Agenus Inc.
Q4 2008 Earnings Call Transcript

Published: 19 Feb 2009

[Operator:]

Good morning. My name is Brett and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Year End 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Anstey, you may begin your conference.

[Robert Anstey:]

Thank you Brett and good morning everyone. Welcome to Antigenics' conference call to discuss the financial results for the quarter and year ended December 31, 2008. With me today are Dr. Garo Armen, Chairman and CEO; Shalini Sharp, Vice President and CFO. We hope that all of you have had a chance to review the press release that was issued this morning. During this call, we will review the financial results as well as provide a corporate update. We will then have a Q&A session. But before we continue, I would like to remind you that this conference call will contain forward-looking statements, including statements regarding development programs, commercialization activities, clinical trials and publication activities, timelines for Antigenics and its licensees and partners, and the potential effects of the company's recent restructuring efforts including 2009 cash burn forecast. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include among others; decisions by our licensees and partners, regulatory authorities, physicians and patients, the possibility that results from future treatment with Oncophage or studies with our other product candidates will not be as favorable as prior results, the inability to secure local distributors and payment mechanisms in Russia or any other jurisdiction in which Antigenics may obtain product approval, the ability to sustain cash resources and finance future development of Oncophage, potential that we may not be able to maintain our listing on the NASDAQ global market, meet the requirements of the NASDAQ capital market, and the factors described under the risk factors section of our quarterly report on Form 10-Q filed with the SEC for the period ended September 30, 2008. Antigenics cautions investors not to place considerable reliance from the forward-looking statements in this call. The statements speak only and as of the date of this call and Antigenics undertakes no obligation to update or revise the statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. Antigenics' business is subject to substantial risks and uncertainties, including those previously identified. In evaluating Antigenics' business and securities, investors should give careful consideration to these risks and uncertainties. Before we move on, I would like to note that for the purposes of this call, the phrase, 'net burn rate' means cash used in operating activities plus capital expenditures, debt repayments and dividend payments. With that, I'll now turn the call over to Shalini Sharp, who will review the financial results for the quarter and the year.

[Shalini Sharp:]

Thank you Robert and good morning everybody. I will now review our financial results for the quarter ended December 31, 2008. For the fourth quarter of 2008, Antigenics reported net income attributable to common stockholders of $5.1 million, or $0.08 per share. This is compared with a net loss of $7.7 million or $0.16 per share for the same period in 2007. During the fourth quarter of 2008, the company paid $2.9 million to repurchase $11.8 million of its 5.25% convertible notes, resulting in a one-time gain of $8.6 million and an annual savings in interest expense of $0.6 million. These notes were incurred in 2005, convert into common stock at $10.76 per share, and have a remaining balance of $38.2 million. The first time that these notes can be put to the company is in February of 2012. The company also disposed certain non-strategic intellectual property resulting in a one-time gain of $4.6 million in the fourth quarter of 2008. For the 12 months ended December 31, 2008, Antigenics incurred a net loss attributable to common stockholders of $29.5 million or $0.47 per share, compared with $37.6 million or $0.81 per share for the same period in 2007. Revenues in the fourth quarter of 2008 were approximately $0.5 million compared with approximately $900,000 in 2007. Revenues for the full year 2008 were $2.7 million compared with $5.6 million in 2007. The 2007 figure includes over $3 million in non-recurring milestone payments received from the company's QS-21 licensees. QS-21 milestone payments are driven by the progress of our partner's vaccine programs and therefore we are unable to predict the precise timing or future of such payments. Research and development expenses for the fourth quarter of 2008 were $3.7 million compared to 3.6 million for the same period last year. Research and development expenses for the year ended 2000... December 31, 2008, were $20.7 million compared with $21.8 million to the comparable period in 2007. This decrease was driven by a reduction in clinical trial activities and personnel related costs. General and administrative expenses were $3.7 million for both the fourth quarter of 2008 and 2007. General and administrative expenses for the 12 months ended December 31, 2008, were $19.8 million compared to $17 million in 2007. This increase is largely related to our Oncophage commercialization efforts in Russia and elsewhere, as well as non-cash share-based compensation expense. Our net cash burn for 2008 was $32.8 million compared with $27.5 million for 2007. This increase is primarily due to our efforts in Europe and Russia, our repurchase of 5.25% notes, and the decrease in QS-21 revenues. We have $34.5 million in cash, cash equivalents, and short-term investments at December 31, 2008. The company recently completed a restructuring, resulting in the elimination of 20% of our workforce and the suspension of internal work on lower priority programs. As a result, our net cash burn for 2009 is expected to be in the $25 million range and we believe our current cash balances are sufficient to fund our operations into 2010. This concludes the financial portion of the call. And I will now turn it over to Garo to continue.

[Garo H. Armen:]

Thank you, Shalini. I will now provide an overview of Antigenics' performance in 2008 and the priorities of the company for 2009 before we take your questions. We had two key objectives for Oncophage in 2008. One was to ensure successful registration in Russia; and two, was to submit a marketing authorization application to the European Medicines Agency. In April, we announced that Russia became the first country in the world to approve our personalized cancer vaccine. Subsequent to the Russian approval, we immediately began our pre-launch activities. These programs, which are still ongoing, include; one, securing reimbursement of government programs; two, identifying and working with major centers of excellence, through which Oncophage will be made available to patients; three, continuing to build relationships with key opinion leaders in oncology and onco-urology in Russia; and four, presenting at major scientific conferences in Russia. Our ultimate success in Russia, as is the case with other pharmaceutical companies who have launched products there, is largely contingent upon reimbursement. We will provide further updates as we make progress on this front. In addition to our Russian efforts, in October, we filed an application with the European Medicines Agency for their conditional approval of Oncophage in early-stage kidney cancer. Conditional approval allows for full marketing of product, with post-marketing commitments. This is a new provision which became available in Europe as of March 2006. The purpose is to allow patients early access to new drugs that address an unmet medical need for which no treatment options are available. Sutent, a drug marketed by Pfizer for metastatic kidney cancer, was the first drug to be approved in Europe under this mechanism. Just to avoid confusion, our product Oncophage is slated for earlier-stage kidney cancer, whereas all products that are available now for kidney cancer are for late-stage kidney cancer. While our focus continues to be kidney cancer, Oncophage is also being studied for treatment of glioma. In November 2008, we presented final data from a Phase 1 study of Oncophage, as a treatment for recurrent glioma at the Society of Neuro-Oncology Annual Meeting. Results from this 12 patient investigator-sponsored study, showed that the overall median survival was approximately ten and a half months, with four patients surviving beyond 12 months and one patient surviving almost two and a half years. This compares with survival based on historical experiences in a similar patient population, which is in the range of six and a half months. All patients in this trial had prior recurrences of brain cancer. In addition to survival data, the study also observed a correlation between immune response and overall survival, as a result of Oncophage vaccination. Immune response in these patients were determined using three separate immune response measurement techniques. They showed that Oncophage evoked a tumor-specific immune response, by producing activated T-cells and natural-killer cells that has the capacity to destroy that patient's tumor cells. Currently, there is a Phase 2 portion of the study, which is ongoing and has enrolled about two-third of its target patients. The results from the Phase 1 portion of the study, which were presented, are also expected to republish this year in a peer review of Scientific Journal. For the upcoming year; the marketing of Oncophage in Russia, the continued development of Oncophage in glioma, and the potential conditional approval of our product for renal cell carcinoma in Europe, remain our top priorities. I will now turn briefly to the rest of our pipeline. Our licensees; particularly, GlaxoSmithKline and Elan, continue to move forward with a multitude of development programs containing our QS-21 vaccine adjuvant. There are 16 clinical stage vaccines under evaluation that contain QS-21. These vaccines cover a number of indications including; melanoma, non-small cell lung cancer, malaria, HIV, influenza and so on. And they cover a range of vaccines, both prophylactic that is for prevention of disease, as well as for our therapeutic use. In December, GlaxoSmithKline reported results on two studies showing the malaria vaccine's progress. The results reported in the New England Journal of Medicine from two separate Phase 2 studies, will lead to the launch of a Phase 3 study across Africa in the very near term. More recently, GlaxoSmithKline also reported immunology and safety data from its Phase 1 HIV vaccine candidate that contains QS-21. This early stage study showed that T-cell responses against HIV antigens, when the vaccine was formulated with QS-21 containing adjuvant system, as compared to other adjuvant systems that did not contain QS-21. Despite our progress on all fronts, Antigenics has been... has not been immune rather, to the turbulent economic climate. Because of this, we have taken measures to reduce our burn rate and continued to evaluate things on an ongoing basis. As a result, we reduced our overall headcount by about 20% recently and have decided to put out early-stage programs on hold for now. These include our Aroplatin chemotherapy agent, Aroplatin, and genital herpes vaccine, AG-707. This will allow us to focus on our resources rather exclusively, and the development of our key assets, which are Oncophage and QS-21. Looking forward, in 2009 we expect to launch Oncophage in Russia and potentially have approval in Europe. In addition, we expect to further advance our QS-21 pipeline. Now I will turn the call to Robert, who'll open it up to any questions that you may have. Robert?

[Robert Anstey:]

Thank you, Garo. At this time, we are ready to take any questions. Brett, can you please repeat the Q&A process.

[Operator:]

Yes sir. (Operator Instructions). And your first question comes from the line of Ren Benjamin.

[Ren Benjamin:]

Hi. Good morning, Garo and thanks for taking the question. Maybe we can start off with Oncophage and the Russian launch. I think previously, we were talking about a launch in the first quarter of '09. Can we dig down a little bit into the details here? I know that you've received the required approvals to be submitting the... or sending the product to Russia. What's sort of happening now and when do we think that the launch could occur?

[Garo Armen:]

Certainly. I think perhaps, I could address this question in two ways. One is; we can go with guidance that's present in Europe, which tracks the average time from product approval in Europe to product launch. And that's typically nine to 12 months. In other words, our products in Europe are launched typically nine to 12 months after formal approval. And the reason for that is a number of administrative details, such as pricing, reimbursement and other things that need to be attended to in each country. In Russia, things are a bit more uncertain because of the relative use of this market. It's a market where there isn't really a very long-term experience with these situations. It's only been the last 2 to 3 years that proprietary products have been launched in Russia by a, parts of western companies. Now to complicate things a bit more in our case, we have a personalized vaccine. So, that required specific paper work and permissions for not only exportation of products out of U.S. but also exportation of tumor out of Russia and importation of individualized product back to Russia. Suffice it to say, we have made tremendous progress on all of these fronts and technically, we may very well be ready within the next month or so, plus and minus, to be able to launch products in Russia, notwithstanding reimbursement from government sources. So that's the missing piece and we don't know exactly when we will come to resolution on that, or if we will come to resolution on that, but we continue to make steady progress and we will let you know what we have at hand as soon as we have a resolution. So, not to evade your question, the timing from a practical perspective without any consideration for reimbursement from government sources, could be within a month or so. But government reimbursement would remain a question mark until we have a better read on it. We, as I said, we continue to make progress but it isn't done until it's done basically.

[Ren Benjamin:]

And then I guess just may be a quick one for Shalini before I come back to some of the clinical development; the net cash burn of 25 million incorporates some sort of sales of Oncophage in Russia or is that without anything, without any potential partnerships, just what the cash outflow from the company will be?

[Shalini Sharp:]

The net cash burn for year does include some revenue both for Oncophage and QS-21 but it's not a very high number. We've been very conservative about our forecast for the year. It does not include any assumptions regarding partnership or a collaboration agreement or anything like that.

[Ren Benjamin:]

Okay, great. And for, while we are talking about collaborations and partners and clearly this is as you mentioned Garo, an uncertain area in especially the personalized vaccine, are you getting any interest or does it make sense to may be find a partner in Russia or somebody that has experience going through these regulatory hoops if you will?

[Garo Armen:]

I mean, we've had discussion obviously on this. The issue is nobody has had the approval of a personalized vaccine in Russia or any cancer vaccine for that matter. We excelled in that task of accomplishing it. In terms of any partner, once government reimbursement is attained, which is really the value added component of this, I don't think a partner will add much value to the equation. If government reimbursement is not attained in the near future, then any partner would be unwilling to prepare the market and spend a lot of money. So, it's highly likely that we'll go back this is in Russia on our own.

[Ren Benjamin:]

Okay.

[Garo Armen:]

And... yeah. Go ahead please.

[Ren Benjamin:]

Alright so, switching gears very briefly to the EMEA, obviously you achieved one of your goals of submitting to the EMEA for a conditional approval. Can you give us an update just regarding your interactions with EMEA? I think in the past, we have mentioned that by the fourth quarter of '09, we very well could hear some sort of decision, but this is clearly a back and forth sort of process. Could you just remind us how this process works and when the questions are due from EMEA and is that timeline still correct, that by the end of this year we should know something from EMEA?

[Garo Armen:]

The questions are due to us by the end of this month, so very soon. As you said, it's an ongoing situation, discussions. We do not plan on updating the investment community on the specifics of these discussions until we have a clear answer from the agency. Suffice it to say, that if we and our key advisors, who are some of the key experts in this field in Europe, determine that any of the questions or the process is going in the wrong direction, we will stop this process and not incur additional expenses. So, as long as we are continuing, one can interpret that as a sign that there is a chance and that chance is not 5 or 10%, that we will, we could potentially have approval of Oncophage in Europe. Other than that, I am sure that I can't give you additional clarification.

[Ren Benjamin:]

No, it's fair enough. Just switching gears to glioma; the study update that you had just provided, and correct me if I'm wrong, that the ongoing I guess, Phase 2 portion of the study's two-third's completed, is that for the combination study with Temodar, and if that's the case, when is... when do you think we might see the next data update from that study?

[Garo Armen:]

Okay. So, this is not in combination with Temodar. It is a... this is a study as a single agent, Oncophage, being used in the recurrent glioma patients. So, these are patients who are refractory to the current standard of care. And that's why there is really no at the current other issues associated with the use of Oncophage in these patients as a single agent. In terms of data from the Phase 2 study, we really get our guidance from the investigator, who is the person, our SKU heading this study. This study is now beyond just one center, so there are other investigators that had shown interest, who are now starting to participate in this. And with these types of situations as you know Ren, the more mature the data is, the more meaningful it becomes. Just as we have seen in the case of Oncophage, the fact that the benefit that we saw persisted over a reasonable period of time, made the data much more compelling to both, practitioners out there as well as regulatory experts and regulatory agencies. So, I think the same applies to glioma as well. One handicap in this Phase 2 study is that it's not a randomized study. So, it continues to collect information on patients as a single arm study. And eventually, we would have to, once the results are confirmed in the Phase 2 study that we had seen in Phase 1, we will consider is it possible to doing a randomized study in glioma, which again, is a disease that represents a major unmet need. Does that answer your question?

[Ren Benjamin:]

Yeah. And I guess, maybe just as a follow-up because maybe I have my notes on, so there's two studies that are going. One, that's a single agent study and we are currently in a Phase 2 portion of that study, and was I right in hearing that you mentioned that the enrollment was two-thirds complete. Is that correct?

[Garo Armen:]

That's correct. In that Phase 2 study, the enrollment is approximately two-thirds complete.

[Ren Benjamin:]

And I would have, I mean it's enrolling at a fairly nice clip as it appears. And so you would expect enrollment to complete this year?

[Garo Armen:]

Yes.

[Ren Benjamin:]

Okay. And then, maybe my notes are wrong, but is there a combination study that's ongoing with Temodar?

[Garo Armen:]

There isn't yet. That study has been under review because of resource constraints and everything else. So, I cannot tell you if we're going to go ahead with that combination study, and when we will go ahead with it. Especially, the result of recent restructuring that we had where we lost about 20% of our very, very capable and qualified people, because of the required need for us to bring down our expenses. So that's probably going to be on hold for now. But, there is a pediatric glioma study that's likely to commence this year. And that's from the Pediatric Glioma Consortium. It will be sponsored by them. So, we provide product to them similar to the Phase 1 and the Phase 2 studies which are investigator-sponsored studies. Our only technically, our only expense is associated with providing them with product.

[Ren Benjamin:]

Got it. And I guess, just moving to QS-21. Clearly, you have quite a few partnerships there. And I know it's really tough to kind of monitor how each of these relationships are doing and how the clinical trials are coming along and plus you have constraints in that, partners will only tell you so much, especially the big partners like GSK and Elan. But, if we just look at the list of Phase 3 products that are currently in evaluation or in clinical trials and that include QS-21, do we expect any of those trials to be reporting results, Phase 3 results, this year? I'm sorry, Garo.

[Garo Armen:]

No. The answer is no. Not this year.

[Ren Benjamin:]

Okay, great. And I think that's it for me. Thank you very much.

[Garo Armen:]

Thank you.

[Operator:]

(Operator Instructions). And we have no further question in queue at this time.

[Robert Anstey:]

Thank you, Brett. I would like to remind listeners that a replay of this call will be available approximately two hours from now through midnight Eastern Time on March 5, 2009. Please dial 1-800-642-1687 from the U.S., or use the international number at 706-645-9291. The access code is 85080217. Replay will also be available on our company website in approximately two hours. If you have any additional questions after today's call, please call us at 1-800-962-2436. Thank you.

[Operator:]

This concludes today's conference call. You may now disconnect.