Galmed Pharmaceuticals Ltd. Q4 FY2021 Earnings Call

Good day and welcome to the Galmed Conference Call to discuss Financial Results for the Fourth Quarter and Year-end 2021. Today’s conference is being recorded. Before we begin, please note that we will be making certain forward-looking statements on today’s call, including those regarding financial results, statements and forecasts regarding anticipated timelines and expectations with respect to our regulatory and clinical development programs as well as other statements that relate to future events. These statements are based on the beliefs and expectations of management as of today and actual results, trends, timelines and projections relating to our financial position and projected development programs and pipeline could differ materially. We urge all investors to read carefully the risks and uncertainties disclosed in our filings with the SEC, including, without limitation, the risks under the heading Risk Factors described in our latest Annual Report on Form 20-F filed with the SEC. Galmed assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates only. I would now like to turn the call over to Allen Baharaff, President and Chief Executive Officer. Allen, please go ahead.

Thank you, Peter. Good morning, and thank you for joining us on today’s conference call. I am pleased to be here today with our Chief Scientific Officer, Dr. Liat Hayardeny, our Chief Financial Officer, Doron Cohen, and Chief Accounting Officer, Yohai Stenzler to provide you with an update on our clinical development programs, as well as report on our financial results for the 2021 fourth quarter and full year financial results. As always, we will be happy to take any questions you may have at the conclusion of our prepared remarks. On April 28, Galmed published interim results from the open label part of the ARMOR Phase 3 study. As a quick reminder for those of you who are new to our story, the open label part of the ARMOR study was designed to explore the efficacy of a higher dose of Aramchol for NASH-induced fibrosis and the kinetics of histological outcome measures as a function of treatment duration in preparation for the registrational double-blind, placebo-controlled part of the study. In simple words, the aim of the open label study was to explore the speed and the extent of fibrosis reduction, testing the hypothesis that higher Aramchol exposure results in an improved efficacy profile. Acknowledging the complexity, variability, and moderate reproducibility in liver pathology reading, the open label part was also used to further assess different methodologies that may support and improve fibrosis scoring. All slides were assessed using three histopathological reading methodologies. A central pathology committee scored the biopsies according to the conventional formal NASH CRN scoring system F1 to F4. Scoring was initially performed individually by the three independent pathologists, followed by consensus reading by the committee. To spare reading, this may reflect real-world pathological assessment. The same central committee was also asked to perform a rank assessment improvement, worsening, stable, of third pre and post-treatment biopsies, scrambled and blinded to sequence, i.e., not knowing which is the baseline and which is the post-baseline. Furthermore, artificial intelligence (AI)-based tools are at the forefront of developing a more sensitive, automated, continuous scoring system for the detection of fibrosis change for future NASH and fibrosis clinical trials. Accordingly, the same slides were also read using FibroNest quantitative digital pathology image AI analysis, providing a continuous fibrosis composite severity score (FCS). This allows identifying fibrosis improvements that may be missed by formal scoring as well as the statistical quantification of change from baseline. Results of post-baseline biopsies performed either 24 weeks or 48 weeks from 46 subjects with NASH and F1-3 that received Aramchol support the anti-fibrotic effects of Aramchol and reinforce the favorable safety profile of Aramchol. Treatment with Aramchol 300 milligrams BID resulted in a high rate of subjects with fibrosis improvement across the three separate pathology reading methods. Both paired and AI evaluations identified most subjects with fibrosis improvement, indicating greater sensitivity to detect change versus categorical scoring. For all methods, a treatment effect was larger at 48 weeks compared to 24 weeks. Week 48 fibrosis improvement was identified in 40%, 65%, and 100% of patients, according to NASH CRN, paired, and AI respectively. Quantification of change from baseline by AI demonstrated that reduction in fibrosis was statistically significant, both at week 24 (P of 0.017) and at week 48 (P value smaller than 0.0001). Further analysis based on AI is being prepared for publications in upcoming scientific conferences. Altogether, we believe the results highlight the need to reassess histological analysis in future NASH studies. With regard to the initiation of the double-blind, placebo-controlled registrational part of the Phase 3 study, it is our current assessment that despite considerable efforts from the scientific community and regulatory agencies, there are significant uncertainties that remain unresolved. These include dependence on biopsies as the primary surrogate endpoint, with all the complexities described above, no significant progress in validation of non-invasive biomarkers, and a high screen failure rate that remains a substantial burden on our studies. In addition, the government is considering more robust changes to its development program for NASH. Changes may include focusing on higher-risk patients (F3), evaluating patients with compensated cirrhosis at F4, as well as changes to study design, such as two smaller studies instead of one pivotal study, in addition to a combination arm. Taking all the above into consideration, the government has decided to move the initiation of the double-blind placebo-controlled part of this study with Aramchol meglumine until the second half of 2023, subject to, among other things, the results of our open label part, sufficient funding and clarification of the regulatory approval process for NASH drugs, at which time it de-risked scrutinized clinical development plan can be put in place. Importantly, as you may remember, on January 2022, we announced that the United States Patent and Trademark Office (USPTO) granted Galmed new patents related to the use of Aramchol for the treatment of fibrosis, and for the modulating of gut microbiota. With these latest patents, Galmed is strengthening and extending the IP protection of its lead compound Aramchol until December 2038. This brought patent protection, and the clinical data on NASH-induced fibrosis is broadening the protection of Aramchol in fibrosis treatment. The past 12 months have been an exciting time for Galmed. As we reported positive interim data from the open label part of the ARMOR Phase 3 study and we continue to advance our pipeline compound Amilo-5MER. Amilo-5MER is a synthetic peptide consisting of five amino acids that exerts anti-inflammatory effects by binding to pro-inflammatory amyloid proteins, preventing the polymerization of serum amyloid A (SAA) monomers and thereby interfering with SAA-induced immune cell activation. On January 2022, we announced the positive results from the first-in-human Phase 1 clinical trial of Amilo-5MER in healthy volunteers. Galmed is currently assessing a number of potential proof of concept studies designed to rapidly generate data that will drive the next steps of the Amilo-5MER clinical program with a clear and efficient route forward. We intend to provide more details in the coming months. Along with an update on our planned activities, we are pleased to welcome Doron Cohen, who was appointed as our newly CFO earlier this year. Doron brings more than 25 years of experience in the global financial markets, including significant experience on the buy-side of life sciences companies. Now, let me transfer the call to our Chief Accounting Officer, Yohai Stenzler. Yohai?

Thank you, Allen. This morning I will be providing you with our financial results for the fourth quarter and year ended December 31, 2021. For more information, please refer to our important Form 20-F filed earlier today with the SEC, which among other things provides a summary of such financial results. Our net loss for the three and 12 months ended December 31, 2021 was $7.5 million and $32.5 million respectively, compared with a net loss of $10.3 million and $28.8 million for the corresponding period in 2020. As a result, our loss per share for the three and 12 months ended December 31, 2021 was $0.13 per share and $1.32 per share, respectively, as compared to $0.48 and $1.35 for the corresponding periods in 2020. Research and development expenses for the three and 12 months ended December 2021 totaled $6.3 million and $27.2 million. This compared with $9 million and $26.1 million for the corresponding period in 2020. Turning now to G&A. Our general and administrative expenses for the three and 12 months ended December 2021 totaled $1.2 million and $5.7 million respectively, versus $1.3 million and $4.1 million for 2020. During the three and 12 months ended December 31, 2021, we had a net financial income of $0.05 million and $0.4 million, respectively, versus $0.1 million and $1.4 million during 2020. Our cash balance as of December 31, 2021, which includes cash, cash equivalents, restricted cash, and marketable securities totaled $34.9 million. This compares with $51 million on December 31, 2020. With that said, operator, please provide instructions for the Q&A portion of our call.

Yeah, apologies. Can you hear me?

Yes, we can hear you now. Hi, Steve.

Sorry about that, guys. Technical difficulties. Appreciate you taking the question. I wanted to ask about the histology data. I noticed you had two cohorts, 24 weeks and also greater than 48 weeks. And I wanted to ask if that meant patients just showing up a week or two late for the 48-week biopsy or if in fact that combines 48 and 72-week pair biopsies? And if so, could you break out sort of how many of each you had and maybe what data from 72-week biopsies would be forthcoming? Thanks.

Sure. So most of the patients came from the 48 weeks. We did combine the 48 and 72 groups; approximately five patients came from the 72, and most of them came from the 48.

Can you comment on just the relative fibrosis improvement rates between 48 and 72 weeks? Thanks.

We think the numbers are too small for five patients to draw any conclusions. But in general, what we've seen before in the small numbers of the 20 patients we see that also later on, but we thought we just can't draw any real conclusions from five patients, so we prefer to group the two together.

Okay, thanks for taking my question.

Thank you. Our next question is from the line of Kristen Kluska with Cantor Fitzgerald. Please go ahead.

Hi, good morning, and good afternoon. Thanks so much for taking my question. The first one I wanted to ask was on the second half of 2023 guidance in terms of the registration study. So some of the factors that you cited are things that, of course, you as the company could control, like understanding which patient population to evaluate. But then some of the factors you cited were things out of your control. So you know, for example, understanding the biopsies is the primary surrogate endpoint. So just wanted to understand a little bit about this timeline and what you hope to gain from the field more broadly by the time you plan to start this study next year.

So we believe the field is developing in the right direction. Recently, there was a liver forum where the FDA presented and many of the pharma companies involved in the NASH space also participated. So we certainly see a very positive development. AI, in particular, is very important. But we feel that it is still too risky now to initiate a registrational study when the primary endpoint is not very well defined. We feel that we should wait and look. We believe that by the time we plan to re-initiate the study in the second half of 2023, we will have seen positive signs from all these efforts that many participants are advancing. This will also give us sufficient time to meet with the FDA, to discuss our concerns and share information with them. The FDA is extremely supportive and we would like to show them the data that we have. I don't know if there are many companies that are doing this effort of reading the biopsies in three different methodologies, so this is very important data we've submitted.

Okay, thank you for that. And then wanted to ask how some of the recent data that you shared last week will correlate to the once daily Aramchol meglumine profile in light of some of the early PK work that you shared between the two drugs.

So as you recall, Aramchol meglumine is a formulation of Aramchol. The circulating moiety is Aramchol. We're just talking about different kinds of formulation or a different dose. The advantage of Aramchol meglumine is that we will be able to achieve the same exposure that we see now with a twice-daily 300mg with a once-daily 300 and something closer to 380 milligrams of Aramchol meglumine. So this is a great advantage, both in terms of compliance and in terms of costs.

Okay, thanks. And then the last question for me was just on Amilo-5MER; you highlighted that over the next couple of months you might share some plans in terms of proof of concept study, but I just wanted to ask if you're still looking to first assess IBD. I know you first introduced Amilo-5MER to you had discussed a number of potential programs. Thank you.

So indeed, we developed the first formulation for Amilo-5MER; it is an intercolonic oral formulation, developed for IBD. Now, we are looking carefully at the space and the competitive landscape. We are trying to create an edge for Amilo-5MER in this competitive landscape. One possibility would be a combination with another compound which will ease recruitment because we know that recruitment is very challenging, almost as challenging as it is for NASH trials. But we can solve that if we do a combination treatment. Also, we are considering which population to target: mild to moderate or moderate to severe. At the same time, we are also examining the systemic exposure of Amilo-5MER, and once we confirm that, it will open up a variety of other indications where Amilo-5MER plays a crucial role. One, for instance, is FMF (Familial Mediterranean Fever), but there are others that are highly relevant to us. We are trying to address all inflammatory indications where Amilo-5MER can play an important role.

Thank you, Allen.

Thank you, Kristen.

Hi, everyone. Thanks for taking my question. I have a few. First, I'm going to start on your recent data on how you used the three different methodologies. Could you just sort of talk about what you started to see as a clinical value of the different methodologies? And have you had any conversation with KOLs or with the FDA on these methodologies regarding how the rates of fibrosis improvement were so different? Or did you find that KOLs or potentially the FDA would prefer a stricter, more traditional methodology versus the AI methodology?

Yes, so thank you for the excellent question. All these methodologies are relevant to the question of sensitivity. We need to really discuss the data with the FDA. Galmed believes that together with the KOLs, this is something we are of course consulting on. The AI company we used was highly recommended to us by KOLs. I know that there are eight other abstracts that this company is presenting at conferences for other NASH companies. So clearly, they are at the forefront of AI. We believe there is a correlation between the AI reading and the traditional readings, which is important because the traditional reading is the closest method we see for real-world evaluation. If we can support the paired reading together with AI, I think the combination of the two can potentially be validated by biomarkers. All of this can bring the NASH space, and in particular people with fibrosis effects, into a different category. It is simply the NASH CRN that is limited by definition. As you may recall, in the hepatitis C studies, the ranking was not done through NASH CRN; it was done through other methods. We are seeking to validate our methodologies alongside novel AI technologies.

You actually brought up another point I was going to ask. During your analysis, did you find any biomarker correlation with the AI reading, or any sensitive correlations with biomarkers and AI readings?

So I can't talk too much because otherwise, AASLD would not give me my leeway. So unfortunately, I have to be careful with the information that I disclose. However, I can tell you these are very interesting findings. The interesting point is that, as far as I know, our abstract is the first time the clinicians and KOLs, together with leading histopathologists have come together to agree on the main issues and concerns, openly discussing the challenges in biopsy reading and hopefully support the entire space.

Just one last question. On Amilo-5MER, are you considering potentially partnering the product for future development and non-dilutive sources of financing?

Absolutely, absolutely. And thank you again for these questions. Galmed has demonstrated over the years that our core competence is to advance preclinical assets quickly into clinical, preferably Phase 1 and proof of concept studies. For longer studies, Phase 2B and Phase 3 studies, collaborating with other biotech or pharma companies is the right way to move forward. We will continue to form coalitions of partners that have similar ideas with the goal of advancing the assets as quickly as possible into clear advanced clinical studies, whether with pharma or another biotech company.

Thanks for taking my questions.

Thank you. Our next question is from the line of Ed. Please go ahead.

Hi, can you hear me?

Yes. Hi, Ed.

Hi, Allen. Great. Thanks for taking my questions. First, I joined a bit late. But I understand that you are moving the timeline for the Phase 3 portion of ARMOR to the second half of next year. Is that correct? I understand that you’re doing so at least in part with the aim of defining the primary endpoint and working with the FDA. Could you perhaps just give us a bit more detail on some of the criteria that you were reviewing as you were considering pushing this back? Just to give a better sense for why you felt this was necessary?

So thank you, Ed. To start with the screen failure rate. When you look at other NASH studies, including our study, the screen failure rate for NASH studies is about 80% to 90%. This means you have to biopsy 10 patients in order to get one eligible patient. I don't see that running a study requiring a thousand patients in a study will be feasible without the necessary biopsies. We should wait and see and find together with everyone who is working on validated biomarkers how to reduce these numbers into sensible numbers. This is not just for the cost of the study, but also for the burden on patients, as well as the frustration for both the physician and the patient. We are looking for methods with better sensitivity that will allow for a smaller sample size, for instance, using AI. Moreover, moving towards the end of the study, the results cannot be obtained when there are discrepancies between the different methodologies. We need clear guidance on which methodology to use. This is likely why many NASH studies have failed. These are key reasons behind our decision to postpone.

Okay, great. So the next question is regarding your initial data on fibrosis and the fibrosis composite score. Obviously, truly compelling data on the reduction of at least 0.3 units over that time period. I understand that this does not correlate well with the NASH CRN definition of histology, and in fact, if you were trying to devise a better method, you wouldn’t necessarily want to have it correlate to histology. With this data in hand, are you intending to have discussions with the FDA to move towards a better method and not have to continue tying things to a biopsy, or is the FDA more inclined to listen to some of these groups in the U.S. and Europe that have large databases of patients being worked on over several years?

So thank you. This is very important. We are trying to move from a categorical method to a sequential method, which is inherently more sensitive and accurate. Hence, we can also demonstrate the P value, but not through categorical numbers. In the first stage, it could involve a combination of AI support. You know that FDA has now allowed the use of AI as a false reader. However, this keeps us tied to NASH CRN and creates additional complications. We are consulting with large pharma, and we are all working on finding better methods alongside the FDA because I don’t see any validated biomarkers that can replace biopsies in the near future. Rather, we are looking for ways to use the biopsies in a different way, potentially combining paired and AI readings. We see clear correlations between methods. The 24 and 48-week comparisons show consistent improvement across all methodologies. This gives us a lot of confidence in the paired and AI readings.

Great, thanks, Allen. Thanks for taking my questions.

Thank you, ladies and gentlemen, we have reached the end of the question and answer session. And I would now like to turn the call back to Allen Baharaff for closing remarks.

Thank you very much, everyone, for joining our call today. As always, we are available for any follow-up questions, and we look forward to seeing you on our 2022 first quarter call, which is just around the corner. Thank you all. Bye-bye.

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