ImmunoGen Inc (IMGN) 2013 Q4 法說會逐字稿

Welcome, everyone, to this ImmunoGen's fourth 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 Communications, Carol Hausner. Please go ahead.

Thank you. Good morning. At 6.30 this morning, we issued a press release that summarizes our financial results for our fourth quarter and fiscal year, ended June 30. 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. We'll then open the call to questions. Our Chief Development Officer, Dr Charlie Morris, is here with us for the Q&A section of the call. Dan?

Thank you, Carol. Good morning, everybody. It's a pleasure to give you an update for our year-end activity and what we've seen over the last several months. This includes notable progress, advancing and expanding a line of exciting wholly-owned compounds. With the first full quarter of activity, we're seeing strong uptake of Kadcyla, with additional markets and indications expected. There are multiple compounds moving to and through the clinic from our partners.

Let me start with a detailed update on 901, which is our lead product candidate. We're developing this in combination with etoposide and carboplatin for front-line treatment of small-cell lung cancer. This is a major unmet need globally. In the US alone, there are approximately 28,000 diagnosis every year. We're currently looking at it for first-line therapy, where under the existing therapies, the median progression-free survival is 5.5 months, with median overall survival of 9 to 11 months. The treatment paradigm here has been unchanged for decades. We're currently assessing IMGN901 in our NORTH randomized Phase II trial. Happy to report here that the pace of patient enrollment is very encouraging. This allows me to tell you that we're on track to complete enrollment here by the end of this quarter.

Completing it on that pace should give us the data by mid-2014 to determine the development course of IMGN901. With a decision to invest in full development, that would include preparations for the manufacturing of pivotal materials, meetings with regulatory agencies, design of a registration study, et cetera. We'll report this development decision once it's been made. We plan to report the underlying clinical findings behind that decision at a medical conference as soon as practical, thereafter. I would like to say, we can report this data -- we'll be ready to report the data at ASCO 2014 and completing enrollment this quarter would open up that possibility, but it is too early to make that commitment. But we are very encouraged here with the pace of enrollment.

For IMGN853, remember, this is for solid tumors that highly express the folate receptor alpha. That would include ovarian cancer, endometrial cancer and adenocarcinoma non-small-cell lung cancer. These are cancers of high unmet need with few option today for platinum-resistent ovarian cancer and relapsed endometrial cancer. We had our first data reported at ASCO this past June. This is from the dose-escalation Phase, which was designed to establish the maximum tolerated dose. We tested a variety of levels from 0.15 mg/kg to 7 mg/kg, with patients dosed every three weeks. Remember, this being a dose-escalation Phase, we saw a very diverse set of patients. They had different types of cancers, different levels of target expression, a variety of prior therapies.

In this dose-escalation Phase though, we did see evidence of activity, which is always a good sign. All were in patients with strong target expressions, treated at doses starting at 3.3 milligrams per kilogram or higher. In one patient, an ovarian cancer patient, we had a confirmed CA-125 response. This patient also had stable disease for six cycles. The patient had 12 prior treatment regimens, three of which were platinum-based. In a patient with platinum-resistent ovarian cancer, there was an unconfirmed partial response after two cycles and again a CA-125 decrease.

Finally, in a patient with endometrial cancer, there was an unconfirmed partial response after four cycles and a CA-125 decrease. This is a patient who had two prior taxane and platinum regimens. We did encounter a dose-limiting toxicity at 7 mg/kg. This is blurred vision, which is reversible. A toxicity that's seen with a variety of agents. As a result, we're evaluating 853 in lower doses. Dose adjustment has been successful in addressing this condition with other agents. We believe we can achieve a desired -- an attractive therapeutic index by adjusting the dose. We're on track to start enrolling patients in multiple expansion cohorts later this year. From a reporting standpoint, we would expect to have findings that we could report on the target patient populations in mid-2014. With proof of concept like 901, we'd moved forward with preparations for advancement, including pivotal preparation of manufacturing materials, et cetera.

Finally -- for the next compound looking at solid tumors, we announced yesterday the IND for IMGN289 is now active. This is our third IND submission and acceptance in two years. It's our third wholly-owned compound for solid tumors and our fourth wholly-owned clinical compound. This is a novel compound for cancers that highly express EGFR. That would include diseases like squamous cell head and neck and lung cancers. For these diseases, there are very limited treatment options today. Within these diseases, this would include tumors with primary or acquired resistance to EGFR inhibitors, including tyrosine kinase inhibitors.

There are some interesting similarities to note between IMGN289 and Kadcyla. Both of them target members of the ErbB family, which occurs on solid tumors. Kadcyla targets HER2, which is also ErbB2. Whereas IMGN289 targets EGFR, which is ErbB1. It's interesting that both are going after validated targets. Herceptin certainly validated HER2 as a target. There are a number of compounds that have validated EGFR as a target. Both compounds have active antibodies. In fact, the antibody in IMGN289, as a naked agent, pre-clinically showed pronounced anti-cancer activity.

Again, with the two compounds, they both use the same design, in terms of the same linker -- the same DM1 cell killing agent. In pre-clinical models of cancers with high EGFR expression, the antibody component of IMGN289 was as active as Erbitux for EGFR-dependent cancers. Once we then made that a full conjugate, it showed to be considerably more active. The conjugate's highly active against tumors with either primary resistance to EGFR inhibitors or which develop resistance to EGFR inhibitors, including TKIs. This comes from the impact of the conjugate and loading the DM1 molecule to the antibody.

As I noted, the antibody component of IMGN289 pre-clinically appears -- it's from a toxicity standpoint, the antibody component appears to avoid the pronounced skin toxicity seen with existing agents. This is actually when we began to develop 289, we were looking for an antibody that would simply deliver the payload. In that process, we found an antibody that not only could deliver the payload, but would be active while bypassing the toxicity that's seen with existing agents, which we found to be very encouraging. We're seeing high interest from clinical investigators, which is very encouraging. We're on track to begin clinical testing before year-end.

For the fourth clinical compound, IMGN529, this is our lead wholly-owned compound for hematological malignancies. It targets CD37, a target that has been less exploited than other hematologic targets. It occurs on the same non-Hodgkin's lymphoma sub types as CD20 and is also expressed on a chronic lymphocytic leukemia. Right now, it's in Phase I testing for treatment of NHL and is in the dose finding Phase. We have not been able to escalate through the doses as quickly as hoped, because we've seen dose-limiting toxicities at unexpectedly low doses. As a result, we've expanded those cohorts. At the same time though, we're encouraged to have seen some biologic effects insistent with the expected mechanism of action of this compound.

Despite the toxicities we've seen, investigators continue to enroll patients in dose finding portions of the study. We're now targeting ASCO 2014 for reporting on the dose finding Phase. With excess in our further dose finding work, we would expect to start the expansion Phase sometime next year. So we now have four wholly-owned clinical stage compounds, each has the potential to make a real difference for patients. With IMGN289 now effective, we are pleased to have generated three INDs in the past two years. Each of these compounds has one or more key events expected in the next 12 months.

Let me now comment on Kadcyla. As you know, it's approved for marketing in the US and in Switzerland. In their conference call last week, Roche noted that they are seeing strong uptake for this compound. They reported US sales of CHF82 million, or about $87 million from the approval in late February through the end of the June quarter. That represented $69 million in US sales in the June quarter alone. In Switzerland, they reported CHF1 million since approval there in May. We've received our first royalty payment on sales through March 30, which you'll hear about from Greg.

Roche indicated that they expect a decision on approval in the EU later this year. They have also submitted in Japan. We would expect that decision around this time next year. Roche also reported that the THERESA Phase III trial met its PFS end point. This is a study that's targeting later stage patients. They intend to submit data for presentation at the upcoming ESMO meeting in late September. As the current label already addresses use in these patients, Roche indicated that they are not planning to submit for approval off of this data.

They further indicated that the readout from the first-line Phase III study, MARIANNE, is now projected in the latter part of 2014, with submission in 2015. Here, patient enrollment was completed in spring of 2012, as the readout is driven by PFS events. That's what's determining the timing of when we'll see the data from MARIANNE and when they would submit. They also indicated they expect to submit in 2015 for use in second-line gastric cancer. So Kadcyla is off to a strong start. We expect to see solid sales growth for many years to come. We're very pleased to see this compound making a difference for patients with HER2 positive cancer.

We're seeing progress with the rest of our partners. We have partnerships, as you know, with many of the leading companies in the cancer arena. With Amgen, they have two compounds in Phase I. One is for glioblastoma. A second is for clear cell renal cell carcinoma. They took a third license in December of 2012 and took a fourth license more recently. This represents the last of the licenses that's available to Amgen under their now-expired agreement.

Bayer Healthcare reported encouraging clinical data at ACR on BAY 94-9343. This is from the dose finding Phase of their study. It included evidence of activity in patients with mesothelioma. They are now evaluating this compound for mesothelioma and ovarian cancer in an expansion Phase of that study. For Biotest, they reported initial clinical findings for their BT-062 compound, used as a single agent for multiple myeloma. They are evaluating it when used in combination with Revlimid and dexamethasone for this disease. They've also had very interesting pre-clinical data in carcinomas of the breast, pancreas, lung and bladder. They've indicated that they're planning to assess their compound for one or more of these indications in the clinic, beginning sometime later this year. Lilly and Novartis represent our two most recent partnerships. Both of them have several compounds advancing towards IND.

Finally, from a partner standpoint, Sanofi has three compounds in the clinic. These were all developed by ImmunoGen scientists as part of a broader collaboration. The CD19 targeting ADC is in Phase II for diffused large B-cell lymphoma and acute lymphoblastic leukemia. CA6 targeting ADC is in Phase I. The principle disease here would be ovarian cancer. Sanofi also has a CD38, targeting therapeutic, or naked antibody in Phase I, looking at multiple myeloma. Over the next 12 months, we would look for data potentially on all three of these compounds. They also have additional compounds advancing pre-clinically. So, with that, let me ask Greg to update you on our financial results for the quarter and the year.

Thank you, Dan. For our fiscal year-end June 30, 2013, we reported a net loss of $72.8 million, or $0.87 per share compared to a net loss of $73.3 million or $0.95 per share for our fiscal year 2012. Revenues in our fiscal year 2013 were $35.5 million, as compared to $16.4 million in fiscal year 2012. The current period includes $24.2 million of license and milestone fees compared with $9.2 million in fiscal 2012, and includes -- the $10.5 million cash milestone payment earned from Roche, with the approval of Kadcyla in the US; $11.1 million of the amortization of upfront license fees for Novartis, recognized with their taking a license and other activity under our 2010 agreement; and a $500,000 cash milestone payment earned from Sanofi, with their advancement of another pre-clinical compound under that collaboration.

The fiscal year 2012 fees include a total of $5 million in milestone payments earned, with partner advancement of three early stage clinical TAP compounds. Revenues in our fiscal year 2013 also include $7.9 million of research and development and support fees, for research we've done on behalf of our partners, as compared with $4.5 million for fiscal year 2012. The difference is primarily due to the variability in our partner support activities on a year-to-year basis. Revenues also include $2.8 million for manufacturing clinical materials on behalf of our partners, as compared with about the same amount, $2.7 million in fiscal year 2012. Of particular note, our fiscal year 2013 revenues also include our first royalty revenue from sales of Kadcyla.

We earned $600,000 in the fourth quarter of fiscal year 2013 on approximately $19.7 million of Kadcyla sales in the quarter of its approval in the US, Roche's first quarter, ending March 31, 2013. As previously noted, the royalty rate on Kadcyla sales in the US is expected to range from 3% to 5%, for the 12-years, ending February 2025. Kadcyla is now starting to be sold outside the US as well, beginning with its launch in Switzerland in May. As with US sales, we will report our royalty revenue on non-US sales of Kadcyla one quarter in arrears, so the first royalties on the sales in Switzerland will be in our first fiscal quarter of the year 2014. Roche expects a decision on the approval of Kadcyla in the European Union this year. We'd expect approval in Japan by this time next year. As noted previously, Kadcyla sales outside the US are aggregated into a single territory for calculation of annual sales for royalty tiers.

Our operating expenses for our fiscal year 2013 were $108.5 million, as compared with $89.6 million for fiscal year 2012. These include research and development expenses of $87.1 million, as compared to $69.2 million for our prior fiscal year. This increase is largely due to our higher spending in support of building and advancing our wholly-owned product pipeline and includes increased costs for the manufacturing of the antibodies used in our product candidates, as well as increased personnel costs. Our operating expenses also include G&A expenses of $21.5 million, compared to $20.4 million in our prior fiscal year, with the increase principally due to increased personnel costs. We entered our fiscal year on June 30, 2013 with approximately $195 million in cash and cash equivalents and continue to have no debt.

Our cash use in operations was $60.3 million in our fiscal year 2013 and capital expenditures totaled $3.8 million, a bit better than our last issued guidance. With the advent of the royalty revenue stream, we will be expanding a bit on our financial guidance and provide guidance on revenues and expenses, as well as our net loss in cash. So for our fiscal year, ending June 30, 2014, we expect that -- our revenues to be between $66 million and $70 million; our expenses to be between $140 million and $144 million; our net loss to be between $72 million and $76 million; and our cash use in operations to be between $74 million and $78 million; with capital expenditures totaling between $6 million and $8 million. We expect to end our fiscal year with between $114 million and $118 million in cash.

The increase in revenues in fiscal year 2014 are driven by expectations of our partners exercising product licenses, achieving milestones and the higher royalties associated with Kadcyla sales. 2013 was a year of strong progress. We're continuing to aggressively advance our proprietary pipeline, while also seeing our partners advance their product candidates using our technology. Kadcyla demonstrates the promise of our technology, with sales in the US off to a good start. We believe it will become a very successful global product. Dan?

Thank you, Greg. Let me walk through the anticipated events over the next 12 months. Then we would like to take your questions. Starting with the proprietary portfolio. For IMGN901, we would look to complete Phase II enrollment sometime in the current quarter. That would lead to a full decision around development around the middle of 2014. Phase II data would come shortly after the development decision at an appropriate conference. For IMGN853, we would look to start one or more expansion Phases in the second half of this year. Then have data from those expansion Phases and from the balance of the dose-escalation activity sometime around the middle of next year. We would begin to start clinical testing of IMGN289 by the fourth quarter of this year. Then for 529 -- IMGN529, we would have the first clinical data in the middle of next year. Again, look at initiating our expansion cohorts also around the middle of next year.

Turning to partner compounds with Kadcyla. Each quarter we'll learn more about sales development. We will learn about the data from the THERESA study in the second half of this year at ESMO. We would look to see approval coming in the EU in the second half of this year. Then approval in Japan sometime in the middle of 2014. With the seven other partner compounds in the clinic, we'd look to see the first clinical data for one or more of the many compounds that are out there.

We would look to see the first data, for example on, one or both of the Amgen compounds or one or both of the Phase I Sanofi compounds. Then look to get additional clinical data for compounds that we've already seen some clinical data. For example, we'd look for the first Phase II data out of SAR3419. Then look to have the expansion Phase data presented on the Bayer compound, where we've already seen some of the dose-escalation data. So it promises to be an active 12 months across a variety of compounds. So with that, let me turn it over to Carol, who can moderate the Q&A.

Thanks, Dan. We are about to open the call to questions. We would like to ask you to limit your questions to one or two per person, until everybody has had a chance to ask their questions. You can then come back into the queue. Operator, we are now ready to open the call.

(Operator Instructions)

Simos Simeonidis, Cowen and Company.

The first one would be on Kadcyla. I was wondering if you can provide any color on its use -- the first 1.5 quarter of its use, in terms of how much it's used in the academic versus the community setting? Also, how much is used in the first, second or subsequent lines of therapy?

Simos, we can't shed any light on that for you. I'm sorry. That's not detail that's provided. To the extent you are going to get that, that would have to come from Roche.

Okay. Let me ask a question then on 853. Has the Phase I dose-escalation trial completed -- been completed? How many patients have you treated, if that's the case? In the lower doses, I guess five and below, have you seen the blurred vision again? Have you seen consistent evidence of activity?

Hi, Simos. It's Charlie. The study, as you know, is ongoing. We're still -- after finding the dose-limiting toxicities and identifying that seven milligrams per kilogram had exceeded the maximum tolerated dose, we have been dosing patients at the five milligrams per kilogram. We are still exploring the doses at this time. What we are trying to do is take the time to get the dose right, before we go into the dose expansion phase. Obviously, I can't add a lot of color on that at the moment, because that will be presented in due course. But certainly, as you remember from the poster at ASCO, we've seen activity at those lower doses and are confident that we can identify -- based on what we know at this point, are confident that we can identify a dose with both activity and perfect manageable side effect profile. So everything is on course, but we're just trying to do this in the most prodigious way that we can. So that we get the dose right when we're get into the expansion.

But in terms of the data that we saw in Chicago. You did see activity starting at 3.3. So between 3.3 and five is basically where we should be thinking that the dose, where you might do the expansion cohorts should be?

Right. I mean, we're anticipating at this point that it will be within that range that you are describing there. [Ramos] consistent, of course, with what we've seeing with Kadcyla, historically where it was at that dose at 3.6. So we're comfortable with that based on both the pre-clinical information and based on the clinical data to date. That's if we're in that range, which we fully anticipate we can be, that we will have an appropriate dose for exploration in the dose expansion and subsequent phases.

Okay. Thank you. I'll jump back in the queue.

Adnan Butt, RBC Capital Markets.

Congrats on the first royalty check. (laughter) Two questions from me, please. First, on 289. For the Phase I, do you expect to target any specific tumors or is it going to be a solid tumor? Then what do you expect a side effect to be? Then secondly, on 901. It's been about four months since the last updates. In terms of the new schedule, in terms of tolerability, is there any light you can shed on that? Thanks.

So with 289 first. Yes, we are certainly targeting those tumors that we expect to be high EGFR expression into Phase I. We won't necessarily have that quantified prior to coming on to the study, but we are trying to major, as you'll gather from the press release, major on those tumors where there is very high expression. So, if we look, for example, at non-small-cell lung cancer, squamous cell carcinomas, which have not been well served by the current monoclonals or TKI, do have very high target expressions similar to the HER2 expression in HER2 positive breast cancer. So we see that as a very viable target, we'll also be making around head and neck and some of the others as we go forward as well. In terms of toxicity, I think the main thing is to be dose-escalate, that which we are most respectful of, I guess is the right way of putting it, would be the potential for skin toxicity. We're obviously very encouraged by the pre-clinical information suggesting that may not be a significant issue. But nonetheless, knowing the expression of EGFR, knowing the mechanism of action, I think that is something that we're going to be very much aware of and looking for as we go through dose escalation.

In terms of 901, I can't give you detailed updates on where we are. I think the most encouraging thing, though, is really what you've heard from Dan, is that having made that adjustment to the protocol, we certainly have been able to recruit the study very well in the [four months] now since we made that adjustment, as you said. Which, I think, encourages us to believe that the investigators have a level of confidence in the actions that we took, and the potential to be able to manage the toxicity, as we've described in there. The, certainly the rate of the higher rate of Grade 3 events doesn't seem to be manifesting, but I cannot necessarily get into the detail on that at this point. But certainly the recruitment suggests that the investigators and patients are very comfortable with what we've done.

Thanks.

Matthew Harrison, UBS.

Two, if I may. So the first one is, can you help us think about your revenue guidance? Give us some sense of what sort of license and milestone piece there is in there? What sort of royalty piece there is in there? The second is on 529. Can you give us any more detail on what kind of toxicities you were seeing? Thanks.

Hi. This is Greg. In terms of revenue guidance, we really don't plan to get much more granular, although I do have a lot of empathy for model builders out there. So if you look at the components of revenue and you look at -- on our published financials, if you look at clinical materials revenue and research and development support revenue, you can go back and look historically and in those things you can get a sense of the trends there. I think that will help you in projecting that. Then in terms of Kadcyla royalties, we don't really anticipate getting much granular there, because as Dan said, we don't have any special insight into that launch. But again, I would point you to various analysts that perhaps are covering Roche, et cetera.

Then you can back in, to some extent, the license and milestone fees. What I would do there is remind everyone that, we are seeing significant progress in a pretty broad portfolio of programs. So we would expect to see a pretty significant jump in milestone. Then also just as a quick reminder, for Lilly and Novartis, when we receive those upfront payments, those payments get deferred on the balance sheet. Then they will be amortized through revenue, based on certain events. So, for instance, taking a license to a specific target so they can advance a product candidate to IND. That would drive a fairly significant recognition of revenue, say $7 million to $8 million for each of those. Hopefully, that provides a little bit of help there.

Yes, I guess, is it fair to say that the majority of your revenue is from license and milestone fees?

Yes.

Okay.

In terms of 529, I think we'll get into the detail of what is happening in the dose-escalation when we get the data out to a medical conference at the first opportunity. Not seeing anything, though, that's inconsistent with what we're seeing with other products. As we say, it's just perhaps seeing some events a little earlier, but that's obviously one of the hazards of treating patients in a Phase I study where they are heavily pre-treated. We're just trying to expand the cohorts, get more information and keep going with the protocol as it's designed.

Okay. Thanks very much.

Yigal Nochomovitz, Morgan Stanley.

The first question on 829. I would like to understand the lower skin toxicity profile a bit better. It seems to me from the pre-clinical data that you're not really giving up efficacy on wild-type EGFR inhibition. But then at the same time, the lower skin toxicity, which obviously still had positives, it's positive, but it's a bit puzzling to me. So could you give some thoughts on the hypothesis as to how that could be, given solid wild-type EGFR inhibition?

There's a couple of hypothesis based on the pre-clinical information that was presented. I think one of them is that the antibody is not a complete antagonist. Therefore, there is the allowance of continuing of some signaling, so that may be enough to allow the skin cells to continue to proliferate. The other thing is there seems to be a differential release of some of the cytokines which have been associated with skin toxicity compared to those which were seen with -- when we use, for example, cetuxomab or panitumumab. So at that combination I think of the lesson, the partial antagonism combined with the cytokine release, it seems to be the basis of the difference that we've seen in the [carotinatines]. Obviously, that makes us hopeful, but it's something which we will continue to watch very closely as we get into the studies.

Okay, great. Then one more on 853. Back at the analyst day, I believe there was a mention of the 25% response rate, considered as an encouraging benchmark. So how are you thinking about the ASCO data with that goal in mind?

I think it -- I think to be, trying to make decisions like that on the basis of dose-escalation is going to be fraught with difficulty. Obviously, we're encouraged to have seen activity in the target populations. We are -- I think it's notable to us that has been primarily in the highest expresses. I think that helps us to target a specific population. But I don't think I will be trying to think of it in percentage terms until we get into the dose expansion cohorts, where we'll have a more homogeneous population on which to base our decisions.

Then just one on -- thanks. One on Kadcyla monetization, any latest thinking there, given the delay in the MARIANNE data?

To be honest with you, I think the way we think about the Kadcyla royalty revenue and potential for monetization really has been fairly stable. I mean, we feel good about our capital position. We still continue to believe that it's an asset that will continue to grow in value. Looking at a variety of different costs of capital opportunities and different scenarios, we don't necessarily see any need to rush to any type of monetization of that royalty stream.

Okay. Thank you very much.

Mara Goldstein, Cantor Fitzgerald.

I think that the Company had previously discussed CapEx expenditures in the context of 901 and the continuation of that program, perhaps deferring some decision-making regarding the expenses until the outcome of the Phase II is known. So I guess my question is in light of the CapEx guidance, would that number change in the second half of the year, depending on 901? Or did you already bake that in?

Basically, I think we're anticipating that we'll be making some investments associated with development of our various programs. So, certainly we see the CapEx numbers is stepping up modestly and part of that is clearly attributable to some of the advancement of the programs.

Okay. But I guess my question really is, is that if you get to a positive outcome with 901 mid-year, would that estimate likely change in terms of what you might expect to spend on CapEx? Or would it be reasonably within that $6 million to $8 million?

Yes. Perhaps not so much in CapEx, but I think that if there is a positive -- a strong positive signal out of 007 and we move to pivotal development more rapidly, then we would see a pretty -- you would see a significant increase in expense, probably not just CapEx, but more so in expense.

I guess I would say, Mara, the timing is such, given we're a June 30 fiscal year, you probably wouldn't see much of that this year. Given when we expect to see data that would lead to a decision, that probably would lead into heavier spending early in '15 as opposed to having a meaningful impact on fiscal '14.

Right. Okay. That's very helpful. Then if I could just ask on 853, if you're able to just share with us any color around the onset of toxicity around the blurred vision, in terms of time to onset and resolution, and if there was any intervention required? Other than dose reduction.

Yes, right. So from the post at ASCO, it commonly seems to happen around about the middle of the second cycle, very much consistent with what we've seen with partner compounds. The dose interruptions and dose interventions seem to help with reversibility in some of the patients. So we're comfortable that's reversible, but obviously the aim now is to say well, having seen that as a dose-limiting toxicity, we now are trying to identify doses with the PK relationships, and really try to understand how we minimize that as effect for going forward.

Okay. Thanks so much.

Jason Kantor, Credit Suisse.

A lot of them have been answered. But just to go to the NORTH study, though. You said that you're gating a lot of late phase development decisions on that data. I guess what does that mean in terms of timing for potential Phase III? If you got positive data, how long would it take for you to, for example, ramp up manufacturing and do the things that you would need to do to get that into a larger Phase III trial?

It would probably be about 18 months for us to go through the various processes, to be able to start a Phase III. Obviously, we would want to have discussions -- depending on what we're seeing with the data, we would have discussions with the regulatory authorities to see if there are other avenues that could compress that time line. But as we think about what needs to be done in terms of pivotal material and the like, that appears to be about the right window, Jason. In that window, we take the opportunity to look at probably some other things with this compound, maybe in sub-populations, we wouldn't just be sitting on our hands over those 18 months, but we would do some other things that I think would expand the indications, et cetera.

As you look at your earlier stage pipeline, which is growing very nicely, how do you think about prioritizing internal investment and/or partnering some of these programs out. In terms of partnering, where do you think the right point in time is? Are you at a stage where you would consider a global partner for one of these? Or do you want to really hang on to them for as long as possible?

Well, I think that's going to be, that's a multi-factor equation that we're going to have to work our way through. For example, how many of the compounds are showing the level of promise that we would be thinking about expanding or supporting? But I think for all of them, I think the one blanket statement I would make is that we intend to hold them till we get to proof of concept because we think that's a meaningful value inflection point. What we would do at that point would be -- we would like to see ourselves hold on to, certainly, US, the US market, initially maybe look at a partner for an ex-US relationship. Then as we look at the rest of the pipeline, see what the potential is there that we want to expand that geography for subsequent compounds. So we think about it a lot. We have some time to make some decisions there, but I think the one line in the sand is that we want to hang on to these to proof of concept.

Okay. Thank you very much.

Joel Sendek, Stifel.

Let's see, I have two questions. The first, you probably can't answer, but if you can help us out at all. I mean, since -- this is on Kadcyla -- since the drug is approved in Switzerland, do you have any sense of what the price is there, and if that will at all be related to the type of pricing in EU? If you can't answer that, some sort of guidepost that we could use. Then I have a follow up after that. Thanks.

Yes, that's a tough one. Really is one that I think you would have to go to Roche for, Joel. We don't have any particular insight. You've got a whole bunch of different issues and pricing when you get ex-US. They would be the better source.

We haven't been able to find that price. Do you know if it's even disclosed, the Switzerland price?

I haven't found it either.

You haven't?

No.

Okay. I just wanted to make sure. All right. Then, I have a question on expenses. Obviously you guys have a lot of stuff going on to spend money on, but on the other hand, the numbers -- your guidance for the next fiscal year is approximately 20% or so above the last fiscal year. I'm wondering how, as we model it out for a couple years down the road, hoping to get to profitability at some point -- I know you're not going to give guidance beyond the June 2014 year. But just conceptually, how you're think of the trend line for operating expenses over the next few years? If you can give us any help with that? Thanks.

Joel, this is Greg. I think when you look at fiscal year '14 expenses, to dimension it a bit, you could almost look at some of the increase, about $15 million or so of that increase being people-related. We're investing in the organization. We're investing in people, primarily directly associated with the development and advancement of the programs. So we have some modest increases in regulatory, but also in clinical and in program management, those types of functions. But also in the functions that directly support the advancement of the pipeline, things like operations and quality. Then as the team increases, then you end up adding some incremental support people as well. The balance of the increase in the spend, is really directly related to advancement of programs. So whether that's going to be contract manufacturing, whether it's contract services associated with assay development and transfer of programs to external CMOs, because we plan on doing basically pivotal manufacturing at external CMOs.

When you get beyond fiscal year '14, really it's going to be highly dependent on the development of the programs. So the trend line with the slope would increase pretty strongly if we get a strong go signal in 853 or 901, because the investment in pivotal production clearly will be a step up. We dimension that at probably $15 million to $20 million. But hopefully that provides some dimension to how we think about expenses going forward. I think the organization at the end of fiscal year '14 will have made a very strong step forward in terms of positioning itself for advancing these four programs in the clinic.

Okay. That's helpful.

Yes. I would add one other comment to Greg's. In that, as we have those step-ups, that's on the basis of what's in our assets, whose value we think would have been dramatically enhanced. It ties into the earlier question of how we fund that step-up of investment. We have a number of different avenues, whether it is partnerships, if that's the right way to approach it. There are obviously a variety of ways we can fund it. We're watching it very closely, and we're trying to meter our spending, based on asset values as they develop over time. But I think we have considerable flexibility of how we support the increased funding, provided the assets demonstrate that they have the value that we think is there.

Thanks, guys.

Thomas Wei, Jefferies.

I had a question on 901. Just to go back to some comments that were made during the analyst meeting a few months ago. I thought that you had said at that time that you were planning to -- you were still planning on doing an interim analysis of the NORTH study in the second half of 2013, and that you were thinking of releasing some safety data at a conference sometime in the back half of the year as well. Can you remind me, am I remembering that correctly? Is that still a possibility? Or should I take the comments from today to mean that we're really not going to see anything from NORTH until we get to the final data readout in 2014?

Yes, I think as we've thought about what we would have and just how meaningful the data would be as we went through, it became apparent that the -- any -- the originally planned interim analysis was unlikely to be fully informative, given that the starting dose now changed. So that's why that analysis is not in fact being done. In terms of the additional color, in terms of the safety information, again as we thought about the best things and though about the timing, we really feel the best thing's been to try to get through to the end of the study rather than putting anything out. Because I think that again, we'll get much more comprehensive data, and better follow-up. As I say, the encouraging news, of course, is that the patients have gone into the study that we believe that if we can get the remaining patients on soon enough, then maybe there will be an opportunity to get it out by ASCO next year. So at this point, we're generally encouraged with the way things have been progressing with the program. But there will not be any data between now and that time. So your memory is at least -- is mostly correct, yes. But there has been some evolution of the thinking.

With the study as it is ongoing, do you all see on a real-time basis what the rates of neuropathy are in the study? How many patients require dose reductions according to the new protocol?

Not so much on the real-time basis because there's always that lag in bringing data in. Clearly, if there were serious adverse events needing to be reported, those would come through quickly and we would see those. We have regular meetings with our data monitoring committee. It's really at that time that we try to gather the detailed information together. So clearly, we have a sense, but there's -- the data lag means it's somewhat difficult to interpret and to know -- to really be able to think definitively about whether we're seeing a change or not.

Okay. That's helpful. Then one last housekeeping question. Can you remind me for the royalty on Kadcyla -- I can't remember if the royalty starts on the day that Roche gets approval in the geography? When they first launch? Or first commercial sale? Or is it actually upon official government reimbursement approval in that geography? Of course, I'm thinking in particular here about the delay in getting reimbursement approval in certain countries outside of the US.

The royalty is triggered on first commercial sale, country by country.

That's very helpful. Thanks.

Cory Kasimov, JPMorgan.

It's actually Matt Lowe in for Cory today. Just a couple of questions. I guess the first one is in terms of 289. Could you give us any more information in terms of its activity against certain mutations? As a follow-up, any details you can give us on the toxicities which are emerging with 529? Thank you.

In terms of 289, we -- I think the primary thing to be thinking about that, of course, is that we are expecting to see activity wherever there is high expression of the target. So in terms of which may well turn out to be, and should turn out to be independent of mutational status. Therefore, although we are -- we do have some work going on in that area, we don't have those details at this time. But we don't think that the, the kinase domain is going to be -- necessarily be an important determinant of the activity because it's going to be about cell-surface receptor expression levels. In terms of 529. As mentioned earlier, obviously as we get to a medical conference in the near future, we'll give -- the investigators will have the opportunity to describe the observations that we've been making. But as I mentioned earlier, it's consistent with what we've seen with other [monostar] products. It's consistent with what we see typically in Phase I patient populations, where there's been heavy pre-treatment. So the exact significance is always difficult to know, but we are expanding the cohorts per the protocol and getting as much information as we can.

Okay. Thank you.

David Miller, Biotech Stock Research.

I have a question about how exactly you're going to release the data from NORTH. Are we going to get a go/no-go decision with some top line data and then full data at the medical conference? Or just a go/no-go decision and wait for the data?

I don't think our thinking has evolved on that. Part of it, I think, David, is going to be a function of -- we'll want to see the data and see to how most intelligently convey the information. I think the most important element would be, have we made a decision to go through with the various commitments around further development or not? Then to the extent we want -- there is data that will clearly convey our rationale without compromising what the investigators will want to present at upcoming medical conference, we'll figure out if there is a line there to do it. But I think it's -- we'll certainly try to do it in a way that is intelligible and digestible for investors. But I think we have to wait until we see the data to understand exactly what we will say to support that.

Okay. Fair enough. A housekeeping question, the cash balance of year-end, does that assume new product license -- new product licenses will be coming in over the next fiscal year? Or just execution of some of the existing ones?

So the, the fiscal year '14 expected cash balance at year end does include expectations around milestones and up-fronts, say, on an [exercise] of a target license, et cetera.

Okay. So --

It doesn't include new business development activity.

Okay. That's what I was getting at. Great. Thank you very much. Congratulations on your first royalty check.

Thank you.

Ryan Martins, Lazard Capital Markets.

On 853, were you able to confirm the responses that you saw at ASCO? Then can you talk about CD56 expression in the eye? This obviously relates to the blurred vision that we see?

The [essays] on the patients will come out at future conferences. I think as typical, we would want the investigators to have the opportunity to present that rather than to preempt it. Just as a reminder, for 853, it's a folate receptor expression rather than CD56. We believe that this effect that we see with the ocular effects relate more to -- it seems to relate to tubulin inhibitors being bound to other high molecular weight proteins, such as an antibody. It's been seen with a number -- with a couple of other of our BM4 products. It's actually the dose-limiting toxicity in the original Phase I of abraxane. It has been reported with some other ADCs. So it seems to relate to the tubulin protein structure rather than to any specific targets1 that the antibody may be directed at. Just to complete the thought, there's some pretty highly proliferative cells within the cornea, so I think if there is -- it's a very vascular area. So if there is a substantial amount of [dope] being carried to that zone, it's perhaps not completely surprising that some effects will be seen. As I said earlier, I think if we can get to understand the PK, get to understand the lower doses where we may be able to manage this, I'm very confident that we'll be able to find an appropriate therapy to [connect] with the development of what is appearing to be an active compound.

Okay. Then on 289, you've shown some activity in T790M mutation cell lines. Will you have T790M or mutation patients? You'll plan to have them in your Phase I trials?

In the Phase I studies, we'll be open to any patients who we believe are likely to be expressers of EGFR. When we get into dose expansion, we'll be very interested to see patients who have had previous TKI treatment and benefit. So that will undoubtedly include some of the T790s. We're not, at this point, thinking that we need to necessarily narrow it in that way, as I was discussing in the previous response, because it's -- that we think this is going to be less about mutational status, less about the kinase piece of the receptor and more about the cell-surface expression of the protein. So obviously the data I think will be interesting, but I think the real opportunity here, hopefully, is to be able to take this into groups such as the squamous population, where the currently available EGFR targeting agents have not been significantly beneficial.

To follow up on that, can you talk about the skin toxicity that you -- do you see none at all? Or do you see some level of skin toxicity? If you can compare to tyrosine (inaudible).

Well, there is -- it's not zero. But at the same time, it's pre-clinical information. It's a very helpful sign that we may be able to avoid that antibody directed -- or antibody related toxicity. That's encouraged us to be able to go forward with this particular antibody and this particular compound. But I think it's now about exploring this clinically. We're now very pleased to say that without any major discussion with FDA, we've got the approval of the IND and we're ready to go.

Okay. Thank you.

John Sonnier, William Blair.

This is Dimiter Tassev in for John Sonnier. I just had one question. Regarding the NORTH study, with the modified dose down to 90 milligrams per meter squared of 901. Could you tell us what the normalized reduction in etoposide and carboplatin was in that cohort? How much of a reduction we -- you guys were seeing in etoposide and carboplatin going forward with the other lower dose cohorts as well? Thank you.

I don't have that kind of granular information at this point. I mean, just as a reminder, we're using pretty standard doses of both carboplatin and etoposide. With carboplatin at AUC of five and etoposide at 100. We will have a great level of detail on those as we announce the data at a later time point. Obviously, it's going to be an important consideration as we try to understand the -- what we hope will be the benefits that we see at the end of the study.

But if I understand the question, there wasn't any adjustment to the etoposide carboplatin doses as we adjusted 901. Those --

They continue to be administered at the same doses. Within the dose management scheme, for a second dose reduction, there is the option to include a reduction of the other agents as well, but the first step is a reduction in 901.

Okay. So there was, at least with the 90 milligram per meter squared, there was no reduction in etoposide and carboplatin?

That is correct. Yes.

Okay. Thank you.

That concludes our question-and-answer session. Ms Hausner, I would like to turn the conference back over to you for any additional or closing remarks.

Thank you. I would like to thank everybody for their interest. As always, if you have any additional questions, just give us a call. Have a nice day. Take care.

Ladies and gentlemen, that concludes today's conference. Once again, thank you, everyone, for joining us.