Agenus Inc (AGEN) 2008 Q3 法說會逐字稿

Good morning. My name is Jennifer and I will be your operator today. At this time, I would like to welcome everyone to the Antigenics third-quarter 2008 earnings 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)

Mr. Robert Anstey, you may begin your conference.

Thank you, Jennifer, and good morning, everyone. Welcome to the Antigenics' conference call to discuss the results for the third quarter ended September 30, 2008. With me today are Dr. Garo Armen, Chairman and CEO, and Shalini Sharp, Vice President and CFO.

I 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 a question-and-answer 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 and the potential for additional authorization in Europe; present and future clinical trials and presentation of data; product candidate developments by the Company and its licensees, including Antigenics' QS-21 licensees and potential revenues from our QS-21 franchise.

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 or obtain reimbursement; potential failure to operate within the Company's targeted burn rate, and identify additional means of cost savings; decisions of regulatory authorities, including the Ministry of Health, with respect to import and export licenses 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 Factors section of our quarterly report on Form 10-Q filed with the SEC for the period ended June 30, 2008.

Antigenics cautions investors that we do not expect to generate significant revenue from the sale 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'd 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, the Company' Chief Financial Officer, who will review the financial results for the second quarter.

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

For the third quarter of 2008, Antigenics incurred a net loss attributable to common stockholders of $11.1 million or $0.17 per share. This is compared with a net loss of $11 million or $0.24 per share for the same period in 2007.

For the nine months ended September 30, 2008, Antigenics incurred a net loss attributable to common stockholders of $34.5 million or $0.56 per share. This is compared to a net loss of $29.9 million or $0.65 per share for the same period in 2007.

Antigenics recognized revenue for the quarter ended September 30, 2008 of $685,000 compared with $863,000 during the same period in 2007. Revenues were primarily generated from QS-21 license fees, loyalties, and product shipments to a number of our corporate partners.

For the nine months ended September 30, 2008, net revenue was $2.1 million compared with $4.7 million for the same period in 2007 -- no, my apologies. I'd like to move onto the research and development expenses for the quarter ended September 30, 2008, which were $5.4 million compared with $6.1 million for the comparable period in 2007. For the nine months ended September 30, 2008, research and development expenses were $17 million, compared with $18.1 million for the same period in 2007.

General and administrative expenses for the three months ended September 30, 2008 were $5.1 million compared with $4.6 million in 2007. G&A expenses for the nine months ended September 30, 2008 and 2007 were $16.1 million and $13.3 million, respectively.

For the nine months ended September 30, 2008, our net cash burn was $23.8 million, compared with $20.5 million in 2007. 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 license fees in the amount of $3.1 million.

We had $40.9 million in cash, cash equivalents and short-term investments at the end of our third quarter. We believe our current cash balances are sufficient to fund our operations through 2009.

This concludes the financial portion of the call. I will now turn the call over to Garo to provide you with a corporate update.

Thank you, Shalini, and good morning, everyone. I will now provide a corporate update of Antigenics. We have been working very hard during the third quarter of 2008 to continue to make progress towards the commercialization of our lead product, Oncophage.

Since Oncophage was approved in Russia earlier this year to treat intermediate risk kidney cancer patients, we have remained focused on the launch of the product. Towards this end, we achieved another major milestone when we obtained the necessary export license from the US Food and Drug Administration to ship finished product from our Lexington facility to Russia.

In addition to receiving the export license from the FDA, we began to conduct a number of prelaunch activities in Russia. We continue to work closely with surgeons, pathologists, and neuro oncologists in Russia to increase awareness of Oncophage and its benefits. We have created focus groups around the country with (inaudible) opinion leaders to present key Oncophage data at major medical meetings and in key medical publications in Russia. We have also identified ten centers of excellence which will be the first centers to make Oncophage available to patients.

We are also working closely with the Russian government to explore means of obtaining reimbursement for patients. There are a number of budgets put in place by the Russian government for reimbursement of high-tech drugs, and we are currently working to source these budgets in an effort to make Oncophage available to as many eligible patients as possible.

It is important to note the significant market opportunity for Oncophage in Russia. Approximately 16,000 patients per year are diagnosed with renal cell carcinoma.

In terms of what is happening with the cancer market in general, as you may know, a number of leading cancer drugs, including Gleevec, rituxan, Herceptin, Avastin, have achieved substantial revenues since launch in Russia in the last couple of years. In addition, the pharmaceutical market in Russia is continuing to grow approximately 10% to 15% per year with price points that are equivalent to those in the US.

Now, moving into Europe with Oncophage, we recently announced the submission of a Marketing Authorization Application to the European Medicines Agency requesting approval for Oncophage in earlier-stage localized renal cell carcinoma under the Conditional Authorization provision. Conditional approval is a European Union provision introduced in March 2006 which allows commercialization of drugs that satisfy unmet medical need for which there is no satisfactory treatment that is regularly available. The application we submitted will have to demonstrate that the benefit of Oncophage outweighs the risks and, in addition to that, it will come along with commitments to conduct further clinical trials as part of a series of postapproval obligations.

If the application is approved, Oncophage will then be eligible for marketing in 27 European countries. A number of products have been approved in Europe under the Conditional Approval provision, most notably Pfizer's Sutent was approved by the European Medicines Agency for metastatic renal cell carcinoma under this provision in 2008.

In addition to kidney cancer, Oncophage is also being studied in clinical trials for the treatment of glioma. Data from a Phase I study of Oncophage as a treatment for recurrent glioma will be presented at the Society of Neuro Oncology annual meeting at the end of this month. Results from this 12-patient investigator-sponsored trial showed a statistically significant immune response specific to the patient's tumor, as well as survival benefit relative to expected benchmarks.

A Phase III trial sponsored by UCSF of Oncophage in combination with temadar as a first-line treatment of glioma is currently preparing to enroll patients. This placebo-controlled trial will enroll approximately 150 patients in total and will examine overall survival as the primary endpoint. We expect the trial to begin within the next six months.

We also anticipate that a Phase I-II trial to treat children with glioma will begin within the next year. This trial will be run by and fully funded by the Pediatric Brain Tumor Consortium.

I will now briefly turn to the rest of our pipeline, specifically QS-21. Our licensees, such as GlaxoSmithKline and Elan, are moving a multitude of development programs containing our QS-21 stimulant adjuvant forward. In total, there are 16 clinical-stage vaccines under evaluation that contain our QS-21 vaccine adjuvant. These vaccines cover a number of indications, including melanoma, non-small cell lung cancer, malaria, influenza and so on. As a reminder, QS-21 is a profitable product today, as it remains a non-dilutive source of funding for the Company.

As many as five QS-21-containing vaccines are expected to be launched by 2012 with the potential of over $400 million in royalty revenue at peak sales in 2014. The royalty obligations extend for a minimum of ten years post product launch. We remain confident the QS-21 pipeline will continue to progress and add value to Antigenics shareholders.

In summary, I'd like to reiterate that, for the short-term particularly, we have three distinct priorities -- one, that we would like to generate revenues for Oncophage, particularly from Russia, and that remains one of our highest priorities. We are on track, going through a number of administrative issues, such as, for example, what we went through in the US with the export license, but more minor ones, to be able to streamline the exportation of tumor from Russia and importation of products. We hope to get these cleared over the next month or two.

Two, we expect and we will be concentrating our efforts over the next months on potential partnering opportunities whereby we can bring in additional sources of funding for the Company without necessarily capping selling common stock to shareholders. That effort has been underway, and it remains a very high priority over the next several months, particularly as it applies to opportunities in Europe.

Thirdly, as is in our culture, we continue to make sure that our costs are contained and look for additional efficiencies to continue to reduce costs going forward. With all three in place, we hope that we will be able to update you on the progress over the next months.

So with that, I will turn it over to Robert once again.

Thank you, Garo. At this time, we are ready to begin the Q&A session. Jennifer, can you review the process with us?

(Operator Instructions). Ren Benjamin, Rodman.

Aaron Lindberg, William Smith & Company.

Thank you. Congratulations on the progress of Oncophage. Quick questions there -- given your proximity to sales, can you give us a little more detail around pricing of Oncophage in Russia?

Certainly. We haven't formally announced any pricing, but we have said consistently that pricing of Oncophage would be similar to other innovative cancer drugs that have been recently introduced. We hope to price the product competitively, relative to other innovative products, and so that would mean a pricing which is more than the traditional chemotherapy products but hopefully also less than the high end of what innovative products command.

We expect that, at the pricing point -- by the way, one thing that I should clarify, when we talk about pricing in Russia, we're talking about a price which will be a global price, so there is no real true tiering of pricing for Oncophage or, for that matter, for other products as well. So what price, the final price, that we go with in Russia would be the same price as what we would charge hopefully when our product is approved in Europe.

In terms of our overall efforts, Aaron, in Russia, as you know, one of the more critical elements is to obtain government reimbursement. That has really been the consumer of most of our energies over the last few months. We hope that we will be able to qualify for some programs in 2009. But we are certainly on target for the regular government programs for 2010.

In the meantime, once we go through the administrative hurdles, we will be able to generate revenues immediately from private-pay patients. We expect a ramp-up in revenues once the government reimbursement is in place.

Great. Along the same lines with the payors in Russia, for 2009, would it be more likely to pick up reimbursement from the central government or from regional governments?

Well, we are working to pick up reimbursement from the central government in 2009. There is certainly no assurance that we will be able to be successful for that year, but we're working very hard and we'll have more clarity on this over the next three months or so.

So are the regional ones more likely to come online first, is that right?

It's possible. It's possible.

Okay, so it could go either way at this point?

Yes.

Then just one piece of clarification as it relates to the pricing range -- so I was looking at kind of a broad range of $40,000 to $70,000 for a series of treatments for a patient. So given the way that you've described the other products above the chemo and things like that, is it probably more reasonable to focus on the lower end of that range?

I wouldn't necessarily say lower end of that range, but I think that range is probably a good range to work with.

Okay. Can you give us a sense of how we should look at your gross margins for Oncophage as you start to get into the marketplace over the next 12 to 18 months?

I think it's reasonable to assume that our gross margins will be similar to other biological products, even though it is an individualized medicine. We expect it to be similar to other biological products, certainly at the time of launch. Then we expect improvements over time.

Okay. Then in Q3, can you just break up the revenues between the manufacturing and the licensing?

Shalini, I will ask you to do that.

Sure. Aaron, the 10-Q will actually be filed today, which will have a little bit more breakdown, but this is almost -- there are no milestones included in this Q3 figure.

Or licensing?

There's some revenue recognition of previous payments received through licensing agreements, and there's some manufacturing revenue in there as well, but the breakdown will be provided in the 10-Q, which will be filed later today.

Okay, great. Then as it relates to AG-707, when do you expect to release the additional immunology analysis that you have underway?

For both AG-707 as well as for Aroplatin, the data analysis and discussions with key opinion leaders to clarify what the next step should be is underway. But more specifically, for AG-707, as you know, we have initiated a battery of various sophisticated immunological studies. We want to make sure that obviously the results we obtain are optimized. So, I expect that the first set of immunological data will be available sometime around March-April.

Okay. Then with glioma, do I have it right that there's going to be two new studies, two new [ISTs] starting or are there going to be additional ones as well?

No, there will be two new studies. One is the placebo-controlled study with Temadar and the other one is investigating glioma -- Oncophage, the use of Oncophage in pediatric glioma patients.

Okay, great. Then just one last question for you is as it relates to Oncophage, any updates you can give us regarding other geographies -- India, Brazil, China or others?

No. I mean no, not because I don't want to update you, but we continue to investigate those. I mean, the clear path for us, as you know, with the European filing, that process is underway now. We have an immunology trial that will get underway very soon to use perhaps a surrogate measure of the activity of Oncophage, and that trial will help us with filings in Canada.

In terms of other destinations, we continue to talk to partners because we don't have the internal resources or the know-how to investigate other regions such as India, China and Brazil. But we continue to work with partners to see if we can come to some terms to explore those opportunities.

There are some destinations which are known for medical tourism, perhaps smaller countries but noted for medical tourism that -- where we do have some ability to pursue. Those we pursue on our own without spending much cash resources of the Company other than travel time.

Wonderful, thank you so much.

Ren Benjamin, Rodman.

So just very quickly, can you take us through the European submission timelines? You may have gone over this in the call -- I jumped a little bit late -- but the application has been accepted. Can you take us through sort of what are the next steps before a final decision is made, and when you expect that?

Well, there is a standard process, as you know, Ren. After the submission, we had our application formally accepted. We made the announcement of our submission after the formal acceptance of the application, and now it is in active review process. There are defined timelines where they come back to us with their first set of questions. We respond to them and then there will be additional back-and-forth inquiries. If you work through the process, it's possible that a decision would be forthcoming in approximately 12 months.

Okay, great. Then just quickly reviewing the Russian -- what's happening in Russia, you mentioned that you are going through some administrative issues and hope to have that cleared up within a month or two. You know, is there any reason why those administrative issues could last a little bit longer? Then I guess, more importantly, if we assume sales to start kicking in, let's say, in early 2009, can you give us some color as to how initial sales may be?

Okay, so let me answer the first question first, in terms of the administrative issues. As you know, Ren, we have a unique product, and the unique product involves making individualized vaccine from the patient's own cancer tissue. So we are working with various agencies that have never confronted this before.

For example, in Russia, we have to export the tumor out of Russia to Lexington. We make the product, and then we ship it back to Russia. Each individual lot needs to be treated in a very precious manner because, as you know, we have a defined number of vials for each patient that we manufacture, so we cannot subject this to extensive quality control testing at each stoppage point, if you will, as you would with a batch-made product.

So it is a question of educating the system, which is what we confronted with the FDA when they issued an unprecedented export license. This had never been done before, and I know that our Wall Street brothers are very much into precedence, but we do have a product that has no precedence. So we have to meet the challenges of dealing with that. So the administrative issues that I'm talking about, could they take longer? Certainly, they can. But we are a diligent company and work very hard to make sure that they don't take too much longer. But they need to be addressed.

So the first issue is to address the paperwork associated with the exportation of tissue out of Russia. Then the second one is importation of product on a batch-by-batch basis, each batch representing an individual patient's product. With those in place, then we can certainly start treating patients in Russia. Even without government reimbursement, there will be some private-pay patients. Whether they will come from outside of Russia or within Russia, there will be some private pay patients.

The big kicker will be the government reimbursement. We are actively pursuing that. As I said before, there is no assurance that it will happen for the 2009 year, but we are pursuing it to make it happen for 2009. So, it's very difficult to provide guidance without a clearer picture of what the government reimbursement timeline will be. If it's just private patients for next year, it will be a modest number. If government reimbursement does come for next year, it will be a more impressive number.

I got it. Thank you guys very much, and good luck.

(Operator Instructions). There are no further questions. I would now like to turn the call back over to you, sir.

Thank you, Jennifer. I would like to remind listeners that a replay of this call will be available approximately two hours from now through midnight Eastern Time on November 19. Please dial 1-800-642-1687 from the US, or use the international number, which is 706-645-9291. The access code for both is 69261414. The replay will also be available on our Company Web site in approximately two hours.

If you have any additional questions after today's call, please feel free to call us at 1-800-962-AGEN. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.