Cell Genesys, Inc. (CEGE) Q3 2008 Earnings Call Transcript November 6, 2008 4:30 PM ET
Ladies and gentlemen, thank you for standing by, and welcome to the Cell Genesys third quarter 2008 conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions being given at that time. (Operator instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host from Investor Relations, Ms. Susan Ferris. Please go ahead.
Great, thank you. Good afternoon and welcome to today's call. My name is Susan Ferris, and with me today are Dr. Steve Sherwin, Chairman and Chief Executive Officer, and Sharon Tetlow, Senior Vice President and Chief Financial Officer.
Before we begin, I'd like to remind you that during today's call, we may make forward-looking statements about the company's future expectations and plans, including milestones and financial projections for 2008 and 2009. Such statements are subject to risks and uncertainties that could cause results to differ materially from those projected. We encourage you to consult our SEC filings regarding the risk factors that may affect Cell Genesys.
I'll now turn the call over to Dr. Sherwin.
Good afternoon, everybody, and thank you for joining our third quarter 2008 conference call. As usual, Sharon and I will begin the call with about 10 minutes of comments and then we'll do our best to answer your questions.
During our comments today, we'll review recent developments at the company and comment on our path forward as a business given those developments. And we’ll also use the occasion of this call to recap today’s report of our third quarter financial results and provide you with revised guidance for the rest of 2008 and early 2009.
So let me begin by summarizing the recent events at Cell Genesys with respect to the termination of the Phase 3 program for our lead product, GVAX immunotherapy for prostate cancer, and the subsequent necessary restructuring of our business, which we have implemented. As most of you know very well, since 2004 we were conducting two large multi-national Phase 3 trials for this product that we refer to as VITAL-1 and VITAL-2. And unfortunately, both of these trials have now been prematurely terminated and we have suspended further development of GVAX prostate pending a review with our partner, Takeda Pharmaceuticals.
Just to give you a little bit more detail and some commentary on these events, let me remind you that the VITAL-1 study was terminated last month based on the results of a futility analysis that was carried out by the trial’s Independent Data Monitoring Committee or IDMC at our request. Unfortunately, this analysis revealed that there was a less than 30% chance that the study would meet its pre-specified primary endpoint of improvement in survival. And as you recall, this was a study designed to show the superiority of GVAX prostate compared to the standard of care Taxotere plus prednisone with respect to survival in patients with asymptomatic metastatic hormone refractory prostate cancer.
The VITAL-2 study was terminated in late August. This was based on the recommendation of the same IDMC that had in a routine safety meeting observed an unfavorable imbalance in deaths between the two treatment arms. As a reminder, this study was being conducted in more advanced patients who had symptomatic metastatic HRPC, and for that reason, was comparing the combination of GVAX prostate plus Taxotere to the standard of care Taxotere plus prednisone, and also with respect to improvement in survival.
We’ve been asked on numerous occasions over the last few weeks why these studies failed. In our opinion, particularly in light of the encouraging Phase 2 data that we had accumulated for this product from two independent multi-center trials. And obviously today we don’t have the final definitive answers and we can only speculate.
With respect to VITAL-1, we think the answer lies within the challenges inherent in comparing any kind of slow-acting immunotherapy like GVAX to the more rapidly acting chemotherapy drugs like Taxotere and particularly doing this comparison in patients with more advanced disease.
With respect to VITAL-2, we can say at this point that there are no safety issues that can account for the imbalance in deaths based on both the IDMC review and our own. And we also have detected no significant difference in base line characteristics between the two treatment arms. However, we did determine that the GVAX plus Taxotere arm in this trial had received statistically significant lower number of Taxotere cycles. So they got less of the chemotherapy drug compared to the control arm, which was of course Taxotere plus prednisone. And we think this is probably a contributing factor.
So that’s what we know at this point. And whatever the answers to these questions in full turn out to be, we can certainly say today these were, in our judgment and the judgment of many in the field, well designed and well executed studies. And we certainly hope they contribute to a better understanding of how to evaluate immunotherapy products in patients with advanced cancer. And rest assured these results will be presented in more detail at appropriate scientific flora we have submitted abstracts on both studies to the ASCO Symposium on GU cancer, which will take place in February.
In any case, as you I’m sure are aware and as I have already commented on on other occasions, we’ve moved expeditiously to make the appropriate business decisions regarding to our path forward as a company. First and foremost, we’ve already implemented a major restructuring of our business, which will result in an 80% reduction in force of the 290 employees by year-end and the overwhelming majority of these employees have already departed as of late last month. And we expect that there will be additional reductions beyond the 80% into early 2009. Sharon will give you the financial impact of these operational decisions shortly.
Beyond the restructuring, we of course have turned our full attention to defining the path forward for our business. And what I want to say today about that is just to assure you that all of the appropriate strategic alternatives are on the table and being evaluated, including an outright sale or merger of the company, a reverse merger with a private company, acquisition of new technologies or products to restart the business in a new direction, and/or sale of our assets.
And in order to ensure that we have the best possible advice with respect to defining the optimal path forward for our business, we have recently retained Lazard as a strategic advisor to the Board and to the management.
I want to emphasize something that I hope is readily apparent to all of you from the substantial nature of the restructuring that’s already been implemented and the speed with which these decisions have been made. And that is that the Board, including myself and management of the company, are committed to identifying expeditiously the best strategic alternative for Cell Genesys and implementing this in a way that maximizes value for all of our stakeholders.
So with all of this in mind, let me turn things over to Sharon who will comment on the financial results report from earlier this afternoon and also give you some revised guidance for 2008 and the first part of 2009.
Thank you, Steve. As reported today, we ended the quarter of 2008 with approximately $151 million in cash. During the quarter, we recognized about $17 million in revenue primarily from our collaboration agreement with Takeda Pharmaceutical for GVAX immunotherapy for prostate cancer. And with respect to operating expenses, our use of cash was approximately net $14.5 million, with $11.3 million in cash coming from Takeda and approximately $25.5 million in net spending.
Let me now provide you with guidance for the remainder of 2008 and the first part of 2009 with respect to cash. As I just noted, we ended the third quarter of 2008 with $151 million. During this quarter – during the fourth quarter, we will incur approximately $13.9 million in personnel-related restructuring charges as a result of the reduction in force and related matters that Steve just described. The cash impact of these personnel related restructuring charges in the fourth quarter is expected to be approximately $11 million.
In addition, we have recently repurchased a portion of the company’s outstanding convertible debt on what we believe to be very favorable terms, having repurchased $26.3 million in face value of the convertible bonds at a cost of $10.5 million. And that’s about $0.40 on the dollar. This will result in the annual interest payment, dropping from $4.5 million per year to about $3.7 million per year. Based on the cash impact of the company’s restructuring charges and the cash cost to repurchase convertible bonds and ongoing operating expenses, we expect the company’s year-end cash to be approximately $118 million to $120 million.
As Steve mentioned, there will be a further reduction in force in early 2009 as the company continues to scale back its operations. Excluding any additional bond purchases that may or may not occur, we currently expect based on reduced operating expenses and the planned further reductions that the company will have approximately $110 million to $112 million at the end of the first quarter of 2009. Again, the Board and the management of Cell Genesys are committed to moving as expeditiously as possible to the implementation of its appropriate strategic alternative for the business.
Let me now ask the operator to open up the line for our Q&A.
Right, thank you. (Operator instructions) And our first question comes from Pamela Bassett from Cantor Fitzgerald. Please go ahead.
Pamela Bassett – Cantor Fitzgerald
Hi, thanks for taking my call.
Pamela Bassett – Cantor Fitzgerald
Hi. I’m wondering – should we expect more repurchases of the convertible notes going forward? And I apologize, maybe I joined the call little late, maybe you addressed this in the –
No, we haven’t said anything specifically, and we may or may not do something along those lines.
I mean – hi, Pamela, it’s Sharon.
Pamela Bassett – Cantor Fitzgerald
I mean, obviously right now cash is extremely important to us. So we’ll be thoughtful about that in all alternatives.
Pamela Bassett – Cantor Fitzgerald
Okay. And I mean, you laid out some of the possibilities for strategic alternatives. Is – let me, clearly having that cash is important and useful in creating a new opportunity. Where might – there are so many assets available currently at pretty good prices. Can you talk about what criteria you might use in making a choice, by acquisition or by another company or reverse merger or something along those lines?
Well, as I mentioned, all of the possible alternatives are under evaluation. And one category is just as you are suggesting, the acquisition of products or potentially technologies that would take the company in a new direction. And again, just to restate something that I commented on earlier, what will drive that is our best assessment of the value for our stakeholders. Having said that, just to be a little more specific about assets that might be of interest to us, we would pay a lot of attention to opportunities that get to inflection points in value within a timeframe that is supported by the available cash going forward. In other words, we would be thinking very carefully about maintaining as much independence as possible from the capital markets on the other side of any theoretical asset acquisition. So, stage of development would be a consideration. Beyond that, obviously our space, if you will, and biotech is in the oncology area, but of course there is nothing unique about us in that regard. There are many such companies. And that’s really all I can say at this point I think.
Pamela Bassett – Cantor Fitzgerald
Okay. That’s helpful. Thank you very much.
You’re welcome. Thank you.
Thank you. (Operator instructions) And our next question comes from Mark Monane from Needham. Please go ahead.
Mark Monane – Needham
Thank you and good afternoon from New York City.
Mark Monane – Needham
Could you comment on the clinical activities that are ongoing? I mean, you have a number of trials that are underway and there is lot of science there. Are there programs continuing? You said last time something about some investigator-run programs, maybe you can run –
Sure. I’m happy to comment on that. The answer is that there are continuing. The group at Johns Hopkins, which was the centerpiece of the rest of the products in the platform, is very much engaged and very much convinced as to the value of the GVAX immunotherapy platform in general. So, more specifically, they have three products in Phase 2 development, different investigators for different products. With respect to pancreatic cancer, Dr. Elizabeth Jaffee and Daniel Laheru are leading that effort, and they have a couple of Phase 2 trials underway; one in the adjuvant setting and one in a combination therapy setting in more advanced patients. I expect we will hear about those trials in the first half of 2009. And I know they are planning additional studies from the conversations I’ve had. Dr. Hyam Levitsky is leading the effort for GVAX leukemia. He has work going on in both CML and myelodysplastic syndrome. There is a possibility – I don’t know this for sure that there may be a report on some of his work at the upcoming ASH meeting, but I’m not positive about that. And then Dr. Leisha Emens is working on a breast cancer product, which is also in Phase 2 development in advanced disease in the combination therapy setting. So this is a very active program. It’s like it has been for some time here at Cell Genesys. We have minimized our own investment directly in those products. And we’re enjoying the benefit of independently funded work at Hopkins in those three areas. There is also considerable interest across the clinical community in finding a way to continue to work on additional studies of GVAX prostate. I don’t have anything specific to say about that at this point in time, nor can I comment on any company involvement in any such efforts. But I did want to say that because I think it’s consistent with the viewpoint that I have and the company has in general that the failure of these Phase 3 trials doesn’t predicate the failure of the product itself. It’s probably a hard thing to explain to investors, but there is certainly that strong sentiment in the investigator community.
Mark Monane – Needham
Thank you for the added information.
You’re most welcome, Mark. Take care.
Thank you. (Operator instructions) And we have no more questions in queue. I’d now like to turn the call back to Dr. Sherwin for closing remarks.
Well, thank you, everybody. And needless to say this has been a very difficult and disappointing couple of months for Cell Genesys, particularly with respect to the outcome of the Phase 3 program and the necessary restructuring of business. We regret first and foremost that we were not successful in these trials for the benefit of the patients with prostate cancer, but we certainly acknowledge again the courage displayed by the individuals who participated in these trials and the energy and commitment of the investigators who took care of these patients and did all the work on the protocols. And needless to say, we were also very sad to have to say good-bye to what I considered to be an extraordinarily talented and committed group of employees, but we are certain that they will do just fine and find success in their future endeavors. And I know that all of these changes have been particularly difficult and challenging for our stakeholders, and I just want to say one more time that we understand that and we remain absolutely committed to expeditiously finding a good path forward for the business that maximizes value for those stakeholders. And with that, I will conclude. Thank you very much.
Thank you. Ladies and gentlemen, this conference will be available for replay after 6:30 PM Eastern Time today and be available for at least 72 hours following the call. And you may access the replay system at any time by dialing 1-800-475-6701 and entering the access code 967966. International participants may dial 320-365-3844. Again, those numbers are 1-800-475-6701 and 320-365-3844; access code 967966. And that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference services. You may now disconnect.
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