Earnings Call Transcript - FBRX Q1 2021

Operator, Operator

Welcome to Forte Biosciences First Quarter 2021 Conference Call. My name is David and I will be the operator for this call. On the call are Paul Wagner, Chairman and Chief Executive Officer of Forte Biosciences; Dan Birch, Forte's Chief Medical Officer, and Tony Riley, Forte's Chief Financial Officer. Before I turn the call over to Paul and Tony to discuss the business and financial highlights of the first quarter, I'd like to make a comment regarding forward-looking statements. Many of the statements made during the call today are forward-looking statements, including statements with respect to the company's cash position, the potential development timeline of the company's product candidate. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please look at our filings with the SEC for a discussion of the factors that could cause our results to differ materially. Additional information is also set forth in Forte's quarterly report on form 10-Q for the quarter ended March 31, 2021 as filed today with the SEC, and in Forte's annual report on form 10-K for the year ended December 31, 2020, as filed with the SEC on March 16, 2021. The forward-looking statements on this call are based on information available to us, and we disclaim any obligation to update these forward-looking statements except as required by law. I will now turn this over to Tony who will discuss the financial highlights of the first quarter of 2021.

Tony Riley, CFO

Thank you. I will now give an update of our financial results in the first quarter of 2021. We ended the first quarter of 2021 with approximately $54.8 million in cash and cash equivalents which we believe is sufficient to fund operations for at least the next 12 months as we continue to advance our lead product candidate FB-401 through clinical trials. Cash utilization for the first quarter of 2021 was $4.0 million. In terms of operating results, research and development expenses were at $3.3 million and $1.4 million for the first quarters of 2021 and 2022, respectively. The increases in 2021 were primarily due to manufacturing and clinical development costs and non-cash stock-based compensation expense as we advanced FB-401 through phase two clinical trials. We expect our research and development expenses to increase during the next 12 months as we continue the clinical development of FB-401. General and administrative expenses were $1.4 million and $0.7 million in the first quarters between 2021 and 2020, respectively. The increases in 2021 were primarily due to professional fees for legal, auditing, and business consulting services, and increases in headcount expenses including non-cash stock-based compensation as we scale operations and became a public company on June 15, 2020. Losses per share were $0.36 and $0.97 for the quarters ended March 31, 2021 and 2020 respectively. Forte had 13.5 million shares of common stock outstanding at the end of the quarter. Additional details on our financial results for the first quarter of 2021 can be found in our form 10-Q as filed today with the SEC. You can also find more information on the investor relations website at www.fortebiorx.com. I will now hand over to Paul.

Paul Wagner, CEO

Great, thank you, Tony. We're going to keep today's call fairly short but I wanted to give investors an opportunity to ask any questions that you may have. Before we get to the Q&A for those of you on the call that are not as familiar with Forte, we're developing FB-401, a live biotherapeutic meaning that this therapy consists of living bacteria, for the treatment of inflammatory skin diseases, with the first focus on atopic dermatitis. We've been working on FB-401 in collaboration with the National Institutes of Health and the National Institute of Allergy and Infectious Diseases. Atopic dermatitis is a disease that affects approximately 20 million people in the United States alone, with more than half of those being pediatrics. In fact, one of our thought leaders has suggested that number could be as high as 60% to 70% of the population being pediatrics. There's no cure for atopic dermatitis at present and the treatment options for pediatrics in particular are very limited. We believe there is a significant unmet need for safe and effective therapies to treat these patients and we're hopeful that FB-401 can meet that need. As we've highlighted previously, in October, the FDA granted Fast Track designation to FB-401 based on that unmet need and the seriousness of the disease. We completed the phase two 2a study and that data was published last year in Science Translational Medicine, just as a quick recap, and I know we've talked about this before, but in that trial, the 20 pediatrics treated for 16 weeks in the 2A trial, FB-401 demonstrated a nearly 80% improvement from baseline in atopic dermatitis disease activity as measured by EASI, the eczema activity and severity index. That effect was durable for between three and eight months after stopping therapy. The proportion of patients that had at least a 50% improvement in disease, referred to as EASI-50, was 90%; or EASI-75 was 70%; and EASI-90 was 30%. In a subgroup of moderate to severe patients, 100% achieved EASI-50, nearly 90% achieved EASI-75 and a third achieved EASI-90. As we announced last quarter, we completed enrollment in the randomized controlled study. We originally targeted enrolling 124 subjects, but due to strong demand, we were able to enroll 154 subjects. The trial enrolled pediatrics two years of age and older, adolescents and adults with mild to moderate atopic dermatitis. The majority of those subjects enrolled are under age 18 and the majority are also of moderate disease severity. We expect to announce the results of this trial in the third quarter. In terms of our cash position, as Tony mentioned, at the end of the first quarter of 2021, we had $54.8 million and our cash utilization rate positions us well. We expect to have cash sufficient for at least the next 12 months. Lastly, I am really pleased to announce that since our last conference call, we had two more patents issue, which brings our total patent portfolio up to 11 in the U.S., and we have similar filings progressing in more than 15 ex-U.S. countries. So with that, David will now open the call up for Q&A.

Operator, Operator

Thank you. At this time, we will be conducting a question and answer session. Our first question is from Mohit Bansal with Citigroup.

Mohit Bansal, Analyst

Great, thanks for taking my question. And congrats on the progress. A couple of questions. So one is regarding the use of EASI-50 as an endpoint in your phase two trial versus IGA which is used by other studies. So any thoughts there on which endpoint is probably a better one for the kind of patient population you are going after?

Paul Wagner, CEO

Hi, Mohit. Thanks very much for that question. Appreciate it. Dan, do you want to address that and I can maybe follow up with a few comments as well.

Dan Birch, CMO

Sure, clearly, the IGA is used in phase three studies. And that's what we would plan for our phase three as well. But when you do smaller phase two trials, you're usually not powered for that endpoint. So we usually use alternative endpoints, and the EASI-50 is a very common use for phase two clinical trials like this.

Paul Wagner, CEO

Thanks, Dan. And then I will just add there's a number of secondary endpoints. Obviously, IGA is one of those endpoints, and we are looking at improvement in EASI as well as EASI-75 and EASI-90.

Mohit Bansal, Analyst

Got it, super helpful. And then one question we have been getting is that vision of the FDA you’re seeking guidance from: Is it the Immune Division or is it given that yours is live bacteria, so is it the one which takes care of the live bacteria, and does it matter who regulates this particular therapy?

Paul Wagner, CEO

That's a really interesting question, Mohit. So it is being overseen by the division of vaccines and related products. I think the history of that might just go back to the fact that certain vaccines were actually living bacteria; the cholera vaccine was one of those. And so I think they've been given the mandate to review all living bacteria, including biotherapeutics that consist of living bacteria and microbiome products. But they do collaborate closely with the therapeutic division for the indication of interest. So in our case, after the Derm division, I think there's a close collaboration between those two. In terms of whether there be any differences working with the division of vaccine-related products as opposed to the Derm division, I don't know. But this division has been very responsive. And something I thought was interesting is that we did get that fast track designation in the middle of the second wave of COVID. I would have thought that the division of vaccine-related products would be very focused on the COVID vaccines and maybe push our application out, but instead, we were granted that fast track designation. So I think that just shows the responsiveness of the division and the support for FB-401. Dan, did you have any other comments you wanted to add?

Dan Birch, CMO

No, I think what you said is great. And I do think I would just emphasize the fact that the Derm division is highly involved as Paul mentioned. And they do bring a consultant on our review from the Derm division.

Mohit Bansal, Analyst

Super helpful. Thank you very much.

Paul Wagner, CEO

Excellent.

Operator, Operator

Our next question is from Kumar Raja with Brookline Capital Markets.

Kumar Raja, Analyst

Thanks for taking my questions. So with regard to that trial, what are your plans for an open label extension once the trial is complete? And what are your thoughts on rolling over placebo patients to treatment in the open label extension?

Paul Wagner, CEO

Yes. That's a great question Kumar. Thanks for joining the call. Dan, did you want to address that?

Dan Birch, CMO

Sure. So we have initiated an open label extension for these phase two subjects. So we'll allow the subjects to enroll into this open extension including the placebo patients. This study will focus on safety and will be a year long.

Kumar Raja, Analyst

Okay. And in terms of plans, Europe, as well as ex-U.S., how are you guys thinking about that?

Paul Wagner, CEO

Yes. That's a good question. I'll maybe make some comments and then turn it over to Dan if he's got any other insights here. Certainly, what we'd like to do is to be able to have an integrated global development plan that would include Europe as well as Asia. Those are things that we're thinking about right now. We're having discussions about how to do that, including the potential pursuit of scientific advice in Europe. There are some unique aspects, I think, to European development and we're working through those now. But Dan, do you have any other comments you want to make on that?

Dan Birch, CMO

Sure. Just to elaborate, we are focusing on obviously, interactions with the FDA. We'll continue to do so as we proceed from phase two into our phase three program. As Paul already alluded to, we have begun the process with some consultants on approaching the EMEA, obviously looking for potential avenues for scientific advice. There are a lot of little issues with Europe. We think we can work our way through those. And we would like to make sure that we have a program that involves both the U.S. and Europe.

Kumar Raja, Analyst

Okay, great. And finally, you guys mentioned that the majority of patients in the trial are under 18. Can you give more color? Is it closer to 18 or much closer to the lower limit? And how does that impact compliance as well as your thoughts on the efficacy data from those patients?

Paul Wagner, CEO

Yes, good question Kumar. Thank you. I'll make a few comments and then Dan can provide his insights as well. So the breakdown, as we said, the majority are under 18. So about 75% of the subjects are under 18, 25% are adults very roughly. In terms of compliance, I really don't see that much of an issue. For the very young patients, two- to three-year-olds, there is typically a caregiver, usually a parent that's applying the therapy. This isn't a therapy that has to be applied multiple times a day. With other therapeutics, whether it's steroids or other therapies in development, oftentimes they are creams that are applied multiple times a day or ointments. Again, just as a reminder, this therapy is a spray. So it's a water-based spray applied only three times a week. I think from a compliance perspective, I don't believe that will be an issue; we certainly haven't heard of that being a problem. It wasn't an issue in the 2A trial. Dan, do you have any other thoughts?

Dan Birch, CMO

Yes. I was just going to say the nature of our product, the fact that it's a naturally occurring bacteria, again, though it's highly selected strains that are being applied to patients, the parents of the children are really engaged and excited about this kind of idea. I think that's what's allowed us to over enroll our trial. So there is a lot of excitement surrounding a non-chemical drug therapy and I think that's going to reflect on our compliance as we go forward.

Kumar Raja, Analyst

Thanks so much.

Paul Wagner, CEO

Excellent. Thanks for your questions.

Operator, Operator

Our next question is from Michael Higgins with Ladenburg Thalmann.

Michael Higgins, Analyst

Thanks, congrats guys on the continued progress. Appreciate the opportunity to ask additional questions. You have been very forthcoming so far here. This is great. I'm just curious in the ongoing phase two, are you looking for anything specific by the different age groups, the younger kids, the older kids in the phase two any secondaries that are based around that?

Paul Wagner, CEO

Yes. I will make a couple of comments and then Dan, if you want to provide any other insights. Age is one of those stratifications. We are looking at that maybe even related to the previous question; I don't think we certainly didn't see any significant difference based on age, whether it was younger pediatrics or adolescents in the 2A trial or even in the adults. The adults in the 2A trial were treated for a little bit differently; they were only treated for six weeks and treated regionally, but we didn't see significant differences in terms of the overall activity. The consistency was there between the adults and the pediatrics and adolescents. Dan, is there any other comments you want to provide?

Dan Birch, CMO

No, I think we're looking at people very consistently based on what we observed previously.

Michael Higgins, Analyst

Thanks, guys. Second is more of a development question, I suppose. There's been some difficulties with others recently in their devices. If you could just remind us as to where you are with your device in terms of human factors studies that have been completed? Any other conversations with the FDA regarding the spray device? Thanks.

Paul Wagner, CEO

Yes. Absolutely. Good question. First of all, that spray device has a master file and it's actually being used in an approved FDA product. So it's already in the market. We don't really expect many issues there. In terms of whether this is considered a device, again we would say it's agnostic to the method of application; it could be a dropper, it could be a sprayer, it could be a form swipe; there are many different ways the bacteria can be applied to the skin. You asked about human factor studies. Obviously, that's something that we're focused on, we're actually moving forward with human factor studies. In the ongoing study, with the prior 2A study, the therapy is pretty straightforward. Again, it’s just adding water into the vial with live bacteria, putting the pump sprayer on, and it reconstitutes almost instantaneously. So as soon as the diluent hits the vial, it reconstitutes almost instantaneously, and then the pump sprays it on; it's primed and then pumped immediately after it's reconstituted. So far, pretty straightforward with no issues with the patients being able to use or apply the therapy.

Michael Higgins, Analyst

Okay, that's great. Can you remind us on your milestone payments to DAHS when those may begin?

Paul Wagner, CEO

Yes. I don't think we've given specific guidance on that, but they're late. They would be after major value inflection points in the program.

Michael Higgins, Analyst

Okay, appreciate the feedback, guys. Thanks.

Paul Wagner, CEO

Sure.

Operator, Operator

Our next question is from an unidentified analyst.

Unidentified Analyst, Analyst

Good afternoon Paul, Dan, and Tony. Thanks so much for taking my questions. So for the phase 2 coming up in the third quarter, if the data is positive and given that you're going after a broad patient population, can you provide us a sense of how many patients across the age groups you would need for approval in order to satisfy the safety database? And/or will the cadence of the pivotal studies be focused on pediatric populations first and then adults, or will these trials be run in parallel to achieve the broad label?

Paul Wagner, CEO

Dan can comment on this as well, but just at a high level of what we've seen and certainly we need to have discussions with FDA on this. What we've seen with approved therapies for this type of indication is that one trial is sufficient for that broad label. In other words, pediatrics all the way through to adults and not looking too dissimilar from what our phase 2 study looks like. In terms of that safety database, I always think it's good to have an extension study that can encourage patients, particularly the placebo patients who may not be responding, to stay on the study if they have a guarantee that they can go on to active after the end of the study. Dan highlighted that we do have an extension study as part of the phase 2, and hopefully that might be able to satisfy some of the safety questions that FDA might have. Dan, was there more that you wanted to add?

Dan Birch, CMO

No, I agree with what Paul said. I think we can get it approved with adults, children, and adolescents, all within a single program, and we would aim to do the same. We would expect that would be acceptable. As Paul alluded to, we've been very satisfied with our interaction with the agency, and when we're finished with our phase 2, we will discuss with them our requirements for phase 2.

Paul Wagner, CEO

So our expectation would be that we wouldn't need to have separate studies for adults or pediatrics, but again, that would all be one study.

Unidentified Analyst, Analyst

Okay. Just one quick follow-up, could you elaborate a little bit more on a potential European or Asia filing? Would those geographies accept EASI scores readily or would you need to conduct separate studies and use different endpoints? What is the regulatory path forward for those geographies or what are their endpoints that they look more closely to?

Paul Wagner, CEO

Dan, did you want to address that, and maybe I can add a few comments?

Dan Birch, CMO

Sure. Again, Chris, EASI scores have recently gotten approved in Europe with the EMEA using their IGA and the studies they did in the United States. They have different focuses than the U.S. does, but they have absolutely demonstrated there that the IGA is acceptable to them. We will be having some interactions with consultants and then potentially get some scientific advice to clarify what would be required for the EMEA.

Unidentified Analyst, Analyst

Great, thank you so much.

Paul Wagner, CEO

Thanks.

Operator, Operator

Our next question is from Kalpit Patel with B. Riley.

Kalpit Patel, Analyst

Yes. Hi, thanks for taking my question. Just a quick one on the ongoing study. Is there a specific delta that you're looking for in the trial that would be clinically meaningful in your view, in addition to hitting the EASI-50 threshold? If there's a range, that'd be super useful. Thanks.

Paul Wagner, CEO

Yes. Great question. Thanks for joining the call, Kalpit. That's a question we've asked the top leaders as well. The answer that comes back is if the safety profile is clean, the delta between active and placebo doesn't need to be very large. What they've talked about is in terms of the EASI measure, somewhere between a 10 and 15 point difference would be clinically significant to them. In other words, with a clean safety profile, and a 10 to 15 point difference in an EASI-based endpoint relative to placebo, that's a therapy that would be used broadly. I think there's precedent for that in the market with other therapies, particularly in psoriasis, where the activity isn't quite as great as some of the biologics, but the safety profile is very clean. I think, in this indication, particularly going after pediatrics, safety is really number one; the parents are very focused on safety and want something natural that they can be comfortable using with their kids. That will also have effects. Some fraction of the patients won't respond to this therapy; I think then the parents would start moving them on to more aggressive therapies. But I really think that safety profile is paramount to getting uptake, particularly in the pediatric market.

Kalpit Patel, Analyst

Okay, thanks. I just had a quick follow-up actually on the IP related to FB-401. I'm trying to understand, is the IP more related to the formulation of the drug? Or does it also include the bacterial species? I mean, can you protect a bacterial species under IP like this? I'm just curious to hear your thoughts on that.

Paul Wagner, CEO

Sure, Kalpit. As I mentioned, we just had two new patents issued; we're up to 11 now, and it's really a broad range of intellectual property. The foundational patent is around culturing Gram-negative bacteria off of the skin, which was not trivial. The NIH originally came up with that technique and we were able to get a patent issued for that. From there, it is the composition; taking bacteria off of the skin and formulating it into a drug product is used for the treatment of different diseases, including atopic dermatitis, alongside formulations for kits and combining that with other potential therapeutics. So it's really broad. We've been very aggressive on the intellectual property for that very reason and have been really pleased with the number of patents that have issued. In fact, very early on we went down track one, which is a more accelerated path for patent issuances. I wasn't sure we'd be able to pursue that, but again, because there hadn't been much work done on Gram negatives, particularly, the prior art was fairly clean. Before the NIH developed this technique for culturing Gram-negative bacteria, there really wasn't a way to separate these off of human skin for study. We will have more patents coming, and I think we're in a solid position with the 11 that we have, and that will expand and be reflected nationally as well.

Kalpit Patel, Analyst

Okay, thanks very much.

Paul Wagner, CEO

Sure. Thanks for the call.

Operator, Operator

Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Paul Wagner for closing remarks.

Paul Wagner, CEO

Thanks. We're really excited. We're looking forward to the readout, as all of you are as well, from the trial in a few months in the third quarter. Thank you again for dialing in. If any of you have questions, we're available after the call. Have a good afternoon. Thank you again.

Operator, Operator

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.