SLS - NASDAQ

Remy Bernarda - Vice President of Marketing & Communications Mark W. Schwartz - Chief Executive Officer and President Christopher S. Lento - Vice President of Commercial Brian L. Hamilton - Former Chief Medical Officer and Executive Vice President Ryan M. Dunlap - Chief Financial Officer, Vice President and Corporate Secretary

Edward A. Tenthoff - Piper Jaffray Companies, Research Division Chad J. Messer - Needham & Company, LLC, Research Division Mara Goldstein - Cantor Fitzgerald & Co., Research Division Joseph Pantginis - Roth Capital Partners, LLC, Research Division Yigal D. Nochomovitz - Oppenheimer & Co. Inc., Research Division Robert LeBoyer Vernon T. Bernardino - MLV & Co LLC, Research Division Rahul Jasuja - Noble Financial Group, Inc., Research Division

Good day, ladies and gentlemen, and welcome to the Galena Biopharma Third Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Remy Bernarda.

Good afternoon, everyone, and thank you for joining our call today. For those of you listening via telephone, I would encourage you to visit our website for access to the webcast and to find additional information on the company. During today's discussion, we may make forward-looking statements about our programs. Such statements include, but are not limited to, statements about our commercialization plans and the development progress of our clinical product candidates, including patient enrollment, trial initiations and collaborations. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those identified under Risk Factors in our annual report on Form 10-K and other documents filed with the SEC and available on our website. Actual results may differ materially from those contemplated by these forward-looking statements. I would now like to introduce the members of management on the call today who will discuss our business. Dr. Mark Schwartz, our President and CEO; Christopher Lento, Vice President of Commercial, who will discuss our Commercial business; Dr. Brian Hamilton, Executive Vice President and Chief Medical Officer, who will discuss our clinical programs; and Ryan Dunlap, our Vice President and Chief Financial Officer. Mark Schwartz will now begin our discussion with an update on our progress and future plans.

Thank you, Remy, and welcome, everyone, to our third quarter conference call. Before I turn the call over to the team for the specifics on each program, I wanted to provide a broad overview of where we stand. I'm excited about the progress we are making in all operational areas and the long-term potential of Galena. I know that all the employees of the company are focused on our 2 most important goals: providing the best treatment options for patients and increasing the value of the company for our shareholders. While the last year has presented the company with a number of corporate challenges, I believe we have turned the corner on these events. Today, we will focus on our clinical and commercial operations, and you will hear in the following updates that we've made important progress on all fronts. The fight against cancer continues and advances have produced better outcomes for patients suffering from their disease. As first-line treatments improve, the number of cancer survivors increases. Protecting these survivors from a recurrence of their cancer represents an important and growing new battlefront. For many women with breast, ovarian and endometrial cancer, there are no directed therapies for their cancer after they receive their standard of care and they're declared disease-free. They are told to go home and watch and wait. If their cancer recurs, it is most often fatal. Developing a directed therapy that can prevent these recurrences addresses a significant unmet medical need and represents a major opportunity. These patients are an ideal setting for a vaccine immunotherapy. They have intact immune systems and no bulky tumors. Galena's expanding portfolio of NeuVax clinical trials, as well as the rapid progress with our Folate Binding Protein compound, are indicative of the strong interest in finding effective treatments in these adjuvant settings. The NeuVax clinical development program now encompasses an entire portfolio of clinical trials to include breast cancer patients in 3 key categories and the future expansion into gastric cancer. Most importantly, our Phase II trials with NeuVax are either partially or fully funded by our partners and our collaborators. I'm extremely grateful to our internal team and outside investigators, who continue to explore options for NeuVax and help us get the essential funding for these important trials. As you may have seen with our recent announcements, we have secured significant patents for our NeuVax platform. These patents covered a wide range of patient populations and indications in key geographies, where we feel there will be a strong market for the drug, if it's approved. As Brian will discuss, there's also been extremely high interest in our early-stage pipeline programs as well. Our GALE-301, our Folate Binding Protein program, overenrolled its Phase IIa clinical trial due to high demand from ovarian and endometrial cancer patients. Initial data from this trial will be presented this weekend at the Society for Immunotherapy of Cancer, or our SITC conference held in Washington, D.C. In addition, our GALE-401 Phase II trial evaluating anagrelide controlled release is enrolling ahead of schedule, with enrollment expected to close shortly. Data from this compound will also be presented later this year. Galena's current structure, a development-stage biotechnology company with major market opportunities and with commercial products, makes us unique. I would like to take this opportunity to reiterate my view on our commercial franchise and the 3 key strategic elements I believe it brings to the company. First, it preserves a long-term value for the company's development pipeline. NeuVax alone, if approved, has the potential to be a multibillion-dollar product. Having the commercial organization in place provides significant leverage to secure better economics around any potential future partnering deals for the compound. It also gives us the opportunity to single-handedly promote NeuVax and all the products we develop on our own in the U.S., or to co-promote our products in the U.S. with a commercial partner. Second, our commercial team has developed deep relationships and partnerships with key oncology health care providers and commercial stakeholders that allow the company to add potential future products to our pipeline, like we did with

Thank you, Mark. I'm going to take the time today to discuss our product goals and overall commercial strategy for Abstral and

Thank you, Chris. I'm pleased to provide our listeners with an update on the progress we have made with our clinical programs over the last few months. I'll start with our NeuVax program. As a reminder, NeuVax is based on the selection of a validated target antigen utilizing a peptide vaccine. NeuVax targets patients in the adjuvant setting who have minimal residual disease after completion of their primary treatment, but remain at risk of tumor recurrence. The aim with NeuVax is to stimulate the immune system to prevent the recurrence of cancer. As Mark explained, recurrence is a life-changing event, so preventing the disease from going metastatic is a critical component in the treatment paradigm for these patients. With the initiation of our newest combination trial this week in high-risk HER2 3+ patients, NeuVax has become a platform on its own, targeting HER2, one of the most common protein-target antigens in cancer therapy. We now have ongoing or planned trials of NeuVax, both as a single agent and in combination with Herceptin, to treat women with breast cancer in both low to intermediate, or 1+ or 2+ expression by immunohistochemistry or IHC, as well as those who express the highest level of HER2 or 3+. In addition, our partner in India, Dr. Reddy's, will be starting a trial with NeuVax in gastric cancer next year. This multi-trial approach not only allows us to expand the potential indications for NeuVax, it also provides multiple opportunities for successful trial outcomes. The enrollment into our pivotal Phase III PRESENT trial continues on track. PRESENT is enrolling women with breast cancer that has initially spread to the local lymph nodes and express a low or moderate level of HER2, referred to as 1+ or 2+ expression. These breast cancer survivors have no evidence of disease after completing their initial adjuvant therapy, but remain at a significant risk of recurrence. Therefore, the goal of the study is to prevent this recurrence, and the endpoint of this study is disease-free survival. As of October 31, we have randomized 599 patients into the PRESENT trial and remain on track to randomize 700 patients by the end of January. As we have stated, based on the number of patients in the pipeline, we anticipate that we will overenroll the trial and that enrollment will likely close by the end of the first quarter of 2015. We expect overenrollment will increase our confidence in both the timing and quality of the statistics and the final outcome of the trial. To add to our final enrollment figure, we have allowed for limited screening by our sites, providing that any newly screened patients are eligible to be randomized into the trials by the end of Q1. We are focused on completing randomization activities and heading towards our event-driven interim analysis. Our first Phase II clinical trial of NeuVax in combination with Herceptin is ongoing. In this trial, we are targeting a similar population as in the PRESENT trial, with 300 breast cancer patients who are HER2 1+ or 2+ and are either node positive or high-risk node negative. The PRESENT trial is enrolling only the node-positive patients. We estimate completion of enrollment in this study by the end of next year, with the primary endpoint of disease-free survival at 2 years. As we announced this summer, one of our investigators, Dr. Beth Mittendorf of the University of Texas MD Anderson Cancer Center, received a Breast Cancer Research Program Breakthrough Award from the Department of Defense to fund a second Phase II clinical trial with NeuVax in combination with Herceptin. This marks the expansion of the NeuVax program into the HER2 3+ breast cancer population. This multicenter prospective randomized single-blinded placebo-controlled Phase II trial will enroll 100 patients with the diagnosis of HER2 3+ or HER2 gene-amplified breast cancer, who are HLA-A2 or A3 positive and who are at high risk for recurrence. The first patient was randomized today, and we expect her to be dosed this week. Our fourth NeuVax trial is a Phase II study in patients with gastric cancer that will be run in India by our partner, Dr. Reddy's. This represents a significant investigation of NeuVax outside of the breast cancer indication and another potential expansion of the market. We expect this trial to begin in the first half of 2015. Our other immunotherapy asset in development is GALE-301, a peptide vaccine that stimulates T lymphocytes to recognize and destroy cancer cells that express Folate Binding Protein, which is expressed at high levels on most endometrial and ovarian cancers. Similar to NeuVax, the goal of our GALE-301 program is to stimulate the immune system to prevent the recurrence of cancer, which is significantly meaningful in this patient population as these diseases demonstrate a very high recurrence rate of 35% to 50% in the first year. Our Folate Binding Protein program is treating women with ovarian and endometrial cancer with stage 1 to 4 disease, and have no evidence of disease after undergoing their primary first-line therapy, including debulking surgery and chemotherapy. In June of this year, we reported initial results on the Phase I dose-escalation portion of the trial. Based on positive data, the trial moved into the Phase IIa portion of the optimal dose of 1,000 micrograms and an added booster regimen in the same patient population. Patients are treated once a month for 6 months for the primary vaccine series, and once every 6 months with booster inoculations. The trial has a clinical endpoint of disease-free survival. Because of the interest in this trial and the lack of treatment options in this space, we met our enrollment goal there early, and we have overenrolled the Phase IIa portion of the trial with a total of 51 patients. Early data presented this year at ASCO were promising, and we will be presenting additional immunologic data, as well as the first look at Phase IIa clinical data, at SITC this weekend. Moving to our hematology program. We are excited to announce that our Phase II proof-of-concept trial of GALE-401, or anagrelide controlled release, has enrolled significantly faster than we anticipated. Let me just take a minute to outline the trial. GALE-401 is under development for the treatment of thrombocytosis, or elevated platelet counts, in patients with a family of diseases that are collectively called the myeloproliferative neoplasms, and include polycythemia vera, chronic myelogenous leukemia and essential thrombocythemia. Patients entering the trial must have a platelet count over 600,000 and are treatment naive or washed out of their prior treatment. Patients are treated with an initial dose at 0.5 milligrams twice a day and then titrated at a 0.5-milligram per day dose every 1 to 2 weeks until the target platelet count is in the normal range, defined as between 150,000 and 400,000. The primary objective of this trial is the response rate in terms of platelet reduction, and the FDA has indicated that the 505(b)(2) is an acceptable development pathway for this compound. Because we are treating a relatively small patient population with GALE-401, we anticipated that it would take a year to enroll the planned 20 patients. We are running well ahead of our enrollment milestone and expect to announce full enrollment within the next 2 weeks, more than 6 months ahead of schedule. These patients will then be followed for an additional 6 months. We'll present data at the American Society of Hematology, or ASH meetings, in December that will show the results of Phase I studies of GALE-401 in healthy volunteers, along with some initial outcomes from the Phase II trial. Top line data from the Phase II trial will be presented midyear 2015. As you can see, we have made significant progress with all of our clinical programs. With our GALE-301 and 401 trials overenrolling and completing enrollment earlier than expected, I'm very excited about our extensive pipeline, our planned data presentations and reaching our key clinical milestone of full enrollment in PRESENT. I'd now like to hand the call over to Ryan Dunlap, who will review with the company's financial results.

Thank you, Brian, and good afternoon, everyone. Net revenue from Abstral sales for the second quarter of 2015 (sic) [third quarter of 2014] was $1.6 million and $6.1 million for the first 3 quarters of 2014. The decrease in net revenue from the prior quarter is largely driven by the timing of orders from our distribution partners, or x manufacturer sales, which is the point at which we recognize revenue. These ordering patterns can differ significantly from overall prescription pull-through or demand. For example, during the third quarter of 2014, prescription pull-through exceeded x manufacturer shipments, representing a contraction of inventory levels in the distribution channels by approximately $1.3 million. As Chris mentioned, we believe these fluctuations and differences between customer shipments and prescription pull-through are normal during the first year after a product launch as our distributors optimize their channel inventory levels. This is complicated by the fact that products in this class, like Abstral, have multiple dosage strengths for distributors to manage. Over time, we expect x manufacturer sales to align with overall prescription demand trends, a pattern that we are already beginning to see during the fourth quarter. More importantly, as Chris mentioned, with the ongoing addition of new prescribers, our increased focus on the more sustainable oncology business and the success of our GPS program, we have greatly reduced our patient assistance spend. Dollars from paid prescriptions have increased significantly each quarter, with paid prescriptions in Q3 increasing by 15% over the last quarter and 63% from the first quarter of this year. Given this very positive trend, as well as encouraging signs of growth in both x manufacturer sales and overall prescription volume, we remain confident in achieving our full year 2014 net revenue guidance of $8 million to $10 million from Abstral sales. And given the strong October we have already seen, we're expecting to reach the middle of that range. Operating expenses are trending downward this quarter at $14.8 million for Q3 compared to $18.1 million reported last quarter or a decrease of $3.3 million. The decreased operating spend this quarter is largely a function of lower legal fees related to the ongoing litigation proceedings. These fees were approximately $700,000 in Q3 net of insurance recoveries, down from $3 million in the second quarter, largely due to the fact that we've reached the limit of our insurance deductible during the third quarter. Looking forward, we expect the majority of these fees to be covered by the D&O insurance we carry. Our overall operating loss improved to $13.2 million for the third quarter of 2014, that's $2.6 million better than the $15.8 million reported last quarter. Our loss per share for the third quarter of 2014 was $0.05 per share, which is lower than our consensus estimate of $0.11 loss per share, and was driven by the aforementioned operating expense improvement, as well as approximately $6.7 million in noncash gain on the revaluation of our warrant liability. From a cash flow perspective, we have $24.6 million in cash and cash equivalents at the end of the third quarter. The decrease during the quarter in cash is primarily the result of $11.1 million in cash used in operations and $3.1 million spent to acquire

Thank you, Ryan. As we look back on our first year of commercial activities, we're proud of the structure we have built. While Chris highlighted some of the challenges, we also know how to address and adapt to them. As the market has changed for Abstral, our commercial team has refined our strategy to ensure the long-term viability and profitability of the franchise. We will be taking the same expertise into our launch of Abstral. As a result, we plan to increase our Abstral revenues by over 50% next year and are setting our 2015 net revenue guidance to between $15 million to $18 million. On the clinical front, we look forward to meeting a major enrollment milestone for NeuVax PRESENT trial as well as clinical read-outs from GALE-301 and 401, along with additional clinical operational milestones. I remain committed to this team and our corporate strategy. I believe the richness of our development pipeline, combined with our commercial capabilities, will build significant value for patients and for our shareholders. We will now open the call for questions.

Yes, Ted, this is Ryan. Thank you for the question. The inventory levels during the third quarter in the distribution channel contracted by $1.3 million. In other words, at the end of Q2, our x manufacturer sales for year-to-date 2014 had actually surpassed our prescription demand by about $0.5 million. By the end of Q3, that had flipped, and during Q3, the inventory levels in the channel contracted by $1.3 million. So at the end of Q3, we had actually -- had about $700,000 to $800,000 more in prescription demand than we had sold into the channel, first part of the question. Second part of the question is with respect to Abstral, we will break even when we hit that $4.5 million to $5 million net revenue mark, and we expect that to occur in the second quarter, late in the second quarter of 2015.

Hi, Chad, it's Chris. I'll take that question. Thank you very much. And you're absolutely right, we are pulling our business, as I mentioned earlier, from the top-prescribing pain specialists, who for the most part, have provided our foundation in 2014. We will continue to rely on those prescribers, and you're right, it might involve us competing against the other branded competitors in that market. And as I mentioned, we do have the oncology and palliative care space, which our competitors are also targeting. We've been very successful in this space, and as I mentioned earlier, we've taken our market share to -- from less than 1% with these segments to roughly 25% of our business. And we can see -- we can foresee that growing because we believe our product matches up nicely to those specialists. As far as the market share, Chad, we are at 6% and we do see that growing into double digits in 2015/2016.

Hi, Chad, this is Mark Schwartz. Thanks for calling in. I do think this speaks to the fundamental core of the strategy and the synergy that we are an oncology company, and that is ultimately where we plan to be successful. And the long-term relationships and I think our ability to dig into that market and educate and build a relationship and as additional products come down the track, I think it's going to make us more successful, not only with our current commercial products but our future products as well. So I mean, Chris talked to it on a tactical level, and I speak to it on a strategic level. But I think it's fundamental to how we are going to build the brand of Galena in the oncology space.

It is a combination of the 2 products. As I said, we're looking for approximately a 50% growth in Abstral. And right now, we're predicting a small amount, a relatively small number for

Yes, Mara, as Mark and I both shared -- this is Chris, we remain with our guidance of $8 million to $10 million. We believe our future growth will come from the pain specialty space in combination with added revenues coming from both oncology and palliative care. And as Mark pointed out, our strategy, and now having

Mara, this is Ryan Dunlap. Hi, how are you? Thanks for the question. We carry D&O insurance that -- in doing our analysis when we renewed our policy in February. We don't disclose the ultimate amount of the policy, but what I can tell you is that we targeted and landed at the median of our peer group with respect to the total amount of D&O insurance that covers us. So we believe that we have adequate D&O insurance, very adequate D&O insurance, to deal with matters like this.

So thanks for the questions here. We are really addressing an anticipated interim analysis hopefully towards the end of 2015, perhaps into 2016, depending on the rate of the events that accumulate in the trial. As far as -- and that's going to be event-driven and that's going to be -- however that really plays out, but as soon as we can get to that point, the better. And the message that's going to come out from the independent data monitoring committee will be whether to stop the trial or go forward with the trial. There will not be specific results presented from that because the trial will remain blinded, but -- so we will not have definitive information at that point.

So first of all, Joe, I apologize, I think I called you Chad a second ago. Sorry. Regarding the collaboration with Genentech/Roche, it's going very well. Our agreement is to co-sponsor the trial. We both have rights to the data from the trial. They are putting up the Herceptin and cash, and we are putting up a considerable amount of NeuVax and hard work and cash as well. We both jointly own the data, so we have full rights to the data, as do they. As I announced or mentioned earlier in the comments here, we also have had some significant intellectual property patent allowances this year covering NeuVax and covering NeuVax in combination. So I personally feel we're in a very strong position in terms of any potential commercialization or future use of NeuVax in combination with any drug, frankly, but with Herceptin in particular, moving forward. On your second question, I'll turn it over to Brian, but let me just say that the basis of this activity was really based on a lot of work done by Beth Mittendorf and published by Beth that shows a mechanistic synergy between NeuVax and Herceptin. And I think our goal and thought process is that while Herceptin has shown some activity in the HER2 3+ area, it's not 0. There is room for improvement, and it's very possible that we could show continued improvement, in particular in this high-risk group of 3+ patients that show a recurrence rate of about 15%. And so I think in combination with Herceptin, if we can cut that down, it's certainly a worthwhile effort. And Brian may have a few additional comments on the mechanism.

It's interesting that we have a relatively small number of sites, and 3 of them have just been extraordinarily good at beating the bushes for it. And I think it's due to the enthusiasm for the drug. We even had patients who have heard about the study and have volunteered for the study. They've come off of other medications so that they could participate. So it's a little bit of both, and hopefully that will portend really great things in the future.

Okay, I'll take the first part of that question. Some of the internal metrics we're monitoring, as you know, we're keeping track of daily sales, average prescription price, number of prescribers, and we're off to a terrific start in Q4. Along with our wholesale and distributor partners, we're learning how to manage Abstral during this year. It is a product with 6 strengths being managed at -- being managed at 8 different wholesalers, dozens of distribution centers. So we are feeling more confident in our ability and our partners' ability to manage the inventory moving forward. I think Ryan will want to take the second part of that question from the financial standpoint.

Yes, absolutely. I think from my perspective, as I mentioned, looking at the comparison year-to-date with respect to what we've sold into our distributors and recognized revenue on, and what's ultimately been prescribed or the demand side, there's a deficit of about $800,000 for the year. Which tells me that if our prescription demand trends continue the way we're seeing them continue, our distributors will have to order more inventory in order to keep up with that demand, which leaves me optimistic about our x manufacturer net revenue as well.

The next question comes from Robert LeBoyer from Maxim Group.

This is Robert LeBoyer from the biotech group at Maxim, and I had a question on the expense side. You mentioned the insurance, the patient assistance program and the clinical trials, and just looking at the trend from second quarter to third quarter, it's a little hard to separate these out and to see where the expenses are falling. And could you give us some guidance going forward for fourth quarter and beyond?

I'll take that question. Thank you very much. If I understand the question, I guess, let me recap the third quarter. Cash used in operations was about $11.1 million, and we spent another $1 million on our debt service. So just about -- just over $12 million in cash burn from what I'll call ongoing activities. We expect that to be relatively steady through Q4, and then to begin to decline. The reasons that we're going to see the decline during 2015 are, I think, those you mentioned. First of all, we will be increasing our revenue from our commercial activities, the Galena Patient Services program will continue to maximize the number of those prescriptions that are paid, and so we'll realize more profit from our commercial operations. And also, once we complete enrollment in our PRESENT trial, our R&D costs begin to go down significantly as well. So between the 2 of those, you're going to see cash burn during 2015 closer to $36 million to $40 million, or average $8 million to $10 million per quarter. Did that answer your question?

Yes it does, thank you.

Welcome.

So Robert, yes, let me just jump into that. NeuVax is still a considerable expense of ours, of course. And as we overenroll here going through Q1, that's going to pick up some of the burn as we move forward. As I'd indicated, the other trials that we're running are very highly leveraged. And so relative to NeuVax, you're accounting for a much smaller part of the burn. So your question -- I think Ryan answered most of your question. You asked the question, where is it going? I think all in, when you look across the board, NeuVax is, by far, the biggest component of our cash burn.

It's Chris, Vernon, thank you for the question. We do believe there will an educational component to the sale of

So Vernon, what we pointed out was that the percentage of Abstral business upon launch was 1% in the oncology and palliative care settings. We have since grown that percentage to 25%, meaning 25% of the current Abstral sales are derived from specialists outside of that pain specialty, namely, oncology and palliative care.

And I want to reinforce again, that's really the strategic focus of the company that we have worked hard to build, not only on the existing marketplace, which is really, to a great degree, the pain physicians, but as well to grow what we think is a very long term and a very sustainable, and for us, a very strategic business in the oncology and palliative care side of the house. So we've been very successful at building a real significant market opportunity for us with that group.

And Vernon, I believe part 2 of that question was the 15%. Ryan gave that number as a measure of our increased percentage of paid prescriptions from Q2 to Q3.

So thanks for that question. It's a bit technical and a bit obtuse, but we'll give it a shot. So what we're saying about Herceptin is the monoclonal antibody and this mechanism of killing through ADCC involving the NK cells, as you recognize, is one component. And then you add that to another group of cytotoxic cells that the T cells that are expanded through the vaccine, that's why we think they're like 2 shots on goal. The epitope spreading is a slightly different mechanism in that the other epitopes that are -- to which the immune system are responding are not coming from the vaccine, they're coming from the tumor cell. And as the tumor cells die, the Herceptin molecules are taken up by antigen-presenting cells, and there are probably quite a number of epitopes that are being presented. And our collaborators, Drs. Peoples and Mittendorf, have looked at a couple of these epitopes, but there probably are many. And what it's indicating is that the NeuVax peptide is triggering a process which is allowing the immune system to adapt to whatever the HER2 epitopes are presented to it. It's breaking tolerance, it's moving through, it's broadening the attack on the tumor cells. But that's a much more complex process. But it does indicate that the tumor cells are dying, the antigens are being processed and the immune system is responding appropriately.

Well, when we purchased the GALE-401, the previous owner of that agent had been in conversation with the FDA, and we have the FDA minutes from those meetings, which are fully supportive of the 505(b)(2) pathway for the development of the GALE-401. So that is the plan, and we're following through the preexisting guidance that has already been enunciated by FDA.

And there are no further questions.

Thank you very much, everybody. We certainly appreciate your time this afternoon.