Ocugen, Inc. (OCGN) Q4 2019 Earnings Report, Transcript and Summary

Good morning and welcome to the Ocugen Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the presentation. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to Kelly Beck, Vice President of Investor Relations and Administration at Ocugen. You may begin.

Thank you, operator. I'd like to welcome you for our conference call this morning. With me today is our Chairman and CEO, Dr. Shankar Musunuri; our CFO, Sanjay Subramanian; and our Chief Medical Officer, Dr. Dan Jorgensen. Earlier this morning, we issued a press release with our business update in 2019 financial results. We encourage listeners to review the press release, which is available on the Ocugen website at www.ocugen.com. This call is also being recorded and a replay will be available on the Investors section of Ocugen website for approximately 45 days. Before we begin our formal comments, I'll remind you that various remarks we make today constitute forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our financial outlook, our ability to raise capital on terms acceptable to us, our product development plans for our product candidates, including the results and timing of any future preclinical studies and clinical trials for such product candidates and our ability to close the NeoCart asset sale and the timeframe associated with such closing. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations and forecasts, and can be identified by words such as expect, plan, will, may, anticipate, believe, estimate, upcoming, should, intend and other words of similar meaning. Any such forward-looking statements are not guarantees of future performance. These risks are described in the Risk Factors section in the 10-K, which will be filed after the market close today. Any information we provide on this conference call is provided only as of the day of this call, March 27, 2020 and we undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events, or otherwise. I will now turn the call over to our Chairman and CEO, Shankar Musunuri, Shankar?

Thank you, Kelly. Good morning, everyone. And thank you for joining us this morning. We are living in unprecedented times. As most people, we here at Ocugen are participating, practicing social distancing and our team is working remotely. This means that for this call, we are not all in one location. So please bear with us when we get to Q&A section. As we coordinate, we will respond. Ocugen’s three product portfolio approaches ensure portfolio diversification and reduced risk with a laser-focus on eye diseases. Today, we will provide an update on the progress of our OCU300 Phase 3 clinical trial for patients with ocular graft versus host disease, as well as our breakthrough modifier gene therapy platform and the recent publication in Nature Gene Therapy. Sanjay will then share highlights of our 2019 full year financial results and our business development activities before the Q&A. The entire management team and our advisors have been strongly focused on creating long-term value for our shareholders. Our most advanced program is OCU300 for the treatment of ocular graft versus host disease or oGVHD for short. As a reminder oGVHD is a severe chronic autoimmune disease that occurs in up to 60% of allogeneic bone marrow transplant patients and represents a critical unmet medical need. Presently, there is no approved FDA treatment for oGVHD. We're the first and only company to have received orphan drug designation from the FDA for oGVHD, and we are also the first company to conduct a Phase 3 clinical trial in this patient population. Our Phase 3 trial continued to enroll well through mid-March. We shared in December that we had reached 50% of our planned enrollment, and I'm pleased to share that as of March 20th, we have completed over 95% of our planned enrollment. Currently we are not screening new patients due to COVID-19 pandemic. Our clinical team is working closely with our sites to address the impact to our clinical trial, putting patient safety first above all. We have arranged for each patient's monthly supply of study medication to be shipped directly from site-to-site to the patient, rather than risking an in-person visit to pick up the medication. In addition, if a site is not willing or able to conduct in-person follow up visits, we are using virtual visits, which may include phone interviews to continue the safety checks built into the protocol and to collect endpoint data. For those sites that are conducting in-person follow up visits, they have a process in place to minimize the risk to the patient. Our protocol has built in windows around each assessment visit. So there is some flexibility as to the exact date of the follow up visit, whether it is done remotely or in-person. As of right now, because we are ahead of our schedule for enrollment, we still anticipate having top-line results from this study before the end of the year. The situation is rapidly changing, however, and we will continue to monitor its impact on our clinical trials. Now, I would like to talk about our gene therapy program. We are very excited about our modifier gene therapy platform, which has the potential to treat a variety of inherited retinal diseases with a single gene therapy product. Modifier genes or master genes, as we like to call them, are nuclear hormone receptor genes that are believed to play a vital role in regulating many functions within the retina and are able to restore normal function in the retina. What this means is that with one modifier or a master gene, we may have the potential to treat multiple diseases as opposed to the current approach of treating one disease or a genetic defect with one product. The preclinical data for our first gene therapy product candidate OCU400 was published in Nature Gene Therapy earlier this month. OCU400 consists of a functional copy of nuclear hormone receptor gene NR2E3 delivered to target cells in the retina using an AAV vector. The publication details efficacy results in five unique mouse models of retinitis pigmentosa or RP that underwent administration of NR2E3 by sub-retinal injection. The five RP models tested represented five different forms of RP: PDE6B associated RP; two forms of rhodopsin associated RP; Leber Congenital Amaurosis; and Enhanced S-cone Syndrome. The study demonstrated the potency of the novel modifier gene therapy to elicit broad-spectrum therapeutic benefits in early and intermediate stages of RP. One of the biggest advantages of our modifier gene therapy platform is that it has the potential to eliminate the need for individual gene replacement and gene editing strategies and may revolutionize gene therapy treatment for eye diseases. Inherited retinal degenerations such as RP affect over 1.5 million people worldwide or 150 gene mutations have been associated with RP and this number represents only 60% of the RP population. The remaining 40% of RP patients cannot be genetically diagnosed, making it difficult to develop individual treatment. We believe our modifier gene therapy has the potential to eliminate the need for developing more than 150 individual products and provide one treatment option for all RP patients. As a reminder, in September of 2019, we entered into a strategic partnership with CanSinoBIO for the development of OCU400. CanSinoBIO is responsible for all CMC development and manufacturing of clinical supplies including all associated costs. This partnership provides Ocugen greater flexibility with its capital resources. CanSinoBIO is located in China and we are pleased to share that the team there is back at work. While do we don't anticipate any immediate impact to our overall timeline, we continue to evaluate the global pandemic and any potential impacts this may have in the future. We continue to plan for the commencement of a Phase 1/2a clinical trial for OCU400 in patients in 2021. Now, before I turn the call over to Sanjay, I just want to share how excited I’m about the potential of our pipeline and the value proposition it may bring to shareholders in both the short and long-term. By addressing rare and underserved ophthalmic diseases, we bring hope to patients with our adequate treatment options. I will now turn the call over to Sanjay to provide an update on our 2019 financials and business development activities. Sanjay?

Thank you, Shankar, and good morning, everyone. Hope everyone is staying safe during this pandemic. I will now provide an overview of key financial results for the year. We ended the year on December 31, 2019 with cash, cash equivalent and restricted cash totaling $7.6 million compared to $1.8 million on December 31, 2018. Our research and development expenses for the year ended 2019 were $8.1 million compared to $10.3 million in 2018. The decrease was primarily driven by lower expenses in 2019 related to the OCU300 program. General and administrative expenses for the year ended 2019 were $6.1 million compared to $5.8 million in 2018. The difference was driven by an increase in consulting fees and public company insurance expense, partially offset by lower employee costs. The net loss for the year ended 2019 was $20.2 million compared to $18.2 million in 2018, and the increase was primarily driven by an increase in the change in the value of derivative liabilities offset by a decrease in interest expense, as well as a decrease in operating expenses. We ended the year with 52.6 million shares outstanding, all but 1,000 warrants each under the Series B and the Series C warrants were exercised in the fourth quarter of last year. In November and December, we repurchased approximately 121,000 shares in total. Next, I'd like to provide an update on the NeoCart asset that we acquired from Histogenics. We are continuing to have discussions with Medavate. They’ve made some changes to their leadership and have reiterated their strong interest in the NeoCart asset. We are also engaging in discussions with other parties who have expressed preliminary interest in the asset. This week, we closed an additional $0.5 million loan under the EB-5 loan agreement. We currently have sufficient cash to fund our operations into June of this year. We will need to raise additional capital and are currently evaluating our financing options, including certain non-dilutive funding. We will update the market with our progress once we close any additional transaction. We also continue to explore collaborations or partnerships related to the assets in our portfolio that can provide value to Ocugen and our shareholders. With that, we will open up the call for questions. Operator?

Thank you. [Operator Instructions]. Our first question comes from Swayampakula Ramakanth. Your line is open.

Thank you. This is R.K. from H.C. Wainwright. Glad to hear your voices. Obviously, these are crazy and unprecedented times as Shankar was stating. A couple of quick questions from my end. And Shankar, it's nice to see that the enrollment is ahead of schedule, allowing -- for meetings your expected deadline of trying to get the publication of the data from the OCU300 study by the year end. Could you provide some additional color as to what is there in the protocol in terms of the amount of time needed for a follow up once the patient comes on board? And also, let's say in the worst case it’s a three month delay in enrolling the final 5% of the needed population, how much of an impact would that be on the trial?

Yes, thank you, R.K. I will let Dan answer the question. Dan, please go ahead.

Yes. Thank you for the question. Yes, the study has monthly visits. So once a patient is enrolled they return -- or they return for a visit every month, and in that, therefore they have a day 28, day 56 and day 84 visit. That last visit day 84 around three months is when the primary endpoint data are collected. There are visit windows. There’s some time around each visit. It gives us a little flexibility for the patients to come back. But we feel that the patient has been coming back up until this point in time. We're doing everything we can as Shankar mentioned to ensure that we do get that endpoint data and they do receive their safety checks during the slowdown due to the coronavirus. Now your second question had to do with the delay and what we can do about it in terms of the timelines for getting our data by the end of the year. As Shankar mentioned, we are ahead of schedule with the enrollment going into the pandemic, if you will, that puts us in a pretty good shape. We're very close to having that planned enrollment number. If we do have to -- if we can't restart quickly, and it takes a while to restart, I do believe we are still in good shape because we can stay caught up on all of the monitoring that has to happen on all the patients for all of their visits, such that when the additional patient or patients come in, once the slowdown is lifted, we would be ready to be doing the monitoring and everything else necessary in real time on those patients.

Thanks, Dan, for that. A quick follow up on what you just stated. I don't know if you can answer this question. But have you been monitoring anything on the dropout rate during this period, just to see if people are dropping out outside of the treatment itself because of inconvenience or anything else associated with COVID-19 so that it doesn't screw up the statistics for you, when it finally comes to analysis of the data?

Good question. So basically, first of all, going into the pandemic, the dropout rate is very low, less than 5%, which is very good, very encouraging, and it's a testament to the clinical team and the sites in terms of patient retention, and in terms of quality of data. Now once the pandemic started, and basically that's around mid-March for most of the sites, now that's when they started to close down screening and enrollment for example. But of course, we are having those extra visits for those who already are in the study. So fortunately, the impact has not been great so far, I mean to get to your question. The enrollment has been staggered, it's -- at its peak, we maybe had six or seven patients enrolled in one -- over a one to two week period. So you count out the 84 days from the date of enrollment or screening for each one of those subjects, put a one to two week window around that and you can see that there's flexibility in terms of those follow up visits. That's important. That allows us to be focused on each and every patient that's due for a follow up visit. So far, only two patients are at risk right now as we speak in terms of getting their day 84 endpoint data. But as Shankar mentioned, we are putting policies and processes in place to obtain those data remotely. And that means we also make sure the patient has drug supply. So, right now the impact has been minimal and we're following it on a daily basis and we're following each and every subject at each and every site. But so far, so good.

Thank you very much for that color. One last question from me, Shankar. You have a big collaboration going on with CanSinoBIO. As CanSinoBIO is a company in China and I think over the last couple of weeks they have stated -- CanSinoBIO stated that they would get involved in the COVID-19 drug development. So has that strained their resources in any way to do the work that they need to do for your modifier gene program?

Good question, R.K. We’ve been in constant communications with them and their workforce is mostly back. And I think you're absolutely right. They're working on very, very important COVID-19 vaccine. And I mean that -- in addition to that, their workforce in the last few weeks is completely back to work and currently there is no impact to our program and they are continuing to work on OCU400 [primarily] [ph]. And we'll closely monitor the situation as the time goes on.

Thank you. And our next question comes from the line of Keay Nakae with Chardan. Your line is now open.

Shankar, you had a nice pace of enrollment for GVHD. Just going back to the GVHD summit back in October, I know you had a meeting with the investigators to discuss best practices. It seems like that's helped things. Can you talk about that, what was implemented and what resulted in this nice pace of enrollment obviously up until the mid-March period?

Thank you, Keay. Since our Chief Medical Officer, Dan, is on the line, I’ll let him answer that. Dan, please go ahead.

Sure. That's a very good question. And we're again very encouraged by the enrollment since that time. Back in the fall we were evaluating very closely every single site in the study in terms of their ability to enroll patients into the study and also what challenges or obstacles that they would have. And of course, nobody has ever done a study like this before. So it was all new to everyone and it turns out each site had its own unique challenges and obstacles. And then there were some challenges and obstacles that cut across the sites. Of course, this is a rare disease to begin with. So those patients had to be identified. There's no ICD-9 or 10 coding. So you could not use any type of hot mapping or database to find those patients, as it turns out, those patients have to come from the oncology clinic, that is the bone marrow transplant center at each one of the academic institutions. And that means we had to forge a very strong relationship between the oncologists and the ophthalmologists who are the principal investigators for the study. And each site had its own sort of way of doing that and we worked very closely with them. We also found a way to spend even more time with the sites that were having issues finding patients and then other sites caught on very quickly. And those are the ones that really helped us in the last month or so in terms of getting the enrollment rate up.

Okay, great. And then in terms of the follow up, if you're doing these remotely, talk about how you maintain the quality, if you will, of the assessment of sign and symptoms?

So as far as maintain quality, obviously it's extremely important. So we have a team of monitors and the monitors fortunately had kept up with everything, all of the monitoring that had to be done going into the pandemic. And now based on FDA's recommendation, we are switching over to remote monitoring and all of the sites are on board with that, and of course our monitors are on board with that and have the requisite training for doing that type of monitoring. So we're maintaining the quality of the program in terms of the monitoring. In addition, we are making sure that the important data, the end points for example, the safety data for example, are collected at all of these virtual visits that we'll have to do until the time the ban is lifted, if you will, and we can see patients in person again. So those virtual visits will be accompanied by a telephone call, perhaps more than one telephone call, just to make sure that the patients are doing fine, that the data that we need are collected, and that data are of the highest quality.

Okay. And then switching to the Nature Gene Therapy paper, a lot of really interesting and good work in that paper. Shankar, what's next in terms of additional animal model evaluations?

Good question, Keay. I think, as we indicated in the paper, we already covered four animal -- five actually animal models in that. And what we are planning to do is while CanSinoBIO is working on the manufacturing side, we have initiated going into our toxicology studies this year in the U.S, and what we are trying to do is finish up that preclinical toxicology studies, what we agreed on with the FDA and those studies are being initiated. And then, next year, as planned, we are planning to initiate Phase 1/2a clinical trial. So that request has now two components, right. One is getting the tox studies done; and then finishing up the manufacturing for clinical supply. Those are the two key components that need to go into IND filing.

And in terms of working with the labs, doing the tox studies, how is COVID-19 impacting their ability to do that work?

Yes, great question, Keay. And just like anything else, our employees’ safety is our top priority. And at the same time, we do have some buffer. Again, we're closely monitoring the situation just like everywhere in the U.S, we’re in a shutdown mode in Pennsylvania, and again around us now people are working with us. Some of the labs are working on a very, very narrow schedule. So we will continue to monitor and hopefully as situation improves in the next month or two, it should not have a major impact. But just like any other pharmaceutical company we are in very difficult times. And the good thing is, we're very honored to work with CanSinoBIO. These guys are doing a phenomenal job working on a COVID-19 vaccine in these difficult times. We know there's real hope. And they are really passionate about gene therapy program. And as I mentioned to R.K.’s question, they're back and they're really supporting us. So there manufacturing work is going on. And again, we will closely monitor our plans for clinical for OCU400 and we will keep you guys posted.

Thank you. [Operator Instructions]. And I'm not showing any further questions at this time, I would now like to turn the call back to Kelly Beck for any further remarks.

Thank you, operator. Thanks to everyone for taking the time to join the call this morning. We are dedicated fulfilling significant patient need by bringing to market transformative therapies for rare or underserved eye diseases. We look forward to providing further updates in the coming months. Thank you and have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.