InMed Pharmaceuticals Inc. (INM) Q2 2019 Earnings Report, Transcript and Summary

Good morning and good afternoon. My name is Leonie, and I will be your conference operator today. At this time, I would like to welcome everyone to InMed's Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Mr. Blacher, you may begin your conference.

Thank you, Leonie, and good day ladies and gentlemen. My name is Josh Blacher, InMed's Chief Business Officer. Welcome to InMed's, second quarter fiscal 2019 financial results and business update conference call. Before we begin, we would like to go over our disclosure statements, followed by a review of the progress on our biosynthesis and R&D programs, which will be led by our President and CEO, Eric Adams. Jeff Charpentier, our CFO will then review the financial results of operations. Following that, we will be available for a question-and-answer session. We’re going to try a new way of approaching Q&A. For non sell-side analysts, if you have a specific question please email it now or during the course of the call to info@inmedpharma.com and we will see how many of those we can address during today’s call. Please be advised that certain statements in the following conference call regarding expectations for InMed's business operations, clinical development, key personnel, contractual partnerships, regulatory approvals, revenue opportunities and cash runway all constitute forward-looking statements. Such statements are not historical fact, but rather predictions about the future, which inherently involves assumptions, risks and uncertainties. Actual results could differ materially from those contained in the forward-looking statements. A description of these risks can be found in our latest disclosure document and recent press releases. InMed does not undertake any obligation to update any forward-looking statements made during this call. I would now like to turn the call over to President and CEO, Eric Adams. Eric?

Thanks, Josh, and good day to everyone. I'd like to open the call today by discussing recent developments with our cannabinoid biosynthesis manufacturing program followed by advancements in our INM-750 program for the treatment of Epidermolysis Bullosa or EB. Thereafter I’ll turn the call to InMed’s CFO, Jeff Charpentier for a review of our financials and we’ll conclude with the Q&A session. Regarding our biosynthesis program, we’ve had a very busy winter. As you may recall in early October of 2018, we entered into a research agreement with the National Research Council of Canada or the NRC for the upstream bio-fermentation development and scale-up processes for cannabinoid biosynthesis. The NRC has significant bio-fermentation expertise and extensive dedicated facilities to support InMed’s scale-up activities. The NRC will help us to find specific process parameters to increase fermentation scale and maximize product yield to optimize the commercial potential for our proprietary E. coli based biosynthesis system. In November of last year we initiated the technology transfer activities from the University of British Columbia or UBC to the NRC to support these scale-up activities. There are too many components to the technology transfer for our biosynthesis process. The first part is the transfer of protocols for High-Performance Liquid Chromatography or HPLC which has recently been completed. The second portion of tech transfer concerns the transfer of the gene constructs containing the coding sequence for the enzymes responsible for cannabinoid production. We will initiate this portion of the tech transfer during February. After this second portion of the tech transfer is completed, we will initiate parameter optimization for fermentation scale-up activities at the NRC. In terms of our ongoing work with UBC, we will continue to explore current and proposed versions of plasmid structures to optimize cannabinoid overproduction. These ongoing efforts will likely lead to additional patents and other intellectual property for the Company. Currently we anticipate filing additional provisional patents in the second quarter of calendar 2019, which, if granted, will materially strengthen protection for our biosynthesis technology. As we discussed last quarter, we signed a master services agreement with an unnamed GMP contract development and manufacturing organization or CDMO that will be working on the down-stream processing and purification for our biosynthesis process. While the CDMO is a very well established GMP manufacturing entity, they’ve chosen to keep their identity confidential at this time. Over the next several months, we will be working to develop and optimize the down-stream purification process with this CDMO. You will recall that in December 2018, we announced a contribution agreement with the National Research Council of Canada and their Industrial Research Assistance Program or IRAP, whereby InMed will receive non-dilutive funding of up to C$500,000 to support our cannabinoid biosynthesis program and we’ve begun receiving this funding in late 2018. To give you a sense of the human resources that we’ve dedicated to our biosynthesis program, we currently have a full time headcount of seven professionals dedicated to this program between our internal staff at InMed and our partner at UBC of whom four are PhDs. Additionally we’ve over four headcounts working solely on this program with our upstream and downstream industry contractors. These numbers will change as we ramp up these activities. We’re confident that the biosynthesis program is sufficiently staffed to support our ongoing development plans. Regarding our INM-750 program for the treatment of EB, I’d like to start with the topline review of our timetables and then drove down into the individual components. By the end of this month, we’ll finalize our selection of the contract manufacturing organizations that will provide the process and analytical development and GMP production of the topical cream for our first-in-human trial. Between now and early summer, we will also be working with the GMP supply of the active pharmaceutical ingredients or APIs to be used in the Phase I clinical trial. In early fall we plan to initiate stability studies and other regulatory enabling studies, which will lead into the Phase I trial. We are still currently targeting a Clinical Trial Application submission or CTA to Health Canada in the fall and the beginning of the Phase I trial by the end of calendar 2019. There are two basic steps in the manufacturing process of any pharmaceutical API. The first step is to complete the manufacturing process and analytical development with non GMP drug product which again will begin within the next several months. The second step which begins immediately thereafter is the actual production and stability testing of the GMP batch that will be used in the initial Phase I clinical trial. The Phase I ready process is currently expected to be finalized by this fall. Although we’ve taken many actions and contingencies to mitigate manufacturing risk they do so exist. Primarily the development of a sterile filtered aseptically manufactured topical cream is challenging and potential unknowns may exist in its development and scale-up. That notwithstanding while these issues do potentially present risks, we believe that the likelihood is relatively low and should the need arise we’re confident that we will be able to manage through them. Moving on now to toxicology and pharmacology, most notably during our fiscal second quarter of fiscal year 2019, we conducted two topical, 7-day dose range finding studies. The studies evaluated skin irritation, plasma pharmacokinetics or PK, histology and skin/drug concentrations. In these studies we witnessed no clear drug-related effects on the skin and confirmed that the extent of systemic cannabinoid exposure was minimal after topical administration of the cream. I should note that the dosing levels in these studies were 100-1,000-fold higher than what we anticipate the clinical dose to be. Switching gears now to clinical and regulatory related topics, importantly as of last month, we’ve already commenced activities with the Contract Research Organization or CRO that will be performing our initial Phase I study in healthy volunteers under the auspices of a Canadian CTA. Subject to our planned discussions with Health Canada, our proposed Phase I study will have two parts. In the first cohort, we will evaluate the safety, tolerability, and pharmacokinetics of INM-750 cream in healthy volunteers with normal, intact skin. The volunteers will have cream applied once daily for 14 days. In a second cohort of healthy volunteers, we will test the local safety and tolerability of applying INM-750 cream to small wounds once daily for seven days. Both of these studies will be conducted with two different drug concentrations. In addition to these studies, we’ll also be performing several supportive in vitro and vivo non clinical studies over the course of 2019. To reiterate, we still currently expect our CTA submission to occur this fall and the Phase I trial to be initiated by year end 2019. With that I’d like to turn the call over to our CFO, Jeff Charpentier for a review of our financials.

Thanks Eric and thank you all for joining the call. As a Canadian-based and regulated company, I'll remind you that the figures that I will present in today's call are expressed in Canadian dollars. Please also note that the complete financial statements and MD&A are now available on our website under the tab investors. For the three months ended December 31, 2018, which is the second quarter of our 2019 fiscal year, we recorded a net loss of CAD2.7 million or CAD0.02 per share. This compares with a net loss of about CAD1.6 million or CAD0.01 per share for the three months ended December 31, 2017. R&D expenses were 947,000 for the three months ended December 31, 2018 compared with 418,000 for the comparable three months in 2017. This substantial increase in R&D expenses in 2018 was primarily due to an increase in spend with external contractors for expenditures related to the advancement of INM-750 for the treatment for EB and for our biosynthesis program, as well as higher R&D personnel compensation as a result of increased R&D staffing. G&A expenses totaled 922,000 for the three months ended December 31, 2018 compared with 735,000 for the three months ended December 2017. The increase during the quarter versus last year was driven largely by higher G&A personnel compensation as a result of increased G&A staffing to support our corporate growth. The majority of the 1.1 million dollar increase in a loss for the second quarter of 2019 fiscal year compared to the same quarter in fiscal 2018 is attributable to a 660,000 increase in share based payments. As our stock price rose during fiscal 2018, the value associated with stock option grants rose in parallel, which has given rise to this increase as those stock option grants are expensed over their typical two-year vesting period. As a reminder the share based payment is a non-cash expense. Shifting now to our balance sheet, at December 31, 2018, our current assets which is primarily the sum product of our cash, cash equivalents, and short-term investments was CAD23.4 million a modest decrease relative to the current assets of CAD25.0 million at September 30, 2018. This decrease was the result of a CAD1.9 million cash outflow from operating activities during the second quarter of fiscal 2019. At December 31, 2018, our issued and outstanding shares totaled approximately CAD171 million unchanged from the last quarter and CAD222 million on a diluted basis. Our average diluted share count during the second quarter of fiscal 2019, which serves as the basis of our EPS calculation was CAD171 million. Looking forward now, based on the funds available as at December 31, 2018, the company currently estimates that it has cash resources to fund planned operations into the second half of calendar year 2020, which is consistent with our guidance from last quarter. We anticipate that our current resources will fund a significant increase in R&D spend to continue development of our R&D programs including the preclinical and early clinical program for INM-750 and further scale-up of the biosynthesis program among other R&D activities. With that I'd now like to turn the call back over to Leonie for a question-and-answer session. Leonie?

Hi guys. Thanks for taking my questions. So, I was just wondering what the next couple milestones we can expect from the biosynthesis program?

Yes. I'll fill that one, thanks, Max. Well, we're humming right along with that program and its development. Over the course of this year there's really kind of three components that we think are going to dovetail together in the biosynthesis program. The first one is going to be completing the technology transfer for the upstream portion, which is the actual fermentation. We're in the process of doing that right now, transferring the technology from UBC to the NRC, where they will then take that information and those processes and start to look at larger scale fermentation. The second part is the downstream process, which is the purification process. This is the one where we're working with the unnamed CDMO, who will then take the fermentation broth and then you'll have to separate out the cainnabinoids and purify them. So those are being done to a certain extent in parallel, but that will be the next big milestone after the fermentation. We then need to take those two processes, the fermentation and the purification, combine those into one manufacturing process that will be conducted at a CDMO another external company and starting to look at larger and larger scales in fermentation tanks. So, we anticipate that we'll be able to combine the two processes into one and then initiate a larger batch by the end of this year.

And when do you think you'll be able to get to commercial scale?

Well sometime in the following year. The scale-up by the end of this year, I'm not quite sure which batch size we'll be targeting. There's a lot of factors that need to be determined before we can say exactly what that size will be. But certainly, I think we're on target to be a much larger batch size, commercial scale in 2020.

Great, that's very helpful. And then also can you just give a little bit more detail on your patent status?

I could tell you just a little bit. I mean, we filed a patent in September 2018 that one was entitled Metabolic Engineering of bacteria E. coli for cannabinoid products that was based on a provisional that was converted into a full PCT patent. And we have two more that we'll be filing this year, which we call biosynthesis patent family 2 and biosynthesis patent family 3. I can't really go into much detail. We don't want to jeopardize our own patents by announcing what the content may be. But, we think that we are being pretty effective in building a picket fence around E. coli and the use of it for cannabinoid biosynthesis. So we've been doing this for over four years now. We've built up a tremendous amount of know-how and we're looking to convert that into patents that will give us significant commercial protection. So this will be the second and third patent families. I don't think we'll be stopping there and I think down the road if anyone wants to use E. coli for cannabinoid biosynthesis they're going to have to go through us.

Great, that's helpful. And then just, can you tell us what the timing of a meeting with regulators might be?

For the EB program?

Exactly, for the EB program.

So, we are going to conduct the Phase I trials in Canada. So we have already submitted an application seeking a meeting with Health Canada to discuss our planned Phase I trials. In Canada, I guess there's one of three things that can happen. One is that a Health Canada can deem that there's no need for a meeting. Secondly, we can actually conduct a meeting with them or third we can just communicate via written documents, emails. We haven't heard back from them yet. We have submitted that. We anticipate that there's typically a 60, I believe a 60-day clock during which you target setting up that meeting. So we've not heard back from them yet but when we have requested the meeting already. In terms of the U.S., we will probably look to do that later in the year. We won't be conducting any Phase I trials in the U.S. So it won't be under FDA jurisdiction. Certainly as we start towards Phase II, we’ll be looking to expand into the U.S., but we didn't want to put the U.S. on our critical path just with the recent government shutdowns and question marks about whether there's going to be a further shutdown. So, we have plenty of time to request those meetings and interact with the FDA over the course of the year.

Great, that was very helpful. And then just one final question, I don't know if you have any comments on the announcement from [MRS] that binding letter of intent with kind of an unnamed party, sound like a biosynthesis program?

Yes, I think there is another yeast company. There seems to be a dime a dozen these days. Every time you turn around there's a new company trying to biosynthesize these in yeast. I can't really comment on what they're claiming to be able to do. Certainly, we've been at this a long time. We know very well what the challenges are in E. coli and what we need to do to overcome those challenges. Yeast is a different beast. At commercial scale, it's a very difficult thing to do. I think if you talk with any of the current players out there who are commercializing or producing products with yeast, they would be the first to tell you that the most expensive part of the production process is how much time you spend in the clean room and it takes a very long time at least twice as long as if not longer to do yeast than it does E. coli. So, from a cost standpoint we think will be more than competitive. There's also quite a bit of IP out there that's already been issued in the yeast base. So a lot of these people who are now entering I'm not quite sure how they're going to work their way around that. But at the end of the day we're a cannabinoid company. That's what we specialize in. That's what we understand, we've been with this biosynthesis program for quite a quite a long time now and I think we're making very decent headway on our front and I guess it's no surprise that a lot of people want to follow our mold and jump into this business opportunity.

Yes, wonderful. Well, thanks so much for taking my questions.

Thank you. [Operator Instructions] Your next question is from Jerry Isaacson from Roth Capital. Jerry, please go ahead.

Thank you very much. Nice to talk to you guys. Thanks for having the call. My first question is regarding the toxicology studies. I wonder if there's any more details that you can provide about these studies in terms of what animals were used, how often was the cream applied or just anything else that you might be able to share at this time?

I’d love to be able to share it. I don't have that information at my fingertips. These were studies conducted in pigs, where we applied the cream topically and then we tried to mimic how the actual use will be in EB patients by putting an occlusive dressing over them. I think one of the important things coming out of those studies is that we applied the dose as I mentioned 100 to a 1000 times what we think the actual clinical dose will be and we could only measure a very minimal amount of cannabinoids in the circulation. So that's been one of our treatment goals as to not have cannabinoids circulating throughout the body but rather just at the site of disease. I think on future calls we'll have representation from our clinical and regulatory departments to join us so that we can write a little bit more detail as well as from our biosynthesis program just to be able to answer the questions in a little bit more technical fashion than I'm able to do right now.

Yes. I think that's good details there anyway. Next I am wondering if there is any further details on the Phase I trial that you can provide and how many patients do you intend to enroll. How will the cohorts be divided and how long do you think maybe it will take to enroll these healthy volunteers?

Those are all good questions. So, in the Phase I trials and healthy volunteers right now I think we would target probably on the order of magnitude of 30 individuals in the first trials that would be split between the two that we talked about. The normal intact skin would probably be the bulk of those patients. So call it upwards of 20 who receive the cream applied once daily for 14 days. And then there will be a separate group where we're creating a small wound and they will be treated once daily for seven days. That will probably be on the order of magnitude of ten patients or so. In terms of enrollment these will be enrolled almost immediately. This is being done at a Phase I clinical trial site in Canada who has extensive expertise in dermatology and we work very closely with them to design the proposed protocols for this. But enrollment will be very short probably a matter of weeks if that long. And then we'll follow these patients up and test as many different or look for as many different findings as we can to support moving into the Phase II studies.

Great, thanks. So you kind of touched a little bit on my next question there and that's what I was going to ask is, how you define these small wounds and how do you find patients with small wounds? But it sounds like you're saying that the wound will be created there and that's part of the study and then that will be the - can you give any more details about that?

Yes, they have a very interesting technique that they use which basically you form a blister using a suction device and then you excise the skin from the blister and then you have what is kind of a wound at the epidermal or dermal junction. And so that is probably as close as we're going to be able to come to mimicking an actual EB simplex type wound. So that's how we will form these wounds and then we will treat the open wounds with the cream and look for a number of parameters that you may not be able to see in normal intact skin.

Great, that's obviously a very common model so that will be good to see the data from that. I just have one more question if you don't mind. I wonder Eric if you could talk a little bit about the competition in the EB space and how you view competing programs compared to your program?

Yes. So there's quite a bit of - there's a lot of noise of people developing new products for EB. I think most of what I've seen are for the more severe forms, which include dystrophic and junctional and recessive forms. Those are the minority of patients. Simplex, which is the keratin story that we're targeting is the vast majority of patients. Certainly from a on medical needs, we certainly hope all of these therapies are very successful in treating these patients; it's an absolutely devastating disease. Most of the approaches that are out there are gene therapy approaches, so it's pretty likely to be an expensive approach but they're trying to reverse the underlying disease itself. So, again we hope that those are successful but still the vast majority of the patients are in the Simplex which is where we will be focusing our product. We think that from a symptom release standpoint, we could play a role in any of these patients and we'll be targeting the whole patient population but for the keratin and the upregulation of K15 that’s the biggest segment of the EB population.

Great, thank you very much, I appreciate that.

Thank you, Jerry.

Thank you. Your next question is from Ram Selvaraju from H.C. Wainwright. Ram, please go ahead.

Hi, this is Edward Marks on for Ram. Just following up on that last final question on the small wounds. I was wondering if that could be used to assess any efficacy parameters in the Phase I trial or that's going to wait till Phase II.

I suppose that the Phase I isn’t particularly designed to look at efficacy, it's more of a safety study. But if we see any effects if there is any let's say a reduction in pain that they experience or those kinds of parameters, maybe a reduction in visible inflammation or reduction in itch, that could be interesting. But it we're still finalizing the protocol as to what will be measuring, that will entail the discussions with Health Canada. But we'll certainly try on as much as we can prior to entering into diseased patients.

Okay, thanks. And then, if those two doses should prove to be safe, would you move both of them into Phase II or decide on which one is potentially most efficacious?

Sorry, in terms of the dose?

Yes. Would you bring both of them into Phase II or just one?

Well, I think if there's a clear indication of -- if they're both safe, then we would probably move both of them into Phase II if there is no other way to differentiate between them. But again, we saw some time to figure that out and think on that. If there is no clear winner out of a Phase I in terms of safety, then we'll have to contemplate moving both forward.

Okay. And then, broadening it out a little bit, I'm wondering how applicable 750 would be towards mass market wound healings things like diabetic foot ulcers, venous leg ulcers, things like that?

Then, certainly something we'll be considering down the road; it's not the focus of what we're doing right now. I think we need to really assess out what the biggest therapeutic effects for 750 are going to be. We have some good data from our in vitro and in vivo studies but we have to see how that plays out as we go forward. Certainly, if we're successful in reducing inflammation and reducing pain, reducing itch, wound healing depending on what we learn from our product, it would probably have several applications across a wider spectrum of wound -- in terms of logical wounds.

I see yes, I can definitely see the parallels between those different wound healing markets, so be interesting to see. Just taking a step back, I'm onto the tech trend for a side. I'm wondering how long it will take to complete that transfer over from the UPC over to the NRC.

Yes, certainly it's a matter of months not a matter of quarters.

Okay. And then, my final question just on the financial side. Looking at whether any foreign exchange losses are going to or likely to occur going forward?

Yes, I'll take that one. So, right now most of our majority of our funds are in Canadian dollars but we have a couple million that are in U.S. dollars. So, a year-to-date basis, we've seen some foreign exchange fluctuations which have generated relatively small but a net foreign exchange gain on a year-to-date basis we do have significant portion of our expenditures that are obviously in Canadian dollars but also there is a sizeable portion that's in U.S. dollars, so we're using that U.S. dollar really as an almost ahead yet for those U.S. dollars denominated expenditures. So, we don’t have a crystal ball as to what exchange rates are going to do in the future but we just think it's prudent to have some foreign U.S. dollar denominated cash on reserve to sort of hedge against any fluctuations. And so, going forward we'll see some I think what would be relatively modest exchange rate fluctuations and ensuing gains and losses on our income statement.

Okay, thank you guys. That's all I have, I appreciate you taking the time to answer my questions.

Thank you. There are no further questions at this time. Please proceed Mr. Blacher.

Well, thank you very much everyone for joining our call today. And if you have any follow-up questions, please do feel free to reach me at email or phone. Thanks so much and have a great day. Bye-bye.

Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines.