Geron Corporation
Q1 2010 Earnings Call Transcript

Published: 13 Jun 2010

[Operator:]

Good day, ladies and gentlemen and welcome to the first quarter 2010 Geron earnings conference call. My name is [Carissa] and I’ll be your coordinator for today. At this time all participants are in the listen only mode. We will be facilitating a question and answer session towards the end of today’s conference. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Mr. David Greenwood, Executive Vice President and Chief Financial Officer, please proceed.

[David Greenwood:]

Good morning and welcome to the call Geron earnings call. I’m David Greenwood. With me is Tom Okarma. This is an earnings related conference call and we will begin with a summary of operating results for the first quarter, our agenda then includes an overview of recent operating highlights at the company and a look forward with our program development plans for 2010. Following that presentation by Tom we will have a general Q&A session. The first two informational items, in the event of forward-looking statements during this call, please understand that those comments are made subject to the Safe Harbor provisions of the Securities and Litigation Reform Act. Any forward-looking statement involves uncertainty and we refer you to the risk factors detailed in our filings with the SEC. Secondly, all participations are currently in listen-only mode and the lines will open for the Q&A and this call is available for webcast replay until the end of May on the Geron website. Revenues for the three-month period are attributable to collaborative agreements, royalties and interest. License fee income amounted to approximately $900,000 which is an increase over the 2009 period. We'd expect this number to total about $3 million for the year. Other cash inflows to the company during the quarter included $200,000 of interest income on the marketable securities portfolio. Quarterly R&D expense was flat period-to-period but that is not to suggest that R&D expense will be flat for the year. R&D expense for the year will increase to begin funding of four Phase II trials with our Telomerase inhibitor. We are not adding numbers of FDEs. These are external costs for drug products, contract research organizations, trial sites. The G&A line item did increase. That’s attributable primary to higher patent legal cost, principally the Novocell interference that we filed. We end the quarter with $167 million in cash on the balance sheet. Our net burn last year was $43 million. Our burn in 2010 will be higher, perhaps $50 million, driven by the cost of the oncology trials, preparation for reinitiation of the spinal cord injury trial with our OPC1 cell therapy and large animal studies in the cardio and chondrocyte programs, the former a safety study enforcing and the latter chief efficacy study. There were no issues with the quarterly review by E&Y and our investment portfolio remains unimpacted by the continuing uncertainty in the markets. At this point I will turn it over to Tom.

[Thomas Okarma:]

Thank you, David, and good morning, everyone. Thank you all for dialing in today. Let me first turn to a busy presentation schedule in the first quarter, at least for me. I gave seven presentations in the quarter starting with the JPMorgan Health Care Conference in San Francisco followed by the BIO CEO Conference in New York. I also gave a plenary talk at the World Congress on stem cells in San Francisco on the 20th of January. I went to London and gave a plenary on the SMi stem cell conference in mid-February and on the 16th gave a featured presentation on the stem cell program at the London Regenerative Network Conference. We went to Tokyo at the end of February and I presented at the Drugs and Biological Conference and lastly a featured presentation in Boston on the 24th of March at the Cambridge Cancer Stem Cell conference. Turning now to board composition, on the 26th of March we announced the appointment of Thomas Hostetter, the Chairman’s Board of Directors, coincident with the retirement of Pat Zenner. Thomas will also serve on the Board's Compensation Committee. It goes without saying how much we have benefitted from Pat’s nine years of service on our board. His 40 years of pharmaceutical and biotech experience provided us with valuable commercial insight and counsel. We’re also obviously very pleased to welcome Thomas to our Board. He brings more than 30 years of pharmaceutical experience from a range of senior executive positions in research and development strategy and corporate development. I’m going to turn now to the regenerative medicine side of the company. At the end of January this year we announced a collaboration to study our OPC1 product in models of Alzheimer’s disease. This work will take place in the laboratory of Professor Frank LaFerla at UC Irvine. The project was awarded a UC Discovery Research and Training grant. This is one of several line extension opportunities that we are exploring for OPC1, our Glial Progenitor Cell Therapy for acute spinal cord injury. Other possible line extensions include stroke and multiple sclerosis and there are collaborations ongoing in those two potential applications. The Alzheimer’s collaboration is based on published work, published last year in August in PNAS from the LaFerla lab that showed significant improvements in memory and neuropathologic changes in a triple-transgene mouse model of Alzheimer’s disease after the injection of lide murine neural stem cells. In addition to dramatically improved memory, the animals showed significant increases in the ronal synaptic density in the basal ganglia. At sacrifice, nearly all of the transplanted cells that were present in the mouse brains where glial cells. There were very few new neurons. Moreover, the memory improvement and increases in synaptic density were observed after injections of a neurotrophin BDNF, which is known to be secreted in physiological concentrations from our [QRN] OPC1 cells along with many other neurotrophins. The significance of the work is that the cells restored mental function and synaptic density in the presence of plaques and tangles, which in man accumulate for decades before cognitive dysfunction occurs. So this is the first potential therapy which has demonstrated functional and histologic improvement in the presence of these plaques and tangles, a very important fact given the prevalence of the disease in man. So the collaboration will test the OPC1 injections directly into the brains of the Alzheimer’s mouse model to determine the effects of our cells on memory, learning and the histopathology of the disease. On the 3rd of March, Geron and Corning announced the product launch of the Synthemax Surface for scalable growth and differentiation of human embryonic stem cell. This product launch is the result of five years of collaborative research by Geron and Corning. This Synthemax Surface contains a synthetic peptide that enables the scalable expansion and differentiation of embryonic stem cells without the use of heater cells or any other biological material on the polystyrene surface. Well, this development eliminates the cost and variability and expensive QC testing that was previously required for hESC cultures. Importantly the surface can be fabricated into beads which will enable the large scale expansion and differentiation of hESCs and their differentiated cellular products in various types of bioreactors. Geron received some royalty on product sales and perhaps more importantly, we have exclusive rights to use the surface in the manufacturing of our therapeutic products including cardiomyacites, eyelets for diabetes and all neural cells. The sterilized six well plate format is currently available in North America and we expect this product to become the gold standard surface in hESC culture. A word about our relationship with GE Healthcare

[Operator:]

(Operator Instructions). Your first question comes from the line of Mark Monane - Needham & Company.

[Mark Monane:]

I have a couple questions regarding the various programs. I was intrigued to hear about the Alzheimer's Disease program in OPC1. Is this something that you’re going to -- how would you -- given the variety of activities available with your embryonic stem cell program, does this shift any of the rank order of the different programs and maybe you can review what Tom and Geron’s favorite order for the various programs.

[Thomas Okarma:]

Well, the simple answer is no, Mark. I mean we are well down the road toward reinitiating the clinical trial in spinal cord injury. As we discussed on the call last time, because the confirmatory animal study to reinitiate this trial -- which you’ll remember are in thoracic patients -- the animal study is in the cervical region and the agency has agreed to allow us to use this study to move more rapidly into cervical patients, for dose escalation. You should also have efficy data from both our own work and from Keirstead’s work to show extensive survival of neuronal and axon damage in cervical models of injury. So this really forward advances the spinal cord program in terms of our access to the dominant fraction of the spinal cord marketplace, which is surgical injuries. I’ll remind the listeners that the marketplace for severe, incomplete and complete injuries in the US is substantial. It’s a very large leukemia market. So we haven’t changed our rank order of the first trial to begin. Now what’s important though that the first product, OPC1, which IND we expect has been approved, will enable us to efficiently, assuming the animal data in stroke, Alzheimer’s, or MS is confirmatory, to rapidly expand the program into those indications. Obviously the size of the opportunity in Alzheimer’s or a stroke would dwarf the opportunity size in acute spinal cord injury. We think it’s important to return as much value as we can near term with the first embryonic stem cell product out of the box. Turning to the other cell types, which I think you asked about Mark; our second program in terms of rank order or chronologic order, is still the cardiomyocytes program. We now have very good evidence in both rat and in pig, a large animal, that our cells in graft induce host vascularity into the graft and that the engraftment is accompanied by improvement in cardiac output. The data in rats, as you know, was published some years ago. We’ve been presenting the early data in pigs, which is really quite remarkable because the size of the infarct in the pig in much large than what we were doing in the rats. So the pigs actually receive a 90-minute coronary occlusion and then reopening. So this is a severe infarct and actually there’s a more mortality rate in the pigs just from the infarct. The rationale of course for pigs that we said we will need safety studies in a second animal model and the physiology, the heart rate of the pig is very similar to man and this enables us to do very extensive electrical monitoring to demonstrate that there are no ectopic [inaudible] of activity in the pig's heart which would be the prime concern to move this into man. Following cardiomyocytes of course is the eyelet program where we’ve talked about and presented how we’ve advanced the status of that cell dramatically over the past year and we have now sent those cells to an independent academic lab funded to do nothing more than analyze the maturation process and secretion kinetics of insulin by various isolated cells in response to changing glucose concentration. The results of that study show that our cells actually produce 50% of the amount of insulin on a cell-by-cell basis as compared to a fully mature human eyelet. We’ve demonstrated now that those cells, when transplanted into animals further mature and they mature into cells that either secrete insulin or glucagon, which is a gold standard for their maturity. We can find levels of human [fetechtide] in the blood of these animals. When we give the animals a bullous of glucose, we can see dramatic increases in the amount of human C-peptide in the blood of the animals, so we know that these cells are now active after injection and all this is very good news. Then we turn to VAC-2, which as you know is our follow-on program for VAC-1, which we believe has a lot of advantages both economic and perhaps even in terms of efficacy and potency over VAC-1. That is still in development. Then lastly the chondrocyte program which is doing very well, completely funded by the UK government through our wholly owned subsidiary in England. We are now injecting the [inaudible] human cardiomyocytes into large animal models of arthritis and this will be the gold standard for us to confirm that in a large animal across a major weight bearing joint, these cells not only restore cartilage and sub [carnval bone] integrity but they can withstand the trauma and weight bearing of an animal that resembles humans in terms of the forces across the repair joint.

[Mark Monane:]

That was very helpful, a lot of information, thank you, and I was intrigued by the comment earlier. I can see from your clinical development that the company is moving much more into longer and deeper clinical trials and so, David, could you comment on how many people are at the Geron right now and if there has been a change in the mix of the kinds of people with different skill sets to correlate nicely with the planned clinical progress.

[David Greenwood:]

Yes, it’s a challenge, Mark. The headcount's about 180 and a year ago the headcount was about 172 or something, I’ll guess. So the challenge for us is to keep not just all these balls in the air but to keep these program trains moving down the tracks. That does require an evolving mix so the new hires are obviously all well experienced, most of them are very senior development people that bring particular expertise and skill sets that we need to apply today and tomorrow. Most of the cost, as I mentioned earlier is, are external costs. The lines have crossed. We spend more money outside the company today than we do inside the company.

[Tom Okarma:]

To add a little color to that good question Mark, we have matured and changed the mix particularly in the oncology group, and frankly some of the oncology folks, for example in clinical operations, are beginning to add some oversight on the stem cell side as we move and plan more than just the OPC1 program into a clinical environment. So the kind of experience that we now have inhouse on the cancer side expands to over 17 companies, their prior lives, in the oncology space and these are all well-known biopharma companies, numerous Phase I through IV clinical trials in cancer including over 40 successful IND submissions in oncology and over 20 successful NDABLA submissions. The list of drugs that our people have had a significant hand in developing starts with [inaudible] and so on, so people that we have onboard have incredible track records in taking oncology programs across the finish line.

[Operator:]

Your next question comes from the line of Ren Benjamin - Rodman.

[Ren Benjamin:]

Tom, I know that you don’t want to talk about the spinal cord program that much but I have a couple of notes from previous calls that I’m hoping you can just shed some light on. One is, is there some long-term safety data from the pre-clinical safety data or nine month spinal cord injury pre-clinical data having to do with cervical breaks that we’re expecting around this time or is that just something I have in my notes that's not happening?

[Thomas Okarma:]

No, you’re 100% correct, Ren. We announced that back in the fall when we were put back on hold and disclosed what the plan to get off of hold included. One of the major pieces of that is exactly the study that you cite. It’s a nine month ectopic tissue study in cervical injured animals. That is part of the data base that is now being reduced in preparation for our submission. Again, I can’t talk about the data simply because you can’t do that before it’s submitted to the agency and they’ve had a chance to review it, but again, read my lips here, we are highly confident that this trial will reinitiate in the third quarter.

[Ren Benjamin:]

Any additional steps besides -- I know you’ve outlined this in the past but is there - as you’re reducing things, are there any other experiments that need to be done or is it all now paperwork that needs to go in?

[Thomas Okarma:]

Well, the simple answer is no. The animal study was of course the biggest bogie for us to get over. There are other scientific issues which have been completed, for example, the qualification of these new release facts. There’s quite a dossier of how you have to do that to the satisfaction of both our internal quality department as well as the agency. We do not, for example, expect there will be any significant changes to the protocol. We have maintained a contact with all our clinical trial sites, keeping them abreast of how we are progressing. So we really see this as a restart without any significant alterations from the original plan.

[Ren Benjamin:]

Great, switching gears to oncology -- and I jumped onto the call a little bit late so I apologize if you’re already gone over this. But I know that there’s in our notes again, we had several Phase I trials that I know pretty much all come to a conclusion. So maybe the best way to ask this is, can you just tell us the status of the ongoing trials right now and, again, when the non-small cell cancer trial is expected to begin?

[Thomas Okarma:]

Let me start with that first because perhaps you did miss that. We’ve received clearance from the agency to begin the trial. We are now doing all the contract negotiation with the 20 or so sites in the United States that will conduct the trial and we are absolutely on track to enroll the first patient in that randomized Phase II in June, as we had previously announced. The Phase Is, you're correct are coming to an end. Four of them are finished. The two that are still ongoing are the Solid Tumor Trial in which we are looking at a once a month intravenous injection of imetelstat again for PKGD determination. The other trial that’s still going on again for the same purpose looking at altered dose schedules is the combination breast cancer trial where we are combining our drug with [inaudible] and evastin, the first line therapy. We would expect both of those studies to complete over the next couple of months and obviously all of their data is what supports the dose interval and are confident that we have learned the lessons we needed to learn to design a Phase II study that is appropriately powered to demonstrate a significant clinical impact on both non-small cell and breast. I’ll remind you that the non-small cell lung is structured and powered to give us a hazard ratio of 0.5. We are expecting to literally double the progression free survival from 2.6 months to 5.2 months in the non-small cell lung trial and it is all designed and structured to achieve that. Again all of the presentations at the AARC meetings that we’re talking about absolutely confirm the strategy of using this drug to both de-bulk the primary tumor and to clean up the residual cancer stem cells that we know to be resistant to frontline therapy. At the cancer stem cell conference I presented at in Boston, there’s now new evidence that’s pretty good, that shows that in addition to the normal differentiation of a cancer stem cell into the [pregenitor] and fully matured bulk tumor cell, which we’ve all known about for years, there’s now evidence for retrograde, that residual bulk tumor cells can actually dedifferentiate back into a stem cell compartment which adds a new complexity to the theory of how to cure a tumor. Again our drug would affect both of those vectors, stem cell going toward the bulk and bulk going back to stem cell. So all of the data thus far is both our own Phase I program and the pre-clinical modeling done by us and our collaborators absolutely confirms the rationale for both of our randomized Phase IIs in lung and breast cancer.

[Ren Benjamin:]

Data in the next I’ll say six to 12 months, do we have any presentations at ASCO or AACR, [inaudible] or ASH?

[Thomas Okarma:]

Yes, so we didn’t talk today about the AACR presentations in April just because that’s a Q2 event, but we’ll review that at the next call. Yes, there is a presentation at ASCO which will be the results of our combination imetelstat breast cancer study. We will also have a presentation in the York Tech meeting in Germany in November on the Solid Tumor Study. We are on track, as I said, to initiate the phase two in non-small cell lung in June. We expect to announce the first patient dose in our Phase II myeloma study at the end of the third quarter and we will initiate and announce the first patient dose in our Phase IIs in essential thrombocythemia and the randomized Phase II in breast in the fourth quarter of this year.

[Ren Benjamin:]

I guess one last question from me, today or yesterday was a huge day for cancer vaccines and the cancer vaccine platform in general with the [program] approval. Clearly you guys have a stake in this space as well, especially given the data that you’ve just updated us with in AML. Any thoughts as to if you’ll be putting this program onto the fast track or maybe faster track, if you will, especially given what’s happened lately and the interest that investors may have and positions may have in the cancer vaccines space? Can you give us some sort of an idea of what’s happening with this program now?

[Thomas Okarma:]

Yes, that’s a very good and well-framed question because that’s exactly what we are working on at the moment. I mean, I am going to be cautious because the data are still early and I want to remind everyone that this is an un-blinded single on study and is small, 20 or so patients. But it was very well-designed and we are increasingly excited by what we are seeing. When we say that the nine of the 11 patients at high risk for relapse are still in complete remission, if that’s the case at the end of the year this is highly significant because while it’s a small group again, when we say high risk we really mean high risk. They are elderly, they have bad side of genetics and bad molecular markers and many of them have entered the study in CR2. So we really did stack the deck clinically against the likelihood that the vaccine would be useful. Despite that headwind, thus far, it looks pretty exciting. So, yes, there’s no question in that there is an opportunity here for VAC-1 and we are working on that subject to the duration of the remissions by end of year. I would say though that, as we said before, the VAC-1 technology, just like Dendreons’, is limited in terms of volume, cost and utility. Because these are oltogolous cells, there’s always the possibility that a unique genotype reduces the efficacy of their own cells, impact of their disease on the efficacy of their own cells, impact of prior therapy on the efficacy of the process, plus the cost. We have those same issues, as does Dendreon. Those issues all go away with VAC-2, which is scalable. I mean this is like a gardasil for cancer. It’s stored frozen, off the shelf. There is no limitation in terms of number of doses. We are clearly showing that in the VAC-1 trial. Interestingly -- I didn’t mention this -- some of our patients now have run out of vaccine and so it will be very interesting to see what happens to their remission over time in the absence of vaccination. That is an unfortunate limitation of VAC-1, although in theory you could [inaudible] again and continue their dosing. But the point is it’s a very expensive and labor intensive way to maintain patients in remission. From all the biology we’ve done with VAC-2, the evidence is that VAC-2 will be much more effecatious because although it will be haploidentical, you have the opportunity to do both direct and indirect anagen presentation and we’ve certainly in VAC-1 preliminarily validated the Telomerase as an immunotherapeutic target, right? But for VAC-2 we have the opportunity of adding multiple tumor specific antigens right in the manufacturing phase. So the upside, again to your question, ballooning on to the interest generated by Dendreon’s success is important for us and frankly we believe we hold the patents and the technology for what will really be a broadly useful and inexpensive and highly available immunotherapy for cancer.

[Ren Benjamin:]

I’d just like I guess the field of monocle antibodies that now kind of shepherds in a new era of more and improved cancer vaccines to come out through development and actually into the market, congrats.

[Thomas Okarma:]

Thank you and we also take our hat off to Dendreon. I mean this was not simple for them to do. They invested a lot of money in this and they stuck with it and the field and frankly we are benefitting from what they accomplished.

[Operator:]

Your next question come from the line of Steve Brozak - WBB Securities.

[Steve Brozack:]

I guess the last three analysts have asked a lot of questions that relate to everything I’m interested in and obviously [Mitch Golden], hats off to him, has basically showed that he stuck it out and he’s gotten through the door here with, what, $93,000 in terms of dosing price. I’m going to switch a topic here because you mentioned something, I think, David, in terms of your headcount. You have more collaborations probably than any other company that we cover and certainly probably any company your size. Let’s just ask a straight up question

[David Greenwood:]

Well, Steve, I think the answer becomes specific rather than general and by that I mean program specific rather than general. I mean, each of these programs, as you know, could be a distinct company. That’s not to suggest that’s our corporate organization strategy going forward. We will be deliberative and appropriately opportunistic with how we move towards commercialization for any program that is progressing nicely through the clinic. So today we’re focused on progressing programs nicely through the clinic. It’s possible that Geron could commercialize a product whether it is this product or whether it is that product. You just need to accomplish the steps in order to commercialize just like you need to accomplish the steps in order for the company to conduct clinical trials, so that’s not an impossible proposition. On the other hand, there are large pharmaceutical companies out there that are tracking everything we do in every program and they express over time increasing curiosity if not interest in that, so I believe we will have opportunities for commercialization partnerships when we have reached the point on the value accretion curve, meaning gain the hockey stick event that allows us to do that on very advantageous terms. So I think that’s the answer. I mean we have an awful lot of experience on our Board and in the team here to evaluate the programs forward.

[Steve Brozack:]

Well, actually you just hit my next question in terms of the companies that are now tracking you because obviously there’s just nothing out there in terms of large pharmaceutical industry and you do have a Board and you do have management that has an in-depth ability to negotiate with these large firms. Just iterate how many large partnership programs do you have and tell me -- your IP portfolio is more extensive than, again, about any other company we follow. What kind of -- in terms of safety profile, the fact that you have this many partnerships, would that provide some kind of a safety valve in terms of if some company were to express -- how should I put it -- too much interest in the entire franchise? How would you reconcile that statement?

[David Greenwood:]

Well, you've asked a couple of different questions. It’s true that we have an extensive patent state whether it’s around Telomerase or anti-cancer programs, whether it’s around Telomerase activation to address [synaptic] conditions. Tom mentioned earlier, we have the dominant patent state for the human embryonic stem cell technology platform that’s just definitive in it’s really not contested. We have a third patent state around nuclear transfer and we have out-licensed through JV companies that we don’t have time to talk about very frequently, but those companies like ViaGen and start, which are licensing and operating companies that use nuclear transfer technology for ag applications. All of those we manage discretely and will continue to do that. We don’t do our patent state either offensively or defensively. It’s the way we catalogue our achievement and the assets that are owned by the shareholders now and we do license people. We have probably licensed pieces of our portfolio to five dozen companies over time and some of those licenses have materialized into product applications that contribute to the royalties that I expect to grow in future years and some of those have not. But we view our patent estate opportunistically and we have told, the stem cell community, we’ve told the oncology community that we are prepared to license companies to work in the field. That can only add to the momentum in the field. If you recall back to the original license we gave to MERC on the Telomerase side for their vaccine platform, we created a head-to-head competitor and we did that intentionally. We like the dendritics style approach that we have pursued in VAC-1 and we will pursue in VAC-2 but MERC had another platform and we were quite pleased to go head-to-head. So I think that’s one question you asked. You asked another question I think, which is there’s so much going on here. It’s quite a portfolio of assets and they’re valued at X and is that undervalued and what are we going to do if someone takes note of that. Well, that’s sort of a classic and general issue that we talk about at a Board meeting every time we have a Board meeting every other month and with our investor bankers. So that will tell you on that level we’re prepared to respond to any inquiry. You have not heard us advertise this company for sale in bits or large pieces or as a whole. We think we are living in that trading range where companies trade when they’re doing Phase I studies. When you bring back human POC from Phase II studies for efficacy, you start seeing the shape of the curve change and you see value reflected in the stock. We want to achieve that for our shareholders. So the company is not for sale today. We will work hard to deliver on the milestones that we lay out, achieve those hockey stick events and I think that’s appropriate for a current shareholder.

[Operator:]

This concludes the Q&A session for today’s call. I’d like to turn the call back over to Mr. Greenwood for closing remarks.

[David Greenwood:]

Listen, thank you all for joining us again this morning. It's actually quite a long list of participants. We are presenting three investor conferences over the next two months and we hope to see you all there. Thanks very much.

[Operator:]

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.