Geron Corp (GERN) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2006 Geron earnings conference call. My name is Minosha, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of today's presentation. (OPERATOR INSTRUCTIONS). I would now like to turn the presentation over to your host for today's call, Mr. David Greenwood, Chief Financial Officer. Please proceed sir.

Good morning and welcome to the Geron earnings call. I am David Greenwood, Executive Vice President and CFO. With me is Tom Okarma, President and CEO. This is an earnings related conference call, and will begin with a review of the numbers. Our agenda then includes an overview of recent operating highlights and a brief summary of our operating plans for the second half of 2006. Following that presentation by Tom we will have a Q&A session. First two informational items.

In the event of forward-looking statements made during this call, please understand those comments are made subject to the Safe Harbor provisions of the securities reform act of 1995. Any forward-looking statement involves uncertainty and we refer you to the risk factors detailed in our filings with the SEC.

Secondly, as you were advised, all participants are in a listen-only mode now. The lines will open for Q&A, and this call will be available for replay until August 30 available by webcast. Please go to our website for information.

To our financial results; as you see on the condensed P&L attached to this morning's financial announcement, revenues from licensed products for the second quarter were up 17% over the comparable 2005 period. Total reported revenues, however, are lower in so far as Q2 2005 included a substantial upfront payment related to the formation of the joint venture. Other cash inflows to the Company during the quarter included $2.2 million of interest income. We ended the quarter with $181 million cash on the balance sheet.

R&D expenses increased substantially, 36% year-over-year in the second quarter reflective of the substantial investments we are making in building the product development side of the organization and the cost of clinical trials. The G&A expense line item increased quarter-over-quarter because we are expensing stock options in 2006. This is, of course, a non-cash charge.

As a [parenthetical] I can give you comfort on the issues currently in the press with respect to stock options. At no time in Geron's history has there been a practice of backdating options, assigning new hire dates or the like. We have straightforward fixed policies in place that are not designed to convey advantage. Consistent with our reported GAAP expenses are cash burn for operations is running higher in 2006, halfway through the year I estimate our net burn for the year at about $30 million.

Finally I would like to thank everyone who joined us for all or part of our analyst day program on July 28th. We hope it was informative. At this point I will turn it over to Tom Okarma.

Good morning everyone. Thank you for dialing in. I will briefly go over the main highlights of the second quarter for our Company. First beginning of April we announced the initiation of our second Phase I trial of our telomerase inhibitor drug, GRN163L. This trial is in patients with solid tumor malignancies and at the present time is at a single site, the University of Chicago under Dr. Mark Ratain's direction. This trial is a dose escalation cohort design, but it is a bit faster than the CLL trial. We've reduced the infusion duration to only two hours, and each cohort has a minimum of one subject before doses can escalate. The primary purpose of this trial is to verify that PK and PD parameters and any dose limiting tox we may see in solid tumors cancers are equivalent to those that we might see in CLL. So this trial obviously complements the ongoing Phase I, II in CLL at Northshore or Long Island Jewish, Cornell and Ohio State that is ongoing.

A few days later also at the beginning of April, we announced multiple presentations on telomerase at the AACR meetings. I will only summarize two that I think are most important. First a preclinical study studying our drug, 163L in lung cancer, and this is the first publication of an additional mechanism of action that we have been noticing of the drug which has to do with this anti-metastatic effect. The drug's independence of its polymerase inhibition effect or those effects on telomere link alters cellular adhesion which has in vivo the impact of significantly decreasing metastatic activity of cells. We have noted this phenomenon with a variety of tumor types. This report focused on lung cancer, demonstrating that the 163L effect not only was significant in vitro, but also significant reduced metastatic lung cancer in animals in vivo.

A second presentation was a follow on study from our investigator at Duke, Johannes Vieweg on the vaccine, GRNVAC1. This presentation presented data from an alternative manufacturing scheme for the vaccine. This look at in situ activation of the telomerase mRNA-loaded dendritic cell with a material called Imiquimod. This topical application saves a few days in manufacturing. The data demonstrated that once again we were able to reproduce the prior, very high and specific immune responses using these in situ activated DCs at one optimized dose of Imiquimod. In addition, we demonstrated that we also had significant impact on PSA doubling time as we had published last year in the Journal of Immunology. The significance of this report is that it is another alternative to manufacturing and demonstrates the reproduction of our first results in prostate cancer.

In May we published with collaborator, Dr. Brittney-Shea Herbert at Indiana University, a second study of 163L on breast cancer. And here the object of the exercise was to demonstrate that all known forms of breast cancer, including mutations in epidermal growth factor HER2, mutations in p53 status, mutations in the estrogen receptor, BRCA1 mutant and doxorubicin resistant lines, all of those breast cancer lines in vitro were sensitive to GRN163L again demonstrating the wide range of tumor types that the drug is active against. She then went on to do in vivo studies which also showed the drug to be very active in inhibiting the growth of primary tumors, again of breast cancer type in that five of ten animals were completely cured with no evidence of breast cancer at all. And a dramatic decrease in the ability of the cells to metastasize, very similar to the earlier presentations in the Shay Lab on the metastatic inhibitory effect of the drug in lung cancer.

In mid-May we published a study that was presented at the American Association of Immunologists in Boston on our TAT0002 telomerase activator drug being developed through the joint venture between Geron and the BRC in Hong Kong. And the significance of this presentation was that once again the drug was shown to enhance telomerase activity in HIV restricted CD8 T-cells from patients with HIV disease. The significance here, though, was that we demonstrated in autologous setting that patient A's CD8 cells when treated with the TAT0002 drug significantly reduced the viral level in the same patient CD4 cells. So this work was done in an autologous manner and showed significant reduction in viral levels in three out of three donors. The reductions in viral titers produced by the infected cells were significant; from two to fivefold reduction. Also we demonstrated that the drug, once again reproduces all the effects of telomerase gene transfer, namely it increases the proliferative capacity of the CD8 cells, increases their secretion of interferon gamma when stimulated by HIV peptides, and as I mentioned, dramatically increases viral inhibition of the infected CD4 cells.

On the intellectual property front at the end of April we announced that Geron was granted a U.S. patent covering the production of islets from human embryonic stem cells for the treatment of diabetes. Earlier this year we were granted a UK patent for the same technology. The Geron global stem cell patent portfolio now includes over 260 filings owned or licensed to Geron.

Additionally in June we announced a ruling by the Opposition Division of the European Patent Office on claims in our granted European patent covering the cloned human telomerase gene and its uses. Pharmexa had sought revocation of all 47 claims; the ruling maintained 44 and canceled only 3. The 3 canceled claims pertained to immunogenic peptides of telomerase useful as vaccines. None of the claims are relevant to Geron GRNVAC1 vaccine or to technology licensed to Merck & Co., only to a peptide vaccine being developed by Pharmexa. We will of course appeal the decision, and we've already filed a divisional European patent application to provide protection for immunogenic peptides of telomerase. Our patent estate on telomerase includes over 90 issued U.S. patents and over 130 granted patents in other countries.

On the business development front in June we announced a collaboration and license agreement with Corning Inc. to develop and commercialize synthetic surface matrices for the growth of undifferentiated human embryonic stem cells. Corning now has licenses from both Geron and WARF covering embryonic stem cell growth. The products will be sold by Corning with the royalty to Geron. You probably recall that we invented feeder-free growth and we are now seeking to take the next step in decreasing cost of goods and improving product production uniformity by trying to develop a totally synthetic surface upon which the embryonic stem cells would grow thereby replacing laminin like protein matrices which are currently used by us.

Moreover, at the end of June we granted a non-exclusive license to Invitrogen to develop, manufacture and sell media and reagents to the embryonic stem cell research community. Additionally, we gave Invitrogen the right to provide research used only sublicenses for their products to its customers. Geron receives licensed payments and royalties on products developed under the agreement. These two out licenses demonstrates our willingness and our ability to grant licenses to our growing portfolio of embryonic stem cell patent.

Then lastly in May we announced the appointment of Dr. Laurence Elias as Vice President Oncology Clinical Development. His job will be to oversee the execution of trials of our telomerase inhibitor drug, GRN163L and our telomerase vaccine, GRNVAC1. Prior to joining Geron Dr. Elias was Director of Clinical and Medical Affairs of Chiron's oncology therapeutic unit and prior to his biotechnology industry experience Larry was Chief of Hematology and Oncology at the University of New Mexico School of Medicine where he has led several multicenter national cooperative group Phase I, Phase II, Phase III clinical trials in oncology.

Those are the highlights of the second quarter, and we would be happy now to answer any questions.

(OPERATOR INSTRUCTIONS) Mark Monane, Needham & Company.

Good morning, and thanks for taking my question. I have a question for Tom on 163L milestones for the second half. Could you please review that with us? And then secondly, we note that 163L has unique mechanism of action binding it to telomerase. How much telomerase inhibition do you need to have in order to have a clinical effect, and do you believe this is going to vary across the different types of tumor studies?

Thanks, Mark, good questions. The main activity for 163L in the second half of the year is to ramp up both sites and patient recruitment activities in our two clinical programs. We are hoping to present at both EORTC and ASH are -- the one abstract is in; the second goes in this week -- obviously the abstracts have to be accepted. We would expect to have several cohorts to report on by the end of the year if these abstracts are accepted.

We continue to tweak the protocol to ease patient enrollment and to recruit additional sites, and there may be an additional site coming on board before end of year. We are trying to really enlarge, deepen and broaden the clinical trial group that we're working with to demonstrate facing activity of the compound. Your second question is a good one, and quite frankly is one of the objectives of the CLL trial, to determine elegantly the correlation between blood level of the drug, telomerase inhibition in the tumor cell in the blood in the CLL cell, and correlate those PK PD parameters with our tumor response.

The reality, though, is from all of our pre-IND studies is that between 70% and 80% inhibition is more than enough to drive tumor cells into apoptosis, and I can't say that we've really seen anything systematic according to tumor type that alters that nomogram. Obviously the proof is in the pudding in the people. So we would expect to achieve 70% to 75% telomerase inhibition at relatively low cohort doses. So stay tuned for the answer to that question in man. Thanks, Mark.

Thank you. Thanks for that information.

Joel Sendek, Lazard Capital Markets.

I have two questions. First on the financial side, did you say the net burn would be $30 million?

Yes, Joel.

Do you have any guidance on gross burn?

That will be about just under 40, about $39 million.

Okay, and then on the IP front, just in thinking from a bigger picture perspective on the European versus U.S. intellectual property position, can you just comment a bit on how important the European patents are, especially in the context of if there are fewer restrictions on the development of embryonic stem cells ex U.S. would that make the IP portfolio, ex-U.S. even more important? Thanks.

Well, as you know, the European situation in terms of even granting intellectual property protection for undifferentiated embryonic stem cells is up in the air, and is currently being reviewed at the highest level. I have been invited to contribute to a political piece of work on embryonic stem cells which is now finished and actually was used to try to drive the framework funding in Europe for covering embryonic stem cell research. And you may have read last week that that was successful. The group having overcome some objections by some small Catholic country. The reason I mention it in the context of the answer to your question is that we sense a ground swell in Europe in support of embryonic stem cell research as there is in the United States. And the difference, though, is that Europe is beginning to actually throw government money after researchers working on this technology. We think that will translate into a dehiscence of the blockage in getting these stem cell patents to issue. There may need to be altered prosecution strategies again depending on what the opposite, what the appeals division decides on the public morality issue, which has thus far blocked the issuance of the Wisconsin patent. So how it shakes out, Joel, is a little murky to predict. But we hope that the funding decision is a sign that the European governments collectively recognize the power of the platform and obviously the need to protect it if products are to be commercialized in Europe based on the platform.

But given the lack of final decision at this point, you would argue that your U.S. patent position is much more clear cut?

Absolutely.

Great. Thanks.

Ren Benjamin, Rodman & Renshaw.

Hi, thanks for taking the question. A couple of questions. One is we've seen at least in preclinical results I believe some very interesting and substantial synergy with the GRN L compound. Can you give us some idea as to how this may advance in the clinic regarding combination studies, in combination with chemotherapy? Will we wait until the Phase I monotherapy studies are done before initiating the combo studies, or is there a chance that that might get initiated in the near-term?

Thanks, Ren. We will certainly complete our single-agent studies before we entertain combination studies. And the reason for that is that we like to do combination studies based not only on empirical results where we actually combine 163L with other compounds, and you're right, we've shown Taxol, doxorubicin, Velcade synergy observationally in vitro. But the real hook here appears to be that 163L is active broadly against cancer stem cells. And as you know, the recurrence of cancer is directly linked to the resistance of the cancer stem cell to sensitivity to virtually all of the currently used chemotherapy drug. So if we can confirm that 163L in our clinical trial is active against the CLL stem cell, then that drives additional strategies about how to combine the drug with other agents whose activity is mostly directed toward the bulk tumor. Those are currently being thought about, but we have no immediate plans to launch them until we are a little farther along with our current Phase I/II program.

Can you give us a little feel maybe for how the Phase I/II programs are progressing? Clearly you want to present some data at the end of the year at EORTC and ASH. Could you give us an idea as to what sort of preliminary data we might see?

No, we are not going to get ahead of our investigators on that, Ren, so we've agreed to be mum about the data until the actual presentation. Sorry.

Fair enough. Let me switch gears here and go to GRNVAC1; what is happening there, and what milestones can we expect from that program?

The application here for our own IND is what is occurring. The steps first are to submit to the RAC. That has happened. Once the RAC buys off on the application, then we file with the agency, and that is on track to happen very soon. So we would hope to actually began enrolling subjects by end of the year under our own IND. We have not yet announced the actual tumor type. I can tell you that it is within the immunologic malignancy arena, and the reason for that is the trial is designed to demonstrate a direct impact on tumor progression, which as you know has really not been described by anyone in the cancer vaccine space before. And that is very difficult to do in prostate cancer because it is hard to get objective measures of tumor progression. So that's as much as I can tell you now, and when we are actually enrolling we will announce it.

Perfect. Thank you very much.

(OPERATOR INSTRUCTIONS). [Bernard Pincus]

I have a question.

Go ahead, please.

I have been a stockholder for a number of years now. In order to make it easier to follow the drugs that you have, the different compounds like the GRN163L and the other one, at what point in the cycle do these drugs actually become names instead of numbers and letters so investors can follow it easier?

The general rule is that we don't apply names until the compounds are ready for commercialization. So that will be a little bit downstream, so I think we just have to bear with the (indiscernible). It is confusing, particularly on the stem cell side where a lot the letters are actually close together. I appreciate the confusion. Thanks for the point.

Thank you. Okay. By.

[Mark Grothe], California State University.

Thank you. Dr. Okarma, Geron has several near-term opportunities for recurring revenues including nuclear transfer royalties from Roche's [flatter] cancer diagnostic and compatible for drug screening. Do you see any of those as likely to generate material revenues for Geron this decade? Say at the level of several million dollars per year?

In this decade?

Yes, in this decade.

The answer is yes.

Which ones do you think we should focus on?

In this decade, all of them.

Okay, all right. Thank you. One other question, from time to time someone comes out with claims of being able to reprogram somatic cells using growth factors but without nuclear transfer. For example, there has been an issued patent to Robert Langer's group at MIT, patent applications from Advanced Cell Technology and from Peter Schultz's group at Scripps. Have you looked into any of these claims, and does Geron have any interest or concern regarding them?

We are not aware of any method that works let alone could be scaled. And we do pay close attention to the field and have since we acquired our own nuclear transfer portfolio. But I think what is more important than whether or not someone figures out how to do reprogramming is the recognition that it is not required for stem cell based therapy. And in fact would completely abrogate the low cost of goods scalable features that embryonic stem cells have. If we were to go backward toward an individual therapy patient by patient, his or her own stem cell, his or her own therapeutic cell, it would be like the bone marrow transplantation industry which you are well aware has zero industrial participants in it, because the cost of goods is too high and that is a service model. Our business model is a product model where we have scalable production of cells that are aliquoted and shipped and stored frozen for real-time, off-the-shelf use. And embryonic stem cells are the only stem cell platform for which that business model is possible.

Okay. Thank you.

Stephen Brozak, WBB Securities.

Good morning, gentlemen. Two quick questions, and one of them revolves around the IP that was, that you just announced just granted. Can you just talk about a hypothetical in terms of what kind of commercial activities might be contemplated on pancreatic islet cells? A. And B, just want to go back over the liver cell potential that you are looking at because I want to -- these are obviously two very important areas, and I would like you to be able to give us as much color as possible. And I know that there are some restrictions.

On the islet side there are two main opportunities. One is to mimic, more or less, the work done by the Edmonton Protocol, which takes cadaveric islets from 3 to 5 cadavers, processes them and then injects them into the hepatic vein, the vein that goes to the liver, where the cells take up medium-term residents, meaning a year or two. This works for a number of patients, particularly the most severe insulin requiring type I diabetic, many of whom are insulin free for a year or two. The difficulty, of course, with the current version of Edmonton is the scarcity of material. As you can imagine, pancreata are very volatile and difficult to harvest and extract pancreas or islet cells from because of all the enzymes in that tissue. So it is fraught with a lot of production problems. So one obvious way to commercialize our islets would be to piggyback on top of that general procedure at least for the near-term to document utility of cells in that context.

Another possibility would be to put these cells into some sort of implantable device, and we are looking at a number of possibilities on that front as well. But the most generally accepted mode of delivering these cells is into the hepatic artery. We would hope to be able to use many fewer cells than are currently used today because of our ability to synthesize them, to manufacture them without having to extract them from tissue from cadavers. That should translate into a much more efficient cell population and would hopefully reduce the amount of side effects that occur with the current Edmonton protocol due to the large number of cells that have to be injected.

On the liver cell side, the obvious near-term potential commercialization is to use these liver cells for ADME/TOX screening, and we've been working for some time now on developing the cells for those applications. They can be genetically engineered, so that reporter genes can be engineered permanently into them, which make for convenient medium to high throughput format. We are also beginning now to look at the liver cells utility as a potential therapeutic, in animal models of drug-induced and toxic induced liver failure. All the work on the liver cells is being conducted by our wholly-owned subsidiary in the UK, Geron Bio-Med.

Thanks for those answers, Tom.

There are no further questions at this time. I would like to turn the call over to Tom Okarma for closing remarks.

Thank you very much; we appreciate the questions and your dialing in. We like this discipline and we will continue doing it. And we will be chatting at the end of the third quarter. Thanks very much. Good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a wonderful day.