ImmunoGen, Inc. F4Q08 (Qtr End 06/30/08) Earnings Call Transcript

| About: ImmunoGen, Inc. (IMGN)

ImmunoGen, Inc. (NASDAQ:IMGN)

F4Q08 (Qtr End 06/30/08) Earnings Call Transcript

August 7, 2008 4:30 pm ET


Carol Hausner – Executive Director, IR & Corporate Communications

Mitch Sayare – Chairman and CEO

Dan Junius – President, COO and Acting CFO

John Lambert – EVP, Research and Development and Chief Scientific Officer


Brian Rye – Janney Montgomery

Joel Sendek – Lazard Capital Markets

Shiv Kapoor – Morgan Joseph

Michael Yi – RBC Capital Markets


Good day and welcome everyone, to this ImmunoGen fourth quarter fiscal year 2008 conference call. Today's call is being recorded.

At this time, for opening remarks and introductions, I'd like to turn the call over to the Executive Director, Investor Relations and Corporate Communications, Carol Hausner. Please go ahead, ma'am.

Carol Hausner

Thank you. At 4 p.m. this afternoon, we issued a press release that summarizes our financial results for our fourth quarter and our fiscal year ending June 30, 2008. I hope you've all had a chance to review it. If not, it's available on our Web site at

During today's call, we will make forward-looking statements. Our actual results may differ materially from the projections made. 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 Web site.

With me today are Mitch Sayare, our Chairman and CEO, Dan Junius, our President, Chief Operating Officer and also currently our acting Chief Financial Officer, and John Lambert, Executive Vice President and our Chief Scientific Officer. Mitch, Dan and John will provide an update on ImmunoGen, and Dan will also discuss our financial results. We'll then open the call to questions.

I'll now turn the call over to Mitch.

Mitch Sayare

Thanks, Carol. We recently had a number of noteworthy corporate developments both in our organization and in our product pipeline. Last week, I had the pleasure of promoting Dan to the position of President and Chief Operating Officer. Dan has made a tremendous contribution to ImmunoGen's since he joined us in mid-2005, and has been taking on increasing responsibilities since that time.

With his promotion all our operating functions, research, clinical, regulatory, manufacturing and business development now report to Dan who of course reports to me. Dan will also continue to function as our Chief Financial officer until we fill this position and then that person too will report to me.

Additionally, last week, we also promoted our Chief Science Officer, John Lambert from Senior Vice President to Executive Vice President reflecting the huge contribution John makes us at our research. I think the timing of this promotion is particularly appropriate as John's expertise is highly complementary to Dan so they work well together. You will hear more both of them shortly.

Let me begin with an update on recent progress with our clinical stage product. In the two months – in the past two months Genentech has provided a number of updates around trastuzumab-DM1 or T-DM1 as it is called. As you know, Trastuzumab is the naked antibody marketed as Herceptin.

In June, Genentech reported impressive T-DM1 phase I findings at ASCO. Their phase one evaluation of T-DM1 was conducted in patients with HER2 positive metastatic breast cancer that importantly had progressed on treatment with herceptin plus chemotherapy. The findings reported at ASCO were truly dramatic.

First, almost all 12 of 15 of the patients treated with T-DM1 added maximum tolerated dose every three weeks had meaningful clinical benefit even though their breast cancer had earlier progressed on the antibody component of T-DM1.

Second, the median progression for survival in these patients was remarkable 9.8 months. In their investor event at ASCO, Genentech noted that this compares to six months for the combination of Herceptin plus pertuzumab. And third, the excellent tolerability of T-DM1 was maintained when it was dosed weekly in amounts as high as 7.2 mgs per kg over a three-week period. The impressive antitumor activities seen when T-DM1 was administered every three weeks also was seen when it was given weekly.

These findings are all great news, but what we are really wanted to hear where Genentech's plans for the next steps with the compound. Happily, they described these during the quarterly conference call last month. In that call, Genentech stated that patient enrolment was complete.

In the phase II trial they started last summer what they now call the second line plus setting. And that they expect to report interim findings from the study at the ASCO Breast Cancer Symposium being held early next month.

They also discussed their plans to evaluate T-DM1 for HER2 positive metastatic breast cancer as third line treatment, as first line treatment and potentially also as second line treatment. What Genentech said was they plan to initiate soon a phase II trial to evaluate T-DM1 as a third line treatment for HER2 positive metastatic breast cancer. Basically, designed to evaluate T-DM1 in patients whose cancer has progressed on herceptin plus chemotherapy and on Tykerb+Xeloda.

Genentech noted that this trial is scheduled to start in the second half of 2008, and has objective response rate as the end point. Genentech share that if the study yields compelling results, they plan to use it to discuss an earlier approval path with the FDA. That is this trial can serve as a registration trial if the results merited.

In addition, Genentech disclose their plans to evaluate T-DM1 as a first line treatment for HER2 positive metastatic breast cancer. They plan to start a phase II trial in this patient population in the second half of 2008 as well. In it, the patients with HER2 positive metastatic breast cancer who have not previously been treated for metastatic disease will be randomized to treatment either with herceptin plus taxotere or with T-DM1 as monotherapy.

Comparing T-DM1 with herceptin plus taxotere can be seen as a bold move by Genentech. But consider this. The end point of this trial is progression-free survival. Recall that in phase I testing T-DM1 had a progression-free survival of 9.8 months. And this was in patients who received the median of four prior chemotherapy agents for metastatic disease.

We obviously don't know what the median progression-free survival will be with T-DM1 in patients who have not received any prior treatments for metastatic disease, but I think it's reasonable to expect it to be greater than it is in patients who fail four prior therapies.

We also don't know what will be for the herceptin plus taxotere study arm. But know that herceptin given with paclitaxol achieved a median time to tumor progression of 6.7 months when used first line in the large phase III trial that was a basis of herceptin's approval for this use. Paclitaxol alone showed a 2.5 month progression-free survival. So bold, yes, but it makes a lot of sense what Genentech is doing.

Finally, Genentech noted that they plan to make a phase III decision in 2008 related to T-DM1 as second line therapy for HER2 positive metastatic breast cancer.

I've already mentioned that Genentech completed enrolment in their phase II trial in the second line plus setting. They said they expect to be able to make a decision regarding the phase III study once they've had a chance to review the findings from this study.

Certainly, T-DM1 is a great validation of our technology. Since so many patients have responded after failing treatment with the naked herceptin antibody. Another point that really jumped out of ASCO was the tolerability afforded by our TAP technology. If we look at the maximum tolerated dose of TAP compounds, dosed every three weeks we have 3.6 mgs per kg for T-DM1. About the same or even a little bit higher for IMGN242 and over 6 mgs per kg0 for IMGN901.

These are three TAP compounds with three different link or payload combinations. Thus we are pleased with how our technology is performing both in efficacy and tolerability.

One last thing about Genentech, given their relationship with Genentech is nice to be able to note that Roche has been visible in their support for T-DM1 by opting in on it last December by discussing it in glowing terms in their 2007 annual report and then recent interviews by Roche management.

Let me now turn to IMGN242. As you know our Phase II gastric cancer trial of design to evaluate IMGN242 in 23 patients, there have been objective response by resist criteria is achieved in one of these 23 patients. We'll announce it since it triggers the expansion of the study to 40 patients. If we haven't got an objective response after we've enrolled all 23 patients we'll announce that too since that results in a discontinuation of our development of IMGN242. Our goal is to complete enrolment of these 23 patients before the end of our fiscal year, June 30th 2009.

We reported the initial findings from the study at the ASCO annual meeting in June. Among the data reported was that marked biological activity has been seen in one of the first patients enrolled in the study, the patients with gastro-esophageal junction cancer.

Since 2004 when her cancer was first diagnosed this patient had been treated with multiple chemotherapy regimens, included Docetaxel, 5-FU and carboplatin and also with radiation therapy. Her cancer spread and she answered her trial with numerous metastases including one in her liver and then in her lungs. So she was in a bad way.

She was given her first dose of IMGN242 and had a marked biological response on her PET scans. She received a second dose and had measurable tumor shrinkage and unconfirmed partial response. However, this response was not sustained long enough to meet the criteria for expansion of our study.

A response needed to persist for at least four weeks to meet resist criteria. And in our study, we would need to persist for at least six weeks because of the timing of the patient's scans. We will keep you posted on our further results as they come in.

In terms of IMGN901, we didn't report any IMGN901 data at the ASCO annual meeting but expect to report new findings as both the EORTC meeting in October and at the ASH meeting in December. This compound is currently being evaluated for the treatment of both multiple myeloma and of CD56 expressing tumors.

We believe that their fastest route to market for IMGN901 is as a treatment for multiple myeloma and we're greatly encouraged by the activity we're seeing with the agent as monotherapy and our 003 study.

As I noted earlier, our compounds tend to be very well tolerated. So we still haven't established the maximum tolerated dose or MTD for IMGN901 in this trial even though we've dose escalated to a number of cohorts.

Once we establish the MTD in the 003 study we plan to treat additional patients at that dose to gain a better understanding of its activity when used as monotherapy in highly treatment resistant patients. Also, after the MTD is established, we plan to start a Phase I, II trial to evaluate IMGN901 used in combination with an approved agent for multiple myeloma such as Revlimid.

In recent years, there has been a marked shift in how this disease is treated. And we now believe we can develop IMGN901 the fastest if it's used in combination with an approved agent since this will help to expedite patients enrolment. There is a lots of interest among hematologists having an effective antibody therapy for multiple myeloma like they have with rituxan or non-hodgkins lymphoma.

We expect to begin this combination trial within the next six to 12 months. It will include

a short dose escalation phase I stage with three escalations maximum and then move on to a phase II stage. We will keep you posted on this.

Since our last conference call we also advanced a third compound into the clinic, IMGN388. Actually, since our last call, we submitted its IND, gained FDA authorization to begin clinical testing, did site initiation and dose the first patient not bad for a compound we in-license just a few months ago.

We're excited about IMGN388 as it's the first TAP compound that can both destroy tumors directly by targeting and killing the cancer cells and also indirectly by preventing the formation of the new blood vessels and solid tumors need to grow. In our phase I study, enrolment initially is open to patients with any type of solid tumor as any of these patients could potentially benefit from IMGN388 because of its potential effects on the formation of new blood vessels.

Once the maximum tolerated doses established, only patients with the types of tumors that express the integrin target will be eligible for enrolment. But still a pretty broad pool since these includes sarcomas, melanomas and many different types of carcinomas. This will provide us with greater information on the activity of IMGN388 against tumors where both modes of action can come into play. Its direct effects on the tumor as well as on the formation of neovasculature.

I'll now turn the call over to Dan to discuss compounds and development by other of our collaborators. Dan?

Dan Junius

Thanks, Mitch. Mitch has already taken you through quite a bit of our T-DM1. Let me now discuss the progress of some of our other partners before covering the financial results.

Last year, we predicted we have three more TAP compounds in the clinic by this summer. You heard Mitch cover IMGN388. BIIB015 which is Biogen Idec TAP compound their antibody linked to our DM4 went into clinical testing this summer. The target there is cryptoproprietary target of Biogen-Idec for the treatment of solid tumors. We earned $1.5 million milestone payment with the IND filing earlier this calendar year.

The other TAP compound is BT062 from Biotest AG which remains on track to begin patient dosage this summer for the treatment of multiple myeloma. Recall that under this arrangement this license we have opt-in rights. That will bring to five, the number of different companies generating clinical data on TAP compounds. Genentech, Sanofi-Aventis, Biogen Idec, Biotest and ImmunoGen.

Let me turn to – via to Sanofi-Aventis who has three compounds in clinical testing to our collaboration, AV9633, AV1642 and SAR3419. SAR3419 is a TAP compound and it targets CD19 which is found in non-hodgkins lymphoma as well as other B cell malignases. This went into the clinic last fall.

We expect the first findings at the ASH annual meeting in December. AV9633 remains in phase I testing with nothing new to report. That leaves AV1642, naked on antibody that binds to and blocks the IGF1 receptor.

It's designed to block the pathway used by cancer cells to survive chemotherapy is intended to be used with such agents. And the first findings we reported the combination with the chemotherapy agent at the ASCO meeting in June. This is being used with Docetaxel which is Docetaxel which is marketed by Sanofi's Taxotere and patients with advanced solid tumors.

The data that was reported show that it's well tolerated both alone and in combination with Taxotere. It also reported a substantial and sustained biological effect and doses above 3 mgs per kg, and they saw an encouraging evidence of the anticancer activity noting a breast cancer patient enter the study with skin metastases where previously been treated with taxane, but experience a significant clinical improvement in these skin metastases when given Docetaxel in combination with AV1642.

At ASCO, the presenter also noted the Sanofi-Aventis plans to assess AV1642 for a number of different types of cancers in combination with various chemotherapy agents.

Let me spend a minute on the status of the Sanofi-Aventis collaboration because we call that the research portion of this collaboration comes to a close at the end of this month. It was established in July 2003 originally as a three-year collaboration.

There were two options to extend for an additional one-year period, both of which have been exercised by Sanofi. And there are no further extensions allowed under the agreement. But hence then on 8/31/08 is the research portion of this collaboration, the part were committed research support funding.

A number of elements however continue including their obligation to pay us milestone payments on the compounds developed under this agreement and we call those range from $21.5 million to $30 million per target. What also continues is their obligation to pay as royalties on the commercial sales of any compound developed under this agreement.

The compounds here include the three discussed earlier as well as two others that have been disclosed. A TAP compound for the treatment of solid tumors and a naked antibody for liquid tumors both are which are in preclinical stages. And there are others at earlier stages of development.

Also continuing is Sanofi's obligation to fund research we conduct on their behalf and we expect that there will be some ongoing research even though it's not under the collaboration agreement that end this month. We also are obliged to pass materials we manufacture on their behalf.

Also continuing are their rights to license our humanization technology for antibodies to target outside of the collaboration. There is one another element that ends at the end of August. That Sanofi's option to secure revolving door arrangement with us for expanded access to our TAP technology. Their exercise of the option provides them with the right to test our TAP technology with antibodies to target not included in our collaboration and to take licenses for those targets on already established terms.

While Sanofi's obligation to pass committed research funding, support funding for another year and the impact on this projected burn rate is mitigated by other factors which I will discuss as I now turn to the financials.

Let me go through the fourth quarter of the year just ended and the full fiscal year that I can talk about our expectations for FY '09.

Our revenues in the fourth quarter were $4.5 million, down from $8.5 million in the same quarter last year. This comprise $3.4 million in research and development support fees versus $6.8 million last year. Recall that our R&D support fees primarily represents funding pursuant to the Sanofi arrangement we just discussed and to a lesser extent funding earned under our development and license agreements with other of our collaborative partners.

As I noted that fifth and final year with Sanofi's again in September of '07, is coming to a close and per our expectations the research and development support fees next final year were going to be less as ongoing development activity is transitioned to Sanofi.

Our license and milestone fees in the quarter were $1.1 million, down slightly from the $1.3 million in the year ago period. Clinical material reimbursement in the quarter was $49,000, down from $0.5 million in the fourth quarter of 2007.

This reflects revenue earned on materials made on behalf of our collaborators, and also on any of our cytotoxic agents supplied to those collaborators. And the activity varies, based on collaborator requirements for clinical trials as well as on the timing that batches our release and accepted by our partners.

In the quarter, our operating expenses were $16.5 million, that's up $13.8 million in the same period a year ago. Our research and development expenses were $12.7 million, that's up from $11 million last year. These R&D expenses now includes the cost of clinical materials reimbursed which previously were broken out separately.

The increase in our fiscal 2008 R&D expenses is primarily due to increase in antibody supply costs and also to development costs incurred with contract manufacturing organizations related to the potential production on later stage materials.

Clinical trial costs also increased by $0.9 million during the current period – during the period ended June 30 compared to the same period last year due to costs associated with the start-up of IMGN388 clinical testing which included a $500,000 milestone expense we incurred to a third-party related to the advancement of IMGN388 to clinical stage.

General and administrative expenses were $3.7 million, up from $2.8 million in the year ago period, primarily as a result of increases in patent costs and personnel costs as well as expenses related to our move to Waltham. This produced the loss from operations of $12 million compared to $5.3 million in the year ago period.

We had other income of $100,000 versus $800,000 the prior year. This is primarily interest income, losses realized on investments due to impairment and gains recognized on forward contracts. In fiscal '08 we had $300,000 of impairment charges on investments and no similar charges last year. That produced a net loss of $11.9 million or $0.27 a share, compared to $4.5 million, or $0.11 a share, in the same period last year.

For the full year we had revenues of $40.2 million, that's up from $38.2 million last year. Research and development support fees were $15 million, down from $25.5 million last year. As noted, this decrease is primarily due to reduced Sanofi-Aventis activity as discussed previously and as expected. Also, in the 2007 fiscal year, we earned more R&D support fees from our other collaborators compared with the current year.

License and milestone fees this year were $13.2 million, up from $7.6 million last year. We had a number of items here in fiscal 2008. $5 million milestone earned with Genentech's initiation of phase II testing of T-DM1, a $1.5 million milestone earned in the Biogen Idec submission of the BIIB015 IND to the FDA, $1 million milestone earned with Sanofi-Aventis advancement of SAR3419 in the clinical testing. In the prior fiscal year we have a $2 million milestone earned with Sanofi-Aventis advancement of AV1642 in the clinical testing.

Our clinical material reimbursement revenue in the fiscal 2008 was $12.1 million. This was up $7 million from the level of the prior year. We earned clinical material reimbursement revenue on our fiscal 2008 is primarily due to $5 million of revenue we recognized for providing one of our cytotoxic agents to a collaborator as well as to an increase in the amount of clinical material we supply to collaborators.

Operating expenses for the year were $74.4 million, up from $16.4 million in the year ago period.

R&D costs were $60 million, that's up from $49.4 million last year. The increase was primarily due to the costs of supplying one of our cytotoxic agents (inaudible) as discussed previously, also due to our purchase of DM1 and DM4 this year.

Our general and administrative expenses were $14.3 million, up from $11 million last year. In the fiscal year just ended, we recognized $1.5 million of non-cash expense related to the rental of laboratory and office space in Waltham prior to our occupying this space in late March of this year, and also $800,000 of move-related expenses. These were classified as general and administrative expense.

These expenses were also greater in the 2008 year than 2007 due to increase in the costs associated with both personnel and with patents. This led to a loss in operations in fiscal 2008 of $34.1 million which is up from a loss of operations of $22.2 million in fiscal 2007.

Our other income net in fiscal 2008 was $2.1 million, down from $3.3 million, a year ago. Again, this category is interest income, losses realized on investments due to impairments and gains recognized on forward contracts. And in fiscal 2008, we had about $0.5 million of impairment charges on investments with no similar charges incurred during fiscal 2007.

This produced a net loss of $32 million or $0.75 a share in fiscal 2008, compared to a $19 million net loss or $0.45 a share in the year ago period. And $32 million is slightly above the high end of our guidance of $25 million to $31 million for the year, in part, due to partner event we expected to happen in fiscal 2008 did not occur. We now expect that to happen in early fiscal 2009 as well as the unplanned impairment charge into other smaller items.

In terms of our balance sheet and our cash and marketable securities ended the year of 2008 were $47.9 million versus $59.7 million as of the end of June, year ago. The June 2008 balance includes $25 million raised due to the sale of common equity to a single buyer in June of the current year. As has been the case, each time we reported there is no debt, there is no converts, there is no preferred, there is no warrants on either period. And the money just raised did not include any warrants.

Our cash used in operations in fiscal 2008 was $20.2 million, which compares to $15.8 million in fiscal 2007.

Capital expenditures last year were $18 million. That compares to $2 million in fiscal 2007. I should note that fiscal 2008 capital expenditures include $3.7 million of improvement of the Company's capabilities in our manufacturing plant in Norwood, Mass, as well as $10.3 million to build out the laboratory and office space at the facility we now occupy in Waltham that we moved into in late March 2008.

A $10.3 million of lease hold improvements are being paid by the landlord of the Waltham facility where such reimbursements recorded as a benefit to cash used in operations.

Our actual capital expenditures were lower than our fiscal 2008 guidance while our cash used in operations was higher by a corresponding amount. These variances are tied to our underspending of the allowance established for the build out of our new space in Waltham.

This underspending reduced our capital expenditures for the year, but also reduced the reimbursement funding we would have received from the landlord which would have benefited our cash from operations. So making those adjustments we are pretty much keen in within the guidance that we have provided.

Turning now to our 2009 fiscal year, we expect our cash used in operations to be between $20 million and $23 million next year or I should say the current fiscal year. And our capital expenditures to be about $2 million, that is we expect our cash used in operations to be at a similar level to the level in fiscal 2008 and our capital expenditures to be substantially lower returning to the historical spending level. Thus in our 2009 fiscal year we expect to have a lower cash used overall than in 2008 even though we will be pretty more resourced behind our own compound.

The conclusion of the funded research portion of our collaboration with Sanofi-Aventis at the end of this month is expected to reduce our total revenues, and increase our net loss, bringing our expected net loss to be between $37 million and $40 million. However, the impact of the conclusion of this funding on our cash position is expected to be offset by lower operating expenses, reduced capital spending I noted and increases in other collaborator activity.

I noted that we had $47.9 million in cash and marketable securities as of June 30, 2008. We expect to end our 2009 fiscal year with more than $23 million in cash and marketable securities on our balance sheet.

With that let me turn the call back over to Mitch.

Mitch Sayare

Thanks, Dan. As you can tell, we're very excited by our progress and by the progress made by our partners. The TAP technology we've developed has yielded compounds with very encouraging activity and excellent tolerability in initial clinical testing. We attributed this to our cell killing agents being highly potent and our linkers being smart, able to keep the cytotoxic payload, firmly attach to the antibody of tool released in an active state inside the cancer cell.

Part of our mission here at ImmunoGen is to continually work on broadening the application of our TAP compounds. To this end a few months ago, we unveiled another of our technology innovations. The new family of polar linkers that extend the utility of TAP compounds to the treatment of multi-drug resistance cancers.

We're finding very strong interest in these new linkers among our current collaborators as well as among potential new partners. John will brief you now on these linkers.

John Lambert

Thank you, Mitch. One of the programs we've had in research to gain a comprehensive understanding of how TAP compounds are processed once they enter cancer cells. This program has provided us with certain unique expertise that our partners have come to rely on to understand the intracellular processing of that TAP compounds. It's also provided us with a considerable amount of highly useful information.

One outcome of this research is our new family of polar linkers, which we developed to greatly enhance the activity of TAP compounds against cancers with primary multi-drug resistance such as colon cancer.

We expect this innovation to extend the reach of our technology to these types of cancers, and potentially also to ones with relatively low expression of the target antigen on the cell surface.

Our new polar linkers can be used with our current cell killing agents DM1 and DM4 and also with both of feasible and non-feasible linker technologies. We're starting to use these linkers in the new TAP compounds we're developing in research and as Mitch mentioned, they have also generated a lot of interest among our current and potential partners as no one else in the field has anything like this. Mitch?

Mitch Sayare

Thanks, John. So let me close with a summary of the milestones we expect to achieve in our 2009 fiscal year ending next June. For T-DM1 we expect interim phase II results to be reported at the ASCO Breast Cancer Symposium early next month. We expect Genentech to begin to phase II studies with the compound, one evaluating as a first line treatment and one evaluating as a third line treatment for HER2 positive metastatic breast cancer in the second half of 2008.

We also expect Genentech to make their phase III decision about also evaluating T-DM1 as a second line treatment for this cancer in 2008. We expect additional Genentech activity in 2009 including the presentation of more clinical findings with T-DM1.

For IMGN901 we expect to report additional findings with the compound in the treatment of solid tumors and multiple myeloma during the fourth quarter of 2008. We expect to establish the maximum tolerated dose of IMGN901 as monotherapy for the treatment of multiple myeloma. And once we have that we expect to initiate a phase I/II study to assess the safety and activity of IMGN901 for multiple myeloma as part of a combination regimen.

For IMGN242 we intend to complete enrolment of the 23 patients needed to determine if we should expand or end our phase II gastric cancer study. And we expect to report additional clinical findings with this compound.

Additionally, we expect the first SAR3419 clinical data will be reported in late 2008. We expect to know whether Sanofi-Aventis will exercise their option for expanded access to our TAP technology by the end of this month and we expect to have additional partner related announcements including at least one new technology license. I look forward to keeping you posted on all of this progress. Carol?

Carol Hausner

Thanks, Mitch. Operator, we are now ready to open the call for questions.

Question-and-Answer Session


(Operator instructions) We will take our first question from Brian Rye of Janney Montgomery.

Brian Rye – Janney Montgomery

Well, good afternoon, guys, and congratulations on the year and thanks for taking my question. Really, just one question I guess, Mitch, in talking about the new – I guess polar linker technology that you recently unveiled, can you talk about how do you intend to either apply that or use that commercially with existing and/or new partners. Was this something that you've been working on anyway or was this in response to some request from would-be partners? Just maybe talk about the evolution of how that came to pass and how you're going to use that going forward?

Mitch Sayare

I think rather than I – me doing that, why don't we let John do it, he was directly involved with it, Brian.

John Lambert

Over the last year, we have been working on these polar linkers ourselves. And once we began to see the power of the potential we have alerted some of our current partners to the possibilities of applying them to the molecules that we've had in development with them.

Mitch Sayare

To answer your question directly, Brian, this was not stimulated by outside interest. We stimulated their interest once we disclose what we're doing.

Brian Rye – Janney Montgomery

Great. And if – hypothetically if Biogen Idec said, hey, we just filed an IND, but if you believe you have gotten new linker technology that can perhaps provide enhanced efficacy, is that something what they would want or have the ability under the terms of the agreement to – I hate to use the term replacement linker, but to get a new compound to replace the one that they just filed in IND for?

Mitch Sayare

Yes, most of our partners have the right to any improvements that we make in the technology platform. So we could expect there to be – they would – if they were to make that change and I don't think there is any plans to make a change to any existing clinical products. Then it would be part of our deal. They wouldn't have to do a new deal.

Brian Rye – Janney Montgomery

Great. And then going back I guess to 901, in terms of picking which drug I guess which setting to go forward and to – obviously as you pointed out in there and sort of rapidly evolving market environment in myeloma, are you still relying on either an outside advisors or potential partnership discussions, another multiple players that they can potential make sense. What would influence? Are they – if at all having on the discussion?

Mitch Sayare

Well, the external advisors have had a lot of influence on this discussion, and it's really they who are directing us toward the combination study based on their assessment of what they're seeing right now in their clinical settings. We've had discussions with a variety of partners on this product, not just for multiple myeloma, but for other applications as well. I don't know that any of those discussions would strictly determine which of the other agents that are currently in use would be the best; I think it simply a matter of the data dictating that. And as far the data clearly point to Revlimid as the superior agent to be used in combination with this product.

Brian Rye – Janney Montgomery

Great. And then one last question. I believe I know the answer to this, but if Roche is indeed successful and their attempts to acquire that remaining shares of Genentech that already own, given that they have already opted into the T-DM1 program, I would presume there is no functional change to the agreement governing that product?

Mitch Sayare

That's correct.

Brian Rye – Janney Montgomery

All right. Thanks, Mitch.

Mitch Sayare



And our next question comes from Joel Sendek of Lazard Capital Markets.

Joel Sendek – Lazard Capital Markets

Hi, thanks. Couple of questions. First, I was just following on the Roche, Genentech, implication for you guys, do you think that potentially can delay a go, no-go decision, I mean, from your experience with Genentech over the last couple of weeks I think it's moving along as they have in the past or things getting delayed do you think?

Mitch Sayare

Well, I don't think that – I think that Roche asserted themselves regarding this product in December when they opted in. I don't think that combining the companies would make any difference towards the timing of the product. So, no, I'm not at all concerned about that. We think this is – going full steam ahead, take my word for it. I want to go back to what you said about influencing the go, no-go decision. If we can pretty clear in the quarterly call, that, that go, no-go decision is as it applies to the second line phase III study, that the third line phase II study that might be used as a registration study if the data warranted has already had been favorably decided. What isn't decided it is if the data will warrant submission under sub part H, but, that remains to be seen. So I think that the go, no-go decision on the phase III study in second line – I think what they said was that that would be largely determined by results that they are looking at from the completed phase II study that they will report on beginning next month.

Joel Sendek – Lazard Capital Markets

Right, so even if they say no-go, they still could go forward with the third line, so – ?

Mitch Sayare

That's what we'd expect. If they were to say no-go with the phase III study, they have two other phase II studies ongoing. One of which is potentially pivotal. So I don't – we don't see this as an issue at all.

Joel Sendek – Lazard Capital Markets

Right. And then any idea when those studies, the phase, first line and the third line phase II will start?

Mitch Sayare

Yes, that – Carol, just made sure that I've said that these are planned studies. As far as we know they haven't started either of them, but they said they would start them during the second half and that they've posted on clinical trial (inaudible) is starting in the second half as well.

Joel Sendek – Lazard Capital Markets

And the data at the ASCO meeting in September, do you know how many patients and whether they will present the data at San Antonio in December as well?

Mitch Sayare

No, we don't know whether – I suspect they will present at San Antonio, but they haven't said that formally. We do know that the study was structured to have a 100 evaluable patients. We don't know how many patients they actually accrue, but the details that were given for that study where that would be they would accrue 100 evaluable patients.

Joel Sendek – Lazard Capital Markets

Thanks. And then just one final financial question. The cash use projected for '09 is $20 million or $23 million, but the projected net loss is $37 million to $40 million. What's the delta there? What's the non-cash expense?

Dan Junius

I think that principally is going to be the other collaborator – the other partner activity that reference to. Some partner activity results in cash, but not revenue – or the revenue gets deferred and we reported over time. So, Mitch referenced, for example, one new partnership we think would be that and potentially other things would take place during the year that would generate cash, but not be fully reflected in revenue.

Joel Sendek – Lazard Capital Markets

Thanks a lot.

Mitch Sayare

You're welcome.


Our next question comes from Shiv Kapoor of Morgan Joseph.

Shiv Kapoor – Morgan Joseph

Hi, thanks for taking my questions. Actually, most of my questions have been answered. Just one quick one on the financial. Approximately, what portion of the R&D this quarter – R&D support came from Sanofi-Aventis?

Dan Junius

Hang on Shiv, I got that. It's a reasonable portion. It's been declining – were down under – I think it's under 40% in the quarter whereas it's been at levels much higher than that.

Mitch Sayare

While he is looking, Shiv, do you have any other questions?

Shiv Kapoor – Morgan Joseph

Yes. Let me ask you a question. If Genentech decides to run a pivotal study, T-DM1, but not yet a phase III study, a pivotal phase II study. Is that considered under your agreement as progressing and would you expect a milestone then?

Mitch Sayare

We haven't disclosed when we receive milestones. But I would consider that substantial progress. And but we don't, we haven't indicated anything other than we've so far received $7 million in milestone payments.

Shiv Kapoor – Morgan Joseph

I have one more question. Do you think the Genentech could report top-line data from the ongoing phase II study before the ASCO Breast Cancer meeting next month?

Mitch Sayare

A couple of things. That study is – the enrolment has been completed that I said. And there is only four weeks between now and then – I don't know, but I suspect not. It's September 5th or 7th is when that meeting is.

Dan Junius

Shiv, getting back to your question, actually, the revenue from Sanofi in the quarter was just north of 50% for the year, it was – I don't know if this is a specific percentage, but I think the 30% to 35% range.

Shiv Kapoor – Morgan Joseph

30% – 30% to 35% on the quarter?

Dan Junius

For the full year. For the quarter, actually over a half. And some of that a little bit distorted because you will note that our clinical material reimbursement revenue was very low in the quarter. So normally we would have – that tends to be pretty lumpy. So on a normal quarter, I think we had over $12 million of revenue from clinical material reimbursement for the year. You would expect actually over $13 million. So if you spread that out, you have much more in the single quarter, but it tends to be pretty lumpy. For this quarter, it was under $100,000. So that made Sanofi's participation out of the R&D support work that we do, much higher in terms of our overall revenue than it normally would.

Shiv Kapoor – Morgan Joseph

Fair enough. So going forward, R&D support level should reflect around half of what you did this quarter?

Dan Junius

Again, even that – you've got different programs that maybe ramping up that we're doing for other parties, some are ramping down, and it wasn't a particularly active period. For example, we're still recovering in the early part of the quarter from our move into – in the new space here in Waltham. So, that probably hurt us a little bit in terms of absolute revenue in the quarter. So I don't think taking that cutting in half is a reasonable run rate. I also think that we will have ongoing work for Sanofi, although not at the level that we will have shown for this last contract here. But they still will be – I would expect that in an annual basis a seven figure player with us in terms of R&D support.

Shiv Kapoor – Morgan Joseph

Well, thanks and best of luck with the meeting next month.

Dan Junius

Thank you.


We have time for one more question. That will come from Jason Kantor of RBC Capital Markets.

Michael Yi – RBC Capital Markets

Hey, it's Michael Yi with Jason Kantor. Couple quick questions for you guys. In regards to IMGN242, can you give us some sort of an update on enrolment or accelerate – in fact the speed of enrolment is accelerating. I think can you repeat what you said about timing of the scans versus what is required to be confirmed for PR?

Mitch Sayare

So the first part of your question is enrolment and we still all the ways to go yet, before we got to 23. What we promised was that if we see a response within the – if we get a response we will report that immediately. But if we don't we have to accrue all 23 before we know that we haven't got any responses. And so that may take some time yet. And what I indicated is some time in the next six or 12 months we should be completing. What was your – there was a second half of the question?

Michael Yi – RBC Capital Markets

In terms of scans, how often are they scan versus what is required to be a confirmation?

Mitch Sayare

It's just – you have a four-week response. That is no growth, no progression of any lesion during that four-week period. But our scans, because we do – once every three week cycles, our scans are after two cycles, so it's six weeks. And so it's a little tougher standard, but it's we think it's doable. That's why we are doing it.

Michael Yi – RBC Capital Markets

Secondly on 388, can you kind of remind us what the opting rights are for Sanacore [ph] and what rates they would have to either opt-in or take the program back? Is that all and is there certain event that needs to happen for them to make their decision. Is that a window, et cetera?

Mitch Sayare

There is a – once we complete early clinical trials, they have an opt-in right. If they exercise it, then they get to split – they pay us back for our expenses thus far, and we split across going forward for North America. And they get the rest of the world and they pay us some nice royalty.

Michael Yi – RBC Capital Markets

Did they pay like all expenses or they pay back half the expenses or – ?

Mitch Sayare

They pay back all of our expenses but going forward, we pay half, they pay half, and we get half the return, they get half the return for North America.

Michael Yi – RBC Capital Markets

Perfect. And then lastly, can you remind us what the official guidance or commentary is on the royalty for T-DM1, is it the same for Roche sales and DNA sales?

Mitch Sayare

It is the same for Roche sales and DNA sales and we have always said it's in the mid-single digit.

Michael Yi – RBC Capital Markets

Thank you, guys.

Mitch Sayare

Sure. Well, thanks everybody.

Carol Hausner

Thank you, Mitch. Thanks for call and I thank you for your interest and invite you again if you have any additional questions, to give me a call, as you know we are now in Waltham. So my number is now at 781-895-0600. Take care and have a good evening.


And again, ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may disconnect at this time.

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