Celldex Therapeutics Inc (CLDX) 2003 Q2 法說會逐字稿

Good morning.

My name is Lisa, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the CuraGen second quarter 2003 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 period.

If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.

If you would like to withdraw your question, press the pound key.

Thank you.

Dr. Aslan, you may begin your conference.

Welcome to CuraGen's second quarter 2003 conference call.

Participating on this call is Dr. Jonathan Rothberg, CuraGen's Chief Executive Officer, President and Chairman;

Dr. Timothy Shannon, Senior Vice President of Research and Development, and Chief Medical Officer;

David Wurzer, Executive Vice President and Chief Financial Officer; and Christopher McLeod, Executive Vice President.

This conference call is being webcast over the Internet and is available on CuraGen's Website at www.curagen.com, along with the presentation.

I would like to bring your attention to CuraGen's Safe Harbor statement that can be found on slide one of today's presentation.

Please refer to Form 10-K for fiscal year ended December 31, 2002 for a complete description of these risks.

I would now like to turn it over to Dr. Jonathan Rothberg.

He will start with slide two, titled "CuraGen's Strategy."

Good morning, and thanks for joining today.

Last quarter was a productive period for both CuraGen, as well as a reassuring quarter for those of us who have a belief that the understanding of the genome and an understanding of mechanism of disease will be the foundation of medicine.

CuraGen's strategy remains focused.

It's focused on delivering a pipeline of product based on an understanding of the genome, and on an understanding of the mechanism of disease.

We are using our informatics and our technologies now to prioritize our products and to move them into the clinic.

In addition, we are using the best practices that we have learned from collaborators, including Pfizer, GenenTech, Roche, Glaxo and others, and using those best practices to advance our own pipeline.

We have $379m cash and investments available, and that gives us the flexibility to focus on those products in our pipeline, protein, fully human monoclonal and small molecules that have the highest chance to be successful in the clinic.

Our motivation is making drugs from the human genome for unmet needs.

This quarter you'll hear from Dr. Shannon on the progress of our first drug to get approval by the FDA to get into the clinic, to treat the side effects of chemotherapy and radiotherapy.

As well, you'll get more color on the depth of our pipeline in the area of protein therapeutics, fully human monoclonal, and small molecule.

The next slide is titled "Focus on Products."

At CuraGen, we recognize that creation of value is in the clinic.

Though we have done a tremendous job in understanding the genome, identifying critical projects, we recognize what's important to CuraGen and the investors is using this information to move products into the clinic, and that is where we're focused now.

All of our technologies, all of our informatics, all of our efforts are focused on developing from the genome, breakthrough products for unmet medical needs.

I'm going to turn it over to Dr. Shannon, who will go through our lead protein and antibody products, as well as the breadth and depth of our pipeline, a pipeline that has been derived directly from the human genome from the technology that we've developed at CuraGen.

Tim?

Thanks, Jonathan.

Our Phase I clinical development product, CG53135, is being developed for the treatment of oral mucositis.

This slide provides some background on oral mucositis.

Let's just spend a minute reviewing that.

The left hand panel talks a little bit about the clinical symptoms of oral mucositis.

Oral mucositis is a side effect that occurs in patients undergoing chemotherapy or radiation therapy.

You can see from the picture that it is rather uncomfortable, and can be quite painful to patients, causing them problems with eating and drinking.

As important, it can cause an oncologist to have to reduce a patient's chemotherapy or radiation therapy, giving them a less than optimal chance for the best outcome from their cancer treatments.

The middle column gives some estimates about the epidemiology of oral mucositis.

We estimate that there's somewhere between 140,000 and 225,000 people affected by oral mucositis on an annual basis.

Currently there are no specific treatments available.

The only treatments available are palliative treatments, including things like mouthwashes and oral hygiene agents.

In addition, narcotics and analgesics are used.

In a portion of these patients, oral mucositis can lead to hospitalization and increased healthcare costs.

In terms of the marketing opportunity I wanted to spend one minute on the first comment there, that our strategy has been de-risked.

This really refers to AmGen's release in the first half of this year of positive data from a Phase III study of their FGF in patients with oral mucositis.

We think establishing the proof of concept is important for us, and it increases the likelihood of CG53135 being effective.

The financial analysts have provided estimates for this market of somewhere between $350m and $500m annually.

On the previous slide, I mentioned AmGen's FGF and how they've established proof of concept and de-risked our approach to oral mucositis.

On this slide, I want to spend some time on how the products are similar, but more importantly, how they differ.

I'll start with the right hand column on the slide, which is entitled "Cell Type."

The cell types that make up the lining of the mouth are characterized here.

There are the epithelial cells, which form the outermost layer of the oral lining, as well as the xencomal [ph] cells, upon which the epithelial cells sit.

The xencomal [ph] cells provide important support for the epithelial cells, and also provide a source for stem cells in replenishment of the cell types in this tissue compartment.

On the left hand side of this slide, in the first column, is a column titled "FGFR," which stands for FGF receptors.

Characterized in this column are the different types of FGF receptors that exist.

You can see there are four types, and then sub-types within each of those.

The middle three columns show the similarities and differences between KGF1, which is AmGen's product, KGF2, which is HGS' product, and CG53135.

Now let me start with the similarities.

As you can see, with FGFR2, the beta sub-type, all three products hit this receptor, which is an epithelial cell receptor.

This is the receptor thought to be responsible for AmGen's activity.

So this gives us confidence that we will at least have that activity.

The rest of the slide characterizes the differences.

If you look under the 53135 column and contrast it to the other two columns, you'll see that 53135 hits many other receptor sub-types that the other two compounds don't.

Importantly, 53135 hits receptors on xencomal [ph] cells.

Again, we think these are important cell types to tissue repair for oral mucositis, and think this will potentially bring incremental benefit.

Now I must say that that remains to be proven, and it will be something we attempt to bear out in clinical trials.

In addition, as always in normal development, we'll look to see if this different profile brings any unique risks.

Again, those are things that will be defined as we go through clinical development.

This slide provides an update on our Phase I program with 53135.

First, we've met an important milestone, in that we now have four IRB approvals.

IRB stands for Institutional Research Board, and each center that participates in the trial has to get approval to do so.

So this is an important milestone for us, and one we've passed through.

We now have initiated enrollment.

Again, this is a multi-center study with a single dose escalation design.

We anticipate that we'll enroll approximately 20 patients with colorectal cancer, who are at risk for oral mucositis.

The primary goal, again, for this Phase I study, which is typical of Phase I studies, is to establish the safety of the compound and what the pharmacokinetic profile of the compound looks like.

By that, we mean what the blood levels of the compound look like when it's dosed intravenously.

On the bottom part of the slide we talk about our plans for Phase II clinical trials.

Again, we're building momentum for Phase II, and have signed a contract for our Phase II GMP manufacturing.

We expect that this manufacturing company will provide supplies for both Phase II and Phase III.

Here we state that we expect to start Phase II studies during the second half of 2004, upon successful completion of Phase I.

I want to state that we have not yet dosed our first patient, and I want to explain why.

It relates to the IRB approval process, which as I said, we are now through.

First I want to again state that we're on track with our original timeline.

I also want to state that the IRB approval process had some questions about the use of placebo in our Phase I trial.

There were no questions with regard to the use of CG 53135 itself.

In our original study design that we proposed and submitted to IRB, one third of the patients would get placebo, and some IRBs took exception at the use of placebo in the Phase I study.

So the placebo patients have been removed.

This will result in no net change in our overall timeframe.

We now have one third fewer patients, which will be a benefit in terms of enrollment, but we still have the same number of patients as originally planned who will actually receive CG53135.

We expect this study to provide the information to proceed to Phase II.

We expect to begin Phase II in the second half of '04, and have begun to champion manufacturing campaigns to support those efforts.

The next slide shows our priority protein projects.

These have been selected from a group of 500 qualified targets, based on intellectual property, biology, pass to the clinic, and unmet medical need.

Across the top of this slide is the early development value chain, characterized by in vitro validation, animal validation, pre-clinical proteins, and clinical products.

On the far right hand side, under clinical, you can see 53135, which we just spoke about.

We have four proteins in the animal validation stage, and a number of other proteins at the in vitro validation stage.

Our focus over the next year is prosecuting that pipeline, increasing the number of proteins that get into the pre-clinical stage, and ultimately form the basis of INDs and get into the clinic.

The next slide relates to our pre-clinical, fully human monoclonal antibody, CR002, which is being developed to treat nephritis, or more broadly, nephritides.

I'll use this slide to explain some background on nephritides.

Nephritis, or nephritides refer to an inflammatory process in the kidney, as shown on the left hand panel.

These processes can cause a loss of kidney function and result in kidney failure, resulting in the need for dialysis.

The middle panel talks about some of the indications where we will explore the utility of CR002.

Those include IJ nephropathy, lupus nephropathy, and diabetic nephropathy.

The only approved therapies for the treatment of nephritis pertains to patients with diabetic nephropathy, and those are ACE inhibitors and angiotension [ph] two antagonists.

Otherwise treatments that are used for nephridities is non-specific immuno-suppressors that have questionable efficacy and debilitative side effects.

On the right hand side of the slide, it talks about the market opportunity.

The first thing I want to say is that a clear clinical path has been established in these types of indications, because of the work of ACE inhibitors and A2 antagonists.

So the clinical designs of those studies and the end points of those studies is just that well established infrastructures exist to support those studies.

The middle part talks a little bit about the epidemiology, AGI and lupus nephritis being in the range of 100,000 patients in the U.S. obviously diabetic nephropathy would be a much larger patient population.

For things like IJ nephropathy and lupus nephritis, there is currently no approved therapy to specifically treat those diseases.

This is slide 10, and it talks about CR002, which is a full human monoclonal antibody designed to block the action of PDCFD.

PDCFD is platelet derived growth factor D. PDCFD is a potent inflammatory molecule implicated as a key mediator in kidney inflammation.

This slide shows some of our past scientific publications on this target, as well as an award we received at a prominent scientific meeting, the World Congress of Nephrology, which recognized the importance and the quality of our work with CR002 and PDCFD, in this indication.

Slide 11 shows our human monoclonal antibody portfolio in the middle panel, which is highlighted.

As you know, we've developed 20 fully human monoclonal antibodies, and we are currently focusing on 15 of these, which are depicted in the middle panel of this slide.

CR002 is in the pre-clinical stage, as we've discussed, and our goal is to submit an IND for CR002 in the first half of 2004.

We have many other monoclonal antibodies in the animal validation stage, where some will emerge as the next pre-clinical monoclonal antibodies, and subsequently INDs.

We also have many monoclonal antibodies in the in vitro validation stage.

Slide 12 moves us to our small molecule portfolio, which we developed in conjunction with Bayer.

The slide shows that over the first two years of that collaboration, our high throughput screening efforts have progressed nicely and are on a track consistent with our goals in this collaboration.

Of those compounds that have gone into high throughput screening, nine have successfully passed through this stage into later stages of validation.

Slide 13 shows the small molecule portfolio in a similar way to the way we described for you the protein and antibody portfolio.

As I've mentioned, 19 compounds have gone through high throughput screening and nine are in more advanced stages of validation.

All of these small molecules are in the area of obesity and diabetes, in development with Bayer.

Slide 14 shows our portfolio somewhat differently.

First it shows our lead products, CG53135 in the clinic, and CR002 in the pre-clinical stage.

We've provided some detail for you on these two compounds.

I'd like to spend a little time talking about the compounds in the animal validation stage.

Here we provide for you characterization of the products by the modality, be it protein, antibody or small molecule, as well as the lead indication, and importantly, the mechanism.

Each of these projects is aimed at a unique target that we have identified through our genomic platform.

Let me point out two or three things of interest with the early portfolio.

If you look at the oncology portfolio characterized on this slide, you can see we have four projects working in the area of angiogenesis.

They all reflect unique and quite possibly complimentary approaches.

We are encouraged by the progress of GenenTech that has recently been announced in this area, and we think it will be an area where there will be room for multiple unique approaches.

In addition, in oncology, we are targeting directly cellular proliferation, or growth.

This, as you know, is the fundamental mechanism in cancer.

Each of these projects targets a unique intervention point in this mechanism.

Finally, at the bottom of the slide, you'll see our targets in obesity and diabetes, which really look for targets in four distinct mechanisms; influence sensitivity, influence secretion, metabolism and satiety.

This work is being done with Bayer.

Over the course of the year we have made good progress in building up our animal validation portfolio and now we're focusing on efforts to move those to the pre-clinical, and subsequently, the clinical stage.

Now, I'll turn it back to Jonathan Rothberg.

Thanks Tim for a description of our progress in the pipeline.

I am very excited at CuraGen to see the genome translate into a robust pipeline.

Over the last two years, we've seen our work in genomics lead to a robust pipeline of proteins, fully human monoclonals, and small molecules.

What differentiates our approach from the approaches before us is that each one of the potential drugs we're working on is directed at an underlying mechanism that is at the root of a disease.

Because of this, we think these drugs have great promise to change the lives of people who someday will receive these drugs.

The next slide, titled "Many Potential Sources of Future Value for Biotech Products", slide 15, allows me to spend a few minutes to reflect on how CuraGen and its focus on products, creates the opportunity of value to our stakeholders.

It's clear that great value can be created in the clinic.

It's clear that great value can be created through commercialization, and as we've seen, value can also be created, and risk can be reduced, by outlicensing.

It has always been CuraGen's strategy to create value from our pipeline, and then make the most appropriate decision, based on the individual molecule, whether it's a protein, antibody or small molecule, and based on the individual indication and the clinical path of that indication, to determine whether we outlicense the molecule after we create value, whether we create value through demonstrating clinical success, or whether we choose to bring the molecule to market ourselves.

In order to facilitate our success, we have had a long-standing tradition of exceptional technology and information.

Prior to wrapping up today's presentation, I'd like to review how we're refocusing our technologies and our information from early discovery to its utility to advance our pipeline in the clinic.

The next slide, slide 16, emphasizes the use of our comprehensive information to raise the probability of success that the projects that Tim has described have been selected from the 500 qualified targets, based on having the most comprehensive information on each of those potential targets and products.

It's with that comprehensive information that we move our pipeline forward, and are focused on reducing risk to our investors and our employees, as we create value in this pipeline, using this information.

The next slide shows another specific tool, which we have used to reduce risk prior to entering the clinic.

This is our predictive oxygo [ph] genomics chip.

We are now using this in our Bayer collaboration, in a recent collaboration with Pfizer, and with Ono.

It is the direct objective of this technology to reduce risk before you go into the clinic, by potentially eliminating those molecules that have the highest chance of side effects.

So I hope I've demonstrated that we've used our knowledge to take the bad things in our pipeline to advance, and I hope I've shown you, through this example, that we also have specific tools to make sure we advance those molecules that may have the greatest chance of success.

In addition, the next slide shows you that that technology platform, which gave rise to an exceptional understanding of the genome and our pipeline, is now being used to advance this pipeline to the clinic.

So all the work we did in genomics, proteo [unintelligible] allows us to advance this pipeline.

Again in the next slide, I show an additional specific example of a technology that we've developed at CuraGen and we're using on CR002.

So in slide 19, we demonstrate that we can create biomarkers that would potentially allow a better selection of patients, either in the clinic, or after the clinic.

This slide wraps up our discussion of our technologies, our pipeline, and our business strategy.

The next slide focuses on recent restructuring.

A year ago when I spoke to this group, the top panel shows the allocation of resources.

We had many people working in services and target discovery.

I contrast that with the new allocation of resources shown in the bottom half of the slide, which shows the majority of our resources has shifted toward the validation of our pipeline, and moving that pipeline into the clinic and pre-clinical.

So we are now focused, and have an organization with the team in place to advance our pipeline into the clinic.

The next slide is an introduction and an update on 454. 454 Life Sciences is a majority owned subsidiary of CuraGen, designed to create exciting instrumentation for whole genome sequencing.

Shown in this slide is a schematic of the instrument we plan to introduce to the market, first through service collaborations, and second, through direct sales of instruments and consumables.

We believe, and I discuss in the next slide, both the progress of 454 as well as the applications of 454, give 454 Life Sciences tremendous opportunity to use this technology to impact life sciences, agricultural, biodefense, and other fields.

Progress at 454 has been substantial, and we would like to discuss that progress on a separate conference call in August, to allow people to focus on 454 and its ability.

For this call I'd like to focus on our ownership of 454 and the potential it gives us for access to additional capital some day, as well as the potential benefits of this technology apply to our pipeline in the clinic.

The next slide is titled "Public Milestones."

The public milestones are shown with an emphasis on our own products.

We are on track with our first IND in mucositis; we are planning an additional indication for CG53135 in the first half of 2004.

We are on track for our first IND for a fully human monoclonal antibody, and we plan on initiating Phase II for CG53135 in the second half of next year.

What's important to note, is that our focus on pipeline is designed to create a robust ability to create new INDs for unmet needs, and we are now committed to a new IND on a new molecule each year going forward from this robust pipeline of proteins, antibodies and small molecule drugs.

To summarize, the next slide, slide 24, is a reminder that we've been able to translate from a genomics company to a product focused genomics company, with our IND approval in March of this year and our plan for a second IND next year in both CG53135 as well as an additional product, our first fully human monoclonal antibody.

It reminds you that our pipeline is designed to create new ideas each year with new exciting molecules, and that all our expertise is in place, and we will continue to build that expertise as we bring additional molecules into the clinic and beyond.

Our past restructuring has been designed to focus us on drug development.

We are in a strong financial position, as Dave Wurzer will review in the next part of the conference call, with $379m of cash in the bank, and we have tremendous opportunities in terms of our products, creating value in the clinic, through outlicensing or through bringing to the market.

We also have the potential for additional value creation as we translate 454 Life Sciences into a commercial success in instrumentation and services in an area that we believe may be one of the most important for human healthcare and medicine, the understanding of whole genomes.

I thank you for your continued support, and I turn it over to Dave Wurzer.

Thank you Jonathan, and good morning everyone.

My remarks today will cover two topics, first comments on the second quarter results and second, revised financial guidance for the full year 2003, first the results.

Revenues for the quarter were $1.7m compared to $3.7m in the second quarter of 2002 and $1.9m in the most recent first quarter 2003.

The decrease in revenues is a result of shifting our focus from collaborative service driven arrangements, to pipeline driven collaborations that do not realize the same current revenues.

Second, R&D expenses compared to the first quarter of 2003 were up $3.8m in the second quarter, as we began to incur significant expenses in support of our clinical and pre-clinical pipeline for both proteins and antibodies.

We also incurred a $2.9m restructuring charge in the quarter associated with our June reduction in force of 80 people, for severance and benefits, and related release obligations.

Cash burn for the quarter was $16.5m for a year to date cash burn for the first six months of 2003 of $36.6m.

As Jonathan mentioned a couple of times, we finished the quarter with $379m in cash and investments.

Second, turning to financial guidance for the full year 2003.

As a result of our restructuring announced in June, and pipeline progress, as well as progress at 454, we have revised our guidance.

CuraGen's full year 2003 net loss is now projected to be between $75m and $85m, which includes the second quarter restructuring charge of $2.9m, and leads to an anticipated full year cash burn ranging between $80m and $85m, which is, importantly, an approximate $5m - $10m reduction from the previously provided guidance regarding our 2003 cash burn.

CuraGen anticipates that 2003 revenues will be approximately $6m to $7m as we continue to place primary focus on our pipeline.

As a result, we perceive 2003 research and development expenses of $65m to $70m, general and administrative expenses in the $18m - $20m range, with a resulting total operating expense range of $86m to $93m including restructuring charges.

Interest income is anticipated to be in the $7m to $8m range, interest expense $9.5m to $10m, and CuraGen's losses associated with our minority ownership in 454 Life Sciences is now expected to be $5.5m to $6.5m, as 454 Life Sciences continues to make significant progress in developing new technologies.

CuraGen's depreciation expense is anticipated to be approximately $8m in 2003, to be incurred throughout the year.

Capital expenditures for the full year are expected to be in the $9m to$10m range, with spending slightly weighted toward the second half of the year.

That concludes my financial remarks.

With that, I'll turn the floor back to Jonathan Rothberg.

Jonathan?

Again, I want to thank everybody for their support.

This has been a very exciting period for CuraGen, as we see our work translate into potential products that can change people's lives.

I'll turn it over to the moderator for questions.

At this time, I would like to remind everyone, in order to ask a question, simply press star, then the number one on your telephone keypad.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from David Witzke of Morgan Stanley.

Hi, actually this is Han Li.

I'm sitting in for David.

Actually we have a couple of questions for Dr. Shannon, regarding FGF20 clinical trial as well as manufacturing.

First of all it's a nice comparison table for KGF1, KGF2 and FGF20.

The question we have is regarding the patients who accept for a clinical trial.

For KCF1 and KGF2 both Amgen and Human Genome Sciences use cancer patients with multiple myeloma and other hematological malignancies.

Those patients are currently undergoing bone marrow transplants.

Your Phase I trials we see you select colorectal cancer patients, or solid tumor cancer patients.

What's the rationale behind that?

That's a good question.

A couple of points.

You're correct that both Human Genome Sciences and Amgen, in terms of Phase II, Phase III programs, move to bone marrow transplant patients.

That's because those patients have almost a 90% incidence of oral mucositis.

That said, Amgen specifically did their Phase I programs in colorectal cancer patients, much like we are doing.

The rationale behind that is, in Phase I it's important to try to get as clean a look as you can at the safety of the drugs.

That's again, the primary goal of that.

Bone marrow transplant patients are acutely ill by virtue of what they're going through.

They are going through a very dynamic period, where it would be hard to get a good assessment of the product's safety, administered in that environment.

Colorectal cancer patients, on the other hand, not that they're well by any means, but they're much less acutely ill than bone marrow transplant patients.

So you don't have as much background of adverse events in that population as you would in bone marrow transplants.

Therefore, you can get a better look at the safety of the products in Phase I.

Our intention would be to move to other patient populations in Phases II and III, including bone marrow transplants.

So, that is something we certainly considered doing.

As well, we will look at the possibility of continuing on in something like colorectal cancer.

So again, what we're doing actually, if you look at the history, it's fairly consistent with specifically what AmGen has done.

OK.

Yes, OK.

My second question is regarding manufacturing.

You mentioned that you have an agreement with third party manufacturing, contract manufacturing.

Do you have plans to bring in in-house of the manufacturing place if, let's say, you do have successful Phase II results?

Hi, it's Chris McLeod.

I'll answer.

At this point, we have no plans to bring internal the capacity to do manufacturing.

That's usually expensive to construct GMP facilities.

At this point in time, there's plenty of capacity available outside.

OK, thank you.

Your next question comes from Derek Winger, of Jeffries and Company.

Yes, thank you.

I have many questions.

Can I go through these one by one?

Sure.

Most of them have to do with financials; the depreciation and amortization levels in the second quarter?

Right.

Derek, we will be disclosing that in our 10-Q.

It's not in our financial release at this point.

But as I pointed out, our depreciation and amortization we expect to be pretty radical throughout the year.

So, you can check the first quarter 10-Q as well.

OK.

So, most of these will be in the 10-Q, so I might as well just ask then, the cash burn guidance, if any, given for going forward?

Yes, we did give guidance for the full year cash burn --

I mean for '04.

We have not provided any '04 guidance at this time.

That's correct.

OK.

When do you anticipate being able to do that?

We've historically done it associated with our fourth quarter conference call.

I don't anticipate doing it before then.

OK.

Thank you.

All right, thanks very much.

There are no further questions at this time.

Dr. Aslan, do you have any closing remarks?

No, thank you very much for listening in on the call.

Thank you all for participating in today's CuraGen second quarter conference call.

This call will be available for replay, beginning at 2 p.m.

Eastern Time today through Midnight on Sunday, August 24, 2003.

The conference ID number for the replay is 1650877.

Again, the conference ID number for the replay is 1650877.

The number to dial for the replay is 1 800 642 1687, or 706 645 9291.

Thank you for your participation.

You may now disconnect.