Celldex Therapeutics Inc (CLDX) 2006 Q4 法說會逐字稿

Welcome to the fourth quarter and full-year 2006 AVANT Immunotherapeutics, Incorporated, earnings conference call. My name is Candace, and I'll be your coordinator for today.

At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. [Operator Instructions]

I would now like to turn the presentation over to your host, Dr. Una Ryan. Please proceed, ma'am.

Thank you. Good morning, ladies and gentlemen. I am Una Ryan, President and CEO of AVANT Immunotherapeutics, Inc. With me on this call are Chip Catlin, AVANT's Chief Financial Officer, and Ron Ellis, Senior Vice President of Research and Development.

I'd 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 so they are subject to risks and uncertainties detailed in AVANT's filings with the Securities and Exchange Commission. Actual results could differ materially from those expressed in any forward-looking statements made by AVANT.

During this call, I'll give you a brief update on our lead clinical programs. Following that, we will open the call to questions.

We announced in our press release today, AVANT's fourth quarter and year-end financial results for 2006. The press release is filed as an exhibit to Form 8-K with the SEC and is available at AVANT's website on the Investor Information page.

I will not review the financial results in detail on this call, as they are detailed in the press release, but for the 12 months ended December 31, 2006, we reported a net loss of $20.4 million, or $0.27 per share, compared with a net loss of $18.1 million, or $0.24 per share for the 12 months of 2005.

The increase in net loss between periods is primarily due to increased R&D expenses as a result of increased R&D personnel and related expenses, non-personnel operating and facility-related costs associated with full operations at the Fall River facility, and increased general and administrative expenses.

At December 31, 2006, our cash balance was $40.9 million.

Turning now to our core business activities, we ended the year well positioned to become a leader within the vaccines industry, which has become the fastest-growing segment of the global pharmaceutical marketplace.

During 2006, we received strong external validation for our current vaccines technology and products as marked by a $40 million payment to AVANT on the European approval of Rotarix, a $21 million grant from the Bill and Melinda Gates Foundation to the IVI to support Phase II and III trials of CholeraGarde in developing countries, and a $2.6 million commitment within the fiscal 2007 U.S. Defense Appropriations bill for the development of our oral anthrax plague vaccine.

Other key events of 2006 included the strengthening of our senior management team in January 2006 with the appointment of Ronald W. Ellis, Ph.D., a leading vaccine development executive with over 23 years of vaccine industry experience as senior vice president, Research and Development. He is on the call with us today.

The start of a placebo-controlled, double-blind clinical trial of our single-dose oral typhoid fever vaccine candidate, TY800, under the sponsorship of the National Institutes of Health, and the signing of an extended collaborative research and development partnership with Pfizer aimed at applying our vaccines technology to the development of prophylactic and therapeutic vaccines to protect livestock and companion animals.

I'd now like briefly to review our multiple ongoing clinical development programs, many of which are supported by major companies, governmental agencies, or international health organizations. Major programs include oral vaccines against cholera, typhoid fever, and other important diarrheal diseases, oral vaccines for biodefense as well as vaccines against influenza including pandemic forms of that disease.

Our core business is the development of next-generation vaccines for a variety of needs including biodefense, global health, travelers, and food safety. Each of these vaccines is designed to provide rapid protection with a single oral dose. Moreover, this technology offers the capability to create super vaccines that combine protection against multiple diseases in a single product. These features should make AVANT's next-generation vaccines uniquely suited to address both large commercial markets and serious world health needs.

CholeraGarde, our single-dose oral vaccine against cholera is the most advanced of these products. Following a successful Phase II field study in Bangladesh, the International Vaccine Institute plans to begin Phase II field studies with CholeraGarde in India and Bangladesh during 2007. The Bill and Melinda Gates Foundation has provided a $21 million grant to the International Vaccine Institute in support of these studies for which AVANT will manufacture the vaccine in our Fall River facility.

The company and the board of directors have recently decided to focus only on the fully funded opportunity for CholeraGarde in the developing world and drop our plans to initiate a Phase III clinical trial in the U.S.

The high clinical costs of our own Phase III clinical trials in the United States combined with the investment needed in an additional commercial manufacturing facility are not justified by the limited market opportunities for a cholera vaccine in developed countries at this time.

This decision frees up both financial and manufacturing resources for our TY800 and ETEC programs as well as our new influenza vaccine program.

Turning to our TY800 program, our typhoid fever vaccine, we got a boost last year from the NIH as they have committed funds to offset our manufacturing costs. We are just completing a Phase I/II clinical trial aimed at demonstrating the safety and immunogenicity of the TY800 vaccine, and we plan to initiate our own sponsored Phase II trial of TY800 in mid-2007.

We are also developing additional bacterial vaccines against enterotoxigenic E.coli, which we call ETEC, and paratyphoid fever, also important causes of serious diarrheal disease worldwide. In the second half of 2007, we expect to initiate a Phase I trial of our ETEC vaccine candidate.

In February 2007, AVANT announced its first initiative towards our goal of expanding our franchise into viral vaccines. We announced a two-year research and development partnership with Select Vaccines, Ltd., focused on the use of Select Vaccine's virus-like particles, or VLPs, and AVANT vaccine antigens as a platform technology for the development of viral vaccines.

This joint R&D effort will initially target the development of both epidemic and pandemic forms of influenza vaccine with the opportunity to extend the collaboration to other disease targets. If successful, products identified through this collaboration will be developed by AVANT.

In conclusion, we are today seeing a renaissance in interest in vaccines that is driven by scientific advancements in vaccine development and manufacturing, new vaccine products for both infectious diseases and pandemic preparedness, and increased support from both governmental and private payors.

Our achievements, to date, in vaccine research, development, and manufacture, as well as in leveraging our resources through partnering provide us with a firm basis to become an important player within this rapidly evolving field.

During 2007, we expect to build further upon our strong technology and product base by extending our technological capabilities and broadening our focus to larger markets for vaccines against widespread viral illnesses like influenza and pandemic preparedness.

This is the end of my introductory statement, and I welcome your questions.

[Operator Instructions] George Fulop, Needham & Company.

I was caught a bit off -- surprised today with the announcement that you are not proceeding with CholeraGarde. Can you review what led to that decision now versus, say, six months or a year ago and what changed in your assessments of the opportunity?

Yes, George, good morning. First of all, I want to emphasize that we're not not going forward with CholeraGarde. We're going forward with CholeraGarde in the fully funded opportunity in the developed world. So we have already made material, and we expect to move forward with the IVI funded by Gates.

What we have decided not to pursue is the Phase III challenge trial in the U.S., and this is a combination of things. First, that we did receive the Gates funding so this program can go forward. Secondly, the size of the cost of the clinical trials was greater than we expected, and the need to move to a commercial manufacturing plant is more money than we think is justified by the current expectations for a cholera travelers' market.

So the program is going forward, but with Gates money for the developing world, and it will progress in combination with our ETEC approach. So the program is not over, we are just not going to pursue that expensive trial, which we don't feel can be justified by the market size.

Okay, switching topics to the VLPs, can you please describe to me what the potential competitive advantages are of a VLP platform in epidemic and pandemic flu development -- [inaudible] development?

Yes, I'm going to ask Dr. Ellis to fill you in there, George, but we can answer what are the advantages of a VLP technology but, beyond that, what are the advantages of this novel VLP technology above those first-generation approaches that other companies are using.

Ron, may I ask you to proceed?

First I'd say this is a validated platform in the sense that hepatitis B vaccine and the recently licensed Gardasil, the human papilloma vaccine, are themselves based on VLPs. So it is, in fact, one of the proven vaccine technologies that can bring a product to market and an efficacious one.

The new application now is to put antigens of other bacteria or viruses on the surface of the VLP so that one uses the VLP of a display platform. Others have used VLPs in this way, but what is especially interesting and novel about the Select technology are two issue -- one is that the VLP is much larger than the VLPs that others use to display antigens, and in that sense should have an immunological advantage in terms of how the VLPS are processed by cells of the immune system to eventually give potent antibody responses.

And, secondly, because of their size, the VLPs can accommodate much larger sizes of antigens than any other VLPs to be displayed on their surface. Other VLPs might be able to accommodate relatively small proteins up to 10,000 molecular weight. These VLPs might be able to accommodate an antigen about 10 times that size, and the larger the antigen that's displayed, the larger the size, the more likely that its structure will be a natural structure most like that on the virus itself. So that will afford an advantage as well -- should afford an advantage immunologically.

I think also they are not themselves very immunogenic, so that focuses the immune response on the added antigen. So we're quite excited about this.

Yes, yes. One more question, if I may, please. What is your perception of the recent flurry of reports concern on competitive rotavirus and any implications and what's your take on the final resolution of that?

Oh, I think the FDA is obliged to put out data, but you will recall that Rotatek in those studies did not increase intussusception above the basal rate, so I think it's really a non-issue.

But what we have always said is that we felt safety was paramount in the way Rotarix was designed because it's based on a single strain from a human baby -- a human American baby, and there is no evidence that rotavirus itself causes intussusception, so I think there would be no real concern that Rotarix, which is based on a natural attenuated human rotavirus would cause it, whereas RotaShield, remember, had monkey components and Rotatek has some bovine. So if there is any issue at all with those, which I don't expect, we would not expect to see it with Rotarix.

[Operator Instructions] [Robert Ertsi].

I have a question regarding recognition of Rotarix revenue -- is there a one-quarter lag between the --

Yes.

Okay.

Yes, so while we have -- the last quarter we received was the final quarter of '06. And, as you know, we can't give out details of sales, but we can give out what is public, and GSK has announced a good year of GBP44 million in '06.

Okay, so that works out to maybe $85 million for '06 in Rotarix revenue, and they're paying at a 6% rate to AVANT, and then you pay 30% of that --

It starts at just below 5 and ramps up to just above 5. Most of the sales, at present, are in non-patent countries.

Yes. And when it goes into patent countries, like the European Union and eventually the United States, would the rate -- does it have an escalator function to it so, let's say, if the sales go above 300 million, will the rate of royalties also go up?

Yes, it goes up based on the size of the sales. We are still in discussions with GSK on what the final royalty rate will be for on-patent countries, but at present there have been very few sales there. And remember, Robert, it's a useful exercise, but we have monetized this royalty stream. So for the next few years, at least, we will -- the next big expectation for AVANT is the 10 million expected for U.S. launch, and we're still expecting that will be in '08. But GSK hasn't actually filed yet.

Yes.

So while it's very nice to know that the vaccine is doing well and selling well, we chose to monetize those royalties and have already received 50 million, which is way above what we would have received if we were waiting for royalties.

As a clarification, though, you recognize the revenue -- you don't recognize the 50 million right away as revenue, but --

Oh, I see what you're saying. Let me turn to Chip for the accounting treatment of that.

Sure.

Yes, Robert, you are right. The recognition of revenue is delayed by one quarter, so we will recognize some revenue in Q1 based on GSK's Q4 results. It's a complicated formulation, and it's a noncash revenue that will be recognized in Q1 based on a ratio of what GSK has paid in royalty over what we expect GSK to pay over the term of the deal.

Yes. Okay, to switch gears, on the TY800 trial, will some of the support come from the NIH for paying for the trial itself, or just for the vaccine itself?

Well, let me answer it carefully. For the ongoing Phase I/II, the NIH is paying for the clinical trial and for the material used for that trial. As we move forward to our own Phase II, funded and supported by AVANT, we will be paying for that material.

Okay. A question on the CholeraGarde -- the Phase IIs were completed and published in Bangladesh in adults.

Yes.

So is the next Phase III in adults for the adult population?

No -- good question. It's clear progress. We had these very successful Phase IIs in Bangladesh funded by the IVI, again, with Gates money. Those were in adults, toddlers, and infants. As a result of those very successful trials, we were again very fortunate that the Gates Foundation decided to provide funds to the IVI to proceed all the way through Phase III.

However, because this is in the developing world, there are two Phase IIs that need to be done as well. One is to be sure we have the correct trial -- the correct dose -- for people who are exposed to the infection and to look at the effect of concomitant vaccines with measles and in people who are infected with HIV.

So those are the trials. They are new, they are progressed beyond the Phase IIs that we did, and they will lead into the Phase IIIs.

Do you have any projection as to how much revenue you will recognize from selling CholeraGarde vaccine to IVI for the upcoming trial?

No, we will do that, probably, at a transfer price. I thought you were leading -- what I want to say is the IVI will not be the final distributor. We don't yet know how that will work out. It maybe a combination of Gates, G8 countries through advanced purchase commitment, but we don't know that yet. Now, we are transferring vaccine material, but this is not truly sales with profit.

Okay. A couple of more questions, if I may, please. A question to Dr. Ellis -- is the strategy for the pandemic and epidemic influenza vaccine to load all possible antigens in the VLP base? In which case, there would be no need to create a new vaccine for every flu season. Is that correct?

I think the strategy inevitably revolves around hemagglutinin, which is the major vaccine antigen, and the one known protective antigen. In addition to hemagglutinin, we are planning on looking at some other antigens, as well.

Okay, and a more general question -- AVANT has a very effective and safe technology for inducing a mucosal immune response. Have you thought of applying this technology to known and validated antigens like, for example, papilloma virus and just try to market it based on your advances in just oral, drinkable vaccine as opposed to injectable vaccine, room storage, so on and so forth?

We have looked at a range of targets, and we're always considering new targets to which to apply our technology based on technical feasibility, clinical feasibility, as well as competitiveness.

[Jonathan Blaustein], Chestnut Ridge Capital.

Dr. Ryan, a number of questions here -- first, with respect to the CholeraGarde, the $21 million -- and please correct me -- I understood what you've said, so far, is that you're not selling the actual CholeraGarde vaccine, but you're selling or transferring them materials used for the vaccine?

Well, we're talking just about clinical trials now. We're not talking about commercial sale. We are simply providing the vaccine to the IVI, but we're not prepared to do that for free. So we ask that they cover -- that the Gates grant cover our manufacturing costs. That's all this is.

All right, so on that 21 million, is AVANT going to receive the entire benefit of that 21 million, or is that being shared with other companies as well?

It's being shared, but we will receive the bulk of it and, in fact, we received none of it -- it won't show in our P&L. It all goes to the IVI, and they will largely study AVANT's vaccine but also do some studies with a Vietnamese cholera vaccine.

Because I keep seeing that $21 million number used, referred to, but are we going to actually make any money off of this grant?

No. This is offset -- this is basically paying for our clinical trials. It's an opportunity that -- you can hardly imagine -- this is non-dilutive funding for our clinical trials. It's not a sale of our product.

It's to clinically trial CholeraGarde?

That's correct.

Okay, but we're not going to receive the entire benefit, but some of the benefit?

Well, the way to look at it is -- we will receive the entire benefit of getting our Phase II and Phase III trials paid for in the developing world. If comparisons studies are done with local vaccines, that still gets our vaccines to the point that we want.

But this is not going to be in the developed world though?

No.

And that, you've kind of, say, you shelved for now?

Well, we are obliged, because this is a change, as George pointed out at the beginning from what we've said before, we are obliged to inform you immediately, which is what we are doing, but we believe there are several roads forward here, one is to get it approved in the developed world and then see what the FDA will require to bring it into the U.S., and the other is to forge ahead as fast as possible with our cholera ETEC plans, and make sure that, at the end of the day, we can provide these super combinations that --

So this will take us through Phase II or Phase III?

Phase III.

Phase III, and then you have to apply for a new drug application?

For the U.S., yes, we would have.

For the developing countries?

Well, or some equivalent, yes.

And what do you think the market opportunity is there?

As I said, I can't tell you for cholera, because we don't yet know what the NGOs, such as UNICEF and WHO, are prepared to pay. We are very encouraged by the advent of these new APCs, advanced purchase commitments --

Is it possible that --

-- and let me finish, Jonathan, first, I will hear your next question -- but if Rotarix is anything to look at, GSK has argued that the developing world markets are larger than the U.S. and European markets. So I can't tell you that is the case for cholera, but the developing world has huge need, there are new private and government markets there, and we expect them to be substantial. Now -- I'm sorry I interrupted.

All right, okay, getting back to Rotarix -- there was a dispute, and I'd like you to kind of bring us up to date -- between Glaxo and AVANT as to what the rate of the royalty payment was going to be. Can you tell us where that is now?

Yes, I tried to answer that to Robert. Right now, most of the sales are in non-patent countries, and we are receiving royalties at that rate. GSK has chosen to pay at that rate even for some of the European countries that are where patents do exist. We have disputed that. We are still in discussions with GSK as to what the final royalty rate should be.

Well, this issue came up -- if my memory serves me correct -- more than six months ago.

Correct.

All right, so at what point do you say, you know, discussions are fruitless, and you sue?

That's always a possibility. We've kept all of our options open, but, you know, as in all walks of life, I think it's better to discuss than to go to outright war, at this point.

I understand, but, you know, at some point you can talk until you're blue in the face and, you know, if they just say, you know, this is --

Well, of course. We have very, very good advisors, Jonathan. I am not blue in the face. I believe that we will come to a very good solution for our shareholders here, and time is not against us at this point. We obviously will move forward with dispatch. Our advisors will keep us on track there, but right now we have ceded nothing, we have given up nothing and, as I said at the beginning, all options are still on the table, and when we come to a resolution, we will announce it.

[Leonard Rebhanam].

I have just one question on TP10 -- we don't hear anything about that anymore. What is the status of that?

TP10, as you know, had a difficult clinical history. We felt that the most sensible thing for TP10 was to put it into the hands of a partner. At the time the clinical trials that we had just completed were for cardiac surgery, but since then interest in other indications has come up from potential partners including transplant indications and, although we have no clinical data on this, the theoretical opportunity in AMD, age-related macular degeneration, we will continue with discussions with partners, but we do not discuss ongoing partnerships.

Okay, because that was completely omitted from your statement this morning -- on the release, so --

Yes, there is really nothing to say there. It's not that it's unimportant, but we really want you to focus on our vaccine portfolio.

George Fulop, Needham & Company.

It's Alan Carr this time. I just had a quick question on financial guidance for 2007. Do you have any guidance for expenses?

Yes, Chip will give you that.

Yes, we expect, Alan, our burn in 2007 to be between 23 million and 25 million, and with the cash on hand, that will get us about 18 months from today -- 15 to 18 months from today. I'd also remind you, as Una brought up earlier, we are expecting a milestone payment of 10 million from Paul Royalty Fund in mid-2008 based on our expectation of when they would launch Rotarix in the U.S.

Okay -- one other question -- when do you think you'll have data from the Phase I/II TY800 trial? Is that one complete?

The enrollment is complete -- Q2?

Yes, we expect to have data by the end of 2Q.

Michael [Means].

I want to concentrate on the shareholder price today. A year ago today in March the share price was $2.51. Today it's been as low as $1.34. Specifically, what are you and your senior management team doing to enhance AVANT's share price?

Thank you. I know your question. We are all concerned to see the stock price increase. Our futures depend on it. What we are doing is to move the programs forward and to do it along the timelines that we have put forward to the street. I think we have done that, and I think we have got very clear validation of our technology -- as I started the presentation by clear validation from government and private organizations.

So now I'd like to start my closing remarks. In closing, I'd like to remind you again that this press release and conference call contain forward-looking statements, which are subject to a variety of risks and uncertainties and other factors that could cause actual results to differ materially from those expressed in any such forward-looking statements, and we look forward to updating you on our programs next quarter. Thank you very much.

Ladies and gentlemen, thank you for your participation. You may now disconnect, have a wonderful day.