InMed Pharmaceuticals Inc. Q2 FY2020 Earnings Call

Good morning. My name is Sylvie and I will be your conference operator today. At this time, I would like to welcome everyone to InMed’s Second Quarter Fiscal Year 2020 Financial Results and Business Update Conference Call for the period ending December 31, 2019. Note that all lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. Thank you. Mr. Payne you may go ahead and begin.

Thank you, Sylvie, and good day, ladies and gentlemen. My name is Brendan Payne, InMed’s Director of Investor Relations. Welcome to InMed’s second quarter fiscal year 2020 financial results and business update conference call. Before we begin, we would like to go over our disclosure statements, followed by a review of the progress on our biosynthesis and therapeutic development programs, which will be led by our President and CEO, Eric Adams. Mr. Bruce Colwill, our CFO, will then review the financial results of operations. Following that we will be available for a question-and-answer session. Also joining us today to address your questions will be Eric Hsu, Senior Vice President of Preclinical Research and Development; Alexandra Mancini, Senior Vice President, Clinical and Regulatory Affairs; and Michael Woudenberg, Vice President of Chemistry Manufacturing and Control. Please be advised that certain statements in the following conference call regarding expectations for InMed’s business operations, clinical development, key personnel, contractual relationships, regulatory approvals, revenue opportunities, and cash runway all constitute forward-looking statements. Such statements are not historical facts, but rather predictions about the future, which inherently involve assumptions, risks, and uncertainties. Actual results may differ materially from those contained in the forward-looking statements. Description of these risks can be found in our latest disclosure documents and recent press releases. InMed does not undertake any obligation to update any forward-looking statements made during this call. I'd like now to turn over the call to InMed, President and CEO, Eric Adams. Eric?

Thank you, Brendan, and thank you all for joining us today. In the period since our last investor update, we've made significant strides in advancing both our innovative biosynthesis platform and our clinical development programs to treat diseases with high unmet medical needs. In January of this year, based on encouraging data from more than 30 preclinical pharmacology and toxicology studies, we revealed that cannabinol, or CBN, is the active ingredient in our lead therapeutic programs. CBN is one of the more than 100 cannabinoid compounds present in the cannabis plant, albeit at very low levels, which classifies it as a rare or minor cannabinoid. In total, all rare cannabinoids are estimated to make up less than 1% of the cannabis plant. Through our significant preclinical R&D studies and review of publications comparing different cannabinoids, we have identified several unique properties of CBN that may translate into important physiological benefits in humans. For example, when compared to other cannabinoids, CBN can act with higher potency when interacting with certain receptor systems in the body while acting with lower potency for others. And while the major cannabinoids, THC and CBD, have established therapeutic benefits in certain instances, our data support CBN having distinct advantages as a potential treatment for Epidermolysis Bullosa and glaucoma. Based on published literature, as well as our own safety testing, CBN is considered to be non-psychoactive. Turning to INM-755 for Epidermolysis Bullosa. With the approval of our clinical trial application in December of 2019, we initiated our first human clinical trial, Study 755-101-HV or Study 101, which is a Phase I trial for examining the safety of INM-755 in healthy volunteers. In doing so, we became the first company to announce the advancement of a pharmacological formulation of CBN in two clinical trials. This initial trial is designed to establish the local and systemic safety and pharmacokinetics of INM-755 cream applied daily on intact skin. As previously disclosed, we are testing two strengths of INM-755 cream in 22 healthy adult volunteers over a 14-day treatment period as part of a randomized vehicle-controlled double-blind trial. Dosing in this trial is underway and we have now completed about 50% enrollment. Based on the current pace of recruitment, we anticipate full enrollment to be achieved during the first quarter of calendar 2020 and the announcement of results in the second half of the calendar year. Assuming positive results from this initial safety trial, we plan to initiate a second safety trial called 755-102-HV or Study 102 in the second quarter of calendar 2020. The study design of 102 is similar to the 101 trial, except that it will test local safety on wounded skin in a small number of healthy volunteers, likely between eight and 12. In parallel with this trial, we are actively investigating additional dermatology indications where INM-755 may provide benefit. We look forward to providing additional information on our findings later this year. As a reminder, INM-755 is being developed as a potential treatment for patients with Epidermolysis Bullosa or EB, a rare but devastating skin disease. At the EB 2020 World Congress, held in London in January, we revealed that CBN is the active pharmaceutical ingredient in INM-755. A team of InMed scientists and clinical executives attended this important congress, interacting with key opinion leaders, physicians, and patients to better understand the serious disease and to guide our further clinical development plans. Alexandra Mancini, our Senior Vice President of Clinical and Regulatory Affairs, will be available during the Q&A session to answer any questions related to the INM-755 clinical program. Now turning to INM-088. Encouraging preclinical results suggest a possible therapeutic effect of CBN in reducing intraocular pressure, the hallmark symptom of glaucoma, as well as potentially providing neuroprotection to impede disease progression. INM-088 is initially being targeted as a potential treatment for glaucoma, with follow-on indications in other ocular diseases. We are anticipating data from both formulation studies, as well as drug pharmacology studies during the first quarter of calendar 2020. Once completed, we intend to combine CBN with our selected eye drop delivery technology and then study the product in advanced preclinical models. Assuming positive outcomes, we intend to conduct IND-enabling toxicology studies in the second half of calendar 2020. We maintain our commitment to provide additional guidance on this program in the latter part of the second quarter of calendar 2020. Now looking to biosynthesis. We remain committed to establishing ourselves as a leader in innovative biosynthesis based production of cannabinoids, a production process that will provide GMP-grade, competitive cost rare cannabinoids for pharmaceutical applications. You may recall that InMed is unique in its selection of E. coli as the engineered bacterial host for its biosynthesis platform development. We continue to make significant progress in refining an alternative process for cannabinoid manufacturing, which integrates the benefits of bio fermentation while minimizing the number of steps involved, reducing production time, and increasing yields. As we stake out a strong proprietary position for key elements of this process, we continue to look forward to elaborating further on this exciting program with investors as soon as possible. Dr. Eric Hsu, InMed's Senior Vice President of Preclinical R&D, will be available during the Q&A session to answer any questions related to biosynthesis and the INM-088 programs. And just briefly, a general corporate update. The company is confident that it will be able to secure the necessary capital to continue to advance its therapeutic programs and biosynthesis process development. Several options are being actively explored and we are taking measures to provide the company with the greatest possible flexibility in meeting both our medium- and long-term capital needs.

Thanks, Eric. Thank you all for joining the call today. As the Canadian-based and regulated company, I remind you that the figures that I will present during today's call are expressed in Canadian dollars. And also by the way, a reminder, please note that we have a fiscal year that ends on June 30. So, as a consequence these figures, which are as of December 31, 2019, represent our fiscal second quarter results. Please also note that the completed financial statements and MD&A are now available on our website as well as on SEDAR, of course. And now, moving to our operational expenditures, I'll first review our research and development spend. R&D spending came in at approximately CAD1.9 million for this most recent quarter, which compares with approximately CAD1 million for the three months ended December 31, 2018, the same period last year. While for the six months ended December 31, research and development expenses totaled approximately CAD4.3 million, which compares with approximately CAD1.6 million for the equivalent six-month period last year, so fiscal 2019. The increase in research and development expenses in our second fiscal quarter, as well as for the six months ended December 2019, compared to the equivalent periods last year or fiscal 2019, was primarily driven by the increased spending on clinical trial enabling preclinical safety pharmacology and tox studies, as well as the manufacturing costs for INM-755 material, which is all incurred leading up to the commencement of our Phase I clinical trial. In addition, the company's biosensors program expenditures also increased compared to the equivalent period in fiscal 2019. Looking now at general and administration or G&A. Company incurred G&A expenses of approximately CAD1 million for our second fiscal quarter compared with CAD900,000 for the three months ended December 31, 2018. While for the six months ended December 31, 2019, G&A expenses totaled CAD1.9 million, which was slightly higher than the CAD1.7 million we incurred in the comparable period in the last fiscal year. This increase in G&A expenses for six months to December 31, 2019 was primarily driven by increased accounting and legal expenditures. The company also incurred non-cash share-based payments in connection with the granted stock options of CAD400,000 for this most recent quarter compared with approximately CAD1 million for the three months ended December 31, 2018. For the six months ended December 31, 2019, non-cash share-based payments totaled CAD600,000, which compared with CAD2.4 million for the comparable period in fiscal 2019. This is a good point to mention that we have also filed amended and restated financials for last quarter. This restatement results from needing to restate the non-cash share-based payment charge in the previous quarter when we had an executive depart the company. This departure resulted in a relatively large forfeiture of granted but unvested stock options. When those options were forfeited, the company should have assessed if a reversal of some of the previously booked non-cash share-based payments in previous periods should have been reversed. This step was unfortunately missed and thus a CAD0.5 million reversal of stock-based compensation last quarter was not done. This adjustment in no way affects our cash reserves, or cash use operation. This one-off adjustment has now been reflected in the restated first quarter financial reports, which were filed yesterday. Moving on for the three and six months ended December 31, 2019 the company recorded a net loss of CAD3.4 million and CAD6.7 million, or CAD0.02 and CAD0.04 respectively per share compared with a net loss of CAD2.7 million and CAD5.5 million or CAD0.02 and CAD0.03 per share respectively for the three and six months ended December 31, 2019. Looking now at our balance sheet. At December 31, the company’s cash, cash equivalents, and short-term investments were CAD12 million, which compares to CAD14.8 million in the last quarter being September 30, and CAD18 million as of the end of June 30, 2019. This decrease in cash reserves during the six months ended December 31 was primarily due to the cash outflows from operating activities which has run at approximately CAD1 million a month over the last few quarters. At December 31, 2019 the company's total issued and outstanding shares remains at approximately 172.3 million, which is also the weighted average number of common shares used for the calculation of loss per share for both the three and six-month period ended December 31, 2019. We previously disclosed in our filings and on these calls that our cash resources were sufficient to fund planned operations into the fourth quarter of calendar year 2020. It is worth noting though that we do have the operational flexibility to very readily ramp-up or ramp-down our external R&D expenditures. For example, our research and development expenditures incurred with external third parties accounted for more than 50% of our total burn over the last six months. We thus have operational flexibility to extend our cash runway well into 2021 in EB. But as Eric mentioned, the company is actively pursuing options to meet its medium to long-term capital needs.

Hi, guys. Thanks for taking my question. So first I just wanted to ask what sort of response do you get from clinicians and patients at the EB Congress?

Hey. This is Alexandra. I will take that question. Thank you. We had an excellent response. It was a very helpful conference in many ways. Just a little bit of background for those who aren't familiar with the Congress, there were about 700 attendees from over 50 countries and the Congress was organized to include people involved in EB in many ways—physicians or other medical support specialists, basic researchers, and of course the EB community, which includes patients, caregivers, and National Debra staff, which is a patient advocacy group. So we had a huge audience there. It was an excellent opportunity for us to introduce our development program for INM-755. As a sponsor of the Congress, we had a booth, and it was very well attended. We were one of the few with a booth that actually had data in it. We had four posters that are now on our website that provided an overview of our research data to date as well as our clinical plans for 2020. So in terms of the response we got, there was a lot of interest in a topical cream. First of all, the way of delivering therapy is very attractive in this space. There was a lot of interest also in a cannabinoid-based product. And we did speak with many clinicians and research experts. And in general, I can say they were very impressed with the extensive non-clinical program that we have run. The careful thought that we put into the range of studies we did, including some that were done a little earlier than one might have thought in this program. And particularly, the good results that we obtained in our preclinical studies. They were also very pleased with our clinical development plan, particularly the fact that we are starting our trials in healthy volunteers because we can collect a lot of safety data through frequent blood sampling, et cetera, which you don't want to do in patients with fragile skin. So they were very pleased to see that we're starting in healthy volunteers. Overall, their impression was that we had a well-designed and comprehensive program. And there's a lot of enthusiasm for patients who wanted to be in our study going forward when we start in EB patients, as well as physicians wanting to be part of our global trial because we will need multiple clinical standards. We were very pleased with the whole conference.

Great. Thank you. That was very helpful. And then, another question on INM-755, I believe Eric mentioned that you'll be releasing data from the healthy volunteers with normal intact skin trial in the second half. Do you expect to be releasing data from that and the one with healthy volunteers of small wound trial at the same time?

The results of the two different studies, one for intact skin and one for small wounds, will be released at different times because we will release the results as soon as they are available. The first study that we are doing in intact skin will come out first. That should be early in the second half of the year.

Okay. And then, just on biosynthesis. You mentioned in the press release that you've identified several prospective pathways that may be even more attractive methods for the production of your cannabinoids. So I was just wondering, are those separate from kind of the, I guess, the original process and the alternative process that you've previously mentioned? And if they are different, like, how different are they? Is this—what will those entail?

Thank you. This is Eric Hsu and I will address that question. So the traditional biosynthesis requires you to modify the organism followed by—once the cannabinoid is produced, then you have your downstream process to extract and isolate those specific cannabinoids. And you do that with every single cannabinoid. So to achieve that, you're going to have to go back when you move to another cannabinoid to, again, modify those organisms so that you can get to that specific cannabinoid you're looking for. So, with the alternative process, as Eric Adams mentioned earlier, we're focusing on several things. One is making sure the cost is down and you can address that by looking at what kind of steps are involved; you can also look at how much you need access to the GMP facility to be able to achieve the production at the level that we're looking at. And then finally is the yield. So the alternative process actually takes all that into consideration and is designed to be flexible so that we could address the production of cannabinoids at a low cost as well as being flexible when we move to another cannabinoid production.

Thank you. Great. And I just wanted to understand, so in the press release you mentioned several prospective pathways. So are those just kind of variations within the two processes you've already mentioned? Or are they kind of potential alternative processes?

So primarily, we're focusing on those two processes. And in the last quarter, the focus was to generate data sets in the fermenters when it comes to biosynthesis. So the upstream purification—upstream production process we have completed. We also developed a downstream process. And that activity is also complete. The third thing we’re trying to generate data on was the alternative process. So that when we gather all these data, when we complete the studies, we'll be able to compare specific parameters head-to-head for us to make a decision on whether or not the biosynthesis is going to help us get to the specific cannabinoid we're looking for, or the alternative is actually better. So we expect to be able to have that conclusion in a couple of weeks. And once we do all our diligence, we'll be able to release that information.

Okay. Wonderful. Thank you for clearing that up. And then, this is going to be kind of a complete—a request for some sort of forward-looking statements. So feel free to so you can't really make it. But I was just wondering, when do you think it might be economical for you to supply your own CBN rather than using outside parties?

Mike, do you want to take this?

Sure. Yeah. Yeah. So I can respond to that question. Thanks for the question. So the selection, setup, manufacture, and supply the drug substance is obviously critical to meet our requirements for our pipeline and for supply material. To support this, we proactively selected world-class cGMP contract and development manufacturing organizations, or CMOs, as they're commonly known, to supply the material. So the choice of a CMO requires the organization to have the expertise to make the CBN, but also to have in place development capabilities, quality systems, best equipment, storage, properly designed room to utilities, operating procedures, and other systems along with the highly skilled staff to operate and maintain compliance with regulations. So the contractors we're working with have a very successful track record in development, scale-up, commercialization, and supply of GMP drug substances. Each of our clinical developments will involve increasing control as we move through the pathway and optimization to ensure the CBN is made in a repeatable and consistent or validated method to ensure compliance is achieved. So prior to the launch of our drug product containing CBN, all of the related development, clinical data, and manufacturing processes will be reviewed by the agencies. And then obviously the CDMO that's making that will undergo regulatory inspection or pre-approval inspection to verify that the people, systems, facility, and process are compliant. So upon approval, this development path will provide us with a commercial process to produce or supply the CBN. So it's one pathway. The other pathways that if InMed chooses to provide CBN to external companies from a process, this could be accomplished at various stages of development by providing different qualities or grades of CBN depending on the customer needs. An example of this could be for material that is not pharmaceutical-grade for research, medicinal, or recreational use. This material will be of high purity but will not have been produced necessarily in full compliance with cGMP requirements for a pharmacy-approved product or one that's going through a clinical trial. When the CBN process is developed for the CBN drug substance as CMO, a drug master file containing all the technical details and specs can be filed with the regulatory agency. This gives any reference by our customers for their clinical trial application or using their products. This will then provide the data needed support at least to the CBN and the programs and provide the solution with regards to using the cannabinol.

To sum that up, Mike likes to be very thorough about things. The fact that we have a primary supplier in place for our ongoing needs is really important. That's paramount to everything else that we're doing. So we have security of supply for all of our R&D and potentially our commercial needs if we need it. The purpose of the biosynthesis is to provide access to rare cannabinoids in general. And in particular the ones that we want to pursue ourselves. So we're starting with CBN. We're not finishing with CBN. We're going to be looking at a lot of different rare cannabinoids as potentially therapeutic products. So in terms of where we are right now, we're going to continue with our external supply. And we'll reach a point where there may be a dovetailing of our biosynthesis with our clinical programs. So that would typically happen in between your phases of trials. So probably for instance it might be just before Phase III trials just to start. And this is not unusual. This happens frequently in the pharmaceutical world where you start with one supplier or one process for your API or your active pharmaceutical ingredient and you switch your clinical development. So, there's a number of steps and procedures. Mike alluded to the importance of the different parameters for the manufacturers, but from a clinical standpoint, there's bridging studies. Sometimes it's simply chemical analysis. Sometimes it may require some kind of in vitro assay, and on rare occasions, it requires some in vivo or even clinical work to verify that it's the same product. So we're—first and foremost, the key message is we have a good supply and we're able to move full steam ahead without waiting for the biosynthesis to catch up. Now the second point is the biosynthesis will catch up, and we'll find the best point possible to dovetail the two aspects of the company.

Wonderful. That was very helpful. And thank you so much for taking my questions.

Great. Thank you.

Hi. This is Michael Okunewitch on for Jason. Thanks for taking the questions. So my first question, I'll let focus a bit on the EB space at large. I know you've seen much of the focus on gene therapies like those from Abeona & Krystal Biotech. I'd like to see if you could walk us through some of the advantages of a cannabinoid-based therapy and where INM-755 could really fit into this market?

Hey, thank you for that question. It's a very relevant question of course. So what we did learn more at the Congress in London. Excuse me, so, a big event in my throat here. There are some very exciting gene therapy projects that I think my own personal opinion is they likely will be successful someday they are—there will be three that are in Phase III this year. I call them localized gene-correction therapies because the goal is to help patients with either recessive dystrophic EB or junctional EB which are very severe forms with a way to get corrected skin in a particular location on their body. Of course even after they've had that if it takes and if the skin transplant basically after they've grown the new skin. If it works it stays, the patient may still be symptomatic. Our therapy is dealing ideally, hopefully in the future it will be proven to show that it in symptom relief. So, even after gene-correction therapy in a local spot like the back or the boat or something, there may still be local inflammation and pain and other symptoms, occasional opening of wounds and things. So, there will still be a need I believe—and others do as well—for therapies like ours. Gene therapy will not be available for many patients just because of the high cost. And then there's other elements about medically being eligible to get that kind of therapy. Not all patients would be able to have it. So, local symptom relief remains a very high clinical need. We heard a lot about that at the Congress. The things that were mentioned as being the major daily challenges are blisters, wound, pain, itch. These are things that patients with all types of EB have in a variety of severities. So, I don't view the gene therapy success which I hope they do have frankly as being something that would limit the value and use of a product like ours.

Thank you very much. It's very helpful. For the next one, actually I'd like to move on to glaucoma. So, let's get your thoughts on choosing a rare cannabinoid like CBN over something like THC because we have seen efficacy from THC and some THC-based therapies in glaucoma. So, what would be the major advantages of using CBN over a THC-based approach? Would it be largely regulatory or also in terms of the overall chemical profile?

Thank you, Michael. This is Eric and I'll take that question. So, when we started this exercise we're agnostic on what cannabinoid can avenue to go after. So, we actually perform a screen for the retinal ganglion cells to look at which cannabinoid actually performs the best in terms of neuroprotection. And in our screen of the cannabinoids that we looked at including THC as well as CBD, CBN outperformed in those screens when it comes to neuroprotection. We then verified that to see whether or not the cannabinoid we chose actually had the impact on intraocular pressure reduction in terms of looking at a primary salient. Without going into too much detail basically at the end CBN in our screen outperformed. So, we're actually taking this approach as very data-driven rather than just looking at a panel of cannabinoids and the literature and decide which cannabinoid can perform the best. So, that's how we approached it. In terms of the chemical profile, obviously, CBN will be different from THC. From our EB study which also uses CBN as a primary API, we have shown that CBN is quite stable as well. So, that's going to facilitate the CMC aspect of the drug product and also CBN in our preclinical study that was done for EB. It has—basically shows there's no neurotoxicity. So, from that perspective, I think that's another advantage over THC.

Yes. It's very interesting, especially the neuroprotection part on it. I'd actually like to see if you could—could we expect to see any additional preclinical neuroprotection data in the near-term? Because that's kind of like the Holy Grail of treatment in glaucoma something that can reduce intraocular pressure and in part neuroprotection?

Yes. So, the short answer is we are performing a lot of activities both in vitro/in vivo. And so in time we'll be able to release those data. But keep in mind that in the glaucoma space when you talk about preclinical models, there are quite a lot of options, but none of the models really reflect what's truly in the human. So, in short, we will do quite a bit of those studies and when the data is ready, we'll be able to release it to the public.

All right. Thank you. And then I have one last one more on the regulatory side if you guys don't mind. I'd like to see how CBN is treated regulatory-wise in the U.S. because it's not as you said it's not psychoactive? And we know that CBD has been made available pretty much everywhere in the U.S., while the CBN remains controlled. So where would CBN as the cannabinoid fall in the spectrum?

Okay. Thank you for that question. I'll take that one. Well, it will vary from one country to the next is the first part of the answer. If we talk about the U.S., this is a new chemical entity. And because it is in the class of cannabinoids, therefore it will start as a scheduled product and therefore be very controlled. Over time, it just has happened for CBD, if you can show adequate safety and efficacy, there is a medical value for it then it can be changed in terms of the level on the scheduling and that's what happened for CBD. But when that happened for CBD, it happened only for the specific product for the specific approved indication. It wasn't for all uses of CBD. So that's the past. It's very confusing in the U.S. at times because of the farm bill. They're still sorting all this out whether things come from hemp or not, it's very complicated. But we will be doing our trials in EB around the world and different jurisdictions have different ways of handling cannabinoids. Our current study in the Netherlands we've not had any complications with being able to run that study. Does that answer your question?

Yeah. Thank you. And then thank you for taking my questions. Congratulations on the progress.

Thank you.

Thank you. Good morning, madam and gentlemen. My question relates to how in the past the company directly or indirectly has benefited from grant money. And with the progress the company has made, one would think that the earlier sources of grant money would take notice. Is there a realistic chance that part of your future capital needs might be supplied from a source or sources of additional grants?

Yes, thanks for the question, Jacque. Yes, in the past, we have been successful in securing non-dilutive funding through a number of different programs available to Canadian companies. It's something that on a project-by-project basis, we pay close attention to and try to identify potential funding sources. We've not received any for EB. There are some programs out there. But every grant program has different criteria. So we've not really been able to dovetail our program with some of the grant requirements for EB. For biosynthesis, we have received some attractive grants from the NRC IRAP program in Canada, which is a tremendous program. I can't say enough about how much it's helped early biotech companies. And that's been very supportive of our efforts in biosynthesis. So the answer is yes, we will continue to pursue that. We can't really provide any guidance on it because it's a grant process. So it has to be written up, submitted, defended, and negotiated, and that's just something that takes time. And as we're successful, we'll communicate that to people. But we do keep an active eye open to find those kinds of funding sources.

Thanks, sir, and congratulations on your progress so far. Keep up the good work.

Thank you very much. I appreciate the comments.

Yes. So in closing, I'd just like to thank everyone for taking the call and being with us today. Again, feel free to reach out to us if you have any additional questions. And with that, I'd just like to pass the call back to Eric Adams, our CEO, if he has any further closing statements.

No. It's been a very active quarter, very active year. We're making progress on all fronts and it's a very exciting time to be at the company. I can't say enough about the staff sitting around the table here with me and their level of dedication and professionalism. It's the kind of thing that makes a difference for a company of our size to be successful. So I'm very thankful to all the individuals that have joined me today on the call and to our investors. Thank you very much. We think it's going to be a tremendously exciting year. We have more milestones than we've ever had in the past, and we look forward to communicating those and sharing those with investors and hope everyone shares the same excitement level that we have. So once again, thank you very much and we look forward to speaking with you again soon.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have yourselves a great weekend.