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Executives

Larry Kenyon - COO and CFO

Tina Shogen - CEO

Analysts

Raymond Myers - Emerging Growth Equities

Marshall Gordon - Bear Stearns

Steven Dunn - Dawson James

Arthur Barry

Donna Cossack

Mindy Rafael

Roger Bensen - Number One Corp

Alfacell Corp. (OTC:ACEL) F2Q08 (Qtr End 1/31/08) Earnings Call March 7, 2008 11:00 AM ET

Operator

Greetings and welcome to the Alfacell second quarter 2008 update conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions).

It is now my pleasure to introduce your host, Mr. Larry Kenyon, Chief Financial Officer for Alfacell Corporation. Thank you sir, you may begin.

Larry Kenyon

Thank you Ryan. Welcome and thank you for participating in the Alfacell Corporation fiscal second quarter 2008 update conference call for investors and analysts. As you know my name is Larry Kenyon and I am Alfacell's Chief Financial Officer and Chief Operating Officer. With me today is our Chief Executive Officer, Tina Shogen.

Tina Shogen

Good morning and thank you for being with us.

Larry Kenyon

Before we begin the presentation, 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.

As we announced in today’s release as of this morning we are now at 313 evaluable events in the ONCONASE confirmatory Phase IIIb clinical trial. While we await notification that we have reached 316 evaluable events, we continue to make progress on the completion of our rolling new drug application and are preparing to begin the statistical analysis of the data once we have reached and confirmed the required number of events. To date, we have submitted all of the components of the rolling NDA that do not require statistical analysis of the clinical data.

From a commercial perspective, the fiscal second quarter was very productive as we announced our new US partnership for ONCONASE with Strativa Pharmaceuticals, the proprietary product division of Par Pharmaceutical. The deal is to generate a total of $225 million in cash milestone to Alfacell over the life of the agreement. Under the terms of the agreement, we received a non-refundable upfront license fee of $5 million and are eligible to receive a milestone payment of up to $30 million for FDA approval of ONCONASE for the treatment of malignant mesothelioma. We will also be eligible to receive up to $190 million in additional milestones in connection with the development of ONCONASE for up to three additional cancer indications and achieving certain net sales levels. Additionally, the agreement entitles us to receive double digit royalties on that sale and the ability or co-promote with support from Strativa in the future.

During the quarter, we also continued to execute on our strategy to enter into commercial relationships in key regions around the world. We now have a marketing and distribution agreement with BL&H for the commercialization of ONCONASE in Korea, Taiwan and Hong Kong. Under the agreement we received a non-refundable upfront fee of $100,000 and are eligible to receive additional cash milestone of 50% of net sales in the territory.

Our second quarter 2008 financial results met our expectations. The net loss is approximately $1.7 million or $0.04 per share, a decrease of approximately $200,000 compared to the second quarter of fiscal 2007. We did not recognize any of the non-refundable upfront fees received from Strativa or BL&H during the second quarter as revenue. These fees have been allocated to deferred revenue and will be ratably recognized as revenue when all of the general criteria for revenue recognition have been met.

The primary reason for the reduction in net loss during the quarter was the $1.2 million increase in our state tax benefit compared to fiscal 2007, which represents sales of our New Jersey state tax laws carry forwards for cash.

Second quarter 2008 R&D expenses increased by approximately $600,000, which was primarily due to increased expenses related to our preparations for completion of our rolling NDA for ONCONASE. General and administrative expenses increased by approximately $400,000 compared to the first quarter of 2007. This increase was mostly related to increased legal expenses for work done to complete our new commercial agreements during the quarter.

Cash and equivalents on January 31st, 2008 were approximately $10.2 million, an increase of approximately $4.8 million in cash and equivalents from October 31st, 2007. We estimate that our cash and equivalents will be sufficient to allow us to complete the submission of our ONCONASE NDA and beyond that take us through the fourth quarter of fiscal 2009. This estimate assumes a positive outcome for the Phase IIIb clinical trial, and that our projected costs for the completion and submission of the NDA are accurate.

Estimated cost associated with the completion and submission of our NDA are expected to increase our cash burn rate over the next few quarters, but this increase is not expected to continue beyond the planned submission of the NDA.

With that we will conclude the formal remarks and Tina and I will now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Raymond Myers with Emerging Growth Equities. Please go ahead.

Raymond Myers - Emerging Growth Equities

Thank you and good morning.

Tina Shogen

Good morning.

Raymond Myers - Emerging Growth Equities

Good morning, Tina. Let see, well, thank you for having another update call. I see that two more patients have past and that it continues to be -- patients continue living for quite a while. Have you drawn any conclusions about how long the patients have been living to date and whether that suggests anything about the potential efficacy of the drug?

Larry Kenyon

Ray, we haven't done any type of analysis at all at this point, and we can't really draw any conclusions. The only thing that we can comment on is that historically the survival rate for doxorubicin patients is well known and I don't think when we’ve designed this probably we would have expected to see any difference there this time around either.

Raymond Myers - Emerging Growth Equities

And from the amount of time that is taking to reach the 316 events, can we conclude that patients are living longer than you would have anticipated from the historical rates from doxorubicin.

Larry Kenyon

Frankly Ray, the only thing we can conclude is that we're at 313 events right now and we know that we will hit 316 events shortly.

Raymond Myers - Emerging Growth Equities

Okay, that's great. Now do we still expect that within about a month of reaching 316 events that you would announce top line data?

Larry Kenyon

We're hopeful of that that should be about the timeframe, yes.

Raymond Myers - Emerging Growth Equities

Okay, that's great. And I see that the research and development expense increased about 400,000 sequentially in the latest quarter, ending January. Was that primarily all for NDA submission preparations or was much of that for expanded Phase II development?

Larry Kenyon

No, it's really all related to the NDA at this point.

Raymond Myers - Emerging Growth Equities

Okay, thanks. We'll wait for that.

Larry Kenyon

Welcome.

Operator

Our next question comes from the line of Marshall Gordon with Bear Stearns.

Marshall Gordon - Bear Stearns

Hi, thanks for taking my question. Just really quickly just to review. When should we generally expect the full top line announcement of the data? Would that be within the next couple, you know, by mid-year at this point? And then the other question I had is, will you press release or communicate to the investment community in someway when you actually hit 316 events?

Larry Kenyon

Okay, Marshal. Let's start with when we hit 316 events, because that’s really the trigger for everything else in your question. The plan is, to put out a press release within 72 hours of confirming that we've hit 316 evaluable events. We will not sit on that information in anyway. So basically you can presume that as soon as we know the information and have confirmed the information the rest of the world will know. That will -- and that’s what makes it harder to pick some sort of date specific or even range for when we might have top line results because it all hinges on when we hit 316 events.

So, we're using, as a working estimate right now, that it should be approximately a month to get all of the statistical analysis completed. But do keep in mind that previous statements we may have made regarding our expectations along this line predate our relationship with Strativa. As you know with that agreement we now have a partner that is working with us on a joint development committee and a joint commercialization committee to manage the alliance. They also have an interest in the information that we will get and how we will disseminate that information and how that information get sent to the FDA eventually.

So, we've met with Strativa on timelines and trying to get started with, how to manage relationship. We're working on a number of things right now. And at this point, we don’t know if that’s going to have any impact on timelines through extra consultation and review with our partner, but it could potentially.

Marshall Gordon - Bear Stearns

Thanks.

Larry Kenyon

You're welcome.

Operator

Our next question comes from Steven Dunn with Dawson James.

Steven Dunn - Dawson James

Hi good morning, Tina and Larry, good quarter.

Tina Shogen

Good morning, Steve.

Steven Dunn - Dawson James

Just some quick housekeeping here, we are seeing rising incidences of malignant mesothelioma in mainland China, even though they had technically asbestos regulations in place, as early as from the '60s, they weren’t, but just say well enforced up until about 2001. So I guess I wanted just to confirm that the BL&H distribution agreement covers just Hong Kong and not mainland China outside the Kowloon?

Larry Kenyon

Yes. Just Hong Kong, Steve.

Steven Dunn - Dawson James

Are we in discussions with a partner to cover mainland China?

Larry Kenyon

No, we don’t comment on any of the other potential conversations we might be having. So I really can't answer that question right now.

Steven Dunn - Dawson James

All right. Why did we not use, why did we not include mainland China in to the BL&H contract?

Larry Kenyon

It was a mutual decision.

Steven Dunn - Dawson James

Okay. Just one more housekeeping, Tina, you exercised about 122,000 shares of your stock options. Did you sell any?

Tina Shogen

Absolutely not.

Steven Dunn - Dawson James

Okay.

Tina Shogen

Oh, no.

Steven Dunn - Dawson James

Okay. I think everything is covered from the previous questions and we are crossing our fingers.

Tina Shogen

All right.

Larry Kenyon

Thanks, Steve.

Tina Shogen

Thank you, Steve.

Operator

Our next question comes from [Arthur Barry], a private investor.

Arthur Barry

Good morning, Tina.

Tina Shogen

Good morning.

Arthur Barry

This week in the New York area, on the radio there was an advertisement by Novartis that they are researching Dengue fever in Singapore and that there were 50 million people who have no cure for this. It is a very, very painful disease and I know that Alfacell was doing some work with them and the company never reported what the results were, anecdotal evidence was. And I would appreciate it if you people can make a comment either now or at sometime in the near future about what actually happened with that work that was done by Novartis whether this be a positive for Alfacell or nothing happened?

Tina Shogen

Well, what we have looked at was a screening program to see whether the amphinases, in particular we're talking about, had any antiviral activity, and of course we're still looking and the number of people are looking at amphinases and as soon as the body of work is completely intent to publish. But I am very, very pleased to tell you that we certainly have some very, very impressive antiviral activity and also in Dengue fever.

Arthur Barry

Okay, thank you. That's an answer that has nothing heard before and I'm excited to hear that.

Tina Shogen

Thank you.

Operator

Our next question comes from [Donna Cossack], private investor.

Donna Cossack

Good morning, everyone.

Tina Shogen

Good morning.

Larry Kenyon

HI, Donna.

Donna Cossack

Hi, I think you've answered my question, its regarding the estimated primary completion data phase III trial, I think we covered it. I think you said within a month, am I correct?

Larry Kenyon

Well, the completion is kind of too easy of a term, getting the 316 events is -- we're not really projecting a date, but obviously I think it is safe to say that the next time we have one of these conference calls for our quarterly update, I don't think we'll be talking about when are we going to hit 316 events?

Donna Cossack

Exactly. Yeah, you've answered my question. Thank you very much.

Larry Kenyon

You're welcome.

Operator

Our next question comes from [Mindy Rafael], private investor.

Mindy Rafael

Yes, your annual report suggests that ONCONASE is 99% effective against the AIDS virus, are you planning any study to look at ONCONASE in AIDS patients?

Tina Shogen

We are not in any position to be looking at any other clinical programs at this point in time. The pre-clinical data that was reported has been published that indeed ONCONASE does have antiviral activity and especially against the AIDS virus, that again is only pre-clinically.

Mindy Rafael

Okay, thank you.

Tina Shogen

Thank you.

Operator

(Operator Instructions) We have a question from the line of Roger Bensen with Number One Corp

Roger Bensen - Number One Corp

The company does have some other clinical activity, at least as far as I know, you are looking at some trials in lung cancer and planning to go with some other esophageal and so on and so forth, what's the update on the trial that we were doing?

Larry Kenyon

Thanks Roger. That Phase I trial that we're in non-small cell lung cancer and other solid tumors is wrapping up. I think we’ve said at our last quarterly call, we reiterated it couple of times since then, until we get the NDA out of the way, we are really not planning on starting the Phase II component of those trials because of limited human resources really to accelerate, plus we also have the consideration now that with our partners, Strativa, we actually get milestones for additional cancer indications that we bring forward and we need to align with Strativa's interest, to be sure that we go into a Phase II trial that will result in Phase III trials and approvals that ultimately would lead to milestones to Alfacell.

Roger Bensen - Number One Corp

Okay. So when would we expect to have data on the Phase I trial? Generally they are pretty short in duration?

Larry Kenyon

Right, there are few patients, but I think data would be later this year assuming that enrollment completes relatively soon here.

Roger Bensen - Number One Corp

Thank you.

Larry Kenyon

Your are welcome.

Operator

(Operator Instructions) Seeing as there are no further questions, I would like to turn the call back to management for any concluding remarks.

Larry Kenyon

Thanks, Ryan. We would like to thank everyone for participating once again in our fiscal second quarter 2008 update conference call. As we have said on many occasions, 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 continued support. Good bye for now.

Tina Shogen

Have good day.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation.

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