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ImmunoGen, Inc. (NYSE:OKS)

Q4 2012 Earnings Call

August 3, 2012, 08:00 am ET

Executives

Carol Hausner - Executive Director, IR & Corporate Communications

Dan Junius - President & CEO

Greg Perry - EVP & CFO

Jim O'Leary - VP & CMO

Analysts

Thomas Wei - Jefferies

Adnan Butt - RBC Capital Markets

Mara Goldstein - Cantor Fitzgerald

John Sonnier - William Blair

Ling Wang - Summer Street Partners

Boris Peaker - Oppenheimer

Cory Kasimov - JPMorgan

Yale Jen - Roth Capital Partners

David Miller - Biotech Stock Research

Operator

Good day and welcome everyone to this ImmunoGen, fourth quarter fiscal year 2012 financial results conference call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Executive Director, Investor Relations and Corporate Communications, Carol Hausner. Please go ahead.

Carol Hausner

Thank you. Good morning. At 6:30 am this morning, we issued a press release that summarizes our financial results for our fourth quarter and fiscal year ended June 30, 2012. I hope you have 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. 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 and our Chief Financial Officer, Greg Perry, will discuss our financial results and guidance for our fiscal year 2013. We will then open the call to questions. Our Chief Medical Officer Dr. Jim O'Leary will be available for the question-and-answer session. Dan?

Dan Junius

Thank you Carol and good morning everybody thank you for joining us this morning. It’s been an eventful three months for ImmunoGen and for our technology across a number of fronts. At the ASCO session in early June, T-DM1 was featured in the plenary session with Phase III data from the EMILIA study. On a number of fronts this was impressive data that showed strong improvement in PFS versus the control ARM, very good tolerability and we also got some insight into survival.

At the same ASCO session or during that session, we also learned about Roche’s plans to expand T-DM1 into early stage breast cancer and that they will be starting three trials in 2013 demonstrating a strong commitment to all lines of HER2 positive breast cancer. At ASCO there was also encouraging data on another tap compound SAR3419 under development by Sanofi; recall this as a different design in T-DM 1 and you are looking at a different linker or different cytotoxin, obviously a different antibody. And in this case, the antibody acts solely as a targeting vehicle. There was interesting data there. Sanofi now is advancing SAF3419 in three Phase II studies.

At the same time there was visible progress on our own pipeline. Our Phase II compound IMGN901 had Phase I data accepted for presentation at a medical conference in early September and we also advanced IMGN853 into clinical testing. This is the second new compound we brought into the clinic this year.

So let me start by reviewing the T-DM1 data from ASCO. Again, this is from their lead Phase III study EMILIA which is evaluating T-DM1 in patients with HER2 positive metastatic breast cancer who previously received Herceptin antitoxin. This is often viewed second line therapy, but you should note that there are patients here who could be receiving T-DM1 as their first treatment from metastatic disease having received potentially Herceptin in adjuvant therapy.

The data here was presented at an ASCO plenary session by Dr. Kimberly Blackwell of Duke Medical Center. Note that, she also spoke separately at a Roche Investor Event later that same day and provided additional color around the data. You may want to listen to that on a webcast which remains available at Roche’s Investor website.

But turning to the data, the efficacy results continue to look very strong for T-DM1 and in particular in this study. What they confirmed was the significant improvement in PFS that they previously reported in topline data and while overall survivor data was not mature and was not expected to be mature, there was an insight into the overall survivor data.

First off, it was analyzed at this time because of the statistical plan called for interim analysis of overall survival when the PFS endpoint was reached. The study had been powered for overall survival analysis when 632 events occurred; these events being patient deaths. At the time, the PFS endpoint was reached only 223 events had occurred. Nonetheless, a hazard ratio was generated at 0.621 and that’s with the P value of 0.005. Dr. Blackwell noted that the data missed reaching statistical significance by just one event and I think that’s noteworthy when you have barely a third of the events that had been planned in the statistical design of the study.

What was learned that for evaluable patients at the time of the data cutoff, two years survival was 65.4% for patients receiving T-DM1 and that compares with 47.5% for patients receiving Tykerb plus Xeloda. And Dr. Blackwell described this difference as being huge. Obviously, a very encouraging trend for what one might expect to see as the patient population matures here.

In terms of tolerability, Dr. Blackwell also noted that the drug exposure was high with the two HER2 targeted therapies with 93.4% for Tykerb and 99.9% for T-DM1. This contrast’s with a 77.2% exposure for Xeloda which Dr. Blackwell noted was what she would expect based on prior studies. 53% of the Xeloda patients had dose reductions, again reflecting tolerability issues.

And focusing on tolerability, one of the points Dr. Blackwell made was the impact of diarrhea on patients in this therapy. She indicated that patients receiving Tykerb plus Xeloda had an 80% incidence of diarrhea, 21% had Grade III or greater, in this contrast there were 21% of the patients in the T-DM1 ARM incurring diarrhea, fewer than 2% having Grade III or greater. She noted that this is a huge deal, both in terms of patient quality of life and the amount of time physicians have to commit to managing side effects. Overall, Grade III or greater adverse events with T-DM1 were 40.8% compared with 57% of the patients receiving Tykerb plus Xeloda, so again a notable difference in the tolerability profile.

Moving from EMILIA to the information we learned about Roche’s strategy for early stage breast cancer. They now have a three-prong strategy for these patients. In EMILIA adjuvant setting they will be using pathological complete response as a surrogate endpoint in this study to start in the first quarter of next year. This will compare TDM-1 to Herceptin each to use with and without Pertuzumab. The data from this, the pathological complete response date is expected in 2015.

In the adjuvant setting, a study will be underway sometime in 2013 looking at T-DM1 plus Pertuzumab against Herceptin plus Pertuzumab. These will both be after an anthracycline base regimen. This study will start sometime next year; data is anticipated in 2018.

In the last study they have indicated they want to initiate is in patients with residual invasive tumor following surgery. They have characterized this as a particularly high unmet need. These patients will be randomized either to T-DM1 or Herceptin post surgery. The endpoint here is three-year disease free survival. This study will also start in the first quarter of 2013 with data expected in 2018.

And stepping back from the specifics, I found it interesting in terms of two themes that came across listening to the oncologists that were at ASCO. One of them was along the line of HER2 positive breast cancer being a disease where a lot of progress had already been achieved. So the fact that they were seeing the quality of data coming out of this study was of particular interest, because the bar was already so high for therapy in HER2-positive metastatic disease. They also made reference more broadly to how this technology, that being ADC technology is potentially transformative as [TAP] cancers will be treated in the future.

It was noted that they (inaudible) new therapies for major cancers, particularly solid tumors that offer improvements in both efficacy and tolerability and that's the data that was shown through this EMILIA data. So moving beyond T-DM1, other data at ASCO came from SAR3419. Now this is in a somewhat earlier stage than T-DM1. It's in Phase 2 studies. Again it’s a different target, a different cancer, as well as a different construct; it’s a different linker here and it's our DM4 cell killing agent versus DM1 in the T-DM1 construct.

This has been examined when it was dosed weekly. However in those studies, they showed some evidence of accumulation after the fourth dose that generated some level of toxicity. This is in part could be due to the fact that this particular TAP compound has a very long half life. What was reported in ASCO findings in the Phase 1 studies that have led to the Phase 2 dose and the schedule for 3419.

The patient population in the Phase 2 study that would be patients that have relapsed or relapsed to refractory Non-Hodgkin’s lymphoma whose prior treatments have included Rituxan and that the schedule that they have come up with is a regiment where they will dose weekly for four weeks and then every other week for another four doses at 55 milligrams per meter squared.

And what this alternative dosing regiment allows is to reach a saturation level from a dosing standpoint but not crossing a threshold that results in the toxicity that they attain in other studies. The finding was that there was no need to dose reduce or dose delay any patients due to adverse events. The efficacy continues to be impressive. Again, these are later stage patients. They showed a 28% objective response rate across an array of NHL histological subtypes and it particularly noted a 33% of objective response rate and diffused large B-cell lymphoma.

Three studies are now underway, two [NDL, BCL], one monotherapy, one in combination with Rituxan, a third study is an acute lymphoblastic leukemia. And we may see data from one of these Phase 2 studies at ASH in December. So moving beyond the ASCO data, we've also had visible progress in our own pipeline over the last several months. Our IMGN 901 which is in Phase 2 testing for first line small cell lung cancer we now have 28 sites open, more sites than we continue to bring on.

We expect to report our initial Phase 2 data from this study in 2013. Recall that we had a Phase 1 dose escalation to inform us as to the Phase 2 dosing. We will have data on that Phase 1 portion at the multidisciplinary symposium and thoracic oncology which will be in early September in Chicago.

This study data recall this patient population you should be aware was not limited to small cell lung cancer patients. Those patients as well as other patients participating in the study were not first line patients and so its not our target patient population but we felt its informative data around how we got to the Phase 2 dose, what that Phase 2 dose is and it will also be an opportunity that again while its not our target population of small cell lung cancer patients, we will look at that subgroup and report on the findings for that patient population as it maybe informative as to what we can anticipate in the Phase 2 portion.

And lastly, on note for two other compounds that have just come into clinical studies IMGN529 and 853, recall we discussed in our April call that IMGN529 it just entered into clinical testing and IMGN853 dosed its first patient just last month.

Recall that IMGN529 this is a TAP compound with an active antibody for Non-Hodgkin’s lymphoma patients, enrollment is in process here and we are looking forward to generating data out of this study. The more study IMGN853, this targets the Folate Receptor 1 or Folate Receptor Alpha. What you have here at this is a target that's expressed kind of variety of ovarian cancers and other cancers including the most common type of lung cancer.

We are now in the dose escalation phase, we were able to gain a protocol approved that allows for single patient cohort at lower dose levels so that we hope it will provide for accelerated dosing to getting up to therapeutic levels. And once we establish the maximum tolerated dose we will move into disease specific expansion cohorts.

First looking at ovarian cancer second line patients those that are refectory or resistant to platinum based therapies. We will look at another set of ovarian cancer patients, these were second line or later and they may have received any prior cancer therapy and what will be included in this particular cohort is a biomarker assessment for these patients.

We will also have a biomarker assessment as part of an expansion cohort and non-small cell lung cancer adenocarcinoma patients. These would also be second line or later patients.

So with that let me turn to over it to Greg to provide you an update on the financials and our guidance.

Greg Perry

Thanks Dan. What I would like to do is walk you through the press release and provide a little bit of color in terms of fiscal year 2013 guidance. Our net loss for our fiscal year ended 2012 was $73.3 million or $0.95 per share compared to a net loss $58.3 million or $0.85 per share for our 2011 fiscal year. Our net loss for the fourth quarter of 2012 was $22.4 million or $0.29 per share compared to a net loss of $16.2 million or $0.23 per share for the same quarter last year.

Revenues for our 2012 fiscal year were $16.4 million as compared to $19.3 million in 2011, but 2012 revenues contain $9.2 million of license and milestone fees as compared with $6.4 million in 2011. 2012 includes $5 million in milestone fees earned with the advancement of SAR3419 into Phase II testing and the two Amgen compounds into Phase I testing. The 2011 revenues include $3 million in milestones earned with the advancement of TAP compounds into clinical testing by our partners Bayer in Santa Fe.

Our 2012 revenues also include $4.5 million of research and development support fees and $2.7 million of clinical materials revenue compared to $7.3 million and $5.7 million respectively for 2011 fiscal year. These revenue items tend to vary quarter-by-quarter depending on the work we have been doing to supporting our partners.

Our operating expenses for our 2012 fiscal year were $89.6 million compared to $79.5 million for 2011. For 2012 expenses include $69.2 million of R&D expense compared to $63.5 million in 2011. The increase was primarily due to greater investment we made and aggressively advancing our wholly own product candidates, those increased expenses were partially offset by a net reduction and expenses associated with providing partners with clinical [batches].

G&A expenses totaled $20.4 million at 2012 fiscal year compared to $16 million in 2011. Our R&D and G&A expenses both include meaningful increases in stock compensation expense, a non-cash charge, which in 2012 compared with 2011 was driven primarily by increases in the value of ImmunoGen's stock price.

In aggregate, stock compensation expense was up $4.5 million in our 2012 fiscal year accounting for about half of the increase in operating expenses for the year. Cash used in operations in our 2012 fiscal year was $34.3 million inclusive of the $20 million upfront payment from the Eli Lilly collaboration and our capital expenditures were $2.9 million.

We ended our 2012 fiscal year with approximately $160.9 million in cash and cash equivalents. These don’t include the approximately $94 million in net proceeds from our recent offering. We expect our cash used in operation to increase in our 2013 fiscal year, as we continue to invest in our proprietary pipeline. For example, we markedly expanded our clinical program, advancing our wholly-owned IMGN901 compound into the Phase 2 testing in March and even more recently, our fully-owned 853 and 529 compounds into Phase 1 testing.

The 901 and 853 trials are designed to enable us to establish the registration program for these compounds, and we expect to make certain CMC related expenditures for both 901 and 853 in this fiscal year in preparation for advancing them into pivotal testing.

We're also continuing to invest further expansion of our pipeline and expect to advance our next wholly-owned compounds to IND-stage by mid-2013. We're expecting our revenue to increase this year roughly in line with our expenses keeping our projected net loss for fiscal 2013 close to that of fiscal 12.

However, part of this projected revenue is non cash. It's related to the recognition of portions of upfront payments from partnerships, particularly on more recent partnerships with sizeable upfront payments. Our revenues projections include the T-DM1 milestone earned with US approval. We haven't included the milestone earned on EU approval for timing reasons which could be conservative on our part.

We also didn't include T-DM1 royalty revenues in our fiscal 2013 projections also for timing reasons. While we are confident T-DM1 will be a highly successful product, we expect sales will only be at initial stages of ramping up by the time the fiscal year ends in June 30. We also allowed for some delay between the occurrence of the T-DM1 sale and the reporting of royalties to us.

So for fiscal year 2013 we are projecting that our net loss will be between $70 million and $74 million roughly in line with what it was in our 2012 fiscal year. Our cash used in operations will be between $78 million and $82 million and as discussed we are expecting the increase in our cash revenues to be less than the increase in our cash expenses.

I should also note that our fiscal 2012 cash use benefited from the $20 million upfront payment we received from Lilly and our fiscal 2013 guidance does not include new partnerships due to the uncertainties around occurrence, timing and magnitude.

For our 2013 fiscal year we also project our capital expenditures to be between $4 million and $5 million and to end the fiscal year on June 30, 2013 between $172 million and $176 million in cash and marketable securities inclusive of the net proceeds from our recent financing. Dan?

Dan Junius

Thanks Craig. I thought that with the results coming out of ASCO as well as the expected filing for T-DM1 sometime over the course of 2012, that it would be a good opportunity to review the T-DM1 terms that have been disclosed in our SEC filings. And let me start talking about the duration of royalties. We've noted in our filings that the royalties were eligible to receive royalty payments from those from Roche from 10 to 12 years in each country where there are sales starting with the data, the first commercial sale of T-DM 1 in each individual country.

The difference between the 10 and 12 if there is no ImmunoGen patent covering T-DM I in that country after year ten our royalty term would end. If there is a patent our royalty term would then become 12 years for that country regardless of when a patent would expire i.e. if it was a 10.5 year we would still be eligible to receive royalties for 12 years. And I'd note the patent can beyond the product itself a composition of matter patent that can be on a process pattern in terms of how the compound or one the components is manufactured.

So there are variety of different avenues by which we have sought to protect our IP or our technology that is going into the development of T-DM I. In terms of the royalty level we have noted in our filings that it is tiered in roughly the mid single digits. I would note that ,that is reduced to low single digits in country during any period the T-DM1 is not covered by an ImmunoGen patent in that country, but as it pertains to that particular aspect, assuming the first commercial sale in the US is in 2013 we feel comfortable that we will have coverage for the full 12 year term.

I think the same would be true in Europe where we have patents both that have issued an additional patent spread has been allowed that we expect to issue that we believe on will enable us to have coverage in effect for T-DM1 again for the full-year term assuming launch in 2013. And the same would apply and other major jurisdictions such as Japan and the BRIC countries, we think we are in good shape there.

So with that let me then get just to our upcoming events and I will start walking through the events around T-DM1. First for metastatic breast cancer, we are looking at submissions both in Europe and in the US sometime over the course of 2012. That being the case, we would expect approvals to commence in the first half of 2013 with sales to follow shortly after those approvals.

For first line metastatic data that would be out of the (inaudible) study, we would anticipate that at least things in top line data over the course of 2013 and also in 2013, we will see the start of the Phase III studies that have been announced by Roche for adjuvant and neoadjuvant therapy.

Also sometime over potentially 2012 and to 2013 we look to hear what next steps are anticipated by Roche in the area of T-DM1 for gastric cancer HER2+ positive gastric cancer. Recall we have seven other compounds in the clinic with partners. As I noted earlier we have the potential to see the first Phase II data, an SAR3419 in the fourth quarter of this year at ASH.

And sometime over the course of 2013 more likely the back half of the year we feel there is the potential to see up to three pivotal studies initiated by our partners with compounds that are currently in the clinic. For ImmunoGen’s own products, you will have Phase I data on the Phase II, II study next month at the conference in Chicago that I referenced and then initial data out of the NORTH Trial, that’s the Phase II study IMGN901 and small-cell lung cancer. That would be sometime in 2013.

Phase I data for IMGN853 would be in 2013 and the same for the first phase I data coming out for IMGN529. We've indicated that we have another compound that’s working its way through pre-clinical on its way to an IND filing, we would expect to disclose that target and pre-clinical data in the second quarter of 2013 and then see the IND for that particular compound becoming active in the middle of 2013 and enter the clinic. So, with that we’ll end our comments and let me turn it back to Carol and we’ll open it up for questions.

Carol Hausner

Great. Thanks Dan. We're about to open the call for question. We do ask that you limit your questions to one to two per person until everybody had a chance to ask questions. Operator, we're now ready to do questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we will go to Thomas Wei with Jefferies.

Thomas Wei - Jefferies

Just a couple of questions here. The first on the Sanofi compound, 3419, I know that there had been some speculation as to whether or not we would actually hear about a go, no-go decision into Phase III trials by yearend. Is that possible along the side of the first set of this Phase II data?

Dan Junius

Always difficult to say with a partner, Thomas. And we try not to get ahead of our partners. We know that they are very enthused. I think that, that's indicated by the fact that they have got the three Phase II studies underway. I think it will be to some extent data driven but we will just have to see whether they make any announcement about that prior to year end.

Thomas Wei - Jefferies

And then with the T-DM1 royalties, there is a lot of uncertainty about interpreting your tiered mid single digit commentary, have you been able to work out with Roche yet, when exactly will we be able to learn what the tiers are and the royalty rates are, will we have to -- should we expect that the only way that we are going to be able to figure that out is by seeing what your reported royalty revenue are and actually backing out what the tiers must be or are you going to be able to be more explicit about that some time in advance of the product launch?

Dan Junius

We expect we will be more explicit prior to product launch.

Thomas Wei - Jefferies

And so it is going to be like right at the product launch, you will be able to tell us exactly what the royalty rates are.

Dan Junius

We haven't quite worked out the timing, Thomas. I think we understand the interest and we are trying to work out the sequencing and so I can't give you exact time and I think we would like to provide that detail in sufficient time for it to be digested before you get to product launch.

Operator

And we will hear next from Adnan Butt from RBC Capital Markets.

Adnan Butt - RBC Capital Markets

A question on the royalty. So how confident can you be that the protection in the US and EU will be good for at least 12 years and would the approval of T-DM1, would the timing make a difference for that, lets say the product was approved this year or middle of next year, would that impact on how long the royalty stream would last?

Dan Junius

Well, the approval is relevant to that question being only as it relates to the first sale in a country. So final dates on all of the patents aren’t necessarily set at this point; some of them are still pending. There is the opportunity to potentially get some additional time on patents in the US. I think that if we’re looking at first commercial sales in 2013 as I noted, we think we would be comfortably covered through the entire 12 year period. If there are delays and I am not sure is I see reason for a delay in the US, and a little bit because of pricing in Europe, but I think we probably should be okay even if first sale don’t occur until 2014.

Adnan Butt - RBC Capital Markets

And If I can ask a question on 901, can you tell us how many patients enrolled in the NORTH study and are you still expecting interim term analysis and then I will jump back in queue?

Dan Junius

I am sorry, could you repeat the question, I didn’t hear the question.

Adnan Butt - RBC Capital Markets

How many patients enrolled in the NORTH study for 901 and if there is interim analysis?

Dan Junius

There is an interim analysis that we have disclosed after we have enrolled after 59 patients into the study, so we have subgroup there that we want to be able to monitor separately. We’ll continue to enroll patients, so we are not going to suspend enrollment, but we want to able to look at those patients to get the insight that we need that may allow us to accelerate some decision that would relate to pivotal. But we won’t be reporting enrollment status on a dynamic basis.

Operator

And we will hear next from Mara Goldstein with Cantor Fitzgerald.

Mara Goldstein - Cantor Fitzgerald

Thanks very much just a follow-up on the question on NORTH and the interim analysis. I know you said, you just said that you would not provide necessary patient update, but do you have a sense of when then interim analysis could occur and can you just confirm that there hasn’t been any change in expected filings for T-DM1 in Japan please?

Dan Junius

Not aware of any change in expected filing for T-DM1 in Japan. The guidance from Roche had been 2013; I am not aware of any change in status there. In terms of when the interim analysis, we might see that; our current thinking is 2013, I think it would be probably back half of 2013, but that’s about as close as we can get right now Mara.

Operator

And we will hear next from John Sonnier with William Blair

John Sonnier - William Blair

Just two quick questions; the first is what are the three partnered programs advancing in the pivotal next year; I assume one is T-DM1 has been neoadjuvant; what are the other two?

Dan Junius

Actually no; we assumed, we didn’t include those given that T-DM1 sort of is covered separately John. These would be other partner programs outside of T-DM1 moving into pivotal studies. And we haven’t disclosed what those are; that would be again getting ahead of our partners and so we will have to wait for them either to announce whatever their plans are and I don’t have responded to earlier question on 3419; I don’t have any particular insight as to when they will do that. But we do know from working with our partners that there are three of the other seven, the non T-DM1 programs that have the potential to go into pivotal testing next year.

John Sonnier - William Blair

Okay, that’s actually helpful and it leads to the second question which is, you guys have been fairly, I guess strategically deliberate about what you want to do with partnerships here forward, but I have to think the T-DM1 data, and then if you really do see the advancements of additional tap programs and the pivotal testing next year. The changes of dialog and the partnership discussion, what's the current thinking there, do you have capacity to take and I guess what kind of activity are you seeing there?

Dan Junius

Well, we do have, we have some capacity. It's always a balancing act to some extent, but we also have the capability if we select to add resources on a limited basis. But we’re reluctant to do that, because the way you support a partner it runs, so sequentially through different elements of the company and you can’t add resources that cover all of those because those are special skills.

We have, the dialog does shift a little bit and as we look out, our appetite for typical, what have you seen is typical technology licenses has shifted somewhat. Those probably are not as high a priority for us as they might have been in the past. I think we look or to the extent they are, we would look to have different attributes, not simply different economics in terms of more dollars, but potentially participation rights or something that has the potential to deliver greater economic value to the company.

But as we've been making the transition, we've been talking about this for several years from a research technology company to now a development company and hopefully eventually to a commercial company, there is an inverse relationship with that transition to our appetite to be adding more partners in great technology deals. There certainly is interest, but as you go across the major oncology companies, many of them have already if you will take in a stake or decided that they have a direction that they wanted to take with respect to ADC. So we do have dialog going on. That’s not much different than it was five years or six years ago. It's difficult to say how that will evolve and when and if it will translate into a specific transaction.

Operator

And we have a question from Ling Wang with Summer Street Partners.

Ling Wang - Summer Street Partners

Just wanted to clarify the duration of royalty you mentioned for TDM-1, that’s a 10years to 12 years start from the initial approval in that country and also in regardless of whether there is generic or other the royalty was [stopped] at 10years to 12 years. Is that true?

Dan Junius

Ling, its not approval driven, the time period, the clocks starts if you will from date of first commercial sale and so, again we anticipate, assuming, let's take the US assuming first commercial sale in the US in 2013, we would assume that we would have the opportunity to receive our maximum royalty opportunity that is because of effective patents from 2013 through 2025. So the full 12 years but it's triggered by first commercial sale.

Ling Wang - Summer Street Partners

In each country?

Dan Junius

In each country, correct, country by country.

Ling Wang - Summer Street Partners

I see. And also can you clarify the low single digit royalty, what is, which countries did you get that?

Dan Junius

Well, you are dealing with a lot of different countries. The low single digit would be in countries where we do not have an ImmunoGen patent in effect. So it’s a default rate. It would reduce our patent to low single digit. As I noted, given the portfolio that's in place, given the progress on patents, given both approved, allowed and filed patents, we feel that we have coverage in all of the major jurisdictions, the US, the European countries, Japan, the BRIC countries. So there maybe some smaller jurisdictions where we would be receiving the lower rate but they would be economically less significant jurisdictions.

Ling Wang - Summer Street Partners

If I may, can also ask for the on IMGN901 in small cell lung cancer, when should we expect the Phase 2 portion of the data?

Dan Junius

I think the first opportunity to have the first Phase 2 data would be sometime in 2013 Ling and I think it would be some time in the back half of the year.

Operator

And we will hear next from Boris Peaker from Oppenheimer.

Boris Peaker - Oppenheimer

I just want to clarify the question asked earlier regarding the exclusivity period. If you look at Europe and you said that it starts from the data of first commercial sale. Now if the drug is formally approved and let's say somebody buys it, let's say for out of pocket before reimbursement is fully established in the country and we know in some countries it could take a while to establish reimbursement, does that start to clock, because that would be considered commercial sale and so then if it takes let's say a year to finalize, reimburse and then during that time the clock is running but you are not really getting that much revenue, or would the clock only start once potentially reimbursement is finalized and approved?

Dan Junius

You are getting into a maybe a subtlety from a contract standpoint but I know the contract language references first commercial sale. It doesn't reference approval by any health jurisdiction on a country-by-country basis. So my working assumption would be that would be on the first commercial sale whether it's been approved for reimbursement by a health jurisdiction and regulatory authority or not.

Operator

And we have a question from Cory Kasimov with JPMorgan.

Cory Kasimov - JPMorgan

I have two of them for you, a follow-up on the T-DM1 terms and then one also on the 853. So first on T-DM1, I guess I wanted to just follow-up on Ling's question, ask it another way, do you get any sort of extension for additional indications that are approved in the given country, so in other words assuming [adjuvant] is in fact successful down the road, could that potentially extend your financial rights or is it just as you said from initial sale and kind of on that same point, if you get additional patents could you study those many that are pending that go beyond the 12 year maximum limit would the royalty extent beyond the 12 years then as well?

Dan Junius

The 10 year to 12 year period is absolute. And so it's not a function of additional indications being approved. This is a little bit unusual in terms of as you would have seen in our disclosure of normal terms like the normal terms would be the later half of fixed period or the exploration of patents. Those are not the terms in the TDM-1 license and there are two licenses with Genentech. So additional patents would not extent the term, additional indications do not extend the term.

Cory Kasimov - JPMorgan

Okay that is helpful and then on 853 I realize it just began clinical testing earlier this summer, but it sounds like if the data warranted this could rather quickly make its way into the pivotal program as indicated in your press release as well this morning. So I guess I am wondering if you could talk just little bit about the scope of this pilot study a little more and when you suspect we may be able to see initial data from it as early as ASCO of next year 2013?

Jim O'Leary

The study design as for typical phase 1 with expansion cohort as Dan mentioned, we were able to get approval for design that had single patient cohort during those escalation. Once we get through the single patient scope it will be expanded into three plus three design and during this period we will be allowing patients with all tumors.

Any tumors that are not known to express fully [deceptive] positivity will lead to be screened before they can come on for the trial of those patients. There are three expansion cohorts once we identify the MTD and one of the expansion cohorts is only for patients who are platinum refractory or resistant and this is where we would hope to see a signal of efficacy that it could potentially trigger a typical trial.

As you know refractory/resistant ovarian cancer is the high on medical need. There are really no active drugs there. So it’s really would afford us a great avenue for expeditions development of 853 in this disease. The other two cohorts are designed more to explore translational biomarket activity to again look for a proof of action and mechanism of action and also to give us any potential early signal, so the other cohort, one of the cohorts also is for ovarian cancer patients but that’s for -- the ovarian cancer patient population that is slightly different from the other cohorts.

This cancer population is for patients who have received unlimited number of prior therapies. What we are hoping to achieve here is to enroll a number of patients in whom we will have pre and post biopsies to again look for markers -- biomarkers translational biomarker activity. And then the third cohort is to explore adenocarcinoma, non small-cell lung cancer which is known to have high expression of folate receptor also designed to validate biomarker show translational activity, it will be looking at (inaudible) and/or tumor biopsies again to get some sense of early signals of activity.

Dan Junius

Two other comments I would make and I am not sure I have referenced it as I was going through the discussion on 853, recall that this particular compound has a new linker that we have developed and it’s a linker that was designed specifically to counter multi-drug resistance. So we have been excited both with that from a technology standpoint and the data that it’s generated as we've looked at this particular compound preclinically.

That was one of the reasons that we designed the study as we did to be able to move quickly through early stage dosing to get to therapeutic levels more quickly because of the excitement around the compound preclinically.

The other is I think you have heard in Greg’s comments that one of the things that we will be doing over the course of fiscal 2013 is spending some money around some preparation for pivotal studies on the CMC front, both for 901 but as well for 853. So we're assuming some additional investment here because of our optimism around the potential for 853.

Operator

And we will hear next from Yale Jen with Roth Capital Partners.

Yale Jen - Roth Capital Partners

I just want to clarify a little bit of terms of the pivotal, three pivotal product entering the pivotal study by partners, do you mean that these are Phase III study or Phase II proof of concept or Phase III study?

Dan Junius

Yeah, Jen, let me clarify. You are asking around the potential pivotal studies from partners or was this getting at the Roche inaudible) early stage breast cancer study?

Yale Jen - Roth Capital Partners

I am talking about the partners. Now, T-DM1 progress, you mentioned of Phase III to end up pivotal probably second half of next year and I just want to clarify what pivotal means at this point.

Dan Junius

Pivotal, I can’t characterize. Pivotal would mean a registration study. So it could be a Phase II that’s designed to be a registration study. It could be a Phase III. I don’t have that level of detail.

Yale Jen - Roth Capital Partners

And another housekeeping question is that in your 2013 fiscal year guidance, do you incorporate a potential milestone payment in that year and over the next 12 months?

Greg Perry

We will disclose in terms of milestones is the upcoming approval milestone in the US for T-DM1 just over $10 million.

Yale Jen - Roth Capital Partners

And the last one is that, is Japan considered a 10 or 12 years exclusivity in terms of the royalty for T-DM1?

Dan Junius

Each country is viewed separately. So you would have the same, Japan the clock would again start with the same criteria, first commercial sale and run either 10 or 12 years depending on IP and effect.

Yale Jen - Roth Capital Partners

Does the company have IP on Japan, that's my question.

Dan Junius

Say that again, Yale.

Yale Jen - Roth Capital Partners

Is Japan have…

Dan Junius

Yes, we have IP in effect in Japan that would make us eligible for the full royalty rate.

Operator

And we will go next to David Miller with Biotech Stock Research.

David Miller - Biotech Stock Research

On the royalty calculation, is it the patents that are in place at the time of first sale or can you like for example if there's marketing in a country where you don't have patents can you file and perhaps get patents there to earn the higher rate part way through or in a country where your patent might expire earlier than the 12 years, can you add another patent there to boost to rate up?

Dan Junius

Certainly any patent would be eligible, it's not the patent portfolio solely in effect at the time of first sale. But the thing that you run into is the opportunity to create new IP becomes more limited over time with a compound because of prior -- because of expiration of opportunity to file things of that nature.

David Miller - Biotech Stock Research

And then second question is can you talk about what level of efficacy or type of efficacy or just give us some color around what will you need to see for a go decision out of NORTH to transition to a pivotal?

Dan Junius

We have identified a variety of criteria, both primary and secondary endpoints and we have established thresholds for each of those that we are looking for. So A, we haven’t disclosed those and I think that as you move along what you are going to be looking at is the individual components as well as a composite. So you may see something in one area whether it is PFS in 6 months or whatever the specific item is. You may look at that in conjunction with others to do your evaluation. These thresholds have been established out of a dialogue with a number of KLLs to assess what is an appropriate measure to determine that you are delivering a meaningful benefit to patients, but we haven’t disclosed the specifics, David.

Operator

And that concludes today’s question-and-answer session. I would now like to turn the call back over to Carol Hausner for any additional or closing remarks.

Carol Hausner

Great thank you. Thank you for your interest and as always if you have additional questions please don’t hesitate to call. Have a good day.

Operator

And again that does conclude today's call. We thank everyone for participating.

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