SLS - NASDAQ

Remy Bernarda - SVP, IR and Corporate Communications Mark Schwartz - President & CEO Bijan Nejadnik - EVP & Chief Medical Officer John Burns - Controller & Principal Accounting Officer

Jason McCarthy - Maxim Group Kumar Raja - Noble Life Science Partners Joe Pantginis - Roth Capital Partners

Welcome to the Galena Biopharma Incorporated First Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference, Ms. Remy Bernarda, Senior Vice President, Investor Relations and Corporate Communications. Ma'am, you may begin.

Thank you. 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 and log into our webcast presentation. For our quarterly call, we will be using slides to enhance our information flow. The slides can be accessed on our website in the Investors section under Events and Presentations. These slides are posted both as a PDF document and will also be available on the webcast. The slides are viewer-controlled, meaning that you, the viewer, will need to advance the slides. Our speakers will alert you to the slide they are addressing. As listed in slide number two on our presentation, during today's discussion, we may make forward-looking statements about our future financial condition and results of operations and potential for profitability, the sufficiency of our cash resources, our ability to obtain additional equity or debt financing, possible partnering or other strategic opportunities for the development of our products and our clinical programs. Such statements include, but are not limited to, the development progress of our clinical product candidates, including patient enrollment, interim analysis, 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 quarterly reports on Form 10-Q 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. Please now turn to slide three, as I would like to introduce the members of management presenting on today's call - Dr. Mark Schwartz, our President and CEO, Dr. Bijan Nejadnik, Executive Vice President and Chief Medical Officer and Mr. John Burns, our Controller and Principal Accounting Officer, who will discuss our financials. Please turn to slide number four and Dr. Schwartz will begin our discussion.

Thank you, Remy and welcome, everyone, to our 2016 first quarter corporate update call. Coming into this year, I had two primary goals. First, I wanted to focus the Company on advancing and enhancing our clinical development pipeline with a focus on NeuVax and the PRESENT trial which we accomplished with the divestiture of our commercial assets at the end of the last year. Second, I wanted the Company to have as much financial flexibility as possible to get to the primary endpoint of our phase three PRESENT clinical trial in 2018 and continue the work required for submission of a Biological License Application, a BLA and the ultimate commercial launch of NeuVax. With the debt financing announced today and in combination with our other financing facilities, we can now control when and how we execute our next equity offering, with the timing and the terms that are most appropriate for the Company. This gives us the ability to invest in our programs, create and preserve shareholder value and minimize dilution. Another highlight on the corporate side is the appointment of Dr. Mary Ann Gray to our Board of Directors a couple of weeks ago. Personally, I am excited to have her join our team, as she is not only an experienced tumor biologist, but she has extensive financial background on both the buy side and the sell side. And I look forward to her valuable insight perspectives as we advance the Company. As Bijan will discuss, this is a very exciting time for our clinical team at Galena as they prepare our PRESENT data for review by our Independent Data Monitoring Committee or IDMC, for the upcoming interim analysis. Our NeuVax trial has been running since 2012 and it is reflective of our strategy and our commitment to target patients in the recurrence prevention setting. This setting by its nature requires long trials which many companies avoid, but gives Galena a strong competitive advantage. We see a significant unmet medical need to prevent cancer recurrence and our resolve to help these women is stronger than ever. As such, achieving our 70th qualifying disease-free survival event last quarter in the PRESENT trial is a positive step towards achieving our goal and mission as a Company. We expect the IDMC to issue their recommendation on our interim analysis near the end of the second quarter. The recommendation we believe will be pivotal for the PRESENT study, the Company and our shareholders because this is such a critical milestone for the Company, we have decided to move our 2016 Annual Meeting of Stockholders to after the readout of the interim analysis. Details on the timing and location will be filed with the SEC, with adequate time for interested shareholders to make plans to attend. I would now like to turn the call over to Dr. Bijan Nejadnik to discuss the PRESENT trial and our other clinical programs. Please turn to slide five.

Thank you, Mark and good afternoon to everyone. As Mark just said, this is a very busy and thrilling time for the clinical team here at Galena. On our last call in early March, I went through a detailed analysis of our process to adjudicate events in our PRESENT trial. And as we announced, we achieved our 70th qualifying disease-free survival or DFS event, shortly thereafter. PRESENT stands for the Prevention of Recurrence in Early Stage node-positive breast cancer with low to intermediate HER-2 Expression with NeuVax Treatment. And for your reference, I have again included slide six which depicts our PRESENT study schema and the relevant trial definitions on slide seven. Meeting the 70th qualifying DFS event triggers the pre-planned safety and futility interim analysis and we're currently cleaning the data and preparing an extensive data package for the IDMC review. The analysis is not required by the regulatory agencies, but is performed as a corporate directive to evaluate the futility of the trial midway through our required number of events. The committee will perform the futility analysis and will continue their ongoing safety evaluation of NeuVax for all patients enrolled in the trial. Given the tremendous amount of data and the level of detail required for the IDMC to make their evaluation, we anticipate the committee will provide its recommendation on the interim analysis at the end of second quarter and I have laid out this process on slide eight. To reiterate, the interim analysis is not an efficacy analysis. While the IDMC will have information on each patient's treatment assignment in order to perform the futility analysis, it is very important to note that the study will remain completely blinded to Galena, the investigators, the study staff, patients and all outside parties involved in conducting the trial. As part of preparing the interim analysis and with the support of our recently expanded clinical team, we have been looking at the number of performance metrics from the trial around the 70 events documented to date. It is important to note that the occurrence of the 70th event and its timing was in line with what had been projected previously based on the background rate of events and pre-specified potential benefit of the drug. And while the trial is blinded and we do not have any indication regarding the results for either group, we can look at the overall progress of the trial, as well as the characteristics of those patients who have recurred and those patients who have not. Without knowing the split between the NeuVax and control arms, analysis of the geographical regions and demographics of the patients does not reveal any outlying concern at this time. In addition, the aggregate DFS event rate appears to be tracking with our projections, giving us more confidence that 141st event remains on track to occur in 2018. Since this milestone is two years away, there is still uncertainty around that projection. While our analysis has just begun and more work remains, we're pleased with the overall status of the trial to date. Please now turn to slide nine for the planned study schema for our VADIS trial which stands for Vaccine in women with the DCIS of the breast. While we're hopeful that our phase two trial in women with ductal carcinoma in situ or DCIS, would have initiated last month, the trial preparation remained ongoing at four clinical trial sites, led by the University of Texas and the Anderson Cancer Center Chemo Prevention Consortium. The other three sites are Memorial at Sloan-Kettering Cancer Center, Dana Farber Cancer Institute and Columbia University Medical Center. We're working closely with National Cancer Institute and MD Anderson and expect that trial to initiate this quarter. According to the American Cancer Society, DCIS is the most common type of non-invasive breast cancer, with about 60,000 new cases diagnosed in the U.S. each year. With the phase two VADIS trial, the primary endpoint for the trial is immunogenic, immunologic, evaluating NeuVax in specific cytotoxic T-cells. Importantly, this trial will determine whether long-lasting immunity is induced and evaluate the use of NeuVax in very early stages of breast cancer. Moving now to slide 10, I have included the graphic depiction of all our NeuVax clinical trials. In addition to trials in breast cancer, we also have a phase two trial planned in gastric cancer. As disclosed earlier this year, in collaboration with Dr. Reddy's Laboratories, we presented observational data in patients in India that provided information on the expected screen failure rate in the phase two study and indicated an acceptable potential for enrollment rate. We expect Dr. Reddy's will initiate the trial in the fourth quarter of this year. Please now turn to slide 11, where I have listed the current status of our second immunotherapy program with two assets, GALE-301 or E-39 and the attenuated version of the peptide GALE-302 or E-39 prime. Both assets are peptide vaccines derived from folate binding protein and are targeting the prevention of recurrence in breast, ovarian and endometrial cancers. Last month we presented data from the booster phase of our GALE-301 phase 1-2a clinical trial at the American Association for Cancer Research or AACR, annual meeting. In this trial, patients were randomized to determine an optimal boosting strategy and to see if there was an observable difference between boosting patients with GALE-301 versus GALE-302. The results demonstrated that both boosters were effective, with no measurable difference between them. Importantly, a percentage of patients who received two boosters inoculations and remained disease-free showed a statistically significant improvement in the drug treatment arm versus the control arm regardless of which boosters was used. We're continuing to monitor data from the trial as we evaluate the best path forward for the compounds. Of note, we will be presenting our primary two-year DFS analysis from this trial at the upcoming American Society of Clinical Oncology meeting in June. Switching now to our final asset, GALE-401 on slide 12, over the last few months, we have done a thorough review of the data from our trials, as well as in-depth analysis on the treatment landscape for myeloproliferative neoplasms or MPNs. Breaking out only Essential Thrombocythemia or ET patients, we have laid out the treatment landscape on this slide. Currently, there are two primary treatment options available - [indiscernible] and immediate-release version of Anegrelide. Unfortunately, both come with a safety profile that can lead to premature discontinuation of the drug in a significant number of patients. As you can see in the bottom right box on this slide, there are no attractive therapies for those patients who have failed the current standard of care treatments. Given that GALE-401 is a controlled-release version of Anegrelide, we're evaluating several development paths, including one that could address this unmet medical need. We will be presenting combined safety data from our GALE-401 phase two pilot study and a multiple phase one clinical trials in healthy volunteers. This poster will be presented at the European Hematology Association meeting in June and we'll have a focus on Anegrelide IR in tolerant patients. We will continue to analyze our data and we plan to meet with FDA later this year to discuss the development of the asset. With that, I would now like to hand the call over to John Burns to discuss our financials. Please turn to slide 13.

Thank you, Bijan and good afternoon, everyone. In today's press release and slides, our financials are presented in a manner such that you can distinguish between our continuing and discontinued operations and all of our figures are in U.S. dollars. Our Statement of Operations can be seen on slide 14, as filed in our press release. First, I would like to focus on our operating loss which includes our general administrative and clinical development expenses. As reported, our operating loss was $9 million in the first quarter of 2016 which is consistent with the loss of $8.9 million in the first quarter of 2015. Research and development expense decreased slightly quarter-over quarter primarily due to the decrease in enrollment efforts surrounding our phase three PRESENT clinical trial. The decrease in expenses related to PRESENT, partially offset by recruitment, enrollment and monitoring expenses in our other clinical trials. We expect 2016 R&D expenses to increase as we continue develop -- of our clinical pipeline and associated personnel hiring as we prepare for the filing of our BLA for NeuVax. The slight increase in our G&A expense was driven by an increase in non-cash stock-based compensation and personnel-related expenses. Loss from continuing operations includes operating losses just described, as well as non-operating income and expense. Loss from continuing operations increased from $8.3 million the first quarter of 2015 to $13.1 million the first quarter of 2016, primarily related to a $5 million noncash change in our warrant liability from a $1.1 million gain in the first quarter of 2015 to a $3.9 million noncash charge in the first quarter of 2016. Total non-operating expense in the first quarter of 2016 was $4.1 million compared to non-operating income of $.6 million the first quarter of 2015. During the three months ended March 31, 2016, the increase in our non-operating expense was primarily due to the change in fair value of warrants accounted for as liabilities associated with our underwritten public offering in January of 2016 as detailed in our press release. In December of last year, we divested our commercial business and as a result we have retrospectively recast our previously issued first quarter 2015 financial statements to present the commercial business as discontinued operations. [Indiscernible] loss from discontinued operations for the first quarter of 2016 was $3.4 million which includes additional channel obligations, including rebates and patient assistance reimbursements we were obligated to through Q1 2016, as well as legal expenses in conjunction with our cooperation for the subpoenas related to ABSTRAL. Our loss from discontinued operations for the first quarter of 2015 was $2.2 million. Separately, as noted on the slide, I've highlighted the quarterly breakdown of our earnings per share calculations which are heavily affected by the noncash changes in our warrant liability and our discontinued operations. I would now like to go through our current cash position, so please turn to slide 15 for the chart breaking down our cash and cash equivalents related to both our continuing and discontinued operations. As of March 31, 2016, Galena had cash and cash equivalents of $34.7 million compared with $29.7 million as of December 31, 2015. The $5 million increase in cash was primarily attributable to $20.2 million raised from our January 2016 public offering, less $1 million in debt service payments, partially offset by $13.2 million used in continuing and discontinued operating activities and $1.1 million paid in selling expenses classified as investing activities related to the sale of our commercial products. The Q1 financials incorporate the non-recurring expenses related to our discontinued operations and include payments related to severance, broker license transfer fees and channel liability obligations from our former commercial products. Please now turn to slide 16 for a current financial overview. As Mark mentioned, today we closed on a securities purchase agreement with JGB Newton Limited, where we sold a total of $25.5 million of senior secured debentures at a 6.375 original issue discount. Net proceeds from the sale of the debentures were approximately $23.4 million after payment of commissions and expenses and $3.1 million was used to pay off our current loan with Oxford Finance LLC. The debenture mature November 10th, 2018 and contain no conversion features to shares of our common stock. The debentures accrue interest at 9% per year, carry an interest-only period of six months and interest is payable at the end of each month based on the outstanding principal. Beginning in month seven, JGB has the right at its option to require Galena to redeem up to $1.1 million per month of the outstanding principal. We have the ability at our option to pay the redemption amount and interest in cash or shares of our common stock. Under the terms of the security purchase agreement, we have issued JGB one million warrants as of closing of the transaction and will issue one million warrants upon the public announcement of a positive PRESENT interim analysis. The warrants will be priced at a 20% premium to the VWAP of our common stock on certain dates. If the PRESENT trial is discontinued, JGB has the right to require prepayment of all or part of the debt and the warrants would be similarly terminated based on certain conditions. Please refer to our press release and Form 10-Q for specific details. As we've guided, we've maintained our projected burn of $9 million to $11 million for our continuing operations and have also been in line with guidance on our nonrecurring expenses. As we disclosed on our March conference call, we expect significant nonrecurring charges in the first half of the year related to the sale of our commercial assets and ongoing legal fees. In Q2, we expect these nonrecurring expenses to be between $4 million to $5 million from the payout for the derivatives and class action litigation settlement and legal fees related to our cooperation with the ABSTRAL subpoenas. Consistent with this guidance, we expect to maintain our burn of $9 million to $11 million per quarter for our continuing operations, going forward, with an increase in Q2 due to nonrecurring expenses totaling a burn of between $13 million to $15 million for Q2, as you see in the table on the slide. With the debt financing announced today, we have enhanced our balance sheet and now have the flexibility, along with other financing mechanisms, to fund our operations, going forward. Moving to slide 17, I will now turn the call back over to Mark.

Thank you, John. I would like to start by reviewing our milestones for the year, so please turn to slide 18. With the achievement of our 70th qualifying DFS event in Q1, we anticipate the readout of our interim analysis near the end of the second quarter. Later this quarter, we also expect to dose our first patient in our phase two DCIS trial run in conjunction with the NCI. For our NeuVax trial in combination with Herceptin targeting one-plus and two-plus patients which we refer to as our HNN trial, we anticipate our first look at interim safety data in the fourth quarter. And we may also have immunology data from this trial on the added haplotypes of A24 and A26. For our GALE-301 phase 1-2a trial, we presented our booster data at AACR last month and will present our preliminary two-year DFS data earlier than expected at ASCO next month. And lastly, as Bijan mentioned, we're assessing the best clinical path forward for GALE-401 and we will present our combined safety data in June, so we have added it to our milestones for the year. We're preparing to meet with the FDA in the second half of the year to discuss our phase two data, our development opportunities in MPN patients and confirmation of the 505b2 regulatory pathway for approval. In closing, we have secured our balance sheet and created significant financial flexibility for the Company, going forward and I'm extremely proud of our team and the progress we have made this year from a corporate and clinical perspective. As always, I will end my presentation with slide 19 as a constant reminder of what we're working for every day. We will now open the call for questions.

[Operator Instructions]. And our first question comes from the line of Jason McCarthy of Maxim Group. Your line is now open. Please go ahead.

It is a big deal to get to that 70 event mark and we're looking forward to the futility analysis in June. But, I was wondering if you could touch on the phase 2B study in combination with Herceptin. It's the 300-patient study. It's in a very similar patient population to the NeuVax study. I'm wondering when we could see data from that study or an interim look, that might be able to give us a sense of what we might expect in 2018 when you get the full data set from NeuVax in present.

For the trial, the combination with Herceptin, we have a safety, as you saw, the safety analysis and an interim analysis in late 2017 that we plan to do.

That trial as you said, I agree with you. I think it is going to be somewhat reflective of the PRESENT trial. It's got a very similar patient population, obviously NeuVax in combination with Herceptin. We will have a safety analysis later this year, as we said. The immunological data on A24, 26 patients which would represent an expansion of the population, may come out later this year. It just depends on the exact profile of the enrolled patients. But, we're tentatively looking at the first interim efficacy analysis would probably be some time in late 2017, a one-year look subsequent to enrollment and we're still enrolling patients and then would certainly expect to have additional data some time in 2018. Whether it's before or after the PRESENT reaching its goal of 141 events, we can't say at this time.

I think it's exciting to have some data that could be even a year in front of PRESENT. That might give us something to kind of look forward to, to the totality of the data in 2018. Thank you.

Yes, understand. I agree.

And our next question comes from the line of Kumar Raja of Noble Life Science Partners. Your line is now open. Please go ahead.

So, I had a question on the stratification, so, like your guys are stratifying by the stage and sort of type of surgery and the hormone status. So, is there a mechanism in place to enrich a particular subset of these patients so that it kind of has a vast impact on the trial data?

So, Kumar, I'm sorry, you asked if there was a mechanism to enrich a particular--

Right, like you guys are the stratified patients, right, like you guys are stratifying the patients based on the stage, as well as the hormone receptor status. So, like, at the end of enrollment, how do you know which kind of subset of patient, that patient numbers is higher? I'm trying to see whether you guys have some mechanism to -- or is it kind of you guys enroll and whatever the numbers turn out to be, [indiscernible] is going to be the case?

From what I'm understanding from your question, is just you are wondering if, for example, there would be a specific group of patients who would be -- present more than other groups or also the balance maybe between the control group and the treatment group. And if I'm wrong, please stop me and ask your question again. So, in overall, the patients are a very well -- kind of they spread over the characteristics that we expected at the beginning. So, we don't have any outliers on the demographics, on the baseline characteristics, on the stage of the disease, like the patients who maybe having some prognostic factors which would be better or worse, the balance is there. Of course, we do not know what patient is on placebo, who is on drug, but from what we're looking, it's really the patient population that were expected to be on that group pretty much representative of what is out there in the patients in the community, expected, of course, for the stage of the disease and also for the HER2 1-plus, 2-plus and node-positive, et cetera, etcetera. So, in our inclusion-exclusion criteria, we have a pretty good handle of the people who have been coming in very much compatible with what protocol expected from the beginning. I hope I answered your question.

Yes. That's great. And I also had a question on the HER2 3-plus patient trial. It's a 100-patient trial. So, when do you guys expect this trial to complete enrollment and when can we expect interim more like final data from this trial?

So, that trial is being run at MD Anderson in conjunction with Beth Mittendorf. The enrollment there is going a little bit slower. I believe it's going to be probably sometime end of the year, probably end of this year, maybe early next year. And then, I think the follow-up will be probably another year, year after that. So, I think we're probably looking in late 2017 timeframe as an estimate at the moment as to when we would potentially have some data from that trial.

And our next question comes from the line of Joe Pantginis of Roth Capital Partners. Your line is now open. Please go ahead.

Just a reminder and one clarification, if you don't mind. So, with regard to NeuVax in gastric cancer, can you just remind us what the logistical issues were or I don't know if that's the right word -- about why we're waiting till the fourth quarter to get this study going? And then, the clarification was with regard to 401, did you mention you also might look at the front line setting, as well? Thanks.

So, in gastric cancer, we have announced already the trial is being run by Dr. Reddy's laboratory in India and they have been very much working with the regulatory to get the green light to start the study. And this is a process that we're looking at late stages of that process so they can start most likely the end of this year. So, this is not something that we're doing in-house. It's something that is being done there and they are very much interested in the trial. And as a matter of fact, as you have seen in our abstract, they have gone through the evaluation of the possibility of the screen failures and also to see who are the patients who would be eligible for this trial and what is the prevalence of those patients right now in the population and they came back with very much viable number of patients that could be enrolled. And they have been preparing all this information also for the regulatory in India, as I mentioned, to get the authorization from them to move forward. And that's expected some time during this year so they can start. About the 401, we're looking at several options. And although we're not ready to announce which one we're going forward or speculate on the study design, I can tell you that we're also considering the front line or the first line, but also we're considering other positions. Our criteria is that, first of all, this study has to have a very significant probability of technical and regulatory success, as well as being really positioned for an unmet need for which the patients are going to be benefiting from it and also the drug will be in a very good position at the post-marketing level.

And our next question comes from the line of [indiscernible] of Raymond James. Your line is now open. Please go ahead.

I guess just a clarification one. It is only two options regarding the interim analysis for the PRESENT study, right? It's either stop the study for futility or continue. There is not a stop the study for efficacy or any chance to expand enrollment in any way.

Well, we cannot always anticipate exactly what an IDMC is going to say, as you know, but the expectation is for them to recommend for the study to continue or if really the futility analysis shows that the trial is futile, to recommend to stop. We do not want to speculate on what would they say or how would they say it. But overall, I think is safe to stick with that specific idea. That being said, there is also another aspect into the interim analysis and this is safety. And as we know, the safety has been evaluated continuously by IDMC and we do not anticipate any specific recommendation beyond what they have done previously at this point.

And just regarding the interim, because you're only looking at 70 events within this 758 patients, I'm just, I guess, maybe trying to get a little bit of color on how the futility analysis was designed. And in particular, was it designed so that the study wouldn't be stopped prematurely? Because I would imagine with just 70 events, the curves would have to be on top of each other and I guess I'm trying to get some clarity of where it would only be stopped if it was an inverted curve or something along those lines.

This is a hot topic, as you can understand, within Galena as well as a lot of people we're speaking to. The futility analysis within the SAP is defined basically in -- for every trial maybe a little bit different. But, overall, one of the ways that this futility analysis is done is really going back to the conditional power and make sure that the earlier assumptions are confirmed within the interim analysis, albeit there are only 70 patients with the limited number of months of follow-up. So it is, of course, very hard to see the result of how this study will be turning out. However, there would be a way to see if this trial is going the wrong way. Of course, one of the ways that the study could be futile, as the one that you mentioned, is that if the curves are inverted or sometimes if they are very close. But, the IDMC is not necessarily looking at the curves or the shape of the curves, but a little bit more sophisticated to make sure that the number of patients who are there, the characteristics of the patients and everything is trending towards the right direction. And generally, those are pre-specified in a way that would not stop a study prematurely, so that take away the benefit of the drug for the future patients. It is incumbent, of course, upon our statisticians and others to make sure that -- that's exactly what you are saying, not to stop prematurely, give it a chance for the study to go forward. But at the same time, if the study is futile and the patients are in it for -- getting no benefit at all, to be able to stop.

Sort of one final question from me. And I think we've talked about this in the past, but wanted to get an update or any thoughts, as to how you guys are thinking about combination studies with potential checkpoint inhibitors that are out there, whether to think about combinations with established and marketed checkpoints or with more novel checkpoint inhibitors in development.

We've talked about this before. It's obviously a very hot topic across the biotech industry. And we're looking at this very hard. We've got a number of discussions ongoing, but nothing that I can talk to specifically at this point in time, but, we certainly believe that mechanistically, given NeuVax's ability, as an example, to generate potent T-cells and directed T-cells, that one can construct a number of different clinical scenarios and mechanistic scenarios where the combination would appear to be or could be hypothesized to be very efficacious in situations that otherwise don't have great treatment. So, we're working real hard on it and hope to be able to produce something some time this year.

Thank you and I'm showing no further questions at this time. I would now like to turn the call over to Mr. Mark Schwartz for closing remarks.

Okay, I would like to thank everybody for their time this evening and look forward to talking to you next quarter.