my notes from the annual stockholders meeting
DISCLAIMER
Ah, but I have already made a mistake. The true title was the Annual Meeting of Shareholders. I suspect I am not perfect and other errors may exist below. Beware, be warned but I hope you find something useful anyway.
PRE-MEETING
This was the fifth year I attended the meeting. It has never been a very crowded room and that hasn't changed. There were seats for about 120 people. By the time the meeting started there were only people in about half of them. Considering that there are about two dozen directors and officers, and about a dozen employees there, that only leaves about two dozen for the independent shareholders and finance types. There weren't very many suits there. The youngest members of the crowd were the employees.
While I sat there eating some pastries, the closest thing to a dividend, it seemed that the atmosphere of the room was much better than last year. The talk was mostly stuff from people's lives, so it was like people were more relaxed rather than boisterous over great clinical results.
FORMAL MEETING
Within 8 minutes the CEO efficiently conducted the official meeting where everything passed. Because 93% of the shares were counted prior to the event, there wasn't much of a chance of startling late results.
Todd Simpson seems to be Treasurer, Secretary and at least one other position. Must look good on a resume.
One odd moment was when the CEO asked the directors up for election to remain standing and they ignored her. They thought it was funny. I thought about changing my vote.
BUSINESS PRESENTATION
As she called it, this was the more fun part. It really is the meat of almost every stockholder's meeting that I've attended. Evidently she thought it was the main event too.
The CEO pointed out that they had just been through a tremendous year considering that at the last meeting they only had 50 employees and a stock price of about $0.68. I think since then the stock has doubled and they've added 20 employees.
They got to this point by trimming the programs, performing some manufacturing under contract, and conducting some equity financing. Expenses are down by about 40%. She said this was enabled by their strong patent portfolio which I had to think about to understand. Does that mean the patents are so strong that no competitor can step in while those programs sit on the shelf?
Usually I do the meeting sequentially but I'll collect all the program data into one section to simplify my life. It is not like I expect a lot of people to read this. TGEN is not exactly a major news item stock.
Cystic Fibrosis
Their treatment for CF is their most developed product. It has already been through a phase 2 clinical trial. Those results were positive enough to encourage the Cystic Fibrosis Foundation to enter into a more involved collaboration. The CF folks are funding 100% of the external costs associated with a phase 2b clinical trial that should be completed early next year.
The first study showed improved ling function at 30 days with 22% showing a 5% improvement at 90 days and 17% showed 10% improvement. I understand that the most important aspect is TGEN's treatment actually corrects the defect while current treatments only treat the symptoms.
The Phase 2b study is the largest phase 2 gene therapy study but I don't know if that is limited to CF or applies to the entire gene therapy industry. They'll be checking 100 patients, 50 of which receive a placebo. They'll be checked every two weeks with dosing at 0 and 30 days, and with a follow up at 90 days.
AIDS Vaccine
The vaccine is beginning a phase 1 trial in Europe involving 50 healthy patients each receiving a single dose. The single dosage makes it unique and particularly suited for use in under-developed countries. The trial should be complete early next year.
The pre-clinical trials demonstrated a dual immune response (T&B cells?), which basically works as two lines of defense. Their ultimate goal is to develop a multi-component AIDS vaccine because there is more than one HIV gene to combat. There is some significance to the use of prophylactics but I don't understand that part.
The collaboration with IAVI and Columbus (another non-profit?) could generate $10.7M in 2004. The agreement has been extended to 2006 but TGEN is conservatively not including those moneys in their projections for 2005 or 2006.
If successful, the treatment will be made available to less fortunate countries at low cost via the non-profits. TGEN then gets to market it for profit to the developed world. You know rich and poor are shorter and easier words to type but I believe I'll stick to their wording.
Rheumatoid Arthritis
A treatment for arthritis is in phase 1 clinical trials of 32 patients which should be completed early next year. The preclinical trial demonstrated reduced swelling, reduced cytokines, reduced bone loss, and reduced cartilage loss. The neat effect was that it was injected into one joint and tended to fix the other one too.
There are a lot of therapies out there already so they are targeting the people that haven't fully responded to the other treatments (25% to 40% of the patients). The total market for similar treatments is about $7B in 2011.
FINANCIAL
They are much stronger than last year and 2005 can be significantly better if they get good results from any of the three clinical trials. Their cash management has resulted in low debt (zero?) and $41.1M as of 1Q04. They feel that their broad technology base provides the potential for tremendous upscale. They feel that they have barely tapped their potential as they can not only deliver genes but also turn genes off. They will be looking at new opportunities within the next several months. Their fortunes are also tied to their industry and she felt that the oncoming crowd of phase 2 and phase 3 results from within the genetic therapy industry will lift all gene therapy companies.
CLOSING
She finished by thanking and applauding the employees and then went on to thank the board, partners, collaborators, and shareholders that have hung in there through a tough year.
QUESTIONS & ANSWERS
I've paraphrased the following because I can't capture as much of the interchange as I'd like to.
? AAV which TGEN relies on is not the same as Adeno virus. There are other AAV companies but TGEN's competitive advantage is in rapid, cheap manufacturing that is less prone to contamination.
? Diseases like Huntington's disease are not cost effective to develop drugs for because they only have 30,000 patients. CF is similar but TGEN hopes to emulate Genzyme's success at small markets. TGEN's treatment is non-recurring and prolongs life so it should be able to develop a market.
? The RA treatment is complicated by the intellectual property agreements with Amgen but TGEN management feels that the talks are cordial.
? There is usually a mid-term evaluation of any trial. The phase 2b CF trial will have it's evaluation in mid-2004. It is an interim analysis handled by an independent group that will announce its results publicly.
? As of 1Q04 they had $41.1M cash in hand and project a burn rate of $14M-$16M. That will take them into 2006 even if IAVI does not help out in 2005 and 2006. Any help makes the picture better.
? The RA study only uses 32 patients and takes a full year but that is a conservative estimate. They didn't want to promise too much because patients can decide to use conventional treatments instead.
? They hope for collaboration news this year but don't like to make projections.
? The head, neck and ovarian cancer treatments looked promising but they were considered to be entry drugs to treating metastatic cancer. The other treatments are more strategically appropriate (my words).
? TGEN gets the word out to various communities but they end up with a lower profile because they rely on data rather than hype. TGEN is also hampered by the retreat of analysts from the small companies. They don't cover them as much.
The entire meeting took less than 50 minutes. My bus ride there almost took that long.
MY SUMMARY
They survived a tough year and came out of it with a very good cash position and good progress through clinical trials. There might be interim news for mid-term evaluations or collaborations, but the main news will not be until next year at this time. They are years from profitability but have a lot of cash that can help them get much closer to that point. The technology looks promising, but that has to be proved clinically.
MY CONCLUSION
I'll continue to HOLD but have concerns about their pipeline. They are relying on CF, AIDS, and RA. The CF target community is small, the RA treatment has to resolve intellectual property issues with a large firm that might not have any incentive to settle early. That leaves them with curing AIDS with a treatment that won't make it to market for several years. Having said that the reason I won’t sell is because they do have tremendous potential if they manage to get FDA approval for any of these treatments, can emulate Genzyme’s success, can get Amgen to cooperate instead of block, and manage to efficiently become a producer rather than just a developer.
I wish them good luck. The last year was tough and their position now is much better, but biotech is not easy and many years of work lay ahead.
DISCLOSURE
LTBH since early 2000 and purchased more on the way up and on the way down. I am not a biotech professional and can easily misinterpret what I’ve heard. When in doubt, ask more questions, help to clarify and don’t forget that Investor Relations is supposed to know more than me. |
