Imunon Inc (IMNN) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Celsion fourth quarterly regular conference call.

[OPERATOR INSTRUCTIONS].

As a reminder, this conference call is being recorded for replay purposes.

Celsion wishes to inform readers that forward-looking statements in this conference call are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements involve risks and uncertainties, including, without limitation, unforeseen changes in the course of research and development, and in clinical trials by others, possible acquisitions of other technologies, assets or businesses, possible actions by customer suppliers, competitors, regulatory authorities, and other risks detailed from time to time in the company's period reports filed with the Securities and Exchange Commission.

I would now like to turn the presentation over to your host for today's call, Mr. Tony Deasey, Chief Financial Officer.

Please proceed, sir.

Good morning and welcome to Celsion's quarterly update. I'm going to focus my remarks today on two areas of our business. First, I'll give you an update on the progress of our Prolieve BPH treatment business, and second, an overview of where we are in relation to resolution of the issues raised by the FDA in the warning letter that we received last May.

As you are aware, the business model under which we're introducing Prolieve allows for the placement of control units in physicians' offices for an evaluation period, during which Boston Scientific trains the physician and staff, and the physician has the opportunity to treat patients.

At the end of the evaluation period, the physician is required either to buy or return the control unit. As of the end of the third quarter, 11 units had been sold, and an additional 46 units were under evaluation. That is, there were 57 units in the field as of the end of the third quarter.

To date, the conversion rate of evaluations to sales is almost 100%. Since the product was introduced during the latter part of February, almost 1,000 patients have been treated, and patient and physician reaction to the system has been very positive.

We remain optimistic that by the end of the year, close to 100 machines will be in service. As we've worked with Boston Scientific to introduce the Prolieve system, we've recognized that we're working with a very complicated, fully automated treatment system. In order to ensure that Boston's sales force, and ultimately the physicians and their staffs, are properly trained, early on we made a considered decision to manage the Prolieve rollout on a very controlled basis.

Even with this in mind, though, during the third quarter, the introduction moved somewhat more slowly than we would have liked, due to a product recall in July. The recall, which was related to a software glitch, did not involve the actual physical return of any machines. While I recognize that the use of the term recall may be somewhat misleading, and immediately raise concerns, it is the FDA's technical term for what happened.

In our case, the FDA allowed us to apply a software update to the 28 machines then in the field to correct the software problem. More recently, we've upgraded the software package and applied a permanent fix. The issue is now behind us, and we're satisfied that the software's operating as designed. At no time was any patient at risk as a result of this problem.

We continue to be pleased with the way the introduction has been handled by Boston. Boston is supporting the product and the rollout with very substantial financial and human resources, and we're confident that this will result in an accelerated market introduction as we move forward. As the fourth quarter 10-Q indicates, our revenues for the quarter were up by 22% over the prior quarter.

It should, however, be remembered that the second quarter revenue included an initial stocking order for the Boston warehouse, and was also impacted by the recall, which I discussed earlier, which had something of a dampening effect.

However, I expect that we will see greater increases in upcoming quarters. It looks like matters are proceeding as we intended, and that income generated from Prolieve will provide financial support to our ongoing research and development initiatives. The success of those initiatives, of course, depends in no small part on our success in addressing the various issues raised in the FDA's warning letter.

As we previously had reported, in our initial response to the FDA last May, we committed to being fully compliant by the end of October, and we provided milestones demonstrating how we propose to meet this goal, which enabled the FDA to measure our progress.

On August the 20th, we received a letter from the FDA, that among other things acknowledged our corrective actions to date, and our commitments to current and future compliance with applicable regulations, and indicated the FDA's agreement that proper implementation that the corrective actions that we've proposed, should prevent recurrence of the problems cited in the warning letter.

We have met all of the milestones set out in our correspondence with the FDA, and are confident that, going forward, we will be compliant with all of the relevant regulations. Getting to this point has been an enormous undertaking that included writing standard operating procedures for all our clinical practices, remonitoring all of our past and active studies, implementing actions to correct issues identified in the remonitoring process, both at Celsion and at our clinical sites, recruiting external clinical research organizations to manage our trials going forward, and replacing our existing clinical staff with personnel experienced in managing under the new paradigm of externally resourced clinical management.

This process has absorbed substantial resources, both in terms of staff and of financial outlays. And it had to be accomplished while assuring that we continued to manage and support the Prolieve product in a way that would facilitate and support our programs going forward.

We believe that the process of coming into compliance has largely been completed and that the systems and procedures in place should ensure compliance. However, as the FDA pointed out in its August the 20th letter, ultimately the adequacy of our corrective actions, processes and procedures is subject to verification as part of a future FDA audit.

Until the FDA has performed an audit, we cannot be entirely sure that we have a clean bill of health. You can however, be assured that we've taken all actions that we believe necessary to put our house in order. If an FDA audit were to turn up any shortcomings, we're confident that they will be relatively minor in nature and that we have the resources and processes to address them promptly and effectively.

The upshot of all this activity in response to the warning letter is that since May the 7th, we have restructured the company. We've hired new staff with specific knowledge, skills and experience in the areas in which they're being asked to perform. By managing future trials through clinical research organizations, we will have access to the substantial and very experienced clinical and regulatory staff of these organizations, as well as to their databases of clinical sites and investigators from which we can recruit for future and current trials.

These resources should allow us to perform our trials more efficiently and in a more compliant manner than previously.

Turning to the balance of the business. We're in the final stages of preparing to treat the first patient in our liver cancer phase I trial. We expect to treat the first patient before the end of the year. We've suspended enrollment in the prostate cancer phase I study while we completed the remonitoring exercise. We expect to restart that study early next year.

We continue to project that our net monthly cash expenditure - that is the amount by which expenditures exceed income from sales of Prolieve, should average around 800,000 per month through the end of 2005. At that rate, our current cash resources should be adequate to fund us through the end of next year.

The search for a new CEO is continuing. The board is hopeful that the search will be concluded before the end of the year. In summary, the last six months have been extremely difficult for everyone. As stockholders, you've seen the price of our stock erode, and as employees, we've been burning the midnight oil to establish an effective clinical development infrastructure.

Believe me, we would have preferred to have been treating patients and completing the phase I dose escalation study for prostate cancer. However, the FDA warning letter could well have been the best thing that could have happened to Celsion, since it forced us to grow up as an organization.

Having been through the process, it is my view that we are a much stronger organization, which should be able to create clinical trials faster and more effectively, along a more predictable timeline.

Thank you, and I will now take your questions.

Thank you.

[OPERATOR INSTRUCTIONS].

And your first question comes from Calis Roberts (ph), a private investor. Please proceed.

Yes, good morning. Thank you very much for that update, and I understand that it's been a very difficult time for you and it sounds like you've done a very good job in getting through it. You haven't mentioned anything about what your outreach into China is.

I believe that there - the agreement you have with Boston Scientific does not cover all the world, it covers United States and I think some other countries - I can't remember - but does not include Asia. And I understand, at least I think I understand, that there has been a fair amount of contact with hospitals and work in China. Could you give us any indication of if that's going on, and to what extent it is going on, please?

Yes, as I think we said on the last call, we have recruited a general manager for the operation in China. He came on, on a part-time basis on September the 1st and will be with us full-time on January the 1st. We have spent a lot of time going backwards and forward to China, and in that time - two things we'll look at separately.

First, we have applied for approval for the BPH device in China and that's progressing. Hopefully, we'll get that approval sometime in the first half of next year. And, secondly, we've built up a very strong network of clinicians and research people in China, which we believe will be very helpful to us as we move along in terms of accelerating the development of particularly our liver cancer and other cancer programs.

So, although we've not announced a lot, taking things - or setting things up in China takes a long time, but we're making good progress and I expect that we'll have much more to announce early next year.

Are you intending to set up - well, I know you don't know exactly what you're going to do, but one of the options being having another Boston Scientific, some other company similar to that in China to do it with a similar arrangement with you, or would you have a more hands-on effect? Would you ...

I think in China it's more likely to be more hands on. I don't think it's going to be so easy to have one distributor handle the whole of China. It tends to be quite regional. And the other consideration is that where in the United States, because we have reimbursement for the BPH product, it's a mass-market product, if you like, in China it's more likely to be a high-end market, so you're going to be able to position it in high-end clinics for patients that can afford to pay for the treatment. So it will be different to hear.

Yes, OK, thank you.

And your next question comes from Cliff Troy (ph) of RBC.

Please proceed.

Hey, Tony, it's Chris (ph).

Hi, Chris.

Why wait until the new year for the prostate trials, and in addition, could you comment on what the company's plans are now for breast cancer? Are you planning on going ahead with Duke in the ThermoDox technology, or do you plan on possibly restarting using RFA technology, as RITA Medical is now doing?

Answering the first question in terms of restarting the prostate trial, the only reason for that is we have to get clinical research organizations up and running. We have the same organization doing the trials for prostate and liver and our priority is to get the liver trial started. And given that we now have six weeks between now and the end of the year, with quite a lot of downtime over Thanksgiving and Christmas, it would be impractical to promise to do anything earlier than that.

Secondly, in terms of breast cancer, we are still working on a number of options in terms of how we'll move forward, and I would say we will be in a position to talk about those probably early next year, too.

One follow up then on the Prolieve success. Is that enabling the company to better get in front of doctors to make them aware of your ThermoDox technology for prostate cancer? Are you finding that at all at this point in time?

Ultimately, it will. At this point in time, we're more focused on getting the urologists to use the product for BPH. I think to start talking to them about prostate cancer potentially could be a distraction from the rollout.

OK, thank you.

Thanks.

And your next question comes from Marvin Border (ph), a private investor.

Please proceed.

Yes, thank you. I have a question regarding the potential effect of competition on anticipated revenues. I had read a report somewhere that a competitor of yours had lower revenues than they had anticipated due to the effect of Prolieve. And I was wondering if you could comment on whether the degree of revenues you anticipated relative to the competition were impacted much by that.

I think our product is being rolled out. We have about 60 machines out there where we have the machines out there and we're treating patients. Both the patients and the physicians are happy. And there's a limited field of urologists, so that when we go out there with a new product, which we believe has some advantages over the other product, then it will have an effect on the other products that are already in the market.

But so far, are you getting the revenues that you anticipated from the machines that have been installed, both from the machine point of view, and then also from the usage point of view on their (ph) frequency?

Well, we recorded revenues of 400,000 and some thousand in the second quarter and 580,000 in the third quarter. So, yes, we're getting revenues now, and I would expect those revenues to increase sufficiently in the fourth quarter and then into next year as we establish a base of machines in the field.

And, Tony, could you indicate about what the frequency of usage of those installed machines is? I mean, is it a week or a month or ...

To be honest, it varies across the lot. Some physicians are using it a lot. I've known physicians who've used it seven times in a day, but it's very difficult to figure out a rate, an indicative rate, per machine, at this point, because we're still going through the evaluation periods and what have you. So I don't think it would be possible to figure that number, although that number in the long term is really the measure for how successful this business will be.

OK, thank you.

Thank you.

And your next question comes from Bill Kugel (ph) of Salomon Grey Financial.

Please proceed.

Tony, hi, how are you doing?

Hi.

I have a client that was actually treated with Prolieve about three weeks ago, and he was treated by a group that actually bought a Prolieve machine and are taking it around to, I guess, smaller urologists' offices, performing treatments on their patients in the doctor's office itself. I was wondering if you could give us any kind of insight on any type of PR campaign by Boston Scientific that might be going to be initiated to make the general public aware of what's available with the Prolieve treatment.

It seems to me like what my client did is he went to his urologist's office and requested the device, or requested the treatment, and they found this mobile provider that was able to come in and do the treatment and everything's worked out great, and the guy is as happy as he could possibly be.

Is there any kind of efforts you know are underway, or any kind of anticipated start date on a PR campaign to get people aware that this is now available to them? It's an option that men can look at?

Yes, Boston has engaged an advertising agency, and they have done an enormous amount of research in terms of positioning this product, and their first target, obviously, is going to be urologists. And then once the urologists are aware and want the product, then they need to go directly to consumers. I think that effort will start expanding early next year.

Another question I have about the second quarter revenues versus the third quarter revenues, I think you pretty much indicated that the second quarter revenues, a lot of that was stocking by Boston Scientific to actually gets some kits in house.

Yes.

The third quarter numbers, was that more of just indicative of the procedures being done and just selling the kits for the procedures?

Yes, we were basically filling - as kits we used from inventory, we were replenishing the inventory. But as we move along, as more procedures are performed, then we're going to have to provide Boston with more and more catheters, and we're seeing that rate of demand accelerate.

On the ThermoDox trials for prostate cancer, I know there was a certain group of patients that had been treated, I believe, at sites I believe in South Carolina and Louisiana.

Yes.

Are those sites going to continue to be involved in the clinical trials, or this new organization, are they going to redo the sites that are going to be used in the phase I trials, the dose escalation study?

We're going to evaluate all the sites, and to me the big benefit of having a CRO on board is that they should be able to identify sites that have a large patient population so that we can complete this phase I study as quickly as possible.

Do you have any idea the anticipated date that might be completed, obviously sometime in the summer?

It really depends on what the maximum dose turns out to be, because the way a dose escalation study words is you treat there patients in each cohort and you keep moving up a level of increasing the drug level until you reach a grade four toxicity, and then you back off one level. And we haven't reached a maximum dose yet, so I would hope it's done by the summer, but it's all dependent on the dose.

Now, you say you are treating a cohort of three patients at each dose level.

Right.

That sounds like it's - frankly, that's not a lot of people. That should be something that you would think would be able to move through pretty quickly.

Well, these people, you have to remember, are pretty sick people. They have hormone refractory prostate cancer, and it's not that easy to recruit them. The other thing is, you have to wait 30 days between each cohort of patients to measure the toxicity, and you have to wait between patients. So you would think it wouldn't be that difficult, but these are very sick people and there's quite a lot of competition for patients for prostate cancer trials, too.

Now, this organization that you've hired to monitor your clinical studies, is that like going out and hiring somebody to audit your books? You know what I mean? There's a group of people out there that do that.

There are a lot of clinical research organizations out there of all different sizes and different specialties, but these people, as a business, run clinical trials. So they make sure your protocols are right, that your investigative brochures are appropriate, that the investigators are complying with the protocols, that they're reporting any adverse events, that they're following up on patients.

It's like outsourcing any specialty field, where this is what these people do for a business. And the group we have engaged specializes in cancer trials.

Well, it would seem that during the phase I trials, as long as the group is competent, because you're not talking about a lot of people, that would be something that could move pretty smoothly, but as you get into phase II and phase III, when you expand the patient population, are they - who's going to be responsible for holding their feet to the fire at your company for recruitment into the trials, for expanding the clinical trials, for expanding the clinical sites? I mean, do you have somebody there at your company now that's going to be holding their feet to the fire to make sure they're doing what they can do in the most expeditious way possible?

Yes, we have a VP of Product Development, and reporting to him he has the Director of Clinical Operations.

OK, so they're going to be the people ...

And ultimately the COO and CEO are going to be responsible. So, in the last few months, we've had I won't call it a distraction, but we've been focused on making sure we're compliant, because there's no point in going forward in a non-compliant manner. But now that we are in a position where we are compliant, the focus is going to be entirely on getting these trials done.

Well, I understand your point about the FDA, and you never really know if you're compliant until they come in and look at everything. I mean, I think it's impossible.

And you don't know - the FDA audit is going to have a hot button. You hope that you've covered that, but you don't know until you're audited.

But based on the letter you received, the responses you've outlined, you believe everything is compliant as it could possibly be, without further review.

We do.

OK, good. All right, that's all I have. Appreciate it.

Thank you.

[OPERATOR INSTRUCTIONS].

And your next question comes from David Spada (ph), a private investor.

Please proceed, sir.

Hi, Tony.

Hi, David.

A question regarding the prostate phase I. Do we have to start from ground zero in 2005, or can we use some of what's been done in the past as a basis for getting through phase I?

No, we will be able to use what we've done to date in completing the phase I.

From a percentage of completion, how far along are you?

As I said to the earlier questioner, David, you don't know. You don't know until you reach the maximum dose. We've some toxicity at the levels we're at, but until you reach that grade four toxicity, you don't know you've reached the maximum dose, and therefore you don't know how far along you are in the trial.

I suspect we're coming close to toxicity, but I can't give you a definitive answer on that.

What's your - as far as for your plan for 2005, what would be your target date for completion of phase I?

I would hope to get it completed in the first half of next year.

How soon - you have to then submit to the FDA, and then how soon will then you think be starting phase II?

We have to define our clinical strategy in terms of how we move forward with this product. We may not necessarily go directly to a phase II. We may go to a Ib or a IIa, which is some sort of an efficacy study. But I would think as soon as we've established the maximum dose, we should be able to move into that study.

OK, thank you.

Thanks, David.

And your next question comes from Steven von Walter (ph) of Michelin North America.

Please proceed, sir.

Tony?

Yes?

Tony, just a question about the revenues generated for the quarter. They only include the kits, or did they also include the kits and the machines that the physicians took the option on to purchase?

No, we had 11 machine sales in the third quarter.

So machines that are out there that haven't been sold yet, that revenue will be recognized when that physician makes that ...

When the physician makes the decision to buy the machine at the end of the evaluation period.

And, I think I've heard you in the past say the price of the machine is $28,000 to $30,000, something like that.

The list price is $28,000, but obviously it's not always the same.

Sure. That's all I had. Thank you, Tony.

And you next question comes from James Cole (ph) of Cole & Company.

Please proceed, sir.

Tony, could you give me an estimate on the length of the permanence of the Prolieve system versus the future potential retreatment, and the urologist results of treating their patients versus the original clinical trials?

All I can say is that we have data that supports one year. As you know, one of our competitors got a warning letter recently about making claims that they hadn't substantiated to the FDA. We have got data on our label that supports one year. We believe and are confident that the treatment will last longer, but I can't make any claims about that.

That was the first part of the question. Were there other pieces?

Yes, other results like the percentage of patients that must wear catheters? Is that ...

A very high percentage of our patients are leaving the doctor's office not wearing a catheter, and it's very high. So most of our patients are leaving the doctor's office, and they're not wearing a catheter.

Thank you.

Thank you.

And you have a follow-up question from Mr. Bill Kugel of Salomon Grey Financial.

Please proceed, sir.

Tony, hi, sorry about that. I have a question about the liver cancer trials. You said you expect to treat the first patient before the end of the year.

Yes.

That's basically a dose escalation study, like prostate cancer.

Right, right.

So we get - is it logical to assume that we could also look to see some results from that towards mid year 2005?

Yes, I mean, that's a - I would hope we should see by the middle of next year, but we haven't enrolled the first patient. I don't know what the velocity of enrollment's going to be. I have a high level of confidence that the NIH is going to have a good rate of enrollment. And again, it really depends on what dose we end up at.

So, middle of next year is OK for now, but it really depends on our experience as we move forward.

OK. Now, in the prostate cancer trials that were ongoing, the ones that you suspended. I know this is probably a kind of a ...

Well, we suspended enrollment. We didn't suspend the trial.

Right. Is there anything at all from the treatments that you were able or the doses that you were able to deliver that you can tell us about any kind of efficacy at all in what you saw?

No. No, I can't tell you, no.

OK.

We'd have to report to the FDA, and we'd have to publish papers and stuff like that. So the answer is no.

All right. That's (inaudible). I appreciate it.

OK, thanks, Bill.

And your next question comes from Mr. Steve Simmis (ph) of Celsion Corporation. Please proceed, sir.

Yes, excuse me. I'm a Celsion owner. I'm a private investor. I'm not an employee.

I thought we must have new employee today.

No, no, excuse me. The FDA audit, for the purpose of removing the FDA warning letter, am I to understand that has already begun?

No, it has not.

OK.

What's happened is that on August the 20th, we got a letter from the FDA, which basically recognized what we've done and said that what we were doing is the right thing, but we were subject to a future audit. The FDA will turn up one day at the front door and do an audit and we're ready for when that happens.

OK, and do you anticipate that to begin before the end of the year, and when it does begin, how long is that procedure?

To be honest, we're prepared for it to start before the end of the year, but whether it will start before the end of the year, I don't know. And the audit, one would hope, would be a matter of days.

Oh, excellent. Excellent. Thank you very much.

Thanks.

And your next question comes from Mitch Landgraf (ph) of Celsion Corporation.

Please proceed, sir.

Hello, Mr. Deasey, I'm just a private investor. Actually found your company as an unfortunate event related to liver cancer, and I'm actually mostly excited about what's going on with liver cancer, having NIH behind it, the crucial need for something effective for liver cancer, and the encouraging results that I thought I read in regard to your trials in horses.

Following off of that question from Bill, I know you can't really comment on anything because you haven't published anything, but could you comment on perhaps what you would see in your beginning efficacy studies or anything that you know out there that might encourage you to address the idea of some sort of fast-track process with the FDA? Or can you not comment on that?

Well, I can comment. There's two things there. One is that liver cancer is an orphan indication, in that the incidence is very low. Secondly, the way fast-track works is that the first and foremost you've got to establish a safe dose for the drug, which we'll do over the phase I dose escalation study. Then you go into a phase II, and if in the phase II you see efficacy, then you can go back to the FDA and apply for fast-track approval.

And you mention the possibility of something like a two-way whatever, maybe even mid-year ...

That was for prostate cancer. That's a different study. Prostate cancer, there's no way that's an orphan indication, because there's a very high incidence of prostate cancer. So that's a different clinical process.

And so a rough estimate of when we might begin phase II efficacy studies on the liver cancer with ThermoDox would be approximately when?

It depends on how long it takes to establish the maximum tolerable dose.

Right, which you've just addressed. Well, thank you very much.

OK, thank you.

[OPERATOR INSTRUCTIONS].

You have no questions at this time.

OK, well, thank you everybody for listening in. We're encouraged by where we are. We think the company is being restructured. We have terrific staff, we have great CROs we've brought on board, and we look forward to making very good progress in the balance of this year and through next year.

And thank you all for your support and for listening in. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.