Kosan Biosciences Inc. Q1 2008 Earnings Call Transcript

Kosan Biosciences Inc. (KOSN)

Q1 2008 Earnings Call

May 1, 2008 4:30 pm ET

Executives

Jane Green - VP of Corporate Communications

Helen Kim - President and CEO

Gary Titus - SVP and CFO

Analysts

Bret Holley - Oppenheimer and Company

Mark Monane - Needham

Cheever Sultan - Stanford Group

Mike King - Rodman & Renshaw

John Eckert - Leerink Swann

Jerry Tang - Roth Capital Partners

Andrew Peters - SIG

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Kosan Biosciences first quarter 2008 financial results conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Ms. Jane Green, Vice President of Corporate Communications. You may proceed.

Jane Green

Hello, and thanks for joining Kosan Biosciences' conference call and webcast to discuss our first quarter 2008 financial results. Participating in today's event are Helen Kim, President and Chief Executive Officer, and Gary Titus, Senior Vice President and Chief Financial Officer.

Following this introduction, Helen will provide an update on the company's business, and then Gary will review the Company's financial results for the quarter. Then we will open the call for questions.

Please be advised that this conference call will include forward-looking statements, including statements regarding the further development and potential safety, efficacy, regulatory status, commercial potential, and other characteristics of Kosan's product candidates; a continuation of current clinical trials; the initiation of additional clinical trials and the timing thereof; the use of Kosan's financial resources. Any statements made in this conference call that are not statements of historical fact, may be deemed to be forward-looking statements, which are based upon Kosan's current expectations and involve risks and uncertainties.

Kosan's actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to the uncertain progress and results of Kosan's preclinical and clinical testing, including the risks that studies and trials may not demonstrate safety and efficacy sufficient to initiate or continue clinical trials on the timing currently anticipated or at all; obtain requisite regulatory approvals or result in a marketable product; the conduct of clinical trials; Kosan and its suppliers ability to meet clinical product supply; manufacturing and regulatory approval requirements in process; the efforts and expense necessary for further clinical development of Kosan's product candidates, including the cost of bortezomib; intellectual property matters, including Kosan's ability to obtain valid and enforceable patents covering its product candidate; Kosan's dependence on its collaboration with Pfizer for development of its motilin agonist product candidate; Kosan's need for significant additional financing; and Kosan's strategy to enter into partnering or licensing arrangements.

These and other risk factors are discussed under "Risk Factors" in Kosan's Annual Report on Form 10-K for the year ended December 31, 2007 and other periodic filings with the SEC. Kosan expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements.

Now, I will turn the call over to Helen Kim.

Helen Kim

Good afternoon, everyone, and thank you for joining our call today. I am pleased to report that Kosan is making good progress following the recent management change and revised portfolio strategy that we announced two months ago. We'd like to thank you for your patience and continued interest in Kosan's progress.

Our lead clinical programs, tanespimycin and lead epothilone KOS-1584 are on track; our organization is aligned and focused on executing on our key strategies, and our financial condition remains sound. As you know, tanespimycin is our lead Hsp90 inhibitor in development in both multiple myeloma and breast cancer.

Our TIME-1 pivotal Phase 3 study of tanespimycin in multiple myeloma is currently in the ramp-up phase relative to site initiation and patient enrollment, and we'll have a better perspective on our timelines as we get more experience with our ramp-up over the coming months.

We also anticipate initiating the second supportive trial in early 2009 and believe that we can complete the study within the timeframe of TIME-1 study.

For tanespimycin in breast cancer, we're wrapping up the Phase 2 study in combination with Herceptin, and at the upcoming ASCO meeting, we expect to present an update on patients who were added to the study since the data were presented in December at the San Antonio Breast Cancer Symposium. Also at ASCO, we look forward to discussing our tanespimycin breast cancer strategy and the next two enabling studies which will further define our clinical and regulatory paths. We intend to start at least one, and possibly both of these enabling studies in late 2008.

In addition to tanespimycin, our next-generation Hsp90 inhibitor, KOS-2484, has generated significant interest at the AACR meeting a few weeks ago in San Diego. 2484 is a non-benzoquinone ansamycin. We believe that it is a highly-potent molecule, with properties that are superior than other Hsp90 inhibitors. It has demonstrated a high degree of specificity, binding affinity and longer retention in tumor tissues, resulting in significant anti-tumor activity, and safety in mirroring xenograft and orthotopic models.

2484 induces significant tumor regression at well-tolerated doses in xenograft models of both liquid and solid tumors, including AML, multiple myeloma, and colon cancer models. Developing tanespimycin in multiple myeloma and breast cancer are Kosan's top priorities. We are excited by 2484's potential to expand our Hsp90 portfolio and to attract partners, as this molecule represents an opportunity for product diversification and life cycle extension.

In addition to tanespimycin, our efforts are focused on advancing 1584, our lead epothilone, which has just entered Phase 2 study in non-small cell lung cancer. We believe that 1584 can be very competitive with other epothilones in the market or those in development and may have significant market advantages.

The Phase 2 study of 1584 is an open-label, multi-center monotherapy study in patients with advanced or metastatic non-small cell lung cancer who have received one prior chemotherapy regimen. The primary endpoint of the Phase 2 study is objective response rate. The secondary endpoints include progression-free survival, time to progression, and overall survival.

The study will enroll up to 50 patients and a two-stage Simon design, and depending on the pace of enrollment, preliminary data from this study could be available in late 2008 or early 2009.

Kosan is also considering developing 1584 in additional tumor types where the compound has shown activity, including breast, gastric, and ovarian cancers. Our epothilone strategy is to advance 1584 to its next inflection point while we seek a corporate partner to conduct a registration program, and to advance our next-generation product candidate, KOS-1803 into clinical development.

1803 has demonstrated excellent in vivo potency, tolerability, and efficacy, including therapeutic chores in xenograft of breast, lung, ovarian tumors, and neuroblastoma. 1803 has also demonstrated excellent potency in Taxol and vinblastine-resistant cell lines. And it has shown no neurotoxicity in maximal tolerated doses, and is predicted to have potentially greater efficacy and long-term tolerability.

So in closing, I'd like to emphasize that Kosan today is focused and committed to successfully advancing tanespimycin and 1584, and to execute on securing partnerships to advance our novel next-generation Hsp90 inhibitors and 1803.

So now, I'd like to turn it over to Gary Titus to review our financial results.

Gary Titus

Thanks, Helen. I will begin with an overview of our financial results by focusing on our statement of operations for the first quarter 2008. The net loss was $8.5 million or $0.20 per share compared to net income of $2.7 million or $0.07 per share in the same period last year.

Our revenues were $4.6 million for the quarter, compared to $12.9 million in the first quarter of last year. Revenues for the quarter were for development activities under the Roche-Kosan global development and commercialization agreement for epothilones and included $3.3 million for the remaining amortization of the upfront fee. Revenues in the same period last year included $10.7 million of amortization revenue for the upfront fee received from Pfizer related to the company's worldwide motilin agonist agreement.

Our total operating expenses were $13.7 million, including non-cash stock-based compensation expense of $500,000 for the quarter compared to $11.1 million for the same period last year.

Research and development expenses were $10.8 million for the quarter, compared to $9 million in the same period in 2007. The increase is primarily due to our continued clinical development of our Hsp90 inhibitor and epothilone programs, including the initiation of TIME-1, Kosan's pivotal Phase 3 trial for tanespimycin as a potential treatment for multiple myeloma. The Phase 2 trial of epothilone KOS-1584 in patients with non-small cell lung cancer and costs associated with the company's previously announced restructuring.

Our general and administrative expenses were $2.9 million for the quarter, compared to $2.2 million last year. The increase is primarily due to costs associated with the company's restructuring and resignation of the former Chief Executive Officer. Our cash, restricted cash and marketable securities were $59 million at March 31, 2008 compared to $71 million at December 31, 2007.

In conclusion, with our available cash balances, we believe that we are sufficiently well capitalized to carryout the clinical agenda for 2008 that Helen outlined earlier in this call. We remain focused on maintaining financial strength, utilizing multiple strategies designed to enable us to achieve our long-term goals.

Now, I'd like to turn the call back over to Helen.

Helen Kim

Thank you everyone for listening in today. As always, in the coming months, we plan to be active and visible at investor events and we are accessible any time for any one of you who would like to speak with us. Operator, please now open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions)

And your first question will come from the line of Bret Holley with Oppenheimer and Company. Please proceed.

Bret Holley - Oppenheimer and Company

Yes, I had a general question. I am wondering if there are any cooperative group trials ongoing still with tanespimycin or any of the epothilone derivatives that you have control of, and if not, what is the level of interest in potentially broadening out into the cooperative groups just given that you could get more done, more broad scale development done.

Helen Kim

Hi Bret, thank you for your question. So we currently do not have any cooperative groups involved in our tanespimycin or 1584 studies; however, I will note that there are CTAP sponsor studies for tanespimycin currently ongoing. We do plan to reach out to some of the cooperative groups, especially for tanespimycin in future indications, such as potentially in metastatic breast cancer in our next set of studies, and also potentially for larger registration type of trials. But at this time, we currently are not involved with any of the cooperative groups.

Bret Holley - Oppenheimer and Company

And is CTAP working at all in GIST or any of the other indications where we've seen activity for other Hsp90 inhibitors?

Helen Kim

Not that we are aware of.

Bret Holley - Oppenheimer and Company

Okay, all right, thank you.

Operator

Your next question will come from the line of Mark Monane with Needham.

Mark Monane - Needham

Thank you, good afternoon, greetings from New York City. Let's talk about the tanespimycin trial with Herceptin please. Can you talk about the durability of the response; are we going to see any data on that? I know we saw some encouraging data in breast cancer in San Antonio. Will we have durability data following up? And is there a thought about the mechanisms of action that would make one expect to see some enhanced durability in patients treated currently with Herceptin?

Helen Kim

Hi Mark; so yes, at the upcoming ASCO meeting, we'll be presenting an update in our current Phase 2 tanespimycin study in combination with Herceptin, and as you noted, we have seen fairly significant duration of response, some up to 16 months as we reported in December, and we expect to have additional follow-up duration of response data as well as additional patient information. I don't know if that answers your question.

Mark Monane - Needham

Well, I look forward to seeing the data then.

Helen Kim

Okay, great.

Mark Monane - Needham

2484, is that being developed as an oral molecule?

Helen Kim

No, it is currently in an IV form.

Mark Monane - Needham

Okay, and are there plans at Kosan to develop an oral? Let's say what do the plans of Kosan include in terms of an oral administration of this drug?

Helen Kim

We currently do not have a plan to develop an oral formulation for 2484.

Mark Monane - Needham

Okay. And then, the last question has to deal with 1584; you went over nicely the strategy in non-small cell lung cancer. Are there other tumors that are being considered for epothilone therapies? Do you think this therapy might have advantages where other epothilones may have had challenges in the past? And will you do some sort of Simon two-step on the 1584 before advancing the trial further?

Helen Kim

Right, so some of the other indications that we're interested in for 1584 are where we have seen activities across the various tumor types we observed during our Phase 1 studies, and they include pancreatic cancer, where we have seen a partial response. We have also seen activity in addition to non-small cell lung, ovarian cancer and prostate cancer. So these are indications of interest.

I think at this point, based on the Phase 1 data that consists of over 126 patients, we believe that 1584 could potentially provide advantages in terms of a safety profile versus some of the other epothilones that are out there. And depending on what we see in terms of the efficacy signal for non-small cell lung study that we just initiated will determine as to whether we move that indication forward and whether we would have bandwidth to invest in additional indications in some of the tumor types that I had just mentioned.

Mark Monane - Needham

That was helpful, and then I have one last question please for Gary. How many people now currently at Kosan, and the second follow-up question then is since the efforts to restructure and decrease the cash burn going forward, there has been increased trial, there will be some trial initiation costs with the Phase 3 trial beginning with 1584 starting. How are you balancing those themes? And what should we think about for cash burn for 2008?

Gary Titus

Thanks, Mark, I appreciate your question. In terms of the first component, number of employees, we are in the low 60s currently; expect to be in the low to mid-60s throughout the year. So that's basically what the headcount would be now.

In terms of prioritizing spending and questions about how we are focusing our resources, in fact we announced earlier this year that we were going to adjust down our spending guidance a little bit in the first quarter. We're not updating that today; that guidance was $37 million to $47 million for the full year. And you probably noted that we did use approximately $12 million in the first quarter. It was a little heavier than we would have expected initially, and that's primarily due to the costs or the cash used in the reduction in force, approximately $900,000.

So if you factor that out, that would give you a reasonable run rate for what we would potentially expect for this year, and we will, of course, update you should we provide additional guidance on cash usage. Is that helpful Mark?

Mark Monane - Needham

Yes, thank you very much and thank you as a team for that information.

Gary Titus

Thank you.

Operator

The next question will come from the line of Han Li with Stanford Group.

Cheever Sultan - Stanford Group

Hi, this is [Cheever Sultan] for Han. Just wondering, the tanespimycin data at ASCO, do you know how many new patients we'll see included?

Helen Kim

We're still following up, so the study is still open, and we had expected to enroll up to 20 additional patients; however, we may not complete all of those 20 patients' data by the time of ASCO. So I don't know if that provides some guidance as to what we may present. I think we will have sufficient number of new patient data to report. Again, I mean we're still treating patients and enrolling patients in the study.

Cheever Sultan - Stanford Group

All right, so between 15 and 20?

Helen Kim

It's hard to say at this point, but it will be greater than 10, let's say.

Cheever Sultan - Stanford Group

Okay, thanks. Just one last question; when will you have a clear picture for the 1584 non-small cell lung cancer trial? How many more months of enrollment base do you need to see before you get a good idea of the timeline?

Helen Kim

So we're expecting to have at least the first phase of the Phase 2 study, about 37 patients enrolled as part of the Phase 1 by either end of this year and have some early data available beginning of 2009. That is our goal.

Cheever Sultan - Stanford Group

Okay, thank you very much.

Operator

Your next question comes from the line of Mike King with Rodman & Renshaw.

Mike King - Rodman & Renshaw

Thanks for taking my question, and apologies if you've already addressed the questions, but could you just talk about what your plans are for 1803 Helen? I thought you said, you mentioned 1803 in your formal comments, but I didn't quite catch what you said was your expectation for '08 with that compound.

Helen Kim

So we have completed preclinical studies for 1803. It is ready for IND filing. We are currently actively seeking a corporate partner around our epothilone portfolio.

Mike King - Rodman & Renshaw

Okay.

Helen Kim

So, that would include 1584 and 1803. 1803 has generated significant interest from potential partners. It's a program that when I joined the company that I initiated an active partner discussion as early as early February.

As you know, we got the program back from Roche technically by end of February. So we are very active right now in terms of trying to find a corporate partner to move 1803 into the clinic, and also to find more resources to aggressively develop 1584 across different indications.

Mike King - Rodman & Renshaw

Okay. Does that mean that nothing will start on 1803 until a partner is found?

Helen Kim

We are making some progress right now in terms of putting together the IND filing, but ideally we would like to have a partner in order to finalize the development path for 1803, and to initiate a meaningful Phase 1 program.

Mike King - Rodman & Renshaw

Okay. And then, I didn't hear if you had mentioned anything about combinations of tanespimycin and taxanes. Will those studies be part of your development plan this year?

Helen Kim

Yes, and so we are finalizing the development plan for tanespimycin in breast cancer. We envision initiating to the next set of enabling studies, which one of those studies will be a combination study. And we will be ready to discuss the specific protocol, design at ASCO and we're hoping to launch those two studies this year, at least one of those two studies will launch this year, and we hope to launch both studies this year. That's our aggressive plan.

Mike King - Rodman & Renshaw

Okay, so you're saying you're going to talk about the protocol design by ASCO, and then you'll have those hopefully up and running by the end of the year.

Helen Kim

Yes.

Mike King - Rodman & Renshaw

Thank you.

Operator

Your next question comes from the line of Howard Liang with Leerink Swann.

John Eckert - Leerink Swann

This is actually John Eckert for Howard. I think most of my questions have been answered; however, is there anything else you're planning on presenting at ASCO other than the Hsp90 combination data?

Helen Kim

Yes, we do have a presentation on our second-generation compound alvespimycin.

John Eckert - Leerink Swann

And what will that presentation include?

Helen Kim

It's a Phase 1 experience with our oral alvespimycin formulation.

John Eckert - Leerink Swann

Very good, thanks again; all of my other questions are answered.

Helen Kim

Okay, thank you.

Operator

Your next question comes from the line of Jerry Tang with Roth Capital Partners.

Jerry Tang - Roth Capital Partners

Hi, Helen, most of my questions are answered. So I only have one question left. What's the interest level to partner out the Hsp90 program?

Helen Kim

So Jerry, you know that when I first joined the company, that was the priority project to initiate the partnering discussion around Hsp90, which I did that. That was initiated prior to the partnering discussions around our epothilone. So we are in active discussions with some of the interested potential partners. As you know, I am wearing many hats right now, but partnering is one of my highest priorities.

Ideally, as we discussed before, as some of you may know, an ideal partnership around our Hsp90 inhibitor would be one where Kosan can have some play in co-development of tanespimycin and the partner would not only help us with tanespimycin but also invest in moving forward our next-generation Hsp90 molecule.

Jerry Tang - Roth Capital Partners

Okay, so is alvespimycin still part of the partnering package?

Helen Kim

Yes.

Jerry Tang - Roth Capital Partners

All right, that's all my questions, thank you.

Helen Kim

Thank you.

Operator

(Operator Instructions) And your next question will come from the line of Derek Jellinek with SIG.

Andrew Peters - SIG

Hi, this is Andrew actually, Andrew Peters filling in for Derek. I think all my questions have been answered, but real quick; can you give a little bit more color on what you guys are expecting for TIME-2? Have you thought about trial design or timing beyond starting in the first half of '09?

Helen Kim

Sure, so right now we are in discussions with some of our advisors and some of the opinion leaders around the design. Most likely, it is going to be a much smaller study than our pivotal study, and it would focus on patients with two to three prior regimens versus our TIME-1 is focused on first relapse patients. And that's all I can share with you at this time.

Andrew Peters -SIG

Okay. Great.

Helen Kim

Once the protocol is finalized, and that's expected to happen within the next few months, I'll be happy to share the details of the protocol design.

Andrew Peters -SIG

Okay. And I think that's it for me.

Helen Kim

Okay great, thanks.

Operator

That concludes the Q&A portion of today's conference call. I would now like to turn the call back over to management for closing remarks.

Helen Kim

I'd like to thank everyone again for listening in, and your continued support for Kosan, and please feel free to call me, Jane or any one of us in the management team if you have any further questions. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect; have a wonderful day.

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