ImmunoGen Inc (IMGN) 2005 Q4 法說會逐字稿

Good day and welcome everyone to the Immunogen fourth quarter fiscal year 2005 conference call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to the Executive Director, Investor Relations and Corporate Communications, Ms. Carol Hausner. Please go ahead, ma'am.

Thank you. Good afternoon, everyone. And thank you for joining us for our quarterly conference call. At 4:00 this afternoon, we issued a press release that summarizes our financial results for our fourth quarter and fiscal year 2005. I hope you have had a chance to read it. If not, it is available on our Website at Immunogen.com.

During today's call, we will make forward-looking statements, our actual results may differ materially from the projections made, descriptions of the risks and uncertainties associated with an investment in Immunogen are included in our SEC filings, which can be accessed through our Website.

With me today are Mitchel Sayare, our Chief Executive Officer and Chairman of the Board, and Dan Junius, our Senior Vice President of Finance and Chief Financial Officer. Mitch will provide an update on Immunogen, and then Dan will discuss our financial results and provide guidance for our 2006 fiscal year. We will then open the call to questions.

Mitch?

Thanks, Carol. Hello, everybody. 2005 was the best year we've had so far at Immunogen.

We made significant progress in the development of our own products. Our partners made important progress. And three leading antibody companies licensed the right to use our TAP technology to develop their products. Let me give you the highlights and I will begin with our huN901-DM1 compound. We took over development of this product on July 1, 2004, since then we have accelerated the pace of patient enrollment in the Phase II study on small cell lung cancer, and reported encouraging initial data from that study at the ASCO meeting in May. We also expanded the study to include more patients and more clinical sites.

Our goal is to complete most of the patients enrollment for the study in our 2006 fiscal year ending next June. As you may know, there is a second study under way with huN901-DM1 in small cell lung cancer, that is testing the compound when given daily for three days. I'm pleased to report an increase in the pace of patient enrollment in this study as well, and we expect to present findings during the current fiscal year. Indeed we are preparing an abstract on the study data now for an upcoming conference.

When we know it is accepted we will put the time and date of the presentation up on our Website. You probably can detect that we're really quite excited about the prospects for huN901-DM1 in small cell lung cancer. After all, the findings presented at ASCO include reports of tumor shrinkage and stable disease in this very difficult cancer. At the same time, we also believe that it is important to study huN901-DM1 in multiple myeloma, where the tumor cells nicely express the target for our compound.

While new treatments have come along for multiple myeloma, it remains a fatal disease with a serious need for better treatment options. Multiple myeloma also offers a potentially faster development pathway than small cell lung cancer does. I suspect that we don't have to remind that you shortly after we took control of the product, we put in place a clinical program to evaluate it in multiple myeloma. We have recruited the sites, developed the protocol, gained IRD approvals and even initiated the first site. In fact the lead clinical center has everything it needs to begin dosing patients.

So first patient dosing really is day to day. The good news is here is that once it is started patient enrollments should accelerate, and to that end we are bringing on additional clinical centers. Although we will provide more details in the study once patient dosing begins, I want to take this opportunity to answer a couple of questions about the study that some of you have asked.

First, just to be clear, this is a Phase I dose escalation study. huN901-DM1 hasn't previously been administered to patients with multiple myeloma. We have some comfort regarding the behavior of the product in small cell lung cancer treatments, so we feel we can start at a somewhat higher dose than we would otherwise, one closer to the maximum tolerated dose established in small cell lung cancer. I'm frequently asked if the study will be with Velcade failures. Here is the deal, to qualify for enrollment patients need to have received at least one prior treatment for their disease, and of course their disease cells must express the CD56 antigen or target. So Velcade failures are eligible and so are patients that have failed other therapy and have never seen Velcade.

Turning now to our huC242-DM4 compound. Last year I said we would initiate clinical testing with huC242-DM4 by the middle of calendar 2005, and as you know we did. Patient dosing is under way at the CTRC in San Antonio with Dr. Tony Tolcher, who you may remember is highly experienced with our technology through his work with both huN901-DM1, and cantuzumab mertansine. The trial begins as a dose escalation study. And that portion is open to patients with any refractory CanAg expressing cancer. Once the maximum tolerated dose has been established, a number of patients will be dosed at that level.

These latter patients must have tumors with strong homogeneous CanAg expression. Here too, our goal was to complete most if not all patient enrollment during our 2006 fiscal year ending next June. Obviously, we have a very active clinical program under way. Indeed we believe that the best use of our resources is for us to aggressively develop our products, and prove the value of our technology. However, this does have implications for our burn rate in 2006. And Dan will discuss that shortly.

When we unveiled huC242-DM4, we noted that we had created several new ways to optimize the design of our TAP compounds. These design options have been available for some time for use by us, and by our partners, and included alternative effecter molecules such as DM1 and DM4. Perhaps you weren't aware that the design options also included various linkers. For example in evaluating a new antibody with our TAP technology, we and our partners typically test different linkers, including a new cleavable linker as well as the noncleavable linker that recently was disclosed in a patent application of ours that became public last week.

So, when we're evaluating alternative designs for cantuzumab mertansine , we tested all the options, the original design, designs with the noncleavable linker, the huC242-DM4 design with the new cleavable linker, that is now in clinical testing, as well as other designs. We found that the huC242-DM4 design with the cleavable linker, and the design with the noncleavable linker, both worked very well against cancer cells in tissue culture. In some cases the noncleavable linker worked even better.

However the huC242 design with the cleavable linker had far superior efficacy against human tumors in animals. This helped us make the decision to advance the huC242-DM4 cleavable linker design into clinical testing. We found that with some antibodies and targets one design is best, and with other antibodies and targets, other designs worked better. Indeed we expend quite a few dollars in developing alternative effecter molecules and linkers, so that the best design can be selected for each antibody and target.

Moving on to our collaborations, in March of this year, our partner Sanofi-Aventis advanced the TAP compound huMi96-DM4, or as they call it, ABE-9633 into clinical testing for the treatment of acute myeloid leukemia. In May, Millennium Pharmaceuticals reported initial data from their multi-dose study with MLN-2704, their TAP compound for prostate cancer. MLN-2704 achieved substantial decreases in PSA levels when given at the higher doses. And with all of our preclinical work under way, we expect at least one more partner compound to advance into clinical testing during the current fiscal year.

As you know, several leading antibody companies, Genentech, Biogen Idec, and the Centocor subsidiary of J&J, took licenses in our 2000 fiscal year for the right to use our TAP technology with antibodies to be specific, but undisclosed targets. Actually Genentech has taken two such licenses in recent months. One in April, and one in July, at the start of the current fiscal year.

Dan will fill you in on our financial results. Dan?

Thanks, Mitch. And good afternoon, everyone. Our revenues for the three months ended June 30, 2005, were $7.4 million, down from the 9.3 million in the same period of 2004. The decrease was principally attributable to a reduction in the revenue from clinical material reimbursement from our collaborators. Revenue from clinical material reimbursement will fluctuate from period to period for several reasons, principally related to the stage of collaborator trials.

For the full year ended June 30, 2005, revenues increased to $35.7 million, from nearly $26 million in fiscal 2004. Most of the increase was because we received research support funding from Sanofi-Aventis from the full year of 2005 compared with 10 months of 2004, and because we had significantly more revenue from clinical material reimbursement in 2005 than in 2004. The Company also earned more license and milestone fees in fiscal 2005 versus 2004.

Our loss from operations in the fourth quarter of 2005 increased to $3.3 million from $1.3 million in the prior year. Increased research spending, principally to advance our wholly-owned compounds, drove the spending levels in the quarter.

General and administrative expenses greater in the quarter compared with the prior year, due to an increase in personnel, as well as from spending associated with Sarbanes-Oxley compliance. Other income in the fourth quarter of 2005 was $586,000. 1. million dollars below the comparable 2004 period. Our 2004 other income included approximately $1.3 million in materials reimbursement from Sanofi-Aventis, for materials made prior to the start of our collaboration. This obviously was not repeated in 2005.

The net loss for the fourth quarter of 2005 was $2.7 million, or $0.07 per share, compared with the $302,000 profit for the same quarter in 2004, which equates to $0.01 per share. For our full 2005 fiscal year, the loss from operations was $12.8 million, compared to $8.6 million in 2004. The increase in our operating loss in 2005 was principally because we increased research spending to advance our own compounds, we have brought on additional capacity, and our pilot manufacturing facility in Norwood, and we produced fewer batches for our collaborators, and thus there was less absorption of manufacturing overhead, and we increased inventory reserves.

Other income was lower in fiscal 2005 than in fiscal 2004, even though we had increased interest income in 2005, the result of the materials reimbursement from Sanofi-Aventis at the end of 2004 that was mentioned earlier. The net loss for fiscal 2005 was $10,951,000 or $0.27 per share compared to a $5.9 million or $0.15 per share in fiscal 2004. Cash and marketable securities were $90.6 million as of June 30, 2005, compared to $94.6 million on June 30,2004.

We had no debt outstanding in either period. The $4 million change in cash and marketable securities from 2004 to 2005 reflects operating cash use of $2.1 million, and capital expenditures of $2.4 million, less proceeds from stock option exercises. Benefiting our operating cash use in 2005 was a $4.1 million reduction in the combined balance of our unbilled revenue in accounts receivable, as well as a $5.1 million reduction in our inventory.

In terms of guidance for 2006, we anticipate that our net loss in 2006 will be between 17 million and $19 million compared with $11 million in 2005. For fiscal 2006, this includes approximately $2 million of stock-related compensation expense, reflecting our adoption of FAS-123R as of July 1 of 2005.

Our fiscal 2005 results are now restated to reflect a comparable expense. The reason for the larger expected loss is the aggressive clinical program we've put in place, in support of our own compounds, including the associated cost for the clinical sites, drug supplies, and trial management. We also expect to incur significant costs in fiscal 2006 related to our preparation for manufacturing large quantities of our compounds, for later stage clinical trials, including potential pivotal trials. We expect our burn rate to be higher in 2006 than in 2005. Again, the key reason is the larger operating loss, driven by increased expenses in support of our products.

Additionally, we won't have the benefit of the reductions in our working capital that helped our liquidity in 2005. We project that we will consume 16 million to $19 million in 2006 on an operating basis, with an additional $4 million required for capital expenditures.

Let me then turn it over -- turn it back over to Mitch.

Thanks, Dan. I know that a question on people's minds is whether or not Sanofi-Aventis is going to extend the research component of our partnership into a fourth year. This one component currently is scheduled to end on August 31, 2006. That's not two weeks from now, that's two weeks and a year from now.

However, Sanofi-Aventis needs to give us one year's notice if they intend to extend it, so if we knew definitively because we've agreed on terms and signed commitments or because Sanofi-Aventis has told us they won't extend it, we'd put out that announcement. At this time, we can't say what the outcome will be. Of course, we would be happy if they extend, as it would mean an assured source of cash for us, for the year starting September 1, 2006. Again, not two weeks from now, but two weeks and a year.

They're already committed to fund us for the year starting September 1, 2005. But I wouldn't be unhappy if they didn't extend. If they don't extend, consider this. First, we will continue to receive significant funding for the next year, amassing a total of over $50 million from Sanofi-Aventis for three years of research. Second, they will continue to have rights, rights to and presumably work hard on the products presently in the collaboration, huMi96, DM4 and others. And these are the potential to generate significant milestone payments and royalties, payable to us. And third, since our research scientists won't be spending time collaborating with their research scientists, we will have a lot more latitude in the development of our own pipeline.

So I will be happy with either outcome, and you can count on an announcement once the outcome is known. So in our 2005 fiscal year, we took over the development of our huN901-DM1 compound, and now we're aggressively running two trials with the exciting compound, and expect patient dosing in a third to start very soon. We advanced our second TAP compound huC242-DM4 into clinical testing, and are making solid progress there as well. We work with our partners in support of their TAP products, and several more companies licensed the right to use our TAP technology. We expect the support for our technology to strengthen markedly as we go forward. And we are looking forward to updating you on our work in the future.

Thank you, [OPERATOR INSTRUCTIONS] We will pause just a moment to allow everyone a chance to signal. We will move first to the line of Brian Rye with Janney Montgomery Scott. Go ahead sir.

Thank you. And thanks for taking my question. Just a couple. First of all, Dan, a brief housekeeping item. In reviewing the company's SEC filings for the last year, it looks like the stock-based compensation expense included in the pro forma net income was fairly consistent on a quarter-over-quarter basis during fiscal 2005. Just purely for modeling purposes, can we assume that is probably going to be the same in '06? In other words that $2 million can -- I know you won't give quarterly guidance, but will it be fairly spread out among the four quarters?

Yes, I think that is safe, Brian.

Okay. Appreciate that. And secondly Mitch, my guess is you will get into more detail on this once the announcement is made, the initial patient dosing has begun in the multiple myeloma study, but when you talk about a potential faster path for, a regulatory pathway, could you give us any more flavor on, you know, what ideas you're sort of tossing around internally, and where you think based on what you have seen so far that that path might lead?

Well, I would love to do that Brian, but I really promised everybody here that I would wait until the first patient is dosed before we do that. So as soon as that happens, we will be happy to talk about what our plans are.

Appreciate that. Thanks, Mitch.

We will move next to the line of Jason Kantor with RBC Capital Markets. Go ahead.

Hi, Mitch. Thanks for taking my call. I missed some of the call so forgive me if this is repetitive, but I wonder if you could clarify again exactly how this works with Aventis being able to, you know, extend the deal needing to give you extended notice? I mean should we assume that if we don't hear anything in the next few months that that is not happening? Or can you explain that again?

I think if Aventis decides not to extend, we would announce that, and if Aventis decides to extend, we would announce that as well. So either way, we will talk about it. We think it is probably material.

And you say it happens 12 months --

Right, it is supposed to happen before September 1, because they're supposed to give us 12 months notice. What I did say, and I want to remind you of this, is that the only thing we're talking about here is the research component of the collaboration. There is still an arrangement with them to provide developmental expertise and manufacturing. That doesn't -- and of course the license arrangement for the products that we license to them, or that they made use of our technology for.

But the development and the manufacturing applies on a go forward basis, only applies to the drugs that they've already sort of selected as development candidates?

No, that's not true. We would commit or we commit to manufacture for them at, at least for Phase I trials, like we do for all our partners, for products going forward that haven't -- you know, that still are a twinkle in some investigators's eyes. So the only thing that might terminate next September, would be the research portion of the collaboration.

And what exactly are you researching for them?

Well, we are developing targets, and new product opportunities, testing antibodies that we or they have developed, with DM1, DM4, various linkers, and so forth. We have a fair amount of our staff here spending some time on research programs in collaboration with Aventis.

The idea is to develop as many new products as possible during the term of our agreement. Then those products are handed off to the development people, and the clinical trials people, and all that at Aventis, and we provide support to that. And of course, are paid for it. That continues past the three-year term, should it not be renewed.

So the only thing it doesn't is, you know, sort of the innovative research that goes into developing new products, they can do that themselves, but we're not going to participate with them.

So just to be clear then, if they don't renew it, and Aventis comes up with a new antibody outside of this collaboration that they think will be great to conjugate, you're not obligated to do any conjugation work for them, going forward they would actually have to actually take a license just like any new collaborator to that target, and then you would help them on that target going forward.

That's almost exactly correct. There's a little bit of fuzziness in this, simply because what they effectively have is an option to license on a antibody or antigen basis going forward, after the end of the collaboration. So just like any other partner, they can come to us with a new target.

We determine whether or not we can grant a license to that target, you know, after all, we might have granted it already to somebody else, but if we can, then we do it, and the terms of that license are already defined. And those terms are the same or very close to the same as what we provide to many of our other partners.

So then the research funding that -- this sort of ongoing research funding if they were to re-up this would be for your target discovery, your antibody discovery, and your next generation toxin linker type work? Is that --

We would apply money that they gave us, as we do today, to develop new targets and new opportunities for which we of course have the rights, but they have the right to commercialize.

Got you.

And so that's what's happening so we would no longer be working on their behalf to develop new products for them to commercialize. They will be developing their own products to commercialize. But they still -- they will still owe us, you know, substantial milestones and royalties.

Okay.

So basically, what it means is, you know, the risk is a year from now, we won't have the same level of research funding as we do today.

Okay. Thank you.

Sure.

[OPERATOR INSTRUCTIONS] We will move next to David Webber, First Albany. Go ahead.

Mitch, can you say whether we should expect data to be reported at medical meetings in fiscal '06 on any of Immunogen's or partner products?

Yes, we hope to be able to report data on the small cell lung cancer study that is under way in the U.K. and here, on once a day dosing for 3 days every 21 days. Interesting study, interesting data, those data are being submitted in abstract form, and hope to report on them in the fall. So that's in calendar '06. In fiscal '06, I mean, you know, we can't speak yet, we don't know, but I would imagine ASCO will have a lot of our data.

Okay. On which products?

Well, certainly N901, so what I'm speaking so far about is our products N901 and huC242, and I don't know if huC242, which after all, just began a couple months ago, would have been updated to be talking about at ASCO in the fall -- I mean in the spring but who knows, maybe, the deadline for abstracts there is in December, so we have some time here.

And I haven't mentioned is the our partners we have partners in the clinic, namely Millennium and Sanofi-Aventis of course, and who can say what -- where they will be reporting data. I actually don't know at this time.

Okay. And again, in sort of the prediction department, would you expect to have any additional license agreements in fiscal '06?

Well, actually, good question. I was, you know, as we were preparing for this conference call, we were thinking well, you know, what is our guidance going to be on license agreements. And then boom, Genentech takes another license. So that was sort of the one that we were expecting to occur sometime during fiscal year '06. And in fact, it did occur during fiscal year '06, unfortunately, prior to this conference call. So as to whether or not we have any more or not, you know, let's hold that yet in abeyance. But it may happen. It may not happen. But we've had one so far in '06, and we may yet have more.

Okay. Thanks very much.

Of course.

At this time, we have no further questions in queue. I will turn the conference back to Ms. Carol Hausner for any additional or closing comments.

Thank you very much. And again, encourage you to look at the release, reflect on the words you've heard today, and of course don't hesitate to call with any questions. Thank you. Take care.

That does conclude today's conference call. We appreciate your participation, and you may now disconnect your lines.