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Executives

Lawrence A. Kenyon - Chief Financial Officer, COO, Executive Vice President, Corporate Secretary, Director

Tina Shogen - Chairman of the Board, Chief Executive Officer

Analysts

Stephen Dunn - Dawson James Securities

Raymond A. Myers - Emerging Growth Equities

Arthur Barry - Private Investor

Eduardo Seda - Capital Growth Financial

Sal Saraceno - Griffin Securities

Alfacell Corporation (OTC:ACEL) F1Q08 Earnings Call December 10, 2007 11:00 AM ET

Operator

Greetings and welcome to the Alfacell Corporation first quarter 2008 results conference call. (Operator Instructions) It is now my pleasure to introduce your host, Mr. Larry Kenyon, Chief Financial Officer and Chief Operating Officer. Thank you, Mr. Kenyon. You may begin.

Lawrence A. Kenyon

Thank you, Anthony. Welcome, everyone and thank you for participating in the Alfacell Corporation fiscal first quarter 2008 update conference call for investors and analysts. My name is Larry Kenyon and I am Alfacell's Chief Financial Officer and Chief Operating Officer. With me today is our Chairman of the Board and Chief Executive Officer, Tina Shogen.

Before we begin, please allow me a moment to read our Safe Harbor statement. This presentation includes statements that may constitute forward-looking statements usually containing the words believe, estimate, project, expect, or similar expressions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include the risks discussed in the company’s periodic filings with the Securities and Exchange Commission.

By making these forward-looking statements, the company undertakes no obligation to update these statements for revisions or changes after the date of this release.

Thank you for your patience. Tina will make a few comments to begin the call, after which I will provide a brief overview of our first quarter results. Both of us will then be available to take questions at the end of the call. Tina.

Tina Shogen

Thank you, Larry and good morning to you all. Fiscal year 2008 is off to a very promising start as we look to complete the transformation that began in 2007. Our primary goal and objective is close to fulfillment as we near the completion of our confirmatory Phase III clinical trial of ONCONASE for the treatment of patients suffering from unresectable malignant mesothelioma. Our primary focus over the months ahead is the completion of the Phase III trial and the rolling NDA, and we also -- I would like to also add that the dedication and the loyalty of our investors, employees, and collaborators have made this very possible.

Because we are now so close to the completion of the trial, our transformation is moving to the next phase with a focus on taking steps to maximize our future success. While we continue to advance the scientific knowledge surrounding our unique and proprietary [revenue cases] and the platform, the scientific advances will need to be made in an environment that will coordinate those advances to commercial goals and objectives.

To that end, we recently began making changes to our management team that formally recognize the evolution that has been taking place at Alfacell over the last year. I would like to take this time and opportunity to formally congratulate Larry Kenyon on his promotion to Chief Operating Officer and his election to the Board of Directors, and also acknowledge his contribution to the Alfacell team.

I will now ask Larry to provide an overview of our first quarter results.

Lawrence A. Kenyon

Thank you, Tina. As we are pleased to announce in this morning’s news release, we are now at 307 evaluable events in the ONCONASE confirmatory Phase IIIb clinical trial. We will begin the required statistical analysis upon achieving 316 evaluable events.

During the fiscal first quarter, we also continued to work on our Phase I-II oncology program. We continued to plan for Phase II clinical trials as we await the completion of enrolment in Phase I. However, as Tina just mentioned, our primary focus continues to be the preparations and completion of the rolling NDA. This was true of our fiscal first quarter and will continue to be true until the task is completed.

Because the end of the Phase III mesothelioma is imminent, we do not plan to begin a Phase II clinical trial in an oncology indication until after the Phase III trial is complete.

Simply put, initiating a Phase II clinical trial while we are working to complete the Phase III and prepare for the statistical analysis of the data could potentially distract key members of our clinical regulatory team from our key priority, which is to quickly and efficiently complete and submit our rolling NDA for ONCONASE as a treatment for malignant mesothelioma. We will now allow such a distraction to occur.

Our first quarter 2008 financial results met our expectations. The net loss was approximately $2.7 million, or $0.06 per share, an increase of approximately $300,000 compared to the first quarter of 2007. First quarter 2008 R&D expenses were essentially unchanged while general and administrative expenses increased by approximately $200,000 compared to the first quarter of ’07. This increase was primarily related to increased compensation expense from employee stock option grants.

Additionally, investment income decreased by nearly $100,000 due to lower cash and equivalent balances available for investment during the first quarter of fiscal 2008.

Cash and equivalents on October 31, 2007 were approximately $5.4 million, a decrease of approximately $1.6 million from July 31, 2007. We estimate that our cash and equivalents should be sufficient to allow us to complete the submission of our ONCONASE NDA. This estimate assumes receipt of proceeds from the sale of our New Jersey State tax loss carry-forward, a positive outcome for the Phase IIIb clinical trial, and then our projected costs for the completion and submission of the NDA are accurate.

At this point in the call, Tina and I will now be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Stephen Dunn with Dawson James. Please proceed with your question.

Stephen Dunn - Dawson James Securities

Good morning, Tina and Larry. Thanks for taking my call. Just a couple of questions here; you’ve got additional -- you’ve got 12 new evaluable events since mid-October and it looks like to date, you need about nine more. I’m calculating that would be around mid-January, possibly a little sooner. Is that your timing as well?

Lawrence A. Kenyon

I think that’s reasonable. At this point, we’re so close to the end we’re not really interest in playing the game of trying to peg exactly when that last patient will cross the finish line, but I think that’s reasonable with our estimates at this point.

Stephen Dunn - Dawson James Securities

All right. Assuming that’s in the ballpark, how long before we have the top line data crunch announced?

Lawrence A. Kenyon

For us, the plan is like this: we will announce when we hit -- or actually when we’ve confirmed that we’ve hit 316 evaluable events and as part of that confirmation and sitting down with our team internally, we’ll be able to announce at that time when we would expect to have that information available. Internally, it’s probably at least a month out from that point but we’ll know more when we get there.

Stephen Dunn - Dawson James Securities

Since you have a rolling NDA in process, could you tell me what parts have been submitted already?

Lawrence A. Kenyon

Well, we’ve announced I think in previous public filings, public statements that the CMC section was submitted near the beginning of 2007, calendar year. We are nearly complete with the second module and at the same time, we are also working on everything we can in advance of the clinical section actually having the data, preparing the format for tables and the like, so that we can move it as quickly as possible. So we are probably two of the three modules are in or nearly in, and then that will leave us with just the final section when we get to 316 events.

Stephen Dunn - Dawson James Securities

This one’s kind of a fuzzy question -- I’m sure you are speaking to potential partners that are following ONCONASE. I guess in light of your recent webcast, talking about ribonuclease versus RNAI, are your partnership discussions -- would you characterize the potential partners as seeing the similarities in more of the looking at ONCONASE as an RNAI like drug? Or are they looking at it more as a first-in-class ribonuclease drug?

Lawrence A. Kenyon

I think the excitement that’s out there and the interest from potential partners is that this is a first-in-class compound and they see the potential utility in a broad range of treatment, first and foremost in oncology.

Stephen Dunn - Dawson James Securities

All right. Thanks very much. I’ll jump back in the queue.

Operator

Our next question comes from the line of Raymond Myers with Emerging Growth Equities. Please proceed with your question.

Raymond A. Myers - Emerging Growth Equities

Thank you. Good morning and congratulations, Larry, for your promotion. Well-deserved, I’m sure and congratulations to all of you, especially Tina for getting us to this point. This is really a critical milestone is right upon us.

Let me ask you about the 12 events that have happened since the October 15th update. At that time, we had talked a little bit about patients who had been lost to follow-up and you were working diligently to find these patients and identify whether they were in fact confirmed events. Have you found any of those patients?

Lawrence A. Kenyon

We’ve tracked down everyone in the study at this point, I guess except for maybe -- just a couple but that’s not a material number. We’re confident that the number we have as of right now is the most up-to-date number we could have.

Raymond A. Myers - Emerging Growth Equities

And how many of the 12 events that have occurred since that last update were due to finding patients who were lost to follow-up?

Lawrence A. Kenyon

I don’t have that in front of me for the call. Sorry.

Raymond A. Myers - Emerging Growth Equities

Was it a one or two or three or was it a substantial amount?

Lawrence A. Kenyon

Well, we’re talking about 12 patients total so substantial is not a big number but it’s probably -- I think at the time, we had less than 10 patients we were looking to find two months ago when we spoke and we’ve resolved all those 10 patients. I’d say roughly half of those patients were probably evaluable events and the rest of the deaths were probably just new events.

Raymond A. Myers - Emerging Growth Equities

Okay, great. As of when is this 307 patients? I know you periodically get your updates. Is it as of today or was it as of last week or as of when?

Lawrence A. Kenyon

It was as of this morning, as far as I know. But honestly, I didn’t get any updates over the weekend so it was as of Friday afternoon.

Raymond A. Myers - Emerging Growth Equities

And are you now getting updates almost on a real-time basis?

Lawrence A. Kenyon

Yes, we are tracking constantly.

Raymond A. Myers - Emerging Growth Equities

Okay. And I understand why you are putting off starting the Phase III studies until you get the data -- I assume it’s not just getting the 316 events but getting the data from the study.

Lawrence A. Kenyon

You’re talking about the Phase IIs?

Raymond A. Myers - Emerging Growth Equities

Yeah.

Lawrence A. Kenyon

There’s a -- as you know, Ray, we’ve got 15 employees at Alfacell. We’ve got a dedicated group in our clinical regulatory team here. The same folks that are involved with working so hard on the modules for the rolling NDA and preparing everything for the final clinical section of the NDA are those same people that would be involved with getting protocols approved at IRBs, getting that in front of the FDA. And while this is all important work for us and we continue with planning for those Phase IIs, that actual on-the-ground work that needs to be done would pull people away from what really needs to be done on the Phase III and the rolling NDA. And we thought that given the importance of that program, we need to get that done first.

Raymond A. Myers - Emerging Growth Equities

That makes sense. When do you anticipate partnering the marketing and sales of ONCONASE, assuming the data comes out favorably here in the first half?

Lawrence A. Kenyon

Could you repeat that again? I’m sorry.

Raymond A. Myers - Emerging Growth Equities

Say in the first half of next year, the data comes back very favorable and you complete the submission of your NDA. When would you anticipate partnering ONCONASE for marketing and sales?

Lawrence A. Kenyon

Well, actually putting our signatures on paper, we don’t have a target date for that. I can speak to the fact that we’ve continued to have ongoing discussions with interested parties even as we are talking right now and when one of those would actually get to the point where we are ready to put ink to paper is tough to say in terms of relation to data and all of that.

But understand that we’ve continued to have good conversations with potential partners out there. Partnering ONCONASE for mesothelioma and oncology indications is the number one priority from a commercial point of view and we would expect that that would be the next step shortly here.

Raymond A. Myers - Emerging Growth Equities

Okay, that’s great. And then finally, I’m getting calls from people who are excited about your usual annual meeting and you haven’t made any announcements. Do you still anticipate having an annual meeting in the first quarter?

Lawrence A. Kenyon

Actually, we put out our proxy. We filed a proxy at the end of November and the date of the annual meeting is January 30th in Somerset, New Jersey.

Raymond A. Myers - Emerging Growth Equities

And is it going to be a similar type of event as in prior years?

Lawrence A. Kenyon

Well, I’ve got one of them under my belt. It will be similar to last year’s.

Raymond A. Myers - Emerging Growth Equities

Okay, great. That’s great. Thank you and congratulations. We look forward to continued progress.

Operator

Our next question comes from the line of Arthur Barry, a private investor. Please proceed with your question.

Arthur Barry - Private Investor

Good morning. I’d like to get a little understanding on about three or four different occasions, you said that ONCONASE improves radiation treatment but you really never alluded to starting a clinical trial and I was always curious by the fact that I think through the various types of tests that you’ve been able to conduct, that you really can see I think quite obviously that it does enhance radiation treatment and why this hasn’t taken a much, much higher profile with the company.

Lawrence A. Kenyon

Well, Mr. Barry, just to let you know, we’ve been tying together all of the pre-clinical data, this wonderful pre-clinical data that’s been developed by Dr. Lee and others, and as part of our Phase II planning, I can tell you that we definitely are considering radiation enhancement as a potential for a Phase II program here at Alfacell.

We’ve just been in the process of putting together potential protocols and trying to lock down potential study sites and trying to work that as part of our overall plan for the oncology program here as we move forward after [mezzo].

So don’t think that it isn’t under consideration and I think as we have the opportunity to announce our Phase II plans at some point here in the not-too-distant future, there’s definitely a likelihood that radiation enhancement could be part of that program.

Arthur Barry - Private Investor

Do you know how large a market that might be? Just a guesstimate.

Lawrence A. Kenyon

Well, just about everyone who gets treated for oncology, for an oncology indication gets radiation at some point in their therapy so it could be a very large market.

Arthur Barry - Private Investor

Okay. Thank you.

Operator

Our next question comes from the line of Eduardo Seda with Capital Growth Financial. Please proceed with your question.

Eduardo Seda - Capital Growth Financial

Most of my questions have been already answered. I just wanted to take the occasion to congratulate you guys and wish you luck. Can you walk me through the finance part a little bit? Why $5.5 million as of October 31st [will be enough]?

Lawrence A. Kenyon

Sure, Eduardo. One thing that we’ll be looking at here is we’ve -- as you know, historically the company sold their New Jersey State tax loss carry-forwards and we’re expecting to do that again here in the very near future. That combined with the $5.5 million we have as of October 31st should give us enough money to get through October 31st of next year and that should be more than enough time to get an NDA submitted and processed with the FDA.

Eduardo Seda - Capital Growth Financial

Okay, so if I’m reading you correct, it’s like if you have your data back on January, it will take four months between January and submission?

Lawrence A. Kenyon

That’s the goal, yes.

Eduardo Seda - Capital Growth Financial

And how long are you thinking it will take for the FDA to come back with an answer?

Lawrence A. Kenyon

Well, it would be a six-month review period.

Eduardo Seda - Capital Growth Financial

Okay, so we’re talking about 10 months total -- 10, 11 months total?

Lawrence A. Kenyon

Correct.

Eduardo Seda - Capital Growth Financial

Okay. Now, in between that time, you’re not going to do anything with the second phase?

Lawrence A. Kenyon

No, that’s not what we’re saying. What we need to do -- for us, the heavy lifting is right here where we wrap up the Phase III, lock down the database, prepare for the statistical analysis, and then begin the writing portion for the module III. Once we’ve got that under control and we know where this is going and how much resources that’s going to take from a people perspective, then we’ll be able to focus on launching the Phase II.

Do not think for an instant that we have stopped planning for Phase II at this point. That is not the case. It’s really just on the execution side where we actually have to pound the pavement, talk to the IRBs at different sites, coordinate that with the FDA and get approval on that end to start the Phase II component of these studies.

Eduardo Seda - Capital Growth Financial

Okay. Last question is are you taking into consideration any allowance of money for the Phase II when you restart it at some point in the second or third quarter of next year?

Lawrence A. Kenyon

Yes.

Eduardo Seda - Capital Growth Financial

Okay, so part of the resources you are using out of that $6 million or whatever it is, is going to go to Phase II?

Lawrence A. Kenyon

Yes.

Eduardo Seda - Capital Growth Financial

Okay. Larry, thank you very, very much. Bye, Tina.

Operator

(Operator Instructions) The next question comes from the line of Sal [Saraceno] with Griffin Securities.

Sal Saraceno - Griffin Securities

I won’t take long. I had to step away for about five minutes, but I’m back. I don’t know if this question has been asked. I was just curious; I’m hedging on the side of optimism, of course, and looking forward to seeing your data on ONCONASE. Assuming that we are all -- assuming that we are enthusiastic about how that, what those results are, what was in the pipeline in ’08? Any new initiatives that you’d like to prioritize? Obviously the radiation program is very exciting and has a great deal of potential. Anything on a personal level that you’d like to accelerate within that pipeline that you think has merit? Thank you.

Tina Shogen

We’re looking at a number of opportunities. Obviously what we have decided on internally and from our advisory board is if we are looking for where do we have the most pre-clinical evidence, is it a doable trial that’s not going to take forever, is the patient population that we’re targeting, and also we have to have a clear path to regulatory approval.

So those are the indications that we will be tackling, where we have the most evidence and the easiest path. Clearly we want to be embarking on a program that is doable and will get us quickly to the end goal of an additional indication. So clearly if we have a lot of evidence in the lung indication, for example. We talked about that. We had talked about [inaudible] and again, we are looking at patient populations which are doable and where we can -- where the investigators are able to get that [type of patient] in because right now, the FDA really requires for us to be very careful -- not only Alfacell but anyone embarking on a program, it has to -- you can’t just go and say well, we’re going to do this. It doesn’t make any sense.

Sal Saraceno - Griffin Securities

Sure. I understand.

Tina Shogen

But we definitely are planning as we have always planned, but those three criteria have to be met.

Sal Saraceno - Griffin Securities

Of course. I understand. Lawrence, congratulations on your new appointment and I look forward to visiting both in New Jersey in the early part of the new year and saying hello. Thank you so much for taking my questions. Have a wonderful holiday.

Operator

There are no further questions at this time. I would like to turn the floor back over to Mr. Larry Kenyon for closing comments.

Lawrence A. Kenyon

Thank you, Anthony and thank you all for participating in our fiscal first quarter 2008 update conference call. This is an exciting time to be at Alfacell as we reach the finish line and prepare to complete our rolling NDA for ONCONASE. For many of our colleagues and stockholders, this may feel like we are reaching the end of the road. For newer members to the team, like myself, we view the events expected to occur in the upcoming weeks and months as the foundation for a new and exciting Alfacell, full of new opportunity and additional promise.

Tina and I appreciate the dedication of our investors, employees, and collaborators that have made it possible for us to reach this critical point in our company’s history. Thank you for your loyalty and your continued support. Goodbye.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: Alfacell F1Q08 (Qtr End 10/31/07) Earnings Call Transcript
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