Arbutus Biopharma Corp Q2 FY2022 Earnings Call

Good morning. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Arbutus Biopharma 2022 Second Quarter Financial Results and Corporate Update. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Ms. Lisa Caperelli, Vice President of Investor Relations, you may begin your conference.

Thank you, Abby. Good morning, everyone, and thank you for joining our second 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 Dave Hastings who will provide a review of the company's second quarter 2022 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 development-related questions. Before we begin, I'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 our other documents filed with the SEC. With that, I'll turn the call over to Bill Collier. Bill?

Thank you, Lisa, and good morning, everyone. Thank you for joining us today. We appreciate your continued interest and support for Arbutus Biopharma. Now with the first half of this year behind us, we've made significant progress in advancing our preclinical and clinical programs in support of our mission to develop a functional cure for hepatitis B virus and to treat COVID-19 and future coronavirus outbreaks. Furthermore, we are on track to deliver on multiple key milestones across these programs in the remainder of this year. And equally important in this volatile capital markets environment, we're well positioned financially to fund our current programs and provide runway into the second quarter of 2024. Now, Dave will discuss the financial aspects during the financial position summary shortly. Now, we are making excellent progress with our two key HBV preclinical programs that's AB-101, our oral PD-L1 inhibitor and AB-161, our oral RNA destabilizer. Now, rather than elaborate on these programs here, I'll refer you to today's press release for those updates and use the time on this call to briefly highlight the rather impressive data on our lead HBV clinical asset AB-729, that's our RNAi therapeutic. This data was reported last month at the EASL International Liver Congress. Now, as you know, patients with chronic HBV infection receive NUC therapy as standard of care. And while that therapy is generally safe and effective at reducing viral load, less than 5% of patients are functionally cured and usually only after many, many years of therapy. In our clinical trial, AB-729-001 we wanted to see how treatment with various doses and dosing schedules of our RNAi therapeutic in addition to NUC therapy was handled by patients with chronic HBV, who had different baseline characteristics. If patients met certain predefined criteria and consented, we discontinued first their treatment with AB-729 and later their lifelong standard-of-care NUC therapy to see if their undetectable HBV DNA status was maintained and if their S-antigen reduction was sustained, which could be a sign of virologic control and potential subsequent functional cure. Now three major findings were disclosed from this clinical trial at the EASL conference. First of all, we saw a robust reduction in surface antigen between 1.8 to 2.1 log reduction, and that was with 48 weeks of treatment and the reduction occurred regardless of dose, dosing schedule, or baseline characteristics. Second, in addition to the meaningful and consistent surface antigen decline, we saw an increase in HBV-specific T-cells and a decrease in exhausted T-cells in patients treated with 729. And third, and what we believe to be of significant importance when we stopped treatment with AB-729 and stopped NUC therapy in the first five eligible patients that consented, their surface antigen and their HBV DNA responses were sustained at low levels, while they were off treatment for at least 8 weeks to 24 weeks. Now in addition, none of these patients showed evidence of virologic nor clinical relapse, and so they did not need to restart their NUC therapy. We believe this data is most impressive as it shows that we were able to take patients off of their lifelong treatment of standard-of-care NUC therapies and still maintain reduced surface antigen and reduced HBV DNA, a potential early indicator of functional cure. We are continuing to follow these patients as well as other patients that have consented to stop all therapy and we anticipate reporting more data in the second half of this year. Now, 729 is one of the most advanced RNAi therapeutics for HBV. And based on the availability of public data, it's differentiated from other RNAis based on its more convenient dosing schedule and immune activation capacity. We're also encouraged by the safety that we see in this and other ongoing trials. And it's for these reasons that we continue to view AB-729 as a cornerstone agent in a potential curative combination treatment for chronic HBV either with our own proprietary compounds or with those in development by other companies or with therapies that are already approved for the treatment of HBV. Now also at EASL, we along with many of our peer companies reported data on the use of capsid inhibitors alone or in combination in the HBV treatment regimen. And while much of this data is early and inconclusive, our strategy is as follows. First of all, based on data from our ongoing Phase Ia/Ib trial, some of which was presented at EASL, we're planning to conduct a longer duration Phase I study in healthy volunteers with our oral capsid inhibitor AB-836. As you will recall, we reported that 836 showed robust antiviral activity with greater than 3.5 log reduction in HBV DNA. Along with this impressive efficacy, however, we saw an increase in ALTs in some patients on the last day of treatment. And so, the goal of the longer-duration healthy volunteer study is to further characterize the safety of 836 by determining whether the ALT flares we saw were beneficial or not before resuming dosing in HBV patients. The second part of our strategy is that we are continuing, in collaboration with Assembly, the Phase IIa proof-of-concept clinical trial, evaluating the triple combination of 729 and Assembly's core inhibitor vebicorvir and NUC therapy even though Assembly has announced its plans to discontinue the development of vebicorvir. At Arbutus, we believe it's important to continue the conduct of this trial in order to fully and accurately assess the results. By continuing this Phase II triple combination trial and also evaluating AB-836 in healthy volunteers in our Phase I study, we believe we will obtain data that will inform our use of capsids in a go-forward combination strategy in the development of chronic HBV treatments, as well as help to address open questions in the field. Now finally, we were gratified to see positive topline results announced by Alnylam for the Phase III study of ONPATTRO in patients with ATTR amyloidosis with cardiomyopathy. As you may recall, we're entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1% to 2.33% after offsets, with the highest tier applicable to annual net sales above $500 million. Now this royalty interest was sold to OMERS effective as of January 1, 2019 for $20 million in gross proceeds before advisory fees. And OMERS will retain this entitlement until they have received $30 million in royalties, at which point 100% of the royalty interest on future global net sales of ONPATTRO, which could include additional sales for the expanded indication if it's approved, will revert back to Arbutus. Now to date, OMERS has received approximately $14 million. In addition, we retained a second lower royalty interest ranging from 0.75% to 1.125% on global net sales of ONPATTRO, with the 0.75% applying to sales greater than $500 million, and that royalty stream was not part of the OMERS transaction. So as I wrap up my opening remarks this morning, I'd like to remind you of the key milestones we anticipate in the second half of this year. There are four: first, AB-729 follow-up data which could include long-term on and off-treatment data from our Phase Ia/Ib clinical trial. Second, initial data from both the Phase IIa combination trial of 729 interferon and NUC therapy and the triple combination trial with Assembly's vebicorvir. Third, we expect to complete the IND-enabling studies for both AB-101, our oral PD-L1 inhibitor and AB-161 our oral RNA destabilizer. And fourthly, we expect to advance into IND-enabling studies, a clinical candidate that inhibits the SARS-CoV-2 nsp5 main protease. I'll now turn the call over to Dave Hastings for a brief financial update. Over to you, Dave.

Well, thanks, Bill and good morning everybody. As I've mentioned, in the past our key financial metrics are cash and financial runway. Our cash, cash equivalents, and investments were approximately $201 million as of June 30, 2022, as compared to approximately $191 million as of December 31, 2021. Now during the six months ended June 30, 2022, the company received a $40 million upfront payment from Qilu Pharmaceutical Company, related to a technology transfer and license agreement for AB-729 in Greater China; $15 million of gross proceeds from Qilu's equity investment in the company; and $300,000 of net proceeds from the issuance of common shares under Arbutus's at-the-market offering program. These cash inflows were partially offset by approximately $44 million of cash used in operations. Now we still expect a net cash burn of between $90 million to $95 million in 2022, not including the $55 million of proceeds received from Qilu. And we believe our cash runway will be sufficient to fund operations into the second quarter of 2024. So 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. With that, I will turn the call back to Bill.

Thanks very much, Dave. And our operator, Abby, perhaps you could help us now open up the lines for our question-and-answer session.

Thank you. Your first question comes from the line of Roy Buchanan from JMP Securities. Your line is open.

Good morning, Roy.

So the Phase I in healthy volunteers that you're planning to study, do you need to or will you talk to the FDA in advance of starting that trial? Did you inform the agency of the recent results on the CHP patients? And did they have any feedback?

Good questions. Thank you, Roy. Gaston is on the line with us this morning. So Gaston, perhaps you'd like to answer that question.

Hi, Roy. Good morning. Sure. No, we haven't talked to the FDA about this study. I'll remind everyone that 836 does not have an IND with the FDA, so it was not necessary. Actually, this is going to be done through an amendment to the existing Phase Ia/Ib study that we're conducting.

Okay. Great. That makes sense. And then for 729 the triple combo Phase II interferon and vebicorvir later this year, can you just help us understand the key data points we should be looking for and which results from those trials are you going to view as a success? Thanks.

Yes. Thanks, Roy. I mean, what we've said is it's going to be initial data from those two studies. So I think that's important, just to set expectations. Gaston, is there anything else you'd like to add?

No. I think that really summarizes it.

Okay. I’ll jump back in queue. Thanks.

Thanks, Roy.

Your next question comes from the line of Dennis Ding from Jefferies. Your line is open.

Hi, good morning.

Good morning.

Hi, good morning. Thanks so much for taking the questions. Two for me. Can you please remind us again your licensing agreement with Alnylam around Patisiran? I think consensus is modeling about US$1 billion in peak sales for Alnylam's ONPATTRO. And based on some of your commentary, it seems like you'd be getting a 2% to 3% net royalty. So this could potentially be a US$20 million to US$30 million annual royalty at peak. So can you confirm if that math is roughly in line with how you guys are thinking about it? And then my second question is around hepatitis B. Assembly discontinued the vebicorvir because there wasn't really meaningful efficacy delta versus the doublet. So can you go into a little bit more detail there and your decision to keep the trial going? And perhaps how should this read through to your peginterferon study? Thank you.

Yes. Thank you, Dennis, great questions. I'll let Dave comment in a moment on the mechanics of the license agreement. What we are trying to do is make clear the specific percentages in our licensing agreements and also, as I summarized this morning, the details of the sale of that royalty stream, the first royalty stream to OMERS and when it reverts back to us. We're not making any projections about what Alnylam sales might be or could be. I think that is something that we would refer you back to Alnylam for in terms of what those sales expectations are. But we are being very clear this morning in what our percentages are and how those royalty streams work. So Dave, anything else you want to add before I turn to the other hep B question?

No, no, Dennis's math is correct. Once the royalty reverts back to us after OMERS receives US$30 million.

Thank you. And just remember there are the two royalty streams, the one that we sold to OMERS and then there's the second one which is a slightly lower rate. Your question around the Phase IIa studies, I'm not going to comment on anything that Assembly has or hasn't said about vebicorvir. Our view at Arbutus is it's important once you've started a clinical trial to finish the clinical trial. When you get to the end of the study, that's the best opportunity to make an assessment of the actual results. So that's what we included in our press release back then that the study continues with the collaboration – and exactly the same way in which it was originally set up. And we look forward to presenting those results when it comes through. So I don't know that we can project anything either about the study or what it means for our own interferon study. But I'll hand it over to Gaston to see if there's any additional comments you want to make, Gaston.

Yes. Thank you. No, I'll just make one comment which is I think there's basically three types of data in clinical studies related to HBV these days; one is on-treatment response; the other one is end of therapy; and the other one is the follow-up. So, as Bill was explaining, we think it's important that we get to the end of the study. And once at the end of the study, we'll refer to even the follow-up period. And I think we can make a good case for that based on our own 729-001 Phase Ia/Ib study where I think we're starting to appreciate really the value of 729 after we discontinued patients. And if you look at the on-treatment data in that study, as many people have pointed out, the surface antigen declines are very comparable across some of the other molecules in the field. However, when it comes to the discontinuation data, we're seeing really 729 performing very well, albeit the data is still limited and the follow-up hasn't been extensive. But I'll just remind everyone that we don't stop patients as they have been stopping other studies such as in the Janssen one, where they stopped the two drugs at the same time. We stopped first 729, then we waited six months, and then we stopped the NUC. So, when we say for example in our follow-up 24 weeks after discontinuing the NUC, it's really 48 weeks, almost a year after discontinuing 729, and still the DNA and surface antigen is holding. So, going back to your question what I'm trying to say here is that I think there's ways of evaluating the efficacy in a study. One aspect is on treatment, the other one is what happens at the very end of therapy, the week 48, and the other one is the follow-up. So, I think we need to wait for the end of the study.

Got it. Thank you guys.

Your next question comes from Brian Skorney from Baird. Your line is open.

Hey good morning. Thanks for taking my questions. I guess to start I have a question on conceptually the oral PD-L1 program. I know there are a range of commercial PD-1 and PD-L1 inhibitors available that are therapeutic antibodies. Just wondering your thoughts on exploring proof-of-concept studies with any of those to evaluate 729 plus PD-L1 as a mechanism before progressing on oral PD-L1 inhibitors to get a feel of what the combination could yield? And then also on the ONPATTRO questions, I was just wondering if you could review with us what the duration of the IP around the LNPs and the deal with Alnylam is. Do the royalties last as long as ONPATTRO is exclusive, or is there a specific IP expiration date when that royalty payment stops? Thanks.

All right. Thanks Brian. So, I'll get Mike Sofia and Gaston just to comment on PD-L1 and whether or not we can do it for, like, a precursor study with a commercially available PD-L1. But I think the point I'd make before we get into that is what we're aiming for here is PD-L1 which is HBV specific, which is oral, and therefore which might potentially be efficacious without some of the systemic side effects that you get from some of the others. So, with that, maybe Mike Sofia first and then Gaston. Are you there, Mike? I think he might be on mute.

Can you hear me?

Yes, go ahead.

Yes. There is clearly increasing evidence that checkpoint access plays a significant role in HBV. For instance, an early study by Gilead provided intriguing insights into the PD-1 and PD-L1 checkpoint access, demonstrating one functional cure along with reductions in s antigen in several patients. More recently, the Ascletis study utilized a checkpoint blockade agent and revealed some compelling data. This suggests that checkpoint access is vital for immune control in hepatitis B. Regarding our focus on small molecules, as Bill highlighted, our aim is to directly target the liver, minimizing systemic activation of the checkpoint access due to safety concerns typically associated with oncology. We believe that our small molecule approach will effectively address these safety issues. Additionally, we have reported preclinical results and will conduct further studies to support the combination of RNAi and checkpoint blockade, which shows promise in immune activation and reducing antigen load. There is significant evidence backing our strategy. We've been contemplating an internal proof-of-concept study, but we have not yet determined whether combining an existing checkpoint blockade agent with 729 would yield useful data for advancing our current agent's development.

Thank you, Mike. Gaston, anything you want to add?

No, nothing from my end. Thank you.

Okay. Thank you. Now on your second question around the duration of the patent on ONPATTRO and whether or not the royalties extend beyond expiry dates, I don't immediately have an answer to that question unless Dave does. I think we may have to get back to you on that one, Brian. Dave?

No, I don't have any clarification but it's a typical agreement that would run through the patent life. But we'll confirm that with you, Brian.

Thanks.

Your next question comes from Keay Nakae from Chardan. Your line is open.

Yes. Thank you. A question about 729 when you provide us the next data update can you tell us how many patients that you're following who've stopped AB-729 and stopped NUCs that you might report on in the next data update?

Right. So we have five so far, which is what we've spoken about, and there are more that have consented. I don't know that we have revealed the exact number. Gaston, you can add?

Yes. I can provide more detail. In the EASL poster, we highlighted the discontinuation results this year. Specifically, we reported on five subjects for whom we had follow-up after stopping NUC, with the follow-up ranging from a minimum of eight weeks to as much as 24 weeks. Additionally, we included four other subjects who had also discontinued but did not have the meaningful follow-up that we define as more than eight weeks. These four subjects will definitely be part of the next update, so there will be follow-up on at least nine subjects.

Okay. And there are some others beyond that who aren't that far along?

Yes. I can't comment about others at this point in time. But for sure we will have nine.

Okay. And then just back to the combo study with interferon, I know you're saying initial data, but what might that consist of?

So that will consist on-treatment data basically. That's all we can say. It will be on-treatment data preliminary on-treatment data.

Okay. That’s all I had. Thanks.

Thank you, Keay.

Your next question is from Ed Arce from H.C. Wainwright. Your line is open.

Hi. Good morning, everyone. It's Thomas Yip asking a couple questions for Ed. Thank you for taking my questions. So first echoing 729 here. We've seen a substantial amount of data at EASL and expecting a few more off-NUC treatment here and then with the combination study data in the second half. At which point should we expect the next company-sponsored trial to begin and what that'd look like?

Sorry, Thomas you broke up there a little bit just at the end. I didn't catch the full question, sorry.

Thank you. So the last part of my question is what would the next major company-sponsored study look like considering the Phase IIa looks like is near completion and data has been positive so far.

I see. I got you. All right. Well look, we've made no secret of the fact that it's our ambition to combine 729 with other agents. We would like that to be our own proprietary agents whether it's our capsid inhibitor potentially our destabilizer or our PD-L1, with the overall strategy being to suppress HBV DNA, reduce surface antigen and boost the immune system. But I think we've also shown with our creative 2A combination strategies that were open to appropriate combination programs with other companies' assets as we move forward. It is still our belief and I'll let Mike and Gaston comment on this in a moment that we will need combination therapies for HBV with the continued goal of suppressing HBV DNA, surface antigen, and then ultimately boosting the immune system. So the exact combination study, I don't know that we can specify it right now, but we do see 729 being a cornerstone agent in that particular therapy going forward. So Mike or Gaston, anything you'd like to add? Maybe Mike first.

Not for me, Bill.

Okay. Gaston?

No, nothing from me. Thanks. I think you summarized it well. I think we need to wait to see a little bit how the Phase IIa studies evolve.

All right. Do you have any other questions?

Yes. Just one more from us and as you pointed out a combination, obviously, 836 core inhibitor is another key component there. And so as we anticipate the Phase I healthy volunteers study to other than ALT, can you highlight some other design elements what else will you be looking at?

Okay. So Gaston, do you want to take that one? So in healthy volunteers remember so there's no HBV parameters to look at. Gaston?

I couldn't quite catch that due to some echo. Was the question about whether we would be looking into other biomarkers? As Bill mentioned, since this involves healthy volunteers, our main focus will be on assessing safety in those subjects. There won't be any HBV biomarkers involved. Was that your question?

Yeah. That's pretty much other than ALT what else you'll be able to generate and manage to point out safety. Okay. Thank you very much for taking questions, and we're looking forward to the data readouts in the second half.

Thank you.

There are no further questions at this time. I would like to turn the call back over to the presenters.

Thank you very much, Abby. And thank you all for your questions. Thanks for joining us this morning. We do really appreciate your continued interest in Arbutus and look forward to sharing additional updates on both our HBV and coronavirus assets in the second half of this year. So thank you very much. That concludes our call for this morning.

This concludes today's conference call. You may now disconnect.