Geron Corp (GERN) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2008 Geron earnings conference call. My name is Ann and I will be your coordinator for today's call. (Operator Instructions) As a reminder this conference is being recorded.

At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of the presentation. I would now like to turn the presentation over to Mr. David Greenwood. Please proceed, sir.

Good morning and welcome to the Geron earnings call. I am David Greenwood, with me is Tom Okarma. This is an earnings-related conference call and will therefore begin with a summary of operating results for the fourth quarter and the year. Our agenda then includes an overview of recent operating highlights at the Company and a look forward to our operating plans for 2009. Following that presentation by Tom, we will have a general Q&A session.

Two informational items, in the event of forward-looking statements please understand those comments are made subject to the Safe Harbor provisions of the Securities and Litigation Reform Act of 1995. Any forward-looking statements involve uncertainty and we refer you to the risk factors detailed in our filings with the SEC.

Secondly, participants are currently in a listen-only mode. The lines will open for the Q&A and this call will be available for a webcast replay until March 27. Go to our website, geron.com, for further information.

Revenues for the comparable three and 12-month periods attributable to royalty and license fee income were relatively unchanged. This amounts to about $2.5 million a year. The 2007 number you see on last night's earnings release included two milestone payments received from Merck under our license agreement. Other cash inflows into the Company included $5.5 million of interest income in 2008 and $46 million net proceeds from an equity issuance earlier this month.

Fourth quarter and annual R&D expenses were flat period-to-period. Certain expenses increased, reflecting the cost of expanded clinical trials of the 163 program and the vaccine programs, hiring of additional clinical development staff in clin ops and regulatory and quality. Other expenses decreased such as drug purchases, but that simply represents timing differences. The G&A line item was flat quarter-over-quarter and year-over-year and there are no issues with the year-end audit.

We ended the year with $163 million cash on the balance sheet; add to that the proceeds from the equity offering. Our net cash burn for 2008 was $43 million. Our burn in 2009 will be somewhat higher than that driven by the funding of multiple trials with the telomerase inhibitor drug and the AML trial with our vaccine and the initiation of a trial in spinal cord injury with our first hESC-derived cell therapy.

One final comment, many investment portfolios have been impacted by the turmoil in the markets. Ours has not to this point. We have conservative investment guidelines and we monitor the paper that we buy. At this point I will turn it over to Tom Okarma.

Thanks, David, and good morning, everyone. Thank you all for dialing in this morning. Over the fourth quarter and to date the Company has released 18 press releases. That is quite a lot, so I will just give the bare bone highlights of most of them and I will group them for convenience by topic.

First of all, we gave four webcast presentations over the quarter -- October 29, the Seventh Annual BIO Investor Forum in San Francisco; two in November -- the 11th the Rodman and Renshaw Annual Global Conference in New York, on the 18th of November the Lazard Healthcare Conference, also in New York; and, lastly, the sixth of February of this year the Bio CEO and Investor Conference. All of them, as I mentioned, have been webcasted.

We now turn to the releases relevant to oncology. In October 15 of last year, when he announced the publication in Breast Cancer Research and Treatment of a paper written by Geron's scientist Dr. Brittney-Shea Herbert at the University of Indiana that showed that our cancer drug, 163L, is synergistic with Herceptin in breast cancer cell lines that are HER-2 positive. Moreover, and probably more important, 163L restores sensitivity to Herceptin in HER-2 positive trastuzumab-resistant breast cancer lines. This was a rather rigorous study with very good statistics and reproduced for multiple cell lines in both observations.

As most of you know HER-2 amplification is associated with a more aggressive breast cancer as well as with increased telomerase activity, which was the rationale for looking at the activity of the combination. HER-2 amplification is also correlated with a poorer prognosis than HER-2 negative cancers. Now while Herceptin is an important therapeutic option for these patients, resistance develops rapidly. So the results of this paper highlight a possible role for 163 in the treatment of cancers that have acquired resistance to standard therapy, both specifically with regard to Herceptin in breast cancer and potentially in a more generalized way throughout the oncology world.

On the 20th of October we announced the initiation of an additional Phase I trial of 163L in multiple myeloma in combination with Velcade and dexamethasone. As you know, we have an ongoing Phase I single-agent trial of 163L in that same disease. The principal investigator of this combination trial is Bill Benzinger at the Fred Hutchinson Cancer Center.

This trial is progressing well. We filled the first cohort at 4.3 mg per kilo and we are now screening patients for the second dose escalation cohort at 5.4 mg per kilo, and we plan to add several sites over the next few months to increase enrollment genetics.

Probably the most important fourth-quarter oncology announcement from the Company was our poster at the ASH, American Society of Hematology, meeting where we presented the first evidence of telomerase inhibition in both the bulk and tumor stem cell containing fractions of patient's bone marrow receiving 163L in our single-agent study. Importantly, this inhibition was achieved at a rather low dose, 4.8 mg per kilo, which is very well-tolerated in these heavily pretreated myeloma subjects.

So in two out of two patients whose bone marrow was ready for analysis at the time in the bulk fraction, mature tumor cells from marrow, we demonstrated 80% and 50% telomerase inhibition in the two subjects. And in the stem cell compartment, a subset of bulk tumors, in those same two patients we had a 33% and a 63% inhibition. So this is the first extension clinically of work that we have been presenting in vitro demonstrating activity of 163L against the cancer stem cell, which as you know is the reason for tumor recurrence in patients given both the quiescence of the stem cell pool and its resistance to chemotherapy.

To our knowledge this is the only drug -- 163L is the only drug that has been shown to be active broadly against cancer stem cells. In addition to this clinical evidence, we presented at the Lazard meeting more data on our drugs' effect on stem cells in myeloma, glioma, and breast cancer.

So we now have a lot of evidence in the myeloma setting from both in vitro study of lines and primary patient samples, as well as in vivo xenograph experiments were we basically show that if we treat a myeloma cell population with our drug in vitro and then adoptively transfer those treated myeloma cells to an animal we do not get tumor engraftment. In vivo proof of the depletion of the cancer stem cell pool by 163L.

Additionally, we have demonstrated that we have hit the telomerase target in the other two single-agent trials. We have demonstrated telomerase inhibition in peripheral blood of patients with CLL at 6 mg per kilo and we show in the solid tumor single-agent trial at that same concentration significant telomerase inhibition in their hair follicles, which is a surrogate marker for telomerase inhibition in the tumor.

So this is a really important milestone in the development of 163L that will enable us now to really fine-tune our PK/PD analyses in preparation for the upcoming clinical where we will alter the way in which we deliver the drug to optimize its therapeutic index, maximizing the degree and extent of telomerase inhibition, and minimizing its effect on platelets.

Lastly, on December 3, Merck has announced the initiation of their Phase I clinical trial of a vaccine candidate that targets telomerase. This program is under a license from Geron. It is designed, obviously, to test the safety, tolerability, and immunogenicity of their vaccine which uses a live virus and the plasmid in patients with non-small cell lung cancer and prostate cancer. We understand that recently they have submitted to the Agency a modification to the protocol to expand the number of tumor types to improve enrollment kinetics in their study.

Turning now to telomerase activation. On the 10th of November we published a study with Dr. Rita Effros from UCLA in the Journal of Immunology that TAT2, our small molecule telomerase activator prototype, enhances the antiviral function of immune cells that are taken from HIV-positive donors. The data showed that CD8T lymphocytes, which are the cells that mediate resistance to viral spread, when exposed to the drug TAT2 in vitro we demonstrated increased telomerase activity in the CD8 cells as expected, and with the concomitant retardation of telomere shortening as the cells expanded.

We increased the ability of the cells to proliferate in response to specific antigens or mitogens and, most specifically, demonstrated increased antiviral activity against autologous HIV strains. And this was mediated by increases in several of the known antiviral cytokines such as interferon gamma, RANTES, MIP-1 alpha, and MIP-1 beta.

Perhaps most importantly, when we did co-cultures by putting in TAT2 treated CD8 cells with autologous HIV-infected CD4 cells we actually demonstrated aggregation of viral production when cultured in the presence of the TAT2-treated CD8 cells. And to confirm that that affect was directly due to telomerase activation in other experiments we added our telomerase inhibitor, 163L, which demonstrated complete aggregation of all of these beneficial effects to the T cells.

So the significance of this is that this drug has absolutely reproduced the effects on CD8 T-cell function that were published previously in this same journal achieved by transducing the CD8 cell with an [H-tiered] construct. Now you will be hearing a lot more about the telomerase activation program a bit later in the year, so we will return to that topic sometime later this year.

Lastly, on the regenerative medicine side. On October 28 we published studies with our colleagues at the University of Alberta in Canada in the Journal of Cell Proliferation, older studies that have described the successful engraftment of human embryonic stem cell-derived islet cells. These cells were transplanted under the kidney capsule of streptozotocin-induced diabetic mice. The embryonic stem cell-derived islets expressed in vivo in the animal insulin, glucagon, and C peptide as well as prohormone convertase 1, 3, and 2. These later convertase enzymes are only found in mature islets, which is important as a marker for the maturity of these cells in vivo.

The cells did respond to high levels of glucose in the animal as we could detect human C peptide in the serum of the animals. While we did not affect normal glycemia in the animals, the transplantation significantly extended the survival of the animal. 80% of those animals transplanted with the cells survived beyond the 50-day experiment, whereas only 20% of control animals lived for 50 days. We also know that the transplanted islets expressed all the appropriate pancreatic markers for at least 40 days after their transplantation.

Now these studies, as I mentioned, were old. They were performed sometime ago with an older prep of islets that has been subsequently modified and dramatically improved in terms specific activity of insulin secretion. So the current work now involves the use of these improve cells in a unique delivery device that we will describe later on in this year. As you know, our islet work is protected by two issued US patents, two issued UK patents, and an exclusive worldwide license to develop and commercialize embryonic stem cell-derived islets for therapeutic applications from the Wisconsin Alumni Research Foundation.

On the 28th of November we announced that the enlarged Board of Appeals of the European Patent Office issued a final decision on the appeal filed by WARF against their rejection of claims in WARF's patent pertaining to the first isolation of embryonic stem cells by Dr. Jamie Thompson at University of Wisconsin. So this November decision from the Board of Appeals upheld the rejection of WARF's claim under a rule in the EPO -- EPC, European Patent Convention, that prohibits the patenting of inventions which concern 'the uses of human embryos for industrial or commercial purposes.'

This decision was not unexpected by us and the importance of that statement is underlined by the following. Since the Thompson discovery many embryonic stem cell lines have become available from stem cell banks, which obviously obviate the need for researchers to culture cells from destroyed embryonic material. Therefore this decision does not affect patent applications for later embryonic stem cell inventions including those developed by Geron that enable scalable manufacturing of embryonic stem cells for therapeutic and drug discovery applications and their differentiation into a range of functional cell types such as islets or cardiomyocytes.

So we expect now that the EPO will move to allow the backlog of Geron's European patent applications that have been on hold pending this decision. And to remind you of the extensive embryonic stem cell patent estate held by Geron, we own 37 issued US patents, 80 issued foreign patents, and over 210 pending applications worldwide.

Lastly, of course, as you know, the big news on the 23rd of January was our announcement that we received FDA clearance to begin the world's first human clinical trial of human embryonic stem cell-based therapy, the so-called OPC1 cell for patients with acute spinal cord injury. You are all, I think, familiar with the background from this so I will only give the highlights here.

OPC1 is a glial progenitor cell that we scaleably make from human embryonic stem cells which has two in vivo activities. First, it myelinates demyelinated axons in the spinal cord lesion and we have ample evidence in multiple animal species to document that. The myelination is stable, should be demonstrable over nine months after a single injection of the cells.

Secondly, and of increasing importance, the glial cells produce many neurotrophic factors. We have published on four or five of them which we know to be biologically active as part of the release spec for the manufacturing process. But in more work that we haven't yet published looking at the RNA level these cells are literally factories for many, many neurotrophins and it has altered our view of the possible additional indications for this cell beyond spinal cord injury into such possible diseases as multiple sclerosis, stroke, and even Alzheimer's.

So we are now very busy doing all of the work required to initiate this study which we hope to achieve by the summer of this year. And we look forward to the enrollment and treating of patients with complete or ASIA A thoracic spinal cord injuries with the world's first attempt to permanently regenerate the damage in the spine caused by the injury.

With that, I will turn our conference over to questions and answers.

(Operator Instructions) Steve Brozak, WBB Securities.

Good morning, gentlemen. I will make it quick and jump into the queue. If you can basically tell us about what you would think the two most important milestones you will see in 2009 are going to be in the stem cell front and in the telomerase front separately and roughly when you would expect to start to see milestone feedback, because the information about when is just as important as what.

Okay, Steve. On the oncology side I think there are actually two critical '09 milestones -- one for the drug and one for the vaccine -- and they are both really parallel. For the drug, the '09 goal is to determine the clinical activity of 163L either in single-agent format or the combination format. And, therefore, to choose, decide upon the Phase II developmental registration path for the drug.

On the vaccine side, we expect to have sufficient patients in the AML Phase II trial by end of year to be able to make some reasonable statements about the immunologic activity, the effect of the vaccine on residual tumor levels, and on the duration of the vaccine-induced remissions, which is, as you recall, the primary outcomes for this study. That determination will in large part determine what the next set of plans are for our vaccine program which will segue from the VAC1, the autologous approach which is currently in the clinic, to the VAC2 approach which is a dendritic cell that is derived from human embryonic stem cells.

On the embryonic stem cell side, while we are working very hard to initiate this study in spinal cord injury, I think we need to be conservative and realistic about what we would expect to be able to speak to by end of year given that the efficacy and safety endpoints need not only to be quantified in terms of their extent, but more importantly, quantified in terms of their duration. So these subjects, even if we see any objective clinical response within a month or two of the injection, that enthusiasm needs to be tempered by a number of months of follow-up to be sure that these improvements are durable.

You will recall that the inclusion criteria for these subjects is very rigorous with multiple MRI and physical exam parameters to assure us that these patients have no chance of spontaneous recovery. So that although we are injecting a low dose of cells and at the primary endpoint zero safety, we call -- these cells are alive, they do divide after injection, and they migrate throughout the spinal cord lesion so it is possible that we will see some evidence of improvement.

And, again, this would be due to the cells but the important parameter is to codify the duration of that improvement and that is going to take some time. There is no way to get around that.

The other important goals for the embryonic stem cell program relate to the other three projects. Cardiomyocytes, we do expect to lock down the manufacturing and select our preclinical pathway and hold [pre-tox] meeting with the FDA this year. We do expect to demonstrate significantly increased levels of insulin activity in diabetic animals that are given these cells via our unique clinical applicable delivery device.

And, lastly on VAC2 we do expect to select our first-in-man indication, as I mentioned before, and design our preclinical package to support the IND by end of the year. So the goals are obvious extensions of the accomplishments that we have achieved us far.

Great, thanks. I will jump back in the queue.

Mark Monane, Needham & Co.

Tom, this is Glenn. I had a question about the uniqueness of your cell lines versus other cell lines that people use. Could you comment on -- there was an unfortunate patient who got late stage, what looked like late-stage fetal cells in Moscow. Your lines are very different from that in that they are from the first two days of life and the difference in your purity and how you think your lines are safer than other cells?

Thanks, Glenn. The differences between our approach specifically in this topic and what these kinds of clinics -- and there is more than just one in Moscow that do this -- couldn't be larger. So to start with the Moscow experience, what these people are doing are taking aborted human embryos, multiple ones, of varying ages. They literally grind up the brains, culture the cells for a few days, and then use them in a transplant setting.

So these are not lines. They have never been studied for their stability or safety. They are by definition extraordinarily different from injection to injection because the cells are not telomerase positive and they can't be expanded and they can't be made into lines. So this is worse than flying by the seat of your pants medicine. These people -- and again there are many of them in South America, Mexico, Eastern Europe, and in Russia -- are playing on the desperation of patients and their frustration in the pace of developing a bona fide stem cell alternative which is what Geron has done.

Geron does use a stem cell line which has been extensively characterized for several years of continuous culture to demonstrate its stability, scalability, and safety for use in humans. We have two lines that are fully qualified for human use by the FDA, which means they are stable, they have normal carrier types, they are free of any kind of endogenous human or animal virus. They do not form teratomas as we have amply demonstrated in over 277 OPC1-injected animals followed for 12 months and sectioned extremely aggressively, probed for human cells with Alu sequences.

This dataset supporting the safety of our cells does not exist anywhere in the world so we could not have two situations that are more discordant from one another. We were surprised and very disappointed that the market's reaction to this tragedy in the Soviet Union was in any way at all shadowed over our approach.

Thank you very much for the added information.

Joel Sendek, Lazard Capital Markets.

Thanks a lot. I have a question on this stem cell study. If you can talk about the window, I guess if you have to rule out there is any chance of spontaneous recovery, but yet you need to get the cells on board within a relatively tight timeframe does that create any issues with enrollment?

No. We labored very hard to devise our protocol for these patients in such a way as to completely dovetail into the standard course of treatment for these patients. So Asia A thoracic injury patients are the most severe injury in the whole field of spinal cord injury. These patients have a severe contusion which essentially stops 100% of the transmission at the sight of the injury.

All of these patients, in terms of today's standard of care in the US, go to spine stabilization surgery within the first few days of their injury. Before which -- before the surgery they are given multiple standardized physical exams to document anesthesia and the absence of locomotor activity, bowel/bladder control, plus at least one high-resolution MRI that not only identifies the sight of the lesion but its extent.

The patients would then undergo the stabilization surgery. And post-placement of the rods our protocol has a second high-resolution MRI to be sure that we can visualize the entire cord above and below the level of the lesion so that we can use repetitive MRIs as another index of safety because we can visualize any abnormal growths by high-resolution MRI.

So the cells are injected into the patient within the first two weeks of the injury but subsequent to the spine stabilization surgery. So the injection of our cells in no way interrupts the normal course of events in terms of how these patients are treated today. And, obviously, by the time we achieve an informed consent and inject the cells we have had multiple physical exam, radiographic, and direct visual in terms of the first surgical procedure; confirmation of the completeness of their lesion.

So that is an illustration of the rigor of the inclusion criteria. Your question about will that affect enrollment kinetics is a good one. We don't expect it to.

The awareness in the spinal cord community, patient care advocacy groups, the seven sites that we plan to use to enroll subjects is very high. The degree of expectation and hope that this technology and its animal data has generated in the community I think will auger well for patients' willingness to try this therapy, given the reality that there is nothing else out there for them and their chance of any kind of spontaneous recovery is truly zero.

Okay, so a couple of follow-ons. If the chance of spontaneous recovery is truly zero, then clearly anything you see should be related to the drug?

Precisely.

And then just logistically, are any of those seven sites up right now and when do you expect them to be up to accrue patients?

None of the sites are up now. A standard procedure is you cannot get the sites up until the FDA has given clearance to start the trial. We actually had an IRB approval last year before the Agency put us on hold. So that is anecdotal evidence that we don't expect any difficulties in getting the sites up to speed, but we do have to start the process over from ground zero which we have now begun.

And as I mentioned earlier, we expect to have the first site up and ready to go and patients identified and enrolled by the summer of this year.

Great, thank you.

Ladies and gentlemen, that concludes our question-and-answer session. I will now turn the presentation back to Mr. David Greenwood for closing remarks.

That concludes our call and thank you very much for joining us.

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