Geron Corp (GERN) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the second quarter 2008 Geron earnings conference call. My name is Dan and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session toward the end of this conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the call over to your host for today's call, Mr. David Greenwood, Executive Vice President and Chief Financial Officer. Please proceed, sir.

Good morning and welcome to the Q2 Geron earnings call. I am David Greenwood, CFO, and with me as Tom Okarma, CEO. This is an earnings-related conference call and we will therefore begin with a summary of the operating results for the quarter. Our agenda then includes an overview of recent operating highlights, and a summary of our operating plans for the second half of 2008. Following that presentation by Tom, we will have a general Q&A session.

First, two informational items. In the event forward-looking statements are made during this call, please understand that comments are made subject to the safe harbor provisions of the Securities and Litigation Reform Act. Any forward-looking statement involves uncertainty and we refer you to the risk factors detailed in our filings with the SEC.

Secondly, as the operator mentioned, we are currently in a listen-only mode. The lines will open for the Q&A and the call will be available on webcast replay until August 30. Go to the Geron website for more information.

As you can see on the condensed income statement attached to last night's announcement, revenues for the quarter amounted to approximately $200,000, which is our running rate for royalty receipts and license fees. For the six-month period, revenues totaled $1.9 million which includes the royalty and license fee income as well as a milestone payment. Add to that, $1.4 million of interest income for the quarter, $3.3 million of interest income for the six-month period.

We reported operating expenses somewhat lower for the quarter in the six months compared to 2007, but that essentially reflects the timing of drug purchases. G&A expenses were up year-over-year in large part because we hired two senior-level patent lawyers. Please do keep in mind that 35% to 40% of the G&A number is non-cash expense related to 123R.

We end the quarter with approximately $187 million cash on the balance sheet. Our gross burn, which is driven primarily by costs of clinical trials, which depends on the number of trials, number of sites, numbers of patients, drug material costs, CROs, regulatory costs. I peg that number at about $55 million for the year.

Our net burn is a function of recurring revenues, interest income, milestone achievement, new deal fees, so on. I peg that number at about $40 million for the year. So the company will have approximately $165 million cash on the balance sheet at year-end, and is obviously funded for the near-term.

The final comment, we continue to have difficulty in the credit markets, many investment portfolios have been impacted. We have suffered no write-downs and, while we do hold some Fannie and Freddie paper, we do not anticipate losses. We have conservative investment guidelines and we monitor the paper we buy.

At this point, I will turn it over to Tom Okarma.

Thanks, David. Good morning, everyone. Thank you for joining us today. Our second quarter was a very busy one, and I will confine my prepared comments to a recap of the press releases published by us in the quarter. Then we will turn, as usual, to Q&A.

So starting with 15th of April this year, we announced a $1.5 million milestone payment from Exeter Life Sciences. This milestone was the result of a final risk assessment published by the FDA concluding that the consumption of food from cloned animals or their progeny poses no greater risk than consuming foods from animals produced from conventional breeding methods. This really reinforces the now generally accepted notion that cloning is no more than a simple third-generation breeding technology.

The background for this is that in April of '05, Geron and Exeter Life Sciences created the joint venture company called stART Licensing to manage and license a broad range of IP rights that are related to animal reproductive technologies. One of our contributions to that joint venture was, of course, the Dolly the sheep cloning IP portfolio.

Well, stART's technology we expect to broadly impact both biotech product development and agriculture. On the medicine side, technology protects IT to clone animals for the production of therapeutic proteins in their milk, the production of humanized antibodies for therapeutic purposes, and for modified tissues for the xenotransplantation. On the Ag side, perhaps the larger of the near-term applications, the technology allows for improvement of the health, quality, and consistency of animal herds that can be achieved much more rapidly that is possible by conventional breeding.

In early May, we announced that that the UK Stem Cell Foundation in Great Britain awarded our collaborators at the University of Edinburgh a $7.2 million grant for two programs that are being run by our collaborators and our wholly-owned subsidiary there, Geron Bio-Med. It's a $7.2 million grant over two years.

The two programs that were funded by the UK government are hepatocytes, for development to potentially treat liver failure and as use for cell-based ADME/TOX assays. The second project is embryonic stem cell derived osteoblasts and chondrocytes for the treatment musculoskeletal diseases such as osteoporosis, failure to heal bone fractures, and osteoarthritis.

The grant, as I mentioned, was awarded by the UK Stem Cell Foundation and the funding came from the Medical Research Council, the MRC, and the Scottish Enterprise. Briefly, the programs that are funded are embryonic stem cell derived hepatocytes, I will return to some recent discoveries on that project a little bit later in my comments, and ES-derived bone and cartilage cells, to which I will also return subsequently.

In the middle of May, we announced that we had granted a non-exclusive license to a small private company in Vancouver called STEMCELL Technologies for the development of media and cell adhesion matrices for stem cell growth. This is a nonexclusive license for research use only. We received typical license payments and product royalties, and it's part of our overarching strategy to make our inventions broadly available to the research community, similar to what we do with telomerase--immortalized cells and research use only telomerase assays.

Their first product, which is now on the market under this license, is the mTeSR medium, which is a feeder-free, serum-free defined maintenance medium for research use in the embryonic stem cell undifferentiated growth arena.

At the AACR meetings in April, we had five presentations on our telomerase inhibitor drug, 163L. As was the case in prior AACR meetings, telomerase was a featured topic with over 50 presentations on the cancer target. As you all know, we are currently in four clinical trials in 15 U.S. medical centers with the drug in solid tumors, chronic lymphoproliferative diseases, multiple myeloma, and a combination trial in non-small cell lung cancer. There will be new combination trials in breast and multiple mobile myeloma that will begin very shortly.

The first, and perhaps most striking presentation, is new data that speaks to the synergy and interesting effects of 163L when used in conjunction with trastuzumab, or Herceptin, in HER2+ breast cancer cells. As many of you may know, the over expression gene amplification of HER2 in breast cancer leads to a subset, about 25% of patients with breast cancer, that have a much more aggressive disease, a higher recurrence rate, decreased overall survival, and HER2 over expression, thus correlate with higher-than-expected levels of telomerase expression.

The monoclonal Herceptin is a HER2 inhibitor and is used for these patients, but unfortunately, resistance develops rapidly in many of the patients that are put on trastuzumab. The findings of the study were that 163L clearly-inhibited telomerase in HER2+ breast cancer cells, including cell lines that were known to be resistant to Herceptin, when used in conjunction with trastuzumab, we demonstrated clear synergy of 163L with trastuzumab in Herceptin-resistant breast cancer cells.

What was most striking is that if we pretreated the HER2+ trastuzumab-resistant breast cancer cells with 163L, that 163L treatment restored those resistant cells sensitivity to trastuzumab. So this experiment obviously establishes the rationale to test 163L in combination with Herceptin in breast cancer patients, particularly those who become resistant to standard HER2 therapy.

The second presentation spoke to the impact of 163L on non-small cell cancer cells, lung cancer cells, in combination with paclitaxel and carboplatin. And this, as you know, is the ongoing combo trial that we have ongoing in two medical centers. So these data show that 163L, again, inhibits telomerase in three non-small cell lung cancer lines and that 163L treatment dramatically increased the cells sensitivity to paclitaxel and carboplatin. This is, of course, the rationale for that ongoing combo trial that is now in process.

There were two presentations on a new assay that we have developed that is a PK/PD correlate measurement. The fact that 163L, now it has been shown to inhibit telomerase in hair follicles. Telomerase inhibition in the bulb of the hair follicle plucked from the scalp occurs in a dose-dependent manner and it occurs at the same concentrations that the drug inhibits telomerase in tumor cells.

So we demonstrated that by looking at 163L in tumor-bearing rodents treated with standard doses of our drug. Then we demonstrated equal telomerase inhibition in the tumor the animal bore and in the animal's whiskers. So this has now been validated and is being implemented in our 163L solid tumor trial to further hone in on the PD/PK relationships.

As you know in the solid tumor trial, these are very advanced, heavily pre-treated tumor patients for whom tumor biopsies are not often available. So having a very simple hair follicle assay as a surrogate is really important, and that is now being implemented in that trial.

Fourthly, there was a two-hour session reviewed by Bill Matsui of Johns Hopkins, one of our collaborators, on 163L and multiple myeloma stem cells. As you are aware, cancer stem cells are a rare population of self-renewing immortal tumor cells that are capable of differentiating into the various types of mature tumor cells that are found in the bulk tumor. They are quite distinct in their biology and phenotype from bulk tumor cells. The theory is that these cancer stem cells are responsible for both drug resistance and tumor recurrence.

We have published before that 163L uniquely inhibits the multiple myeloma cancer stem cell proliferation in both tumor lines and from primary samples from myeloma patients' bone marrow, as well as the drug inhibiting the mature cells in the myeloma bulk tumor. So these data were reviewed by Bill Matsui in this two-hour session, 'The Cancer Stem Cell Hypothesis -- Biological and Clinical Implications.'

I can tell you that we can have a number of sponsored research agreements with other investigators besides Bill at Johns Hopkins investigating our drug in other tumor type cancer stem cells. We are clearly demonstrating that this effect in myeloma, we think, will be generalizable and there will be more data both in vitro and in vivo coming out in the future to support this notion.

So this is a very important concept that this drug uniquely, in addition to attacking, driving into apoptosis the mature cells of the bulk tumor because of the telomerase positivity of cancer stem cells appears to be affective broadly in the cancer stem cells zone. Should that be confirmed, which we expect it will, that says a lot about how we will continue to develop 163L in combination with standard chemotherapy.

In early June, at the ASCO meetings, we had two presentations, again focusing on 163L. The most important one, actually, was new data of the effect of 163L in a new disease target, T-PLL, or T-cell prolymphocytic leukemia. T-PLL is an uncommon, but not rare, aggressive lymphoproliferative disease that is characterized by resistance to almost all chemotherapeutic agents. It has very high telomerase activity and interestingly, extraordinarily short telomeres.

The finding of this presentation was that T-PLL cells from patients were rapidly and selectively killed in dose-dependent fashion after only seven days of incubation with 163L. Annexin staining showed that the mechanism was, again, the drug driving these cells into apoptosis. Normal cells co-cultured with the T-PLL cells were unaffected and mismatched controls, again, as in all of our experiments had no effect.

We have now actually enrolled the first T-PLL patient in our [CLPD] trial, who is now receiving 163L. This was one of the rationales for expanding the inclusion criteria in what was originally a CLL trial to now a chronic lymphoproliferative disease trial that allows us to add to that patient mix patients like this one with T-PLL.

The second ASCO presentation was a middle study update on the Phase I study of 163L in our solid tumor patients. We reported interim data on the first 28 patients who had received a total of about 175 doses, although these are mostly low doses up to 4.8 mgs per kilo. It's important to recognize that this is a very heavily pre-treated patient population. Patients have had up to nine prior chemotherapy regimens and more than half of the 28 patients had four or more.

The study demonstrated the predicted stable half-life of about three to four hours. At these lower doses, the Cmax was clearly linear with dose. The DLTs, the dose limiting tox, in a few patients was thrombocytopenia and that has led us to alter the dosing interval, which we have now done, to be two weeks on and one week off. That was a protocol amendment, and we are now dose escalating at that two on one off. We are now in -- dosing patients at six mgs per kilo and that will start next week.

As I mentioned, we are now simultaneously measuring hair follicle telomerase inhibition in those patients. So again, maximal tolerated dose has not been established. The thrombocytopenia, which we saw in patients, particularly those with heavily pre-treated, many pretreatments, seems to be responding to a one week off in the dosing interval. So we appear to have controlled that.

Turning to the stem cell side, in mid-June, we presented important data at the ISSCR annual meeting that shows that embryonic stem cells derived cardiomyocytes, which may be the second cell type that we file an IND on, evades direct attack by the human immune system. This is really important and suggests that, unlike organ transplantation, embryonic stem cell therapies may only provoke a minimal immune reaction that could be controlled or prevented by a very short courses of low-dose immunosuppressive drugs.

This actually also argues against the widely talked about need for patient-specific stem cells. I remind you that this is now the second embryonic stem cell derived cell type that we have demonstrated to have these properties. The first being OPC1 for spinal cord injury.

The data are precisely the same as what we showed for OPC1. That the cardiomyocytes do express HLA Class I but not Class II, and they do not express the other family of surface markers that are required for T-cell activation. And that remains true, even after we stimulate the cardiomyocytes by the various combinations of inflammatory cytokines that these cells might encounter when injected in vivo in an inflamed, in this case, myocardium.

Other presentations by Geron at ISSCR dealt with the hepatocytes, chondrocytes, and osteoblast program that I mentioned earlier, which are now funded by the UK government in Scotland. On the liver cell program, we have moved now to transplanting embryonic-derived hepatocytes in mice in their livers and spleens. These animals were harvested after about a month and we showed living human hepatocytes in the animals' livers and spleens.

These cells produced human albumin in vivo and we could even detect that human albumin in the serum of the transplanted mice. So that is a result that echoes our earlier work with IC1, the islet cell program where we demonstrated human insulin in the bloodstream of the transplanted mice. So we have a lot of work to do here in terms of moving these cells into a format that would be potentially useful to treat liver failure, because of the mass size of the organ.

So we, among the things that need to be done, is to learn how to move the hepatocyte differentiation backwards a bit, so that we have a highly mitotic hepatocyte progenerator population that we could use to seed the liver that would multiply into mature hepatocytes in situ. That work is ongoing and funded, again, by the UK government.

The really exciting news from the Geron Bio-Med collaboration is on embryonic stem cell derived chondrocytes. The experiments that were presented were chondrocytes made in embryotic stem cells were implanted into an articular chondral defect in the knees of rats. After three weeks, we biopsied the animals and the human collagen-producing cartilage cells were present at 21 days, with dramatically regenerated full thickness articular, not fibrocartilage, and reconstitution of subchondral bone, which is important.

To my knowledge this is the first time anyone has ever demonstrated full thickness reconstitution of articular cartilage, including subchondral bone, that was not infiltrated with fibrocartilage or the repair cartilage that all of us have in our aging knees and hips. There was a control set of animals where they used similar progenitors derived from MSCs and the repair that we got with embryonic stem cell derived chondrocytes was far superior.

Early work, lastly, on embryonic stem cell derived osteoblasts. Here we transplanted the bone-making cells into a rat calvarial lesion, it's a hole in the skull. Two weeks later, we saw human bone present in the defect with significant mineralization. Again, it was much better than osteoblasts made from bone marrow mesenchymal cells.

So the application here is, not only for nonunion fractures or fractures in elderly people who often do not heal completely. But more importantly perhaps for osteoporosis in which these cells would be injected either prophylactically or therapeutically in the areas of the skeleton that are prone to osteoporotic fracture or collapse -- the wrists and the spine.

Lastly, in the middle of May, you all know that our OPC1 IND was put on clinical hold by the FDA. All I can really say at the present time about this is that the process is running its normal course. As soon as we have completed our ongoing interactions with the agency and have something definitive to say, we will tell you about it. That is really all that I can say at the moment, because the process is ongoing.

So with that summary, I am now happy to turn the floor over to questions.

(OPERATOR INSTRUCTIONS) Mark Monane, Needham & Co.

Good morning and thank you for taking my questions. First question has to do with the findings on the T-PLL. Is this population, Tom, being included in the CLL trial or is this a separate population that you are studying under lymphoproliferative disease?

Well, we have modified the CLL protocol to increase the eligibility for patience who have lymphoproliferative malignancies, including CLL, but extending beyond that. So the T-PLL subject is part of that original CLL now chronic lymphoproliferative disease trial. We are also probably able to admit patients with diseases like myelodysplasia, to give you another sense of the broadening of the inclusion criteria.

So, again, the attempt here is to focus on hematologic malignancies separate from myeloma, broaden the inclusion criteria. But again trying to really hone in on the PK/PD relationships in plasma with liquid tumors whose tumor cell is in that same compartment.

That was helpful. Speaking of multiple myeloma, you mentioned about the potential of 163L in that population and maybe an opportunity for advanced or a speedier track to registration. Could you go over the milestones for that program 163L tying multiple myeloma and the other degenerative diseases for 2008 (multiple speakers)?

It's really very simple. What we hope to show, Mark, in the single-agent ongoing trial is, not only biological activity, we hit the target in bone marrow, but clinical activity. So what we hope to show is a Velcade-like response as a single agent. Should that occur, then the plan is to roll over rapidly into a registration Phase II trial of 163L as a single agent in myeloma.

Simultaneously with that, we are about to begin a combination study of 163L with Velcade in myeloma to look at -- here again, we are putting more emphasis in this combination trial on the myeloma stem cell effect of 163L -- trying to compare the results of single agent versus combo in the same disease in terms of whether the stem cell effect of the drug predominates over its effect on the bulk tumor.

The way to test that is to compare our drug alone and in combination with standard of care. I can tell you that we have done the side-by-side in vitro experiment on myeloma stem cells and Velcade has no effect on myeloma stem cell proliferation.

Got it. The combination trial with Velcade, would that be in first-line or second-line patients?

Second.

Then the single agent would then be in third-line patients?

I believe that's right, although we might move that up pending the results of the single agent ongoing study.

Fair enough. Then in terms of the stem cell program, I was intrigued by the opportunity for drug testing, given the fact that the safety protocol being -- and safety levels being very important to the FDA now. And the use of the hemo -- liver stem cells to allow for drug testing for drug interactions in p450. Can you comment on any advances in that program?

Yes, sure. You are right, that is probably the nearest term commercial opportunity for a number of cells, not just hepatocytes, but also neurons and cardiomyocytes for different reasons. So we are very aware of that. We are focused predominantly on the hepatocyte application and, again, we are glad to see that program moving forward under UK government funding.

So where we are on it is we have investigated the cells ability to both metabolize various drugs and have looked at the effect of those drugs on the induction of hepatic enzymes. Where we are at this point is that -- what we have is sort of like a pediatric hepatocyte. The level of the drug metabolizing enzymes is lower than hopefully the level in your liver and mine.

The degree of induction of these enzymes is present, but is not as robust as a fully mature adult hepatocytes. So that tells us that we still need to modify the differentiation protocol a bit to drive the cells a few steps more toward maturity. And that is really the work that is ongoing now in the project in Edinburgh on the in vitro side.

At the same time, we are trying to go backwards from where we are to create a more primitive progenitor hepatocyte for the in vivo work directed toward hepatocyte -- or I'm sorry, directed toward hepatic regeneration. In between those two programs is a possible ex vivo use of hepatocytes in a device for extracorporeal treatment of hepatic comma, or short-term hepatic encephalopathy, which is a common problem.

Patients come into the ER in hepatic comma from, say, an alcoholic binge. They had acute liver failure and if they can be supported for seven to 10 days in various fashions, their liver will regenerate and recover. They are then discharged, so there is a real application for an extracorporeal hepatocyte bound to a membrane kind of idea that we are also exploring.

Yes, that is helpful. Thanks for the added information.

At this time, this concludes the question-and-answer session. We would like to thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.