Arbutus Biopharma Corp (ABUS) 2018 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Arbutus Pharma Second Quarter 2018 Financial Results and Corporate Update Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I will now turn the call over to Pam Murphy, who has recently joined the Arbutus team as their IR consultant. You may begin.

Thank you, operator, and good afternoon, everyone, and thanks for joining us. With me today are Dr. Mark Murray, Arbutus' CEO; Dr. Mike Sofia, Arbutus' Chief Scientific Officer; Dr. Bill Symonds, Arbutus' Chief Development Officer; Dave Hastings, Arbutus' Chief Financial Officer; and Koert VandenEnden, Arbutus' Chief Accounting Officer.

Before we begin, let me remind you that some of the statements made during the call today are forward-looking statements, including statements regarding developing a cure for chronic HBV; the clinical development plan and potential for AB-506 and AB-452; Genevant's development of delivery technologies and the potential of a development partnership; our clinical plan for ARB-1467, along with potential efficacy and timing of reported results; our expected cash runway; timing of regulatory filings and approval and expected revenues from our current potential licensing agreements.

All of these statements involve certain assumptions, risks and uncertainties that are beyond our control and can cause our actual results to differ materially. A description of these risks can be found in our latest disclosure documents and current press releases.

In addition, Arbutus does not undertake any obligation to update any forward-looking statements made during this call.

I'd now like to pass the call to Mark for his introductory remarks.

Thanks, Pam, and thank you to everyone for joining us on the call today. Our mission is to develop a cure for chronic hepatitis B using a combination of orally active therapeutic agents which is effective in a defined treatment duration. To that end, we have developed a pipeline of proprietary therapeutic agents that target multiple elements of the HBV life cycle, the most important of which are HBV DNA replication and HBV surface antigen expression.

Last month, we initiated our Phase Ia/Ib clinical trial of AB-506, our second-generation capsid inhibitor agent. We will shortly file our regulatory submission to start the Phase Ia/Ib clinical study of our RNA destabilizer agent AB-452. We expect patient monotherapy results from both of these studies by mid-2019, and we expect to combine these in a first-ever oral combination study by the end of 2019.

In addition, during the first half of the year, we completed a number of strategic initiatives to keep our team, our business activities and our capital resources more closely focused on HBV. We have successfully completed a site consolidation that concentrates our business activities in a single location in Warminster, Pennsylvania. We have successfully launched Genevant sciences, together with Roivant.

Genevant is wholly focused on utilizing Arbutus' proprietary LNP and ligand conjugate delivery technologies to develop RNA-based therapies, and we retain a substantial equity interest in Genevant as well as the potential for future royalties on commercialized products. We're encouraged by Genevant's recently announced partnership with BioNTech for the co-development of 5 mRNA products, which we see as being potentially a transformative partnership in the field, combining an industry-leading mRNA portfolio with the industry-leading delivery technologies of Genevant.

Importantly, we enter the second half of this year with a cash runway extending past 2019 and the potential for additional nondilutive capital from our royalty entitlement, on Alnylam's patisiran drug for the treatment of hereditary ATTR amyloidosis, which could be approved by the FDA later this month. Additionally, and as many of you know, Dave Hastings recently joined the Arbutus team as our Chief Financial Officer. Dave brings extensive financial, operational and strategic experience in the biotech industry and will be a great asset as we further advance toward our goal of delivering a cure for chronic HBV and building significant and sustainable shareholder value.

I will now turn the call over to Mike Sofia to describe our capsid inhibitor and our HBV RNA destabilizer. Mike?

Thanks, Mark. Our product pipeline is developed in support of our mission to cure chronic HBV by employing a combination of therapeutic agents. AB-506, our clinical-stage second-generation capsid inhibitor is a highly potent molecule, which binds to the core protein and inhibits HBV DNA replication, as well as viral uncoating, which in turn, inhibits new cccDNA formation. AB-506 is pan-genotypic, thus acting against all viral genotypes and is active against NUC resistant variants. We have shown that AB-506 can be combined with current standard-of-care agents and with other proprietary novel mechanism-of-action agents to deliver an additive or synergistic effect in vivo and in vitro, thus supporting our combination therapy HBV cure strategy.

In animal studies, when given orally, AB-506 demonstrated multi [-log] reductions in HBV DNA levels in the serum as well as in the liver, where it was superior to nucleosides. We have also demonstrated a favorable safety profile both in vitro and in vivo that has allowed progression into human clinical studies. This molecule is orally available, and we expect it to be dosed once a day.

Our preclinical characterization of AB-506 indicates that its features could put it among the best in class.

We have also developed a novel and potent HBV RNA destabilizer, which results in a reduction of S-antigen levels, in addition to reducing levels of pregenomic RNA and other viral gene products. This molecule is pan-genotypic and active against NUC resistant variants, it acts selectively against HBV. It is not active against a large number of other viruses that include both DNA and RNA viruses.

In in-vivo models of HBV infection, AB-452 showed a dose-dependent reduction in serum S-antigen levels and a reduction of RNA levels in the liver. This molecule is orally available, and we expect once-daily dosing.

We believe we are the first company to advance such a molecule into development, and we look forward to demonstrating its activity in patients.

We've also studied AB-506 and AB-452 in combination with nucleoside analogs, entecavir and tenofovir and other siRNA agents in preclinical models. When AB-506 and AB-452 are combined, they demonstrated a distinct and complementary antiviral activity. The combination of AB-506 and 452 range from additive to moderately synergistic at reducing HBV DNA, and we believe this complementarity will translate to patients in the clinic.

I would now like to turn the call over to Bill to discuss our ARB-1467 combination study.

Thanks, Mike. We have initiated a Phase IIb triple combination study with ARB-1467, tenofovir and pegylated interferon. Reducing hepatitis B surface antigen is believed to be a key prerequisite to allow a patient's immune system to respond with an adequate immune response against the virus in infected cells. In order to evaluate the role of the immune system in patients with reduced hepatitis B surface antigen levels, patients in this study who meet predetermined response criteria after initial ARB-1467 treatment will qualify for the addition of weekly pegylated interferon treatments. Patients who do not reach the predefined response criteria by week 6 will discontinue all medications. The study will conclude with a 24-week post-treatment follow-up period to evaluate off-treatment response.

Partial or interim 6-week treatment results from this study are expected in the second half of 2018, followed by complete results in 2019. We expect the 6-week treatment data to reveal how many patients are on a trajectory to reach hepatitis B surface antigen loss by week 30. The pegylated interferon treatment of these patients is expected to contribute to hepatitis B surface antigen loss and durability.

Results from this study will help inform the design of future combination studies with the small molecule agents Mike described earlier.

I would now like to turn the call over to Dave.

Great. Thanks, Bill, and good afternoon, everybody. And it's great to be part of the Arbutus team.

So before turning the call over to Koert to review the financial results for the quarter, I just want to say how confident I am that Arbutus has the resources and assets to succeed and complete its mission of curing HBV. Arbutus is well capitalized, has great science and leadership and has a developing pipeline that is differentiated, proprietary and industry-leading. And I look forward to working with everyone in the investment community as we move forward.

So with that, Koert, I'll turn it over to you.

Thanks, Dave. We're very excited to have you on board. I'll now review the financial highlights for the second quarter of 2018. During this quarter, we completed the spin-outs of our LNP and conjugate delivery technologies to Genevant, a newly formed company that is owned jointly by Arbutus together with Roivant. We also substantially completed the site consolidation that we announced in Q1, which resulted in a closure of our Burnaby facility and reduction of our workforce by approximately 35%. The financial implications of these initiatives impacted our Q2 financial results, as I'll explain.

Starting with our income statements. Arbutus' net income attributable to common shareholders for Q2 2018 was $0.6 million or $0.01 per common share as compared to a loss of $18.3 million or $0.33 per common share in Q2 of 2017. The reduction in net loss was primarily due to gain on investment on Genevant, offset by new expenses related to our site consolidation.

In Q2 2018, we recorded revenues of $1.2 million compared to revenues of $1 million in the second quarter of 2017. Revenues earned were related to the license and service arrangement with Gritstone as well as royalty revenues from [Artibo]. On the expense side, total research developments, collaborations and contract expenses of $16.4 million compared to $15.4 million in the second quarter of 2017. The change is due to a decrease of stock-based compensation expense of $3 million, which is more than offset by an increase of $4 million in R&D spending. Our increased R&D spend reflects continued advancements of our clinical developments and preclinical pipeline towards our objective of an all-oral combination therapy as described earlier.

G&A expense of $3.8 million was reduced from $4.6 million in Q2 of 2017 as a result of reduced stock-based compensation cost, offset by increased professional fees related to our site consolidation and formation of Genevant.

In Q2 of 2018, we recognized expenses of $2.6 million related to our site consolidation plans, primarily consisting of severance benefits paid to departing employees as well as accrued costs related to the closure of our Burnaby facility, which was offset by sublease income that was under contract by the end of Q2.

Consistent with our earlier guidance, we expect to incur total cash expenditures of approximately $5 million, consisting of employee severance, employee relocation and facility-related costs. We expect that the full financial benefits of the site consolidation will be reflected in our 2019 results.

Other income increased from $1.2 million in Q2 of 2017 to $25.1 million in Q2 of 2018. Most significantly, we recorded a gain of $24.9 million on our investment in Genevant. This gain resulted from the fair value of the common equity in Genevant that Arbutus received in exchange for the license of our LNP and ligand conjugate delivery technologies to Genevant.

At June 30, 2018, we had an aggregate cash and investments balance of $155 million, which compared to $173 million at March 31 and $139 million at December 31. Our cash used in operating activities during Q2 of 2018 was $17.6 million compared to $5.1 million in the comparative quarter in Q2 of 2017. Q2 2017 operating cash burn was unusually low as it included cash provided from changes in working capital totaling $8.5 million, which included an upfront payment of $7.5 million from our collaboration with Alexion at the time.

We still expect our total cash burn to be approximately $70 million for 2018, consisting of $65 million for ongoing operations and $5 million for onetime costs related to the closure of the Burnaby facility.

I'd now like to turn the call back to Mark.

Thanks, Koert. Operator, I'd like to now open the call for Q&A.

(Operator Instructions) Our first question comes from the line of Liisa Bayko with JMP Securities.

Can you walk us through kind of the next steps you have from here to looking at like an all-oral combination? And I'm curious about what you're thinking specifically for the immune component of that as well?

Liisa, this is Mark. I'll give you the high-level answer, and then if Bill or Mike would like to add, I'll have them do that. So I think we've indicated that the capsid inhibitor, AB-506, that has already started the Phase Ia/Ib study. And shortly, we will be initiating the Phase Ia/Ib of 452. So our guidance is that we'll be through the patient monotherapy portion of those by, respectively, Q2 and Q3 of next year. And then we will be in a position to initiate a combination of those 2, including a NUC, by the end of the year. And so this initial study will not employ an added immune component. We will be looking to see if we can drive down HBV DNA and S-antigen and in some patients that may restore their immune component. Bill, do you have anything to add to that?

No, Mark. I think you summarized it nicely. And I would just refer you, Liisa, to Slide 10 of the corporate deck that's on the website. That has a nice schematic over time of how these programs will come together into that all-oral combination study.

Great. That's helpful. And then just a follow-up. How are you thinking -- when you think about the all-oral, how do you think about addressing that immune component specifically?

Bill, you want to continue?

Sure, yes. So I think, Liisa, part of addressing the immune component there comes from reducing surface antigens. So with the RNA destabilizer, as Mike mentioned earlier, we expect that drug to have an effect upon surface antigen levels. And by reducing that, that alone could be enough to help stimulate the immune system without anything to boost it. So that's going to be our first line of attack in terms of the all-oral combination. And then we'll see what we get in that study and if we need something more. If we do, Mike and his team are working on a number of other programs back in the discovery phase to address the immune component as well.

And our next question is from Katherine Xu with William Blair.

I'm just wondering whether you could walk us through the design of the Phase I study for both 506 and 452 and what you're looking for, for each mechanism, and I'll -- what kind of, let's say, expectations, benchmarks have you set for these molecules to achieve? And also, the resistance profile of 506, would love to see whether this one is different or similar to [others if you can.] And also, can we expect the 1467 data, the 6-week data at AASLD?

Katherine, this is Mark. So there's several questions there. Maybe Bill will start with you on a comment on the design of the first 506 and 452 trials, and then maybe Mike can address the 506 resistance?

Sure. Yes. So hi, Katherine. So again, I'll refer you to the slides on our website. Slide 24 actually has a schematic of the design, which I think Mark showed at the conference you spoke at in New York a couple of weeks ago. Basically, we're employing a very similar study design for both of these drugs, 506 and 452. We call it a Pharmasset-style adaptive design. It's basically multiple trials all coalesced into one single protocol, spanning from single ascending doses in healthy volunteers, going into multiple doses in healthy volunteers. Which then sets us up to go into patient cohorts in patients with chronic hepatitis B with 28 days dosing cohorts at multiple dose levels in a dose-escalation type fashion, also including e-antigen negative and e-antigen positive patients, where possible. And then that's the general construct of those single umbrella protocols for each of the trials. And then each of them, too, when you get into the patients, we're going to be looking at different viral markers and endpoints based upon the mechanisms of the drugs. Of course, with capsid, we'll be looking at DNA reductions, those sort of things. With 452, we have with other markers available to us, such as S-antigen, e-antigen, DNA as well. So we'll be able to look at different markers depending on the mechanism of the drug there. And of course, the goal is for both of these programs to finish roughly around the same time. They're staggered a little bit, but then to enable us then to have 28-day data in patients with both drugs to then allow us to go into that combination part of the development program we spoke about with the last question. I'll hand it over to Mike on the resistance.

Sure. Thanks, Bill. Well, Katherine, so I think if you look at AB-506, it is a capsid assembly inhibitor that binds to the sort of core protein dimer:dimer interface, just like every other capsid assembly inhibitor does. So from that standpoint, they all have a very similar mechanism of action, although this one, just like a number of other capsid assembly inhibitors, produce anti-capsid. So pregenomic RNA is not encapsulated with that capsid structure. What I can say, because we haven't sort of disclosed any resistance issue, is simply that they all bind to the same binding site. All these different capsid inhibitors bind to the same binding site. So we will be disclosing some of our resistance evaluation shortly. But the other point I want to make is, because we are moving forward with a combination therapy and AB-452 not only knocks down S-antigen levels, right, but also knocks down all the other viral proteins, that, in fact, we obviate many concerns about resistance with the combination therapy approach that we're using.

Katherine, did that -- did we answer your questions?

Yes. I guess the other aspect of the questions is how -- do you have like an internal kind of benchmark set? And then based on, let's say, preclinical combo data and stuff, each compound when it reaches this level of DNA/RNA/S knocked down, and then it would have a very good chance of success with or without a new modulator? I mean, is there that level of expectation set internally? I'm just curious -- of course, the science is quite out there. So...

I think we're not ready to set an expectation. You're well aware that there is other data from capsids out there, and we're aware of it. And of course, we would hope to be comparable. We're not in a position to set an expectation for 452 at this point because we haven't put it in humans yet.

Mike, do you want to add to that?

Yes, sure. It is a novel mechanism of action. So because nothing like it has been in the clinic yet, it's hard to set expectations. But I think based on everything we know about the molecule, we certainly feel very comfortable that we will see a positive effect in S-antigen reduction.

So do you -- have you disclosed where 506 binds and also whether the 1467 data will be at AASLD, the 6-week data?

Yes, 506, so we -- I think we have talked about it, that it does bind to the dimer:dimer interface, essentially similar to many of the other competitors' molecules.

I meant 452. Sorry about that.

Yes. 452, well, we have not disclosed, although we will be disclosing more data at an upcoming international meeting on hepatitis B on the mechanism by which -- with this molecule works. But suffice it to say that it does interact specifically with HBV RNA. So that gives it a very unique and select -- unique mechanism of action and high selectivity. And it does not -- in all the studies we have, it does not, in fact, result in any effects on other DNA or RNA viruses. So it's very selective.

Sorry. I guess the last piece of my question was the 1467 data, the 6-week data at AASLD? Or is that [all right]?

Yes. So we don't specifically plan to have that for AASLD because it's a question of assembling the data by the abstract deadline. So you'll get it in some other way.

Our next question is from Keay Nakae with Chardan.

I know it's early, and I know the results will be informed by the monotherapy results of 506 and 452. But from where you're standing today, what might the all-oral combo study design look like?

It is very early but, Bill, do you want to comment on that?

Yes. I think it would be safe to say at this point that, that first study design, putting the 2 small molecules together is one that's going to evaluate the pharmacokinetics of the drugs together. It's going to evaluate the safety of the drugs alone and together. It's going to evaluate the ability of the drugs alone and together, to have influences on different viral parameters of hepatitis B. So if you -- I mean, if you go back to, again, what we did at Pharmasset with the NUCLEAR study, where we put our 2 drugs together, that concept, I think, is one that is going to be applied here with these drugs as well. And clearly, this is something that we're spending a lot of time on thinking about and planning the strategy of how to best optimize the study design where we can fully interrogate the different combinations possible with these drugs together.

(Operator Instructions) Our next question is from the line of Madhu Kumar for B. Riley FBR.

So ultimately, when we think about the RNA destabilizer, how do you think about the use of that relative to RNA interference technology as a way to [burn] down RNA transcripts from hepatitis B?

Mike, do you want to take that?

Sure. So I would say that the RNA destabilizer does pretty much everything that an RNAi agent does. The advantage of it is that it's a small molecule orally bioavailable agent. So it allows us ultimately, in the end, in combination with 506, to have a fixed-dose combination drug, easy-to-administer agent versus having some other kind of delivery modality for delivering a molecule that can knock down message.

And then thinking about core inhibitors. So I mean, there are various [Phases] for core inhibitors now assessing various things, like HBV DNA kinetics, other viral biomarkers. When you start to think about where core inhibitors go into kind of efficacy endpoints, how do you separate the kind of DNA kinetic suppression aspect of core inhibition from the kind of broader viral biomarkers expression? Which do you think is kind of more relevant? Or are both really kind of relevant for thinking about kind of deeper efficacy for the core inhibition class?

Well, this is Mike. So clearly, one of the theories is -- or, well, the data out there shows that nucleosides do not completely shut down viral replication, right? There is leakage through the process. And in fact, they don't work as well in the liver as you seem to see viral DNA reductions in the plasma. What the expectation with a core capsid assembly inhibitor is that in combination with a [NUC], you're going to now completely shut down that viral replication pathway, right? And you're going to be able to more effectively reduce the replication in the liver. And now we've shown in preclinical animal models that, in fact, 506 is much better at reducing HBV DNA levels in the liver than is a nucleoside like entecavir. It's significantly better. So we expect now to have a much better effect on target organ. But in combination with a nucleoside they'll now really shutdown that process. And then, an added effect that these molecules have, that they also seem to inhibit the uncoating process of viral DNA, such that you're now inhibiting the replenishment of that pool of cccDNA that, that viral reservoir that exists in the nucleus of the hepatocyte. So you have an added benefit there that these core inhibitors provide.

Okay. One last one. Can you all co-formulate 506 or 452 with NUCs yet?

Well, ultimately, that will be the plan, but I can't say that we've done that today at this early stage.

And I'm not showing any further questions, so I'll now turn the call back over to Mark Murray for closing remarks.

Okay. Thank you. Again, thank you all for joining us today. As you can see, we continue to make significant progress in deepening and advancing our HBV pipeline, in addition to completing several strategic initiatives to further focus Arbutus' resources and activities squarely on this mission.

To summarize, we have a number of important deliverables in the upcoming months. Our LNP licensee, Alnylam, has projected regulatory approval for its patisiran product in the third quarter of this year, which could result in Arbutus receiving royalty payments as early as this year or being in a position to otherwise monetize all or part of this asset. We've initiated dosing in the healthy volunteer portion of the Phase Ia/Ib study for our next-generation capsid inhibitor, AB-506; and anticipate starting the healthy volunteer portion of a Phase Ia/Ib study of our HBV RNA destabilizer, AB-452, in the third quarter, pending approval of our regulatory submission.

We anticipate initiating a Phase IIa clinical trial for an all-oral combination of Arbutus' proprietary agents, AB-506 and AB-452, combined with standard-of-care NUCs by the end of 2019. And in the first half of 2019, we plan to complete regulatory filings for our novel GalNAc-enabled RNAi agents, AB-729, pending successful enabling studies.

We appreciate your participation in the call today, and we look forward to sharing updates on our progress with you in the months ahead.

This concludes the call today, and thank you, everyone, for joining.

Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone, have a great day.