CASI Pharmaceuticals Inc (CASI) 2002 Q4 法說會逐字稿

Good morning and welcome to the EntreMed fourth quarter and year end conference call. I'm Melanie and I will be your operator for this morning. The conference call leader will be Mr. Neil Campbell, President and COO. We approximate 20 minutes with a brief question and answer period immediately following. 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, please press star then the number 2.

The slides and audio are available on the web at www.entremed.com. And a replay of the audio portion will be available two hours after the call's end at 800-642-1687, in the U.S. and Canada, or 706-645-9291 internationally. Thank you. You may begin your conference.

Thank you, this is Amy Finan, EntreMed's Director for Corporate Communications. Welcome to our fourth quarter and year end earnings call. Prior to beginning the call I'd like to remind our listeners that comments made during the call fall under the Safe Harbor Act of 1995 as follows. Statements herein that are no descriptions of historical fact, are forward-looking and subject to risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors including those set forth in the company's Securities & Exchange Commission filings under Risk Factors. I'd now like to hand over the call to Neil Campbell, EntreMed’s President and COO. Neil?

Thank you, Amy. Welcome to EntreMed's fourth quarter and year end conference call. Thank you for joining us this morning. During today's call I will provide an overview of our financials for the fourth quarter and year ending 2002. Next I will highlight the corporate events that took place during the fourth quarter. I will then finish our call with an outline of our plans moving forward followed by a brief question and answer session.

Before turning our attention to the financials, I would like to highlight key events, the effect of which were realized in the fourth quarter, as we achieved our goal of 40% decrease in operating expenses. We will continue to take decisive, prudent action as the EntreMed board, management team and staff remain committed to moving forward with our small molecule programs and redefining the company with three clear objectives in mind.

Our first objective is to concentrate our scientific focus and financial resources on our assets that we believe offer the strongest potential for success. Our small molecule programs. Led by our clinical drug candidate, Panzem, also known as 2-Methoxyestradiol or 2ME2. In reviewing our preclinical and clinical progress to date, our small molecule compounds, including Panzem and its 2ME2 analogs, have produced encouraging data, and potential versatility that warrant them being moved into the next stages of development.

In addition to the data, our small molecules are also our strongest assets, because of EntreMed's intellectual property position for these compounds. Many of the small molecules have been discovered and developed in-house by EntreMed scientists and are the property EntreMed. Therefore we lessen our obligations to pay milestones, royalty and licensing fees. We will continue to support our in-house discovery and development efforts.

Our small molecules are also our most versatile compounds in terms of possible their therapeutic applications. While we continue our efforts in oncology we are researching applications in cardiovascular disease, bone disease, women’s health, dermatology, [inaudible] inflammation and ophthalmology. Just a few weeks ago, EntreMed and the Mayo Clinic published preclinical findings demonstrating Panzem’s potential use in preventing and treating osteoporosis.

Our second objective necessary to redefine EntreMed, is the continuing reduction of operating Costs. Early in the third quarter when we had not yet secured additional financing we began to take substantially reduced costs. When we compared the costs and potential their therapeutic benefits associated with our small molecule and protein programs, the small molecules proved to be more economically feasible. They are more predictable in development and scale-up, and this translates into lower development, manufacturing and other associated costs. Additionally, our small molecules may have the greatest economic return, because they offer a number of potential therapeutic applications.

Having made the decision to be a small molecule company we then focused our efforts to minimize ongoing protein related costs, while preserving each protein program's value. We ended virtually all collaborative research projects with academic institutions and significantly reducing the protein program staff. In the fourth quarter, we realized the benefits of these decisions, a drop in operating expenses of approximately 40% from prior quarters.

The third and final objective necessary to redefine the company is to refocus our plan to ensure our business and scientific efforts are properly directed towards the commercialization of our best drug candidates. Simply put, our business plan creates new opportunities to maximize our scientific talent and expertise. For instance, while researching and developing Panzem, EntreMed scientists acquired an understanding of the compound's characteristics. This has led to the in-house development of proprietary 2ME2 analogs, these are compounds that may offer more targeted therapeutic effects than their parent compound, Panzem, in certain diseases.

Secondly, we are leveraging our in-house scientific expertise to elucidate new pathways, in addition to abnormal blood vessel growth. We have developed proprietary small molecule compounds that target processes that occur in a wide variety of diseases by inducing [apitosis], as well as inhibiting inflammatory and angiogenic pathways. We plan to continue to investigate these new therapeutic pathways and their commercial applications in various diseases.

Next, we also plan to continue our attempts to leverage our financial resources by monetizing scientific assets that are not essential to our core business. We are actively working to find the appropriate partners that may be interested in licensing and co-developing these compounds.

The last element of our plan is to improve our financial position through co-development and funded research opportunities, prudent cost control, and access to the capital markets. These previously stated events have had a substantial impact on our financial performance for the fourth quarter of 2002.

Now, let's turn our attention to the financials.

During the three months ending December 31st, revenues increased approximately $129,000 in 2001, to $462,000 in 2002. This increased revenue was primarily from an externally funded commercially researched collaboration.

R&D expenses declined to $4.3m for the last three months of 2002. This is approximately a $15.6m, or 78%, decrease over the comparable period last year. This 2002 decrease reflects minimal manufacturing activity and the shift in corporate focus to our small molecule programs. The actions resulted in decreased cost for Endostatin and Angiostatin including staff reductions.

Fourth quarter G&A decreased by approximately $1m, or 38%, compared to fourth quarter of 2001. The 2001 G&A number reflected approximately $1.4m of expenses associated with the repurchase obligation of EntreMed stock from Bristol-Meyers Squibb, BMS. In December of 2002, we successfully renegotiated the terms of our agreement with BMS and as a result did not recognize any repurchase expense in the fourth quarter of 2002.

The payment we received from Celgene as part of our ENMD 0995 and Thalidomide Analog transaction is recorded as a gain on the sale of an asset. The gain of approximately $2.9m is reflected net of a licensing fee payment to Children's Hospital Boston and other transaction related fees and expenses, including the value of warrants issued to the Celgene Corporation and Children's Hospital.

Throughout the fourth quarter EntreMed management stated we are working to reduce the company's outstanding liabilities. During the past 90 days, approximately $8.1m in outstanding liabilities were satisfied with partial cash payments and the issuance of common stock and warrants. As a result of these settlements we have recorded a gain of approximately $2.2m in the fourth quarter of 2002.

The combination of the gain on the Celgene transaction and the liability settlements offset a large portion of our operating expenses, and resulted in a net loss approximately of $1.5m for the fourth quarter of 2002. We expect a similar positive impact on net income in the first quarter of 2003 as a result of the deconsolidation of MaxCyte, a former majority owned EntreMed subsidiary. As of December 2002, EntreMed no longer controls MaxCyte.

The net loss per share was 7 cents for the quarter ending December 31, 2002, versus a net loss of $1.29 per share for the same period last year.

Now, let's review the year end financial performance for 2002 as compared to 2001.

For the 12 months ending December 31, 2002, revenues were approximately $1.2m and were comprised primarily of externally funded research. The 2002 decrease reflects the absence of approximately $1.4m in net royalty revenue from Thalidomide sales.

R&D expenses for 2002 were about $22.9m less than 2001. This is a decrease of approximately 42%. This reduction reflects a significantly lower level of manufacturing of Endostatin and Angiostatin, and a decline in relative cost, including staff, as well as the company's shifts its focus to its small molecule programs.

G&A expenses for 2002 and 2001 were comparable, with a slight decline in 2002. This reflecting the decreased cost related to corporate personnel. As previously discussed, the $2.9m gain on a sale of an asset reflects our December 2002 transaction with the Celgene Corporation. Likewise as discussed, we had a $2.2m gain in connection with the discharge of outstanding liabilities.

Our 2002 net loss was approximately 10% or $4.3m less than 2001. This decline reflects the significant reduction in cost associated with R&D. For 2002 our net loss per share is $1.78 versus $2.39 for 2001. At 2002 year end, EntreMed had $24.1m in cash and cash equivalents.

I will now turn the discussion to six significant board and management actions of the fourth quarter.

First, the Company secured additional funds when we completed our transaction with the Celgene Corporation in December. We believe our year end cash and cash equivalents of $24.1m will fund EntreMed’s planned activities into 2004.

Second item during the fourth quarter were the terms of the actual transaction with Celgene. Under the terms of our December transaction, Celgene received all rights to EntreMed Thalidomide Analog program, including ENMD 0995 and 0997 respectively. EntreMed is currently working with Celgene to transfer intellectual property and scientific data related to the Thalidomide Analog program. We are also transitioning the data currently being generated from the ENMD 0995 clinical trial at the Mayo Clinic. This is for patients with Multiple Myeloma.

The December transaction with Celgene also concluded the patent litigation surrounding 0995. By ending the legal dispute with Celgene, EntreMed potentially saved millions in litigation cost. On the financial side of the Celgene deal, EntreMed received a net of $23.75m cash payment. This representing the transaction proceeds, less the negotiated fee due to Children's Hospital.

In connection with transferring the Thalidomide Analog program we also issued convertible preferred stock and warrants exercisable at a premium to the market. The preferred stock is convertible to 16.75m shares of common stock at a conversion price of $1 per share. The warrants, which may be exercised on a net issue basis, may be issued for up to 7m shares of common stock after six months at an exercise price of $1.50.

Another fourth quarter action item was the reduction in our operating expenses. In August of 2002, we committed to reduce our operating expenses by 30-40% beginning in the fourth quarter. As a matter of fact, our fourth quarter expenses are more than 70% less than the comparable quarter of 2001. When compared to the second quarter, and third quarter of 2002, our fourth quarter expenses were reduced by 39 and 42%, respectively.

I would like the put these results into a larger perspective by taking a quick look at a bar graph for those of you who have web access that illustrates our expense quarterly over the past two years.

First, the fluctuation in expenses over the last eight quarters has been dramatic with expenses peaking in the fourth quarter of 2001. Since that time, we have seen a downward trend with a minor variance in the third quarter, when we completed Endostatin manufacturing activities. The effects of our decision to focus on the small molecule programs are apparent in the significant decrease in expenses associated with Endostatin and Angiostatin. We do anticipate expenses associated with Panzem, and other R&D, a category that represents the 2ME2 analogs and other small molecule programs to increase slightly, but relatively as we concentrate our efforts in this area.

Our G&A expenses have remained relatively constant due to the presence of litigation costs during the past two years. However, we do anticipate a significant decrease moving forward. This is as a result of the settlement in 2002 of both the Abbott and Celgene litigations. With our corporate plan in place for the first quarter of 2003, we expect our reported operating expenses to continue to trend down. As a result of the settled litigations, minimized protein costs and the deconsolidation of MaxCyte.

The fourth action that occurred throughout the quarter was our work to reduce our liabilities. Through the strategic use of cash payments, common stock and warrants, we have settled over $8.1m of our outstanding liabilities. Although all of these agreements are not reflected in our year end balance sheet, we did record a gain of approximately $2.2m as a result of settling these liabilities. Some of these discharges will be reported in future SEC filings.

The fifth major objective for the fourth quarter was for EntreMed to take the appropriate actions necessary to deconsolidate its majority owned subsidiary, MaxCyte. In November of 2002, the board of directors of both EntreMed and MaxCyte adopted a plan to recapitalize MaxCyte, permitting EntreMed to deconsolidate MaxCyte for financial reporting purposes.

As of December 2002, EntreMed is no longer in control of MaxCyte. The separate MaxCyte reporting is effective for 2003, and will be reflected in EntreMed's first quarter SEC filings. Historically EntreMed's consolidated financial statements reflected MaxCyte's convertible debt, now approximately $4.8m. Therefore, as a result of this deconsolidation, EntreMed expects to reflect a gain in the fourth quarter of 2003.

Our sixth and final action during the fourth quarter concerned NASDAQ. In November 2002, we announced we would appeal a NASDAQ staff determination to delist EntreMed’s common stock to the NASDAQ National Market. EntreMed requested and received an appeal hearing before the NASDAQ listing qualifications panel. We appeared before the NASDAQ panel in mid-December. At the hearing, we outlined a definitive plan for EntreMed's compliance with listing standards for the National Market. Throughout the remainder of 2002, and into January, we worked very hard to demonstrate our commitment to meeting the continued listing standards. We also kept the NASDAQ panel informed of our progress.

Approximately three months after announcing our intent to appeal, we received a determination letter in mid-February from the NASDAQ panel, informing us that EntreMed would continue to be listed on the National Market. As part of the determination, we must file the form 10-K for the fiscal year ending December 31, 2002, and the form 10-Q for the quarter ended March 31, 2003 with the SEC evidencing shareholders equity of at least $10m, on or before the respective SEC filing deadlines.

Specifically, the NASDAQ panel observed that EntreMed had presented a definitive plan that would enable it to evidence compliance with all requirements for continued listing on the NASDAQ National Market within a reasonable period of time and to sustain compliance with those requirements over the long term.

Let's look moving forward. Our continued action from 2002 into 2003 brought changes in our corporate leadership. Since mid-October, I have been responsible for the day-to-day activities as well as the Company's overall financial and business strategies and I've worked directly with our Board. As I continue with that role, I now work closely with our recently appointed Chairman of the Board, Michael Tarnow. With experience in the pharmaceutical and biotechnology industries, Michael brings the leadership, insight and know-how to move EntreMed’s business and science forward strategically. His years of hands-on experience in big pharma, including 22 years with Merck & Company, as well as in small to mid-sized biotech companies, will have a positive impact on the Company.

Dane Saglio was named CFO in mid-February and during the last 12 months, Dane has played a key role in transitioning EntreMed to a small molecule company by developing and implementing the Company's financial strategy. Dane has also spearheaded our efforts to ensure that EntreMed's continue listing on the NASDAQ National Market is met. I am confident in his abilities to continue to guide our financial operations while the company moves through its next phase of transition.

First and Foremost, we are committed to enhancing the Company's financial position. While we do believe we have the funds to carry the company into 2004, we are actively seeking other avenues to strengthen our current financial position. We are exploring co-development relationships and funded research opportunities with other biotechnology and pharmaceutical companies. By leveraging our scientific expertise through these types of arrangements, we will have the opportunity to bring additional funds to the Company, while maintaining our core small molecule focus. We will also continue to manage our resources prudently. We are also revealing our options to access funds through capital markets, this of course depending on conditions and sentiments of the current market.

With our focus now on small molecules we have funded the continued research and development of Panzem, its analogs, as well as other small molecule programs. We are also supporting the business activities necessary for their development. We have the in-house expertise necessary to put our scientific strategies into action. The scientists in our small molecule programs were retained during our staff reductions and are key to our successful commercialization of these compounds. Likewise, the scientific and business teams are working side by side to ensure prudent and timely decisions.

Our final action is to realign ongoing discussions with potential partners. With our focus now on small molecule programs, our partnership priorities have broadened for oncology and non-oncology applications with our small molecule programs. We are continuing our co-development and licensing efforts for our protein programs including our two clinical candidates, Endostatin and Angiostatin.

The fourth quarter was a very busy and focused time for the Company but I can assure you by making swift and difficult decisions we have made strong progress in redefining EntreMed. To be clear from both a drug development as well as a financial perspective, positioning EntreMed as a small molecule company is critical to our future and I thank you.

Now I would like to take a few questions. Operator if you would please open the lines.

At this time if you would like to ask a question please press star then the number 1 on your telephone key pad.

The first question comes from Mark Howell (ph) with Spectrum.

Hi, thanks for the efforts you've made in trying to get the Company back on sounder footing. Could you just elaborate a little more on the potential that the protein program has for the Company's shareholders, and perhaps some of the scenarios you envision for realizing that potential?

The Company has been formed, really, around several areas, proteins, small molecules. And our ability financially to support the continued development of the proteins are not within our purview. What we've decided to do through our continued partnering discussions is to work through a co-development and/or out-licensing where we could realize considerations financially, as well as scientifically, with partners to have the financial resources to take protein biologic programs forward, particularly Endostatin and Angiostatin. So we are working to do that, to bring really resources into the company both financial and scientific. And when we have those announcements to make we'll make them at the appropriate time. Thank you for the question.

Once again, if you would like to ask a question, press star, then the number 1 on your telephone key pad. We'll pause to conduct a Q&A roster.

Your next question is from Neil Cronhandler (ph). He is a private investor.

I do think you've put this company in the right direction. Last question dealt once again with proteins. I would like to get back to the transition to a small molecule program, and I'd like you to tell me what we can expect, what is going on in the next six months to year with respect to this transition. And ideally what should we look forward to?

Specifically, to continue the transition and complete it, we want to find the proper partnerships for Endostatin and Angiostatin, of course, and to monetize that appropriately to recognize value to the shareholders. As we move to small molecule we will continue to transition Panzem's new formulation into the clinic. And that would be expected to be sometime into early 2004. Right behind that, we are putting efforts to identify a 2ME2 analog into the clinic for an IND filing, and then to continue the research and development effort around our other small molecule programs of which we will be able to provide more guidance for the first quarter earnings call.

Thank you. Can I just ask two specific questions in addition to the last question?

Sure, Neil, go ahead.

I know you made it very clear that the company no longer controls MaxCyte, especially for financial reporting purposes. Can you clarify for me and others perhaps what remaining interest the company does have in MaxCyte?

We currently, the goal there was to really allow them to move on. We don't have a majority ownership but we do have a substantial stake in the company. It's approximately 45%.

Good.

And we believe that by working closely with them we can share in the upside as MaxCyte moves forward but also too, realizing that it is a separate business and really should be deconsolidated, in both in terms of the financials for EntreMed, as well as the possibilities and upside for MaxCyte.

That's great. 45% is certainly a significant interest, and I'm glad to hear that. My last question is, is the Company working together with Allergan? Is there anything more you can tell us about what information or progress is being made with respect to efforts to see if there's some efficacy in treating Macular Degeneration?

That that's a very good question. The original deal was done in January of 2002. And through the course of the year 2002, Allergan and EntreMed have worked together to look at various formulations as well as drug delivery technologies. The goal by year end to look at drug delivery technologies that would optimize or enhance delivery of Panzem to the back of the eye. There are 24 diseases of the eye, about half of those are [inaudible] inflammation related. What we are looking at now in 2003, is continue working very closely with Allergan to select the top formulation preps, in delivery technologies to work towards the IND filing. The next major milestone to be recognized in this relationship is the filing of the IND, which has a financial impact to EntreMed. When that IND will be filed will be up to Allergan to decide and they will announce that appropriately. We are pleased with the progress and things are moving forward.

Thank you for that update. That's very encouraging.

Thank you very much Neil. Thank you.

At this time there are no further questions.

Okay, I want to thank you everyone for joining us for the fourth quarter and year end call. Thank you.

This concludes today's EntreMed fourth quarter and year end 2002 conference call. You may now disconnect.