Sellas Life Sciences Group Inc (SLS) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Galena Biopharma first-quarter 2015 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Remy Bernarda, Senior Vice President Investor Relations and Corporate 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 and log into our webcast presentation. For this quarterly call we will be using slides to enhance our information flow. The slides can be accessed on our website in the investors section under events and presentations. The slides are posted both as a PDF document and will also be available on the webcast. The slides are viewer controlled meaning that you, the viewer, will need to advance the slides. Our speakers will alert you to the slide they are addressing.

As listed on slide number 2 on our presentation, 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 plans 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 which we have filed 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. Please turn to slide number 3, as I would now like to introduce the members of management on the call.

Dr. Mark Schwartz, our President and CEO; Dr. Gavin Choy, Senior Vice President Clinical Sciences and Operations, who will discuss our clinical programs; Christopher Lento, Senior Vice President of Commercial, who will discuss our commercial business; and Ryan Dunlap, our Vice President and Chief Financial Officer. Dr. Schwartz will now begin our discussion.

Thank you, Remy, and welcome, everyone, to our first-quarter earnings conference call. Today our team will walk you through our programs and our current financial status and will provide a pathway forward for the remainder of the year. Before they get started, I just want to address a couple of key topics. First, on the operations side we have made a decision to relocate our headquarters from Portland, Oregon to the San Francisco Bay Area over the course of 2015. The Bay Area is home to numerous biotechnology and pharmaceutical companies, and is one of the largest life-sciences clusters in the country with a rich and experienced pool of talented employees. I believe that as we mature we need to increase the access to other companies, investors, and personnel in the life-science space, and a location in the Bay area will provide this.

As many of you have seen last week, we issued our proxy statement and our annual report will be mailed out this week and both are available on our website. As shareholders, we encourage you to read these documents and vote your shares ahead of our June 19 annual shareholder meeting that will be held in the San Francisco Bay area.

In my shareholder letter in the annual report, I focused heavily on the immunotherapy space where NeuVax fits into this dynamic field. As Gavin will elaborate on, we reached a major milestone with the completion of enrollment in our pivotal Phase 3 PRESENT trial last month. I have personally been involved in the development of NeuVax for the last six years and achieving this goal is a tremendous accomplishment by our clinical team and our investigators around the world. I am also sincerely grateful for the hundreds of women who volunteered to participate in our trial.

Our primary development products are focused on harnessing the power of the immune system to fight cancer. We are a pioneer in the space and are excited to be a leader in novel cancer vaccine research that could one day revolutionize how cancer is treated and how cancer is prevented. Galena's immunotherapy assets, NeuVax and GALE-301 are focus on preventing the patient's cancer from returning following treatment. Just yesterday a close friend of one of our colleagues was diagnosed with a recurrence of her breast cancer. This is a stark reminder that we all are affected by this disease in various ways, and it fuels our passion towards this prevention modality with the goal of preventing patients from the devastating consequences of cancer recurrence and, ultimately, saving their lives.

In addition to the development team's accomplishments, our commercial team recorded its second-best quarter of net revenue in the best back-to-back month since Abstral's product launch. Most importantly, we continued our increased penetration within the oncology space as we head into the launch of our second commercial oncology supportive care product, Zuplenz.

I will now ask our Head of Clinical Operations Gavin Choy to discuss our clinical programs in more detail.

Thank you, Mark. As I discussed last quarter, our primary focus in clinical development remains on our immunotherapy programs, and I am very pleased to report that last month we completed enrollment in our Phase 3 PRESENT clinical trial and made advancement in our other clinical programs. PRESENT is a multicenter, multinational prospective double-blind study enrolling lymph node positive breast-cancer patients with HER2 1+/2+ tumors in the adjuvant setting.

The study schema is depicted on slide 4. And reaching this significant milestone was critical for our Company and the overall clinical development of NeuVax for the prevention of breast cancer recurrence. We can now officially, quote-unquote, start the clock so speak on reaching the primary endpoint, which is the latter of the last patient reaching her third year on study for 141 events. Based on our current event rate, we expect to reach our interim analysis at 70 events by the end of this year or the first quarter of 2016, and we project to arrive at the primary endpoint in 2018.

To reiterate, NeuVax is treating HER2 1+/2+ patients in the adjuvant setting where there are currently no approved therapies available after standard of care treatment. This is a critical unmet medical need for these women. By its nature, NeuVax is a targeted therapy focusing on a very specific patient population. NeuVax is a peptide derived from the HER2 protein that binds to the human leukocyte antigen, or HLA. Our Phase 3 trial enrolled this specific patient population -- node positive HLA-A2/A3 and HER2 1+/2+ and to better illustrate this I have delineated the numbers for our PRESENT trial on slide 5.

Reaching enrollment completion undertook a tremendous amount of diligence from our staff and our investigators. On slide 6, I have outlined the numbers in the US and Europe for our potential market size if NeuVax garners approval. In this PRESENT trial patient population -- once again, node positive HER2 1+ and 2+ patients, HLA A2 and A3 positive -- NeuVax could potentially treat up to 80,000 new patients annually. Because NeuVax is administered over several years with booster injections, patients on treatment would increase exponentially each year conceivably leading to a potentially multibillion dollar product.

With the PRESENT trial fully enrolled, our team is now focused on the ongoing treatment and maintenance phase of the trial. Similar to the screening and enrollment process, this next phase of the trial takes an equal amount of diligence to ensure we have a robust quality data, accurate analysis of the emerging data, minimize dropouts, and finally identifying the recurrences efficiently, such that the primary endpoint can be facilitated in the projected timeline in 2018.

You will recall that each patient will receive a primary vaccination series consisting of an inoculation once a month for six months followed by a booster inoculation once every six months for a total of 11 inoculations over a 3-year period. We continue to work with our investigators and site staff to ensure patient compliance with the treatment and protocol-defined evaluations.

The next major milestone for the PRESENT trial will be achieving a positive readout on our event-driven interim analysis that we anticipate to reach at the end of this year or in the first quarter of next year. The interim analysis is both a safety and futility analysis, and the timing is based on occurrence of 70 events, an event defined as a recurrence or a death.

In addition to the PRESENT trial that is about living NeuVax as a monotherapy, we have a broad franchise with a product that continues to expand. In general, cancer immunotherapy has made significant advances of late with the central focus of these therapies on enhancing the potency of tumor-directed T cells. As Mark discussed in detail on our last call, NeuVax stimulates HER2 directed cytotoxic T cells and has been at the forefront of this approach. As the field of cancer immunotherapy further develops, new possibilities of combination treatment regimens are emerging. We are just beginning to understand the complex interplay among the host's immune response, tumor cells, tumor microenvironment, and the effects of various treatments on these elements. Galena is actively participating in the space with our two ongoing combination trials.

Our phase 2b combination trial with trastuzumab is depicted on slide 7. This trial is enrolling 300 patients and is a robust clinical trial treating women who are node positive, high-risk node negative including triple negative, and who are HER2 1+ and 2+ expressors. We recently announced that we have expanded the eligibility criteria to include patients who are HLA A24 and A26 positive. This decision was based on preclinical binding data that shows that NeuVax also binds to these alleles. This addition broadens the utilization of NeuVax in this trial, particularly amongst women of Asian descent where these HLA alleles are prevalent. Currently, we estimate completion of enrollment in this trial in the first half of 2016 with a primary endpoint of disease-free survival at 2 years.

Slide 8 summarizes our NeuVax trials and, as you can see, we are also supporting a Phase 2 trial in breast cancer patients who are the higher HER2 3+ expressors. These patients are node positive or node negative and treated with trastuzumab in a taxane-based therapy in the neoadjuvant setting or before a surgery, and have failed to obtain a pathological complete response. The primary endpoint for this trial is defined as time to invasive local, regional, or distance recurrence; a new primary tumor; or death due to any cause. The trial is enrolling and we look forward to the emerging data in 2016.

As you can see in our product pipeline on slide 9, our second immunotherapy asset GALE-301 is a peptide vaccine derived from folate-binding protein and is targeting the prevention of recurrence in ovarian and endometrial cancers, diseases where the recurrences are high and the outcomes are often quite poor. Similar to NeuVax, GALE-301 is evaluating these women who have no evidence of disease after undergoing their primary first-line therapy. The earlier data was presented last year at the Society of Immunotherapy of Cancer, and our abstract was accepted for publication at ASCO. We expect to present a more robust data set at a scientific congress in the fall. We remain extremely encouraged about this compound and its potential to help women in this setting.

To conclude my discussion, I wanted to provide an update on our hematology asset, GALE-401. GALE-401 is our control-release formulation of Anagrelide in development to reduce the elevated platelet counts in patients with thrombocythemia, secondary to myeloproliferative neoplasms. Our Phase 2 top-line data has been accepted for a poster presentation at the European Society for Hematology meeting next month, and we will report to preliminary safety, efficacy, and pharmacokinetic results at that time.

The first quarter of this year has been very productive for the clinical team with the closing of enrollment in our PRESENT trial and advancement of our other clinical programs. We expect the remainder of this year to be as productive, and look forward to updating you next quarter. I'd like now to hand over the call to Chris Lento to review our commercial programs.

Thank you, Gavin, and good afternoon, everyone. As we shared with today's earnings release and as shown on slide number 11, we reported actual net revenue of $2.8 million for the first quarter of 2015, our second-highest quarter of net revenues since our relaunch of Abstral in 2013. In addition, the overall trend line as measured by end-user product demand continues to grow with March representing one of our best months to date. Equally important, our gross to net deduction also improved this quarter, from 63% in Q4 2014 to 65% in Q1 2015. One month into the second quarter, our performance metrics indicate a very strong month for Abstral in April as measured by customer demand, but please remember that this is not a direct correlation to our net revenue, which is recorded based on ex-factory sales.

We continue to focus on refining Abstral's prescription fulfillment process as depicted on slide number 12. As a reminder, Abstral is an indicator for the treatment of breakthrough cancer pain in opioid tolerant adult cancer patients. Because Abstral is a Class II narcotic and part of the TIRF REMS program, the vast majority of appropriately identified patients will require a prior authorization from their insurance provider. We encourage our providers to utilize our Galena patient services or GPS program that is managed through an outside vendor for assistance with this process. Once a prescription is approved by the payer, the prescription can be filled at an authorized pharmacy, and the patient becomes eligible to use our voucher and or our co-pay program, depending on their coverage to help reduce their out-of-pocket expense.

Regarding actual reimbursement and coverage, our managed markets group had a significant advance this quarter, securing exclusive or co-preferred status for Abstral as of April 1 with Caremark. This improves coverage and access for approximately 32 million commercial lives. I will now walk you through our continued progress on several key performance metrics.

On slide number 13, you can see the increase in the average number of Abstral units dispensed per transaction. Looking back a year in March 2014, the average units of Abstral per paid transaction or prescription was roughly 50 tablets while in March of this year the average number increased 41% to 72 tablets per transaction. The profitability of our overall business is best evaluated by calculating the actual revenue derived from each filled or paid transaction. As I discussed last quarter, the various data warehouses such as IMS and Wolters Kluwer report data based solely on the number of prescriptions filled and do not distinguish between strength or quantity of units in the prescription. With the variability in Abstral strengths and the variety of quantities that can be prescribed, one prescription does not necessarily equal one in terms of the actual dollar amount.

On slide 14, you can see that our average transaction price continues to grow each month. While some of this increase was related to a price increase we took in February, continued adoption of our GPS and patient assistance programs are playing a crucial role. Again, looking back a year, our average transaction price increased almost 100%. Therefore, each transaction we generate is becoming more valuable and leading Abstral and Galena towards greater profitability.

Our current market share in the branded turf market remains steady at around 5% of total prescriptions on a monthly basis measured by Wolters Kluwer. While our salesforce continues to call on pain specialists who are treating a large number of cancer patients, our long-term strategy is to develop lasting relationships with medical oncologists, radiation oncologists, and palliative care specialists since we believe this represents the most stable market, the best potential for Abstral, and meets the goals as an oncology-focused organization.

If you turn to slide number 15, I'm extremely proud to report that the percentage of our oncology business grew significantly quarter over quarter, and we now have 34% our business coming from oncology-focused specialists -- this up from 21% last quarter. We anticipate this number to continue to grow over time and expect that our promotion of your plans will further increase the penetration of Abstral into the oncology space.

Moving to Zuplenz, please turn to slide number 16. Our team is extremely excited about the pending commercialization of our second product, and our commercial management team has everything in place to run a successful launch. For the past six months, our commercial team has been engaged in prelaunch and market-setting activities which will allow for a more effective and efficient launch as Galena becomes a true portfolio organization with two supportive care products to help patients suffering from the debilitating side effects of cancer.

At this time our partner, MonoSol Rx is manufacturing the product to be sent for Galena label packaging. Once this is complete the product will be shipped to our third-party logistics provider were distributions for distribution to the wholesalers and we expect this final product to be ready for sale in July. As a reminder, Zuplenz is approved by the FDA for the treatment of patients with chemotherapy-, radiation-, and postoperative-induced nausea and vomiting otherwise known as CINV, RINV, and PONV. The active ingredient in Zuplenz is ondansetron, and I have provided some information on this there be on slide number 17.

Ondansetron is the market leader and gold standard in the antiemetic class, with over 20 years of clinical experience and more than 20 million prescriptions written worldwide making it to go to antiemetic for healthcare providers. Zuplenz is bioequivalent to ondansetron ODT or oral disintegrating tablets, better known under its branded name as Zofran.

Zuplenz also has several patient benefits as depicted on slide number 18, including its ease-of-use via the oral soluble film delivery method. It dissolves on the tongue in less than 30 seconds, does not require water to administer, can be taken with or without food, and has a soothing peppermint flavor with no gritty aftertaste associated with other available versions of ondansetron. Zuplenz is in a class of medications known as 5-HT3 receptor antagonists.

Turning to slide number 19, the branded 5-HT3 market continues to grow despite generic competition with a current branded market size of almost $1.2 billion in the US. In addition, we estimate the entire 5-HT3 market, including generics, to be in the neighborhood of $6 million in the US. We continue to make progress to expand our managed care coverage for Zuplenz with multiple payers. We've increased our Medicare Part D coverage from 1% at the acquisition of Zuplenz to approximately 40% at launch, and we continue to work on improving formulary status with Part D and commercial payers. We expect to be at or near parity with the branded competition in 2016.

The previously described indications for Zuplenz fit perfectly with our current existing commercial structure with clear promotional synergies as you can see on slide number 20. While we share the common call point between our two commercial products with medical oncologists, radiation oncologists, and palliative care providers, both products also target the pain and surgical specialties. The dark blue triangles on the graph are the specialists our team is currently calling upon and where we have established strong relationships. This is where we can simply add on Zuplenz. The lighter triangle in the non-oncology specialties will be an expansion area for Zuplenz. We plan to implement a controlled launch with our existing customer base and targeted oncology clinics, and we are slightly modifying the organizational structure of our sales team to maximize customer penetration across the multiple specialties to which we will be promoting Zuplenz.

Q1 was quite productive and this positive customer demand trend has continued through Q2. We've set the table for Zuplenz with a great deal of preparation and prelaunch activities. We remain excited for the prospects for both brands and our opportunities this year. With that, I will turn the call over to Ryan Dunlap who will discuss our current financial status.

Thank you, Chris, and good afternoon, everyone. I'll start with our P&L shown on slide 22. Net revenue from the sale of Abstral for the first quarter of 2015 was $2.8 million which compares to $2.2 million for the same quarter last year. Based on our historical trends thus far as well as very positive things trends we have seen in the last part of Q1 and into Q2, we are pleased with the direction of our sales trends and remain confident in our 2015 net revenue guidance of $15 million to $18 million. Also, with the launch of Zuplenz, we expect that piece of our commercial business to begin contributing to our net revenue by the end of the year.

I'll caveat that with a few items mentioned on last quarter's call that could cause delays in our revenue recognition for Zuplenz. These include, one, our agreement to assist our distributors in clearing the channel of old products sold by the previous licensee by replacing it with new longer-dated Galena product. Two, the deferral of revenue recognition until the point of sell-through or when the right of return from our customers no longer exists. And three, the relatively high gross to net deductions typical of the first few quarters after a product launch.

We look forward to launching Zuplenz this year and realizing the operational leverage and accretion we expect it to add.

Operating expenses for the first quarter of 2015 were $13.9 million compared with $14 million for the same quarter last year and $14.6 million last quarter. To break down these costs, SG&A expense for the first quarter was $7.4 million compared to $6.8 million in the same quarter last year and $7.6 million for last quarter. The year-over-year increase in SG&A costs was driven by the expansion of our management team and infrastructure needed to support our growing commercial programs in development pipeline as well as nonrecurring legal and other professional services incurred during the period.

Moving forward, we expect SG&A costs to increase somewhat as we complete the ramp-up of our commercial infrastructure to support the upcoming launch of Zuplenz. R&D expenses were $5.9 million for the first quarter 2015 compared with $6.7 million in the same quarter of last year and $6.3 million last quarter. The decrease in R&D costs year over year and from last quarter is the result of completing the enrollment period for our NeuVax Phase 3 PRESENT trial.

Overall operating loss improved to $11.1 million in the first quarter of 2015, $700,000 better than the $11.8 million reported in this same quarter last year and $300,000 better than the $11.4 million reported last quarter.

Our loss per share for the first quarter of 2015 was $0.08 per share, beating our consensus estimate of $0.09 per share.

Moving to our cash flow on slide 23, we have $52.9 million in cash and cash equivalents at the end of the quarter compared to $23.7 million at the end of 2014. The roughly $30 million increase in cash during the quarter represents the $42.2 million raised in follow-on equity financing offset by $11.6 million in cash used in operations, $900,000 in principal payments on our long-term debt, and $500,000 in additional payments on the Zuplenz asset.

With respect to our financing activities during Q1, in March we announced the closing of an underwritten public follow-on offering in which we raised net proceeds of around $35.4 million through the sale of common stock. Also during Q1, we raised $6.6 million under the Lincoln Park and APM agreements. These financings contributed $42 million cash during the first quarter of 2015. In addition, in April the underwriters exercised their option to purchase the over allotment of shares for additional net proceeds of $5.4 million, which is not included on our Q1 balance sheet.

In summary, we remain as confident as ever about the direction our business is heading and the progress of our commercial and pipeline investments.

With that, I'll turn to call back over to Dr. Schwartz to summarize our upcoming milestones and future value drivers.

Thank you, Ryan. As the team walked you through, our clinical and commercial programs have made significant advances thus far this year. As you can see on slide 25, we have several key milestones upcoming in 2015, and during last quarter we solidified our balance sheet to support these endeavors. Our moved to the San Francisco Bay Area will invigorate our organization in one of the leading life-science hubs in the United States and will allow us to establish and grow relationships with other companies in our sector in the world-class talent pool. With completion of enrollment in our PRESENT trial and our upcoming data for GALE-301, our cancer immunotherapy programs remain at the forefront of this evolving space. Our commercial franchise has built a strong foundation with Abstral, and we look forward to expanding our sales efforts in the oncology supportive care space with the addition of Zuplenz.

We will now open the call for questions.

(Operator Instructions)

Mara Goldstein, Cantor Fitzgerald.

(inaudible) taking the questions. On the clinical side, I was wondering if you could just maybe refresh us around the interim for the PRESENT trial. I'm curious as to -- certainly a very positive outcome would be stopping at the interim but, given the number of patients that had been enrolled for less than a year, I'm curious as to why you might have that expectation.

Hi, Mara, good to talk to you. Thank you for the question. The interim analysis is A preplanned interim analysis per a special protocol assessment. It is a futility analysis and a safety analysis. So there is nothing in the protocol that would in a statistical way or preplanned way call for stopping the trial. Of course the DSMB, as they do with any trial, could do that on their own if the data so inspired them to, but our upcoming interim is strictly a futility analysis and we have no formal stopping rules.

Okay. And then if I could just -- two number things. The first is on the move to San Francisco -- just if there will be any charges associated or additional costs above and beyond? What's the expectation for the year? And then could you just review the price increase on Abstral that was taken?

Thanks, Mara. This is Ryan. I'll answer the first part of your question.

Thanks, Ryan.

There will be some incremental cost. Obviously the costs of living in the Bay Area are a little bit higher and the rent is a little bit higher. But we do expect those costs to be offset by the decrease we will experience in travel costs and the entire and it's been team management team coalescing around one epicenter in the Bay Area. So, we don't expect a material impact from the move.

Okay.

Hi, Mara. It's Chris. The second part of your question -- thank you for the question. We took a 12% price increase, all six strengths on December -- excuse me, February 15th of this past year.

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

(Operator Instructions) Robert LeBoyer, Maxim.

Good afternoon and congratulations on the quarter. I had a question for Gavin on the changes to the NeuVax trial with Herceptin and the allele that was added. It looks like there is no change in the number of patients enrolled. And could you just elaborate on that change there? And also the plans going forward for 401?

Yes. So thank you Robert for the question. So the alleles A24 and A26 were added to what we call the H&N trial of Herceptin and NeuVax trial. The overall sample size have not changed. The reason why we added the A24/A26 is that we wanted to understand whether we could increase the utility of NeuVax. And we have -- as I mentioned earlier in the call, there is preclinical binding affinity data that is not yet published, but we do intend at some point in the future to make that publicly available. So as such, it doesn't impact the overall sample size but it gives us an opportunity to expand the patient pool if you like of NeuVax. Does that answer your question, Robert, for the first part?

Yes. So far so good.

So for GALE-401, relative to GALE-401 -- so with GALE-401 as you know we've completed enrollment on the trial. It's a clinical proof of concept trial, single arm. 18 patients enrolled. We presented some data back in ASH 2014. It was the preliminary efficacy and safety information, very early-on data. And as I mentioned earlier, we submitted yet another abstract to the European Hematology Association and that abstract has been accepted as a poster presentation. We hope at that presentation to update what was presented at ASH and finish off the study, so to speak, by the end of this year with the final presentation at ASH in 2015.

Okay. Thank you. And if I could just ask one more research-related question. Is there any guidance as to what the full-year R&D spending is going to look like now that is down a little and you're in the new phase of the PRESENT trial?

Yes. Sure, Robert. This is Ryan -- I'll answer that question. As we've been mentioning on previous calls, the expectation is that our research and development expense will and is going down now that we've completed enrollment. Obviously, we will reallocate some of that savings to efforts such as making sure that we have complete patient retention, but I do expect, overall, some additional decrease in our R&D spend as we move through the rest of 2015.

Okay. Great. Thank you very much.

It looks like I am showing no further questions for this time. I'd like to turn the conference over back to Dr. Schwartz for any closing remarks.

I want to thank everybody for the attendance this afternoon. I appreciate the support, and have a good evening, everyone.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.