aTyr Pharma, Inc. (ATYR) Q3 2019 Earnings Report, Transcript and Summary

Greetings, ladies and gentlemen, and welcome to today's Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host, Ms. Jill Broadfoot. Thank you, you may begin.

Thank you, and good afternoon, everyone. Thank you for joining us today to discuss aTyr's third quarter 2019 operating results and corporate update. We are joined today by Dr. Sanjay Shukla, our President and CEO. On the call, Sanjay will provide an update on our corporate strategy including the clinical development of ATYR1923 and our recent research collaboration announcement with Boston Children's Hospital. I will then review the financial results and our current financial position, before handing it back to Sanjay to open the call up for the questions. 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 third quarter results conference call. During the third quarter, we continue to make positive strides towards developing novel therapeutic candidates for patients, with high unmet medical needs by using analogy of the extracellular functionality and signaling pathway of tRNA synthetases. Today, I will update you on our progress with our lead therapeutic candidate ATYR1923 and advancement in our neuropilin-2 or NRP-2 biology research and development efforts. Jill will continue with the review of our financial position. 1923 is an engineered long-acting protein that is derived from the HARS gene. We are exploring the use of 1923 across a series of inflammatory diseases in the lung, which are known as interstitial lung diseases of ILD. Our initial ILD indication is pulmonary sarcoidosis, one of the more inflammatory forms of ILD. Pulmonary sarcoidosis is characterized by the granulomatous inflammation in the lung that is left untreated can lead to irreversible scarring and diminished lung function. As we look to build upon the significant body of 1923 translational data in the animal efficacy model, we've recently began characterizing expression of NRP-2 in human tissue samples. We obtained tissue samples from a biobank of sarcoidosis patient, not in our study in order to evaluate NRP-2 expression in target tissue, and we have observed some rather strike finding. We've confirmed positive expression of NRP-2 localized within the granulomatous tissue from these patients in both lung and skin granulomas. These are results quite impactful as they confirm that NRP-2 the target receptor for 1923 is expressed in the essential pathologic issue from sarcoidosis patient. We planned to present this data at a medical conference in the near future and these important findings considerably strengthened our hypothesis that 1923 we'll have clinical activity in pulmonary sarcoidosis. 1923 is currently being evaluated in a Phase 1b/2a randomized, double blind, placebo-controlled multiple-ascending dose clinical trial in pulmonary sarcoidosis patients. The trial continues to progress and we remain on track to report initial safety data next month. We plan on issuing a press release with interim safety data during the second week of December. Specifically the interim safety data will include patient demographics, adverse events, immunogenicity and ADA information. Interim safety data will be provided for all patients who have received a minimum of one dose of 1923 or placebo. I would like to thank the clinical team principle investigators and our trial sites for their hard work and efforts on this trial and keeping us on track with our goal of providing interim data at the end of this year consistent with our original guidance. In the past quarter, we made an important amendment to our protocol that I'd like to highlight at this time. As a reminder, our steroid sparing protocol aims to establish a 5 milligram dose of prednisone as the target maintenance dose. Patients in our trial enter the study at a prednisone dose between 10 to 25 milligrams and subsequently into a forced steroid taper that takes down their Sara dose to 5 milligrams of prednisone by week eight in this study. We then attempt to keep patients at this level until study completion. As our study has progressed, we have discussed with our principal investigators the possibility for patients in our trial to completely taper off of their steroid dose. As we have consistently heard, patients and experts agreed that getting off steroids medication and avoiding the toxicities associated with steroids is an important treatment goal. Based on discussions with our PIs, we made key protocol change from our steroid maintenance plan. Patients who are now stable on 5 milligrams of prednisone at the week 16 visit may now have the option to be titrated off steroid completely, if determined by the investigator to be feasible. We fill this important amendment incorporates the real-time feedback from PIs in our trial and enhances our ability to observe activity from 1923. The results of our current study will guide future development of 1923 in pulmonary sarcoidosis and providing site for the potential of 1923 in other ILD. We are focused on all forms of ILD use with the exception of idiopathic pulmonary fibrosis or IPF, which is the least inflammatory ILD. These inclinatory ILD represent a unique area of opportunity where there's little competition and we believe these conditions representing a $2 billion to $3 billion market opportunity. Overall, we believe our value proposition in the area of ILD is significant and leading pulmonary experts remain very, very interested in our trial. Our interactions with these leading pulmonologists continue as we gained momentum in this trial as well as through our supportive groups such as the World Association for Sarcoidosis and Other Granulomatous Disorders, or WASOG. We were recently a sponsor of an international joint conference between WASOG and the Japan society of sarcoidosis in Yokohama, Japan, where we continued to gain support from key opinion leaders in the ILD therapeutic space worldwide. In summary, our progress with the trial and the protocol enhancement we've been active based on guidance from our trial experts, coupled with the recent NRP-2 granuloma finding provides further evidence that we've designed our clinical trial for success. Let's shift gears and discuss our efforts to understand the NRP-2 in various other diseases as we move towards developing new pipeline opportunities. NRP-2 is a potentially novel target for inflammatory disorders and cancer. In inflammatory disorders, expression is up regulated both in immune cells; while in tumors, high tumor expression of NRP-2 is linked to worsen patient outcome. We continue to expand our leadership position in NRP-2 biology and currently has, six active scientific collaboration with leading institutions. These collaborations explore potential therapeutic use of selectively targeting the NRP-2 receptor in the context of specific diseases.To protect our proprietary discoveries in NRP-2 biology, we recently found U.S. and international patents to protect our lead NRP-2 antibody. These patents cover novel antibody that bind to a unique repertoire of distinct functional domains of this receptor, thereby modulating different aspects of NRP-2 biology. These antibodies offer the compelling possibility of developing multiple new love differentiated product opportunities. In addition to the well established role of NRP-2 in mediating cancer growth and metastasis, there are a number of novel applications for selective NRP-2 antibody, which we're also actively exploring. One collaboration of this type which we recently announced is a research collaboration with Dr. Diane Bielenberg and Boston Children's Hospital that we hope will further advance our knowledge NRP-2 and expedited development of targeted therapeutics and potentially address new indication. Dr. Bielenberg's research will initially explore the ability of NRP-2 antibody to prevent, inhibit, more reverse, smooth muscle decompensation in mouse model. The ability of NRP-2 to modulate smooth muscle could be exploited for therapeutic benefitting conditions, such as diseases of the bladder. Targeting NRP-2 offers a potential new therapeutic opportunity to treat unmet bladder condition. And it builds upon many years of research conducted by the Bielenberg Lab to understand the role of NRP-2 in the disease progression of these conditions. We're starting to enter this research collaboration with Boston Children's Hospital, and we believe reflects the broad clinical utility of NRP-2 modulators and strengthens aTyr's leadership position in this field. This is consistent with our strategy of partnering with leaders in industry and academia to expand our research and development efforts while preserving capital for the ongoing development of our lead therapeutic candidate 1923. Overall, we are very encouraged with our progress and look forward to hitting another milestone or interim safety data from our trial. This interim safety review is an important first step in establishing proof of concept of 1923 in pulmonary sarcoidosis. Additionally, our pipeline efforts around NRP-2 biology are advancing both internally and with key strategic collaborators. I believe we have a unique opportunity to help significant and underserved patient population, 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 three and nine months ended September 30, 2019, we recognized collaboration revenue of $184,000 and $278,000 respectively. These revenues are associated with the research collaboration and option agreement with CSL Behring or CSL where we also have the opportunity to receive up to a total of 4.25 million in auction per synthetase program, up to a total of 17 million, if all four synthetase program are advanced by CSL. Our net loss for the three and nine months ended September 30, 2019 was 5.6 million and 17.6 million respectively compared to 7.1 million and 28.2 million for the same period in 2018 respectively. The year-to-date decrease in net income is primarily due to a reduction in expenses of over $10 million. We ended the quarter with 38.1 million in cash, cash equivalent and investment. And for the nine months ended September 30, 2019, our cash burn, net of debt and equity was only 14.8 million. We continue to find ways to operate more efficiently and our quarterly cash burn has now declined for the second consecutive quarters this year. For the year ending 2019, we continue to project 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 10.6 million as of September 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 over this year 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 continued interest and support and look forward to providing further updates in the near future. At this time, Jill and I will be happy to take your questions.

[Operator Instructions] Our first question comes from the line of Joel Beatty with Citi. Please proceed with your question.

Hi guys. This is Shawn Egan going in for Joel. Glad to talk with you again. I appreciate the update and thanks for taking my question. Three for me today. You know, in the context of the protocols changed in the clinical trial, maybe you comment how common it is for pulmonary sarcoidosis patients to completely go off steroids?

Sure. Thanks Shawn. Good question here. As we designed our trial, we were looking for a population that required steroids to manage their day-to-day cough and shortness of breath. So these are patients that certainly have moderate disease and based on their PET scans, one would also say they have a disease phenotype that's progressing to becoming fibrotic. And that's the guidance we got from our experts. Getting all steroids is a key component, but the ability for these patients taper off, frankly, is very, very difficult. It's part of the reason why our drug is viewed as an attractive replacement to steroids. And in our trial, the reason we wanted to originally set 5 milligrams as the maintenance doses, we really wanted to test a test our drug to see if whether or not we could spare patients off steroids. These patients are typically on 10 to 25 milligrams, taking them down to 5 was viewed as a sub-therapeutic dose. To be able to completely taper off steroids, I think is a real fantastic goal. And the fact that we're able to in conjunction with PIs agreed to this on the tail end of our protocol, I think is a nice win for us and certainly will be to allow us to win those patients that can accomplish that goal. It's even a greater Delta, and a greater ability to see 1923 utility.

Great. Thanks, Sanjay. I appreciate the color. Kind of considering the new histological findings you guys have had regarding the expression. Are you able to comment -- are you getting any patients with kind of skin manifestations in your clinical trial?

Yes, so I mean, I wanted to highlight that those were samples taken outside of our trial because we don't have active capture of lung samples in this trial. Many clinical trials, it's hard to get consent especially here in the U.S. to get lung biopsy, especially at this stage. In our trial, you're correct that cutaneous sarcoid is allowed. And if patients have skin manifestations will certainly be able to assay that. At this time, not into the demographics of how many patients have cutaneous symptoms, but I will say that those patients that do have cutaneous manifestations we are going to assay those granulomas, I would expect that once our trial is complete, you might have five or six individuals, maybe upwards to 10 if we're lucky, that have cutaneous manifestation. So I would say stay tuned. I think with regard to those granuloma findings, it really speaks to the first clear connection between neuropilin-2 expression in inflamed granuloma specifically in pulmonary sarcoidosis patient. We knew and we hypothesized based on the literature that neuropilin-2 is highly expressing the inflammatory state especially with T-cells and macrophages. We knew that from the literature and other airway diseases RA, even bladder inflammation some of Dr. Bielenberg's work pointed to that. This was really the first finding here to look specifically at pulmonary sarcoidosis granulomas. And I think we had, as I said, a very striking finding. So, this bodes well for our trials, and certainly those patients that have cutaneous manifestations, we're going to look very closely there to see if a drug has an effect.

Okay, yes, perfect. That makes a lot of sense. And so my last question, are you able to comment at all with the new Boston Children's collaboration? And maybe to speak a little bit on the biology of NRP-2 kind of in fluid muscles contractility? And why you think it can be effective there?

Sure. So in a number of bladder conditions where it's called caused by an outlet obstruction, you can have neurogenic or non-neurogenic types of bladder disorders. In conditions where the outlet is obstructed and its non-neurogetic to compensate what the smooth muscle does as it starts to get inflamed, and that inflammation is driven by T-cells and some of the same immune cells that you start to see other areas where NRP-2 plays a role. So Dr. Bielenberg had previously published that in inflammatory bladder conditions such as this, with the outlet is obstructive, NRP-2 seems to be highly expressed. So in her view a modulate of NRP-2 could quiesce this inflamed bladder and get it functioning better, as most are aware, once this smooth muscle becomes quite inflamed and over time it become the compensate and this in turn leads to the more chronic bladder condition such as interstitial cystitis for example. So this is an early discovery project, but we also think it has a very clear shot on goal with literature that Dr. Bielenberg has spent a lot of time, understanding the bladder and understanding how neuropilin plays a role in that sort of inflammatory pathology. And similarly, we think if we can modulate inflammation there, we could potentially restore function, and help in a number of conditions, for example, interstitial cystitis being perhaps one of them.

Thank you. Our next question comes from the line of Joseph Pantginis with H.C. Wainwright. Please proceed with your question.

Hey guys. Good afternoon. Thanks for taking the question and thanks for all the additional color today as well. Wanted to focus on the long-term pipeline expansion, especially with the coming off of the last question in potential in smooth muscle biology, you have a lot of opportunities here as you mentioned with inflammatory disorders in cancer. So I guess my question, which is somewhat rhetorical because it will be researched based is -- do you have any sort of favorite indications yet or things you would like to take forward based on internal expertise versus saying having to maybe do some external IST before you decide to move forward? How do you look to see the pipeline evolve?

Great, thanks. Thanks for the question Joe. So we do have a lot of opportunity, but it is about focusing. Internally we're tending to focus a little bit more on the cancer biology side. There are a number of in vivo experiments that we've moved into as it's clear we have some really nice blocking antibodies. With regards to inflammation there's some targeted collaborations such as Dr. Bielenberg that we're working on. I think it's smarter to partner with folks that have a real understanding and those sort of niche indications. So I think the way we're thinking about it is internally perhaps focusing a little bit more on cancer externally through our collaborations we're looking at, at those sort of specialized inflammatory state. I'll make one caveat here that there are a number of, new pieces of literature that have bubbled up with some of the collaborators we work with where they're looking at neuropilin-2 expression in resistant tumors. You will see a number of papers over the last several months that have come out pointing to a potentially an antibody approach to treat prostate or pancreatic, resistant tumors. So those are, those are specialized collaborations where we are also working with those labs that have looking at, for example, neuropilin-2 expression in resistant cancers of, as I said, pancreas and prostate. So I think, I think the way we think about it is sort of continue to leverage that expertise externally. Internally we are focusing a bit more on the cancer biology angle of neuropilin-2.

Got it. No, that's very helpful. And if I could just take the, your discussion around the asteroid paper in your clinical studies clinical study one step forward, you did mention for example, that the 5 milligram dose is considered sub-therapeutic. So I was just curious, maybe if you could provide a little more feedback from the PI standpoint about why it would be important to even potentially to go to zero, even though you're reaching the "sub-therapeutic" levels.

Sure. So 5 milligrams is certainly sub therapeutic in treating these patients, and we set that as the sort of low bar in this study because we want to, in essence, see the placebo patients, perhaps exacerbate and titrate back up and what we'd like to see the 1923 patients remain at that dose. But 5 milligrams, you can still create some toxic burden. And I think at the end of the day, if you talk to patients in particular, they want to be done with steroids. So in the lens of our trial, if you're doing well at week 16, we discuss this with the PIs, there is an opportunity, if we had amended the protocols we did to maybe just get completely off steroids. So I think it's a nice win for us. In particular, patients are doing well in our trial, and they're 4 months in why not remove steroids. There's an ethical component here that if patients are doing well, why not try to titrate them completely off. So I think this is something we've learned in the course of our trials, and also to spending time with our experts. As you can imagine doing clinical trial as experts begin to get more experienced with their experimental therapy, they're still blinded to whether or not patients are on 23 or placebo. But as they gain more experience around the safety, I think these are the sort of approaches that we want to be flexible to. Because certainly, if we can demonstrate more folks can even taper off steroid completely. I think it just really drives home the potential efficacy of 1923.

Thank you. Our next question comes from the line of Robert LeBoyer with Ladenburg Thalmann. Please proceed with your question.

My question was on pipeline and anything moving in to clinical trial. Pretty much just answered to the previous questions, but if there's anything else to add to that or maybe publicly presented that over next couple of months, that would be helpful?

Sure, Robert. And I think we tend to be very active with regards to any data we produce, we'd like to get out there in a medical conference in an open forum and be very transparent about it. In actuality, I've kind of advanced this granuloma data because I think it's really important for the market to understand that because that's a real profound finding in my mind to see that, and we will be putting that together in a presentation and targeting a spring medical conference where pulmonologist worldwide can see that data. With regard to our pipeline, as you can imagine, we're currently conducting a number of in-house experiments specifically looking at an NRP-2 biology. We'd love to be active also in the early spring and perhaps some cancer conferences. And then finally, with any of our external collaborations, we want to be very open and transparent should we see some new evidence there and get those out. So I would say right now stay tuned. We don't have a set conference or an abstract announced just yet. But I think conferences such as AACR and ATS in the spring, these are important conferences for us here at aTyr.

Thank you. [Operator Instructions] It appears there are no further questions at this time. I'd like to turn it back to Sanjay for closing comments.

Okay. Well, thank you for the excellent questions today. We certainly are looking forward to an update next month as most of you regarding our interim safety data. So, we will be in contact and thanks again for the question.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.