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Executives

Lawrence A. Kenyon - President, Chief Financial Officer and Corporate Secretary

Kuslima “Tina” Shogen – Chief Executive Officer

Analysts

Stephen Dunn - Dawson James

Ray Myers - Emerging Growth Equities

Tom O’Connor - Morgan Keegan

[Malcolm Adler - M.A. Financial Consultants]

[Eduardo Soto] - Dawson James Securities

Arthur Barry – Private Investor

Alfacell Corporation (OTC:ACEL) F3Q08 Earnings Call June 9, 2008 11:00 AM ET

Operator

Welcome to the Alfacell Corporation third quarter fiscal year 2008 update conference call. (Operator Instructions) It is now my pleasure to introduce your host, Larry Kenyon, President for Alfacell.

Lawrence A. Kenyon

Welcome and thank you for participating in the Alfacell Corporation fiscal third quarter 2008 update conference call. My name is Larry Kenyon and I am Alfacell’s President and Chief Financial Officer. With me today is our Chief Executive Officer, Tina Shogen.

Before we begin, please allow me a moment to read our Safe Harbor statement. This presentation includes statements that may constitute forward-looking statements, usually containing the words believe, estimate, project, expect, or similar expressions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements.

Factors that would cause or contribute to such differences include the risks discussed in the company’s periodic filings with the Securities and Exchange Commission. By making these forward-looking statements, the company undertakes no obligation to update these statements for revisions or changes after the date of this release.

We’ll begin the call with a few comments, followed by a brief overview of our third-quarter results. We’ll be available to answer your questions at the end of the call. To begin, we would like to thank everyone who participated in our conference call at the end of last month to discuss the preliminary data from the Confirmatory Phase IIIb clinical trial of ONCONASE for unresectable malignant mesothelioma.

As we discussed on that call, ONCONASE did not meet statistical significance for the primary endpoint of survival in UMM, but has demonstrated a statistically significant improvement in survival for the treatment of UMM patients who failed one prior chemotherapy regiment.

As per previous correspondence with the FDA, the analysis of this subgroup of patients in the trial was one of several pre-identified primary data sets reviewed and does not represent a post-hoc analysis of data from the trial. We would like to take this opportunity to reiterate our plan to complete our rolling new drug application submission to the FDA for the treatment of this patient population for which there is an unmet medical need. We believe that the NDA submission will be completed by the end of calendar year 2008.

Alfacell has licensed the U.S. commercial rights for ONCONASE to Strativa Pharmaceuticals and has strategic marketing and distribution agreements in place with BL&H Company for Korea, Taiwan and Hong Kong, USP Pharma for Eastern Europe and GENESIS Pharma for Southeastern Europe.

We have received encouragement from our partners around the world for the completion of our ONCONASE NDA and second line mesothelioma patients and would like to publicly thank them for their continued support. Additionally, we would like to once more express our deepest gratitude to the cancer patients and clinical investigators who have participated in the trials for ONCONASE through the years.

We will now review the third-quarter results. For the fiscal quarter ended April 30, the net loss was approximately $5 million or $0.11 per share, an increase of approximately $3 million compared to the fiscal third quarter of 2007.

Third quarter 2008 R&D expenses increased approximately $1.4 million while general and administrative expenses increased by approximately $1.5 million compared to the third quarter of 2007. The increased R&D expenses were primarily related to the completion of our Phase IIIb clinical trial and ongoing preparation of our rolling NDA submission.

G&A expenses were higher in 2008 due primarily to increased compensation expenses, which were mostly related to retirement agreements the company entered into with Tina Shogen in April. It is important to note that most of the compensation expense recognized in the most recent quarter for this transaction was a non-cash expense.

Cash and equivalents on April 30, 2008, were approximately $7.8 million, a decrease of approximately $2.4 million from January 31. We estimate that this level of liquidity should be sufficient to support our activities into the fourth quarter of fiscal 2009, and includes the planned completion of our rolling NDA prior to that time. It is important to note that our projections assume submission of the NDA by the end of calendar 2008, and we anticipate a corresponding decrease in cash burn by that time.

Before we begin taking questions, I would like to mention that we have reached another important milestone for ONCONASE. We have now completed enrollment in the Phase I clinical trials in non-small cell lung cancer and other solid tumors. Planning is now underway for the follow-on Phase II clinical trials. More details related to these clinical trials will be available at a later date. This is an important development for Alfacell as we look to broaden the utility of ONCONASE beyond mesothelioma and into other oncology indications.

We can now take questions from the participants.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Stephen Dunn - Dawson James.

Stephen Dunn - Dawson James

Do you have your results of 122 patients? Do you have a hypothesis of the mechanism of actions for ONCONASE and why it would work in chemotherapy failures and not in treatment of IU patients?

Lawrence A. Kenyon

We’ve talked about in the past as we’ve discussed ONCONASE and its potential ability to thwart multi-drug resistance. And while this study doesn’t give us any evidence that that is the case directly, it does indirectly indicate that perhaps that could be what’s going on.

Kuslima “Tina” Shogen

I don’t know if you have seen the publication that just was recently published, where Dr. Rybak and I discuss ONCONASE’s ability to overcome multiple-drug resistance in a number of very intriguing molecular pathways which I will not discuss right now, but I’d be happy to send you all the information.

And I just want to also make you understand that single agent ONCONASE is a very potent anticancer agent, even though in this combination and in this particular look of this top line data, doesn’t seem to indicate that it’s superior, too. So, stating that it’s not active, and it’s not as active as in failures is really not correct.

Stephen Dunn - Dawson James

I remember previous statements that the overall trial, we were seeing patient enrollment roughly a third, was your estimation, were Alimta failures. So, I’d like a clarification of patients that were Alimta failures you were counting as part of the previous chemotherapy treatment arm. Do you feel that in the 122 patients, that it’s still about a third of the Alimtas, or a higher ratio?

Lawrence A. Kenyon

Steve, we haven’t broken out those numbers into detail. What we have is that out of the number of events that have occurred, we’ve got 122 out of 320 were prior chemo failures. We haven’t broken out those numbers any further into Alimta versus non-Alimta. I will say though that without looking at the data in front of me, probably just about every patient that was enrolled that was a chemo failure from 2003 forward was most likely an Alimta failure.

Stephen Dunn - Dawson James

So, it’s probable that the majority of these failure patients of the 122-patient arm were Alimta failures.

Kuslima “Tina” Shogen

In the countries where Alimta was approved. In the countries where it was not, it was Genta and cisplatin.

Stephen Dunn - Dawson James

You do have a $20 million milestone payment from Strativa. I think that was for full approval. If we’re only going to get approval for a second line on the first shot through the FDA, does that $20 million milestone decrease?

Lawrence A. Kenyon

No, Steve. The full approval milestone was $30 million. The minimum milestone we would receive is $20 million for, say a second line approval.

Operator

Your next question comes from Ray Myers - Emerging Growth Equities.

Ray Myers - Emerging Growth Equities

Regarding the $20 million, I didn’t realize that’s the minimum. Would second line approval for ONCONASE be that minimum or is it something else that’s the minimum?

Lawrence A. Kenyon

Ray, the minimum would be, and I don’t have the agreement in front of me. But from memory, it would be anything that was not equivalent to the Alimta label that’s out there. So if it’s anything less than that, then it would be the $20 million, with the ability to earn back. If you look at the agreement, and I’m sure nobody has it in front of them right now. But we have the ability to earn back most of that if not all of it, if we are able to get that full approval by certain deadlines.

Ray Myers - Emerging Growth Equities

So, the second line approval that we’re hoping to get now, that would be the $20 million trigger.

Lawrence A. Kenyon

That would be the lowest milestone that we would receive, yes.

Ray Myers - Emerging Growth Equities

Has Alfacell had any contact with the FDA since the company learned of the top line ONCONASE results?

Lawrence A. Kenyon

We are not commenting on that right now. But just know that communication with the FDA is critically important right now. We’re just not in the habit of giving that play-by-play, but obviously it is top on the list for us.

Ray Myers - Emerging Growth Equities

By when do you think that you would be able to give us an update as to what you’re doing with the FDA?

Lawrence A. Kenyon

This is going to sound circular and I’m not trying to play any games, but when we have something to report, we will report it.

Ray Myers - Emerging Growth Equities

Has Alfacell learned anything new about the ONCONASE data since the top line data was released about a week ago?

Lawrence A. Kenyon

We have nothing to report at this point, Ray. As soon as something comes out that that we think is meaningful, if something meaningful came out that would change what we have said publicly already, then obviously we’d have an obligation to update folks on that.

But this is all part of the NDA submission process and as part of the full analysis of the full data sets, both in overall primary, from the primary endpoint perspective, all the way to this particular second line angle that we’re working with, this is going on. It will be completed and then it will be submitted as part of the NDA and any other communications that we have with the FDA prior to that.

Ray Myers - Emerging Growth Equities

Can you walk us through a timeline or sequence of events of how Alfacell intends to proceed from here as well as including a summarization of your arguments for a second line approval assuming that that’s what you are looking for?

Lawrence A. Kenyon

Well, I think proceeding here, that there is multiple steps between here and NDA. Obviously, we’ve said and we talked about this at our annual meeting, that one of those steps is to have a pre-NDA meeting, and then respond to any questions as part of that, complete the NDA and submit the NDA, a very broad brush. We plan on continuing along that path as we described at our annual meeting back in January.

In terms of what you’d like to know on the second line, I think we’ve said that all along here. This is a pre-identified data set that was being looked at as part of the primary endpoint. Obviously the primary endpoint of the study was overall survival in mesothelioma patients and we’ve talked that.

But this is a critical unmet medical need in the second line patients. So for this subgroup it’s a completely reasonable approach to take to move forward with this NDA, and obviously we need to discuss this in detail, now that we have some data in hand, with the agency and that process is ongoing.

Kuslima “Tina” Shogen

Ray, this has been thoroughly discussed with the FDA during our planning of this confirmatory trial. This subgroup is a very important subgroup because sooner or later all patients fail. And we have seen it in our original single agent and then on Phase II trials that indeed ONCONASE can make a difference to patients who have failed.

And it was of great interest to regulatory authorities to make sure that we do take a look at this subset. So, again, it was predefined. It was actually at their, more or less, insistence that we do so.

Ray Myers - Emerging Growth Equities

And you say it’s predefined as part of the primary endpoint. I think that’s a key phrase.

Kuslima “Tina” Shogen

We are looking at overall survival. You are looking at the Catania estimates for top line look. That number is really quite meaningless because it’s a median. We have a number of primary endpoints that have been predefined and we have to meet them.

Clearly, this is going to be a clinical call since mesothelioma is a varied disease, much more than any other cancer. And therefore, it’s a very comprehensive statistical analysis plan that has been worked out together with the agency and we will look at all these different data sets, report on them and discuss it with the agency. So, that’s what we need to do.

Ray Myers - Emerging Growth Equities

What’s the path to EU approval? Is there any possibility that you could file in the EU under different circumstances than with the FDA in the U.S.?

Lawrence A. Kenyon

Ray, there are some slight differences, even though they use basically the same common technical documents that we’ll be using for this NDA submission. The work that we need to do for the FDA is the same work we need to do basically for EMEA with a few exceptions and a few extras.

So, the document, when it’s done for NDA submission, will, for all intents and purposes, be done for EMEA’s perspective. It just needs to have a couple of few things added to it to make it final. But we haven’t talked about timing at this point for EMEA submission because obviously the primary goal here is to get this NDA submitted here in the U.S. as quickly and efficiently as possible.

Ray Myers - Emerging Growth Equities

Well, is there any possibility that the EMEA might look at the secondary therapy differently than the FDA and particularly since a lot of those patients were enrolled in the EU?

Lawrence A. Kenyon

That’s important. Obviously, the focus here has been primarily in the U.S. We recognize the large number of patients that we did enroll in Europe and that there is definitely an interest there as well. But we have to with what we know best right now, and that’s obviously the U.S. regulatory environment.

But it’s no less important for us in Europe. It should follow relatively quickly, but we just don’t have any timing at this point because it is the same documents. The amount of work has to get done. So, I don’t see EU leapfrogging the U.S. at all.

Operator

Your next question comes from Tom O’Connor - Morgan Keegan.

Tom O’Connor - Morgan Keegan

Out of the trial we had 428 or so patients enrolled and 316 deaths occurred and that allowed us to go ahead with the evaluation. What happens to the differential there, the patients that we don’t have deaths occurred yet? What’s the flow of that data? Is that already, the data of them already been evaluated too, or will they only get evaluated as those patients pass?

Lawrence A. Kenyon

Those patients are centered at the moment, but we’re aware of how many patients are still alive and at this point how long they have been alive on whichever treatment arm they were on. But it is an important factor. If any of those patients do pass on before we get the NDA submitted, that’s part of the update that we would provide at the time we submit the NDA.

But it is an important group of patients that will have some weight when we submit this NDA because, obviously if you have not expired on the trial then your survival must be pretty good. And as always that’s been an important factor here when you look at the data from ONCONASE that, especially in mesothelioma we’ve seen good one year and two year survival rates. And we would expect that to continue.

Tom O’Connor - Morgan Keegan

Do we know how many of those patients are ONCONASE single line or combination, and do we know the statistics of those yet or is that data still withheld?

Lawrence A. Kenyon

We have the raw data, but that’s part of the analysis that we are doing right now on the total data set for the trial.

Tom O’Connor - Morgan Keegan

Did it change the overall statistics?

Lawrence A. Kenyon

On the primary end point that would be a big stretch but it’s still a very important number. If these patients that are still living right now were all still living by the time we submitted the NDA, which arguably is a tough assumption, but if that were the case, they’d be really important because they’d still have another, there’d be another five months survival from this point by the time we submit an NDA.

Five or six months, and that would all be important and relevant because that would represent a group of patients that if they are on the ONCONASE plus doxorubicin arm would have extended survival and arguably would be past the median point given where most of the patients got enrolled in this trial.

Tom O’Connor - Morgan Keegan

So on that patient population, will we hear about that as each death, or every so many deaths occur, or do you just not look at that until everyone, until you are more further down the line or all of the, whatever that is, 112 more patients pass?

Lawrence A. Kenyon

That will be part of the NDA submission and potentially could be part of any public presentation of the data that’s made in advance of the NDA being submitted, if we have the data at that time.

Tom O’Connor - Morgan Keegan

Will the data come to you? I’m sorry to keep asking the question, but I just don’t know how you receive the data from that. As each death occurs, you start getting that data or does it not come until like a second closing.

Lawrence A. Kenyon

There will be a point where we get an update on all new events that have occurred. So it’s not being tracked on a death-by-death basis. I’m sorry.

Operator

Our next question comes from the line of [Malcolm Adler - M.A. Financial Consultants].

[Malcolm Adler - M.A. Financial Consultants]

By the price of the stock being down and by the negative comments, I came back to your company several lots. Now you say by the end of the year you expect to get more feedback. How promising does it look? And if it’s negative let’s say, what is the next step, you just keep on going?

Lawrence A. Kenyon

In terms of feedback, we plan to submit the NDA by the end of this year. And we think we are making a good case here based on our statistical analysis plan and the very important result we saw in second line patients. This is a critical unmet medical need in this disease and we think provides us with plenty of support to submit an NDA.

And we think obviously if we’re going to submit an NDA, we think that ultimately that would be a positive result and resolution there. For us obviously we’re targeting a successful completion of this NDA package and that’s the most important thing we can do. We can’t make a call as to whether ultimately the FDA is going to approve or not approve our NDA submission.

We can only put the best case forward that we can and we think the data that we have is very important data and it’s very good data and we think that a lot of the soft issues come in our favor as well. This is an orphan drug. This is a very critical, unmet medical need in this set of patients.

Everyone, ultimately, with very few exceptions, will progress on the disease, no matter what chemo regiment they get front line, whether they get surgery or not, front line. So we think that there’s definitely a market out there for patients that are suffering from this disease that need a relatively safe alternative with a proven result in refractory setting and that’s what you’d have at this point, based on the results from the Phase IIIb trial.

[Malcolm Adler - M.A. Financial Consultants]

Par Pharmaceuticals has been doing some financing with you. In the event you need more financing, will they go along with it, if you need more, if you need an infusion of more capital?

Lawrence A. Kenyon

I am not at liberty really to discuss Par’s intent regarding any future investments here. Obviously our agreement stands for itself and upon approval we would get a minimum of $20 million, as a milestone. They have the ability, as part of our agreement, to forward some of that milestone in the event that it looks like we’re going to need to get in front of, say an ODAC meeting or some help we needed with our filing.

That’s at their discretion and they are aware of where we stand. They are doing their own review of our data and making sure that we all see it the same way, which I have no doubts about frankly, and that would be completely up to them. But I really can’t speak to what they would do or might do.

Operator

Your next question comes from [Eduardo Soto] - Dawson James Securities.

[Eduardo Soto] - Dawson James Securities

Obviously the market does not agree or does not understand the potential that this drug has right now to be approved at the second line. And I think part of the reason is because we have not had access to the whole data. I cannot stress the importance of this data being published and how fast do you think this data can be made accessible or available to the market?

Kuslima “Tina” Shogen

Well, we are looking at three scientific conferences that are going to be coming up before the fall period this year, and we certainly have every intention of presenting at one of them or more of them. Exactly what date, Eduardo, is again very difficult to state, simply because what’s most important here is that we have a comprehensive package that is ready for filing, and that is the priority but obviously when we have that data, immediately we will be making and seeking a presentation at an appropriate forum.

Lawrence A. Kenyon

Tina is dead-on right that we need to get the full data reviewed so we can make a good presentation. But part of process at these scientific conferences is the peer review component, and we want to make sure that we’re able to put our best foot forward, that people understand the research completely inside and out and can have a chance to debate and discuss as normally happens at these conferences.

So when we have more information, and that requires getting an abstract accepted and we’re in the process of doing all of that as we speak. But once we have an abstract accepted and we know we are going to be able to represent this data, that information will be made available to investors and ultimately the data that is presented will be made available.

Operator

Your last question comes from Arthur Barry - private investor.

Arthur Barry – Private Investor

Yes. I’d like to know if there has been any pursuit of patents with this new Japanese CEF that you are calling it, in combination with ONCONASE, and if there is any other information available on some of the work that’s been done on Dengue fever?

Lawrence A. Kenyon

Mr. Barry, in terms of patents, we have a lot of patent applications that are out, but I think everything that’s been filed to date is a matter of public record. We don’t really discuss anything that we’re thinking about doing at this point. I think for obvious reasons, because we don’t really want to tip our hand. But obviously our patent estate is something that is very important and critical for us being successful in the future, so we’re looking at all of those things regularly.

As far as Dengue fever, we’ve had some work done with a potential partner a number of years ago. The results of that have been made known to us. As the nature of that relationship is though, and we’re not at liberty to discuss what was found out in this case.

So unfortunately we don’t have anything further to say right now about the pursuit of ONCONASE for use in Dengue fever, but know that everything that we’ve been working on, especially on the amphinase line of compounds specifically, is targeting potential uses as antiviral compounds that could be brought forward in the future.

But right now the focus here for ONCONASE, the near term is obviously mesothelioma, that’s the NDA at hand that we need to get submitted. Obviously the next case for us is other oncology indications because the agreement with Par pays us real milestones for entering into Phase III and going to the next step of actually submitting and potentially having NDAs approved in other oncology indications.

And that’s the real-time near term type milestones that could make a difference for us. It does not reflect though the importance of other types of uses for ONCONASE and the amphinases, especially in the antiviral world. It is something we are looking at. We just have nothing at this point in the clinic to be able to discuss in any greater detail.

Arthur Barry

Does this include radiation enhancement?

Lawrence A. Kenyon

In oncology?

Arthur Barry

Yes.

Lawrence A. Kenyon

That’s one of the aspects that we’re looking at. There’s been a lot of work done on a preclinical basis that supports potential use of ONCONASE in combination with radiation, but obviously the result that we saw here in mesothelioma is another important result, second line treatments for cancer, since it is a typical path to getting a drug approved and obviously in many different types of cancer that are treated today.

Drugs like Alimta and cisplatin are being used and in our particular trial here in mesothelioma, we’ve shown what we think is a very important result in patients that openly failed on the Alimta-cisplatin combination and so we are looking at tumors where we could have a very real benefit in our refractory setting. That would help us more quickly access other oncology indications and provide more value for our shareholders.

Operator

We are out of time for questions.

Lawrence A. Kenyon

And thank you, everyone, for participating in our fiscal third quarter 2008 update conference call. We appreciate the dedication of our investors, employees and collaborators who have made it possible for us to continue with the submission of the remaining component for the ONCONASE rolling NDA for malignant mesothelioma.

Goodbye and take care.

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Source: Alfacell Corporation F3Q08 (Qtr End 04/30/2008) Earnings Call Transcript
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