Inovio Pharmaceuticals Inc (INO) 2014 Q1 法說會逐字稿

Greetings, and welcome to the Inovio conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session with analysts with research coverage on Inovio will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Bernie Hertel, Vice President, Investor Relations and Communications for Inovio. Thank you. Mr. Hertel, you may begin.

Thank you. Thanks for joining us, everyone. Today's call may contain certain forward-looking statements relating to our business, including our plans to develop electroporation-based drug in gene delivery technologies and DNA vaccines, and our capital resources.

Please keep in mind that actual events or results may differ from the expectations discussed, as a result of a number of factors, including uncertainties inherent in preclinical studies, clinical trials, and product development programs, including, but not included, the fact that preclinical and clinical results referenced on the call may not be indicative of results achievable in other trials. Studies and trials may not achieve the results desired and may not commence or be completed in the time periods anticipated.

Risks related to collaborative arrangements, including the timing and receipt of payments, the availability or potential availability of alternative therapies for the conditions targeted by the Company or its collaborators, issues involving product liability, issues involving patents, and the adequacy of our capital resources, the impact of government healthcare proposals, and other factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2013, our Form 10-Q for the quarter ended March 31, 2014, and other regulatory filings from time to time. Finally, there can be no assurance that any product in Inovio's pipeline will be successfully developed or manufactured, and final products of clinical studies will be supportive of regulatory approvals required to market license products, or that any of the forward-looking information provided will be proven accurate.

Now, Inovio's President and CEO, Dr. J. Joseph Kim.

Thanks, Bernie. Good morning, everyone, and thank you for joining us today. In about two months, we will report the Phase 2 results of our immunotherapy for cervical precancer VGX-3100. I have great confidence in our technology, the people running the trial, and the product's potential value to patients. This data from our first efficacy trial will stand as a milestone for Inovio.

My confidence around the Phase 2 study is based upon unprecedented Phase 1 data where we achieved best-in-class T cell immune responses that generated a strong killing effect against the cell, targeted by this therapeutic vaccine. In our Phase 2 study, we are affecting efficacy, HPV infection status, immunogenicity, and safety.

Here's some background. We completed enrollment and treatments in Q3 of 2013 in our double-blind placebo-controlled randomized Phase 2 clinical study. We are approaching the primary endpoint in June, which is nine months from the first vaccination of the last patient when data will be analyzed and unblinded. We are on track to report results midyear.

With respect to efficacy, we are measuring regression of disease from late-stage cervical precancer or stage CIN 2/3 to early-stage precancer CIN 1, or actual elimination of disease. For those who follow this type of detail, the study is 80% powered to achieve a 27% greater response rate of vaccinated subjects achieving this disease regression versus those treated with placebo. For success in this trial, will be a response rate in the immunized group of at least 52% compared to 25% in the placebo group, which we estimate as the natural regression response rate. We are also measuring pre- and post-vaccination levels of HPV virus to assess the impact of the immunotherapy on this cancer-causing virus.

Equally important, we will be comprehensively characterizing the immune response. Strong T cell immune responses from this large controlled study will help define the potential of Inovio's active immunotherapy products as standalone therapies, and their all-important potential to be used in combination with other technologies such as immune activators and checkpoint inhibitors to further enhance their potency against cancers and infectious diseases.

Looking ahead, our value proposition for VGX-3100 will be to have women avoid the tremendously invasive current surgical procedure. Furthermore, the prospect is that our immunotherapy approach may more fully eliminate the presence of HPV virus to minimize future recurrences. There also remains an unresolved question mark about increased risk of preterm birth using current procedures. We would expect our VGX-3100, which is not surgically invasive, would avoid this risk.

So, the potential of VGX-3100 may be its use as a first-line therapy for HPV-caused cervical dysplasia. Why? Because pharma history shows us that an avoidance of surgery has been a powerful promoter of first-line achievements.

While we await Phase 2 data, we have been preparing for a Phase 3 study of VGX-3100. In addition, in this quarter, we expect to initiate two separate Phase 1/2a studies of the VGX-3100 against HPV-related cervical cancer, and head and neck cancer. Both of these studies will incorporate an immune activator, DNA-based IL-12, which we own also, which has been shown to even further increase our best-in-class antigen-specific detail generation. We designate this combination as INO-3112.

Now I'll focus on other clinical trials. In Q3, we intend to launch a Phase 1 study of INO-5150, our Class A cancer immunotherapy in partnership with Roche. Preclinical results indicated that this therapeutic vaccine induced potent antibody and T cell responses in animal models. This initial evidence that our concept for our DNA vaccine comprising a broader set of antigens may improve the breadth and effectiveness of a prostate cancer immunotherapy. This launch will also trigger the first milestone payment from Roche.

In the second half, we expect to start two additional Phase 1 studies. Our third cancer immunotherapy, INO-1400, is in quota for the antigen hTERT, which is associated with over 85% of all cancers. This exploratory study will focus initially on breast, lung, and pancreatic cancers. We will also launch the study for our global multi-clade PENNVAX-GP, our lead preventative and therapeutic HIV DNA vaccine candidate in the fourth quarter. If the tests predict success, we go into the study with PENNVAX-GP with confidence that we can again achieve notable immune response data as we did in our Phase 1 study of our PENNVAX-B preventative HIV DNA vaccine targeting only clade V-HIV, which showed best-in-class T cell responses.

Now Albrecht and Inovio's proposal of a reverse stock split. A reverse stock split is intended to expand our audience of potential investors, both institutional and retail, by increasing the per-share stock price. We believe that implementing a reverse stock split now will improve the strength and quality of our shareholder base, and enhance our field to investors with long-term investment time horizons that mirror the long-term vision the Company's management has for building shareholder value.

Just to be clear, a reverse split is not a replacement for fundamental growth. So let there be no doubt -- our team is clearly focused on advancing our science and achieving growth fundamentally. I think the advancements of our Company in the last year place us very favorably among our peers, and are a testament to this focus. But as a leader in our field, we would like our share structure and price to be more in line with our peers.

As a tribute to Inovio's accomplishments in the first quarter of this year, we were recognized by our peers with three industry awards at the World Vaccine Congress. This represents the most rewards received by any single company. The Vaccine Industry Excellence award recognized outstanding achievements and advancements of therapeutic and preventative vaccine developers across the industry, as judged by a panel of global biotech industry stakeholders. Inovio was given accolades for Best Therapeutic Vaccine for a novel immunotherapy for cervical precancer, VGX-3100.

We also won the best licensing deal for our $400 million collaboration with Roche for our DNA-based immunotherapies for prostate cancer and hepatitis B. And lastly, we are also viewed as the best early-stage vaccine biotech for our ability to raise funds and build our broad pipeline of immunotherapy CIN DNA vaccine.

Now, here is our CFO, Peter Kies, with the financial review. Peter?

Thanks, Joseph. Total revenue was $2.4 million for the three-month period ended March 31, 2014 compared to $1.5 million for the same period in 2013. Total operating expenses were $12.4 million compared to $8.1 million for the same period. The loss from operations prior to other income and expenses for the quarter ended March 31, 2014 was $10 million or $0.05 as compared to $6.6 million or $0.04 per share for the quarter ended March 31, 2013.

Net loss attributed to common shareholders for the quarter ended March 31, 2014 was $10.8 million or $0.05 per share compared with a net loss attributed to common shareholders of $8.8 million or $0.06 per share for the quarter ended March 31, 2013. The $2 million increase in net loss attributed to common shareholders for the quarter ended March 31, 2014 compared with the same period in 2013, resulted primarily from an increase in the non-cash accounting expense, which is related to employee and consultant stock -- the stock-based compensation.

Also, there has been a slight increase in expenses related to the Roche collaboration. The increase in revenue for the three-month period was primarily due to $1.4 million of revenue recognized from our agreement with Roche. This revenue from Roche consisted of development fees paid for work conducted by Inovio in the first quarter, plus the amortization of a portion of their upfront payment.

Research and development expenses for the first quarter of 2014 were $8.2 million compared to $5.1 million for the first quarter of 2013. General and administrative expenses were $4.1 million versus $3 million, respectively. As of March 31, 2014, cash, cash equivalents, plus short-term investments, were $116.8 million compared to $52.6 million as of December 31, 2013. This is by far the strongest cash position in the Company's history.

On March 4, 2014, the Company closed an underwritten public offering of 21.8 million shares of the Company's common stock, including 2.8 million shares of the Company's common stock issued pursuant to the underwriter's exercise of its overallotment at a price of $2.90 per share. Gross proceeds of this offering was approximately $63.3 million. Net proceeds to the Company, after deducting the underwriter's discount and commission, and other estimated offering expenses payable by the Company, were approximately $59.2 million. We were very pleased to complete this financing without warrants, and we were very pleased to bring in very strong fundamental biotech investors -- institutional investors in this offering.

During the three-month period ended March 31, 2014, warrants and stock options compared to over 8 million shares of the Company's common stock were exercised for total proceeds to the Company of 10.7 million. As of March 31, 2014, the Company had 240.1 million shares outstanding and 265.6 million fully dilutive. Based on management's projections and analysis, the Company believes that its cash, cash equivalents, and short-term investments are sufficient to meet its planned working capital requirements through the end of 2017. To be clear, we have about $100 million more in our war chest than the amount we had last year at this time.

Inovio's balance sheet and statement of operations is provided below in our press release that went out, but is also available in our Form 10-Q, which is provided on the Company's website under the caption SEC Filings.

Now I'm going to return it back to our CEO, Dr. Joseph Kim.

Thank you, Peter. 2013 was a dynamic period for our Company. The best-in-class T cell responses we reported helped us conclude a validating $400 million license deal with Roche. Together, these events helped to dramatically increase our visibility and valuation. While the whole biotech sector has taken a pause over the last month, we believe that 2014 can be a transformative year for Inovio.

Why? First, in about two months, we will report our Phase 2 efficacy and immune response data from our lead product, VGX-3100. Second, we will initiate more cancer studies addressing very important cervical, head and neck, prostate, breast, lung, and pancreatic cancers. Finally, we will continue to work towards additional partnerships with large pharmaceutical companies interested in compelling active immunotherapy technology and products that Inovio has.

Let me also remind you -- we don't just have the technology or products to make this happen; we have excellent people. We recently added to our senior team with new Vice Presidents of R&D, Quality, and Oncology. These new hires and selective promotions over the past few months are a key part of our strategic blueprint, adding to a very capable and motivated scientific and nonscientific team that enables a promising biotech like Inovio to function well. We also has an excellent war chest, as Peter mentioned, to support our growth.

All the steps we are taking are systematically positioning Inovio to become a major immunotherapy and vaccine company. Coupled with our expected Phase 2 data this summer, we are preparing Inovio for a transformational year and a long-term growth. As always, our aim is to ultimately enhance patient's lives while also increasing shareholder value.

Now I'm pleased to answer any of the questions that the analysts may have. Thank you very much.

(Operator Instructions) Jonathan Aschoff, Brean Capital.

I was wondering if you could tell me what you need to see in your Phase 2 CIN 2/3 trial to go forward, given that, for example, Transgene has 10 points but terminated the program due to an insufficient treatment effect? And would you give us that decision when you first show us the data? Or would the data come first and maybe a decision contemplating going forward or not, come later?

Good morning, Jonathan. Yes, of course. As I stated in our prepared remarks, the study was designed with 80% power for us to hit 52% regression rate in our treated group versus an estimated 25% in the placebo group. Certainly, we are looking forward to having our regression rate in our treated groups over 50%, regardless of what the placebo group may be. And that would trigger our path forward into a Phase 3, either with a large pharma partner, perhaps even by ourselves. We would certainly be happy with the data of first efficacy readout from an active immunotherapy that can correlate back to our T cell immune responses.

Are you saying that a 27% raw delta is not just enough most likely for the trial to hit its endpoint, but that's enough for you to go forward, unlike the case of Transgene?

Yes, Transgene's absolute efficacy rate was -- I believe, was below 25%, even though their placebo rate was between 4% and 10%. So that would certainly not be exciting enough for us to go forward. And we agree with Transgene that they did not go forward with that regression rate.

But you would communicate at the time that you put data out that you will or will not go forward? Or will that take a little while after?

Yes, it would take some time. As I discussed, we are currently in active discussion with several potential partners for this program. And once data is unblinded and available, it would be a very exciting time for us in deciding, A, which partner to partner with, or B, whether to take this monumental Phase 3 program on our own.

So, what we look for in our data announcement midyear this year, the summer, is, as we said, efficacy rate in our treated group versus placebo group, i.e., the delta. We are hopeful that the absolute amount of the treated group rate is in 50%. But we also are very much looking forward to tying up bridging the increase in efficacy rates to the correlation to a T cell immune response that we are hoping to see in this larger data set.

So, certainly, that would be a very exciting timepoint for us to announce that. We expect to have at least two assays -- T cell assays, to be able to present with a similar time-frame. So it should be a very informative reporting of the data, not just the topline efficacy numbers.

So, Joe, given that you just said how informative it will be, I was just curious -- why not wait for the head and neck cancer trial after you've learned what can be learned from the Phase 2 readout? Given it's the same drugs -- it's actually another --?

Well, we are very excited about the potential in this drug. And certainly, based on the T cell responses that we got from our Phase 1 study, we're just -- we can't wait to get those cancer studies for head and neck, and inoperable cervical cancers, to start.

Jonathan, as you already know, the back-end of our drug development -- you know, a month delay could represent hundreds of millions of dollars of value to the Company. So we don't see a value in waiting. And also, these are independent trials with different disease states. And, as I mentioned earlier, we're also adding a DNA-based IL-12 immune activators, which, in our HIV study, has shown that not only do we generate very high levels of T cells with our DNA vaccine, but we can even improve upon that using our -- in combination with our INO-12 DNA immune activator.

So that's why we are moving forward. We do think perhaps more advanced cancers are tougher to treat. That's probably why we're -- that's why we're adding this immune activator. But we are very -- looking forward to seeing the T cell responses from these cancer patients, as our ability to generate TB8 for their T cell responses in the more advanced cancer patients will be a very exciting development for our Company.

All right. Thank you very much, Joe.

Thank you, Jonathan.

Charles Duncan, Piper Jaffray.

Thanks, guys, for taking my question and congratulations on a good period of progress. Joe, let me ask you a little bit more about the VGX-3100 Phase 2 data that you anticipate. Maybe help us understand or provide a little bit more color on some of the secondary analyses you'll be looking at, and whether or not you see this trial as really a platform-validating trial, or one that can assess the clinical value and commercial potential in cervical dysplasia, versus some of these other indications that you spoke of?

Yes, absolutely. So, let me start with the second part of that first. We do feel that this is a monumental milestone for Inovio, this Phase 2 VGX-3100 data. Foremost, we do feel that a positive efficacy in immunogenicity results as well as safety will drive forward in increasing the value of our HPV-related product franchise. I say that as a franchise, not just as a cervical pretense, but also for the two other cancer studies I mentioned earlier.

But focused on the pre-cancer treatment, right now, our standard therapy is a surgical procedure which pretty much is a scraping out of the cervical lining of a woman. It's very invasive. It has a lot of potential side effects, both immediately and potentially to pre-term birth in the reproductive capability for women.

So, as I'd alluded earlier, we are shooting for -- and, obviously, we have to support that with the data -- as a first-line therapy for treating cervical precancer at CIN 2/3 stages as a noninvasive treatment option for these women. And our early market research has told us, in helping to express in the field as well as the patient, that such a product will be a tremendous boon to -- in meeting the needs and the wants of these patient populations.

Back to the platform validation, currently, no company in our field has been able to connect directly of actively regenerating HerV8 T cells to a clinical efficacy endpoint in oncology or even infectious diseases. So, as you stated very expertly, a positive clinical efficacy results from VGX-3100, which can be bridged to a correlatable T cell immuno responses in multiple characteristics that we intend to analyze, will be an unprecedented event for us and for the field, and will give us a -- and us, Inovio, ourselves, and our current and future partners, the potential tremendous advantage in developmental predictions and plans.

Because right now, none of the competing immuno -- active immunotherapies really generate measurable levels of CVA T cells in patients. So as we had done in our Phase 1 study with VGX-3100, we plan and we're hopeful to unveil the correlatable CVA T cell responses in this larger 150-plus patient study. So if that were to be done, it's currently not only enhance the franchise and product value of VGX-3100, but I do think it would multiply enhance the value of our active immunotherapy development platform.

And Joe, let me ask you about that study. Are there any secondary analyses that could take a look at different patient cohorts? And could you imagine perhaps greater efficacy in certain patient cohorts? Maybe types of that immune activity or an ability to stimulate an immune response?

Yes, the patients -- just to lay out in more general -- the patient had the -- these are all women who are CIN 2 or 3-stage by biopsy at entry. They also have to be infected with HPV-16 or 18 virus with a presence of the virus detected by a PCR-sensitive -- PCR assay in the cervical swab at entry. What we are measuring are the regression of CIN 2/3 down to CIN 1 or less at month nine after three injections of our therapy or placebo during the first three months.

Now the patients are a randomized 75% into the drug-treated group and 25% in the placebo group -- 3 to 1 randomization, as I said. But also, the patients are stratified within each group for two statuses. One, stratification is a CIN 2 or 3; the second is divided into by age. So, younger women versus older women. And that way we can look for a subpopulation analysis once data is unblinded.

In terms of the secondary analysis, besides the biopsy deferment, regression of the disease status, this occurrence of the virus in the cervix, either HPV-16 or 18 -- as I stated, they have to be 100% confirmed to have the virus by PCR at the entry timepoint to the study. So, being able to review whether the virus can regress using our immunotherapy is an exciting secondary endpoint as well. And I cannot stress further the importance of very sophisticated T cell analyses we will apply to the patient samples, as we had published in the very prestigious Science Translational Medicine a couple of years ago.

In our Phase 1 study, we looked at the overall T cell responses by the LS spot essay, the delineation, and the further characterization of the T cell quality and quantity by a slow tachometry assay multicolor flow, as well as the functional T cell phenotype as well as the killing assay that we have applied.

Now many big sponsor companies have told us that little small companies, let alone big companies, apply such high and sophisticated levels of T cell analysis and assay that Inovio does. And we take that as a huge compliment. And we plan to apply the full gamut of these essays in our Phase 2 patient samples. Now, we won't -- we likely will not have the complete portfolio of T cell analysis we will ultimately have when we announce the Phase 2 efficacy results, but we'll have enough to correlate hopefully between the efficacy and T cell activation in these patients.

That's helpful. Last question for Peter regarding the cash that Peter mentioned. And I believe -- well, you said that that was good for a certain period of time (multiple speakers) --?

On the other end of 2017.

End of 2017? Okay. So, Peter, what are you assuming in terms of clinical trial activity between now and then? New studies? Or just ones that you spoke of in the prepared remarks and partnering?

Well, we expect that that money will help us to get off the ground and prep for the phase 3 study on the 3100 and it will actually -- we have a number of other programs -- Phase 1 programs starting as well. So it will cover all those programs as well.

But partnering would be upside too, then? (multiple speakers) Beyond the regular milestones?

Yes. Obviously, yes.

Okay, great. Thanks for the added color. That was very helpful, Joe.

Thank you, Charles.

Brian Klein, Stifel.

Thank you for an active review. Just one quick question. Have you looked at any of your oncology clinical vaccine candidates in combination with checkpoint inhibitors? And, if so, have you noticed any synergy or additive effect? Thanks.

Thank you, Brian. Good morning. Yes, one of the obvious combination possibilities, and certainly combining checkpoint inhibitors -- that's been the rage of immuno oncology in recent months -- with our active T cell-generating vaccine makes a huge amount of sense in terms of combination. We have done -- we have preliminary animal data that supports that this obvious combination will have an added effect in experimental models.

I would certainly add that the checkpoint inhibitors -- and this is why it makes sense scientifically -- the checkpoint inhibitors just block the negative signals that the cancer cells use to cloak themselves. It's like the Klingon warships with their shields, and which kind of keeps the T cells at bay. By unblocking that or blocking that negative signal, the T cells can now recognize and attack the cancer cells. But what the checkpoint inhibitor molecules do not do is generate more T cells -- antigens specifically or anticancer manner.

So it doesn't take a genius to figure out that a approach like Inovio's to antigens specifically generate very high levels of killer T cells against these cancer targets would be a beneficial combination -- potential partner for these checkpoint inhibitor programs and companies who are dominating in this very important field. So -- and so far, although I don't want to get into exact details of the experimental data, early experimental data supports that we can improve even the levels of our T cell generation with the combination with checkpoint inhibitors.

Great. Thank you.

Thanks, Brian.

Edward Nash, Cowen.

Thanks for taking my question. This is Joon Lee taking -- kind of calling in for Edward. (multiple speakers) Do you guys have any data on reinfection rate with the current Exiden treatment?

The reports are kind of mixed all over the place as many these clinical reports -- we have seen anywhere between 5% and 10%. But that would vary between the timelines that you examine in each woman. Anecdotally, within the next contacted by various patients who say even after a lead procedure, they've had their CIN status come back or even move to the other areas of their reproductive and general tracts, causing VIN, which is a related also horrible precancer state.

So -- and surgery does not remove the potential recurrence possibility; whereas a T cell-based immunotherapy -- in theory -- I mean, we still have to -- we and others have to show that having high levels of severely active T cells can in turn keep the virus at bay or actually clear the person of the virus. And these are measurements that we are measuring in our Phase 2 for a [10 to 3] as well as our more advanced cancer studies that we're launching.

Great. And just one more question -- a couple more questions. Are there patients with CIN 2 and 3 who refuse to get a re-infusion because of the morbidity associated? I would assume that because there are studies of 25% regression, that there are patients who sort of watch cautiously over a period of time and they just naturally regress. But I just wanted to know if there are patients that -- if there is any study behind the number of patients who refused to get surgical infusion because of the morbidity associated?

Yes. Based on literature reports as well as based on our early market research, there are a large segment of patients -- and it really depends on their reproductive stage and so on, and whether their avoidance or intolerability of the surgical procedure, there are a segment of these patients who elect to watchfully wait. In some ways, it's much similar to the prostate cancer patients with high VSA waiting to do surgery.

I think there is a innate dislike of cutting things -- you know, parts of your body through surgery unless it's actually necessary, as humans. And that's why I think the noninvasive immunotherapies such as VGX-3100 -- if the efficacy, safety, and immunogenicity can be shown with our Phase 2 readout, would have a large potential market entry into these segments of patients.

And look, if you can get rid of your lesions with a noninvasive three taps into your arm over three months versus an invasive surgical procedure, I do believe that would be a tremendous option for those segments of population -- the patient population, as well as all patients who at least would have that choice going into their treatment. So I do think from a market perspective, this is a welcoming group of patients who currently are not having their needs adequately addressed with the surgical procedure.

Great. And lastly, is there an overlap between the type of patients who get CIN and also get head and neck? And if so, if you were to get treated for the CIN with the VGX-3100, would they also be protected against head and neck simultaneously?

Yes. In theory, women who are treated with 3100 for their CIN could have -- and obviously, we're looking at the long-term effects of our therapy. In our studies -- in Phase 1 studies, we've seen up to 24 months or longer of very highly active T cells, and that was supported by the work that we've seen in a similar timeframe for our infectious disease study. But Joon, as you already know, the biggest rise in head and neck cancer cases are in men. And it's sort of interesting, because women's rates have been sort of steady over the years, but men's head and neck cancer is caused by or related to HV infection has been growing at a staggering rate. And our oncology collaborators have told us that it's reaching epidemic levels in terms of increased rates.

So, in those cases, the CIN treatment would be irrelevant because those will be in man, but we're very much -- very excited to treat the -- these head and neck cancer patients with our therapy. And as I stated, both cervical and head and neck cancer studies are expected to start this quarter. And we are very excited about it.

Thank you.

(Operator Instructions) There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

So, thank you all for very insightful questions. We have very high-quality research analysts covering our development. And I think the level of questions really showed the insightfulness of that.

Now we are very excited about where we are as a company. Fundamentally, we have been growing and advancing our programs. We are looking for -- very much for our first Phase 2 data. And we are poised to take advantage of whatever the data comes out when it's unblinded. We have the cash, we have the people, we have the technology. And I'm very excited to watch where this Company is headed.

So I'd like to thank you for all of the questions and attention this morning.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.