Geron Corp (GERN) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2011 Geron Corporation earnings conference call. My name is Ganeda and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions)

I would like to turn the conference over to your host for today, Dr. Anna Krassowska, Head of Investor Relations. Please proceed.

Thank you. Good morning. And welcome to the Geron third quarter earnings call. Today's call is being webcast live on the Company's website and will be available for replay until the end of November. I would like to remind you that except for statement of historical fact, the statements in this conference call are forward-looking statements under the Safe Harbor provisions of the Securities Acts of 1995. Including without limitation, statements regarding the prospects and plans for Geron's research and product candidates and financial or operational projections or requirements including the need for additional cash. These statements involve risks and uncertainties that can cause actual statements to differ materially from those in such forward-looking statements.

Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Geron's periodic reports filed with the Securities and Exchange Commission under the heading Risk Factors. Including the annual report on Form 10-K for the year ended December 31, 2010 and quarterly report on Form 10-Q for the quarter ended September 30, 2011. Undue reliance should not be placed on forward-looking statements which speak only as of the date they are made and the facts and assumptions underlying the forward-looking statements may change. Except as required by law, Geron disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances.

I will now hand over to Dr. John Scarlett, our Chief Executive Officer.

Thank you Anna, and good morning, everyone. With me on the call this morning are Mr. David Greenwood, our President and CFO; Dr. Steve Kelsey, our Executive Vice President, Head of R&D and Chief Medical Officer; and Dr. Jane Lebkowski, our Senior Vice President and Chief Scientific Officer. This is an earnings related conference call. We will begin with a summary of the operating results for the quarter. Our agenda then includes an overview of recent operating highlights of the Company. Following those updates we will have a general Q&A session where we will be available to anticipate questions.

I'd like to first take the opportunity to reiterate my appreciation for being given the opportunity to lead Geron. As I commented on the conference call in which my appointment was announced I view success through the lens of shareholder value. Immediately on becoming CEO I initiated a strategic review of all Company programs. That review is still ongoing so today we'll be providing an update on program activities in the third quarter, but we will not answer questions about strategic direction or future expectations. We expect to complete this review and present the results by the end of the year. David Greenwood will now address the operating results for the quarter.

Thank you. Total revenues of $220,000 in the 2011 third quarter compared to $546,000 in the comparable 3 month 2010 period. For the 9 month year-to-date period total revenues were $2.2 million compared to $2.5 million for the comparable 2010 period. Revenues for the quarter and the year-to-date are lower due to the successful completion of the collaboration and technology transfer funded by GE Healthcare under our licensing agreement. Other cash inflow for the quarter included $4.3 million under the Targeted Clinical Development Award from CIRM, the California Institute for Regenerative Medicine to support the clinical development of GRNOPC1 in spinal cord injuries. As a reminder CIRM provides matching funding support in the form of a product backed loan for clinical trial costs, the manufacture of OPC1 cell product, non-clinical studies and analytical assay development.

The increase in R&D expense for the 2011 third quarter and 9 month year-to-date period compared to the same periods in 2010 was a result of higher drug product purchases and increased clinical trial expenses related to enrollment of 4 oncology Phase 2 clinical trials with Imetelstat, the Phase 1 clinical trial with OPC1 in patients with spinal cord injury, and start up activities for 2 oncology Phase 2 clinical trials with GRN1005. The variances in the G&A line item for the third quarter and 9 month period compared to 2010 primarily reflect the differences in non-cash stock based compensation expense recognized during the respective periods. The Company ended the quarter with $181 million in cash on the balance sheet which includes the $4.3 million disbursements under the award from CIRM. We estimate our net use of balance sheet cash for the year 2011 will be approximately $65 million driven by the funding of the clinical trials for OPC1, Imetelstat and 1005. Our marketable securities portfolio is clean of any troubled instruments and there were no issued raised by the auditors during the third quarter review. I would now like to hand the call over to Steve Kelsey to review the program highlights for the third quarter.

Good morning and thank you, David. Geron has 3 clinical stage programs, 2 in oncology and 1 in the embryonic stem cell field. First, I will start with an update on the Phase 2 clinical program for Imetelstat, our telomerase inhibitor. I would like to step through the 4 clinical tries that we have initiated.

Our 2 randomized Phase 2 clinical trials of Imetelstat are in breast cancer and non-small cell lung cancer. The breast cancer study is using Imetelstat in combination with a standard of care, in this case Paclitaxel, versus Paclitaxel alone. We are allowing physicians to use bevacizumab or Avastin and we are stratifying accordingly. The primary end point is an estimate of progression-free survival and objective response rate to the secondary end point. Our target enrollment is approximately 150 patients and we're conducting this trial in the United States and Canada.

The second randomized Phase 2 trial is in non-small cell lung cancer using Imetelstat in a maintenance setting plus standard of care following first line induction chemotherapy. In this case, standard of care is either observation or if patients are receiving Avastin during the chemotherapy, the patient will continue to receive Avastin. Again, patients are stratified accordingly. The primary end point in this trial is also progression-free survival. For this study our target enrollment is 96 patients and we are open for enrollment in the US Canada and Germany. Enrollment in these 2 randomized clinical trials continues to exceed expectations.

Our third study is a single arm Phase 2 study in essential thrombocythemia, or ET, which is characterized by an increase in the number of platelets in the blood. ET is a clonal disease in which leukemic stem cells in the bone marrow produce aberrant clones of megakaryocytes the precursors to platelets. We are looking at the hematologic response rate as determined by a reduction in the number of platelets as our primary end point. However, a secondary end point is molecular response rate. Approximately half of patients with ET have a mutation in the Jak2 or mipl genes. We are evaluating the molecular response rate as determined by a reduction in the Jak2 or mipl allelic burden. That is a reduction in the percentage of cancer related Jak2 mipl alleles detected in patient's white blood cells. We are testing whether Imetelstat might have an impact on the biology of the disease.

Our fourth Phase 2 study is in patients with multiple myeloma. This trial is a biomarker study primarily designed to assess the effect of Imetelstat on cancer stem cells. Our pre-clinical studies with Imetelstat have shown activity against a broad range of cancer stem cells from both solid and hematologic tumor types. In the current study we were evaluating the clonogenic growth of myeloma stem cells from patients' bone marrow. We are enrolling patients to this study who have detectable but non-progressing disease after prior therapy. Imetelstat is being administered as a single agent or in combination with lenalidomide which is also known as Revlimid. We have continued to enroll to these 2 trials through the third quarter. Enrollment in the essential thrombocythemia study is in line with expectations. The enrollment in the multiple myeloma study is slightly behind expectations.

I will turn now to our second oncology therapeutic GRN1005. This is a novel peptide drug conjugate with the potential to transport a cytotoxic payload in this case Paclitaxel across the blood brain barrier. In addition to the well-known morbidity and mortality arising from primary brain tumors, such as glioblastoma multiforming, nearly 300,000 patients each year in the United States have cancers arising in other organs that metastasize to the brain. There are currently no drug therapies approved for brain metastases and those unapproved therapies that are used have extremely modest activity. Radiation based therapy is the standard of care but is toxic and not always effective. Brain cancers continue to represent a large unmet medical need.

The brain is well protected from toxins by the blood brain barrier. Cytotoxic drugs like Paclitaxel are traditionally unable to cross the blood brain barrier. By linking Paclitaxel to a peptide angiopep-2, to create GRN1005, we are able to transport the cytotoxic payload across the blood brain barrier into the brain where it can target tumors and particularly brain metastases. It is important to note that GRN1005 also has Paclitaxel-like activity against cancers outside the brain compartment and so may control extracranial disease, which is frequently a cause of death in patients who have brain metastases.

We end licensed GRN1005 in December of 2010 from Angiochem following the completion of 2 Phase 1 clinical trials conducted by Angiochem which were conducted in patients with primary brain tumors and solid tumors with brain metastases. Preliminary data from these studies were presented at ASCO last year. The final data from the brain metastases Phase 1 trial will be presented at the AACR- NCI EORTC joint conference on molecular targets and cancer therapeutics in San Francisco in mid-November.

We have designed the Phase 2 program for GRN1005 to include 2 clinical trials in patients with brain metastases, 1 in patients with brain metastases from non-small cell lung cancer and a second trial in patients with brain metastases from breast cancer. The non-small cell lung cancer trial has been designed as single arm, single agent study evaluating overall response rate which includes both intracranial and extracranial disease as the primary end point. Secondary end points are duration of objective response and progression-free survival. Target enrollment for the trial is 50 patients.

The breast cancer trial has been designed to include 2 cohorts, HER2 positive and HER2 negative disease. 50 patients in each cohort. These are separate cohorts, because the standard of care for these patient populations is different. The trial design includes treatment with trastuzumab or Herceptin, in addition to GRN1005 in patients with HER2 positive disease. The primary end point for the trial is intracranial response rate which takes into account only disease in the brain. Secondary end points are duration of intracranial response and intracranial progression in surviving patients. The metastatic breast cancer trial is open for enrollment.

I will now turn our stem cell clinical trial for spinal cord injury. Four patients with neurologically complete thoracic spinal cord injury have received GRNOPC1 in the Phase 1 trial. In October we presented safety data from the trial at 2 medical conferences. The pre-conference symposium of the Joint 2011 American Congress of Rehabilitation Medicine and the American Society of Neurorehabilitation Annual Meeting. And the 2011 Working to Walk Science and Advocacy Symposium. The patients all received the lowest intended dose of GRNOPC1 which is 2 million cells delivered by injection into the lesion site between 7 and 14 days after injury. The primary end point of the trial is safety and the initial follow-up of patients is 1 year.

One patient has completed the day 365 follow-up visit. The most recent patient to be enrolled has completed the day 30 follow-up visit. GRNOPC1 was administered to all 4 spinal cord injured patients without complications or adverse events from either the cells or the surgical procedure itself. And without any negative effects on the spinal cord or neurologic function of the patients. We have not seen any unexpected neurologic changes in the patients using the ISNCSCI exam, otherwise known as the International Standards for Neurological Classification of Spinal Cord Injury, which evaluates sensory and lower extremity motor function. And that covers our third quarter program highlights.

With that overview we will now turn to the Q&A. As a reminder, we will be happy to answer questions on our business and the activities in the last quarter, but with the ongoing review of all Company programs we will not answer questions about strategic direction or future expectations today. As I said earlier, we expect to complete the review and present the results by the end of the year. With that we welcome your questions.

Thank you. (Operator Instructions) Brian Kline, Lazard Capital Markets. Please proceed.

Great, thanks for taking the questions. Regarding the Imetelstat program, given that the enrollment is exceeding expectation in the non-small cell trial as well as the breast cancer trial, do you anticipate we might see initial data from that earlier than your fourth quarter estimate?

I think that we are not going to be giving Forward-looking Statements. I think the data speak for themselves so far. But we aren't giving any specifics in that regard today.

Okay. Thanks.

Steve Brozak, WBB Securities. Please proceed.

Thank you for taking the questions. Obviously the Geron franchise has multiple different facets and you have multiple different opportunities to go forward with. And I know that you don't want to commit to any Forward-looking Statements, but reiterating the strengths of your franchise, could you do me this? Could you give me the top 3 and I will lead off by saying that you've got more than 3 years worth of cash, so basically whatever decisions you basically can fund anything you want to do. But in terms of what would be the 3 core strengths that you believe that you got right now so that shareholders can get a sense of, look, this is what we have and you don't necessarily have to put them in the order. You've just mentioned all of your programs and if you can compare them to, for instance, the number of programs you have and the varied programs you have by comparison of even some of the large pharmaceutical companies that are out there. I hope it's open ended enough for you. How's that?

Thank you very much. I'm going to, I can certainly say a couple of things which will ultimately maybe not reflect exactly what you are looking for, but I can say as the new guy coming in and looking at the company there are a couple of things that are really, really striking. And the first one is that the number of incredibly bright people at this company is really pretty phenomenal. The dedication of the teams are also quite impressive. And the professionalism of the group is also very outstanding. The level of science that's depicted in all of our programs, or that is resident in all of our programs, is also what I would call world class. Other than that, I'm really sorry. I'm just not going to be able to discuss the strategic direction or future expectations on this call. As I said before, following a completion of the review of all of the company programs we expect to be in a very good position to discuss our going forward strategy at the end of the year.

Understand, good luck with the decisions and given the magnitude of the science and the people that you control I look forward to hearing what you are going to be doing.

Thank you very much.

Joe Pantginis, Roth Capital Partners. Please proceed.

Good morning and thanks for taking the questions as well. I also have to offer a little bit of an apology that some of these might be forward-looking but they were somewhat at the top of my head before the call. So I will ask them anyway. One thing that might not be as forward-looking is obviously you have some CIRM funding that's coming in. I was just curious if you had any plans to look for additional CIRM funding as well. I know they are looking to overall award additional monies maybe mid-next year and I have a couple of follow-ups.

We are really appreciative of the CIRM funding to date. Again, I think we are not going to go there in terms of what our plans are going to be in the future.

Sure, sure. So one of the forward-looking aspects that was forefront in my head is just looking at the Dendreon analogy there was a lot of push back right now with the Dendreon drama, if you will, with regard to autologous therapies, so when I've been looking at obviously the potential of your Vac-2 program and the off the shelf potential of that. I was just curious if you have any ability to discuss that now or just talk to its differentiation again with all of the pushback that Dendreon is getting with its autologous therapy.

We will cover the Vac-2 program when we discuss our results in that strategic review.

Okay, cool. And then so I guess the last question is more to an existing program if you can talk to how progress is proceeding with regard to the GE Healthcare collaboration.

I am not personally as familiar with that so I think I an going to have to punt on that. We do have standing by one of our other colleagues who is Dr. David Earp, who is our Chief Legal Counsel, but he also is very involved in some of these collaborations. David, maybe you could just make a few comments.

Certainly. I can comment that with respect to the 2-year collaboration that we had in place that has been successfully completed this year, that collaboration was designed to help facilitate technology transfer about cardiomyocyte differentiation to GE Healthcare. And as you may have seen, GE Healthcare has now launched a first product based on ES cardiomyocyte cells, those cells have been available commercially from GE Healthcare for a number of months now. Beyond that, I think the information regarding where GE's plans are going with respect to this asset should really come from GE Healthcare rather than from Geron.

Okay. Thank you for the color and I look forward to the results from the results of the strategic review.

Karen Jay, JP Morgan. Please proceed.

Good morning. Thank you for taking my question. My first -- I wanted to follow-up on the enrollment of the Imetelstat trials. I understand why you wouldn't want to give timelines on the data. But do you have a sense of when the trials might complete enrollment?

I think Karen, as I said we can't comment on that right now. We are ahead of enrollment expectations. We were trying very hard to complete enrollment into that trial. And that's pretty much I think all we can say right now with regards to our projections.

Okay, sure. Second question is Geron 1005. The breast cancer trial that's in combination with Herceptin, I know the Phase 1 trials were monotherapy trials, now that you are combining is there flexibility there in dose? I think it was just a single dose that you were looking at. I guess my question is how comfortable are you that you have the right dose when you are combining with another agent.

It's a very good question. There is always some uncertainty around dose when going from Phase 1 into the first Phase 2 program. The protocols that are were starting in both lung cancer and breast cancer do allow for intra-patient modification of the dose subject to tolerability. There is no data to date in all -- there are thousands of patients worth of data combining Paclitaxel with Herceptin, which doesn't suggest safety interaction between those 2 products. We are not expecting a specific safety interaction between GRN1005 and Herceptin. So we are starting that trial at the same dose as the single agent trial, the single agent cohort in HER 2 negative patients and in lung cancer. But there is flexibility in the protocol to allow for any alterations in tolerability that may occur.

Okay, again that makes sense. Thanks. Last question is on GRNOPC1 Target enrollment I'm assuming is still 10 patients and I'm wondering if you have other patients queued up and ready to go and how big of an effect the relaxed inclusion criteria have been.

I think we are going to take that question when we give you the results of our strategic review as we are trying to stay in the present and not in the future.

Okay, thanks.

Ren Benjamin, Rodman. Please proceed.

Good morning and thanks for taking the questions. Can you tell us when the brain met -- when the 1005 brain met study for non-small cell lung cancer is scheduled to begin or did it already begin?

No. It hasn't started yet. All of the activities that are required to be performed in order to enable initiation of that study were ongoing during the third quarter and are still ongoing. I think we stated previously, I don't think my colleagues here will have any reservation in staying, we stated previously that, that study will start this year and we still expect that to happen.

Okay. And then with the Herceptin study, I probably missed this in your prepared remarks, but the HER2 positive patients are getting Herceptin plus 1005. What are the HER 2 negative patients getting?

They are just getting 1005 unless they were previously being treated with some sort of hormonal therapy in which case they will be allowed to continue with their hormonal therapy.

Okay, okay.

Patients in either cohort will not be permitted to receive concomitant cytotoxic chemotherapy but biologic therapies are permitted.

Got it. And then switching gears real quick to OPC1, I apologize, so you had 4 patients that were treated. Can you just tell us what is -- what's the latest follow-up for each of the patients?

Yes, as we said, the first patient was enrolled just over a year ago and has completed the 1 year follow-up. The second patient was enrolled in May. And the 6 month follow-up is just about to be officially performed and monitored by our site monitors. And the third and fourth patients have both completed their formal 30 day follow-up. So we have safety data from those time points on all 4 patients.

Excellent. Then just one final question regarding milestones, upcoming milestones. You mentioned final data for 1005 at AACR-NCI-EORTC. Anything coming up at ASH or any other conferences in the next 6 months?

We only have -- we have presented -- let me restrict my answer to the conferences which are upcoming and we have publicly announced. We have non-clinical data from our cardiac Myocytes program being presented at the American Heart Association. And we have non-clinical data from our Imetelstat essential Thrombocythemia program being presented at the American Society for Hematology in early December. Those are the main forthcoming presentations.

So AHA ASH and AACR, correct?

Correct.

Okay.

Not AACR. It's the EORTC Molecular -- it's the.

The triple combination.

Molecular Targets and Cancer Therapeutics meeting which is jointly sponsored by AACR and which is occurring in a couple of weeks in San Francisco.

Got it.

That's the final Phase 1 data. That's Geron's analysis of the Angiochem data set that was generated from the brain metastases study.

Okay, terrific. Thank you very much.

Tom Bishop, BI Research. Please proceed.

Good morning. Can you explain the workings of the stock based compensation just in general such that Q3 G&A was $3.8 million and in the first half it was $14 million or an average of $7 million per quarter as compared to $3.8 million this quarter. How can it fluctuate that wildly? And also, what's the underlying G&A separate from the stock based compensation. So we just have some clue of what's going on here.

David are you able to take that? David is remote. I'm sorry if it's a little garbled.

Hopefully the connection is good. It's actually a simple explanation. The timing of our annual equity compensation program is, it falls into the second quarter, right around our AGM. So many companies do that as you know as an end of year exercise. We do not. We separate it from the year end and do it around the AGM and it goes into the proxy and so on. So that's the timing that explains different numbers in the first half versus the second half. There is nothing unusual about our equity compensation structure or plans for employees, Board directors and so on and those are outlined as you know in the proxy so you can catch up with them there. The other line items in the G&A are equally straightforward. It is the collection of normal support functions.

And in other words what is that base level of SG&A without -- if you just didn't have any stock base compensation. What's the underlying G&A?

Well, it's G&A rather than SG&A. We don't have a lot of sales expenses. I'm trying to collect the line items. It's actually on a cash basis, those are actually pretty modest numbers. And if you'd like to follow-up off-line we can sort of step through that. The non-cash compensation expenses are the single largest and dramatically largest line item in G&A. So that much is clear. If you'd like specific numbers for patent and legal expenses or accounting expenses, the largest -- I'll you the second largest that occurs to me right now is our audit fees and that shouldn't surprise anyone. Now we are getting down into fairly --

I don't need any -- I don't need any detail. Just what is underlying SG&A without stock base compensation. And an on annual basis or quarterly or whatever. I don't need detail of it.

We have our Chief Accounting Officer, Olivia Bloom, and she may have a comment or 2 that may help.

Thank you.

The year to date, 2011 expense for G&A is higher than what it was in the previous period mainly because of stock based compensation as David Greenwood identified. And we've disclosed previously it was significant in 2011 in the first half because of some equity modification expenses that were recognized in connection with the modification of outstanding awards for Thomas Okarma upon his separation from the Company. That accounted for approximately $3.5 million.

Okay. So you don't have a figure of what -- what G&A is excluding stock based compensation?

So if you exclude that as well as other stock based compensation, then you are approximating about between a range of $12 million to $15 million for the year-to-date period at this point.

That's the non-stock based and non-Tom underlying SG&A?

Correct.

And also speaking of Tom, he was a tireless teller of the Geron story, and since he left I don't see that happening very much and I also see the stock acting accordingly, it's rather weakened. Do you have some plans at least after your strategic review to get out there and get Geron on Investor's minds again and tell the story?

I don't know if I would agree with your characterization fully, but I can reassure you that we will be telling Geron's story very forthrightly and with a lot of intensity.

I hope so. The shareholders would certainly appreciate the help on the stock price.

Understood.

Thank you.

That concludes the Q&A portion for today's call. I would like to turn the call back over to Dr. John Scarlett for any closing remarks.

Thanks a lot everyone. We appreciate your forbearance and understanding about the strategic review that's underway and we look forward to sharing the results of that with you by the end of the year. Everyone have a great day. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.