Tengion, Inc. (TNGN.OB) Q4 2012 Earnings Conference Call March 18, 2013 9:00 AM ET
Good day ladies and gentlemen and thank you for standing by. Welcome to Tengion’s conference call to discuss its fourth quarter and year-end 2012 financial results. There will be a question-and-answer session to follow. Please be advised that this call is being taped at the company’s request.
I will now turn the call over to Brian Davis, Chief Financial Officer at Tengion. Please go ahead.
Good morning everyone and thank you for joining us for our fourth quarter and year-end 2012 earnings call. On the call with me today are John Miclot, our President and Chief Executive Officer and Dr. Tim Bertram our President of Research and Development and Chief Scientific Officer.
John will begin the call by reviewing the recent highlights for our lead programs, and Tim will then discuss these programs in more detail, and then I will summarize our financial results for the quarter. We will then open up the call for your questions.
This morning we issued a press release that provides a business update, as well as details of our financial results for the fourth quarter. The press release is available on our website at www.tengion.com.
Before we begin, I would like to remind you that certain statements made on today’s call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on management’s current beliefs and expectations concerning future events and are subject to change. All forward-looking statements involve risks and uncertainties that could cause the company’s actual results to differ materially than currently expected.
These risk factors set forth risks regarding our plans to develop and commercialize our product candidates, including the Neo-Urinary Conduit and the Neo-Kidney Augment, and expectations regarding ongoing and planned pre-clinical studies and clinical trials.
Although, we believe that these statements are based upon reasonable assumptions within the bounds of our knowledge of the company’s business and operations, there are a number of factors that may cause actual results to differ from these statements. You should refer to the Risk Factors section of our periodic reports filed with the SEC for a discussion of these risks and uncertainties.
The forward-looking statements made on the call today are made only as of today and Tengion disclaims any intention or responsibility for updating predictions or expectations made on today’s call.
With that, I will now turn the call over to John.
Thank you Brian and good morning everybody. We remain focused on executing on key value inflection points for our two lead programs, the Neo-Urinary Conduit and the Neo-Kidney Augment, which has the potential to truly benefit patients with bladder cancer and kidney disease.
Over the last year we made continued progress in our Phase 1 trial for the Neo-Urinary Conduit. We have initially demonstrated that urinary tissue can be regenerated in a limited number of patients. These findings in the clinical trials are consistent with our animal studies in which we demonstrated the ability of our technology to consistently regenerate an organ composed on urinary tissue.
We have also defined a surgical procedure that has been transferred to additional clinical sites. We look forward to successfully implanting the remaining three patients in the trial and then working with the FDA this year to plan for a potential Phase 2/3 clinical trial.
In the context of this program, we also recognized how challenging it’s been for us to accurately predict patient enrollment timelines for this trial, which has some design features that we do not believe will be applied to the next clinical trials for the Phase 2/3 clinical trial.
In recent weeks I’ve had the opportunity to meet and talk with the principal investigators at our clinical sites, including one of the three sites that was recently trained on the surgical procedure. In these conversations the surgeons have expressed their view of the significant progress that we’ve made, as well as their excitement about the potential of the Neo-Urinary Conduit.
They understand well our need to complete patient enrolment for the trial and we believe the ramping up of enrolment activities by three of the recently trained sites, Memorial Sloan-Kettering, Baylor and the University of Michigan will allow trial enrollment to move forward more rapidly than in the past. We’ll continue to provide public disclosures as additional patients are implanted.
Turning to our Neo-Kidney Augment program, we are on track to begin clinical trials in 2013 in both Sweden and the United States for our lead pre-clinical programs the Neo-Kidney Augment. We are currently conducting the GLP studies required by the FDA to support the IND filing in the U.S. and we are working aggressively to file during the second quarter of 2013.
In January of this year we filed a clinical trial application with the Medical Products Agency in Sweden, with the goal of initiating a trial for the Neo-Kidney Augment in the second quarter.
In October 2012 we successfully refinanced the company by completing a $15 million private placement, which provides us with sufficient funding to complete enrollment in the Phase 1, Neo-Urinary Conduit trial and to submit our IND filing for the FDA for our Neo-Kidney Augment program in 2013. In November and December of 2012 we received issued patents covering both our lead programs. This confirms the strength and breadth of our Tengion expanding IP portfolio.
With that introduction I’ll now turn the call over to Tim, who will provide a patient update and discuss in more details the recent highlights and clinical programs we’ve made, progress we’ve made on our two lead programs. Tim.
Thank you John. Let me begin today with the Neo-Urinary Conduit program. Then I will update you on the development progress of our Neo-Kidney Augment program.
Neo-Urinary Conduit is a novel product candidate that utilizes a patient’s own cells and a bioabsorbable scaffold to create a native-like urinary tissue conduit, which can be highly beneficial for bladder cancer patients requiring urinary diversion following bladder removal.
We believe the Neo-Urinary Conduit has the potential to reduce the side effects associated with the current standard of care, which uses bowel tissue to construct a conduit for urine to exit from the body. In addition to requiring extensive postoperative recovery time, these patients undergoing the standard of care procedure are at risk of complications associated with the use of bowel tissue, as well as those associated with the surgery to harvest the bowel tissue.
The major disadvantages include a long surgical time of roughly four to six hours, extended recovery time post operatively, which can range from weeks to months. In addition the use of bowel creates absorption challenges and can lead to multiple metabolic disorders.
The Neo-Urinary Conduit is being evaluated in a Phase 1 clinical trial that is designed to assess the safety, preliminary efficacy and one-year durability of the Neo-Urinary Conduit in up to 10 patients, as well as to translate the surgical procedure successfully used in pre-clinical animal models into clinical trials, involving human patients.
Progress of the trial to-date includes the definition of a surgical procedure, which was done in the first three patients. In this stage, we work to establish a procedure for [store and] [ph] regeneration and blood supply for urinary tissue development. We then use the defined procedure in three more patients. We learned in these three patients that the regenerated urinary tissue can function in this patient population for up to 10 months; the longest post operative period to-date.
As we have previously reported, few patients have passed as a result of causes unrelated to the Neo-Urinary Conduit. These were the fourth and sixth patients. The family of the patient six allowed the surgeon to remove the Neo-Urinary Conduit for evaluation by our scientists. We are very grateful for their permission and soo pleased to report that after only six weeks we saw in this patient regenerated urinary tissue.
As you may recall, patient five was implanted with the Neo-Urinary Conduit approximately 10 months ago. They received the definitive surgical procedure and the patient’s regenerative tissue was durable for this period. In addition, the Conduit has remained open and patent for this time, despite a chronic urinary infection obtained at the time of implant.
We’ve been recently informed that this patient, which had metastasis of their cancer prior to implantation has now developed metastatic bladder cancer and is in need of chemotherapy. To ensure that the entire therapeutic approach with this patient can be consistent with today’s standard of care; we will remove the regenerated tissue and replace it with an illeal Conduit.
In January 2013 we successfully implanted the seventh patient in the ongoing Phase 1 clinical trial. Patient seven is now two months post implantation and continues to progress as we have come to expect from patients who have had the Neo-Urinary Conduit implanted using the standardized surgical procedure.
To sum up the Phase 1 trial, we now have a defined surgical procedure with surgeons from five clinical centers now trained. Patient recruitment efforts are underway at these clinical centers to implant the remaining three patients. Importantly, we now know that urinary tissue can be regenerated in this fragile and elderly patient population.
As John mentioned earlier, we plan to take information from this trial to the FDA in 2013, in order to develop plans for a potential Phase 2/3 clinical trial. In thinking about trial design for the next stage, we believe there will be options available to us that we simply did not have in our first human trial.
For example, the protocol for the Phase 1 trial required sequential enrollment of patients, with at least two months between patient implants. Although this restriction was necessary and understandable in the context of the first in human experience, we do not anticipate a similar restriction in a subsequent clinical trial.
In a similar vein, the inclusion/exclusion criteria were designed for the Phase 1 trial to allow for focus on developing the surgical procedure for implanting the Neo-Urinary Conduit. Therefore large segments of the patient population have not been available for enrollment in order to minimize the potential for complications.
We anticipate the inclusion/exclusion criteria for the next clinical trial would permit a broader population of bladder cancer patients to be eligible for enrollment. We look forward to continued engagement with our KOLs and FDA on these and other trial design features for a potential Phase 2/3 trial to evaluate the Neo-Urinary Conduit in more bladder cancer patients.
A final note on our Neo-Urinary Conduit program, in December 2012 the U.S. patent office issued a patent for the Neo-Urinary Conduit that included compositional claims on the construct and cellular elements with use claims covering the clinical application.
I would now like to discuss the progress we have made for our Neo-Kidney Augment program. This is intended to prevent or delay the need for dialysis or kidney transplant by catalyzing the regeneration of functional kidney tissue in patients with advanced chronic kidney disease.
Our Neo-Kidney Augment product contains a selected cell population of a patient’s own kidney cells, which are selected for the regenerative properties. We use our proprietary process to formulate these cells into a stable product that is shipped to the hospital. This product is then injected directly into the cortex of the kidney using minimally invasive laparoscopic methods. If successful as we have seen in four pre-clinical studies including those using regenerative cells obtained from CKD patients we would then expect to see stabilization or improvement of renal function in patients with chronic kidney disease and the elimination of many co-morbidities of today’s standard of care.
We recently filed a clinical trial application with the Medicinal Products Agency in Sweden to initiate a Phase 1 clinical trial to evaluate the safety and delivery of the Neo-Kidney Augment in up to five patients. Following the MPA approval of this clinical trial application, we expect to initiate a Phase 1 trial in Sweden in the second quarter of 2013. This trial will use a single pharmacologically active dose in patients with chronic kidney disease to evaluate the safety and tolerability, as well as delivery methods of administration.
Our plan is to use the information from this trial to define a repeat dose and dose escalating clinical trial here in the United States. We expect to submit an IND to the FDA during the second quarter of 2013. Following acceptance of the IND, we expect to initiate a Phase 1 clinical trial in the U.S. in the fourth quarter of 2013 and expect that this trial will provided initial human proof-of-concept data in 2014.
We are currently conducting the GLP animal study program required by the FDA to support the IND filing and initiation of Phase 1 clinical trial programs in chronic kidney disease patients. These GLP studies are consistent with our pre-clinical animal models, which yielded positive data demonstrating slowing of kidney disease progression and improved survival. The U.S. Phase 1 trial is expected to be a multi-dose escalating trial starting with the initial does used in the Sweden trial.
Of note, in December of 2012, United States Patent and Trade Office issued a patent that included claims intended to protect the cell composition and formulation of our Neo-Kidney Augment product that is based on the novel-ability of Tengion’s regenerative renal cells to regenerate its functional kidney tissue in chronically diseased kidneys.
Now, I will turn the call over back over to Brian to review our fourth quarter and year-end 2012 financial results. Brian.
First I’d like to give some detail on the financing we completed in October of 2012. We closed a private placement of $15 million. This was a convertible debt financing and the principal amount of the $15 million included the exchange of $1 million of bridge debt that had been issued in early September and was announced on September 10. In addition, we granted to the purchasers of the convertible debt an option to purchase up-to $20 million of the same securities on the same terms, anytime through June 30, 2013.
Now turning to the results for the fourth quarter and the year ended December 31. For 2012 we reported an adjusted net loss of $19 million or $8 per basic and diluted common share, compared with an adjusted net loss of $24.4 million or $11.30 per basic and diluted common share.
The decreased net loss for the 2012 period was primarily due to a reduction in compensation related expenses of $4.9 million and a decrease in depreciation expense of $2.7 million. Both of those decreases were associated with the restructuring that we announced and executed in late 2011, early 2012. These decreases were offset in part by increased interest expense of $2.1 million, of which $1.9 million related to the amortization of debt discount and deferred financing costs associated with the private placements of the notes that we issued in October.
For the fourth quarter of 2012 we reported an adjusted net loss of $5.9 million or $2.49 per basic and diluted common share, compared with an adjusted net loss of $6.2 million or $2.62 per basic and diluted common share for 2011.
The decreased adjusted net loss was primarily due to a reduction in compensation and related expenses of $2 million and a decrease in depreciation expense of $200,000. These decreases were offset in part by increased interest expense of $2 million, of which $1.7 million related to the amortization of debt discount and deferred financing costs that are referred to in the year-end results.
As of December 31, 2012 we held $7.5 million in cash and cash equivalents and based on our current expected level of operating expenditures and debt repayments, we expect to be able to fund our operations through May 2013.
Now, I’ll turn over the call to John for some final remarks.
Thanks Brian. Well we’re obviously very much looking forward to a successful 2013 at Tengion. As we mentioned, we are now proceeding with concurrent enrollment of the remaining three patients in our Phase 1 clinical trial.
The enrollment of the seventh patient was a very significant milestone, which allowed us to train additional physicians and open up three additional clinical sites. We now have all five sties actively recruiting patients for the completion of the Phase 1 trial.
There are currently over 25,000 urinary diversions performed annually in the Untied States and Europe, and our Neo-Urinary Conduit has the potential to eliminate the serious complications that arise from the current standard of care.
We are also making excellent progress with our Neo-Kidney Augment with the trials anticipated in both Sweden and the U.S. Kidney disease is a serous global epidemic and a significant market opportunity for Tengion. According to the U.S. renal data system, more than $27 billion in Medicare cost each year are attributed to patients with end stage renal disease.
I’d like to wrap-up the call by emphasizing that Tengion’s key objective is to advance our two key programs swiftly and diligently, in order to deliver our groundbreaking technologies to patients in great need, as well as generate significant value for our shareholders.
We’d now like to open up the call to any questions. Operator.
Thank you. (Operator Instructions). Please standby for your first question. Thank you.
Thank you operator.
We have no questions at this time. (Operator Instructions). Thank you.
Thank you operator. We’ll go ahead and conclude the call. We appreciate everybody’s attendance and look forward to hopefully seeing you all in the near future. Thank you.
Thank you ladies and gentlemen for your participation for today’s conference call. You may now disconnect and have a good day. Thank you.
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