Agenus Inc. (AGEN) Q3 2012 Earnings Report, Transcript and Summary

Good morning. My name is Steve and I will be your conference operation operator today. At this time, I would like to welcome everyone to the third quarter 2012 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions) How he is the Jonae Barnes, Vice President of Investor Relations and Corporate Communications, you may begin your conference.

Hi, thank you and good morning everyone. Welcome to Agenus' conference call to discuss the financial results for the third quarter 2012. With me today is Dr. Garo Armen, Chairman and CEO and Christine Klaskin, Vice President of Finance. During this call, we will review our financial results as well as provide corporate update. We will then open up the call to a Q&A session. But before we continue, I would like to remind you that this conference call will contain forward-looking statements including statements regarding the company's cash position, potential income streams, development and commercialization efforts, timelines, availability of data and potential efficacy and market potential with respect to products and product candidates of the company and its 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 are disclosed in more detail in our most recent filings with the U.S. Securities and Exchange Commission. These statements speak only as of the date of this call and Agenus undertakes no obligation to update or revise the statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. When evaluating Agenus’ business and securities, investors should give careful consideration to these risks and uncertainties. As a remainder this call is being recorded for audio replay. With that, I will now hand over the call to Christine who will review our financial results for the third quarter of 2012.

Thank you, Jonae. Good morning everyone and thank you for joining us on today’s call. By now, we hope you have had the opportunity to review this morning’s press release. For the third quarter of 2012, we reported a net loss attributable to common stockholders of $5.9 million or $0.24 per share basic and diluted. This compares to a net loss attributable to common stockholders in the third quarter of 2011 of $5.7 million or $0.28 per share basic and diluted. For the nine months ended on September 30, 2012, we incurred a net loss attributable to common stockholders of $6.5 million or $0.28 per share basic and diluted. This compares to a net loss attributable to common stockholders of $17.8 million or $0.92 per share basic and diluted for the comparable period in 2011. The decrease to net loss for the nine months ended September 30, 2012 compared to the same period in 2011 is directly related to the revenue generated of $13.4 million during the first quarter of 2012, primarily due to the one time payments received to an expanded agreement with GlaxoSmithKline, and through a license of non-core technologies. Cash provided by operating activities for the nine months ended September 30, 2012 was $4.3 million compared to cash used in operations of $12.1 million for the comparable period in 2011. Cash and cash equivalents were $24.8 million as of September 30, 2012. Based on our net cash burn for 2012 which is defined as cash used in operating activities less onetime upfront payment plus capital expenditures and dividend payments which is anticipated to be in the range of $13 million to $15 million; we expect sufficient financial resources to fund operations in to 2013. This concludes the financial portion of the call. Garo will now provide a corporate update.

Thank you, Christine and thank you, Jonae. As we near the end of 2012, our programs across the board are nearing several important milestones. We have seen tremendous progress in the advancement of our QS-21 stimulant adjuvant for both infectious disease and cancer indications through our corporate partners. In addition, and very importantly, we have also seen our own internal development programs advance. In this regard, we recently announced the initiation of a Phase 2 randomized, double-blind, multicenter study for HerpV, which includes our very potent adjuvant QS-21. HerpV is a recombinantly manufactured off-the-shelf therapeutic vaccine candidate for the treatment of genital herpes in HSV-2 positive individuals. I will go into more detail about this program later in my discussion. In addition to HerpV, during the third quarter, another GSK Phase 3 clinical trial program containing QS-21 commenced. This is a global, randomized, placebo controlled Phase 3 clinical trial for the prevention of shingles in 1,400 immunocompromised patients. Also this month, it was announced that a QS-21containing tuberculosis vaccine candidate being developed by GSK will advance to a Phase 2b clinical study in Kenya, India and South Africa. Promising results from early stage clinical trials showed that the GSK TB vaccine candidate has an acceptable safety and reactogenicity profile and has demonstrated an immune response. In addition, a number of early stage QS-21 containing clinical programs which are not disclosed at this time have also advanced. QS-21's activity and mechanism of action were discussed and presented at scientific meetings by GSK and Ludwig Institute of Cancer. An abstract titled, QS-21 adjuvant enhances cross presentation of NY-ESO-1 antigen by dendritic cells in vitro, was published this month. The data showed that the NY-ESO-1 antigen could only be cross presented when delivered as a soluble protein in the presence of QS-21. These…

(Operator Instructions) Your first question comes from Joe Pantginis with Roth Capital. Your line is open.

A few questions, if you don't mind. First, on the financial side. This year, R*D and G&A has been a little choppy, so I am wondering if you can provide any visibility into potential run rates going forward, especially as you increase your internal programs and then I have a couple of follow-ups.

Certainly. Christine?

Sure. So I think it is fair to say that we would expect some modest increases in our R&D and G&A expenses as we begin, as Garo just mentioned enrollment in the NCI trial and as we launch Oncophage in Russia with NewVac.

Just switching quickly to QS-21. With regard to the upcoming Phase 3 study for malaria, this is obviously the second Phase 3 study, what guidance can you provide, I guess, either through what Glaxo might have told you with regard to timing for potential filings?

Well, let me address the guidance for the timing of the data released. Glaxo has said they expect the data to be released by the end of this year. So we will stick to that timeline. Secondly, in terms of guidance for filing, as you remember, Joe, last year, when the initial data came out in the older age group, which was very positive, they provided guidance that they expected the product to be available in 2015. So to the best of our knowledge, we do not expect any changes to that timeline. These trials that are staggered are a part of a very well defined program by GSK and the consortium, which includes the Gates Foundation as well as WHO. This is well defined effort that has included the study of the vaccine in different age group individuals, including, obviously very importantly, children but also (inaudible) but more importantly this very important product, which is the first ever malaria vaccine to show efficacy in the clinic will be available in 2015 and hopefully it will result in the savings of many lives in Africa.

Great, and then, just quickly on HerpV, obviously you said you are combining both your internal programs. Maybe you could just a comment or so on the differentiated aspects when you look at the heat shock platform and how you look to merge with the unmet need that continues to exist, even though there might be additional types of therapies out there and why this could be differentiated? Then, more on the actual development side. This current study measures, as you said, viral shedding and you mentioned that it is a surrogate that is viewed positively by key opinion leaders. How should we view that endpoint with regard to a potential pivotal study?

Okay, so the first question is, how do we view the various technologies or the technology platforms that are available to us in terms of the design of an optimized, what we believe to an optimized herpes vaccine. Now, as you know, a significant amount of literature exist and this is a view, I think you have in schooled in as well, Joe, HSPs are very important molecule that present antigens to the immune system. Specifically, they get the HSP complexes containing the antigens, they get taken up by antigen presenting cells such as dendritic cells and macrophages and to a relay mechanism. This results in the presentation of the antigen by a cell that is a profession presenter to the immune system by means of activating T cells and the cascade of cytokines that play a very important role in achieving a competent immune response. Now, in addition to that, the use of QS-21 independently of heat shock protein technology has shown us reason, there is this very important paper that came out of the collaboration of Glaxo with Ludwig that elucidated on the importance of QS-21, in fact, not only importance but the requirement of QS-21 in cross-timing the immune system when it is administered with antigens. So independently of heat shock protein, QS-21 is now known from a mechanism of action perspective to be a very key timer of the immune system. Now, if you go back to our Phase 1 study obligation on the HerpV vaccine, you will have noticed that we have done this as a four-on study. There is placebo, there is QS-21 alone, there is HerpV alone and HerpV protein 32 antigenic construct and that construct plus QS-21. The most immune response was achieved when the heat shock protein construct with the antigen is used in combination with QS-21. Now, heat shock proteins, by itself, with the antigen do achieve some immune response but when you add QS-21, then you get a very special immune response. Now, this additive immune help provided by QS-21 has also been well published in other studies. For example, if you take the malaria vaccine construct, you do achieve some immune response but when you add QS-21, with that response was up by a fold or two. In the melanoma trial that have been done with the melanoma and the non-small lung cancer vaccine. Once again, the addition of QS-21 results in a very substantial uptick to immune response. So I think we now know because we are so close to the situation and I think as a the success of these products, meaning the malaria product and the MAGE program happens it will be quite evident that QS-21 is a very critical adjuvant in constructing a vaccine. Both malaria and cancer vaccine programs have been in the long time coming. These programs have been in development for 20 years or so. So finally, we are coming to, now, the finish line and that’s very exciting.

Your next question comes from John Sonnier with William Blair. Your line is open. John Sonnier - William Blair & Company: Just two quick questions, Garo. A lot has changed in the landscape of Alzheimer's drug development since our last call. Maybe you could comment on that and specifically your program with Janssen. You have Phase 2 still scheduled to read outs next year. Do you think this insight into possibly earlier intervention being better, maybe talk about how that plays into the vaccine approach?

John, I think those are excellent questions. Let me just sit back for a moment and review what happened. As you remember, many years ago, the vaccine that John is referring to our inventions of Elan, which I had the privilege of sharing during its more troubled time, and so these vaccines are products that, I personally have had a very long history with. Suffice it to say that in the beginning of the process, the active vaccine which is not the passive antibody for which the program, by and large, stopped recently. The active vaccine was the lead program within Elan, an American owned products which is now Wyeth and now Pfizer (inaudible), that was the lead program. The only reason the passive antibody program took the lead over was because in the early days there was some concern about the safety of the vaccine because of inflammation in the brain. Subsequently there were issues that, by and large, had gone away, but the lead by bapi was maintained. That’s because it was a better product necessarily but because of the temporary setback experienced by the active vaccine. Now, as we all know, the passive antibody program didn’t quite work out, although the Lilly data showed that in the earlier stage patients there is activity and I think it is reasonable to expect that in any vaccination approach, when we are dealing with monotherapy as represented by a vaccine, you would do better with earlier stage patients. That applies to cancer and that’s on the reasons we are very excited about the Glaxo program and it also applies to all family of diseases. Now one of the, and I am not trying to be a Monday morning quarterback, I don’t even watch football actually, but one of the issues…

It's really a very, very difficult question. We were, as a company, one of the experts in the field of event driven trials in adjuvant patients, I think, with our renal cell carcinoma trial which had the initial readout in 2006. Some six years after the trial was initiated and the final readout in 2008, 2009 timeframe. So through our experience, in general, I can tell you is that when you have an event driven trial, first of all, there is very little information over a long period of time as to the recurrence history associated with patients with this disease in the specific population or stage population. So, what we saw in our trial, for example, is that event rates would accelerate for a period of time and then they would slow down for another period of time. Then we accelerated them and so it's really not magic but that’s the natural course of disease and we don’t really have much epidemiological date to characterize what the rate of the events should be at different time points with either one of these trials. So all the indication we have is that so far it will be tight meaning they will be close to each other. Which one comes first is really a toss of a coin, at this point.

Your next question comes from Megan Dow with MLV and Company. Your line is open.

Congratulations on an exciting week with trial started. I had a couple of quick questions in regards to what are the next plans for HerpV. The vaccine has potential in being used as prophylactic vaccine and I was wondering if that is on Agenus' horizon? Then I have a follow-up question in regards to the Russian enterprise.

Certainly, Megan. As far as the HerpV vaccine is concerned, the answer is yes. We believe it has potential in prophylactic. However, we have chosen to go after the infected patients in a therapeutic setting only because for a company of our means and size and scope, it's something that we can chew and digest at this point. To do a prophylactic trial would take longer and many more patients and the safety database required would have to be a lot larger. From a product integrity perspective, if it is efficacious which we hope it is in the therapeutic setting, there will definitely be a natural inclination to test this in a prophylactic. So that, as you know, is an enormous market for us. But that would be sequel. First we will see what happens in the therapeutic setting and then we will go after the prophylactics.

Okay, great. So we can think about that later in the future as you move forward. So then moving on to your HSP programs. You mentioned that the G-100 vaccine is now fully enrolled. I was wondering if you had any further guidance about that trial? Whether or now NewVac has given you any guidance on whether or not they are prescreening patients now ahead of being able to be in that position to start selling the product or if they have any guidance as to how they imagine the launch going in Russia?

So, the first question about the G-100 trial outcome. That is, as you know, these are patients who are in earlier stages of disease, so for them to have a recurrence and that will take some time. So we are looking for now a readout for hopefully sometime.

Mid next year.

In the mid-next year. Thank you for that.

At a major medical meeting.

So this is a, as Jonae said, the presentation will be at a major medical meeting and this will be exciting because this will be the very first combination trial with Prophage with a standard of care. So even though it is not a biological agent, still it is on top of standard of care and there is some hope and expectation that there is potential synergies between the vaccine approach and the current standard of care. So that will be exciting. As far as Russian efforts, as we speak they are, in fact, in the queue patients which will be candidates for what they call a test run for the commercial launch because as you realized, for a period of time, at least the next 12 to 18 months, we will be providing vaccine for commercial sale in Russia from our facility in Lexington, Massachusetts. So the test run will be to make sure that all the logistics in commercial setting, mind you, we have done this many, many, many times, hundreds of times, in the clinical trial setting but we have not done it in the commercial setting yet. So there will be test runs in the next month to make sure that there are no kinks in the logistics of the process. Customers and transportation and so on and so forth and we hope and expect that they shouldn’t be because we have done this as far away as Russia, Ukraine, Australia with hundreds of batches in the clinical trial setting. Shortly after that, the program should be launched commercially. Now within the first year or so, we will be limited to the private pay market in Russia and the effort to secure government reimbursement will be in the works but for the initial phase it will be in the private pay market and once the government reimbursement is put into place, clearly you will see a significant uptick from the commercial sales levels, in terms of revenue.

There are no further questions at this time. I will turn the call back over to the presenters.

Great, thank you. I would like to remind listeners that a replay will be available approximately two hours after the call through midnight Eastern Time on February 3rd, 2013. A replay will be available approximately two hours. The replay number is 855-859-2056 or 404-537-3046 and the access code is 43143599 and the replay will also be available on the company’s website. If you have any additional questions after today’s call, you may call us at 800-962-2436. Thanks a lot.

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