Decoy Therapeutics Inc. (DCOY) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Salarius Pharmaceutical earnings webcast and conference call. [Operator Instructions]. I would now like to hand the conference over to your host for today, Greg Siderian of Tiberend Strategic Advisers [ph]. Thank you. Please go ahead.

Thank you, Kelsey. Good afternoon, everyone, and thank you for joining today's 2020 second quarter financial and corporate results call. Earlier this afternoon, Salarius Pharmaceuticals issued a press release, detailing its financial results for the 3 months ended June 30, 2020, which we encourage listeners to read. The press release can be found in the News section of salariuspharma.com, their website. It's also -- Salarius also filed the 10-Q this afternoon, which is available also on their website and at sec.gov. Today, we will be making certain forward-looking statements about future expectations, plans, events and circumstances, including statements about our strategy, future operations and the development of our lead investigational drug, seclidemstat, and our expectations regarding our capital allocation and cash resources. These statements are based on our current expectations, and you should not place undue reliance on these statements. Actual results may differ materially due to risks and uncertainties, including those detailed in the Risk Factors section of Salarius Pharmaceuticals, 10-Q filed with the SEC and other filings we make with the SEC from time to time. Salarius Pharmaceuticals disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. On today's call is David Arthur, Director and Chief Executive of Salarius Pharmaceuticals, who will provide update on Salarius' corporate and clinical achievements during the second quarter and its vision for the future. We also have Mark Rosenblum, Chief Financial Officer, who will review Salarius' second quarter 2020 and financial results. With that, I'll turn the call back to you, David.

Thank you, Greg, and thank you to everyone for joining our conference call today. This is an important time for Salarius Pharmaceuticals. We've completed a transformative 2019, highlighted by our debut as a publicly traded company with our stock listed on the NASDAQ Capital Market. We entered 2020 well positioned to achieve important corporate milestones and advance the clinical programs for seclidemstat, our lead investigational drug candidate for Ewing sarcoma in advanced solid tumors. The second quarter of 2020 and recent weeks have proven to be a time of substantial progress for Salarius, driven by several events that we believe validate our growth strategy and demonstrate the value of seclidemstat. In June, Salarius presented early seclidemstat research during a virtual meeting of the Pediatric Oncology Subcommittee of the FDA's Oncologic Drugs Advisory Committee, also known as ODAC, we were one of only 4 drug makers to participate in the 2-day meeting. In July, we strengthened the intellectual property portfolio protecting seclidemstat with a new patent issued by the European Patent Office. In all, Salarius holds 24 issued patents in the U.S. and abroad, all of which are directed to seclidemstat or structurally similar compounds. And most recently, Salarius announced plans to expand its ongoing in Ewing sarcoma clinical trial to include patients with sarcomas that share a similar biology to you Ewing's, also known as Ewing's-related sarcomas. This provides the opportunity to develop seclidemstat for an even broader patient population. I will discuss the expansion of the Ewing sarcoma trial as well as the ongoing clinical trials in Ewing and advanced solid tumors in more detail in a bit. But right now, I'd like to turn the call over to Mark for a brief review of Salarius' second quarter financial report. Mark, go ahead.

Thank you, David. For the 3-month period ended June 30, 2020, Salarius reported a net loss of $1.8 million or $0.13 per basic and diluted share compared to a net loss of $0.9 million or $0.30 per basic and diluted share for the same period in 2019. The loss from operations before other income for the 3 months ended June 30, 2020, increased by $1 million compared to the loss from operations for the same period last year, which was primarily due to an increase of $0.6 million in research and development expenses resulting from increased clinical trial expenses and drug manufacturing costs. Salarius also recorded a net increase of $0.7 million in general and administrative costs resulting from Salarius' transformation into a public company and increased personnel expenses during the current quarter, somewhat offset by lower professional fees and legal costs compared to the same period in 2019. As of June 30, 2020, total cash and cash equivalents was $7.1 million -- $7.2 million, excuse me, compared to the $3.7 million at year-end 2019. This does not, however, paint an accurate picture of the financial resources available to our company. Recently, on August 3, 2020, Salarius completed a $6.2 million underwritten public offering of its common stock. Salarius intends to use the proceeds from the offering to fund ongoing company operations, and the expansion of the Ewing sarcoma clinical trial to include other Ewing's-related sarcomas. This latest funding is not Salarius' only source of capital. One of the genuinely interesting aspects of the Salarius story is the amount of nondilutive capital we have at our disposal. In 2016, Salarius received an $18.7 million grant from the Cancer Prevention and Research Institute of Texas, also known as CPRIT, of which we still have up to $9.1 million available under the CPRIT contract, subject to certain -- subject to meeting certain requirements or approvals. In addition, nondilutive funding from the National Pediatric Cancer Foundation has helped to fund our Ewing sarcoma studies. With these various funding sources, we believe Salarius has the financial resources to advance our Ewing sarcoma and advance solid tumor clinical programs until late 2021. With that, I'd like to return the call back to David.

Thank you, Mark. Now let's talk a little bit about what's happening with Salarius and what we can look forward to over the next few years. As we've discussed, our goal is to maximize the potential of seclidemstat, bring hope to patients around the world battling cancers caused by dysregulated gene expression and maximize investor return. As we look out over the remainder of 2020 and 2021 and beyond, we expect to not only advance our current clinical programs for seclidemstat in Ewing sarcoma, including Ewing's-related sarcomas and advanced solid tumors but also explore other market opportunities where we believe the seclidemstat could have a significant impact with patients fighting rare pediatric and other cancers. Both our Ewing sarcoma and advanced solid tumor clinical trials have continued enrollment during the COVID-19 outbreak, with all 9 clinical trial sites actively recruiting patients. Both studies remain a high priority at these sites. To review, both trials are designed as open-label dose-finding studies with primary objectives to characterize the pharmakinetics, characterize the safety profile and establish the maximum tolerated dose of seclidemstat. A secondary objective is to assess preliminary antitumor activity. Now, the Ewing sarcoma clinical trial and the advanced solid tumor trial are continuing dose escalation and thus far, early data from both trials suggest that plasma drug levels or the concentration of seclidemstat in a patient's plasma continue to increase in a dose proportional manner with no evidence of a plateau in exposure levels. This is important news as Salarius is now seeing plasma drug levels in patients at or above the levels where pharmacological activity was noted during preclinical studies. Following completion of dose escalation and determination of the maximum tolerated dose, which we hope to complete later this year, we plan to again dose expansion in not only patients with Ewing sarcoma, but also in patients with Ewing's-related sarcomas. On July 29, we announced that a refractory Ewing sarcoma patient who had failed previous standard-of-care therapy and was treated with single-agent seclidemstat therapy for 6 months, demonstrated a reduction in prospectively defined target lesions. Target lesions generally represent a patient's largest measurable tumors. However, and unfortunately, at 8 weeks, an increase in nontarget lesions resulted in an overall patient classification of progressive disease as designed -- as defined by the Response Evaluation Criteria in Solid Tumors or RECIST. Now this is important. We believe that clinical observations, including this prospectively defined and measured reduction in target lesions by single-agent seclidemstat treatment demonstrates preliminary drug activity. Salarius also believes this demonstration of drug activity, coupled with preclinical data supports the clinical research of seclidemstat as a potential treatment for Ewing-related sarcomas. This is why we made the decision to expand our current clinical program to include patients with Ewing-related sarcomas. We believe Ewing-related sarcomas represent an opportunity to increase the number of patients that can potentially be treated by seclidemstat and also benefit from seclidemstat therapy. Once maximum tolerated dose is established, the Ewing sarcoma trial will enter a dose expansion phase that will enroll up to 20 Ewing sarcoma patients and under the planned amendment to the trial protocol, a second cohort of the expansion phase will enroll up to 30 additional patients with either myxoid liposarcoma, desmoplastic small round cell tumors or other cancers that share the FET, family gene rearrangements, all of which are known as Ewing-related sarcomas. Expanding the ongoing Ewing trial from 20 patients to 50 patients, in the expansion phase to include patients with Ewing's-related sarcomas offers the potential, as I mentioned earlier, to develop seclidemstat for an even broader patient population. We believe this trial expansion is good for patients, and we also believe it's good for investors. We expect to initiate the expansion of Ewing sarcoma trial, including Ewing-related sarcomas in the first half of 2021, with early data disclosures from both cohorts in the second half of 2021. Now in addition to the ongoing clinical trial in advanced solid tumors provides an opportunity to explore the potential of seclidemstat in treating cancers with mutations in other epigenetic enzymes or mutations in epigenetic complexes that may have an increased sensitivity to LSD1 treatment or antiproliferative and/or immunomodulatory effects. These mutations in methyl transferase or acetyltransferase enzymes and mutations in the SWI/SNF complex occur in roughly 20% of solid tumor patients. By using commercially available genetic screens, we believe we can potentially identify and potentially enrich our advanced solid tumor expansion cohort with patients that harbor these sensitizing mutations. This type of mutational profiling is becoming more common and could represent a significant opportunity for Salarius. Further, we are exploring the use of seclidemstat in combination with checkpoint inhibitors, a type of immunotherapy designed to unleash an immune attack on cancer cells. Now while checkpoint inhibitors are a remarkable advancement in the treatment of cancer, they do not work in all cancer patients. In addition, among patients who do not -- who do show an initial response to checkpoint inhibitors, some patients can become refractory to these checkpoint inhibitors and experience a return of the disease. Now in July of this year, researchers at the Translational Genomics Research Institute in Arizona published a paper in a peer-reviewed scientific journal Plus 1. This paper represented in vitro studies, investigating the ability of seclidemstat to promote antitumor immunity and T effector cell infiltration in 2 types of ovarian cancer that both carry a specific mutation. These 2 types of cancers were small cell carcinoma of the ovary hypercalcemic type and ovarian clear cell carcinoma. In simple terms, these studies demonstrated that seclidemstat may turn cold tumors concealed from the patient's immune system into hot tumors that the immune system is able to identify. These tumors could then respond to checkpoint inhibitor treatment. We believe this is a significant potential opportunity, and we are considering clinical trials that combine seclidemstat with a checkpoint inhibitor. Another exciting area that we are exploring for seclidemstat's potential to treat hematological cancers. Other LSD1 inhibitors have clinically validated hematological or blood cancers as attractive indications for LSD1 inhibition. However, we believe that seclidemstat's differentiation may allow for certain advantages when treating these types of diseases. We are considering a clinical trial studying seclidemstat in hematological malignancies. There's a lot to be excited about with seclidemstat and our development programs. In addition to the early clinical data we have already disclosed, we anticipate a number of additional potential milestones throughout the remainder of this year and into 2021, including data from our Ewing sarcoma, Ewing's-related sarcoma and advanced solid tumor trials. In all, the progress we have made since the beginning of the year and certainly, over the past 3 months is substantial. These accomplishments have, in turn, positioned Salarius for growth on a number of fronts over the next several quarters. Now joining Mark and me to address questions is Dr. Nadeem Mirza, Senior Vice President, Clinical Development; and Dr. Daniela Santiesteban, Director of Research and Business Development. With that, I will now open the call to your questions. Kelsey, would you like to take over?

[Operator Instructions]. And your first question comes from the line of Aydin Huseynov with The Benchmark.

Congratulations on the progress this quarter. When we think about combination trials with IO, what are the most interesting combinations for seclidemstat in your opinion? And would you expect the immuno-oncology companies to sponsor these combination trials?

Daniela, would you like to take that question?

Yes. Thank you for the question, Aydin. So what the research has shown so far is that LSD1 inhibition and seclidemstat in particular, would combine well with PD-1, PD-L1, CTLA-4 checkpoint inhibitors. And we do think that as we advance our preclinical programs and generate even more data, that these larger pharmaceutical companies would be interested. As you know, that checkpoint inhibitors work well in a subset of patients, but a large portion of patients remain refractory or lose sensitization to the checkpoint inhibitors. And so there is a wide -- an open market for drugs like seclidemstat that can help either sensitize to checkpoint inhibitors or resensitize.

Thank you, Daniela.

And for the sponsoring? Sorry, just want to -- yes. Do you expect the immuno-oncology company's -- large immuno-oncology companies to sponsor your combination trials?

So this is David. I think that's certainly something that Salarius will want to pursue. And when we begin those discussions, we would very much like to have additional data that in vitro and in vivo data available to put together the most compelling case possible. So we will certainly be looking to partner with leaders in the checkpoint inhibitor field.

I appreciate that. Another question I got is, so about the one patient who responded with 86% decrease in prospectively defined target lesions. So why do you think the nontarget lesions did not decrease even if seclidemstat is a systemic agent?

So this is David. Dr. Mirza Nadeem, would you like to take that question?

Yes. This is Nadeem Mirza. Thank you for the question. The patient -- all the target lesions, actually, we saw shrinkage in all of the target lesions. And the number that you're referring to is the sum total of all the targeted lesions. What I think we have described, there were some nontargeted lesions, which are nonmeasurable, which David earlier alluded to, and they progress. And because of that, overall, it was considered a progressive disease. But in the targeted lesions, we saw clearly an activity of the drug, resulting in the response that you mentioned.

Got it. Got it. And last question for me. Given the broad competition in LSD1, and I think the most advanced LSD1 inhibitors are irreversible one in Phase IIb in myelofibrosis and AML. But do you think the largest opportunities for seclidemstat in general is in hematologic malignancies as opposed to solid tumors?

So this is David. I'll make a comment and then perhaps ask Dr. Santiesteban to make any follow-up comments. I think that there are a number of significant opportunities available to seclidemstat. As you know, we have -- or as we've discussed publicly, we have a two-pronged development approach. Speed to market, with Ewing sarcoma, which is just an area of huge unmet medical need. Followed concurrently with the development of seclidemstat in areas that will expand the patient population. Now to your question, I think at this point in time, if we put the patient first and identify the areas of highest unmet medical need and explore those areas with seclidemstat to understand how best we can treat those patients, I think that will naturally take us in the direction of the biggest and most valuable opportunities for the drug. So at this time, we're exploring a number of opportunities across solid tumors in our advanced solid tumor trial, we are exploring the potential for being able to identify patients with mutations -- mutated tumors that may be more sensitive to LSD1 therapy, which would put together what we think is a very strong, not only clinical recruitment strategy, but potentially a commercial strategy. And as we mentioned, we're looking at hematological malignancies in cancers and also combinations with checkpoint inhibitors where we could potentially not only provide benefit with seclidemstat but also allow patients who are not currently benefiting from checkpoint inhibitors to begin benefiting. So I think, at this point, it's difficult to say what the biggest opportunity might be. But I think if we keep the patient front and center and pursue areas of greatest unmet need, we'll get to the right answer. Daniela, do you have anything you'd like to add?

Yes. I'd just like to add that, maybe you're right, a lot of other LSD1 inhibitors are pursuing heme indications as well as small cell lung cancer. And they're pursuing those because that's where their drug has shown activity. Seclidemstat has a differentiated mechanism of action, where we've shown the ability to inhibit not only LSD1's and thematic activity but also a scaffolding function. And that opens up the door to us. We've seen activity in a lot of cancer types where other LSD1 inhibitors have not seen activity. So in addition to David's answer, I'd just like to add that you need to also understand how your molecule is inhibiting LSD1 and that can help guide, what indications, whether they be heme or other solid tumors that you may show potential in.

And your next question comes from the Wangzhi Li, Ladenburg.

This is Wangzhi Li from Ladenburg. I think it must be a question you discussed, but I have a question about the expansion of the trial in the Ewing-related sarcoma. You already explained the rationale. Just wondering if you have more color to provide about the preliminary data that drive you to -- for the expansion -- supported expansion. Also, going forward, if you add a cohort to the patient for the Phase I. And then for the Phase II, are you still going to separate in 2 cohorts or just combine the one trial for regulatory approval if you see activity in both the Ewing and Ewing-related sarcoma?

Thank you for the questions. Dr. Mirza, would you like to start?

Yes. So if I understand, you have two questions, 1 related to whether we'll have two cohorts or one. And the second one was what prompted us to go into the Ewing-related sarcoma. We have an ongoing advanced solid tumor trial that also enrolled some sarcoma patients that actually gave us some clinical evidence. And so that was one part of it in addition to preclinical data supporting. So that was the rationale to add the Ewing-related sarcoma cohort. Your second question relating to whether we'll combine them or separate. So in the expansion phase, as David mentioned earlier, there will be 20 Ewing sarcoma patients, and then there will be 30 Ewing-related sarcoma patients. And this will allow us to further define safety, tolerability, but more importantly, to see any early activity. And then we will -- based on what we observe, we may then have some conversation or discussion with the health authorities to discuss what would be the next step. But the short answer is that the Ewing expansion trial will have 2 different cohorts.

Got it. That's helpful. And maybe last question is, any color on timing for the data report? From the dose escalation, are you going to stop at the highest dose? Or would you continue to dose until you reach your MTD?

Yes. So I can take that. This is Nadeem. So we are currently at dose level 6 or cohort 6 out of 7. We expect to get to our maximum tolerated dose and recommended Phase II dose by end of this year upon which we will initiate our expansion cohort in first half of next year.

And your next question comes from the line of Hunter Diamond with Diamond Equity Research.

Congrats on the recent quarter and also the financing. So some of my questions were answered, but I'll have one or two more. So I just want to get an update for the investors we talked to on the hematologic trial in the second half, sort of what you're anticipating happening? Is it just going to be preclinical? And I know maybe it's early days for that. And then sort of the data that inform that as a strategy or an indication. What's backing that?

Hunter, this is David. Let me provide a little color to your question, and I'll ask Daniela to step in and fill in some information around the preclinical information that's available. So what we have disclosed is that we are currently in the preclinical setting. And I'll let Daniela talk about that in a moment or ask her to talk about that in a moment. And we also know that -- or we feel that this approach to hematological cancers has been validated by one of the other LSD1 inhibitors, and we further believe that seclidemstats differentiation as a reversible inhibitor may allow us the ability to provide even greater benefit in those patients. So we hope to translate that knowledge and a preclinical data and the opportunity to pursue hematological cancers in the clinic. We hope to translate that into a clinical trial sometime later this year, but we're not yet prepared to make that announcement. Daniela, would you like to fill in some information on the preclinical data?

Yes. So we have seen good data within several different heme cell lines. As David said, this space is well-validated by other LSD1 inhibitors. But we've published or collaborators have published with our first-generation compound SP-2509, and that it has anti proliferative effects across AML cell lines. We also have internal data showing activity with our lead compound SP-2577 or seclidemstat that it has anti-proliferative effects across several different heme cell lines as well as the ability to induce differentiation and see an increase in markers like CD86. So we do have a nice data package there. And that's why, as David said, we're excited to make an announcement later this year in that space.

Great. No, perfect. That was very useful. And then my next question is just around the IP portfolio. So how many patents does -- and I know there was an announcement or PR, and I think the European patent. So how many patents does the company have methods of use or composition? And then do they -- do you feel that you're going to be using some of these proceeds for more IP legal fees? Do you feel that -- or do you feel that the company sort of has secured seclidemstat if it's efficacious at this point?

So Hunter, we currently have 24 patents issued that cover -- around the world that cover seclidemstat or structurally similar compounds. We have 9 additional patents that are currently in the approval process in countries around the world. And I can't remember exactly the list of countries, but it's in the press release that went out recently, and we can certainly get that for you. Moving forward, we aggressively maintain and defend our patent portfolio and are constantly looking to improve it through additional patents that could represent method of use and other areas where we can strengthen the portfolio. So to answer your question, part of our ongoing operations is the maintenance and protection of these patents. So yes, some of our ongoing funding and our future funding will certainly go towards protecting the patent portfolio.

Perfect. Makes a lot of sense. And obviously, in biotech, the patents are much -- although expensive probably to procure, they're much more useful than the software industry or something, right, where everyone can knock off everyone, and it's very hard to defend. So biotech, it's efficacious, I mean, the patents will be critical, right? So the big pharma doesn't just enter the market. So okay. That's all I have in terms of questions, and congrats again on the results and the financing.

Yes. Thank you for the question, Hunter, thanks for participating.

And our next question comes from the line of Patrick Doolan with Old Peak Road.

I just have a very quick question. All the clinical or preclinical work that's happened to date, has it been as anticipated, better than anticipated, or have there been disappointments?

Well, thanks for the question, Patrick. It's -- by nature, research is -- when we're in the business of research, we don't know the answers that we're going to get. And so we have experienced results that we're very pleased with. I will point to the recent expansion of our Ewing study into Ewing-related trials based on the fact that we have seen -- we feel we have seen demonstrated drug activity in the clinic with a reduction of target lesions. We have -- one of the study, preclinical studies that we mentioned in the discussion today, identify the ability in 2 very -- 2 cancers, with high unmet need. The fact -- with mutations, identifiable mutations that seclidemstat therapy can be -- can have a real benefit in patients suffering -- could potentially have a real benefit in patients suffering from those cancers. So again, very positive news. We have also found areas over the years where the activity of seclidemstat was not what we wanted to see. And that's just as valuable to us as the many, many areas where we have seen activity with seclidemstat, and we've pursued those areas. It allows us to get focused and really pursue areas that we think are going to be the most benefit to patients. And ultimately drive the success of Salarius. So the short answer to your question is, we see it all. And we learn from every single one of the outcomes.

Okay. But my impression is, overall, you're seeing positives and you're actually expanding the scope. Is that correct?

Yes. That is -- so thank you for asking the follow-up question. The answer is yes. We saw this patient, we looked at the data in the largest measurable -- generally the largest measurable tumors that are identified prospectively by the physician, we saw what we feel is demonstrated activity. And that's -- we feel that is very positive information to see at this point in the clinical study. And that, coupled with preclinical information and the fact that we felt we had a positive interaction with the pediatric subcommittee of ODAC, led us to make the decision that it was time to expand, take advantage of all of this positive information and literally increase the number of patients that we're going to be treating in the Ewing and Ewing's-related sarcoma study by 150%. We went from 20 to 50 patients. And really opened up we think the door to looking at a much higher number of patient populations that may benefit from seclidemstat. So yes, I think it's fair to say that overall, we're very positive with -- we feel very positive with what we've seen recently.

Yes. And that's how it came across to me. I just wanted to get understanding.

And your next question comes from the line of Aydin Huseynov, The Benchmark company.

I just got one follow-up question regarding the comparison of seclidemstat to others in the market. So is there any similarities or differences with Bristol's or Celgene's reversible LSD1 agent? And do you think there will be any read across from the nivolumab plus LSD agent study in lung cancer?

Daniela, would you like to provide some background on that question?

Sure. Yes. So I'm not a Celgene or BMS employee, so I can't speak too much about it. Just what I've seen in the literature. But they do have the other reversible LSD1 inhibitor that's currently in clinic. They have a different pharmacokinetic profile than we do, with a much longer half-life. The rationale behind why LSD1 inhibition may be modulating the tumor microenvironment may apply to their compound as well. And I think that, that's why they're pursuing this combination trial that you mentioned. It's been one cancer patient, I believe. But if a company like BMS, formerly Celgene's molecule, is now in clinic in this combination, we view it as validation of where Salarius is thinking in advancing seclidemstat. We do have a different tox profile than Celgene's, where we don't see as much neutropenia and thrombocytopenia. So I think that they are the same targets, but we do have like I mentioned, manually differential activity but a different safety profile. So there are opportunities for us. And like I said, Celgene has now validated this combination for us. So we're excited for that.

And there are no further questions, thank you at this time.

Yes. So this is David. I'll wrap up. As we discussed today, Salarius is -- we believe Salarius is on strong footing operationally, developmentally and financially, and we are continuing to work hard to maintain our momentum, and I believe we are. I'd like to just take a moment to thank our employees for their dedication and loyalty, especially during this COVID-19 outbreak. And to our stakeholders for their continued support as we work to bring hope to patients and their families battling Ewing sarcoma, Ewing-related sarcomas and other cancers caused by dysregulated gene expression. So I appreciate your time today, your attention today, and I'd like to extend my sincerest wishes of good health to all. Thank you for participating.

Thank you, ladies and gentlemen, for joining today's conference call. You may now disconnect. Presenters please stand by.