Celldex Therapeutics Inc (CLDX) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2006 AVANT Immunotherapeutics Earnings Conference Call. [Operator Instructions]

I would now like to turn the presentation over to your host for today's call, Ms. Una Ryan, President and Chief Executive Officer.

Please proceed, ma'am.

Thank you.

Good morning, ladies and gentlemen, I'm Una Ryan, President and CEO of AVANT Immunotherapeutics, Inc.

With me on the call is Chip Catlin, AVANT's Chief Financial Officer.

I would like to read a short prepared text before opening the call to questions.

I want to remind you that statements made by AVANT during the call, which are not historical facts, may be forward-looking statements that are subject to risks and uncertainties detailed in AVANT's filings with the SEC.

Actual results could differ materially from those expressed in any forward-looking statements made by AVANT.

During this call, Chip will review AVANT's third quarter financial results and then I'll give you a brief update on our lead clinical programs.

Following that, we'll open the call to questions and after answering questions, I'll make a few closing remarks.

Good morning, ladies and gentlemen.

We announced, in our press release today, AVANT's financial results for the third quarter of 2006.

The press release is filed as an exhibit to Form 8-K with the SEC and is available on AVANT's website on the Investor Information page.

AVANT reported a net loss of $5.6 million, or $.08 per share for the third quarter, compared to a net loss of $4.5 million, or $.06 per share for the third quarter of 2005.

For the nine months ended September 30, 2006, AVANT reported a net loss of $14.2 million, or $.19 per share, compared to a net loss of $14.1 million, or $.19 per share, for the nine months ending September 30, 2005.

The increase in loss between quarterly periods primarily reflects decrease in revenue due to lower billing levels to DVC for the anthrax/plague program.

And an increase in 2006 of operating expense due to increased R&D personnel and related costs, increased contract manufacturing costs incurred on AVANT's TP10 program, operating expenses of our Fall River manufacturing facility, and increased G&A expenses.

These costs were partly offset by an increase in investment income.

The increase in loss between nine-month periods primarily reflects an increase in operating expense, offset in part by an increase in revenue and an increase in investment income.

Product development and licensing revenue of $2.6 million was recorded in the first quarter of 2006 and the remaining $1.4 million was remitted to Paul Royalty Fund (PRF) due to the receipt of a milestone payment of $4.0 million from Glaxo for the European approval of Rotarix.

Fifty-percent of that milestone is creditable against future royalties.

AVANT also recognized approximately $550,000 in revenue in the first quarter related to PRF's purchased interests in the net royalties that AVANT receives from Rotarix worldwide.

The increase in revenue was offset by higher operating expense, primarily due to increased license fees, personnel and related costs, and non-personnel operating and facility-related costs associated with the Fall River operations.

At September 30, 2006 AVANT had cash and cash equivalents of $46.7 million.

Now let me give you an update on the clinical and preclinical programs.

The third quarter was an eventful one for AVANT.

We announced two significant awards of non-dilutive funding during the quarter.

The first, the National Institute of Allergy and Infectious Disease (NIAID), awarded AVANT a Phase II small business innovation research grant of $750,000 to support further development and CGMP manufacture of TY800.

Secondly, the International Vaccine Institute (the IVI) received $21 million in funding from the Bill and Melinda Gate Foundation for a cholera vaccine initiative, which will include conducting further Phase II and Phase III clinical trials of CholeraGarde in Bangladesh in India beginning in 2007.

These awards provide AVANT with new funding resources for the development of our single-dose oral vaccines against important diseases such as cholera and typhoid fever.

2006, to date, has been a year of significant achievements capped by the receipt of a $40 million milestone payment from PRF for the commercial launch of Rotarix that, when combined with cash on hand, puts us in a strong financial position to build our industry-leading bacterial vaccine franchise.

Let me outline the other key events of 2006.

Glaxo received market approval of Rotarix from the European regulatory authorities, triggering a $4.0 million milestone payment to AVANT.

This is on top of the $40 million that we received from PRF.

The NIAID initiated and fully enrolled the Phase I/II trial of TY800, our typhoid fever vaccine.

The U.S.

Congress passed the Defense Appropriations Bill for FY07, which included an appropriation of $2.6 million for the continued development of AVANT's oral biodefense vaccines.

Moreover, we have expanded our R&D collaboration with Pfizer aimed at discovering and developing vaccines for animal health and food safety and finally, the Fall River vaccine manufacturing facility is now fully-operational producing of our single-dose oral vaccine.

So now let's do a brief summary of our lead clinical programs.

Cholera regard -- As previously stated, we're very pleased with the IVI's continued support of our CholeraGarde vaccine.

We believe this funding confirms the importance of an effective cholera vaccine for the developing world, based on the very positive results experienced in the IVI's Phase II clinical trial of CholeraGarde in infants and children conducted in Bangladesh.

IVI will be purchasing clinical materials produced at AVANT's Fall River manufacturing facility for its planned Phase II and Phase III clinical trials.

AVANT is now preparing for its own CholeraGarde Phase III clinical study in the U.S. for the travelers vaccine market planned for mid-year 2007.

TY800 -- During the quarter, the NIAID completed enrollment of the Phase I/II clinical trial aimed at demonstrating the safety and immunogenicity of the TY800 vaccine, which is being developed to offer rapid, single-dose protection against salmonella type E, the cause of typhoid fever.

This trial is being conducted at the Cincinnati Children's Hospital and Medical Center.

In September 2006, AVANT was awarded a Phase II SBIR grant of $750,000 to support further development and CGMP manufacture of TY800.

AVANT is having clinical materials produced and plans to conduct its own Phase II clinical trials of TY800 in the first half of 2007.

Manufacturing -- AVANT is currently manufacturing CholeraGarde for the planned Phase III study.

When that manufacturing campaign is done, AVANT will begin making clinical trial supplies of ETEC E. coli vaccine for a Phase I study planned to start in mid-year 2007.

Biodefense -- In October of this year, AVANT announced that the U.S.

Congress passed the Defense Appropriations Bill for FY07.

This bill provides $2.6 million for the Defense Department's continued development of AVANT's oral combination vaccine to protect against anthrax and plague.

So this funding provides further affirmation of the value of our vaccine technology.

Under Animal Health and Food Safety -- Recently AVANT announced an extended R&D agreement with Pfizer aimed at discovering and developing vaccines to protect livestock and companion animals from respiratory and enteric diseases.

This collaboration further leverages the value of AVANT's vaccine technology outside of its core development programs in human health and at no cost to AVANT or its shareholders.

Avian flu -- AVANT is evaluating a number of avian flu constructs in preclinical models to determine their immunogenicity and if successful, would hope to select a vaccine candidate within 6 to 12 months.

So AVANT's broad pipeline of programs and emerging portfolio of next generation oral vaccines, together with our state of the art technologies and manufacturing facilities, offer exciting opportunities to build value in the near-term, mid-term, and long-term.

Now let me just run through those.

In the near-term, which is 2006, we have clearly delivered.

We have met the Rotarix milestone for European launch.

We have obtained the TP10 Phase IIb data and we have seen that CholeraGarde TY800 and soon ETEC will be manufactured.

In the mid-term, which is 2007 and 2008, we expect to receive the milestones for the U.S. launch of Rotarix, to monetize the cardiovascular program, and to advance the vaccine pipeline.

In the long-term, which is 2009/2010, we expect to receive Rotarix royalties, to capture cardiovascular program milestones, but at this timeframe we expect our own commercial vaccine products to be launching.

So this is the end of my introductory statement and I now welcome your questions.

Thank you, ma'am. [Operator Instructions] First question, Anton Wahlman from Needham & Co.

Hi Una, hi Chip.

This is actually Anton calling for George.

Good morning.

I was wondering if you can give us an update on GSK's decision not to pay the lower royalty rates for Rotarix?

Absolutely.

Just let me reiterate what the dispute is about.

There were two royalty rates.

The 7.0 to 10% royalty rate that we have disclosed is for net sales in both patent and non-patent countries.

In patent countries, we would receive 100% of whatever that rate would be.

But in countries that do not have claims that cover the vaccines sold there or patent enforced there, we would receive 70%.

GSK is saying they want to pay 70% across the board.

So we don't know, going forward, what the sales will be and how they will roll out in patent versus non-patent countries.

But suffice it to say that, if they were to prevail, we would receive 70% in the patent countries, but we would receive 100% of what we were expecting in the know-how or non-patent countries.

So we have retained advisors, of course, and we are looking at the full range of options available to the Company, but it's an ongoing discussion, and you will appreciate, a delicate one.

So I'm not going to be able to tell you much more about it than that.

What's Paul's royalty in this?

Is it AVANT's obligation or Paul's obligation to defend patents [inaudible]?

Well, that also is under negotiation, but it's AVANT's obligation.

We are the one who licensed the patent to GSK.

I want to reiterate, as I've said on calls before, that the milestones that we have received from Paul Capital are not in question.

They're not in dispute.

We have already received $50 million of them.

They're not at risk and we don't expect that the $11 to $9.0 million, expected $10 million, that we should get for the U.S. launch and that don't expect that that's at risk either and we expect that in 2008.

So the only thing that would be reduced would be those royalties above the caps.

Okay.

I have one other question about the CETi program.

Can you give us an update on your search for a partner and maybe some details on the type of partner and nature of partnership that you're looking for?

Yes.

We did a partnership, as you saw on the vaccines, with Pfizer, both TP10 and CETi are available for partnering at the moment and I know it's slow, but we want to do the right partnerships there.

We do not announce anything until deals are done.

We don't discussion ongoing discussion.

However, for TP10 there really seem to be two areas of interest.

One would be the cardiovascular/surgical, including transplant and other systemic uses, so we would expect to interest a partner there.

But there is also the issue of the use of a compliment inhibitor for AMD, age-related macular degeneration.

These are rather different markets.

So it is conceivable that we'll have to find a way to carve out that indication separately and consider a partner for that indication too.

In the case of CETi, we have not moved forward with our own clinical trials because of the discussions that we have ongoing.

There are people who are interested in the new adjuvant and the very nice data we have with the new adjuvant.

But in some cases, the partners have their own adjuvants or their own platform technologies, which they might want to use here, and therefore a trial with our newly-licensed adjuvant would not be helpful.

So we're sort of moving the discussions forward and I can't give you a time.

If you look at what I've just described but have been describing for about a year, we had always seen this as a mid-term event, which I expect was in more of the '07, '08 timeframe.

Okay.

Thanks very much.

You're welcome.

[Dan Issacs] from [Aid] Bank Therapeutics.

Yes, good morning, Doctor, Chip.

I'm a longtime shareholder of AVANT and I've spoken to you in the past on some of these calls regarding the depressed stock price of AVANT.

Can you comment, Doctor, on why, again, with good progress, particularly the licensing with the Pfizer, the stock just doesn't go anywhere?

I think I've answered this question a number of times.

I think that this is one of the problems with the market at the moment, that the small companies are simply not getting their due.

I think the other is the low stock price itself is a problem and I think what we need to do is something that really wakes up the market to the value in AVANT, because as you rightly point out, we've had nothing but important progress that has gone on.

We have tried to present at all conferences we can.

We have had good advisors on the IR and PR front and it seems to be just something that's happening at the moment.

As you know --.

Well, this is going on for years now, Doctor.

It's not just the moment.

Well, I don't know that there's anything useful that can be elaborated.

If you want to call me privately, we can re-discuss this, but I think that it's something that's more to do with the markets than with AVANT.

Okay.

Thank you.

[Michael Means] with AVANT.

Good morning.

Good morning.

I don't think you're with AVANT, but I'm happy to talk to you.

All right.

I have a number of questions.

Some of them have been addressed.

I mean, a longtime shareholder as well.

The stock price is meandering around of what you consider and what's been said to be not of value.

My first question is how is it that First Call projected $0.07 loss for the third quarter and the Company had an $0.08 loss, why the downwards of price?

Let me try to answer that for you.

Go ahead.

Yes.

The First Call is based on an analyst's model of what their expectation is in both revenue and operating expense for the Company and as I indicated in my remarks, we had lower levels of billing to DVC than we had originally projected and certainly different than a year ago.

And that is part of the contribution to having a slightly higher loss per share for the quarter.

Operating expenses are higher than last year.

That's really a function of having Fall River fully operational and as Una said in her remarks, that plant is producing CholeraGarde vaccine as we speak and will be continuing to operate at full capacity over the next 18 months.

Okay.

My next question is with regard to -- and by the way, I'm reading form the Form 8-K here.

You have just a short paragraph with regard to TP10.

That's been addressed in an earlier question/answer.

My question is this is -- AVANT has been seeking a partner for a lengthy, lengthy period of time.

To the extent you have been unable to secure a partner, do you consider this program unsuccessful, if not a failure, and if not why not?

Or when do you expect to secure a partner?

Well, I think it's a great mistake to value a partnership as the only way of valuing a program.

We completed the study in females some time ago and at that point, we felt that the program in cardiac surgery could move forward in males.

Now I know that a gender situation is often difficult.

But the reason that I think this is a very valuable program and is that compliment underlies a very large number of different diseases.

And the fact that we got an equivocal answer in those Phase II trials doesn't in any way preclude the utility of the compound for other diseases.

And I think the very fact that AMD, which is not a new disease but is an increasing one, as the population ages, and as understanding of that disease has come to the fore, we see at once that there are many uses for a compliment inhibitor.

And I don't think it's going to be an easy pathway, but I don't think the future of AVANT rests on the partnerships.

I think it rests with the products that we take forward to market.

But I don't feel it's failed and I don't feel that it's without value at all.

Okay.

The next question I have is has also been [inaudible] on that, what I call the Glaxo fiasco.

Why were the two royalty rates -- in other words, reading from the Form 8-K, it indicates that Glaxo has decided to pay royalties.

Now having worked with lawyers much of my life, I'm just at a loss to try to determine why a royalty was set up so that there could be the lesser of two?

Why was that set up in a contract in that form?

Well, I think that you may not have worked with this particular kind of contract, because that is absolutely standard in the industry.

We are very dependent on patents in this industry and they have a value.

But most companies, including the large ones, don't support their patents in every country.

Many products, in fact, only go to market in the U.S., Europe and a few other countries.

This vaccine is unusual in that it has worldwide usage and distribution and it is absolutely standard in these cases, in my experience from many years in this industry, looking at other companies as well, that you have one rate for patents and one rate for know-how.

In this particular case, we actually have ascending royalty rates, but I think the two rates is absolutely standard.

What was a surprise and a disappointment was that after getting to market in patent countries, after a long relationship with our Company, Glaxo decided that and reported that they were only going to pay at the know-how rate.

And without going into the details, that is an ongoing discussion and we will make sure that we get the best economic answer for AVANT and its shareholders.

All right.

Thank you very much.

[Robert Ericksy], a private investor.

Good morning, Dr. Ryan.

Good morning.

A follow-up question regarding Rotarix.

Is one of the options looked at as a possibility, for example, if GSK will not honor the patent issue, for example, for AVANT to try to license Rotarix to let's say the Chinese Health Ministry, for example?

That country could use a Rotarix vaccine.

They have one right now that is not very effective.

Would that type of option be a possibility?

Well, as I've said, all options are a possibility.

Right now I think that the Chinese market is a growing one, but I think what we're really interested in is the larger market and we're carefully weighing the scientific and legal facts.

We have contracts, as well as the costs and benefits of various strategies.

And we are going to determine the potential legal or other course of action that's in the best interests of our shareholders.

A question on the Pfizer partnership.

Yes?

That started, I guess, in '06.

Would you be at liberty to comment at what stage those products are at in terms of how close to market are you with those livestock vaccines?

No.

I can't do that, Robert and let me just remind you.

We have had a license agreement with Pfizer since the year 2000 and this is an extension of the R&D agreement.

It's a very nice agreement for AVANT in that it pays expenses and patent costs that are very important to us.

But Pfizer is very tightlipped about what the livestock, what the animals are and what the disease is and what the stage of the disease is.

So I really can't comment on it, but we're very pleased to have it.

They're a very good partner.

Okay.

On your basic technology of oral mucosal-inducing immunity, I was wondering if you ever considered an approach of just working on proof of principle for certain vaccines, for which there would be a great demand?

If you can produce a vaccine in egg-free manufacturing process, for example and not necessarily complete the entire process of taking it through the various stages of clinical trials, but just proof of concept and then licensing it to a big pharma to take it from that point on?

I think it's a very intelligent question.

There's no question that the platform of oral single-dose is valuable for a number of vaccines.

I think that right now we're trying to move the cholera and typhoid fever forward, because they validate the platform.

But I would say that for our E.coli, our ETEC vaccine, we are trying to get to proof of principle and I would say that's the same thing that we're trying to do with the biodefense vaccine for anthrax and plague and the avian flu.

So I think it's quite likely that we will not take all of them all of the way, but I do think it's important that first we show that we can get the platform - that's cholera and typhoid fever - approved by the FDA.

I think it's also important that we show proof of principle in a vectored vaccine and I think, after that, we will have demonstrated the value that might be apparent to a large vaccine company.

So I don't disagree with your approach at all.

But I think there are some important steps to achieve, not just try one vaccine and get to proof of principle and then do one-off licenses.

I think we need to show the value of the platform.

And one final question, which echos the previous two shareholders.

I've also been a long-time shareholder and I'm also concerned about the valuation and if I may make a suggestion?

If 80% of your support is from retail investors, I think a more focused and a more enhanced marketing of AVANT and its prospects is necessary.

And for example, on the business summary on Yahoo Finance or some of the other finance pages, Rotarix is mentioned at the end of the summary.

I think Rotarix should be front and center.

It's going to be a $1.0 billion product, according to GSK.

It's going to safe hundreds of thousands of lives every year.

Maybe even in your presentations or on your website you should show a package of Rotarix so that people can see that there is a concrete product that's being marketed by AVANT's licensor.

Well, I don't disagree with you, Robert.

There are various schools of thought.

We do believe Rotarix is valuable, but it is owned by GSK now.

In vaccine talks, I always do show the package.

It's an attractive logo they have on there.

I'm not sure that the components, which include the syringe or dropper, are that attractive.

But we do do that.

I think that many people feel that the value is actually more in the vaccines that are to be developed to the final end-stage and that, in many ways, we have captured the value of Rotarix.

Okay.

Thank you very much.

You're welcome.

[Leonard Rueben], a private investor.

Hello.

Good morning.

Good morning.

I hate to ask an embarrassing question, but the question I am going to ask is, is there any idea that you may have as to when the Company will ever show a profit?

I mean, near-term --.

Well, we actually showed a profit last year and actually paid tax on it.

That was largely due to the $40 million that came in from PRF.

Oh and by "last year" I mean '06.

And I don't think that we have got to a sustainable revenue stream, but I think in the sort of forecasting I'm giving you, we do want to bring new products to market in the '09/'10 timeframe.

I mean, you can become profitable.

We could fire everybody and just live on Rotarix, but --.

Well, no, no.

I'm not suggesting that.

Well, I know you're not.

Okay.

One other question and that is that in previous conference calls you indicated that by the end of this year you expected to have a partner on that TP10 product and now it seems to be going out --.

I want to be very clear on that.

It has been available for partnering, but I've not given a date and I've gone to extreme lengths not to give a date.

Well, you didn't give a date, but I thought from what I heard that the indication was that you expected, by the end of this year, to have a partner.

I may be mistaken.

Yes.

I am very, very precise on that.

Okay.

Okay.

That's it.

All right.

Thank you.

Michael Means, private investor.

Well, I just heard the gentleman's question before me, which basically you've answered.

But I guess to be specifically, do you expect to be -- for example, First Call projects that you will be profitable by in the year '09, at the end of the year '09.

Do you believe -- or let me just -- when will you be profitable?

When will you have an earnings profit?

That's my question.

Well, as I think I've just said, we would aim to '09/'10, but we are not going to give that kind of a forecast.

It would be very risky and irresponsible, I think.

We want to be profitable.

We are working towards that.

I hope it will be sooner rather than later, but I don't think it makes business sense for me to give you that projection.

Thank you.

And ma'am, I'm showing no further questions at this time.

Thank you.

So, in conclusion, I'd just like to say that AVANT has made substantial gains so far in 2006 in advancing the development of our single-dose oral vaccine and in gaining significant non-dilutive financing to fund their further development.

We believe that our technology offers a platform for the development of ideal vaccines for a wide range of needs, including human health, biodefense and food safety.

Moreover, it provides us multiple opportunities to build value both now, for mid-term and for the future.

So I'd remind you again that the conference call contains forward-looking statements, which are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed.

And we look forward to updating you on our programs next quarter.

Thank you very much.

Goodbye.

Ladies and gentlemen, thank you for your participation in today's event.

This does conclude the presentation and you may now disconnect.

Have a great day. 8