Inovio Pharmaceuticals, Inc. (INO) Q2 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Inovio Pharmaceuticals Second Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bernie Hertel, Vice President of Investor Relations and Communications. Thank you, sir. You may begin.

Thank you, Operator. Good morning, ladies and gentlemen. Thank you for joining us today. Today’s call may contain certain forward-looking statements relating to our business, including our plans to develop DNA immunotherapies and electroporation-based delivery technologies, products and product candidates, as well as our capital resources, all of which involves certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the latest SEC disclosure documents and our recent press release. These statements speak only as of today’s date and we undertake no duty to update or revise them. Presenting today are Dr. J. Dr. J. Joseph Kim, Inovio’s President and CEO; and Peter Kies, our CFO. I will now pass the call over to Joseph.

Good morning, everyone. Thank you for joining us. Today, I want to review with you the big picture of where Inovio is going. You know we are focused on realizing the potential DNA vaccines and immunotherapies. And we sit in a prominent position with respect to the knowledge capital, IP and financial capital generated and applied to the advancement of this promising technology. So, let me detail our overall vision for the development of our technology. Inovio’s aspiration is to have not just one but three products filed for marketing approval with the FDA, or in Phase 3 by the year 2020. We call this Inovio Vision 2020. The three specific product opportunities we are focused on to achieve this vision are first, VGX-3100 for CIN and VIN or cervical and vulvar pre-cancers as well as chronic HPV infection; second, a cancer product, the first oncology could be our new cancer target INO-5400 or it could be INO-3112 which is partnered with MedImmune; third, an infectious disease product from among Ebola, MERS or Zika vaccines. This does not imply that you won’t see R&D development or clinical development activities in advancements on other diseases and products. Because our products all use common technology, we can create new antigens and even new approaches such our dMAbs which are complementary to each other. All the data we generate provides important learning, applicable across all products. All funding that we get for any disease or product helps advance the overall platform while reducing overall burn rate. But these three focus aspirations form the basis for our vision and where we are committed to directing resources. So, let’s talk about where we are achieving those aspirations, and why this is an important juncture. First, our lead candidate VGX-3100 and Phase 3. In the third quarter of 2014, we reported positive top line efficacy data from our Phase 2 trial, which was a readout of our primary and secondary endpoints at week 36. That trial continues for one additional year and a safety follow-up two-week AVA. [Ph] We found no significant safety issues in monitoring more than 160 patients for over a year and a half after the first dosing. In fact, we have seen no significant safety concerns in more than 1,100 patients who have received Inovio’s DNA-based therapies and vaccines in over a 3,100 administrations across all disease areas we focus on. This is a great accomplishment in itself. We later correlated the strong T cell generation in this study to efficacy. These successful results triggered a go ahead decision in a multifaceted process to initiate our Phase 3 trial for licensor. Since then, we designed, developed and manufactured a commercial -- new commercial delivery device that includes a user-friendly, patient-friendly auto-injector. I especially want to point out the excellent work of our engineering, manufacturing and quality teams on this delivery device. For example, this new commercial scale design contains more than 250 new hardware components, many custom-designed. The sterile disposable tip incorporates a prefilled cartridge containing the immunotherapy. The new software contains usability and data collection enhancements and rigorous safeguards. This major upgrade will appeal to the medical community and the patients, and fulfill our clinical and commercial objectives. Anticipating manufacturing such a device in the volume, we also designed an advanced manufacturing process and facilities with high bars for throughput, repeatability and quality assurance. We also transferred and scaled up manufacturing of our immunotherapy to commercial scale with a commercial contract manufacturer. Again, we manage our engineering quality assurance efforts to the highest level. For example, we are required to exceed 95% purity for our DNA immunotherapy bulk manufacturing. Recent updates show that we have exceeded 99% purity. We have now also completed a filling of bulk immunotherapy material into single use cartridges for our Phase 3 studies. As we have previously stated, Inovio held constructive end of Phase 2 meetings with both the U.S. FDA and European Medicines Agency, resulting in a path forward to a pivotal trial for VGX-3100 to treat HPV-16 and 18-related high-grade cervical dysplasia. To ensure, effective recruitment, we are expanding from 40 sites in our Phase 2 to approximately 150 clinical sites for this global Phase 3 study. We are also well into the site selection with the goal of dozens of sites approved very soon after we are allowed to start enrolling. We expect this study to require less than 350 total patients. With these steps progressing, we plan to submit our final package to the FDA shortly. We expect first dosing in the fourth quarter this year, an important juncture. We will share the finalized trial design and further product development details when we initiate this trial. And, there is an important piece of new information for you. The British Medical Journal just published a major new systematic review and meta analysis conducted by Dr. Maria Kyrgiou of Imperial College in London and a team of researchers. They concluded that the LEEP and other excisional or ablative standard of care procedures for high grade cervical dysplasias or early invasive cervical cancer i.e. surgery create a specifically significant increased risk for preterm birth and other outcomes. Preterm birth is well-known to contribute to neonatal death, disability and extreme cost to society. With no drug based alternatives to these standards of care -- standard of care procedures, we know we’re on a right track to offer potential important treatment alternatives to women. Second key element to Inovio Vision 2020 is to see that at least one of our cancer initiatives in Phase 3 or the filing stage by 2020. On this front, our partner MedImmune has been diligently working to design appropriate human trial for HPV cancer immunotherapy, INO-3112, combined with MedImmune’s checkpoint inhibitor technology. We expect them to initiate this in an oncology combination study around the end of this year. This is clearly an important juncture for Inovio’s aspiration in the cancer space. In parallel with MedImmune’s strategy of development, our Phase 1 study of INO-3112 in HPV in cancer of head and neck has now completed enrollment of 22 patients. As you may remember, this immunotherapy generated robust antigen specific CD8 T cell responses with killing function in all 10 of 10 tested head and neck cancer patients for whom we had data last fall. We expect to report additional interim data by year-end. With respect to our cancer vision, we are progressing our plans for INO-5400. We are advancing strategy for a multi-antigen immunotherapy to be combined with a checkpoint inhibitor to a tackle cancer that has been very difficult to treat. We hope to unveil details by year-end. We view this as another important juncture in our cancer strategy. We have stated that our hTERT antigen will be one of three antigens in this new cancer immunotherapy. We did expand our current hTERT Phase 1 study from three to nine cancer indications to generate a broad safety and immune response profile for this important antigen. Additionally, we have completed enrollment of the planned 60 patients in our INO-5150 prostate cancer immunotherapy trial, months earlier than expected. We expect to report interim data on the study as well by year-end. Finally, let me talk about our infectious disease program and the third aspiration in our vision. Newly emerging infectious diseases such as Ebola, MERS and Zika represent a mix of needs and opportunities on a global scale. Clearly, the unmet need for the diseases like Ebola and MERS is both visible but often temporary. On the other hand, diseases like Zika may in fact offer commercial opportunities with persistence or longevity. Our conviction is that if we have technology that may be helpful to people, we should contribute to the creation of valuable products. That being said, Inovio is not a big company and we and our collaborator GeneOne Life Sciences have made a small initial investment in such programs to get the wheels turning. Ultimately these products would benefit from additional external support to see them through events developed for an approval. The opportunity we see for these diseases range from the type of significant grant we were awarded by DARPA to stockpiling contracts, priority vouchers and ultimately commercial markets in certain cases. Regarding grants, the $45 million DARPA award has been valuable because apart from developing products against Ebola, we are fundamentally advancing our DNA-based monoclonal antibody approach through R&D. Stockpiling contracts are not guaranteed of course, but can be valuable in ramping up manufacturing facilities and provide some profit margins. Priority vouchers provide access to accelerate a review of any selected product of the recipient’s choice. That accelerated review has inherent and potentially significant financial value as witnessed by recent multi-hundred million dollar sales of priority vouchers from a recipient company for purchasing firm. Ebola and Zika are already on the priority voucher list, MERS may be added. There is another overriding element in all this. In broad terms, there is a question and desire among those responsible for addressing impactful emerging infectious diseases at national and global levels, as to whether there is a common technology platform that could support rapid design, development and manufacturing of new products for such diseases as they emerge. We think that our DNA vaccine technology offers the right solution and that there is a value in collaborations to achieve such a solution. So, there is common purpose in our current initiatives involving Ebola, MERS and Zika. We are displaying the ability of our DNA vaccine technology to enable rapid product design and development and certainly the initial manufacturing of the product. Again, we are at an important juncture with these programs. To update you, our Phase 1 trial against the Middle East Respiratory Syndrome or MERS, which we are co-developing with GeneOne of Korea, is now fully enrolled with 75 subjects dosed. We are proud that this trial represents the first MERS vaccine to be tested in humans for this disease has no approved vaccines or treatment. The MERS virus has triggered widespread outbreaks and deaths in the Middle East and Korea. Since 2012, MERS has infected over 1,600 people with almost 600 deaths or a mortality rate of about 40%. There are ongoing infections and outbreaks today. We intend to report interim data by year-end and publish the full data set in peer reviewed journals. We already have positive non-human primate protection results. After obtaining human safety and immunogenicity data, we will be in a position to possibly secure additional external funding as well as approach regulators as early as 2017, to discuss the potential path to approval via the animal rule. Similarly in Ebola, after reporting that our INO-4212 vaccine was safe, tolerable and generated strong antibody and T cell results in a Phase 1 study of 75 healthy subjects, we’re preparing a paper for peer reviewed publication. In prior testing, this vaccine protected 100% of immunized mice and non-human primates from sickness and death following exposure to a lethal dose of Ebola virus. We are planning another clinical step forward for this program and will have more Ebola news forthcoming. The other component of Inovio Vision 2020 to have an emerging infectious disease product approved by 2020 is our Zika vaccine. No one knows whether people infected with Zika will derive long term immunity to the virus nor if or when local populations in affected countries will consequently experience decreasing infection rates. However, even if this so call herd immunity unfolds, what about the millions of unexposed travelers desiring to go warm destinations for a holiday break; what about young girls or women in those countries who have not been infected with the virus but have their childbearing years ahead of them? We think there are multiple reasons for the Zika virus to translate into a persistent clinical need and recurring business opportunity over time. We think our Zika vaccine approach has tremendous potential to provide a protection against this disease and look forward to the prospect of initial safety and immunogenicity results before year-end. We also expect to begin a larger trial in areas with prevalent Zika infection before the end of the year. With animal efficacy results already in hand and human safety and immune responses results in progress, we plan to meet with the regulators next year to discuss a path forward for achieving licensor for this vaccine. Again, we’re at an important juncture with these emerging infectious disease vaccines. Now, we’ll get an update from our CFO Peter Kies. Peter?

Thank you, Joseph. Let me first address our announcement last week that Roche terminated our partnership for clinical development of an immunotherapy to treat hepatitis B. This decision by Roche is of course disappointing but it is not uncommon for big pharma and biotechs to make strategic shifts in their technology and disease focus. Based on the progress we have made across our portfolio, we are optimistic that our hepatitis B immunotherapy can make a meaningful difference in this chronic infection, which can lead to liver cancer. If that is achievable, then this product will be a more valuable asset to Inovio whether we retain full economic rights or we partner the program. Not surprisingly, this interim safety data we have seen to-date for this hepatitis B trial fits in our historically favorable safety profile. Immunoanalyses are planned to take place after completion of enrollment. Since Inovio was already leading and managing this Phase 1 trial and Roche funding for this trial will continue through its completion, this study will continue on track without disruption. We expect to complete enrollment in the first half 2017 and report results in the second half of the next year. With respect to the financials, I am sure you’ve all read our press release. So, I won’t repeat the operating numbers published. I will note that in June, we did implement an ATM facility. Through this facility, the Company sold approximately 119,000 shares of common stock at an average price of $11.12 per share for net proceeds of $1.3 million in the second quarter. As of June 30th, we had $134.5 million in cash and short term investments. Joseph, back to you.

Thank you, Peter. In summary, Inovio’s expertise and technology in DNA-based immunotherapies that generate robust killer T cells to fight disease, but which can also rapidly generate antibodies to prevent infection, our aim is to establish and clinically validate a disruptive common development platform for products that attack cancer and treat and prevent infection. Our strategy has been to achieve proof of concept with Phase 1 and Phase 2 clinical trial data. We think we’ve developed a great data set showing strong immune response data across multiple diseases and products. And obviously, we have the benefit of correlating those results to efficacy and our completed Phase 2 study. The second part of our strategy is to spread cost and risk with non-dilutive partner funding, R&D grant and sponsor clinical studies. With over $130 million in third-party grants alone since 2009 and not accounting for a significant dollars already spent via partnerships, collaborations and sponsor studies, we have done a great job of extending the value of Inovio’s own research dollars, the dollars that we receive from investors. The third component of our strategy relates to the realization of value from our work. We see ourselves as innovators, guided of course by the intersection of clinical need and commercial opportunity. Ultimately, we prefer to develop our own products on our own to commercialization and in appropriate cases to see late stage development progress in the hands of suitable strategic partners, while aiming to maximize value for each product at each stage that is our overriding goal. We have important milestones before year-end in all three elements of our vision. I look forward to speaking with you over the next quarters as we are able to provide details on our progress. Now, I’m pleased to respond to your questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Charles Duncan with Piper Jaffray. Please proceed with your question.

Good morning, Joe and team. Thanks for taking our questions, and thanks for the thorough overview. I just had a couple of questions with regard to cervical dysplasia program. I’m sure you are going to provide more details in the future. But, could you give us a little bit more color on the study design or at least the sizing in terms of approximate patient numbers and timelines?

Yes, good morning. Thanks Charles. Approximately the total patient numbers will be about 350 patients. And the end points will be very similar to our Phase 2 data. We had a really robust and strong efficacy data that was correlated with our immune responses. And based on those results, the regulators are in agreement that these are very good end points. So, we’ll be able to provide exact details when we launch the study, as I said in the fourth quarter of this year. The overall dosing and the scheme will be much similar to our Phase 2, three injections over the first three months of the accrual; and primary end points and the secondary will be at the month nine or week 36. So, much of the design I expect will be similar to our Phase 2 study that was published in the Lancet last year.

Okay, excellent. That’s helpful. I t doesn’t seem like the regulators would require a more extended clinical endpoint.

Yes, correct. And, as I’ve stated in the prepared statement, the product has been manufactured at commercial scale in preparation for the launch activities, post Phase 3; and also our commercial device has been designed and developed and manufactured. And these are all coming together in Phase 3. So, we’re quite pleased on the progress on all fronts.

Okay, super. So, the second question I had is on the issue that Peter actually mentioned and that was on the announcement last week on Roche. I can certainly understand maybe a change in the strategic direction. That said, HPV seems like very challenged in the potentially commercial opportunity. I guess I’m wondering if you can share any additional color with regard to the feedback from Roche and/or other potential partners. Have you had any other indications of interest program and perhaps post that Phase 2 data, would there be an interest in partnering yet again?

Yes, we’ve had interest in the program since the announcement of our Roche’s termination. Many of these were same parties who were interested in the program before we struck the deal with Roche in late 2013. As you said, hep B is a huge potential market, perhaps one of the largest if not the largest untapped chronic infection market out there. What’s interesting about this termination is as we said, the big pharmas and biotechs have changes in directions and strategies, and there seems to have been the driver for that from this Roche decision. We feel very strongly about the potential about INO-1800 as hep B therapy. There has been stellar, strong safety profile and interim analysis thus far; and there has been zero immune responses review or analyses done. So, I think this is a very strong product that whether we develop this internally post completion of Phase 1 study that’s as I said, we expect to be funded through Roche; whether we develop this further on our own or we partner this program we think INO-1800 will make a potentially high significant impact in the treatment of hep B going forward.

And then, last question is on Vision 2020 for Inovio. I am not sure if I caught this, I had trouble with the dial in. But in addition to Zika potentially being something that could emerge to the commercial stage by 2020, what about oncology; what do you see as the indication that you think could emerge by 2020 to the commercial stage?

Yes. So, Inovio Vision 2020 is a catch phrase but we think it’s three areas that we think we bring a product to the market or very close in advancing in Phase 3 by year 2020. That’s a high aspirational goal. One has HPV products, VGX-3100 and second is oncology. Right now, there we have multiple horses in this race internally. Obviously INO-3112 is further along because we have strong immune responses in Phase 1 and we’ve licensed that product to MedImmune and they are planning to do multiple studies combining their immune molecules with INO-3112 to bring about the best one-two punch combination in head & neck and cervical and other HPV driven cancer indications, as we stated. We think that’s probably the favorite horse in oncology, but I like the chances of INO-5400. I know we have not unveiled every detail on this program, but we’re working very diligently to bring the best combination of antigens anchored by our hTERT antigen but with two additional high profile antigens along with the checkpoint combination to treat a very lethal cancer. So, we look forward to perhaps seeing this product leapfrog in a more accelerated fashion. And then I also want to throw in the hat for INO-5150, which is our prostate cancer therapy. As stated, we’ve completed the enrollment of 60 patients for this study just recently, and we look forward to having some data by end of this year. So, we like multiple shots on goal. And I think at the end, our shareholders will be the winner. And as you know, the cancer is an area that can have rapid development based on successful data in the clinic. And the third area is from the emerging infectious diseases. So, it could be Zika, it could be Ebola, it could be MERS. But based on the data from the clinic, I think that one of those three could be on its way to becoming our first product, based on the medical needs from the market.

Our next question comes from the line of Thomas Shrader with Stifel. Please proceed with your question.

I don’t have a lot of questions but I am a little interested in the HPV program. Now that you have full control, do you anticipate this will remain only a therapeutic vaccine? I mean, there are prophylactic HPV vaccines and they work incredibly poorly in large population. So, do you think you will stay only in the therapeutic realm or is this a chance to rethink where this vaccine might fit?

Well, Tom, thanks for the question. In the long run, we can look at all different additional opportunities, but right now we’re focusing on 1,800 as immunotherapy for chronically infected hep B patients. Our current trial with about 90 plus patients is designed to both, look at safety and immunogenicity but also get a sense of a signal of efficacy, meaning we’re looking at S antigen and E antigen, seroconversion in these patients as well. So, that’s where we think has the best unmet medical need, and also have the potential highest commercial value for us. And we’re quite excited about this. A quarter billion chronically infected hep B patients are pretty much poorly treated at this point. And it’s a major disease that can lead to liver cancer and other liver problems, as you know. So, we are -- I can’t say I’m happy to have a major partnership terminate, but I’m very happy to get our baby back because we see the potential in this. And we’ll quickly move to clinical data; having full control of this will allow us to move more rapidly into the next steps.

Our next question comes from the line of Yi Chen with H.C. Wainwright. Please proceed with your questions.

Hi, thank you for taking my question. I wonder if you could give us some additional color on 5400. Is there any possibility that it can be used by itself as a monotherapy; and also, when it’s used in combination with checkpoint inhibitor, whether the indication needs to be an approved indication for any checkpoint inhibitors on the market? Thank you.

The second question first. It really depends. We think the combination with checkpoint inhibitor with our T cell generating cancer vaccine will be the most appropriate combination or most optimal combination out there. And that’s probably one of the reasons why maybe [ph] was to 3112. But for 5400, we think there could be a multiple combination possibilities with 5400, whether they are PD-1 or PD-L1 checkpoint inhibitors. It’s a combination of three antigens that can be applied to multiple solid and liquid tumors. We’re going to go after some of the top targets first with the first indication, which will be unveiled later this year, once all of the details and design and the partnership is left down. But, this will be a step by step process for us to maximally achieve the beneficial effects of our cancer vaccine. Now, as to monotherapy, we think definitely as we’ve seen with VGX-3100, there will be a potential as a monotherapy. But, we believe in terms of time and to commercialization and to the most benefit to the patients, combining with a checkpoint inhibitor to lower the reverse immune checkpoint will be a great combination for our T cell generating product. So, we want to get to -- as part of the Vision 2020, we want to make sure we can bring our best product forward in terms of immune oncology to the market as rapidly as possible. So, we’re going to -- our strategy is to combine with the checkpoint inhibitor from a partner from the get-go. So, we think that’s the fasted and optimal path forward for us.

Our next question comes from the line of Jason McCarthy with Maxim. Please proceed with your questions.

I just wanted to walk back to infectious disease. You talked about one of your three prongs for 2020. For Ebola or Zika, given the size of the population that would need to be vaccinated, can you give us an insight into what a Phase 2 could look like; how big; how much it could cost? Because we’ve seen groups like J&J and Bavarian Nordic picked their Ebola vaccine; J&J put 200 million into Bavarian Nordic, and they have a 1,200-patient trial ongoing now? So, could you just walk us through what the next steps for Zika and Ebola could look like, in your mind?

Thank you. Ebola first; it’s not likely [ph] because lack of expansive infection today that we’ll be doing a Phase 2 study for Ebola, rather the FDA has put in place a path forward for animal rule, which in effect as you’re able to do your Phase 2 efficacy readouts in animal species where you can challenge those animals. And we have several non-human primate protection studies ongoing in which we have some data in the past as well with very protection rates, up to 100% in protection. So, based on our immune responses that we generate from safety and immune response studies in healthy volunteers and healthy subjects, combined with efficacy readout from the non-human primates, we think we’ll be a in a great position to talk about how big a safety study might be with the FDA as early as 2017. So, what we’re doing now is to find the right dosing regimen in human subjects. From our 75-subject study that was reported earlier this year, we found that our intradermal delivered vaccine of 4212 was the best generator of immune response -- vaccine immune responses, especially the antibody responses. So, we’re very encouraged by that. And we’re planning to do additional studies to find the best dosing scheme using that delivery method. And consequently, we’re also using the same intradermal delivery for our Zika vaccine that’s currently in Phase 1 study with 40 healthy volunteers. And the next study for the Zika vaccine will be a more of an efficacy signal study in more endemic areas where Zika infection is more prevalent. In Zika, we could do larger Phase 2 studies. And we have commitments to go into those efficacy readout studies in those prevalent Zika infection areas. And that could start by the year end. And we look forward to really testing this vaccine against Zika infection. Going forward, as I said, we’re looking to have additional funders and partners that can work with us, with Inovio and GeneOne, and our collaborators to more rapidly advance our Zika vaccine program forward. And we have lots of different discussions ongoing in that regard currently.

It appears we have no further questions at this time. I would now like to turn the floor back over to management.

So, I’d like to thank you all for listening. What we laid out today is our Inovio Vision 2020, which is not only are we looking to do in the next five plus years to get the first product approved for VGX-3100 for CIN and VIN but also we’re looking to advance two other programs within our oncology and infectious disease components of our platform. And I look forward to providing more details on this vision and discussing how we execute these programs as next several quarters come forward. So, I’m very excited about the progress we’re making. And thank you very much for listening to our presentation.

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time.