Sellas Life Sciences Group Inc (SLS) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Galena Biopharma third-quarter 2014 earnings conference call.

(Operator instructions)

As a reminder, today's conference is being recorded.

I would now like to turn the call over to Remy Bernarda.

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 10K, and other documents filed with the SEC and available on our website. Actual results may differ materially from those contemplated by these forward-looking statements.

I would now like to introduce the members of management on the call today who will discuss our business. Doctor Mark Schwartz, our President and CEO; Christopher Lento, Vice President of Commercial, who will discuss our commercial business; Doctor 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 Schwartz we now begin our discussion with an update on our progress and future plans.

Thank you, Remy, and welcome, everyone, to our third-quarter conference call.

Before I turn the call over to the team for the specifics on each program, I wanted to provide a broad overview of where we stand.

I'm excited by the progress we're making in all operational areas and the long term potential of Galena. I know that all the employees of the company are focused on our two most important goals, providing the best treatment options for patients and increasing the value of the company for our shareholders.

While the last year has presented the Company with a number of corporate challenges, I believe we've turned the corner on these events. Today, we will focus our clinical and commercial operations, and you will hear in the following updates the we have made important progress on all fronts.

The fight against cancer continues and advances have produced better outcomes for patients suffering from their disease. As first-line treatments improve, the number of cancer survivors increases. Protecting these survivors from a recurrence of their cancer represents an important and growing new battlefront. For many women with breast, ovarian, and [ometrial] cancer, there are no directive therapies for their cancer after they have received their standard of care, and they are declared disease-free. They are told to go home, and watch, and wait. If their cancer recurs, it is most often fatal. Developing a directive therapy that can prevent these recurrences addresses a significant unmet medical need and represents a major opportunity.

These patients are in an ideal setting for a vaccine immunotherapy. They have intact immune systems, and no bulky tumors. Galena's expanding portfolio of NeuVax clinical trials, as well as a rapid progress with our folate binding protein compound are indicative of the strong interests in finding effective treatments in these adjuvant settings.

The NeuVax clinical development program now encompasses an entire portfolio of clinical trials to include breast cancer patients in three key categories and the future expansion into gastric cancer. Most importantly, our Phase II trials with NeuVax are either partially or fully funded by our partners and our collaborators.

I'm extremely grateful to our internal team and outside investigators, who continue to explore options for NeuVax, and help us get the essential funding for these important trials.

As you may have seen with our with our recent announcements, we have secured significant patents for our NeuVax platform. These patents covered a wide range of patient populations and indications in key geographies, where we feel there will be a strong market for the drug if it's approved. As Brian will discuss, there's also been extremely high interest in our early-stage pipeline programs as well.

Our GALE-301, our folate binding protein program, over-enrolled it's phase II-A clinical trial due to high demand from ovarian and ometrial cancer patients. Initial data from this trial will be presented this week-end at the society for immunotherapy for cancer, or our SITC conference held in Washington DC. In addition, our GALE-401 Phase II trial, evaluating an Anagrelide controlled release, is enrolling ahead of schedule, with enrollment expected to close shortly. Data from this compound will also be presented later this year.

Galena's current structure, a development stage biotechnology company with major market opportunities and with commercial products, makes us unique. I would like to take this opportunity to reiterate my view on our commercial franchise and the three key strategic elements I believe it brings to the company. First, it preserves the long-term value for the Company's development pipeline. NeuVax alone, if approved, has the potential to be a multi-billion dollar product. Having the commercial organization in place provides significant leverage to secure better economics around any potential future partnering deals for the compound. It also gives us the opportunity to single-handedly promote NeuVax and all the products we develop on our own in the US or to co-promote our products in the US with a commercial partner.

Second, our commercial team has developed deep relationships and partnerships with key oncology healthcare providers and commercial stakeholders that allow the Company to add potential future products to our pipeline, like we did with Zuplenz this summer. And finally, we expect a commercial business to become accretive and profitable standalone product line, and provide cash flow into the company.

Since our launch of Abstral just one year ago, we have met the goals we laid out for building our commercial franchise. The acquisition of Zuplenz enhances our commercialization efforts, and we believe we will see additive sales growth for that business line in 2015. We're confident that our approach will result in long-term product growth that is both sustainable and profitable.

With that, I will now as our head of Commercial, Chris Lento, to discuss our two commercial programs in more detail.

Thank you, Mark. I'm going take the time today to discuss our product goals and overall commercial strategy Abstral and Zuplenz. I will begin to Abstral, our lead commercial asset. Abstral is a transmucosal immediate release fentanyl, or TIRF product, indicated for the treatment of breakthrough pain in opioid tolerant cancer patients. As noted in our press release, and as Ryan will review in greater detail, our Abstral net revenue was $1.6 million in Q3. As discussed last quarter, this increase in revenue was expected, and was a result of fluctuations in inventory at the wholesale and distribution level. This is not uncommon, as we're still in the first year of our product launch.

Our daily paid prescriptions or pulled through sales from our customers have continued to improve through the end of Q3, with an even stronger demand in the first month of Q4. Over time, we expect the ex-manufacturer sales to more closely reflect our daily paid prescription volume. As a reminder, Abstral is a supportive care therapy in a segmented and highly competitive market.

According to Wolters Kluwer, our market share of the branded TIRF market in September remained steady with 6% of total prescriptions. The size of the overall TIRF market has fluctuated since our launch, and we remain focused on targeting the long-term and sustainable business within the market. We strongly believe in the potential of Abstral because of its unique clinical attributes, which are advantageous for patients.

We have spent the first year of our launch developing strong relationships with the appropriate healthcare providers who are treating the appropriately indicated patients. The foundation of our Abstral strategy was built upon ensuring product access and insurance coverage for all identified patients.

Once these fundamentals were established, we built and implemented comprehensive patient assistance programs designed to help patients and providers navigate the complicated product access and reimbursement landscape. Our patient assistance program is comprised of two components, including both voucher and co-pay programs. Our initial program rules were created with flexibility to allow the broadest access to Abstral, allowing us to quickly reestablish brand identity amongst key providers.

Earlier this year, we modified our program rules after carefully gathering feedback from our customers. These rule changes have vastly improved Galena and Abstral's financial position while continuing to ease the financial burden and the out-of-pocket costs for Abstral patients. These changes have allowed our prescribers to more appropriately and effectively utilize the voucher and co-pay elements of our patient assistance program.

As a result our current program helps to cover 96% of all out-of-pocket costs for commercially insured patients. And we have decreased our spending in this program by over 60% since Q1. As we shared on prior calls, the implementation of Galena patient services, known as GPS, has assisted our customers in gaining prior authorization approval and insurance coverage for their patients in a very efficient manner. With GPS, our voucher and co-pay programs, we now have the needed resources in place to support patients and providers, and to support the future growth of our commercial brand.

The final element of our commercial strategy is focused on growing and developing our overall prescriber base. Despite the competitive market, we continue to gain traction with specialists who previously had no experience with this TIRF class of drugs. We are working with the top prescribing pain specialists with whom we've built solid relationships during our launch, and who serve as the foundation of our current business. We consider these providers to be valuable to our current Abstral success, and will greatly contribute to our future growth.

In conjunction with our efforts with the pain specialist, we are working aggressively to establish and grow our brand in both the oncology and palliative care settings. We believe these markets to be the most sustainable biggest opportunity over the long-term, but we recognize it is a very different and slower to evolve market. Because the oncologist and palliative care specialists are not as familiar with the TIRF class as a whole, they require more education, and need more time to familiarize themselves with how a TIRF product like Abstral can assist in the management of their patients' suffering from breakthrough cancer pain.

According to TIRF Risk Evaluation Mitigation Strategy or the TIRF-REMS data, the percentage of actual sales generated by oncology and palliative care providers before we launched the product was less than 1%. I'm pleased to report that this group of providers drives approximately 25% of our current Abstral sales, and we expect this number to grow.

Now transitioning to our second commercial product, I would like to provide a brief overview of our acquisition in early 2015 launch of Zuplenz. Zuplenz is a member of a class of anti-emetic drugs called 5HT3 receptor antagonists. The active ingredient in Zuplenz is Ondansetron, which considered the gold standard anti-emetic. Ondansetron was approved in 1991 under the brand name Zofram, and greater than 20 million prescriptions have been written world-wide for Zofram since it's FDA approval. Ondansetron currently accounts for over 90% market share in the oral 5HT3 market.

Zuplenz has one of the broadest label indications in the anti-emetic space. The drug is used to treat nausea and vomiting from radiation therapy, as well as in both highly and moderately emetogenic cancer chemotherapy. It is also indicated for pediatric patients treated with moderately emetogenic chemotherapy. And finally, Zuplenz is indicated for the prevention of nausea and vomiting in postoperative patients.

Zuplenz is an oral soluble film that delivers the trusted efficacy and safety of ondansetron. It eliminates the burden of having swallow pills during periods of emesis, dissolves on the tongue in less than 30 seconds, does not require water to administer, and has a soothing peppermint flavor with no gritty aftertaste associated with other available versions of ondansetron. With these clinical and patient focused benefits, we believe Zuplenz will be a valuable supportive care product for healthcare providers and their patients.

Lastly, I would like to update you on our Zuplenz pre-launch activities. In July 2014, we licensed the drug for MonoSol RX, the originators of PharmFilm technology, which is utilized by Zuplenz. Zuplenz was FDA approved in 2010, and achieved early success despite limited promotional activity. The acquisition of Zuplenz has expanded our oncology supportive care franchise, making Galena a portfolio company with two products to treat two of the most common adverse events associated with a cancer diagnosis, pain and emesis.

We plan to leverage our existing commercial team, and will expand as needed in a few key functional areas, including trade and managed markets. On the trading distribution side for Zuplenz, we're actively working with our distributor partners to remove the significant product inventory, which will become outdated early next year. We're currently manufacturing new batches of Zuplenz, and will begin distribution of our Galena labeled product in the first quarter of 2015 to coincide with our commercial launch.

On the managed markets and product access side, we have launched a significant initiative to better understand and improve both Zuplenz' commercial and Medicare Part D formulary coverage. We recognize the importance of insurance coverage, and we have scaled our internal and external teams to support these initiatives.

We see the addition and launch of Zuplenz as a compliment to our current Abstral promotion. Our call-point and target customer will be the community oncologist and palliative care specialist, and we feel the relationships we have established over the past year will carry over and have a positive impact during our launch. We plan to capitalize on our GPS program, and our Abstral patient assistance programs, and our soon to be implemented, Zuplenz patient assistance program. These programs will provide needed support for our healthcare providers and patients.

2015 will be an important year for our commercial team, and I'm confident about our prospects for continued growth and success. We're focused on building a long-term oncology supportive care business. Knowing that having both Abstral and Zuplenz will be viewed positively by our oncology focused providers.

For Abstral, we remain on track to achieve our guidance projections in 2014. While we're on only one month into the quarter, many of our internal performance metrics, including whole-seller and distributor sales reports, as well as REMS and IMS data, report towards -- point towards our strongest quarterly performance to date.

With that, I'll turn the call over to Brian Hamilton to discuss the status of our clinical pipeline.

Thank you, Chris.

I'm pleased to provide our listeners with an update on the progress we've made with our clinical programs over the last few months. I will start with our NeuVax program.

As a reminder, NeuVax is based on the selection of a validated target antigen, utilizing a peptide vaccine. NeuVax targets patients in the adjuvant setting, who have minimal residual disease after completion of their primary treatment but remain at risk of tumor recurrence. The aim with NeuVax is to stimulate the immune system to prevent the recurrence of cancer.

As Mark explained, recurrence is a life-changing event, so preventing the disease from going metastatic is a critical component in the treatment paradigm for these patients. With the initiation of our newest combination trial this week in high risk HER2 3+ patients, NeuVax has become a platform on its own. Targeting HER2, one of the most common protein target antigens in cancer therapy.

We now have ongoing or planned trials of NeuVax both as a single agent, and in combination with Herceptin, to treat women with breast cancer in both low to intermediate, or 1+ or 2+ expression by Immunohistochemistry, or IHC; as well as those who express the highest level of HER2 or 3+. In addition, our partner in India, Dr. Reddy's, will be starting a trial NeuVax in gastric cancer next year. This multi-trial approach not only allows us to expand the potential indications for NeuVax, it also provides multiple opportunities for successful trial outcomes.

The enrollment into our pivotal phase III PRESENT trial continues on track. PRESENT is enrolling women with breast cancer that is initially spread to the local lymph nodes, and express a low or moderate level of HER2, referred to as 1+ or 2+ expression. These breast cancer survivors have no evidence of disease after completing their initial adjuvant therapy, but remain at a significant risk of recurrence. Therefore the goal of the study is to prevent this recurrence, and the endpoint of the study disease-free survival.

As of October 31, we have randomized 599 patients into the PRESENT trial, and remain on track to randomize 700 patients by the end of January. As we have stated, based on the number of patients in the pipeline, we anticipate that we were over-enroll the trial, and that enrollment will likely close by the end of the first quarter of 2015. We expect over-enrollment will increase our confidence in both the timing and quality of the statistics and the final outcome of the trial. To add to our final enrollment figure, we have allowed for limited screening by our sites providing that any newly screened patients are eligible to be randomized into the trials by the end of Q1. We are focused on completing randomization activities, and heading towards our event driven interim analysis.

Our first phase II clinical trial of NeuVax, in combination with Herceptin, is ongoing. In this trial, we are targeting a similar population as in the PRESENT trial, with 300 breast cancer patients who are HER2 1+ or 2+, and are either node-positive or high risk node-negative. The PRESENT trial is enrolling only the node positive patients. We estimate completion of enrollment in this study by the end of next year, with the primary endpoint of disease free survival at two years.

As we announced this summer, one of our investigators Dr. Beth Mittendorf of the University of Texas MD Anderson Cancer Center, received a breast cancer research program breakthrough award from the Department of Defense, to fund a second phase II clinical trial with NeuVax in combination with Herceptin. This marks the expansion of the NeuVax program into the HER2 3+ breast cancer population.

This multi-center, prospective randomized, single-blinded, placebo-controlled, phase II trial will enroll 100 patients with a diagnosis of HER2 3+ or HER2 gene amplified breast cancer for HLA-A2 or A3 positive, and who are at high risk for recurrence. The first patient was randomized today, and we expect her to be dosed this week.

Our fourth NeuVax trial is a Phase II study in patients with gastric cancer that will be run in India of our partner Dr. Reddy's. This represents a significant investigation of NeuVax outside of the breast cancer indication, and another potential expansion of the market. We expect this trial to begin in the first half of 2015.

Our other immunotherapy asset in development is GALE-301, a peptide vaccine that stimulates key lymphocytes to recognize and destroy cancer cells that express folate binding protein, which is expressed at high levels in most endometrial and ovarian cancers. Similar to NeuVax, the goal of our GALE-301 program is to stimulate the immune system to prevent the recurrence of cancer which is significantly meaningful in this patient population, as these diseases demonstrate a very high recurrence rate of 35% to 50% in the first year.

Our folate binding protein program is treating women with ovarian and endometrial cancer with stage I to IV disease and have no evidence of disease after undergoing their primary first-line therapy, including de-bulking surgery and chemotherapy. In June of this year, we reported initial results on the Phase I dose escalation portion of the trial. Based on positive data, the trial moved into the Phase II-A portion of the optimal dose of 1000 µg and an added booster regimen in the same patient population.

Patients are treated once a month for six months for the primary vaccine series, and once every six months with booster inoculations. The trial has a clinical endpoint of disease free survival. Because the interest in this trial, and the lack of treatment options in this space, we met our enrollment goal near early, and we have over-enrolled the Phase II-A portion of the trial with a total of 51 patients.

Early data presented this year at [ASKO] were promising, and we'll be presenting additional immunological data, as well as first look at the Phase II-A clinical data, at SITC this weekend.

Moving to our hematology program we're excited to announce the our Phase II proof-of-concept trial of GALE-401, or anagrelide controlled release, has enrolled significantly faster than we anticipated. Let me just take a minute to outline the trial. GALE-401 is under development for the treatment of thrombocytosis or elevated platelet counts in patients with a family of diseases that are collectively called the myeloproliferative neoplasms and include Polycythemia Vera, Chronic myeloginous leukemia, and essential Thrombocythemia. Patients entering the trial must have a platelet count over 600,000 and are treatment-naive or washed out of their prior treatment. Patients are treated with an initial dose at 0.5 mg twice a day, and then titrated at a 0.5 mg per day dose every one to two weeks, until the target platelet count is in the normal range, defined as between 150,000 and 400,000.

The primary objective of this trial is to -- the response rate in terms of platelet reduction, and the FDA has indicated that the 505(b)(2) is an acceptable development pathway for this compound. Because we're treating a relatively small patient population with GALE-401, we anticipated that it would take a year to enroll the planned 20 patients. We're running well ahead of our enrollment milestone, and expect to announce full enrollment within the next two weeks, more than six months ahead of schedule. These patients will then be followed for an additional six months.

We will present data at the American Society of Hematology, or ASH meetings in December that will show the results of the phase 1 studies of GALE-401 in healthy volunteers, along with some initial outcomes from the Phase II trial. Topline data from the Phase II trial will be presented midyear 2015. As you can see, we have made significant progress with all of our clinical programs, with our GALE-301 and 401 trials over-enrolling and completing enrollment earlier than expected. I'm very excited about our extensive pipeline. Our planned data presentations and reaching our key clinical milestone of full enrollment in PRESENT.

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

Thank you, Bryan, and good afternoon, everyone. Net revenue from Abstral sales for the second quarter of 2015 was $1.6 million, and $6.1 million for the first three quarters of 2014. The decrease in net revenue from the prior quarter is largely driven by the timing of orders from our distribution partners or ex-manufacturer sales, which is the point at which we recognize revenue. These ordering patterns can differ significantly from overall prescription pull-through or demand.

For example, during the third quarter of 2014, prescription pull through exceeded ex-manufacturer shipments, representing a contraction of inventory levels in the distribution channels by approximately $1.3 million. As Chris mentioned, we believe these fluctuations and differences between customer shipments and prescription pull through are normal during the first year after a product launch, as our distributor's optimize their channel inventory levels.

This is complicated by the fact that products in this class, like Abstral, have multiple dosage strengths for distributors to manage. Over time, we expect ex-manufacturer sales to align with overall prescription demand trends, a pattern that we are already beginning to see during the fourth quarter.

More importantly, as Chris mentioned, with the ongoing addition of new prescribers, our increased focus on the more sustainable oncology business, and the success our GPS program, we have greatly reduced our patient assistance spend. Dollars from paid prescriptions have increased significantly each quarter, with paid prescriptions in Q3 increasing by 15% over the last quarter, and 63% from the first quarter of this year.

Given this very positive trend, as well as encouraging signs of growth in both ex-manufacturer sales, and overall prescription volume, we remain confident in achieving our full year 2014 net revenue guidance of $8 million to $10 million from Abstral sales. And given the strong October we have already seen, we're expecting to reach the middle of that range.

Operating expenses are trending downward this quarter at $14.8 million for Q3, compared to $18.1 million reported last quarter, or a decrease of $3.3 million. The decreased operating spend this quarter is largely a function of lower legal fees related to the ongoing litigation proceedings. These fees were approximately $700,000 in Q3, net of insurance recoveries, down from $3 million in the second quarter, largely due to the fact that we reached the limit of our insurance deductible during the third quarter. Looking forward, we expect a majority of these fees to be covered by the DNO insurance we carry.

Our overall operating loss improved to $13.2 million for the third quarter of 2014. That's $2.6 million better than the $15.8 million reported last quarter. Our loss per share for the third quarter of 2014 was $0.05 per share, which is lower than our consensus estimate of $0.11 loss per share, and was driven by the aforementioned operating expense improvement as well as approximately $6.7 million in non-cash gain on the revaluation of our warrant liability.

From a cash flow perspective, we have $24.6 million in cash and cash equivalents at the end of the third quarter. The decrease during the quarter in cash primarily the result of $11.1 million in cash used in operations and $3.1 million spent to acquire Zuplenz.

Moving forward, we expect our cash burn to remain fairly stable through the rest of 2014, and then begin to decrease throughout 2015. This decrease will come from the completion of enrollment in our phase III PRESENT study, as it becomes less expensive during the maintenance and monitoring phase of the trial, and in addition to the increased revenue we expect from our commercial operations.

In sum, we're excited and optimistic about the direction our business is trending and by the progress of our commercial and pipeline investments in building a valuable company for our shareholders.

With that, I'll turn the call back over to Mark Schwartz for closing remarks.

Thank you, Ryan. As we look back on our first year of commercial activities, we're proud of the structure we have built. While Chris highlighted some the challenges, we also know how to address and adapt to them, as the market has changed for Abstral, our commercial team has refined our strategy to ensure the long-term viability and profitability of the franchise.

We'll be taking the same expertise into our launch of Abstral. As a result, we plan to increase our Abstral revenues by over 50% next year and are setting our 2015 net revenue guidance to between $15 million and $18 million. On a clinical front, we look forward to meeting a major enrollment milestone for NeuVax PRESENT trial, as well clinical readouts from GALE-301 and 401, along with additional clinical operational milestones.

I remain committed to this team and our corporate strategy. I believe the richness of our development pipeline, combined with our commercial capabilities, will build significant value for patients and for our shareholders.

We'll now open the call up for questions.

(Operator Instructions)

Ted Tenthoff, Piper Jaffray.

Great, thank you very much. First, a quick question on your last comments -- concluding comments there. Did you say that initial product guidance next year was $15 million to $18 million in revenues?

Yes, the combined guidance for the year to be split between $15 million and $18 million.

For 2015, excellent. And then, back to the third quarter. Can you give us a little bit more color on the inventory work down. What kind of revenue level do you guys need to be at in order to crossover to profitability, either for Abstral or the new Abstral/Zuplenz organization, if you will?

Yes, Ted, this is Ryan. Thank you for the question. The inventory levels during the third quarter in the distribution channel contracted by $1.3 million. In other words, at the end of Q2 our ex-manufacturer sales for year-to-date 2014 had actually surpassed our prescription demand by about $0.5 million. By the end of Q3, that had flipped and during Q3, the inventory levels in the channel contracted by $1.3 million. So, at the end of Q3 we had actually had about $700,000 to $800,000 more in prescription demand than we had sold into the channel.

First part of the question. Second part of the question is with respect to Abstral, we will break even when we hit that $4.5 million to $5 million net revenue mark and we expect that to occur late in the second quarter of 2015.

Great. Very helpful. Thanks guys.

Chad Messer, Needham.

Great, thanks guys. Thanks for taking my question and thanks for the update. You've got a lot going on. You talked about Abstral, I hear two kinds of challenges you are facing. One is just the general overall awareness of the class of products you're promoting, in which, I guess you could think of your competitors as almost helping there since it's your collective voice that's registering. And then of course, you do have to compete in a crowded marketplace, and you talked about your stable 6% market share.

How is -- do you think about your activities and the right amount and right way to message do you kind of balance those two factors so market awareness versus basically taking share away from your competitors? And 6% share, growing that from 1% before you took over the product is at obviously an admirable increase, bit it's been stable for little while. Where do you think that share can go? What's a good win for you guys long term? 10%, 15%? Any thoughts there would be great. Thank you.

Hi Chad, it's Chris. I'll take that question. Thank you very much. And you're absolutely right. We are pulling our business, as I mentioned earlier, from the top prescribing pain specialists, who for the most part have provided our foundation in 2014. We will continue to rely on those prescribers, and you're right, it might involve us competing against the other branded competitors in that market. And as I mentioned, we do have the oncology and palliative care space, which our competitors are also targeting. We've been very successful in this space.

As I mentioned earlier, we've taken our market share from less than 1% with these segments to roughly 25% of our business. And we can foresee that growing because we believe our product matches up nicely to those specialists. As far as the market share, Chad, we are at 6%, and we do see that growing into double digits in 2015/2016.

Hi Chad. This is Mark Schwartz. Thanks for calling in. I do think this speaks to the fundamental core of the strategy and the synergy that we are an oncology company, and that is ultimately where we plan to be successful. And the long-term relationships and I think our ability to dig into that market and educate and build the relationship as additional products come down the track, I think is going to make us even more successful. Not only with our current products but our future products is well.

So Chris talked to it on a tactical level, and I speak to it on a strategic level, that I think it's fundamental to how we are going to build the brand of Galena in the oncology space.

Mara Goldstein from Cantor Fitzgerald

Thanks very much for taking the question. I have a couple questions. The first is on the revenue. Is that revenue guidance Abstral only, or was it exclusive just Abstral only, or does it also include Zuplenz?

It is a combination of the two products. As I said, we're looking for approximately a 50% growth in Abstral, and right now we are predicting a small amount, a relatively small number for Zuplenz until we get more insight and more experience in the market. We're going to roll it out first quarter next year, so I think that number is subject to change as we gain more experience. But, for the at the moment, 50% growth of Abstral, with a little bit of Zuplenz on top of it.

So, if you don't mind me asking, relative to the experience that you have, and I know you've talked about this on the call. Since the launch, you're really talking about an -- to some degree -- an acceleration off of a base that is lower than was expected. So I'm really trying to understand short of any other incentivizing type programs or whatnot now that you've got inventories at a base level on a go forward -- which I think sounds like you're comfortable with the base level. What's going to take it to that next level? Because the guidance is below where the Street is at.

Yes, Mara. As Mark and I both shared -- this is Chris. We remain with our guidance of $8 million to $10 million. We believe our future growth will come from the pain specialty space in combination with added revenues coming from both oncology and palliative care. As Mark pointed out, our strategy and now having Zuplenz puts us firmly into that oncology practice as a supportive care company and a portfolio company with two products to support cancer patients.

And then if I could ask on the insurance question, are you able to disclose to what level of monetary damage you are covered for?

Hey Mara, this is Ryan Dunlap.

Hi Ryan.

Thanks for the question. We carry D&O insurance that -- in doing our analysis when we renewed our policy in February. We don't disclose the ultimate amount of the policy. What I can tell you is that we targeted and landed at the median of our peer group, with respect to the total amount of D&O insurance that covers us. So we believe that we have adequate D&O insurance, very adequate D&O insurance to deal with matters like this.

Okay, thanks.

Joe Pantginis, Roth Capital Partners.

Hey guys, thanks for taking the question. A couple of NeuVax questions, and then a quick question on 401, if you don't mind. With regard to the present study, thanks for the guidance with regard to enrollment and over-enrollment. I was just curious about if you had any sense of timing on the interim. But more specifically at the time of the interim, will it essentially be just a continuous planned or not message that you would look to deliver to the Street?

Thanks for the questions here. We are really addressing anticipated interim analysis hopefully towards the end of 2015, perhaps into 2016, depending on the rate of events that accumulate in the trial. As far as the -- that's going to be event driven, and however that really plays out -- as soon as we can get that point, the better. In the message that's going to come out from the independent data monitoring committee will be whether to stop the trial or go forward with the trial. There will not be specific results presented from that because the trial will remain blinded. So, we will not have definitive information at that point.

Chad, the interim analysis, as Brian just said, is a futility analysis. So it's a safety analysis and a futility analysis. The DSMB without penalty actually does have the ability to potentially enlarge the trial from an additional patient point of view. But we are likely to get really simply a go or no go, and no efficacy readout.

Okay, that's helpful. Thanks. And with regard to the two studies combined with Herceptin. I guess broadly speaking, can you talk to how your collaboration is -- or your clinical collaboration is with Roche beyond just providing drug, and then more importantly, can you just remind us again the mechanistic rationale for these two studies?

I guess when you look at the 1+, 2+ study, that study in essence looks to, I don't want to say favors but for lack of a better word at the moment, favors NeuVax mechanism versus the 3+ study sort of favoring the Herceptin approach with regard to the concentration of the target on the cells. Are you looking at the mechanistic goals of controlling minimal residual disease, or can you add any additional color?

First of all, Joe, I apologize. I think I called you Chad a second ago. Sorry. (laughter) Regarding the collaboration with Genentech/Roche, it's going very well. Our agreement is to cosponsor the trial. We both have rights to the data from the trial. They are putting up the Herceptin end cash, and we are putting up a considerable amount of NeuVax and hard-work and cash as well. We both jointly own the data, so we have full rights to the data as of today.

As I announced or mentioned earlier in the comments, here, we also have had some significant intellectual property patent allowances this year, covering NeuVax and covering NeuVax in combination. So I personally feel we're in a very strong position in terms of any potential commercialization or future use of NeuVax in combination with any drug, frankly, but with Herceptin, in particular, moving forward.

On your second question, I'll turn it over to Brian, but let me just say that the basis of this activity was really based on a lot of work done by Beth Mittendorf and published by [meth] that shows a mechanistic synergy between NeuVax and Herceptin. And, I think our goal and thought process is that, while Herceptin has shown some activity in the HER2 3+ area, it is not zero. There is room for improvement, and it's very possible that we could show continued improvement in particular in this high-risk group of 3+ patients, that show a recurrence rate of about 15%. So, I think in combination with Herceptin, if we can cut that down, it is certainly a worthwhile effort.

And Brian may have a few additional comments on the mechanism.

Hi, Joe. This is Brian. There are two points, mechanistically. One is that there is some data to suggest that the presence of the antibody Herceptin helps process the peptide antigen to just increase the stimulation of T cells to expand that population to help make a more robust immune response.

And then on the other side, both in the -- clearly in the 3+, but also probably in the 1+, 2+ population, that having Herceptin as a monoclonal antibody plus T cells really gives us, if you will, two shots on goal to kill the tumor cells. So there is perceived to be an additive or synergistic effect at the killing level to make these strategies more effective at eradicating tumor cells. So it's a bit of both. There is a lot of hypothesis there, but we fully intend to demonstrate that, that's all true.

That's helpful, thank you. And then just a quick follow up with regard to 401. Really encouraged by the faster enrollment than anticipated, and I was just wondering if you could share a little more color about what has been the real impetus for that? Has it been just the physician interest in the safety and the PK profile of the drug, or anything additional you can share?

It's interesting that we have a relatively small number of sites. And three of them have just been extraordinarily good at beating the bushes for it. I think it's due to the enthusiasm for the drug. We've even had patients who have heard about the study and have volunteered for the study. They've come off of other medications so that they could participate. So it's a little bit of both. And hopefully that will portend really great things in the future.

Great. Thanks a lot, guys.

Yigal Nochomovitz from Oppenheimer.

Hi. Thanks for taking the questions. Just one on the folate binding protein. Can you give us a little better sense as to what we'll be expecting at the Society for Immunotherapy of Cancer conference? Are we going to see the top line recurrence data for the two Phase II arms, or is it going to be mainly the immune response biomarker data. Also are you going to have any updates of the phase I recurrence data set relative to ASCO?

The answer is yes, yes, and yes. And thanks for the question. Predominantly, at this stage of the game, most the data that are coming out are based on immunology data. And that's our primary focus. But, as we initially presented at ASCO, and there will be more presented this weekend, there is emerging data on the clinical side that looks promising. I can't give away those numbers right away because we have to wait for the presentation, but it's a bit of both, and it is promising on both aspects.

And if I could just go back quickly to an inventory fluctuations in the quarter. Could you talk a bit more about what you're seeing, what are the signs that the distributors and wholesalers are starting to hone in on the right level of inventory for Abstral to better match the demand, quarter over quarter? And what sort of inventory build are you expecting in 4Q?

I'll take the first part of that question. Some of the internal metrics we are monitoring, as you know, we're keeping track of daily sales, average prescription price, number of prescribers, and we're off to a terrific start in Q4. Along with our wholesale and distributor partners, we're learning how to manage Abstral during this year. It is a product six strengths being managed -- being managed at eight different wholesalers, with dozens of distribution centers. So we are feeling more confident in our ability, and in our partners' ability to manage the inventory moving forward.

I think Ryan will want to take the second part of that question from the financial standpoint.

Yes, absolutely. I think from my perspective, as I mentioned, looking at the comparison year-to-date with respect to what we've sold to our distributors and recognized revenue on and what's ultimately been prescribed, or the demand side, there's a deficit of about $800,000 for the year. Which tells me that if our prescription demand trends continue the way we are seeing them continue, our distributors will have to order more inventory in order to keep up with that demand, which leaves me optimistic about our ex-manufacturer net revenue as well.

Robert LeBoyer, Maxim Group.

Hi, this is Robert LeBoyer from the biotech group at Maxim. I had a question on the expense side. You mentioned the insurance, the patient assistance program, and the clinical trials. And just looking at the trend from second quarter to third quarter, it's a little hard to separate these out and to see where the expenses are falling, and could you give us some guidance going forward for fourth quarter and beyond?

I'll take that question. Thank you very much. If I understand the question, I guess, let me recap the third quarter. Cash used in operations was about $11.1 million, and we spent another $1 million on our debt service, so just over $12 million in cash burned from what I'll call ongoing activities. We expect that to be relatively steady through Q4, and then to begin to decline. The reasons that we're going to see the declined during 2015 are I think those you mentioned.

First of all, we will be increasing our revenue from our commercial activities, the Galena patient services program will continue to maximize the number of those prescriptions that are paid. And so, we'll realize more profit from our commercial operations, and also once we complete enrollment in our present trial, our R&D costs begin to go down significantly as well. So, between the two of those, you're going to see cash burn during 2015 closer to $36 million to $40 million, or average $8 million to $10 million per quarter. Does that answer your question?

Yes it does thank you.

So, Robert, let me just jump into that. NeuVax is still a considerable expense of ours, of course. And as we over-enroll, here going through Q1, that's going to pick up some of the burn as we move forward. As I'd indicated, the other trials that we're running are very highly leveraged, so relative to NeuVax, you're accounting for much smaller part of the burn. So your question, I think, Ryan answered most of your question. You asked a question, where is it going? I think all-in, when you look across the board, NeuVax is by far the biggest component of our cash burn.

Okay, thank you.

Vernon Bernardino from MLV & Company.

Hi guys, and thanks for taking my question. Can you hear me okay?

Yes, we can hear you very well.

Thanks. I never know if I've pressed the mute button and unpressed it or not. Congrats on the last couple of months, your focus on operationally and it looks like you're doing really well. Just a few questions on the launch of Zuplenz. Sounds like it will be rather measured, at least from the start. Are you going to have, like, a full detailed effort, or do you think some education will be required because of some familiarity with the advantages of the Oral Film Formulation?

This is Chris, Vernon. Thank you for the question. No, we do believe there will be an educational component to the sale of Zuplenz. Many are familiar. There is roughly 3,000 physicians who have prescribed Zuplenz since its launch, so there is a familiar user base out there. But our team will be focused on distinguishing Zuplenz versus the competition, and focus on educating about the soluble [film] version of the delivery.

Great. Regarding Abstral, I sorry I missed the numbers, went rather quickly. I saw before it was less than 1% and now it's 25%, and then now paid prescriptions are 16%. Could you go over the numbers, again, and how to mix has changed over time?

So, Vernon, what we've pointed out was that the percentage of Abstral business upon launch was 1% in the oncology and palliative care settings. We have since grown that percentage to 25%. Meaning 25% of the current Abstral sales are derived from specialists outside of that pain specialty, namely oncology and palliative care.

And I want to reinforce, again, that's really the strategic focus of the Company, that we have worked hard to build not only on the existing marketplace, which is really to a great degree the pain physicians, but as well to grow what we think is a very long-term and a very sustainable, and for us, a very strategic business in the oncology and palliative care side of the house. So, we have been very successful at building a real significant market opportunity for us with that group.

And Vernon, I believe part two to that question was the 15%? Ryan gave that number as a measure of our increased percentage of paid prescriptions from Q2 to Q3.

Q2 to Q3. Terrific. Thank you very much.

You welcome.

The final question comes Rahul Jasuja, Noble Life Science Partners.

Hey there. Thanks to take my question. Just a few remaining questions that I have. On Abstral, what have you guys learned from the European experience? I mean was the launch in Europe, was that used as a matter to mimic what your projections are here? Is experience different -- is my question [so to say].

The market in Europe, the experience in Europe, is very, very different than here. First of all, Abstral is launched much earlier than our relaunch here, and in a very, very different competitive marketplace. The market leader here, frankly, Subsys is not being marketed in Europe. So I think -- they also have a very different reimbursement system and medical system and managed-care system there. And for example, I think in different countries it's used differently. As an example, in Canada Abstral is prescribed strictly through hospitals and very little through private practice. Those countries also have a very different perspective on use of narcotics and opioid products than the US. So, culturally, there are a lot of differences.

We certainly didn't look to them specifically for mechanisms or as a trail or path to rollout the product. Like Europe, we certainly intend to, and has set our goal, to be a market leader over time, but I don't think there's any other specific take-home messages or take-home elements that we could take from the launch rollout in Europe that you could, here. They also, I don't believe, have a REMS system, like we do here. So that really influences a lot of the market and how the various products are adopted and rolled out there.

Okay, got it. The next question I have is combination of Herceptin and NeuVax, and you guys had a discussion about that earlier. In thinking about the way these two may be working, obviously Herceptin has the ADCC component, so you're having that kind of NK-cell killing all of the tumor cells, and you did mention or somebody mentioned that there is a potential for increase of T-cell responses. Are you seeing or have you seen in pre-clinical study when you combine Herceptin models with NeuVax that you're getting epitope spreading beyond just the NeuVax peptides? As they recognize the T cells, are you looking at other epitopes that the T cell will recognize? The [growing] expansion beyond NeuVax?

Thanks for that question. It's a bit technical, and a bit obtuse, but we will give it a shot. What we're saying about Herceptin as a Monoclonal antibody and it's mechanism of killing through ADCC involving the NK-cells, as you recognize, is one component. And then you add that to another group of cytotoxic cells that the T cells that are expanded through the vaccine. That's why we think there are two shots on goal.

The epitope spreading is a slightly different mechanism, in that the other epitopes to which the immune system are responding are not coming from the vaccine. They are coming from the tumor cell, and as a tumor cells die, the Herceptin molecules are taken up by antigen presenting cells and they're probably quite a number of epitopes that are being presented. And our collaborators, Doctors Peoples and Mittendorf, have looked at a couple of these epitopes but there probably are many.

And what its indicating is that the NeuVax peptide is triggering a process which is allowing the immune system to adapt to whatever the HER2 epitopes are presented to it. It's breaking tolerance, it's moving through, it's broadening the attack on the tumor cells. But that's a much more complex process, but it does indicate that tumor cells a dying, the antigens are being processed, and the immune system is responding appropriately.

Hi Rahul. This is Mark. How are you doing? Let me just reiterate what Brian said. Dr. Mittendorf did the original pre-clinical work on NeuVax in combination of Herceptin. She did not look at epitope or antigen spreading at the time, but there has been data published that, with NeuVax, you do see epitope spreading. I think it's only a reasonable assumption, now we haven't shown it, we have proved it, we haven't generated data.

But I think it's a very reasonable assumption to assume that if Herceptin is in fact generating a higher level of expression of HER2 peptides, E75 peptides, on the surface of the cells providing more targets for NeuVax, that as NeuVax slices those cells, you would get a continued release of antigens into the system, and a broadening of the epitope spreading. So I think the argument is very logical. It makes sense mechanistically. We have not generated that specific data in that specific experiment.

Thanks. I'm just curious about that.

And then one final question on 401. Maybe I should know this, but I wasn't clear. Is a final [5-b2] path already planned, or is that to be discussed with the FDA yet. That's not a given yet at this point, is it?

Well, when we purchased the GALE-401, the previous owner of that agent had been in conversation with the FDA and we have the FDA minutes from those meetings, which are fully supportive of the 505(b)(2) pathway for the development of GALE-401. So, that is the plan, and we are following through the pre-existing guidance that has already been enunciated by FDA.

Okay, great, thanks.

Thank you.

There are no further questions.

Thank you very much everybody. We certainly appreciate your time this afternoon.

Ladies and gentlemen that concludes the conference for today. Again, thank you for your participation.

You may all disconnect. Have a good day.