Lumos Pharma Inc (LUMO) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NewLink Genetics financial third-quarter 2016 conference call. (Operator Instructions). As a reminder, this conference call is being recorded. I would like now to turn the conference over to Jack Henneman, Chief Financial. You may begin.

Good morning and thank you for joining Dr. Charles Link, Chairman, Chief Executive Officer and Chief Scientific Officer; Dr. Nicholas Vahanian, President and Chief Medical Officer; and me, for the NewLink Genetics third-quarter 2016 financial conference call.

Earlier this morning we issued a press release announcing our financial results for the quarter. Certain statements made during this call are forward-looking and actual results might differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC.

The forward-looking statements are made only as of the date hereof and the Company undertakes no obligation to update or revise the forward-looking statements. I will now turn the call over to Dr. Link.

Thank you, Jack. Thank you for joining us today to discuss our third-quarter results and follow-up from our Investor Day program in New York City last Tuesday. At that program our management team, and a distinguished group of outside speakers, discussed the science and increasing clinical validation of IDO pathway inhibition; NewLink's two product candidates targeting the IDO pathway; the clinical and development plan for indoximod, our proprietary IDO pathway inhibitor; and introduced our early-stage immuno-oncology program, PTEN.

A webcast of these presentations can be found on the Investor Relations page of our website and we very much encourage you to listen to it. Today, Dr. Vahanian and I will review our corporate accomplishments and point out some of the highlights from our program last week. Finally, Jack will provide an operational and financial update.

We are encouraged that recent data have increasingly validated the IDO pathway in immuno-oncology. NewLink has two separate and distinct IDO pathway inhibitors in current clinical development. GDC-0919 as our direct enzymatic inhibitor of IDO that we have partnered in a large ongoing collaboration with Genentech Roche which was launched in late 2014. Indoximod is our proprietary IDO pathway inhibitor that is not currently partnered.

Evolving data suggests that indoximod's primary mechanism of action to inhibit the IDO pathway is by providing a tryptophan sufficiency signal to T-cells. Thus, although both GDC-0919 and indoximod block the IDO pathway, they appear to have quite distinct mechanisms of action and therefore represent two different opportunities for us.

Our collaboration with Genentech has made solid progress over the past two years. Our joint research agreement that involves (inaudible) chemistry has made progress on the discovery side, although we are not able to comment further at this time. It is our hope that this effort will eventually lead to a new clinical stage product candidate.

Our clinical collaboration with Genentech is progressing with GDC-0919, currently in a Phase 1b trial, which has been revised to a total target enrollment goal of 276 patients. The trial is described in detail in our Investor Day presentation currently available on our website. Overall, we've been very pleased with our collaboration with Genentech.

In parallel, indoximod clinical development is advancing in a series of Phase 2 trials in combination with other cancer therapies. We anticipate providing further planning updates and trial results during 2017.

Finally, we are focused on further pipeline development both with our early-stage internal program such as PTEN as a novel target and through the evaluation of other external opportunities. We believe NewLink has demonstrated a proven track record of both in-licensing and out-licensing product candidates and hopefully this experience will benefit us going forward. We believe our current balance sheet provides a solid basis to execute our current clinical development plans.

Now I will turn the call over to Dr. Vahanian to provide more detail about our clinical program.

Thank you, Chuck. As the scientific speakers discussed at our Investor Day last week, the IDO pathway is increasingly seen as [essential to immune escape], and NewLink Genetics is a leader in the development of product candidates that target IDO and its downstream effects.

You've seen data from our early studies and those of other companies that provide the first clinical validation of IDO is a target. That's very exciting for us since IDO is likely -- has a role in many types of malignancies and because we have multiple shots on goal. Two of the five candidates in the clinic targeting the IDO pathway are owned by NewLink Genetics.

We believe 2017 will be an important year for our IDO pathway program. First, with the GDC-0919, we expect to make continued progress with our partner, Genentech, in the clinic. As you know, Genentech is responsible for all new communications in the program. Second, indoximod, our proprietary product candidate targeting the IDO pathway, is currently being developed in Phase 2 trials across multiple indications. We retain all rights to indoximod.

So how are we approaching indoximod? We are working on formulation improvements with indoximod to optimize its clinical and commercial potential. We plan to update clinical data across multiple cancers including melanoma, pancreatic and brain in 2017. We hope to be in a position to launch a randomized trial for indoximod in a lead indication in the second half of 2017.

As discussed by our scientific speakers at the Investor Day, preclinical data suggests that the combination of IDO pathway inhibitors and anti-PD-1 or anti-PD-L1 antibodies are synergistic.

Our current belief, based on the basic science and emerging clinical data, is that IDO pathway inhibitors work best when used in combination with other checkpoint blockade agents such as anti-PD1 or anti-PD-L1 antibodies or chemotherapy. Emerging clinical data also suggest that the combinations including IDO may have a favorable safety profile compared to some of the alternatives.

Now, I'll turn the call over to Jack to discuss the financial results. Jack?

Thank you, Nick. Before we move to the Q&A I want to provide a quick overview of key financials this quarter. We finished the quarter with $148.3 million in cash and equivalents compared to $197.8 million at the end of 2015.

Research and development expenses in the third quarter of 2016 were $24.5 million compared to $22.5 million during the comparable period in 2015. The increase is primarily due to increases in clinical trial and manufacturing expenses offset by a decrease in wages as a result of the restructuring completed in the second quarter of 2016.

NewLink Genetics reported a net loss of $15.5 million or a loss of $0.54 per diluted share for the third quarter of 2016 compared to a net loss of $15.9 million or a loss of $0.55 per diluted share for the comparable period in 2015. We are currently expecting to end the year with approximately $132 million in cash and equivalents. And now I will turn the call over to the operator for questions.

(Operator Instructions). Stephen Willey, Stifel.

Yes, hi. Good morning, guys. Thanks for taking the questions. So, I think there had been maybe some prior mention of trying to integrate either a biopsy cohort or get patients to consent to biopsy in the melanoma study. Is there any update that you guys can provide along those lines?

Hi, Steve; it's Nick. As we mentioned at the Investor Day, we've expanded the pancreatic study and included liver biopsies for those patients for neurologic correlate studies and additional studies. So we're doing that in pancreas. We have not done that in melanoma.

Okay. And then I think you referenced the formulation improvements both at the event and again this morning. And I think -- so should we be thinking about that as maybe the core of an IP extension strategy for indoximod? And, I guess, as we think about initiating some of these potentially later stage/registrational studies at some point next year, is clarity on the IP front going to be a gating factor in the pursuit of any of these indications?

To the second part of your question I would say, no. It is certainly our hope that data that's coming out of the new formulations that we're working on and some pro-drug strategies we're working on will lead to new intellectual property. As you're aware, the current intellectual property with indoximod is limited to the United States and it's our hope to be able to expand that IP. And --

Okay.

-- of course we're also hoping to have regulatory exclusivity play into the benefit of that category of drug.

Okay. Thanks for taking the questions.

Mara Goldstein, Cantor Fitzgerald.

Thanks very much for taking the question. I had a question on the PTEN pathway program and -- how should we think about that program from an external perspective and where and when do you think that we might see some data as it relates to having a lead compound to put into man?

Hey, Mara; good morning. I appreciate -- to give you some color on this. David Munn is the one who most recently described this immune-related function for PTEN. And as you know, we've had a long ongoing collaboration with Dr. Munn and his lab related to the IDO program. And so it's logical with our experience with him to extend that into the PTEN realm.

We're not ready at this point to make projections about data or when releases would happen, but we do think that this is an important new target in immuno-oncology, but we're not making any type of projections about when we're going to have anything that could be a clinical candidate.

Okay. If I could also just ask a financial question and that's really just related to some of the movement in the P&L between things like grant revenue and AP and how we should think about grant revenue on a go-forward basis given that you just got that new BARDA grant this year and the jump in AP and whether that's related to the GDC-0919 or the defense grants.

I mean most of the -- so, the timing issues that we've talked about in the past continue to fail. We get unmatched, if you will, expenses and revenue on a quarter-by-quarter basis. They should line up adequately over any period of two or three quarters, so that's the big topic. We have various expenses that have been accrued in connection with our restructuring including around the settlement of contracts and other things that have not yet been paid, so there is influence there as well.

Okay.

But the quarter-by-quarter, if you will, revenue and expense dislocation around the government contracts will continue until we've worked our way through that exercise and we talked a little bit about that at the Investor Day -- not so much from a financial point of view but (multiple speakers) point of view.

Okay, but just from a -- I guess sort of looking into the fourth quarter and the run rate, particularly on the grant revenue side for this year and next year, should we think about it in a similar way or is it just going to continue to be lumpy?

Well, it's going to continue to be lumpy, which is a similar way, I guess, that's what I would say. So I would expect quarter-by-quarter lumpiness on the grant revenue as money gets released. There's -- if you want a little more color, which I think is probably not terribly interesting, but it explains a little bit of it, under these arrangements with a (inaudible), Merck is actually our subcontractor.

And, as a result, there is a fairly complex pathway of work and documentation that occurs over a period of time between when we do work, when Merck does work, when Merck bills us and then when we're able to bill the government, and so that's really what drives it. I think any more than that is probably more detail than anyone needs or is interested in.

All right. I appreciate it. Thank you.

Mike Ulz, Robert W. Baird.

Yes, Hi, guys. Thanks for taking the question. So with data for indoximod in pancreatic cancer expected the first half of next year, can you maybe talk about what you want to see from that study in order to make a decision to move that forward?

Did you ask in the pancreatic study, Mike?

Yes, yes.

Hi, this is Nick. How are you?

Good.

So the pancreatic study, when we reported at ASCO, that was about 30 -- 31 patients I believe we reported data on. That study was a total of about 100 patients, and the study continues to enroll. We will give an update on that study in the first half of 2017.

The results for the last ASCO we reported response rates of about 45% compared very favorably as opposed to gem/Abraxane combination which was approved around low 20%s, 23% response rate. So 45% versus 23% response rate was quite favorable.

But in addition to that, we continue to work with the PIs to interpret the results from duration of responses and kinetics of responses which was also quite impressive. So if those trends continue that would certainly indicate that would translate well to a randomized study. So the early results were quite encouraging for us. If those results hold, that would be a positive direction.

Yes, I think an important -- this is Chuck -- I think an important point here is that it's not just the response rate that we're looking at. Since the numbers are small and because of variations between the Phase 2 and Phase 3 data and response rate, that is maybe not as telling us some of the pattern of response that we find encouraging where it appears, at least in the early data, that some of the patients have a longer duration of response than expected.

Our goal is to try to confirm those results by larger numbers of patients for a longer period of time and then make a decision for what type of a Phase 2 randomized trial we might do around that announcement.

For the -- will the biopsy data also be available in the first half of next year? And then do you need to see that data before you would make a decision to move forward?

Thanks for actually -- Michael, thanks for actually pointing that out. Indeed, one of the reasons that we have integrated the biopsy cohort is to get additional correlative study. The trend looks favorable, 45% versus 23%; it's a Phase 2 study. The duration of responses look favorable, but that would be further confirmative if we get immunological correlates to those responses. And that's the reason we integrated that and we will have that opportunity as we're going forward to integrate that data as well.

Great. Thanks, guys.

Biren Amin, Jefferies.

Yes, hi, guys. Thanks for taking my questions. Just I guess on the indoximod panc study that you just mentioned with gem/Abraxane. Why shouldn't we compare the response rates that you've seen to the Phase 2 data from gem/Abraxane?

I think it's fair to compare exactly what the other Phase 2 studies have done in patient selection and stages of the patients and how advanced they are. But I think comparing studies across studies from Phase 2 could lead to, I think, false conclusions. On the other hand, the Phase 3 study, which was -- which we tried to design the study after was -- in our opinion would be more fair. Phase 2 studies being the small size across -- between studies would be I think less informative. But that's why you've got to do a randomized larger study to get the full results.

Okay --.

Biren, I think it's a reasonable concern. I think the reason we want to have data on more patients and specifically the reason we want to go and look at the biology is to see if there is immunologic correlates that fit with this pattern of response. As I said, more than just the response rates because of the range in response rates between Phase 2 and Phase 3 in the Abraxane single agent data, or Abraxane plus gem data, I should say. So I think we have more to learn there.

And also, the durability of responses and kinetics sort of response, those are the things that we are looking to gain more information from our Phase 2 study from the limited number of patients that we have, so --.

And just to clarify on the timelines, will we have additional interim data at ASCO GI? Or will we have to wait for, I guess, full ASCO meeting in June for additional data from this trial?

At Investors Day and earlier today, as I mentioned, it's going to be in the first half of 2017. We haven't been more specific than that.

Great. Thank you.

Peter Lawson, SunTrust Robinson.

Morning. Just a couple of financial questions. Anything you can say to help us around where R&D and SG&A spend is heading for the rest of the year and into next?

Well, we're development stage, obviously, so a huge part of our expenditures on really any topic are and have been R&D. I'd say that in general we are -- we fundamentally made our restructuring move in Q2, certainly around the people piece. So that part has been basically reflected in the numbers, although there was some small movement into Q3.

Some of the other things we're doing involve winding down contracts and other kinds of payments, most of which have been -- virtually all of which have been also reflected in the financial statements. You will see that in the slide that we attached that going forward we generally expect to consume on the order of $13 million in cash a quarter. There will be some volatility around that number.

There was more implied in Q4 partly because we expect to settle up, or think we may well settle up -- no promises -- a couple of the open contracts we have going back to our work to prepare to commercialize algenpantucel. So there's some extra cash going out, but that's reflected in the accrued expenses.

Generally, the trend over the last year and a half in those line items will decline especially when you exclude noncash items like equity comp and such.

Thank you so much. And just around the source of our ad in additional assets, what stage, area and timing you're thinking through?

So we're interested in assets that we believe are either immuno-oncology assets or assets that we think could have synergy with our immuno-oncology program. We have a business development team working to look at a lot of different outside assets and those are from preclinical assets to assets that are clinical stage.

I think that if it was something that was an asset that we felt was more near-term to the clinic, that's probably the most probable category. But it's no guarantee that we will be able to find an in-license that we think is the right product candidate at the right economics for us.

Great. Thank you so much.

I am showing no further questions. I would like now to turn the call back to Dr. Charles Link for any closing remarks.

All right. Thank you, everyone, for joining us on the call this morning. Our team looks forward to updating you on our additional achievements over the coming months. Take care.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.