Arbutus Biopharma Corporation (ABUS) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, thank you for standing by, and welcome to the Tekmira Reports Fourth Quarter and Full-year 2014 Financial Results and Provides Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference to our host, Ms. Julie Rezler, Director of Investor Relations and Corporate Communications. Ma’am you may begin.

Thank you, operator. Good afternoon, everybody, and thank you very much for joining us as we provide our corporate update and report the 2014 financial results for Tekmira Pharmaceuticals Corporation. Talking on today’s call is Dr. Mark Murray, our CEO; and Bruce Cousins, our CFO. Mark will provide a strategic overview of Tekmira post-merger, and Bruce will review the company’s 2014 financials and future outlook. We are also joined by Pat Higgins, Tekmira’s COO, who will participate in the Q&A session following our prepared remarks. I would like to remind everyone that certain statements made on today’s call will be forward-looking and constitute forward-looking statements or forward-looking information under applicable securities laws. Forward-looking statements and information discussed in this conference call include, but are not limited to, our focus on discovering and developing a cure for HBV through a combination strategy, maximizing the value of our non-HBV assets, our competitive advantages, anticipated timing on clinical milestones for both HBV and non-HBV assets, our branding, ticker symbol and office location, planned investment conferences and road shows, the completion of post-merger integration activities and the continuation of our ongoing partnership programs. Forward-looking statements and information are current predictions only, which are based on certain assumptions, which include, but are not limited to, the effectiveness of our products, the ease of integrating the merger and the stability of economic and market conditions. While we consider these assumptions to be reasonable, these assumptions are inherently subject to significant business, economic, competitive market, and social uncertainties and contingencies. Forward-looking statements and information 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. A more complete discussion of the risks and uncertainties facing Tekmira appears in Tekmira’s 10-K for the year-ended December 31, 2014, which will be filed on EDGAR and SEDAR shortly, and will be available online under the Investors section of our website. We do not expect to update forward-looking statements continually as conditions change. This conference call is being webcast live and the archive will be available on our website at tekmira.com following today’s call. Please note that we do report in U.S. dollars and we are in compliance with U.S. GAAP. At the end of the prepared comments, we will open the call for your questions. So now, over to you, Mark.

Thanks, Julie. Good afternoon and thank you all for joining us on the call and webcast today. I’d like to focus my remarks today on Tekmira post-merger with OnCore Biopharma and the extraordinary opportunities we believe our new company has, as we aim to cure the millions of patients worldwide with chronic hepatitis B infection. I’ll provide a brief overview of our drug combination HBV strategy, as well as our valuable non-HBV assets and preview the milestones we expect to achieve in the near future as we complete the merger integration and move our pipeline forward. By all measures, 2014 was a transformational year for Tekmira. We believe that 2015 has the potential to be another year of significant progress and accomplishment. Tekmira today is an industry-leading therapeutic solutions company, focused on developing a cure for chronic HBV, by advancing a deep and broad portfolio of clinical and pre-clinical assets toward a combination therapy. Through the merger we have transformed Tekmira from a technology-based development company into a therapeutic solutions company. We plan to mobilize what we believe is an unprecedented portfolio of high-value HBV assets, plus the highly successful former Pharmasset scientific discovery and development expertise to focus on discovering and developing a cure for HBV. We also intend to explore ways to maximize the value of our non-HBV oncology, antiviral and metabolic disease assets, as well as our partnered programs. The foundation of these valuable assets is the leading position we have built in RNAi technology with our proprietary Lipid Nanoparticle or LNP technology. In our press release issued today, we highlighted some of those assets, such as clinical candidates TKM-PLK1 and TKM-Ebola-Guinea, both of which have shown early promise and will yield clinical data later this year. We’ve also highlighted several pre-clinical candidates we believe can become valuable clinical assets and development partnerships, which offer milestone payments, as well as royalties on commercialization of products. We’re committed to maximizing the value of these assets and we’ll report to investors as our specific plans develop. A key consideration in this regard will be preserving our core focus on the company on HBV. We believe that Tekmira represents a novel and different therapeutics company with a primary focus on HBV and a unique solutions-based business model. There are several key attributes to differentiate us and constitute, what we believe, are compelling business advantages. These include; the depth and breadth of our HBV asset portfolio fully integrated and housed under one roof, our discovery and development approach to efficiently and rapidly evaluate combinations of therapeutic agents targeting the three pillars of viral resistance and our ability to do this under one roof, our strategy to advance the most promising product combinations from our portfolio through clinical development in combination regimens and our plan to opportunistically bring in-house additional promising assets that can expand our therapeutic reach and contribute to a curative regime for HBV. By deploying a combination strategy designed to lead directly to therapeutic solutions, we believe that we could significantly reduce the risk associated with reliance on any single agent and maximize our therapeutic opportunities. We believe that this innovative business model is unique in the industry today and provides a pathway for sustained value creation for Tekmira, patients, the global medic community and our shareholders. Curing HBV is an ambitious but achievable goal. There are 350 million people around the world infected with HBV. We have seen the pharmaceutical industry recently advance curative regimens for HCV, so we know that changing the course of these devastating viral diseases is possible. The team that led the development of a curative regimen for HCV at Pharmasset is now the Tekmira team. We believe that we now have in-house, the technologies, the science, the leadership to similarly transform the HBV landscape and to potentially eradicate HBV as a global public health threat. The commercial opportunity for Tekmira, if we are successful, can be very large. The combination approach Tekmira is pursuing focuses on the three factors, or what we call pillars, that drive HBV persistence. These are uncontrolled viral replication, suppression of the host immune response and the existence of the stable reservoir of viral genomic material called cccDNA. We firmly believe that in order to achieve a true HBV cure, all faucets of HBV resistance need to be addressed, and that only impacting a single target or pillar will not be sufficient. We believe that this combination strategy, coupled with the HBV assets and the scientific and development expertise we possess, are major differentiators for Tekmira and will be the foundation of our success. In HBV, we have what we believe is a robust industry-leading pipeline. Today we have eight active programs or assets in various stages of clinical and pre-clinical development, targeting the three pillars of viral persistence. Here is a brief overview of the breadth of our portfolio. Our pipeline is led by TKM-HBV, our novel LNP-formulated RNAi therapy that uniquely targets three regions of the HBV viral genome. Targeting multiple sites on the HBV genome allows for potent reduction of multiple viral antigens across a broad range of HBV genotypes, and reduces the cccDNA levels observed in animal models. TKM-HBV is currently in a Phase 1 healthy subject clinical trial. Our next most advanced program is OCB-030, a second generation cyclophilin inhibitor. OCB-030 inhibits viral replication and stimulates the host immune response. It is a semi-synthetic natural product known as sanglifehrin produced by a bioengineered fermentation process. Pre-clinical data shows that OCB-030 is more potent than first generation cyclophilin inhibitors and has a cleaner safety profile. OCB-030 is currently in IND-enabling studies and we anticipate initiating clinical development later this year. Our capsid assembly inhibitor programs currently are in mid-lead optimization stage and target viral replication. We are developing several small molecule compound series which have been identified as potent inhibitors of HBV capsid assembly in vitro and have shown substantially reduced HBV DNA levels in a mouse model. To address immune activation, we are developing several oral small molecule compounds that inhibit the secretion of S-antigen. We have identified a series of S-antigen secretion inhibitors, which are currently undergoing lead optimization [ph]. Our STING antagonist program is also directed at addressing immune stimulation. STING which stands for stimulators of interferon genes is a cytoplasmic pattern recognition receptor that plays a role in the activation of the innate immune response system in the presence of a viral infection. We’re on the lead generation stage of identifying human STING agonist that has the potential as potent immunomodule to our agents. Finally, we have programs directly targeting cccDNA. Eliminating cccDNA is the cornerstone of an HBV cure strategy. It is the reservoir of viral genomic material responsible for the production of new viral proteins and viral genomic materials that lead to new virus and replenish the intercellular cccDNA. We have two approaches to attack cccDNA. One is to directly inhibit its formation and the other is to inhibit cccDNA transcription and stability. Both programs are addressing these strategies. By massing this portfolio of assets under one roof, we believe that we can optimize HBV combination curative strategies. We have the assets and the know-how to advance multiple highly active and complementary agents into the clinic in rapid succession, to rapidly validate various combinations in small focus studies, to identify the most promising combinations to advance to later stage trials and to adapt and expand our portfolio as new insights emerge. Our team has executed on this solutions-based strategy with great success to develop an HCV curative approach in the past, and we intend to pursue breakthroughs in HBV in a like manner. We have several important catalysts underway in our HBV program and we are on a trajectory to have two HBV agents in the clinic in 2015 and to file INDs for several more programs in 2016. One of the keys to Tekmira’s success in consummating this innovative merger in record time and moving quickly to maintain momentum and hit the ground running is the integrated approach we are taking in all aspects of our company. We have moved quickly to assemble a world-class management team and board of directors comprise of representatives from both, Tekmira and OnCore, whose combined achievements include developing a cure for HBV, pioneering RNAi drug discovery and development and creating significant value for shareholders. Today, we are moving quickly to function as one integrated team, committed to moving forward together to change the phase of treatment of HBV. We know that we have taken on a large and important challenge that we have a lot to do achieve our goals. We deeply appreciate the support and confidence that you, our shareholders, have shown over the years, and especially in your positive vote for the merger. We intend to continue to use our combined talents, resources, assets and dedication to deliver sustained value creation over the long-term. Now, I would like to ask Bruce to discuss our financial performance and other corporate matters. Bruce?

Thanks Mark. I’ll begin with a recap of recent merger-related activities. Along with Mark, I want to express our appreciation to our investors for your strong support for the merger and helping us to forge an exciting new Tekmira. As we announced last week, the transaction was approved by 99.5% of votes cast by Tekmira’s shareholders, voting at a special meeting held on Tuesday, March 3, and representing 51.2% of shareholders of the company. The transaction has also received all necessary regulatory approvals in the U.S. and Canada. The total shares outstanding on closing of the transaction are 46.6 million shares with fully diluted shares of 49.7 million. The merged companies will continue under the Tekmira brand and will continue to trade under the ticker symbol of TKMR. We are currently undertaking creation of a new corporate identity that we believe will symbolize the promise of our new company, and it will likely result in the change in our ticker system. We hope to have that project completed before the end of the second quarter. Tekmira will continue to be headquartered in Vancouver, Canada, with offices in Doylestown, Pennsylvania. And as Mark has noted, we are well advanced in combining operations, and are confident that full integration will be completed in the upcoming months. Given the extensive asset trove we have in our entire portfolio, including our HBV pipeline, which Mark has summarized, as well as our non-HBV and partnered pipelines as part of the integration process, we are now focusing on program prioritization and resource allocation decisions. In a few minutes, I will summarize Tekmira’s financial performance for 2014, which reflects our business pre-merger. By next quarterly financial report, we’ll reflect our combined company’s investment and allocation strategies and the combination of solutions-based business model that will define Tekmira going forward. Like Mark, I believe that we have created a differentiated company that represents an innovative and compelling investment opportunity that is unique in the biopharma industry today. Over the coming weeks and months, we look forward to participating in several investment conferences and investor road shows with the goal of showing you how our company intends to execute on our development strategies, move our portfolio forward and continue to be creative on the business development front. As Mark said, we know we have a lot to do. We believe that we currently have the resources to meet our near-term goals, and will be exploring additional strategies to fuel the rapid progress we intend to make. Mark alluded to the several catalysts we have upcoming in our HBV programs, including completing the safety trail with TKM-HBV and advancing OCB-030 to the clinic later this year. We have a number of upcoming value creating milestones taking shape throughout our portfolio. To summarize, we anticipate completing the TKM-HBV safety trial in healthy volunteers in the first half of 2015. In the second half of the year, we intend to initiate a study of TKM-HBV in infected patients using a multi-dosing regimen. We intend to file an IND for OCB-030 in the second half of this year, and shortly thereafter, initiating a clinical trial. We expect that TKM-Ebola-Guinea human efficacy trial will be completed in 2015 by the University of Oxford. We anticipate having data from two studies of our PLK-1 oncology program in GI-NET or Gastrointestinal Neuroendocrine Tumors, and in ACC or Adrenocortical Carcinoma, mid-2015. Also in the PLK-1 hepatocellular carcinoma program, we expect to complete the expansion cohort in the second half of 2015. Finally, we expect to complete post-merger integration activities, including our corporate rebranding in the first half of the year. I would also remind you that our partnered programs with Dicerna, Monsanto and the U.S. Department of Defense are moving forward and we plan to continue to support the ongoing activities of our collaborators and licensees by providing new LNP formulations for different RNAi therapeutics. Our partnered programs are entirely self-funded and have the potential to generate significant development and sales-based financial milestones for the company. It is important to note that today, our LNP technology represents the most widely adopted and advanced delivery technology in RNAi having enabled eight clinical trials and administer to more than 250 human subjects. Because LNP can enable a wide variety of new nucleic acid payloads including messenger RNA, we continue to see new product development and partnering opportunities based on our industry-leading delivering expertise. Now I’ll briefly review our 2014 financial results and then return the call to Mark for further comments. I’ll begin by noting that as at the end of 2014, we had cash investment balance of $112.1 million in aggregate. Our U.S. focused share offering in March 2014 provided $56.5 million in net proceeds to Tekmira. Now turning to financial highlights for Q4. Tekmira’s net loss for Q4 2014 was $6.2 million as compared to a net loss of $8.6 million for Q3 2014. Looking at revenue, Q4 2014 revenue remained consistent with Q3 2014 revenue at $4.4 million. Most of our revenue in 2014 is from our U.S. Department of Defense contracts to develop TKM-Ebola. Under the contract, we are being reimbursed for cost incurred and we earn an incentive fee or profit margin on this reimbursement. In October, the DoD exercised a $7 million option, contracting us to manufacture TKM-Ebola-Guinea in response to the current outbreak in West Africa. In Q4, 2014, we also entered into a collaboration with Dicerna for the use of our technology to develop, manufacture and commercialize products related to the treatment of PH1. Turning now to expenses. Expenses increased from $11.2 million in Q3 2014 to $15.1 million in Q4 2014. This increase is primarily related to significant pre-clinical spending on TKM-HBV in support of filing a clinical trial application to move forward in the clinic, as well as manufacturing activities under the DoD contract in response to the current Ebola outbreak in West Africa. There was an increase in R&D staff compensation as we hired additional staff to expand our in-house capability and supporting our expanded product line. Also in Q4, we accrued R&D and G&A annual bonuses that are linked in meeting our corporate objectives. Looking at non-cash items, in Q4 2014, we recorded a $2.3 million unrealized foreign exchange gain on our U.S dollar funds. We also recorded a $2.5 million gain in Q4 2014, with respect to the decrease in value of our outstanding warrants, due to the decrease in our share price from Q3. As of the end of 2014, we had total outstanding shares of 22.4 million. After the merger with OnCore, we now have total outstanding shares of 46.6 million and 49.7 million on a fully diluted basis including stock options approved by the board, but not yet granted. That concludes my comments on our financial perspective. Over to Mark.

Thanks, Bruce. Everyone on the Tekmira management team is excited by the opportunities that lie ahead. We have the potential to lead the industry in a solutions-based way to develop a complete care for HBV. And that promise motivates us every day. We look forward to keeping you appraised of our progress and to see you at upcoming industry events. Now, we would like to ask the operator to open the call for questions. Operator?

Thank you. [Operator Instructions] And our first question comes from Michael Yee of RBC Capital Markets. Please go ahead.

Hi, good afternoon. This is Judy Liu on for Michael Yee. Thanks so much for taking the questions. I’ve got two questions today. First one is on your Ebola program, the study that you just initiated in West Africa. Could you tell us a little bit more about that such as how many patients, what endpoint you’re looking at and what is current percentage survival success for you? So if you could clarify that first, please.

Sure. I’ll do this at a fairly high level. So yes, so the study is underway. We are treating patients who are admitted to treatment centers with the confirmed Ebola viral infection. The endpoint is mortality. They have collective data in the field about the mortality rate that could be achieved with standard of care and we’re looking to improve upon that. So the trial is designed to sort of measure efficacy or lack thereof on a rolling basis. So it will probably require something like 20 or 30 patients, depending upon the results as they unfold.

Okay, great. Thank you so much. And so second question is on your Phase 1 HBV program. So if you could give us a little bit more clarity on, for example, how many doses, what the starting doses you’ll be using and at what point would this trigger some kind of data release like X number of cohorts on roles or what [indiscernible] for the summer this year? Thank you.

Sure. And I’ll give you a high level. I think you can get more detail on clinicaltrials.gov if you’d like. So just remember it’s a healthy volunteer study. It’s a single ascending dose trial. It’s designed to go through approximately five dose cohorts. And you will recall that we are actually running two LNP formulations in parallel comparing their tolerability one to another. We expect to complete the study in the first half of the year, and then we would disclose results and talk about the selection of the go-forward LNP sometime after mid-year when the trial is completed. So did I answer that question?

Yes, thank you.

Okay.

Our next question comes from Michael Schmidt of Leerink. Please go ahead.

Hi, good afternoon, and thanks for taking my questions. I had one follow-up on the Hepatitis B program. Could you talk about potential plans for some pre-clinical data releases on some of the OnCore assets potentially going forward? Is there anything that you might have for investors for the 030 data likely in ’16, I would assume?

So Michael, good afternoon. We’re of course interested in doing such things. I can't give you a specific target date when we might have that kind of a result. But clearly something we think is interesting, it of course will depend a lot on what activities you’re trying to measure and what combination and is there an appropriate animal model for such thing.

So I guess we should stay tuned on that front?

Yes. I think - stay tuned. We’re very interested in it and we know you are as well.

Sounds good. And then I guess on your R&D data, you spoke about plans for RNAi drug targeting Delta virus. I was wondering that is still a part of your plan going forward to address that co-infection?

Yes, it is of high interest to us, and there is a couple of strategies. One of course is you know that Delta virus requires B virus surface antigen to package it. So one strategy is just to explore the ability of the current product that we have in the clinic to impact Delta virus co-infection. The other is to develop specific agents targeting the Delta virus sequence. We’re interested in both of those. The limitation with respect to the second is that there is not a lot of Delta virus genomic information available, but we’re continuing to look at it.

Great. Sounds good. And then a financial question. I was wondering if you could comment on cash, cash burn post-merger especially with respect to 2015 operating expenses. To what degree should we expect those to increase over 2014?

So on closing of the transaction, Michael, we’re in the $100 million range of cash on hand for the combined entity. We’ve not offered any specific guidance on cash burn as of yet. We will have more to say about that at our next call. However, I would expect our burn to be in the $60 million to $80 million range, and we’re working through that asset, that prioritization model as we speak. So, more to say on this at the next call.

Sounds good. Great. Thank you so much.

Okay.

Our next question comes from David Novak of Clarus Securities. Please go ahead.

Hi guys. Congrats on the exciting developments and thanks for taking the call. There seem to have been a bit of confusion with respect to the future direction of the company with recent statement solely focused on the HBV. So it’s nice to hear you speak on the value of other RNA assets. So with that, just curious if there is any further development with respect to innovating on the rooted delivery with respect to sRNAs? Is this something that the company will continue to look into, for example, assuming TKM-HBV demonstrates some sort of efficacy in the clinic, or with the transition away from IV come more in the form of the OnCore assets, particularly the antigen assets for S-antigen suppression?

Well, I think - so David, you know that our long-term aspiration will of course is to get to an all oral combination therapy. So that’s our ultimate target. Along the way of course we may be using other types of agents that go by IV administration in the meantime as you know. So we continue to be interested in evolving the delivery methodology I would say, and in investing in that technology development.

And I would just offer an addition from a funding perspective. We do have a number of collaborations already underway, important source of funding for us and it’s certainly assist us greatly on the technology development front. So we will leverage that fully.

Okay, perfect. Thanks guys. Just building on RBC’s question as well with respect to TKM-Ebola. I’m trying to get a feel for what the parameters will need to be in order to demonstrate statistical significance in the trial? So I was hoping you could provide a bit of clarity, specifically to how you will benchmark historical survival rates because it’s my understanding that they seem to be slightly fluid at the moment, meaning as time goes on best support of care has been relatively affected that decrease in mortality. So how do you account for this variability when looking at TKM-Ebola efficacy?

Well, David, it’s a challenge. And you’ve identified a challenge. What you really have to do is you have to focus on recent standard of care data in the site in which you are operating. So it’s as close as you can get to a good comparison.

Perfect. And is there sort of a soft benchmark at which point you decide to transition the current trial into a “Phase 3” trial?

No, I don’t think there is a design like that. The design will yield the result that says the drug is effective or the drug is not effective using the measurements in the statistical parameters that are in the trial design. So there is no plan to do a subsequent Phase 3 like trial in this setting.

Got you. Perfect. And finally, this doesn’t really move the needle one way or another, but $5 million coming in from the Alnylam arbitration in Q2 of 2015. Just wondering if you can provide any clarity on how that’s progressing? I mean, like I said it doesn’t really move the needle, just curious.

So there is a hearing for the arbitration which will occur in May. And so we really won't know anything until that hearing has been completed.

Great. That’s it for me, and congratulations once again guys.

Thank you, David.

David, good to hear from you.

[Operator Instructions] And our next question comes from Stephen Willey of Stifel. Please go ahead.

Yes, thanks for taking the questions.

Hi, Steve.

Hi, how is it going? I know that you’re still kind of going through the program and proletarianization [ph] here post-merger and you’ve made comments with respect to kind of the maximizing value around the non-HBV assets. But I’m just kind of wondering without necessarily asking for what the strategic objectives are, but just trying to get a sense as to kind of what you think your flexibility is on the strategic front and I guess how many - what kind of optionality you do have there in a potential monetization of some of these non-HBV assets? And I guess I have to question on the context of some of the recent BD deals in this space were kind of RNAi related targets and IP have been had for relatively low prices.

So Steve, I would say basically all options are on the table, and I just - I would hate to give you a direction one way or another and then be wrong. But we - there is a number of possible ways forward and our focus is really maximizing the value and then at the same time preserving our focus on HBV.

Okay. So I guess, it does sound like you feel like a few options?

Yes, I think so.

And I think there was also some pre-clinical work that was supposed to be ongoing this year. I think it was in relation to evaluating the Cytos compound combination I think with TKM-HBV. I’m just wondering if that’s initiated and if you were to be expecting that to complete by year-end?

Yes. So we are expecting to do some pre-clinical work on the Cytos compound, and most likely that will sort of get initiated mid-year and we expect to be able to complete it towards the end of the year.

Okay. That’s it. Good luck with all the integration.

Thanks Steve.

Thanks Steve.

And I am showing no further questions at this time. I’ll now like to turn it back to management for closing remarks.

Thank you all for joining us today and we are available if you have further questions.