tolerated dose because no matter how benign the toxicity profile may or may not be, with products such as platinum analogs, you will reach a dose beyond which you cannot push because the patients will suffer toxic effects.

So we expect that we will meet with our key investigators and key opinion leaders to look at the totality of the data and determine what the next steps should be with Aroplatin. That includes, for example, should we do a trial in combination with other compounds at below the maximum tolerated dose or should we look at potential other aspects of our formulation to decide how to move forward? So those decisions have not been made, and as you can imagine, Oncophage is our key priority along with QS-21. So perhaps these secondary programs have not gotten as much attention simply because we don't have all the resources that we can invest in them.

Fair enough. And then as it relates to Oncophage, do you have any updates regarding progress with payors in Russia at this point -- regional or central government or otherwise?

That is one of our key focuses, certainly. As you know, private pay is always available, and that market has been growing in Russia, but our key challenges are to see how we can tap into the larger segment of the government pay market, and we are making continuous progress in that area, but I don't have anything to report to you that is new.

Okay. Can you just refresh me -- when did you originally file for the export license with the FDA?

I believe that was done in April -- April 14th is the date.

Okay, great, and I think they said that's typically a 60-day process and, obviously, it's going a little bit slower than you planned, but is there any more detail you can provide as it relates to your expectations for resolution there?

Not anything more than I alluded to in my comments just recently, which means that we have not identified or neither have they any issues with our application, but I cannot control who goes on vacation and how many times they take vacation at the agency. So we're confronting a number of issues including that issue, and we're working diligently to resolve them. But, suffice it to say, that the process has taken more than the 60-day period, and our interest is to put it to rest as quickly as possible, and we're pushing every button that we can to make sure that it happens, and we won't stop until it happens.

Neal Karelitz, Oppenheimer & Company.

I also read that article on Reuters yesterday about the enthusiasm that the CEO of Glaxo had about cancer vaccines and their potential. Specifically, how many trials does Glaxo have ongoing using QS-21 as one of their ingredients in MAGE-A3 and when would the earliest be that we might get an update on their lung cancer trial or any other trial that they're conducting right now using QS-21?

The number of Glaxo trials that use QS-21 are the majority of vaccines currently in clinical development in the Glaxo portfolio. And we haven't, I think, disclosed the exact number, so I will leave it at that. But you can perhaps look at the number 16 and deduct the number of others and reach the number that you are interested in, which is a very significant number.

So there are products in Phase 1 development, in Phase 2 development, and Phase 3 development at Glaxo that use QS-21. In fact, probably, I'd be safe to say that when you look at specifically with therapeutic vaccines, not exclusive with the therapeutic vaccines but specifically to therapeutic vaccine, it's probably reasonable to assume that GlaxoSmithKline's portfolio includes QS-21.

As you know, the programs have been talked about in various different forms by Glaxo, but we know, for example, publicly, they have stated at least two programs that contain QS-21 in it in Phase 3 development. Malaria has been published, and MAGE-A3 lung cancer trial has been published, and lung cancer trial started approximately a year ago, and it is enrolling patients, and we expect that data from that patient, the interim analysis, perhaps will be out as early as 2010 or 2011.

Ren Benjamin, Rodman & Renshaw.

Just a couple -- the first one is, is Europe the next targeted comment for regulatory approval or do you think some other country could come in first -- Brazil, India, China? Can you give us maybe a little sense as to the timing of these regulatory filings?

Certainly, Ren. European filing is going to happen this year, so that is part of our strategy, and we are getting ready, in fact, may be almost ready to do that filing in the next several months.

With regard to the other countries, the process has not -- the formal process has not yet started where the formal process in Europe is well underway. So I can answer the question about Europe with much more certainty that we are on our path to file this year, but the others require some more work before we take the steps.

Okay. And I guess, within Europe, there seems to be a couple of pathways with which you could seek approval. There is, of course, the conditional approval, which you mentioned, but there also seems to be something that could be considered new. At least, I haven't heard of it before, but a company recently mentioned it -- an approval pathway called "extenuating circumstances." Do you know about this, and have you explored that pathway, or have you decided that conditional approval is the best way for you to go?

You are right that a recent company got approval under a pathway that is new -- also new, just like conditional approval is, but the most important thing is that Europe is approaching their approval process in a much more flexible and in a much more scientific way. So they look at the totality of the information, not just the traditional rigid standards by which we have approved product in the U.S. and elsewhere.

So the key message to take home is that Europe is making allowances for products that deserve consideration.

Now, as to your very first question, we know about this exceptional circumstances, if you will, that the other said company has pursued. It is our belief that we are much better suited for conditional approval and have decided strategically to pursue that pathway.

As you know, there are a number of clearly stated criteria that defines one's qualification to file under conditional approval, and it is our belief, objectively, that we qualify for the criteria that has been laid out.

Okay. But I'd probably be correct in assuming, as well, that the regulatory agency could choose to grant one approval over another even if you are applying for one type of approval. Would that be correct or no?

I don't know the answer to that. We will get that answer from our development and regulatory folks. If you could call us back, I will have a more precise answer to it.

So what you are saying is that can the regulatory agency switch things around? I don't know the answer to that. They could certainly make recommendations, and we would be probably wise to listen to their recommendation, but I don't know the specifics of any precedence for that to have happened.

Okay. And then just one final question, if you can, the milestones, as you see it, for the rest of the year -- the things that we should be looking forward to from Antigenics? Thanks very much.

I think the key milestone is for us to launch Oncophage in Russia before the end of the year, certainly, and I think the steps that are necessary for that to be put into place are clear to us. While there is no certainty on any of this, we are confidently working towards that goal.

And a second very important milestone is for us to file in Europe. As you know, filing with the EMEA is not a trivial process. It is an extensive process even for a large company, it is a momentous task, and just the fact that we have been working on this very diligently, so far, and that we will be able to pull it off, and that we have met with the regulatory authorities in Europe, the EMEA certainly as well as the rapporteur and the co-rapporteur that has been assigned to us and have had good sessions with them makes us comfortable that we will be able to file and then hope for a very, very positive outcome.

Richard Jacinto.

Good morning, Garo. Can you please discuss the key considerations in determining whether you would or would not file in the U.S.?

Among the key considerations, Richard, certainly we decided several months ago that we should meet at least with some of the key people in the U.S. in the field of oncology and urology, and I am talking about heads of some of the major cancer institutions in this country, and keep them updated on the progress that we are making with Oncophage elsewhere, meaning, more specifically, Russia and Europe and possibly other countries -- just from an informational perspective. And, unexpectedly, at these meetings the conversation has always started coming to what will you do in the U.S.?

And while perhaps two years ago, these very same individuals would have told us that a U.S. filing is a suicidal undertaking because there is absolutely no pathway with which a successful outcome can be achieved in the U.S., to our surprise in these meetings that took place in the last three, four months with these key individuals, the comment was made that the data is a lot more compelling than they anticipated, and that we have -- we should seriously consider filing in the U.S. even though there is no traditional pathway that has been identified because this approach -- these stages or patients and particularly in kidney cancer and the quality of life considerations associated with this product, warrant a special consideration.

Now, that's great, but it's not money in the bank, and, as you may realize, a U.S. filing is another major undertaking and, again, we are a small company with limited resources, and we don't really want to invest a lot of effort behind a U.S. filing unless we have some definition and some understanding in our meetings -- future meetings -- with the agency that perhaps it's worth pursuing.

Now, you should also realize that there is some misperception that we had been rejected by the U.S. That is not true. We have never approached the FDA for consideration. And the reason we haven't approached the FDA is because based on our own analysis and based on the historical advisors that we have used, we have not been able to identify a pathway for U.S. approval.

So that's why we have never gone to the agency and asked for their consideration for filing. But we may, as we said in my comments just now, we may. That would be contingent upon several things. It's not something that we would do this year, for sure, okay? It would be contingent on how well we're progressing with our commercial activities in Russia, and also how well we are progressing with our post-filing discussions with the EMEA.

So with that information, sometime next year, we may make a decision to pursue or not to pursue in the U.S.

[Promoad], in a recent article in Scientific American, he talks -- let me read this -- a quote from the article -- "An application of the U.S. Food and Drug Administration is awaiting more data on the patients' long-term outcomes." I'm guessing he's talking about the Phase 3 RCC trial. Could you please elaborate on what he means there?

As some of you may know, at the conclusion of our RCC trial analysis last March; that is, March of '07, we indicated that we will have a survival registry in place, and that registry will be ongoing for three years and that during that time, we will collect additional survival data on patients who have been treated with Oncophage as well as patients who were untreated in the control arm.

Now, let me just remind some of you that the very initial look at the data on Oncophage was in November of '05, and that data suggested that we were seeing an important trend that became statistically significant if we looked at the intermediate risk population on recurrences. However, at that point, we had not seen a separation of the curves in survival.

So in November '05, we had seen in intermediate-risk patients a nice trend that was statistically significant in recurrence survival but not yet in overall survival. When we looked at the second data cut -- the cutoff -- which was in March of '07, approximately a year and a half later, and that was at the suggestion of some of the key experts because they said this trend is important because you are seeing about a 50% reduction in recurrences, and that's something that deserves paying attention to, but we would like to see if you follow patients longer is this trend going to persist? Is it real?

So in the year and a half later, not only did this trend persist, but it got stronger, so recurrences got stronger, and both in terms of the hazard ratio as well as the p-value in the intermediate-risk patient population.

However, we also started seeing a similar trend, not yet statistically significant, in overall survival. So, for the first time, as you wait it out, a survival trend started developing, and the hazard ratio of that survival was similar, it was a portion, basically, the hazard ratio of the recurrences -- or recurrence with survival.

Now, at that point, we made a decision that perhaps we should have a survival registry because that was the most cost-effective way of gathering additional information that would be meaningful on our patients. If we did, for example, if we followed them for recurrences for an additional three years, the cost of that would be prohibitive. So with the modest cost and the fact that overall survival was a very meaningful endpoint, obviously, we decided to have the survival registry.

And what Promoad is referring to in the Scientific American article that just came out, by the way, in addition to that, we also had the Lancet publication, as we indicated in our press release, so both the Lancet publication on our renal cell carcinoma trial and the Scientific American publication came out in the month of July.

So what Promoad is referring to is that survival registry.

I guess, obviously, what you're saying is, depending upon how that survival data pans out would be another determination in whether you would or would not file in the U.S.?

That's correct.

Aaron Lindberg.

Just a couple of quick ones here -- are the operating expenses in Q2 a good proxy for the rest of the year?

Yes, a little bit, perhaps, adjustment as we step up our launch activities in Russia. Launch will happen as soon as we get all the administrative issues out of the way. One thing that you should concentrate on, however, before I turn it to Shalini, is our burn rate, the actual burn rate, and not just the operating expenses, because operating expenses are not -- total operating expenses, as defined in our financial statement, are not indicative of how much money we are burning but, Shalini, you can clarify this a bit more.

Sure, Aaron, I think it's pretty fair to take our operating expenses through the first half of the year and continue them as they are. But I think you might see some elevation in the G&A line, because that's where you're going to see the effects of some of the pre-launch activities in Russia that we are undertaking right now and, actually, you'll see potentially a slight increase in R&D as well because the regulatory activities related to the EMEA filing will hit that line. And these are heavily weighted towards the latter part of the year.

So I think we're not going to be far off what we've been burning and what we've been expensing, but we could expect to see a little bit of elevation for the remainder of the year.

Okay, great. And when do you expect the first product containing QS-21 to be launched?

I think the earliest timeline is late next year, early 2010, Shalini?

Yes, I think we've been saying in the 2010 timeframe, and we're still on track for that, as far as we know.

Okay. And then have the recent results of Elan's Alzheimer's drug impacted your outlook on QS-21 at all?

No, not at all because, as you know, there are a couple of issues here, which I am not qualified to opine on other than the fact that the amyloid pathway is alive and well. I know there has been some noise about whether or not this pathway does work, but there have been a substantial number of publications including a Nature cover story publication some years ago that strongly indicate the implication of amyloid plaque in the course of Alzheimer's disease.

While I am not familiar with the details of the study that they published and the controversy around it, it is my conviction from my days as chairman of Elan that the active vaccine, which is the product where our QS-21 is used, is a very, very promising product even though we have had several different versions of that active vaccine, the early data and then the follow-up data on that active vaccine was very, very promising.

(Operator Instructions) At this time, there are no further questions.

Thank you very much for everybody's time. Robert, do you have some closing comments?

Yes. I'd just like to remind the listeners that a replay of this call will be available approximately two hours from now through midnight Eastern time on August 14th. Please call 1-800-642-1687 from the U.S. or 706-645-9291 internationally. The access code is 55836270. A replay will also be available on our company website in about two hours. If you have any additional questions after today's call, please call us at 1-800-962-AGEN. Thank you.

This concludes today's Q2 2008 Antigenics Conference Call. You may now disconnect.