4 Q 2006 CC
March 15, 2007
11:00 ET
phx.corporate-ir.net!WebCastId~619483!StreamId~851661&pp=IROL-BasicWebCast&ppdp=EventId~1476552!WebCastId~619483!StreamId~851661&pph=339&ppw=270&upv=2
COORDINATOR: Good day, ladies and gentlemen and welcome to the 4th quarter 2006 Geron Earnings Conference Call. My name is Tawanda and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of this conference. If at any time you require assistance, please key star followed by zero and a coordinator will be happy to assist you. I would now like to turn the call over to Mr. David Greenwood, Executive Vice President and Chief Financial Officer. Please proceed.
MR. GREENWOOD: Good morning and welcome to the Geron earnings call. I am David Greenwood, Executive Vice President and CFO. With me is Tom Okarma, President and CEO. This is an earnings related conference call. We will begin with a discussion of the restatement that we described in a press release on March 9 and in today's earnings announcement. After that discussion we will review the operating results of the company for the quarter and the year. Our agenda then includes an overview of recent operating highlights at the company and a brief summary of our operating plans for the remainder of 2007. Following that presentation by Tom we will have a general question/answer session. First to informational items.
In the event of forward-looking statements during this call, please understand those comments are made subject to the safe harbor provisions of the Securities Act of ‘95. Any forward looking statement involves uncertainty and we refer you to the risk factors detailed in filings with the SEC. Secondly, all participants are currently in a listen-only mode; the lines will open for the Q&A session, and the call will be available for webcast replay until April 15. Please go to our website for information.
In late February I began receiving e-mails and telephone calls from analysts and investors curious about our 10k reporting date. As you know, Geron has always been an early filer. It was our intention to file toward the end of February, but our schedule was interrupted by recent guidance published in February from the SEC about the appropriate accounting for warrants attached to sales of stock. As a point of reference, the applicable accounting literature is Emerging Issues Task Force Issue 0019, titled "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." All of you are familiar with the instrument which is commonly used in biotech and other sectors - common stock is sold in a registered, direct offering, off an existing, effective shelf registration statement. Warrants are attached in a unit structure, also registered under the shelf. The SEC guidance was intended to clarify the accounting treatment for derivative components of transactions. Specifically, is equity accounting appropriate or, has a liability been created which should be reported on the balance sheet. The essential test is whether or not it is even theoretically possible for the issuer to find itself in a circumstance at the point of exercise which would cause an instrument to be cash settled. In other words, as it applies to our warrants, is there anything beyond the direct control of the company which could theoretically preclude us from settling the registered warrants by issuing the underlying stock. That, parenthetically, would entail bringing down an effective shelf registration statement. But if the answer to that question is yes, no matter how remote the possibility, the accounting literature compels us to classify the instrument as a liability. As you know, we have used this instrument a number of times over the years since 0019 was issued around 2001 and our accounting treatment as equity has been reflected in our 10Ks filed for previous years, which included our audited financial statements. But again, the clarifying guidance with respect to warrants comes from a very recent SEC speech. Nonetheless, we believe the language in our documentation is clear, that the warrant is an equity instrument only and that's a view shared by the holders of the warrants. There is no question about the intent of the parties that the warrants are to be settled only with stock. However, that does not govern the accounting treatment. Further, clarifying amendatory language which would insure that there is no theoretical interpretation to the contrary can only apply prospectively which means there is no fix to comply retrospectively with 0019. Instead we must restate three years of financials which we have done in this comprehensive 10K. The warrants were valued using Black-Scholes on each balance sheet date and that number was recorded as a liability. As mentioned in our press releases, understand that these are non cash entries and have no impact on previously reported revenues or expenses, total assets or cash position. You'll be interested to know that over the past week we have signed clarifying amendments with the holders of over 90 percent of the warrants being reported on the 12/31/06 balance sheet. That means the debt treatment in the restatements will in large part revert to equity accounting at the end of this month on the 3/31/07 balance sheet. It also means the large swings in the new line item ‘unrealized gain or loss on fair value of warrants' in the quarterly P&Ls that you see in the restatement, which reflect the revaluation of the liability on each balance sheet date, will be minimized.
Now to a review of our operating results. As you can see on the condensed income statement attached to the, this morning's announcement, revenues for the fourth quarter were up significantly over the comparable 2005 period, but revenues for the year were lower, insofar as 2005 included a substantial upfront payment related to the formation of a joint venture. Other cash inflows to the company during the quarter included $40 million from the financing proceeds and $2-1/2 million of interest income. We ended the year with $214 million cash on the balance sheet. Fourth quarter R&D expenses increased 23 percent over fourth quarter 2005 and 2006 R&D expense increased 18 percent from the 2005 level of investment. This simply reflects the recruitment of substantial senior development stage talent into the company. The G&A line item increased with the expensing of stock options, a noncash charge, and increased costs of compliance.
Finally, I currently estimate our net cash burn for 2007 at $40 million.
At this point I will turn it over to Tom Okarma.
DR. OKARMA: Thanks, David, and good morning, everyone. Thank you all for dialing in this morning. I'll be making a few comments on the outstanding highlights of the fourth quarter of ‘06, which really emphasize our cancer program, and then a few comments highlighting our expected value driving milestones for the rest of ‘07. So, to begin and to focus on GRN163L, our anti cancer drug. On the 10th of November we presented at the joint NCI/AACR meeting in Prague, Molecular Targets in Cancer Therapeutics, the first public display of our ongoing clinical trials with the drug in both chronic lymphocytic leukemia and solid tumor cancers. We presented data on the first 2 cohorts in CLL and the first 3 cohorts in the solid tumor study. Collectively, this represents well over 80 doses between the two programs. With regard to safety and tolerability, the drug was extremely well tolerated. There were no dose limiting toxicities, no serious adverse events - although that was expected, given the relatively low dose of--at that stage of the trial. Perhaps more importantly was the presentation on the pharmacokinetics of the drug. Remember that this is an oligonucleotide which is made by a Geron proprietary chemistry which affords a very reproducible and predictable pharmacokinetic and biodistribution profile for a molecule as large as an oligo. So that's precisely what we observed with predictable and consistent PKs, patient to patient and dose to dose. So we saw appropriate changes in the Cmax–as doses were changed, or infusion duration was changed. The T alpha half life is about 4 hours and we saw dose linearity over the range tested. Again, although [...] this does confirm what we had observed in our dog and monkey studies, that the thiophosphoramidate chemistry, proprietary to Geron, generates in this case an RNA-like molecule that has predictable and favorable biodistribution and pharmacokinetic characteristics. Interestingly, we also presented confirmatory pharmacodynamic data demonstrating that the telomere lengths in patients' CLL cells were significantly shorter than the telomere length in their nonmalignant white blood cells from patient to patient. This implies and confirms, as we had suspected that the tumor target cells are highly sensitive to telomerase inhibition because their telomere length is shorter than that of normal cells in the patient's bloodstream. The next month, in December, we presented at ASH and we extended some of the PK and PD data that we had presented in Prague, including demonstrating in one patient in the solid tumor trial achieving the anticipated therapeutic blood level of between 5 and 10 micrograms per mil - again, without any toxicity. I would say though the most important element of the ASH meeting for Geron was the demonstration that GRN163L inhibits the clonogenecity of multiple myeloma stem cells, both in multiple myeloma lines and in primary samples taken from the bone marrow of patients with multiple myeloma, moreover, this inhibition of the cancer myeloma stem cell occurred within 72 hours of exposure to 163L. Most of you probably are aware that the notion of cancer stem cells is perhaps one of the most exciting breakthroughs in understanding cancer biology. To our knowledge, there are really no existing drugs that attack the tumor stem cell–this is the cell that is generally chemotherapy resistant and is now thought to be responsible for relapse and recurrence; they are quiescent and very tiny fractions of the total tumor mass.
What was quite striking is that GRN163L and not any other drug commonly used to treat multiple myeloma was highly effective not only in killing the mature myeloma cells from lines and patients, but also in killing or stopping the growth of the stem cell in myeloma from both lines and patients. So if this gets confirmed in other tumor types, we may be developing the world's first compound that actually deals with the root of the cancer and has implications for long term outcome with regard to preventing relapse.
Later in December we published in collaboration with a group at Indiana University an important paper that was the first demonstration of synergy between 163L and radiation therapy on human breast cancer cells, both in vitro and in xenograft models. The human cancer cells that were exposed to 163L were much more sensitive to standard doses of irradiation, both in the test tube and in the animal than controls. We demonstrated that human cancer cells injected into mice were dramatically sensitive to an in vivo combination of 163L and radiation therapy – so dramatic that all of the animals that were treated with both radiation and 163L survived the full 80 days of the trial and they showed statistically significant reduction in tumor volume. So these are important data and they confirm what's been seen in telomerase knockout animals, namely that the absence of telomerase is associated with increased sensitivity to radiation and other DNA damaging agents, especially when the telomeres in those cells are short, as they are in tumor cells.
Turning to the vaccine. We announced an exclusive commercial license from Immunomic, a private company spun out of Johns Hopkins to the LAMP targeting sequence for use in telomerase and other cancer vaccines. You may recall that we demonstrated using the LAMP targeting sequence in the actual plasmid that we use to charge the dendritic cells in the vaccine protocol augments both the potency and the duration of the resulting immune response. The LAMP sequence forces the dendritic cell to utilize both class 1 and class 2 antigen presentation pathways, which is why in our publication in the JI of the first trial of the vaccine in prostate cancer we generated not only telomerase restricted CD8 T cells, but also telomerase restricted CD4 cells, and this dual cell induction is quite important to generate a vaccine that would have clinical activity in vivo.
Lastly, we announced the hiring of Alan Colowick as our president of oncology. Alan came to us most recently from Threshold Pharmaceuticals where he was the chief medical officer, prior to which he had a long history at Amgen culminating in his being vice president for Amgen Europe and he was responsible for the registration and launch of Aranesp worldwide. So Alan is a extraordinarily valuable addition to our senior management team.
Turning now to the anticipated milestones for the remainder of ‘07. As we have said in the past, we do expect to have our next bolus of tumor data from our Phase I/II CLL and solid tumor trials in 163L available mid year, and this data set would of course include cohorts in the so-called therapeutic dose range where we expect to demonstrate the inhibition of telomerase in the tumor target. Moreover, we are initiating in the second to third quarter two additional studies of 163L – one in non small cell lung cancer that will be a 163L combination trial with carbotaxol and we are working very hard now on finalizing that protocol with the collaborating sites, and roughly at the same time we will initiate a study in multiple myeloma, obviously because of the demonstration that 163L hits the myeloma stem cell. Finally, we would expect to have the final data set on the CLL/solid tumor trials available for presentation in the fourth quarter of this year at ASH.
So the work in ‘07 on 163L is really geared toward choosing a dose for our Phase II program which we hope to initiate early next year.
On the vaccine. We expect to initiate our Phase I trial in AML. We have received FDA concurrence to proceed. We are now initiating the trial sites and making final adjustments to the manufacturing protocol. The AML trial will be designed such that we are able to assess the impact of the vaccine on residual tumor cells by PCR as well as relapse kinetics. So we do hope to have objective evidence in AML that the vaccine approach hits the tumor target directly. We would expect also to present some interim data from this AML vaccine trial at the same ASH meeting where we present the final data on 163L.
Turning to telomerase activation, the TAT2 orally available telomerase activator. We remain on track to file our IND at the very end of this year in a Phase I program to examine its impact in HIV/AIDS. The data, as you may recall, demonstrating that the telomerase activator upregulates telomerase in the critical CD8 population in AIDS patients, which is responsible for delaying progression - progression being correlated with the telomere mediated senescence of that same group of cells. So what we hope to demonstrate in the AIDS program is that we can lower viral burden and reactivate the patients' anti AIDS immune system with this orally available compound.
On the embryonic stem cell program. We remain on track to file our IND for the world's first embryonic stem cell based clinical trial in acute spinal cord injury – that's the OPC1 product – the glial cells for spinal cord injury. So we are very aggressively completing our pre IND animal studies which thus far continue to show no toxicity whatsoever.
On the cardiomyocyte program, we're about now to begin our large animal proof of concepts – studies, which are important because, for two reasons, one is that we can now rule out the presence of any arrhythmias due to the injection of the cells, which we could not do in the small rodent models. And secondly, we can pilot the available catheter-based delivery systems which we would use to deliver these cells in man. Later in the year, assuming success with the large animal proof of concept studies, we will begin creating a second master cell bank for the scalable production of cardiomyocytes to begin the IND enabling studies.
Lastly, for the islet cells. We would also hope to generate by year end large animal proof of concept in a diabetic model to once again demonstrate scalability of our islet cells and to more accurately demonstrate their biological activity in vivo in a hyperglycemic physiological setting.
So in summary, 2007 is the year in which Geron fully segues from a preclinical to a clinical company with all of our main platforms in the clinic.
So that's our summary and we would be happy to entertain questions.
COORDINATOR: Ladies and gentlemen, if you would like to ask a question, please key star followed by 1 on your touch tone telephone. If your question has been answered or you wish to withdraw your question, please key star followed by 2. You may press star 1 to begin, and please stand by for your first question.
Your first question comes from the line of Joel Sendek with Lazard Capital Markets. Please proceed.
Q Thanks. I have two questions. First, will you have any data at ASCO with regard, any updates from the AACR presentation, and then I have a financial question regarding – I know you gave us a guidance on the burn, but I'm wondering if you could us more clarity on what the actual R&D and G&A numbers might be – if they'll be in line with what we saw in the fourth quarter. Thanks.
DR. OKARMA: Thank you, Joel. I should have mentioned that presentations midyear on the therapeutic dose cohorts for 163L will, are probably going to be targeted to the Pan Pacific Lymphoma Conference. And that's simply because of the timing and availability of the data which has to of course be reduced, confirmed and reconfirmed before we would present this publicly. So I believe that's a mid June conference? So that's roughly the guidance in terms of time frame when we would present the new set of data.
Q Thanks.
MR. GREENWOOD: Joel, your second question was on the, on the ‘07 numbers. Almost everything is in our reported R&D number except for our patent expenses G&A, which is essentially flat, and, and minor maintenance and cap ex, and that's been consistent with, with past years. We actually don't split it out programmatically, but I can tell you that it's about a 60:40 split between the oncology projects and the stem cell projects. Hopefully that's of some help.
Q Now, actually, I guess I – maybe I was asking a different question, which is: you gave the burn rate guidance, but I'm just wondering whether you get the, you know, as we model out our income statement, sometimes the income is, income statement looks different than the cash flows, whether the, whether the R&D spend is going to be in ‘07 kind of at the same level as it was in 2006 in the fourth quarter, in particular such that if, for example, you annualize this quarter you end up spending about $45 million on the R&D line – is it going to trend up from there, and obviously that's more than the forty that you mentioned, or is it, you know, likely to be kind of in line with where it was in the fourth quarter.
MR. GREENWOOD: Yeah, and, and, and the $40 million is a net burn number, and, to your point, just, just not a lot of difference between our reported R&D expenses and our cash expenses for R&D, so let me take a stab at that. You can take the fourth quarter number and, and ramp it, for, call it 10 percentish, which just reflects the continued preclinical ramp for the spinal cord project on the stem cell side with the oligodendral glial progenitor cells, and the studies that Tom referred to for the preclinical program for the telomerase activator as well as the contemplated new trial in AML with the vaccine, and the clinicals program for the 163L drug, so all of those have incrementally larger expenditure expectations associated with them in ‘07 than in ‘06, but for fourth quarter of ‘06 is a good guide.
Q Great. Thank you.
COORDINATOR: And your next question comes from the line of Steve Brozak with WBB Securities LLC. Please proceed.
Q Good morning, gentlemen. I'll keep it specific to two questions and it's involving the, the preclinical trials for 2007 and what, what would you consider the, the, the two most important features for 2007 on the stem cell side and going back to the telomerase side, you know, that, that we could key off as far as milestones that if you were going to encapsulize, what you would look to accomplish – what would the two most important items be.
DR. OKARMA: Well, I think on the cancer side, Steve, the emphasis is really on 163L. I mean I think this is the year that we should have solid, although early, evidence of safety and utility of the world's first telomerase inhibitor in man, and that data comes collectively from the ongoing CLL and solid tumor trials, and by end of year will be confirmed with data in non small cell lung and multiple myeloma. My hope is that our response and safety profile in multiple myeloma is such that it could become our registration strategy for the compound. That, obviously, is subject to the data as it emerges over the year. I think secondly on the cancer side the second most important milestone is demonstrating activity of our vaccine in AML. This would be the first really--real demonstration of an impact of an immunotherapy on disease progression that is objective and not generated by either survival long term or by surrogate markers.
On the stem cell side, I would have to say of course filing the IND for spinal cord injury is by far and away what is enjoying most of our intention today. The animal studies continue to look good; the Agency, as we've said, is very concerned with teratoma formation – to this date we have seen zero teratomas, including in animals that have been treated with human OPC1 12 months ago, [...] and then sacrificed and examined histologically, where we continue to see live OPC1 cells which continue to myelinate, and we do not see any tumors. So we remain hopeful that the data will continue to show those safety results enabling us to file in the fourth quarter of this year.
Q Great. I'll ask one last follow up on the cancer side, then jump back in the queue. On the –the interesting part that you mentioned on telomere length on cancer cells, you know, you had mentioned that you've seen success in there, on the master side in their attenuation – are there any other products out there that you know, are, are being used to treat it that, you know, show any kind of efficacy, or is this really, you know, because I, I was always under the impression that they, they, there were things that were showing, but you – from the sense I get it's, it's, this is the major problem and this is something that you seem, seem to have significant efficacy on. Could you elaborate just a little bit more on that and then I'll jump back in.
DR. OKARMA: I'm not sure I understand your question, Steve – could you restate it–
Q –sure. The, the–you were talking about efficacy on telomere length for cancer cells in attenuating the telomere length, that you, that you were seeing on 1360 that there was an efficacy that you had detected in going after the master, after the master cancer cells; can you elaborate a little bit more on that.
DR. OKARMA: So you're talking about the cancer stem cell data.
Q Exactly.
DR. OKARMA: Okay. Sorry. I get it. Okay. So what's emerging in the field of molecular biology in cancer is now the notion that there are rare, quiescent cells called cancer stem cells that are primarily responsible for relapse of the, of the disease, because generally speaking in the tumors in which these stem cells have been isolated – which include glioblastoma, breast, colon and hematologic cancers – the standard drugs used to treat those tumors have no impact on the clonogenecity of the tumor stem cell, compared to the mature cells in the tumor. So this has led to an enormous amount of focus on the biology of cancer stem cells and, obviously, looking for agents that might be useful against the cancer stem cell because if we are able to do that we may actually achieve cure and the point of the ASH data was to show that 163L, after 72 hours, shuts down the myeloma stem cell in patients' samples taken from myeloma bone marrow and that the drugs used today to treat multiple myeloma in that same assay had absolutely no effect. So, again, if this gets confirmed and broadened to the other tumor types in which we can isolate and assay the effect of 163L on the tumor stem cell, it augurs, again, as we have said many times, in theory, that we are developing a compound that potentially has cure in its upside because of its impact on the tumor stem cell.
Q Great. Thank you.
COORDINATOR: Your next question comes from the line of Mark Monane with Needham. Please proceed.
Q Good morning, and thanks for taking my question. Drugs are often tasted–tested as single agents in these trials, but end up in combination in the real world and there is a number of different therapies, although they don't meet all the needs that are available, in CLL and AML; could you outline any strategy you have at this point about which drugs may make good combination partners into the future.
DR. OKARMA: Thank you, Mark. Yeah, absolutely. As I think I mentioned, the non small cell lung cancer trial will be a combination trial of 163L and carbotaxol, the approved combination of taxotere and cisplatin in non small cell lung, so, obviously, that strategy has been preceded by work in vitro where we demonstrate synergy against non small lung cancer cells in vitro and in animal models. Your point is well taken in the general sense as well because of the prior answer to Steve's question about the cancer stem cell. We may start seeing in, in in vitro assays more evidence of synergy to validate the notion that you use 163L to target the tumor stem cell along with other compounds that are more perhaps equally active on the mature stem cell. So this, you know, is sort of a new notion of how 163L might get integrated into the armamentarium of current clinical oncology. So we are obviously doing, both at Geron and in the academic collaborators' labs, a wide variety of combination studies to select those combinations with 163L that are most likely to bear fruit clinically. And the first com–such combination to come out of that work is the taxotere/cisplatin in combination.
Q And, in, in terms of targeting the stem cell, one of the issues is the stem cell's not always active, it's dormant, it sits there and then becomes reactivated later – how would the telomerase inhibitor best work given the situation, understanding the biology.
DR. OKARMA: Well, that's sort of the importance of the dual demonstration at the ASH meeting – that 163L works in both myeloma lines separated into mature and stem, as well as primary specimens from bone marrow in patients with myeloma. So the point is that in the normal clinical scenario in active myeloma we can demonstrate that the 163L stops the clonogenic activity of the stem cell and the assay essentially does exactly what you ask – it takes that quiescent stem cell and it stimulates it and asks whether or not it can form colonies – or tumors – in the presence of the drug. So the next set of experiments is really designed to determine under what circumstances and for how long does 163L need to be around to permanently eradicate that population. As you may remember, both the CLL and the solid tumor trials have two 4 week infusion cycles, so we are expecting, you know, a minimum of two months of weekly exposure to 163L to eradicate these tumor stem cell populations, but clearly more work would need to be done, you know, to confirm that and create the generalizable case.
Q Fair enough. And in terms of sequencing the drug, do you, is there an optimal time for your testing whether 163L should be given before or concurrent or after traditional chemotherapy, like in a Taxol, carboplatin trial?
DR. OKARMA: Right. That's another good question and I don't think we have the answer for that on the non small cell lung trial. We are obviously doing those experiments, but we do have that data on the combination synergy with radiation therapy which shows that pre incubation of the breast cancer cell with 163L is what's required to increase their subsequent sensitivity to radiation. So we are beginning to think about a protocol in human breast cancer in which we would do exactly that – we would treat first with 163L and then come in with radiation therapy.
Q Since I got a ‘good question' out of you, I think I'll stop here. Thanks for the added information.
DR. OKARMA: You're welcome.
COORDINATOR: Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star 1. Your next question comes from the line of Mark Gross with California State University. Please proceed.
Q Thank you very much for taking my question. Do you still expect that this year Merck will begin a clinical trial of their cancer vaccine platform using telomerase as an antigen, and will Geron get a milestone if that occurs.
DR. OKARMA: Thank you, Mark. I did forget to mention the Merck collaboration which is going swimmingly well on all fronts. The answer to your question is yes we do expect them to file their IND in the first quarter of this year, we think, and I don't believe there's a milestone payment for that. Obviously what is in the mind of Merck and in the mind of Geron is to do a head to head comparison in exactly the same patients that we had demonstrated efficacy with our vaccine with the Merck platform. So our understanding is that they will be studying their vaccine in hormone refractory metastatic prostate cancer to get a head to head comparison of the same target, telomerase, as addressed by, in our case, dendritic cells - in their case, by plasmid and adenovirus.
Q Okay. Thanks. And can you share any more details regarding the deal that was announced this week with Asia Biosci–Bioscience. In particular, is the agreement royalty generating; is TA 65 the same as TAT 2; and how is the company protected in the unlikely event that there is some safety issue that arises with TA 65.
MR. GREENWOOD: I'll start with the license. This is a, a fairly typical outlicense. It is for nontherapeutic fields as we described in that announcement, and when I say a typical license, yes, the economics structure of the license includes a standard approach on back end royalties.
DR. OKARMA: We've not disclosed the identity of TAT 2 or of the nutraceutical compound, so we, we won't disclose that here today either. I can tell you that we are closely following the safety studies that have been done and continue to be done in the context of nutraceutical use. So we are monitoring very carefully and are in pretty intimate communication with the licensee on that topic. The, the dose of the compound that will be used in that approach is quite low and there is a substantial safety package at that dose corroborating and predicting its safe, continued use.
Q The, the, the safety studies are in humans?
DR. OKARMA: In, they're both in vitro and in humans.
Q Okay. Okay, and one last question, is Dr. Doug Kerr of John Hopkins a, a collaborator of Geron's, and do you have any rights to his work on motor neuron for spinal cord disease.
DR. OKARMA: No to both questions.
Q Okay. Thanks. Thank you very much.
DR. OKARMA: You're welcome.
COORDINATOR: And at this time there are no further questions in the queue. This concludes the presentation and you may now disconnect. Have a great day.
################ |
