ImmunoGen Inc (IMGN) 2013 Q1 法說會逐字稿

Good day, and welcome, everyone to the ImmunoGen first quarter fiscal year 2013 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 Communication's, Carol Hausner. Please go ahead.

Great. Good morning. At 6.30 this morning we issued a press release that summarizes our financial results for our first quarter ended September 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 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, we'll provide an update on ImmunoGen, and our Chief Financial Officer, Greg Perry, will discuss our financial results and guidance. We will then open the call questions. Dan?

Thanks Carol, and good morning everybody. I think it was another good quarter of progress for ImmunoGen. We're at a stage now where T-DM1 is undergoing regulatory review, both in the US and Europe. Roche has indicated that they expect commercialization in the US to begin in the next few months. Based on this, we thought it was the appropriate time to provide more details on the financial terms of this license. At the same time, we have three wholly-owned product candidates and seven other partner compounds advancing in clinical testing. We're seeing progress here with data on most or all of these compounds expected in 2013. In addition, we look to have one additional proprietary compound entering the clinic in 2013.

So let me walk you through the pipeline and I'll start with T-DM1. Here, as I think all of you know, the lead indication is for treatment of HER2+ metastatic breast cancer in patients previously treated with Herceptin. Across a couple of medical conferences we've heard how T-DM1 has significantly improved both overall survival and progression free survival, these being the co-primary endpoints of the studies. This is down with fewer Grade 3 or greater adverse events. Based on this, marketing applications have been submitted in the US and in Europe in August Roche has indicated US approval is expected in late 2012 or early 2013 and with European approval later in 2013. Approval for this use could open T-DM1 to all of the HER2+ metastatic breast cancer patients previously treated with Herceptin. So that means it would be for some first-line patients in the metastatic setting, as well as all second line and later metastatic patients.

While this is moving forward, the MARIANNE study is continuing. Patients have been enrolled there with enrollment completed earlier this spring. Data now is expected as early as late 2013. Approval here would open T-DM1 to the rest of the HER2+ metastatic breast cancer market. As we look at early-stage breast cancer registration trials in three settings are on track to start in early 2013. This would include adjuvant, neoadjuvant and patients with residual invasive disease with first data, that being for the neoadjuvant patients, expected in 2015. At the same time, enrollment is underway in a trial assessing T-DM1 for relapsed advanced HER2+ stomach cancer. Roche has indicated they expect to apply for this use sometime in 2015.

We often get asked about the potential for T-DM1 to capture much of the existing Herceptin market. While that's certainly part of the picture, we believe there are other dimensions to consider. T-DM1 is being developed for all of Herceptin's key uses today plus additional uses. In HER2+ positive breast cancer, Herceptin is approved for first-line treatment of metastatic disease and for adjuvant use in patients with high-risk disease, in other words those patients who are node positive. T-DM1 is being developed for both of these uses and more. For example, in metastatic breast cancer, the EMILIA trial supports T-DM1 for patients who previously received Herceptin. This would be a new indication for Roche.

In early-stage disease, it is being developed for neoadjuvant use and for treatment of patients with residual invasive disease following surgery, again, two new markets. Beyond indication expansion, T-DM1 is expected to be priced at a premium to Herceptin based on comments Roche has made. While T-DM1 pricing has not been disclosed, we know that recently approved Perjeta is priced at $5,900 per month compared to $4,500 per month for Herceptin. Again, we don't know T-DM1 pricing, but we think this provides some direction and potentially magnitude of where they may choose to position T-DM1. Finally, data to date suggested that T-DM1 is likely to be given longer than Herceptin, at least in the metastatic setting. The data that we have from the Phase II first-line study showed that patients were on a T-DM1 regimen a medium of 10 months versus 8.1 months for the Herceptin arm. All of these aspects speak to significant commercial potential for T-DM1.

As we talk about, or think about the financial terms, we've disclosed in the past the milestones which aggregate to $44 million. $13.5 million of that has already been earned and we have $15.5 million to potentially be earned with US and European approval. $10.5 million and $5 million, respectively. The balance, $15 million would be divided across various additional regulatory events. We discussed royalty duration on our last call and it has been in a number of our SEC filings before the call. In that, we've indicated that we earned royalties on T-DM1 sales in each country for a minimum of 10 years and a maximum of 12 years. And we believe based on our IP position we will get the full 12-year period in the major markets of the US, Europe, and Japan.

Our intellectual property also benefits the level of royalties we receive. If we had no IP in a country, the royalty level would be 2%. However, as noted, we believe we're in good shape in all of the major markets. The actual royalty rate is based on the level of annual sales in the US, as one territory, and the rest of the world is a second territory. And the breaks on the annual sales is as follows, for commercial sales in each territory, and again, they are evaluated separately, on sales up to $250 million, the royalty rate is 3%. On sales above $250 million, up to $400 million, the royalty rate is 3.5%, above $400 million, up to $7 million, the royalty rate is 4%. And for all sales above $700 million, the royalty rate is 5%. So, we've indicated in the past it is a tiered royalty. Those would be the breakpoints and the various royalties that would apply to the sales. Again, looking at the US and the rest of the world as two separate territories.

At ImmunoGen we're excited about T-DM1. We think that it can make a significant difference for cancer patients. We're very proud of the technology that we've brought to this compound. At the same time, we believe it will be a very successful product that will provide ImmunoGen with substantial royalty income for many years to come. It is however, by no means, the only value driver for the Company. We have three wholly-owned compounds in clinical testing and expect to advance our fourth into the clinic asked year. Our proven technology is used in these compounds and in the many compounds in clinical and pre-clinical development by our partners.

So let me provide an update on the rest of our proprietary pipeline and I will start with IMGN901. In our NORTH Phase II for patients with extensive small-cell lung cancer, patient enrollment is underway at 33 centers across the US, Canada, Spain, and the UK. And we think we're making good progress here. We have made an adjustment to the protocol that should facilitate ongoing improved enrollment without compromising the quality of information that we should be able to derive from this study. We have done this to be able to complete patient enrollment is quickly as possible. For the Phase I dose finding portion of this study we reported data both that ESMO and at a thoracic conference in Chicago earlier this year. What we found was that we were able to administer 901 in combination with etoposide/carboplatin, at the IMGN901 dose established when assessed as monotherapy. That those was 112 milligrams per meter squared. We think this is important because it speaks to the lack of additive toxicity when combining IMGN901 with the existing first-line therapy for extensive small-cell lung cancer.

Also at the same time, those core therapies of etoposide/carboplatin were able to be administered at standard doses. While that was very important information around dosing, we also saw activity, although I have to remind everyone that the patient population here was not our target patient population. We were not looking -- in order to get through the does escalation phase as quickly as possible and get to the Phase II dose, we did not limit the patient population to small-cell lung cancer patients. The patients actually did not even need to express the target of CD56. It was a very heterogeneous patient population and is not reflective of the target patient population for the Phase II.

That said, we did attract some small-cell lung cancer patients to the study. Three of the patients actually were chemotherapy naive. Of these three small lung cell cancer patients, two of them showed a partial response during the dose escalation phase of the study. We had 10 patients with small-cell lung cancer, all had received -- who had been previously treated, all of them had a prior platinum -based therapy. Seven of them were platinum resistant or refractory. Of the 10 that have previously received -- had been previously treated, 4 of them had a PR. Of the seven who were platinum resistant refractory, two of them had PR's, which was considered by the investigators to be very significant, as in small-cell lung cancer, generating any sort of objective response in a patient after first-line therapy is extremely difficult. So that's the activity in the small-cell lung cancer indication.

Recall, we also have a study underway in multiple myeloma. We are completing this study, which assesses IMGN901 in combination with Revlimid and dexamethasone for multiple myeloma patients who previously have been treated with the standard of care. Some findings from the dose escalation phase had been presented at ASCO back in 2011 in an oral presentation. In December at ASH, there will be another oral presentation with the initial findings from the expansion phase. So, we find -- we think that this will be interesting. While small-cell lung cancer is our registration path for this compound, we believe that the data generated from the multiple myeloma combination study can add value to the asset should we choose to partner 901.

For IMGN853, recall this is a compound that targets the folate receptor one, and it is being explored for ovarian and non-small cell lung cancers. We brought this compound into the clinic in July. It's making good progress. The protocol here allows for single patient cohorts at the lower dosing levels. We have already been through several dose escalations and so we are very encouraged with the progress there. And we think this will allow us to have data over the course of 2013.

The last compound in the clinic, IMGN529, this is a compound that target CD37 and it is for patients with non-Hodgkin's lymphoma. Non-Hodgkin's lymphoma, from a study execution standpoint is relatively crowded space, but we think that we have something that is unique given the profile of this particular compound, recall that we have an antibody component that pre-clinically has suggested activity at the level of Rituxan, to which we then added our TAP technology. From here, following the path of 853, we've amended the protocol, and the FDA has accepted our request to allow for single patient cohorts in this particular study and we think that will allow us, again, to move forward and get to therapeutic dose levels on a faster basis. And also should provide us the data to report on progress with this particular compound sometime over the course of 2013. For the rest of the pipeline with partners, in addition to T-DM1, recall there are seven other partner compounds in the clinic. We expect data -- clinical data to be reported for most, if not all of them over the course of 2013. And we know that several of our partners are beginning to prepare for advancement into pivotal testing.

With that, on the pipeline, let me then turn it over to Greg.

Thanks Dan. So, let me step you through the press release. Our net loss for the first quarter of fiscal year 2013 was $25.2 million or $0.30 per share, compared to a net loss of $19.5 million, or $0.26 per share for the same quarter last year. Revenues for our first quarter were $4.1 million, as compared to $2.5 million in the same quarter last year. The increase is principally due to greater revenues from clinical materials reimbursement in this quarter, compared to the same quarter last year. $1.8 million versus $0.3 million, respectively.

We also had greater revenue from research and development support fees, $1.4 million compared to $1.1 million for the first quarter of our 2012 fiscal year. These revenue items tend to vary by quarter, depending on the work we are doing to support our partners. The first-quarter revenues also included $900,000 of license and milestone fees compared to $1.2 million for the same quarter last year. Operating expenses for the first quarter of this fiscal year were $29.3 million, compared to $22 million for the same quarter last year. The first quarter operating expenses included, $23.7 million of research and development expense, compared to $17.2 million last year. The increase was primarily due to greater investment we have made aggressively advancing our wholly owned product candidates, including increased third-party costs to produce finished drug product for clinical use, increased personal expenses, particularly stock comp, and increased clinical trial costs.

In the first quarter of the current fiscal year, operating expenses also included general and administrative expenses totaling $5.6 million compared to $4.8 million last year. This increase reflects increased personnel expense, particularly stock comp and increased patent expenses. Cash used in operations in our first quarter was $21 million, compared to $11.6 million for the same period last year. The increase was primarily resulting from higher net loss as we invest in our proprietary pipeline and changes in working capital.

Our guidance for the full fiscal of the year of 2013 is unchanged from our last quarterly call. We project that our net loss for the fiscal year ending June 30, 2013, will be between $70 million and $74 million. And our net cash used in operation, will be between $78 million and $82 million, and our capital expenditures will be $4 million to $5 million. As discussed previously, these projections include an expectation of the $10.5 million milestone we expect to earn with the T-DM1 approval in the US. We have not included the $5 million milestone associated with its European approval, as we think there is some risk this won't occur by the end of our fiscal year in June. We have assumed the product launch in early 2013 and we expect that royalties will be reported one quarter in arrears. We have not included royalties in these projections. As projected previously, we expect to end this fiscal year with cash and cash equivalents of between $172 million and $176 million. We believe this cash, combined with the expect the cash inflows for royalties and other revenue sources is enough to fund us through our 2015 fiscal year in establishment of proof concept for our lead wholly-owned compounds.

Dan?

Thanks, Greg. Let me just summarize what we expect from an events standpoint for our pipeline compounds over the balance of this year and through the course of 2013. And I'll start again with T-DM1. So, for the metastatic breast cancer indication, in patients who have been previously treated with Herceptin, and whose disease has advanced while on Herceptin, we would expect US approval either late this year or early 2013, with sales to follow immediately thereafter. European approval is expected sometime over the course of 2013, more likely than not in the back half of the year. And then for first-line phase three data for metastatic disease, that would come in late 2013 or early 2014. The registration studies for the various early breast cancer indications would commence over the course of 2013, some of them starting in the early part of the year.

For the seven other partner compounds in the clinic, we look for clinical data on most, if not all of those, over the course of 2013 and this would include the Phase II data on the Sanofi compound that targets the CD19, and SAR3419, recall there are three Phase II studies underway there. We would look for the next partner compound, after the two that are in pivotal testing, we look for the next partner compound to enter pivotal testing sometime over the course of 2013. For the proprietary pipeline, we will have the Phase I data on the single-arm combination study of 901 in combination with Revlimid and dexamethasone for multiple myeloma patients at ASH in December. And then initial data off of the NORTH study for the small-cell lung cancer patient population sometime in the back half of 2013. We would have initial data for both IMGN853 and IMGN529 over the course of 2013. And then we will have pre-clinical data on our next clinical compound at a medical conference in the second quarter of next year, looking to have an IND filed and become active sometime around the middle of 2013. So we look for a very active 2013, both in terms of data development for existing compounds and seeing our pipeline expand further.

Let me turn it back over to Carol to begin the question-and-answer process.

Thanks Dan. We're about to open the call to questions. We ask that these be limited to one to two questions per person until each analyst has had an opportunity to ask questions. You can get back in the queue and ask more later. Operator, we are now ready to open the line for questions.

(Operator Instructions)

Simos Simeonidis, Cowen and Company.

Thank you for taking the question. Dan, I just want to make sure I heard what you said correctly about the T-DM1 potential application on the metastatic setting. I believe you said that you expect it to be used on the basis of the EMILIA data for at least some first-line patients. Should we read that to expect that you think the label will include first-line metastatic patients?

Well, I think that the label, my expectation Simos, and it is strictly mine as opposed to this including any guidance from Roche. But I think that the label would follow the patient population that has been tested. And given that it is for patients who have advanced while on Herceptin, it seems like the only appropriate avenue for a physician to treat that patient would be to give them something that is for the next stage of their disease. And if they advance while on Herceptin, it would seem to be inappropriate for them to put them on a Herceptin plus Taxane regimen for metastatic disease.

So, given the fact that the EMILIA study was looking at patients who had advanced while on a Herceptin-based -- I'm sorry -- after a Herceptin-based therapy, and that some of the patients in the EMILIA population were patients with first-line metastatic disease who advanced after treatment with Herceptin receptive in the adjuvant setting, it seems only logical that that's -- that the label would follow that.

Okay. And the second one and I'll jump back in the queue. I want to make sure that I understood correctly the breakdown of the royalty rate you disclosed. So can't first of all, the highest royalty rate in the areas -- in the regions where you have IP, it is 5% and in order to get that you have to be more then a $750 million in sales in that region. So for example, in order to get 5% in Europe and the US, it would have to be a total of $1.5 billion. Is that correct?

It would actually -- it is $700 million, not $750 million is the breakpoint.

Oh, $700 million, okay.

And to give 5% on global sales, if you will, you would've had to have reached $700 million in the US and $700 million in the rest of the world.

Okay, great. Thank you for taking the questions.

Yes.

Cory Kasimov, JPMorgan.

Good morning, thanks for taking the questions. I have two on the economics disclosed today.

First of all, does the royalty reset each year? Or if you eclipse a certain threshold in one year do you continue at that right into the following?

And then, the second question is, I'm wondering -- you obviously have the big areas covered with US, Europe and Japan, but what countries do you not have valid claim under patents where you would have 10 years in the flat 2% royalty? Do you know what percent of Herceptin sales are generated in those regions? Thanks.

Yes, to the first question Cory, it does reset annually. So these breaks are based on annual sales in a territory.

Okay.

In terms of the rest of the world, by suggesting that we have coverage in the US, Europe, and Japan, is not to suggest that we don't have coverage elsewhere. But it does become something of a mixed bag.

I think that we do have coverage in many of the important lesser, well, lesser important jurisdictions, but you get into such a list of breakdowns -- there are certainly some where we don't. And we would be subject to the lower 2% royalty, but I would point out that those sales then still do fall into that annual sales to build up to the various breakpoints. But I don't have -- I don't have a break down of the rest of the world. And to the other your other, the other dimension of the question, I don't know what the Herceptin sales breakdown is in those other countries either.

Okay, thanks Dan.

Yes.

Thomas Wei, Jefferies.

Thanks. Just to follow-up on Cory's question, I guess when you were talking about those sales contribute towards the annual sales thresholds. So for instance, if you had a country like country A where you were going to receive a 2% royalty -- I'm a little bit confused by the comment that you just made. Does that mean that that country's sales contribute towards these tiers for the other countries where the royalties go from 3% to 5%?

Yes. Because what would happen is, while it may be in a tier, you know say, for example, it's a sale that would otherwise get you above -- those sales will be blocked out whatever you are not running through it. And they would drop down to the 2% level.

I see.

So it would still contribute to getting you through the various breakpoints.

That's very helpful. And then call maybe to ask the question a different way. What are some of the notable, you know, what are some of the notable territories where you do not have IP coverage for T-DM1? Anything that stands out, any potential bigger country that -- that you don't have IP in?

I don't have a comprehensive list. I think as you go down to the next tier of countries, when you get into, for example the BRIC countries and the like, we have IP in many of those jurisdictions. So I do -- there certainly are some where we don't, but I do think that even as you get past the major jurisdictions, we have reasonably comprehensive coverage. Not universal, but reasonably comprehensive.

And then just lastly, I'm sorry if I missed this, but you had referenced a protocol change for the 901 study? Can you go through that did in a little bit more detail?

Yes, for example, one of the things we did in looking at the protocol for 901, we had been requiring some testing by the centers to allow us to monitor PK. And that certainly is being thorough from a protocol standpoint, but as we got into the study, and as we looked at it, and as we had dialogue with the centers, we determined that it was an obstacle for some of the centers. Certainly those that are more community-based, to be able to do the blood draws to evaluate PK within their hours of operation. And so as we evaluated it we determined that we had substantial PK across a number of studies and having this as a requirement in the Phase II for all patients was probably extraneous.

By virtue of amending the protocol to not require PK draws on all patients, we removed an obstacle that was an inconvenience to patients and difficult for some centers to execute. So it was some things in that arena that we were able to do Thomas, that allowed us to make it easier for both patients and centers, without, as I said, reducing the quality of data that we're going to be getting from the study.

Great, thanks.

Sure.

Joel Sendek, Stifel Nicolaus.

Thanks, and thanks a lot for given us all the details on the royalties in advance of when you actually receive them. It helps out a lot.

So, I just want to ask some so that I'm crystal clear on this. On every breakpoint, you will get the lower amount such that if you are, the drug is selling $1 billion a year for example, you don't -- let me ask it a different way. If it drug is selling just over $700 million, you are really not getting 5% until you get the incremental dollar above $700 million? Is that right?

Yes. That's correct. It doesn't -- getting to the incremental point doesn't increase the royalty on all the subsequent, all the lower-level sales.

Right. Got it, okay. And then I just did a quick calculation, if theoretically, the US and the rest of the world would launch at the same time and go on the same identical ramp, and reached $1 billion - actually $2 billion, $1 billion in the US and $1 billion worldwide, you would effectively get just under $40 million from each jurisdiction or $80 million, and you know, so about 4% of the first $2 billion in that theoretical scenario. Is that math generally correct?

Yes that math -- that looks close to the math that we've done Joel.

Okay, great. Thanks a lot, just on the guidance -- back to the guidance. It looks like you are on this spend. It looks like your spending in the first quarter, anyway, a little bit more than your annual guidance. I am wondering if I am looking at that right or if there's going to be some declines in R&D for the rest of the year?

Joel, this is Greg. The best way to look at that is, we don't give -- we haven't given guidance on operating expense, we have on net loss.

If you look at the first quarter operating expense and you were to annualize that. That's actually not a bad number. It's a pretty good number. It will probably tick up even just a little bit more than that first-quarter annualized run rate.

The difference to get back to your -- to the net loss guidance is revenues, of course. If you were to annualize the first quarter of revenues, that is not a good number, because we anticipate $10.5 million of royalty from T-DM1. We also expect some additional revenue associated with the potential taking of licenses by some of our partners, as well as some other milestones from some of the partners. So, if you annualize the operating expense and make it a smidge higher, and then you can back into, you know, the revenue expectation we have here.

Got it. Okay. Thanks a lot.

Adnan Butt, RBC Capital Markets.

Thanks for taking my question, and again, thanks for the detail. Just a couple questions the T-DM1 please.

First, just so I have it clear, the two readings are added up separately to get to the different tiers, correct or they should be looked at as two different buckets? Secondly, is it pretty much fair to assume that the major reasons that US, Europe, and Japan, the royalty should extend for 12 years? And it's recognized with a lag? And then finally, when is Japan approval expected?

Okay, so -- across the questions Adnan, yes, they are two separate buckets. So they are two separate territories to apply the rates.

Your question on Japan, I think Japan is looked to be approval in 2014, was my recollection. I think that's the guidance from Roche. Was an intermediate question there that I'm not? Yes, in terms of the timing?

We do expect that our recognition of royalties will be one quarter in arrears, just given administrative issues associated with processing and notification and our timing of reporting. We think it will be a quarter lag between realization and recognition.

So, Dan, a follow-up and then I will get back in the queue. For the major region it is 12 years of royalties, and then secondly, if there's an additional indication, such as gastric cancer, that total would just be added to the breast cancer totals?

Correct to both. Correct to both, yes. Any new indication would just fall into the revenue computation, and our guidance is that we believe our IP will allow us to receive, A, the full 12 years in the major jurisdictions, and at the higher royalty rate, not the default royalty rate if IP were not in effect.

Okay, thanks.

Ling Wang, Summer Street Research Partners

Good morning, thank you for taking my questions. The first one is on the IMGN853, can you give us an estiamate when we should expect the trial progress into the Phase I expansion phase?

And then for 901, the small-cell lung cancer trial, you mentioned the data would be expected second half of next year, what should we expect the initial data to be? Should it include some progression free survival data or just overall response rate? Thank you.

Thanks Ling. On 853 it is difficult to say. We are very pleased with the progress that we have made thus far.

The reason it is difficult to project when you're going to get into the expansion phase is you just don't know when you're going to see the maximum tolerated dose. We are very pleased that we are moving up and getting to, if not -- close, if not to therapeutic levels very quickly based on the protocol design. But our hope frankly is that we will be able dose patients up to reasonably high levels, which would increase the potential for success. And so we just have to wait and see how that evolves.

So, I think sometime over -- you know not later than the middle of 2013, we would be getting into the expansion cohorts. But there is kind of a wide range of when that will actually take place, given that we just don't know when we're going to get to a level where we are starting to see our dose limiting toxicities.

On 901, yes, we have indicated that the NORTH data, we expect that to be in the second half of 2013. I think that what we would look for would be to have data coming out of that first cohort from the Simon two-stage design. So it would be, as we've noted, the 59 patients that would be randomized across the two arms. And we would be looking to have -- the reason it would be the back of 2013 is we need the data to mature from that first patient -- that first cohort so that we would have some sense of progression free survivals. I think that would be the key data that we would be looking for as we report in the back half of the year.

Great. Thank you.

John Sonnier, William Blair.

Thanks for taking the question. It's a longer term question, I think no matter how you do the royalty math, the likelihood that you guys have some pretty nice flows coming your way in the relative near-term is high. And it raises the question, Dan, when you think about looking out two, three, four years, the deployment of royalty revenue, how do you see that unfolding? What are the bottlenecks which might be addressed through greater investment when you think about growing the Company? And what you think the Company is shaped like maybe four years out?

Well, it's a nice problem to think about, John. It's a new one for us to deal with. I would agree with your premise that the royalty stream will provide a different profile for us to consider.

You know, the game plan for the next certainly two to three years is pretty clear. We have three -- we think high potential compounds in the clinic. We will know over the course of the next certainly 12 to 18 months the potential on a couple of those. And the game plan would be to continue to support expansion of those compounds deeper into clinical studies.

So moved -- and that involves a few different dimensions, there's obviously the clinical side of executing the pivotal study. We also have begun, and you heard Greg talk about it in the financials, we've begun to do the spade work to prepare on the CMC side to be able to support pivotal studies for both IMGN853 and IMGN901. I think over that period of time that you referenced though, assuming we see proof of concept in one or more compounds, we will be faced with the question of what is the path to fully exploit the value of the compounds? Do we do that on our own? Do we do that with a partner, in what form? That can change the financial profile in a couple of different ways.

If we choose to bring in a partner, obviously, there's the opportunity to bring in some meaningful upfront money. But depending on what the appropriate development course is, it may also demand reinvestment of those funds in a broader range of studies, assuming we maintain a high level of participation, which would be our intent.

We also have the decision of do we -- do we want to -- the intent at some point with the proof of concept looking good would be to be able to consider commercialization dimensions. What we do there? Do we do that again on a co-promote basis with a third-party? Do we try to carve out some geography for ourselves?

Do we do that for the initial compound? Do we wait do it on a second compound? So there are a lot of emerging questions, exciting questions from the Company standpoint, and being able to evaluate them in the context where we are seeing support coming in from a very attractive royalty stream, gives us a wide range of flexibility on how we choose to address that.

But I think it -- I'll call it a high class problem, because it really does let you look at what's the best way to realize value on behalf of the Company?

Yes, I know. I think that's fair. It sounds like the data will inform it, but it sounds like most of your investment will be in and around clinical development and maybe on the manufacturing side?

I would say more clinical development then manufacturing. Manufacturing, there will be some meaningful increments to get to pivotal material. And I think once we are over that it will fall in -- at a more normal level, but some of the early-stage development costs for antibody, for conjugant, represents some meaningful increments that we will have to work our way through.

Okay. Thanks so much.

Yes.

Matthew Harrison, UBS.

Good morning, thanks for taking the question. Two on the royalties stream. Can you help us understand when you reference Roche potentially having to pay royalties for use of TAP technology, what you are thinking about when you say that?

And then secondly, do you have to pay any royalties out of your royalty stream? Thanks.

Yes, I think you are referencing something that was in the 8K we filed this morning, Matthew. We don't believe -- and it relates to royalty offsets. Royalty offsets are a fairly common term in any licensing agreement. It's a -- if we or others enter into contracts generally there is some provision that if they have some other royalties that would apply that we would share in the cost.

We don't believe there would be any royalty offsets associated with that TAP technology that Roche would be obligated to pay that would potentially dilute the royalty to us. We are not aware of any, and we have done some research in that area. The second half of the question was?

In terms of the yes -- do we have any obligations on our own? No we don't. The technology is wholly-owned by us. We have no third-party obligations that, again, would dilute, that wouldn't dilute the royalty but would dilute the yield, but there are none.

Okay. And just to be clear, any obligation Roche may have to PDLI is not part of what would be considered in that royalty offset?

That's correct.

Okay. Thank you.

Jason Kantor, Credit Suisse.

Thanks for taking the question and thanks for all the added detail. I appreciate that. Is there any provision here to prevent Roche from, at some point, challenging any of the patents that get you out to 12 years? And also, could you give us some detail as to what those patents are that cover -- that give you confidence that you can go out for 12 years in all these territories?

To the first question, you know, there are no explicit legal provisions that would prevent that. I think what would prevent it is Roche, as most big pharma companies are, are extremely concerned about maintaining as strong a patent portfolio as they possibly can. So it would be self-defeating on their part to challenge a patent to reduce or -- to reduce the royalty if it would weaken their overall patent position.

So I just think that the -- I understand the question, but I think that the likelihood of them doing that is quite remote. We've spent a lot of time with Roche going over a number of patent related items as we've gone through this entire process, and I can assure you that their incentive is to have more patents, not fewer.

In terms of the specific patents, many of the patents, you know, it's no secret we've disclosed in the past that they, for example, the composition and matter patent for DM1, expired in I think, right now it's like May of 2010. So it is one element, that's not there's composition matter, but we have a family of patents given the nature of this technology that cover different aspects. Some of them can be composition matter patents in other areas, some of the can relate to various processes, and it is different patents that would apply that gets you out into the sort of mid 2020 period that gives us the comfort that we will see the full 12-year life.

We don't -- we don't disclose specific patents there, because in doing so, you would, in essence, be revealing a trade secret. That would be not in our interest or in Roche's interest and I'll give you an example.

We have several patents around conjugation methodologies. It would not be in our interest to identify which individual patent is being used to manufacture T-DM1. What we'd be doing is establishing a road map for someone who wanted at some point, to attempt to replicate the conjugation process, or to circumvent, I guess I should say, the conjugation process. So we're simply not going to reveal those. So that is our position on identification of IP.

Okay, and if I could just have a follow-up on someone else's earlier question on 901. I guess two things, one are you going to pursue it in multiple myeloma going forward?

And second, regarding partnership -- I mean, you gave a lot of options there, is it your business plan to become a commercial entity in the United States should 901 be successful, or any of your products be successful? Or are you going to continue more of a hands-off approach to commercialization?

That would be several years out and we haven't made a firm decision on that at this point Jason. We have a lot of options in terms of what it is we want to do. I think that we will wait until we see proof of concept on be at 901, be it 853, be it 529, to revisit that question, because we have plenty of time to respond to it. You had a second question on multiple myeloma?

Myeloma is not the registration strategy for 901. The registration pathway for us is small-cell lung cancer. We think that we have generated interesting data with 901 in multiple myeloma. As monotherapy, we will wait until you can see the data in combination.

But because of the treatment alternatives in myeloma being somewhat in flux in multiple myeloma, we thought that we were better at a pathway where the unmet medical need was clearer which pushed us to small-cell lung cancer. We think 901 could be developed in multiple myeloma, at some point, with the newer agents that are being developed, it may be in combination with something other than Revlimid dexamethasone. But we do think that it's shown efficacy and tolerability in that patient population, it still afforded some opportunity to be part of a treatment regimen.

Thank you.

Mara Goldstein, Cantor Fitzgerald.

Thanks for taking my question. Again, a follow-up on the royalty and just one other. Just to clarify, if the clock on the royalty resets, if you will, on an annual rate, which is what I thought you said, does the royalty on day one then start at the same level it was on day 365? Or does it setback to $1 of sales?

You get reset to $0 of sales at midnight on December 31. And so it is on a calendar basis and resets annually.

Okay. Okay. And then just a question on funding because there was a comment made on having funding sufficient to fund wholly-owned lead compounds through proof of concept. Do you consider that to be 901, 853 and 529 or are there others?

Yes, I think we said lead compounds, so we're really looking at proof of concept on those lead compounds.

Okay. All right, thanks so much.

Ryan Martins, Lazard Capital Markets.

Hi, thanks for taking the question. Just on the $700 million breakpoint, can you give us some idea of when that could be reached? When you look at the US ramp, or the global ramp, just trying to get an idea of when you could reach the highest breakpoint there?

And then, the other part of the question was on the gastric cancer study, it seems like there are two doses being studied. I think there was some color on that.

Yes, on the first in terms of breakpoints, that would get us into forecasting Roche's sales for T-DM1. And I think that that's a place that we don't have a tremendous level of insight. That's controlled by Roche and I think we're going to not put ourselves in a position of trying to forecast their sales, Ryan.

In terms of gastric, I'll answer the question I think you asked, but you can correct me, come back if I don't get it. There are -- that is designed as a second line study, and it is a Phase II/III, they have two Phase II arms looking at different dosing. At the end of the Phase II they are going to select one arm to then move into a Phase III but they've set it up so that they can preserve the patient data from the Phase II and include it in the registration, in the Phase III portion of the starting. Again, a rather --a design that I hadn't seen previously. But they felt that they can get through that design and be able to have data to provide for registration for that second line metastatic gastric patient population in 2015.

Okay, thanks Dan, and then maybe one final follow up. When you talk about doing the single patient dose escalation trials, how much confidence do you have in reaching an appropriate MTD and the DLTs with a one-patient cohort versus a three plus three that we typically see?

Let me clarify that because when I referred to having single patient cohorts, that A, is simply for very low doses so it would be for what would be viewed known to be non- therapeutic doses. And in doing so you are making a trade so that you definition of FAE's that would require more extended dosing in a cohort is reduced. So that you are not -- you are not making a trade-off on safety, you've lowered your safety thresholds to ensure that you're not going to -- you're not bypassing even milder signals of safety than you might find acceptable in a normal -- a normal design.

Once you reach a certain level, you will then go to a traditional three plus three patient cohort. That is, it would be three patients, assuming there are no safety signals with those three patients, you can go to the next cohort. If there is any safety signal, you would add an additional three patients to ensure that you're not missing something from a safety standpoint.

So if we were only going single patient cohorts all the way through the study, I think you would expose yourself to some bad conclusions or conclusions based on scant data. But I think the design is one that benefits both patients, because you are not recruiting patients at very low doses where they're not going to have the opportunity for therapeutic benefit. You're doing it in an environment where you have got more stringent safety criteria so that you're not exposing patients to safety hazards at low doses.

It's better for the investigators because they're reluctant to bring patients on when they don't think there's the opportunity for therapeutic benefit. And since you then go, once you start to approach therapeutic levels, you're going to a more traditional cohort design, I think that -- I think that you're pulling in the appropriate data to draw reasonable conclusions around the study.

Okay, thanks.

Yes.

Boris Peaker, Oppenheimer.

Thank you. Most of them have been answered already, but just quickly on 529, are patients being screened or CD37 prior to being enrolled in the study?

Of course, I believe all patients -- CD37 is going to be found on all B cells, so we don't screen for CD37 expression.

Okay. Do you have any plans on taking the compound into CLL? Just curious about the development strategy there?

Yes, we are evaluating it because you're obviously aware CD37 is expressed on CLL as well. We want to get some early indications around non-Hodgkin's lymphoma, but that is a pending decision on our part.

And lastly, on the same compound, have you conducted the CMC work that you would need to get into larger studies, or is that also ongoing right now?

The incremental investment that we are making in CMC for later stage studies thus far as with 853 and with 901, we have held off on making that decision around 529. I think for couple of reasons. One is recognizing the more competitive space in NHL and I think we want to see some clinical data to inform a decision about making incremental earlier stage CMC investments.

And I think that we see -- as we evaluated between 853 and 529, we thought that the preclinical data for 853 was more compelling to allow us to make that early decision that we've made to do some of the preliminary work around late stage CMC for 853. So that's another decision around 529 that would be pending, based on some signals that we see out of the study.

Great. Thank you very much for taking my questions.

You bet.

Yale Jen, Roth Capital.

Thank you for taking my questions. Most of it has been answered. Just a quick two -- two quick ones, the first one is for SAR3419, do you anticipate any presentations in the ASH meeting this year, or simply most data will be on next year?

I don't think will see anything on SAR3419 at ASH, I think that data will come out over the course of 2013.

Okay, great, and just follow-up on the previous question. Just want to be clear. For the T-DM1 royalties, if what -- you mentioned two buckets, if in one region you get $700 million of trust revenue, you get about 5%, whereas in the other region, you will get caught for example, $500 million in revenue, you get 4%? Is that how that works? Or I'm mistaken on there?

That's right. If sales are coming in in two different regions, one being -- the first being the US, the second being rest of the world, and let's say, just for clarity, it's $800 million in revenue in the US. The revenue from $700 million to $800 million would be generating royalties at 5%.

If the rest of the world, the revenue, as you know, was $500 million, the top tier from $400 million to $500 million would be generating royalties of 4%. And those computations would will be applied to the sales aggregated and the dollars would be credited to us as royalty revenue.

And should we assume going forward that Roche would at least report it as separated, these two regions, as they have done in Herceptin, so we will be clear on what the revenue breakdown might be?

I have no information on how they may choose to report it.

Okay. Great. Thanks a lot. I appreciate it.

Yes.

Thomas Wei, Jefferies.

Thanks, I'll take the rest of my questions off-line.

Adnan Butt.

Hey Dan, what's the efficacy threshold that you're looking for 901. And just a follow-up from T-DM1, what is the specific label being sought, if you can say it's the same in the US as in Europe? Thanks.

On the second, in terms of the label, I -- the label becomes, there's a process there that we're not privy to, my comments we're based on the patient population that was studied, and I think what is practical from a physician standpoint. If this is being studied in patients whose disease has advanced on a Herceptin-based regimen, and the study design did not say a Herceptin-based regimen in metastatic or a Herceptin-based regimen in adjuvant, because it wouldn't have made a difference. They're advancing, the disease had progressed while on Herceptin.

So it would seem illogical that regulators, whether it's US or EU, would restrict the label to patients only whose disease had advanced while on a Herceptin-based regimen in first-line metastatic. Because in doing so, they would be handcuffing the physician.

What's the physician going to do if the patient has advanced while on a Herceptin-based regimen in adjuvant. Are they going to say they've got to put him on a Herceptin-based regimen in first-line metastatic? That would be -- I don't think the physician's going to follow that type of protocol. So it just would make sense that that's what the label would include, but, again, I have no insight into the regulatory exchange that's taken place between Roche and the regulators either in the US or in Europe.

Your first question around the efficacy criteria for 901, we haven't disclosed that. We have discussed the end points, and we've discussed what the current standard of care has generated in terms of PFS and in terms of OS for that patient population. So I think it is safe to say that we are looking for a meaningful improvement in the various endpoints that we have identified. So PFS, OS, OS of 12 months and the like, it would -- and certainly, you would like to surpass all of your targets for endpoints, but sometimes it becomes a mix of you've seen some that surpass it, some that maybe are borderline, so we just have to see what the whole picture looks like as the data develops.

Okay, thanks.

Jason Kantor, Credit Suisse.

Thanks for taking the follow-up. Is this royalty structure or is this a template that you use for your other deals, are they similarly structured, or are those royalties more flat?

And then, also are the royalties at all dependent on where the product is actually made, US versus ex-US, or is it only relevant where the product is sold?

To the second question first, Jason, that the royalties only -- the tiering only matters where the product is sold. So where it is manufactured doesn't have any bearing.

To the question of the rest of our licenses, there are -- that's not an easy answer, there are a couple of different dimensions and I want to make sure it's clear. The question of duration, and we spent a fair amount of time on this on the call last time, the normal structure -- this particular license is an outlier. The normal structure would be that royalties would continue for the later of a fixed period of time, or the IP that applies. So if we have a patent that is in place, royalties would be for the duration of the patent irrespective, but subject to a minimum.

So if the patent is only in place for 6 years and your royal period, you've got a 12-year period, you would get the 12. If the IP extends for 15 years and you've got a 10 or a 12 year fixed period, you would get the 15 years. So, that is the duration question.

I think the other gets to both level and structure. I think that most of the -- most of the arrangements we have do have some level of tiering in them. I think that the levels generally start -- I won't say generally, I think universally they start above the lower end that we've discussed in the context of T-DM1. And they universally end at a higher to a meaningfully higher level. But they are tiered. The geographic distinction, in terms of two territories is somewhat unique to this license as well.

Thank you.

We have no further questions at this time.

I would like to thank everyone for your interest in ImmunoGen, and if you have any subsequent questions, please don't hesitate to call. Take care.

And that does conclude today's conference call. Thank you for your participation.