aTyr Pharma, Inc. (ATYR) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the aTyr Pharma Second Quarter 2019 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 conference call, this conference is being recorded for replay purposes. It is now my pleasure to hand the conference call over to Jill Broadfoot, aTyr's Chief Financial Officer. Ms. Broadfoot, you may begin.

Thank you, Valarie, and good afternoon, everyone. Thank you for joining us today to discuss aTyr's second quarter 2019 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 for 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 provision 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 press release issued this morning 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. Good afternoon everyone and thank you for joining us for our second quarter results conference call. Today, we wish to discuss the following; an update on our Phase 1b/2a clinical trial for ATYR1923, a recap of our recent KOL webinar on sarcoidosis featuring Dr. Daniel Culver of the Cleveland Clinic, recent additions to our Board of Directors and the appointment of a new Scientific Advisor and finally a review of our current financial position and outlook over the near term. We’re currently leveraging our unique proprietary biology to develop a new class of medications that target immune mediated diseases. Our lead therapeutic candidate, 1923, is being developed for interstitial lung diseases or ILDs. Our initial indication is pulmonary sarcoidosis, one of the more inflammatory forms of ILD. Pulmonary sarcoidosis is characterized by inflammation in the lungs that if left untreated can lead to irreversible scarring and diminish lung function. There are approximately 200,000 pulmonary sarcoidosis patients in the U.S. alone, approximately 30% of these patients experience progressive disease despite being treated with the current standard of care corticosteroids. While steroids are beneficial for some patients, many are refractory or experience significant complications and side effects. 1923 is currently being evaluated in a Phase 1b/2a randomized, double-blind, placebo-controlled multiple-ascending dose clinical trial in pulmonary sarcoidosis patients. We have compiled a significant body of robust translational data in animal models demonstrating that 1923’s unique mechanism of action effectively targets a distinctive pathway in inflammation. This research, combined with safety data from numerous preclinical studies and our Phase 1 study, provided a strong rationale for continued development of 1923 and gives us optimism as we advance through this study. On the last call, I indicated that I would give an update on the status of our trial; initial enrollment with a small number of sites active with slightly slow pace. However, now that all 12 of our planned clinical sites are activated, we are observing an increase in our enrollment rate. At the recent American Thoracic Society conference, we received significant interest from additional pulmonologists that participated in the trial. We’re currently evaluating these potential sites both in the U.S. and in the EU for their potential participation in our study. We still expect interim data from this study by the end of 2019 where we will be focusing on initial safety findings from blinded data. As we’ve emphasized previously, our primary objective of this study is to demonstrate safety and tolerability of 1923. We will provide further updates on the advancement of our clinical trial during our next call. Overall, we believe our value proposition in the area of ILDs is significant and leading pulmonary experts remain very interested in our trial. We are focused on all forms of ILDs with the exception of idiopathic pulmonary fibrosis, or IPF, which is the least inflammatory ILD. Inflammatory ILDs represent a unique area of opportunity where there’s little competition and we believe these conditions represent a $2 billion to $3 billion market opportunity. Positive results from this trial would be transformational for our company and would give us further confidence to expand our pipeline to include other ILDs such as chronic hypersensitivity pneumonitis and connective tissue disease ILDs. We recently held a successful webinar on sarcoidosis featuring Dr. Daniel Culver of the Cleveland Clinic. Dr. Culver’s presentation reiterated many of the themes we have discussed including the seriousness of the disease, the persistent unmet medical need and the diminished quality of life associated with the current sarcoidosis treatment landscape. There is a clear need for new therapies with a faster onset of action and a more favorable safety profile. Dr. Culver believes that if 1923 is approved, it could potentially be used as first-line therapy. A webcast replay and accompanying slides from this very informative webinar can be found on our Events & Presentations section under the Investors tab of our Web site, www.atyrpharma.com. As discussed on the call, we believe we’ve designed our clinical trial for success in this high area of unmet medical need and minimize operational risk by, number one, forming a series of translational studies demonstrating 1923’s unique mechanism of action that effectively targets a distinctive pathway in inflammation. Number two, demonstrating initial safety and tolerability in our Phase 1 healthy volunteer clinical trial. Number three, targeting pulmonary sarcoidosis with 1923 to clearly address the immune pathology of this disease; and finally, designing the trial with the support of leading pulmonologists in the community. Turning now to other important additions to our Board and company. We recently welcomed two new seasoned biopharmaceutical executives to our Board; Dr. Jane Gross and Svetlana Lucas. Please refer to the July 1st press release for full details about Dr. Gross’ and Dr. Lucas’ extensive academic, clinical and commercial backgrounds. Their combined experiences in research and business development strengthens our Board and we look forward to working with them. We also announced that Dr. David Briscoe, a leading immunobiology researcher at Harvard Medical School and Boston Children's Hospital has joined aTyr as a Scientific Advisor to consult with the company on the ongoing development of therapeutics based on the Neuropilin-2 or NRP-2 co-receptor and related signaling pathways. We welcome the opportunity to work with Dr. Briscoe, a thought leader in this emerging field. As a reminder, in April, we hosted an Inaugural NRP-2 Summit Meeting that bought together key researchers to discuss the most recent discoveries relating to the development of targeted therapeutics directed at the NRP-2 co-receptor. We previously demonstrated at AACR earlier this year that 1923 impacts NRP-2 by acting on macrophages and other immune cells by down-regulating their immune activity. At the NRP-2 Summit, Dr. Briscoe as well as the other experts in attendance implicated NRP-2 as an attractive target in a broad range of disorders with significant unmet medical needs. Our research team is currently developing monoclonal antibodies directed at NRP-2 in order to selectively modulate specific pathways associated with this receptor. This approach dramatically expands our ability to develop novel therapeutics in a number of high-value areas, such as cancer and inflammation. To support our efforts to establish a leadership position in NRP-2 biology, we recently filed U.S. and international patents to protect the first-generation of lead monoclonal antibodies that we developed during our initial R&D program and we are now working internally as well as externally with our scientific collaborators to further validate and test these antibodies in vitro and in animal models of disease. We look forward to providing further updates on our progress as these programs mature. In summary, the company is generating significant momentum with our lead program ATYR1923. We continue to advance the development of our NRP-2 base pipeline through monoclonal antibody approaches to selectively modulate this receptor. With the addition of two new Board members and a leading Scientific Advisor, we feel we have enhanced our internal expertise to further explore this new area of biology and potential address serious unmet medical needs. I believe we have a unique opportunity to help significant and underserved patient populations while at the same time creating long-term value for our shareholders. With that, I’d like to turn it over to our Chief Financial Officer, Jill Broadfoot, to review our financial results.

Thank you, Sanjay. For the first time in the history of our company, we have recognized revenue from a research collaboration. In March 2019, we entered in a research collaboration and option agreement with CSL Behring, or CSL, for the development of product candidates derived from up to four tRNA synthetases from our preclinical pipeline. Under the collaboration, CSL funds all research and development activities and we received the first phase of funding totaling 630,000 in May of 2019. We also have an opportunity to receive up to a total of 4.25 million in option fees per synthetase program up to a total of 17 million if all four synthetase programs are advanced by CSL. And if such programs are advanced by CSL, they will have an option to negotiate a license for worldwide rights to each IND candidate that emerges from this research collaboration. As a result, for the three months ended June 30, 2019, we recognized 94,000 of the 630,000 of collaboration revenue under the CSL agreement. I’m also happy to report that we have continued to realize cost savings from the programs prioritization and corporate restructuring announced in May 2018. We also continue to find ways to operate more efficiently which is reflected in our 2019 results. Our net loss for the three and six months ended June 30, 2019 was 5.8 million and 12 million, respectively, compared to 10.4 million and 21.1 million for the same periods in 2018, respectively. This represents a reduction in expenses of approximately 4.5 million per quarter. We ended the quarter with 42.4 million in cash, cash equivalents and investments compared to 49.5 million as of December 31, 2018. Our cash at quarter end includes the 5 million in gross proceeds raised through a registered direct investment led by Federated Kaufmann. For the six months ended June 30, 2019, our cash burn, net of debt and equity, was only $11 million. For the year ending 2019, we are now projecting a total cash burn at the lower end of our previous guidance range of 23 million to 25 million, net of debt and equity. Our long-term debt decreased from 16 million at year-end 2018 to 12.4 million as of June 30, 2019. We are on target to have our loans fully repaid by November 2020. We believe the combination of revenue, cost saving measures and equity proceeds gives us sufficient cash to comfortably complete our current Phase 1b/2a clinical trial. Now, I'd like to turn the call back over to Sanjay before we open it up to Q&A.

Thanks, Jill. We appreciate your interest and continued support and look forward to providing further updates in the future. At this time, Jill and I will be happy to take your questions.

Thank you. [Operator Instructions]. Our first question comes from Joel Beatty of Citi. Your line is open.

Hi, guys. This is Shawn Egan calling in for Joel. Thank you for taking my questions. Are you able to provide an update on the actual number of patients enrolled and whether or not the Phase 1b/2a study has dose passed the first cohort yet?

Sure. Hi, Shawn. Thanks for the question. We’re really not providing sort of a play by play on the number of patients per se. I will say that we’re still on track to outline interim safety results at the end of the year. With that will come some of that information that you’re asking for around potential dose escalations and DSMB review, but that’s going to be dependent on those final numbers once we do that analysis. I will say that this is a sort of need of the season that we’re looking to enroll here, in particular now that we have all 12 centers up and running. So I’ll be providing more updates around that at the next earnings call.

Okay, understood. I know that in the past you discussed how important the steroids bearing potential is as they endpoint the Phase 1b/2a study. Do you view it as a more commercial endpoint or do you believe that you could potentially build it into a pivotal endpoint?

Well, I certainly think that it’s a very innovative endpoint that we’ve chosen to sort of focus on here. It is perhaps the most clinically meaningful endpoint and something that we heard from the clinicians that would really make them believe the activity of this drug. As no current drugs have been approved solely around that endpoint, it’s hard to predict that. But I will say that in these diseases where steroids present so much burden and toxicity in the patients, I think relative agencies are becoming more amenable to at the very least included as a composite endpoint. Traditionally you see things like SVC as the real endpoint that people are looking at here, they’re now starting to see imaging endpoints such as PET scans being used in sarcoidosis. So we like it as a sign of activity. We would of course need to sit down with the regulators on how they see it, whether it’s a primary endpoint or a secondary efficacy endpoint for the next study. But I think it’s such an important part of how these patients are treated and Dr. Culver pointed out the need that we need better therapies because the steroids themselves create so much toxicity in these patients.

Yes, makes sense. Thank you, Sanjay. And then my last question is, you mentioned that some of the doctors that you’ve spoken with have indicated that they see this potentially being a front-line therapy. Maybe talk about what level of benefit or what criteria do you think would kind of elevate it to that status?

Yes, I think as corticosteroids represent more or less the standard of care in these patients, the experts are looking to replace that with a therapy that is a lot less toxic or not toxic at all and also has a fast onset reaction. And I think Dr. Culver highlighted that our drug checks those two boxes thus far. So I think when we think about it as a potential first-line therapy, could we replace steroids and really prevent that sort of downstream progression of fibrosis, we like our drug having that kind of mechanism. So I think that’s where we would see it benefit. In our trial we look to of course take folks down to 5 milligrams. So individuals that are coming in at 10, 15, 20, that’s a significant difference. But even if they came in on the low end going from 10 to 5, that would be fairly significant amount of improvement in reducing that steroid burden. I will say recently at some of the conferences we’ve heard from some pulmonologists that perhaps we should even maybe allow the trial to go down to zero. And we have incorporated small tweaks to our protocol that if patients are doing well, say post week 16 at the discretion of the investigator, they could also taper them completely off steroids. I think this is really attractive to patients and it points to the whole burden of steroids that they really want to get off steroids here and maintain a quality of life with a new therapy like 1923.

Great. Thank you for the updates.

Thank you. Our next question comes from Yi Chen of H.C. Wainwright. Your line is open.

Thank you for taking my questions. My first question is, when you report the interim safety results in fourth quarter, will you report safety results from all three doses?

Yes. Hi, Yi. Really the way I look at it is for the patients that we have at least say three doses, I want to report all of the blinded safety findings at that point. I think once we start to demonstrate tolerability after multiple ascending doses of our drug, certainly that would be messaged in a serial manner. So really at that point I would look to get information on all of the patients that have received at least multiple doses of our drug regardless of what dose they received and start to basically see if we see any trends there and ensure that we have a good safety and tolerability similar to what we saw in our preclinical and Phase 1 work.

And just to clarify, the patients are enrolled into one of the three doses – one of the three cohorts from the get-go not like the first dose cohort has to be filled before the second dose cohort is starting enrollment. Is that correct?

No, it actually is a kind of serial dose enrollment. Patients are allowed to move into dose two, if you will, the 3 milligram dose at the midpoint of our first cohort. So it’s staggered to a certain degree. We at least want to see safety around six patients and allow an independent DSMB to take a look at that. If they then green light the next dose, then of course you could enroll in a serial manner moving from 1 milligram to 3 milligrams. So there is a staggered component. Remember that’s why this is still primarily a safety and tolerability study, but at the same time we think we’re going to be able to see activity here. So just to clarify here, we’re not enrolling 1, 3 and 5 all at once. We’re starting with 1, then we’ll be able to move into 3 pretty much after demonstrating half of the previous cohort as good safety and tolerability.

Got it. Second question on the financial side. Do you expect the operating expenses in the second half to remain at the same level as the first half in 2019?

Yes. I expect our cash burn to remain fairly consistent with our current cash burn.

Got it. Thank you.

Thank you. Our next question comes from Jason McCarthy of Maxim Group. Your line is open.

Hi, guys. Thanks for taking the question. So I have a few that are bit more general. So I’d like to see if you could help clarify how the other treatments in this space compare to ATYR1923? We know about steroids but what anti-TNF drugs like Humira? Are they also monthly IV or is there different dosing schedules? And then what about side effects? I know it’s early stage and safety data should be coming, but do you expect to see an improved safety profile based on the NRP-2 mechanism?

Sure. Thanks for the question. So going to kind of your first point there, those drugs – the anti-TNF drugs they’re being used currently off label. So there really isn’t a nice sort of treatment paradigm with them just quite yet. What most of the experts have observed and even Dr. Bob Bop [ph] recently put out a paper, a poster at ATS. Looking at those drugs and they seem to be effective in a small percentage of patients. However, those patients that you start to see efficacy, you have two issues. Number one, a percentage of those patients I think are poised to 40% from that poster, and I have to go back and look at that, experienced toxicity over time. And then the other component is for those proportion of patients that are still doing well on those therapies, reimbursement becomes an issue. So the anti-TNF I think had a lot of fanfare early on. There was a thought that they might actually work in these patients. They don’t work in all of the patients. The patients that you start to see some efficacy, you start to see toxicity and then those that you don’t see toxicity you have reimbursement challenges. So when you think about sort of first and second-line and third-line therapy right now, talking about steroids being utilized first and then once the patient becomes progressively fibrotic, you got to bring in the more heavy hitting immunosuppressants; the cyclophosphamide, the azathioprine, the Mycophenolate, things of that nature. Our drug clearly addresses kind of the early immune pathology which is the inflammation that occurs early on. Hence, this is the reason why we’re trying to target essentially spare or many ways replace steroids early on. We think by addressing the inflammation early on we can have the concomitant effect of avoiding that downstream progression of fibrosis. Why do we feel confident about that? You start to look at our translational data and the NRP-2 effects that we have in a number of our animal models, now it’s over half a dozen models where we clearly show post anti-inflammatory effects and by doing so we’re preventing some of the downstream fibrosis. And we start to see that also by improved fibrotic scoring in certain rodent models that we have. So I think our therapy clearly targets this early on. We think we can address and really change the treatment paradigm as a first-line therapy and we also think eventually we could be the type of therapy that could really help these patients avoid that really bad mobility and mortality that you see when they become fibrotic.

All right. Thank you very much.

Thank you. Our next question comes from Robert LeBoyer of Ladenburg Thalmann. Your line is open.

Thank you. I had just some clarifications on some of your previous answers to the 1b/2a study. And first, is it going to be safety and safe to go forward or not forward or some of the secondary endpoints that you mentioned and some of the efficacy that you may be seeing? Is that also going to be reported and will all the patients from the cohorts be included or is it just half or several doses or is it a full course of treatment for all of the patients in the cohorts?

Okay. So just to clarify, I think what you’re asking is with our interim data I’m sort of going to hit pause and just say, okay, where are we right now in our data and how are the patients that have been treated with at least say three doses of the drug, how are they doing in this study from a safety perspective? It will be a little bit early to readout and draw conclusions from an efficacy perspective. So that’s what we’re going to focus on in fourth quarter this year. Next year – at the midpoint next year, we expect to read out the whole trial and the whole trial will again reiterate to make sure that we have a good safety profile but then we’ll be more closely looking at those secondary endpoints and the secondary endpoints are those really focusing on activity, starting with steroid sparing effect, we’ll look at PET scans to see patients improve qualitatively with their inflammation as that’s becoming a more validated imaging biomarker. We’ll look at some of those other serum biomarkers. We’ll also look at SVC in these patients to see if they improve with their pulmonary function testing. So think about it that way that we get a quick interim analysis on however number of patients that we have that we can analyze at the end of this year, that’s just safety only because I can just keep the data blinded at that point. Then we’ll read out all 36 patients in 2020 with both safety and the activity signals looked at.

Okay, great. That’s very helpful. That clarifies a lot of things. Thanks.

Sure.

Thank you. Our next question comes from Jeff Schwartz of MM Billing [ph]. Your line is open.

Thank you for taking the question. Just a clarification. When you file with the FDA, will the filing need to show that ATYR1923 is equivalent to steroids or superior to use than steroids? I would think if it’s equivalent without the side effects, then you have an approval drug or am I wrong?

No, great point, Jeff, and that’s actually one of the things that Dan highlighted here that if you can actually have a drug that controls the day-to-day symptoms, prevent the progression of fibrosis which we know steroids don’t do that and it does not have the toxic effects of the drug, then it’s an approvable therapy. For me to the clinician when I think about this, patients are going to feel better not having their diabetes or hypertension run amuck with steroid use. So eliminating that while at the same time controlling their cough and shortness of breath with a more tolerable therapy that can also be administered once a month, I think that’s where you have a winner there. So I do think that the long-term benefits here is also to prevent that fibrosis and that’s something that of course than it is something that you can say is better than steroids, because we know steroids may even contribute to fibrosis according to some of the IPF studies.

Thank you. Equivalency is a much lower bar to jump over with the FDA, so hopefully you’ll hit it certainly based on the data you’ve had so far. The other question I have is, it doesn’t related to this. I just wanted your take on it. You’ve got almost 43 million in cash and clearly more than enough to get you through into next year and into the data. Your market cap is at 9 million. Any comments on the disconnect?

Well, I think – that’s a tough question to answer.

I know.

Jeff, we see our program as significantly de-risked. I can tell you we’ve quarter-by-quarter delivered on the promises and what we’ve been outlining, what we’re going to work on and what we’re going to do. We tend to be very transparent and truthful in what we do. It might be a rarity nowadays in biopharma based on what’s happening recently. I think we’re doing even a better job of managing our capital resources. This is cash that has been given to us by shareholders. We want to be very careful on how we manage that. We think we have a significant value opportunity here. We’re hopeful that more folks start to see that and maybe then that disconnect then can be solved for us. But in the meantime we’re going to continue to really focus on doing a good job here, manage our money well and really focus on executing this trial to a successful outcome.

Okay. Thank you.

Thank you. I’m showing no further questions at this time. I’d like to turn the conference back over to Sanjay Shukla for any closing remarks.

Great. Well, thanks everyone for joining our call this afternoon. Great questions. We look forward to providing our next quarterly update in November. Thanks, again.

Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you for your participation. Have a wonderful day. You may all disconnect.