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Executives

Susan Ferris – IR

Stephen Sherwin – Chairman and CEO

Sharon Tetlow – SVP and CFO

Analysts

Joe Patginis – Canaccord Adams

Ren Benjamin – Rodman & Renshaw

Mark Monane – Needham & Co.

Richard Smith – JPMorgan

Pamela Bassett – Cantor Fitzgerald

Cell Genesys, Inc. (CEGE) Q1 2008 Earnings Call Transcript May 1, 2008 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Cell Genesys first quarter 2008 conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) As a reminder, today's conference is being recorded. I'd like to turn the conference over to Susan Ferris, Cell Genesys Investor Relations. Please go ahead.

Susan Ferris

Thanks. Good afternoon and welcome to today's call. This is Susan Ferris and with me today are Dr. Steve Sherwin, Chairman and Chief Executive Officer and Sharon Tetlow, Senior Vice President and Chief Financial Officer.

Before we begin, I'd like to remind you that during today's call, we may make forward-looking statements about the company's future expectations and plans including milestones and financial projections for 2008. Such statements are subject to risks and uncertainties that could cause results to differ materially from those projected. We encourage you to consult our SEC filings regarding the risk factors that may affect Cell Genesys. And now I'll turn the call over to Dr. Sherwin.

Stephen Sherwin

Good afternoon everybody, and thank you for joining our first quarter 2008 conference call. As usual, Sharon and I will begin with about 15 to 20 minutes of comments and then we'll be happy to answer your questions. During our comments, we'll review today's report of our first-quarter financial results and several recent positive developments in our business relating to our lead program, GVAX immunotherapy for prostate cancer. We would also like to use the occasion of this call to remind you of our key goals for the rest of this year and 2009, and Sharon will provide you with revised financial guidance for the rest of this year, which I'm sure will be well received. So, with that let me turn things over to Sharon for the financial report.

Sharon Tetlow

Thank you, Steve. As we reported today, we ended the first quarter of 2008 on March 31 with approximately $115 million in cash on the balance sheet. As a reminder, on March 31 we signed a collaboration with Takeda Pharmaceutical for the development of GVAX immunotherapy for prostate cancer. The $50 million upfront signature payment from Takeda associated with this collaboration agreement was received in full in early April, and the $115 million doesn't include that $50 million.

With respect to our first quarter spending, we spent approximately $33 million, which is consistent with our previous guidance for the full year of 2008 of approximately $100 million to $105 million, which we announced at the beginning of the year. With respect to profit and loss financial statement, in the first quarter of 2008, we recorded $13.4 million in revenues. This is primarily due to the recognition of the payment received and reported in December for selling to the Lenti assets to GBP Biotech Limited [ph], the parent company of Lentigen.

With respect to our corporate cash investment portfolio, I would also like to take a moment to note that we do not own, nor have we owned auction rate securities and no subprime mortgage security exposure. In addition, we have not written down any securities for such credit or liquidity failures. So, today we would like to present to you with revised financial guidance for the net cash use for the full year of 2008, reflecting the very positive impact of our recently signed collaboration with Takeda Pharmaceutical. Before I do that, let me briefly review with you the key financial elements of this collaboration.

First, as I just mentioned, following the March 31 execution of the Takeda agreement we received in full the $50 million upfront payment. Next, the agreement provides for milestone payments of up to $270 million, primarily related to regulatory, and to a lesser extent, commercialization milestones. (inaudible) as a result, the majority of these potential milestone payments occur after Phase 3 results. The agreement provides also for development support. As you already know, Cell Genesys will continue to conduct VITAL-1 and VITAL-2. But importantly, Takeda will provide funding to assist with the conduct of the ongoing Phase 3 program. Takeda will fund the external costs of the ongoing Phase 3 program which we estimate to be approximately half of the cost of that program. In addition, Takeda will provide full funding of both internal and external costs of any supplemental or additional development studies that may be added to the program from time to time as well as all pre-commercial and commercial activities.

And finally, arguably, the strongest element in this collaboration is the royalty structure. The royalties are on net sales and are disclosed in the company's SEC filings on Form 8-K and the attached agreement. We believe these royalties assure that Cell Genesys will participate in a significant way in the potential downstream success of the GVAX prostate product. And for the sake of completeness, let me remind you that Cell Genesys has two co-promotion options. These options do not in any way affect or change the royalty terms of the agreement, but they do give us a leveraged opportunity to develop a sales force operation if this is deemed to be of strategic importance to our business.

Now, with respect to the impact of all the financial terms of the Takada collaboration upon our expected net cash burn in 2008, let me share with you our revised guidance. Our expected net cash burn is comprised, obviously, of cash spending minus payments to us by Takeda. We continue to be on track to spend $100 million to $105 million in 2008, which will be reduced by the payments from Takeda. We've already received $50 million for the signature payment, and we expect to receive during 2008 cash payments for Phase 3 development support of approximately $15 million to $20 million.

The resulting expected net cash burn for Cell Genesys in 2008 is reduced to approximately $35 million to $40 million. With respect to the P&L or profit and loss statements for 2008, we will recognize $13.6 million of the $50 million signature payment as revenue in 2008. Keep in mind, we have received the full payment and it's non-refundable. So, this is merely revenue recognition practice. In addition, we expect to recognize approximately $20 million to $25 million of Phase 3 development reimbursements in 2008. These development expense reimbursements will also be recognized as revenue. For a discussion of our revenue recognition policies, please refer to our SEC filings including the 10-Q that we filed this afternoon.

And finally, let me comment briefly on what you can expect in 2009. As is customary, we will provide you with specific guidance for 2009 in our year-end call next February. In the meantime, that said, I would like to make the following comment with respect to 2009 that I think you will find encouraging. Our spending levels in 2009 should decrease relative to 2008. Since Takada will be fully funding new development activities beyond the current Phase 3 program as well as pre-commercial activities and we can make related cost savings adjustments in our business. Second, remember that in 2009, we will have the benefit of four quarters worth of development support from our new partner, Takeda. As I said, we will give specific guidance for 2009 in our year-end call in February.

So in conclusion, I believe that we're very well positioned with the resources needed to advance our business. Let me turn it back now to Steve for business review.

Stephen Sherwin

Thanks, Sharon. I'm sure you will all agree this has been a very positive quarter for Cell Genesys. All things relating to our lead program, GVAX immunotherapy for prostate cancer, both the newly signed agreement with Takeda Pharmaceutical as well as some important reports from the Phase 2 program for this product and I'd like to summarize all of that for you now. With respect to the Takeda collaboration, I think Sharon has done a very good and complete job of summarizing the financial elements. But what I would like to do is just say a couple of words about Takeda as a partner for this product.

I think you'll all remember in previous calls and investor presentations, we made the point that we were going to be very deliberate in signing this partnership and seek the best possible deal with the best possible partner. I hope you agree that we signed a very good deal based on the terms, and as far as Takeda is concerned as our partner, we couldn't be more enthusiastic about entering into this agreement.

Most importantly, Takeda has clearly made a very strong commitment to the field of oncology. I think that has to be clear to everybody today in a relatively short timeline they've signed three significant agreements to implement their strategy to become a global leader in the oncology field. Beginning, of course, with the agreement with Amgen, which provided access to primarily early-to-mid-stage products. Then our agreement which gives them an important opportunity in late clinical development in the cancer area.

And finally, of course, the acquisition of Millennium Pharmaceuticals, which provides them with a commercial stage product as well as the commercial infrastructure in the oncology area. I think you can see how well these three transactions fit together. And most importantly from the Cell Genesys perspective, how important our collaboration is in their total strategy in this area. And beyond that, as I've commented previously, we certainly were impressed with their longstanding experience and track record in the prostate cancer area, and here of course, I'm referring to their pioneering work in the development and commercialization of Lupron which remains the most widely used prostate cancer treatment today. So again, best possible partner, best possible deal. We couldn't be happier and we're very enthusiastic about proceeding in this relationship and feel that we've now got a well-defined path to the commercialization of GVAX prostate upon the success of the Phase 3 program.

Let me turn now to some of the clinical reports I mentioned a couple of minutes ago and recap those reports as well as our Phase 3 progress. Starting first with the Phase 3 progress, as you know, we've been conducting two large multinational Phase 3 trials, VITAL-1 and VITAL-2, since 2004. The VITAL-1 study targets patients with asymptomatic metastatic hormone refractory prostate cancer and is comparing GVAX prostate to Taxotere the standard of care with respect to improvement in survival. The study completed enrollment last summer with 626 patients and in January of this year, the independent data monitoring committee conducted a pre-planned interim analysis and we received the encouraging recommendation to continue the study. Importantly, this analysis was conducted in the time frame originally estimated based on the projected survival estimates for each treatment arm. And of course, the company is blinded from any specific results of the interim analysis.

With respect to the VITAL-1 timeline going forward, we expect that we will have sufficient events to trigger the final analysis as we've said previously in the second half of next year. Meanwhile, VITAL-2 is continuing to enroll patients. This study is, of course, complementary to VITAL-1 with respect to patient population and treatment regimen focusing on symptomatic patients and comparing GVAX plus Taxotere to Taxotere alone, again, with respect to improvement in survival. This study started about a year after VITAL-1. We've about 100 sites open in North America and Europe. Europe for us means strictly European Union member nations. There are eight countries involved.

And let us confirm today our previous guidance that we continue to target the first half of next year for completion of enrollment (inaudible) that we will have sufficient events for the pre-planned interim analysis in that study within the same timeframe. We actually have not forecast the specific timing of the final analysis for VITAL-2, we will do that after the interim. Remember that – unfortunately these patients have a shorter survival because of the more advanced stage of their disease. And remember as well that, because both of these protocols were taken through the full special protocol assessment process with FDA, we believe that if we meet the pre-defined primary end point, either trial on its own would be sufficient for BLA filing.

Now in addition to the Phase 3 progress during the past quarter, we also have these clinical reports and there are a couple that I wanted to highlight today that we think should provide all of you with further encouragement regarding the prospects for a successful outcome in our Phase 3 program. The first of these was the report at the ASCO Symposium on Genitourinary Cancer which was in February. That examined in detail the immune responses of patients who were treated in one of the two Phase 2 trials for GVAX prostate and advanced disease. What we did in this study was to look in detail at the antibody formation in the patients who had been immunized with GVAX. And the reason we're focused here on antibody responses is that it provides a high throughput methodology to dissect the immune response with respect to which antigens are producing immune responses and which of the immune responses are associated with better outcome. And of course, this is a proxy for T-cell response given the mechanism of action for the product. Scientists use three different methodologies, came up with actually over 400 different antibody responses, about a quarter of which were found in multiple patients. So, the first takeaway from these results, again, was the confirmation of the proposed mechanism of action, that is this product induces a broad immune response which is patient specific.

Of course, the other important findings were an attempt to associate certain antibody formations with better clinical outcome. And in fact, as we reported, two of the antibodies were associated with increased survival and two were not. That shows you the specificity of the observation and where there was an association, we were able to rule out any obvious contribution of patient disease characteristics or duration of treatment. This is ongoing work. We're very excited about what we've seen even in these early stages. We expect to apply all of these lessons to obviously larger exploratory analyses in the Phase 3 studies. So stay tuned for more work in this area.

The other important report during the quarter that I wanted to emphasize came just recently at the American Association for Cancer Research meeting. This was a report of a Phase 2 trial in patients with earlier stage prostate cancer, what we call hormone sensitive disease. So these are men who failed surgery and radiation, have rising PSAs but have not yet had hormone therapy which is in contrast to the hormone refractory patients in our Phase 3 program and in the other Phase 2 trials we've conducted.

In this study, as we reported at AACR Conference, we showed evidence of potential benefit to these patients with two different kinds of PSA measurements. The first being PSA doubling time which increased from 29 to 57 weeks and the second in terms of PSA slope which improved in about 84% of patients. These are both measures of disease progression by way of PSA. These findings are encouraging to us and certainly suggest that additional studies in this stage of prostate cancer could be very exciting for GVAX prostate. But they are also important because of the consistency of these findings with results reported in an earlier study in the same stage of prostate cancer where we saw 76% of patients with PSA slope improvements. So, if you take a step back, you can see that we now have two studies in early stage prostate cancer with consistent findings, the two that I just mentioned as well as the two studies that we talked about on several occasions in advance disease where we have consistent findings with respect to median survival, and that provides, of course, the underpinnings for the Phase 3 program. So again, two studies in early disease, two studies in late disease.

This is, I think, the strength of the database for GVAX prostate that you can all look at and review as you consider our prospects for Phase 3. And it goes without saying that as a company, we couldn't be more encouraged than we are by what we've reported to date.

Just for sake of completeness, let me mention two other interesting presentations at AACR. We had a further report on the combination therapy trial GVAX prostate plus CTLA-4 antibody which showed a correlation of immune response with clinical findings and in addition to that, an interesting pre-clinical paper showing the potential anti-tumor immune response benefits of multi-antigen versus single-antigen immunotherapy. So, I think it's fair to say that this has been a very newsworthy quarter for the company and all happily enough in a very positive way.

Let me turn now to a brief recap of the milestones for the rest of this year and 2009. Notwithstanding all the news so far this year, don't think for a moment that we will become silent for the rest of 2008. We do anticipate further clinical trial reports starting later this month at the American Neurologic Association meeting, which is a report of the Phase 1 trial of our viral therapy product, CG0070 in patients with recurrent bladder cancer. And then next month, early next month at ASCO 2008, we expect an interim update on the Phase 1 trial of GVAX prostate and CTLA-4 antibody. In the second half of the year, we expect more clinical trial reports from our Phase 2 programs. But of course, it's 2009 where the Phase 3 trials will be center stage. To remind you in the first half of the year, we targeted the completion of enrollment for VITAL-2 and believe we'll have enough events for the interim during that timeframe, and in the second half of the year, I believe we'll have enough events for the VITAL-1 final analysis.

Before I wrap things up, I'd like to have you indulge me in one observation. As I take a step back and look at our progress over the last several years, and in particular, I want to make a comment about the Phase 3 timeline. I said earlier that this program began in 2004 and I just told you about the significant events in 2009. So a five-year program, and certainly it's nice to be in year four, approaching year five. Nice for us as a company and I'm sure encouraging for all of you as investors. I often get asked, why does it take so long? And I get asked that by investors and of course, unfortunately by patients who are waiting for better therapies. And the answer is that immune therapies are not products to be evaluated by companies in a hurry. You have to target slow growing cancers where these therapies have a better chance to work like prostate cancer and you have to use endpoints that take a longer time to reach, such as survival. But the good news is, there is indeed a light at the end of the tunnel.

So, let me wrap up. I think the year has gotten off to an excellent start. Obviously, there's been good progress with GVAX prostate in terms of clinical reports and most of all, the very important collaboration with Takada. We're certainly happy with the state of our balance sheet and our financial resources. And the mood here at the company is very positive as you can well imagine. We look forward to keeping you posted on our progress in the months ahead. Let me turn things back to Susan now to recap the upcoming investor conference presentations. It will be a busy few months. And then we'll take your questions.

Susan Ferris

Thanks, Steve. On May 9th, we'll be presenting at Leerink Swann Solid Tumors Roundtable Conference, taking place in New York. And later in the month, we'll be at the Rodman & Renshaw 5th Annual Global Healthcare Conference being held May19 and 20 in Monte Carlo. In June, we'll be at Needham and Company's 7th Annual Biotechnology & Medical Technology Conference being held in New York on June 11 and 12. And then in August, we'll be presenting at Canaccord Adams' 28th Annual Global Growth Conference being held in Boston, August 12 through 14. You can access these presentations on the Investor Section of our corporate website, www.cellgenesys.com. And now operator, we'd like to open the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) We'll go first to the line of Joe Pantginis from Canaccord Adams. Please go ahead.

Joe Patginis – Canaccord Adams

Hi guys, good afternoon. Just two questions, if you will. The first one is on Takeda and the second is on earlier stage GVAX program. Can you describe to us what kind of activities you've undertaken thus far with Takeda? And then secondly, since we're looking at 2009 to sort of have your expenses come down from your late stage products, I was wondering if you could give us some sort of update on pre-clinical progress you've been making on programs that you're excited about, such as GVAX-1. Thanks a lot.

Stephen Sherwin

Sure. Be happy to address those questions. First, with respect to the initiation of activities with Takeda, this is occurring on multiple fronts. There have already been meetings and discussions between the clinical and regulatory teams and also the commercial teams. The latter addressing important issues like communications with the medical community, and of course, our ongoing reimbursement activities.

More comprehensive kinds of meetings, including the implementation of the various governance committees that are specified in the contract, of course, are imminent as well. It's always hard to know, Joe, when you sign a collaboration how things are going to go after the agreement is negotiated and executed and the wire transfer occurs. But I just want to say to you and everybody listening in, I couldn't be more enthusiastic and more optimistic about the prospects for a good collaboration based on the good chemistry that I see, not only between myself and the senior officials at Takeda but at every level and every point of contact.

Now, your other question was about, given our ongoing commitment to careful expense management and keeping our focus on GVAX prostate, what can we do to advance the pipeline? Let me remind everybody that we have been very fortunate over the last couple of years and this also is continuing to be true and having the benefit of a multi-product multi-year collaboration with Johns Hopkins which is a highly leveraged opportunity from a financial standpoint for Cell Genesys

And what we have going on there are the kinds of exploratory Phase 2 trials that you would want to see for the two products in particular, GVAX pancreatic and GVAX leukemia so that we can define where the best opportunities are to invest. And at that point in time where we've reached a conclusion, we would be in a position to talk about how much investment depending on the stage of the program we would want to make. As far as GVAX lung is concerned, this is in pre-clinical studies, so within all of the limits of expense management and the forecasting that Sharon was able to do today, this program is full steam ahead.

Joe Patginis – Canaccord Adams

Great. Thanks a lot, guys.

Stephen Sherwin

Thank you.

Sharon Tetlow

Thanks, Joe.

Operator

Next, we'll move to the line of Ren Benjamin from Rodman & Renshaw. Please go ahead.

Ren Benjamin – Rodman & Renshaw

Hi, good afternoon and congratulations on the progress. Couple of quick questions. I guess one for Sharon. I think you mentioned, at least early on in the call, that the reimbursement that you'd be getting from Takeda was $15 million to $20 million and then later on, when you were talking about revenue recognition, I thought your mentioned $20 million to $25 million. Can you just clarify that for me.

Sharon Tetlow

Correct. Because there is as you know, a difference between receipt of cash and revenue recognition.

Ren Benjamin – Rodman & Renshaw

What's accounting for that?

Sharon Tetlow

One is accounting and one is cash. So, for example, one can imagine that one would bill at the end of the quarter for the quarter's worth of expenses so you would receive the money in the subsequent quarter. And that's why the actual cash received before the end of the year would be different from the revenue recognition process for that expense reimbursement.

Ren Benjamin – Rodman & Renshaw

Got it. Great. And with the exploratory Phase 2 trials that are ongoing in pancreatic and leukemia, is there any sort of update that you can give us? I know that it's been run by your collaborators but have you gotten any sort of an update regarding those trials?

Stephen Sherwin

What we said is that enrollment is going along well in the various studies that we previously talked about. For example, in pancreatic cancer, it's a combination trial of Erbitux and cyclophosphamide chemotherapy along with GVAX pancreatic and in the case of the leukemia product, there's a study in CML and a study in myelodysplastic syndrome, MDS. We haven't said anything more than the fact that enrollment is proceeding and going along well in these studies. We do anticipate updates on these trials before the end of the year, but we haven't – we're not in a position today to be specific about which meetings, and I think you all know the schedule of year end and early year meetings that occur where these kinds of presentations might occur. I just don't want to say specifically today, we would have a presentation at ASH or the ASCO GI Symposium. Those are possibilities, but I can't be certain about it at this time.

Ren Benjamin – Rodman & Renshaw

Okay, fair enough.

Stephen Sherwin

There are some other opportunities in the interim for reports as well, and we'll keep you posted in advance.

Ren Benjamin – Rodman & Renshaw

Sounds great. One last question and that is, the whole notion of exploring untapped markets seems to keep coming up in the news. And so for example, as you know, I think GSK announced today that they're exploring a lot of – some of these up and coming markets, the Russian markets, the Indian, Chinese markets; Antigenics had a press release about an approval for Oncophage in Russian market. Have you guys given any thoughts, or do you have any thoughts regarding these markets now that you're getting closer to the end of the tunnel? Are you going to just concentrate primarily on U.S. and EU? Has Takeda kind of weighed in on this at all? Do you have any thoughts?

Stephen Sherwin

Well, certainly our focus up to this moment in time has been on the U.S. and the European markets served by the European Union. And I don't want to preempt discussions that are in front of us with respect to additional parts of the world. But obviously, Takeda is in every sense a global company with worldwide global infrastructure, most importantly for us right now in development as well as in commercialization. So, I can only say today that I expect we will explore the broader reach of the opportunities. But we certainly are going to keep our focus on the two parts of the world that we have already been working in.

Ren Benjamin – Rodman & Renshaw

Terrific. Thanks a lot and congratulations.

Stephen Sherwin

Thank you.

Sharon Tetlow

Thanks, Ren.

Operator

We'll go to the line of Mark Monane from Needham & Co.. Please go ahead.

Mark Monane – Needham & Co.

Hey, good afternoon, greetings from New York City, congratulations on your progress this quarter.

Stephen Sherwin

Thanks you Mark.

Mark Monane – Needham & Co.

We know from the TAX 327 trial that early reduction of PSA in the first few months – is correlated with improved survival in those patients. But immunotherapy takes time to work. Given the fact you have some nice set of patients from the Phase 2 trials, has the team at Cell Genesys uncovered some similar markers that might be useful in the evaluation of active immunotherapy in the management of prostate cancer?

Stephen Sherwin

Right, I guess I have two comments. First, the use of PSA to predict clinical outcome – I would anticipate that how PSA is measured and used as a predictor of outcome is going to very much be dependent on the mechanism of action for the product. So, for example, a reduction such as you cited for Taxotere being associated with better outcome makes sense for a cytotoxic chemotherapy such as Taxotere. Increased doubling time, improvement in slope, other measures like that might turn out to be equally useful as predictors of outcome for slower acting products like immune therapy.

To be clear for everyone listening in, we're not in a position today to claim that, but it is certainly a theoretical possibility. So, I think we need to be thoughtful about how we measure PSA for different classes of compounds and thinking about how it could be used as a predictor of outcome. So, that's the first thing I wanted to say in response to your question.

And then you also asked, what about other markers? PSA, of course, is a marker for prostate cancer, has its use and its value and also, as we're all aware, its limitations. If we start from scratch and think about the best markers for immune therapy and we ask the question in as open minded as we can, we might discover entirely new markers or new uses for previously identified markers that would be very useful to follow in immune therapy. And that's really the point of the work that we've started to describe at the ASCO GU Symposium. We didn't look for antibody responses to known antigens that we were prejudiced would be there, because those were the immunizing antigens.

We started with the approach, let's just see what the patients are reacting to and then work backwards and see which of those responses are associated with better outcome. It's a work in progress, but as you know, we already have a couple of antibodies that could well be used just as PSA is now used guide treatment decisions because they are associated with the better outcome. So absolutely, in answer to your question, there can be immune markers and perhaps other markers for immunotherapies. So, I hope I got at your questions with this answer, but if I missed something Mark, please ask again.

Mark Monane – Needham & Co.

Well, I was thinking – that was helpful. Point of information would be on recent active immunotherapy data we saw showed patients that had a tumor response – excuse me, an antibody response to a tumor antigen seemed to do better than patients that didn't. And so is that a biomarker that could be explored in prostate cancer as well, do you have data from those – I know there's an 80-patient trial that you did that looked at survival as an outcome. Any information we can use from those trials?

Stephen Sherwin

Yes. That's the most important takeaway so far from the studies reported at the ASCO GU Symposium. If there are two antibody responses, I won't go into all the details, we can do that offline, but we found two antibody responses that were associated with increased survival in a rather similar way in terms of the enhanced median survival, both in the 43-month range compared to antibody negative patients. But that wasn't true for every antibody, as I said, there were a couple that had no association. So, that suggests it's a more specific phenomenon.

And secondly, where there was an association, we found no way to ascribe it to some disease characteristic. And furthermore, this was not looking for, as I just said, an antibody against the one single antigen that we had immunized the patients with. This was an ecumenical exploration, if you will, of the immune response. So, those two markers, and maybe others, or maybe a panel of several, are indeed, in my mind, markers that could be used to predict a better outcome if they occur and therefore be used to guide treatment decisions, much as you would look for in the case of Taxotere therapy, a reduction in PSA.

Mark Monane – Needham & Co.

Got it, got it. Next question is that you nicely brought up that this trial has been going on from 2004 and data expected in 2009. Can you help us understand what happens during that time for the immune system. The series of vaccinations are given. How long lived – do we know how long lived the immune response is? Should we think of it as long-lived (inaudible) as seen with the chickenpox or rubella or do you have evidence from previous trials. How long-lived is that memory response – or T-cell response?

Stephen Sherwin

Okay, I can partly answer this but not completely. What I can say today is that in the Phase 2 – and first of all, of course, I have no information yet from the best source of information to answer those questions which is the Phase 3 trial where we will have a far greater number of patients and also far more experience with long-term booster administration and so forth. So, the best answers to your questions, whatever they are, are forthcoming. However, we did look in the Phase 2 experience to see if we saw more antibody conversion, more antibody positivity over time. And we definitely did see that all the way up to almost complete saturation at 100%. And so, that would argue that the immune response builds over time. We definitely can say that based on the Phase 2 experience.

You asked a slightly different question which is how long-lived is the response once it occurs. And again, we don't have as much information on that as we will in the future. But there is some very interesting work that has been reported that suggests it could be a matter of even years if the patient is lucky enough to be benefiting and surviving. And what I'm referring to here are studies conducted at the Dana-Farber Cancer Institute which have been published where patients have received GVAX therapy, for example, for melanoma or ovarian cancer and then received the CTLA-4 antibody often a few years later and had benefit of what might be considered to be a reactivation of the memory T-cell response induced by the GVAX product.

So, there are certainly indications in those studies of long-term immunologic memory and a broad T-cell repertoire because in fact, in the same paper, in the same studies, patients who got single antigen immunizations with other products did not have that reactivation of immune memory and clinical benefit. That's the best I can do today. It's a good question, and it's a question that's more in front of us than behind us.

Mark Monane – Needham & Co.

That's fair. And last question is, both you and Sharon seem pretty excited about the Takeda collaboration. And when you have one collaboration and you think it's going well and you're happy, you think about having other collaborations. So do we have – are you able to update us or help us understand what you're thinking about the lung cancer GVAX program, the pancreatic GVAX program, CML GVAX program, how should we think about partnership strategies there?

Stephen Sherwin

Well I think, the best answer to that today would be, we want to try to build value in those programs and find the best inflection point in the value curve given the company's good financial health. We don't need to trip over ourselves and externalize those programs and collaboration agreements. Of course, all the rights remain with the company for products you mentioned. So, no immediate plans. We want to leverage the ongoing collaboration with Hopkins. No immediate plans, I mean, to seek a partner.

Mark Monane – Needham & Co.

Thank you for the added information.

Stephen Sherwin

Sure. You're most welcome.

Operator

We'll go next to the line of Richard Smith from JPMorgan. Please go ahead.

Richard Smith – JPMorgan

Hi, good evening. Just a quick question. Apologies if you've already talked about this. Just the data [ph] ASCO on the combination with the preliminary. How many patients will we see?

Stephen Sherwin

Hi, Richard. What we're talking about here is the first report on the expansion phase which is in 16 patients. The first phase that we reported both clinically and most recently, immunologically, at AACR is in 12 patients that we've been calling the escalation phase.

Richard Smith – JPMorgan

And maybe just on the Takeda deal. Could you give us some sense of the time point at which you decided that Takeda was the partner and all others were off the table?

Stephen Sherwin

Well, I think when we had the conference call, I said what I could about that and I'll just go over a couple of points briefly. We chose Takeda, and I'm trying to telegraph in that comment that we, of course, did have other interested parties at – some at significantly late stages in these kinds of processes. And what we haven't been able to do, of course, is say who else we talked to out of respect for confidentiality agreements. Nor are we in a position to give you a precise timeline for Takeda. But I think you can see from the combination of the three transactions that they put together in the oncology area, that they are a company that can be very nimble in implementing their strategy. And I realize I haven't precisely answered your question but that's the limit of what I can say at that point.

Richard Smith – JPMorgan

All right, thank you.

Stephen Sherwin

Thanks very much, Richard.

Operator

(Operator instructions) We'll go to the line of Pamela Bassett from Cantor Fitzgerald. Please go ahead.

Pamela Bassett – Cantor Fitzgerald

Hi, thanks very much.

Stephen Sherwin

Hi, Pam.

Pamela Bassett – Cantor Fitzgerald

Hi. Actually, Mark got into my question. Thanks, Mark. Just a follow-up to that. You talked about doing more – doing a larger analysis of the antibody response in Phase 3 with using Phase 3 data. Can you talk about the practical applications of, or what you project maybe practical applications of that data? And what form that may take and how that would benefit Cell Genesys going forward?

Stephen Sherwin

Sure. I think that's actually a very good question. The starting point for doing these studies was to ensure that our proposed mechanism of action for the product is exactly what we think it is. In other words, inducing an anti-tumor immune response that's clinically beneficial to the patient. So, the first benefit to Cell Genesys is continuing to provide the experimental support for that hypothesis. Because that, in a very practical way, is an essential part of any successful marketing application for a product in any of the world's principal territories.. The regulatory authorities need to understand how the product is working and how well substantiated that is.

The second benefit to Cell Genesys of these studies is education of the clinical community, both the oncology and urology community. Communities are going to want to know how the product is working. And then the third thing which is down the road a bit, but based on our thought leader discussions to date, we believe it's important and is certainly a motivation for our doing these studies in addition to the first two things that I just mentioned. And that's the following. If we can identify an antibody or perhaps more likely, given the patient specificity of the response, a panel of antibodies.

Maybe, I'm guessing here, but maybe a three to five antibody panel that we could develop into, undoubtedly with the help of a company experienced in this area, into a diagnostic kit, then that kit could be provided to physicians who are using GVAX prostate to treat their patients and if they find that the patient is scoring as positive in these antibody assays then we could potentially be in a position to tell them that's good because there's a better outcome for that patient down the road, as in survival. And survival is a sufficiently distant outcome that physicians often need nearer term feedback from their treatment in order to maintain the course of therapy.

So, if I've been good in explaining this, you can see there's important information on the mechanism of action that will help with respect to the regulatory strategy, with respect to the market conditioning and education of the physician communities, and finally, potentially to provide diagnostic tools that physicians can use in their practice to guide treatment decisions. That's why we're excited about the progress in this area so far.

Pamela Bassett – Cantor Fitzgerald

Thank you very much. And do you think – I mean, you're focused on the antibody response. Is there also, have you also been collecting antigen data from early-stage clinical – earlier stage clinical trials and late stage that you might use for stratifying the patient population in any way, or predictive diagnostics?

Stephen Sherwin

So, if I can restate the question, you're wondering either in the early or late stage patient trials, have we identified any predictive – any immune response that could be used as a patient selection criteria.

Pamela Bassett – Cantor Fitzgerald

Actually, I was thinking that and a staging – kind of like an alternative staging tool.

Stephen Sherwin

I see. Well, this is a work in progress, as I said and I think there's a good chance, but I can't guarantee it, certainly that we will find antibody responses that have physiologic meaning and what I'm saying here is that the antigen is one that has a role in the growth of the tumor and blocking it would be a way of explaining how the treatment is actually working. And therefore, if patients have this antigen they're more likely to benefit from GVAX than if they didn't. That's a possibility. I think there's a good chance that we can find those kinds of antigens, but there's certainly no guarantee. If we do find those antigens, then future clinical trials, at any stage that we might test GVAX prostate could potentially consider those antigens not only as entry criteria, but stratification criteria. I think that's possible. So, stay tuned for that.

Pamela Bassett – Cantor Fitzgerald

Great, thank you very much.

Stephen Sherwin

Thank you very much, Pamela.

Operator

And seeing no further questions, I will turn it back to Dr. Sherwin. Please go ahead.

Stephen Sherwin

Well, let me close by saying again that we couldn't be happier about how the year has started and our focus remains, as you would expect and as you heard today on GVAX prostate, we're very happy about the evolving story from our Phase 2 database. And of course, as I've said today on a couple of occasions, very happy about our new corporate partnership with Takada. So, we hope that we somehow managed to communicate that positive sentiment to all of you today. And as you heard, we have a very busy conference schedule coming up. And look forward to providing you with updates at those conference presentations and also in our second-quarter call later this year. Thanks very much for your time, and we'll see you all soon. Bye-bye.

Operator

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Source: Cell Genesys, Inc. Q1 2008 Earnings Call Transcript
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