Forte Biosciences, Inc. (FBRX) Q1 2021 Earnings Report, Transcript and Summary

Welcome to Forte Biosciences First Quarter 2021 Conference Call. My name is David and I will be the operator for this call. On the call are Paul Wagner, Chairman and Chief Executive Officer of Forte Biosciences; Dan Birch, Forte's Chief Medical Officer, and Tony Riley, Forte's Chief Financial Officer. Before I turn the call over to Paul and Tony to discuss the business and financial highlights of the first quarter, I'd like to make a comment regarding forward looking statements. Many of the statements made during the call today are forward-looking statements, including statements with respect to the company's cash position, the potential development timeline of the company's product candidate. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please look at our filings with the SEC for a discussion of the factors that could cause our results to differ materially. Additional information is also set forth in Forte's quarterly report on form 10-Q for the quarter ended March 31, 2021 as filed today with the SEC, and in Forte's annual report on form 10-K for the year ended December 31, 2020, as filed with the SEC on March 16, 2021. The forward looking statements on this call are based on information available to us, and we disclaim any obligation to update these forward-looking statements except as required by law. I will now turn this over to Tony who will discuss the financial highlights of the first quarter of 2021.

Thank you. I will now give an update of our financial results in the first quarter of 2021. We ended the first quarter of 2021 with approximately $54.8 million in cash and cash equivalents which we believe is sufficient to fund operations for at least the next 12 months as we continue to advance our lead product candidate FB-401 through clinical trials. Cash utilization for the first quarter of 2021 was $4.0 million. In terms of operating results, research and development expense were at $3.3 million and 1.4 million for the first quarters of 2021 and 2022, respectively. The increases in 2021 were primarily due to manufacturing and clinical development costs and non-cash stock based compensation expense as we advanced FB-401 through phase two clinical trials. We expect our research and development expenses to increase during the next 12 months as we continue the clinical development of FB-401. General and administrative expenses were $1.4 million and $0.7 million the first quarters between ‘21 and 2020, respectively. The increases in 2021 were primarily due to professional fees for legal, auditing and business consulting services, and increases in headcount expenses including non-cash stock based compensation as we scale operations, and became a public company on June 15 2020. Losses per share were $0.36 and $0.97 for the quarters ended March 31, 2021 and 2020 respectively. Forte had 13.5 million shares of common stock outstanding at the end of the quarter. Additional details on our financial results for the first quarter of 2021 can be found in our form 10-Q as filed today with the SEC. You can also find more information in the investor relations website at www.fortebiorx.com. I will now hand over to Paul.

Great thank you, Tony. We're going to keep today's call fairly short but I wanted to give investors an opportunity to ask any questions that you may have. Before we get to the Q&A for those of you on the call there are not as familiar with Forte we're developing FB-401 a live biotherapeutic meaning that this therapy consists of living bacteria, the treatment of inflammatory skin diseases and the first focus is on atopic dermatitis. We've been working on FB-401 in collaboration with the National Institute of Health and the National Institute of Allergy and Infectious diseases. Atopic dermatitis is a disease that affects approximately 20 million people in the United States alone, with more than half of those being pediatrics. In fact, one of our thought leaders have suggested that number could be as high as 60% to 70% of the population being pediatrics. There's no cure for atopic dermatitis at present and the treatment options for pediatrics in particular are very limited. We believe there is a significant unmet need for safe and effective therapies to treat these patients and we're hopeful that FB-401 can meet that need. As we've highlighted previously, in October, FDA granted Fast Track designation to FB-401 based on that unmet need and the seriousness of the disease. We completed the phase two 2a study and that data was published last year in science translational medicine, just as a quick recap, and I know we've talked about this before, but in that trial, the 20 pediatrics treated for 16 weeks and the 2A trial FB-401 demonstrated a nearly 80% improvement from baseline and atopic dermatitis disease activity as measured by EASI that the eczema activity and severity index. That effect was durable for between three and eight months after stopping therapy. The proportion of patients that had at least a 50% improvement in disease referred to as EASI-50 was 90% or EASI-75 was 70% and EASI-90 was 30%. In a subgroup of moderate to severe patients, all of them 100% achieved EASI-50, nearly 90% achieved EASI-75 and a third achieved EASI-90. As we announced last quarter with completed enrollment in the randomized controlled study. We originally targeted enrolling 124 subjects, but due to strong demand, we were able to enroll 154 subjects trial enrolled pediatrics, two years of age and older adolescents and adults with mild to moderate atopic dermatitis. The majority of those subjects enrolled are under age 18 and the majority are also of moderate disease severity. We expect to announce the results of this trial in the third quarter. In terms of our cash position, as Tony mentioned, at the end of the first quarter of 2021, we had $54.8 million and our cash utilization rate positions us well. We expect to have cash sufficient for at least the next 12 months. Lastly I am really pleased to announce that since our last conference call, we had two more patents issue which brings our total patent portfolio up to 11 in the U.S. and we have similar filings progressing and greater than 15 ex-U.S. countries. So with that, David will now open the call up for Q&A.

Thank you. At this time, we will be conducting a question and answer session. [Operator Instructions] Our first question is from Mohit Bansal with Citigroup.

Great, thanks for taking my question. And congrats on the progress. A couple of questions. So one is regarding the use of EASI-50 as an endpoint in your phase two trial versus IGA which is used by [indiscernible] , as well as [indiscernible]. So any thoughts there which endpoint is probably a better one for the kind of patient population you are going after?

Hi, Mohit. Thanks very much for that question. Appreciate it. Dan, do you want to address that and I can maybe follow up with a few comments as well.

Sure, sure. Clearly, the IGA is used in phase three studies. And that's what we would plan for our phase three as well. But when you do smaller phase two trials, you're usually not powered for that endpoint. So when usually uses alternative endpoints and the EASI-50 is a very common use for phase two clinical trial like this.

Thanks Dan. And then I will just add there's a number of secondary endpoints. Obviously, IGA is one of those endpoints in the end a variety of different EASI, so EASI-50 is one we've talked about before, obviously we're looking at improvement in EASI as well as EASI-75 and EASI-90.

Got it, super helpful. And then one question we have been getting, is that vision of the FDA you’re seeking guidance from is it immune permission division or is it given that yours is live bacteria, so it is the one which takes care of the live bacteria and does it matter who regulates this particular therapy?

That's a really interesting question, Mohit. So it is being overseen by the division of vaccines and related products. I think the history of that might just go back to the fact that certain vaccines were actually living bacteria, cholera vaccine was one of those. And so I think they've been given the mandate to review all of the living bacteria. So the biotherapeutics that consists of living bacteria, the microbiome products, but they do have a call into a reach out to the therapeutic division for the indication of interest. So in our case, after the Derm division, I think there's a close collaboration between those two. In terms of whether there be any differences working with the division of vaccine related product as opposed to the Derm division I don't know. But this division has been very responsive. And something I thought was interesting is that we did get that fast track designation in a really in the middle of the second wave of COVID. And I was a bit surprised about that. I would not, I would have thought that the division of vaccine related products be very focused on the COVID vaccines and maybe push our application out but instead, we were granted that fast track designation. So I think that's just shows the responsiveness of the division and the support for FB-401. Dan, did you have any other comments you wanted to add?

No, I think what you said is great. And I do think I would just emphasize the fact that the Derm division is highly involved as Paul mentioned. And they do bring a consultant on our review from the Derm division.

Super helpful. Thank you very much.

Excellent.

Our next question is from Kumar Raja with Brookline Capital Markets.

Thanks for taking my questions. So with regard to that trial, what are your plans for a open label extension once the trial is complete? And what are your thoughts on rolling over placebo patients to treatment in the open label extension?

Yes. That's a great question Kumar. Thanks for joining the call. Dan, did you want to address that?

Sure. So we have initiated a open label extension for these phase two subjects. So we'll allow the subjects to enroll into this open extension including the placebo patients. This study will focus on safety and will be a year long.

Okay. And in terms of plans, Europe, as well as ex-U.S. how are you guys thinking about that?

Yes. That's a good question. I'll maybe make some comments and then turn it over to Dan, if he's got any other insights here. Certainly, what we'd like to do is to be able to have an integrated global development plan that would include Europe as well as Asia. And those are things that we're thinking about right now. We're having discussions about how to do that, the potential pursuit of scientific advice in Europe. There is some unique aspects, I think to European development and we're working through those now. But, Dan did you have any other comments you want to make on that?

Sure. Just to elaborate we are focusing on obviously, interactions with the FDA. And we'll continue to do so as we proceed from the stage two into our phase three program. As Paul already alluded to we have begun the process with some consultants on approaching the EMEA obviously looking for potential avenues for scientific advice. There are -- there are a lot of little issues with Europe. We think we can work our way through those. And we would like to make sure that we have a program that involves both the U.S. and Europe.

Okay, great. And finally, you guys mentioned that majority of patients in the trial they are under 18. Can you give more color? Is it more closer to the 18? Or is it much closer to the to the lower limit? And how does that impact compliance as well, as your thoughts on the efficacy data from those patients?

Yes, good question Kumar. Thank you. I'll make a few comments and then Dan could can provide his insights as well. So the breakdown, as we said, the majority are under 18. So about 75% of the subjects are under 18, 25% are adult very roughly. In terms of the compliance, I really don't see that much of an issue. For the very young patients, a two to three year olds, there is a caregiver, typically a parent that's applying the therapy. And again this isn't a therapy that has to be applied multiple times a day. It's other therapeutics, whether it's steroids or other therapies and development, oftentimes are creams that have to be applied multiple times a day or ointment to that would be applied multiple times a day. And again, just as a reminder, this therapy is a spray. So it's a water based spray and it's only applied three times a week. So I think from a compliance perspective is really I don't think that that's an issue. We certainly haven't heard of that being an issue. It wasn't an issue in the 2A trial. Dan, did you have any other thoughts?

Yes. I was just going to say the nature of our product the fact that it's a naturally occurring bacteria, again, though, it's highly selected strains that's applied to patients the parents of the children are really anticipated. They're really in love with this kind of idea. And so I think that's what's allowed us to over enroll our trial. So there is a lot of excitement about a non chemical drug therapy. So I think there's been a lot of interest by the parents to allow their patients or their children to be participate in this trial. And I think that will reflect on our compliance as we go forward.

Thanks so much.

Excellent. Thanks for your questions.

Our next question is from Michael Higgins with Ladenburg Thalmann.

Thanks, congrats guys on the continued progress. Appreciate the opportunity to here to ask additional questions are very forthcoming so far here. This is great. I'm just curious in the ongoing phase 2, are you looking for anything specific by the different age groups, the younger kids, the older kids in the phase 2 any secondaries that are, that are based around that?

Yes. I will make a couple comments and then Dan if you want to provide any other insights, so there's a stratification. Age is one of those stratifications. And so we are looking at that maybe even related to the previous question, I don't think we certainly didn't see any significant difference based on age, whether was younger pediatrics, or adolescence, in the 2a trial or even in the adults and the adults in the 2a trial, were a little bit different. Again, they were only treated for six weeks and treated regionally, but no significant that we saw in terms of the overall activity. The consistency was there between the adults and the pediatrics and the adolescence. Dan, is there any other comments you want to provide?

No, no, I think we're looking at people very consistently because of what we observed previously.

Thanks guys. Second is more of a development question I suppose. There's been some difficulties with others recently, in their devices. If you could just remind us as to where you are with your device in terms of human factors studies that have been completed? Any other conversations with the FDA regarding the spray device? Thanks.

Yes. Absolutely. Good question. So first of all, that spray device has a master file and it's actually being used in an approved FDA product. So it's already in the market. So we don't really expect many issues there. In terms of whether this is considered a device again we would say it's agnostic to the method of application, it could be a dropper, it could be a sprayer, it could be a form swipe, there are many different ways the bacteria can be applied to the skin. So with that said, you asked about human factor studies. Now obviously, that's something that we're focused on, we're actually moving forward to human factor studies. But in the study that we've had ongoing now as well as the prior 2a study, the therapy is pretty straightforward. Again it's just adding the water into the [indiscernible] live bacteria, putting the pump sprayer and currently, it just it reconstitutes almost instantaneously. So as soon as the diluent hits that [indiscernible] it resizes almost instantaneously, and then the pumps spray it's put on, and it's just primed and then pumped immediately after it's reconstituted. So far pretty straightforward and no issues with the patients being able to use or apply the therapy.

Okay, that's great. Can you remind us on your milestone payments to [DAHS] when those may begin?

Yes. I don't think we've given specific guidance on that, but they're late. So they would be after major value inflection points in the program.

Okay, appreciate the feedback, guys. Thanks.

Sure.

Our next question is from [indiscernible] Securities.

Good afternoon Paul, Dan and Tony. Thanks so much for taking my questions. So for the phase 2 coming up in third quarter, if the data is positive and given that you're going after broad people, can give us a sense of how many patients across the age groups you would need for approval on the satisfied the safety database? And/or will the cadence of the pivotal studies be focused on pediatric populations first and then adult? Or will these trials be run in parallel to achieve the broad label?

Dan can comment on this mode but just at a high level of what we've seen and certainly we need to have discussions with FDA on this. But what we've seen with approved therapies for this type of indication is that one trial is sufficient for that broad label. In other words, pediatrics all the way through to adults and not looking too dissimilar from what our phase 2 study looks like. And then in terms of that safety database, I always think it's good to have an extension study can encourage patients, particularly the placebo patients who may not be responding to stay on study if they have a guarantee that they can go on to active after the end of the study. But as Dan highlighted, we do have an extension study also as part of the phase 2 and hopefully, that that might be able to satisfy some of the safety questions that FDA might have. Dan, was there more that you wanted to add there?

No, I [indiscernible] approved with adults, children and adolescents, all of the single program and again, we would aim to do the same. And we would expect that that would be acceptable. And as Paul alluded to, I think previously as we have been very satisfied with our interaction with the agency and that when we're finished our phase 2 we will discuss with them our requirements for phase 2.

So our expectation would be that we wouldn't need to have separate studies for adults or pediatrics but again, that would just all be one study.

Okay. And just one quick follow up, could you just elaborate a little bit more on a potential European or Asia filing? Would those geographies accept [indiscernible] scores readily or would you need to conduct separate studies and use different endpoints? What is the regulatory path forward for those geographies or what are their endpoints that they look more closely to?

Dan, did you want to address that and maybe I can add a few comments?

Sure. Again Chris, again you know [indiscernible] recently got approved with the EMEA using their IGA and the studies they did in the United States. So clearly they have different focuses than the U.S. does. But they have been, they've absolutely demonstrated there that the IGA is acceptable to them. So again we'll be having some interactions with consultants and then potentially get some scientific advice to clarify what would be required for the EMEA.

Great, thank you so much.

Thanks [Nicole].

[Operator Instructions] Our next question is from Kalpit Patel with B. Riley.

Yes. Hi, thanks for taking my question. Just a quick one on the ongoing study. Is there a specific Delta that you're looking for in the trial that would be clinically meaningful in your view, in addition to hitting [indiscernible]? If there's a range, that'd be super useful? Thanks.

Yes. Great question. Thanks for joining the call Kalpit. So that's a question that we've asked the top leaders as well. And the answer that comes back is if the safety profile is clean, that the Delta between active and placebo doesn't need to be very large. What they've talked about is in terms of the easy measure, somewhere between 10 and 15 point difference would be clinically significant to them. In other words, if with a clean safety profile, and a 10 to 15 point difference in an easy based endpoint relative to placebo that's a therapy that would be used broadly. And I think there's, precedent for that in the market. There's other therapies in psoriasis, known therapy and psoriasis, for example where the activity isn't quite as great as some of the biologics, but the safety profile is very clean. And that has had robust uptake in the market. And I think in this indication, particularly going after the pediatrics, safety really is number one, the parents are very focused on safety, they want something that's natural, that they can be comfortable putting it under the kids. It's not going to have any serious either near or long term issues to their kids help. And that also has some effects. So I think the bar the highest bar really is on safety followed by the activity. Some fraction of the patients don't respond to this therapy, I think then the parents would start moving them on to more aggressive therapies. But I really think that safety profile is paramount to getting uptake in the particularly in the pediatric market.

Okay, thanks. I just had a quick follow up actually on the IP related for IP surrounding FB-401. I'm trying to understand, is IP more related to the formulation of the drug? Or does it also include the bacterial species? I mean can you protect a bacterial species under IP like this? I'm just curious to hear your thoughts on that.

Sure Kalpit. So as I mentioned, we just had two new patents issued, we're up to 11. Now, and it's really a broad range of intellectual property of being the starting foundational patent is around culturing Gram negative bacteria off of the skin. So that was not trivial. And the NIH originally came up with that technique and we were able to get a patent issued for that. And from there, it is the composition. So taking bacteria off of the skin and formulated into a drug product. It is used, using that product for the treatment of different diseases, including atopic dermatitis, it's formulating that into a kit. It's combining that with other potential therapeutics. So it's really broad. We've been very aggressive on the intellectual property for that very reason. And then have been really pleased with the number of patents that have issued in fact, very early on we went down track one which is more accelerated path for patent issuances. And I wasn't sure we're going to be able to pursue that. But again, because there hadn't been much work done on Gram negatives broadly or specifically, [indiscernible] mucosae the prior [indiscernible] was fairly clean. Because again, before the NIH came up with this technique for culturing Gram negative bacteria, there really wasn't a way to separate this off of human skin and start to study them. So again, we will have more patents coming. I think we're in a very solid position with the 11 that we have and that'll expand and be reflected in the nationally as well.

Okay, thanks very much. Thanks very much Paul.

Sure. Thanks for the call.

Ladies and gentlemen we have reached the end of the question and answer session. I would like to turn the call back to Paul Wagner for closing remark.

Thanks. So we're really excited. We're looking forward to the readout, as all of you are as well as the trial and a few months in the third quarter. So thank you again for dialing in. And if any of you have any questions, we're available after the call to take those and have a good afternoon. Thank you again.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.