ImmunoGen Inc (IMGN) 2012 Q4 法說會逐字稿

Good day, and welcome, everyone, to this ImmunoGen fourth-quarter fiscal year 2012 financial results 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, Carol Hausner. Please go ahead.

Thank you. Good morning. At 6.30 AM this morning we issued a press release that summarizes our financial results for our fourth quarter and fiscal year ended June 30, 2012. I hope you've all had a chance to review it. If not, it's available on our website.

During today's call, we will make forward-looking statements. Our actual results may differ materially from such statements. Descriptions of the risks and uncertainties associated with an investment in ImmunoGen are included in our SEC filings which also can be accessed through our website. In our call today, our Chief Executive Officer, Dan Junius, will provide an update on ImmunoGen, and our Chief Financial Officer, Greg Perry, will discuss our financial results and guidance for our fiscal year 2013. We will then open the call to questions. Our Chief Medical Officer, Dr Jim O'Leary, will be available for the Q&A session.

Dan?

Thank you, Carol, and good morning, everybody. Thank you for joining us this morning.

It's been an eventful three months for ImmunoGen and for our technology across a number of fronts. At the ASCO session in early June, T-DM1 was featured in the plenary session with Phase III data from their EMILIA study. On a number of fronts this was impressive data. They showed strong improvement in PFS versus the control arm, very good tolerability and we also got some insight into survival.

At the same ASCO session, or during that session, we also learned about Roche's plans to expand T-DM1 into early-stage breast cancer, and that they will be starting three trials in 2013, demonstrating a strong commitment to all lines of HER2+ breast cancer. At ASCO there was also encouraging data on another TAP compound, SAR3419, under development by Sanofi. Recall, this is a different design than T-DM1, you're looking at a different linker, a different cytotoxin, obviously, a different antibody, and in this case the antibody acts solely as a targeting vehicle. There was interesting data there; Sanofi now is advancing SAR3419 in three Phase II studies.

At the same time there was visible progress on our own pipeline. Our Phase II compound, IMGN901, had Phase I data accepted for presentation at a medical conference in early September, and we also advanced IMGN853 into clinical testing. This is the second new compound we brought into the clinic this year.

So, let me start by reviewing the T-DM1 data from ASCO. Again, this is from their lead Phase III study, EMILIA, which is evaluating T-DM1 in patients with HER2+ metastatic breast cancer who previously received Herceptin and a taxane. This is often viewed as second line therapy, but you should note that there are patients here who could be receiving T-DM1 as their first treatment for metastatic disease having received potentially Herceptin in adjuvant therapy.

The data here was presented at an ASCO plenary session by Dr. Kimberly Blackwell of Duke Medical Center. I'll note that she also spoke separately at a Roche investor event later that same day and provided additional color around the data. You may want to listen to that on a webcast, which remains available at Roche's investor website.

But, turning to the data, the efficacy results continue to look very strong for T-DM1, and in particular in this study. What they confirmed was the significant improvement in PFS that they'd previously reported in top line data. And while overall survival data was not mature, and it was not expected to be mature, there were some insights into the overall survival data.

First off, it was analyzed, at this time, because the statistical plan called for interim analysis of overall survival when the PFS endpoint was reached. The study had been powered for overall survival analysis when 632 events occurred, these events being patient deaths. At the time the PFS endpoint was reached, only 223 events had occurred. Nonetheless, a hazard ratio was generated of 0.621, and that is with a p-value of 0.0005. Dr. Blackwell noted that the data missed reaching statistical significance by just one event, and I think that's noteworthy when you have barely a third of the events that had been planned in the statistical design of the study.

What was learned was that for evaluable patients at the time of the data cut off, two year survival was 65.4% for patients receiving T-DM1, and that compares with 47.5% for patients receiving Tykerb plus Xeloda. And Dr. Blackwell described this difference as being huge. Obviously, a very encouraging trend for what one might expect to see as the patient population matures here.

In terms of tolerability, Dr. Blackwell also noted that the drug exposure was high with the two HER2 targeted therapies, 93.4% for Tykerb and 99.9% for T-DM1. This contrasts with a 77.2% exposure for Xeloda, which Dr. Blackwell noted was what she would expect, based on prior studies. 53% of the Xeloda patients had dose reductions, again reflecting tolerability issues.

Focusing on tolerability, one of the points Dr. Blackwell made was the impact of diarrhea on patients in this therapy. She indicated that patients receiving Tykerb plus Xeloda had an 80% incidence of diarrhea, 21% had Grade 3 or greater, and this contrasted with 21% of the patients in the T-DM1 arm incurring diarrhea, fewer than 2% having Grade 3 or greater.

She noted that this is a huge deal, both in terms of patient quality of life and the amount of time physicians have to commit to managing side effects. Overall, Grade 3 or greater adverse events with T-DM1 were 40.8%, compared with 57% of the patients receiving Tykerb plus Xeloda. So again, a notable difference in the tolerability profile.

Moving from EMILIA to the information we learned about Roche's strategy for early-stage breast cancer, they now have a three prong strategy for these patients. In the neoadjuvant setting they will be using pathological complete response as a surrogate endpoint in a study to start in the first quarter of next year. This will compare T-DM1 to Herceptin, each used with and without pertuzumab. The data from this, the pathological complete response data, is expected in 2015.

In the adjuvant setting, a study will be underway sometime in 2013, looking at T-DM1 plus pertuzumab against Herceptin plus pertuzumab. These will both be after an anthracycline-based regimen. This study will start sometime next year, data is anticipated in 2018. And the last study they've indicated they want to initiate is in patients with residual invasive tumor following surgery. They've characterized this as a particularly high unmet need. These patients will be randomized either to T-DM1 or Herceptin post surgery, the endpoint here is three-year disease-free survival. This study will also start in the first quarter of 2013, with data expected in 2018.

Stepping back from the specifics, I thought it interesting in terms of two themes that came across listening to the oncologists at ASCO. One of them was along the lines of HER2+ breast cancer being a disease where a lot of progress had already been achieved. So, the fact that they were seeing the quality of data coming out of this study was of particular interest because the bar was already so high for therapy in HER2+ metastatic disease.

They also made reference more broadly to how this technology, that being ADC technology, is potentially transformative as to how cancer will be treated in the future. It was noted that they seldom see new therapies for major cancers, particularly solid tumors, that offer improvements in both efficacy and tolerability, and that's the data that was shown through the EMILIA data.

So moving beyond T-DM1, other data as ASCO came from SAR3419. Now, this is in a somewhat earlier stage than T-DM1. It's in Phase II studies; again it's a different target, a different cancer, as well as a different construct. There's a different linker here, and it's our DM4 cell killing agent versus DM1 in the T-DM1 construct. This has been examined when it was dosed weekly. However, in those studies they showed some evidence of accumulation after the fourth dose that generated some level of toxicity. This is in part could be due to the fact that this particular TAP compound has a very long half-life.

What was reported at ASCO was findings in the Phase I studies that have -- that led to the Phase II dose and the schedule for 3419. The patient population in the Phase II study would be patients that have relapsed or relapsed/refractory non-Hodgkin's lymphoma whose prior treatments have included Rituxan. And that the schedule that they have come up with is a regimen where they will dose weekly for four weeks, and then every other week for another four doses at 55 milligrams per meter squared. And what this alternative dosing regimen allows is to reach a saturation level from a dosing standpoint, but not crossing the threshold that results in the toxicity that they had seen in other studies.

The findings was that there was no need to dose reduce or dose delay any patients due to adverse events, the efficacy continues to be impressive. Again, these are later stage patients. They showed a 28% objective response rate across an array of NHL histological subtypes, and in particular, they noted a 33% objective response rate in diffuse large B-cell lymphoma. Three studies are now underway, two in DLBCL, one monotherapy, one in combination with Rituxan, a third study is in acute lymphoblastic leukemia. And we may see data from one of these Phase II studies at ASH in December.

So moving beyond the ASCO data, we've also had visible progress in our own pipeline, over the last several months. For IMGN901, which is in Phase II testing for first-line small-cell lung cancer, we now have 28 sites open, more sites that we continue to bring on. We expect to report our initial Phase II data from this study in 2013.

Recall that we had a Phase I dose escalation to inform us as to the Phase II dosing. We will have data on that Phase I portion at the Multidisciplinary Symposium in Thoracic Oncology, which will be in early September in Chicago. This study data -- recall this patient population, you should be aware, it was not limited to small-cell lung cancer patients.

Those patients, as well as other patients participating in this study, were not first-line patients, so it is not our target patient population, but we felt it's informative data around how we got to the Phase II dose, what that Phase II dose is. And it will also be an opportunity that, again, while it's not our target population of small-cell lung cancer patients, we will look at that subgroup and report on the findings for that patient population, as it may be informative as to what we can anticipate in the Phase II portion.

And lastly I will note, for two other compounds that have just come into clinical studies, IMGN529 and 853, recall we discussed in our April call that IMGN529 had just entered into clinical testing. IMGN853 dosed its first patients just last month. Recall with IMGN529, this is a TAP compound with an active antibody for non-Hodgkin's lymphoma patients. Enrollment is in process here, and we're looking forward to generating data out of this study. The more recent study, IMGN853, this targets the folate receptor 1, or folate receptor alpha.

What you have here is a target that is expressed on a variety of ovarian cancers and other cancers, including the most common type of lung cancer. We are now in the dose escalation phase, we were able to get a protocol approved that allows for single patient cohorts at lower dose levels, so that we hope will provide for accelerated dosing getting up to therapeutic levels.

And once we establish the maximum tolerated dose we will move into disease specific expansion cohorts, first looking at ovarian cancer, second line patients, those that are refractory or resistant to platinum -based therapies, we will look at another set of ovarian cancer patients, these will be second line or later, and they may have received any prior cancer therapy, and what will be included in this particular cohort is a biomarker assessment for these patients. We will also have a biomarker assessment as part of an expansion cohort in non-small cell lung cancer adenocarcinoma patients. These will also be second line or later patients.

So with that, let me turn it over to Greg to provide you an update on the financials and our guidance.

Thanks, Dan. What I would like to do is walk you through the press release, and provide a little bit of color in terms of fiscal year 2013 guidance.

Our net loss for our fiscal year ended June 30, 2012, was $73.3 million, or $0.95 per share compared to a net loss of $58.3 million, or $0.85 per share for our 2011 fiscal year. Our net loss for the fourth quarter of 2012 was $22.4 million, or $0.29 per share compared to a net loss of $16.2 million, or $0.23 per share for the same quarter last year.

Revenues for our 2012 fiscal year were $16.4 million as compared to $19.3 million in 2011. The 2012 revenues contained $9.2 million in license and milestone fees, as compared with $6.4 million in 2011. 2012 includes $5 million in milestone fees, earned with the advancement of SAR3419 into Phase II testing, and the two Amgen compounds into Phase I testing. The 2011 revenues include $3 million in milestones earned with the advancement of TAP compounds into clinical testing by our partners Bayer and Sanofi.

Our 2012 revenues also include $4.5 million of research and development support fees and $2.7 million of clinical materials revenue, compared to $7.3 million and $5.7 million respectively for our 2011 fiscal year. These revenue items tend to vary quarter by quarter depending on the work we've been doing supporting our partners.

Our operating expenses for our 2012 fiscal year were $89.6 million compared to $79.5 million for 2011. The 2012 expenses include $69.2 million of R&D expense, compared to $63.5 million in 2011. The increase is primarily due to greater investment we made in aggressively advancing our wholly-owned product candidates. Those increased expenses were partially offset by a net reduction in expenses associated with providing partners with clinical vouchers.

G&A expenses totaled $20.4 million in our 2012 fiscal year compared to $16 million in 2011. Our R&D and G&A expenses both include meaningful increases in stock compensation expense, a non-cash charge, which in 2012 compared with 2011 was driven primarily by increases in the value of ImmunoGen stock price. In aggregate, stock compensation expense was up by $4.5 million in our 2012 fiscal year, accounting for about half of the increase in our operating expenses for the year.

Cash used in operations in our 2012 fiscal year, was $34.3 million inclusive of the $20 million upfront payment from the Lilly collaboration. And our capital expenditures were $2.9 million. We ended our 2012 fiscal year with approximately $160.9 million in cash and cash equivalents. These don't include the approximately $94 million in net proceeds from our recent offering.

We expect our cash used in operations to increase in our 2013 fiscal year, as we continue to invest in our proprietary pipeline. For example, we've markedly expanded our clinical program, advancing our wholly-owned IMGN901 compound into Phase II testing in March, and even more recently, our wholly-owned 853 and 529 compounds into Phase I testing. The 901 and 853 trials are designed to enable us to establish the registration program for these compounds. And we expect to make certain [CMC] related expenditures for both 901 and 853 in this fiscal year in preparation for advancing them into pivotal testing.

We're also continuing to invest in further expansion of our pipeline, and expect to advance our next wholly-owned compound to IND stage by mid- 2013. We're expecting our revenue to increase this year roughly in line with our expenses, keeping our projected net loss for fiscal 2013 close to that of fiscal '12. However, part of this projected revenue is non-cash. It's related to the recognition of portions of upfront payments from partnerships, particularly our more recent partnerships with sizable, upfront payments.

Our revenue projections include the T-DM1 milestone earned with US approval. We haven't included the milestone earned on EU approval for timing reasons, which could be conservative on our part. We also didn't include T-DM1 royalty revenues on our fiscal 2013 projections, also for timing reasons. While we are confident T-DM1 will be a highly successful product, we expect sales will only be at initial stages of ramping up by the time the fiscal year ends June 30. We also allowed for some delay between the occurrence of the T-DM1 sale and the reporting of royalties to us.

So, for fiscal year 2013 we are projecting that our net loss will be between $70 million and $74 million, roughly in line with what it was in our 2012 fiscal year. Our cash used in operations will be between $78 million and $82 million. And as discussed, we're expecting the increase in our cash revenues to be less than the increase in our cash expenses.

I should also note that our fiscal 2012 cash used benefited from the $20 million upfront payment we received from Lilly, and our fiscal 2013 guidance does not include new partnerships due to the uncertainties around occurrence, timing and magnitude. For our 2013 fiscal year, we also project our capital expenditures between -- to be between $4 million and $5 million, and to end the fiscal year on June 30, 2013, with between $172 million and $176 million in cash and marketable securities, inclusive of the net proceeds from our recent financing.

Dan?

Thanks, Greg.

I thought that with the results coming out of ASCO, as well as the expected filing for T-DM1 sometime over the course of 2012, that it would be a good opportunity to review the T-DM1 terms that have been disclosed in our SEC filings. And let me start talking about the duration of royalties. We've noted in our filings that the royalties -- we're eligible to receive royalty payments from Roche for 10 to 12 years in each country where there are sales, starting with the date of the first commercial sale of T-DM1 in each individual country.

The difference between the 10 and the 12 is that if there is no ImmunoGen patent covering T-DM1 in that country after year 10, our royalty term would end. If there is a patent, our royalty term would then become 12 years for that country regardless of when a patent would expire, i.e., if it was at 10.5 years, we would still be eligible to receive royalties for 12 years.

And, I'd note the patent can be on the product itself, a composition of matter patent. It can be on a process patent in terms of how the compound or one of its components is manufactured. So there are a variety of different avenues by which we have sought to protect our IP or our technology that has gone into the development of T-DM1.

In terms of the royalty level, we've noted in our filings that it is tiered in roughly the mid-single digits. I would note that that is reduced to low-single digits in a country during any period that T-DM1 is not covered by an ImmunoGen patent in that country. But as it pertains to that particular aspect, we -- assuming the first commercial sale in the US is in 2013, we feel comfortable that we will have coverage for the full 12-year term.

I think the same would be true in Europe, where we have patents, both that have issued, and additional patents that have been allowed that we expect to issue that we believe will enable us to have coverage in effect for T-DM1, again for the full year term, assuming launch in 2013. And the same would apply in other major jurisdictions, such as Japan and the BRIC countries. We think we are in good shape there.

So, with that, let me then get just to our upcoming events, and I will start walking through the events around T-DM1. First, for metastatic breast cancer, we're looking at submissions, both in Europe and in the US sometime over the course of 2012. That being the case we would expect approvals to commence in the first half of 2013, with sales to follow shortly after those approvals.

For first-line metastatic data, that would be out of the MARIANNE study, we would anticipate that at least seeing some top line data over the course of 2013. And also in 2013 we will see the start of the Phase III studies that have been announced by Roche for adjuvant and neoadjuvant therapy. Also, sometime over potentially 2012 into 2013, we would look to hear what next steps are anticipated by Roche in the area of T-DM1 for gastric cancer, HER2+ gastric cancer.

Recall we have seven other compounds in the clinic with partners. As I noted earlier, we have the potential to see the first Phase II data on SAR3419 in the fourth quarter of this year at ASH. And sometime over the course of 2013, more likely the back half of the year, we feel there is the potential to see up to three pivotal studies initiated by our partners with compounds that are currently in the clinic.

For ImmunoGen's own products, you'll have Phase I data on the Phase I/II study next month at the conference in Chicago that I referenced, and then initial data out of the NORTH trial, that is the Phase II study for IMGN901 in small-cell lung cancer. That would be sometime in 2013.

Phase I data for 853, IMGN853 would be in 2013, and the same for the first Phase I data coming out for IMGN529. We've indicated that we have another compound that's working its way through preclinical on its way to an IND filing, we would expect to disclose that target and preclinical data in the second quarter of 2013, and then see the IND for that particular compound become active in the middle of 2013 and enter the clinic.

So with that, that will end our comments and let me turn it back to Carol, and we will open it up for questions.

Great, thanks, Dan.

We're about to open the call to questions. We do ask that you limit your questions to one to two per person until everybody has had a chance to ask questions. Operator, we're now ready to do questions.

Thank you. (Operator Instructions) Thomas Wei, Jefferies.

Thanks. Just a couple questions here. The first on the Sanofi compound, 3419, I know that there had been some speculation as to whether or not you would actually, or we would actually hear about a go/no go decision into Phase III trials by year-end. Is that possible alongside the first set of this Phase II data?

Always difficult to say with a partner, Thomas, and we try to not get ahead of our partners. We know that they are very enthused. I think that that's indicated by the fact that they've got the three Phase II studies underway. I think it will be to some extent data-driven, but we will just have to see whether they make any announcement about that prior to year-end.

And then with the T-DM1 royalties, there's a lot of uncertainty about interpreting your tiered mid-single digit commentary. Have you been able to work out with Roche yet when exactly will we be able to learn what the tiers are and the royalty rates are? Will we have to -- should we expect that the only way that we're going to be able to figure that out is by seeing what your reported royalty revenue are and actually backing out what the tiers must be? Or are you going to be able to be more explicit about that sometime in advance of the product launch?

We expect we will more explicit prior to product launch.

And do you have a sense -- is it going to be like right at the product launch you'll be able to tell us exactly what the royalty rates are?

We haven't quite worked out the timing, Thomas. We understand the interest and we're trying to work out the sequencing, so I can't give you exact timing. I think we'd like to provide that detail in sufficient time for it to be digested before you get to product launch.

Great. Thank you.

Sure.

Adnan Butt, RBC Capital Markets.

Hey, Dan. Question on the royalties. So how confident can you be that the protection in the US and EU will be good for at least 12 years? And with the approval of T-DM1, would that timing make a difference for that? Let's say the product was approved this year or middle of next year, would that impact on how long the royalty stream would last?

Well, the approval is relevant to that question, Adnan, only as it relates to the first sale in a country. So final dates on all of the patents aren't necessarily set at this point, because some of them are still pending, there's the opportunity to potentially get some additional time on patents in the US. I think that if we're looking at first commercial sales in 2013, as I noted, we think we would be comfortably covered through the entire 12-year period. If there are delays, and I'm not sure I see reason for delay in the US, you run into a little bit because of pricing in Europe, but I think we probably should be okay even if first sales don't occur until 2014.

Okay. If I can just ask a question on 901, can you tell us how many patients are enrolled in the NORTH study and do you still expect an interim analysis? Then I will jump back in queue.

I'm sorry, could you repeat the question? I didn't hear the question?

How many patients enrolled in the NORTH study for 901 and if there is an interim analysis?

There is an interim analysis that will get -- that we've disclosed after we've enrolled 59 patients into the study. So we have a subgroup there that we want to be able to monitor separately. We will continue to enroll patients, so we're not going to suspend enrollment. But we want to be able to look at those patients to get the insight that we need that may allow us to accelerate some decisions that would relate to pivotal. But we won't be reporting enrollment status on a dynamic basis.

Okay, thank you, Dan.

Sure.

Mara Goldstein, Cantor Fitzgerald.

Thanks very much. Just a follow-up on the question around NORTH and the interim analysis. I know you just said that you would not provide necessarily patient updates, but do have a sense of when that interim analysis could occur? And can you just confirm that there hasn't been any change in expected filing for T-DM1 in Japan, please?

Not aware of any change in expected filing for T-DM1 in Japan, the guidance from Roche had been 2013. I'm not aware of any change in status there. In terms of when the interim analysis -- we might see that -- our current thinking is 2013. I think it would be probably back half of 2013, but that's about as close as we can get right now, Mara.

Okay, thank you very much.

Sure.

John Sonnier, William Blair.

Thanks for taking the question, Dan. Thanks for all the good color on the call. Just two quick questions.

The first is, what are the three partner programs advancing into pivotals next year? I assume one is T-DM1 and adjuvant/neoadjuvant. What are the other two?

Actually, no. We assumed -- we didn't include those given that T-DM1 sort of is covered separately, John. These would be other partner programs outside of T-DM1 moving into pivotal studies. And we haven't disclosed what those are.

That would be, again, getting ahead of our partners. And so we will have to wait for them either to announce whatever their plans are. And I don't have -- actually I responded to the earlier question around 3419, I don't have any particular insight as to when they will do that. But we do know from working with our partners that there are three of the other seven, the non-T-DM1 programs, that have the potential to go into pivotal testing next year.

Okay. No, that's actually helpful. And it leads to the second question, which is -- you guys have been fairly, I guess strategically deliberate about what you want to do with partnerships here forward. But I have to think the T-DM1 data, and then if you really do see the advancement of additional TAP programs into pivotal testing next year, it changes the dialogue in the partnership discussion.

What's the current thinking there? Do you have capacity to take more on? And I guess what kind of activity are you seeing there? Thanks.

We do have some capacity. It's always a balancing act to some extent but we also have the capability, if we select to, to add resources on a limited basis. But we are reluctant to do that because the way you support a partner, it runs sort of sequentially through different elements of the Company, and you can't add resources that cover all of those because those are special skills.

We have -- the dialogue does shift a little bit. And as we look out, our appetite for typical -- what you have seen as typical technology licenses has shifted somewhat. Those probably are not as high a priority for us as they might've been in the past.

I think we look, or to the extent they are, we would look to have different attributes, not simply different economics in terms of more dollars, but potentially participation rights or something that has the potential to deliver greater economic value to the Company. But as we've been making the transition and we've been talking about this for several years, from a research technology company, to now a development company, and hopefully eventually to a commercial company, there's an inverse relationship with that transition to our appetite to be adding more partners in straight technology deals.

There certainly is interest. But as you go across the major oncology companies, many of them have already, if you will, taken a stake or decided that they have a direction that they want to take with respect to ADCs. So, we do have dialogue going on that's not much different than it was five or six years ago. It's difficult to say how that will evolve and when and if it will translate into a specific transaction.

Thank you.

Ling Wang, Summer Street Partners.

Thank you for taking my questions. Just wanted to clarify the duration of royalty you mentioned for T-DM1. Does the 10 to 12 years start from the initial approval in that country?

And also in regard --- is that -- just want to make sure -- irregardless of whether there is generic or others the royalty will stop at 10 to 12 years? Is that true?

Ling, it's not approval driven, it's the time period -- the clock starts, if you will, from date of first commercial sale. And so the -- if it's -- again, we anticipate assuming, let's take the US, assuming first commercial sale in the US in 2013, we would assume that we would have the opportunity to receive our maximum royalty opportunity, that is because of effective patents from 2013 through 2025. So the full 12 years, but it's triggered by first commercial sale.

In each country, right?

In each country, correct. Country by country.

I see. And also, can you clarify the low single-digit royalty, what is -- which countries did you get that?

Well, you are dealing with a lot of different countries. The low single-digit would be in countries where we do not have an ImmunoGen patent in effect. So, it's a default rate. It would reduce our patent to low single digits.

As I noted, given the portfolio that's in place, given the progress on patents, given both approved, allowed and filed patents, we feel that we have coverage in all of the major jurisdictions, the US, the European countries, Japan, the BRIC countries. So there may be some smaller jurisdictions where we would be receiving the lower rate, but they would be economically less significant jurisdictions.

Thank you. If I may, can I also ask for the IMGN901 in small-cell lung cancer, when should we expect the Phase II portion of the data?

I think the first opportunity to have the first Phase II data would be sometime in 2013, Ling, and I think it would be sometime in the back half of the year.

Okay, thank you.

Yes.

Boris Peaker, Oppenheimer.

Hello and thank you for taking my questions. I just want to clarify the question asked earlier regarding the exclusivity period.

If we look at Europe, and you said that it starts from the date of first commercial sale, now if the drug is formally approved, and let's say somebody buys it, let's say out-of-pocket before reimbursement is fully established in a country, and we know in some countries it can take a while to establish reimbursement. Does that start the clock because that would be considered a commercial sale?

So then, if it takes let's say a year to finalize reimbursement, then during that time the clock is running, but you're not really getting that much revenue. Or would the clock only start once essentially reimbursement is finalized and approved?

You are getting into maybe a subtlety from a contract standpoint, but I know the contract language references first commercial sale. It doesn't reference approval by any health jurisdiction on a country-by-country basis. So, my working assumption would be that it would be on the first commercial sale, whether it's been approved for reimbursement by a health jurisdiction or regulatory authority or not.

Okay. Thank you very much for clarifying that.

Cory Kasimov, JPMorgan.

Good morning, guys, thanks for taking my questions. I have two of them for you, a follow-up on the T-DM1 terms and then one also on 853.

So first on T-DM1, I want to just follow-up on Ling's question, ask it another way. Do you get any sort of extension for additional indications that are approved in a given country? So, in other words, assuming adjuvant is in fact successful down the road, could that potentially extend your financial rights? Or is it just, as you said, from initial sale?

And on that same point, if you get additional patents -- you said you have many that are pending that go beyond the 12-year maximum limit, would the royalty extend beyond the 12 years then as well?

The 10- to 12-year period is absolute. So it's not a function of additional indications being approved.

This is a little bit unusual in terms of, as you would have seen in our disclosure of normal terms for licenses; normal terms generally would be the later hub of fixed period or the expiration of patents. That's not -- those are not the terms in the T-DM1 license, and the HER2 license with Genentech. Additional patents would not extend the term. Additional indications would not extend the term.

Okay, okay; that's helpful. And then on 853, I realize it just began clinical testing earlier this summer, but it sounds like if the data warranted, this could rather quickly make its way into a pivotal program, as indicated in your press release as well this morning. So I guess I'm wondering if you could talk just a little bit about the scope of this pilot study a little more, and when you suspect we may be able to see initial data from it? Be as early as ASCO of next year of 2013?

So the -- this is Jim O'Leary. The study design is your typical Phase I with expansion cohorts. As Dan mentioned, we were able to get approval for a design that had single patient cohorts during dose escalation.

Once we get through the single patient dose cohorts it will be expanded into 3+3 design. And during this period we will be allowing patients with all tumors, any tumors that are not known to express folate receptor positivity will need to be screened before they can come onto the trial, those patients. There are three expansion cohorts, once we identified the MTD, and one of the expansion cohorts is only for patients who are platinum refractory or resistant. And this is where we would hope to see a signal of efficacy that could potentially trigger a pivotal trial.

As you know, refractory/resistant ovarian cancer is a high unmet medical need. There are really no active drugs there, so it really would afford us a great avenue for expeditious development of 853 in this disease.

The other two cohorts are designed more to explore translational biomarker activity, to again look for proof of action and mechanism of action, and also to give us any potential early signal. So the other cohort, one of the other cohorts also is for ovarian cancer patients, but that's for an ovarian cancer patient population that is slightly different from the other cohort. This cancer population is for patients who have received unlimited number of prior therapies. What we are hoping to achieve here is to enroll a number of patients in whom we will have pre and post biopsies to again, look for markers, biomarkers, translational biomarker activity.

And then the third cohort is to explore adenocarcinoma non-small cell lung cancer, which is known to have high expression of folate receptor, also designed to validate biomarkers, show translational activity. Here we will be looking at PET and/or tumor biopsies, again to get some sense of early signal of activity.

Two other comments I'd make, and I'm not sure I referenced it as I was going through the discussion on 853. Recall that this particular compound has a new linker that we've developed, and it's a linker that was designed specifically to counter multi-drug resistance, so we have been excited both with that from a technology standpoint and the data that it's generated as we've looked at this particular compound pre-clinically. That was one of the reasons that we designed the study as we did, to be able to move quickly through early-stage dosing to get to therapeutic levels more quickly, because of the excitement around the compound pre-clinically.

The other is, I think you heard in Greg's comments, that one of the things that we will be doing over the course of fiscal 2013 is spending some money around some preparations for pivotal studies on the CMC front, both for 901, but as well for 853. So, we are assuming some additional investment here because of our optimism around the potential for 853.

Yale Jen, ROTH Capital Partners.

Thanks for taking the questions. I just want to clarify a little bit in terms of the pivotal study, the three pivotal compounds -- products -- entering the pivotal study by partners. You mean that these are Phase III studies, or just Phase II proof-of-concept, or Phase III studies?

Yes, let me clarify. Are you asking around the potential pivotal study? Hello?

Hello? I am here.

There you go. Were you asking about the potential pivotal studies from partners or was this getting at the Roche early-stage breast cancer studies?

I'm talking about the partners, non T-DM1 programs. You mentioned that there is three to enter pivotal in the -- probably second half of next year? And I just want to clarify what pivotal means in this point?

Pivotal, I can't characterize it. Pivotal would mean a registration study. So it could be a Phase II that's designed to be a registration study, it could be a Phase III. I don't have that level of detail.

Okay, great. Thanks. And another housekeeping question is that, in your 2013 fiscal year guidance, do you incorporate a potential milestone payment in that year, over the next 12 months?

We do. What we disclosed in terms of milestones is the upcoming approval milestone in the US for T-DM1, which is just over $10 million.

Okay. Great. And the last one is, is Japan considered a 10- or 12-year exclusivity in terms of the royalty for T-DM1?

Each country is viewed separately. So you would have the same, Japan, the clock would again start with the same criteria, first commercial sale and run either 10 or 12 years depending on IP in effect.

Does the Company has IP on Japan? In Japan, that's my question?

Say that again, Yale?

Is Japan, has --

Yes. We have IP in effect in Japan that would make us eligible for the full royalty rate.

Okay, great. Thanks. I appreciate it.

Yep.

David Miller, Biotech Stock Research.

Hi. Thanks for taking my questions. On the royalty calculations, is it the patents that are in place at the time of first sale? Or, can you, like for example, if there is marketing in a country where you don't have patents, can you file and perhaps get patents there to earn the higher rate part way through? Or, in a country where your patent might expire earlier than the 12 years, can you add another patent there to boost the rate up?

Certainly. Any patent would be eligible. It's not the patent portfolio solely in effect at the time of first sale. But the thing that you run into is there the opportunity to create new IP becomes more limited over time with a compound, because of prior art, because of expiration of opportunity to file and things of that nature.

Okay. And then the second question is, can you talk about what level of efficacy, or type of efficacy, or just give us some color around what you would need to see for a go decision out of NORTH to transition to a pivotal?

We've identified a variety of criteria, both primary and secondary endpoints. And we have established thresholds for each of those that we're looking for. So -- but, A, we haven't disclosed those, and I think that as you move along, what you are going to be looking at is the individual components, as well as a composite.

So you may see something in one area, whether it's PFS in six months or whatever the specific item is, you may look at that in conjunction with others to do your evaluation. These thresholds have been established out of a dialogue with a number of KOLs to assess what is an appropriate measure to determine that you are delivering a meaningful benefit to patients. But, we haven't disclosed the specifics, David.

Okay, thank you very much.

Sure.

And that concludes today's question-and-answer session. I'd now like to turn the call back over to Carol Hausner for any additional or closing remarks.

Great. Thank you. Thank you for your interest. And as always, if you have additional questions, please don't hesitate to call. Have a good day.

And again, that does conclude today's call. We thank everyone for participating.