Inmune Bio, Inc. Q2 FY2020 Earnings Call

Greetings and welcome to the INmune Bio Second Quarter 2020 Earnings Call. As a reminder, this conference is being recorded. A transcript will follow within 24 hours of this conference call. At this time, it is my pleasure to introduce Mr. David Moss, Co-Founder and CFO of INmune Bio. David, the floor is yours.

Thank you, Mallika. And good afternoon, everybody. We thank you for joining us for the call for INmune Bio's second quarter 2020 financial results. With me on the call is RJ Tesi, CEO and Co-Founder of INmune Bio, who will provide a business update. Before we begin, I remind everyone that except for statements of historical facts, the statements made by management and responses to questions on this conference call are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that can cause actual results to differ materially from those in such forward-looking statements. Please see the forward-looking statements disclaimer on the company's earnings press release as well as risk factors in the company's SEC filings, including our most recent quarterly filing with the SEC. There's no assurance of any specific outcome. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made as of the facts and circumstances underlying these forward-looking statements may change. Except as required by law, INmune Bio disclaims any obligations to update these forward-looking statements to reflect future information events or circumstances. With the forward-looking statements behind us, now I'd like to turn the call over to RJ Tesi, Co-Founder, CEO of INmune Bio. RJ?

Thank you, David, and thank you, everyone, for joining the call. I will arrange my remarks to highlight key takeaways for the second quarter, year-to-date, and provide updates on our programs using our two platforms before I pass it back to David to discuss our financial results and upcoming milestones, then we will move to the Q&A. We'll start with the DN-TNF platform that targets soluble TNF without affecting transmembrane TNF. This unique biology opens vast therapeutic areas that are not accessed by the currently approved TNF inhibitors due to safety concerns. INmune Bio has four therapeutic programs in development using the DN-TNF platform. These include INB03 for cancer, LIVNate for NASH, Quellor, a new program to treat the complications of cytokine storm related to COVID-19, and XPro1595 for Alzheimer's disease. I'll remind you that these are all the same drug repurposed for each indication. XPro1595 for the treatment of Alzheimer's disease is the obvious place to start. Although not a second quarter event, on July 13, we reported interim results from our Phase Ib clinical trial. We have been clear in describing the goal of this trial, which is to decrease neuroinflammation in patients with Alzheimer's disease. Preliminary data reported in six patients demonstrated that XPro decreases white matter free water, a biomarker of neuroinflammation that is measured by MRI in patients with Alzheimer's disease. The proceeding statement understates the real power of this biomarker in all patients; neuroinflammation as measured by this validated biomarker decreased in the arcuate fasciculus. Why is this important? The arcuate fasciculus is a white matter tract critical to language. While these data are preliminary, unless confirmed with additional study subjects, we believe that they are important for three reasons: first, they show that XPro, when given as a subcutaneous peripheral injection, can decrease neuroinflammation in patients with Alzheimer's disease. Second, the decrease is in a well-defined anatomical structure that plays a crucial role in arguably the most sensitive clinical symptom of Alzheimer's disease, language dysfunction. Finally, these data provide a distinctive, measurable biomarker that we can use to inform future trials and points to clinical endpoints that will allow us to design an efficient Phase II program while optimizing the dose of the drug to be used in what will be a blinded, randomized, placebo-controlled trial. If you did not participate in the KOL webinar on the morning of the 13th, I suggest you use the link on our website to listen to the clinical vignettes presented by Dr. Rosalyn Lai, the principal investigator at the KaRA site in Sydney, Australia. You can also hear the commentary by our expert team of consultants and see the data in the slides. Like our consultants, we are extremely encouraged by these findings at such an early stage in our clinical trial. Not only do we see a clear reduction in neuroinflammation, but we also know where in the brain this reduction is occurring and which may allow us to predict domains of cognition that might be affected by the disease and the therapy. We look forward to results in additional phases in the Phase Ib trial and in the patients who have been rolled over into the extension trial. If there are no surprises, we are confident in our goal to initiate a Phase II trial in 2021. The COVID-19 pandemic continues to rage across the U.S. The Quellor program targets soluble TNF, arguably the most important element of the cytokine storm that is a common feature in patients requiring hospitalization for COVID-19 infection. We have previously detailed our decision process and strategy as it relates to this fascinating but complicated public health problem. Several things have changed. We signaled we were applying for non-dilutive financing from BARDA. On the eve of our application submission, BARDA refocused its mission to supporting vaccines and diagnostics exclusively. They indicated a submission for a therapeutic would be a low priority. Disappointed, but not deterred, we are working towards treating the first patient. The exact timing for this depends on both the regulatory agencies and the complex start-up activities at the clinical sites. Honestly, two months ago, I was concerned that there may not be enough cases in the United States. Obviously, that has changed dramatically; this disease is going to be with us for a while, and we think we have a therapy that should be tested and may benefit these patients. We have two additional DN-TNF programs that are delayed due to the pandemic: INB03 for cancer and LIVNate for NASH. We believe it will not be possible to initiate enrollment in these programs until 2021. As the pandemic winds down and clinical sites begin to return to normal, we will seek to reengage the clinical teams that we have identified for these programs. I do not want to predict when patient enrollment will start. For those of you who are familiar with the world of biotech, an obvious question is about drug support. We are working with KBI Biopharma, a U.S.-based CDMO, on the production of drugs for our burgeoning clinical programs. Making biologics is complicated; there are many twists and turns. And the best way to describe the process so far is that it is so far so good. If things remain on track, we expect to have the first batch of drug produced by KBI in 2021. Before I conclude my comments on the DN-TNF platform, I want to highlight some surprising findings reported by Dr. Roxana Schillaci at AACR this year. Dr. Schillaci has demonstrated that the combination of INB03 with the TKI inhibitor, lapatinib, overcomes resistance to trastuzumab in HER2-positive breast cancer. Actually, in any HER2-positive cancer, she has data in gastric carcinoma also. This body of work continues to expand, and we hope to present additional preclinical data to support our efforts in oncology. On to INKmune; this is our NK cell priming platform. We have two therapeutic programs in the queue. INKmune will be studied in a solid tumor and a hematologic malignancy, specifically ovarian cancer and high-risk myelodysplastic syndrome, respectively. The latter is a form of pre-leukemia. In June, we announced that the MHRA, the U.K. equivalent of the FDA, has given approval to initiate the Phase I clinical trial in INKmune with INKmune in high-risk MDS patients. The single-center Phase I trial will be a first-in-man study using the INKmune product. Based on the current environment and the timetable given to us by the clinical site, we are targeting study initiation before the end of the year. To be clear, the study will occur in the U.K., a country suffering from many of the problems related to initiating non-COVID-19 clinical trials that we suffer from here in the U.S. The treatment of the first patient depends on getting the green light from the clinical sites. The company is ready. High-risk MDS is a disease of the elderly. It is poorly served by standard leukemia therapy, such as high-risk chemotherapy with bone marrow transplant. And we hope to show that INKmune will provide effective and safe therapeutic options for these patients, who currently languish and ultimately die of their disease. The Phase I trial will include at least nine patients enrolled at a single center in the U.K. It has the capacity for both expansion in the number of centers and the number of patients. We expect enrollment to take a year. The treatment of ovarian cancer, the solid tumor we are targeting, has been a challenge for patients, clinicians, and biopharma. The problem is relapse. Put another way, current therapies are pretty good at controlling overt disease but do not solve the problem of residual disease, and as you know, residual disease is what causes relapse. Elimination of residual disease is the focus of our INKmune programs, particularly in ovarian cancer. The preclinical data clearly shows that INKmune can prime the patient's abundant NK cells and CaOva ascites to attack their tumor. As with the high-risk MDS program, the Phase I trial for the ovarian cancer program awaits a reopening of the U.K. cancer sites or centers to Phase I clinical trials. We expect this trial to begin enrolling in 2021. Naturally, we value intellectual property; it is one of the lifebloods of biotech. For the INKmune platform, we announced in April that the INKmune platform had new intellectual property issued by the USPTO. The patent application was entitled 'in vivo priming of natural killer cells.' This is a core bit of intellectual property that we continue to expand for both the INKmune program and the DN-TNF program. As to this intellectual property issue, we will let you know. This concludes the updates on the two platforms. I will now turn it back over to David Moss, INmune Bio's CFO, to discuss financial results and upcoming announcements.

Thank you, RJ. I'll provide a brief overview of our financial results and upcoming milestones. Net loss attributable to common stockholders for the second quarter ended June 30, 2020, was $2.1 million compared to $0.4 million for the quarter ended June 30, 2019. Research and development expenses totaled approximately $0.9 million for the second quarter ended June 30, 2020, and compared with approximately $0.6 million for the quarter ended June 30, 2019. General and administrative expenses were approximately $1.2 million for the quarter ended June 30, 2020, compared to $1.3 million for the quarter ended June 30, 2019. At June 30, 2020, the company had cash and cash equivalents of approximately $4.8 million with no debt. Not included in that figure is the closing of a $25 million gross proceeds public offering, resulting in net proceeds of approximately $23.1 million after deducting underwriter discounts, commissions, and other offering expenses payable by the company we closed on July 20. For general corporate purposes, including supporting research and development, mainly clinical trials, I will note that we sold only common stock in the offering. As of August 5, 2020, the company had approximately 13.4 million shares of common stock outstanding. Now, I'd like to move on and list our upcoming milestones and catalysts. First, we expect to report additional results of the Phase Ib XPro1595 Alzheimer's disease trial expected to complete towards the second half of 2020. And as RJ has said earlier, this trial is on extension and will continue into 2021, but you should see additional data towards the end of this year. Second, initiate enrollment of patients with Quellor for the treatment of complications of COVID-19 infection. Third, enroll patients in INKmune, Phase I in high-risk MDS expected towards the second half of 2020. In 2021, we plan to initiate four clinical trials: INKmune, a Phase I for the treatment of ovarian cancer; XPro1595, a Phase II program for Alzheimer's disease in patients with neuroinflammation; LIVNate, a Phase II for the treatment of NASH; and INB03, a Phase II for the treatment of MUC4 resistant metastatic HER2-positive breast cancer. So in summary, we remain very, very focused on meeting our milestones, delivering data, and rewarding investors' faith and, most importantly, patient development of our business. We thank all of our previous, current, and new investors who have played and supported our goals of moving these programs forward. At this point, I'd like to thank you for your time and attention, and I'd like to turn it back to Mallika for questions and answers. Mallika, could you please poll for questions?

The first one is from the line of Tom Schrader with BTIG.

This is Julian on for Tom. Congrats on the quarter. First, on your Alzheimer's Phase I beyond white matter free water, I understand that there are several data points that we're expecting back in the back half of this year. How would you frame expectations for those? I know it's very early, but is it reasonable to expect directionally positive trends over three months there?

Yes, thank you. This is RJ. As you know, we have five biomarker categories. These include white matter free water, which is related to imaging; breath, which serves as an exploratory endpoint; inflammatory cytokines; biomarkers of neurodegeneration like neurofilament in both blood and cerebrospinal fluid; and behavioral biomarkers. To manage costs, many of the cerebrospinal fluid biomarkers, which we anticipate will be the most promising, are being batched, so we expect to receive those results in the second half of this year. We are utilizing the Roche Toolkit for Alzheimer's testing in cerebrospinal fluid. Data regarding the neuropsychiatric biomarkers will likely be provided gradually, starting in the second half but more so towards the end of the year. I believe both the cerebrospinal fluid and neuropsychiatric endpoints, which we consider to be the most likely to be sensitive, will indeed provide valuable direction in planning our Phase II studies. I'm uncertain about the breath biomarker. We appreciate the technology, but it's never been utilized in the manner we're attempting, which is for monitoring results. Lastly, I have reservations about blood biomarkers in Alzheimer's disease or any inflammatory disease; measuring blood cytokines presents significant challenges when studying inflammation. Therefore, we place less emphasis on them. We include them because they are commonly used, but we focus our trials on the other biomarkers that we find to be more dependable.

Okay, got it. That's helpful. And then switching gears to your COVID program. I know there have been some reports of infarction associated with the natural course of the infection. Do you have a sense for how common this is relative to the flu and the FDA's channel receptivity for therapies that specifically address this on a prophylactic basis?

So are you saying, meaning infarction in the heart? Are you talking about cardiac infarction or elsewhere?

Both.

Our belief is that COVID-19 is not primarily a pulmonary disease, but rather a condition of endothelial activation that can affect various organ systems, particularly the lungs. The heart is a secondary area that can be impacted. Research indicates that the cardiac issues are not due to direct viral infection of heart cells but are associated with coagulopathy and blood clots. These cardiac problems are genuine and can be long-lasting. It's noteworthy that even with influenza, there is an increased rate of myocardial events within a certain period after infection. This suggests a potential general effect of viral diseases. Additionally, the unique complications of COVID-19, such as neurological effects, hepatitis, renal issues, post-COVID brain fog, and pediatric inflammatory syndrome, should not be compared to a severe flu, as they represent a more complex range of symptoms.

And next one is from the line of Jonathan Aschoff with ROTH Capital Partners.

I was wondering if you can tell me how big the Phase Ib trial will ultimately be now that you've seen encouraging neural information results in the first few patients? And how long will you dose them in the extension program you have?

Good question. I expect that instead of treating 18 patients, we will get closer to 24 or 28. Now that we have a biomarker that we can measure objectively, we can improve the precision of our outcomes. Traditionally, clinical trials rely on rating scales that involve subjective evaluations, which are less precise. The MRI removes that subjectivity; it allows us to use a computer algorithm for measurement. As a result, I believe we can determine the exact dose we need during the clinical trial, which may lead to cohorts requiring less than 1 milligram per kilogram, benefiting both the cost of goods and patient outcomes. Therefore, I'm anticipating we could enroll around 24 to 28 patients. The extension trial is different and requires a new protocol. Some patients achieved significant results and advocated strongly to continue the treatment after three months. Initially, there was hesitation because of the costs involved and the small number of patients, but one of our Board members advised that prolonged data from patients is valuable for discussions with regulators. In the extension trial, patients will remain on the drug and receive formal evaluations via MRI and safety labs every three months. Currently, some patients have been on the treatment for 8 months, and the protocol allows for them to stay on for one year. We may extend their participation if both they and their clinicians believe the therapy is beneficial. The initiative was patient-driven, supported by their clinicians, and I'm pleased we're conducting this trial. Eventually, we'll be able to report the therapy's effects on patients who have been on the drug for a year, which is a positive development for our progress.

Okay. I was curious, thus far, what percent of patients that have completed 12 weeks are in the extension program?

I do not know that off the top of my head. As you know, CJ Barnum is our Director of Neurosciences who is directly involved in the trial. I'll ask him and get back to you on that, Jonathan. I'm sorry.

Okay. The last one, about Alzheimer's disease. Given the results thus far, do you think that you'll deemphasize the other DM standard program to focus resources on a more aggressive early Alzheimer's disease campaign than you might have expected?

That's a very good question. Currently, the leading focus is on the AD program. We value our other programs and remain committed to seeking non-dilutive funding. I'm not saying we are abandoning any of them. We believe these programs hold clinical value for patients and financial value for the company. So, while you asked a fair question, we are not ready to prioritize one over the others just yet.

Our next question is from the line of Naureen Quibria with Maxim Group.

Hopefully, you can hear me. I have a question about the Alzheimer's disease program and the extension arm. Since the patients will be staying on for a longer period, do you have any insight on whether there will be an impact on cognition? Will you be able to evaluate that at all through the study?

Absolutely. Good. Thank you, Naureen, for the question. Absolutely, yes. As part of that, every three months evaluation, they get the full battery of neuropsychiatric testing. They actually got it at three months also. But our expectations were quite low. From what we're seeing, we think that we are hopeful that over time, we will actually see the changes in those metrics that will get the people who are used to a more traditional Alzheimer's trial with cognitive endpoints excited. So the answer is absolutely yes.

Okay, that's helpful. Regarding the soluble TNF inhibitor you'll use for the COVID study, could you explain the study and the rationale behind it? I know you've mentioned it before, but it's worth noting that other cytokines like IL-6 inhibitors, such as Sanofi's Kevzara and Roche's Actemra, haven't performed well, and hydroxychloroquine hasn't shown any benefits either. There have been various cytokines involved, but we still lack clarity. This is a different cytokine targeting something else. Have you observed any preclinical evidence with this agent in endothelial cells or other contexts that suggests soluble TNF might provide benefits for COVID patients?

That's a very insightful question. Remember, we're not focused on the lung; we're focused on the endothelial cells. This is a major difference in how we approach the disease. When you look at the major cytokines or their terminals, soluble TNF, IL-6, and IL-1, it's important to note that IL-6 has no effect on endothelial activation. TNF has a significant impact on endothelial activation, and IL-1 beta's effect may vary depending on the studies referenced. It's clear that soluble TNF influences endothelial cells by upregulating ICAM and VCAM, which are proteins that help immune cells reach injury sites. More importantly, it enhances tissue factor, which triggers coagulopathy. I have been vocal about the role of coagulation being problematic. I believe the anti-IL-6 programs won't significantly affect what I consider the primary inflammatory target, which is the endothelial cell. There is also a combined anti-IL-1 alpha and beta drug that has been studied, but I think we have a strong drug, and notably, in other areas, such as multisystem inflammatory syndrome in children, TNF plays a big role. Ultimately, we need to conduct the clinical trial correctly. I'm optimistic about our current trial and believe it has the potential to demonstrate a benefit. Our greatest advantage may come from addressing the coagulopathy, and by managing the cytokine storm, these patients are likely to benefit. Just stay tuned.

Right. So that's helpful. Just one more on that same topic. So will you look at MISC and Kawasaki disease as well?

Not at this point. We're eyeing that with considerable interest, I would say. There are always challenges getting into the pediatric arena; the standard path for diseases that for drugs like our DN-TNF is to have a large adult database before you go into kids. The FDA is very supportive of you going into kids, but they want you to have that database. We're away from that database, but the problem is today. You can imagine with the raging virus in the U.S. particularly with the push to go back to schools, I think we're going to be seeing more of these kids. And the current therapies are imperfect. All I can say is it's something that's very much on our radar stream. But I think at this point in the COVID area, we're very focused on getting the adult trial going. And once we get that started, I think it becomes a topic of conversation.

Our next question is from the line of Arthur He with H.C. Wainwright.

I have two questions. First, I want to know about the COVID-19 study. Have you had any further discussions with the FDA? Also, in your opinion, what is the best time to begin the trial?

Let me answer that. We are fully engaged with the FDA, and the responsibility now lies with them. As you can imagine, the clinical sites are interested in what we’re offering, so there are two parallel processes happening. One is the regulatory process with the FDA, and the other is the clinical development process. Getting the sites operational is a significant task, and both processes are progressing simultaneously. I don’t want to provide a specific date, but initially, we considered launching in Australia due to our existing clinical programs there. However, after seeing their initial success in managing the pandemic, which has since declined, we are now re-engaging with Australia. We will be using the same protocol and are in discussions with two regulatory authorities, which puts us in a solid position to begin soon. I previously mentioned August as a hopeful start date, and while I won’t specify the country, it’s reasonable to expect we’ll enroll our first patient quickly or within a reasonable timeframe.

And my second question, probably for David. Could you give us some color on the ongoing expense on the R&D and the overall operational expense?

Yes. No, happily. Given the current programs that we've announced without any changes or expansion, adding any new programs or decreasing any programs, just based on our current plan that we've announced, we have funding through the first half of 2022. So we're well funded through 2021, and we expect to do what we've done in the past: keep our heads down, run things as efficiently as possible. Our R&D expense looks a little bit on the low side because we get these rebates, which are contra R&D, which are unusual in biotech companies. So we're going to continue to get the R&D rebates in Australia and the U.K., and we're also going to continue to try and apply for support grants in our clinical programs. Obviously, we'll announce anything that, if we're able to achieve that, as we move along. But we're going to continue our kind of, let's call it, be as capital-efficient as we possibly can.

I think we're going to cut off the Q&A session. I'm sure there are people that have not had their questions answered, and we apologize. But David and I pride ourselves on being accessible; you know how to get ahold of us. Please reach out to us, and we will do our best to answer your questions. So we appreciate you participating in the call today. And we very much appreciate your continued support. David, anything you want to add?

No, RJ. I mean, again, I just want to highlight that the investors are the lifeblood of our company, and we do want to communicate with you if you have questions. We know you have a lot. There's a lot of questions related to Quellor; keep them coming, and we'll do our best to answer them. Thank you. Mallika?

Thank you. Ladies and gentlemen, that does conclude today's call. We thank you for your participation. I ask that you please disconnect your lines.