Agenus Inc.
Q1 2010 Earnings Call Transcript

Published: 29 Apr 2010

[Operator:]

Good morning. My name is Celeste, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2010 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). I would now like to turn today’s call over to Ms. Sharp, CFO. Please go ahead.

[Shalini Sharp:]

Thank you Celeste and good morning everyone. Welcome to Antigenics' conference call to discuss the financial results for the quarter ended March 31, 2010. With me today is Dr. Garo Armen, Chairman and CEO. 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, and 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 without limitation statements regarding the company’s strategic priorities, past position and potential revenues and savings, and the development, regulatory and commercialization efforts, clinical trial activities, data, results and timelines of the company and/or its licensees and partners. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Reference to these risks and uncertainties is made in today’s press release and they’re disclosed in more detail in our most recent filings with the U.S. SEC. When evaluating Antigenics’ business and securities, investors should give careful consideration to these risks and uncertainties. For the purposes of this call, the phrase, 'net cash burn' means cash used in operating activities plus capital expenditures, debt repayments, and dividend payments. With that, I will now review our financial results for the quarter ended March 31, 2010. For the quarter ended March 31, 2010, Antigenics incurred a net loss attributable to common stockholders of $9 million, or $0.10 per share. This is compared with a net loss of $9.7 million, or $0.14 per share for the same period in 2009. The 2010 figure includes $4.5 million in non-cash expenses such as depreciation, amortization, share-based compensation, non-cash interest, etcetera. The 2009 figure includes only $2 million of such expenses. Antigenics recognized revenues in this quarter of $936,000 compared with $621,000 during the same period in 2009. This increase is primarily due to timing of shipments of QS-21 to our licensees. In the quarters ended March 31, 2010 and 2009, we recorded revenue of $378,000 and $380,000, respectively, from the amortization of deferred revenue that was received previously. Research and development expenses in the first quarter of 2010 were $4.6 million compared to $4.9 million for the comparable period in 2009. G&A expenses in the first quarter of 2010 were $3.6 million compared with $3.9 million in the first quarter of 2009. These decreases reflect our cost containment efforts. Cash, cash equivalents and short-term investments amounted to $23.9 million as of March 31, 2010. Our net cash burn for Q1 2010 was $6.1 million compared with $9.8 million in 2009. This reduction reflects primarily our cost containment efforts. We continue to anticipate that our net cash burn for the full-year 2010 will be in the range of $16 million to $18 million. Subsequent to the end of the quarter, we issued approximately 954,000 shares of common stock in exchange for $2.3 million in face value of our 5.25% convertible notes. This will result in a savings of about $120,000 in interest expense per year going forward. The original principal of this note was $50 million, of which approximately $17.7 million remains outstanding after a series of exchange and purchase transactions. Also as of Monday, the company has regained compliance with NASDAQ’s $1 minimum bid price listing requirement, and that matter is now closed. This concludes the financial portion of the call. I’ll now turn the call over to Dr. Garo Armen.

[Garo Armen:]

Thank you, Shalini. I will begin my comments by first addressing our strategic priorities for the year. These include improving our balance sheet, operating at a reduced burn rate and continuing to create value based on our broad immunology platform, which include our licensed adjuvant, QS-21; Oncophage; and AG-707, which is our herpes simplex II therapeutic vaccine candidate. With regard to our balance sheet, the objective for the year is to continue to reduce our debt levels. As Shalini mentioned, we've already purchased approximately 32.3 million of the 50 million publicly held convertible debt outstanding. These purchases have reduced our annual interest expense by some $1.7 million a year. In addition, we’ve cut our overall burn rate. This year, we will be at the rate of less than half of where we were just about two years ago. We continue to look for means of reducing it further by improving operating efficiencies further, and in addition our desired objective is of course to bring partners to complete the development of Oncophage and AG-707. Partnering these programs would optimize the potential for both given the applicability, for example, of Oncophage to many types of cancers. With a partner, we can see and envision studying two pivotal trial programs in multiple-cancer indications. Since our last conference call, we have had several meetings in this regard with prospective candidates for partnering Oncophage. AG-707 would also benefit (inaudible) that a partner can bring to the table. We expect to be presenting the data from our recently completed Phase 1 trial at one of the prominent upcoming conferences, and we also expect to submit an article on the results of this trial to a pre-review journal very soon. Our efforts to explore a potential partner for AG-707 development will commence very shortly and will be timed with these activities in an attempt to achieve maximum exposure. I will not provide an update on specific progress regarding our ongoing Oncophage trials in glioma. As you know, we currently have two investigators sponsored Phase 2 clinical trials testing Oncophage in return as well as newly diagnosed glioma patients. These trials are being led by Dr. Andrew Parsa at the University of California at San Francisco. These trials are externally funded by patient advocacy groups and by the National Institutes of Health. The trials will evaluate overall survival, progression free survival and immunological response. As you remember, we have measured these parameters in previous trials but the importance of this trial is that it measures all three in one single trial. Dr. Parsa has scheduled to present results from the recurrent glioma program at the International Conference on Brain Cancer Therapy in Germany on May 20; so that's in a few weeks. In addition, he will also be presenting on the subject of vaccine therapy in glioma at the American Association of Neurological Surgeons Conference on May 4. Just to recap, the most recent report data from the recurrent glioma program showed that in the first 20 patients treated in our Phase 2 portion of the trial with Oncophage, median survival was 10.1 months with six patients surviving at or beyond 12 months. The previous long established historical median survival for this population is 6.5 months. Next a quick update on Russia. We are pleased that the commercial launch has taken place. We recognize that the private pay market in Russia is limited thus we consider and continue to explore local distribution partners who might support potential broader commercialization as well as efforts to obtain government reimbursement for Oncophage in Russia. Regarding our activities in Europe, over the past month we've held meetings with regulatory agencies from select European countries to help us decide whether or not it makes sense for us to submit our application for Oncophage in renal cell carcinoma. We plan to continue some additional follow-up work on this, and we will decide in the second half of this year whether or not it would be prudent for us to resubmit. I will conclude my remarks with QS-21. QS-21 is current being tested in 15 clinical stage vaccine products. We expect the first QS-21 product to be launched in the 2012, 2013 timeframe. After which, we will be entitled to receive royalties on sales. Royalties are payable for 10 years to 15 years after launch depending on the product. Prior to launch of QS-21 in commercial products, we are currently generating modest revenues. This is unique as an asset for us in the biotech field because it offers a tremendous pipeline diversification and a 100% of the partner funded programs out of our income statement. So that significantly de-risks the QS-21 from the Antigenics perspective, allowing significant potential upside with no financial risk to the company from a development perspective. With that I will conclude my remarks, and I think we are now ready to take questions.

[Operator:]

(Operator instructions) Your first question comes from the line of Ren Benjamin with Rodman.

[Ren Benjamin:]

Good morning, guys, and thanks for taking the question. I guess, maybe just starting off with some more details regarding the clinical update. Garo, you mentioned that we would be seeing some recurrent glioma data. Can you refresh for us what the size of the trial is intended to be? How many patients will get an update on May 20? And what are the endpoints that we should be concentrating on?

[Garo Armen:]

As you know, Ren, this trial is designed to enroll 50 patients. And we have completed the enrollment of 30. So the trial will report on the mature portion of that enrolled 30 patients. In terms of what will be reported, the previous trial had shown survival data which have favorably compared to historically publish data, but very importantly the first trial that we completed showed that 11 out 12 patients tested immunologically showed a patient-specific immune response. And we are talking about a T-cell-mediated or CD8-mediated immune response. The immune response data from the current trial will probably take a little bit more time to mature but I expect that Dr. Parsa will most likely talk about the survival data on the mature portion of the patients that have been enrolled.

[Ren Benjamin:]

Okay. Can you just give us an update on the newly diagnosed group of patients at second Phase 2 trial that's ongoing?

[Garo Armen:]

That’s the one I am talking about. This is the trial that is going to enroll 50 patients and 30 had been enrolled. That's the ongoing trial.

[Ren Benjamin:]

That’s the newly diagnosed, got it. So you had mentioned earlier on that there were two Phase 2 clinical studies underway. I assume that they were both by different physicians, one by Dr. Parsa and one by someone else. Is that incorrect?

[Garo Armen:]

As you may know, we expended the enrollment to two additional centers. So this is the same trial. We have two separate trials but we have expended the enrollment to two additional centers for the larger trial to speed up enrollment and also based on the interest that was expressed by these additional centers. One is Columbia University Hospital in New York and the other one is the Case Western Hospital. So the investigators from these trials are now in an active phase of enrollment of patients.

[Ren Benjamin:]

Regarding Russia, you mentioned that the launch has taken place. It seems to me that with the recovering economies around the world, there is increased interest in obtaining products that are approved by local potential partners. Can you give us any sort of a sense if that's true and if those types of discussions have been increasing? When we might see the results of those discussions?

[Garo Armen:]

We’re in a very active phase of discussion with local partners. I think you said it absolutely correctly. There is a substantial amount of activity because healthcare expenditures and appetite for more expensive treatments has increased a bit in these countries, particularly Russia. And we are currently actively talking to two local partners for the sales and distribution as well as marketing of Oncophage in Russia.

[Ren Benjamin:]

I guess regarding that you mentioned that the launch took place, can you just give us an update as to what infrastructure is set up in Russia right now that you guys have? I remember, at least in the previous notes, we were talking about a small but (inaudible) sales force, things will move on. Do we have those kinds of measures in place right now or is it more of a measured sort of launch?

[Garo Armen:]

I think just to answer your last question, it is a measured launch, but let me give you a little bit of background on this. If you remember prior to product approval in Russia and also after product approval we engaged in substantial activities in educating the local urology and the oncology communities in Russia. So the recognition for the product in Russia is at really high level among the lead urologists and oncologists. Urologists would be the primary target for this product because just like in other parts of the world patients get surgically excised, the tumor gets shipped to us and we make the vaccine and send it back to the oncologists for demonstration. That pretty much is the majority of the exposure of Oncophage in clinical trials and certainly it seems to be in Russia in a commercial study. We have established a very good educational relationship with some of the top urologists in Moscow and other cities and the reason our efforts are limited right now in Russia is strictly driven by financial considerations. We have a limited infrastructure with regard to distribution capability. We have installed freezers in a limited number of centers in Moscow. These are lead centers show patient (inaudible) which should be reasonable; one challenge being the private pay component. And the interest by physicians is very robust, including the lead urology center in Russia department driven by the chief urologist of Russia. So, our ability to consummate a distribution relationship on a broader scale and a sales marketing relationship will drive the magnitude of the potential coming from Russia this year certainly, but in also the next coming years.

[Ren Benjamin:]

Okay. Just switching gears quickly to QS-21, you mentioned that there are 15 clinical trials that are currently evaluating QS-21 in conjunction with the given therapeutic or vaccine. Can you just remind us what are the lead trials that are -- where we might be able to expect some data in the next 12 months to 18 months?

[Garo Armen:]

Certainly. I think and I will be only divulging public information on this. It has been publicly stated that the trial for malaria which is the largest trial and the most likely vaccine to get approval in the next several years contains QS-21. So this is the GSK product. It's been published and it's one of the candidates to be launched within the time frame that we have specified. Shalini, has anything else been disclosed publicly regarding products that contain QS-21 in the Phase 3 study?

[Shalini Sharp:]

Well, the only known Phase 3 programs are the malaria, melanoma, and non-small cell lung cancer vaccines.

[Garo Armen:]

So, the other two, I just wanted to confirm it. Non-small cell lung cancer is the largest lung cancer trial to be ever conducted. This trial is currently underway and the data is expected in the next 18 months or so. It's possible that there may be interim data in the meantime, but to be conservative I think the data will be in the next 18 months.

[Ren Benjamin:]

Okay, great. And I think that's it from me. Thank you very much and good luck.

[Garo Armen:]

Thank you.

[Operator:]

(Operator instructions) Your next question comes from the line of Eric Warwick, Private Investor.

[Eric Warwick:]

Good morning, guys. My question is Antigenics has a great model for how Oncophage works for RCC. Has the company come up with a model how Oncophage may work in treatment of glioma since the blood-brain barrier is highly selective at the current ability of different components.

[Garo Armen:]

Yes. I think that's a very good question and one of the reasons Dr. Parsa originally was very interested in issuing the glioma indication is because unlike large proteins or antibodies that may have difficulty crossing the blood-brain barrier, the kind of immune response we generate which is a T-cell mediated immune response and it also works through local cells that are actually involved in the killing process, natural killing cells. We do not have any issues with regard to the blood-brain barrier issue that we know. And the immunological responses that we have seen do confirm that the blood-brain barrier is not an issue in the context of generating immune response by Oncophage.

[Eric Warwick:]

(inaudible) that are responsible for cleaning up? Would you expect that glio cells will be involved in the removal of glioma at some way? And can you assay that directly during analogy [ph] of some sort?

[Garo Armen:]

The immunological trial that Andy Parsa held with the immunological assays -- that Parsa has conducted involve very sophisticated state-of-the-art ELISpot driven assays. So, my impression is that we have pushed the limits on what can be done with regard to immunological measurements and are using the best and the greatest technologies in his laboratory in his center to measure immune response.

[Eric Warwick:]

My next question focuses on, we have fundings from the NIH or NIC. Is there any possibility to receive more funding from like the NSS to do a Phase 3 trial? And what is the cost of a Phase 3 trial if the company would decide to go in that route?

[Garo Armen:]

There are various pathways for exploring Phase 3 trial funding, and they are not limited to the US alone. There are a number of cooperative groups, including cooperative groups in Europe that may potentially be interested in conducting trials with Oncophage in specific indications. Now we are in the very, very early stages of these discussions at the moment. And the objective here is to initiate pivotal trials in indications where the readout can be obtained in 3 years to 4 years. Certainly the renal cell carcinoma trial that we conducted in the adjuvant patient population, which took as much as 10 years is practically not repeatable. And I think the regulatory agencies and others acknowledge this fact that such a trial, which was a beautifully done trial is not repeatable. So our emphasis would be to single out indications in patient populations where we can have results in potentially 3 years to 4 years. And for that, we have two sources of funding; one would be corporate partnerships, and as I said earlier, we've already had several meetings with regard to potential corporate partnerships to fund such trials. And then as you may imagine, Oncophage has generated so much data over the last 10 years to justify further development of this product both from a product perspective -- product challenges had been addressed in a very substantial way and from the perspective of demonstrating activity. Even regulatory agency personnel have acknowledged to us that in various countries that they believe the product is active. It may not meet their current guidelines with specific approval processes, but they’ve acknowledged that in their opinion the product is active. So with that it paves the path to design, very clearly designed trials that could be funded either through a potential partner or through a cooperative group, as well as what you said through government funding. So bear with us, we are in very early stages of exploring these activities.

[Eric Warwick:]

Okay. And then switching to the RCC, I noticed that there is a new Phase 2 trial of the RCC just launched in February. Can you explain what the purpose of that might be or what you guys hope to gather from that?

[Garo Armen:]

Sure. The trial that you're talking about is strictly a trial to measure immune response. In the Phase 3 trial that we undertook, one of the largest trials ever done in RCC patients, which was done in over 120 centers around the world in some 18 countries, we did not opt to measure immune response and the reason we didn't is because the kind of immune response measurement that would be meaningful in the context of this product is a very sophisticated ELISpot assay that certainly 120 centers would not be capable of doing. And the logistics of shipping enormous volumes of blood for each patient back and forth was so onerous that this was not being practical. So the large trial we had done immunology measurements in a number of other trials, but the large renal cell carcinoma trial did not measure immune response. In the context of regulatory --exploration of regulatory approval, an objective measure of a biological response was a question that had come up repeatedly. For example, with the Canadian authorities, Canadian authorities informed us that if we have immune response demonstrated in a slow trial, which this is, of about 50 patients then we may have a shot at going back to Canada and exploring approval for example. So this is one example. And that is the reason why we started this trial in order to be able to empirically demonstrate, objectively demonstrate because nobody can argue with [ph] immune response data that the product injected to renal cancer patients who where the candidates treated with our product in our large Phase 3 trial are capable of showing immune response, objectively measured immune response after injection with Oncophage. That is the trial that is ongoing and it may be important depending on how things progress with our discussions with regulatory agencies in different venues in the context of going back to justify approval of the product.

[Eric Warwick:]

And is there a way to potentially carrying out a Phase 4 launch trial if you can get enough products sold in Russia or are you ought [ph] to collect specimens from willing volunteers to look at it that way.

[Garo Armen:]

We have been informed that if we can collect data from our commercial patients in Russia that may have some utility. But all of this is in a gray zone. So I wouldn't want to make any definite statements. But rest assured that we will do what we can to make sure that the information based to justify Oncophage activity in the eyes of the regulatory agencies is optimized. So with an eye on costs, we will do all of these activities but make sure that we obviously contain cost in the process.

[Eric Warwick:]

At what point would the company be potentially facing a patent expiration on QS-21?

[Garo Armen:]

At what point? I am sorry.

[Eric Warwick:]

Yes, at what point would the company be facing a patent expiration on QS-21?

[Garo Armen:]

Well, that question has been addressed actually. What I can tell you is that most QS-21 patents have expired already. There are some that go on to the 2020 plus timeframe but most patent applications have expired. Our royalty payments are independent of patent expiry. So the royalty arrangements we have with GlaxoSmithKline, which has the majority of the QS-21 portfolio of products and royalty arrangement with Johnson & Johnson, for example, are independent of patent expiry. So we collect royalties for a minimum of 10 years, in some cases as long as 15 years after product launch. So if the first product launch is, let's say 2012, we will be collecting royalties for a minimum of 10 years beyond 2012. And I think this is a fact that may be somewhat misunderstood by the marketplace. That's number one. Number two; even with potential new QS-21 users, in spite of patent expiry, we still get inquiries regarding QS-21 and we are in some discussions at the moment because we are the only supplier of QS-21 at the moment and we don't know of any other suppliers that have made noise to bring this product out. But very importantly, very importantly we control the master file of QS-21 with the FDA. So if anybody wants to have access to regulatory information on QS-21, given that this is an excipient it would be extremely onerous and costly for somebody to repeat the regulatory wealth of information that has been gathered over the last 10 plus years. So we control that master file and therefore companies still come to us to explore potential additional uses of QS-21. GlaxoSmithKline and others have made a -- have done a wonderful job of establishing the importance of this adjuvant. If any of you are interested and do some Internet research or scientific research on Internet you will find that there are so much publications that cites QS-21 activity and pretty much there is really no doubt that a product containing QS-21 does generate the kind of immune response that product without QS-21 cannot.

[Eric Warwick:]

My final question is what -- and I think I might have missed some, sorry -- what is the cash on the balance sheet?

[Garo Armen:]

As I said, last year – Shalini, are you still there? I got a little note that Shalini dropped out. Sorry. Okay, so let me answer that question. We closed last year with approximately $30 million in cash. Our cash position at the end of March was approximately $24 million and that includes a number of unusual expenses or frontloaded expenses for the first quarter which is typical of our company. We expect to finish the year with a minimum of $15 million worth of cash, minimum of that, and the aim would be to do better than that. So as of now we have cash – our plans are to converse our cash at least through the end of 2011.

[Eric Warwick:]

Okay. Thank you very much.

[Operator:]

(Operator instructions) And your next question comes from the line of Joe Bidwhack [ph], Private Investor.

[Joe Bidwhack:]

Good morning, Dr. Garo. I appreciate the time. One quick question, I believe if my memory is correct then hopefully research is there is an undisclosed trial. I don’t even know or vaccine trial is a, again this is true? And b, is there any updates as to when some results from that undisclosed trial maybe available to the public?

[Garo Armen:]

I don’t know what you mean by an undisclosed trial because everything has been discussed and trialed that we know.

[Joe Bidwhack:]

Okay. I will leave it at that. I wasn't sure and read some information and maybe I didn’t phrase that quite right. But –

[Garo Armen:]

Referring to the immunology trial that the previous questioner asked, I just addressed that issue.

[Joe Bidwhack:]

Okay, very good. That's all I got. Thanks for your time.

[Operator:]

And at this time, we have no further questions. I'll now turn the call back over to Dr. Armen for closing remarks.

[Garo Armen:]

Thank you. 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 October 29, 2010. Please dial 800-642-1687 from the U.S. or use the international number, which is 706-645-9291. The access code is 69675455. The replay will also be available on our company Web site in approximately two hours. If you have additional questions after today's call, you may call us at 1-800-962-AGEN or 2436. Thank you very much.

[Operator:]

Ladies and gentlemen, this concludes today's first quarter 2010 earnings conference call. You may now disconnect.