Sellas Life Sciences Group Inc (SLS) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Galena Biopharma's second-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to hand the conference over to Ms. Remy Bernarda, Vice President of Marketing and Communications. Ma'am, you may begin.

Good afternoon, everyone, and thank you for joining our call today. For those of you listening via telephone, I would encourage you to visit our website for access to the webcast and to find additional information on the Company.

During today's discussion, we may make forward-looking statements about our programs. Such statements include, but are not limited to, statements about our commercialization plan and the development progress of our clinical product candidates, including patient enrollment, trial initiations, and collaborations.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those identified under Risk Factors in our annual report on Form 10-K and other documents filed with the SEC and available on our website. Actual results may differ materially from those contemplated by those forward-looking statements.

I would now like to introduce the members of Management on the call today who will discuss our business. Mark Ahn, our President and CEO; Mark Schwartz, Executive Vice President and Chief Operating Officer, who will discuss our commercial business; Brian Hamilton, Executive Vice President and Chief Medical Officer, who will discuss our clinical programs; and Ryan Dunlap, our Vice President and Chief Financial Officer.

Mark Ahn will now begin our discussion with an update on our progress and plans going forward.

Thank you, Remy, and thanks everyone for joining our second-quarter conference call.

In addition to a strong second quarter in all programs across the Company, we've had two exciting recent announcements. On the commercial side, we saw continued strength towards actual profitability with the implementation of our Galena Patient Services, or GPS program, ensuring access and strengthening our competitiveness with steadily increasing market share to 7% in a market that actually declined last quarter.

In addition, on July 22, we announced that we entered into a definitive agreement to license ondansetron oral soluble film, known as Zuplenz. We finalized that process last week and we have already begun preparations for launch in early 2015.

Importantly, our lead immunotherapy programs have made significant advances in the second quarter. As Brian will discuss, last month, we informed our clinical sites that our Phase 3 NeuVax PRESENT trial has screened sufficient patients to achieve the protocol-stated sample size. We've now focused on completing our efforts at randomization activities and heading towards our event-driven interim analysis.

In addition, on April 28, we announced a Department of Defense grant to provide funding towards a new clinical trial with NeuVax to prevent breast cancer recurrence in high risk HER2 3+ patients. This study will expand the breadth and depth of our NeuVax pipeline as we move into the 3+ or, so called, HER2 positive patient population category in breast cancer.

In fortifying our IP portfolio, in addition, we received a new US patent for NeuVax, providing additional protections for our lead clinical asset through 2028. And for GALE-301, or folate binding protein, we presented our preliminary Phase 1 data at ASCO and announced the completion of our enrollment of our Phase 2a clinical study.

Advancements have also been made with our hematology asset, GALE-401, or anagrelide CR controlled release. As you may recall, we acquired GALE-401 in 2014, in January 2014, and the team has made significant progress on accelerating this development program on a 505(b)(2) regulatory basis. I'm pleased to report that, as of today, Phase 2 clinical trial sites are open and ready for enrollment.

And lastly, I'd like to take a minute to address the status of our so-called special committee. As previously reported on February 17 of this year, our Board of Directors formed a special committee to conduct an internal investigation of certain allegations contained in negative press reports and subsequent lawsuits.

The special committee has gone through an extensive diligence process to ensure the thoroughness and accuracy of their findings and, as of July 21, had completed its investigation. The Board has now appointed Irving M. Einhorn, a former senior federal prosecutor with the SEC Division of Enforcement to take any and all actions he deems necessary to respond to these claims. While the Board awaits the final results of the investigation, we're cooperating fully with all involved with reviewing the matters at hand.

Obviously, we believe that great govern answer is good business, and we've already begun to put safeguards in place and implement changes in policies internally to ensure we have best practices an on all of these matters and everything across the board in the Company. Although we don't have an update on timing, we look forward to moving beyond this distraction and building value for our patients and shareholders.

With that, I'll now ask Mark Schwartz to discuss our two commercial programs, Abstral and Zuplenz.

Thank you, Mark.

Our Abstral business continues to grow and we remain excited about and committed to the brand. As a reminder, Abstral is a transmucosal immediate release fentanyl, or TIRF product, for the treatment of breakthrough cancer pain in opioid-tolerant patients. Our commercial organization continues to focus on a strategy to broaden patient and provider access to the product, while increasing profitability of the product line.

There are four primary factors have resulted in continued product expansion and a stable business foundation upon which to build: first, ensuring availability, reimbursement, and insurance coverage; second, optimizing our Patient Assistance program; third, strengthening our distribution and our wholesale partnerships; and finally, continued development of our prescriber base. In Q2, we saw growth and improvement across a number of key metrics over Q1.

We saw an increase of 13% in a number of unique Abstral prescribers, with 40% of these new prescribers practicing in a field of oncology or palliative care. With our optimized Patient Assistance program, our average per prescription price has increased by more than 20%.

Our Q2 market share, as measured by Wolters Kluwer, increased to 7% of prescriptions written, despite the fact that the overall branded TIRF market declined in prescription volume over the same period. These improvements are a direct result of our team's focus and our customers' belief in the unique benefits of Abstral.

As a reminder, last March, we implemented the Galena Patient Services, or GPS program, to provide full-service support to healthcare professionals, pharmacies, and patients to help them navigate the benefits approval process for our products. Increased physician utilization and experience with the GPS has benefited both patients and providers in an increase in the number of approved prior authorizations, improved insurance coverage, and decreased paperwork for the practices, all of which provide for improved patient access to Abstral.

The optimization of our Patient Assistance programs has resulted in a shift from voucher usage to co-pay utilization, which has resulted in a significant reduction in the dollar spend on our Patient Assistance program from Q1 to Q2. This reduction has resulted in improved profitability and higher value prescriptions. We expect these numbers to continue to improve in the current quarter.

On Monday, Express Scripts made public their formulary exclusion list, which included a partial exclusion for Abstral, as well as exclusions for other oral-branded TIRF products. This exclusion will take place on January 1, 2015. This exclusionary decision will impact the Express Scripts national formulary, which comprises approximately 62% of the Express Script commercially insured lives.

Based on our current contract utilization data from Express Scripts, we believe this exclusion will impact approximately 5% of Abstral revenue. The remaining 38% of lives covered by Express Scripts formularies is not affected and Abstral will remain on the basic- and high-performance formularies.

We also maintain a strong contractual relationship with Express Scripts on the Medicare Part D portion of their business. As well, our GPS program will continue to work with Express Scripts on a case-by-case basis when relevant to pursue potential coverage for patients.

As you've heard, we've built a robust infrastructure for our commercial business that allowed us to expand our commercial product portfolio with the acquisition of Zuplenz. On July 22, we announced a definitive agreement to license Zuplenz for sale in the US. I am pleased to announce that deal was finalized last week.

The acquisition has expanded our oncology supportive care franchise, giving us two products to treat the side effects for patients suffering from cancer. The active ingredient in Zuplenz, ondansetron, is widely prescribed to prevent nausea and vomiting caused by cancer chemotherapy, radiation therapy, and surgery. Ondansetron belongs to a class of medications called Seratonin 5-HT3 Receptor Antagonists, and it works by blocking the action of serotonin, a natural substance that may cause nausea and vomiting.

Zuplenz is indicated for the prevention of highly and moderately emetogenic chemotherapy-induced nausea and vomiting, radiotherapy-induced nausea and vomiting, post-operative nausea and vomiting in adult patients, and is also approved in pediatric patients for moderate emetogenic CINV. Zuplenz is an oral-soluble film that dissolves on the tongue in less than 30 seconds.

We licensed the products for MonoSol Rx, the developer of the oral-soluble film called PharmFilm. They will also continue to manufacture the drug for us. The PharmFilm technology is designed to enable rapid absorption, increase convenience, and improve compliance for our patients. According to the data from Wolters Kluwer, the oral 5-HT3 market exceeds $1 billion in the US. We are currently running a detailed analysis of the branded oral market for Zuplenz in preparation for our launch.

Zuplenz is an oncology-supportive care product, as we mentioned, and it will be promoted through our existing commercial organization. The primary call point for Zuplenz will be with oncologists, hematologists, radiation oncologists, with an expanded indication to include post-operative patients as well. Importantly, we'll be able to leverage our existing sales force and our commercial team to add the product to our commercial portfolio.

We'll capitalize on strong relationships the commercial team has built with providers, pharmacies, and distributors, and we will continue to leverage our GPS program to support ease of access for patients and practices to our new product. Galena's launch of Zuplenz is planned, as I had mentioned, for the first quarter of 2015.

With that, let me turn the call over to Brian Hamilton to discuss our broad clinical development pipeline.

Thank you, Mark. I am pleased to provide an update on the progress we made in -- with our clinical programs during the second quarter.

I will begin with our immunotherapy programs. As a reminder, our immunotherapy approach for both NeuVax and GALE-301 is based on the selection of a validated target antigen utilizing a peptide vaccine and targeting patients in the adjuvant setting who have minimal residual disease after completion of their primary treatment, but remain at some risk of tumor recurrence. The aim with our vaccines is to stimulate the immune system to prevent the recurrence of cancer.

As Mark Ahn mentioned, we reached a significant milestone with NeuVax last month in our pivotal Phase 3 PRESENT trial. PRESENT is enrolling women with breast cancers that have initially spread to the local lymph nodes and expressed low or immediate levels of HER2, referred to as 1+ or 2+ expression. These breast cancer survivors have no evidence of disease after completing their initial adjuvant therapy and have a 20% to 25% risk of recurrence. The end point for the study is disease-free survival.

On July 1, we notified our trial sites that we have screened sufficient patients to achieve the protocol-stated sample size. With this, we are now focused on completing randomization activities and heading towards our event-driven interim analysis. I'm grateful to our clinical team who has accelerated their enrollment activities over the last six months, to our investigators who have supported the study, and to the women who have volunteered for the trial.

In addition, our Phase 2 clinical trial of NeuVax in acquisition with Herceptin is ongoing and we expect to complete enrollment by the end of next year, with a primary end point of disease-free survival at two years. We are targeting 300 patients who have HER2 1+ or 2+ and are node-positive or high-risk node-negative.

We also have two additional planned trials for NeuVax. The first is in collaboration with our partner, Dr. Reddy's. We are supporting the efforts of Dr. Reddy's to initiate a Phase 2 trial in patients with gastric cancer in India. This is important as another potential indication for NeuVax, because adenocarcinoma of the stomach is one of the leading causes of cancer deaths in several areas of the world, and most notably Japan and other Asian countries. We expect this trial to begin in 2015.

The second trial will investigate the combination of NeuVax and Herceptin in a subset of the HER2 or HER2 3+ patients. As we reported, this study is partially funded by a Department of Defense grant awarded to Dr. Beth Mittendorf of the MD Cancer Center, who is the principal investigator.

The DoD funding demonstrates the increasing interest in this approach to stimulate the immune system to prevent the recurrence of breast cancer. This marks the first dedicated NeuVax study in HER2 3+ patients and an expansion of the potential patient population. We expect this trial to start in the fall.

In addition to the progress in our clinical trials, we have made nice progress in the patent front, as well. Last week, the US patent office formally issued the patent we previously announced covering the use of NeuVax in HER2-expressing tumors, alone or in combination, for tumors with a FISH of less than about 2.0. This patent extends the coverage to NeuVax to all HER2-expressing tumor types and the use of NeuVax in combination with other drugs or adjuvant for the treatment in patients with a FISH less than about 2.0.

To close out our discussion in our immunotherapy assets, we are also developing GALE-301, a peptide vaccine that stimulates T lymphocytes to recognize and destroy cancer cells that express folate binding protein, and is expressed at high levels in most endometrial and ovarian cancers. The data on the immune response to the vaccine in the Phase 1 trial was presented at ASCO this year in June.

This preliminary data showed a 50% recurrence rate in 14 control parents compared to a 25% recurrence in 16 vaccinated patients after completing the primary vaccine series. Importantly, the vaccine stimulated delayed type hypersensitivity, or DTH immune responses, and the patients who had a recurrence displayed lower mean DTH reactions to these -- to the vaccine, which suggests a good correlation between the immune response and clinical outcome.

Of note, no recurrences have been observed in the optimal dose cohort receiving 1,000 micrograms of peptide. This preliminary Phase 1 data set is providing encouraging safety and efficacy data to warrant further evaluation.

We are also pleased to make the announcement last quarter that the GALE-301 Phase 2 trial enrolled ahead of schedule, and we are now treating and tracking these patients. Once more data becomes available, anticipated by mid-2015, we will determine whether GALE-301 should be evaluated in an additional randomized Phase 2 trial.

Now, moving on to our own hematology compound, we are excited to announce that our Phase 2 proof-of-concept trial of GALE-401 or anagrelide controlled release is open for enrollment. As previously mentioned, GALE-401 is being developed under an accelerated 505(b)(2) pathway.

GALE 401 is under development for the treatment of thrombocytosis, or elevated platelet counts in patients with a family of diseases that are collective called the myeloproliferative neoplasms. The Phase 2 trial will be enrolling patients with these conditions, including polycythemia vera, chronic myelogenous leukemia, and essential thrombocythemia, or ET. In summary, we have made steady progress towards our clinical milestones.

I'd now like to hand the call over to Ryan Dunlap, who will summarize the Company's financial results.

Thank you, Brian, and good afternoon everyone.

Net revenue from Abstral sales for the second quarter of 2014 was $2.3 million, an increase of 7% from last quarter and $4.5 million for the first two quarters of 2014. We've seen continued growth in market share and continued decline in our gross-to-net deductions, which aren't reflected in the net revenue growth this quarter, due to the timing of customer orders and wholesaler and distributor inventory control affecting our ex manufacturer sales.

We believe this is normal during the first year after a new launch, and over time, expect ex manufacturer sales to align with overall prescription demand trends, which have matched up very closely, when looking at 2014 year-to-date at the end of July. We've increased profitability, with a continued decline in our gross-to-net deductions quarter-over-quarter, which is the result of the increasing effectiveness of our GPS Patient Assistance program launched in March.

As Mark Schwartz also laid out, the Abstral franchise is growing and becoming more profitable. However, we've also witnessed fluctuating market dynamics within the entire TIRF class, and some market contraction during the second quarter. As a result, while we maintain our net revenue guidance of $11 million to $15 million for the full year 2014, we're leaning towards the lower end of that range. We'll continue to assess the market uncertainties and landscape and we'll make updates to that guidance as appropriate.

Our overall operating loss was $15.8 million for the second quarter of 2014 as compared to $11.8 million last quarter. From a cash flow perspective, we spent $13 million in operating activities this quarter compared to $8 million last quarter, with a cash in cash equivalents balance of $39.2 million at the end of the second quarter. The increased spend this quarter is a result of the increased rate of enrollment in our Phase 3 NeuVax program that Dr. Hamilton discussed earlier, as well as non-recurring professional fees incurred related to the ongoing litigation and legal proceedings.

Moving forward, we expect net operating cash burn to stabilize in the range of $8 million to $10 million per quarter due to factors including NeuVax Phase 3 completing enrollment, increasing profitability from our commercial operations, and our expectation that a majority of our ongoing legal fees will be reimbursed from our insurance carrier. This will be offset by the modest additional commercial resources needed to support Zuplenz and the significant progression of the rest of our development programs.

Lastly, I'll mention our loss per share for the second quarter of 2014 was $0.17 per share, which was higher than consensus estimates, driven by the aforementioned increase in the quarter operating expenses, as well as approximately $3.5 million of a non-cash loss on the revaluation of our warrant liability. Overall, we're excited by the progress of our commercial and pipeline investments in building a valuable Company for our shareholders.

And with that, I'll turn the call back over to Mark Ahn for closing remarks.

Thanks Ryan.

With a new approved product to expand our oncology supportive care franchise, and advancement of all of our programs, we made great strides thus far in 2014 to meet our goals and milestones. We're looking forward to continued progress on Abstral sales and competitiveness, as measured in market share. We're preparing for the launch of Zuplenz to further leverage our operating infrastructure on the commercial team, and as well as accelerating our clinical development programs, most prominently led by NeuVax in breast cancer.

We'd now be delighted to open the call for questions.

(Operator Instructions)

Our first question comes from Chad Messer from Needham. Your line is open. Please go ahead.

Thanks for taking my question. Guidance for Abstral towards the low end of the $11 million to $14 million (sic) -- I know in the past you've also guided that you intend to franchise to be profitable in 2015. Are you still on track for that?

Yes, Chad. This is Ryan. Thanks for the question.

At the low end of our guidance, we're still profitable by the end of 2014. We're looking at about $3.5 million in net revenue for the quarter for us to break even, and that would be in line with our projections to hit that low end of the range.

Great. Thank you.

You're welcome.

Thank you. Our next question comes from Ted Tenthoff from Piper Jaffray. Your line is open. Please go ahead.

Great, thank you very much. With enrollment on track in the Phase 3 study, when should we expect data, and how quickly do you think you'd be able to report data once we actually lock the database?

This is Brian Hamilton, and thanks for that question. Because it's an event-driven interim analysis that will be coming up, we're, in one respect, hoping to get that information in the middle of next year. And on another respect, we're hoping it's going to be a little later. The more effective the vaccine is, the later that event -- the number of events will occur to allow us to do that interim analysis.

At this time, it's really difficult to predict where that's coming out. We just have not had enough events to get a good trajectory going on that, but we're expecting that initial analysis sometime mid to late next year, as a reasonable estimate.

To also answer your question, Ted, on the randomization, as you can imagine, we have 135 sites open. We've told them last month to halt their screening efforts, and we're trying to basically continue to get those patients into randomization and wrap up those efforts. So, that's -- step one has been done.

Once we put our last patient in, it's three years, or 141 events, whichever occurs later from that period. And of course, the primary end point for the Phase 3 is disease-free survival at the three-year end point.

And then, in the interim, of course, as Brian noted, we have that interim analysis at 70 events, seven-zero, which we would expect around mid-year if we look at the Phase 2 experience, as well as the SEER database for high-risk HER2 1+, 2+ patients in this category.

Great. That's helpful. Thank you.

Thank you.

Thank you. Our next question comes from Vernon Bernardino from MLV & Company. Your line is open. Please go ahead.

Thanks for taking my question. I'm just trying to figure out the opportunity for Zuplenz here; and I know Zofran is the injection, whereas Zuplenz is an oral thin film. Just wondering if you could at least talk about how much there is overlap, and if one could be used for the other?

Yes, Zofran was the original branded Ondansetron. Obviously, they both have the same active ingredient. However, Zofran -- Zuplenz, excuse me, two Zs -- Zuplenz has, in fact, carved out its own share of the market in the sense that it offers a number of key advantages as a rapidly dissolving film. It works very well in people who are orally compromised, either radiation therapy in the mouth and throat, rapid time to dissolution, dry mouth, can't swallow, or actually they're throwing up and they throw pills up.

So, we think that there are some key advantages that this is going to offer out there, and there are no other similar types of products. In many respects, we have a bit of the same experience with Abstral, in terms of a novel oral formulation, and so, time to dissolution, no taste. I know that a lot of the orally dissolving tablets have a very gritty taste that really are difficult for people, again, especially if they're orally compromised, and it can be taken with no water. So, I think it offers a number of key advantages in the field, in this particular area.

Great. Thanks for taking my question.

Thank you. And our final question for today comes from Jason Kolbert from Maxim Group. Your line is open. Please go ahead.

Hello, this is Robert LeBoyer for Jason. I just had one remaining question about the investigation. Will there be anything announced publicly or anything to look for in terms of resolution of the issue?

Hey, Robert, this is Mark. 100% -- as soon as we are able to confirm the results of the special committee report, which, as you can appreciate, undergoing legal refute -- review, I beg your pardon -- to protect its confidentiality and use with both the lawsuits, as well as answer any inquiries from the Agency. We're seeking to do that; so, the Board has assigned Mr. Einhorn with that task.

Per my letter to the shareholders in February when I made some very clear declarations around -- from my perspective, what happened, we expect that -- I haven't seen the report, but as soon as we're able to present any top-line data, I'll sure -- am anxious to do that, and then to let the lawyers take care of the other remaining pieces and move on after these distractions. In the meantime, we've brought in -- we've gone internally, we've made a number of changes, most prominently have gone from part-time general counsel, which we've outsourced since the life of our Company, into having a top-shelf, high-speed, low-drag attorney in house, as Margaret Kivinski has joined us as a VP and General Counsel.

Okay. Thank you very much.

Thank you. I'm showing no further questions at this time. I would like to hand the conference back over for closing remarks.

I'd like to thank everyone for joining us on this call, and your interest in Galena. We've made a lot of progress over the last three years. We've worked through a number of challenges recently, but I'm grateful that everybody has continued to focus on our team, on building value for patients and value for shareholders, in that order. We're grateful for the opportunity to work on your behalf every day, and we're grateful for your consideration of the Company, and we look forward to keeping you abreast of our progress as we go.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect and have a wonderful day.