Arbutus Biopharma Corporation (ABUS) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Tekmira Pharmaceuticals Corporate Update and First Quarter 2014 Results. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Bruce Cousins, CFO of Tekmira Pharmaceuticals Corporation. Please go ahead.

Good afternoon, and thank you for joining us as we provide a corporate update and report the first quarter results for Tekmira Pharmaceuticals Corporation. Again, my name is Bruce Cousins, and I'm the EVP and Chief Financial Officer here at Tekmira. Joining me today is Dr. Mark Murray, Tekmira's President and CEO. I'd like to remind everyone that certain statements made on today's call will be forward-looking and involve known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. We do not expect to update forward-looking statements continually as conditions change. A more complete discussion of the risks and uncertainties facing Tekmira appears in Tekmira's 10-K for the year ended December 31, 2013, which was filed on EDGAR and SEDAR and is available online under the Investor section of our website. This conference call is being webcast live, and the archive will be available on our website at www.tekmira.com following today's call. Mark will begin today by providing a corporate update. I will then outline some key financial highlights. Please note that we report in U.S. dollars and in compliance with U.S. GAAP. At the end of the prepared comments, we'll open the call up for your questions. Now, over to Mark.

Good afternoon, everyone. And thank you for joining us today. We've made meaningful strides this quarter and remain on track for all of our corporate milestones. Today, I will highlight some recent developments. I would like to talk first about our antiviral product platform, which includes RNAi therapeutics addressing chronic hepatitis B infection and lethal hemorrhagic fever viruses such as Ebola and Marburg. In our most compelling program, HBV, we are currently finalizing the constituents of the RNAi trigger cocktail, which will comprise TKM-HBV, and is designed to eliminate surface antigen production in chronically infected HBV patients. This is the significant unmet need in the many thousands of patients treated with small molecule nucleotide therapy. The RNAi trigger cocktail and its constituents are undergoing a comprehensive preclinical evaluation in support of the regulatory filings planned for the second half of this year in order to launch clinical trials in early 2015. We will employ third-generation LNP technology, the most potent thus far in this product. As part of our product development and planning process, we have assembled a scientific and clinical advisory group of the world's leading HBV experts to gain from their insights and expertise. Our HBV advisory board will support the development of TKM-HBV by providing input into our preclinical studies and the data package, clinical development plans and the identification of productive clinical trial sites. The HBV program will benefit from the strategic input and expertise offered by this accomplished group of physician scientists. We are complementing this expertise by continuing to expand our internal clinical development capability with the establishment of a U.S.-based clinical development organization. Our drug development knowledge, coupled with LNP, the most clinically validated RNAi delivery technology, ensures that Tekmira is well positioned to develop the most effective RNAi therapeutic product in the Hepatitis B field. This conclusion is further supported by data presented this week from Sirna/Merck in their LNP-enabled HBV program. This involved an early generation LNP delivering a single siRNA. Among the data presented from the multi-dose study, that carried out in a chronically infected chimpanzees. They demonstrated a dose-dependent reduction in both viral DNA and Hepatitis B surface antigen. Up to a 2.3 log reduction in HBV surface antigen was observed at a dose of 0.5 mg per kg, and this surface antigen reduction was durable, supporting a clinical dosing frequency of once per month. We anticipate our HBV program, which will use newer generations of LNP and newly designed RNAi trigger cocktail, will exceed these results. Our Hepatitis B program is underpinned by our many years of experience developing antiviral RNAi therapeutics. For example, our anti-Ebola viral therapeutic is being developed under a $140 million contract with the U.S. Department of Defense. This past quarter, we commenced a Phase I clinical trial evaluating the safety of TKM-Ebola therapeutic in healthy adult subjects. Based on the seriousness of Ebola virus infection and a clear unmet need, the FDA recently granted Fast Track designation to our TKM-Ebola program. The current outbreak in West Africa underscores the importance of developing an effective therapeutic to treat Ebola virus infection. Because our TKM-Ebola therapeutic is not yet approved for human use, there is presently no appropriate regulatory framework to support the use of this product in the current outbreak. However, we continue to make strong progress in our TKM-Ebola clinical program therapeutic, which is also enabled by third-generation LNP. Dr. Ian MacLachlan will present interim data on the Phase I clinical study at the 17th Annual Meeting of the American Society of Gene & Cell Therapy in Washington, D.C., May 21 to 24. We expect completion of the Phase I clinical study in the second half of this year. We expect our considerable antiviral expertise with TKM-Ebola and Marburg will translate to a highly potent and effective antiviral therapy for HBV. Now I'll shift our focus to our oncology studies with TKM-PLK, our RNAi therapeutic targeting the PLK1 enzyme implicated in a variety of tumors. We are currently conducting Phase IIa clinical trials in 2 indications: GI-NET, or gastrointestinal neuroendocrine tumors; and ACC, or Adrenocortical Carcinoma. In these Phase IIa studies, we plan to treat approximately 20 GI-NET or ACC patients with a minimum of 10 GI-NET treated. Our objective is to confirm and expand the clinical benefit observed in patients with these diseases in the Phase I study. Currently, we have 8 clinical trial sites open and enrolling patients, including the leading sites in the United States for GI-NET and ACC patient treatment. We're very pleased that the enrollment rates in this study are on track. We plan to present the available GI-NET study results later this fall. Today, we'll provide a brief update on the ACC data available. Thus far, we have enabled to assess response in 4 ACC patients. Three of these 4 have demonstrated a clinical benefit, including 1 resists qualifying partial response. This patient with a partial response has been on TKM-PLK for 12 months and has experienced a 42% reduction in their target tumor mass, which is located outside of the liver. Furthermore, this lesion is showing evidence of necrosis indicative of antitumor activity. We also remain on track to initiate a Phase I/II clinical trial with TKM-PLK1 in the first half of this year in patients with Hepatocellular Carcinoma, or HCC, at multiple international trial sites. Now looking to our early-stage preclinical work, we remain on track to nominate another product candidate for clinical development this year. To support our decision, we are generating meaningful preclinical data in a variety of programs, including our work in rare and orphan disease indications. On the partnering front, we continue to seek partnerships, where we can best leverage our LNP technology to enable the programs of our collaborators, while providing nondilutive capital to support Tekmira's own development programs. Our portfolio of revenue-generating partnerships continues to expand, and I'm pleased with our progress. Earlier this year, we partnered with Monsanto, who is seeking a delivery solution to enable RNAi products in the agricultural field. Monsanto will use our technology to develop new options for sustainable pest and weed control. Our agreement spans 4 years and has a potential value of up to $86. [ph] million, following the successful completion of milestones. Already, we've received a near-term payment of net $14.5 million. We're also pleased to report today progress made by Tekmira partners in the past quarter. Recognized as the gold standard in the field, our LNP delivery technology continues to drive the most significant RNAi advances and enables multiple RNAi products in clinical development in a variety of therapeutic areas. In late April, Alnylam released new data from its Phase II trial with LNP-enabled patisiran, or ALN-TTR02, which further validated Tekmira's proprietary LNP technology. Alnylam presented positive initial data from a Phase II, open-label extension study, which demonstrated sustained clinical activity with TTR knockdown at the 80% target level and tolerability with extended dosing. We are pleased with the progress supported by Alnylam, and this program is enabled by Tekmira's LNP technology. And finally, this past March, we successfully completed a public offering, providing us with gross proceeds of over $60 million, fortifying our cash balance to $134 million. This strong response to the offering not only validates the exceptional science that takes place at Tekmira, it also further fortifies our balance sheet and broadens our reach with U.S.-based institutional investors. I'll pause here and turn things over to Bruce, who will provide some further detail on key financial milestones and achievements.

Thanks, Mark. So first, adjusted net loss, excluding a noncash charge for warrant revaluation, represents an increase of $1.5 million when comparing Q1 2013 to Q1 2014. Inclusive of a $13.6 million noncash charge for revaluation of warrants, net loss increased $15.5 million from $2.5 million in Q1 2013 to $18 million in Q1 2014. Looking at revenue, in Q1 2014, revenue was $4.4 million as compared to $2.1 million in Q1 2013. Most of our revenue this quarter is from our U.S. Department of Defense contract to develop TKM-Ebola. Under the contract, we are being reimbursed for costs incurred, and we earn an incentive fee or profit margin on this. In Q1 2014, we also recognized $800,000 from our new contract with Monsanto for the use of our delivery technology in agriculture. As an aside, in structuring the collaboration with Monsanto, we established a new company called Protiva Agricultural Development Company, or PadCo. PadCo is a variable interest entity controlled by Monsanto, so was not consolidated into Tekmira's financial statements. Turning now to expenses. Total research, development, collaborations and contracts expenses increased from $4.1 million in Q1 2013 to $8.2 million in Q1 2014. This increase relates to the incremental activity on our newer product candidates, HBV and ALDH2, as well as new activity related to the Monsanto collaboration. There was an increase in R&D staff compensation as we hired additional staff to support our expanding portfolio of product candidates. As at the end of Q1 2014, we had a cash balance of $134.4 million as compared to $68.7 million at the end of 2013. We received $14.5 million in upfront payments from our new collaboration with Monsanto, and our U.S.-focused share offering provided $56.5 million in net proceeds. Financing increases our total common shares outstanding by 2.1 million shares to approximately 22 million. And I would now like to turn things back over to Mark for some comments before we open the call up for questions.

Thanks, Bruce. Bolstered by a strong balance sheet, the entire team at Tekmira is sharply focused on executing on our clinical development plans. Looking to the key inflection points in the latter part of this year, we anticipate releasing clinical data from our TKM-PLK1 and TKM-Ebola programs, as well as completing a preclinical package in support of launching a Phase I trial for TKM-HBV. To our shareholders, I thank you for your support and look forward to updating you on our progress. At this point, I'll turn things over to the operator, who will open up the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of Michael Yee from RBC Capital Markets.

I got 2 questions. First, on TKM-HBV, what is your timing -- estimated timing for when you could have some initial data on your Hep B program? Presumably, that would be in healthy patients? So the second part is when would you be into Hep B patients? What would the design look like, and when do you think you could get data on that? And the second question is on a different program. In oncology, you'll have data later this year, so what is your general hurdle rate to advance forward? What kind of data do you need to keep going? And what would that look like in terms of the next step?

Michael, it's Mark here. Maybe I'll take the second one first. So we haven't disclosed exactly how we expect to make the decision in PLK and what the hurdle rate is. However, we have said before, and we still believe, that if we get sufficient data -- if there are sufficient response, there are opportunities for accelerated approval paths for both GI-NET and ACC. And I think that is really what we would be looking for. If we think we can have a sufficient response to support that kind of path forward, we would consider going forward. If not, it may be a different story. And so I'm just not prepared today to tell you what those -- to disclose what we think those levels should be. With respect to HBV, again, I'm not prepared today to give you the trial design. But what we have said before, and we continue to believe, is that we will be in chronically infected patients next year.

Let me ask a follow-up then, because I sort of -- these are fairly vague answers, but more specifically, then if -- you talked about what Sirna/Merck just put up in terms of preclinical chimp data, 2.3 log. You think you can get better than that? What -- depending on what Arrowhead puts up in Q3, would that change your thinking on where you could come out, since they're publicly saying they think they could do about a log, that would be good. Would you be very happy with a log?

Well, I don't want -- I mean, we'd be happy, but I'm not sure that's where we want to be, okay? So again, I think we will be setting some of those goalposts for ourselves as we unroll the full preclinical package.

[Operator Instructions] Our next question comes from the line of Dr. Pamela Bassett from Maxim Group.

So you -- there's a real focus on your antiviral programs, and I know you guys did a presentation fairly recently on Ebola. And then with this data that came out using LNP that Alnylam reported this week, there's an emphasis here on generations of LNP. So will you review for us the key characteristics that distinguish third generation from earlier generations? And how these characteristics may impact the design and ultimate efficacy of your Hepatitis B and other antiviral programs?

So I would -- so in a nutshell, the generational nomenclature is maybe not as precise as one would like. But typically, it indicates a substantial increase in potency. So from first to second to third generation, we typically talk about a substantial increase in potency. And that, of course, means that we can get the same level of knockdown against a target using lower and lower doses. And that allows you to use lower material, avoid toxicities and all that sort of thing. So the potency is really the key metric.

Okay. Can you talk about how you created that? What's different about the LNP specifically?

So it has to do with the lipid composition of the particle, okay? And there are a number of aspects that are involved, but one of the key drivers is the ionizable lipid, which is in the particle. And the ionizable lipid is one that's principally involved in releasing the payload into the cytoplasm of the cell. And so these represent improvements or generations of ionizable lipid chemistry.

Okay. And remind me, is this a multi-layered liposome that we're talking about?

No. So in this case, we're not talking about a liposome. We are talking about a dense lipid particle, which is comprised of a number of lipids, together with the RNAi trigger payload in the same particle.

So it's more like a complex?

I would call it a particle, a multi-component particle.

Okay. Okay, great. And are we going to see anything at ASCO?

I don't think you're going to see anything at ASCO, no.

Not until -- so what meeting are you looking at for presenting oncology data, the PLK data?

There are a couple of possibilities. We haven't committed to one yet, but there is the NA-NETS meeting in -- I believe it's October, which is a neuroendocrine meeting. We presented there last year as well.

[Operator Instructions] Our next question come from the line of Chris Potter [ph] from [indiscernible].

Can you elaborate on what the collaboration with Monsanto is all about? It seems like a great endorsement from a great company. But we don't really know what they're doing with your technology.

Well, so let me try to summarize. So Monsanto has for sometime been working on RNA interference technologies and targets and product ideas in plants and insects. And they have run up against delivery challenges. So they need to be able to deliver their trigger molecules into plants and into insects. And so what we're doing with them is exploring the possibility that versions, iterations of LNP can enable such delivery. So I don't want you to get the impression that we're taking, say, something that I just described as third generation for human therapeutic use and applying it to plants. What we're trying to do is expand the formulation space by designing new types of LNP, explore new types of lipids and so forth. And then apply those to delivery in plants and insects. Did that help?

That helps.

This does conclude the question-and-answer session of today's program. I would like to hand the program back to Bruce Cousins for any further remarks.

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

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.