Arbutus Biopharma Corp Q1 FY2022 Earnings Call

Good day, and thank you for joining us. Welcome to the Arbutus Biopharma 2022 First Quarter Financial Results and Corporate Update Conference Call. I would now like to introduce your first speaker today, Lisa Caperelli, Vice President of Investor Relations. Thank you, and please proceed.

Thank you, operator. Good morning, everyone, and thank you for joining Arbutus' first quarter 2022 Financial Results and Corporate 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 a corporate update, followed by Dr. Sofia, who will provide an update on our preclinical programs. Dave Hastings will then provide a review of the company's first quarter 2022 financial results. After opening remarks, we will open the call up for Q&A. Gaston Picchio will be available to address clinical-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 most recent annual report on 10-K, quarterly report on Form 10-Q to be filed later today and from time to time in other documents filed with the SEC. I will now turn the call over to Bill. Bill?

Thank you, Lisa, and good morning, everybody. Thank you for joining us. We appreciate your continued interest and support in Arbutus Biopharma. As you saw in this morning's press release with our first quarter 2022 financial and corporate update, we are on track to deliver on multiple key milestones across our chronic hepatitis B and coronavirus programs. In fact, we anticipate reporting data from 4 clinical trials that are evaluating either 729 or 836 during this year. And importantly, as Dave will discuss later in this call, we are well positioned financially with a projected cash runway into the second quarter of 2024. Now before I turn the call over to Mike Sofia to run through the progress the team has made in advancing our proprietary early research compounds, I'd like to highlight some of the progress we've achieved towards our 3-pronged HBV strategy to provide a functional cure for chronic HBV infection. As you know, that 3-pronged approach consists of suppressing S-antigen, reducing HBV DNA, and boosting the immune system. Starting with our lead HBV compound 729, our proprietary RNAi therapeutic. In clinical trials to date, 729 has shown a sustained reduction in S-antigen and in some patients, an increased HBV-specific immune response. To further assess this activity, 729, together with standard of care, nucleoside analog, is currently being evaluated in combination with other approved or investigational compounds in 2 Phase IIa clinical trials with a third trial expected to begin enrollment shortly. The first trial, AB-729-201, is assessing the safety and tolerability of 729 plus interferon in patients with NUC-suppressed chronic HBV. This trial initiated last year is continuing to enroll patients and is on track to report initial data in the second half of 2022. The second trial is being conducted by Assembly Bio and is evaluating 729 with Assembly's core inhibitor, vebicorvir. Late in the first quarter, Assembly reported that this trial was fully enrolled with data expected in the second half of 2022. The third trial, AB-729-202 will evaluate the safety, antiviral activity, and immunogenicity of Vaccitech's therapeutic vaccine or placebo after administration of 729, again, in NUC-suppressed chronic HBV patients. Sites are being activated for this trial with plans to dose patients in the first half of 2022. As we explore 729 in these Phase IIa clinical trials, the goal is to utilize these learnings to identify the best combination of compounds that we can then explore in Phase IIb as we focus on developing a functional cure for HBV. One last point I'd like to make about 729. We anticipate reporting additional key data from the Phase Ia/Ib clinical trial, AB-729-001 at a medical conference this year. That data will include new on-treatment data for patients enrolled in cohort K, which are HBV DNA negative and e-antigen positive patients that received 90 milligrams of 729 every 8 weeks. It will also include additional data for patients in cohorts E, F, G, I, and J. These cohorts assessed 60 milligrams or 90 milligrams every 4, 8, or 12 weeks as well as long-term follow-up data for patients who completed treatment and have discontinued 729 and discontinued new therapy. We're looking forward to seeing the treatment discontinuation data as this will be our first glimpse into potential functional cure data, albeit with a small subset of patients. Now in addition, our next-generation oral capsid inhibitor, AB-836, in combination with NUC therapy is designed to eliminate viral replication and reduce HBV DNA. Preliminary data that we reported last year from our clinical trial AB-836-001 has shown that 836 is generally safe and well tolerated and provides robust antiviral activity. We're on track to report data from this trial in the first half of 2022. Now moving on to our coronavirus efforts. We're focusing on identifying and developing new antiviral small molecules to treat COVID-19 and future coronavirus outbreaks. Our research efforts are focused on 2 essential targets critical for replication across all coronaviruses: nsp5 protease and nsp12 polymerase. We're continuing to advance our efforts to nominate an nsp5 protease or Mpro clinical candidate that we can move into IND-enabling studies this year. We're also continuing the lead optimization activities for an nsp12 viral polymerase candidate. Finally, we continue to assess the potential opportunity in oncology with our oral PD-L1 program. I'm really proud of the progress that the Arbutus team continues to make in advancing these compounds and look forward to sharing data throughout the year. I'll now turn the call over to Dr. Mike Sofia for an update on our HBV preclinical assets. Over to you, Mike.

Thanks, Bill. In the HCV space, we have 2 important preclinical assets, AB-161 and AB-101, both of which are currently undergoing IND-enabling studies with the goal of completing those studies in the second half of this year. Starting with our oral RNA destabilizer, AB-161, I'd like to walk you through our RNA destabilizer history and how we selected AB-161 as our next-generation compound. So in our quest to develop an acute functional cure for chronic hepatitis B, we always believe that a small molecule RNA destabilizer could provide a key piece necessary for providing a proprietary oral treatment regimen. Mechanistically, RNA destabilizers target the host proteins, PAPD5 and 7, which are involved in regulating the stability of HBV RNA transcripts. In doing so, RNA destabilizers lead to the degradation of HBV RNAs and, thus, reduce S-antigen levels and inhibit viral replication. This activity of RNA destabilizers is supported by several preclinical proof-of-concept studies in multiple animal models. Our first-generation RNA destabilizer, AB-452, inhibited viral production in vitro and in vivo using an AAV-HBV mouse model. We discontinued development of this compound based on peripheral neuropathy findings observed in a 90-day preclinical safety study conducted in 2 species. Despite this setback, we still believe that the HBV RNA destabilizer mechanism of action is compelling and has the potential to lead to an all-oral therapy for patients with hepatitis B. Our vigorous research efforts led us to the development of our next-generation oral RNA destabilizer or AB-161. The strategy for this compound was to focus on a liver-centric chemotype to reduce systemic exposure of free compound and mitigate the peripheral neuropathy seen with the earlier compound AB-452. This was important that this new compound had differentiated chemistry compared to not only AB-452, but also any competitor RNA destabilizer. In addition, we wanted to maintain the robust antiviral potency seen with the first-generation destabilizers. AB-161 was selected as the compound to advance based on antiviral activity seen in vitro. Specifically, AB-161 showed potent antiviral activity in multiple HBV cell models. It was active across all HBV genotypes and maintained activity against NUC-resistant variants. It was selective against HBV versus many other viruses that inhibit the production of multiple viral protein products and more specifically, reduced serum S-antigen in AAV-HBV mouse models. To examine whether this liver-centric approach could avoid the peripheral neuropathy issues observed in our earlier compound AB-452, multiple ADME, toxicology, and PK studies were conducted. These show that AB-161 achieved a high liver to plasma ratio when administered orally in 3 species. Our studies concluded that AB-161 achieved a desirable ADME and PK profile. In in vivo non-GLP safety studies, we undertook an extensive assessment of several development compounds with particular focus on agents that demonstrated the cleanest profile as it related to the peripheral neuropathy concerns. To that end, we believe that AB-161 meets the high bar we set and showed an improved safety profile compared to AB-452. We are continuing to conduct IND-enabling studies with AB-161, including 90-day GLP studies in 2 species to further confirm our belief in our strategy to address the safety issues seen with AB-452. All of these studies are intended to give us confidence that we have a safe compound to move into clinical trials. Now moving on to AB-101, our PD-L1 oral small molecule inhibitor. It has been our long-standing strategy to combine agents that reduce the HBV-specific immune tolerizing agent S-antigen with agents that can further reawaken the immune system. We believe we can do this with AB-101. The immune system of HBV-infected patients is tolerized to recognize the virus or infected cells. To achieve a functional cure and long-term HBV viral control, we believe that highly functional HBV-specific T cells are required. However, HPV-specific T cells become functionally defective and greatly reduced in number during chronic HBV infection. Immune checkpoints such as PD-1 and PD-L1 play an important role in the induction and maintenance of immune tolerance and in T cell activation. Therefore, we hypothesize that one approach to reawaken HBV-specific T cells is to block the PD-1, PD-L1 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 antivirals had both DNA clearance with sustained viral suppression. Through our research efforts and preclinical work, we selected AB-101 as a lead candidate based on in vitro potency, immune restoration, in vivo efficacy, selectivity, and safety. IND-enabling studies are currently underway. We look forward to sharing more data on both of these compounds as it becomes available throughout the year. I will now turn the call over 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 approximately $221.8 million as of March 31, 2022, as compared to approximately $191 million as of December 31, 2021. Now during the 3 months ended March 31, 2022, we received a $40 million upfront payment from Qilu Pharmaceutical for the exclusive commercialization license agreement for AB-729 in Greater China, $15 million of gross proceeds from Qilu's equity investment, and approximately $300,000 of proceeds from our ATM. These cash inflows were partially offset by $23.4 million of cash used in operations. We expect a net cash burn between $90 million to $95 million in 2022, not including the $55 million of proceeds received from Qilu and believe our cash runway will be sufficient to fund operations into the second quarter of 2024. Now in terms of our Qilu transaction, we are accounting for the upfront and premium on the equity investment as deferred license revenue that will be recognized over time, currently estimated at 2 years, based on labor hours expended by our employees to perform our manufacturing obligations under the technology transfer and license agreement, including tech transfer assistance and clinical drug supply. So based on hours incurred, we recorded $9.6 million of revenue in the first quarter of 2022. In closing, we are well positioned financially to advance our mission to develop a functional cure for HBV and a treatment for COVID-19 and potential future coronavirus outbreaks. And with that, I will turn the call back to Bill. Bill?

Thank you very much, Dave, and thanks to Mike Sofia as well. Operator, I think we can now open up the lines for a question-and-answer session.

Our first question comes from Roy Buchanan of JMP Securities.

I guess, I'm going to start on the coronavirus program. You guys are targeting a pan-coronavirus approach for both the protease and polymerase, I believe. Can you just tell me if the polymerase shows the same level of conservation across the coronaviruses as the protease? And then maybe just looking forward too far a bit, but you kind of view the larger opportunity as something more broad possibly used in primary care, possibly against the common cold coronaviruses? Or do you think the larger opportunities potentially hospital use government stocking?

Yes, right. I'll answer the first part. So yes, when we chose these 2 targets, we chose them because both are highly conserved across all known coronaviruses. So the idea of both a pan-coronavirus nsp5 main protease and one pan-coronavirus for nsp12 viral polymerase are all still in play for us. So yes, we are looking at a general pan-coronavirus strategy.

And the approach would be to look at treatment first, but it wouldn't be impossible to think about prophylaxis prevention strategies of coronavirus as well.

I think just to add to the question on that. I mean if you look at Paxlovid, certainly, the Pfizer compound did reduce hospitalizations, but has now been shown not to have any effect on pre-exposure prophylaxis, which is an area that we would like to enter into.

Yes, I'm assuming you won't need ritonavir and maybe you'll have better lung accessibility, etc. I'm looking forward to the next generation of compounds. Regarding 161, it seems like the conclusion is that the neuropathy is an on-target effect. Is that correct?

Well, I mean, we haven't definitively proven that. But certainly, the data that we have accumulated today seems to point to that. And that's why our strategy was developed as we described it. If we can get a liver-centric agent that minimizes peripheral exposure, we believe we can overcome the peripheral neuropathy concerns.

Okay. Great. And have you guys disclosed the amount for the ratio of the liver levels to the serum?

No, we have not yet disclosed that.

Our second question comes from the line of Dennis Ding of Jefferies.

Two questions for me, one on hep B. Can you just please comment on the 2 Phase II triple combo data that's coming at the end of the year in terms of number of patients and duration of treatment? And what are the next steps you need to take to get the functional cure data? I guess, specifically, have you guys decided when will patients be taken off the drug? And then my second question is around the protease inhibitor. Can you talk about the preclinical work you guys have done so far? Have you run biochemical assays yet to measure potency? And how confident are you in the potency profile of this drug versus Paxlovid?

Okay. Thanks for your questions, Dennis. Gaston, do you want to take the first, and then we'll have Mike Sofia follow up on the protease?

Sure. Thank you. Regarding the two Phase IIa studies, one involves a triple combination and is in collaboration with Assembly. That study is now fully enrolled with 60 patients, and by the end of the year, we expect to have on-treatment data. However, data at the end of therapy will take longer to gather. We believe the on-treatment data will be meaningful. While it is a bit early to make definitive predictions, we hope that the combination of the three directs will lead to a deeper and potentially complete loss of S-antigen during treatment. We will observe whether this occurs. The study involving triple therapy with interferon is smaller and is currently enrolling patients. We also anticipate having some preliminary on-treatment data from that study by the end of the year. In response to your question about when we will stop treatment for patients in both studies, there are criteria in place for stopping patients. Our Phase Ia/Ib study has already begun to stop patients based on predefined criteria. One critical component of these criteria is the S-antigen level, with a threshold of less than 100 indicating a patient is ready to cease NUC therapy. We are following these patients after they stop NUC therapy to evaluate for potential functional cures. It is important to note that participation in the Phase I study does not apply uniformly to all patients; the study was amended to allow patients and investigators the discretion to decide on stopping NUC therapy. Therefore, not everyone who meets the criteria chooses to stop treatment, and I cannot specify how many patients will be included in future presentations.

All right. And then Mike, on the protease?

Yes. So to answer your question about the protease, so we have a whole battery of studies that we do. So we do biochemical intrinsic activity studies against SARS-CoV-2, but also protein Mpro, but also the Mpros from the other or, let's say, a representative set of other coronaviruses that we do. So we get this sort of sense of pan-coronavirus activity. Then we have sort of in vitro whole cell infectivity assays that we study the compounds again. Again, it's not only SARS-CoV-2 but against other coronaviruses. We do a lot of, let's say, biophysical studies to ensure that we understand how these molecules are binding. We have done co-crystal X-ray structures. So we know where they bind and it helps guide us doing some of the sort of lead optimization work that we continue to do with the compound. And as far as other coronaviruses are concerned, were our targets, so certainly, our main target is SARS-CoV-2 with the pan-coronavirus, but obviously, looking into the future, how one could potentially apply these agents to other coronavirus infections that are not SARS-CoV-2 sort of certainly a possibility, but we're focused on SARS-CoV-2 at this current time.

Our next question comes from the line of Ed Arce of H.C. Wainwright.

This is Thomas Yip asking a couple of questions for Ed. So first question regarding the 729-202 combination study with VTP-300 that was discussed earlier. Can you go over some more details of the study? How many patients should we expect to be in the study? And also any specific geographical focus there?

Yes, Gaston?

Sure. So that's a Phase IIa study where we start dosing with AB-729 and then patients get randomized into receiving VTP-300 or placebo. The VTP-300 is just a combination of 2 different vectors. One is causing HBV sequences and then MVA causing also HBV sequences. So the study is being done in collaboration with Vaccitech. The study has already achieved some regulatory approvals in the different countries. But unfortunately, one of the countries that we selected to start the study was Ukraine. And as everyone knows, obviously, given the war, we will not be able to initiate screening and randomization in that country. So we are now shifting our focus into other jurisdictions. We have other countries that were already planned that are going to be screening and randomizing patients very soon. But given the loss and the uncertainty with Ukraine, we are also trying to identify other countries where we can move in as fast as possible.

Got it. Understood. Thank you for the details of the study. And then I believe there was one of the questions earlier regarding the 2 combination studies with 729 that we expect initial data in the second half. At which point we begin to expect a decision regarding which combination is more superior over the others, and therefore, would be the one to move ahead in future clinical studies?

Yes. That's the intent. So I don't know if, Gaston, you want to add any additional color. I think you can tell that we're working hard to try and assess the role that 729 can play in a variety of different combinations. So once the data comes through, we'll be in a much better position to decide the go-forward combo. Gaston?

Yes, I think it's a bit of a challenging question. It really depends on the data. For instance, if the interim data is outstanding, then a decision could eventually be made despite the risks. However, if the data size is not clear-cut, we may need to wait longer to determine whether it's worthwhile to pursue a specific path. So, it is indeed a very difficult question to answer at this moment. All I can say is that the decision will be data-driven.

We certainly look forward to the data in the second half of this year.

Our next question comes from the line of Brian Skorney of Baird.

This is Luke Herrmann on for Brian. For the on-treatment data in the combos here, are there any other data points beyond us that you think might be indicative of a durable off-treatment effect? Or is that really going to be the most informative data point for future plans? And then on 161, is there a chance we could see any of the existing preclinical data prior to the result of the IND-enabling studies? Or will that be reassessed once the IND-enabling studies are done?

Okay. So Gaston for the first one, then Mike.

Yes, that's a great question. It's interesting because if you refer to the recent final guidance on HBV drug development issued by the FDA on April 6, S-antigen remains the primary endpoint. Therefore, S-antigen will play a crucial role in decision-making. However, it's well-known that there is interest in other markers. We are analyzing those markers, including HBV RNA and core-related antigen. Still, some recent publications show mixed results regarding the utility of these markers for predicting durable S-antigen loss response or achieving a functional cure. We are working to include as many relevant biomarkers as possible, but I can't confirm their proven value at this moment. Nonetheless, we are considering biomarkers beyond S-antigen.

Yes. And on the 161 question. Yes, it is possible that we would present at a scientific meeting in the not-too-distant future some of the preclinical data on 161 to demonstrate superiority to 452. So that is a possibility. There are a couple of opportunities clearly later this year that could provide that disclosure.

And next, we have Roy Buchanan of JMP Securities.

I would like to know more about the upcoming presentation at EASL. You mentioned there will be 7 abstracts, and I assume data on 729 will be presented. Can we expect to see the cohort K data there? Also, is there any information available for 161?

Yes. Good question. I'm going to throw that one to Gaston. I think what we said in the press release is that we've had 7 submissions approved for presentation. But I think Gaston, you can get some additional color based on what EASL has produced.

Yes. So, Roy, we need to be cautious about discussing what we will be presenting until the embargo is lifted. I hope you understand that. However, if you visit the EASL website today, you'll find an orange link listing all the abstracts approved in the first round of acceptances from EASL in December. Out of the 7 we announced, 5 are included in that list. These include an abstract on our PD-L1 checkpoint inhibitor, one on AB-836, our capsid inhibitor, and three related to 729, including immunology and cytokines. Additionally, there is one about the preclinical activity and durability of response of siRNAs. You can read the titles for more details. Unfortunately, I can't disclose specifics about the two other recently accepted presentations, which also focus on 729.

Our next question comes from the line of Keay Nakae of Chardan.

Yes. Gaston, can you update us on the status of enrollment Part 3 for 836?

We haven't disclosed the status of enrollment of our Part 3 studies. But I mean, as you will see, we are looking forward to presenting 836 data and as we indicated, including at least 3 cohorts.

Okay. So the next data presentation for 836, it will be for 3 different patient cohorts in Part 3?

Yes, Part 3 will include everything since we disclosed information back in December regarding Parts 1 and 2.

There are no further questions coming in at this time. I'm now turning the call back to Bill Collier, CEO of Arbutus. Thank you.

Thank you, and thank you for your questions, everybody. Thanks for joining us this morning. We obviously appreciate your continued interest, and we especially look forward to providing further updates as we advance our clinical and preclinical programs and report additional data from our 729 and 836 clinical trials at upcoming medical conferences. And with that said, thank you very much. And operator, thank you for your assistance. That concludes our call.

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