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ImmunoGen, Inc (NASDAQ:IMGN)

F3Q09 (Quarter End 03/31/09) Earnings Call

April 30, 2009 4:30 pm ET

Executives

Carol Hausner - Executive Director, Investor Relations, and Corporate Communications

Daniel M. Junius - President, Chief Executive Officer

Gregory D. Perry - Chief Financial Officer, Senior Vice President

John M. Lambert Ph.D. - Chief Scientific Officer

James O’Leary – Chief Medical Officer

Analysts

Joel Sendek - Lazard Capital Markets

Pamela Bassett - Cantor Fitzgerald

Shiv Kapoor - Morgan Joseph and Co

Jason Kantor - RBC Capital Markets

Operator

Good afternoon everyone and welcome to the ImmunoGen Third Quarter Fiscal Year 2009 Conference Call. (Operator Instructions) Today’s call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to the Executive Director Investor Relations and Corporate Communications Carol Hausner. Please go ahead.

Carol Hausner

Thank you. At 4:00 this afternoon we issued a press release that summarizes our financial results for our third quarter ending March 31, 2009, which is the third quarter of our 2009 fiscal year. I hope you have all had a chance to review it. If not it is available on our website at www.immunogen.com. During today’s call we will make forward-looking statements. Our actual results may differ materially from the projections made. Descriptions of the risks and uncertainties associated with an investment in ImmunoGen are included in our SEC filings, which also can be accessed through our website.

With me today are Dan Junius, Chief Executive Officer, and Greg Perry our Chief Financial Officer. Dan will provide an update on ImmunoGen and Greg will discuss our financial results. We will then open the call to questions. In addition to Dan and Greg we also have our Chief Scientific Officer Dr. John Lambert and our Chief Medical Officer Dr. Jim O’Leary here as well, so that they too are available to answer your questions.

I will now turn the call over to Dan.

Dan Junius

Thank you Carol and good afternoon everyone. Thank you for joining us today. This has been an important quarter vis-à-vis progress with T-DM1 and other pipeline compounds and let me go right to T-DM1 and provide an update there.

Genentech and Roche are implementing a broad and aggressive T-DM1 development plan. Roche has been a driver behind this program since they opted in on T-DM1 back in December of 2007. There has been quite a bit of clinical progress with Genentech reporting that they have already completed enrollment in the Phase II trial assessing T-DM1 as a third-line treatment for HER2 expressing metastatic breast cancer. This is a 100 patient study where enrollment began in July of 2008. This enrollment was completed this past March. This particular trial addresses patients whose cancer has progressed on Herceptin and on Tyker regimens and Genentech expects final results by the first quarter of 2010. They have noted that if data are compelling that we use this study to discuss an earlier approval path with the FDA which could lead to a potential U.S. launch in 2010.

Genentech and Roche also initiated a Phase III testing of T-DM1 in late February of this year which triggered a $6.5 million payment to us. This is part of $19.5 million and up front and milestone payments from various partners that ImmunoGen has received through March of this fiscal year.

This particular Phase III trial is referred to as EMILIA and it is a randomized trial comparing T-DM1 to TYKERB plus Xeloda so it is targeting second-line treatment of HER2 positive metastatic breast cancer. The trial will enroll 580 patients across 260 centers on a global basis. Roche has indicated they expect to file for T-DM1 in Europe in 2012.

T-DM1 is also being assessed as a first-line treatment for HER2 positive metastatic breast cancer in a Phase II study. This study compares T-DM1 head-to-head with Herceptin plus Taxatier in a 120 patient multi-national trial that includes U.S. centers. This trial began last summer in July.

We expect the clinical program for T-DM1 will continue to expand. There is a trial assessing T-DM1 used in combination with Genentech’s Pertuzumab that is scheduled to start this quarter, this trial is now up on clintrials.gov.

Further Genentech has indicated they are looking at testing T-DM1 in the [AGIMEN] study which is another important market. And while there are direct opportunities for T-DM1 to expand, there are also opportunities for Herceptin to continue to expand, which could potentially increase the potential for T-DM.

Recently Roche reported that Herceptin has been found to provide a significant survival benefit in advanced HER2 positive gastric cancer. The results from this Phase III study referred to as ToGA will be presented at ASCO. Roche has indicated that they plan to file for approval of this indication in Europe later this year.

At the same time Herceptin sales continue to grow. Reports for the first quarter were $1.3 billion Swiss franks of Herceptin sales which equates to about $1.1 billion and in constant currency that is about 11% over the same period last year.

In terms of upcoming T-DM1 data presentations at ASCO the final results from the Second-Line Plus Phase II trial, this is the trail that initiated in July of 2007, will be in a poster presentation at ASCO on May 30, plus an oral discussion session. This focuses on patients with HER2 positive metastatic breast cancer that progressed on Herceptin plus chemotherapy, many of whom also progressed on TYKERB plus Xeloda and its filed interim interest findings that were presented at the San Antonio Breast Cancer Symposium in December.

Additionally there will be an oral presentation on assessment of HER2 status and correlations with T-DM1 efficacy on Monday June 1.

Turning now to IMGN901, here as we have discussed, we have implanted a gated development program with clear advancement criteria in both multiple myeloma and solid tumors. In multiple myeloma the monotherapy study we are seeing encouraging findings in patients whose disease progressed on numerous prior agents. Many of these patients remained on IMGN901 longer than on some or all of the agents used earlier in the course of their disease and more of this will be reported at a medical meeting later this year, most likely at ASH. We are now seeing the toxicity that will halt further dose escalation. This is a key step to establishing the MTD. We expect to report the findings from the dose escalation phase at ASH in December, so I have to hold off at this point in providing further details at this time.

We will be dosing the cohort of patients at the dose below the intolerable dose to establish the MTD. We will then dose additional patients at the MTD to gain more information on IMGN901 when used as a single agent to treat relapsed CD56 positive multiple myeloma. At the same time we will be bringing on sites in Argentina to advance this trial without competing for patients with our pending combination study.

Now on that combination study, the completion of dose escalation in the monotherapy trial keeps us on track to start our combination trial this summer, most likely in the August/September time frame. If you recall, this is a study that will look at IMGN901 in combination with Revlimid plus low does Dexamethasone. We recently presented at the ACR show that this is a highly effective combination in preclinical studies, so we are very encouraged and looking forward to getting this combination study started.

For CD56 positive solid tumors we continue to dose escalate in our Phase I trial, although we believe we are also getting close to establishing the MTD here. We would expect to report data here in the fourth quarter of this year. Initiation of further trials in solid tumors will depend on the findings from this trial as well as what we find out of the multiple myeloma studies.

For IMGN242 which is in Phase II testing for gastric cancer, the abstract related to ASCO will be published as is, so we won’t be able to update with findings since January 2009, although we plan to present updated findings at a medical conference in the fourth quarter of this year.

At the time it occurs, we’ll announce that if we’ve seen the activity needed to expand the study, or whether it’s being discontinued. Now, I should say that enrollment is slower than we anticipated. A principle reason here is patient status, as we bring patients into this study generally when they are in a stage of advanced disease and often not healthy enough to participate in the trial, so it certainly has been an obstacle.

With respect to other clinical compounds we are making good progress with our IMGN388. That is now in the fourth dose escalation cohort. For SAR3419 BTO62, and BIIB015 there is also solid progress by sanofi-aventis, Biogen Idec and Biotest, respectively. We would expect the first finding from most, if not all, of these compounds to be in the fourth quarter of this year.

For AVE1642, this a naked-antibody that binds to the IGF1 receptor, it has been in Phase I and Phase II clinical testing for the treatment of solid tumors. As they announced yesterday, sanofi-aventis did an extensive review of its product pipeline and out of that they discontinued 14 clinical stage compounds from their pipeline, as well as an undisclosed number of pre-clinical compounds. The only compound discontinue related to us was AB1642. All of the other programs we have with them, SER3419, which is a conjugate program DS6 which is a pre-clinical conjugate program and the CE38 targeted naked antibody plus other earlier stage compounds remain active.

As you know, the number of companies that now have an IGF1 receptor targeting compound in the clinic, a number now have one in the clinic and sanofi was not among the first getting into the clinics, so that may have had some bearing on their decision to discontinue that particular program.

The rights for this IGF1 receptor have been returned to us. We would not expect to develop this molecule on our own, although its breadth of application and strong early clinical data suggest it might be of interest to a third party and that is something that we will explore.

Sanofi’s tightening of their pipeline underscores they’re working to become more focused with a greater sense of urgency and that actually could benefit us in terms of how aggressively {1:3:22] our 3419 and the other earlier stage pipeline programs that they have.

Let me pause now and turn it over to Greg who can review our financial results through March.

Greg Perry

Thanks, Dan. I will now take you through the highlights of our financials which are discussed in greater detail in today’s release.

Our revenues in the third quarter of this fiscal year were $8.2 million compared to $14.6 million for the same quarter last year. In the current period we recorded higher revenue from license and milestone fees than we did in the same quarter of last year, reflecting the richer milestones we received as products advanced.

Revenue for the quarter current period includes a $6.5 million milestone payment we earned from Genentech, with the start of TDM1 Phase III testing: while the revenue for the prior year period contains several smaller milestones.

Research and development support revenue was lower in the current quarter than in the prior year period reflecting the completion of the committed funding portion of our collaboration with sanofi-aventis. We still receive funding from sanofi-aventis for research conducted on their behalf as we do with other of our partners.

Clinical material reimbursement revenue also was lower in the current quarter than in the prior year period and was lower than recent trends principally because our more advanced partners have transitioned to alternative sources for component materials and/or manufacturing\, as they consider commercial scale quantities.

We shipped some batches during third quarter fiscal 2009, but due to timing of their acceptance by partners, we weren’t able to recognize the revenue in the third quarter.

Our operating expenses in the third quarter of this fiscal year were $12.7 million, compared to $28.0 million in the same quarter last year. As a result our loss from operations was markedly lower in the current period than in the same period last year, $4.5 million compared with $13.4 million in fiscal year 2008.

The biggest change was in R&D expenses which were $9.5 million, in the current period compared with $23.3 million in the prior year period. This difference was primarily due to decreased antibody development and supply costs, reduced costs of clinical materials reimbursed and greater overhead utilization in the current period compared with the prior period, partially offset by increased salaries and related expenses into increased clinical trial costs with our clinical progress.

Our net loss was $4.6 million or $0.09 per share for the third quarter of fiscal 2009 compared with $12.8 million or $0.30 per share in the same quarter in fiscal 2008.

As Dan noted we have received close to $20 million in up front and milestone payments from our partners though March of this fiscal year. These payments reflect the strength of our business model. These payments, combined with our capital control of expenses resulted in our cash used in operations being a modest $3 million for the nine months ended March 31, 2009. Consistent with this modest burn as of March 31, 2009 we had approximately $43.4 million in cash and marketable securities compared with $47.9 million as of June 30, 2008. We had not debt in either period, nor did we do a financing.

We expect that our financials for this entire fiscal year will wind up better than we previously projected. We now expect our net loss will be between $31 and $33 million for the fiscal 2009 compared to our previous guidance of $34 to $37 million.

We expect our cash used in operations to be between $12 to$14 million, compared with our previous guidance of $16 to $19 million. Given that our cash used in operations was approximately $3 million for the first three quarters of the year, it does mean that we expect this to be in the $9 to $11 million range for the fourth quarter. The higher anticipated fourth quarter cash utilization reflects that the payments we receive and the payment of certain expenses can vary quite a bit quarter-to-quarter.

We continue to expect our capital expenditures to be approximately $2 million, so we expect to end this fiscal year with between $31 and $33 million in cash and marketable securities. Our modest projected cash use for fiscal 2009 reflects that as committed research support funding from sanofi-aventis came to its planned conclusion, we were able to limit our net cash use through an increased upfront and milestone payments from new and existing partners a testament to the power of our business model. We combine this with aggressive management of expenses. We continue to focus on building value in our product programs and technology, supporting our collaborators, and expanding our partnerships. Dan?

Dan Junius

Thank you, Greg. Let me now provide an update for you on anticipated events for the balance of this calendar year.

In terms of clinical data presentations at ASCO we will see the IMGN242 abstract we’ll have the findings as of January 2009 and our Phase II gastric cancer trial and the T-DM1 final results from the Second Line Plus Phase II trial.

At EORTC in November we should see more IMGN242 data from the gastric study, as well as data on CD56 positive solid tumors with IMGN901. We also should have the opportunity to see our first clinical data on IMGN388. Then following at ASH in December we should see the findings for IMGN901 as a single agent in relapsed multiple myeloma, including results from the dose escalation and expansion phases of the study.

We also should get our first look at clinical data on SAR3419 and potentially the first look at clinical data on BTO62.

For T-DM1 there is the potential for additional data presentations during 2009. Those could be at ASCO Breast Cancer Conference in the fall or the San Antonio Breast Cancer Symposium later in the year. We don’t know about those.

While I am on the topic of data presentations, we also expect interest in pre-clinical data presentations over the course of the year, including on our IMGN class of cell killing agent later this year.

For study initiations we would expect T-DM1 plus Pertuzumab in this current quarter, the second quarter of 2009 and the IMGN901 combination study in multiple myeloma in the third quarter of 20009.

We are also will come to the point of expanding or terminating our IMGN242 gastric study based on what data is developed there.

Finally in terms of business development, that can come from a number of potential sources. New licenses to our TAP technology by new or existing partners, that can be product licenses; it can be other types of partnerships.

We continue to see solid interest from a number of parties and I would expect us to have some announcements over the course of the year, but it is just difficult to be more specific. We are very encouraged in that area, but being specific is both difficult and probably inappropriate.

With that, let me turn it over to Carol so we can start the Q&A.

Carol Hausner

Thanks, Dan. We are about to open the call to questions. Before we do, I would like to ask people to limit themselves to one to two questions until everyone has had a chance to ask questions and then of course we will certainly allow people who were cut short to come back in the queue again and ask additional questions. Operator, we are now ready to open the line to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Joel Sendek with Lazard Capital Markets.

Joel Sendek - Lazard Capital Markets

Given the fact that the agiment data for colon for Avastin didn’t work and you have a program moving forward with DM1 and agiment breast, I am wondering if that strategy might be accelerated at all on the part of Roche.

Dan Junius

I think you are probably asking the wrong audience, Joel. I mean possibly yes, but that is one that they are going to have to determine and we’re probably at least one or two derivates away. I think you have to first see what the efficacy is and we’ll find out about that at ASCO.

You were talking about the colon study, find out what’s going on there before they can then determine whether they want to pursue T-DM1 in colon cancer.

Joel Sendek - Lazard Capital Markets

Okay, so maybe just too early to get that. Could you update us on what the prospects are, if you know of any change in the prospects with T-DM1 in the agiment setting?

Dan Junius

As soon as we know and we’re allowed to say, you can count on us telling you. What we know thus far in terms of T-DM1 in the agiment setting for breast cancer is what was announced by Genentech and Roche at the first quarter update. That they are encouraged and they will be looking at it in the agiment setting and that really is as much as we know.

Joel Sendek - Lazard Capital Markets

Okay, thanks a lot.

Operator

Your next question comes from Pamela Bassett with Cantor Fitzgerald.

Pamela Bassett - Cantor Fitzgerald

I wonder if you could just review again why the financial outlook looks better for fiscal year end?

Greg Perry

Over the last couple of quarters, I think, what you continue to see is a continued aggressive management of expenses and we’ve continued to out perform a bit in terms of milestones that we’re recorded. I think those have been the two drivers, as I look out over the last couple of quarters versus our previous guidance. So, we continue to expect to see that and that is reflected in these numbers here.

Dan Junius

Just to add to that, I find that to be a very encouraging development and a real endorsement of the business model. The company has its cash burn at a very low level for several years and in great part due to the money that we were taking in for signori for development. Now as we see that declining, we had indicated and directed the market to expect less in fiscal 2009 and it will be at a lower level from sanofi in 2010. To see the advancement of other programs bringing in additional cash to compensate for that I think speaks to the validity of the business model and I think is very encouraging to us going forward.

Pamela Bassett - Cantor Fitzgerald

Okay so from the last call there has been an increase then, in expectation of what you’re receiving from other partners plus reduction in costs? Do I understand that correctly?

Greg Perry

Yes, principally we are seeing again lower expense run rates here.

Pamela Bassett - Cantor Fitzgerald

And are you including any additional licensing deals or product deals in your forecast through the end of this fiscal year?

Dan Junius

That is something we wouldn’t disclose. We look at a lot of different variables, Pamela, but I don’t think we’d want to say whether we have included anything additionally in terms of deals in our outlook.

I would say, when we give our guidance historically, we give our annual guidance, we are including some expectation around deals that might come in, or milestones that would be achieved and while it wouldn’t be visible externally, I can tell you that our track record is very good and realizing at least whatever it is that we forecast.

So, we don’t want to get into the details of what’s embedded in our forecast for the rest of the year, but generally speaking, if you’re concerned about sort of the risk of the forecast, we generally don’t put things in that we’re not very comfortable with.

Pamela Bassett - Cantor Fitzgerald

No, I mean, while these continual improvements all sound good. Okay thanks very much and congratulations on all the progress.

Operator

Your next question comes from Shiv Kapoor with Morgan Joseph.

Shiv Kapoor - Morgan Joseph

My first question is on R&D expenses. They seem to be coming down drastically quarter-over-quarter. I would like to know what the current compositions of R&D expenses are. Where they are mostly coming from and is this a good expense rate to assume going forward?

Greg Perry

I would say, again, without getting to specific in terms of fourth quarter guidance, but I think that we do have certain lumpiness, if you will, to certain of the expenses that we record. A good part of our research expenses are going to be focused on head count driven, but of course there is a development component which can certainly bring in third-party purchases as well.

I guess the best way to answer your question is there continues to be the opportunity for lumpiness, depending on what is happening in clinical trials, for example, and certain other expenses that tend to be lumpy. I think we’re achieving a pretty steady state of expense here in the third quarter.

Dan Junius

Be careful, the contrast between last year and this year, as you point out is dramatic. If we go back and look at the information from last year, it was distorted because we had some things going on around securing cytotoxic material. Some of which we retained and because of our inventory policy we actually reserved in the third quarter of last year. That was in the neighborhood of $4 million. We also supplied material to a third party and that was another significant amount. The total of those two got you up to almost $10 million, and that was a real distortion in that particular quarter.

Now, what we supplied to a party we also received revenue for, but we will focus in on the research expenses, that encompassed those two elements.

Shiv Kapoor - Morgan Joseph

Okay, my second question is on IMGN242. It looks like that sanofi is not developing that going forward, but it is also put together that you will not be developing it. I just want to confirm that sanofi has actually returned all rights. Do you owe anything to sanofi if you decide to part on this drug in the future and does sanofi retain any rights?

Dan Junius

They do not retain any rights. I mean there are some nuances to the agreement were we to partner it. I am not going to go into that, but for a third parties understanding, we would not owe anything; they would not share in any revenue we were to generate were we to partner this to a third party.

It is disappointing to see them drop it. I can understand why they dropped it. We think that it was actually a very competitive molecule in this space, but it is also a pretty crowded space and I think that sort of explains why they ended up where they did.

Shiv Kapoor - Morgan Joseph

Sure, thanks.

Operator

Your next question comes from Jason Kantor - RBC Capital Markets

Jason Kantor - RBC Capital Markets

On the IGF antibody, it is competitive. There are a lot of molecules out there, but nothing has actually emerged with an obviously active agent. So, I am wondering why they would throw in the towel so soon to understanding the competitive nature of that drug.

Second, on the CD19 program did you say that data is going to be at ASH or at ASCO?

Dan Junius

If I said ASCO I misspoke. The CD19 information would be at ASH.

On the IGF1, it is hard to get into their heads to understand that. I feel kind of funny saying this, Jason, but you’ve got a new CEO in who is trying to change some direction and decided that he was going to be very aggressive in looking at their various programs and where they thought they could be. Where they thought they had science that was competitive or compelling and also commercially looking at programs and what value would be generated out of those programs. I don’t know what metrics they had. I know that the references that I’ve heard from sanofi indicated it was both internal as well as external resources that helped with this assessment and you are right, no one has differentiated themselves in that particular space. But, I think as sanofi evaluated the field, I believe they felt that they were in a place that it was going to be difficult to distinguish themselves and even if they did there would be a lot of competition in there.

Jason Kantor - RBC Capital Markets

Okay and then can you say whether or not you had the one response you were looking for in the gastric study?

Dan Junius

I can say we have not and I think as I noted in the prepared comments, but just to reiterate, when we either see that response or reach the determination that we’re not going to continue the study, we will make that announcement, and so we don’t have that announcement to make at this point.

Jason Kantor - RBC Capital Markets

Great, thank you.

Operator

There are no further questions at this time. I would like to turn the conference back to Miss Hausner for any closing remarks.

Carol Hausner

Great, thank you very much for your interest. If you have additional questions we encourage you to call at 781-895-0600 and have a good evening. Take care.

Operator

Thank you everyone. That concludes today’s conference. We thank you for your participation.

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