Arbutus Biopharma Corporation (ABUS) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Arbutus Biopharma Corporation Fourth Quarter and Year-End 2019 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker, Ms. Pam Murphy. Please go ahead.

Good morning. On the call from the Arbutus executives team are: Bill Collier, President and Chief Executive Officer; Dave Hastings, Chief Financial Officer; Dr. Gaston Picchio, Chief Development Officer; and Dr. Mike Sofia, Chief Scientific Officer. Bill will begin with a review of corporate objectives and clinical development, followed by Dave Hastings, who'll provide a summary of the company's fourth quarter and year-end financial results. We'll then open up the call for Q&A. Mike and Gaston will be available to address research, and clinical development-related questions.Before we begin, we'd like to remind you that some of the statements made during this call today are forward-looking statements, including statements regarding expectations for Arbutus' proprietary HBV pipeline, including potential clinical results and timelines for AB-729 and AB-836, and future compounds. Our 2020 objectives, our expected cash used and cash runway and the potential for our drug candidates to improve upon standard of care and contribute to a curative combination regimen for HBV. 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, Quarterly Report on Form 10-Q, and other periodic reports filed with the SEC.Bill?

Thanks, Pam, and thank you everyone on the line for joining us today. We really appreciate your interest in Arbutus Biopharma. We also know that this is a really busy time for many of you. So we're going to keep this call pretty focused and succinct.I do believe however, it's worth reminding ourselves that Hepatitis B remains a significant unmet medical need, with over 257 million people chronically infected worldwide, including over two million here in the United States, and over 900,000 people die worldwide each year despite the availability of vaccines and antivirals. Also, it's worth remembering that existing antivirals have very low cure rates, less than 5%. So, it's actually our belief that Hepatitis B curative regimen would substantially increase diagnosis rates, and treatment rates, and unlock significant market growth opportunities.At Arbutus, our goal is to focus exclusively on developing a portfolio of products with different mechanisms of action that when used in combination could result in a functional cure. We have a talented and experienced team focused on this goal as evidenced by our 2020 objectives, which include the following: Firstly, completing the Phase 1a, 1b clinical trial of AB-729, our proprietary GalNAc delivered RNAi compound. Secondly, progressing our next-generation capsid inhibitor AB-836 through IND-enabling studies, and thirdly, advancing our research efforts for a next-generation oral HBV-specific RNA destabilizer, and a lead oral compound that inhibits PDL-1.So, let me briefly summarize each of these programs for you. First of all, AB-729; 729 is an RNA interference therapeutic targeted to hepatocytes using novel covalently conjugated GalNAc delivery technology that enables subcutaneous delivery. In preclinical models, 729 inhibits viral replication and reduces all HBV antigens, including hepatitis B surface antigen. Reducing S antigen is thought to be a key prerequisite to enable reawakening of a patient's immune system to respond to the virus.Now, we're currently conducting a single and multiple-dose Phase 1a/1b clinical trial for AB-729 to determine the safety, tolerability, pharmacokinetics, and pharmacodynamics in healthy volunteers, and in subjects with chronic hepatitis B. Preliminary safety data in single-dose cohorts of healthy volunteers, and safety and efficacy data in single-dose cohorts of subjects with hepatitis B are expected later this month. Additionally, single-dose data and preliminary multi-dose data are expected in the second-half of 2020.Let me turn to AB-836. 836 is an oral HBV capsid inhibitor. HBV core protein assembles into a capsid structure, which is required for viral replication. The current standard-of-care therapy for HBV, primarily nucleoside analogues work by inhibiting the viral polymerase, significantly reducing virus replication, but not completely. Capsid inhibitors inhibit viral replication by preventing the assembly of functional viral capsids. They also have been shown to inhibit the uncoating step of the viral life cycle, thus reducing the formation of new covalently-closed circular DNA. That's the viral reservoir which resides in the cell nucleus.Now, in January this year, we selected 836 as our next-generation oral capsid inhibitor. 836 is a novel chemical series differentiated from our previously discontinued capsid inhibitor candidate, AB-506, and also from other competitor compounds in the capsid inhibitor space. We believe 836 has the potential for increased potency and an enhanced resistance profile compared to 506, and we anticipate completing IND-enabling studies by the end of 2020.Now, for a few comments on our early R&D Programs, as you know, we recently stopped development of our RNA destabilizer 452, however, we are continuing to focus our efforts on discovering follow-on RNA destabilizer compounds for our current HBV pipeline, including the development of oral destabilizers that have shown compelling antiviral effects in multiple HBV preclinical models. Arbutus is now focused on advancing a next-generation oral HBV-specific RNA destabilizer with chemical scaffolds distinct from 452 through lead optimization. We also have compounds in lead optimization that are potentially capable of reawakening patient's HBV-specific immune response by inhibiting PD-L1.I'll now turn the call over to Dave Hastings, our CFO for his summary of our most recent financial results.

Thanks, Bill, and good morning everybody. I'll be brief this morning as we've previously disclosed our key financial metrics in early January of this year.[R&D] [Ph] and cash was approximately $91 million as of December 31, 2019. Our cash used from operations for 2019 was $71 million, which was on the lower-end of our guidance of $70 million to $75 million. This despite the fact that our cash used in 2019 included a payment of $5.9 million for the arbitration with the University of British Columbia, and a $2.3 million severance payment to our former CEO.Our use of cash in 2019 was partially offset by $18.5 million in net proceeds from the sale of a portion of a royalty entitlement on net sales ONPATTRO, and $18.6 million on net proceeds from the issuance of shares under our ATM program. Now notably, we have $12.3 million of additional net proceeds from our ATM programs so far in the first quarter of this year. For 2020, we expect our cash used that range from $54 million to $58 million, and therefore we expect our cash runway is sufficient to fund operations in the mid-2021.So with that, I'll turn the call back to you, Bill.

Thanks very much, Dave, and Operator, Sherry, perhaps we could open up the lines now for a question-and-answer session.

[Operator Instructions] Our first question comes from Mayank Mamtani from B. Riley.

Thank you for taking my questions and my best wishes for a busy 2020 for you. So, maybe starting with AB-729, could you comment on -- I know it's single-dose we're talking about, but could you maybe comment on the baseline characteristics of these patients, maybe, are they treatment-naïve, are they newly-experienced? And then I have a follow-up.

Okay. Gaston perhaps would like to answer that question.

Sure. Hi, good morning. So, the patients that we are enrolling in our Phase 1a/1b AB-729 study have the following characteristics. They are chronic hepatitis B subjects, who have no cirrhosis. So, we are including METAVIR Scores F0 to F2. They have ALT levels up to less than five times upper limit normal. There is a mixture of -- we're allowing both the antigen positive and the antigen negative, and in the first cohorts that we're testing, we're including only subjects who are on a stable nucleoside therapy with undetectable HBV DNA for at least six months before we start dosing with AB-729.

Very good. And the follow-up, Mayank?

Yes, and how does this inform the patients you plan to enroll in the [MAD] [Ph] section, which would be in follow-up to that?

Well, so basically what we're doing right now is single doses, and based on the efficacy and safety of the single doses that will inform our next steps in terms of what dose we will move forward in multi-dosing, as well as the frequency of dosing that we will select.

Okay. And then on the oral capsid, it seems like the timeline for this was pretty quick for you to identify a follow-on -- maybe could you talk to what will happen in order to identify this and why were you able to move so quickly after experiencing a little bit of a setback last year?

Sure. This is Mike Sofia. Hi. Well, our strategy has always been that we continue to develop follow-on agents in parallel with the work that we're doing in the clinic. So, the idea here is to continue to innovate in that particular space that we're focused in, and so, with the capsid program, AB-836 and related molecules were already very far along in our preclinical programs, such that we were able to then introduce 836 nominate that compound pretty quickly post the five or six stoppage.

Okay. I guess last question, what are you looking at the -- from an external landscape standpoint, as you know, there are other drugs in these different classes that could help inform what a combination and what your development could be like to that goal that was talked about the functional cure towards the end of this?

Well, I mean -- and this is Mike again, look, our position has always been that you need to do a couple things to actually achieve a functional cure as defined by AASLD and EASL guidelines, and that is you need to stop bar replication and reduce HPV DNA level to undetectable. You have to address the S-antigen question, since we believe and I think it's well-established that S-antigen is playing a critical role in the host immune response control that this virus has. So, you need to now drop S-antigen levels to enable the host immune system to ultimately re-engage. And then to make a more broad-based therapy, we ultimately believe in coupling with S-antigen drop, the addition of an immunomodulatory agent maybe critical to achieving that broad-based cure. So, those are the things that we believe, and I think the data that continue to be developed in HBV space supports that strategy, and our portfolio is built around that.

Great, thanks for taking my question, and look forward to the data later this month.

Thank you so much.

Thank you. Our next question comes from Keay Nakae with Chardan.

Yes, thank you. Question for Mike, of your preclinical data for 729, what would you point investors to as perhaps being most informative as you try to handicap what the single test data might look like?

Well, I think if you go and look at the in-vivo studies that we did in the AED mouse model. In that study, what you see are several things. One, that you get a nice dose-dependent deep drop in HPV S-antigen levels, and it's persistent post a single-dose of the agent. So, it looks like at least a once-monthly dosing potentially longer if in fact the preclinical data holds into clinic. You also see that, in fact, you can add a repeat dosing, so every four weeks, and you still get a precipitous additive drop in HPV S-antigen levels. So, this all sort of projects into the clinic, where we believe that we're going to be very competitive with other agents that are out there, and have the ability to drop S-antigen in a sustained way.

Okay, great. And Bill, one of your competitors, [Dicerna] [Ph], on a couple of occasions posted their collaboration with Roche has said that for their RNAi for hepatitis B has stated that they had multiple [suitors] [Ph] looking at that asset, I mean, what is your view of the landscape there going forward?

Yes, good question. So, I mean, I think one of the points to underline here is that Arbutus, you know, our aim and our ambition is to develop a portfolio of medicines, and as we've described, with different mechanisms of action. So, yes, there is an intent for us to move these molecules through on our own. However, we've also said that we're not ignoring potential partnerships, and yes, we do talk to other institutions and organizations. So, we don't rule that out. I think our general view is if it's going to help assist and speed the development of our molecules that policy is going to be good for patients and good for shareholders. So that's our general approach.Dave, do you want to add anything else to that?

No, I mean, I would just say obviously, any collaboration, discussions, we would want to approach from a position of strength, I think we're in that position, we're well-capitalized and we have an interesting portfolio, yes.

Okay. Thank you. That's all I have.

Thank you. [Operator Instructions] Our next question comes from Madhu Kumar with Baird.

Hi, guys. Thanks for taking our questions. So I guess the first one we have is thinking about this single-dose 729 data coming out later this month, what is the effect on surface antigen that would make you feel really enthusiastic for the way for this drug, and yes, [indiscernible] you would feel quite positive for 729, the RNAi [indiscernible]?

Okay. I guess so. So, in terms of establishing success with the 729 data, let me just point out to the data that's out there. Unfortunately, there is no single-dose data that we can come directly compare to, but if you look at the data from the Arrowhead/Janssen program as well as their program, it appears that looking around day 29, the mean surface antigen drops were around -- and this is a visual, what I'm going to refer to is just a visual assessment because there is no formal data provided for day 29 or week-four, it appears to be around 0.4 to 0.5 logs drop from baseline. So, taking that as a reference, we think that anything in that ballpark or above would be considered successful.

Okay, great. And then, stepping back into the earlier stage programs, you make a point of developing oral drugs, both RNA destabilizer for hepatitis B and a PDL-1 inhibitor. I mean, it gives a natural question that emerges, if you're developing an RNAi drug for the hepatitis B viral transcripts, have you thought about the development of an RNAi compound to target both host factors that could affect HPV RNA stability or PDL-1?

Well, yes, we thought about that. We believe that the oral strategy here has some advantages over RNAi strategy. Particularly for a host factor, if you have an RNAi strategy, you're going to be knocking down the production of that protein, you know, for a very extended period of time. It's unlike in a viral factor that you knocked down, which is a viral target that doesn't have direct impact on the host. So, what we are very interested in doing, for example, in PDL-1, is being able to control the PK/PD relationship with an oral agent that helps circumvent any potential, let's say, safety issues that may arise, because we do know in antibody-based PD-1 and PDL-1 agents that you do have some adverse events associated with that, that we don't feel will be compatible with HPV therapeutic area. So, in that regard, we think the small molecule provides us with the ability to modulate any issues that may arise with regard to non-desirable effects.

All right, great, thanks. And I guess, we'll be chatting in a few weeks time.

Thank you.

Thank you. Speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to management for any further remarks.

Okay, well, thank you very much for dialing in this morning. We really appreciate that you could join us, and we look forward to seeing some of you in EASL in London perhaps, and also to updating you as we report our preliminary results from the Phase 1 study of AB-729 later this month. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.