Arbutus Biopharma Corporation (NASDAQ:ABUS) Q3 2018 Earnings Conference Call - Final Transcript 2018-11-07T21:30:00+0000 Executives Pam Murphy - Arbutus Biopharma Corp, Mark Murray - Arbutus Biopharma Corp, Mike Sofia - Arbutus Biopharma Corp, David Hastings - Arbutus Biopharma Corp, Analysts Liisa Bayko - JMP Securities, Katherine Xu - William Blair, Keay Nakae - Chardan, Mayank Mamtani - FBR, Operator - Good day, ladies and gentlemen, and welcome to Arbutus Biopharma Corporation 2018 Third Quarter Financial Results and Corporate Update. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference. Ms. Pam Murphy, you may begin. Pam Murphy - Arbutus Biopharma Corp Thank you, and good afternoon. Thank you all for joining us. With me today are Dr. Mark Murray, Arbutus' CEO; Dr. Mike Sofia, Arbutus' Chief Scientific Officer; David Hastings, Arbutus' CFO and, Koert VandenEnden, Arbutus' CAO. (Forward-Looking Cautionary Statements) I'd now like to pass the call to Mark for his introductory remarks. Mark? Mark Murray - Arbutus Biopharma Corp Thanks, Pam. And thank you to everyone for joining us on the call today. Our singular mission at Arbutus is to develop a cure for patients with chronic HBV. We believe this can best be achieved using an effective combination of complementary therapeutic agents administered for five nights treatment duration. To that end and we have developed a pipeline of proprietary therapeutic agents that target multiple aspects of the chronic HBV inception. The most important of which are HBV DNA replication, Hepatitis B surface antigen expression and immune reactivation. We're confident that our broad proprietary pipeline of drug candidates will allow us to develop an effective combination therapy for HBV. We are now focused on two agents in our pipeline, AB-506 and AB-729, which we believe in combination could deliver a meaningful events over the current standard of care. Today I'm pleased to report that we have advanced our second-generation capsid inhibitor 506 into HBV patients. Mike will further describe this study in a few minutes. Although we have confirmed that our first generation LNP-enabled RNAi agent 1467 can lower Hepatitis B surface engine in some patients, we are now focused on our subcutaneously delivered second generation RNAi agent AB-729. This is a GalNAc conjugate which Mike will also discuss in a few minutes. We anticipate that these two agents AB-506 and AB-729 will comprise an effective clinical combination. Provided the clinical trials for AB-506 and AB-729 proceed as expected, we anticipate initiating combination clinical trials with these two agents in the first half of 2020. Now as most of you know, last month we announced our decision to delay initiation of a planned Phase 1 clinical trial of AB-452 based on emerging non-clinical safety findings. AB-452 is a new chemical entity acting via novel RNA destabilizing mechanism which targets Hepatitis B surface antigen expression, and we believe it is important that we take the time needed to further characterize the compound before deciding to initiate clinical studies. In a few minutes, Mike Sofia will discuss the steps we're taking to better understand these results. But I want to assure you, that we remain confident that the RNA destabilizing mechanism represents a very relevant and important target and success here could be very meaningful for patients and for Arbutus. And for that reason, while we further characterize the AB-452 observations, we are advancing backup compounds that utilize the same mechanism. Before turning the call over to Mike, I think it's worth noting that the FDA recently issued guidance regarding the development and approval of new HBV therapies. This guidance is timely and helpful to Arbutus, because it illustrates a path through approval for new HBV therapies. The guidance anticipates the use of combination therapy and outlines what is needed to demonstrate safety, efficacy and durability of response. Also this quarter, Alnylam announced approval of ONPATTRO, an RNAi therapeutic they have developed for the treatment of hereditary ATTR amyloidosis. Arbutus is entitled to a royalty on global sales of ONPATTRO for the LNP technology license for Arbutus to Alnylam for this product. We expect to receive our first royalty payment in the fourth quarter, and this could also be precise source of non-dilutive capital for us. I'll now turn the call over to Mike Sofia. Mike Sofia - Arbutus Biopharma Corp Thanks Mark. As Mark said we're committed to developing a cure for chronic Hepatitis B using an effective combination of therapeutic agents administered for a finite treatment duration. Our initial target is focused on fully blocking HBV DNA replication and reducing (inaudible) and eliminating surface antigens. To that end, we have identified a novel and very compelling target which very selectively destabilizes or degrades all HBV RNAs, and thus, as effects on many aspects of a virus lifecycle, including DNA replication and surface antigen production. We've also identified a series of molecules exemplified by AB-452, which are potent and highly selective for Hepatitis C virus. These molecules, when in the presence of the Hepatitis B virus P or E sequence, shortened the viral RNA poly(A) tail, thereby making them susceptible for degradation. This target mechanism is novel and is very exciting. Success here could enable our ultimate aspiration to provide a more effective all oral regimen for Hepatitis B patients. Today I'm not going to comment further only AB-452 observations Mark mentioned, other than to say that, we've initiated a series of studies designed to fully understand the effects we have observed, including determining that the effects we have seen are species specific that is may not occur in man and if they are AB-452 specific are mechanism based. These studies will require several months to complete and we will provide an update when we resolve these questions. In the meantime, we're advancing a number of potent backup compounds with similar potent RNA destabilizing activity. At this time, it's difficult to predict when we will have a lead backup compound ready for IND enabling studies. I hope to be able to provide you with more details on the AB-452 as well as the backup program in the coming months. As part of our commitment to target antigen reduction, we've also developed a second generation RNAi agent that acts for a different mechanism than AB-452 that is AB-729. AB-729 employs a single RNAi trigger which spans all of the ABV transcripts and reduces all of the viral antigens. Importantly, AB-729 also employs our proprietary GalNAc parasite targeting technology, which will allow for less frequent subcutaneous dosing. We're currently carrying out IND enabling studies and expect to bring AB-729 into clinical development sometime in the second quarter of next year. As Mark mentioned, we anticipate combining AB-729 with our capsid inhibitor AB-506, once these agents have completed their initial monotherapy studies in patients. As Mark also mentioned, AB-506, our second generation capsid inhibitor, has progressed with healthy volunteer portion of the Phase Ia\/Ib study and into HBV patients. This portion of study is a 28-day dose escalation study, which will include combinations with new therapy. We expect the results of these studies to be available in the second quarter of next year. I would like now to turn the call over to Dave. David Hastings - Arbutus Biopharma Corp Thanks Mike, and good afternoon, everybody. I'll start today by discussing the Company's cash position and runway. Cash and cash used are more important financial metrics. At September 30, 2018, we had a cash and investments balance of $142 million, compared to $155 million at June 30 and $139 million at December 31. Our cash used in operating activities during Q3 2018 was $13.2 million and on a year-to-date basis, our cash used in operating activities has been $50.8 million. We expect our total cash burn for 2018 to be within our previous guidance of $70 million consistent of approximately $65 million for ongoing operations and R&D investment and $5 million for one-time cost related to the closure of the Burnaby facility. And while we're not giving 2019 cash burn guidance yet, I can say that our current cash and investment balance should support us into 2020. The only other area I'd like to address today is a various non-cash adjustments included in this quarter. These adjustments include $14.8 million write down of the intangible asset related to our first-generation capsid inhibitor, AB-423, which we've decided to indefinitely defer developing due to the advancement of our next-generation capsid inhibitor, AB-506. This write-down was partially offset by the related decrease in deferred taxes of $4.3 million and a reduction in our contingent consideration liability of $5.6 million. And finally, we also recorded for the first time in Q3, our share of losses and our equity investee, Genevant, which was $2.8 million. So with that, I'll turn the call back to Mark. Mark Murray - Arbutus Biopharma Corp Thanks Dave. As you heard, we're in a strong financial position to proceed with advancing the pipeline in building our Company. Over the past month, we've made some important strategic additions to our team and our Board of Directors. Dr. Gaston Picchio has joined our executive team in the role of Chief Development Officer, and we've appointed Dr. Bill Simmons as the Chair of our Clinical Advisory Board, where Bill will continue to contribute to Arbutus in this important role. We also announced the appointments of Myrtle Potter and Jim Meyers to our Board of Directors. I'm very pleased with these additions to our executive team in our Board. Each of these individuals brings us significant expertise and experience in our sector. Operator, I'll turn it over to you for Q&A. Q & A Operator - (Operator Instructions) Liisa Bayko, JMP Securities. Liisa Bayko - JMP Securities I'm wondering if you could just maybe provide a little bit more detail on what you're learning about the RNAi program and it seems like if you're moving another compound forward, maybe it's something specific to that particular compound, is that the right way to interpret that? And when do you think -- maybe you can give us a little more clarity in the timing of backup? Mark Murray - Arbutus Biopharma Corp So Liisa, as I said, we're focused now on the second-generation RNAi product, 1467, as you know is very complicated protocol, complicated mode to administration patients and we think it will be very difficult to commercialize that compound. We are treating some patients and trying to learn something from that study and as we learn more we'll report that to you. Now with certain... Liisa Bayko - JMP Securities I think I misspoke, I said the -- I mean the RNA destabilizer. Sorry. Mark Murray - Arbutus Biopharma Corp I'm sorry. So Mike, why don't you take that on? Mike Sofia - Arbutus Biopharma Corp So the RNA destabilizer, right now it's a little premature to say anything about what we've learned. We're analyzing the data, we're doing experiments to really get a significant and deep understanding of the observations that we have. So it will be -- as we said, it will be some months before we can sort of do all those studies and pull that data together to really give a clear understanding. From the backup compounds, we still -- as we've always said, we have a big commitment to the antigen knockdown field, we believe that's going to be a critical compound of an HBV cure. And so we have this sort of comprehensive strategy to address that and the RNA destabilizer for us was a foray into the small molecule, orally available all oral combination strategy, and we still very firmly believe in the mechanism of this agent is very compelling, the data we had, the preclinical was very compelling to us. And so we still have a very strong commitment to that and we still have a very active program in that area, bringing forward new agents that we think will be able to provide differentiating profile to AB-452. But we still believe that it's possible, that AB-452 can move forward, but that will be determined based on all the study results that we come through. Liisa Bayko - JMP Securities And how will you make it with that? Will that be a press release or sort of in passing or how? Mike Sofia - Arbutus Biopharma Corp I don't think we've decided exactly how we're going to do that, but we have been fairly -- let's say, open in presenting data and scientific meetings on what we believe is the mechanism of action of this, and so we will find an appropriate mechanism to provide that information. Operator - Katherine Xu, William Blair. Katherine Xu - William Blair So with regards to the royalty streams from ONPATTRO, I'm just wondering what your kind of internal planning in terms of projection for that is and does it make sense to monetize that at some point? And also on 452, did the species -- well let's say one species observation of the safety issue, did that happen to kind of high super human dose, would you be able to comment on that? And then is there a timeline for the backup compounds to move up, it will be good to have some details around that line. Mark Murray - Arbutus Biopharma Corp Well you want to take the ONPATTRO first, Dave? David Hastings - Arbutus Biopharma Corp Look we did see that Alnylam announced the revenue numbers today. There was really nothing on that call or presentation that lessens our confidence about that product and the potential to provide a reasonable source of non-dilutive capital for the Company. And so we'll look at all our options and decide what is best when that's available. Mark Murray - Arbutus Biopharma Corp And Katherine with respect to the 452 study, I think we're just not -- I mean in the position to talk about that any further until we really understand it. But as Mike said a moment ago, once we have completed understanding, we'll present that information. Operator - Keay Nakae, Chardan. Keay Nakae - Chardan 452, do you at least have a working hypothesis of why you think you're still (inaudible) effect that you are? Mark Murray - Arbutus Biopharma Corp I think in any -- when you find any observations you generate a couple of hypothesis that around which you then develop experiments to investigate and see which one of these hypothesis be, may lead to the answer. So we do have a couple of hypothesis that we're working on, it's too early to say which one is going to be the most relevant and that will be depending on what the data from our studies tells us? Keay Nakae - Chardan And then in terms of the backup compound, how different are they in 452? I'm assuming they're also small molecules, but any color you can provide on that would be helpful? Mark Murray - Arbutus Biopharma Corp Well, I mean their backup compounds -- anytime one continues to do work in a field, you kind of to try to diversify the chemical matter that you're working on. I can't really say at this point in time, the characteristics of these molecules, because it's an ongoing study. Operator - Madhu Kumar, FBR. Mayank Mamtani - FBR This is Mayank calling in for Madhu. Just a couple for me, I'm just thinking about AB-506, just broadly could you talk a little bit about how you see the positioning of the molecule would advance the other core inhibitors that there are and in the context of maybe a delivery median, if anything we would love just gradually on the HBV landscapes oncore inhibitors or even RNAi (inaudible)? And then secondly, I think you mentioned in your remarks about the FDA workshop that had happened recently. Could you give more color on the -- how you're thinking about the program, how anything if there is to talk about endpoints and developmental exam as you think about dosing potency of these molecule that you're thinking about advancing. Mark Murray - Arbutus Biopharma Corp Mike, do you want to just comment a little bit on what your expectations for 506 are? Mike Sofia - Arbutus Biopharma Corp So I think we reported on preclinical data with 506, it looks competitive to all the other agents that are currently in clinical developments, so we have high hopes for that molecule. It's pan-genotypic, it has its dual mechanism of action, it has a very nice PK profile pre-clinically, it works against nuke resistant variance. So it has all the right characteristics. Obviously, it's progressed very nicely through our IND enabling studies and to human subjects, and we're now into patients, so we clear the PK safety piece of the Phase I study. So it's moving along very nicely and as we said, we'll have data on -- patient data sometime a lot of part of first half of 2019. On the ALSB, I guess you're talking about what we expect to learn there, there are certainly a couple studies being reported there on some capsid inhibitors. At this point in time, it doesn't look like there's going to be anything earth shattering based on what we can say from the abstracts that we've seen, but we're anxious to sort of attend the meeting and see what everyone has to say about the field. On the FDA guidance, we were happy to see that the document that came out from the FDA, the direct guidance, it certainly is -- it provides us the appropriate guidance for us, and we were happy to see their focus in one part on combination therapy and I believe that's going to be key as we've always believed it would be. It does provide us some guidance on endpoints, none of them surprising to us as far as viral endpoints. So we continue to study the documents. Obviously, the FDA is looking for feedback on it and we'll see what ultimately comes out as a final document there. Mayank Mamtani - FBR Is there anything specific we could talk to, what you're looking for is basically in first half that could give you at least an idea and understanding of what that combination would look like, or is it too early to say that? Mike Sofia - Arbutus Biopharma Corp I think it's too early to say. I mean, we firmly believe that you have to address the viral replication issue aggressively, so (inaudible) combination we believe with capsid inhibitor will help us do that. And as antigen question has been addressed, I think that's generally accepted in the field and I think certainly the guidance and their comments about looking at as antigens levels, is something that the FDA I believe is also looking at. So we believe those two things are going to be critical for cure and I think our portfolio allows us to address those issues. Operator - Thank you, and at this time, I'm showing no further questions in queue. I'd like to turn the call back over to Mark Murray for further remarks. Mark Murray - Arbutus Biopharma Corp Thank you, operator. As you heard today, we remained singularly focused on our mission to develop a cure for Hepatitis B based on a combination of complementary agents. Both AB-506 and AB-729 will yield clinical data next year and are on a path to be used in an effective combination. We are well positioned scientifically and financially to meet this objective for patients and our stakeholders. We appreciate your participation in the call today and look forward to sharing updates on our progress with you in the months ahead. Operator, this concludes our call today. Operator - Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.