CytomX Therapeutics, Inc. (CTMX) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the CytomX Therapeutics Second Quarter 2019 Financials 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 follow at that time. [Operator Instructions] As a reminder, this call may be recorded. I would not like to introduce your host for today's conference call, Mr. Christopher Keenan, Vice President of Investor Relations. Chris, you may begin.

Thank you, Valerie. Good afternoon and thank you for joining us. Earlier today we issued a press release that includes a summary of our recent progress and second quarter 2019 financial results. This press release and a recording of this call can be found under the Investors and News section of our website at cytomx.com. With me today are CytomX President, Chief Executive Officer, and Chairman Dr. Sean McCarthy and CytomX Vice President of Finance, Robin Knifsend. During today's call, we will be making forward-looking statements. Because forward-looking statements relate to the future, they are subject to inherent uncertainties and risks that are difficult to predict and many of which are outside of our control. Important risks and uncertainties are set forth in our most recent public filings with the SEC at sec.gov, including our Form 10-Q filed today. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future developments, or otherwise. A webcast of this call will be available on the investor relations page of CytomX website at cytomx.com. I would not like to turn the call over to Seann.

Thanks, Chris, and good afternoon, everyone. I'm very pleased to be here with you today to briefly review CytomX productive second quarter. At CytomX, we see a major opportunity to more effectively target therapeutic antibodies into disease tissue generating new classes of differentiated anti-cancer therapies as we have the best-in-class molecules against validated targets or first-in-class molecules against novel targets that we believe only our technology can address. Our innovative approach through antibody localization into diseased tissue is called the Probody platform. Probodies are fully recombinant antibody prodrugs comprised of a therapeutic antibody, a linker, and a mask designed in a way that the antibody can't see its target until the mask is removed. Mask removal is achieved specifically and selectively within cancer tissue by certain disease-associated proteins called proteases. Proteases are molecular scissors which play a key role in cancer cell invasion and metastasis. We take advantage of high-level of protease activity in cancer tissue to clip the mask off Probodies in the tumor allowing the underlying antibody to bind target and elicit its biological effect. Probody therapy takes off a localized target binding in diseased tissue while maintaining potency, reducing side effects, and enabling new targets of mechanisms to be translated into novel product opportunities. We see this as a really big idea backed by decades of antibody and protease biology research, by a deep knowledge of the biology of the tumor microenvironment, by our innovative protein engineering, and our robust intellectual property portfolio. We are the leader in this emerging field of therapeutic antibody localization with four clinical stage programs, strong partnerships, and we're the first to have shared clinical proof-of-concept with this novel approach. We aim to maintain our leadership in this field by aggressive development of our assets and our intellectual property. In the second quarter, our teams continued to make progress in advancing our novel Probody platform and our portfolio of innovative, wholly-owned, and partnered programs. Building on the strong body of clinical data, we have reported to-date including encouraging safety and efficacy profiles from our two lead wholly-owned programs CX-072, and CX-2009. Alongside our continued strong cash position, we're now setting the stage for further advancement of these unique and potentially differentiated assets. On this call, I'd like to provide brief updates on our programs and layout a roadmap for the next steps and future disclosures. Let me start with our most advanced program, the PD-L1 targeting probody, CX-072. Our vision for CX-072 is for this probody to become a differentiated centerpiece of combination anti-cancer therapy by enabling safer, more effective combinations. We've presented Phase I clinical data on CX-072 as monotherapy and in combination with the anti-CTLA-4 antibody, ipilimumab to support this vision. We are enthusiastic to move this program to the next stage in its development. During Q2, we reported updated data at ASCO 2019 from our ongoing monotherapy dose-expansion cohorts, studying CX-072 in multiple tumor types at the dose of 10 milligrams per kilogram. Data represented in poster form and also reviewed as part of a next-generation immunotherapy discussion session, lead by Dr. David Page of the Providence Cancer Center. Consistent with our previously presented Phase I dose-escalation data, these data continue to show a favorable safety profile for CX-072 when compared to conventional anti-PD-1 and PD-L1 antibodies. The efficacy profile of CX-072 also continued to mature, with robust evidence of anti-cancer activity being seen in patients with triple-negative breast cancer, anal squamous cell carcinoma, cutaneous squamous cell carcinoma, and on differentiated pleomorphic sarcoma. We expect to complete these initial expansion cohorts and decide our next steps for monotherapy CX-072 in the second half of 2019. To date, our monotherapy data for CX-072 supports the idea that it could become a safer foundation for combination therapy. The first such combination we set out to study in-depth in the clinic is CX-072 plus ipilimumab. We believe the combination of ipilimumab with other anti-PD agents continues to hold much promise, as recently demonstrated by the positive readout in the combination arm of BMS CheckMate 227 trial in lunch cancer. However, it's well accepted that the full potential of this IO/IO combination is limited by the profound toxicity of these mechanisms when used together. And it's important to note that BMS was limited to 1 mg/kg of ipi every six weeks in the 227-study compared to the full label dose of 3 mg/kg every three weeks. Our previously reported Phase I data has shown that CX-072 is generally well-tolerated with full dose ipilimumab. Moreover, we have reported deep and durable responses for this combination in advanced-stage patients. This Phase I work also established the maximum tolerated dose of the combination as 10 mg/kg of CX-072 and 3 mg/kg of ipilimumab. We are now in the process of initiating the next phase of development of this combination and will be providing additional details in the near future. Turning now to our second wholly owned program, CX-2009, a potentially first-in-class probody drug conjugate targeting CD166, a unique and broadly expressed tumor antigen. Because Probody therapeutics are designed to minimize binding of the drug to normal tissues, we believe we're in a unique position to address a new class of targets with attractive molecular features that were previously thought undruggable because of high expression on normal tissues. CD166 is an example of this kind of target. CD166 is highly and homogeneously expressed in multiple solid tumor types and might be considered an attractive target for a conventional antibody-drug conjugate, were it not for the fact that it's also present on most normal epithelial tissues. We think it's a promising target for a probody drug conjugate, however, since probodies allow us to more selectively target tumor tissue. CX-2009 is a CD166 targeting probody drug conjugate conjugated to the microtubule inhibitor DM4. During Q2, we presented updated data from the Phase 1 dose escalation trial of CX-2009 monotherapy at AACR. The focus of this trial was to get a first look at the safety and preliminary efficacy of this novel drug candidate in patients with select cancer types. Among patients who received greater than or equal to 4mg/kg of CX-2009, 38% achieved tumor shrinkage and 74% achieved stable disease or better at the time of their first on-treatment scan. Demonstrated anti-cancer activity included seven unconfirmed partial responses in breast cancer, ovarian cancer, and head and neck cancer. CX-2009 was generally well-tolerated. Despite the widespread expression of CD166 on normal tissues, no evidence of obvious on-target toxicity was observed, demonstrating the potential of Probody masking to address novel, first-in-class targets. We see this data as an encouraging start to the development of CX-2009 and we're currently working to refine the dose of this agent as we advance towards the initiation of Phase 2 studies potentially by the end of 2019. I'll now turn to our BMS and AbbVie partner programs. The lead program for our broad alliance with BMS is BMS-986249. This is an anti-CTLA4 Probody based on ipilimumab. This program is in a Phase 1/2 clinical study being run by BMS, evaluating the agent as monotherapy and in combination with Opdivo, nivolumab in advanced solid tumors. Based on progress with this initial clinical study, BMS is preparing to initiate a randomized Phase 2 clinical trial, comparing BMS-986249 plus Opdivo to ipilimumab plus Opdivo in patients with solid tumors. Upon the start of this study, CytomX will be entitled to a $10 million milestone payment. Naturally, we're pleased with this progress and we anticipate this study will be initiated in the second half of 2019. As a reminder, our alliance with BMS also extends to ongoing research on additional Probodies and BMS retains the right to select several additional targets for future research. The lead program from our alliance with AbbVie is CX-2029, a first-in-class Probody drug conjugate targeting CD71. CD71 is widely expressed on normal tissues and therefore is considered to be an undruggable target for conventional antibody-drug conjugate technology. During Q2, this program continued to enroll patients in the initial dose-escalation phase of the study, which is being run by CytomX. CX-2029 is, of course, a PDC conjugated to the payload MMAE under license from Seattle Genetics. CytomX has a responsibility to advance this program through initial cohorts expansion in select tumor types whereupon, if successful, the program will transition to AbbVie for registrational studies and ultimate commercialization. CytomX retains a certain profit split and co-commercialization rights for this asset. In parallel with the co-development of CX-2029, we have an ongoing discovery alliance with AbbVie focused on the discovery and development of additional Probody drug conjugates. Under this agreement, AbbVie recently selected a second target for advancement into pre-clinical studies triggering a $10 million payment to CytomX. I'll now turn the call over to Robin for a brief review of financial highlights from Q2.

Thank you, Sean. I would like to review selected financial highlights for the second quarter. We ended the second quarter with cash, cash equivalents, and investments totalling $349.1 million, compared to $436.1 million as of December 31, 2018, and $396.6 million as of March 31, 2019. The decrease in cash for the first six months of 2019 included certain infrequent payments, such as a $5 million payment for the acquisition of technical know-how related to drug conjugate Linker/toxin in CD3 faced bispecific antibody technologies from an established subsidiary in the first quarter, a $13.7 million federal tax payment for the 2018 tax return filing in the second quarter, and approximately $4.7 million related to the University of California, Santa Barbara license agreement also in the second quarter. Our strong balance sheet allows us to fund operations well into 2021, assuming no new collaborations or financing. Research and Development expenses were $30.8 million for the quarter compared to $25.6 million in the corresponding period in 2018. The increase was attributable to license fees and maintenance fees related to an amendment to the UCSD licensing agreement which included the issuance of 150,000 shares of company common stock valued at $1.6 million, and upfront payment of $1 million, and an additional annual maintenance fee of approximately $800,000. The increase was also attributable to the UCSD sublicense fees pertaining to the $10 million milestone payment earned upon the AbbVie selection of the second target in the second quarter of 2019, and increases in personnel-related and clinical related expenses, partially offset by a decrease of $2.3 million in laboratory contracts and services as a result of the timing of manufacturing activities. General and Administrative Expenses increased by $400,000 for the quarter compared to the corresponding period in 2018 and was widely attributed to personnel-related expenses. Revenues during the second quarter of 2019 were $9 million compared to $21.3 million in the corresponding period in 2018. The decrease was primarily due to the $21 million milestone payment net of the associated sublicense fee of $4 million earned in May 2018 under the CD71 agreement with AbbVie. Of which, $9.9 million was recognized in the second quarter of 2018. With that, I will turn the call back over to Sean.

Thank you, Robin. So, just to briefly wrap up. From today's review of the second quarter, I hope you can see that we continue to make excellent progress in advancing our portfolio of innovative Probody drug candidates. We look forward to a productive second half of 2019 as we advance our programs to the next stage of development to further define the potential of our product candidates and also realize the power of our innovative technology platform. Thanks for your time and I'll now hand the call back to Chris for Q&A.

Valerie, please open the call for questions.

Thank you. [Operator Instructions] Our first question comes from Varun Kumar of Cantor Fitzgerald. Your line is open.

Hey. Good afternoon and thanks for taking the questions. So Sean, maybe first on CX-2009. Should we expect update on activity from -- I think you're planning to have 14 patients in the dose refinement cohort. So should we expect activity and safety in the second half before you plan to move into phase II? And a second a quick one on Bristol, as you mentioned we have moved to a phase II randomized study was there any pre-required criteria in terms of activity or safety which was kind of getting factor for them before they moved to phase II. Any color there would be really helpful. Thank you.

Great. Yeah. Hi, Varun. Thanks for the questions. With regards to users and I think that I think what to expect there is our decision of dose an indication to move into Phase II would obviously be driven by the totality of the data that we have collected by the end of the year. So where and when we would actually present the additional data remains to be determined. With regard to PNS, the decision to move into this randomized study that they're preparing is entirely theirs. So I can't speak to their criteria, other than the fact that they are -- as we can see from clinical trials -- preparing to do a fairly large study which we're obviously very pleased to see.

Thank you very much.

Thank you. Our next question comes from Terence Flynn of Goldman Sachs. Your line is open. Q – Unidentified Analyst: Hi. Thanks for taking the question. This is Missy on for Terence. I was wondering if you could give us any perspective on Bristol's CheckMate 277 data and kind of what implications that might have on your portfolio? Thanks.

Thanks for the question, Missy. As I mentioned in my earlier remarks, obviously that was a tale of two data sets, wasn't it in terms of the combination readout and the monotherapy readout. For us, the combination readout is the most relevant we think in that the topline that they've announced so far, clearly indicates that the ipi/nivo combination can be effective in that patient population. And that's with -- as I mentioned earlier on, that's with a much-reduced dose of ipi. So, we think that's actually very encouraging. It shows that it reinforces the importance of PD1 or PDL1 plus CTLA4 as a powerful IO/IO combination. And with our ability, we believe with the Probody with CX-072 to treat patients with full dose ipi, We believe we're in a position potentially in several indications to demonstrate a value proposition with our combination. So, we think that data is positive for us, and of course positive for BMS.

Thank you. Our next question comes from Peter Lawson of SunTrust Robinson. Your line is open.

Hi. Thanks for taking the questions. Just on the AbbVie selecting the second candidate, did they see something in the 2029 data? Any color on that would be great?

I obviously can't comment on any data coming from that study at this point. As I said, the collaboration has two components to it. The clinical program around 2029 and the discovery alliance on the PDCs and I can't make any comment on what drove them to make that second selection other than the fact that we were very pleased to see it.

Good. And then any color around the target or the kind of target? Is it going to be one of these widely expressed targets again?

I would love to tell you more, Peter, but I really can't. Sorry.

Got you. Okay. I guess that's it. Thanks for taking the questions. Thank you.

You're welcome.

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

Hey, guys. Thanks for taking my questions on the progress you guys are making. So following up on BMS-986249 so do you have any ideas as to the dose that they selected? Given your comment earlier, obviously, dose selection is highly important whenever you're looking an Ipi/Nivo conversation? And then my second question is can you provide any additional color to the current sort of planned indication for CX-072 both as monotherapy and in combination with Yervoy or when we might have some granularity on that? Thanks.

Yes. Hi, Robert. Thanks for the questions. I can't comment on the dose of 986249 at this point. We're going to have to wait and see how much additional granularity BMS is willing to give once they kick that study-off. With regards to 072, we are in a position the second half of the year to communicate more clearly on specific next steps for 072 in terms of monotherapy and combination. Not a lot more to say at this exact point, but planning is well under way.

Thank you.

Our next question comes from Mohit Bansal of Citigroup. Your line is open.

Great. Thanks for taking my questions and congrats on all the progress as well. Just wondering now that you have seen the data of the more granularity for CX-2009. Could you help us understand where is your thought process in terms of – we saw seven responses which speak for activity but those are an unconfirmed responses? So, what exactly is going on that these responses are not – is it like -- is it the target issue or do you think the combination you can make it deeper? How are you thinking about that?

Mohit, I didn't quite get the second part of the question. Could you clarify the question?

Sure. What I'm trying to understand is that those seven responses, they are – they speak for the activity of the PDC. But those are unconfirmed responses. So, in terms of exploring that further, where do you stand in terms of what is your thought process that --why these responses not longer-lasting? Is this because of the target which is where cancer is kind of coming back because of that target? Or you think it is – where are you – what are you thinking there. How are you thinking about that?

Yeah. Great. No, thanks, Mohit. That's a great question and I would refer back to some of our prior discussion around the data set that we presented at AACR, which I admittedly very -- summarized at a very high level on this call. Just to recap, we -- as you rightly pointed out and as I mentioned earlier, we -- in the data set presented at AACR, we had seven unconfirmed partial responses in a number of different tumor types. So encouraging evidence that this drug candidate can be active, that the target can deliver payload into tumor cells. The lack of confirmation of those responses derives from probably several things. It's always, of course, hard to say, but the contributors include first of all, the fact that -- this study as we reported in our poster presentation, these patients were very heavily pre-treated. So, in many cases, it was just ongoing disease progression. Secondly, the fact that several patients came off drug early for ocular toxicities driven by the payload DM4 which we expected to see and which in the early part of this Phase 1 dose-escalation we were not taking measures to pre-treat to try to prevent. So, that phase 1 data set gave us what we needed to then do what we're doing right now which is to dose patients toward the higher end of the dose-escalation range beginning at 8mg/kg and ensuring the patients are given consistent and aggressive ocular prophylaxis with the goal of keeping patients on drug longer to see to what extent we can increase duration of treatment, which of course, over time we would hope would relate to an increase in the duration of response and ultimate confirmation of responses. So that work is ongoing. That work will be – we will have from that work will be obviously very important in our ultimate selection of dose for this agent. We believe we're on track to have that decision made by the end of the year. So, it is important to bear in mind it's a phase 1 study. It's a brand new agent. It's an experimental study. We've learned a lot. We're doing additional work to address those questions in real-time.

Got it. And then if I may ask one more on the CD71 program. Apologies, if you already mentioned it. But, since you are controlling this trial, in what timeframe we could see some initial data from this program?

So, we're not providing any guidance on timing to data. It's an ongoing dose-escalation study and we’re – that we're in the middle of. That's really all that we can say right now.

Got it. Very helpful. Thank you very much.

You're welcome.

Our next question comes from Biren Amin of Jefferies. Your line is open.

Yeah. Hi, guys. Thanks for taking my questions. Sean, on your plans for 072, how many of the tumor types would be considered as a registrational study when you disclose your plans later this year?

Hi, Biren. Great question. Thanks for that. Well, just to take a step back and just recap the strategy for the monotherapy expansion, these mini-expansion cohorts. At the time, we initiated them in a rapidly moving field we cast a wide net in the hope of identifying one or more indications in which we would see a relevant response rate and also an ongoing registrational path to registration based on a single-arm study. It continues to be the case that certain of these indications still have that path open. Fewer than when we started this study awhile back. But we do think that the window remains open. The convergence of registrational path plus the data that we've already demonstrated, we're giving a lot of thought to that right now as to which of these indications could potentially offer a registrational path. We're not ready to guide any more clearly today on that, but we will be guiding further in the second half of the year.

Okay. And then maybe a question on the 227 from earlier, why not be more aggressive in developing 072 plus ipi given what we've seen out of 227 in the first line non-small cell lung cancer setting?

Well, as I said earlier on, we do see those data, and I think that's what you were alluding to, we see those data as positive for us in showing that that combination is an important combination. It's going to continue to be an important combination in a number of indications moving forward. And we think that opens up a number of opportunities for us and you'll be hearing more about that from us in the relatively near-term.

Okay. And then maybe a question on the 072 vemurafenib combo, when can we expect preliminary data from that study?

So, our goal is to provide an update by the end of the year.

Got it. And then just one last question, I guess. On this randomized trial with the Probody CTLA4 that Bristol is moving forward with. Do you know which tumor types they are going after?

I do not. If you look at their filing, it refers to patients with solid tumors. I think we can all make a best guess as to what that would be, but their public disclosures do not indicate which tumor type to this point.

Got it. Thank you.

Thank you. [Operator Instructions] Our next question comes from Mara Goldstein of Mizuho Securities. Your line is open.

Hi, guys. This is Gabriel Fung on behalf of Mara Goldstein. Thanks for taking the questions. The first question I have here is we were reading in the 10-Q that there has been some changes in fund allocations for the EGFR project given that the company decided to undertake some additional testing for molecules. Would you like to provide some additional details on that? And secondly, given that the checkpoint combinations are becoming more and more popular nowadays, does the company plan to assess any additional combinations studies? Thank you.

Hi, Gabriel. Thanks for the questions. With regards to EGFR, it's an ongoing research project and we are evaluating a range of different scaffolds, biospecific scaffolds, and molecules. And In the course of a lead optimization process, certain frameworks move forward, certain frameworks do not. And with the new revenue recognition rules, given the nature of the upfront payment in that deal, it requires us to report on that with a reasonable level of granularity. So, really, all you're seeing there is the ongoing course of research with a platform like bio specifics where the specifics of the scaffold become very important to the ultimate activity of the molecule. In terms of combinations. Yes, absolutely. I mean, we -- as I mentioned in my earlier comments, we believe the data we have presented thus far for CX-072 is entirely consistent with the vision we have for this molecule to become a safer, more effective foundation of combination therapies across a range of mechanisms. And Epi one of those which we remain very enthusiastic about, as I've said and I'm pretty sure there will be others. And so we will be embarking on additional combinations, but we're not ready to disclose what any of those are at this point.

Awesome. Thank you for the clarity.

Thank you. Our next question comes from Peter Lawson of SunTrust Robinson. Your line is open.

Hey, thanks for taking a follow-up. Just on 2009, will we see the Part A and A2 data in the second half?

2009, Peter -- at the ACR was the A2. So, that data, for the most part, has been disclosed. We're obviously continuing to follow those patients up. At this moment in time, we continue with what we call the FDM TPI Phase which is additional dose refinement, at the upper end of the dose range. Does that help?

Yeah. I got the sense that, we were going to get better follow-up and maybe additional patients for that A and A2. But it sounds like we won't.

I wouldn't expect it. I think at this point, we're very, focused on -- Obviously, we're still following those patients up from A and A2. We're doing the additional dose refinement and our goal is to get to that phase 2 dose. And kick the phase 2 study off as soon as we can, the goal of having that dose and indication picked by the end of the year. The actual presentation of additional data from the study would likely be at a future conference to be determined.

Got you and then, do you get any sense if we're going to see BMS's 249 data in the second half? And I guess kind of a follow-up, around that would be, what data are we going to see from you, in the second half?

So with regard to BMS, all I can say is what they've said previously, which is that, they have guided to potentially sharing some data on 249 this year. That's really all we know at this point. So the year is moving along, isn't it? With regard to CytomX additional data, I wouldn't expect a whole lot of additional clinical data from us, between now and the end of the year. Just to recap, since ASCO of 2018, we've presented a substantial amount of clinical data, at various congresses up to and including ASCO of this year. We're really very, focused right now, touch down, determining specific next steps to get these programs, into the phase 2 setting. So, I wouldn't expect a whole lot of additional clinical data this year. I think, as we provide additional updates as this year progresses, on our next steps for our programs, I think it will become clear, what types of data may be available in 2020. But we'll be guiding on that, as 2019 continues.

Got you. Thank you, really helpful. Thank you so much.

You're welcome.

Thank you. I'm showing no further questions, at this time. I'd like to turn the call back over to Sean for any closing remarks.

Thank you very much. And thanks all for joining us today. Again, we've had a very strong quarter, continuing to advance both pipeline and platform and our alliances. We look forward to a very productive, second half of 2019. So, thank you all very much for your time.