The CEO’s Blog — Garo H. Armen
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Antigenics Earnings Call
This morning we announced our first quarter 2008 financial results. Enclosed is my script from the call outlining the company’s recent activities and accomplishments.
Garo Armen
As I’m sure you are all aware, Antigenics recently announced the approval of Oncophage in Russia for the treatment of renal cell carcinoma, or RCC, patients at intermediate-risk for recurrence. This is the most substantive accomplishment in our company’s history as we start our transition from a biotech R&D company to a commercial entity. We are proud to be among the very few biotech companies ever to bring to market the product that the company was founded on. Even more importantly, this is the first ever formal regulatory approval of a patient-specific therapeutic cancer vaccine. Now patients with nonmetastatic RCC will have an approved treatment option post-surgery and that too is the first ever anywhere in the world.
Besides being the first patient-specific cancer vaccine to be approved, this is the first of any type of therapeutic cancer vaccine to be approved in a major commercial market. The Russian pharmaceutical market was valued at almost $11 billion in 2006, which was a 27% increase from the previous year. Importantly, almost 80% of the dollar value comes from imported drugs, and a number of these are in the high price category. JPMorgan and other research outfits forecast that the market will continue to grow at substantial rates – 10% per year or greater – through 2009 and 2010. Within the pharmaceutical group, the oncology sector specifically has been doubling almost every year over the last few years, to around $1 billion in 2007. Russia’s impressive growth has forecasters predicting a $2 billion cancer drug market by 2010, once again this increase is mostly driven by new expensive drugs.
This growth in Russia’ pharmaceutical market is not surprising considering its overall macroeconomic boom. Russia’s economy grew 7% per year between 2000 and 2007 and personal incomes have also been rising. Nominal disposable income is forecasted to have a compound annual growth rate of 21% between 2006 and 2009. Russia is now the 8th largest economy in the world, and while many other economies are faltering, its may continue to grow at a strong pace.
We believe that the pharmaceutical market in Russia offers significant opportunities for patients and companies alike, and we are implementing programs in order to participate in this significant opportunity.
In preparation for the launch of our product we are awaiting the issuance by the FDA of the export license for Oncophage to Russia. We are also waiting for the import and export permits from Russia. In the meantime we are continuing to build our sales, marketing and distribution infrastructure.
Our strategy is to launch Oncophage in collaboration with local distributors and our local agent. The product will be manufactured in Massachusetts and shipped either directly to hospitals or to an urban distribution center that will then courier the product to local hospitals. We will initially focus our efforts on several centers of excellence, which have been selected for the quality of their facilities and staff and their larger patient bases, especially in RCC. These are mostly situated in and around Moscow, which allows us to cover the prescribing population with just a few sales reps.
After we have begun to treat patients, which we expect to occur in the second half of the year, we will expand our operations in Russia beyond the initial centers of excellence. Concurrently with our logistical and sales plans, we are undertaking broad initiatives to educate Russian doctors on the benefits of Oncophage. Investigators from our trial and other Russian, European and American key opinion leaders have and will continue to present on Oncophage at a number of the oncology, and onco-urology, conferences and KOL meetings in Russia and elsewhere. Finally, we continue to review the reimbursement options available in Russia so that Oncophage can be available to as broad of a patient population as possible. While we will initially rely on the private pay market, we are working to obtain a mix of regional, hospital-administered as well as federal reimbursement sources as soon as possible.
As we embark on our first commercialization plan for Oncophage we continue to target opportunities in other major geographies. We are preparing to file a marketing authorization application in the European Union for conditional authorization of Oncophage in RCC by the end of 2008. Additional opportunities may also exist in other regions and we are in the initial stages of exploring some of these.
Clearly our focus for Oncophage in RCC is on opportunities existing outside of the United States. While we have not given up on the domestic market, our options here are limited until there is regulatory reform to accommodate the unique clinical and regulatory requirements of products like Oncophage, specifically products that target nonmetastatic cancer patients.
In addition to our efforts in RCC we are also focusing on our ongoing development activities in glioma, the most common type of brain cancer. This effort could possibly provide a pathway to the market in the US. The Phase 2 investigator-sponsored trial at the University of California, San Francisco continues to enroll patients at a good pace, and we are very excited about the data we have seen to date in this disease area of significant unmet medical need.
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Let’s now switch gears from Oncophage to our second key asset – QS-21, an important component in a substantial number of both prophylactic and therapeutic vaccines being developed by our licensees. QS-21 stimulates the immune system to provide a stronger immune response against viruses, bacteria, tumor or other cells that we are trying to eradicate. Our strategy with QS-21 has been to license it to various collaborative partners for use in their investigational vaccines. Our three key partners – GlaxoSmithKline, Elan and Acambis – are utilizing QS-21 in about 16 vaccines that are currently in development.
Antigenics receives manufacturing fees on a cost-plus basis for providing QS-21, plus along the way milestones as certain contractual payments are made, and, most importantly we get royalties on commercial sales of vaccines containing QS-21. It is important to note that these royalties are payable independently of the patents underlying QS-21, and typically extend for 10+ years after first commercial introduction. It is also important to note that QS-21 is profitable for Antigenics today. There is minimal or no cash outlay by Antigenics associated with the programs, as all development is funded by our licensees. Some of the most prominent and promising vaccine programs containing QS-21 are GSK’s Phase 3 non-small cell lung cancer vaccine, GSK’s Phase 2 malaria vaccine, Acambis’ Phase 1 universal influenza vaccine, and Elan’s Phase 2 Alzheimer’s disease vaccine.
We are excited by the abundance of activity with QS-21. It is used in numerous vaccines that cover the range of infectious diseases and cancers, as well as stages of development from preclinical through Phase 3. It is possible that the first vaccine containing QS-21 could reach the market in the 2009/2010 timeframe.
Before I close out my prepared remarks, I’d like to briefly mention our most recent financing transaction. Immediately following our announcement on the Russian approval we received an unsolicited offer for a direct placement of our stock. Given the uncertainty currently facing the equity markets, and the possibility that the situation may not improve in the near term, our board decided to accept this offer. As you know, we raised gross proceeds of $21 million, which brings the total amount raised since the beginning of this year to $47 million. Antigenics is now in a more comfortable financial position that will help us to capitalize on the opportunities that we are currently pursuing.
This communication contains forward-looking statements, including, but not limited to, statements regarding the company’s financial position; the current and future development, regulatory, and commercialization activities and timelines for Oncophage, including our strategies for commercialization in Russia and the potential associated revenues, and the decision and timing for filing a marketing application for conditional authorization in Europe; on-going clinical trials; the value, growth, and opportunities of the Russian pharmaceutical market; and the development of products containing QS-21 by our collaborative partners and licensees. These risks and uncertainties include, among others, the risk of the inability of the company to successfully implement a product launch strategy for Oncophage in Russia; the potential failure to operate within the company’s targeted burn rate and identify additional means of cost savings; decisions of regulatory authorities, doctors, patients, and our collaborative partners and licensees; geopolitical developments; unfavorable data; retention of key employees; and the factors described under the Risk Factors Section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the period ended December 31, 2007. Antigenics cautions investors that we do not expect to generate significant revenue from sales of Oncophage in Russia for several months, if ever. The amount of revenue we generate will depend on, among other things, securing reimbursement mechanisms and physician and patient assessment of the benefits and cost-effectiveness of Oncophage. Antigenics also cautions investors not to place considerable reliance on the forward-looking statements contained in this call. These statements speak only as of the date of this call, and Antigenics undertakes no obligation to update or revise the statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. Antigenics’ business is subject to substantial risks and uncertainties, including those identified above. When evaluating Antigenics’ business and securities, investors should give careful consideration to these risks and uncertainties
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