CASI Pharmaceuticals Inc (CASI) 2002 Q2 法說會逐字稿

Good morning. My name is Jessica and I will be your conference facilitator. At this time I would like to welcome everyone to the EntreMed second quarter earnings conference call hosted by John Holaday, EntreMed, Chairman and Chief Executive Officer. The duration of the call will be 15 minutes including a brief question and answer session at the end. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone key pad. If you would like to withdraw your question, press star and the number 2 on the telephone key pad. I will turn the call over to Amy [FINEN], Director of Corporate Communications to read the forward-looking statements.

Thank you.

Prior to beginning the call today, I would like to remind our listeners that comments made during this call fall under the Safe Harbor Act of 1995 as follows. Statements herein that are not descriptions of historical facts are forward-looking and subject to risks and uncertainties. Results could differ materially to those anticipated due to a number of factors including those set forth in the companies securities and exchange commission filing under risk factors. Including risks relating to the early stage of products under development, uncertainties relating to clinical trials, dependency on third parties, future capital needs, and risks relating to the commercialization, if any of the companies proposed products such as marketing, safety, regulatory, patent, product liability, supply, competition and other risks.

I would like to hand the call over to Dr. John Holaday, EntreMed Chairman and Chief Executive Officer.

Thank you for joining our second quarter earnings conference call.

Prior it beginning our presentation, I would like to take this opportunity to welcome members of EntreMed's Board of Directors those include Wendell Starke, EntreMed's Vice Chairman, Don Brooks, Jerry Finkelstein, Dr. Jenny Hunter-Cevera, Peter Knight and Mark Randel. Despite of current market conditions, EntreMed remains focus on the tasks at hand. We are committed to advancing our drug candidates through the clinic, establishing strategic partnerships and securing our financial position. I am pleased to report that our net loss per share this last quarter was under analysts expectations. As many of you are aware, our company is now eleven years old and some of our accomplishments to date include the following: Less than $140 million in projected expenses, project expenses, EntreMed has brought four drug candidates, Endostatin, Angiostatin, Panzem, and Thalomid into phase two studies. Although scale up manufacturing expenses have increased as planned over the last few years , now we're beginning to realize the expected decrease in these expenditures. EntreMed's scientific team moved four drug candidates from development into phase two trials in less than five years. That's three years ahead of the industry average. In 2001 we began manufacturing a drug surplus to supply current and planned clinical trials into 2004.

Lastly all these accomplishments were reached without acquiring long-term debt. Let me tell you about the cost reduction plan. Despite these accomplishments and our drug candidates early signs of clinical benefit, the volatility of the financial markets and lack of industry investment resources are clearly apparent. As part of our corporate plan EntreMed initiated a serious of strategic cost cutting and realignment measures to reduce corporate expenditures. Immediate actions include departmental staff consolidations except in areas supporting clinical trials. This resulted in a 25% workforce reduction. We deferred a portion of senior management salaries and suspended projects that were not directly benefitting the clinical program. For example, a lot of studies on the mechanism of action of our lead product candidates were suspended given that most of the R&D work relating to these studies were completed and the work related to the clinical trials were completed as well. All these efforts were directed at preserving our cash position while we secure additional financing, and we continue our clinical programs without interruption.

Let me describe our manufacturing and clinical supply as we move forward EntreMed is committed to ensuring we have adequate resources to fund the clinical programs and will take all steps necessary to continue those studies, and to move our drug candidates from the clinics to the marketplace. For instance, when an opportunity to produce bulk quantities of Endostatin and Angiostatin presented itself in 2001, we started a manufacturing campaign to stockpile enough drug to ensure an uninterrupted supply to our patients. Although a campaign is expected to finish in the third quarter of 2002, the majority of recorded costs occurred in 2001 and have been paid for in the first six months of 2002. To reiterate, our core reasons for manufacturing in bulk supply were protein fermentation requires planning. It's not an on demand process. Therefore when presented with the manufacturing opportunity, we took advantage of it. We wanted to make certain that a constant supply of drug to support current and planned clinical trials into 2004 was available. Remember, we enroll patients in our clinical trials with late stage disease and are pleased that some patients are on drugs longer than is typical. We factor this consideration into our manufacturing program.

Let me tell you about operating expenses. For those of you without access to this slide, it provides a snap shot of operating expenses since the beginning of 2001. Expenses peaked in the fourth quarter of 2001 due to product manufacturing. Since then there has been a study decline in operating expenses. Further the slide shows a 30 to 40% cost reduction between the present quarter and fourth quarter and anticipate this trend will continue as we move forward. In order to raise the capital necessary to support our ongoing phase two clinical trials and continued drug development, EntreMed's currently seeking additional funding. Among other efforts we are finalizing oncology partnerships. As part of our ongoing financial planning, the Board of Directors and Senior Management filed a $50 million shelf registration in May 2002 and in June our shareholders authorized an increase in common stock to 90 million shares in order to afford the opportunity to raise additional working capital.

Let's move forward to the financial performance for the first three months. As of June 30th, we had just over $11.3 million in cash and cash equivalents that continues to provide EntreMed with sufficient resources to meet financial obligations into the fourth quarter. First quarter revenues were $450,000 less than the first quarter of 2001. This reflects the absence of royalty revenue from Thalomid. As you recall we monitized our future Thalidomide royalties for $22.4 million last year while maintaining some upside of certain cumulative sales were achieved. This quarter's income was from commercial research collaboration. R&D expenses declined by approximately $5 million, a 39% decrease over the comparable period last year and a 33% decrease from the first quarter this year. This was due to the absence of bulk protein manufacturing in the quarter. Our second quarter G&A increased slightly and is in line with past periods. Loss per share was 51 cents versus analysts estimates of 66 cents for the quarter ending June 30. This decrease in losses was a direct result of the reduction of manufacturing. Today like other CEO's across the country, I'll be certifying our SEC filing. I am proud of our accomplishments at EntreMed, and stand behind our performance every day.

Let's look now to the financial performance over the last six months. Revenues for the first six months of 2002 were $1.4 million less than for the comparable period last year. This decrease reflects the sale of the Thalomid stream for a gain of 22.4 million in the third quarter of 2001. Research and development expenses for the first six months were 10% less reflecting the initiation of a 2001 protein manufacturing stockpile campaign. Our G&A increased by 12% in the 6 month period ending June 30th 2002 from the comparable 2001 period. This modest increase is primarily due to the additional reserves used for the repurchase obligation of shares from Bristle Meyers Squibb. And lastly, the 6 month law spending due for June 30, 2002 is $1.18 per share versus $1.44 for the comparable 2001 period.

As we move forward, our goals are to cut costs by 30-40% starting in the fourth quarter of 2002. We will continue to pursue various avenues to secure additional funding. We're in the process of finalizing oncology partnerships, making continued progress in oncology partnerships and approaching capital markets. I think we've done a good job of prioritizing our pre-political pipeline and our clinical development program. We are maintaining our focus on commercializing our lead drug candidates. Our goal is to maximize shareholder value in the current conditions by continuing our clinical development program, while simultaneously partnering our phase two drug candidates to secure EntreMed's financial future.

Operator, I'd like to open the line for questions and I would be pleased to take a few at this time.

At this time, I'd like to remind everyone if you would like to ask a question, please press star, then the number 1 on the telephone key pad. If you own a speaker phone, please pick up your hand set before asking a question. We'll pause for a moment to compile a Q&A roster. The first question comes from Peter McDonald from Girard Klauer Mattson.

Good morning, guys. A couple of questions for you on the restructuring. What do you expect your new quarterly burn rate to be and how many employees were affected and what capacities were they and when will it take effect?

The restructuring took place last week. We announced then that we decreased our employees by just about 25%. As we looked at the slide of the unconsolidated operating expenses moving forward, as you can see we anticipate fourth quarter of this year to significantly reduce our operating expenses. This was in part due to restructuring and the decrease in costs associated with the lower head count. I must say the head count was reduced in a very strategic way. Those people that are no longer associated with the company were working on project areas that were involved in areas that really were insulary to the fundamental focus of clinical development.

So functionally speaking as one reduces employees as R&D benchside you also have other associated costs that are less and that trickles down into human resource needs, purchasing, etc. So the cuts were across the board, quite strategic and allowed us to continue our focus in the area of clinical development of products.

And you mentioned partnerships. How are the discussions ongoing and do you think these will provide enough financing to get through the next year or so?

I'm pleased to tell you those discussions are going along very, very well. We've had a lot of interest in these product candidates. As you know, Peter, our emphasis all along has been to bring products into phase two development. Statistics alone say that a phase two drug has about a 40% chance of becoming an ultimately commercially viable product. We have three drugs in phase two right now and we have a strong partnership discussion under way who are very interested in the value we have added. The partnerships in and of themselves are not going to be constructed in such a way that they alone ensure our financial success, and as previously mentioned partnerships combined with once again a return to the capital markets are the solid plan we have in place for bringing forward EntreMed.

And finally in terms of the pipeline, any upcoming data releases or initiations we can look forward to?

Peter, our clinicians that work with the patients on a daily basis are the ones that will decide when to present the data. A number of upcoming meetings as you know through the oncology community are times they could choose to present these. A lot of deadlines are in the future, since many of them occur in the spring time, but there are many meetings and at the right time as these clinicians submit their abstracts we'll make those data available.

Thank you.

Next question comes from Neal [INAUDIBLE], private investor.

Dr. Holaday, one of the statements you made for management deciding to manufacture and stockpile more product is because patients with advanced disease are expected to be on the studies longer than typical. Would you mind clarifying or expanding on that statement for me?

As you know when one does clinical studies on oncology patients, often the patients that are enrolled are those that failed to respond to the variety of traditional therapies and often have a very short life expectancy. The fact we have some of our patients that have been on study for a long time are showing some tumor responses in stable disease, we think is a very good sign. What we did was we anticipated this possibility in preparing for our manufacturing. The average time that a patient is on a phase one study is two months. We've had patients on study up to 22 months with some of our product candidates that are now in phase 2 studies focusing in on the data we got from our phase one studies earlier. Again, across the board to have cancer products that are showing an absence of dose limiting toxicity and encouraging signs of clinical benefit to the patient gives us the opportunity to provide a drug to manufacture a drug to meet their needs and expand our clinical trial program which is exactly what we are doing.

Thank you.

Once again, I would like to remind everyone if you would like to ask a question, press star and the number 1 on the telephone key pad. Next question comes from Angelo Staten from Princeton Capital.

Good morning, Dr. Holaday.

Good morning.

Bristle Meyers holds about 300,000 of EntreMed's stock which the company must repurchase by December 1, if I am correct on the date. Do you plan to renegotiate or have you renegotiated this arrangement with Bristle Meyers?

We plan to discuss this with Bristle Meyers and we'll do that in the near future.

Thank you, very much.

Thank you. I'd like to thank all of our participants today. I hope this was an opportunity to receive an update on the company. I'd like to go ahead and conclude the call and on behalf of EntreMed the Board and Management team, I thank you very much for joining us.

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