Oncolytics Biotech Inc. (ONCY) Q4 2018 Earnings Report, Transcript and Summary

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oncolytics Biotech Fourth Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session for analysts and institutional investors. [Operator Instructions] I will now turn the call over to your host, Michael Moore, Vice President, Investor Relations and Corporate Communications. Mr. Moore, please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us on our fourth quarter and 2018 year end financial results and corporate update call. With me on the call is morning from Oncolytics are Dr. Matt Coffey, President and Chief Executive are; and Kirk Look, Chief Financial Officer. On today's call, Dr. Coffey will review our progress in 2018; provide an update on our clinical development plans and strategy, including our program in metastatic breast cancer that consists of our window of opportunity study and the planned Phase III registration study. We will also review other combination studies we are conducting or plan to conduct over the next 12 to 18 months. And Kirk will then review our financial results and activity for the fourth quarter and full year 2018. I'd like to point out certain statements made on this call, such as those relating to our clinical development plans and business development plans, are forward looking within the meaning of applicable securities laws. Please refer to our fourth quarter press release and MD&A for important assumptions and cautionary statements related to forward-looking information. I'll now turn the call over to Dr. Matt Coffey. Matt?

Thank you, Michael, and thanks to everyone for joining the call this morning. The fourth quarter capped a truly transformational 2018, so let me compare and contrast how far we've come. In 2017, Oncolytics was listed only on the TSX, a Canadian exchange providing little access to capital to the life science sector. We had only a very limited U.S. footprint with our offices opening in mid-2017. And while we had significant Phase II data from our metastatic breast cancer study, we faced pharma's interest being focused on growing their own oncology franchises, primarily in checkpoint blockade. We also had regulatory uncertainty at that time, with limited formal interaction with the FDA and EMA, leaving us with questions on the regulatory path to approval and no way of confidently stratifying for patients in registration study. Fast forward to what we've accomplished in 2018 and the first two months of 2019, and Oncolytics looks vastly different. We listed our shares on the NASDAQ in the second quarter of 2018, providing immediate access to capital on a global scale. And we have now expanded the research coverage with 2 U.S. analysts focused on oncology, with other analysts actively following our story. We have invested in our U.S. office and operations and have significantly enhanced the experience and expertise in our management team on all fronts. On the back of formal discussions with FDA, we were granted Special Protocol Assessment, or SPA, from the FDA for a Phase III registration study. And following discussions with both FDA and EMA, we confirmed that only a single Phase III study was required for approval, that there is a need to identify a biomarker prior to the final study design, but we were provided a clear clinical pathway in metastatic breast cancer. With this clear regulatory path, a clinical program is being designed to confirm both in inflamed phenotype as well as biomarker data, we began to see growing interest from pharma, and we have now confirmed 4 checkpoint inhibitor combination studies with Roche's Tecentriq, Merck's KEYTRUDA in 2 separate studies and Bristol-Myers Squibb Opdivo. Since announcing these collaborative studies, we have actually identified a biomarker that may be both predictive and prognostic of a clinical response. With a simple blood draw, this biomarker data allows physicians to understand which patients are likely to respond to treatment, allowing for the design of clinical studies that are cheaper, faster and more likely to succeed. This data is immediately applicable to our clinical studies and will help drive all of our clinical programs, including our AWARE-1 window of opportunity study, and the Phase III registrational study in metastatic breast cancer. We are clearly a more advanced version of what Oncolytics was at the beginning to 2017. We believe we are in the right place at the right time. We have one of the very few systemically delivered immuno-oncology virus and the only one with randomized clinical results. We created an inflamed phenotype that up-regulates PD-1 and PD-L1, and we now have a biomarker that will confirm to be both predictive and prognostic of treatment response. And all of this at a time when large pharma is looking to expand their checkpoint inhibitor franchises. And we're recently - and they have recently discovered Oncolytic viruses as potential backbones to checkpoint inhibitor therapy. With all that, let me touch briefly on our clinical program strategy. Everything we are doing remains focused on our breast cancer registration pathway. This includes our AWARE-1 study, which we just started and we're preparing to enroll our first patient very soon, which we view as a run-in to the Phase III. We're also running multiple Phase I and II studies in multiple myeloma and pancreatic cancer. Oncolytics is sponsoring the AWARE-1 window of opportunity study, while the rest are investigator-sponsored trials or ISTs, meaning Oncolytics is responsible only for drug and trial support, with little financial responsibility coming from Oncolytics. This strategy allows Oncolytics to have a very cost-effective set of clinical programs to achieve a maximum amount of data in an expanded number of indications, providing exposure to multiple pharmaceutical companies and their checkpoint inhibitors. This leads me to one of our bigger announcements in the latter half of 2018, our Master Clinical Supply Agreement with Roche for the use of Tecentriq, a PD-L1 checkpoint inhibitor, in our clinical programs. This agreement enables us to further investigate pelareorep's impact on cancer treatments in combination with a leading checkpoint inhibitor in multiple indications. The first use will be the AWARE-1 window of opportunity study in breast cancer. Now under this 5 year Master Clinical Supply Agreement, Roche will supply Tecentriq for those clinical trials, with both parties having access to the clinical data. Turning now to our programs, beginning with our lead indication, metastatic breast cancer. Needless to say, breast cancer is a highly prevalent cancer indication with a significant unmet medical need, 2 million new cases globally every year, which accounts for about 25% of all cancers in women. Our Special Protocol Assessment with the FDA outlines clinical endpoints and our statistical analysis of Roche to the Phase III. We have a specific clinical pathway to potential approval. Our AWARE-1 window of opportunity study will confirm whether or not we should add a checkpoint inhibitor, and will also evaluate biomarker data by breast cancer subtype, will ultimately increase our chances of success in a broader Phase III in metastatic breast cancer. And speaking of the Phase III, we believe positive window of opportunity data will attract potential partners to the program, which would have several benefits, including funding, rapid study enrollment and expertise running a large global study. The AWARE-1 window of opportunity study. This is an Oncolytics-sponsored study in collaboration with SOLTI and with input on the biomarker plan from Roche. The study recently received final approval from Spanish Agency for Medicine and Health Products to initiate the study. The study will generate comprehensive biomarker data by breast cancer subtype, which derisks the breast cancer program and gives us increased conviction in the final design of our Phase III protocol by achieving three things. It will suggest whether adding an immune checkpoint inhibitor to further enhance immunological activity in hormone-responsive - or hormone receptor-positive disease is indicated. It will validate our recently identified biomarker, which will allow us to select patients most likely to respond in the Phase III. Using this data, we will refine our Phase III study design to enhance our chances of success, with the likelihood of fewer patients and a much faster trial. It will evaluate increased immunotherapy response for Roche's checkpoint inhibitor, Tecentriq, which allows us to leverage the Master Supply Agreement with Roche. We anticipate dosing the first patient nearly immediately and expect data from the safety run in patients in the second half of 2019. In addition to this, we are running a Phase II combination study with KEYTRUDA in second-line metastatic cancer, pancreatic cancer. In November, we announced the initiation of the trial and first patient in, and the study is now ongoing. This study expands upon the compelling results in our earlier Phase Ib combinational study with KEYTRUDA called REO 024. This study showed objective responses, long-term stabilization of disease and promotion of an inflamed phenotype in second-line pancreatic cancer patients. On-treatment biopsy showed reovirus infection in cancer cells and immune infiltrates into the pancreatic head, again demonstrating the virus' ability to create a pro-inflammatory phenotype in previously treated tumors, a requirement for checkpoint blockade treatments. And this is the same protocol that is being - that provided the biomarker data we announced earlier this month. This study is underway at Northwestern's Feinberg School of Medicine and was led by Dr. Deva Mahalingam, who also led the REO 024 study. Our multiple myeloma programs came out of interesting data we presented last year at the American Society of Hematology concerning a study in combination with proteasome inhibitor in patients with refractory multiple myeloma. Importantly, as we dug into this data, we saw pro-inflammatory response on tumor targets, including up-regulation of PD-L1, as well as accumulation of tumor-infiltrating lymphocytes. And importantly, we saw 100% response rate in the high-dose group. Investigators noted that this is specifically where treatment with checkpoint blockade will work. And interestingly, where it hasn't worked previously, suggesting, again, pelareorep's potential to act as a backbone for this class of drugs by turning cold tumors hot. Our first study is a Phase Ib dose-escalation combination study with Opdivo in multiple myeloma. This study, as I said, is based on the data presented at ASH last year. Pelareorep in combination with a proteasome inhibitor, such as carfilzomib, increases PD-L1 expression, potentially increasing the effectiveness of checkpoint inhibitors in multiple myeloma patients. In prior studies, carfilzomib alone has not been shown to increase PD-L1 expression. We announced the first patient in our study with Opdivo in December in this investigator-sponsored trial, which is in open-label Phase I study conducted by Dr. Craig Hofmeister at Emory University. Our second multiple myeloma study, also based on the data in combination with a proteasome inhibitor, is in combination with Merck's KEYTRUDA. This investigator-sponsored trial was expected to begin before the end of the first quarter, but is likely to be in the later - in the first half of 2019. We're actually rather excited with this turn of events as it was originally drafted as a Phase I study. At Merck's request, it is being rewritten and designed as a Phase II study. So while delayed from an initiation standpoint, I hope our investors recognize the progress being made here and also recognize we continue to rely on the guidance of our investigator when it comes to these IST studies. This extension of our REO 019 study will be run in collaboration with the Keck School of Medicine of the University of Southern California and will be run at USC's Norris Comprehensive Cancer Center. We will evaluate [ph] pelareorep in combination with KEYTRUDA, Velcade and dexamethasone, with KEYTRUDA being provided by Merck. Again, the strategy with these studies is to cost-effectively gain exposure to additional indications, work with large pharma in the opportunity to work with multiple checkpoint inhibitors. In addition to tremendous clinical development, pelareorep data has presented at numerous medical meetings in the last year. We've continued to build a significant body of data demonstrating that pelareorep promotes an inflamed phenotype, and that the combination with immuno-oncology regimens can lead to improved patient outcomes as compared to immuno-oncology treatments alone, and that pelareorep is likely to act as a back bone [ph] for checkpoint blockade. Key highlights include: The data presented at ASH leading to our current multiple myeloma study with Opdivo and data presented at ASCO GI that led to our current Phase II study in pancreatic cancer in combination with KEYTRUDA. We also presented data on the creation of an inflamed phenotype and synergies with Anti-PD-1 agent at AACR, as well as data confirming the expression of a gene signature in hormone receptor positive breast cancer that is predictive of response to immunotherapies at ASCO. Finally, we presented positive clinical trials in metastatic colorectal cancer patients at ESMO, including 6 patients who received the recommended study dose, who had progression-free survival of 65.6 weeks and an OS or overall survival, of 107.5 weeks, far exceeding the historical data for PFS and OS in this patient population. Now before I hand the call over to Kirk, I'd like also introduce Dr. Rita Laeufle, our Chief Medical Officer. Dr. Laeufle joins Oncolytics at a critical time in the development of pelareorep and would seem almost purpose built for her role as our Chief Medical Officer. Dr. Laeufle had previously been working with us as a consultant, so she was already familiar with our science and pipeline. She brings 15 years of experience in drug development in oncology in increasingly senior positions at Coherus Biosciences, Clovis Oncology, Genentech, Roche and Novartis, including work in both breast cancer and GI cancer. She rounds out what I believe is a world-class leadership team that maximizes our chance of success. With that, I'll hand the call over to our Chief Financial Officer, Kirk Look. Kirk?

Thank you, Matt, and welcome to the call, everyone. I'll provide an overview of our financial results and invite you to review our news release, along with our 2018 consolidated financial statements and related MD&A for additional information. Our consolidated net loss for the fourth quarter of 2018 was $4.8 million or $0.28 per share compared to a net loss of $4.7 million or $0.32 per share for the fourth quarter of 2017. For the full year 2018, our consolidated net loss is $17 million or $1.06 compared to a net loss of $15.6 million or $1.12 per share for the full year 2017. R&D expenses for the fourth quarter of 2018 were $2.5 million and $9.4 million for the year 2018 compared to $2.5 million in the fourth quarter of 2017 and $9.4 million for the full year 2017. In the respective 2018 periods, we saw an expansion of our clinical development program, as discussed earlier by Matt. Our manufacturing activities also increased as we commenced a product supply program that will support our clinical development. These increases were partially offset by a decrease in our R&D support costs, largely due to reduction in salary, benefits and termination payments made in the prior year, along with foreign exchange gains due to the strengthening of the U.S. dollar. Operating expenses for the fourth quarter of 2018 were $2.4 million and $7.2 million for the year 2018 compared to $2.2 million in the fourth quarter of 2017 and $6.2 million for the year 2017. In the respective 2018 periods, the increase was largely due to our continued investment in our U.S. operations, including our in-house business development group as we expanded our office space in San Diego, California and incurred additional personnel costs. Our public company-related expenses remained consistent as a result of an increase in expenses related to the NASDAQ listing, offset by lower professional and consulting fees related to business development. As of December 31, 2018, we had cash and cash equivalents of $13.7 million as compared to $11.8 million as of December 31, 2017. In the second half of 2018, we announced two financial tools that are fully at the discretion of Oncolytics that provide financial stability without defined dilution. We now have a dedicated equity line facility with Lincoln Park Capital, which is also an institutional investor in Oncolytics, as well as an at-the-market facility with Canaccord Genuity. Again, both are completely at our discretion, and we intend only to use them to manage our balance sheet and our financial runway. We believe that with our current resources and access to capital, we can advance our clinical development plan into 2020, which would get us to multiple significant and potentially value creating milestones, including data from several of the combination studies that Matt just reviewed. With that, I will now turn the call back over to Matt before we open it up for Q&A.

Thanks, Kirk. So what does this all mean? It means we've come a long way in a short period of time and have a tremendously strong future with significant catalysts over the next 12 to 18 months. As we continue to progress our registration program in metastatic breast cancer, the business and clinical advancement at Oncolytics is accelerating. With a growing number of large pharma collaborators and recently announced biomarker data, we have come a tremendous way in a short period of time. In 2019, we will advance studies in indications with prior evidence of clinical activity and explore combination with checkpoint inhibitors, including Roche's Tecentriq in breast cancer, Merck's KEYTRUDA in both multiple myeloma and pancreatic cancer and Bristol-Myers Squibb Opdivo in multiple myeloma. All studies will be evaluated in our biomarker data, which will be explaining in much more detail at our KOL event planned for April 11 in New York. Most importantly, we see opportunities for additional partnership and collaboration with large pharma in the near future. We promise we're not done. We believe we are in the right place at the right time with big pharma's interest in the synergistic effect of immuno-oncology viruses and the potential to incorporate OVs, such as a systemically administered pelareorep as a backbone to their franchises in checkpoint inhibitor blockade. With that, I'll turn it over to the operator to open calls for Q&A. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Andy Li with Ladenburg Thalmann. Please proceed with your question.

Hi. This is Wangzhi Li, two questions. One is, once you get results from the window of opportunity study, how long do you think you can start enrollment for the pivotal trial?

Wangzhi, thank you. That's a great question. We're looking at AWARE-1 really as a lead in to validate biomarker in the setting of breast cancer. Because the biomarker we identified is basically a measure of our immune response, it should be tumor-agnostic, meaning that it should work as well in pancreatic cancers as well as it does in breast. This data, we'll actually be batching it with every 3 to 6 patients, so we'll be seeing the data in almost real time. The thinking here is we'll be able to correlate the biomarker to the inflammation that we actually see in the tumor. Our partners are also able to view the data in real time. So we'll be looking at how the magnitude of effect is impacted by those patients with a lot of T cell clonality. So we think it can be done within a few quarters, one or two quarters, to actually initiate that Phase III program and hopefully do so with a corporate partner to maintain the dilution in the share price.

Got it. Thank you. The second question is for the AACR abstract. Can you provide kind of a background on that clonality, if for PD-1 alone?

Actually, that's a great question as well. We - going into the AWARE-1 study, Roche was looking at the trial design as well as looking at what we were using for biomarkers. And it was their scientists that suggested that we looked at, at the time, which a new assay called TCR sequencing, which is a measure of the T cell clonality, which really speaks to how much immune presence you have left, as well as how nimble your immune system is and how likely it is to respond to immunotherapies. The data that we presented looked at the correlation between T cell clonality at baseline and overall survival. And what we did see was that we could predictably see patients or predict patients who were likely to respond to the therapy, which was, again, pelareorep and KEYTRUDA. Now the second part of the abstract was looking at the enhanced T cell clonality at cycle 2, day 1 or roughly 3 weeks later. And what we see is a dramatic increase in clonality, suggesting that the patients have been exposed basically to a new cancer vaccine. Now data that we didn't present, as we looked at cycle 1, day 8, which is before KEYTRUDA. And again, what we see is identical to what we're seeing at cycle 2, day 1. We get expansion of these T cells, which are brand new clones with a very high level of turnover, and we see this independent of the KEYTRUDA. Now interestingly, when we look at the data, we know that we're getting two key things happening. We're getting expansion of new T cell clones, but we're also getting expansion of T cells that are already reactive to the tumor. This is very different from what you see with checkpoint blockade, which does not create new T cell clones, unless it's a CTLA-4, which is not what we were using. Those agents increase only the existing T cell clones that were already reactive to the tumor. So what the virus is causing is unique and easily recognizable and distinct from what checkpoint blockade causes.

Okay. Thank you. Very helpful.

Thank you. [Operator Instructions] There are no further questions at this time. I would like to turn the call back over to Dr. Matt Coffey for any closing remarks.

Thanks again, everyone, for joining the call. We very much appreciate your time. Again, an exciting time ahead for us, and it starts very soon. We look forward to our next update in May. Take care, and have a great morning.

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