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Friday, March 07, 2008 4:01:17 PM
Edited Transcript from 4Q07 Conference Call
[I’ve highlighted the most consequential passages,
corrected a large number of transcription errors,
inserted annotations and hyperlinks, and removed
some perfunctory remarks for the sake of brevity.
Please note: I am not Steve Turner despite the similarity
of his firm’s name to my online handle. Hint: I’m one of
the other guys and I’m definitely not Stephen Dunn
]
PARTICIPANTS
Dr. Geoffrey Cox
GTC Biotherapeutics, Inc. – CEO
Jack Green
GTC Biotherapeutics, Inc. – CFO
Stephen Dunn
Dawson James Securities - Analyst
Sean Wu
Rodman & Renshaw - Analyst
Roy Friedman
Edith C. Blum - Analyst
Donald Hudson
Hudson Associates - Analyst
Steve Turner
Due Diligences – Analyst
[I had never heard of Mr. Hudson and Mr. Turner until this CC.]
PREPARED REMARKS
Geoffrey Cox - GTC Biotherapeutics, Inc. – CEO
I want to take some time at the start of this call to remind you of the strategy that GTC has been following over the last year and the significant progress we have made during that time, particularly over the last quarter. The production technology in infrastructure, which GTC has developed, has some unique characteristics, which provide a significant competitive advantage in the production of certain classes of therapeutic proteins. The ability to produce proteins, which are difficult to express in other manufacturing systems, has been the foundation of the development of a portfolio of recombinant plasma proteins, which is unique in its breadth even in comparison with large companies in this space. Our production technology also enables us to produce large volumes of therapeutic proteins at competitive costs and with a fraction of the capital investment normally associated with the production of biologics. These characteristics are not only important to the production and commercial potential to recombinant plasma proteins, but also to the production of monoclonal antibodies.
We are exploiting this capability not only in the development for proprietary monoclonal antibodies, but also in the development of a portfolio of follow-on biologics, also known as biosimilars in Europe, which we believe have the potential to be a very important contributor to the future of GTC and which is largely unrecognized at this time. This strategy is supported by an established commercial-scale production infrastructure, which has been validated as the result of the approval action in Europe.
We all recognized that the first therapeutic indication for ATryn is a modest market opportunity. But ATryn's approval in Europe was a major step in unlocking the value of this production technology across the broad range of opportunities now available to us.
Since our last call, we've achieved another major milestone with the successful completion of the pivotal clinical study for ATryn in the United States, which is providing the basis for our Biologics License Application submission to the Food and Drug Administration. We've obtained permission in the second half of 2007 to submit the BLA on what is known as a rolling basis where sections are submitted as they're ready rather than the normal procedure of waiting until everything is complete before submitting the filing.
The rolling submission is divided into two parts. Part one includes the preclinical and manufacturing sections, part two includes the clinical efficacy and safety data. We filed part one in late January. We did this entirely with our own regulatory resources and made the submission electronically as a single disk where subjects are cross linked to expedite review. This is tremendous progress from our European submission where we relied to a large degree on the resources of outside service providers which required submitting 60 volumes of paper.
We requested priority review in conjunction with our part-one submission and we are awaiting a response [see question below on this]. The granting of a priority review would provide for a six month review time after completion of the entire BLA submission. We look forward to working with the FDA during the review process.
Many of you regard the approval of the ATryn by the FDA as a significant and important validation in addition to the approval in Europe. And we believe that we are well placed to achieve that objective. Remember that in the second half of last year, we received so called fast track status for ATryn from the FDA along with the permission to file ATryn using a rolling BLA. We are naturally pleased that the FDA has also recognized the unique therapeutic value of ATryn as the only potential recombinant antithrombin by granting it orphan drug status [#msg-25173071].
The phase-3 clinical trial, which is the basis of our BLA submission, builds on the 14 patient study which formed the basis of approval in Europe. The study in the United States required us to recruit a further 17 patients into the active arm, in addition to these 14 patients. All of these patients have low levels of antithrombin in their bloodstream. And a requirement of the study was that all patients had to have suffered a previous thrombosis as a result of that condition. These were high-risk patients, therefore, and published research indicates that 40% to 50% of these patients could develop thromboses in the absence of prophylactic treatment when undergoing surgery or child delivery.
The primary endpoint of the study was the prevention of signs or symptoms of deep vein thrombosis, or DVT, or other thromboembolisms, while these patients underwent surgery or childbirth. The protocol for the study was to remove these patients from their blood thinners, such as Warfarin, prior to surgery or childbirth, and to bring their antithrombin levels to the normal 80-120% plasma levels and sustain them at that level throughout the procedure for a minimum of three days—or up to 14 days according to the decision of the treating physician.
Patients were observed for clinical signs and symptoms of thrombosis during the course of treatment and for the seven days following completion of treatment, during which period patients were returned to their normal blood thinners. Eighteen patients were recruited into the study: six surgical patients and 12 pregnancies, of which 17 are considered evaluable. (The unevaluable patient was a mother who gave birth so quickly the physician was unable to achieve the protocol dosing requirements in time. However, the mother continued to be treated and mother and baby were fine.) No patients in the active arm of the study showed signs or symptoms of DVT; remember, these are all high risk patients and procedures.
In the US trials, the FDA asked us to conduct a non-inferiority study with a comparative arm; it was agreed that this comparative arm would be a retrospective study with data collected under a protocol and in which HD patients with a clinical history of thrombosis had been treated with plasma-derived antithrombin when undergoing similar high risk procedures in surgery and childbirth. A minimum of 35 patients were required in the study and we obtained 38 patients. Most of these patients were in Europe, since plasma derived antithrombin has been in short supply over the years in the United States. There were no observations of clinical signs or symptoms of DVT in these patients, representing a high bar for ATryn comparison that I'm very pleased we met.
We believe that this comparison forms a strong platform for our BLA filing. The FDA has asked us to collect plasma samples from our patients for up to 90 days after the treatment for antibody assessment, and that is an important element in the timeline for completing our filing with the FDA. Collection of antibody data is standard practice for clinical trials for the recombinant proteins. Remember that we also looked for the generation of antibodies 90 days after administration of ATryn in the study we performed for our successful European filing.
We are planning to complete the clinical sections of the BLA with statistical efficacy analysis and the safety data including antibody results around midyear. We are also preparing for the inspection of our production facilities used in the production, purification and fill/finish of ATryn, although the FDA has not provided any guidance regarding the timing of these inspections at this stage.
We have made progress in our partnering discussions for ATryn development and commercialization in the United States. And we've initiated similar discussions with potential partners for our broader recombinant plasma-protein portfolio.
The focus of discussions for ATryn in the US is on the clinical and market opportunities available for the broad acquired-deficiency indications. While Leo continues to develop the DIC acquired deficiency in their territories, we will have access to that data for the US. We expect to be working with our US partner on additional acquired-deficiency indications, broadening the development program for this product.
Partnering discussions have progressed to the exchange of term sheets. We are looking for a collaboration where the partner is committed both to the commercialization and further clinical development of ATryn. We're expecting an overall structure similar to the one which we have with Leo with an up-front payment, sales and clinical milestones, financial support of clinical development, transfer price for the product and a royalty on sales. We're working to bring these negotiations to a successful conclusion over the next few weeks. As I'm sure you're aware, time lines and for negotiations such as these, can be unpredictable.
Commercialization and further development of ATryn in Europe, is occurring through our collaboration with Leo Pharma. Leo is pursuing a premium-pricing strategy recognizing that ATryn is the only antithrombin that is recombinant and the only antithrombin product that has been approved for use throughout the European Union under the centralized EMEA procedure [#msg-27253453].
Pricing has been established in the UK, Ireland and Greece and launch activities will continue as pricing is set on a country by country basis. In light of the premium pricing strategy, we expect growth in the commercial revenue to be slow in 2008. Remember that our ATryn revenues consist of product payments from Leo for both ATryn that will be sold commercially and for the clinical supply that will be used in the DIC study.
Leo began a phase-two dose ranging study in 2007 for the DIC indication [#msg-25325852]. In our last call, we reported that this study was progressing more slowly than originally planned and Leo has made a number of adjustments including expanding the number of sites to increase the rate of recruitment. Leo's objective is to have top line results in the first half of 2009. We plan to provide a more definitive update on the rate of recruitment around the middle of 2008.
We believe that the DIC indication is a significant market opportunity [#msg-22017312]. The recent research published in a letter in Nature authored by independent scientists at the Scripps Research Institute… supports the view we shared with you in earlier conference calls that DIC and sepsis result in both a coagulation and an inflammatory response and that both these must be addressed. Antithrombin has both anticoagulant and anti-inflammatory properties. Recent reports have indicated antithrombin has the potential to provide a significant reduction in mortality for DIC patients as long as anti-inflammatory properties are not compromised by concurrent administration of heparin [#msg-25214176].
During the last quarter, we have made good progress with expanding our portfolio of recombinant plasma proteins by licensing Factor IX, Factor VIII and fibrinogen from ProGenetics [#msg-25039843]. The licensed territory is Europe, North America and Japan. ProGenetics is a small, private company that we've known for many years and have been developing recombinant proteins in the milk of transgenic pigs. The most advanced program is FIX, where pigs already exist that produce this product in their milk. Our plans for this year include the transfer of the purification of FIX to GTC and the initiation of preclinical studies with the objective of entering the clinic in 2009.
This program has already been brought under the umbrella of our joint collaboration with LFB [#msg-25875091], our existing partner for factor FVIIa and CD20 monoclonal antibody. The clinical development plan for FIX is expected to follow a similar pattern to that used for the existing recombinant FIX product, BeneFIX [from WYE], resulting in an estimated 80 adult patients to complete pharmacokinetic as well as safety and efficacy studies. We provided ProGenetics with a cross license to our broad patent for the production of therapeutic proteins in the milk of transgenic mammals to enable them to commercially develop the FIX, FVIII and fibrinogen products in territories outside of Europe, North America and Japan. We'll receive a royalty on any sales ProGenetics generates in these territories. The license agreement with ProGenetics rounds out GTC's access to all three major coagulation factors: FVIIa, FVIII and FIX, [making GTC] the only company we believe with that claim and one that we hope to build into a broad franchise serving the hemophiliac community.
All of our coagulation factor programs are targeted on establishing larger supplies of recombinant products at more rational prices to improve patient usage. For hemophiliac patients, an affordable prophylactic treatment strategy would directly improve their clinical outcomes. Rational pricing of these products will also encourage expanded use in a broader range of potential indications. The recombinant FVIIa program with LFB has developed production rabbits and we are now establishing stable integration of the transgene and progressing through downstream process development. We are targeting the completion of preclinical work and submission of an IND in the second half of 2009.
Our objective for the recombinant alpha 1 antitrypsin program is to initially establish an intravenous product for the prophylactic treatment of patients with a genetic deficiency of alpha 1 antitrypsin. Remember that we established high levels of production of this difficult to express protein at 20 grams per liter of milk. Hereditary-deficiency patients who are not treated prophylactically suffer from a build-up of elastase in the lung that may lead to emphysema or other respiratory conditions. We believe we have identified appropriate techniques to extend the half-life of our alpha 1 antitrypsin product to enable it to be dosed in a similar manner as plasma-derived products. Once we establish an appropriate formulation of our alpha 1 antitrypsin product, we can complete our pre clinical development over the next 12 months.
We recently met with a representative of the Alpha 1 Foundation where they described the very real concerns their members have with managing their treatment with plasma-derived products. They encouraged us in our efforts to develop a robust supply of our recombinant product to help these patients maintain as much lung function as possible.
LFB has also been a participant in our monoclonal antibody portfolio. During 2007, we brought into the collaboration a monoclonal antibody to the CD20 immune receptor that LFB had been developing initially in cell culture. The CD20 receptor is the same target as for the currently marketed product Rituxan. Development of this antibody in our transgenic production system has the potential to result in enhanced antibody dependent cell-mediated cytotoxicity [ADCC] compared to Rituxan. We're anticipating developing CD20 antibody for indications similar to those approved for Rituxan. We plan to have animals with this transgene by the end of this year.
I want to take some time to talk about our developing strategy for a portfolio of follow-on biologics or biosimilars [#msg-27114674]. I believe there is a very important opportunity and value driver for GTC over the coming years. We all recognize at the present time legislation has to be passed in Congress to enable the FDA to review and approve so-called generic versions of biologics. The timetable for this to occur is not certain. But there is a reasonable consensus that this should take place over the next year to 18 months. And clearly the upcoming presidential elections will be a factor in the timing where there has been significant investment in time and effort on both sides of the aisle to bring this about.
In Europe, the procedures for reviewing biosimilars have been adopted. The driving issue is the same in all geographies. Namely, greater patient access to biologics in a time of rising healthcare costs #msg-26910653]. As I stated earlier, our production technology is particularly well suited to the production of large volumes of monoclonal antibodies at competitive cost of goods required for the expanded use of these products in the treatment of chronic diseases and large therapeutic indications.
Today, the manufacturing capacity from the cell-based production of monoclonal antibodies in Europe and North America is largely owned and controlled by innovator companies [i.e. Big Biotech]. Capital investment in independent cell-manufacturing capacity will be in the order of hundreds of millions of dollars versus transgenic production systems which require a fraction of this investment. Today, however, a number of production companies, often partnered with generic companies, are developing products such as EPO, human growth hormone and interferon, which are highly active but small-volume products. These are highly competitive markets which do not require significant production capacities for entrance. As such, we do not see these markets as attractive opportunities for us since they do not exploit the key competitive advantages of our technology.
Our focus is on a group of monoclonal antibodies which are coming off patent over the next six to eight years. We have identified four or five of these products which today have a combined market of approximately $16 billion and are expected to double to approximately $30 billion over the next five or six years [#msg-20699044, item 02].
We have already started to move forward with the initial development into some of these products. And this can be achieved with minimal additional expenditure at this stage by leveraging our existing infrastructure. We believe that our existing commercial production facilities and infrastructure are sufficient to support the commercial scale of production for these programs. Clearly, we do not plan to commercialize these products ourselves and we're seeking partnering opportunities with companies able to support this type of commercialization activity.
Before I hand over the call to Jack Green, let me make a few comments about our financial status. As you know, we completed a modest financing in early February which was important in maintaining the financial stability of the company. We had intentionally waited until we were able to disclose the results of our pivotal ATryn, study before attempting to refinance. Unfortunately, the capital markets continue to be very challenging with the cause and the solutions being well outside our ability to control. However, we have very consciously developed portfolios of products which we can leverage in a number of ways through partnering. It is our intention to focus on these partnering activities to support the financing of the company and the development and commercialization of our products so that we're not wholly dependent on the equity markets for sources of cash. [Easier said than done, evidently.] This is a strength for the company in the current financial climate.
To illustrate the growing impact of our partnering efforts, today we have already booked and included in our forecast $15 million in respective cash receipts from our currently contracted partners indicating another year of significant revenue growth ahead of us. We will continue to build on this strong base as we add new and expanded collaborations. I'll now ask Jack to review our financial results.
Jack Green - GTC Biotherapeutics, Inc. - CFO
Revenues were $3.1 million for the fourth quarter of 2007, compared with $2.8 million in the fourth quarter of 2006. For the year, revenues more than doubled the 2006 levels as we continue to expand our revenue base through our partnering strategy. Revenues for the year were $13.9 million, a $7.8 million increase from the $6.1 million in 2006. The year to year increase reflects payments from Leo for the supply of ATryn and the services provided to PharmAthene for the development of their Protexia product. Cost of revenue and operating expenses were $50.3 million for 2007, 20% higher than $41.8 million in 2006. The year to year increase included the cost of goods sold to Leo supporting the increased revenues and the cost of advancing our Factor VIIa, Factor IX and CD20 programs with LFB. In the inventory write-off of $2.9 million related to the ATryn batches that were rendered unusable at a US-based fill/finish contractor, which we disclosed in our second quarter press release and earnings call, one result of the lost ATryn batches is that $3.7 million of revenue from the sale of product to Leo is now anticipated in the first half of 2008. We have not been able to reach an equitable settlement with the US-based fill/finish contractor that caused the lost inventory and have advanced the matter into the arbitration process. Obviously, we have not included any potential recovery in our financial forecast nor is there any assurance of a recovery.
The net loss for the fourth quarter of 2007 was $9.8 million or $0.13 per share compared to $7.4 million or $0.10 per share in the fourth quarter of 2006. The net loss for the 2007 financial year was $36.3 million or $0.47 per share compared to $35.3 million or $0.53 per share for 2006.
We ended 2007 with approximately $15.8 million of cash and marketable securities on the balance sheet. In February 2008, we completed a registered direct placement raising net proceeds of approximately $5.5 million. [The current cash balance as of today, 3/6/08, is roughly $15M: #msg-27389749.] We used approximately $28 million of cash in 2007 net of the $4.4 million of financing proceeds we received from LFB in January of 2007. We expect a similar cash use for 2008 [i.e.$28M, not $32M.]. And this excludes the impact of any up-front or milestone payments from new or expanded partnerships not currently signed. Any up-front payments from new or expanded partnering arrangements that result from the ongoing discussions will reduce the net cash use for 2008. We anticipate that our cash on hand and current contracted receipts should be sufficient to support our operations into the third quarter of 2008. Because our cash runway is not at least 12 months, the audit opinion to be included in our form 10-K which will be filed in the next few days will include a paragraph referring to substantial doubt to our ability to continue as a going concern. [The 10K was filed on 3/6/08.] This is an audit requirement based upon our existing cash balances and projected cash use but does not include projected receipts from the agreements that are unsigned as of this date. As Geoff has mentioned, we are focusing on partnering as our preferred source of additional funding for the company. We are in active discussions with potential partners for ATryn as well as for other products in our plasma protein and follow-on biologics portfolios.
Geoffrey Cox
Now, let me take a few moments to make some additional comments on other programs and upcoming events. For our CD137 monoclonal antibody, we have developed animals which express both glycosylated and non-glycosylated versions of this protein, in order for us to assess the potential differences or advantages in the immune-modulation capability. [This is a new disclosure.] CD137 monoclonal antibody of course is a new chemical entity and this work is an essential part of our preparation for meeting with the FDA to discuss an appropriate clinical development plan and indications. We hope to have this information around the middle of this year. Our work with CD137 is being supported by an SBIR grant.
Our external program contracts have been important contributors to our cash receipts over the last year and are expected to also make important contributions in 2008 based on contracts already in place. Our contract with PharmAthene has continued to expand and support their program for their Protexia product, albuterol cholinesterase, for the potential treatment of nerve gas exposure. We are providing both manufacturing and regulatory support in addition to enabling intellectual property under our broad patent. And, today, PharmAthene announced successful completion of a PK study for Protexia and their plans to file an IND in the third quarter and to commence phase one human safety testing in the fourth quarter of this year [#msg-27390930].
Looking back over the company as a whole, ATryn remains a key driver of near-term events. While we have expanded our involvement in a broad portfolio of recombinant plasma proteins and initiated development of a portfolio of monoclonal antibodies including follow-on biologics, the focus of our therapeutic development in both portfolios is on known chemical entities where the clinical risks are low and where there are large market opportunities.
Upcoming potential news events are always an important consideration for investors, so let me remind you of some of our strategic objectives, including, first of all, the completion of a partnering agreement for commercialization and development of ATryn in the United States. Submission of the final section of the rolling BLA for ATryn, which we anticipate to be around the middle of 2008. Achievement of priority review status for ATryn. Approval of ATryn in the United States around the end of 2008 or early 2009 assuming priority review is granted. Launch of ATryn in the United States in the first half of 2009. Leo's obtaining top-line results for the phase-2 DIC study in the first half of 2009. And completion of preclinical studies for the alpha 1 antitrypsin and CD137 monoclonal antibody programs around the end of 2008 with the potential for both programs to enter clinical studies in 2009.
And, finally, before I close my prepared remarks, I want to make some comments which have not been part of my prepared remarks until yesterday. As you know, yesterday we suffered a significant decline in our share price which I believe in no way reflects the significant progress which this company has continued to make on many fronts. I'm personally frustrated and even angry on behalf of our loyal investors and our employees. GTC has developed a resilience and tenacity over the years which will continue to serve us well. You have my personal commitment, together with the commitment of our entire management team and employees, to continue to pursue our key objectives and secure the financial health of the company. Thank you for your time today. We are living in challenging times. Your support and your encouragement is both important and appreciated.
QUESTION AND ANSWER
Stephen Dunn - Dawson James - Analyst
Good morning, Geoff, Jack and Tom. Congratulations on the progress so far! You've done what you said you were going to do. [LOL—whom does he think he’s fooling?]
Geoffrey Cox
Thank you very much, Steve.
Stephen Dunn
First question is a little bit of housekeeping. I didn't hear it or maybe I missed it… Leo's Canadian submission, are we expecting that in 2008?
Geoffrey Cox
Thank you for bringing that point up, Steve. Leo is actually making the submission to Canada and we obviously want to be able to use the data which we are submitting to the FDA for our BLA filing to form the basis of the Canadian submission. So we're waiting to get all of the clinical data in as we're required for the FDA as well. So that Canadian submission we hope will be made in the second half of 2008 and all being well that could put us into an approval situation in Canada in the second half of 2009.
Stephen Dunn
So, to summarize, theoretically, we could have all of North America covered in 2009? [An impressive command of geography! But, wait, isn’t Mexico part of North America? I take that back.]
Geoffrey Cox
That's correct.
Stephen Dunn
Ok. Also in 2009, I guess to summarize, I've got a number of candidates that will begin human clinical trials in 2009, hopefully. I'm counting four of them. Am I counting that right?
Geoffrey Cox
Well, you tell me what you have on your list and then I'll…
Stephen Dunn
Well, Factor VIIa.
Geoffrey Cox
Yes.
Stephen Dunn
I have alpha 1 antitrypsin.
Geoffrey Cox
Yes.
Stephen Dunn
And CD137.
Geoffrey Cox
Yes. Factor IX, alpha 1 antitrypsin, FVIIa and CD137 I think are the ones which are probably the most advanced in terms of entering the clinic—likely to be the latter part of 2009 in the way in which we see our current plans.
Stephen Dunn
I was a little fuzzy on DIC and severe sepsis. Now, we expect a phase-3 to initiate in EU in 2009. When do we foresee human trials in the US?
Geoffrey Cox
Well, we need to get the phase-2 results and we're hoping that Leo will complete that so we can give data in the first half of 2009 and that will enable us to be able to go both to the EMEA and also to the FDA with our proposals for the design of the phase-3 study. Remember, the phase-2 study, the principal of that is a dose-ranging study [I would call it a dose-finding study, but this is splitting hairs (#msg-27011149)] with the objective of identifying the dose which is most appropriate for the design of a phase-3 study. And so the phase two study isn't statistically powered to demonstrate efficacy although clearly Leo is looking and we're looking to demonstrate trends to improvements in survival for these patients. The objective, if we can, is to carry out a single phase-3 study or a combined US and European study. And the important part there, of course, is to make sure that we can address the general way in which these patients are treated in the two geographies. And that's something which we've got to make sure that we can meet the requirements both to the EMEA and the FDA. So, a single study needs to make sure that physicians can treat their patients in both US and Europe in a way which is appropriate with standard of care. So, that's the plan of action at this moment. And we assume that those discussions will take place in the second half of 2009 and then progress to the phase-3 study.
Stephen Dunn
So, put another way, in reality, we're going to have another first in human DIC trial in the United States but it will go -- we're hoping for it to go directly into a phase-3 trial?
Geoffrey Cox
That's certainly the objective. Of course, the first stepping stone is to make sure we get the results of the phase-2 study. And then that will form that basis.
Stephen Dunn
Right, now we -- it sounded like you were pretty far along on the US partnership for DIC indication and you indicated the parameters would be somewhat similar to agreements in the past. If you could remind us, you know, what kind of parameters, with the kind of ranges in dollars, what you're looking for?
Geoffrey Cox
In a number of these discussions which we have had in the United States, we've also encouraged partners to look at the option or the alternative or the additional opportunity of being able to develop ATryn in other acquired deficiency indications. At this moment, of course, Leo is paying entirely for the phase-2 study which we'll get access to. So, the interesting thing for us is the possibility of being able to pursue, through a partner, other indications and we've done work in the past in coronary artery bypass surgery and that's certainly an area which we continue to look at as a possible area of further clinical development and that could also, if we are able to secure a partner in the way in which we're working to at this moment, that could put us into a clinical development program which we would expect our partner to pay for and could bring us into the market more quickly than the DIC itself in an acquired deficiency. So, it's something which is obviously an important feature of what we're trying to negotiate in our partnering. But in terms of general structure, I think one should assume that an up-front payment is probably going to be in the single digit millions of dollars and then payment for the clinical study would include not only payment for the clinical work itself but also payment for product. And then there would also be a negotiated price for commercial product and also a royalty on sales. And yet the way in which we negotiated this with Leo was also that there was a series of milestones related to progress and success on the clinical programs and also sales milestones further down the track. So, I think we're looking at a similar sort of structure. The main objective is to take the costs of the commercialization and clinical development of ATryn off our P&L and make sure the partner is bearing the cost of the further development.
Stephen Dunn
Ok. I want to squeeze one more in before I jump in the queue. The follow-on biologics or biosimilars sector reminds me very much of the old stem cell sector about four or five years ago. Well, when I started covering it and before it was really well-known on Wall Street. And what I'm seeing here is a convergence of factors, both regulatory, political and the science, are all kind of converging in GTC's favor. And, you know, in January, the statement that biogenetics are a major key long-term growth opportunity for that company. And we've seen the White House and the senate approve FDA funding and requirements for approval of biogenerics. But, I guess, if you could give some color on what you are seeing -- you are on the board of BIO. What are you seeing both in the US and Europe?
Geoffrey Cox
Well, I think actually there is a growing recognition by the entire industry that follow-on biologics are absolutely going to be a reality and so I think it's a question of when rather than if. And I think BIO in their public statements have stated, and I do sit on the main board of BIO, that they would like to try to see legislation passed before President Bush leaves the White House. And I think that there has been a significant shift amongst the companies within BIO in a reasonable consensus to come up with a set of conditions which would enable follow-on biologics to be supported by the entire industry, providing that there is sufficient time period embraced in any legislation which would enable innovative companies to be able to protect their intellectual property for a reasonable period of time. I actually have no problems with that whatsoever and I don't think that's any constraint on anything that we're planning to do. We also have proprietary products and we expect to observe other people's intellectual property and we expect people to observe ours as well. So, I think that the whole principle of the pharmaceutical development is that innovators should have a reasonable period to be able to gain profits on their innovation and to be able to get a true win from those products. But most companies would be expected to be developing second- and third-generation products as a normal part of the development of those programs. So, I think that a follow-on biologic strategy is one which actually can sit in an appropriate fashion with all of these companies and I think it's very important that the biotech industry should not be seen to be adversarial with the needs and the requirements of the patient population of the United States, but looking to ways in which we can contribute to the management of a broader range of patients but also bring through further innovation, new products into the marketplace as well. And I think all of these things can work perfectly satisfactorily together.
So, I think that BIO is working in that fashion and we ourselves have actually had quite a lot of input into BIO. We've also had the opportunity to work with the local Massachusetts Biotechnology Council and also with Senator Kennedy's office and I think that I'm somewhat encouraged that legislation will get passed this year. And I would just like to take the opportunity to point out to investors that the opportunity for us is a timing issue as much as anything. We have the infrastructure already existing to be able to do this within our own production operations here in Massachusetts. It's not costing us anything in the current circumstances to be able to develop these products at this present time. It is important though from a timing point of view that you get on the road to actually moving these programs forward because, otherwise, the opportunity is missed and it's no good if you're going to be in the follow-on biologics space being way down the track. So, it's important that we do this but it's a value which we're able to create by leveraging our existing infrastructure at really no cost at this moment but tremendous value which we have the opportunity to be able to develop further down the track and of course, a lot of opportunity for us to be able to engage companies in partnering discussions which we hope and expect will support the further development of the products and also the commercialization of these products in the market place.
Stephen Dunn
Alright, great. Thanks. Looking forward to 2008! [Isn’t it 2008 already?]
Sean Wu - Rodman and Renshaw
Hello, good morning, everybody. Thank you for taking my question. Almost all of my questions have been answered. I just have a couple more follow-ups. One is about you said [inaudible] the initiative is one study later this year. Are you expecting to receive any kind of milestone payment from them?
Geoffrey Cox
No—actually, the information which I gave you is in the PharmAthene press release this morning. So that's in the public domain. And I was simply quoting from their press release. We don't have milestones associated with that progress, but we are very happy that they have been able to successfully negotiate through to the next stage of the development of their product. Obviously. it's a big steppingstone for them. And since they have become an important partner for us, one which we've very much enjoyed working with, we hope that that will be an important way in which we can continue to partner PharmAthene in the further successful development of their product. So, I think it is a good steppingstone and one which I think it was helpful for our investors to know about.
Sean Wu
If they do secure a governmental contract for stockpiling [inaudible], which kind of [inaudible] rate should we expect?
Geoffrey Cox
Well, I don't think we've disclosed that actually. But it is a small single-digit royalty rate which is the normal sort of commercial rate that one would charge for this type of access to this type of intellectual property.
Sean Wu
So, for this year, you will be recording ATryn like a [inaudible]?
Geoffrey Cox
Excuse me? Recording what?
Sean Wu
Are we expecting you to [inaudible]?
Geoffrey Cox
You're actually cutting out…
Sean Wu
[Inaudible]
Geoffrey Cox
I don't know whether other people are having problems but you're cutting out…
Sean Wu
I think the IP phone is not working well so let me just stop here. Thanks a lot for taking my questions.
Geoffrey Cox
Okay, but if I can perhaps guess what you were asking and try and answer it, you were asking about revenues around ATryn. I think, for the foreseeable future, the revenues which we will be reporting around ATryn will be a combination both of our product supply for commercial use and also for clinical use. So that's the way in which we look at that at this present juncture. As I did comment, in order to manage people's expectations, we're not expecting under the current pricing strategy for ATryn that this growth rate will be large in 2008. Clearly, what Leo is doing is building a franchise around this product. And as they move forward into the DIC indication, it's important to be able to establish a pricing strategy which they can then manage in relation to these other indications and so that's the process we're staying involved in at this moment.
Roy Friedman - Edith C. Blum - Analyst
First, I have some financial questions for Jack. Can you clarify your statement about the expected 2008 cash burn excluding new sources of income. Is the number $28 million or is the number $32 million?
Jack Green
The number is $28 million. It is the projected net burn for 2008.
Geoffrey Cox
But, Roy, if I can just add to that, remember what Jack said. That is just based on what our contracted revenues are and projected revenues from those contracts as they exist at this moment. So, any partnering arrangements we have around ATryn or other of our recombinant plasma proteins or follow-on biologics would reduce that figure. So, I think that's the clearest way in which we could state it.
Roy Friedman
Understood.
Geoffrey Cox
Okay.
Roy Friedman
Are there any covenants on GTC's debt that could come into play during 2008 if your book value or tangible net worth were to fall below some threshold?
Jack Green
No, Roy. There are no operating covenants in our GE debt that are part of the debt instrument. So we do not have specific operating covenants. Basically, GE’s security is the lien on the assets -- all assets except IP. They do not have operating covenants as part of the instrument.
Roy Friedman
Is your cash rock solid rather than in such holdings as auction-rate securities, as was the case with Bristol-Myers?
Jack Green
I'm happy to report that our cash is rock solid. We have no exposure to auction-rate securities at all. And we were very, very careful to make sure that we avoided that minefield.
Roy Friedman
Okay—that's good to know. Do you plan to seek shareholder authorization for a reverse split at the 2008 annual meeting?
Geoffrey Cox
That's an excellent question, Roy. And, clearly, we're monitoring that situation quite carefully and we have under the existing notification from NASDAQ until July 15 and we're working towards our share price being restored to above the dollar level through our meeting our goals including our partnering arrangements and hopefully we can get there without taking any other actions. If we're not successful in doing that in terms of getting above $1 for the required period of time which is required under the NASDAQ rules, then we obviously have a reverse split as a possible scenario but it's one which we would prefer to keep in our back pocket at this moment rather than making any decisions on it at this juncture. If we do go to reverse split, obviously we would need shareholder approval to be able to do that.
Roy Friedman
Right—that's why I asked whether you were planning to put that to shareholders at the annual meeting.
Geoffrey Cox
Well, if we plan to go that track, then we would probably do that through the annual meeting. And we've obviously discussed it at our board meetings and we've chosen at this moment not to take any firm decisions on that but to aim to execute on some of our key goals and if possible, restore our share price to a healthier position in its own right so to speak without having to do that. But, we do hold that in reserve as a possibility.
Roy Friedman
Well, isn't the [annual meeting] proxy due out very soon?
Geoffrey Cox
Well, I think, actually. we have 45 days ahead of the annual meeting. And so we've probably got a few more weeks yet before we need to send out the proxy.
Roy Friedman
Switching over to the…commercial area, what is the approximate premium of ATryn relative to plasma derived antithrombin in the countries where ATryn has already been priced?
Geoffrey Cox
That's an excellent question. And I don't want to shoot from the hip because I don't know exactly in each country. What I would say is that Leo initially went into the market in the United Kingdom because, remarkably, UK tends to be rather aggressive on pricing. Actually antithrombin charges in the UK are high. And, therefore, the pricing in the United Kingdom I think is pretty well similar to a plasma-derived product. Now, if you go into some other countries, Germany, I think is a much more aggressive priced situation. There are a number of plasma-derived products available in Germany. So, there may be a more significant premium over pricing in Germany. Greece, I'm not quite sure of, and Ireland I think is similar to the UK. So, I think the answer to your question is it's going to be variable. But, what they're trying to look for is a fairly consistent pricing throughout Europe. The fact is that we got approval throughout Europe so many of these plasma-derived products which were grandfathered or approved in single countries have been able to maintain pricing structures which are quite different from adjoining countries because they can't actually be sold in those countries and therefore you've got a lot of differentials throughout Europe. But with our product, obviously, they can move the product across borders so they're going to probably end up with a relatively consistent pricing strategy. And that's why they're having to take that step by step.
Roy Friedman
Okay. Does the recent approval of Artisan Pharma for DIC in Japan [#msg-27043027] adversely affect your partnership discussions there?
Geoffrey Cox
Not really, actually. People may not be aware of that particular piece of news. But this is a different product from antithrombin, of course. But DIC in Japan is a little different from the way in which it is referred to in the United States. Our understanding is that the trials which have taken place in Japan do not have the same end point of improvements in survival. And, therefore, it is a less onerous or a less rigorous end point than the one which we're expecting to have to meet in the United States. Now, we haven't gone into what's the clinical indication or what clinical type of program is required in Japan. But I think it's unlikely that the design of the [ART-123] clinical study, which was carried out in Japan for that product will be the same design that will take place in the US. Now, I'm not the FDA. I can only sort of guess that but that's our assessment at this point in time. Now, having said that, the market for DIC and severe sepsis is an enormous market. We talked about this before. There's about 0.25 million people in the United States who get DIC and severe sepsis each year. About 50% of these people die. And, so, we believe that this is a $2 to $3 billion market place and I think there is room for competition and for us still to be able to have very successful products. But I am not sure that the Artisan product is going to be any more quickly into the market place than our own product.
Roy Friedman
Well, what's holding up the consummation of a partnership in Japan then?
Geoffrey Cox
We've actually had some discussions in Japan and were represented at the recent Bio Asia conference in Tokyo in late January. Business development in Japan is a fairly protracted process and they tend to move quite a bit more slowly than in the United States. So, we've actually had quite a lot of interest. And it's very interesting that the whole concept of transgenically-derived therapeutic proteins has moved forward significantly as a result of the EMEA approval and also after the news out now that we've filed in the United States. And I think that's going to be very helpful to our partnering activities. But I don't think we're projecting that we would get a Japanese partner in the current year in 2008. I think that it would be great if we can get one in 2009 but it will take longer in Japan. And that's just not our experience. That's a normal experience for people.
Roy Friedman
In your view, what is the likelihood of an FDA advisory panel for the ATryn BLA?
Geoffrey Cox
That's an interesting question as well. And I can't really give any guidance on that to be quite honest. We haven't been given any guidance by the FDA at all at this juncture. Certainly, I've had people who have told us that they believe that we will have an advisory panel since it's a new technology. And if we do, I think we feel very confident of our ability to meet that challenge in a very successful fashion. But I really can't give any guidance. If it does happen, and we have a priority review status, then I guess it would be somewhere in the latter part of 2008 if everything sort of proceeds on the sort of schedule which we see at this moment. I don't have any other information on the matter at this moment, Roy.
Roy Friedman
On priority review, is there any possibility of hearing the FDA's decision on that before you submit the last BLA module or will that necessarily wait until the last module goes in?
Geoffrey Cox
Again, that's a good question. My guess is, to be quite honest, that we will hear sooner than submission of the last module. That's our expectation. But, again, we've heard nothing back from the FDA which is nothing bad in that respect. I think there is a normal time pattern for hearing with regard to submission proprietary review. But we're hoping that we will hear over the next few weeks in that respect.
Roy Friedman
Thank you, Geoff and Jack. That's it for me.
Geoffrey Cox
Thank you, good questions, Roy. I appreciate it.
Donald Hudson - Hudson Associates - Analyst
Hi, Jack and Geoff.
Geoffrey Cox
Good morning.
Donald Hudson
I have a couple of questions. Number one, Factor VIII, that's a Baxter product, right?
Geoffrey Cox
Yes, Baxter. They have a very significant market with recombinant FVIII.
Donald Hudson
Yes, made in mammalian cells?
Geoffrey Cox
Yes.
Donald Hudson
Right, and you can be more competitive in that in transgenic animals?
Geoffrey Cox
Yes—that's our belief. Factor VIII, from a development point of view, is later in the process than FVIIa or FIX. And, also, I believe the IP for FVIII in the United States [i.e. the patent expiration] is later than for FIX and FVIIa. So, that’s certainly later in our development schedule and we have not developed a planning timetable around that at this juncture. But in terms of the products for the hemophiliac factors, the recombinant products which are in the market place today, is probably somewhere around $3 billion of those combined factors, out of a total market of about $4 billion. And each of these products is produced from mammalian cell. And our understanding is that these are very difficult products to express in mammalian cell culture systems and we feel very confident that using our transgenic system that we'll be able to produce these products at a competitive cost of goods. And we haven't decided what that pricing will be at this moment. We don't need to make any decisions as far as that's concerned. And certainly we don't need to give up margin that we don't need to, but the opportunity for us is to be able to be able to treat a broader patient population including patients being treated prophylactically than is possible with products today because of that price. But also potentially be able to develop in a broader range of indications and again, today, the cost of these products is so high that that is a real problem for many patients. So, I think we've got many opportunities to be able to compete in that market place and to create an important significant franchise.
Donald Hudson
The other question was, I didn't hear you mention in any of the product portfolios that you'll be keeping some for your own selling, is your strategy still to partner everything you can?
Geoffrey Cox
That's actually a good question. And I certainly have talked in previous conference calls about developing our own commercial capability and you know, I think particularly in the United States, that's something which we would love to do at some point. I think we're being fairly pragmatic about what our current financial status is at this moment. What we're looking to do is to use the value which we're creating through these portfolio products to get partnering arrangements and to bring cash into the company which will ensure that we don't become dependent entirely on the equity markets. And so if we were not able to do a partnership for ATryn commercialization development in the United States, on terms which we believe reflect the value of that product, we certainly could take that product in the hereditary-deficiency indication into the marketplace ourselves with a relatively small number of people, maybe a dozen or so people and we will keep that in our back pocket [gulp]. I think in terms of our options at this moment, though, if we can find a partner who can not only help to commercialize and maximize the opportunity for the product but also support the further clinical development, that's a very good option for us at this moment.
Steve Turner - Due Diligences - Analyst
Well, congratulations on your results so far.
Geoffrey Cox
Thank you.
Steve Turner
My question has to do with production facilities. What's the timeline for FDA approval on your actual production facilities?
Geoffrey Cox
We haven't received any advice from the FDA at this moment when they plan to come in to inspect. And of course remember we've got three different pieces to this. One is our own production operations and pharma operations. Then we do the downstream purification with Lonza in Hopkinton, (which used to be Cambrex) and they purify the product for us. And they've been inspected previously on our behalf by the EMEA. And then we do the filling of the product at MedImmune in Leiden. I will just reiterate that MedImmune was not involved in this other issue which Jack was referring to in terms of production failure [i.e. the $2.9M inventory loss]. So, I just want to make sure that MedImmune's name is not impugned in that respect. So those are the three elements and our guess is that the inspection of those facilities may well take place in the first half of the year. But we don't normally announce the dates of those inspections. But that's what we're planning for anyway, as far as the timing of those.
Steve Turner
Okay. And as far as the number of patients comparative to the European theatre using your product, do you have an anticipated range? Or a target range?
Geoffrey Cox
This is for ATryn?
Steve Turner
For ATryn, yes.
Geoffrey Cox
How many patients you mean are in the United States?
Steve Turner
Well, how many patients are you targeting to be potential clients of yours?
Geoffrey Cox
Oh, I see. Well, again, that's a good question. There are reports to be somewhere between 1 in 1,000-5,000 and 1 in 1,000-3,000 people who have antithrombin deficiency. And, so, conservatively that would mean in the United States probably 60,000-70,000 people who have this particular deficiency. I would say that a lot of people don't actually know they have the problem until they have their first thrombosis. In the US, this patient population it has been poorly served over the years. Thrombate [plasma-derived AT from Talecris] has been intermittently available on occasions and certainly it was grandfathered on rather limited clinical data originally and there has been very little clinical development done with the product in broader indications over the years. So I think this patient population is going to need to be developed. We obviously need to work with key opinion leaders. Some of these patients in the past have avoided having children because they've got the condition. People who were going to have elective surgery avoid having surgery because the product was either not available or they didn't want to use a plasma-derived product. So, there is a lot of work we can do in order to be able to encourage the understanding of the products available.
And also for being able to treat those patients. And, of course, once you understand where some of these patients are, you start to be able to develop the familial connections since it’s obviously a genetic disorder. And so I think that we've got the opportunity over the next three or four years with a good partner for us being able to develop a market in the order of 30 to 40 million in the United States prior to getting an acquired deficiency-indication approved by the agency. [This is consistent with my own forecast of $35M peak sales in the US for the HD indication: #msg-24751863.] But it is going to be something where we're going to have to work hard to uncover the patients and to make sure that we can make all of the connecting points.
<<
[I’ve highlighted the most consequential passages,
corrected a large number of transcription errors,
inserted annotations and hyperlinks, and removed
some perfunctory remarks for the sake of brevity.
Please note: I am not Steve Turner despite the similarity
of his firm’s name to my online handle. Hint: I’m one of
the other guys and I’m definitely not Stephen Dunn
] PARTICIPANTS
Dr. Geoffrey Cox
GTC Biotherapeutics, Inc. – CEO
Jack Green
GTC Biotherapeutics, Inc. – CFO
Stephen Dunn
Dawson James Securities - Analyst
Sean Wu
Rodman & Renshaw - Analyst
Roy Friedman
Edith C. Blum - Analyst
Donald Hudson
Hudson Associates - Analyst
Steve Turner
Due Diligences – Analyst
[I had never heard of Mr. Hudson and Mr. Turner until this CC.]
PREPARED REMARKS
Geoffrey Cox - GTC Biotherapeutics, Inc. – CEO
I want to take some time at the start of this call to remind you of the strategy that GTC has been following over the last year and the significant progress we have made during that time, particularly over the last quarter. The production technology in infrastructure, which GTC has developed, has some unique characteristics, which provide a significant competitive advantage in the production of certain classes of therapeutic proteins. The ability to produce proteins, which are difficult to express in other manufacturing systems, has been the foundation of the development of a portfolio of recombinant plasma proteins, which is unique in its breadth even in comparison with large companies in this space. Our production technology also enables us to produce large volumes of therapeutic proteins at competitive costs and with a fraction of the capital investment normally associated with the production of biologics. These characteristics are not only important to the production and commercial potential to recombinant plasma proteins, but also to the production of monoclonal antibodies.
We are exploiting this capability not only in the development for proprietary monoclonal antibodies, but also in the development of a portfolio of follow-on biologics, also known as biosimilars in Europe, which we believe have the potential to be a very important contributor to the future of GTC and which is largely unrecognized at this time. This strategy is supported by an established commercial-scale production infrastructure, which has been validated as the result of the approval action in Europe.
We all recognized that the first therapeutic indication for ATryn is a modest market opportunity. But ATryn's approval in Europe was a major step in unlocking the value of this production technology across the broad range of opportunities now available to us.
Since our last call, we've achieved another major milestone with the successful completion of the pivotal clinical study for ATryn in the United States, which is providing the basis for our Biologics License Application submission to the Food and Drug Administration. We've obtained permission in the second half of 2007 to submit the BLA on what is known as a rolling basis where sections are submitted as they're ready rather than the normal procedure of waiting until everything is complete before submitting the filing.
The rolling submission is divided into two parts. Part one includes the preclinical and manufacturing sections, part two includes the clinical efficacy and safety data. We filed part one in late January. We did this entirely with our own regulatory resources and made the submission electronically as a single disk where subjects are cross linked to expedite review. This is tremendous progress from our European submission where we relied to a large degree on the resources of outside service providers which required submitting 60 volumes of paper.
We requested priority review in conjunction with our part-one submission and we are awaiting a response [see question below on this]. The granting of a priority review would provide for a six month review time after completion of the entire BLA submission. We look forward to working with the FDA during the review process.
Many of you regard the approval of the ATryn by the FDA as a significant and important validation in addition to the approval in Europe. And we believe that we are well placed to achieve that objective. Remember that in the second half of last year, we received so called fast track status for ATryn from the FDA along with the permission to file ATryn using a rolling BLA. We are naturally pleased that the FDA has also recognized the unique therapeutic value of ATryn as the only potential recombinant antithrombin by granting it orphan drug status [#msg-25173071].
The phase-3 clinical trial, which is the basis of our BLA submission, builds on the 14 patient study which formed the basis of approval in Europe. The study in the United States required us to recruit a further 17 patients into the active arm, in addition to these 14 patients. All of these patients have low levels of antithrombin in their bloodstream. And a requirement of the study was that all patients had to have suffered a previous thrombosis as a result of that condition. These were high-risk patients, therefore, and published research indicates that 40% to 50% of these patients could develop thromboses in the absence of prophylactic treatment when undergoing surgery or child delivery.
The primary endpoint of the study was the prevention of signs or symptoms of deep vein thrombosis, or DVT, or other thromboembolisms, while these patients underwent surgery or childbirth. The protocol for the study was to remove these patients from their blood thinners, such as Warfarin, prior to surgery or childbirth, and to bring their antithrombin levels to the normal 80-120% plasma levels and sustain them at that level throughout the procedure for a minimum of three days—or up to 14 days according to the decision of the treating physician.
Patients were observed for clinical signs and symptoms of thrombosis during the course of treatment and for the seven days following completion of treatment, during which period patients were returned to their normal blood thinners. Eighteen patients were recruited into the study: six surgical patients and 12 pregnancies, of which 17 are considered evaluable. (The unevaluable patient was a mother who gave birth so quickly the physician was unable to achieve the protocol dosing requirements in time. However, the mother continued to be treated and mother and baby were fine.) No patients in the active arm of the study showed signs or symptoms of DVT; remember, these are all high risk patients and procedures.
In the US trials, the FDA asked us to conduct a non-inferiority study with a comparative arm; it was agreed that this comparative arm would be a retrospective study with data collected under a protocol and in which HD patients with a clinical history of thrombosis had been treated with plasma-derived antithrombin when undergoing similar high risk procedures in surgery and childbirth. A minimum of 35 patients were required in the study and we obtained 38 patients. Most of these patients were in Europe, since plasma derived antithrombin has been in short supply over the years in the United States. There were no observations of clinical signs or symptoms of DVT in these patients, representing a high bar for ATryn comparison that I'm very pleased we met.
We believe that this comparison forms a strong platform for our BLA filing. The FDA has asked us to collect plasma samples from our patients for up to 90 days after the treatment for antibody assessment, and that is an important element in the timeline for completing our filing with the FDA. Collection of antibody data is standard practice for clinical trials for the recombinant proteins. Remember that we also looked for the generation of antibodies 90 days after administration of ATryn in the study we performed for our successful European filing.
We are planning to complete the clinical sections of the BLA with statistical efficacy analysis and the safety data including antibody results around midyear. We are also preparing for the inspection of our production facilities used in the production, purification and fill/finish of ATryn, although the FDA has not provided any guidance regarding the timing of these inspections at this stage.
We have made progress in our partnering discussions for ATryn development and commercialization in the United States. And we've initiated similar discussions with potential partners for our broader recombinant plasma-protein portfolio.
The focus of discussions for ATryn in the US is on the clinical and market opportunities available for the broad acquired-deficiency indications. While Leo continues to develop the DIC acquired deficiency in their territories, we will have access to that data for the US. We expect to be working with our US partner on additional acquired-deficiency indications, broadening the development program for this product.
Partnering discussions have progressed to the exchange of term sheets. We are looking for a collaboration where the partner is committed both to the commercialization and further clinical development of ATryn. We're expecting an overall structure similar to the one which we have with Leo with an up-front payment, sales and clinical milestones, financial support of clinical development, transfer price for the product and a royalty on sales. We're working to bring these negotiations to a successful conclusion over the next few weeks. As I'm sure you're aware, time lines and for negotiations such as these, can be unpredictable.
Commercialization and further development of ATryn in Europe, is occurring through our collaboration with Leo Pharma. Leo is pursuing a premium-pricing strategy recognizing that ATryn is the only antithrombin that is recombinant and the only antithrombin product that has been approved for use throughout the European Union under the centralized EMEA procedure [#msg-27253453].
Pricing has been established in the UK, Ireland and Greece and launch activities will continue as pricing is set on a country by country basis. In light of the premium pricing strategy, we expect growth in the commercial revenue to be slow in 2008. Remember that our ATryn revenues consist of product payments from Leo for both ATryn that will be sold commercially and for the clinical supply that will be used in the DIC study.
Leo began a phase-two dose ranging study in 2007 for the DIC indication [#msg-25325852]. In our last call, we reported that this study was progressing more slowly than originally planned and Leo has made a number of adjustments including expanding the number of sites to increase the rate of recruitment. Leo's objective is to have top line results in the first half of 2009. We plan to provide a more definitive update on the rate of recruitment around the middle of 2008.
We believe that the DIC indication is a significant market opportunity [#msg-22017312]. The recent research published in a letter in Nature authored by independent scientists at the Scripps Research Institute… supports the view we shared with you in earlier conference calls that DIC and sepsis result in both a coagulation and an inflammatory response and that both these must be addressed. Antithrombin has both anticoagulant and anti-inflammatory properties. Recent reports have indicated antithrombin has the potential to provide a significant reduction in mortality for DIC patients as long as anti-inflammatory properties are not compromised by concurrent administration of heparin [#msg-25214176].
During the last quarter, we have made good progress with expanding our portfolio of recombinant plasma proteins by licensing Factor IX, Factor VIII and fibrinogen from ProGenetics [#msg-25039843]. The licensed territory is Europe, North America and Japan. ProGenetics is a small, private company that we've known for many years and have been developing recombinant proteins in the milk of transgenic pigs. The most advanced program is FIX, where pigs already exist that produce this product in their milk. Our plans for this year include the transfer of the purification of FIX to GTC and the initiation of preclinical studies with the objective of entering the clinic in 2009.
This program has already been brought under the umbrella of our joint collaboration with LFB [#msg-25875091], our existing partner for factor FVIIa and CD20 monoclonal antibody. The clinical development plan for FIX is expected to follow a similar pattern to that used for the existing recombinant FIX product, BeneFIX [from WYE], resulting in an estimated 80 adult patients to complete pharmacokinetic as well as safety and efficacy studies. We provided ProGenetics with a cross license to our broad patent for the production of therapeutic proteins in the milk of transgenic mammals to enable them to commercially develop the FIX, FVIII and fibrinogen products in territories outside of Europe, North America and Japan. We'll receive a royalty on any sales ProGenetics generates in these territories. The license agreement with ProGenetics rounds out GTC's access to all three major coagulation factors: FVIIa, FVIII and FIX, [making GTC] the only company we believe with that claim and one that we hope to build into a broad franchise serving the hemophiliac community.
All of our coagulation factor programs are targeted on establishing larger supplies of recombinant products at more rational prices to improve patient usage. For hemophiliac patients, an affordable prophylactic treatment strategy would directly improve their clinical outcomes. Rational pricing of these products will also encourage expanded use in a broader range of potential indications. The recombinant FVIIa program with LFB has developed production rabbits and we are now establishing stable integration of the transgene and progressing through downstream process development. We are targeting the completion of preclinical work and submission of an IND in the second half of 2009.
Our objective for the recombinant alpha 1 antitrypsin program is to initially establish an intravenous product for the prophylactic treatment of patients with a genetic deficiency of alpha 1 antitrypsin. Remember that we established high levels of production of this difficult to express protein at 20 grams per liter of milk. Hereditary-deficiency patients who are not treated prophylactically suffer from a build-up of elastase in the lung that may lead to emphysema or other respiratory conditions. We believe we have identified appropriate techniques to extend the half-life of our alpha 1 antitrypsin product to enable it to be dosed in a similar manner as plasma-derived products. Once we establish an appropriate formulation of our alpha 1 antitrypsin product, we can complete our pre clinical development over the next 12 months.
We recently met with a representative of the Alpha 1 Foundation where they described the very real concerns their members have with managing their treatment with plasma-derived products. They encouraged us in our efforts to develop a robust supply of our recombinant product to help these patients maintain as much lung function as possible.
LFB has also been a participant in our monoclonal antibody portfolio. During 2007, we brought into the collaboration a monoclonal antibody to the CD20 immune receptor that LFB had been developing initially in cell culture. The CD20 receptor is the same target as for the currently marketed product Rituxan. Development of this antibody in our transgenic production system has the potential to result in enhanced antibody dependent cell-mediated cytotoxicity [ADCC] compared to Rituxan. We're anticipating developing CD20 antibody for indications similar to those approved for Rituxan. We plan to have animals with this transgene by the end of this year.
I want to take some time to talk about our developing strategy for a portfolio of follow-on biologics or biosimilars [#msg-27114674]. I believe there is a very important opportunity and value driver for GTC over the coming years. We all recognize at the present time legislation has to be passed in Congress to enable the FDA to review and approve so-called generic versions of biologics. The timetable for this to occur is not certain. But there is a reasonable consensus that this should take place over the next year to 18 months. And clearly the upcoming presidential elections will be a factor in the timing where there has been significant investment in time and effort on both sides of the aisle to bring this about.
In Europe, the procedures for reviewing biosimilars have been adopted. The driving issue is the same in all geographies. Namely, greater patient access to biologics in a time of rising healthcare costs #msg-26910653]. As I stated earlier, our production technology is particularly well suited to the production of large volumes of monoclonal antibodies at competitive cost of goods required for the expanded use of these products in the treatment of chronic diseases and large therapeutic indications.
Today, the manufacturing capacity from the cell-based production of monoclonal antibodies in Europe and North America is largely owned and controlled by innovator companies [i.e. Big Biotech]. Capital investment in independent cell-manufacturing capacity will be in the order of hundreds of millions of dollars versus transgenic production systems which require a fraction of this investment. Today, however, a number of production companies, often partnered with generic companies, are developing products such as EPO, human growth hormone and interferon, which are highly active but small-volume products. These are highly competitive markets which do not require significant production capacities for entrance. As such, we do not see these markets as attractive opportunities for us since they do not exploit the key competitive advantages of our technology.
Our focus is on a group of monoclonal antibodies which are coming off patent over the next six to eight years. We have identified four or five of these products which today have a combined market of approximately $16 billion and are expected to double to approximately $30 billion over the next five or six years [#msg-20699044, item 02].
We have already started to move forward with the initial development into some of these products. And this can be achieved with minimal additional expenditure at this stage by leveraging our existing infrastructure. We believe that our existing commercial production facilities and infrastructure are sufficient to support the commercial scale of production for these programs. Clearly, we do not plan to commercialize these products ourselves and we're seeking partnering opportunities with companies able to support this type of commercialization activity.
Before I hand over the call to Jack Green, let me make a few comments about our financial status. As you know, we completed a modest financing in early February which was important in maintaining the financial stability of the company. We had intentionally waited until we were able to disclose the results of our pivotal ATryn, study before attempting to refinance. Unfortunately, the capital markets continue to be very challenging with the cause and the solutions being well outside our ability to control. However, we have very consciously developed portfolios of products which we can leverage in a number of ways through partnering. It is our intention to focus on these partnering activities to support the financing of the company and the development and commercialization of our products so that we're not wholly dependent on the equity markets for sources of cash. [Easier said than done, evidently.] This is a strength for the company in the current financial climate.
To illustrate the growing impact of our partnering efforts, today we have already booked and included in our forecast $15 million in respective cash receipts from our currently contracted partners indicating another year of significant revenue growth ahead of us. We will continue to build on this strong base as we add new and expanded collaborations. I'll now ask Jack to review our financial results.
Jack Green - GTC Biotherapeutics, Inc. - CFO
Revenues were $3.1 million for the fourth quarter of 2007, compared with $2.8 million in the fourth quarter of 2006. For the year, revenues more than doubled the 2006 levels as we continue to expand our revenue base through our partnering strategy. Revenues for the year were $13.9 million, a $7.8 million increase from the $6.1 million in 2006. The year to year increase reflects payments from Leo for the supply of ATryn and the services provided to PharmAthene for the development of their Protexia product. Cost of revenue and operating expenses were $50.3 million for 2007, 20% higher than $41.8 million in 2006. The year to year increase included the cost of goods sold to Leo supporting the increased revenues and the cost of advancing our Factor VIIa, Factor IX and CD20 programs with LFB. In the inventory write-off of $2.9 million related to the ATryn batches that were rendered unusable at a US-based fill/finish contractor, which we disclosed in our second quarter press release and earnings call, one result of the lost ATryn batches is that $3.7 million of revenue from the sale of product to Leo is now anticipated in the first half of 2008. We have not been able to reach an equitable settlement with the US-based fill/finish contractor that caused the lost inventory and have advanced the matter into the arbitration process. Obviously, we have not included any potential recovery in our financial forecast nor is there any assurance of a recovery.
The net loss for the fourth quarter of 2007 was $9.8 million or $0.13 per share compared to $7.4 million or $0.10 per share in the fourth quarter of 2006. The net loss for the 2007 financial year was $36.3 million or $0.47 per share compared to $35.3 million or $0.53 per share for 2006.
We ended 2007 with approximately $15.8 million of cash and marketable securities on the balance sheet. In February 2008, we completed a registered direct placement raising net proceeds of approximately $5.5 million. [The current cash balance as of today, 3/6/08, is roughly $15M: #msg-27389749.] We used approximately $28 million of cash in 2007 net of the $4.4 million of financing proceeds we received from LFB in January of 2007. We expect a similar cash use for 2008 [i.e.$28M, not $32M.]. And this excludes the impact of any up-front or milestone payments from new or expanded partnerships not currently signed. Any up-front payments from new or expanded partnering arrangements that result from the ongoing discussions will reduce the net cash use for 2008. We anticipate that our cash on hand and current contracted receipts should be sufficient to support our operations into the third quarter of 2008. Because our cash runway is not at least 12 months, the audit opinion to be included in our form 10-K which will be filed in the next few days will include a paragraph referring to substantial doubt to our ability to continue as a going concern. [The 10K was filed on 3/6/08.] This is an audit requirement based upon our existing cash balances and projected cash use but does not include projected receipts from the agreements that are unsigned as of this date. As Geoff has mentioned, we are focusing on partnering as our preferred source of additional funding for the company. We are in active discussions with potential partners for ATryn as well as for other products in our plasma protein and follow-on biologics portfolios.
Geoffrey Cox
Now, let me take a few moments to make some additional comments on other programs and upcoming events. For our CD137 monoclonal antibody, we have developed animals which express both glycosylated and non-glycosylated versions of this protein, in order for us to assess the potential differences or advantages in the immune-modulation capability. [This is a new disclosure.] CD137 monoclonal antibody of course is a new chemical entity and this work is an essential part of our preparation for meeting with the FDA to discuss an appropriate clinical development plan and indications. We hope to have this information around the middle of this year. Our work with CD137 is being supported by an SBIR grant.
Our external program contracts have been important contributors to our cash receipts over the last year and are expected to also make important contributions in 2008 based on contracts already in place. Our contract with PharmAthene has continued to expand and support their program for their Protexia product, albuterol cholinesterase, for the potential treatment of nerve gas exposure. We are providing both manufacturing and regulatory support in addition to enabling intellectual property under our broad patent. And, today, PharmAthene announced successful completion of a PK study for Protexia and their plans to file an IND in the third quarter and to commence phase one human safety testing in the fourth quarter of this year [#msg-27390930].
Looking back over the company as a whole, ATryn remains a key driver of near-term events. While we have expanded our involvement in a broad portfolio of recombinant plasma proteins and initiated development of a portfolio of monoclonal antibodies including follow-on biologics, the focus of our therapeutic development in both portfolios is on known chemical entities where the clinical risks are low and where there are large market opportunities.
Upcoming potential news events are always an important consideration for investors, so let me remind you of some of our strategic objectives, including, first of all, the completion of a partnering agreement for commercialization and development of ATryn in the United States. Submission of the final section of the rolling BLA for ATryn, which we anticipate to be around the middle of 2008. Achievement of priority review status for ATryn. Approval of ATryn in the United States around the end of 2008 or early 2009 assuming priority review is granted. Launch of ATryn in the United States in the first half of 2009. Leo's obtaining top-line results for the phase-2 DIC study in the first half of 2009. And completion of preclinical studies for the alpha 1 antitrypsin and CD137 monoclonal antibody programs around the end of 2008 with the potential for both programs to enter clinical studies in 2009.
And, finally, before I close my prepared remarks, I want to make some comments which have not been part of my prepared remarks until yesterday. As you know, yesterday we suffered a significant decline in our share price which I believe in no way reflects the significant progress which this company has continued to make on many fronts. I'm personally frustrated and even angry on behalf of our loyal investors and our employees. GTC has developed a resilience and tenacity over the years which will continue to serve us well. You have my personal commitment, together with the commitment of our entire management team and employees, to continue to pursue our key objectives and secure the financial health of the company. Thank you for your time today. We are living in challenging times. Your support and your encouragement is both important and appreciated.
QUESTION AND ANSWER
Stephen Dunn - Dawson James - Analyst
Good morning, Geoff, Jack and Tom. Congratulations on the progress so far! You've done what you said you were going to do. [LOL—whom does he think he’s fooling?]
Geoffrey Cox
Thank you very much, Steve.
Stephen Dunn
First question is a little bit of housekeeping. I didn't hear it or maybe I missed it… Leo's Canadian submission, are we expecting that in 2008?
Geoffrey Cox
Thank you for bringing that point up, Steve. Leo is actually making the submission to Canada and we obviously want to be able to use the data which we are submitting to the FDA for our BLA filing to form the basis of the Canadian submission. So we're waiting to get all of the clinical data in as we're required for the FDA as well. So that Canadian submission we hope will be made in the second half of 2008 and all being well that could put us into an approval situation in Canada in the second half of 2009.
Stephen Dunn
So, to summarize, theoretically, we could have all of North America covered in 2009? [An impressive command of geography! But, wait, isn’t Mexico part of North America? I take that back.]
Geoffrey Cox
That's correct.
Stephen Dunn
Ok. Also in 2009, I guess to summarize, I've got a number of candidates that will begin human clinical trials in 2009, hopefully. I'm counting four of them. Am I counting that right?
Geoffrey Cox
Well, you tell me what you have on your list and then I'll…
Stephen Dunn
Well, Factor VIIa.
Geoffrey Cox
Yes.
Stephen Dunn
I have alpha 1 antitrypsin.
Geoffrey Cox
Yes.
Stephen Dunn
And CD137.
Geoffrey Cox
Yes. Factor IX, alpha 1 antitrypsin, FVIIa and CD137 I think are the ones which are probably the most advanced in terms of entering the clinic—likely to be the latter part of 2009 in the way in which we see our current plans.
Stephen Dunn
I was a little fuzzy on DIC and severe sepsis. Now, we expect a phase-3 to initiate in EU in 2009. When do we foresee human trials in the US?
Geoffrey Cox
Well, we need to get the phase-2 results and we're hoping that Leo will complete that so we can give data in the first half of 2009 and that will enable us to be able to go both to the EMEA and also to the FDA with our proposals for the design of the phase-3 study. Remember, the phase-2 study, the principal of that is a dose-ranging study [I would call it a dose-finding study, but this is splitting hairs (#msg-27011149)] with the objective of identifying the dose which is most appropriate for the design of a phase-3 study. And so the phase two study isn't statistically powered to demonstrate efficacy although clearly Leo is looking and we're looking to demonstrate trends to improvements in survival for these patients. The objective, if we can, is to carry out a single phase-3 study or a combined US and European study. And the important part there, of course, is to make sure that we can address the general way in which these patients are treated in the two geographies. And that's something which we've got to make sure that we can meet the requirements both to the EMEA and the FDA. So, a single study needs to make sure that physicians can treat their patients in both US and Europe in a way which is appropriate with standard of care. So, that's the plan of action at this moment. And we assume that those discussions will take place in the second half of 2009 and then progress to the phase-3 study.
Stephen Dunn
So, put another way, in reality, we're going to have another first in human DIC trial in the United States but it will go -- we're hoping for it to go directly into a phase-3 trial?
Geoffrey Cox
That's certainly the objective. Of course, the first stepping stone is to make sure we get the results of the phase-2 study. And then that will form that basis.
Stephen Dunn
Right, now we -- it sounded like you were pretty far along on the US partnership for DIC indication and you indicated the parameters would be somewhat similar to agreements in the past. If you could remind us, you know, what kind of parameters, with the kind of ranges in dollars, what you're looking for?
Geoffrey Cox
In a number of these discussions which we have had in the United States, we've also encouraged partners to look at the option or the alternative or the additional opportunity of being able to develop ATryn in other acquired deficiency indications. At this moment, of course, Leo is paying entirely for the phase-2 study which we'll get access to. So, the interesting thing for us is the possibility of being able to pursue, through a partner, other indications and we've done work in the past in coronary artery bypass surgery and that's certainly an area which we continue to look at as a possible area of further clinical development and that could also, if we are able to secure a partner in the way in which we're working to at this moment, that could put us into a clinical development program which we would expect our partner to pay for and could bring us into the market more quickly than the DIC itself in an acquired deficiency. So, it's something which is obviously an important feature of what we're trying to negotiate in our partnering. But in terms of general structure, I think one should assume that an up-front payment is probably going to be in the single digit millions of dollars and then payment for the clinical study would include not only payment for the clinical work itself but also payment for product. And then there would also be a negotiated price for commercial product and also a royalty on sales. And yet the way in which we negotiated this with Leo was also that there was a series of milestones related to progress and success on the clinical programs and also sales milestones further down the track. So, I think we're looking at a similar sort of structure. The main objective is to take the costs of the commercialization and clinical development of ATryn off our P&L and make sure the partner is bearing the cost of the further development.
Stephen Dunn
Ok. I want to squeeze one more in before I jump in the queue. The follow-on biologics or biosimilars sector reminds me very much of the old stem cell sector about four or five years ago. Well, when I started covering it and before it was really well-known on Wall Street. And what I'm seeing here is a convergence of factors, both regulatory, political and the science, are all kind of converging in GTC's favor. And, you know, in January, the statement that biogenetics are a major key long-term growth opportunity for that company. And we've seen the White House and the senate approve FDA funding and requirements for approval of biogenerics. But, I guess, if you could give some color on what you are seeing -- you are on the board of BIO. What are you seeing both in the US and Europe?
Geoffrey Cox
Well, I think actually there is a growing recognition by the entire industry that follow-on biologics are absolutely going to be a reality and so I think it's a question of when rather than if. And I think BIO in their public statements have stated, and I do sit on the main board of BIO, that they would like to try to see legislation passed before President Bush leaves the White House. And I think that there has been a significant shift amongst the companies within BIO in a reasonable consensus to come up with a set of conditions which would enable follow-on biologics to be supported by the entire industry, providing that there is sufficient time period embraced in any legislation which would enable innovative companies to be able to protect their intellectual property for a reasonable period of time. I actually have no problems with that whatsoever and I don't think that's any constraint on anything that we're planning to do. We also have proprietary products and we expect to observe other people's intellectual property and we expect people to observe ours as well. So, I think that the whole principle of the pharmaceutical development is that innovators should have a reasonable period to be able to gain profits on their innovation and to be able to get a true win from those products. But most companies would be expected to be developing second- and third-generation products as a normal part of the development of those programs. So, I think that a follow-on biologic strategy is one which actually can sit in an appropriate fashion with all of these companies and I think it's very important that the biotech industry should not be seen to be adversarial with the needs and the requirements of the patient population of the United States, but looking to ways in which we can contribute to the management of a broader range of patients but also bring through further innovation, new products into the marketplace as well. And I think all of these things can work perfectly satisfactorily together.
So, I think that BIO is working in that fashion and we ourselves have actually had quite a lot of input into BIO. We've also had the opportunity to work with the local Massachusetts Biotechnology Council and also with Senator Kennedy's office and I think that I'm somewhat encouraged that legislation will get passed this year. And I would just like to take the opportunity to point out to investors that the opportunity for us is a timing issue as much as anything. We have the infrastructure already existing to be able to do this within our own production operations here in Massachusetts. It's not costing us anything in the current circumstances to be able to develop these products at this present time. It is important though from a timing point of view that you get on the road to actually moving these programs forward because, otherwise, the opportunity is missed and it's no good if you're going to be in the follow-on biologics space being way down the track. So, it's important that we do this but it's a value which we're able to create by leveraging our existing infrastructure at really no cost at this moment but tremendous value which we have the opportunity to be able to develop further down the track and of course, a lot of opportunity for us to be able to engage companies in partnering discussions which we hope and expect will support the further development of the products and also the commercialization of these products in the market place.
Stephen Dunn
Alright, great. Thanks. Looking forward to 2008! [Isn’t it 2008 already?]
Sean Wu - Rodman and Renshaw
Hello, good morning, everybody. Thank you for taking my question. Almost all of my questions have been answered. I just have a couple more follow-ups. One is about you said [inaudible] the initiative is one study later this year. Are you expecting to receive any kind of milestone payment from them?
Geoffrey Cox
No—actually, the information which I gave you is in the PharmAthene press release this morning. So that's in the public domain. And I was simply quoting from their press release. We don't have milestones associated with that progress, but we are very happy that they have been able to successfully negotiate through to the next stage of the development of their product. Obviously. it's a big steppingstone for them. And since they have become an important partner for us, one which we've very much enjoyed working with, we hope that that will be an important way in which we can continue to partner PharmAthene in the further successful development of their product. So, I think it is a good steppingstone and one which I think it was helpful for our investors to know about.
Sean Wu
If they do secure a governmental contract for stockpiling [inaudible], which kind of [inaudible] rate should we expect?
Geoffrey Cox
Well, I don't think we've disclosed that actually. But it is a small single-digit royalty rate which is the normal sort of commercial rate that one would charge for this type of access to this type of intellectual property.
Sean Wu
So, for this year, you will be recording ATryn like a [inaudible]?
Geoffrey Cox
Excuse me? Recording what?
Sean Wu
Are we expecting you to [inaudible]?
Geoffrey Cox
You're actually cutting out…
Sean Wu
[Inaudible]
Geoffrey Cox
I don't know whether other people are having problems but you're cutting out…
Sean Wu
I think the IP phone is not working well so let me just stop here. Thanks a lot for taking my questions.
Geoffrey Cox
Okay, but if I can perhaps guess what you were asking and try and answer it, you were asking about revenues around ATryn. I think, for the foreseeable future, the revenues which we will be reporting around ATryn will be a combination both of our product supply for commercial use and also for clinical use. So that's the way in which we look at that at this present juncture. As I did comment, in order to manage people's expectations, we're not expecting under the current pricing strategy for ATryn that this growth rate will be large in 2008. Clearly, what Leo is doing is building a franchise around this product. And as they move forward into the DIC indication, it's important to be able to establish a pricing strategy which they can then manage in relation to these other indications and so that's the process we're staying involved in at this moment.
Roy Friedman - Edith C. Blum - Analyst
First, I have some financial questions for Jack. Can you clarify your statement about the expected 2008 cash burn excluding new sources of income. Is the number $28 million or is the number $32 million?
Jack Green
The number is $28 million. It is the projected net burn for 2008.
Geoffrey Cox
But, Roy, if I can just add to that, remember what Jack said. That is just based on what our contracted revenues are and projected revenues from those contracts as they exist at this moment. So, any partnering arrangements we have around ATryn or other of our recombinant plasma proteins or follow-on biologics would reduce that figure. So, I think that's the clearest way in which we could state it.
Roy Friedman
Understood.
Geoffrey Cox
Okay.
Roy Friedman
Are there any covenants on GTC's debt that could come into play during 2008 if your book value or tangible net worth were to fall below some threshold?
Jack Green
No, Roy. There are no operating covenants in our GE debt that are part of the debt instrument. So we do not have specific operating covenants. Basically, GE’s security is the lien on the assets -- all assets except IP. They do not have operating covenants as part of the instrument.
Roy Friedman
Is your cash rock solid rather than in such holdings as auction-rate securities, as was the case with Bristol-Myers?
Jack Green
I'm happy to report that our cash is rock solid. We have no exposure to auction-rate securities at all. And we were very, very careful to make sure that we avoided that minefield.
Roy Friedman
Okay—that's good to know. Do you plan to seek shareholder authorization for a reverse split at the 2008 annual meeting?
Geoffrey Cox
That's an excellent question, Roy. And, clearly, we're monitoring that situation quite carefully and we have under the existing notification from NASDAQ until July 15 and we're working towards our share price being restored to above the dollar level through our meeting our goals including our partnering arrangements and hopefully we can get there without taking any other actions. If we're not successful in doing that in terms of getting above $1 for the required period of time which is required under the NASDAQ rules, then we obviously have a reverse split as a possible scenario but it's one which we would prefer to keep in our back pocket at this moment rather than making any decisions on it at this juncture. If we do go to reverse split, obviously we would need shareholder approval to be able to do that.
Roy Friedman
Right—that's why I asked whether you were planning to put that to shareholders at the annual meeting.
Geoffrey Cox
Well, if we plan to go that track, then we would probably do that through the annual meeting. And we've obviously discussed it at our board meetings and we've chosen at this moment not to take any firm decisions on that but to aim to execute on some of our key goals and if possible, restore our share price to a healthier position in its own right so to speak without having to do that. But, we do hold that in reserve as a possibility.
Roy Friedman
Well, isn't the [annual meeting] proxy due out very soon?
Geoffrey Cox
Well, I think, actually. we have 45 days ahead of the annual meeting. And so we've probably got a few more weeks yet before we need to send out the proxy.
Roy Friedman
Switching over to the…commercial area, what is the approximate premium of ATryn relative to plasma derived antithrombin in the countries where ATryn has already been priced?
Geoffrey Cox
That's an excellent question. And I don't want to shoot from the hip because I don't know exactly in each country. What I would say is that Leo initially went into the market in the United Kingdom because, remarkably, UK tends to be rather aggressive on pricing. Actually antithrombin charges in the UK are high. And, therefore, the pricing in the United Kingdom I think is pretty well similar to a plasma-derived product. Now, if you go into some other countries, Germany, I think is a much more aggressive priced situation. There are a number of plasma-derived products available in Germany. So, there may be a more significant premium over pricing in Germany. Greece, I'm not quite sure of, and Ireland I think is similar to the UK. So, I think the answer to your question is it's going to be variable. But, what they're trying to look for is a fairly consistent pricing throughout Europe. The fact is that we got approval throughout Europe so many of these plasma-derived products which were grandfathered or approved in single countries have been able to maintain pricing structures which are quite different from adjoining countries because they can't actually be sold in those countries and therefore you've got a lot of differentials throughout Europe. But with our product, obviously, they can move the product across borders so they're going to probably end up with a relatively consistent pricing strategy. And that's why they're having to take that step by step.
Roy Friedman
Okay. Does the recent approval of Artisan Pharma for DIC in Japan [#msg-27043027] adversely affect your partnership discussions there?
Geoffrey Cox
Not really, actually. People may not be aware of that particular piece of news. But this is a different product from antithrombin, of course. But DIC in Japan is a little different from the way in which it is referred to in the United States. Our understanding is that the trials which have taken place in Japan do not have the same end point of improvements in survival. And, therefore, it is a less onerous or a less rigorous end point than the one which we're expecting to have to meet in the United States. Now, we haven't gone into what's the clinical indication or what clinical type of program is required in Japan. But I think it's unlikely that the design of the [ART-123] clinical study, which was carried out in Japan for that product will be the same design that will take place in the US. Now, I'm not the FDA. I can only sort of guess that but that's our assessment at this point in time. Now, having said that, the market for DIC and severe sepsis is an enormous market. We talked about this before. There's about 0.25 million people in the United States who get DIC and severe sepsis each year. About 50% of these people die. And, so, we believe that this is a $2 to $3 billion market place and I think there is room for competition and for us still to be able to have very successful products. But I am not sure that the Artisan product is going to be any more quickly into the market place than our own product.
Roy Friedman
Well, what's holding up the consummation of a partnership in Japan then?
Geoffrey Cox
We've actually had some discussions in Japan and were represented at the recent Bio Asia conference in Tokyo in late January. Business development in Japan is a fairly protracted process and they tend to move quite a bit more slowly than in the United States. So, we've actually had quite a lot of interest. And it's very interesting that the whole concept of transgenically-derived therapeutic proteins has moved forward significantly as a result of the EMEA approval and also after the news out now that we've filed in the United States. And I think that's going to be very helpful to our partnering activities. But I don't think we're projecting that we would get a Japanese partner in the current year in 2008. I think that it would be great if we can get one in 2009 but it will take longer in Japan. And that's just not our experience. That's a normal experience for people.
Roy Friedman
In your view, what is the likelihood of an FDA advisory panel for the ATryn BLA?
Geoffrey Cox
That's an interesting question as well. And I can't really give any guidance on that to be quite honest. We haven't been given any guidance by the FDA at all at this juncture. Certainly, I've had people who have told us that they believe that we will have an advisory panel since it's a new technology. And if we do, I think we feel very confident of our ability to meet that challenge in a very successful fashion. But I really can't give any guidance. If it does happen, and we have a priority review status, then I guess it would be somewhere in the latter part of 2008 if everything sort of proceeds on the sort of schedule which we see at this moment. I don't have any other information on the matter at this moment, Roy.
Roy Friedman
On priority review, is there any possibility of hearing the FDA's decision on that before you submit the last BLA module or will that necessarily wait until the last module goes in?
Geoffrey Cox
Again, that's a good question. My guess is, to be quite honest, that we will hear sooner than submission of the last module. That's our expectation. But, again, we've heard nothing back from the FDA which is nothing bad in that respect. I think there is a normal time pattern for hearing with regard to submission proprietary review. But we're hoping that we will hear over the next few weeks in that respect.
Roy Friedman
Thank you, Geoff and Jack. That's it for me.
Geoffrey Cox
Thank you, good questions, Roy. I appreciate it.
Donald Hudson - Hudson Associates - Analyst
Hi, Jack and Geoff.
Geoffrey Cox
Good morning.
Donald Hudson
I have a couple of questions. Number one, Factor VIII, that's a Baxter product, right?
Geoffrey Cox
Yes, Baxter. They have a very significant market with recombinant FVIII.
Donald Hudson
Yes, made in mammalian cells?
Geoffrey Cox
Yes.
Donald Hudson
Right, and you can be more competitive in that in transgenic animals?
Geoffrey Cox
Yes—that's our belief. Factor VIII, from a development point of view, is later in the process than FVIIa or FIX. And, also, I believe the IP for FVIII in the United States [i.e. the patent expiration] is later than for FIX and FVIIa. So, that’s certainly later in our development schedule and we have not developed a planning timetable around that at this juncture. But in terms of the products for the hemophiliac factors, the recombinant products which are in the market place today, is probably somewhere around $3 billion of those combined factors, out of a total market of about $4 billion. And each of these products is produced from mammalian cell. And our understanding is that these are very difficult products to express in mammalian cell culture systems and we feel very confident that using our transgenic system that we'll be able to produce these products at a competitive cost of goods. And we haven't decided what that pricing will be at this moment. We don't need to make any decisions as far as that's concerned. And certainly we don't need to give up margin that we don't need to, but the opportunity for us is to be able to be able to treat a broader patient population including patients being treated prophylactically than is possible with products today because of that price. But also potentially be able to develop in a broader range of indications and again, today, the cost of these products is so high that that is a real problem for many patients. So, I think we've got many opportunities to be able to compete in that market place and to create an important significant franchise.
Donald Hudson
The other question was, I didn't hear you mention in any of the product portfolios that you'll be keeping some for your own selling, is your strategy still to partner everything you can?
Geoffrey Cox
That's actually a good question. And I certainly have talked in previous conference calls about developing our own commercial capability and you know, I think particularly in the United States, that's something which we would love to do at some point. I think we're being fairly pragmatic about what our current financial status is at this moment. What we're looking to do is to use the value which we're creating through these portfolio products to get partnering arrangements and to bring cash into the company which will ensure that we don't become dependent entirely on the equity markets. And so if we were not able to do a partnership for ATryn commercialization development in the United States, on terms which we believe reflect the value of that product, we certainly could take that product in the hereditary-deficiency indication into the marketplace ourselves with a relatively small number of people, maybe a dozen or so people and we will keep that in our back pocket [gulp]. I think in terms of our options at this moment, though, if we can find a partner who can not only help to commercialize and maximize the opportunity for the product but also support the further clinical development, that's a very good option for us at this moment.
Steve Turner - Due Diligences - Analyst
Well, congratulations on your results so far.
Geoffrey Cox
Thank you.
Steve Turner
My question has to do with production facilities. What's the timeline for FDA approval on your actual production facilities?
Geoffrey Cox
We haven't received any advice from the FDA at this moment when they plan to come in to inspect. And of course remember we've got three different pieces to this. One is our own production operations and pharma operations. Then we do the downstream purification with Lonza in Hopkinton, (which used to be Cambrex) and they purify the product for us. And they've been inspected previously on our behalf by the EMEA. And then we do the filling of the product at MedImmune in Leiden. I will just reiterate that MedImmune was not involved in this other issue which Jack was referring to in terms of production failure [i.e. the $2.9M inventory loss]. So, I just want to make sure that MedImmune's name is not impugned in that respect. So those are the three elements and our guess is that the inspection of those facilities may well take place in the first half of the year. But we don't normally announce the dates of those inspections. But that's what we're planning for anyway, as far as the timing of those.
Steve Turner
Okay. And as far as the number of patients comparative to the European theatre using your product, do you have an anticipated range? Or a target range?
Geoffrey Cox
This is for ATryn?
Steve Turner
For ATryn, yes.
Geoffrey Cox
How many patients you mean are in the United States?
Steve Turner
Well, how many patients are you targeting to be potential clients of yours?
Geoffrey Cox
Oh, I see. Well, again, that's a good question. There are reports to be somewhere between 1 in 1,000-5,000 and 1 in 1,000-3,000 people who have antithrombin deficiency. And, so, conservatively that would mean in the United States probably 60,000-70,000 people who have this particular deficiency. I would say that a lot of people don't actually know they have the problem until they have their first thrombosis. In the US, this patient population it has been poorly served over the years. Thrombate [plasma-derived AT from Talecris] has been intermittently available on occasions and certainly it was grandfathered on rather limited clinical data originally and there has been very little clinical development done with the product in broader indications over the years. So I think this patient population is going to need to be developed. We obviously need to work with key opinion leaders. Some of these patients in the past have avoided having children because they've got the condition. People who were going to have elective surgery avoid having surgery because the product was either not available or they didn't want to use a plasma-derived product. So, there is a lot of work we can do in order to be able to encourage the understanding of the products available.
And also for being able to treat those patients. And, of course, once you understand where some of these patients are, you start to be able to develop the familial connections since it’s obviously a genetic disorder. And so I think that we've got the opportunity over the next three or four years with a good partner for us being able to develop a market in the order of 30 to 40 million in the United States prior to getting an acquired deficiency-indication approved by the agency. [This is consistent with my own forecast of $35M peak sales in the US for the HD indication: #msg-24751863.] But it is going to be something where we're going to have to work hard to uncover the patients and to make sure that we can make all of the connecting points.
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