Celldex Therapeutics Inc (CLDX) 2004 Q3 法說會逐字稿

Good morning.

At this time, I would like to welcome everyone to the CuraGen Q3 2004 Financial Results Conference Call. (Caller Instructions)

Thank you.

I would now like to turn the conference over to Dr. Glenn Schulman.

Sir, you may begin your conference.

Thank you.

Good morning.

Welcome to CuraGen Corporation’s third quarter 2004 conference call.

Participating on this call is Dr. Jonathan Rothberg, CuraGen’s Chief Executive Officer, President and Chairman, Dr. Timothy Shannon, Executive Vice President of Research and Development and Chief Medical Officer, David Wurzer, Executive Vice President and Chief Financial Officer, and Christopher McCleod, Executive Vice President.

This conference call is being web cast over the Internet and is available on CuraGen’s web site at www.curagen.com, along with the presentation.

We will have a short presentation followed by a Q&A.

Please note that certain remarks that we may make about future expectations, plans, and prospects for CuraGen during this call constitute forward-looking statements for purposes of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995.

Our actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors, including those that are discussed in our quarterly report on Form 10-Q, which was filed with the SEC on August 6, 2004 and our other periodic SEC filings, which are online with the SEC.

Please refer to those filings for descriptions of those factors.

I’d now like to turn it over to Dr. Jonathan Rothberg, who will begin the presentation with Slide 2, titled CuraGen is Focused on its Pipeline.

Good morning and thank you.

CuraGen is focused on its pipeline.

We have three drugs in man this year -- CG53135 for mucositis, which is entering Phase II.

CR002, our first fully human monoclonal antibody for the treatment of kidney failure associated with IgA nephropathy and other indications entering Phase I. PXD101, an HDAC inhibitor for solid and hematological cancers, transitioning to Phase II in the first half of 2005.

In addition to a pipeline, a promising pipeline in the clinic and of equal importance, we have a deep pipeline in the future, making CuraGen unique.

We have CR011 for metastatic melanoma and CT052, a small molecule for Type 2 diabetes, planning for the clinic in 2006.

In addition, we have tremendous support from the NCI for preclinical and clinical development of a pipeline of HDAC inhibitors for cancer and a number of programs, in proteins, and antibodies that will be advancing to fill the pipeline in 2006 and beyond.

In addition to a rich pipeline in the clinic, a strong pipeline behind it, we have flexibility because we have $352 million in cash and investments, which allow us to move our pipeline forward and make the right decision for our investors.

To give you more color on our pipeline, I’m going to turn it over to Dr. Shannon.

Tim?

Thank you, Jonathan, and good morning.

I will begin with the slide that’s titled Advanced Therapeutic Pipeline.

And this slide basically reiterates some of the things Jonathan just mentioned, but focuses on our most advanced products.

CG53135 is in Phase II for the prevention of oral mucositis.

I have subsequent slides to provide more information in regard to that.

PXD101 is in Phase I for both solid tumors and hematologic malignancies.

CR002, IND has cleared with the FDA and starts Phase I now.

CR011 is the new product that we’ve identified as a preclinical antibody.

It is in preclinical development and will move to the clinic in 2006.

And CT052 is a small molecule for the treatment of Type 2 diabetes, which also has entered the preclinical development stage and will be targeted for Phase I in the clinic in 2006.

I’ll now move through the next series of slides, which will provide more information about each of those.

Slide 4 is titled CG53135 for Cancer Supportive Care.

Again, if you followed us, you’ve seen this slide before, but let me just make a couple of points.

Cancer supportive care has filled a large unmet need for physicians who treat cancer patients and for cancer patients.

Largely this is the segment that is focused on dealing with the side effects of chemotherapy and radiation therapy.

Unmet needs have been met in the area of bone marrow suppression and in the area of nausea and vomiting.

You can see some of the products on this slide, such as Epogen, Neulasta, Zofran, and Aloxi.

Again, these products have all been quite successful because of their ability to meet that unmet medical need and to allow patients to get the cancer treatment they need.

The area of oral mucositis is a lead indication for CG53135.

Currently there is no product on the market.

It is our expectation that Amgen’s KGF-1 will get to the market sometime in the future.

Our product will follow on to KGF-1, but we think we’ll follow on in a differentiated way, which will make it successful in helping to meet the unmet need in oral mucositis.

The next slide, Slide 5, is titled CG53135 for Oral Mucositis.

Again, oral mucositis is a side effect from chemotherapy and radiation therapy.

Those two therapies kill rapidly, dividing cells.

That includes obviously cancer cells but also includes cells such as the cells that line the gastrointestinal tract.

Killing those cells is what causes the ulcerations and oral mucositis in a person’s mouth is a side effect of chemotherapy or radiation therapy.

This is quite uncomfortable, can cause a patient to not be able to eat or drink and also can cause a patient to require narcotics, including intravenous narcotics.

In addition, it can cause a cancer doctor to move away from the aggressive chemotherapy that the patient needs to a less aggressive course to try to avoid the side effects.

So the goal is to avoid that side effect and to let patients get the treatment they need.

CG53135 is also known as Fibroblast Growth Factor 20.

It basically is a growth factor that repairs this injury and helps prevent this injury from limiting a patient’s ability to get cancer therapy.

The cartoon shows a cross section of the lining of your mouth.

It consists of an epithelial layer, where if you put your finger in your mouth that’s what you would touch inside of your cheek.

And that sits on a second layer called the mesenchymal layer, which provides the infrastructure for the epithelial layer.

Both of these components of the tissue are damaged by chemotherapy and radiation therapy and that’s what causes the ulceration.

It is thought that the healing process is largely driven from cells, such as stem cells, that are part of the mesenchymal compartment.

At the bottom of the slide we say our strategy has been de-risked and that is because of Amgen’s work with KGF-1.

KGF-1 works predominantly through receptors on epithelial cells.

Our molecule, CG53135, hits those same receptors with the same relative degree of activity and therefore we’re confident that we should see at least the activity that KGF-1 has seen in the Phase II program.

However a difference, biologically, is that CG53135 also hits receptors in this mesenchymal compartment.

Again, this is the compartment, which we think is critical for healing.

KGF-1, Amgen’s product, does not hit receptors on cells in this compartment and therefore we think that we have the potential to have a more potent affect with CG53135.

The next slide provides a little bit more background, again, to build on the potential for differentiation.

This slide is entitled Prevention or Treatment of Oral Mucositis.

Again, what we’re hoping to bring to the market is a product that is more flexible and therefore will be more broadly used in this patient population who suffers from oral mucositis.

The middle part of the slide compares and contrasts prevention and treatment.

In prevention, you’re looking obviously to prevent the development of oral mucositis.

This is an appropriate way to intervene for patients who are at a high risk of oral mucositis and those include populations such as the bone marrow transplant population where there’s roughly an 80 or 90% risk of incurring oral mucositis.

Treatment implies that you actually wait to see evidence of injury, so a patient that declared themself is a patient who actually is going to get oral mucositis, and you look to then intervene with a treatment regimen to decrease the duration and the intensity of oral mucositis.

This approach is more appropriate for lower-risk populations where you’re not certain whether or not the patient will get oral mucositis.

And this gives you the ability to wait and see is the patient actually going to get oral mucositis and then intervene with a treatment to confer benefit and prevent the mucositis from becoming clinically problematic.

Again, the graph below captures that a little bit more graphically.

On the left-hand axis, the vertical axis is a WHO oral mucositis scale and this basically grades the severity of mucositis from 0, meaning no mucositis, to 4 being severe mucositis.

You try to prevent the patient from getting to grade 3 or 4.

That’s when they have clinical programs.

The solid line shows what the natural history of mucositis looks like.

So, if on day 0 a patient gets chemotherapy or radiation therapy, nothing happens for a few days, then by day 5 to 7 they start getting pain and sores inside their mouth.

That peaks at about two weeks and resolves over about one month.

And again, in a prevention paradigm, before a patient ever shows any disease, meaning they still have an oral mucositis score of O, meaning they have a normal mouth, you would give the drug then to prevent oral mucositis.

Again, the treatment approach implies that you would actually wait for a patient to show evidence of the disease, here reflected by an oral mucositis score of 1 or 2 and then bring in the therapy with CG53135, again, to prevent the progression of severe mucositis.

The prevention and treatment time course and oral mucositis scores again are depicted with the solid and the dash lines.

The next slide shows us why we think we have an ability to differentiate in this prevention and treatment paradigm and to be unique in this market.

This comes originally from our animal models, so, on the left-hand side of this panel, we say that we have shown single dose activity and prevention of oral mucositis in animal models.

So, when given this prevention with a single dose we can prevent animals from getting significant mucositis.

In the clinic, KGF-1, Amgen’s product, in the prevention approach is used with 6 daily IV doses, so an IV dose, 1 of 6 consecutive days.

Again, our approach in the clinic will be to have the same affect with a single IV dose.

Again, that was what we studied in our Phase I program and that is what we are now initiating in the Phase II program, namely the ability of a single dose to prevent oral mucositis.

Again, this confers great flexibility in terms of the use of the products and that the product can be used very easily, both in inpatient and outpatient regimens and again, outpatient regimens are important in cancer because, in fact, most cancers are treated as outpatients.

The right-hand side of the panel talks about the treatment approach we’re taking to differentiate.

So, in animals, we have shown that we can wait for animals to show signs and symptoms of mucositis, then bring CG53135 in and confer a treatment benefit.

Again, in the clinic to date, Amgen has only approached prevention.

They have not approached treatment and again, we’re fairly certain that the competition, at least at the animal stage, has not been able to show effective treatment interventions.

Certainly there’s nothing in the public domain regarding that.

So, in contrast to Amgen with the prevention paradigm, we will bring forward both a prevention and a treatment paradigm, again to provide flexibility with use of the drug, allowing prevention to be used in high-risk patients and treatment to be used in low-risk patients.

So we are starting the Phase I study by the end of this year, which will evaluate CG53135 to treat oral mucositis.

The next slide, CG53135 Phase II Study Design, provides some of the detail around our Phase II design.

Again, this is for the prevention of oral mucositis with a single dose of CG53135.

Patients will undergo their myeloablative chemotherapy and/or radiation therapy.

They then will be randomized to one of four treatment arms -- placebo, or 1 of 3 doses of CG53135 and those doses are 0.03 mg/kg, 0.1 mg/kg, or 0.2 mg/kg.

Those treatments will be given one day after a patient’s bone marrow is reinfused, as part of the bone marrow transplantation.

The endpoint of the study will be the development of clinically significant oral mucositis.

Technically that will be noted by a grade 3 or 4 mucositis.

So again, our Phase I data that explores the ability of a single dose of CG53135 to prevent mucositis in bone marrow transplantation will be presented at ASH in December.

And we are beginning our Phase II study that I just described now and we expect that that study will be completed in the first half of 2006.

The next slide, Slide 9, just provides some future thoughts about mucositis in terms of where CG53135 may potentially go.

Again, mucositis, as I mentioned, occurs throughout the GI tract, so we’re focusing on the mouth now, but the mucosa of the esophagus and the lower GI tract are also targets of this, causing either esophagitis or enteritis.

Enteritis mainly manifests as diarrhea.

So we are starting in prevention of oral mucositis.

As I’ve already alluded to, we will be starting a Phase I study to start looking at the treatment of oral mucositis and in the future we will be considering the potential utility of the growth factor in broader GI mucositis indications.

With that, I’ll move on to Slide 10 and review the remaining products in our advanced portfolio.

The first is PXD101, which we’re developing for both solid and hematologic malignancies.

This is currently in Phase I. Again, PXD101 is a small molecule that we are in collaboration with TopoTarget.

PXD101 works as an HDAC inhibitor and through a mechanism of modulating expression of cancer-related genes, and in particular, modulating the expression of genes that support cancer activity.

So HDAC inhibition is a way to cut that support off from the cancer cells.

One of the virtues of this approach is that while it’s targeted for an important mechanism in cancer, that mechanism plays into a number of different ways in which cancer cells support their growth, and shuts those ways off.

So it’s really a multi-pronged approach, including activating things like apoptosis, providing mechanisms of synergy with radiation and chemotherapy and reversing multidrug resistance.

So, those are some of the mechanisms via which HDAC inhibitors can work to treat cancer.

We currently have two Phase I studies ongoing, one in solid tumors and one in hematologic malignancies.

We expect to have adequate information from those Phase I studies to be able to start our Phase II program in the first half of 2005.

And as Jonathan mentioned, we’re very excited to be working with the NCI through a clinical trials agreement and have the NCI’s support in our clinical and preclinical development of PXD101, as well as the rest of our HDAC inhibitor programs.

Slide 11 talks about CR002 for IgA Nephropathy.

So an IND has been submitted to the FDA and has cleared the FDA and we’ll be beginning the Phase I trial in November.

CR002 works to inhibit inflammation in kidney disease and this is inflammation that can go on to cause kidney failure.

One of the mediators that drives that inflammation is PDGF-D, again a growth factor discovered by CuraGen.

And the notion of this intervention is to use CR002, our fully human monoclonal antibody, to bind to and neutralize this important inflammation mediator, PDGF-D, to stop the progression of inflammation to end-stage renal disease in patients with kidney disease.

The next slide provides a schematic of our development, our early stage development.

We will be beginning Phase I, in a program in healthy male volunteers.

The study will involve about 40 volunteers.

The primary goal, as is always with Phase I studies, is safety, tolerability, and pharmacokinetics.

In addition, we will be looking for the ability of CR002 to bind and neutralize PDGF-D in the normal male volunteers.

The study design is a randomized, placebo-controlled single IV dose, escalating through five dose cohorts and those dose cohorts are 0.3 mg/kg, 1.0, 3.0, 10 and 30 mg/kg.

We expect that the Phase I study will complete in the second half of 2005.

And one of the primary indications we plan to progress to in Phase II is that of IgA nephropathy, where we have good evidence that PDGF-D is one of the primary mediators causing kidney inflammation in these patients that subsequently leads to kidney failure.

The next slide, Slide 13, is titled CR011 for Metastatic Melanoma.

So, consistent with our milestones, this is one of our recent announcements about new products that we’re bringing forward from our portfolio to bring into the clinic.

CR011 we are targeting for the clinic in the first half of 2006.

CR011 is a fully human monoclonal antibody where we use antibody drug conjugation technology to use the antibody to kill tumor cells.

CR011 specifically is a targeted therapy that we have shown kills human melanoma cells in animal models of melanoma or animal xenograph models.

Again, the effects there have been quite robust.

Those results are being submitted for publication and presentation and we expect they will be presented in the first half of 2005.

Melanoma is a devastating disease.

Metastatic melanoma patients have a median survival of about 6 to 9 months and there are limited treatment options for these patients.

About 8,000 patients per year die from metastatic melanoma.

This technology works by using the full 8 (ph) monoclonal antibody to target specifically the melanoma cell.

It does this by identifying and binding to an antigen that CuraGen identified that is specific for melanoma cancer cells and not found on normal cells.

The potent cell-killing payload that is bound to the antibody is therefore delivered to the cell.

It is internalized to the cell and then it’s cleaved from the antibody, once inside the cell, to kill the cancer cells.

The nice part about this technology - and we’re using SeattleGenetics’ technology - is that the antibody drug conjugate circulates in the blood of the patient.

It is very stable, so this free drug is not available except when it is delivered to and inside the cancer cell.

So Phase I will start in the first half of 2006.

Again, we expect this to be a very efficient development.

Phase I will be advanced metastatic melanoma patients.

We will quickly work to identify a maximum tolerated dose of CR011 in those patients and then take that dose and expand the treatment to approximately 15 to 25 patients, with the hope of seeing responses.

If we see responses in those patients, we know we’re in good shape in terms of our past work, so it should be a very efficient development.

Slide 14 is CT052 for Type 2 Diabetes.

This is the small molecule we’re co-developing with Bayer that we just announced earlier this week.

Again, it’s an orally administered small molecule to help glucose control in the management of Type 2 diabetes.

Everyone is well aware of the epidemic of Type 2 diabetes and the impact on healthcare costs.

We feel very fortunate to bring a novel molecule forward, together with Bayer that hopefully will have an impact on this population.

Again, this is done in collaboration with Bayer.

In this collaboration, CuraGen brings targets.

This is one of the targets we have brought forward.

Bayer uses their chemistry to identify the small molecule lead, with is CT052, and we now enter a co-development stage with Bayer and at the back end CuraGen has 44% of the profits.

And again, we target the small molecules coming to clinical development in 2006.

Slide 15 again just recapitulates our milestones and again, these are the milestones we put forward at the beginning of the year and I’m happy to say we have progressed against each one and done a bit more.

So, starting with CG53135 -- as we said, we would start Phase II for prevention of oral mucositis and we are doing that.

We said we would present our Phase I data in the oral mucositis program and as I said, that data will be presented at ASH in December

In addition, we’ve identified a second indication for oral mucositis and that is the treatment indications and that program will begin toward the end of the year.

CR002 again was one of our milestones for the year, to submit the IND and begin Phase I. That has happened.

We will begin Phase I in November and we have additional preclinical data being presented at the ASN later this month.

Not foreseeing our milestones, what we think is a superb opportunity is PXD101.

If you followed the HDAC field, it is one of the exciting fields in terms of cancer therapeutics and we are happy to be part of that.

As we said, we’re currently in Phase I and continue on track to move that program into Phase II in the first half 2005.

Additional milestones we’ve put forward were to identify additional compounds from our earlier portfolio to bring forward to the clinic.

Those are CR011 for metastatic melanoma, beginning Phase I in 2006 and CT052 for Type 2 diabetes, also headed for the clinic in 2006.

With that, I’ll turn the talk back over to Jonathan Rothberg.

Thanks, Tim.

A key to have the resources to move this pipeline forward is to make sure we leverage the appropriate partners.

To that end, I’d like to summarize the partnerships that are significant to our pipeline, our current pipeline, and our future pipeline.

On this slide titled Leveraging Collaborations for Our Pipeline, I summarize the Abgenix collaboration and the Bayer collaboration.

What’s important to note is that both have been successful.

From Abgenix, we have CR002, again, cleared for IND this year and we have CR011 for metastatic melanoma teed up for 2006.

In addition, this is an ongoing collaboration that now has a proven track record in terms of producing fully human monoclonal antibodies as therapeutics and bringing them into the clinic and we will continue to do that as we move forward.

In addition to Abgenix, we have a successful Bayer collaboration.

We have systematically gone through the genome.

We have systematically looked at the mechanisms that underlie Type 2 diabetes, and as you know, Type 2 diabetes is becoming one of the single greatest drains on the U.S. healthcare system.

And now, with CT052, we have our first molecule in hand for the potential treatment of Type 2 diabetes.

One of the nice things about this collaboration is that we can work with Bayer.

We can work with their infrastructure.

We can move efficiently and we’re excited that in the area of diabetes, often, early on in the clinic, you can see if your product has results and know that it was a good bet.

The next slide summarizes some new collaborations.

While Abgenix and Bayer have really allowed a foundation, we recognized that we needed to make new collaborations to take advantage of opportunities that we saw.

The first collaboration we did this year was to take advantage of our understanding of cancer and the importance that HDAC inhibitors we’re going to play as promising new cancer therapeutics.

To that end, we established a broad and deep collaboration with TopoTarget, a leader in HDAC inhibitors.

As part of that collaboration, we brought in PXD101, which is now in Phase I for hematological and solid tumors and as Tim discussed, we’ll be going into Phase II the first half of next year.

But in addition, we recognized, just like we recognized that fully human antibodies were a platform, just as we recognized that small molecules in obesity and diabetes was a platform, we recognized that HDAC is a very important class.

And we’re working with TopoTarget to bring additional HDAC inhibitors into the clinic for 2006 and beyond.

So again, each collaboration is designed to enable our current pipeline, each collaboration is designed to allow us to leverage our cash resources with the expertise of others and each collaboration recognizes that we need drugs now and drugs into the future.

The fourth and latest collaboration is with SeattleGenetics.

The SeattleGenetics collaboration, again, was a platform collaboration to expand the utility of our fully human monoclonal antibodies.

We now have CR011 identified for metastatic melanoma.

I’m very excited about this molecule.

As Tim discussed, it has a clear clinical path and a real important unmet medical need.

But in addition to CR011, we’re working with SeattleGenetics to identify other fully human monoclonal antibodies from our pipeline that will benefit by being able to be used to bring specific cancer drugs right to the cancer and not to the normal tissue.

In addition to our collaborations, we have another strategic lever at CuraGen.

The next slide summarizes progress with 454.

Currently, CuraGen owns approximately 65% of 454. 454 is a company, which was created to create instrumentations to sequence individual genomes.

To that end, 454 has made tremendous progress and recently we announced the second major grant from the NHGRI - part of the NIH - to create the first machine to be able to sequence genomes for $100,000.

To date, we have commitments of over $7.4 million from the HGRI to fund this instrumentation.

What’s important as a shareholder of CuraGen to recognize is that we have two major benefits from our ownership in 454.

The first is strategic.

We have the opportunity to use this technology to advance our pipeline appropriately in the clinic and second, we have the ability to leverage this investment as 454 becomes an independent company and starts shipping instruments for general sale in the first quarter of next year.

With that, I’ll summarize CuraGen is Focused on the Pipeline, our last slide, before I turn it over to Dave Wurzer for financial results.

We have three products in the clinic or transitioning to the clinic in November.

We have two products teed up for 2006, a fully human monoclonal antibody, as well as a small molecule for Type 2 diabetes.

And we have the pipeline and relationships to ensure that while we’re moving our products forward we do not create the classic gap in the pipeline, but create tremendous value at CuraGen as a Company that can not only produce clinical candidates, but continue to produce clinical candidates.

Our cash gives us flexibility, our pipeline gives us flexibility and our 66% ownership of 454 gives us flexibility.

This sixth ability is increasingly important as we navigate into the future.

With that, I’ll turn it over toe Dave Wurzer.

Dave?

Thank you, Jonathan and good morning, everyone.

My remarks today will cover two topics -- the third quarter financial results and guidance for the full year 2004 loss and cash burn.

First, our third quarter highlights were as follows --

We had a loss of $21.5 million or $0.43 a share and included in this loss was a write-down of $1.9 million on land we own for future expansion, whose value has declined given Connecticut real estate market conditions.

* We also have collaboration revenue of $2.0 million, including $300,000 of service revenue generated by 454 Life Sciences as they begin to commercialize their product and we also recorded $400,000 of grant revenue of 454 in the third quarter.

We experienced a decrease in cash during the third quarter of $23 million, which included our semiannual interest payments on our 4.0% and 6.0% debt of $6.0 million.

Other financial numbers for the quarter, included depreciation and amortization of $2.2 million and capital expenditures primarily in support of our protein facility build outs of $2.7 million.

Turning to guidance for our full year 2004 loss and cash burn, as we announced on October 19, 2004 we have reduced our headcount by approximately 110 people.

And we will be taking a fourth quarter 2004 restructuring charge of approximately $4.0 million, including approximately $2.7 million of cash payments related to severance packages, $0.3 million of noncash charges related to severance packages and $1.0 million of noncash charges related to assets to be written off.

And the majority of these cash payments will be completed by the end of 2004.

So, consistent with our prior financial guidance and incorporating changes resulting from our restructuring, we anticipate our net loss for 2004 will be approximately $4.0 million greater or in the range of $89 to $94 million.

And our cash burn, excluding the proceeds of $86 million from our previous financing activities this year will increase by about $3.0 million and therefore will be in a range of approximately $104 to $109 million, of which $15 to $18 million is cash burn attributable to 454.

Now we do not anticipate substantial savings in the fourth quarter as a result of this restructuring, as current projects need to be completed over the next 60 days.

However, as we previously announced in our restructuring press release, we are committed to decreasing our operating cash burn in 2005, compared to 2004.

And we will provide detailed guidance for 2005 results and the related cash burn when we report the full-year 2004 and fourth quarter results.

And with that, I'll turn it back to Jonathan Rothberg.

Jonathan?

Thank you and look forward to your questions.

Moderator?

(Caller Instructions) William Ho, Piper Jaffray & Co

Hi guys.

I have a couple of questions.

First question is for Dave.

Can you elaborate why you expect 4Q numbers to remain relatively constant even though you implemented this headcount reduction pretty early on in the quarter?

Sure.

Will, I think what you are asking is seeing as how I’m taking a restructuring charge in the fourth quarter, why aren’t my numbers going down.

In fact, my operating expenses will decrease, but they're reclassified, if you will, a large chunk of those operating expenses to the related severance payments, which are approximately consistent with the costs that I would have incurred in the fourth quarter to (multiple speakers) --

But you guided upward.

Excuse me?

But you had guided upwards.

Right.

So then let’s start with that, okay.

First of all those costs are just reclassified, all right.

Then I do have costs associated with the projects that I’m completing over the next 60 days, okay.

As you heard, we’ve had great clinical progress.

We had great clinical progress so that we now have put together material and are completing material for our Phase II results on CG53135, for Phase I results on CR002.

So we have continued costs that we have on the pipeline that we are going to work on.

In addition, we want to wrap up projects that we have been working on, appropriately, over the next 60 days.

And some of our employees, in fact, that are being, if you will, laid-off are working for us to the end of the year to help us accomplish these projects as well.

So, we’re in a position where, while we announced the 110 being laid-off, we have some costs that will be incurred in the fourth quarter in order to do this correctly and to protect our pipeline.

So should we be expecting, as you’re wrapping up some of these projects, revenues to decline even further?

Your point on revenues is a different one.

Your question, really, I think is relative to the collaboration revenue we have ongoing, primarily with Bayer.

And Jonathan, did you want to respond to that?

Yes.

As you know, Will, the value of CuraGen comes from its pipeline and it comes from its future pipeline and we’ll make projections in terms of revenue at our end of year call.

But at the same time that CuraGen is focused on its pipeline, 454 is really now the established leader, if you call any of the leaders in the genome community, if you call the genome folks.

They have given us $7.4 million.

We are the recognized leader and we are commercializing.

We have commercial services now and we'll be selling instruments.

So at the same time CuraGen is 100% focused on pipeline, 454 is accelerating its commercialization and again, all guidance will be given at the end of year conference call.

In relation to the Bayer collaboration, so now that you’ve entered this new phase where you’ve entered preclinical, when can we expect expenses from Bayer to be billed back to CuraGen and do you have an estimate as to how large those expenses might be?

This is Jonathan again.

First of all, we are extremely excited.

Again, as you know, Type 2 diabetes is the single greatest drain on our healthcare.

Second, what’s critical about Type 2 diabetes and the development of Type 2 diabetes drugs is you know early on whether you have a winner.

In terms of the expenses, that will be part of our normal budgeting process and will be reflected in the projections Dave shares with you on the end of year.

But again, one of the great things about Type 2 diabetes drug development is the transparency of the results throughout the clinical development.

Okay.

I have other questions.

I’ll go back into the queue.

Okay.

Thank you.

Thanks, Will.

(Caller Instructions) William Ho with Piper Jaffray.

Okay.

I guess there are no other questions.

So after the layoff that you just -- can I get a breakout of what percentage of your staff remains that are G&A or legal versus researchers?

This is Dave, Will.

We haven’t provided such a breakout at this point in time.

As you know from looking at our numbers, approximately 20% of our costs generally are G&A-related costs and I anticipate that that percentage will continue to hold up.

But we are in the process of putting our budget together at the present time and will provide more guidance on that at year-end.

My understanding was a lot of the layoffs were related to early stage individuals and Jonathan, you kind of pressed in towards kind of the continuing pipeline.

Do you still have the employees?

How do you go forward and how do you continue to deliver targets to the Bayer collaboration or any other collaborations that you have?

That’s a critical question.

What you have to remember is our history and what we've been doing is systematically going through the genome with our employee base.

As we do it, we create real assets.

We create target assets in the IP.

We create project assets and the IT.

So these were tremendously productive employees.

They are leaving us with those assets, that pipeline of projects that we can move forward, that pipeline of projects that we can move forward with Abgenix to make fully human monoclonal antibodies and a pipeline of projects we can move forward with Bayer.

We have had tremendous success in our early research.

We have had tremendous research success in our preclinical and that has given us a unique position.

If you look at the 1400 biotechs out there, we are unique in that we have not only three things in the clinic in November, two teed up for the clinic, but a pipeline behind that that we’ve already made the investment in.

And as Dave made clear, we are making sure is in a position, in terms of intellectual property, the actual projects, the proteins, the targets to move forward, again putting us in a very unique position, Will.

We always manage for the long-term, at the same time recognizing that the next three years can be very difficult for the general industry.

Do you have any -- and how are you going to bring down the costs in addition.

What are you doing as well?

I mean, because your burn is still very high.

If you look at the last two restructurings that you did, burn somewhat maintained at a constant level, in around 90 even after each of the restructurings.

Although you have made progress in the clinic, it’s still probably below that of some of the other biotech companies that kind of got their start off during the genomics craze in late 1999.

Again, I do want to make this clear.

First of all, you have to recognize that we have two investments.

We have the investment in our pipeline at CuraGen in the future and we have the investment in 454.

Because of that, we have the appropriate burn and the appropriate focus in each of our investments. 454 is a near-term focus, with commercialization Q1 next year, already generating or perhaps seeing commitments for $7.4 million of grants, already generating revenues from services that are growing.

On the CuraGen side, you have an understanding that we can create most of our value by value inflection points and we have a management team that understands that and has shifted the resources from early value creation pipeline, which is already done, to late value creation in the clinic.

And again, we will give guidance.

But we will make sure that we have the resources to get through major value inflection points and we have the luxury of having two value inflection points teed up.

With the PXD101 going into Phase II - and again, there is no more promising class of cancer drugs than HDAC inhibitors now - and CG53135 teed up to into Phase II.

And again, as we’ll show in December, this is a very unique and promising molecule.

So we are doing our job.

We are focusing on value creation.

Hello?

Yes?

Yes?

Will, was there another question?

Yes.

Well, along those lines then, for 454, how far along -- like, you’re talking first-quarter now so you haven't placed any quarters, because you had previously guided to third-quarter commercialization of the product?

Yes.

We have commercialized.

We have been generating revenues.

We’ve been doing it as services and in addition, we have exceeded our expectations in terms of commitments, of grant revenues and our keying up those service revenues, so we have commercialized.

I should make clear -- this is the second phase of commercialization.

Throughout this year we’ve been recognizing revenues as a service.

Right now, if you call around the genome community, you’ll see this may be the greatest anticipation in terms of 20 years, people have been waiting for, the next generation of sequencing technology.

To meet that greater demand we are physically shipping instruments, which is the second phase of our commercialization.

Thanks, Will, for clarifying that.

And I guess finally, just for Tim - Tim, congratulations on getting things through the clinic.

Just wanted to find out what steps are you guys taking to improve your processes, because the last Phase I trial took quite a while.

So can we expect more rapid trials and better planning in the future?

Well, I mean, there's one setback.

I think the results you'll see at ASH will be well worth the investment we made in Phase I in CG53135.

To your second point, we always try to think better and faster and with quality.

So, absolutely, we continue to focus and focus on execution, which is a normal business practice.

But to respond to that, it is clearly our intent to be as efficient with these programs as we can be, in terms of moving them along.

Yes, I understand your perspective on the first Phase I, but I think it is important to say that, in the context of Phase I, I think the data is about as good as you can get and it has been very helpful in us designing that Phase II study.

So that Phase I program has great value to us.

Then, to point two, execution is critical and we will always work to execute better and better each year, as we continue on and that’s the most important thing we need to do, is to execute.

So, yes, I understand that angle on it and clearly execution and improving execution is the focus.

All right.

Along those lines, how has your progress been in kind of developing out your regulatory and your clinical affairs groups?

Are those increasing in size?

Do you have new employees?

Yes.

So, I will start with clinical development.

I think we started the year with Phil Hahn (ph) and I think we now have about 8 or 9 people in there, again, and the bulk of those people are execution people.

So these are people who execute clinical development at other companies that we’ve brought in and really do that site work and that logistical planning and relationship work with the sites that reflect that focus on execution and we’ll add there as we need to.

Again, the type of people we have, though, again we’re picking people who know how to manage sites, manage CRO’s, and have great experience with that, again, to try to make sure that we execute as well as we can.

Regulatory as well we have added to and again, we have great experience in regulatory and again, I think it’s the strength of CuraGen at this point in its evolution.

Yes, I’m quite comfortable that we have people in both those places who have done this before, know how to do the strategic thinking, know how to do the planning and know how, importantly, do the execution part as well.

Are 8 or 9 people sufficient in order to interact with the FDA and to do the planning required for the numerous clinical trials that you’re going to have going forward?

Yes.

Again, that 8 or 9 are part of the organization -- there’s a whole separate regulatory organization.

So, yeah, I think it is.

This is something that obviously we look at regularly and if we ever find that it isn’t, we’ll take care of that by applying additional resources.

But again, just to know, the attitude there is don’t be cheap with what we put behind those programs to make sure we have behind them what we need to succeed.

Again, development’s a whole different paradigm for a business, particularly with a company at our stage.

It really is an outsourcing paradigm.

That’s not just us.

That is the business practice and it makes sense, because you don’t take on all of the infrastructure associated with that.

So, again, we have small numbers of people but they’re people who know how to manage CRO's, people who know how to manage clinical sites.

Okay.

Thank you.

Good.

Thank you.

Thanks, Will, and Will, thanks for your continued support.

At this time there are no further questions.

Gentlemen, are there any closing remarks?

Yes.

I would like to thank everybody for their support and thank everybody who watched us make a successful transition to the clinic with a pipeline for the future.

Thanks.

Thank you.

This concludes today’s CuraGen Q3 Financial Results Conference Call.

You may now disconnect.