ImmunoGen Inc (IMGN) 2006 Q2 法說會逐字稿

Thank you for standing by, and welcome everyone to the ImmunoGen Second Quarter Fiscal Year 2006 Conference Call. Today's conference call is being recorded. Now, at this time for opening remarks and introductions, I'd like to turn the conference over to the Executive Director, Investor Relations, and Corporate Communications, Carol Hausner. Ms. Hausner, please go ahead.

Good afternoon, everyone, and thank you for joining us on our quarterly conference call. At 4:00 this afternoon, we issued a press release that summarizes our financial results for our second quarter ended December 31, 2005. I hope you've all had a chance to review it. If not, it's 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 also be accessed through our website.

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

Thanks, Carol. This has been an eventful quarter for us and for our partners. Let me start with recent partner developments. On Tuesday, we announced that we had earned a $2 million milestone payment from Genentech, and that this payment was earned when Genentech's investigational new drug application for trastuzumab-DM1 became effective; that is, when the trastuzumab-DM1 IND Genentech submitted in late 2005 successfully completed FDA review. As you know, trastuzumab is already on the market as Herceptin. So trastuzumab-DM1 marks the first use of our TAP technology with an antibody that's been extensively tested in humans and gained commercial success as a naked antibody.

As some of you may recall, several years ago Genentech disclosed they were developing a trastuzumab-DM1 TAP compound. They got close to filing an IND in 2002, before they elected to conduct additional research. During the intervening years we've been working closely with Genentech providing them with alternative versions of DM1, such as DM4, and with our alternative linkers. We're delighted that they're not comfortable taking forward trastuzumab-DM1.

Before I move off Genentech, I should note that they took a fourth license to use our TAP technology in December. So in 2005, Genentech took three licenses to use our TAP technology, all for undisclosed targets, and renewed the agreement that gives them the right to test our technology with antibodies to additional targets. The three licenses for undisclosed targets work similarly to the license for HER2; that is, the license gives Genentech the exclusive right to use our maytansinoid TAP technology, our DM1, DM4 and linkers, with their antibodies to the target, to develop products. Each license includes milestone payments totaling about $40 million, as well as an upfront payment, manufacturing payments, and royalties on sales.

The other highly visible partner development we just had was Millennium's announcement last Thursday morning that they've discontinued development of MLN2704. Clearly, we disappointed that their findings appear not to support continued development of this compound. As Millennium noted in their press release, they're evaluating other maytansinoids for use with their PSMA targeting antibody, which means, of course, that they're evaluating other of our agents, such as DM4.

A question that came up a lot right after Millennium's announcement is whether there's a fundamental problem with DM1, and whether all TAP compounds in the future will be made with DM4. Of course, this question was coming up before we announced on Tuesday that Genentech now has an active IND for trastuzumab-DM1, since Genentech is known for the quality of their research and would have fully assessed DM4, as well as DM1.

Genentech's decision to advance trastuzumab with DM1 underscores what we've been saying about the significance of our portfolio of cell-killing agents and linkers. They enable us and our partners to achieve the best design for each TAP compound. A design that works best is determined by many factors including the nature of the antibody and its target, the expression pattern of the target, the type of cancer, including its sensitivity to maytansinoid agents. For example, with MLN2704, efficacy was achieved at very high dose levels. In the Phase I, II study reported at ASCO in 2005, the two patients that had the best response of sustained reduction in their PSA levels of greater than 50%, both received 330 mg/m2 of MLN2704 every two weeks. That equates to 660 mg/m2 over four weeks. In contrast, objective anticancer activity that is measurable PRs were seen with our own huN901-DM1 when dosed at 60 mg/m2 on a weekly basis, or 240 mg/m2 over four weeks.

This shows that TAP compounds with DM1 can have very different levels of activity depending on the antibody, the antigen, and the type of cancer. Because Millennium was giving very high doses of MLN2704 to achieve efficacy, it makes sense for them to evaluate DM4, since with some antibodies and targets, efficacy can be achieved at lower doses using DM4 than DM1.

Before moving to our wholly-owned compounds, I should note that Sanofi-Aventis is making solid progress with their AVE9633 clinical program. Additionally, we expect them to report promising preclinical data this spring for some of the other compounds we're working on together.

Turning now to our clinical stage compounds, as you know, we're evaluating our huN901-DM1 TAP compound in three different clinical trials, one in small-cell lung cancer, one in CD56 expressing solid tumors, including small cell lung cancer, and one in multiple myeloma. Starting with the small cell lung cancer study, when we reported the initial findings from the Phase II leg of the study in ASCO last May, we noted that the objective evidence of anticancer activity that had been reported, namely, partial responses, triggered expansion of the study to include more patients, a total of 35 patients in the Phase II leg, to be exact. Since last May, we significantly increased the number of clinical centers participating in the study to enable us to complete patient enrollment as quickly as possible.

In November, we reported interim data at the EORTC meeting from the Phase I study assessing huN901-DM1 when given daily for three days in a 21-day cycle to patients with CD56 expressing solid tumors, like small cell lung cancer. This is a dose escalation study and dosing started at 4 mg/m2, or 12 mg/m2 over the three days. At the time of EORTC, the dosage had been escalated to 48 mg/m2 per day, or 144 mg/m2 over three days without finding dose limiting toxicity. Patients are now receiving much higher doses.

Objective evidence of anticancer activity was seen with huN901-DM1 in this study as well. One patient treated with 36 mg/m2 per day for three days had a complete remission that had lasted 15 weeks at the time of the EORTC. Another five patients had sustained stable disease at that time. In December, we took over control of this study from our former partner, Vernalis. We felt this was important to do to protect our huN901-DM1 franchise, and to drive completion of patient enrollment as quickly as possible. The study is now being conducted at clinical centers in both the U.S. and the UK. As dose escalation is still underway, it's difficult to predict when the trial will complete, but it should be a candidate for presentation at the EORTC meeting this fall.

As you know, last September, we started a Phase I study to also assess huN901-DM1 in the treatment of multiple myeloma. This, too, is a dose escalation study, but we were able to start at a relatively high dosage level, 40 mg/m2, due to our experience base with the compound. Over the past few months we've expanded the number of centers participating in the study as well, from one to three, and will continue to add additional centers if needed to further expedite the rate of patient enrollment.

Patient enrollment is going extremely well in the Phase I study with our huC242-DM4 compound. This study is being conducted at the CTRC in San Antonio, and they've already progressed through a number of dose escalations. The maximum tolerated dose hasn't yet been established, so they are still in the dose escalation portion of this study.

Dan will now discuss our financial results. Dan?

Thanks, Mitch. For the second quarter ending December 31, we recorded revenues of $6.6 million, which compares with $9 million in the second quarter last year. This includes research and development support fees of $5.2 million, compared to $4.4 million in the year ago period. Our research and development support fees represent primarily funding earned under our research collaboration with sanofi-aventis, and also revenue earned under our development and license agreement with other partners.

License and milestone fees in the just ended quarter were $1.3 million, up from $1 million in the second quarter of fiscal 2005, principally attributable to the three Genentech licenses which were taken calendar 2005, which Mitch earlier referenced. Our clinical material reimbursement was $81,000 in the December quarter for 2006, down from $3.6 million in the same quarter last year. This difference reflects the fact that we did not supply batches to our collaborators at the same level of last year, as they needed less material to supply to their various studies.

For the quarter ended in December, our operating expenses were $11.2 million, down from $11.7 million in the year ago period. Our Q2 2006 expenses included $600,000 of stock compensation expense equal to approximate $0.02 per share from the Company's adoption of SAFS 123R share-based payments on July 1, 2005. This SFAS required the Company to record stock compensation expense based on the fair value of options granted to employees.

Our research and development expenses were $8.8 million in the quarter, up from $6.4 million in the second quarter last year, primarily because of higher compensation costs due to an increase in personnel supporting the advancement of ImmunoGen's and collaborators' product candidates, as well as the effect of the adoption of SFAS 123R. We also incurred an incremental $700,000 related to materials for use in our own clinical trials. The cost of clinical material reimbursed was about $100,000 in the quarter. This is down from about $3 million in the quarter last year, due to the lower volume referenced earlier.

Our G&A expenses were in line with last year at about $2.3 million, while Other Income was up at $1.1 million versus $400,000 last year, principally due to higher interest income due to higher rates of return on balances compared to the same period last year. We also recorded in the fiscal 2006 quarter, $365,000 as payment for assuming the obligations of Vernalis associated with the clinical trial they have been conducting on our behalf. This led to a net loss of $3.5 million in the quarter, or $0.09 per share, compared to $2.2 million, or $0.05 per share in the comparable period last year.

In terms of cash flow during the first half of our current fiscal year, cash used in operations was $4.6 million. This compares to $43,000 during the same period last year. Our cash used in operations are primarily to fund our net loss, and the greater use of funds in the fiscal first half, rather, of this fiscal year was principally due to the greater net loss compared to the same period last year without the benefit of the reduction in working capital that occurred during the same period last year.

At the end of the December quarter, we had approximately $85 million in cash and marketable securities, compared with $90.6 million as of our fiscal year-end June 30, 2005. There was no debt outstanding in either period.

In terms of our guidance for the year, we'll reaffirm the guidance that we'd given previously, which was a net loss between $17 and $19 million for the year, cash used in operations between $16 and $19 million for the full fiscal 2006, and capital expenditures of approximately $4 million. Mitch?

Thanks, Dan. I know this past week has been a real roller-coaster for our shareholders. We appreciate your continued support for the Company. Those recent events underscored that our business model, development of our own products, and out-licensing our TAP technology to other companies greatly improves our overall likelihood of significant success by increasing the number of compounds in development with our technology.

We certainly don't have the control over partner programs that we have over our own programs, but our partnerships significantly expand the opportunities we have for success. This is important, because this is well known: Only a fraction of the promising drugs that start clinical testing actually make it to the market, and there are now a lot of promising drugs in development with our technology. We have trials underway with our wholly-owned huN901-DM1 compound to both solid and liquid malignancies, our wholly-owned huC242-DM4 also in clinical testing. This is an improved version of an earlier compound that was well tolerated and showed solid evidence of biological activity.

Another TAP compound, AVE9633, is being tested in the clinic through our partner's efforts at sanofi-aventis. This compound targets the same antigen as the approved drug, Mylotarg. Another TAP compound, trastuzumab-DM1, now has an active IND through our partner Genentech. This compound contains the trastuzumab antibody that has already gained FDA approval and extensive usage as Herceptin.

There are a number of compounds in development behind these, although, of course, not all of them will make it to the clinic. Sanofi-aventis is making progress with other products in our collaboration. Genentech has licenses that use our TAP technology with antibodies to three other targets. Biogen Idec and Centocor are making progress with their programs. Even Millennium and Boehringer Ingelheim, which each had to discontinue their initial TAP product, both retained their rights to use our technology to develop a successor product.

We aren't dependent on any one product or any one partner for success, and, importantly, our portfolio of products and partners is strong and getting stronger. Carol?

Thanks, Mitch. Operator, we are now ready to open the lines for questions.

Very good. (OPERATOR INSTRUCTIONS) Our first question will come from Brian Rye with Janney Montgomery Scott.

Thanks for taking my question. I just wanted to follow-up on Millennium's press release from last week in that they mentioned that they had seen some neurotoxicities, and my understanding, though, is that when Takeda was testing maytansine as a free agent, some, I guess 30, 40 years ago, that the dose limiting toxicity was something other than neurotoxicities, and I was wondering if you've had a chance to either talk with Millennium or review the data, and maybe gain a better understanding of where that was coming from?

Okay, Mitch will be taking this question.

Thanks, Carol. Thanks, Brian. So, no, we have not had the opportunity to see data or even discuss the data with Millennium since their announcement. We do -- we are, however, in a position to confirm what you said about what Takeda found, and that is that effectively, the free drug, they saw no neurotoxicity to speak of, at least it wasn't the dose-limiting toxicity, generally dose-limiting toxicity was limited to other things, like gastrointestinal effects. So we don't know if, as Millennium said in their press release, that the neurotoxicity they were seeing was a result of free drug or not. It seems to us unlikely because of the Takeda results, and also because of our own results with products that we've had in the market, in the clinic, and dosing patients using DM1.

Okay, thank you. And then just one follow-up housekeeping question for Dan. In terms of looking at reimbursable costs of clinical materials going forward, I guess for modeling purposes, would you expect it to sort of level out at maybe an average of the last few quarters, or should we be thinking of it ramping back up to the $3 million range per quarter, or how should we think of that?

Well, I don't want to give specific projections on it, Brian, but I will say I think that in the same way that this quarter was unusually low, I think that the period last year, when we were producing significant volumes for the studies for Millennium and Boehringer Ingelheim maybe was unusually high. I don't know that we'll return to that level, but it gives you a pretty wide range, but the number is going to be someplace, I think, in between the two.

Fair enough. And, again, congratulations on the Genentech announcement.

Great. Thanks very much.

Our next question will come from Jason Cantor with RBC Capital Markets.

Hi, guys. Thanks for taking my call. I know you can't comment specifically on what technologies make up the various partnered programs, but is it possible that you could give us kind of a menu of what the various toxins and linkers that you offer to your partners are? What do you have at hand?

Sure. Mitch, do you want to take this one?

Sure. Hi, Jason. We, as you know, we don't talk about what any particular partner is using, except what the partner themselves say. So in the case of Genentech, for example, they've disclosed that the trastuzumab conjugate uses DM1, and we are in a position to say that the linker is different than what was originally tested with trastuzumab-DM1. We offer to our partners a host of maytansinoids. DM1 and DM4 are the principal ones, and a good number of linkers ranging from those that are relatively highly cleavable to those that are uncleavable. And so determining what the right permutation -- or the combination is based on the permutations available is what we and our partners work on when we collaborate.

In the past, your linkers have primarily been the hindered disulfides. Could you go into a little bit more detail and let us know what kind of chemistries you're using on some of these alternate linkers?

Well, they range from disulfides, as you say, to hindered linkers, to thioethers, which are not cleavable at all, and sort of things in between that provide the ability to titrate the amount of release there is inside cells. So beyond that, I really can't say much more, largely because I'm not in a position to do that, not because I want to withhold it.

Okay. And what is the next data point that we are likely to see from your proprietary clinical program, the next clinical data?

We are unlike -- I mean, we in fact are not disclosing data at ASCO of the four different clinical trials that we have underway. If you look at the myeloma study, it basically just began and we're just escalating there. The C242-DM4 study is still dose escalating, that is MTD has not been reached, so there is really no information. The study dosing patients once a day for three days with using huN901-DM1 was just reported on the November EORTC, and there is not enough additional data generated to justify submission to ASCO for this spring. So we're aiming for EORTC for that one. And same with 001. We're just not -- the 001 study we hope to have substantially complete sometime during the calendar year, and hopefully we'll be able to present some data at the EORTC. So for those two products from four clinical studies, that's what we're aiming for. Insofar as our partners' products, AVE9633, which is sanofi-aventis's, is at a stage now where I don't think it would be reasonable for them to be reporting at ASCO.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) We'll next go to Mark Monane with Needham and Company.

Thank you. Good afternoon, everybody. Clearly, clinical development is not a straight line and there is going to be success and challenges going forward. Can you help us understand how you think about therapeutic pipeline that you're developing in terms of the linker strategies? Should we think of the -- what's the pipeline risk going forward for the remaining products in clinic, and how should we think about the potential successes in each of these trials in light of the volume -- voluminous news received this week?

Mitchel Sayare will be taking this.

Well, good question, Mark. Nice to talk to you. We're not really in a position to handicap the likely success of any clinical trial. The Phase I studies are clearly -- are clearly just that, Phase I studies, trying to determine whether or not the product is tolerable, and if we see some efficacy, great. That's what most of our studies are. The Phase II portion of the small cell lung cancer study dosing patients once a week, which we refer to as 001, that we reported on at ASCO last year, is still at relatively early stages, and in small cell lung cancer, it showed some clear biological activity. So, really, the question there is whether or not small cell lung cancer is the appropriate target for a regulatory pathway strategy, or is perhaps myeloma an alternative strategy, or other strategies, and those are the sorts of things that we're pretty much focused on right now in determining. I think as these data mature over the next 9 to 12 months, we'll have a much better idea of how to take these products forward. I think that applies both to the huN901-DM1 product and the C242-DM4.

On the sanofi-aventis product, the 9633, I mean, it is a follow-on to a product that was successfully approved by FDA using the very same target, CD33. That product, Mylotarg, has lots of problems largely due to an unstable link that holds the payload on, and we clearly have overcome that instability with our product. Our payload is just as potent, and our hope is that that product will show itself to be much more effective and that Mylotar can offer sanofi-aventis a clear regulatory pathway to approval.

You know, trastuzumab, I want to stress that that conjugate will really be the first wherein the conjugate makes use of an antibody that shows enormous biological activity in and of itself, and in fact is an approved product. So I'm quite optimistic about that one, too. So, I don't want to be Pollyanna about this, but I think there's a lot of opportunity for success here with this line of products.

Those were good insights, thank you. One more question. Maybe you can give us some insights on Genentech here. I know they had a choice between -- correct me if I'm wrong -- between DM1 and the DM4, and they chose the DM1. Could you go over what you've learned about DM1 versus DM4, in combination with antibody, and maybe give us any insight you could share on this particular choice?

Well, I can't with trastuzumab, because that information is proprietary to Genentech and, really, that question needs to be focused or given to them. In general, what we find is that there are variations in the responses of antibodies to DM1 and DM4, antibody receptor systems, and importantly, the sensitivity of the target cells to DM1 and DM4. Neither one necessarily wins our priority. It has to be tested and empirically determined which is best.

Thank you very much for the added information.

With that, there are no further questions in the queue. I'd like to turn the conference back to Carol Hausner for a closing remark.

Thank you. Again, we want to thank you again for your interest in ImmunoGen. Please don't hesitate to call with any additional questions that might come to you after this call. Have a good evening.