Arbutus Biopharma Corp Q4 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Arbutus Biopharma Corporation's Fourth Quarter and Year-End 2021 Financial Results and Corporate Update Call. At this time, all participants are in a 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 your speaker today, Lisa Caperelli, Vice President of Investor Relations. Please go ahead.

Thank you, Catherine. Good morning, everyone and thank you for joining Arbutus's fourth quarter and year-end financial and business update call. Joining me today from the Arbutus executive team are, Bill Collier, President and Chief Executive Officer; David 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 David Hastings, who will provide a review of the company's fourth quarter and year-end financial results. After opening remarks, we will open the call up for Q&A. Gaston Picchio and Mike Sofia will be available to address clinical and scientific related questions. 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 Annual Report on 10-K being filed later today. With that, I'll turn the call over to Bill. Bill?

Thank you, Lisa. Good morning everyone. Thank you for joining us. We appreciate your interest and your support of Arbutus Biopharma. This morning, we issued our fourth quarter and year-end financial and business update press release, which provides updates on our clinical and preclinical programs directed at finding a functional cure for patients with hepatitis B and a treatment for coronavirus infections, including SARS-CoV-2. If I had to sum up this past year in one word, it would be transformative. And I'll explain why. In 2021, the Arbutus team did a fantastic job of advancing our proprietary early research compounds into IND-enabling studies, specifically our oral mRNA destabilizer that we now refer to as AB-161 and also our oral PDL1 inhibitor, which we're calling AB-101. The potential addition of the PDL1 inhibitor AB-101 in a proprietary combination with our RNAi therapeutic 729 and our capsid inhibitor 836 would allow us to explore our three-pronged strategy to provide a functional cure for chronic HBV infection. As you know, this three-pronged approach consists of suppressing surface antigen, reducing HBV DNA and boosting the immune system. Now the potential role for the RNA destabilizer 161 in our approach is the opportunity to provide a proprietary oral treatment regimen for HBV. We're excited about this progress and look forward to completing the IND-enabling studies for both these compounds in the second half of this year. Now, in addition, we secured both strategic and clinical partnerships that in line with our strategic initiatives allowed us, first of all, to initiate multiple combination clinical trials to evaluate 729 as a cornerstone therapy with other compounds in patients with HBV. Secondly, we expanded the geographic reach of 729 to China to address the largest HBV patient population. And thirdly, we've been able to broaden our pipeline to include development programs against coronavirus infections. And I'd like to elaborate on these strategic accomplishments, starting with our combination trials with our lead HBV compound 729. With the compelling safety and efficacy data from our Phase 1a/1b clinical trial, in 2021, we moved 729 into three Phase 2a clinical trials to evaluate 729 as a cornerstone therapy in combination with one or more approved investigational compounds. As enrollment continues or is near completion in these trials, data is expected in the second half of this year from our clinical trial evaluating 729 and nucleotide analog and interferon, as well as data from our partnered trial evaluating 729 with Assembly’s core inhibitor. Now, with respect to our partnered program with Antios liver targeted NUC, as we mentioned in our press release today, enrollment is complete in this cohort. However, the majority of patients were enrolled in Ukraine, which obviously is currently in a state of war. And these patients may be lost to follow-up before completing the study. Therefore, Arbutus and Antios may report limited data on a reduced number of patients from this clinical trial. Also, as a reminder, we do have a fourth Phase 2a combination that we expect to initiate in the first half of this year to evaluate 729 combined with VTP-300 that's the Vaccitech therapeutic vaccine, and NUC. And our goal is to utilize the learnings from all of these trials to provide insights with the potential to derisk the use of our proprietary compounds in combination with 729 to develop a functional cure for HBV, as well as to support our go-forward clinical and regulatory strategy for Phase 2b development. Now, let's move on to expanding the geographic reach of AB-729. At the end of last year, we executed an important strategic partnership with Qilu Pharmaceutical, one of the leading pharmaceutical companies in China. For us to reach the largest HBV patient population in need of a functional cure for chronic HBV infection, it was essential to find a strategic partner with significant experience in developing, manufacturing and commercializing products in Mainland China, Hong Kong, Macau, and Taiwan. As part of our discussions, Qilu conducted extensive diligence before completion of the agreement. Based on their belief in the potential of 729 to be a safe and effective treatment option for HBV, Qilu paid us $40 million upfront and made a $15 million equity investment in Arbutus, along with potential additional payments of up to $245 million consisting of certain development, regulatory and sales milestones. Finally, as part of this transaction, we're also entitled to receive double-digit tiered royalties up to the low twenties percent on annual net sales of 729 in their territories. This is one of the largest early clinical deals conducted with a Chinese company. As important, this partnership also allows us and Qilu to maximize the potential clinical value that 729 can bring to the millions of underserved patients in China. As we collaborate with Qilu on a clinical development strategy for 729 in China, we plan to provide updates on our progress. Now finding a functional cure for patients with HBV remains a key initiative for Arbutus, but we also recognize the urgent need to identify new antiviral small molecules to treat COVID-19 and future coronavirus outbreaks. We've expanded our pipeline to include preclinical programs targeting coronaviruses. We're focusing our research efforts on two essential targets critical for replication across all coronaviruses, those being the nsp5 protease and the nsp12 polymerase. In December, through our partnership with X-Chem and Proteros biostructures, we identified unique and differentiated pan-coronavirus assets that inhibit the SARS-CoV-2 nsp5 main protease or Mpro, which is a validated target for the treatment of COVID-19 and potential future coronavirus outbreaks. We recognize the importance of rapidly developing oral small molecules in addition to vaccines to address this pandemic as it transitions to an endemic phase. To that end, we intend to advance an Mpro clinical candidate into IND-enabling studies this year. We are also continuing lead optimization activities for an nsp12 viral polymerase candidate. Now, aside from our progress in our research efforts and partnerships to achieve our strategic initiatives, in 2021, we continued to build convincing safety and efficacy data with AB-729 and AB-836. Both of these compounds are undergoing rigorous evaluation at various dose levels and dosing intervals in cohorts of patients with various baseline characteristics. This comprehensive body of evidence that we're building gives us the confidence that the dose and dosing interval we intend to advance into latest data clinical trials will be best suited to be safe and effective. This year, we anticipate reporting key data for AB-729, that will include new on-treatment data on multiple cohorts of patients included in the Phase 1a/1b clinical trial, as well as long-term follow-up data for patients who completed treatment and have discontinued AB-729 and NUC therapy. We also expect to report additional AB-836 data from part three of the Phase 1a/1b clinical trial that will inform potential future clinical trial development. I'm proud of the enormous progress the Arbutus team has made this last year to position the company for multiple key clinical milestones and significant growth in 2022. And I look forward to keeping all of our shareholders informed of our progress and planned continued success. Now, lastly, as you saw in our press release on Monday, along with Genevant Sciences, we filed a lawsuit in the United States District Court for the District of Delaware against Moderna and an affiliate of Moderna seeking damages for infringement of certain U.S. patents in the manufacture and sale of mRNA-1273 that's Moderna's vaccine for COVID-19. The patents relate to nucleic acid-lipid particles and lipid vesicles, as well as compositions and methods for their use. As you may recall in December 2021, the United States Court of Appeals for the Federal Circuit rejected Moderna's appeal of a prior decision of the U.S. Patent Trial and Appeals Board holding all claims of the asserted 069 patent to be patentable and dismissed Moderna's appeal challenging a similar finding of patentability with respect to certain claims of the asserted 435 patent. Moderna had initiated inter partes review, IPR, challenges against these patents in 2018 and 2019. Now Arbutus and our licensee Genevant do not seek an injunction or otherwise seek to impede the sale, manufacture or distribution of mRNA-1273. However, we do seek fair compensation for Moderna's use of our patented technology that was developed with great effort and great expense, without which Moderna's COVID-19 vaccine would not have been successful. Now, I do recognize now that this litigation is of great interest to our shareholders and that many of you will have questions. We believe that the lawsuit we have filed is the appropriate way to resolve our claims. I ask that you be patient with us, as we will not be able to provide any additional commentary on our allegations or our litigation strategy, aside from what is in the publicly filed complaint. Other than to say, we intend to pursue all appropriate avenues to defend our intellectual property rights. With that, I'll now turn the call over to Dave Hastings for a brief financial update.

Thanks Bill, 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 was approximately $191 million as of December 31st, 2021 as compared to approximately $123 million as of December 31st, 2020. The ending cash, cash equivalents and investments balance as of December 31st, 2021 does not include the $40 million upfront payment and a $15 million equity investment received in January 2022 from Qilu Pharmaceutical as part of the exclusive licensing agreement and strategic partnership to develop and commercialize AB-729 in China. Our cash use from operations for the year ended December 31st, 2021 was $67.5 million, which was offset by approximately $135 million in net proceeds from the issuance of common shares under Arbutus' ATM program. For 2022, we expect our aggregate cash use to range from $90 million to $95 million. Therefore, we expect our current cash runway to be sufficient to fund operations into the second quarter of 2024. I would like to now discuss a relationship with Genevant, especially as it relates to the Moderna patent infringement lawsuit that was filed on Monday. Now, back in 2018, along with Roivant Sciences, we launched Genevant as a company to focus on mRNA-based therapeutics. We licensed Genevant rights to our LNP technology for mRNA-based applications outside of HBV. And we currently have a 16% equity interest in Genevant. Now under this licensing agreement, if Genevant receives proceeds from an action for infringement by any third parties of Arbutus' intellectual property licensed to Genevant, we would be entitled to receive after deduction of litigation costs, either 20% of the proceeds received by Genevant or if less tiered low single digit royalties on net sales of the infringing product, inclusive of the proceeds from litigation or settlement which in that case would be treated as net sales. So, with that, and in closing, we have established a strong financial foundation to advance the company's mission to develop a functional cure for HBV and a treatment for COVID-19 and potential future coronavirus outbreaks.

Thanks very much Dave. And operator, why don't we open up the lines now for Q&A.

Thank you. Our first question comes from Roy Buchanan with JMP Securities. Your line is open.

Hey, great. Thanks for taking the questions. Appreciate the details on the litigation stuff. First question on 836, anything you can say about what to expect from the data later this half? You've shown good reductions in viral DNA at 100 milligrams already. Any early thoughts about how the program might take shape in the second half? And then looking slide, just to verify cohorts, INJ have not started, correct?

Yeah. Gaston is on the call this morning. Gaston, do you want to take that question?

Sure. Hi, Roy. So, let me start with the last part of your question. INJ have not started yet. Right now, we are conducting the three first cohorts, the 50, the 100 and the 200 milligram cohorts and the data will be reported in the first half of this year. Once we have the data, then we'll decide on next steps. We have already some plans in mind, but we need to see the final data before making those final decisions.

Okay. Great. And then, you guys had a case of rash in ALT elevation earlier. Not sure if you can say, but any additional observations of either of those events?

We cannot comment on that. I think the data will be reported the time when it's reported in the first half of the year.

Okay. Great. Just thought I'd try. And then, what's getting for starting the Phase 2a with VTP-300? And then, you mentioned in the slides starting a Phase 2b, assuming positive results. Do you think that would be a larger triple combo trial or do you think you might be able to work in an additional core inhibitor or some other agent have a quadruple combination?

The VTP-300 has already received approval in several countries where we plan to conduct the study. Now, we just need to activate the clinical sites and proceed from there. We hope to begin very soon, potentially in the first half of the year, as we have already filed in multiple countries and received some approvals. Regarding the Phase 2b study, we still need to make final decisions about whether compound 836 will be included in the larger Phase 2b study. We also want to review preliminary data in combination with interferon and consider other emerging data in the field, such as checkpoint inhibition. There are various data points we are looking to evaluate this year that will guide our final Phase 2b strategy, but we cannot define what that will be at this moment.

Okay. Great. And one, just check the box for Dave, and then I'll jump back into the queue. The net cash burn of $90 million to $95 million this year. Just want to double check. Does that include both components of the Qilu payments in January? Thanks.

The cash burn is a net cash burn. The only thing that really reduces that is the Proteros pharmacy royalties. In terms of revenue recognition for the Qilu agreement, the $40 million was received in January. The accounting will really start in Q1. We expect to defer that revenue recognition over a period of time as we transfer the technology to manufacture AB-729 to Qilu, which might take a couple of years.

Okay. Thank you.

Thank you. Our next question comes from Dennis Ding with Jefferies. Your line is open.

Hi, good morning and thanks for taking the question. Two for me, if I may. First question is on your hep B, can you just talk about what you'd like to see from the various triple combo studies reading out in the second half? And what do you want to see to give you confidence that there'll be a higher probability of success for functional cure, which I would think is coming 2023, 2024? And then my second question is around your protease inhibitor. I don't really think people are really appreciating that you guys have this asset. So can you just comment on when that will go into to the clinic? And can you just talk about your ideal drug profile there? Specifically, how has preclinical studies panned out in terms of potency and your projected human PK? Thank you very much.

Thank you, Dennis. Gaston, do you want to take the first one and then we'll have Mike Sofia talk about the protease?

Sure. Could you please repeat your question about the HBV part? I didn’t catch it clearly.

Can you discuss the data expected in the second half for your triple combo studies and what you are hoping to see that would increase your confidence in the probability of success for a functional cure?

Certainly. Regarding the interferon study, we hope to see a more significant decrease in S-antigen levels and, ideally, some participants reaching undetectable levels while on treatment. So far, we haven't observed this with 729 and NUC, nor has it been seen with Antios mRNA and NUC. We believe that adding interferon could lead to deeper and possibly quicker S-antigen suppression. Additionally, we have another key data point coming up that examines what happens after patients stop NUC therapy following 48 weeks of treatment with 729 and NUC. After they discontinue 729 for six months, we want to determine if the reduced antigen levels can be sustained below the required threshold to stop NUC therapy, which is under 100 NUC per mL. We are also interested in what happens to HBV DNA levels after stopping NUC. We want to know if HBV DNA reemerges, as is commonly observed after discontinuing NUC, or if it remains suppressed due to the addition of 729. This could lead to a sustained biological response, where HBV DNA does not return after stopping all treatments, which could be advantageous for patients.

Okay.

Hello, Dennis. This is Mike Sofia. To address your comments, we are certainly aware of the developments in the field regarding our molecule. We aim to establish a profile that sets it apart from existing options. For instance, we prefer a molecule that does not require boosting like others do, as we believe this represents a disadvantage for the general patient population. We also aim for a once-a-day oral dosing regimen to remain competitive, along with ensuring our molecule demonstrates very competitive, if not exceptional, potency. Those encompass the general characteristics we seek. Currently, we are in the lead optimization phase and expect to nominate a compound in the latter part of the second quarter this year. Following that, we will rapidly transition into IND-enabling studies and strive to advance that molecule into the clinic as quickly as possible. This outlines our overall profile and plan, acknowledging the urgency we feel for our program and for patients while exploring ways to accelerate the IND-enabling study aspects.

Thank you. That's helpful.

Thank you. And we have a follow-up from Roy Buchanan with JMP Securities.

Hey. Thanks for taking the follow-up. Just really quick on the 729 Phase 1, you mentioned that patients coming off of 729 and the NUC. Just wondering if you give us a sense, the day that we'll see how long they'll be off the NUC maybe. Thanks.

It's hard to provide a specific timeline. In the study we've modified to give options to investigators and participants, they have discontinued 729 and have been off it for six months. After this period, they can choose to stop the NUC, but this is not required by the protocol; it's an option based on undisclosed criteria. Once they opt for this, we carefully monitor their safety and track whether the S-antigen continues to decline or increases, as well as other biomarkers like HBV DNA and HBV mRNA. The follow-up duration will vary significantly because some patients made this choice a while ago, while others are still making it now. Therefore, I cannot specify the exact follow-up time at the data cut when we'll present the findings.

Okay. Thank you.

Thank you. And I'm showing no further questions in the queue. I'd like to turn a call back to management for any closing remarks.

Thank you very much indeed. And thanks everyone for joining us this morning and for your questions. We look forward to keeping you updated as we move forward with many of the clinical milestones we've mentioned today, including the announcement of additional data from our combination trials evaluating 729, the cornerstone therapy, and also our Phase 1a/1b clinical trials with 729 and 836. So, with that, thank you all again. And operator that concludes our call.

This concludes today's conference call. Thank you for participating. You may now disconnect.