Celldex Therapeutics Inc (CLDX) 2008 Q3 法說會逐字稿

Good morning and welcome to the Third Quarter 2008 Celldex Therapeutics Incorporated Earnings Conference Call.

My name is Shenelle and I will be your operator on today's call.

Before we begin our discussion, I would like to refer participants on the webcast to slide two, and caution listeners that today's speakers will be making forward-looking statements.

Such statements reflect on current views with respect to future events and are based on assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Certain of the factors that might cause Celldex actual results to differ materially from those in the forward-looking statements, including those set forth under the headings Business Risk Factors and Management's Discussion and Analysis of Financial Condition, and results of operations in each of Celldex annual reports on Form 10-K, its current report on Form 8-K, as well as those described in Celldex press release and filings with the Securities and Exchange Commission.

You should carefully review all of these factors and you should be aware that there may be other factors that could cause these differences.

These forward-looking statements are based on information, plans and estimates as of this call and Celldex does not promise to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Please be advised that the question-and-answer period will be held at the close of the call.

I would now like to turn the call over to Mr.

Anthony Marucci, President and CEO of Celldex Therapeutics.

You may proceed.

Good morning.

Good morning, ladies and gentlemen, and thank you for joining us this morning.

I am Anthony Marucci, President and CEO of Celldex.

Joining me on the call today are Chip Catlin, our Senior Vice President and Chief Financial Officer; and Tom Davis, our Senior Vice President and Chief Medical Officer.

I am especially glad to be holding this call today as it marks our first call under the name Celldex Therapeutics, the name we believe reflects the company's expertise and focus on developing therapeutic vaccines and antibodies from our versatile and powerful precision targeted immunotherapy program as is depicted on slide three.

In addition, this is also my first quarterly call as permanent CEO and President of Celldex.

I am proud to lead this talented team of executives and scientists at what is a very exciting time for our company.

As you can see on slide four, Celldex has a growing pipeline of novel disease-specific drug candidates to fight a number of difficult to treat diseases.

The pipeline is generated by a platform that we believe has the versatility and potential to continue generating novel and promising to immunotherapeutics.

I am proud of Celldex's work to advance our clinical development programs and I look forward to an ongoing dialog with our shareholders as Celldex continues to build a truly innovative company.

During the third quarter, we made significant progress in our clinical programs to support Celldex's growth.

The Phase IIb/III ACT III study of our lead candidate CDX-110 in glioblastoma multiforme continued to enroll patients on track with our expectations.

Importantly, we are pleased with the collaborative tenor of our partnership with Pfizer as we develop the clinical pathway to commercialize CDX-110.

In addition to CDX-110, we are also actively enrolling patients in two parallel Phase I dose escalation studies of CDX-1307.

1307 is a dendritic cell targeted immunotherapy designed to focus the immune system against hCG Beta, which is frequently expressed in epithelial tumors and has been associated with poor prognosis.

This is the first candidate generated by our Precision Targeted Immunotherapy Platform and we are pleased with the progress thus far.

The Phase I studies are open-label, dose-escalating clinical trials in patients with incurable breast, bladder, pancreatic, and colorectal cancers, and all tumors express hCG Beta.

We had news last week on CDX-110 when we announced initial results from these studies at the International Society for Biologic Therapy of Cancer Annual Meeting in San Diego.

As shown on slide five, to-date CDX-1307 has been well tolerated at all doses without any Dose Limiting Toxicity.

The hCG Beta has shown to be localized in antigen presenting cells of the skin and post-treatment biopsies following intradermal administration of CDX-1307.

Even in the absence of potent adjuvants, tumor responses were seen in approximately half of the patients at the higher doses and enhancement of CD8 T-cell responses after vaccination were also seen in some patients.

Despite the advanced disease in the majority of the patients, two patients with breast cancer have experienced stable disease at greater than six months and we've seen a mixed response in one patient with pancreatic cancer.

Based on the safety and immunogenicity seen in the studies to date, we are also currently evaluating CDX-1307 in a combination with Toll-Like Receptors agonists that we in-licensed earlier this year, and expect results from the TLR cohort by mid 2009.

With positive results we will initiate a Phase II clinical trial of CDX-1307 in combination with the selected TLR agonists during the second half of 2009.

This typifies our approach to treat difficult diseases by deploying our immunotherapy assets in the most sensible combinations for each therapeutic state.

In addition to CDX-1307, we will initiate our third program, called CDX-1401, in a Phase I/II study during the first half of 2009.

CDX-1401 will be our second program from our Precision Targeted Immunotherapy Platform.

On slide six, you will see a representation of the 2008 milestones we have set for ourselves at the time of the merger and as shown here we have accomplished all but one of the milestones to date.

The last milestone, bringing in the novel mAb target to our traditional antibody program, is expected to be concluded and announced soon.

Shifting gears to financial operations and directly supporting our ongoing development plans, we recently announced the receipt of a $10 million milestone payment from an affiliate of Paul Capital Healthcare for our market launch of Rotarix in the United States.

Rotarix is partnered with GlaxoSmithKline and we are thrilled that GSK has successfully launched Rotarix in advance of the rotavirus season, enabling infants to receive this important vaccination before the season begins.

This milestone adds to our already strong cash position, which in these markets is a very advantageous position to be in.

With this, I will now ask Chip to review Celldex's financial results for the third quarter and I look forward to answering your questions at the close of this call.

Chip?

Thank you, Anthony.

We announced in our press release today financial results for Celldex's third quarter of 2008.

The press release is available on Celldex's website on the investor information page.

I will now review summary financial results for the three months ended September 30th, 2008.

It is important to note that the 2007 financial results reflect the activities of pre-merger Celldex, when the company was privately held.

In the third quarter, we reported a net loss of $7.7 million, or $0.50 per share, compared with a net loss of $4.1 million or $0.49 per share for the comparable three months ended September 30th of 2007.

For the nine months ended September 30, 2008, Celldex reported a net loss of $40 million or $3.16 per share, compared to a net loss of $10.8 million or $1.31 per share for the nine months ending September 30, 2007.

The increase in net loss between the three month periods was the result of increased operating expenses following the merger of AVANT and Celldex, offset partially by increased revenues and investment and other income.

We had an increase in net loss between the nine month periods ending September 30, 2007 and 2008, which was primarily due to increased operating expenses for the combined companies, and non-cash charges of $19.1 million, or $1.50 per share, related to $14.8 million of purchased in-process research and development and $3.2 million of stock-based compensation expense.

The increase in net loss also reflected an increase in investment and other income.

At September 30, 2008, our cash balance was $42.7 million.

This figure does not include the $10 million milestone payment from Paul Capital Healthcare, which was received on October 1st, 2008.

The decrease in cash and cash equivalents of $9.7 million from June 30th includes one-time cash payments to licensors of $3.5 million for sublicense fees and $700,000 in equipment purchases required to convert our Fall River facility to cell culture manufacturing.

The Company believes that its current cash position together with the payment received from Paul Capital Healthcare will be sufficient to meet estimated working capital requirements and fund operations into the second half of 2010.

That concludes our prepared remarks, and at this time I would like to open the call to the question-and-answer session.

Operator?

(OPERATOR INSTRUCTIONS.) Your first question comes from the line of Mark Monane of Needham & Company.

Hello, good morning.

This is [Glenn Gashwick] and Mark Monane.

Mark, how are you?

I'm good.

Go ahead Glenn.

Our first question -- I had a couple of financial questions.

Could you give us an update on your cash burn expected for 2008, noting you might have non-cash charges, and for 2009?

Well, we haven't given guidance on 2009 yet, Glenn, but we expect to have cash in the range of $45 million to $47 million by the end of this year, and we will give guidance early in 2009 on our cash burn expected in 2009.

And do you have an estimate on your total cash burn offhand?

No, we will give you guidance when we get into early 2009, Glenn.

Okay.

And a follow-up question is, do you hold any liquid securities, or is it all liquid, like for example do you hold auction rates, CDOs?

No, we do not.

All of our cash equivalents are in money market funds.

Can you spend some time talking -- this is Mark -- could you spend some time talking about 1307, specifically recent data on the immune response, how helpful do you think the immune response is in engaging clinical efficacy going forward and do we have any information of what's going on in the tumor micro environment?

Sure.

Tom, (inaudible -- multiple speakers).

Yes, I'd be happy to, but it's not a simple question, but it's a very good question.

Most cancer vaccines -- of course, the first evidence you look for is to show that you are able to interact with immune systems needs to be able to detect one of several different kinds of immune responses.

Throughout the history of vaccines, people have really had a goal of trying to get immune responses in over half of patients, although it's often complicated by the type of patients you are dealing with, and characteristically these vaccines start out in Phase I studies that are looking at patients with fairly advanced cancer.

So I think from the realistic perspective, if you can get immune responses in patients who have a fairly significant human burden on board, who have fairly advanced disease, then that's really a pretty good sign that you are interacting effectively with the immune system.

Now that said, the key with 1307, the whole technology where we target dendritic cells appeared to work very well in preclinical models, but it is important that you use both dendritic cell targeting agents and an effective adjuvant.

Because the technology with 1307 really wasn't applicable in a lot of toxicity models that the FDA usually expects, we went in with an IND that did not have a large tox package, and the FDA asked us to start out our Phase I studies using just 1307 or adding a modest well-established adjuvant, GM-CSF.

The initial ambition of the two Phase I studies then was essentially to see how well the vaccine worked alone and with GM-CSF in patients.

Although I think in the offset we were really thinking that we wanted to have a more potent adjuvant combination, and we are expecting to see tremendous effects, or really representative effects, and so we have gotten 1307 together with some of the TLR agonists.

From the data we presented at ISBTC --

That was helpful.

Sure.

The data we presented at ISBTC certainly defined the safety of the vaccine, so we didn't see any safety concerns, which of course tend to cause a major problem early in development.

We did, however, even with a relatively modest combination with GM-CSF, see very good immune responses in a good number of these patients, who, as I described earlier, do have pretty advanced disease.

So we were very pleased with the outcome.

It suggests that either intradermally or intravenously we can get very good immune responses in patients, and with that we are now able to move forward into what I think is a more exciting arena, combining 1307 with TLR agonists and we are currently accruing to those studies as we speak.

And to Tom's point Mark, 1401 will start off with the vaccine plus the TLR combinations right off the bat.

That's something what we think is great about this platform is that the Phase I work we are doing now should be relevant to all of the different APC vaccines we'll make in the future, so that we can probably short-circuit some of that early development work and go right into activity and efficacy studies.

That was helpful.

Thank you for the added information.

Thank you, Mark.

Your next question comes from the line of Jonathan Aschoff of Brean Murray.

Good morning, guys.

Good morning, Jonathan.

I was wondering, what's the amortization schedule for that Pfizer upfront cash portion of the payment, and does that $10 million milestone flow through the income statement or not?

I thought you guys said that it didn't.

Let me answer the first part of the question first.

So the upfront payment from Pfizer will be amortized over a 9.5 year period from the effective date, which was in the middle of May.

The 9.5 years is the expected performance period under the arrangement that we have with Pfizer.

So, that's the accounting amortization period, if you would.

On the second question with respect to the Paul milestone payment of $10 million, we actually booked that as a current asset when we did the purchase accounting entries, when we did the merger of the two companies.

So, that will not flow through -- the majority of that will not flow through the P&L.

There was about $800,000 or $900,000 of it that did flow through the P&L as other income in this quarter.

The rest was already reflected on the balance sheet.

Okay.

How will the R&D trend from here, given that $1 million sequential drop that I see?

The R&D trend going forward -- again as you know all of the work that we are doing on CDX-110 together with Pfizer will be reimbursed by Pfizer.

So we will see going forward, I think, increased R&D in 2009 as we bring 1401 into a Phase I/II study and as we take 1307 into a Phase II.

So, again we will be giving guidance more specifically, Jonathan, at the beginning of 2009.

Okay.

Can you guys -- actually, Anthony, were you about to say something?

Well, yes, and then also be an offset of the manufacturing now that that's all being done in house.

So, that will be partially offset by the manufacturing infrastructure in house and we won't have to pay third parties to manufacture product.

Okay.

The upcoming milestone, can you give us a little more color on the announcing license agreements on slide six -- the bottom of that -- with the therapeutic mAbs?

Well, that's an asset that we want to bring in house.

So, we are working with a third party to announce bringing in a target.

So it's not milestone payments coming in, it's just a small upfront; and then as we bring the product into clinical development, we will be paying out milestones.

Okay.

And then the last one I had, can you define any more tightly the solid tumors that you might go after with 1401 or is it still very very broad?

Tom, do you want to take that one?

I guess is there any particular reason, maybe Tibor or Tom, why one might be better than the others?

Well, 1401 is targeting specifically the NY-ESO antigen, which is expressed by a broad number of different tumors, and in Phase I we will be selecting four tumors that do express NY-ESO, but we won't be targeting specific histologies.

That works well because it means there will be plenty of patients eligible for the study, so that we can accrue efficiently.

We will certainly get good safety data from that study and hopefully some provocative evidence of activity.

But then we will need to focus in Phase II on specific tumor types.

And when you look at the expression of NY-ESO, again it's in a fairly broad spectrum.

It's most often been developed in the setting of melanoma, which is attempting tumor in that it clearly is sensitive to immune interventions.

But there are several others where NY-ESO has expressed.

It's fairly frequent rates -- 30, 40, 50% of tumors potentially expressing it, and I think our plan would be to have two or three pronged Phase II development plan so that we could explore several different settings including advanced and early disease in order to ensure the best chance of identifying where 1401 is likely to work.

Okay, guys.

Thank you very much.

Thank you, Jonathan.

Your next question comes from the line of Joe Pantginis of Merriman Curhan Ford.

Hi guys, good morning, thanks for taking the question.

One quick question on 1307, more of a macro question, and then just a little follow up on 110 please.

On 1307 you did allude to obviously the data being obviously applicable to the APC program that you -- in general that you disclosed last week -- so I just wanted to get a little flavor as to the level of excitement that you have now based on the 1307 data last week since even though it's early stage data, it is essentially some proof of concept in humans now.

So I just wanted to gauge your level of your excitement.

Tom, you were at the meeting, what was the scientific excitement about it?

Well, I think a lot of people are very interested in the technology platform, and the idea of targeting dendritic cells is very attractive for many different reasons.

So, I mean, at this point the fact that we can show that it's easy to do, that they aren't any signs that it's going to compromise the immune system.

There originally could have been concern that it would be damaging the dendritic cells.

That clearly isn't happening.

The dendritic cells appear to take up the 1307, present it to T-cells and we are able to measure the immune responses.

It's always good in a Phase I study to see some clinical activity, so patients who -- clearly who have changed their course have stable disease rather than pressive disease and even in the one case of pancreatic cancer, where we did see shrinkage of tumor, that all does suggest that this is likely a fairly potent way to focus the immune system.

But the real excitement in immunology now is to be the adjuvants, the TLR agonists.

As you know, we have a couple of those available to us that we can use in combination.

I think in reality most people are looking to the next stage of developments and seeing the most interesting portion where combining 1307 with either of the TLR-3 or the TLR-7/8 agonists should be very interesting.

Of course people are very excited about getting experimental combinations together.

I think we may well be one of the first people to combine two experimental TLR agonists together.

We are hoping to execute that in the first half of next year.

That's great.

If I could just followup real quick on 110, obviously you are coming off of an exciting ASCO this past May with the survival data from ACT II and ACTIVATE -- do you anticipate any further updates regarding the survival from those studies, and also are we still on track with the current milestone for ACT III?

Well, we expect to have an update at at least the ASCO meeting and possibly even before that at the Snow Meeting on the West Coast sometime this month.

We still are on track as far as milestone payments go, but again Pfizer has the program now, so we are working with them to develop the best program going forward and to get to commercialization as fast as possible.

Great, thanks a lot guys.

Thank you, Joe.

And your final question comes from the line of [Robert Ertsey], a private investor.

Good morning.

Good morning.

I have a question regarding TP10 complement inhibitor.

I was wondering at what stage you are with that particular anti-inflammatory?

Sure.

Since the merger we have been talking with thought leaders in the field of complement, and we are getting closer to coming up with a decision on TP10 and its future development, and more than likely we will be updating everyone towards our year-end disclosures, when we do our earnings call at year-end.

But, we think we can see a path forward for TP10, we just need to zero down on what's going to be the right path forward for it.

Could you elaborate whether you want to do that in-house or license it out?

Well, complement has been shown in a few indications including transplantation and AMD.

We will develop it in-house with the transplantation.

AMD we will more likely partner that out.

Okay, thanks.

A question on Rotarix, specifically the rate at which GSK will be paying off, I guess, the full fund.

I guess the rate is set now at non-patent levels, and I am just curious why GSK, if they don't recognize the patent, use the expiration of the patent to end their royalty payments and if there is anything actionable there in terms of a legal approach?

Let me try to answer that for you Robert.

It's contractually in the agreement with GSK as to the expiration of the agreement on the date of the last patent.

With respect to the patent rates, we have talked to GSK and tried to come up with a settlement, but we weren't able to get Paul to agree or to share that settlement, so it wasn't worth our effort to continue to pursue that.

So right now we are waiting to see how Rotarix does in the US market, it just got launched at the beginning of the third quarter, and we will track and see how it does over the next couple of years and we may try to come up with a solution with GSK.

But right now we are just going to watch how it does.

Okay.

And one last question on the typhoid fever vaccine, what is the status for that therapeutic?

We finished the Phase II, we've had very positive results as you know, and we are currently looking for third parties that would like to take that program forward.

We are focusing, as you know, more on the oncology side of the business at the moment and we would like to find a third party that would like to take on the financing of Ty800.

Could you give a status report on those discussions, how far you are along in finding the third party?

I can't really do that, Robert.

Discussions sort of come and go and start and stop, and so I can't really give you guidance on how those are going.

Okay, good.

Thank you very much.

Thank you, Robert.

You are welcome.

I would now like to turn the call back over to Mr.

Anthony Marucci.

Thank you, operator.

And thanks to everyone for joining us here today.

We are making excellent progress at Celldex with our clinical progress and in meeting the strategic goals we have set out for ourselves to create not only the shareholder value, but the development bring to market important immunotherapies that we believe will benefit patients who suffer from cancer and other life-threatening diseases.

We look forward to updating everyone at our year-end earnings call on our operational and financial progress.

Have a good day everyone.

That concludes the presentation.

Thank you for your participation.

You may now disconnect.

Have an excellent week.