aTyr Pharma, Inc. (ATYR) Q3 2018 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the aTyr Pharma Third Quarter 2018 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 be given at that time. [Operator Instructions]. As a reminder to our audience, this conference is being recorded for replay purposes. It is now my pleasure to hand the conference over to Jill Broadfoot, aTyr's Chief Financial Officer. Ms. Broadfoot, you may begin.

Thank you, Telsey. Good afternoon, everyone. And thank you for joining us today to discuss aTyr's third quarter 2018 operating results and corporate update. We are joined today by Dr. Sanjay Shukla, our president and CEO. Sanjay will provide an update on our corporate strategy and the clinical development of ATYR1923. I will then review the financial results before handing it back to Sanjay to open it up to the question-and-answer session. Before we begin, I would like to remind everyone that except for statements of historical facts, the statements made by management and responses to questions on this conference call are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. Please see the forward-looking statement disclaimer on the company's earnings press release issued after the close of the market today as well as the Risk Factors in the company's SEC filings and included in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made and as facts and circumstances underlying these forward-looking statements may change. Except as required by law, aTyr Pharma disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. I will now turn the call over to Sanjay.

Thank you, Jill. And good afternoon, everyone. If you recall at the end of our previous earnings call, we highlighted two upcoming milestones, announcing our Phase 1b/2a protocol for the 1923 clinical trial in patients within a specific interstitial lung disease population, and initiating this trial in the fourth quarter of this year. I'm pleased to say that we’re in position today to discuss both milestones. In October, we announced our selection of pulmonary sarcoidosis as the disease indication for our upcoming ATYR1923 clinical study. We believe by modulating the activity of key immune cells involved in this disease, 1923 has the potential to down-regulate in pulmonary inflammatory in-cell in pulmonary sarcoidosis patients preventing further clinical morbidity and progression of disease. From San Antonio, the site of the CHEST Annual Meeting we hosted an educational webinar featuring Dan Culver, Director of the Interstitial Lung Disease program at the Cleveland Clinic. Dr. Culver is also the President-elect of the World Association of Sarcoidosis and Other Granulomatous Disorders and the Chair of the Scientific Advisory Board for the Foundation for Sarcoidosis Research. During the webinar, Dr. Culver provided disease education on pulmonary sarcoidosis and its impact on patients. We have benefited from Dr. Culver's expertise and experience in pulmonary sarcoidosis and have appreciated his feedback while we have developed our protocol for the upcoming study. As described by Dr. Culver in the educational webinar, sarcoidosis is a disease that involves the activation of the immune system in a pattern that results in a clump of cells called granulomas. The sarcoidosis is a multi-system disease whereabout 90% to 95% of patients will have lung involvement, the skin, eyes, liver; lymph nodes and other organs can also be involved. Within this population there are three categories of patients. The first, those patients where the disease will resolve on its own, which ranges between 30% to 50%. Approximately 10% to 20% of patients for whom there is no progression of fibrosis is the second group. And the last remaining number of patients, this is where you see a chronic inflammation and active granulomas formation. We believe approximately 30% of patients have this form of chronic unremitting information with progressive organ impairment. Estimates of prevalence vary, so we estimate that approximately 200,000 Americans live with pulmonary sarcoidosis. Steroids are the primary treatment for pulmonary sarcoidosis. Based on what we have learned from expert clinicians, steroids present significant complications for patients and are difficult to take as a long-term treatment. As Dan noted in his presentation, clinicians generally like steroids because they work quickly, but many say the toxicity cost is far too high. Patients are in need of effective and tolerable treatment that targets immune cells and their involvement in the pathobiology of pulmonary sarcoidosis. We plan to initiate a proof of concept Phase 1b/2a multiple-ascending dose placebo-controlled first inpatient study with 1923 for the treatment of patients with pulmonary sarcoidosis later this quarter. The study has been designed to evaluate safety and tolerability, steroid-sparing effect, immunogenicity and pharmokinetic of multiple doses of 1923. In addition, we intend to evaluate well-established clinical endpoints and potential biomarkers to further assess preliminary efficacy of 1923. Our team has been working very hard to finalize our protocol, initiate this trial. We recently filed our IND with the FDA, and I believe our entire team will be able to execute on our key objectives and deliver upon our clinical milestones, starting with the initiation of this Phase 1b/2a clinical trial. Of course the design of the protocol is subject to regulatory review and approval. But I'd like to highlight some features of our proposed protocol. For our submission up to 36 patients are planned to be enrolled in the study at up to 12 centers in the US. The study will consist of three-staggered multiple-dose cohorts. Within each cohort, 12 patients will be randomized, 2:1 to either 1923 or placebo. Study drug will be administered via IV infusion every four-weeks for total of six doses, with a follow-up visit four-weeks after the last infusion. The proposed dosing levels of 1923 are 1, 3 and 5 milligrams per kilogram. An important component of our submission is a proposed steroid paper for all patients in the trial. From a starting dose of 10 to 25 milligrams a day of prednisolone, the target dose of 5 milligrams a day of prednisolone to be completed before day 50. We will be following these patients for the remainder of the trial and evaluate their ability to maintain the sub-therapeutic 5 milligram dose of steroid while receiving 1923 or placebo. Patients who develop an acute worsening of symptoms or are unable to adhere to the tapering regimen may receive rescue treatment with higher doses of steroid as clinically indicated. By evaluating the dependency of steroids in this real-world manner, we believe we will be able to access the potential for 1923 to be a steroid-sparing agent. For our submission, we also plan to explore preliminary efficacy of 1923 by evaluating changes over time in disease activity assessed by FDG-PET imaging, lung function assessed by forced vital capacity or FVC, serum biomarkers such as interleukin-2 receptor and angiotensins-converting enzyme levels, the state of immune cell energy in peripheral blood, health related quality of life skills, and finally analysis of skin lesions for those subset of patients that we enroll with cutaneous disease. Our protocol design has been reviewed by over a dozen experts in the field and they've endorsed our approach. Our goal is to evaluate patients over treatment period with enough duration to provide not only a robust safety and immunogenicity profile for 1923, but also allow us the opportunity to potentially observe changes in clinically meaningful endpoints, in particular, reduction of steroid dependency. We believe our preclinical and Phase I data supports the clinical development of ATYR1923 in pulmonary sarcoidosis. Based on our discussions with experts, we also see potential future utility of 1923 in other interstitial lung disease indications, including chronic hypersensitivity pneumonitis and connective tissue disease-associated ILDs, such as systemic sclerosis ILD, and rheumatic arthritis ILD. Before I pass it to Jill to discuss our financials, I want to take a moment to talk about some of our research activities. As indicated in our last earnings call, we are actively initiating and conducting collaborative research at well-known academic institutions. We're doing so to first broaden the range of our translational studies to test for new potential biomarkers and evaluate further activity of 1923. In addition, we want to advance our understanding of the role of 1923 and NRP-2 interactions in the regulation of immune responses. And finally, to explore other biological settings in which 1923 and neuropilin-2 interaction plays a role, which could lead to additional potential therapeutic indications. We will update you on the status of some of these efforts in the near future. Our corporate strategy and overall mission remains the same and that we are critically focused on providing clinical translation of our science with our current resources. With that, I'd like to turn it over to our Chief Financial Officer, Jill Broadfoot to review our financial results.

Thank you, Sanjay. Research and development expenses were $4.2 million and $16.8 million for the three and nine month periods ending September 30, 2018 compared to $7.1 million and $24.8 million for the three and nine month periods ending September 30, 2017. The decreases were primarily related to the completion of ATYR1940 and ATYR1923 clinical studies in 2017 and related manufacturing expenses along with the decrease in personnel-related costs. General and administrative expenses were $2.5 million and $10 million for the three and nine month periods ending September 30, 2018 compared to $3.7 million and $11.2 million for the three and nine month periods ending September 30, 2017. The decrease were primarily related to a reduction in personnel-related costs, consulting fees and professional fees. As we mentioned on our last earnings call, net of our debt payments, we entered this year burning approximately $10 million per quarter in Q4 '17 and plan to exit the year burning approximately $6 million per quarter in Q4 of '18. During the third quarter we had a cash burn of $6.8 million which included our final payment to Scripps Research Institute under our collaboration which terminated this month. Excluding such payment, our cash bur is in line with our expectations and I'm very pleased with our reduction in operating expenses. As of September 30, 2018 we had $56 million in cash, cash equivalents and investments. Our net cash position was approximately $38.2 million as of September 30, 2018. Our total net cash position includes approximately $17.8 million in debt from our loan facility. Now, I'd like to turn the call back over to Sanjay, before we open it up to Q&A.

Thanks, Jill. We spent 2018 focused on building the right scientific foundation to prepare for meaningful clinical trials and directing our efforts to the development of ATYR1923. We look forward to achieving our goal of initiating our 1923 proof of concept Phase 1b/2a trial in patients with pulmonary sarcoidosis later this year. Thank you, everyone. At this time, Jill and I will be happy to take your questions.

[Operator Instructions] And our first question will come from the line of Matthew Luchini with BMO Capital Markets. Your line is open.

Hi, guys. This is Stephen Marshall on for Matthew. I was just hoping to get a little more color on those possible future indications, kind of what the market opportunity is and why 1923 is a good choice for that?

So, Stephen, good question. So we have previously outlined that we thought our drug could have utility in a number of interstitial lung diseases. If you remember these interstitial lung diseases share a common pathobiology in that pro-inflammatory and fibrotic cells eventually lead to a fibrotic pattern of progression in these diseases. And we have targeted those more pro-inflammatory conditions such as sarcoidosis and CHP. Ultimately we have decided in this first trial to focus on pulmonary sarcoidosis as we think that this is probably the most efficient early proof of concept to really focus our resources on. But the experts have clearly guided us that CHP and potentially those other connected tissue disease, interstitial lung diseases would be next grade and next follow-on indications. I think by establishing proof of concept in this study we will be able to springboard very quickly into those other indications, because as I said, they all share a common immunopathology across all of these conditions. When you think about market size, I mean these are conditions that are segmented for example with CTD ILD within RA and scleroderma. So those numbers, we’re still working on with those experts. But when you talk about CHP this is a condition that’s kind of emerging throughout the world. You start to see similar rates of incidents and prevalence. But depending on where you are in the world this can also frankly have more patients than pulmonary sarcoidosis. When I think of the market opportunity, I see them all similar when you think about 200,000, 250,000 patients for each of the subgroups and that sort of represents the two-thirds of the interstitial lung disease spectrum outside of IPF. So in many ways I think if you look at those IPF drugs where they are multibillion-dollar -- generating multibillion-dollars of sales with one-third of the ILD population, I think on this side of the fence it represents probably double of that. So my guess is there's somewhere near to $4 million to $5 million -- $4 billion to $5 billion of opportunity in those more pro-inflammatory interstitial lung diseases that we plan to look at after we establish this proof of concept.

Our next question comes from the line of Katherine Xu with William Blair. Your line is open.

Hey, Sanjay, Jill and the team. This is [Roland] on for Katherine. Thanks for taking my question. Could you talk about where you're hoping to see some pulmonary sarcoidosis study in 4Q '19? And when you might see pushing other indications into the clinic?

Sure, so I think the most important takeaway is we want to see a real sign of clinical activity in this trial. Yes, we want to check the box and continue to demonstrate safety and tolerability as we've done with our Phase I trial. But later this year we want to read out some of those important clinical markers. What the experts have told us is steroid dependency and burden is one area that would really make this believable in their eyes that if we can maintain these patients and in particular demonstrate that a trend with from a dose response element here we have the opportunity to really establish that clinical activity. We also have other ways in our trial to look at clinical activity. We have a very strong imaging endpoint with PET scans. This is something that's being used much more readily with experts and in trials looking at sarcoidosis and then we also are looking at pulmonary function test change with FVC. All of these things we believe can read out towards the end of 2019. That's going to be dependent on some of our early recruitment and I'll probably get back to you guys to let you know how we're tracking to that. But what I'd like to see is at a minimum two of those first two cohorts maybe the 1 milligram and the 3 milligram population for us to have data in Q4 next year. If we are able to recruit faster, we may be able to read the whole trial out. But I'm going to sort of come back to folks probably in the first half of next year on exactly what we're going to see, but it is going to be really around those three endpoints -- those activity endpoints that you want to pay most attention.

[Operator Instructions] Our next question comes from the line of Joel Beatty with Citi. Your line is open.

This is a follow-up to last question. You talked about those three different areas of the clinical activities you are looking for in the trial. And I guess could you maybe share some thoughts on the different characteristics of those endpoints in terms of which are those endpoints are kind of most important to the clinical improvement that you might expect to be important in later stage trials. And are there any of those endpoints that you think you would have less noise and that you can pick-up a clear signal in smaller early-stage study such as this one?

Yes, Joel, a great question. And I think kind of in order of how I’ve stressed the importance of the way you should think about it. If we are able to sort of -- and we've gone pretty aggressive here with the steroid-sparing approach and that’s per the guidance from nearly all the experts that, that is, in our mind and their mind, the most believable sign of clinical activity with the least amount of variability. Experts agree and data has shown that most patients cannot be maintained on 5 milligrams of prednisone. Typically what you'll see is the inability to keep that dose within two to three months based on data that's really out there in the literature. So we’re essentially sort of knocking the steroid dose down and then testing to see how these patients do and whether they can maintain that dose or not. The idea here is we look at sort of their steroid dependency and the burden and the kind of the overall amount of steroids these patients receive and presumably we expect to see 1923, that folks are able to manage their disease symptoms a lot better compared to placebo. You also want to look at disease activity I think by imaging this FDG-PET is also important, imaging endpoint, this looks at inflammation and that sort of peripheral and sort of perivascular space there, how much sort of inflammation are we really impacting? I think that’s sort of secondary efficacy endpoint to look at. Lastly I think FVC you have to be able to look at that and try to see if we have improvement there. But that’s probably your most variable endpoint. So I think in order of importance we place a lot of importance in being able to sort of manage these patients with a low dose of steroids. If we are able to do that in particular if we see a trend as we increase our doses that’s going to be a really important finding for us as we read out this trial.

Thank you. And we have a question from the line of Joe Aguilera with Telos Advisors Limited. Your line is open.

Sanjay, it’s Joe here. What's the potential of a partnership for 1923? And how are you looking at this going forward before the data, after the data, maybe you can give us some color?

Joe, one of the things I don’t really guide towards the partnerships per se. I mean I think as we have created an attractive program with a robust translational state, certainly we will look to be opportunistic around any of those sort of opportunities. We are really focused on getting this protocol nice and tight. We believe we've done that, submitted the IND and we are excited about getting the program started. I think we will always look with regard to any of our IP and ways in which we can generate more value and that includes partnership. But at this time, I don't really have a guide there per se around when and if we will partner this drug.

And that ends our Q&A session for today. I would like to turn the call back to Dr. Shukla for his final remarks.

Thanks very much. Thanks everyone for your time and attention today. We look forward to providing updates in the months ahead. Thank you very much.