Arbutus Biopharma Corp Q3 FY2021 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the Arbutus Biopharma Corporation 2021 Third Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lisa Caperelli, Vice President of Investor Relations. Please go ahead.

Thank you, Angi. Good morning, everyone, and thank you for joining Arbutus's third quarter financial and business update call. Joining me today from the Arbutus executive team are Bill Collier, President and Chief Executive Officer; Dave Hastings, Chief Financial Officer; Dr. Gaston Picchio, Chief Development Officer; and Dr. Mike Sofia, Chief Scientific Officer. Bill will begin with the review of recent accomplishments and clinical developments, followed by Mike Sofia, who will provide an update on our research efforts within oral PDL-1 inhibitor. Dave Hastings will then provide a review of the company's third quarter financial results. After our opening remarks, we will open the call up for Q&A. Gaston Picchio will be available to address clinical development-related questions at that time. Before we begin, we'd like to remind you that some of the statements made during the call today are forward-looking statements, which are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our most recent Annual Report on 10-K, quarterly report on Form 10-Q and our other periodic reports filed with the SEC from time to time. I'll now turn the call over to Bill. Bill?

Thank you, Lisa, and thank you everybody for joining us today. We really appreciate your interest in Arbutus Biopharma. At this moment, we issued a third quarter financial and business update press release, which highlights the significant progress we've achieved this year towards our goal, which is to develop a proprietary portfolio of products with different mechanisms of action that when used in combination results in a functional cure for patients living with chronic hepatitis B. We're taking a three-pronged approach that's intended to: one, reduce HBV surface antigen; two, suppress HBV DNA; and three, boost the host immune system. And intend to accomplish this with our RNAi therapeutic 729, oral capsid inhibitor 836, and our oral PDL-1 program where we recently commenced IND enabling studies. So I'd like to start by walking through the clinical advancements we've made with this approach, starting with reducing surface antigen with our lead compound 729, the RNAi therapeutic. As you know, 729 is specifically designed to reduce all hepatitis B viral antigens, including hepatitis B surface antigen, and we're seeing this activity in our ongoing Phase 1a/1b clinical trial. In fact, data to date has shown that AB-729 consistently provides a mean 1.8 log reduction in hep B surface antigen, which is sustained over time in patients with chronic HBV. In addition, 729 continues to show a favorable safety and tolerability profile. Also, in addition to reporting significant drops in S-antigen, some 729 patients have shown increased HBV specific immune responses, which further supports our rationale for combination therapy to include an immunomodulatory agent. Now, next week at AASLD, we will report additional data from additional cohorts of patients in this clinical trial in a poster presentation. And in that presentation, among other things, we will show that 729 repeat dosing remains generally safe and well tolerated. We'll show that robust mean declines in surface antigen were sustained with repeat dosing of 729, with no meaningful differences observed to date between 60 milligram or 90 milligram doses or dosing intervals, which included every four, eight, or 12 weeks. And we'll also show that S-antigen suppression to levels below 100 international units per ML, which is a clinically relevant threshold that could inform when to stop therapies, is maintained in some subjects up to 20 weeks following the last dose of 729. As we continue to evolve more data with 729, we continue to believe that the drug has the potential to be a cornerstone agent in future HBV combination regimens. Our strategy is to evaluate 729 in combination with our own novel agents and with other approved or investigational agents with complementary mechanisms of action to set the foundation for future trials. Now we've made great progress in advancing 729 in clinical trial development. This quarter, we initiated and dosed the first patient in our own Phase 2a randomized open-label proof of concept clinical trial to evaluate 729 in combination with ongoing standard of care, new therapy, and short courses of peg-interferon in 40 patients with chronic HBV infection. Based on clinical data from our Phase 1 program, we selected 60 milligrams every eight weeks as the dose and dosing schedule for this trial and other trials. We're currently in the process of opening sites, screening patients, and we will provide further updates on this trial when appropriate. And then from a collaboration standpoint, 729 is being evaluated in an ongoing Phase 2a triple combination trial with Assembly Biosciences' lead HBV core inhibitor and the nucleoside analog. Assembly is conducting this trial and expecting to see data in 2022. Also, activities to initiate separate Phase 2a clinical trials with Antios and Vaccitech are ongoing. We expect that the arm that will include 729 in the Antios clinical trial will commence this quarter and that the Vaccitech clinical trial will initiate in early 2022. Both trials are designed to evaluate the triple combination of 729 and nucleoside analog and either the Antios or Vaccitech proprietary agent. I'd now like to move on to the second arm of our approach, which is to suppress HBV DNA with our next-generation oral capsid inhibitor 836. Now 836 is specifically designed to completely block viral replication in infected cells by preventing the assembly of functional viral capsids. Preclinical data suggests that 836 may have the potential for increased efficacy and an enhanced resistance profile compared to previous capsid inhibitors. Preliminary data from healthy volunteers and HBV patients in our Phase 1a/1b clinical trial is on track to report out by the end of this year. And these data may support the initiation of a Phase 2 combination clinical trial with our own proprietary compounds. The third arm of our approach is to boost the immune system, which we hope to do with our oral PDL-1 program for which we recently commenced IND enabling studies. And after my prepared remarks, I'll turn the call over to Mike Sofia to provide more details about this exciting compound. Now ultimately, we strive to have a convenient oral combination treatment for hepatitis B patients. And to achieve that, we're progressing our research efforts with an oral RNA destabilizer program and look forward to providing updates on our lead optimization efforts in 2022. In addition to our efforts in HBV, our internal research program to identify new antiviral small molecules to treat COVID-19 and future coronavirus outbreaks continues to make progress. So as you can see, despite the challenging impact of the pandemic, the team at Arbutus has been relentless in their efforts to continue the advancement of our clinical and research programs to meet our corporate goals, to address the needs of patients and to increase shareholder value. I really am very grateful for the team's commitment and dedication to finding a cure for hepatitis B and for the treatment of coronaviruses. So with that, I'll turn the call over to Mike Sofia for an update on our PDL-1 program. Mike?

Thanks, Bill, and good morning, everybody. As Bill mentioned, we are focused on a three-pronged approach to develop a cure for chronic hepatitis B, and key to that is to boost or reawaken the immune system. Given this, we have nominated for IND enabling studies an oral PDL-1 inhibitor that could potentially be an important part of a combination therapy for the treatment of HBV. Let me start with an overview of why we believe the PD-1, PDL-1 immune checkpoint access is a viable target for effective immune reawakening in the context of HBV. It is well established that the immune system in HBV chronically infected individuals is tolerant to the recognition of the virus or infected cells. It is also believed that highly functional HBV specific T cells are required for long-term HBV bio-control in the setting of a functional cure. However, HBV specific T cells become functionally defective and greatly reduced in their frequency during chronic HBV infection. Immune checkpoints, such as PD-1 and PDL-1, play an important role in the induction and maintenance of new tolerance and in T cell activations. It is well established that the PD-1, PDL-1 signaling pathway in immune cells plays a critical role in the human immune response for foreign pathogens. After the initial immune response to a pathogen and increased expression of PD-1, aiming to PDL-1 leads to downregulation of the immune response. In cancer biology, the upregulation of the PD-1, PDL-1 axis has been linked to immune tolerance, resulting in the development of several important immune therapies. Similarly to PD-1, PDL-1 axis has been implicated as having a role in HBV-specific immune tolerance. It has been shown that HBV specific T cells in the blood and liver from chronically infected HBV patients express high PD-1 levels, and this level correlates with S-antigen load. PDL-1 has been shown to be upregulated during viral hepatitis, and PD-1 has been shown to be upregulated on HBV specific T cells and S-antigen specific T cells. Ex vivo studies using HBV patient blood and liver samples have demonstrated that HBV specific T and B cell responses are improved with checkpoint blockade. It has been our long-term strategy to combine agents that reduce the HBV specific immune tolerizing antigen, S-antigen, with agents that can further reawaken the immune system. Therefore, we hypothesize that one approach to reawaken HBV specific T cells is to block the PD-1, PDL-1 protein-protein interaction and hopefully break HBV specific immune tolerance. Support for this approach was observed in preclinical animal model studies where checkpoint blockade in combination with other direct acting antivirals led to both DNA clearance and sustained viral suppression. Our research efforts have identified a class of small molecule oral checkpoint inhibitors that we believe will allow for controlled checkpoint blockade, enable oral dosing, and mitigate systemic safety issues seen with checkpoint antibody therapies. From this class of small molecule PDL-1 inhibitors, we nominate a lead candidate based on in vitro potency, immune restoration, in vivo efficacy, selectivity, and safety. Let me provide a little more detail about each of these research parameters. Starting with in vitro potency, the PDL-1 bioassay EC50 was less than 29 or more than some candidates with external compounds. With respect to immune restoration, this lead agent displayed primary human T cell activation in a preclinical model and restoration of T cell activity for chronic hepatitis B patient samples in vitro. The in vivo efficacy showed favorable pharmacokinetics and anti-tumor efficacy in a preclinical tumor model. From a selectivity standpoint, the agent binds to PDL-1 with minimal binding to all other targets in vitro. The agent has an acceptable safety profile based on progressive in vitro safety pharmacology and in vivo mouse tolerability studies. This small molecule PDL-1 inhibitor possesses in vitro intrinsic activity and functional activity, both in whole cell systems and animal models that are equivalent compared to known PDL-1 antibodies. Based on this preclinical work, this compound is now in IND enabling studies. I'm excited by the advances that we've made to identify this lead compound, which we believe has an accessible safety profile and functional activity that will play a key role in our combination approach to finding a cure for HBV. I'll now turn to Dave Hastings for a brief financial update. Dave?

Thanks, Mike, and good morning, everybody. As I've mentioned in the past, our key financial metric is cash and financial runway. Our cash, cash equivalents, and investments were $151.9 million as of September 30, 2021, which compares to $123.3 million as of December 31, 2020. Our cash used from operations for the nine months ended September 30, 2021, was $47.9 million, which was offset by $75.4 million of net proceeds from the issuance of common shares under our ATM program. For all of 2021, we expect our aggregate cash used to range from $70 million to $75 million, and therefore, we expect our current cash runway to be sufficient to fund operations into the second quarter of 2023. With that, I will now turn the call back to Bill. Bill?

Yes, thanks so much, Dave and to you Mike as well. So operator, maybe now is the time to open up the lines for the Q&A session.

Your first question comes from the line of Roy Buchanan with JMP Securities.

I want to start on AB-836. Bill, you mentioned the Phase 1 results, I think, coming at the end of this year; you think can support the start of the combo Phase 2. Just wondering if you can give a little more details on what that Phase 2 would look like? Would you start with an initial 836 plus a new only to do dose finding, or would you go straight to a triple combination with your proprietary compounds? Just kind of what would that look like?

I think we've actually been saying for quite some time that it's always been our aim to have our own internal combination. So, kind of logically, in our mind, it makes sense to look at 836, 729, and a new combination trial. And we’ll clearly share more details on that as next year evolves. I think the important point today is to let everyone know that we're on track to deliver those 836 results by the end of the year.

And then another 836 question. I'm not sure; you’re probably not going to tell me what the chemistry is. But on the side that says it's a unique chemistry, maybe you can confirm it's not a HAP or SBA, and I can try to say the names if you want, but I think you guys know what those are. So is that possible you could confirm that?

Yes, I can confirm that. It's neither of those.

And then I had a question, it's kind of early, it's really early. But I want to get you guys thinking about potential pricing for a functional cure. I mean, is there any reason if a functional cure is found that it wouldn't be priced, let's say, similarly to the hepatitis C cures that were developed? Just give us maybe your thoughts around that.

I think as you said in your question maybe a tad early to get into pricing specifics. But I mean, there's obviously benchmarks of existing therapy; you've got benchmarks across other viral diseases. And I think beyond that, very difficult for us to say. I will add though, that one of our strategies, as I've mentioned, to have all the components of the functional cure with our own proprietary umbrella, it’s kind of irrelevant here. Because it allows you to set whatever the price is ultimately going to be without too much worry about economics to a third party or a partner, or role and so on and so forth. So one of the underpinnings of our strategy to find our own internal combo is not unrelated to your question.

Your next question comes from the line of Brian Skorney with Baird.

This is Luke Herrmann on for Brian. We were just hoping you can maybe talk a little about the upcoming refund data that J&J is presenting at AASLD next week. In terms of the implications it has for the field and given the kinetics of response. What do you think of the stopping criteria 48 weeks; do you think that's a sufficient timeframe?

Let me make a couple of comments and then maybe Gaston can be available for any additional comments. I think we've seen the abstract as have many other people; I think it may still be a little early for us to comment on competitor data until we see the full presentation and hear what Johnson has to say. I would maybe just add a couple of additional points. Our development strategy is around this three-pronged approach that we've talked about, which would include an RNAi therapeutic, the capsid inhibitor, and immunotherapy. The data you just referred to involves an RNAi therapeutic, a capsid inhibitor, and a nuke. And so it may be that this further supports our strategy that an immunotherapy is needed in the treatment regimen to show continued improvement. I think the second point to make at this early stage is that it appears that the contribution of the capsid inhibitor in the J&J study may have been insufficient, and we clearly need to understand that more. But our capsid inhibitor, as you've heard on previous calls, 836, is unique and is differentiated from other capsid inhibitors. And in preclinical data, we've shown that therapeutically relevant doses, 836 has increased potency and engages the second mechanism of action. So I think there are some differences when you look from capsid to capsid. And I think beyond that, we really just have to wait for the presentation next week and hear what the company says, and hopefully that will help, not just your question but some of the questions that we have as well. So with that, Gaston, any additional comments you want to make?

I think you covered very well. In regards to this stopping rule, I think it was referenced in the question. I think it's just one approach to stopping rules, the composite endpoint that they use, which is reasonable. I think there may be different ones that are being used in the field. So we look forward to seeing what happens to patients once they're still based in their criteria after the presentation.

We do have a follow-up question from the line of Roy Buchanan with JMP Securities.

So let's start with the easy question for Dave. Has there been any ATM use since the last update on the prospectus from October 8th? Have you guys used it since then?

I mean, we'll update everybody during our fourth quarter update in early March on that, Roy. So I think we'll comment on that at that point.

Bill, could you respond to the pricing question? What are your thoughts on partnerships? It seems you want to maintain as much ownership as possible. However, if you expand into regions like Europe and China, are you considering retaining ownership there, or will you likely seek partnerships?

What I was trying to express is that having all the individual components of a combination under our Arbutus umbrella allows us greater pricing flexibility. Regarding your question about how we can access different markets globally, at this preliminary stage, I can say that we are open to various strategic options. Our head of business development frequently communicates with a wide range of contacts, and my overall stance is that if we identify a partnership as the best way to enter a market or meet patient needs, it will benefit both the medicine and our shareholders. It's possible that the individual components of the cure will stay within the Arbutus structure, and we may opt to partner in different regions. However, we haven't discussed this publicly, and I'm providing a hypothetical response to your inquiry.

And then another early one, but the regulatory path. What do you guys envision the Phase 3 and initial approvals looking like? Is potentially 729 going to be approved as monotherapy with a nuke, or are you going to go for approvals on the combinations? How do you envision that playing out, I guess?

So right now, what we're really focused on are these four different Phase 2a proof-of-concept studies. And so I think it's really important to underline this. When it comes to our strategy of reducing, suppressing, and boosting, you can do that with different combinations of agents, and we're clearly testing out that hypothesis in these four Phase 2a studies. So I think, again, great question, Roy. But I would like to see how 729 as a cornerstone agent performs in all of these studies and then to move into Phase 2b, Phase 3 accordingly. But I think you can determine that as we've set out these different proof-of-concept combinations; we are really looking for the combination to move forward to get to a functional cure. Gaston, do you want to add?

No, no. Thank you. I think you covered it well.

Your next question comes from the line of Ed Arce with H.C. Wainwright & Company.

Just one for me. On 836, obviously, data coming up here at the end of the year on your Phase 1 study, and this would, as you mentioned, allow for Phase 2 presumably next year to really put together your initial combination studies. Wondering if you could talk a little bit about the data, what you're expecting in particular given the 836, as you mentioned, is a unique capsid inhibitor and utilizes a novel binding site within the core protein dimer-dimer interface. I wondered if there's anything that you're looking for from that data that could help support the differential profile that you expect?

So maybe Mike Sofia first and then Gaston as it relates to the clinical data? Mike?

So you're right, the 836 is, what we call, our next-generation agent and it differentiates itself significantly from earlier generation agents because of the high intrinsic potency it has but also, as we commented on many times, the ability to engage the second mechanism. So that in addition of the retrenchment of the cccDNA, we believe will be a therapeutically relevant dose. And I think one of the problems with the first-generation agents is that the activity at the second mechanism was sufficiently less than the first mechanism activity. But at relevant doses that they could give in a clinic, they just couldn't engage that. So when we do engage that second mechanism, clearly, we believe we're going to have a fairly robust response against the reduction of RNA as well as DNA, which is the primary mechanism. So I think we're looking forward to looking at that data and seeing how this translates.

I believe we will focus on the depth and speed of both HBV DNA and RNA expression. Additionally, there is a possibility that we could analyze the activity of the compound against resistant variants. While we are not specifically enrolling patients with resistance, we recognize that resistant variants exist. If we happen to include some of those patients, we may also be able to evaluate the activity of the new generation recipient variants, although that is not something we can control.

Your next question comes from a line of Keay Nakae with Chardan.

Some questions for Mike on the PD-1. First, Mike, can you point us to any pre-planned data that you've published on your oral checkpoint inhibitor?

We have not released any specific preclinical data on the nominated molecule. However, I can refer you to a significant paper we published that explores the unique mechanism of the small molecule compared to an antibody. This paper was published toward the end of last year. It demonstrates that the small molecule we used, which is an earlier generation agent, does exhibit anti-tumor effects. We utilized an anti-tumor model, as it was the most accessible model at the time. We have since developed an HBV model to evaluate molecules in an animal model. Our research shows that these small molecules possess distinct characteristics, both in terms of mechanism and function, making them highly competitive with antibodies.

I'll circle back with you to get that. And so again just kind of moving on then to both, I guess, the safety profile. Again, relative to an antibody you should have some advantages there. But how then think about it, the safety as you move into combo therapies and what would you be on high alert to look for there in terms of safety?

Well, as you know, in sort of the oncology setting, antibody-based checkpoint blockade does have some adverse events associated with that, and one of the things we wanted to do was circumvent that. And the concept that we use was really the small molecule concept. And the reason why we believe that this is going to be a solution to the potential adverse events is with an antibody you have a very long action occurring. So you get one dose and it acts as sort of onboard for weeks and weeks. With a small molecule, we can take advantage of PKPD relationships and essentially just dose enough of what we need to get the response. Plus if there's any issue we can actually remove the drug because PK washout event. So that's one thing. The other thing is we have, as we always do, looked at liver targeting and so we have drugs that have high liver-centric character. So these molecules have much reduced systemic exposure and therefore allow us to target HBV versus having sort of that systemic immune activation that we see with a typical antibody. So I think those characteristics of these molecules, we believe will support a better safety profile. Now we're out to see that in the clinic, but I think we're pretty excited about the overall profile of these molecules and the potential.

I guess where I'm going with that, Mike, is with certainly, the destabilizer there were some toxic issues, oral compound. So again, when we get to a point where you're combining these in your eventual oral solution, how should we think about any synergistic toxic issue we might be concerned about?

So obviously, each of these molecules work by different mechanisms of action. They are different chemical entities in themselves, so they'll have different characteristics. We clearly in all our preclinical and non-clinical studies are very careful ensuring that we don't have any drug-drug interaction issues associated with that. Now we can't predict exactly what's going to happen clinically, but we do do combination studies in preclinical models to assess the compatibility of these molecules from agonist or antagonistic standpoints. We get some sense of safety read on the combination when we do combination studies in vivo. So I think we're doing all the things that one needs to do to have a sense of confidence that these molecules will perform in the clinic and perform safely. But really the clinical setting is going to be the ultimate test.

Your next question comes from the line of Kelechi Chikere with Jefferies.

I have a question regarding the appropriate stopping criteria for many of these combination therapies, particularly for the new component. Can you provide your thoughts on this and what you believe the stopping criteria should be? Additionally, with 729, you've shown the capability to enhance specific immune responses; could this potentially be considered as a criterion for your combination studies?

I'm going to hand that one over to Gaston.

I think as I was trying to say, I think different groups will come up with different stopping criteria. There is no single, as far as I know, unified stopping criteria. And usually stopping criteria are based on endpoints. It doesn't just factor, for example, a concentration of S-antigen can include S-antigen plus, for example, HBV DNA and ALT criteria. I think we will know which is the most appropriate stopping criteria once we see what happens to the patients after they stop all therapy. And for example, if one chooses 100 and then we see that there is a higher relapse but if one chooses 10 as part of the composite endpoints and there's less relapse, then one can conclude, obviously, that 10 would be better than 100, but we're not there yet; we don't have that data. So I think we’ll be, for lack of a better term, trial and error, I think we'll have to try different things. There's no even straight consensus on how to stop standard of care today with no therapies; people use different things. But as we've repeated a number of occasions, for example, 100 in patients who have been for many years on nuke therapy is a criteria used, especially in Asia. Now you're right about what we observe in three out of five patients where we were able to measure incorporate our ongoing 729-001 study. The challenge there is immune reconstitution would be a criteria. It’s something that cannot be measured really quickly to make that decision. As you know, these T-cell assays are very labor-intensive, require the collection of peripheral blood mononuclear cells, and they cannot be just run like a viral load on an automated way in a standardized way. So I think it's a very good idea. I hope that we can find maybe some surrogate indicators of T-cell reconstitution; you know, perhaps something in line with the measurement of soluble cytokines, interfering gamma comes to mind that can be more readily and rapidly around in the clinical in a standardized way. And that would be the challenge I envision of including T-cell immune restoration to HBV as part of the criteria.

Well, thank you, Angi, and thank you, everyone for your questions. We really appreciate you joining us this morning and obviously your continued interest in the company. And look forward to keeping you up to date as we continue to move forward to secure achievement of the milestones that we've shared with you today. Those obviously include the announcement of additional data from the 729 Phase 1a/1b clinical trial at AASLD and the initial data from our 836 Phase 1a/1b trial by the end of the year. So we look forward to being in touch. And operator, that concludes our call. Thank you.

Thank you for participating in today's conference call. You may now disconnect your lines at this time.