ImmunoGen Inc (IMGN) 2006 Q3 法說會逐字稿

Good day, and welcome, everyone, to the ImmunoGen first quarter fiscal year 2006 conference call.

Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn it over to Executive Director, Investor Relations and Corporate Communications, Carol Hausner.

Please go ahead.

Thanks, [Lisa].

Good afternoon, everyone, and thank you for joining us on our quarterly conference call.

We had two announcements this afternoon. A couple of hours ago, we announced that we had been engaged by Genentech to develop a commercial scale manufacturing process for trastuzumab-DM1, and at 4 this afternoon, we issued a press release that summarizes our financial results for third quarter of our 2006 fiscal year, the quarter that ended March 31. Both of these releases are available on our website at ImmunoGen.com.

During today's call, we'll make forward-looking statements. Our actual results may differ materially from the projections made. Descriptions of the risk 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 Mitch 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'll then open the call to questions.

Mitch?

Thanks, Carol.

This has been an eventful quarter for us and for our partners. Let me start with some recent partner developments.

As you know, Sanofi-Aventis is conducting phase-one clinical testing of the TAP product, AVE9633, in the U.S. We're pleased to pass on that patient enrollment is going very well, and that the compound is now in clinical testing in Europe as well. As a reminder, AVE9633 is in development for the treatment of acute myeloid leukemia and was initially developed by ImmunoGen. It was one of the three preclinical compounds that we licensed to Sanofi-Aventis as part of our broader collaboration with them.

At the AACR annual meeting last month, additional preclinical findings with AVE9633 were reported. They showed that the product is effective at killing AML cells isolated from patients at doses that allow normal progenitor cells to survive. Sanofi-Aventis also reported preclinical findings at AACR on the anti-IGF-I Receptor naked antibody and the anti-CD19 TAP compound, the two other compounds they licensed from us as part of our initial deal. Both are progressing nicely toward the clinic.

The anti-IGF1 Receptor antibody, which they call ADE1642, has potential applications for the treatment of both solid and liquid tumors. While the anti-CO19 TAP compound, called SAR3419, is in development for the treatment of certain B-cell malignancies, including non-Hodgkins lymphoma.

Another of our partners, Genentech, has informed us that trastuzumab-DM1has advanced into clinical testing. The first patients have, in fact, been dosed with this compound. This TAP consists of Genentech's Herceptin and our DM1. The study is being conducted in patients with metastatic breast cancer that previously received Herceptin and chemotherapy. This afternoon, we announced that Genentech entered into an agreement with us to develop a commercial-scale manufacturing process for trastuzumab-DM1, nicely paying tribute, I should add, to the depth of our expertise in the development and scale-up of manufacturing processes for TAP compounds.

To some, it may seem a little early for Genentech to be preparing for the commercial production of this compound. After all, it just entered phase-one, but it makes a lot of sense given the time lines.

Just to be clear, this new agreement is for us to develop a manufacturing process for commercial material, not to make the material itself. Indeed all of our partnership agreements commit us to manufacturing materials only for non-pivotal studies, and we're financially compensated for this. The collaborator always is responsible for the production of the materials for pivotal-testing and commercialization themselves.

As part of these discussions with Genentech, we renegotiated some of the terms of the May, 2000 agreement that gave Genentech rights to our our TAP technology with antibodies to HER2. As a result, the amended agreement has substantially greater financial potential for ImmunoGen.

The agreement included some $37.5 million in milestone payments to ImmunoGen, plus a $2 million up-front payment. With this renegotiation, the milestone payments now total 44 million. We also can earn increased royalties from many HER2-targeting TAP compound developed by Genentech under the agreement.

As always, the level of these royalties are not disclosed. I must say that I'm very pleased with how things are moving along with the Genentech programs.

Returning to some of our other collaborations. In June, BioGen Idec is scheduled to present preclinical data on a TAP compound they're developing at a conference on recombinant antibodies in Zurich. They disclosed their target is Crypto, a protein found in the surface of many solid tumor cells.

And in March, Millennium extended the agreement that provides them with the right to test our TAP technology with antibodies to a specific number of targets. Now turning to our own products, we're making substantial progress in the clinical trial underway with our huC242-DM4 compound at the EORTC in San Antonio. A number of dose levels have been assessed without hitting dose-limiting toxicity. So, greater and greater dosages are being evaluated. We anticipate reporting interim data from this study at the EORTC meeting this fall.

Additionally, we're making excellent progress with the three clinical trials underway with our huN901-DM1. Patients are being enrolled into our multiple myeloma study, as we continue to dose escalate. Numerous centers around the country are enrolling patients in the phase-two study in small-cell lung cancer that evaluates a weekly dosing schedule of 16-mgs per meter-squared, and dose escalation is still underway in the daily dosing study we reported at EORTC last November.

You'll remember that, at that time, the highest dose level that had completed evaluation was 36-mgs per meter-squared per day, or 108-mgs per meter-squared over the three days, given every 21 days, and a complete response was seen along with reports of stable disease.

Since that time, several more dose escalations have been completed. We potentially could have data from the study at EORTC as well, and we'll keep you posted on our progress.

So, there is a lot of studies underway, or in the works, with TAP compounds. You might be wondering why there is so much going on now. While it certainly arises, in part, from our aggressive product development programs, as well as those of our partners. It is also due, in part, to enhancements to our technology platform that we made a couple of years ago.

At that time, we expanded our portfolio of payload agents to include additional molecules, one of which, as you know, is DM4, which has proven to have considerable promise. We also expanded the variety of linkers, the agents we use to attach our payload molecules to antibodies, so we can create bonds with different degrees of stability, including non-cleavable bonds. These innovations enable customization of TAP compounds to achieve the greatest therapeutic window, the most efficacy with the least toxicity for each antibody and its targets.

Findings we recently reported at the AACR help illustrate why having multiple design options is important. We reported data on three different designs, all using our huC242 antibody -- one design used DM1 as the cell-killing agent, with the DM1 attached using a disulfide bond; another used DM4 as the cell-killing agent, again, attached using a disulfide bond; and the third used DM1 attached through a stable bond.

So, in preclinical testing, the design using DM4 attached to the disulfide bond was found to be significantly more active against CanAg-expressing tumors than the design using a disulfide bond with DM1 attached, and also, is much more active in the design using our own non-cleavable, dioethyr bond.

There was one further advantage of the disulfide linker over the dioethyr linker for this product. Some colorectal tumors present with a heterogeneous expression of target on cell surfaces. In other words, some cancer cells express the target robustly, while neighboring ones, do not. The disulfide link payloads were much better at by-standard killing, than was dioethyr-linked product. So, the DM4 disulfide design was the one we that advanced into the clinic.

Dan will now discuss our financial results.

Thanks, Mitch, and good afternoon, everyone.

Let me go through the third quarter ending March 31, 2006.

Starting with the income statement, our revenue declined to $9.4 million in the third quarter from $10.2 million in the same period a year ago. Our research-and-development support fees were $5.3 million, up from $4.8 million last year. Recall that this is primarily funding earned under our research collaboration with Sanofi-Aventis. It also includes revenue earned under our development and license agreements with our other partners.

Our license and milestone fees were $3.3 million in the quarter, up from $3 million a year ago. We had significant milestones of $2 million in both periods last year from Sanofi-Aventis and this year, from Genentech associated with milestones achieved with both of the companies respectively.

Our clinical material reimbursement continues to trend. We've seen, for most of the year, about $800,000 in the third quarter of '06. That's down from $2.4 million in the same quarter of last year. This reflects the reduction of materials needed to support our collaborator programs. Last year that, of that $2.4 million, over 70% of that was from Boehringer Ingelheim and Millenium to support the trials that they had in progress. There was nothing from either of those two partners in the current period.

We do expect to see increased volume and associated revenue in Q4 based on our current expectation of our partners needs going forward.

Our operating expenses were $13.2 million in the third quarter versus $14.2 million in last years third quarter. This led to loss from operation of $3.8 million this year, down from the $4 million loss from operations last year.

Recall that third quarter of this year includes about $600,000 of stock-compensation expense, equal to approximately $0.01 per share, from the Company's adoption of SFAS 123(R), share-based payments, on July of the beginning of this year. This is the new accounting statement that requires the Company to record stock-compensation expense based on the fair value of options granted to employees.

Within our operating expenses, our research-and-development expenses rose to $10.2 million from $9.7 million last year. The increase is due primarily to an incremental $1.1 million in manufacturing and process development-related cost from materials that we need for the Company's clinical trials.

We also had $300,000 of higher clinical trial expense in the quarter, as well as higher compensation expense due to increase in personnel and the effects of the adoption of SFAS 123(R). Partially offsetting these increases were lower expenses to reserve for excess quantities of ansamitocin P3 and DM1, DM4, that we incurred last year. In the third quarter last year, we had a $1.3 million cost associated with the increase in reserves versus no such expense in the current period.

Our costs include clinical material reimbursed, was about $800,000 in the third quarter. That's down from $2.3 million, in-line with the reductions I referenced earlier in revenue for this category.

Our general and administrative expenses were comparable in both periods at about $2.2 million, while other income at $850,000 in the quarter just ended, was up from about $450,000 last year. This is primarily a function of the rising interest rates that we're enjoying on our cash balances.

This produced a net loss of $3 million in the third quarter of fiscal '06, equal to $0.07 a share, versus a $3.6 million loss, or $0.09 a share, in the comparable period last year.

Turning to our balance sheet and cash flow statements, during the first nine months of fiscal 2006, we used $7.1 million of cash in our operations, compared to $1.5 million during the same period last year.

Cash from operations, or cash used in operations, is primarily to fund the net loss, and the greater use of funds in the first nine months of fiscal 2006 was principally due to the increased net loss compared to the same period last year, without benefit of the reduction in working capital that occurred during the same period last year. This left us with just under $83 million in cash and marketable securities as of the end of March 31, 2006, and that compares with $90.6 million as of June 30, 2005, the end of last fiscal year.

We had no debt outstanding in either period.

Finally, in terms of guidance going forward for the remainder of fiscal 2006, based on what we've seen for the first nine months of this year and our expectations for the remainder of the year, we're going to make some adjustments to our financial guidance.

Our net loss, which we've was indicated we've guided to 17 to $19 million, will remain in change. That is still is what we foresee for the year.

Cash used in operations, however, we expect to be in the range of 14 to $16 million, which is down from our previous guidance of 16 to $19 million for the full year, and capital expenditures, which we had previously guided to $4 million for the year, we now look to be in the neighborhood of 2 to $2.5 million for the year.

That concludes the financial comments.

Let me turn it back over to Mitch.

Thanks, Dan.

So there are now seven clinical studies underway with four different TAP compounds. Our three studies with phase-one with HuN901-DM1, our phase-one study with huC242-DM4, the two studies that Sanofi-Aventis is running with the AVE9633, and, of course, the study Genentech just started with trastuzumab-DM1. Other TAP compounds are coming along behind these. These various TAP compounds target different antigens, are in development to treat different types of cancers, and incorporate different design options, and they are being developed by diverse companies, not only us, Sanofi-Aventis, Genentech, BioGen Idec, Centocor, and so on.

We expect that, beginning this fall, though, there'll start to be a lot of clinical data coming out on TAP compounds, and that this body of clinical data should increase substantially within the next 12 to 18 months. We're optimistic that this data will support the potential of our TAP compounds and further expand the interest level in our technology.

Of course, the goal isn't just to get data supportive of our technology. The goal is for products using our technology to demonstrate clear clinical benefit in the treatment of cancer, and gain marketing approval as quickly as possible.

Our Genentech announcement earlier today shows we have collaborators already preparing for their compounds to advance, and we're preparing for our own to advance as well. We're conducting our own process development planning for the next stage of clinical development of our products and putting commercial manufacturing capacity in place. So, a lot is going on here, and we look forward to updating you on our progress.

Carol?

Thank you.

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

[OPERATOR INSTRUCTIONS]

We'll go first to Mark Monane with Needham.

Hi, Mark.

Hi, guys.

Mr. Monane, we're unable to hear you. Please pick up your handset, or press your mute button.

Still can't hear him?

No, we're still unable to hear him.

We will go on to Jason Kantor with RBC.

Alright.

Can you hear me?

Yes, sir, we can.

Not clear, Jason.

Okay. Great.

I wanted to -- I have some questions about the new Genentech arrangement -- the extra milestones -- can you give us sense of whether these are front-end loaded around the -- developing the process, or whether these get added to the back-end? What kind of reimbursement type of R&D revenue funding should we expect? Where are you going to report that, and what kind of magnitude should we expect for that?

And with the new royalty arrangement -- I know you're not going to tell us what the royalty is, but -- is this just a straight increase in the amount of royalty, or did you somehow add some tiering or other kind of structures into it, or is it just simply whatever the royalty was, is now, that plus some more?

Let's start from the -- I think your first question related to milestones.

The milestone payments have increased, as you know. We haven't indicated whether they're front-end, back-end, or anything else, but one thing you said in that was would they be related to process development, and the process development agreement is actually separate from the license in which these milestones are paid.

So the license -- none of the milestones in the license are associated with process or process development, but they are related to various factors and are straight-through the development actually, not back-end weighted or -- well, they're spread through the agreement. It's not back-end weighted. So, I can say that fairly.

Royalties, we don't really feel comfortable talking about it at all, except to say that they've increased, and, of course, royalties, we always have to say they're potential in that they actually have to have sales for us to realize any of the gain from those royalties.

So, that's about all that I feel comfortable saying, Jason. Maybe you can get more out of Genentech, but that is pretty much it.

What about the R&D funding?

R&D funding really comes about as part of our process development arrangement, and, yes, we do get paid as part of developing this process. This is not done gratis. We get a nice piece of change from this and -- independent of these milestone payments and everything else.

So, that was separate and, actually, not described in the press release, but, yes, there are payments associated with that as well.

Thank you.

Sure.

Any time.

We'll go next to Brian Rye with Janney Montgomery.

I believe he's placed us on hold.

We'll go back to Mark Monane with Needham.

Mark?

Mark?

Mark, we're having some--.

Once again, pick up your handset or press your mute button, Mark.

Hi. It's Mark Monane.

Hi, Mark.

Congratulations on your progress and all the presentations.

Thank you.

Can you talk about -- a little bit more detail on the DM4 program? There is a number of programs being developed by pharmaceutical companies. What is the advantage of the DM -- the 242 with DM4 attached strategy? How does that compare to other programs?

We've found that with huC242, with that particular antibody, we did do head-to-head comparisons of the DM1 and DM4 by various methods, and also, using dioethyr, that is an uncleavable bond, in contrast to the reducible disulfides. And what we found was -- the monkey studies revealed basically no difference in toxicity between the conjugates using DM1 and those using DM4, but with mouse xenograph studies, that is implanting human colon tumors in the flanks of these SCID mice, we found that the DM4 conjugate was substantially more active. This led us to the view that it made sense to put that one into the clinic. We found that the dioethyr link product was not as active, albeit, it had -- it potentially had a longer half-life because of a more stable link. So, all those things were used in defining which would be better.

I should say one more thing. As I said in my talk, and it was probably a little confusing because there was a pregnant pause in the middle of it, but we did look at cells -- tumors from humans in which the cells expressed the target heterogeneously. That is, you have a cell with robust expression adjacent to another tumor cell that has none, or very low expression, and what we found was the disulfide link agents killed the by-standing cells, the cells that didn't express the antigen, much more effectively than the dioethyr link to uncleavable -- non-cleavable bond. That led us to the view that when you look at the colorectal cancer population, about -- somewhere between 50% and 70% of patients present with homogeneously expressed target, but another 30 to 50% don't. It is heterogeneous expression. So, all in all, it made sense with this particular target and this particular antibody to use the disulfide link DM4. I should point out to you that the trastuzumab conjugate that is in the clinic, that Genentech brought to the clinic, was trastuzumab-DM1, and they studied and published how trastuzumab behaves with DM1 and DM4 associated with it and dioethyr linkers and so forth, and they made the decision, based on their wisdom, to do -- to use DM1. So, I think it depends upon the antibody, the target, the natural history of the disease, and lots of things, to determine which is best -- DM1 or DM4, and what kind of linker is most suited.

Mitch, thank you for the information.

Congrats on your progress.

Sure.

Any time, Mark.

And we'll go next to Brian Rye with Janney Montgomery.

Good afternoon, Mitch.

Thanks for taking my question.

No problem, Brian.

Just a couple of things -- one quick housekeeping item -- I recall that you all had an agreement in place with Abgenix, and wanted to know that, subsequent to their acquisition by Amgen, if responsibility of the rights have transferred over to Amgen?

It's funny, we were in discussions with Amgen about actually taking a license when they acquired Abgenix, which put those -- those talks -- stopped those talks because they acquired their license when they acquired Abgenix.

So, we have a relationship with Amgen at this time.

Got it.

Although they probably paid a little bit more than they would have if they just had to go with go.

Well, that's true. We could have given them a deal, Brian.

Yes. That's great.

And secondly, just broadly speaking, as you look at the continued enhancements with the TAP program, both DM1 and DM4, can you give us a sense if any -- if there any thoughts regarding the types of additional enhancements, either with a linker or the [inaudible] compounds themselves, that either either you or your partners either think are feasible or would just like to see?

We like to not speak about things, which are not quite ready for prime time, and I would categorize the research that we're doing on other linkers and other payload molecules as not ready for prime time.

Suffice to say though, Brian, we do -- we publish a lot in reputable peer-review journals, and I think, from that, you can see that we have a fair amount of breadth in going after alcolating agents and other agents, other than the [tubulin] inhibitors that we've been focusing on to-date.

You know that we've been working with tax-ins and DNA alcolating and [turkilating] agents, so -- but none of them is ready, yet, for a discussion at this level, but there's plenty of peer-reviewed work out there that would indicate what we do in our spare time.

Appreciate it. It's very helpful.

Thank you, Mitch.

No problem.

And at this time, we have no more questions in the queue.

I would like to turn the conference back to Carol Hausner for concluding remarks.

Lovely.

And again, thank you for your attention, and

if you have additional questions that come to mind after the call ends, please don't hesitate to call us. I'm at 617-995-2500.

Take care.