ImmunoGen Inc (IMGN) 2006 Q4 法說會逐字稿

We do thank you for standing by and welcome to this ImmunoGen fourth quarter fiscal year 2006 conference call. Today's call is being recorded. Now, at this time, I'd like to turn the conference over to the Executive Director of Investor Relations and Corporate Communications, Carol Hausner. Please go ahead.

Thank you. 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 fourth quarter and full 2006 fiscal year. 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'll make forward-looking statements. Our actual results may differ materially from our projections for a number of reasons. And we encourage you to review the description of the risks and uncertainties associated with an investment in ImmunoGen included in our SEC filings which can also be accessed through our website. With me today are Mitch Sayare, our Chairman and Chief Executive Officer; and Dan Junius our Executive Vice President of Finance and Chief Financial Officer. Mitch will provide an update on ImmunoGen and Dan will discuss our financial results and provide guidance for our 2007 fiscal year. We'll then open the call to questions. Mitch?

Thanks, Carol. In the past few months, we've continued to make good progress in the development of our wholly owned proprietary compounds. Our partners have advanced their products that use our technology, and we've established a collaboration with a new partner, Biotest AG. As I'll explain later this new collaboration has all of the attributes of our standard deals plus the additional right to opt in on the U.S. development and commercialization of any resulting products.

Starting with product accomplishments, we continue to test our huN901-DMI anti cancer agent in additional patients and expect to report new clinical data on the product at two medical conferences later this year. In the first, we plan to report interim data from our 002 study at the EORTC meeting in November. You may recall that this is a study that evaluates huN901-DM1 and the treatment of small cell lung cancer and other cd56 expressing solid tumors, when dosed daily for three days in a row every 21 days. We presented the first data from this study at EORTC last year, where we described one complete remission and several patients with stable disease. We've since evaluated a number of increasingly higher doses and still haven't encountered dose limiting toxicity, we continue to dose escalate in this study.

Second, we intend to report the early findings from the multisite study evaluating huN901-DM1 in the treatment of multiple myeloma, our 003 study at the American Society for Hematology meeting or ASH in December. These will be interim data since we're still dose escalating this study, but we intend to include as much data as we have at the time of the meeting. We're also pleased with the progress we have made in our 001 study in which all study patients suffer from relapsed, small cell lung cancer or other small cell carcinomas and receive 16 mgs per meter squared of the product weekly for four weeks every six weeks. We believe N901-DM1 has enormous potential for the treatment of both solid and liquid cd56 positive cancers and we continue to assess additional pathways to advance it to market as quickly as possible. We'll keep you posted on the next steps with this compound as our plans become finalized.

Our huC242-DM4 compound is in clinical testing for the treatment of colorectal pancreatic and other CanAg positive cancers and we expect to report initial findings with it this fall as well. We submitted an abstract to the EORTC on the findings in our phase one study to date and assuming the abstract is accepted, plan to update the data said with all of the findings available at the time of EORTC. Incidentally, we continue to dose escalate here since we haven't encountered dose limiting toxicity in the many cohorts we've treated to date. Our plans are to initiate a Phase II study with C242-DM4 in a disease specific patient population in the first half of 2007. Assuming this goes well, it will be followed by a pivotal Phase II study. We have not yet disclosed the particular indication or patient population that we'll be looking for in these studies, more on that later in the fiscal year.

Our partners also are making good progress, Sanofi-Aventis has two clinical trials under way with their TAP compound ABE96-33 for the treatment of acute myeloid leukemia and we expect some initial findings to be reported at the ASH meeting in December. Our partner, Genentech is conducting Phase I testing of their TAP compound Trastuzumab DM1. As you probably know, the Trastuzumab component of this product is marketed by Genentech as Herceptin. The study is being conducted in patients with metastatic breast cancer who have been previously treated with Herceptin and chemotherapy. And in recent months, both Biogen, IDEC, and Sensacor have disclosed the targets for their TAP compounds Crypto, and Integren respectively.

In July, we announced that another new partner, Biotest A has licensed the exclusive right to use our TAP technology with antibodies to a target found on multiple myeloma and other tumors. Like all of our single-target licenses, this agreement enables us potentially to receive significant milestone payments, manufacturing payments, and royalties on the sales of any resulting TAP product. But the agreement has an additional twist. We can choose to opt in on the U.S. development sales and marketing of any compound resulting from the collaboration during the clinical testing.

In addition to our own products, this provides us with another way to share in the gross margin of significant products made with our technology. The opt in points are during clinical testing and therefore permit us to delay our decision to opt in or not to opt in until after we've had the opportunity to evaluate activity of the compound in humans. Each deal we do is richer in its potential return to ImmunoGen reflecting our increased negotiating strength provided by our well vetted technology, our expertise, and our strong financial position. On that note, Dan will now discuss our financial results. Dan?

Thanks, Mitch. Let me review the results for the fourth quarter and the fiscal year ended June 30, 2006, starting with the fourth quarter. In the June-quarter we reported revenues of $8.4 million up from $7.4 million a year ago. This was composed of research and development support fees which primarily represent funding earned under our research collaboration with Sanofi-Aventis and revenue earned under our development and license agreements with other partners. In this area, we had -- $5.7 million of revenue in the June-quarter versus $4.7 million in the quarter a year earlier. Our license and milestone fees were in line with last year at $1.3 million versus $1.2 million a year ago. While our clinical material reimbursement revenue of $1.4 million was down from the $1.6 million last year. I'll note, however, that this level was the highest that we saw for any quarter in fiscal '06 and represented nearly half of the material reimbursement revenue that we reporting in fiscal '06.

Our operating expenses were $16 million in the quarter which compares with $10.7 million in the 2005 fiscal fourth quarter, which produced a loss from operations in the '06 fourth quarter of $7.5 million. A larger loss than we incurred last year at $3.3 million. Included operating expenses our research and development expenses of $12.4 million in the fourth quarter of '06 up substantially from the $6.9 million a year ago. This increase is primarily the result of an incremental $3.1 million of cost for materials needed for the Company's current clinical trials which also included costs related to producing materials for later stage trials. We also had in the cost for research and development expenses higher compensation cost due to an increase in personnel supporting the advancement of ImmunoGen's and collaborators's product candidates and the effects of adoption of SFAS 123R which requires the Company to record stock compensation expense based on the fair value of options granted to employees.

Our cost of clinical material reimbursed in the fourth quarter of '06 was $900,000 down from $1.4 million last year. That reflects the reduction of materials needed to support collaborator programs. Our G&A expenses in the fourth quarter of $2.6 million were roughly in line with the $2.4 million incurred a year ago. Other income of $900,000 was up from $0.5 million last year, this is primarily interest income and the increase is attributable to the higher rates of return we're seeing from rising interest rates. The net loss in the fourth quarter of '06 of $6.6 million is a larger net loss than the $2.7 million that we incurred last year. That equates to $0.16 per share in the quarter just ended, versus $0.07 per share in the quarter a year ago. Our Q4 expense includes $600,000 of stock compensation expense equal to $0.01 per share in the fiscal 2006 fourth quarter tied to the SFAS 123R adoption.

Turning now to the fiscal 2006 year as a whole, we recorded revenues of $32.1 million, down the $35.7 million incurred in fiscal 2005. The components saw increased R&D support of $21.8 million in '06 versus $18.4 million last year. Recall that this includes $1.1 million of R&D work performed in 2005 under our collaboration with the Sanofi- Aventis which was recognized in the first quarter of fiscal 2006. We saw a modest increase in license and milestone fees of $7.2 million versus $6.8 million in the 2005 fiscal year. We did see a decline in the clinical material reimbursement at 3.1 million versus $10.5 million last year. This was a combination of both lighter requirements -- light requirements I will say in fiscal 2006 against reasonably heavy collaborator needs in fiscal 2005.

Our expenses last year were $53.5 million versus $48.4 million in fiscal 2005. The biggest increase here was our R&D expense. R&D expenses in fiscal 2006 were $40.9 million versus $30.5 million in fiscal 2005. The increase was driven primarily by a $5.4 million increase in manufacturing and process development expense related to our clinical compounds. The driver here was the reduced materials needed by our collaborators which led to a lower overhead absorption for collaborator batches. We also saw increased antibody purchases and the initial cost associated with development expense related to materials for later stage trials.

We had some increase in clinical trial expense about $600,000, and within R&D, $1.4 million stock option expense from the new SFAS. Our costs of clinical materials expense was down substantially, $2.7 million last year compared to $9.2 million the prior year. This is in line with the lower revenue that we realized and again tied to reduced collaborator needs.

Our G&A expense increased to $9.9 million from $8.6 million, the driver here was an even $1 million increase in option expense from the new adoption. That led to a total net loss of $17.8 million or $0.43 a share in 2006 versus $11 million or $0.27 a share in 2005. Recall that 2006 expenses of $2.4 million for stock compensation were a new event in 2006, no comparable expense in 2005. This represented $0.06 a share over one-third of the increase in the loss per share versus 2005. Again, due the adoption of SFAS 123R.

Turning to our balance sheet is and cash flow. During the fiscal year ended June 30, we used cash in operations of $14.3 million. That compares to $2.1 million during the 2005 fiscal year. The cash used in our operations is primarily to fund the net loss and the greater use of funds in fiscal 2006 compared to 2005 is due to the greater net loss without the benefit of a reduction in working capital that benefited 2005. We ended the year with $75 million in cash and marketable securities compared to $90.6 million as of June 30, 2005 with no outstanding debt in either period.

Turning to our guidance for the current fiscal year, fiscal 2007, we anticipate a net loss for the year of between 26 and $29 million. This is obviously higher than 2006 and reflects the anticipated advancement of our clinical stage compounds, including the expansion of clinical programs and continued preparation for later stage manufacturing of materials to support those programs. Our cash used in operations coincidentally is the same range, $26 million to $29 million. In addition, we anticipate capital expenditures in the year of 2 million to $3 million. We have announced this is a meaningful increase in cash use from the last several years. It's due to the -- our continuing to follow a business plan designed to allow us to aggressively support our own products while limiting our cash use.

In fiscal 2006, while we used $14.3 million in cash, that was against total operating expenses of over $53 million. We do need to be spending at a reasonable level to drive the activities now to prepare for the advancement of our own compounds in the later stage clinical testing and beyond. Let me now turn it back over to Mitch.

Thanks, Dan. As you may know, Sanofi-Aventis has until tend of this month to exercise their right for a fifth-year extension of our research collaboration, which year would begin September 1, 2007. Our negotiations with Sanofi-Aventis are at an advanced stage and we'll announce the outcome later this month when it's decided.

So what to expect in the first half of our fiscal year beginning July 1? That is the next 6 months. We expect to report the first clinical data for huC242-DM4 and also the first for huN901-DM1 in the treatment of multiple myeloma. We plan to report additional clinical data for huN901 in the treatment of small cell lung cancer and other solid tumors as well. And we expect the first data to be reported for ave9633 an acute myeloid leukemia. All of this should happen this fall. We also expect another partner product to reach clinical testing during this time frame.

During the second half of the fiscal year, we expect considerably more data, clinical data, to be reported for the TAP compounds and the clinic along with pretty good news flow on our next steps with these compounds. I also expect another preclinical product to advance into clinical testing by next summer. Of course, as we go forward, you can look for additional deals with new partners and with our existing partners. And we're now at the stage where the Street is focused on our product achievements and those of our partners, so I'm not going to give guidance on the number of deals to look for, other than to say we expect to continue to do them. As the year continues, you can trust that we'll be doing everything we can to provide a meaningful return on your investment over time through the advancement and expansion of our rich product pipeline and the effective use of collaborations as part of our business model. Have a nice rest of the summer. Carol?

Great. Thanks, Mitch. We are ready to open the line for questions.

Very good. [OPERATOR INSTRUCTIONS] The first question is from Brian Rye with Janney Montgomery.

Good afternoon and thanks for taking my question. First, one housekeeping item. When you mention that the Phase II study for C242-DM4 is going to begin in the first half of '07 is that fiscal or calendar '07?

Fiscal '07.

Okay.

Calendar '07.

I beg your pardon.

Thank you.

And your question?

Secondly, I was wondering if you could talk a little more broadly about your thoughts regarding further expansion of your proprietary pipeline and specifically if you're focusing on the development of new product candidates preclinically right now internally or if you like to rely on the option provisions -- or the opt in provisions, of the bio test in any future such deals to do that?

Well, there's really two sources of products for our pipeline. One through our collaboration with Sanofi-Aventis, we have a fairly significant return on products that are developed in the collaboration, both if those products end up being commercialized by Sanofi-Aventis or if they end up being returned to ImmunoGen for our commercial development. What I'm referring to here are not the three products that we licensed to them initially, but rather products that we've collaborated on over the last three years of our agreement. That is, new targets around which we've been able to use our technology platform. There are several such products under development beyond the three that you're aware of that may in fact end up being ImmunoGen products in the future.

The second is Biotest as an example, we'd like to do more deals in which we can opt in at later stages whereby we do two things. Not only do we enjoy the benefit of a return on the investment, but we can exercise a considerable amount of control on the way that the product development is prosecuted. And I think that's an important part of the role that ImmunoGen plays going forward.

Very helpful. Thank you, Mitch.

Sure, Brian.

Our next question will come from Singh Shin with RBC.

Hello. This is Jason Kantor.

Oh, Jason, hi.

Hi. My question is on the expenses. I joined late so I apologize if you've covered this. But R&D was particularly high. What exactly was that attributed to? Is this sort of a new level representing your clinical efforts or were there one-time items in there that won't be recurring?

No, I think when we talked about the expectations for fiscal '06, Jason, we said that we would be throughout the year beginning to do development work into some new areas for later stage clinical materials. That, while I don't know that we gauged the timing, we knew it was going to be in the latter half of the year. So I think what you're seeing in the fourth quarter is the beginning of that process which continues in fiscal '07 and results in the guidance for a higher loss for next year. And we've got, we need to be working on later stage materials and later stage processes. You've got both antibodies that we need to look at for later stage material, as well as the toxic molecule and also a later stage conjugation process. So you're seeing that reflected in the fourth quarter.

When you say a later stage -- is it just that you're doing it at greater scale, or there's something inherently more expensive about doing it at a later stage?

Well, I mean, this is Mitch, Jason. As you move toward clinical trials, especially towards pivotal trials you need to develop a process that can manage that. And so just like for Genentech, we're developing a pivotal and commercial process for Herceptin DM1 or Trastuzumab DM1. We also need to do the same thing for our own products. And so that's an expensive process.

Thank you.

Sure.

[OPERATOR INSTRUCTIONS] We go to next to Dorey Steinberg, Private Investor.

Hey, Mitch and Daniel. I have a question, maybe this is more for Daniel. You had said that you had less partner clinical reimbursement in clinical '06 than '05. You explained it as more light demand this past fiscal year and reasonably heavy in '05, can you go into the reasons for that and what you expect going forward? Obviously you have more partner programs online than ever before. So I guess intuitively I would expect there would be more clinical material reimbursement.

Well, that's very much driven by the activity of our partner programs. And in 2005, we had significant materials that were being manufactured both for -- program as well as Millennium's with the cancellation of the [bearing ringelheim] program in fiscal 2005, there was no further need for those materials and Millennium had built ahead of their needs in fiscal '05. So that volume dropped off as well. So it is very much as you say partner driven and what stage they're at in their trials. The level of dosing that's taking place, how many trials they're conducting. So there are a number of factors that go into that. And while we had heavy needs in fiscal '05, we didn't have the same level of needs in fiscal '06. I think that the Q4 level that I referenced is indicative and I think I talked about that in the Q3 conference call that we would expect greater demand in the back half of the year. And I think that we saw that in Q4. And I think that we should see reasonable demand as we go into 2007.

And, thank you. And, Mitch, do you have any, at this point, anything you can tell us about is BI Millennium a more a square one or are they closer to getting a product back into the clinic?

Well, the circumstances around the two products represented by those companies is a little different. You'll recall that the cd44 variance 6 antibody that was conjugated to form the product that BI was developing, demonstrated fairly significant antibody mediated toxicity or at least antibody directed toxicity, the cd44 is expressed on proliferating epidermal cells, so that was an issue. And bearing ringelheim, I would, I'm fairly confident in saying that bearing ringelheim has decided not to go forward with the products around cd44 variant 6. However, they are still working with our technology with other potential products and as soon as they tell us that they're going forward, we'll tell you.

Millennium in their conference call back in January talking about mln2704 said that they were continuing to work with the antibody J591 against PSMA against other [Inaudible], as far as we know that mln2704 is not going forward, at least not as it was structured prior to this, as to whether anything else does or not, we don't know. What we do know is that we still have a license arrangement with Millennium that entitles them to use our mertansinoid technology with antibodies directed against PSMA. So until they give that back, if they give that back, then the product remains theirs.

Okay. And lastly, I don't know if it's something you want to comment on, but now that Amgen took over Abgenix, is there any way for you to know if there's any life in their interest in getting the license to bear some fruit?

It wouldn't shock me that they would, given that Amgen was a target with whom we were talking prior to their Abgenix -- their acquisition of Abgenix and we've come close to negotiating a license arrangement with them. So there was keen interest there. So when they acquired Abgenix, they acquired the right to take those licenses through their Abgenix -- through the Abgenix agreement with ImmunoGen. But I can't comment until other companies are prepared to allow us to disclose information about what their activities are with our technology, we can't comment on them.

That's great. Thanks for the information. I appreciate it.

Sure.

There are no further questions at this time. I'd like to turn the conference back to Carol Hausner for closing remarks.

Great. Thank you, everyone, for your interest. Again, if you have additional questions, don't hesitate to call us at 617-995-2500 and have a very good evening. Take care.