葛蘭素史克 (GSK) 2003 Q4 法說會逐字稿

Welcome everyone to the conference call regarding Corixa's fourth quarter and year end earnings. Today's call is being recorded. At this time I would like to turn the call over to the Senior Director of Corporate Communications, Mr. Jim DeNike.

Thanks for joining us today. With me is Dr. Steven Gillis, Chairman and CEO of Corixa; David Fanning, our Chief Operating Officer; and Michelle Burris, our Chief Financial Officer. Earlier today we issued our fourth quarter and year end 2003 earnings press release, a copy of which can be found in the news section of our Website at www.Corixa.com. As always a recording of this call will be archived and available for replay later today in the investors section of our Website. In a moment I will turn things over to Steve who will review our progress to date and outline what to expect in 2004. David will provide an update on Bexxar and Michelle will discuss our 2003 financial results and provide 2004 financial guidance.

Steve will conclude the call with a look at our objectives for the year and then invite your questions. Before I turn things over to Steve I would like to remind you that during this call we may make projections and other forward looking statements regarding future events or future financial performance of the company. As you know these statements are just predictions and actual events or results may differ from the statements made. We caution you not to unduly rely on these forward looking statements which only reflect our projections as of today. Please refer to our documents filed with the SEC for information about risks that may affect the company, all of which are also available in the investors section of our Website. Thanks again for joining us today and I will now turn the call over to Steve.

Today we will provide you with an update on the progress we made during 2003, a pivotal year in the evolution of our company. We achieved several important milestones this year, building the foundation for a strong company focused on product commercialization. In addition to reviewing achievements we reported in 2003, I will provide an overview of our expectations for 2004. All of these efforts are driven by our focus on bringing validated products to market faster and more efficiently. First and most importantly Bexxar is now available as a treatment alternative for non-Hodgkin's lymphoma patients with refractory disease. As many of you are aware we received U.S. approval of Bexxar last summer and received Medicare reimbursement codes in mid-September.

While the path to approval was challenging we are very pleased to have a commercial product on the market and we're committed to making Bexxar a success for both patients who need it and for our shareholders. I will provide an overview of Bexxar revenue in 2003 and then invite David Fanning, our Chief Operating Officer, to give an update on our plans for Bexxar growth including our views on market potential, a discussion of ongoing sales and marketing efforts, site training, progress on our continued clinical development plan as well as our perspective on recent Medicare discussions in the news.

In 2003 Bexxar sales were 1.2 million which translates to an annual run rate of approximately 6 million. While these sales results are typical for a second to market product, it is not acceptable and not where we expect to be by the end of 2004. As we have stated previously we don't expect the joint P&L to provide a positive cash outflow to Corixa and GSK until 12 to 18 months after receiving our reimbursement codes and fully deploying our launch resources in support of product education, training and marketing. With that said, our goal in 2004 is to exceed Zevalin first-year sales.

We realize this is an aggressive goal given where we are today but it is one we feel we can achieve as we continue our efforts to develop a strong, direct sales effort that leverages the specific sales expertise of both Corixa and GSK and provide needed education outreach and site training and present and publish data. Before I turn the call over to David Fanning, our Chief Operating Officer, who will provide further insight into how we intend to achieve this goal as well as our goal to grow the radio-immunotherapy market in the years to come, I would like you again briefly mention, as we announced last week, that we have settled all litigation with Biogen IDEC.

We and GSK will receive a $20 million milestone payment as well as a one time milestone payment based on future Zevalin sales performance and royalty payments on Zevalin sales from January 1, 2004 until all Bexxar patents expire in 2014. With that I will turn the call over to David Fanning.

I would like to echo Steve's (technical difficulty) and assure you that although our progress to date is not uncommon for a drug that is second to market, sales to date are not where we would like them to be and we're committed to taking aggressive steps to increase the market for radio immunotherapy and Bexxar specifically, in order to achieve our sales goals in 2004. I would like to provide further detail of what we believe is a considerable market opportunity for Bexxar and then outline immediate action we're taking to capitalize on this opportunity.

While we understand that the adoption of a new advanced treatment like Bexxar is going to take time, we believe the commercial probability for Bexxar and radio immunotherapy can be realized in the short-term. Based on current low rate NHL incidence rates and use of Rituxan in relapsed patients we estimate that there are approximately 7,500 to 12,500 eligible Bexxar patients currently within label. At a reimbursement level of approximately $30,000 per treatment we believe the potential market size is between 225 million and 375 million for patients within our current label. We have the support of key opinion leaders, compelling clinical data demonstrating long-term durable remissions and a plan to deploy resources to facilitate Bexxar's adoption.

We're focused on increased education in support of the unique requirements for a new referral pattern from oncologists to nuclear medicine or radiation oncology for treatment. As you know Corixa is building a specialized sales force to complement the oncology sales team at GSK. Corixa's sales force will be focused 100 percent on Bexxar and tasked with specifically targeting large treatment centers while augmenting the existing effort by GSK oncology sales representatives who continue to focus on generating interest and referrals from community oncologists. September 2003 we hired industry veteran, Chris Rivera, as our Vice President of Sales, in support of our goal to deploy our sales force by June 2004. Since September Chris has quickly brought on board an experienced sales management team with backgrounds in oncology, nuclear medicine and specialty pharmaceuticals.

I am very pleased to report that we have already hired our entire sales team three months ahead of our goal and are in the process of training the account managers as we speak. Our sales force will be fully trained and in the field by the end of March. This group will immediately add direct technical expertise in nuclear medicine sales, oncology hematology sales, specialty pharmaceuticals sales and has a history of building new product franchises similar to the opportunity they have with Bexxar. In addition to sales personnel Chris has also deployed additional medical science liaisons and area clinical consultants who are responsible for site training, healthcare professional education and support for the sales team.

GSK has also added resources in this area to further expedite site training and certification. Completion of targeted site training is a critical step in the commercialization of Bexxar, a process we continue to accelerate. We know from our experience in the field so far that the success of Bexxar is dependent on a strong sales and education presence. Our recruitment of highly motivated experienced top caliber sales candidates has been added significantly by a 90 percent Bexxar brand awareness and by results from studies like the second-quarter 2003 Cancer Consultants Oncology Report which stated that Bexxar was considered the most promising new treatment for patients with NHL.

In addition to working in concert with GSK our sales team is tasked with further educating healthcare providers and patients about radio immunotherapy and the important treatment option that Bexxar provides to patients. Approximately 200 sites have been trained or are in the process of completing training. We believe that we can achieve our Bexxar treatment objectives in 2004 by targeting approximately 250 to 300 key high volume strategically located treatment centers that currently treat a majority of NHL patients in the U.S. We believe this approach to site training will be a foundation for our future sales success.

We now have sites across the country that are treating multiple patients commercially, an important milestone as we believe that once a site is familiar with product administration and available reimbursement, they will come to appreciate the many benefits of treating patients with Bexxar. Initial feedback from the sites on the training process has been quite positive. In addition to generating interest and implementing site training, we will continue to report progress on key clinical trials designed to identify the optimal use of Bexxar. We will publish clinical trial results in peer review journals. We will continue to submit abstracts announcing data at forums such as the Society for Nuclear Medicine, ASCO and ASH.

As an example of this effort we announced at ASH in December of 2003 new analysis of durable complete responses in patients who received Bexxar. Researchers presented data on independently confirmed long-term durable responses, defined as responses with a time to progression of 12 or more months from the five clinical trials that supported regulatory approval of Bexxar. Of the 230 patients with relapse or refractory cyclical (ph) non-Hodgkin's lymphoma who were treated with Bexxar and who were evaluated for response, 24 percent met the definition of a durable complete response which is a complete resolution of radiological abnormalities and disappearance of signs and symptoms related to the disease.

Investigators reported that 75 percent of these patients still showed no sign of disease after a median follow-up of nearly five years. Independently assessed durable complete responses were noted with similar frequency in patients who relapsed after or who were refractory to Rituximab therapy and in patients who have not received Rituximab prior to the Bexxar therapeutic regiment. In each case 20 to 25 percent of patients with follicular NHL treated with Bexxar achieved a complete response lasting a minimum of 12 months and the majority of those patients remained in complete response with a median follow-up of nearly five years.

In addition we recently reported the potential benefit of Bexxar to treatment studies other than relapse or refractory disease. Data reported in 2003 in the journal, Blood, suggested Bexxar may be useful when administered earlier in the treatment process. A Phase II clinical study assessed a two part treatment consisting of CHOP chemotherapy followed by Bexxar, in which the first fully published study of a combination treatment involving chemotherapy and radio immunotherapy as a first-line treatment of follicular NHL. The treatment produced an overall response rate of 90 (ph) percent and a two year overall survival rate of 97 percent.

An abstract has also been published evaluating the safety and efficacy of a sequential regiment of three cycles of fludarabine followed six to eight weeks later by Bexxar for patients with previously untreated follicular low-grade NHL. Of the 35 patients that completed both fludarabine and Bexxar therapy, 100 percent of patients achieved an objective response and 77 percent achieved a complete response. Additionally Bexxar has shown encouraging results as front-line therapy in a study of evaluating 76 previously untreated patients with advanced stage three or four low-grade follicular B-cell non-Hodgkin's lymphoma. In this study Bexxar produced an overall response rate of 95 percent, a complete response rate of 75 percent and a five-year progression free survival of 59 percent, all following one administration of Bexxar given over a one to two week period.

While these results are early we regard them as very promising. In addition to these studies new clinical trials have been designed to further examine the potential benefit of Bexxar therapy. In the first of three studies patients are currently being enrolled in our frontline study comparing CHOP chemotherapy plus Rituxan versus CHOP chemotherapy plus Bexxar. The trial will include approximately 250 patients per arm with primary endpoints including survival and time to progression. This study is being conducted by the Southwestern Oncology Group with participation from the cancer and leukemia group. We are presently opening sites for accrual in the post-approval study designed to test the efficacy of Bexxar versus Rituxan treatment as a second or third line treatment.

This study will involve 500 patients and will examine efficacy in terms of the then free survival and duration of response. Finally we are preparing to open trial sites in a post-approval study comparing Bexxar to Zevalin radio immunotherapy in patients who have failed three prior therapies. This study has attracted considerable interest and will compare safety parameters of the two regiments as the primary endpoints. These post-approval studies will serve to increase the volume of Bexxar data available in a variety of treatment settings and provide us additional data for further registrations and label expansion.

Although these trials will take several years to complete they are a critical piece of our continued development strategy. More than 500 patients will be treated with Bexxar at multiple treatment centers expanding our reach with Bexxar and establishing cooperation and experience with important oncology centers. Most importantly we believe that Bexxar still addresses an unmet medical need for patients with relapsed and refractory low-grade B-cell NHL and that it provides patients with the hope of a durable remission. As a result we believe our ongoing collaboration with patient advocacy groups like the Wellness Community, the Lymphoma Research Foundation and the Leukemia and Lymphoma Society, will help raise awareness and educate patients on the benefits of treatment with Bexxar, benefits including a short treatment period, a lack of chemotherapy-like toxicities and long-term durable responses.

We believe the combination of increased and targeted sales resources, continued education for healthcare providers and patients and site training will allow us to achieve our sales goal in 2004 and beyond. We further believe that results from ongoing and planned clinical trials will allow us to expand the use of Bexxar as a treatment option. We look forward to reporting progress to you in these areas each quarter throughout 2004. I would like to address one last item on Bexxar before I turn the call back over to Steve for a review of our pipeline programs. As you may have read Medicare is conducting a preliminary review of cancer therapies to determine whether or not it will reimburse for unimproved or off-label use.

In the interest of clarity it is important to note that Medicare has made changes to or is discussing a broad range of oncology drug reimbursement rates as part of this policy discussion. The Bexxar therapeutic regiment including all procedures necessary for administration is covered by Medicare for patients under Bexxar's current label indication. Reimbursement levels for its approved indication are not under review. CMS currently reimburses hospitals for all procedures necessary to administer the Bexxar therapeutic regiment to Medicare eligible patients including gamma camera scans and dissymmetric calculations for patient specific therapeutic dosage. Thank you again for your continued interest.

I will now take a few minutes to review progress we are making in our specific areas of focus. Monoclonal antibodies, vaccines and adjuvants and small molecules that stimulate and aid immunity called TLR4 agonist and antagonist. We maintain a highly focused discovery of development and commercialization program to provide monoclonal antibody candidates for the treatment of certain types of cancer focusing on additional opportunities for radio immunotherapy. A number of companies have come to appreciate the promise of radio immunotherapy as well as the wealth of antibody targets currently within Corixa's intellectual property portfolio. Several of these companies are in active discussions with us regarding the potential to join Corixa as a development partner in a relationship that would preserve Corixa's ability to market future radio immunotherapy products in North America.

Turning to vaccines and adjuvants, we initiated four human clinical trials in the last twelve-months enrolling patients in Phase I studies evaluating vaccines for lung cancer, breast cancer, tuberculosis and Leishmaniasis. These new studies demonstrate our commitment and our ability to bring validated technologies into clinical development on an accelerated schedule. We expect to file one to two new IND's each year and in 2003 we exceeded that goal. We believe more potential products in the clinic will ultimately result in more commercial product opportunities. Now I will turn to our adjuvant business. The development of adjuvants to enhance vaccine efficacy is an important business for us.

Several commercial partners have been evaluating our adjuvants in proprietary vaccines that have advanced to Phase III clinical trials and/or product registration. Last year our partner, Berna Biotech, received Argentinean approval for Supervax the first infectious disease vaccine containing Corixa's RC-529 adjuvant for the prevention of hepatitis B infection. Also in 2003 GlaxoSmithKline filed for a European approval of Fendrix, a novel vaccine designed to prevent infection from hepatitis B in high-risk groups. Fendrix includes the GSK biologicals, Hepatitis B antigen and Corixa's MPL adjuvant. We remain very optimistic about the strength of our adjuvant technology as well as the potential contribution the adjuvant business may have on future product sales and royalty income.

A key contribution to the growth of our adjuvant business in the coming years will be the continued progress of a number of GlaxoSmithKline vaccines now in late stages of clinical registration, all of which contain our MPL adjuvant. We currently expect GSK's orders for MPL to continue to increase in association with continued clinical progress of herpes virus, malaria and pathaloma virus vaccines and the requirement to stockpile sufficient product for market introductions. We will provide additional detail on MPL production later in the year. In January we announced a new $11.6 million five-year contract from the NIH to further the development of our proprietary small molecules that stimulate immunity, our third core area of focus.

These TLR4 agonists and antagonists have shown in preclinical studies to activate the immune system to protect against infection especially those that affect the respiratory tract. We are excited about our portfolio of TLR4 agonists and antagonists and we expect to begin a Phase I clinical trial evaluating one of the TLR4 agonists in the first half of this year. Now I will turn the call over to Michelle for a review of our fourth quarter and year end financial results.

I will begin with our fourth-quarter results, provide an overview for the full year, give an update on our balance sheet and finally provide our financial guidance for 2004. As a reminder, copromotion revenue (indiscernible) under our agreement with GSK for Bexxar is determined based on the calculation of joint profit or loss as defined in the agreement and is included in SG&A expense for the quarter and the year ended December 31, 2003. As we have stated previously during the initial period of product availability we expect to record losses as a result of increased expenses commonly associated with the launch of a new drug, and don't expect the joint P&L to provide the positive cash uploads to Corixa and GSK based on product sales until 12 to 18 months after receipt of our reimbursement close and full deployment of our launch resources.

My discussion will include certain non-GAAP financial measures which are financial measures that cannot be calculated in accordance with generally accepting accounting principals or GAAP. In our earnings release issued earlier today we provided a reconciliation of the non-GAAP financial measures included in the release. These adjustments to our current period GAAP results are made with the intent of providing investors a more complete understanding of current and underlying operational results, current trends and our marketplace performance.

The non-GAAP results are an indication of our baseline performance before other charges that are considered by us to be outside of our core operating results. An example is acquisition related charges and goodwill impairment. I will take a few minutes to summarize our fourth quarter results for those of you who have not had a chance to review the earnings release. For the fourth-quarter of 2003 we reported total revenue of 14.2 million. That compares with total revenue of 9.4 million for the fourth quarter of 2002. As Steve mentioned, Bexxar sales for 2003 were 1.2 million, although that number is not included in our revenue number due to the joint P&L accounting for Bexxar. Net loss applicable to common stockholders for the fourth quarter of 2003 was 16.9 million compared with a net loss of 19.7 million for the fourth quarter of 2002. Diluted net loss per common share for the fourth quarter of 2003 was 31 cents compared with diluted net loss per common share of 40 cents for the fourth quarter of 2002. Now if you exclude the acquisition related charges such as intangible and deferred compensation amortization and restructuring charges related to our operations, net loss applicable to common stockholders and diluted net loss per common share for the fourth quarter of 2003 were 14.4 million and 26 cents, respectively, compared with net loss applicable to common stockholders and diluted net loss per common share of 19.1 million and 39 cents, respectively, for the fourth quarter of 2002.

The increase in revenue for the fourth quarter of 2003 compared with the prior year period was due primarily to previously deferred revenue recognized as a result of discontinuing development of PVAC in December of 2003, as well as revenue from collaborative agreements with Zenyaku Kogyo and Wyeth. These increases were partially offset by the anticipated expiration of the funding research phase of our collaborative agreement with Zambon. Zambon continues to participate in funding development and clinical trials of our lung cancer vaccine. For the full year of 2003, our total revenue was 50.7 million compared with 48.7 million for 2002. For 2003 net loss applicable to common stockholders was 84.9 million, that compared with 208.2 million for 2002.

Net loss applicable to common stockholders for 2003 includes an 18.5 million impairment charge associated with subleasing space in South San Francisco. Net loss applicable to common stockholders for 2002 includes a first-quarter goodwill impairment charge of 161.1 million resulting from the delay in the launch of Bexxar. Diluted net loss per common share for 2003 was $1.60 compared with diluted net loss per common share of $4.67 for 2002. Again if you exclude acquisition related charges such as intangible and deferred compensation amortization, release related impairment charge and goodwill impairment charge, net loss applicable to common shareholders and diluted net loss per common share for 2003 were 62.5 million and $1.18, respectively.

That compares with net loss applicable to common stockholders and diluted net loss per common share of 41.8 million and 94 cents, respectively, for 2002. On a cash basis we had receipts of approximately 52 million and a net operating cash burn of 63 million excluding investment in fixed assets and facilities. We ended the year with 192 million in cash, cash equivalents and investments and our 2003 numbers were well within the range that we had previously forecasted for the year. Let's change gears and look at 2004. We expect cash receipts to be higher than 2003, in the range of 75 to 95 million. Again that excludes financing activities associated with leasehold improvements.

We also expect our net operating cash burn to be less than 2003, in the range of 45 to 65 million and that excludes investment in capital assets. GAAP results should not differ significantly from 2003 in terms of revenue and expense. We expect revenues of approximately 45 to 55 million, operating expenses of approximately 130 to 140 million, however, we expect our net loss to be somewhat lower than 2003 and that is due to the patent settlement accounting in other income. That range is approximately 60 to 80 million for the full year 2004. That concludes the update on our financials, so I will turn the call back over to Steve for closing remarks.

We presented a lot of information today, so before we open up the lines for your questions I would like to summarize some key points. First, 2003 was a strong year for Corixa. We achieved four important milestones, the approval and launch of Bexxar, securing of approximately $130 million in equity-based financing, the initiation of new clinical trials for lung cancer and breast cancer, Leishmaniasis vaccines and an additional tuberculosis vaccine trial initiation in January of this year, and we streamlined our pipeline to refocus resources on products with the best chances for successful commercialization. While many of our achievements during 2003 were positive, Bexxar sales results are not what we expect them to be and we and GSK have taken immediate action that we believe will allow us to achieve our sales objectives for 2004.

Before I open the call to questions I would like to quickly highlight our objectives for the coming year. As a reminder all of the following objectives for 2004 are documented in the investor section of our Website in our most current investor presentation. We are off to a good start already in 2004, as we announced the $11.6 million funding by the NIH of our TRL4 agonist program, the initiation of a Phase I tuberculosis vaccine trial and the completion of six license agreements with Abbott Laboratories. These advancements represent important progress in our core areas of focus and key objectives this year.

In addition it is our goal in 2004 to deploy our sales force later this month to complement GSK's efforts in driving sales, begin enrollment in postapproval clinical trials of Bexxar, report on Bexxar approvable status in Canada and exceed Zevalin first year sales through the sale of Bexxar. We also intend to in-license a late stage ecology product to leverage our sales force providing near-term commercialization opportunities that we hope will generate additional revenue in the near future.

In our pipeline programs we expect to begin a Phase I clinical trial of the TRL4 agonist and file an IND for our prostate cancer vaccine. Additional commercial activities should include finalization of additional development agreements in the areas of radio immunotherapy and adjuvant supply. Thank you again for your continued interest in Corixa and for joining us today. At this time I would like to invite the operator to open the call for questions.

(OPERATOR INSTRUCTIONS). Greg Wade, Pacific Growth Equities.

Steve, I wonder if you can just help me clarify something with respect to the guidance around your expectations for Bexxar? You indicated first-year of Zevalin sales. Should I use the first full year that they were on the market or the first four quarters? What were you retargeting there?

The first full year of sales for Zevalin were about 19.4 million, so that is a number that we have to exceed.

Great, thanks very much. With respect to the TRL4 program that you're expecting to begin clinical trials with here in the first half, would that be the agonist or antagonist?

It is an agonist compound and when the trial starts we will announce the indication.

You have stolen my next question. Thanks very much for helping me with those clarifications.

(OPERATOR INSTRUCTIONS). Paul Latta with McCadams Wright Ragen.

Michelle, wondering if I can just get you to repeat the guidance? Cash receipts, you say 75 to 95 million?

Correct. Operating cash burn of 45 to 64.

Revenue was 45 to 55?

Right, operating expense is 130 to 140.

And the net loss 60 to 80?

Correct.

Steve, a question about some of the Phase I. You have got four drugs in Phase I right now for vaccines. Can you give a sort of a flavor, looking out maybe one to two year, which of those, assuming the Phase I results are successful, which one is perhaps further along and more likely to be finished with Phase I first?

The Leishmaniasis Vaccine is close to completion of its Phase I experience but again that is really not an efficacy study, it is a safety study and normal volunteers. The breast cancer vaccine is I would say halfway through initial enrollment. That is a study under GSK IND that is being conducted both in Europe and in the United States. The TB vaccine has just begun clinical study here in the United States. GSK plans to initiate a similar trial in Europe midyear. Actually of the studies that we have in Phase I clinical trial, the one that is probably furthest along is the lung cancer study which has been an open IND now for some time and we and Zambon are looking forward to an analysis of those results later on this year.

Okay. Is there also a second TRL4 program sort of in the wings? I vaguely remember something in preclinical, in the allergy area --?

Yes, there are numerous clinical trial opportunities with TLR4 agonists and agonists. On the agonism side we have been looking at prevention of infection which has a host of opportunities ranging from allergy, asthma, chronic obstructive pulmonary disease. And on the antagonism side, inflammatory bowel disease. Again as we enter -- as we take these compounds into the clinic you will get a much better feel for indication and the type of study that is being done, but it has been our practice in the past to announce clinical trials once the study has actually started.

Thanks a lot.

Mr. Gillis, there appears to be no further questions at this time. I would like to turn the call back over to you sir.

Thank you very much for joining us this morning and we look forward to updating you on our progress as the year continues. Thanks again.

This does conclude today's conference call. At this time you may disconnect.