Earnings Call Transcript - IMNN Q3 2020

Operator, Operator

Please standby. Good morning. My name is Casey, and I will be your operator today. I would like to welcome you all to Celsion’s 2020 Third Quarter Financial Results Conference Call. All lines have now been muted to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to turn the conference over to Kim Golodetz. Please go ahead.

Kim Golodetz, Investor Relations

Thank you, and good morning, everyone. This is Kim Golodetz with LHA. Welcome to Celsion Corporation’s conference call to discuss its 2020 third quarter financial results and business update. As has been Celsion’s practice and as noted by the operator, prepared remarks will be followed by a question-and-answer period. Today’s conference call will be archived and the telephone replay will be available beginning later today through November 30, 2020. The webcast will be available for the next 90 days on Celsion’s website. During this call, management will be making forward-looking statements regarding Celsion’s expectations and projections about future events. Generally, forward-looking statements can be identified by terminologies such as expects, anticipates, believes or other similar expressions. These statements are based on current expectations and are subject to a number of risks and uncertainties, including those set forth in the company’s periodic filings with the Securities and Exchange Commission. No forward-looking statements can be guaranteed and actual results may differ materially from such statements. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. This means results could change at any time and contemplated impact of COVID-19 on Celsion’s operations, financial results and outlook is a best estimate based on the information for today’s discussion. I also caution that the content of this conference call is accurate only as of the date of the live broadcast, November 16, 2020. Celsion undertakes no obligation to revise or update comments made during this conference call, except as required by law. With that said, I would like to turn the call over to Michael Tardugno, Celsion’s Chairman, CEO and President. Michael?

Michael Tardugno, Chairman and CEO

Thank you, Kim, good morning, everyone. Joining me today is Jeff Church, our Executive Vice President and Chief Financial Officer, who will provide a review of Celsion’s financial results in a few minutes. Also on the call for the Q&A portion is Dr. Nicholas Borys, our Executive Vice President and Chief Medical Officer. I’ll start by saying in July, we announced wholly unexpected incredibly disappointing news. After reviewing the Kaplan-Meier fails for the Phase III OPTIMA Study, the DMC found that the study had narrowly crossed the futility boundary, albeit with a highly uncertain p-value, P equals 0.524, that leaves the decision of whether to continue or terminate the study up to the company. I will discuss this more later in my remarks. But I’ll start with this fact because I’m sure it’s on the minds of many of you, because I want you to know that we have immediately taken a number of critical steps in the wake of this announcement. One, first is to redirect our resources and accelerate the OVATION 2 Study, our exciting Phase II trial in advanced ovarian cancer. The second was to stabilize and ensure a strong and restructured balance sheet. The third is to reduce our current and projected spending. Fourth, to evaluate our current portfolio, including adaptations of our existing platform technologies for application in new indications and new therapeutic areas. And fifth and finally, to fully interrogate through independent means the data from the Phase III OPTIMA Study. I’d like to begin by updating you on the OVATION 2 Study the evaluation of GEN-1 or gene-mediated immunotherapy in advanced ovarian cancer. Having successfully completed the Phase I run-in portion of the trial earlier this year, OVATION 2 has entered Phase II and is now recruiting newly diagnosed patients. The first two treatment arm patients were randomized in July, fully five months ahead of schedule. Patients in the treatment arm are being treated with a 100-milligram per meter squared weekly dose of GEN-1, dosing frequency and dosing amounts are based on a very encouraging safety profile established in Phase I run-in. Despite some delays and minor complications associated with the COVID-19 pandemic, we continue to anticipate completing enrollment of up to 110 patients by mid-summer 2021. Also, by the end of this year, we expect to have over 20 active sites enrolling patients in the U.S. and Canada, with the total number of clinical sites projected to be 25. Now to review the trial. The OVATION 2 Study is a two-arm study. The primary analysis will be conducted after at least 80 progression-free survival events are observed in approximately 110 or more subjects randomized in the trial based on a 1 to 1 randomization. Given the nature of the treatment, the study is open label and it’s unblinded, so we will be able to provide clinical updates as they become available throughout the course of the trial. We expect to provide updates from cohorts of 20 to 25 to 30 patients who have completed treatment. These updates will include overall response rates according to resist and surgical resections scores, both are secondary endpoints and both are reasonably good prognostics for PFS and overall survival. These data should provide a good idea of GEN-1’s treatment effect as the trial progresses. Final tumor response rates and surgical resection scores for all Phase II patients will be available in the second half of 2021. Final PFS data of the primary endpoint will follow about one year later. The two-arm study design calls for neoadjuvant chemotherapy plus or minus GEN-1. Neoadjuvant chemotherapy is the current standard-of-care for advanced disease among patients whose cancer burden is judged to grade for immediately removing it surgically. The goal of the neoadjuvant chemotherapy is to shrink the tumors and dry up the accompanying sites as much as possible to improve the surgical results. The surgeon’s objective, of course, is to achieve an R0 resection, a visually complete removal of all cancer with no disease found in the surgical margins. Following the debulking surgery, the patient will undergo three additional cycles of neoadjuvant chemotherapy and up to nine additional weekly GEN-1 treatments, if the patient has been randomized to the treatment arm. We are hopeful that the weekly GEN-1 treatment regimen before and after surgery will recruit a high level of immune system activity over a six-month period. The results being a critical goal with delay in progression because we know clearly that disease progression suggests a poor prognosis. I’d like to take a moment to review GEN-1 technology and mechanism. GEN-1 is engineered using our proprietary TheraPlas technology platform. TheraPlas is a synthetic non-viral nanoparticle DNA plasmid delivery system that provides a means to transfect cells with a DNA payload coded for proteins of therapeutic value. Unlike viral delivery systems that can typically only be administered once, TheraPlas is not subject to the neutralizing activity of the patient’s immune system. It’s the beauty of our technology. It’s that the TheraPlas carry the risk of viral carriers and can be administered over and over again, making it ideal for titrating cancer treatments and particularly immunotherapies that typically require safe and effective results. GEN-1 is the first drug on the TheraPlas platform technology and incorporates the DNA plasmid coded for the pro-inflammatory cytokine interleukin 12 or IL-12. GEN-1 is administered locally into a body cavity such as the abdomen for advanced ovarian cancer. Its confined local regional activity avoids the systemic toxicity associated with the use of recombinant IL-12 or factory-produced IL-12. Toxicity of systemic administration of IL-12 is the reason it’s not widely used today. Our approach, developed by our scientists, adopting IL-12 Institute in Huntsville, Alabama, provides an elegant solution that significantly improves the local regional activity of IL-12 while mitigating unwanted toxicity. So following administration, cell transfection is accomplished resulting in a safe, persistent, durable and effective local secretion of IL-12 lasting for up to one week. So where do we stand with the program and why are we so encouraged? Well, let me start with why we are so encouraged. Of the 14 patients treated in Phase 1 portion, they were treated with GEN-1 at a dose of 100 milligrams per meter squared, plus neoadjuvant chemotherapy and six were treated with neoadjuvant chemotherapy alone. All 14 had successful resections of their tumors, while seven out of eight in the GEN-1 arm or the treatment arm having an R0 resection, that’s 88% of those treated in the treatment arm with GEN-1 having an R0 resection and they’re doubling over the six patients in a control arm. When we pull these data with data from the earlier Phase Ib study, which had a population of patients with the same inclusion/exclusion criteria, now the data suggests that GEN-1 has a promising dose-dependent efficacy. These findings are reinforced with a significant improvement in progression-free survival when comparing study patients to a statistically matched synthetic control arm of similar patients from prior studies. These observations should be reviewed with caution, however, due to the small number of patients and the lack of statistical significance. As a final note, I want to remind you that we have received Orphan Drug Designation from both the U.S. FDA and the European Medicines Agency, which enhances the commercial value of GEN-1 in particular the Orphan Designation received from the EMA earlier this year provides for among other things, 10 years of market exclusivity following marketing approval. Now I want to make a few comments on our portfolio of developments and we won’t be taking any questions on this. We’re very early on in our discovery phase. So I mentioned that while we’re on the subject, I want to take this opportunity to mention that TheraPlas is a very powerful platform technology. We’re currently evaluating it for application in other important therapeutic areas, where we believe TheraPlas may provide significant medical and logistical advantages. Therefore, this flexible and adaptive delivery technology can be combined with multiple patentable payload approaches and evaluating a broad range of indications of global concern. Assuming our proof-of-concept experiments yield positive results, we’ll have more to announce on these efforts in the coming months. Now I would like to move on to some financial comments. As I said earlier, we have stabilized our balance sheet. We’ve ensured our access to capital and reduced our spending. Now Jeff will discuss this more, but I want you to know that including the planned sale of our New Jersey NOLs, which were recently approved by the Economic Development Agency and are now moving on to approval by the governor. Our cash runway will extend to the first quarter of 2022, enough time to bring several development milestones to fruition and we will comfortably cover the enrollment phase costs of the OVATION 2 Study. I want to emphasize that our balance sheet remains strong with cash and prepaid expenses well over $19 million. We have ensured access to capital at reasonable rates. For example, during the third quarter, we renegotiated our $10 million loan facility with Horizon Financial. We elected to repay $5 million of this loan in August and restructure the remaining $5 million with a facility with market competitive terms. Jeff will cover that more during his comments, but by doing so, we are able to leverage our equity capital, which provides further support to our product development initiatives with far less dilution to our stockholders. Reducing our debt substantially also lowers our debt service costs. Another point, we entered into a Common Stock Sale Agreement with Lincoln Park Capital as we announced. That included the sale of 1 million shares with a 30% plus premium to market. We have also successfully negotiated termination of contracts associated with our plans to commercialize ThermoDox and have reduced ThermoDox associated headcount and consulting arrangements. Also, we projected a $10 million reduction in planned expenses over this year and next. I am going to conclude my prepared remarks with an update on where we are with the OPTIMA Study of ThermoDox to treat patients with newly diagnosed primary liver cancer or HCC. The Independent Data Monitoring Committee findings indicate that the Phase III OPTIMA Study crossed the futility boundary at the second interim analysis, leaving the decision to continue or terminate the study up to the company. This puts us in a very highly unusual situation, if not completely uncharted territory. And for a variety of inconsistencies and confounding observations, which we have discussed earlier, and none of which may change the study’s outcome, it has been determined that we should continue to follow up patients for overall survival until such time that utility is either confirmed or dispelled. So where are we? The second interim analysis covered 80% of the deaths needed for the final analysis. A reported hazard ratio suggested by the Kaplan-Meier curve analysis was 0.903 with a p-value of 0.524, as I said earlier, and the futility boundary is 0.90. Since April 27, 2020, when we locked the database to one of those 60 deaths for the second interim analysis, a total of 16 new deaths have been reported over a six and a half month period, only seven of which occurred since July. This rate of death is reasonably consistent, albeit with some near-term concerns for the death rate, but it’s reasonably consistent with what was predicted by our consulting statistician for this time period. We now have a total of 176 reported deaths in the study from a total patient enrollment of 554. The study statistical plan specifies a minimum of 197 deaths for the final data analysis. Now, what steps are we taking? As promised, we have engaged the global biometrics contract research organization with forensic statistical analysis capability, who specializes in data management, statistical consulting, statistical analysis and data sciences, with particular expertise in evaluating unusual data from clinical trials and experience with associated regulatory issues. The primary objective of the CRO’s work is to determine the basis and reasoning behind a decision to continue to follow patients for survival. The secondary objective is to determine if there are any outside influences that may have impacted the forecast for futility. In parallel, and also as promised, the company submitted all OPTIMA Study clinical data and CMC data along with the product for independent laboratory evaluation to the National Institutes of Health. We expect to receive a report back from the NIH in the next four to six weeks. We are likely to report findings from the independent - from these independent statistical analyses by the CRO and the NIH before the end of the year, either both of which will guide our decision to continue to follow up patients to the final analysis, a milestone that should be reached sometime in mid-2021. I want to conclude my prepared remarks with a few final thoughts on this subject. The DMC’s recommendation on July 9, 2020 to consider discontinuation of the OPTIMA Study was beyond disappointing. It was never anticipated, nor was it supported by the published science, independent published evaluations of the HEAT Study by the NIH, or published preclinical research conducted by Celsion and our consultants to support the OPTIMA Study. We firmly believe, therefore, that we are obligated to undertake this rigorous evaluation of the data. I might say that the cost to do so is quite modest. While the trial outcome predicted by the second interim analysis may not change, it is unlikely that it may be in the event that we see the potential for substantial clinical benefit from the CRO and the NIH analysis, we’ll carefully review our options with the 14 regulatory agencies under which the OPTIMA Study is being conducted. All that said, we may choose to discontinue the study at any time. At this point, we can’t tell you definitively what we plan to do, but I assure you that we will be transparent about it when we do. Now with those comments, I’ll turn the call over to Jeff.

Jeff Church, CFO

Thank you, Michael. Details of Celsion's third quarter 2020 financial results were included in the press release we issued this morning and in our Form 10-Q filed today before the market open. As Michael mentioned, the company ended the third quarter of 2020 with $18.3 million in cash and cash equivalents. Along with the recently approved sale of our New Jersey net operating losses of approximately $2 million, which we plan to complete before the end of this year, we believe we have enough capital to fund operations into the first quarter of 2022. During the first nine months of 2020, net cash used for operating activities was $11.9 million, compared to $14.6 million for the same period last year, representing a 19% decrease. The company has taken significant measures to reduce operating expenses moving forward while maintaining focus on key value drivers. Regarding future funding flexibility, we have a $75 million shelf registration statement on file with the SEC, with over $40 million remaining available. We also have a traditional aftermarket facility with JonesTrading that allows us to raise funds opportunistically with no warrants and at a very low commission. Now, let’s look at the third quarter P&L. For the quarter ending September 30, 2020, Celsion reported a net loss of $8.1 million, or $0.24 per share. This is compared to a net loss of $5.5 million, or $0.25 per share, for the quarter ending September 30, 2019. Total operating expenses were $4.3 million for the current quarter, down 22% from $5.5 million for the third quarter of 2019. Research and development expenses were $2.5 million, down from $3.7 million a year prior. The $1.2 million decrease was partially due to a $700,000 reduction in clinical development costs for the Phase III OPTIMA Study, which was fully enrolled in August 2018. Almost all regulatory and manufacturing activities related to the ThermoDox development program are on hold while we await results from the two separate analyses being conducted by statistical experts and the NIH. Costs associated with the OVATION 2 Study were $200,000 for both the third quarters of 2020 and 2019. Other costs related to ThermoDox and GEN-1 clinical development programs decreased to $1.3 million in the current quarter, a drop of about $100,000 from $1.4 million in the third quarter of last year. This was mainly due to lower regulatory costs for ThermoDox, partially offset by higher manufacturing costs for GEN-1 clinical supplies needed for the Phase II part of the OVATION 2 Study. General administrative expenses remained unchanged year-over-year at $1.8 million. These lower operating costs were countered by two non-cash charges. The first was a $1.1 million charge for the change in evaluation of the earn-out milestone liability relating to the GEN-1 ovarian cancer program. The second was a $2.4 million charge tied to the impairment of in-process R&D assets linked to the divestment of the company’s GBM or brain cancer product candidate. The company recorded interest expense of $500,000 during the third quarter of this year, compared to $300,000 in the same period last year, related to the Horizon venture debt, which we restructured. The restructured $5 million loan allows for a one-year interest-only payment period followed by a 21-month amortization period. We expect our net cash usage for the fourth quarter of 2020 to be approximately $3.7 million, noting that year-to-date cash used for operating activities was $11.9 million, compared to $14.6 million in the same period of 2019. We anticipate full-year cash utilization will be between $15 million and $16 million in 2020, with the costs of continuing to follow patients in ThermoDox being minimal and largely behind us. In conclusion, we believe further progress with GEN-1 and advanced ovarian cancer, with data reported periodically, will create additional opportunities for enhancing shareholder value. I’d now like to turn the call back to Michael.

Michael Tardugno, Chairman and CEO

Thanks, Jeff. Now before going to questions I want to close by saying that Celsion continues to have the greatest potential to create value for shareholders and a highly capable staff committed to bringing life-saving medicines to market. We have two extraordinary platform technologies, one on the legacy of medicine and the other in the exciting future of nucleic acid therapies. Our development competencies span the scope of what is required to rigorously evaluate drug candidates. Our relationships with regulatory authorities both in and outside the U.S. are exemplary and encouraging and we have sufficient cash and with smart spending and cash management, we expect to deliver on our promises. Now, we will open the call to questions. Operator, would you do so, please?

Operator, Operator

Yes. Our first question comes from Hartaj Singh with Oppenheimer.

Hartaj Singh, Analyst

Thanks.

Michael Tardugno, Chairman and CEO

Good morning, Hartaj.

Hartaj Singh, Analyst

Thanks for taking our questions. I guess, first, can you talk about how you plan to monitor the ThermoDox study for fatalities, or I should say, whether it will be done at the end of the number of events or just in real-time? Thank you.

Dr. Nicholas Borys, CMO

Yeah. Thanks, Hartaj, for your question. On how we plan to monitor, we continue to have our electronic data system capturing the data from all of our sites involved in the OPTIMA Study and where you have a particular focus on the overall survival data. So that continues to be ongoing. The rest of the data in terms of cognates and all the other detailed data has been minimized to date. However, if we get interesting data that we can restart that all over again. Hope that answers your question.

Hartaj Singh, Analyst

Yeah. Thank you. That’s helpful. And then regarding your ex-U.S regulatory interactions, any updates from pathway ex-U.S. or we should think that’s pretty consistent with your strategy here with the U.S.? Thank you.

Michael Tardugno, Chairman and CEO

Yeah. I’m sorry. We don’t have a good connection? Could you just repeat the first part of that question, please, Hartaj?

Hartaj Singh, Analyst

Regarding your ex-U.S. regulatory interactions, how should we approach strategy in that area? Is it quite similar to your strategy with the U.S. FDA?

Michael Tardugno, Chairman and CEO

Yeah. So I want to start to restate your question. So what is our regulatory strategy outside the United States with regards to the Phase III OPTIMA Study? Assuming that we ...

Hartaj Singh, Analyst

Yes.

Michael Tardugno, Chairman and CEO

Assuming we continue, the first point I want to make is that if we have sufficient evidence to move forward, that evidence will come from the independent analysis being conducted by the CRO and the NIH. Our initial step will be to meet with the FDA. We find ourselves in a very unusual situation, as we cannot identify any other instance where a sponsor has been unblinded with an indeterminate recommendation from a DMC. We are making every effort to maintain a blind among our investigators while we evaluate the efficacy of the drug based on survival data. If we understand the reasons behind the issues observed in the second interim analysis, that understanding leads us to believe that the study has the potential for success. We will then meet with the FDA and bring our consulting statisticians to present our case. While we are uncertain about the outcome, we are confident that the integrity of the study will remain intact. This is an overall survival study, which is a definitive endpoint beyond our influence. The study is fully enrolled, eliminating the risk of investigators also being patient caregivers. Therefore, we are optimistic that we can provide a justification to the FDA that supports our submission of an NDA if the data allows. This will be our first step. Following that, we will engage with the NMPA in China, discussing similar matters, and then meet with the EMA for a comparable discussion. Our priority will be to meet with the FDA while simultaneously updating the investment community on our actions and rationale. I hope that answers your question.

Hartaj Singh, Analyst

Thanks, Michael. I was wondering if you have any updates on how OVATION 2 is performing, especially considering the ongoing resurgence of the pandemic in the U.S.?

Michael Tardugno, Chairman and CEO

That’s an interesting question. And Dr. Borys reports that. In his discussion with the principal investigators we are seeing a substantial reduction in the number of patients across all oncology indications, reporting to the hospital with symptoms. We also heard from a key opinion leader at the Mayo Clinic that their hospital admissions and visits for oncology cases have dropped dramatically. That being said, we still believe with the number of investigator sites that we intend to enroll, it’s up to 25, that the study enrollment will be completed by mid-next year. The enthusiasm for the study has not at all been affected by the pandemic among our investigators. So I’ll make that comment, and Nick, if you want to add anything to that please do?

Dr. Nicholas Borys, CMO

Yeah. That’s a very important question these days. We’re very fortunate. Our study centers are distributed throughout the country and Canada. What we’re seeing is, wherever we see hotspots of COVID, maybe some of the enrollment might decrease but other sites have seen increases. We’re hoping that because we’re nationally distributed in terms of sites that will help us in our enrollment. With the recent good news, we could see more enrollment going into the future.

Hartaj Singh, Analyst

Right. Great. Again, thanks for all the questions.

Michael Tardugno, Chairman and CEO

Thank you.

Raj Kumar, Analyst

Hi. Thanks for...

Michael Tardugno, Chairman and CEO

Hi, Raj.

Raj Kumar, Analyst

Hi. Thanks for taking my questions. So I would also like to continue with regard to the COVID-19. So does this take into consideration that hospitals will be allowing elective procedures?

Dr. Nicholas Borys, CMO

We take that into consideration. In our situation, the interval debulking surgery is not actually classified as an elective procedure. These procedures are essential, and we work with each site participating in the study to ensure they have COVID protocols in place. We gather all deviations related to COVID, such as cases where a patient might need to delay or miss a visit, and this is part of our planning with each hospital and in the protocol design. This is in accordance with FDA and NIH guidelines, and the primary concern is encouraging patients to feel comfortable coming in for their initial diagnosis, which appears to be the main challenge. However, once they enter the system, patients are highly motivated to proceed with their treatment and ensure they do not skip any treatments or their interval debulking surgery, as it is life-threatening.

Raj Kumar, Analyst

Okay. And in terms of the powering, the control arm include the synthetic controls too? Is that based on that?

Michael Tardugno, Chairman and CEO

In terms of the powering, I am sorry, we are having a little bit of a communication issue? Could you repeat that please?

Raj Kumar, Analyst

No. Like, you guys are saying the powering of the OVATION Study? Does that powering is it based on including synthetic controls in the placebo arm?

Dr. Nicholas Borys, CMO

No. The way the protocol is designed is, at the moment, we’re not going to be using our synthetic controls. We’re studying this. This is very exciting technology. But we’re using actual patients in our randomization scheme. Maybe later on, we’ll take another look at it. But as Michael mentioned before, we have a very enthusiastic pour of investigators and they’re very anxious to enroll both actual patients into the control arm and into the treatment arm so that we have real data.

Raj Kumar, Analyst

Okay. If you include synthetic control, how is that expected to impact powering up the trials?

Dr. Nicholas Borys, CMO

The impact of a synthetic control arm would be just another way to look at the data. I think everyone would agree that when you have actual patients enrolled in the study, that’s going to be our strongest data. The synthetic control arm will be helpful in case we run into a major problem in patient enrollment. We hope that we don’t have to resort to that. It’s an interesting technology. We continue our discussions with the vendor that’s involved in that. I think their data has been very good directionally. But our commitment right now is to actual patients.

Raj Kumar, Analyst

Okay. Finally, in terms of GEN-1 manufacturing and the amount of drug supply you have. Can you provide an update on that? Thanks.

Michael Tardugno, Chairman and CEO

Yeah. That’s a very timely question. So, the components for the GEN-1, we have multiple sources for. The plasmid, for example, is manufactured currently in an approved site in Europe. A secondary site is being developed in China. Now the plasmid materials sufficient to enroll the Phase II study have been fully manufactured. The polymer that’s the synthetic non-viral delivery platform has been fully manufactured in two locations, one in China and one in the United States. Those materials are all available for the finished product. We just completed manufacturing of four lots enough to complete the enrollment of the Phase II study. The last lot was produced, I think last night at our manufacturing partner in China and by the first reports on that manufacturing are all very positive. We don’t see any interruption potential in the supply chain, I guess, to the bottom line, because we have backups in second sourcing and the current very reliable supply chain. Hope that answers your question.

Raj Kumar, Analyst

Yes. Thank you so much.

Operator, Operator

This concludes today’s question-and-answer session. I will now turn it back to today’s speakers for closing remarks.

Michael Tardugno, Chairman and CEO

So I want to thank all of you for your time this morning. We continue to be driven by our commitment to bring new medicines to the medical community and by the work of our talented scientists, clinicians, technical, and administrative staff. We look forward to keeping you appraised of our progress. We’ll speak with you again when we report our 2020 fourth quarter and full-year financial results. In the meantime, stay safe. We hope you have a great nice afternoon. Take care.

Operator, Operator

Ladies and gentlemen, this concludes today’s call. Thank you for your participation. You may now disconnect your phone lines.