REGENXBIO Inc. (RGNX) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the REGENXBIO Inc. Third Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is... [Audio Gap] I would now like to introduce your host for today's presentation, Mr. Patrick Christmas, Senior Vice President and General Counsel. Sir, please begin.

Good afternoon, and thank you for joining the call. With me today are Ken Mills, REGENXBIO's President and Chief Executive Officer; and Vit Vasista, our Chief Financial Officer. Earlier this afternoon, REGENXBIO released financial and operating results for the quarter ended September 30, 2016. The press release reporting our financial results is available on our website at www.regenxbio.com. Today's conference call will include forward-looking statements regarding our financial outlook in addition to regulatory and product development plans. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted and can be identified by such words as expect, plan, will, may, anticipate, believe, should, intend and other words of similar meaning. Any such forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties. These risks are described in the risk factors and the management discussion and analysis section of REGENXBIO's annual report on Form 10-K for the fiscal year ended December 31, 2015, and quarterly report on Form 10-Q for the quarter ended September 30, 2016, which are on file with the Securities and Exchange Commission and available on the SEC's website. Any information we provide on this conference call is provided only as of the date of this call, 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. Please be advised that today's call is being recorded and webcast. In addition, any unaudited or pro forma financial information is preliminary and does not purport to project financial positions or operating results of the company. Actual results may differ materially. I'll now turn the call over to Ken.

Thank you, Patrick, and good afternoon, everyone. Thank you for joining us today. On this call, we will provide you with an update on the company and our ongoing development programs, review accomplishments, progress made over the last 3 months, share financial results for the third quarter and look ahead to milestones for the remainder of the year. After that, we will open up the call for any questions. I'm going to start by reviewing our key areas of focus. We are developing our proprietary NAV Technology Platform with the vision of realizing potential of gene therapy to improve the lives of patients suffering from severe diseases. In order to accomplish this vision, we are focusing our development efforts on building our internal pipeline of lead product candidates while also licensing our NAV vectors to third-party companies in the gene therapy space who share our vision. As of September 30, 2016, our NAV Technology Platform was being applied in the development of 29 product candidates, including 5 internally developed product candidates and 24 candidates being developed by our NAV Technology licensees. We believe that our NAV Technology Platform, which is supported by the breadth and depth of our intellectual property portfolio, coupled with our focused internal and external development strategy, establish us as the leader in the AAV gene therapy space. As a reminder, our NAV Technology Platform is a proprietary AAV gene delivery platform that consists of more than 100 novel AAV vectors, including AAV7, AAV8, AAV9 and AAVrh10. These AAV vectors have demonstrated clinical efficacy in severe genetic, central nervous system and hematological disorders and share the following important and differentiating attributes when compared to earlier-generation AAV vectors: higher and longer-term gene expression, broad and novel tissue selectivity, lower immune response and improved manufacturability. Our therapeutic focus at REGENXBIO is on metabolic, retinal and neurodegenerative diseases, areas where we believe our vectors are uniquely suited to impact specific mechanisms of diseases for patient populations that are facing significant unmet medical needs. I'm going to share with you an overview and update on our 4 internal programs: homozygous familial hypercholesterolemia, wet age-related macular degeneration, Mucopolysaccharidosis Type I and Mucopolysaccharidosis Type II. First, I'll start with our metabolic disease franchise. RGX-501 is our lead candidate -- lead development candidate for the treatment of homozygous familial hypercholesterolemia or HoFH. HoFH is caused by a defect in the low-density lipoprotein receptor or LDLR gene. Patients with this defect in the LDLR gene have little to no LDL receptor function, which leads to the buildup of LDL cholesterol or LDLC, the bad cholesterol in the bloodstream. This in turn causes coronary artery disease at a young age that is severe and ultimately fatal. RGX-501 uses our AAV8 vector to deliver the LDL receptor gene to liver cells. We view AAV8 as the optimal choice for delivery to the liver, given the significant preclinical data to date that demonstrates higher efficient and -- highly efficient and durable expression mediated by AAV8. To remind you, this is the same vector used in the first demonstration of efficacy in a gene therapy study in hemophilia B. While other therapies for HoFH are available to patients, existing treatments fail to address the underlying cause of disease. Further, widespread use is limited due to poor tolerability or inability to meaningfully lower LDLC levels to safe ranges. We believe that RGX-501 has the potential to directly address the underlying cause of the disease and, therefore, provide significant therapeutic benefit. As many of you know, REGENXBIO, in collaboration with our partners at the University of Pennsylvania, initiated our first clinical trial, a Phase I/II study of RGX-501 earlier this year. The RGX-501 trial is an open-label, single-site study evaluating the safety and efficacy of RGX-501 in up to 12 patients. The primary endpoint is to assess the safety of a single intravenous administration of RGX-501. The secondary endpoint is to determine the change from baseline of LDLC at 12 weeks. This is a dose escalation study with patients receiving either a single dose of 2.5 x 10 to the 12 or 7.5 x 10 to the 12 genome copies per kilogram. Penn continues to actively recruit and screen patients to enroll in the trial, both from our -- its own patient population and in other centers that treat HoFH patients. This process continues to progress. In this quarter, eligible patients were identified and screened and the scheduling process for dosing is underway. We remain on track to enroll the first patient into the study by the end of this year. Before I move on to the next program, let me just mention that the FDA has granted orphan drug designation to RGX-501 for the treatment of HoFH. This designation allows for additional marketing exclusivity, financial benefits. Next, I'm going to turn my attention to our second program, RGX-314 from our retinal disease franchise. We're developing RGX-314 for the treatment of wet age-related macular degeneration, also known as wet AMD. Patients suffering from wet AMD experience formation of excess blood vessels in the retina, resulting in fluid leakage that eventually leads to vision loss. In the U.S. alone, an estimated 600,000 patients suffer from vision loss due to wet AMD. Current standard of care available to physicians involves the use of one of several VEGF inhibitors, which help impede excess blood vessel formation. These therapies, however, are less than ideal as they require frequent, as often as monthly, physician-administered injections into the patient's eye. RGX-501 could truly prove transformational as it is being developed as a potential onetime administration for wet AMD. Utilizing our AAV8 vector, RGX-314 encodes a gene for a protein that binds to VEGF, inhibiting VEGF activity and affecting some -- the same mechanism as a well-accepted standard of care used to treat wet AMD. Preclinical studies have shown that AAV8 is very high-performing vector targeting cells in the back of the eye, as demonstrated in animal models durability and expression levels that are substantially better than what has been seen with previous-generation vectors. Our modeling work continues as we compare results seen with the standard of care versus RGX-314 in the expression of VEGF in the retina versus other parts of the eye. Our preclinical studies are ongoing, and we look forward to sharing the results in an appropriate scientific meeting in the future. We anticipate that these results will support preclinical data we've shared, showing high levels of expression of RGX-314 in the back of the eye and suggesting a high potential for RGX-314 to inhibit VEGF. We're currently completing our IND-enabling studies for RGX-314, including the evaluation of safety and toxicology. We've made additional progress with our RGX-314 program in this quarter with the initiation of manufacturing of material for the anticipated Phase I clinical trial. And we continue to expect to file an IND with the FDA for RGX-314 in the first quarter of 2017. Finally, let's move on to our 2 lead central nervous system programs in our neurodegenerative disease franchise. We are developing RGX-111 and RGX-121 for the treatment of Mucopolysaccharidosis Type I and Type II or MPS I and MPS II, respectively. Both MPS I and MPS II are genetic diseases caused by deficiency of enzymes required to break down -- required for the breakdown of waste products inside cells. Ultimately, most MPS I and MPS II patients exhibit severe cognitive decline. For both of these programs, we utilize the AAV9 vector to deliver genes directly to the CNS or central nervous system. We believe the AAV9 vector is an excellent candidate for targeting the CNS as it has demonstrated some unique and applicable properties, notably a strong affinity for cells in the CNS and an ability to cross the blood-brain barrier. Existing treatments for MPS I and MPS II include enzyme replacement therapies. But because these treatment options do not cross the blood-brain barrier, they only address the non-CNS symptoms of these diseases. Both RGX-111 and RGX-121 are designed to address this significant unmet need by preventing or stabilizing neurodegenerative and neurocognitive decline, which is not accompanied by -- which is not addressed by the current standard of care. We believe global delivery through CNS is necessary to broadly reach cells with defective genes. Therefore, to optimize the therapeutic potential, we plan to administer RGX-111 and RGX-121 directly into the fluid in the CNS to achieve global delivery. Recently published preclinical study results for both programs support our long-term clinical development plans and our mission to utilize NAV gene therapies to improve the lives of patients suffering from severe neurodegenerative diseases. In a preclinical study of RGX-111 for the treatment of MPS I published in Molecular Genetics and Metabolism, RGX-111 used the AAV9 vector to deliver human alpha-iduronidase (sic) [ alpha-l-iduronidase ] or IDUA gene to the CNS. Results demonstrated dose-dependent expression of IDUA and correction of disease pathology in the brain with reduction in spinal cord compression after a single administration of AAV9 vectors expressing IDUA. These data are expected to help establish the minimum effective dose for REGENXBIO's planned first-in-human study. In another preclinical study published in Human Gene Therapy, RGX-121 used the NAV AAV9 vector to deliver the human iduronate-2-sulfatase or IDS gene to the CNS to treat MPS II in a mouse model. These results also demonstrated dose-dependent expression of gene in correction of disease pathology in the brain after a single administration. Levels of IDS in the brain tissue, cerebral spinal fluid and serum all approached or exceeded normal levels. And the treated mice also demonstrated improvement in long-term memory and in novel object recognition tests as well as evidence of correction of the disease in the liver and heart. From a regulatory perspective, the FDA has granted orphan drug and rare pediatric disease designations to both RGX-111 for MPS I and RGX-121 for the treatment of MPS II. The rare pediatric disease designations create potential to receive a priority review voucher from the FDA upon approval, which can be redeemed to obtain priority review for any subsequent marketing application and may be sold or transferred. Now I want to touch on our manufacturing capabilities because product manufacturing remains a key focus area for us as a company, and we continue to invest in people, technology and capabilities across our programs. We've built a seasoned team with deep experience in biologics manufacturing from industry. We're expanding our in-house capabilities and anticipate completion of our advanced manufacturing analytics lab by the end of this year. Our manufacturing team is also working with leading biologics manufacturers to produce current batches and scale up our manufacturing processes for use in future clinical studies. By the end of 2016, we expect to have initiated or completed manufacturing of the material for the initial studies for all 4 of our lead programs. In addition to our internal development efforts, we are also advancing NAV Technology Platform through the efforts of our NAV Technology licensees. The majority of our partnerships are structured as licenses to a single NAV vector for the indication the licensee is pursuing, for example, AAV8 for the treatment of hemophilia A with Shire or AAV9 for the treatment of spinal muscular atrophy with AveXis. This partnering strategy allows us to focus on our core therapeutic areas internally while retaining the flexibility to sublicense treatments for other areas of unmet medical need. As licensee programs move into the clinic and demonstrate safety and efficacy, they validate the strength of the NAV Technology Platform for developing gene therapy treatments. This approach also provides us with additional milestones upon which the success of our technology platform can be measured and brings additional knowledge and advances to these important gene therapy programs. As of September 30, 2016, our technology has been licensed to 9 NAV Technology licensees. Four of our licensees programs are currently clinical stage. We're encouraged by the achievement of clinical proof-of-concept as reported by our NAV Technology licensees, including the AAV8 vector for the treatment of hemophilia and more recently, the AAV9 vector for the treatment of spinal muscular atrophy or SMA. Our licensee, AveXis, recently announced that based on its receipt of minutes following a Type B meeting with the FDA that AveXis planned pivotal study for AVX-101 (sic) [ AVXS-101 ] in spinal muscular atrophy type I will reflect a single-arm design. Additionally, AveXis announced that the FDA strongly recommended that AveXis request an end-of-Phase I meeting at the completion of its Phase I study of AVXS-101, which is expected to occur in the first half of 2017. That would include a discussion of whether the data from the Phase I study might provide the substantial evidence necessary to support a marketing application. We're encouraged by the potential for early approval of gene therapy based on our NAV Technology Platform. We continue to see strong interest in our vectors across a wide range of therapeutic applications. Overall, I'm really pleased to report that to date, 2016 has been a highly productive year for REGENXBIO. Operationally, we've continued to build our infrastructure across all areas of the company to support our mission and vision. This quarter, we also made important additions to our leadership team and Board of Directors. Of recent note, we appointed Daniel Abdun-Nabi and Daniel Tassé to the REGENXBIO Board of Directors, and we named Patrick Christmas as our Senior Vice President and General Counsel. With that, I'll turn it over to Vit for a review of the financials.

Thank you, Ken. REGENXBIO ended the quarter on September 30, 2016, with cash, cash equivalents and marketable securities totaling $184.9 million as compared to $216.4 million at December 31, 2015, a decrease of $31.5 million. REGENXBIO now expects full year 2016 cash burn to be between $55 million and $60 million, a decrease from our previous guidance of cash burn between $60 million and $70 million. Research and development expenses were $12.6 million for the quarter ended September 30, 2016, compared to $5.7 million during the same period in 2015. The increased R&D expenses in the 2016 period were primarily due to increased headcount of research and development personnel and increases in preclinical research and development, manufacturing and clinical trial expenses. General and administrative expenses were $6.2 million for the quarter ended September 30, 2016, compared to $2.6 million during the same period in 2015. The increased G&A expenses were primarily due to the growth of the G&A organization and establishing infrastructure to meet the requirements of a public company and our business objectives. REGENXBIO reported a net loss of $18.2 million or $0.69 per basic and diluted common share for the quarter ended September 30, 2016, compared to a net loss of $7.3 million or $1.52 per basic and diluted common share for the same period in 2015. As of September 30, 2016, we had 26.5 million common shares outstanding. With that, I'll turn the call back to Ken Mills, President and CEO of REGENXBIO, for a discussion of our expected 2016 milestones.

Thanks, Vit. So as we look to the remainder of 2016, we expect to meet our goal of enrolling our first patient in our Phase I/II clinical trial for RGX-501. We also continue to advance our pipeline of AAV gene therapies. As such, our preclinical studies for RGX-314 continue and we plan to file an IND for the treatment of wet AMD in the first quarter of 2017. Following that, we plan to file INDs for RGX-111 and RGX-121 in the first half of 2017. For the remainder of the year, we will be executing and advancing our clinical programs while optimizing our preclinical development strategies to best prepare us for success in the clinic. With strong science; a dedicated and talented team; a robust, diversified gene therapy program and solid financial position, I believe we're well on our way to becoming a leader in the gene therapy space. I want to extend my thanks to our strong investor base, our Board of Directors and the team here at REGENXBIO for your continued effort and support. With that, I'd like to open the call up to questions. Operator?

[Operator Instructions] Our first question or comment comes from the line of Matthew Harrison from Morgan Stanley.

This is Cyrus on for Matt. So a question about your cash spending guidance that went down for the year. So what was the impetus for this change? Is it a delay in some of your programs? Or are you guys just spending less overall?

Thank you for the question. As the year has progressed, we have achieved greater clarity into our expenses. As a result, we have realized that costs have come in lower across the whole company.

Great. And then a second question. For the HoFH trial, how are you guys going about screening? Is it faster with the protocol changes? And how quickly do you think you'll enroll patients beyond the first?

Yes, thanks, Cyrus. This is Ken. I'll field that one. So I think we have seen some meaningful improvement in the screening of the study since we made the protocol changes that we talked about at the end of the last quarter. And the focus has been very much recently on getting patients, who are now eligible for the study lined up in order that a schedule will allow us to fill out the dosing of the cohorts that we have in the study design as efficiently as possible. So it hasn't just been an effort to focus on first patient in, but it's actually been an effort to leverage the changes to the screening protocol, see improvements in that and set ourselves up for not only achieving the end-of-year goal but also come into 2017 with an expectation to complete the study as efficiently as possible.

Our next question or comment comes from the line of Ying Huang from Bank of America Merrill Lynch.

Firstly, maybe, Ken, I have a general question on the safety of gene therapy because we have seen some of the reactions from, for example, ATTC program and also Spark's hemophilia program in terms of immune reactions. Can you tell us whether you can avoid anything like that based on the preclinical data you have on your compounds? And then secondly, on the preclinical safety data you're required to submit to the FDA before the IND filing on RGX-314, I was just wondering if you have already submitted all the required data to FDA so that you have no other, I guess, issues that need to resolve before the IND.

Thanks for the questions. This is Ken. So I think that it's a great question. There definitely has been a lot going on this year in 2016 with respect to new reports of data about the AAV gene therapy platform in general. I know some but not all of what you're referring to with respect to different parties that have been reporting data. I don't know the details of some of the things you mentioned, but I would say that we definitely understand that there's a potential for there to be differences between the NAV Technology Platform and companies who aren't using the NAV Technology Platform. And that can be differences both in expression level, in durability and also in immunology. So it's hard to say anything more than that. With respect to how we view safety of REGENX programs, we think that the NAV Technology Platform conveys a lot of important benefits that have the potential to improve the profile, both from an efficacy, safety and manufacturability perspective. With respect to RGX-314, let me clarify if it wasn't apparent from the read-in where we are. So we're finalizing tox and biodistribution studies internal to the company right now, Ying. In fact, most of the experimental work is done, and so we've migrated to analysis and the beginning of report writing, which will still take several months. And that's why -- that's our target for filing of the IND in the first quarter of next year.

[Operator Instructions] I'm showing no additional audio questions. I'd like to turn the conference back over to management for any closing remarks.

Thanks very much for everyone participating today. We appreciate it, and we look forward to talking with you or seeing you again soon.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.