Arbutus Biopharma Corporation (ABUS) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Arbutus Biopharma Corporation 2019 First Quarter Financial Results and Corporate Update Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would not like to introduce your host for today's conference Ms. Pam Murphy. Ma'am you may begin.

Thank you. Good afternoon and thank you all for joining us. On the call today from Arbutus management team are Dr. Mark Murray, Chief Executive Officer; Dr. Mike Sofia, Chief Scientific Officer; Dr. Gaston Picchio, Chief Development Officer; and Dave Hastings, Chief Financial Officer. Before we begin, we'd like to remind you that some of the statements made during the call today are forward-looking statements, including statements regarding expectations for Arbutus' proprietary HBV pipeline, including clinical time lines and results for the lead compounds AB-506, AB-729, and AB-452; our expected cash runway and expected revenues from our current and potential licensing agreements. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our most recent annual report on 10-K and from time to time in our documents filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today While we may elect to update these forward looking statements at some point in the future we specifically disclaim any obligation to do so even if our views change. Now I would like to turn the car over to Mark.

Thank you, Pam, and thank you to everyone for joining us on the call today. Arbutus is committed to the development of an effective combination regimen to achieve an HBV cure. We are now more convinced than ever that this combination approach is correct. As you saw in the press release, we expect to report top line interim HBV patient data for AB-506, our oral capsid inhibitor in July. Gaston will describe what data we plan to share and update you on our clinical plans for 506 over the next several months. As you also saw in the press release while we had plan to initiate the Phase 1 clinical trial of AB-729, our subcutaneously administered RNAi agent, which targets viral antigens notably Hepatitis B surface antigen this quarter, but due to a regulatory request we received last Friday, May 3rd, the clinical trials start will be delayed. We will update you on the timeline once the clinical trials start has been approved by regulators. Gaston will add more color in just a moment. Regarding AB-452, our lead oral RNA-destabilizer, Arbutus remains committed to the development of AB-452 and our oral RNA-destabilizer program because these compounds have shown compelling antiviral effects in multiple HBV preclinical models. AB-452 is being evaluated in a series of in vitro and in vivo studies to further characterize the compound, it's a mechanism of action, safety in pharmacokinetics profile before deciding whether to initiate clinical trials. Mike Sofia will take you through our current plans and expectations for AB-452 in the RNA.-destabilizer program. Now we'd like to turn the call over to Gaston.

Thank you, Mark. We are developing a capsid inhibitor as a new mechanism to further decrease HBV replication and to inhibit the formation of new cccDNA. Capsid inhibitors are complementary with nucleoside analogues and together lead to deeper HBV DNA reductions. AB-506 is a potent Class II capsid inhibitor. It has shown pan-genotypic activity, is active against NUC-resistant variants and it dose once daily. AB-506 is currently being studied in healthy subjects and HBV patients in a Phase 1a/1b 28b daily dose in clinical trial. We intend to conduct an interim analysis on report top-line safety data in healthy volunteers and the safety and efficacy interim data into those cohorts of HBV subjects, totaling number of 24 patients later in July. With full results presented later in the year as an appropriate scientific meeting, efficacy parameters will include mean change in HBV DNA and RNA levels from baseline and of those which is actually day 28. We plan to continue those in HBV patients this year in two additional cohorts. One of which will include a nucleoside analogue, and also to initiate a phase to those finding and long term safety trial of AB-506 with an approved nucleoside analogue later in the second half of this year. These studies are designed to support the use and approval of AB-506 in a combination therapeutic regimen. Based on the accumulated pre-clinical data obtained so far, we are confident AB-506 will exceed comparable potency to other capsid inhibitors in development. However, we remain convinced that AB-506 still need to be combined with other novel surface antigen lowering agents to meet our goal of developing a curative regiment of finite duration. To that end, we have designed an RNAi agent which will target all viral antigens including surface antigen regardless of its source. That is why it arises from cccDNA or from integrated DNA, AB-729 employs a single RNAi trigger that spans all the HBV transcripts , educes all the viral antigens and inhibits HBV replication. This compound also employs our proprietary GalNAc hepatocyte-targeting technology, which not only allows for subcutaneous dosing, but also provides important benefit of less-frequent dosing, potentially once a month. We have successfully completed AB-729 IND-enabling studies in support of the single ascending dosing portion of the Phase Ia/Ib clinical trial, that we planned to initiate this quarter. But as mention, in response to our recently submitted CTA, a regulatory authority has requested that the company completes its ongoing three months and six months toxicology studies, before commencing the single ascending portion of the Phase Ia/Ib clinical trial. I want to emphasize, we remain confident in the safety and efficacy of AB-729 given the preclinical data, we have gathered so far. Further, the result of this longer tox studies, which are currently ongoing were planned to support a later part of the clinical study involving three months and six months dosing of HBV positive subjects. However as Mark mentioned, due to our regulatory authority requesting that we complete the ongoing toxicology studies, the clinical trials start will be delayed. We plan to explore a variety of options to accelerate the clinical trial initiation, based on the currently available tox duration data. With that, I would like now to turn the call over to Mike Sofia.

Thanks Gaston. Mark and Gaston have mentioned our plan to combine AB-506 and AB-729, with nucleoside analogs in the clinic in 2020. We believe that AB-506 and AB-729 will complement one another in chronically infected patients. Last month at [indiscernible], we reported that these two agents were synergistic with one another in a pre-clinical in vitro model of HBV replication. This demonstrates that in addition to inhibiting as antigen expression, AB-729 inhibits HBV replication. As many of you know, we have been working on an exciting new mechanism, which could lead to very significant benefits for HBV patients. We refer to this mechanism as RNA destabilisation. This program is a high priority for the team at Arbutus. For the last several years we have been designing small molecules of differentiating common types, all with their this RNA-destabilising activity, dissecting the mechanism of action and the host factors involved in preparing to advance compounds into clinical development. Last fall we held off advancing our first RNA destabiliser compound AB-452 into the clinic due to a safety signal we observed in a long term non-clinical safety study. Since then we have conducted and continue to conduct a number of studies designed to fully characterize these findings as well the mechanism of action and to determine if proceeding into human testing is appropriate. This evaluation has resulted in some conpounding findings, which include a lack of histopathology associated with clinical observations, a lack of dose response associated with some key pathology and an unexplained vehicle effect. It is therefore our position that these compounding findings potentially cast doubt on the validity of the current non-clinical safety studies, because this compound has the potential to change the HBV treatment landscape, we intend to do more work on it before making a go/no go decision about advancing AB-452. This is simply the scientifically rigorous thing to do. We have a wide range of studies underway including repeating the 90 days safety studies in two species and we now expect to make a go/no go decision about AB-452 in early 2020. While disappointing, we think doing more work to thoroughly evaluate the safety of AB-452, while we continue to bring back us forward is warranted, because the RNA-destabilizer mechanism itself is novel and highly differentiated and if successful will be very important for patients and the Company. The target we are addressing with AB-452 in our follow on compounds very selectively destabilizes or degrades all HBV RNAs and thus has effects on many aspects of the viral lifecycle including DNA replication and s-antigen production. The chronic HBV patient population will have a very low tolerance for compounds, which are not safe and well tolerated. We have performed a variety of studies in vitro to look for signs of toxicity or other off target effects. We cannot find them. The compound looks clean. We have knocked out several cellular proteins involved in the mechanism, there appears to be no deleterious effects on the cells. And finally we have made a competitive position in this space and we'd like to maintain that with the first RNA-destabiliser to the clinic. I would now like to turn the call over to Dave.

Thanks Mike. I'll start today by discussing the Company's cash position. As a reminder cash and cash use are most important financial metrics. At March 31st, 2019 we had a cash and investments balance of $110.6 million versus a balance of $124.6 million at December 31st, 2018. Our cash used in operating activities during the first quarter of 2019 was $16.5 million, offset by $2.5 million of net proceeds from the use of our ATM. We believe our cash balance is sufficient to fund operations into 2020. The only other area I would like to speak to today is our Onpattro royalty entitlement. As we have previously disclosed, our royalty rate is in the low to mid single digits tiered based on net sales. We are pleased with the trajectory of the launch and the long term potential of this product. Additionally, while we can't predict when or if a deal may happen, we are still open to monetize in this royalty stream fund upfront cash payment and possible downstream retention of economics if we feel such a transaction aligns with the product's potential. So with that I'll turn the call back to Mark.

Thanks Dave. Well we have today reported some delays which are reporting to - disappointing to me and our team. I want to reiterate our belief and our commitment to the belief that the most effective approach to developing a cure for HBV will require a combination regimen of complementary therapeutic agents administered for a finite treatment duration. This thesis is now shared by many and this is our focus. We believe having control over the discovery and development of effective compounds with complementary mechanism of action, which can be used in combination is important and to that end we've developed a pipeline of therapeutic agents that target aspects of chronic HBV infection we believe are the most important and therefore the ones we are focused on, including HBV replication, s-antigen expression and immune reawakening. We continue to believe that our two lead compounds AB-506 and AB-729 have the potential to be used in combination with an approved nucleoside analogue and deliver a meaningful advance over the current standard of care. That is our focus. At this point, I'd like to open the call for questions. Operator?

[Operator Instructions] Our first question comes from Keay Nakae with Chardan. Your line is now open.

Yes question for Mike. Just on - I guess, the issues you're seeing with the talk setting, so in terms of repeating the three and six-month longer term talks, are you doing those talk studies? What are you hoping to find that you're not already getting?

So as I mentioned there are several aspects of the studies that we have completed that we were concerned about. One of that is, that we saw a vehicle effect. There we've decided to change the vehicle in the study to eliminate that concern. The other is we have not seen a correlation with some of the histopathology with some of the other findings and so we think changing the vehicle hopefully would help us, sort out some of these issues as well. And you know there was a lack of a dose response with some of the findings. So we just feel it's imperative that we repeat this study to just either confirm or refute these findings. And depending on the results will give us a path forward. We also are actually doing quite a number of other studies that will help inform us as well with regard to any of these findings. So that package of information we think is going to be very, very helpful to us in making our final decision.

And in terms of the vehicle since it was orally available product, are you simply looking at using different recipients or what is there to really change that?

Yes, I mean, I mean what I can say is that the vehicle we used was really somewhat unusual. And so we feel that going to a more standard vehicle will - is something we just have to do, right, to eliminate the concerns we have with the vehicle.

Okay and then, go ahead, sorry.

So just to be clear, these vehicles are - are only used in animal studies, they're not used in humans.

Right.

We have solid dosage formulations for human studies. If we are able to move forward.

And then for 729 can you be a little more specific on what the regulatory agency's concern was with the talks package you gave them?

So I think one of the issues here is we just got this information Friday. So we were trying to be as transparent as possible with you and at the moment I think we've communicated really what we know that is we believe - the package we've submitted supports the initiation of the study in healthy volunteers and the agency has asked for the longer term ongoing studies. This does not suggest there's any safety issue with the drug. It's a regulatory issue that we need to work through.

So in terms of your ideas for accelerating the way you're able to conduct the trial, will you still look to move forward with the normal healthy volunteers and just wait for the patients with hepatitis B or how should we think that what that might look like at this point?

Yes, I think that's among the possibilities that we would consider, right. So there's a variety of ways that we can think about going forward. You just need to give us a little time to kind of sort through these so that we can - we'll have a clear answer for you.

Okay. So that's all. Thanks.

[Operator Instructions] Our next question comes from Mayank Mamtani with B Riley FBR. Your line is now open.

Just one for me on 506. Could you talk a little bit about the 24 patients that you're dosing some of the baseline characteristics around - maybe new exposure or genotype status? And then second part of that question, what - I know at the high level you talked about seeing some of the expose - some of the outcomes around cccDNA and maybe RNA response. Could you talk about like what your expectation about that read out in July would be?

Gaston, you want to take that?

Sure. So we have two cohorts of subjects, HBV positive, all of them are - most of them are treatment naive, but they are not on a nucleoside analogue at the time that we are dosing AB-506 because we want to have a readout on HBV DNA decay. So these are a mix of e-antigen positive and e-antigen negative subjects. Ten of the subjects in each cohort are being dosed and there are two placebos. In terms of expectations as to the cccDNA and impact on the transcription activity of cccDNA, we are looking at exploring the decay of HBV RNA, which as you know is a surrogate or it has been considered as a surrogate for transcription or activity of cccDNA as well as other antigens like HB core-related antigen. I cannot speak to what - we will see what comes out in the interim analysis, but we expect as with other capsid assembly inhibitors that we will be able to knock down HBV RNA as well as HB core-related antigen.

And would you be able to comment, just follow-up to that, the surface antigen response, what would be your expectation around that? Or would that be reserved maybe for the following study with NUC?

I mean as you know none of the currently available capsid model inhibitors in development have shown any significant dropping HBsAg, whether it's in the presence or absence of our NUC. So we really are open to see what the data would show us. We cannot really speculate whether we're going to be different from others or not. But I would just say that let's wait until the data comes out in early July.

And just two housekeeping on 729 and the destabilizer. On 729, just clarifying, is there the agency, could you disclose which country, because generally I mean a lot of these studies are being done in Asia-Pacific. Is there maybe cohort that you are planning to do in Canada or any of the Western countries? And then on destabilizer if you could just briefly comment what are your latest thoughts on - how based on what you would learn from the different parameter you look at, go/no go? And knowing the landscape, how do you expect to develop that if you do intend to develop that in 2020?

So let me address the regulatory agency. So we're not prepared to discuss exactly which regulatory agency we're interacting with. So we can't do that. Could you rephrase your question about 452 developments?

Just, your latest thoughts on how you intend to develop that - like which patient population or which combination, is it going to be a quadruplet therapy? Is it going to be a triplet, just your latest thoughts there?

So I think it's a little bit premature to go too far here, but I think I would let you would say the following. We would develop 452 as an agent that's primarily designed to block surface antigen expression. So, much like you're seeing us do with other compounds here, we would first have to go into patients and establish safety in healthy volunteers and safety and efficacy as a monotherapy in patients. And then we will know - then we will consider rolling it into a combination.

Thank you. I'm not showing any further questions at this time. I would not like to turn the call back over to Mark Murray for any closing remarks.

Thank you, Operator. And thank you all for joining us today. We'll keep you updated on our progress. Goodbye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.