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Call Start: 08:00

Call End: 09:09

Immunogen (IMGN)

Q1 2014 Earnings Conference Call

October 25, 2013 / 8:00 a.m. E.T.

Executives

Carol Hausner – Executive. Director, IR and Corporate Communications

Dan Junius – President & CEO

Charlie Morris – Chief Development Officer

John Lambert – Chief Scientific Officer

Analysts

Simos Simeonidis – Cowen and Company

Adnan Butt – RBC Capital Markets

Joel Sendek – Stifel Nicolaus & Company

Yigal Nochomovitz – Morgan Stanley

Cory Kasimov – JPMorgan Chase & Co.

Jason Kantor – Credit Suisse

Mara Goldstein – Cantor Fitzgerald

Thomas Wei – Jefferies & Company

Michael Schmidt – Leerink Swann

Bert Hazlett – Roth Capital Partners

Richard Resnick – William Blair & Company

Operator

Good day and welcome to this ImmunoGen First Quarter Fiscal Year 2014 Financial Results Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to the Executive Director, Investor Relations and Corporate Communications, Carol Hausner. Please go ahead.

Carol Hausner

Thank you. Good morning. At 6.30 this morning, we issued a press release that summarizes our financial results for our quarter ended September 30, 2013, which is the first quarter of our 2014 fiscal year. I hope you've all had a chance to review it. If not, it's available on our website.

During today's call, we will make forward-looking statements. Our actual results may differ materially from such statements and 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.

In our call today, our Chief Executive Officer, Dan Junius, will provide an update on ImmunoGen, discuss our financial results, including our updated guidance, and go through our anticipated events. Dr. Charlie Morris, our Chief Development Officer, will discuss our wholly owned product candidates. After our prepared remarks, we'll open the call for questions. Our Chief Scientific Officer, Dr. John Lambert, is here with us for the Q&A part of the call. Dan?

Dan Junius

Thank you, Carol, and good morning, everybody. The last three months have been quite active, both with our own portfolio and our technology, as well as that of our partners, so it's exciting to be able to bring that all together and talk to you about it this morning. On the proprietary front, we're advancing four wholly owned clinical stage compounds. As Carol noted, Charlie will bring you up to speed on what's taking place there.

We also continued to augment our extensive ADC technology portfolio. Just this past week, we reported on a new family of payload agents that we called IGNs, as well as another new linker that we've added to our portfolio to use, potentially in future compounds.

At the same time, there's been extended clinical data coming out to support our flagship maytansinoid-based platform. Within the last couple of months, we've seen additional clinical data on this technology with Kadcyla, as well as with a compound from Sanofi, SAR 566658, and I'll talk more about those, later. Let me start by talking about Kadcyla, where over the last couple of months, we've heard more about sales, we've seen some additional data that's been published, there have been approvals in a number of jurisdictions, as well as more information on study plans that are coming up.

Starting with sales, they're developing nicely in the US. Recall that approval and launch took place in February of this year. As of September 30, Roche reported year-to-date sales in the US of CHF152 million or approximately $164 million. When they provided that update in their quarterly call, they noted that penetration in the second and third line metastatic patients, which represents the label for Kadcyla, is above 40% and they viewed it to be continuing to penetrate well. We found that to be quite encouraging.

This could benefit, to some extent, some data that was recently reported at the European Cancer Conference on the TH3RESA trial. This was a trial for patients with HER2-positive metastatic breast cancer who'd been previously treated with two HER2-targeted agents, Herceptin and Tykerb and with a taxane. The study was a randomized study, 2 to 1, to treatment with Kadcyla as monotherapy or physician's choice.

What the data showed is what we've seen in other studies. Kadcyla was found to significantly extend duration of progression-free survival. It roughly doubled it, taking it from 3.3 months to 6.2 months. This doesn't offer an opportunity to extend the label because as I noted, these are patients that were already covered under the existing label, but it is the third controlled clinical study in which Kadcyla has shown marked benefit over the current standard of care. It does provide additional support for that current label, as well as probably providing some talking points for the Roche sales force as they try to educate physicians on the possible benefit from use of Kadcyla.

On the approval front, approvals continue around the world with more expected. On September 20, we learned that the Japanese regulatory authorities had approved Kadcyla for use in Japan. Approvals are coming through in other jurisdictions. Also on September 20, we learned about a positive opinion from CHMP in Europe. That puts Kadcyla on track for approval in the later part of November in Europe. With the two approvals, US and Japan, and the recommendation in Europe, Kadcyla is on a very clear track for approval in the three largest pharmaceutical markets.

While all this is taking place, development continues for other indications. Roche, in an update on October 1, noted their plans for use of Kadcyla in the adjuvant setting. This came on the back of approval for Perjeta, for that same patient population for neoadjuvant use, but it was using the endpoint of pathological complete response. On the basis of that, Roche indicated that they plan to start a trial in the second quarter of 2014 assessing Kadcyla for neoadjuvant use with patients with HER2-positive breast cancer. Using that same endpoint, pathological complete response, they would expect to have that data by late 2015. They're already assessing Kadcyla for residual invasive disease in the KATHERINE study. As we know, they're looking at it for first line use in HER2-positive metastatic breast cancer in the MARIANNE study.

Again, that data is expected in late 2014. It's a function of events since the study is completely enrolled. The indication from Roche is they just need the number of events to allow them to accumulate the data and prepare it for the regulators. Filing is expected in 2015. 2015 would also be the time when we would expect them to file for advanced HER2-positive gastric cancer. There's a study underway, the GATSBY trial that would support that filing.

I'll come back to the other partner programs in a minute, but now let me turn it over to Charlie to talk about our wholly owned clinical stage compounds. Charlie?

Charlie Morris

Thank you, Dan, and good morning, everybody. First of all, I'd like to turn to IMGN901.

901, as you know, is our CD56 targeting ADC that's in Phase II testing for the first line treatment of small cell lung cancer. The ongoing trial assesses issues in combination with Etoposide plus Carboplatin administered at standard doses. With 90 patients, we randomized treatment with 901 plus Etoposide carbo and 45 patients to the standard treatment arm alone. We're pleased to report that we completed patient enrollment in this trial in late September, which is ahead of our original schedule. This achievement means that we'll have at least six months of follow up for all patients by the end of March; keeping us on track for making our next step decision for 901 by the middle of 2014.

As we've noted before, we plan to report our decision and the top line information driving it when it's made. We plan to submit an abstract to ASCO with the findings in the original set of patients, that is, those randomized to start at 112 milligram per meter squared. This will enable us to report those data and any additional results that we have at the time of the ASCO meeting. Most likely, we won't have the full results at that time, so they'll be reported subsequently during 2014. But as we noted, the top-line information will, of course, be announced by the end of June.

Next, onto IMGN853, as a reminder, this is our ADC to target the folate receptor alpha. The folate receptor is expressed in a number of key tumor types including ovarian cancer, endometrial cancer, and some adenocarcinomas of the lungs.

There are also literature reports we're currently working to validate that the target is expressed on some breast cancers, including cases of triple negative breast cancer. At ASCO, in June of this year, we presented data looking at the initial safety and efficacy findings during our dose escalation in Phase I.

You will recall that we had seen clinical activity in ovarian and endometrial cancer patients at doses of 3.3 milligram per kilogram and higher and that we had established that the dose-emitting toxicity for the three weekly schedule was also related, characterized by reversible corneal changes and blurred vision; a finding that has now been seen with a number of ADCs, whether using our technology or others', as well as with abraxane.

We've obtained further clinical experience at both the 3.3 and 5 milligram per kilo gram doses and we remain encouraged by the clinical activity we're seeing. We believe that, with these data, we now have very good understanding of the relationship between the pharmacokinetics of 853 and the occurrence of toxicity. As a result, we're undertaking some steps that we believe will enable us to optimize our exposure to patients while minimizing toxicity.

In particular, we're going to change how we use patient size for dose calculation. Our current approach has been to use the milligram per kilogram of actual body weight, but when you do this, results may differ. For example, if you take a 5' 5" individual who is heavy and a 5' 5" individual who's lean, they will get very different doses.

However, those patients don't actually differ all that much in the distribution of the drug, though the heavier individual will experience higher exposure and so get greater risk of adverse effects. Based on some detailed PK modeling, we believe that switching to calculating the dose based on something called adjusted ideal body weight should result in less variability in PK and so less likely to have higher exposures that have been associated with ocular findings. Therefore, we will shortly begin using a cohort based on the adjusted ideal body weight calculation.

Assuming the findings are as anticipated, we will then move into the expansion phase using this approach to dosing in early 2014, beginning with assessment of 853, specifically in patients with platinum-resistant ovarian cancer and those with previously treated endometrial cancer. As Phase 1 is the best time to determine the optimum dosing schedule, we also plan to assess an alternative schedule while we're in the expansion phase with the three weekly schedule.

This is just as with Kadcyla, you'll remember. Again, based on our analysis of PK data, we plan to assess 853 administered weekly for three weeks on a four-week schedule and that will also begin early in 2014, and we will continue to explore efficacy on the three weekly schedule in parallel. We expect to be able to begin assessment of 853, specifically for ovarian and endometrial cancer, early in 2014 and the alternative dosing schedule at that time. We believe we will be able to report data, at least initial disease-specific data, at ASCO 2014.

Turning now to IMGN529 this is our CD37 targeting ADC for the treatment of B-cell malignancies. This is in the dose finding portion of a Phase I trial for non-Hodgkin's lymphoma. We noted on our quarterly call in August that we had seen adverse events with 529 at lower than expected doses and that we'd also seen initial signs of activity at lower than expected doses. Since that time, the evidence of activities has become stronger. We've also established a hypothesis for the reason for the adverse events that we've seen and we've developed a plan for moving forward. We continue to expect to report the first clinical data of 529 in 2014 and also to advance it into assessment in specific patient populations.

Finally, on to IMGN289, our fourth wholly owned clinical stage product candidate. There's a lot of excitement around this compound. As you recall, it's an EGFR-targeting ADC that contains an active antibody, which is a potential treatment for cancers that highly express EGFR, including squamous cell carcinoma of the head and neck and squamous cell carcinoma of the lungs. 289 has shown pre-clinical activity against EGFR-positive cancers responsive to EGFR inhibition and those that have been refractory to it.

This IND is now active. Patient screening has begun and so 289 remains on track to start clinical testing this year. There's a possibility we'll report the first clinical data with 289 in 2014, but right now it's too soon to know. With that, I'll hand it back to you, Dan.

Dan Junius

Thank you, Charlie. As you can hear, there's a considerable amount going on with the proprietary portfolio. It's pointing to a very busy year for us in 2014 in terms of having what we expect to be very important data to disclose and that's quite exciting from our side.

Turning back to partners, we've already discussed Kadcyla, but our other partners have also been very active. I think some of this progress can be overlooked. Let me walk you through what's been taking place on the partner front. I'll start with Sanofi.

Sanofi has three compounds in the clinic and recall, these go back to our collaboration where we did significant research work to develop compounds; some developed by us, some that were target-selected by them. At this point they have two ADCs in the clinic, as well as a naked antibody, which targets CD38. Data on all three is being reported over the course of the quarter. One of them actually has already reported, so let me start there.

For SAR566658, this is an ADC that targets CA6. Again, this is a compound that was created by ImmunoGen that Sanofi licensed from us. The target itself is found on ovarian, breast, and other epithelial cancers. As I noted, the first data was reported, it was this past weekend at the AACR-NCI-EORTC conference. It was from the Phase I portion or dose finding portion of study.

Recall, this is where you take a compound and dose escalate it until side effects surface and then drop back to identify what would be the maximum tolerated dose. Through the course of this Phase I, Sanofi determined that 240 milligrams per meter squared is roughly 6.5 milligrams per kilogram is the intolerable dose when administered once every three weeks. They have taken 190 milligrams per meter squared or again, roughly 5.1 milligrams per kilogram into the expansion cohort. For the time being, we'll assume that is the maximum tolerated dose. Just a footnote, this is well above the dose they're using in the expansion cohort is well above intolerable dose of Kadcyla, which was 4.8 milligrams per kilogram. I think, sometimes, that's a useful reference.

While this was a study with a growth of a heterogeneous patient population, different cancer types, different expression levels, exposures to prior therapies, they did see some very interesting activities. Among the 20 patients who received doses of 120 milligrams per meter squared or more, they had two partial responses, two unconfirmed partial responses, and nine patients with stable disease. Off of that, they've moved it in the expansion phase where they will learn more about the safety of the compound, as well as try to refine the information around efficacy and try to get a better understanding around where they want to focus in development of this compound.

The second Sanofi compound, and their most advanced, is SAR3419. This, again, is an ADC that targets CD19; also from ImmunoGen, it was part of ImmunoGen's preclinical pipeline at the time we did the deal with Sanofi. Right now, it's in Phase II testing for diffused large B-cell lymphoma; both as monotherapy and in combination with Rituxan.

It's also in Phase II testing for acute lymphocytic leukemia. Data on one of these trials is expected at ASH in December. That'll be identified once the abstracts become public on November 7. The final Sanofi compound in the clinic, SAR650984, as I noted, is a naked antibody. This targets CD38. There's quite a bit of interest in this particular target and antibodies targeting CD38, in part because both J&J and Celgene end license compounds going after this particular target from Genmab and MorphoSys, respectively.

The antibody we have, we think, is distinct from the other two programs. It has a direct apototic effect, as opposed to the other having enhanced CDC or a modified FC for enhanced ADCC. We're quite excited about it. We think Sanofi is excited about it. We'll all learn more as they disclose their data at ASH in December. Recall also that Sanofi does have rights to additional targets. These are in earlier stages of development.

The next partner I want to talk about is Biotest.

Biotest has an ADC that targets CD138 that's in the clinic for multiple myeloma. They have already presented data looking at BT062 as monotherapy. They will be presenting, in an oral presentation at ASH, data from a trial looking at BT062 in combination with Revlimid and dexamethasone. Recall, we've talked about this target. It's also expressed on solid tumors, including triple negative breast cancer. Beyond the monotherapy study and the combination study and the multiple myeloma, Biotest is also moving forward with plans to assess BT062 in solid tumor indications. One item to note here is we do have an opt-in in the US on this particular compound. It would allow us to, for an opt-in fee, to share costs and profits for US development and commercialization on a 50/50 basis with Biotest.

Bayer would be the next partner. They have an ADC targeting mesothelin, this is in Phase I testing. They reported their first clinical data at AACR just earlier this year. This is now in the expansion phase for mesothelioma and ovarian cancer and we would expect to hear more on this compound over the course of 2014. For Amgen, they have two ADCs in clinical testing – AMG 595 targets the variant III EGFR, that's expressed on glioblastoma. This is in a Phase I study.

AMG 172 targets CD70 that would be for clear cell renal cell carcinoma. Studies for both of these compounds began in the first half of 2012. That lends itself to the possibility of data disclosures next year, but we'll have to see on that. Recall Amgen took two additional licenses over the past year. They have no further rights to take licenses to our technology.

Lastly, Novartis and Lilly – these are, certainly, our most recent partnerships. We think both are making good progress. We've recently announced activity there in terms of licenses. Novartis has now taken two licenses under the multi-target arrangement that's in place. Lilly has taken one. As I say, I think both are making good progress.

As we step back and look across the partnership portfolio in aggregate, I think there are multiple opportunities for clinical data presentations beyond the ones that we've noted coming up over the balance of 2014. We would expect to see IND submissions for one or more compounds over the course of 2014. There's always the opportunity for expansion and advancement of this partner product pipeline, as data is developed by partners and they look at how they want to choose to advance their compounds.

With that, let me turn to the financial results for the quarter. As you would have seen in the press release, we announced a net loss of $11.2 million for the quarter ended this last September 30; that equates to $0.13 per share. That compares with a $25.2 million loss in the first quarter a year ago or $0.30 per share.

The driver here in the net loss reduction is revenue. Revenue for the quarter was $17.2 million in fiscal 2014 compared to $4.1 million a year ago. I think you'll see from the breakout what the drivers were.

Our license and milestone fees were $13.2 million this year. That compares with just under $1 million in fiscal 2013. Two meaningful components here – we recognized $7.8 million of upfront license fees from Lilly, due to Lilly taking a development and commercialization license in August of this year. We also recognized a $5 million milestone payment from Roche, which was earned on the approval of Kadcyla in Japan just this past September, so last month.

The other element was royalties. We recorded royalties of $2.1 million in this September's quarter on the Kadcyla sales for their three-month period ending June 30, 2013. There were no royalties recognized in the year-ago period. Other revenue elements, we recognized research and development, or we earned, I should say, research and development support fees and this past quarter it was $2 million and the year-ago period it was $1.4 million.

We also earn revenue when we sell materials produced on behalf of our partners. That was negligible in the quarter just ended compared to $1.8 million in the year-ago quarter. Recall that R&D support fees and clinical material revenues vary quarter by quarter, depending on work done to support our partners.

On the expense side, expenses were actually a touch lower at $28.6 million in the period ending September 30, 2013 compared to $29.3 million in the September 30, 2012 period. As you break that out, on the R&D front, we recorded expenses of $22 million in the just ended quarter compared to $23.7 million a year ago. This was from less costs being incurred to produce clinical materials for sale to our partners, as well as lower costs for third-party production of antibody for our own use for clinical materials. That was partly offset by increased personnel expenses.

On the G&A front, expenses were up somewhat at $6.5 million in the quarter just ended compared to $5.6 million a year ago. This represented increased personal expenses, which includes severance related to the departure of the former Chief Financial Officer. In terms of other financial metrics, our cash used in operations was up slightly. It was $23.6 million in the quarter just ended compared to $21 million a year ago. Our capital expenditures were down at about $600,000 versus $1 million in the year-ago period. All of this left us with an ending cash balance, as of September 30, of $174.8 million versus $195 million as of June 30, the end of our prior fiscal year.

With these results, we've updated our guidance for fiscal 2014. We now look for revenue to be between $71 million and $75 million. That's versus the prior guidance of $66 million to $70 million. This represents the $5 million milestone on the Kadcyla approval in Japan that had not been expected in the current fiscal year, so that allows us to increase our revenue expectations and that will cascade through the rest of the numbers.

Operating expenses are unchanged. Our expectation still is $140 million to $144 million in operating expenses. Our net losses reduced, we're now looking for $67 million to $ 71 million net loss compared to the prior guidance of $72 million to $76 million. Net cash used in operations benefits again from that milestone, we now are looking for $69 million to $73 million versus $74 million to $78 million.

Capital expenditures actually will go up modestly. Our original guidance had been $6 million to $8 million. We now think that will be more like $8 million to $10 million. We are in the process of negotiating a lease for additional office space and we have some work to do to modify that space that will drive capital expenditures. Finally, our cash balance, our prior guidance was $114 million to $118 million. That, again, reflecting the Kadcyla milestone for Japan is now $119 million to $123 million.

Before I turn it over to Carol to lead the Q and A, let me just walk through the events that we have coming up over the balance of this year and through 2014. Starting with partners, we look for Kadcyla approval in Europe in the current quarter, so sometime before the end of calendar 2013. We'll learn more about sales, as they develop on a quarterly basis, and that should be interesting to watch now that we have approval in Japan and pending approval in Europe. And for – the next major development event will be the MARIANNE study, where we'll hear first-line results late next year.

At ASH coming up in December, we'll see the Phase II data on SAR 3419 in one of their three studies that's underway. For the CD38-targeting antibody, we will see the first clinical data on that at ASH, and the first on the multiple myeloma combination data on the Biotest compound I referenced earlier. Going into 2014, we would look for clinical data on one or more compounds at both AACR and at ASCO and probably at other conferences, but we think that we're pretty confident we'll be seeing clinical data on partner compounds at both of those conferences. Finally, we would look for INDs and potentially pre-clinical data on one or more new compounds over the course of 2014.

For our own wholly owned compounds in small cell lung cancer with IMGN901, we now think we will have our first data at ASCO, as well as our next step decision on that particular compound still around the middle of 2014. And then a more comprehensive data set sometime in the second half of next year.

For IMGN853, in the first quarter of 2014, we would look to start some of the expansion cohorts for that compound and being successful in that would allow us to disclose some disease-specific data in the middle of 2014. For IMGN289, we look to dose our first patients sometime before the end of this calendar year and then potentially having some of our first clinical data over the course of 2014. IMGN529, we would look to publish our first clinical data over the course of 2014 and also begin expansion cohorts in that same time frame.

That's the update on ImmunoGen. Let me then turn it over to Carol and she can moderate the Q and A.

Carol Hausner

Great. Thanks, Dan. Operator, we are now ready to open the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we’ll pause for just a moment to allow everyone a chance to signal.

We’ll first go to Simos Simeonidis with Cowen and Company.

Simos Simeonidis – Cowen and Company

Good morning. Thank you for taking the questions.

The first one is on 901 and I'd like to ask whether there's going to be any interim looks that you might talk about or whether there's going to be any futility analysis in the trial or whether we're just going to hear an announcement of top line data or the ASCO presentation?

Charlie Morris

Yes. Hi, Simos. It's Charlie. Obviously, I think you know we have a data monitoring committee that we share data with for the study. I think we won't announce anything in between, though we will continue on a regular basis to ask the DMC to review those data. Each time, they are making a benefit risk assessment for us, and obviously, to date, they have advised to continue the study. There isn't a formal futility analysis, but there is that ongoing, if you like, review of the data by that group of experts.

Simos Simeonidis – Cowen and Company

Okay. And then, the second one is for you, Charlie. You spoke about the new way that you're considering doing the dosing for 853 and using the adjusted ideal body weight methodology for this drug. First of all, I assume that, since you're saying adjusted ideal body weight, I assume that means potentially giving patients less drug. That's the first question.

Secondly, is this something that if it, quote, works here, if you see that it makes sense for you to use here, is this something that you might use with other ADCs or other ADCs where you might have seen ocular toxicity, for example?

Charlie Morris

I think these are all really important questions. The adjusted ideal body weight is the formula out there, it's relatively simple to use. It will have different effects for different patients and that's why we believe we'll be able to use it to the narrow the range that we see, particularly in the early exposures the first 24 hours.

Hopefully, those patients who are perhaps a little overweight will – yes, their dose will come down a bit, but some of the lighter patients' dose may come up a bit. The idea is to get a flattening of the range so that we can keep people below what appears to be a level where ocular findings are more likely without under dosing patients from an efficacy point of view.

For the second part, obviously, we will explore our data for other compounds and if we see variability in exposure, we will ask the same kind of questions that we've asked of the pharmacokinetics of this one. Whether it's unique to 853 and the 853 antibody or whether we may expect it with others, we don't yet know. But obviously, given that the PK data look pretty interesting, obviously, we'll present more detail on this at a later clinical meeting. It's certainly something that we'll be bearing in mind as we go forward.

Simos Simeonidis – Cowen and Company

But if you, for example, were to look at the patients that you dosed in the first two cohorts going up from the 3.3 milligrams per kilogram to the 5 milligrams per kilogram or the 7 milligrams per kilogram in the 853 trial, if you were to recalculate those patients using the ideal body weight method, would you, on average, have given more or less drug, do you think?

Charlie Morris

It will – as I said, it will vary. For patients who are heavy for their height, it would bring the dose down. For those who are particularly lean, it will bring it up. For the average patient, it won't make a lot of difference, because obviously, hopefully, there's a lot of patients close-ish to their ideal body weight.

On average, it will probably bring it down a bit. For example, we're thinking about exploring a dose of 5 milligrams per kilogram of ideal body weight. We think that will average out somewhere between the 3.3 milligrams per kilogram and 5 milligrams per kilogram that we've been dosing out most recently.

Simos Simeonidis – Cowen and Company

Okay. Thank you very much.

Operator

Next with Adnan Butt with RBC Capital Markets.

Adnan Butt – RBC Capital Markets

Hey, good morning. Thanks for taking the question. First on 901, setting futility or efficacy aside, would the Company be able to provide any updates on tolerability or dose reductions as the study continues?

Charlie Morris

Yes. As we reported on the previous call, the rate that we have seen to date of peripheral neuropathy, particularly of the higher grades of peripheral neuropathy, since we made the dosing adjustments, does appear to be down. We're encouraged by what we're seeing. We are seeing the application of the rules that we've put in the protocol for dealing with this.

I cannot give you accurate information on whether patients are continuing for longer or having more dose interruptions at this point. Though, obviously, again, that's something that we would explore when we look at this with the data monitoring committee and something where we'll provide those data when we publish the data later.

Simos Simeonidis – Cowen and Company

Okay. And then, question on the partner programs, would you have any visibility on which programs might be advancing? Specifically on SAR 3419, that's a competitive target, would you know what the partner is looking for in terms of deciding whether to advance that or not?

Carol Hausner

Dan?

Dan Junius

Adnan, that’s – we don't like to get ahead of our partners and the intensity of dialogue with partners varies quite a bit. In some cases, we have some degree of clarity. In other cases, we're kind of reading the tea leaves. But I think it gets to be both a little bit dangerous for us to speculate, as well as, I think we would be compromising the relationship with our partners if we got into the position of either speculating or disclosing what their development plans might be.

Simos Simeonidis – Cowen and Company

Okay. Thanks, Dan. I’ll get back in line.

Dan Junius

Yes.

Operator

Next with Joel Sendek with Stifel.

Joel Sende – Stifel Nicolaus & Company

Hi. Thanks a lot. So, I just wanted to follow up on the adjusted ideal body weight. Different question, I haven't heard of this before. I'm wondering if this is common at all or validated or if you've talked to regulators about it or is it just that I've missed this? And then, I have a follow up. Thanks!

Charlie Morris

It's not common but it’s – it’s not common to dose by it, but I think what regulators are looking for, what physicians are looking for and our investigators certainly think, having seen the connecting data that we've put together, having seen the rationale behind this proposal, are very much on board with it. It's a standard calculation, which you can find quite readily.

It's going to provide a means of dosing with the intention of reducing variability, therefore reducing risk for toxicity, minimizing the risk from the treatment, which is obviously a key efficacy consideration. From a regulatory perspective, there's no reason to believe that would be a problematic thing to do. The decisions that we've made historically, whether it's with antibodies, ADCs, or chemotherapy, to use milligrams per meter squared or milligrams per kilogram have been somewhat empirical.

I think what we're actually doing is making really good use of the data that we've collected, modeled that data very thoroughly using a variety of calculations. That modeling really seems to suggest that this is going to be the best way for us to go. Now what we've got to do is prove it. Obviously, if it doesn't seem to make any greater difference in reality than milligrams per kilograms, then we'll go back to something more recognized, but I think in the first instance, we should be encouraged that this is really the right way to go.

Joel Sende – Stifel Nicolaus & Company

Okay. Thanks. Just a financial question with regard to the fee from Lilly, it says in the press release that the $7.8 million is amortization. Can you just remind us again what this fee was and how much was cash for this quarter? Thanks.

Dan Junius

There was – I think the answer to that is there was no cash in the quarter from Lilly. What that represents, Joel, is amortization of the upfront fee that was received from Lilly. The way the accounting goes for is it that you aggregate the fee when it's up-front and you defer that and you can bring that forward and recognize it as actual licenses are taken under the agreement.

So, it was a revenue item to us. It was non-cash item, which is why you get a little bit of the dissidence of seeing a significant increase in revenue and us moving our revenue number up, but you don't see the projected net cash used in operations shifting proportionately because that cash has already been received. What we received upfront from Lilly was $20 million for the access agreement, if you will. This is them now punching a ticket to use one of the licenses available to them under the access agreement.

Joel Sende – Stifel Nicolaus & Company

Understood. Okay. Thanks.

Dan Junius

Thanks.

Operator

Next, Yigal Nochomovitz with Morgan Stanley.

Yigal Nochomovitz – Morgan Stanley

Hi. Good morning. Thanks for taking the question. I have here on one 101 and 101 on 5 to 9. On 901, I'm curious, how comfortable are you going to be that you'll be able to make an informed note go/no-go decision based on PFS alone in mid-2014? Or it could possibly be the case that you'll need to wait for OS later in the year – later in 2014 before deciding how to proceed? And then, on 529, Charlie, you mentioned that you have a hypothesis for some of the adverse events you've seen, so I'd be curious if you could share any more details there. Thanks.

Charlie Morris

It’s – I'll take the second part first and if you don't mind, I'm going to say, no, I'm not going to share any more. I think the things that we need to do, we believe that we can introduce some measures intended for prophylaxis against some of the observations that we've made and once we have approval of that protocol amendment, we'll start to do that and report on that in a future meeting.

Going back to 901, I think we've always seen that, in a sense, as a two-step decision. There's decision to take those data of PFS, where they will be in the middle of the year, and make the decision around manufacturing, which obviously has to come first. While that is going on, there will be further maturing of the data with the overall, which will give us more mature PFS data, more mature overall survival data.

I think although, yes, there will be that first step decision which is saying, yes, we are intending to go forward. We are going to make that investment in that manufacturing piece. In the period of time that development of the materials is being finalized, there will be time to ensure that we are making the absolute right decision by continuing to monitor the data.

Yigal Nochomovitz – Morgan Stanley

Thanks. And, Dan, one question on the milestones for EU approvals for Kadcyla. Could you just give us a sense as to the magnitude of the milestones there for other countries besides Switzerland as they come in?

Dan Junius

Well, there’s – the only – the next milestone, which we've disclosed in the past, would be for approval in the EU and so, it comes in, in aggregate. EU approval would be a $5 million milestone.

Yigal Nochomovitz – Morgan Stanley

Okay. Thank you.

Dan Junius

Yes.

Operator

And next, we’ve got Cory Kasimov with JPMorgan.

Cory Kasimov – JPMorgan Chase & Co.

Hey. Good morning, guys. Thanks for taking the questions. I’ve two of them.

First, was for Charlie, I wanted to follow up on the last question on making this informed decision for 901 mid-next year. And I guess I'm wondering how much data you expect to have when you make that decision on next steps? Is there a particular number of PFS event that will trigger the analysis? What factors are you taking into consideration? Is this study sufficiently powered to go by a pure statistical review or are you looking more at just the imbalance of events or numeric superiority?

Charlie Morris

Yes. We have always said that we're going look at the PFS. PFS is the primary endpoint of the study. We're specifically following up for six months for a couple of reasons. The traditional median for these patients has been about 5.5 months. We, at least, want to get every patient past that hurdle. It also means that we can look at the rate of progression at six months and look for a numeric difference there that would drive that decision.

You always look at data holistically, but, yes, we have numbers in mind that we would say that's a definite no go, that's a definite go. Obviously, there's always areas in between where you have to make the most informed decision you can looking at the whole of the data, maybe taking opinions from opinion leaders’ supports as well. So, yes, we do have things in mind. But in anticipation of the next half of your question, I'm not going to tell what you they are.

Cory Kasimov – JPMorgan Chase & Co.

Okay. Thanks. Second question is for Dan, I'll let you put your CFO hat on here for a second.

Just from a modeling standpoint, wondering how we should be thinking about the distribution of R&D across quarters, given that this quarter seemed to be pretty low. I'm wondering if that's just a function of timing or if this quarter is a good run rate going forward.

Dan Junius

No, I think you have to look at – it does tend to be a little bit lumpy, as we noted. One of the brig variables that's here is when we secure antibody for our use. That comes in from third parties. Those are relatively expensive runs for us and as a result, I wouldn't look at this quarter as being a stable run rate. We've broken out operating expenses and given guidance on operating expenses.

I think you ought to take that into consideration. As you try to adjust based off the run rate for this quarter, frankly, from our standpoint, it tends to move around somewhat, so I can't even help that much on a quarter by quarter basis, because we can periodically, for our needs, move something with a third party forward. We can push it back and that's going to change timing.

Cory Kasimov – JPMorgan Chase & Co.

Okay, understandable. Thanks a lot.

Dan Junius

Yes.

Operator

The next one is Jason Cantor with Credit Suisse.

Jason Kantor – Credit Suisse

It’s Credit Suisse. Couple of questions. On the Biotest compound with your opt-in right, if they – first of all, what triggers your opt-in? If they seek a partner for that, does that at all impact the opt-in? On the new ideal weight base, the dosing for 853, could you tell us the observation you made that is leading you to this? Did you find some common feature in the patients that were having the toxicity that led you down the path?

Carol Hausner

Dan, you want to go first?

Dan Junius

Yes, yes. Let me cover the one with Biotest. But the way that one works, Jason, is that we have a couple of bites at the apple, if you will, of deciding whether we want to opt in or not. One of them has already passed. It was triggered by the end of the first Phase I study. We determined off of that there wasn't sufficient data that was off of a monotherapy study looking at multiple myeloma. The next would be triggered by the completion of a Phase II study. The triggering Phase II study has not yet been initiated.

We're watching the data closely. We have a good dialogue with Biotest. We'll see their combination data at ASH. I think I've referenced in earlier calls, we've seen, and their solid tumor date has been published, we think their solid tumor data is quite interesting, so we'll want to see how those Phase I's progress.

Hopefully, the data will be validated once they take into it the clinic for a solid tumor study and we think it just represents an interesting option for us. I think we've disclosed the amount for the opt-in with Biotest is a $15 million opt-in if we choose to come in after Phase II, but if their data are compelling, we think that represents a tremendous opportunity to pick up 50% access to the US market. Charlie, you want to talk a little bit more about adjusted ideal body weight?

Charlie Morris

I'll take the 853. And, yes, I don't want to over discuss because we will give out the full details at a later time. But I think there's two critical pieces to this. First of all, we've seen a pretty strong relationship between some of the PK parameters and the occurrence of ocular findings.

Obviously, one easy way to have less ocular findings, therefore, is to reduce dose. Then we also observed that using the milligram per kilogram dosing calculation that we were seeing more variability than we would have preferred so therefore, there's the risk of that. Some patient may be overdosed and get toxicity, some patients may be under dosed and miss out on efficacy.

What we did was model all the PK data, because if you think about it, the volume of distribution for most patients is very, very similar. That's going to be one of the key things that's going to determine the exposure. To be giving higher doses to heavier people who are the same height as lighter people doesn't really make sense for this type of product. We looked at number of things. We've thought, well, is it lean body weight, is it ideal body weight, is it milligrams per meters squared?

You look at all those parameters. The one which came out as saying, okay, the best way to have tight control based on the data that we have, modeling those data, the best one appears to be the adjusted ideal body weight. The next logical step is to test it. That's what we're going go ahead and do.

Jason Kantor – Credit Suisse

Okay. One last question if I may, on the peripheral neuropathy you've seen with 901. Have you done any more work to get to what you think is driving that? Is that target related to – is that constant related? What learnings do you have there?

Carol Hausner

John, do you want to comment on that?

John Lambert

I guess – we have done some work, but I think as you may recall, neuropathy with the dose limiting toxicity of this agent is a single agent. One likely possibility is that simply in the end, when you dose to intolerable dose, it's the amount of tubulin agent metabolite, which agent it's well-known that at intolerable doses or higher doses, neuropathy can occur.

Carol Hausner

Do you think it's linker related?

John Lambert

Oh, it does. I missed that piece of the question. I would say it's not linker related per se. I think it's the fact that it's the metabolite of the ADC, which, of course, means the link against process, but I think the processing of the ADC is by cellular uptake.

Jason Kantor – Credit Suisse

Thank you.

John Lambert

When I say the metabolite of a cellular update, remember that the half-life of this compound, as we established in the Phase I study, is relatively short, about a day and a half at the recommended Phase II dosing, which is short for an anti-body. It's actually partly because of the normal tissue uptake and metabolism which, of course, will release some payload systemically.

Jason Kantor – Credit Suisse

Thank you.

Operator

All right. Our next question comes from Mara Goldstein with Cantor Fitzgerald.

Mara Goldstein – Cantor Fitzgerald

Thank you very much for the question. On the Sanofi compounds where you have some data points coming up in the next year, can you remind us if you expect milestones from any of those data points?

Dan Junius

In terms of the data itself, data itself doesn't generate milestones. Generally, milestones are triggered by regulatory or development-related events. To the extent, data drives a development decision and it's acted on, that would trigger a milestone. But just simply data itself doesn't do that. There was a question earlier in terms of insight that we might have about development plans for compounds from various partners, as I said, that's something that we leave to the partners to discuss and announce.

Mara Goldstein – Cantor Fitzgerald

Right.

Dan Junius

Obviously, we'd be very excited to see progression, both for its own suggestion of progress with the compounds, but also, because those would tend to be generating milestones for us.

Mara Goldstein – Cantor Fitzgerald

Right. But should the decision he be made, let's say, to advance 3419 from a Phase II study to Phase III study, you would be due a milestone on such an occurrence?

Dan Junius

We would, yes.

Mara Goldstein – Cantor Fitzgerald

Okay. And if you don't mind me asking, is there any update on the CFO position?

Dan Junius

We've made some pretty good progress there. I've seen a number of candidates. Nothing to announce and once we have a candidate and have come to a closure, we'll make that announcement. But there certainly has been progress. I don't want to jinx anything and try to give you any timing window, but there has been progress.

Mara Goldstein – Cantor Fitzgerald

Okay. Thank you.

Operator

And we’ll now go to Thomas Wei with Jefferies.

Thomas Wei – Jefferies & Company

Thanks. I had a question on 901 and then one on 853.

On 901, given what you've put in your slides here that the overall survival would be expected to be in the nine month to 11 month range, in mid-2014, when you make the go/no-go decision, wouldn't a lot of the overall survival data also be mature at that point in time? What is your latest thinking if there is a progression-free survival benefit but the data are not really separating on overall survival?

Charlie Morris

I think in terms of the data, the maturity at that point, the most mature data, remember, will be for the 112 milligrams per meter squared. Yes, we will take a look at those data, but, obviously, given that the only dose that we would take forward to Phase III would be 90, I think it will be important that we continue to allow those data to be more mature for the 90 milligram per meter squared patients. For him to follow up would be a lot shorter than the 112. In terms of final decisions, we're going to make the assessment on the data at the time. Would we want to see separation of the curves for overall survival?

Yes, of course we would. But, as I said before, the actual decision in the middle of the year, in effect, is the decision to manufacturing. The decision to begin the study will have more data maturing along the way as well. I think we can state that appropriately and make informed decisions as we go.

Thomas Wei – Jefferies & Company

And on 853, you've talked a little bit about your PK modeling with the ocular toxicity. It sounds like we should think of this as a threshold toxicity. If you're above a certain dose exposure, you are at significantly elevated risk for ocular toxicity. It's not something that you view as a cumulative toxicity?

Charlie Morris

But based on the pharmacokinetic data that we currently have, there appears to be thresholds. Yes, I would agree.

Thomas Wei – Jefferies & Company

Thanks.

Operator

And we’ll now go to Michael Schmidt with Leerink Swann.

Michael Schmidt – Leerink Swann

Hey. Good morning. Thanks for taking my question.

Just to follow up on 901, you said you'll make the manufacturing scale-up decision first. I was wondering if you could just remind us again what exactly you have to do there and how long that would take. Then, whether there could be a potential scenario, if you get more data later on, based on this, you might decide not to move forward, if you then would be able to use those manufacturing investments maybe for other programs should that be the case?

Dan Junius

Yes, Michael, it's Dan. As Charlie noted, it is sort of a two-step process and it gives us the luxury of exploring some other areas before we make the larger decision around initiating the study. If the data coming out that we announced next year points us in the direction of moving to a registration study, we will begin the process with third parties to develop large-scale processes.

We're already doing some of the groundwork, but begin to access large scale processes of antibody production, as well as large-scale processes for conjugation. We have been spending some money there, but at lower levels. The incremental cost, once we make a decision like that, and it doesn't all get spent immediately, but order of magnitude, it's about $12 million to $15 million and from the point of decision to when material is available to support a study is about 18 months.

We would use that intervening period to validate any areas where we think we need additional information before we would dose our first patient into a registration study. In terms of using that investment and applying it to other programs, frankly, I think the answer is no. But by being able to gauge decisions by making the commitment of an escalating manufacturing decision, some of which potentially could be saved if we find something out as going through our validation studies that pushes in the wrong direction, we may be able to save that, but probably not a lot. You've got to think of that as gone. But the big dollars, the registration study dollars, that commitment and that spending doesn't take place until later.

Michael Schmidt – Leerink Swann

Sure. Okay, great. Thanks. Then on guidance, the top line guidance, I was just wondering if you could break out what proportion of that is an expectation for actual cash milestones and what proportion of that is attributed to recognition of already received upfront payments?

Dan Junius

That gets a little too fine, Michael. So, for the time being, this is actually the first year that we've broken out and provided guidance around revenue, as well as operating expenses. I think because some of those numbers work, it can tend to move around, that gets to be a little more difficult. You do have some insights associated with, we recorded both the current quarter and the last quarter of last year a meaningful amount of revenue associated with exercise of licenses by the fourth quarter of last year was Novartis, first quarter of this year was Lilly.

There is some activity going on there. We recently announced a second license from Novartis and so that came after the end of September. If you look back at our fourth quarter, you'd see something order of magnitude for that. In terms of further breakdown, we haven't done that at this point.

Michael Schmidt – Leerink Swann

Sure. Great. Thank you.

Operator

Next, we’ve got a Bert Haslett with Roth Capital.

Bert Hazlett – Roth Capital Partners

Thanks. Thanks for taking the questions. My first one is on 529.

Dan, I think in your comments, you made the comment about the maturation of the data showing stronger signals of efficacy there. Could you elaborate on that? I know that has led to some of the adjustments in terms of prophylaxis against AEs, but again, any color you can provide in terms of the stronger signals of efficacy for that compound would be great.

Dan Junius

Yes. I think that was Charlie. But – so, Charlie, you want to comment on that?

Bert Hazlett – Roth Capital Partners

Oh, excuse me.

Charlie Morris

Bert, I'm not going to get into details at the moment. I think that we are seeing evidence of clinical activity here, so we are encouraged with – a little surprised at the dose levels at which we're seeing both some adverse effects, but also some activity. Bert, over the year, we're encouraged by the fact that we are. Obviously, that gives us encouragement to manage our way through the adverse effect side and to find those prophylactic measures so that we can hopefully get that dose up and really start to see important activity for the drug.

Bert Hazlett – Roth Capital Partners

Okay, thanks. And then, regarding 289, maybe you mentioned this, but when is the earliest and the most likely time that we should be seeing clinical data from that compound? Thanks.

Charlie Morris

I think it is possible that we will see the first data at some point during 2014. I wouldn't really want to speculate on exactly when. The IND is open. It's really a matter now of getting the patients screened to get them in, at least in the first center, which is open. Therefore, we're encouraged that we should start to see the first few dose levels start to be escalated through very soon. It's possible something around the middle of next year, but certainly toward, I would hope, by the back end of the year, we'd be able to have some data out.

Bert Hazlett – Roth Capital Partners

Thanks.

Dan Junius

I would just add to that, we've gotten very good support and quite a bit of enthusiasm from investigators, which is always a great place to start. But I think it would be dangerous, at this point, to equate that into fine-tuning an estimate of when we might see the data.

Bert Hazlett – Roth Capital Partners

Fair enough. Thank you very much.

Operator

So, to the next question for Matt Roden with UBS.

Unidentified Speaker

Hi, guys. This is actually Andrew in for Matt. A couple on the adjusted ideal body weight.

I guess first, specifically, has tox been associated with patients that are heavier than normal height? That was something that you had suggested before as something that could be related. I was wondering if there's actually data behind that. Secondly, have you shared your suggestion or discussed the move towards adjusted ideal body weight with any of your partners for some of the other ADC programs?

Charlie Morris

The answer to the first part, in effect, is yes. We have seen higher exposures in more overweight patients, which sort of got us thinking about the effect of volume of distribution and the need to try to normalize patients' weight closer more to their height than purely to their weight. That really did play a role, yes.

As we discussed with Thomas, given that there does seem to be a level beyond sort of a fairly critical level foreseeing some of this that seemed to be an important factor. What we're trying to do is minimize the variation and give ourselves the best opportunity to control keeping it below what appears to be an important exposure level. That's really where that thinking came from. In terms of partners, it's certainly something that we will discuss in some more details.

At the moment, what we have are data. We have some interesting PK modeling and we have a hypothesis. I think we need to test before it we start declaring victory. But it looks like it's going to be a good and correct thing to do. Then, of course, as I said earlier, we've got to understand, is this something that will apply to every antibody or is it a feature of this antibody? But I think where we see variability in exposure, we will ask the question every time.

Unidentified Speaker

Great. Thanks.

Operator

Now, we’ve got a Richard Resnick with William Blair.

Richard Resnick – William Blair & Company

This is Rich Resnick for John Sonnier. Early stage question for Charlie.

You clearly have shown a lot of proprietary clinical data that's ongoing. You reported on a new type of cytotoxic payload at URTC this week, one that is a DNA alkylating agent, rather than a tubulin-based agent. The data looks interesting, so I'm wondering if you could talk about any plans to move this new type of payload forward, including types of cancers that might be attractive target with this type of payload. Thanks.

Carol Hausner

Richard, John will answer that.

John Lambert

Hello. This is John. Yes, as you know, we're excited by this new payload that targets DNA and we do intend to take the lead payload forward into the clinic. I think the types of diseases that we would hope to target would be, as you know, there are some cancers that are not particularly sensitive to tubulin agents. Tubulin agents, up until now, have been the agents that have proven most successful in the ADC format.

We took this information back into our research, that is the therapeutic window that the tubulin agent payloads have exhibited in preclinical models and attempted to develop and indeed, have developed DNA acting payload that, in the preclinical models, exhibit the same wide, therapeutic index. We would hope to take this payload class forward into disease types that have proven not to be particularly sensitive to tubulin agents. Obviously, attached to an antibody to a suitable target for such diseases.

Richard Resnick – William Blair & Company

Okay, great. Thanks.

Operator

Now, we’ll take our final question – a follow up with Yigal Nochomovitz.

Yigal Nochomovitz – Morgan Stanley

Hi. Thanks for taking the follow up.

Just regarding the last question, for the new linkers and payloads which you unveiled at AACR, is there any potential for you to use the existing targets for the proprietary pipeline or will those new linkers and payloads be reserved entirely for new targets?

Dan Junius

I think, at this point, it would be unlikely, given that we've looked at high expressing targets and the like, and targets that, to some extent, express unhealthy tissue; not necessarily in robust levels, but at some levels, they would be unlikely targets for us to apply this particular technology.

As you heard from John, I think it moves into a different set of targets that would fit the profile where an IGN would be appropriate. The maytansine approach we've taken with the existing portfolio, I think, is the right one, but we have some things to learn about IGNs as we go forward. We do have some thoughts and are looking at things about what would be higher priority areas to move forward with this and bring it into the clinic and I'm sure our thinking will expand as we learn from those types of steps.

Yigal Nochomovitz – Morgan Stanley

Thank you.

Operator

There are no further questions.

Carol Hausner

I think the action point, we are at the end of the Q&A. I would like to thank everyone for your interest in ImmunoGen. If you have any subsequent questions please don't hesitate to call. Have a nice day.

Operator

That does conclude today's call. We thank everyone, again, for their participation.

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