Inmune Bio, Inc. Q4 FY2021 Earnings Call

Greetings and welcome to the INmune Bio Fourth Quarter and Full Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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. Thank you, David, the floor is yours.

Thank you, John, and good afternoon, everybody. We thank you for joining us for the call for INmune Bio’s fourth quarter and full year 2021 financial results. With me on the call is Dr. R.J. Tesi, CEO and Co-Founder of INmune Bio, who will provide a business update on our clinical programs. 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 the Risk Factors in the company’s SEC filings, including our most recent quarterly filing with the SEC. There is 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 the fact and circumstances underlying forward-looking statements may change. Except as required by law, INmune Bio disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. With that out of the way, now, I’d like to turn the call over to Dr. R.J. Tesi, Co-Founder and CEO of INmune Bio. R.J.?

Thank you, David, and thank you everyone for joining the call. As is our practice, I will arrange my remarks to highlight the takeaways from the fourth quarter and subsequent period, we'll then move to Q&A. Starting with XPro. During 2021 we provided extensive detail of our clinical programs in Alzheimer's disease including the results of the Phase 1 trial and the design of our Phase 2 programs in Mild AD and MCI, or Mild Cognitive Impairment, a prodromal form of Alzheimer's disease. The Phase 1 trial exceeded expectations. The study showed that XPro 1 milligram per kilogram once a week as a subcutaneous injection decreases neuroinflammation in patients with ADi, which is the term we have coined for patients with Alzheimer's disease who have biomarkers of inflammation and neuroinflammation. The Phase 1 trial demonstrated downstream benefits of decreasing neuroinflammation, including decreased neurodegeneration, or nerve cell death, improved synaptic function, arguably the most important target in Alzheimer's disease, and remyelination. We’ve provided anecdotes of improved cognition in the Phase 1 trial, but definitive evidence of the effects of XPro on cognition in patients with ADi awaits the results of the blinded randomized Phase 2 trials. The company understands it must deliver clinically relevant data in these trials. We have presented detailed descriptions of the ADi Phase 2 trials previously, and here I will highlight the two unique aspects of those trials. Both use enrichment strategies to enroll patients, and both use EMACC to test cognition. EMACC stands for early Alzheimer’s disease cognition composite, and it is ideally suited to measure cognitive changes in patients with MCI and mild AD. EMACC is a highly sensitive index of cognitive change, composed of validated neuropsychological test measures. It is psychometrically better suited to the early and mild range of illness than measures such as ADAS-COGs. ADAS-COGs suffers from floor effects, which means that 9 of the 13 elements are at a ceiling effect, meaning that 80% of the MCI patients basically perform them flawlessly. This renders ADAS-COGs insensitive to measuring changes in performance in these early AD populations. Finally, EMACC is being used by other companies in AD trials, and we believe it will become the standard endpoint for cognition in clinical trials in this group of patients. Put simply, EMACC is the best tool for the task. I believe that many of the failures of AD drug development in the past have been partly caused by the use of historically crude measures of cognition. Enrichment strategy is a term coined by the FDA and is commonly used in oncology trials. Enrichment means the use of biomarkers to select patients for a clinical trial to match their disease with the drug therapy. Basically, you're slanting the trial to success. Our CNS trials are enriched for patients who have neuroinflammation. This distinct ADi subset equals about half of the Alzheimer's disease patient population. The ADi enrichment strategy provides trial design advantages that improve efficiency and decrease risk. Because dementia in patients with ADi progresses both rapidly and reliably, the clinical trials are shorter and smaller than trials that do not use enrichment strategies. Combining findings from publicly available databases, such as the ADNI database out of USC, with data from our Phase 1 trial that showed that the response to XPro happens quickly in patients with mild, we designed the MCI and mild AD trials to last three or six months, respectively. The mild Alzheimer's Phase II trial is actively screening patients. We will announce when we have treated our first patient. The MCI trial will start in a few months and we remain confident that the top-line data will be reported in the first half of '23 for the MCI trial, and the second half of '23 for the mild AD trial. In 2021, we contributed 8 presentations at two of the most important medical meetings for Alzheimer's disease: the AAIC and CTAD. We expect 2022 to be equally productive. In three weeks’ time, INmune Bio is part of at least four presentations at the upcoming AD/PD meeting, the largest Alzheimer's meeting in Europe. We expect to maintain our high profile at the AAIC and CTAD in '22. One of the bigger advantages of XPro to target neuroinflammation is that XPro can be used to treat a wide variety of neurodegenerative and neuroinflammatory diseases. We have announced a Phase 2 trial on Treatment Resistant Depression funded partially by the NIH. This third Phase 2 study with XPro will be initiated in 2022. Other diseases remain on the horizon, but more of that in the future. Before getting on to INKmune, I want to highlight the exciting research using INB03. INB03 is a DN-TNF program focused on oncology. MUC4 is a proteoglycan expressed on the surface of many solid tumors. Roxana Schillaci has discovered that MUC4 is a biomarker for resistance to immunotherapy. Data with INB03 presented at the San Antonio Breast Cancer Symposium in 2020, 2021, and the publication list is long and growing. Those posters and publications are available on our website. Why is this program important? We believe two of the biggest trends in cancer immunotherapy are resistance to immune checkpoint inhibitors and inhibitions in trastuzumab-based therapies. INB03 appears to make cold tumors hot and may convert a tumor resistant to checkpoint inhibitors to one that is sensitive to checkpoint inhibitors. The expanding role of trastuzumab-based therapies is following on two parallel tracks. The first track is that trastuzumab-based drug conjugates or ADCs, the most prominent being HER2, are being used a lot. The second is the expanding use of ADCs in low expressing HER2 tumors. The breast cancer expansion in low expressing tumors more than doubles the number of patients who may benefit from ADC therapies. In breast cancer, in animal models, MUC4 expression prevents binding of trastuzumab to HER2, making them resistant to therapy. MUC4 expression is driven by soluble TNF. So when you give INB03, MUC4 expression decreases, and the tumor becomes sensitive to therapy. Resistance to ADCs is now being reported in patients, and we expect this conversation to continue and expand over the next year or so. Additional data will be presented at this year’s AACR, and our presence at the San Antonio Breast Cancer Symposium will continue. The third major trend in oncology is the increased importance of NK cells. And this is a great segue into our INKmune program. One clear difference of our INKmune program compared to other NK programs is that we do not give NK cells. We aim to improve the function of the abundant NK cells in patients with cancer. INKmune is a universal off-the-shelf therapy with cost-effective manufacturing that activates the patient's own NK cells. We believe that the patient's NK cells have all the tools they need to kill cancer, but they lack the signals necessary to initiate that process. Most patients have plenty of NK cells that just don't work. INKmune changes the patient’s innate resting NK cells into memory-like NK cells. Memory-like NK cells are the cells that matter because they're the NK cells that kill cancer. It's possible to make memory-like NK cells from cytokines, but this requires a triple cytokine cocktail of IL-12, 15, and 18. Because this combination is too toxic to give to patients, this conversion must be done ex vivo in a laboratory process that is costly and logistically complex. In 2021, we transplanted INKmune from bench demand, where patients with hematologic malignancies had been treated with INKmune. What have we learned? First, INKmune is safe and well-tolerated. Each of the patients received a single course of INKmune, which is three simple intravenous infusions over a two-week period. INKmune has given us an outpatient therapy that does not require premedication, conditioning therapy, or extra cytokine therapy. INKmune is simple. It can be used in any center that treats cancer patients. INKmune performed better than expected in patients; a high percentage of the patient's resting NK cells are converted to the cancer killing memory-like phenotype, the only NK cells that matter in patients with cancer. The patient's memory-like NK cells killed NK-resistant cancer cells in a laboratory assay. Before treatment, the patient's NK cells did not kill cancer. After INKmune, they do. Finally, both the increase in memory-like NK cells and the cancer killing lasted for many weeks. We call this therapeutic persistence. In the MDS patient, therapeutic persistence lasted at least 12 weeks. This is promising. The scientists crave to know how the patients are doing. Of the three patients treated, two significantly improved with INKmune. The patient from the high-risk MDS trial shows decreased lapses, decreased transfusion requirements, and improved performance status. Before treatment, he was in bed for half the day and is now living a normal life, and for him, a normal life means playing badminton. The young woman with a failed bone marrow transplant with relapsed AML remains home with stable disease after a course of INKmune. She may still need a second transplant, but the urgency surrounding that decision has been mitigated. The third patient, a young man who has failed two bone marrow transplants for AML, remains in the hospital. This week the high-risk MDS program has been peer-reviewed by the UK National Cancer Research Institute, Myelodysplastic Syndrome Expert Group. This group has accepted the trial for listing on the UK National MDS Trial site. The NCRI scheme is unique to the UK; no proven system exists in the U.S. The NCRI classification allows centers to refer patients to the existing UK trial sites for treatment under the existing program. Without this national listing, patients must be treated in their local healthcare facilities. There's no ability to refer patients elsewhere. We hope this will improve enrollment. We also hope that this added validation and exposure to the expert centers that the process entails will provide more patients for the clinical trial now and in the future. Professor Lowdell's team continues to dig deeper into how this works and why this is better than cytokine therapies. In 2022, his team will release data at meetings on these questions. Now to the elephant in the room, why have clinical trial enrollment been slowed and delayed? I promise the company recognizes the problem. The main delay in the Alzheimer's Phase II trials has been due to the XPro drug supply. Because of COVID-related supply chain issues, new XPro was not available until January 2022; this caused a four-month delay. Every element of the Alzheimer's Phase II program was affected by this four-month delay. Now we have 25,000 doses of XPro on hand with another 40,000 doses in process that will support further development in Alzheimer’s treatment resistant depression and beyond. The XPro drug supply problem is behind us. However, the consequence of that delay is the delayed start dates. To make up lost time, we have engaged an international team with deep experience in managing Alzheimer's disease trials. We plan to open 45 sites in the mild AD trial and 25 sites for MCI; 85% of the sites will be enrolling both trials. We have hired two additional employees to supplement our existing team to speed up site initiations. Finally, we have made an important change in the MCI trial. Bear with me for a moment. Last year, we committed to positioning XPro for accelerated approval in Alzheimer's disease, if Lilly followed a Phase II accelerated approval regulatory path with donanemab, their promising anti-amyloid therapy. The CMS decision on January 11th made it clear that Phase II programs will most likely be required. This decision impacted our development plans. We have altered the design of the Phase II trial in MCI. It will now be a two-arm trial; previously it was a three-arm trial, comparing 12 weeks of 1 milligram of XPro to placebo. 60 patients will be enrolled in a 2:1 ratio. There will be no patients enrolled at 2 milligrams per kilogram. The elimination of the 2 milligrams per kilogram arm allows us to eliminate invasive diagnostic and biomarker assays that were barriers to enrollment. The trial endpoints, the statistical power, none of the other elements have changed, and none of the elements of the mild AD Phase II trial have changed. The time from first patient enrolled to the last patient enrolled in the MCI trial should be improved with the elimination of these invasive tests. In summary, we expect, as we have in the past, that the Phase II trials in MCI and mild AD will report top-line data in the first half of '23 and the second half of '23, respectively. INKmune is equally frustrating. I mentioned one benefit of the NCRI classification is that centers can refer patients to clinical sites outside of their local area. The second benefit is that it allows other expert centers in the UK to join the program as clinical sites. We hope to leverage the NCRI classification to access the largest pool of eligible patients for this high-risk MDS trial. We are also looking to expand to sites outside of the UK. Our goal is simple: to get 8 additional patients enrolled by the end of 2022. With that, I will turn it over to David Moss, our CFO, to review certain financial items.

Thank you, R.J. I'll provide a brief overview of our financial results and upcoming milestones before we head into our Q&A session. Net loss attributable to common stockholders for the year ended December 31, 2021, was approximately $30.3 million compared with approximately $12.1 million for the full year of 2020. Revenues totaled $0.2 million for the year ended December 31, 2021, compared to zero for the year ended December 31, 2020. Research and development expenses totaled approximately $20.5 million for the year ended December 31, 2021, compared with approximately $5.9 million for the full year of 2020. The primary reason for the increase in expenses was an increase in clinical trial costs as we prepare for these Phase 2 AD programs and an increase in costs associated with manufacturing additional DN-TNF drug supply, as R.J. mentioned earlier. General and administrative expenses were approximately $8.8 million for the full year ended December 31, 2021, compared to $6.3 million for the full year of 2020. The increase in G&A is mainly due to higher compensation expenses, including stock-based compensation and higher consulting fees. Other expenses for the year ended December 31, 2021, were approximately $1.2 million compared to $0.1 million of other income during the year ended December 31, 2020. The increase in other expenses was mainly due to the company incurring interest expense on the debt, which it used to repurchase equity. At December 31, 2021, the company had approximately $74.8 million of cash. Based on our current operating plan, we believe our cash is sufficient to fund our operations into '23. As of March 3, 2022, the company had approximately 17.9 million shares of common stock outstanding. Now I'd like to move on and list our upcoming milestones and catalysts. Our upcoming milestones include the initiation of the XPro Phase 2 program for Mild Cognitive Impairment in patients with the APOE4 allele in the first half of 2022. We plan to initiate the XPro Phase 2 program for treatment-resistant depression, TRD, funded in part by a $2.9 million NIH grant, by the second half of 2022. We plan to initiate INKmune Phase 1 program in ovarian cancer in the second half of 2022. We also plan additional open label Phase 1 trial data of INKmune in high-risk MDS patients. We expect to report top-line data from the Phase 2 trial of XPro in MCI patients in the first half of 2023 and from the Phase 2 trial of XPro in mild Alzheimer's patients in the second half of 2023. We also plan to present INKmune clinical data and new preclinical data on mechanism of action at the Innate Killer Summit Conference in San Diego in March. Additionally, we plan to report preclinical data in at least two new solid tumor indications: renal cell carcinoma and nasopharyngeal carcinoma. We also plan oral and poster presentations at AD/PD 2022, the largest European AD meeting, which will be held in Barcelona in March. In summary, we're pleased with our progress during the fourth quarter as we continue to advance our pipeline towards potentially evaluating and creating milestones. At this point, I'd like to thank you for your time and attention. I'd like to turn it back to John to pull for questions.

Operator Instructions. Our first question comes from the line of Tom Shrader with BTIG.

Thanks for the update on the XPro supplies, solved some questions. I have two questions. The first one is on the use of APOE as a marker. At least at a cellular level, APOE is being increasingly implicated as being inflammatory. Is there clinical data to support that yet? Are essentially all APOE patients going to be inflammatory? Do we know yet? I'm just curious what you guys know because the data we've seen is mostly cellular.

I’m going to answer the two questions two ways. First of all, we agree with your assessment that a lot of the data are cellular. But there, if you look at the original work of Washington University and Holtzman and company, who actually described APOE4, these patients do appear to be inflamed. When you look at our data, which focuses on neuroinflammation, it shows that the patients that are APOE4 positive in our Phase 1 trial were indeed inflamed, if you measured them by inflammatory cytokines or white matter free water. So we believe in fact that APOE4 is a biomarker that predicts inflammation in these patients. Whether that inflammation is independent of peripheral inflammation, we can't tell at this point. But we are very comfortable that this is the genetic marker that identifies a group of patients that have neuroinflammation. We like it so much that the only enrollment criteria for the MCI trial is that you have to be APOE4 positive.

I'm wondering if you could explain EMACC and provide an intuitive understanding of what makes it different and better for these patients. Is it more about correlations that might go beyond intuition? I'm curious to get some simple insights into why that is.

Yes, that's a good question. I'm not the person that gives the deep dive. But I will say that Judy Jaeger is our consultant on this. She had a presentation at CTAD on this. She had a presentation at AAIC. In fact, she was one of the driving forces behind this. It was clear that the traditional endpoints weren't good for mild, early AD patients. They spent a huge effort looking at four different databases and analyzing this to come up with a set of criteria. It is a set of criteria, not a single test, but a set of criteria that allows for a more sensitive measure of cognition that is better certainly than ADAS-COG, better than CDR. There are publications on this, but the point is clear that it is a better cognitive measure for these milder patients. I didn’t answer your question fully, but the data are very solid. I'm just not the best messenger.

Our next question comes from the line of Mayank Mamtani with B. Riley Securities. You may proceed with your question.

Good afternoon. Thanks for the detailed update and appreciate you taking our question. So, two parts for AD. Maybe if you could orient ourselves to what we should be paying attention to at the AD/PD conference? I guess like you have many abstracts there. And also if you are able to comment on the recent GLP-1 receptor agonist double-blind, pretty large randomized controlled trials, data set that was put together showing impact in dementia? And then I have a follow-up on next.

On your first question, we have been primarily mining the Phase I trial data as you know. We got a lot of data and much of it is preliminary data, and we have been continuing to analyze that. Do I think there is a lot new there? No. The messages are very clear. We know we decrease neuroinflammation. We know the downstream benefits of decreasing neuroinflammation are less neuro cell death, improves synaptic function, and remyelination. We know that although we had hints of improved cognition, because we didn't have a placebo group, we can't comment on improvements of cognition until we do the blinded randomized trial. The main goal for our participation at the AD/PD meeting, quite frankly, is to begin to expose ourselves to the clinical teams in Europe. AD/PD is an EU meeting; AAIC and CTAD are primarily US meetings. As you know, AD is a global disease.

Yes. Maybe I can follow up offline. Just, as you know, GLP-1 receptor agonist has anti-inflammatory effects and there was a recent large database, both real world and from double-blind placebo-controlled trials that were presented, that was interesting. So maybe I'll take that offline.

No, no. Let me answer that. I want to answer that, and let me tell you why. Because it plays well into our thesis. Our thesis is that peripheral inflammation drives central inflammation. The GLP-1 study clearly affects peripheral inflammation, and we hypothesize that alleviating peripheral inflammation with GLP-1 inhibitors could affect neuroinflammation. There's evidence that suggests it should. One of the advantages of XPro versus therapies that only target neuroinflammation is that we not only target neuroinflammation with XPro, but we also target what is driving neuroinflammation, which are the peripheral causes associated with issues like obesity and metabolic syndrome. Yes, we think studies like that are very supportive of what we're doing, and we love it.

Yes, no, I figured. And on the Phase 2 MCI study, are you able to comment on the screen rate or failure rate, relative expectations, what you had before versus what we have now that we have taken out the invasive biomarker component?

Yes. The way we designed it, the definition of whether we had MCI, mild, moderate, or severe is based on cognitive testing. You get categorized based on whether it being EMACC or ADAS-COG or CDR or MMSE, for instance. Those measures categorize which bucket you’re in. In our view of neuroinflammation, we also broadcast the blood to determine if you’re APOE4 allele positive or not, whether you have metabolic syndrome, et cetera. It’s a two-step process. There will be MCI patients and mild patients that are not eligible for our trial. The Roche trial is different; they're using amyloid positives with normal cognition and they're trying to prevent those patients from becoming MCI. Our trial’s approach is different.

I appreciate the detailed status update and thank you for answering my questions. I have one question about XPro and another about INKmune. Regarding XPro, I wanted to clarify something related to Tom's earlier question about the MCI trial. I recently noticed that Roche announced this trial without screening based on cognitive symptoms or scores, focusing instead on amyloid and biomarkers, which seems to align with your approach for MCI. I previously understood that certain inclusion criteria, especially concerning CDR and ECOG scores, were in place. Can you confirm if the focus is now solely on APOE4 and biomarkers as you move forward? Additionally, I have a two-part follow-up question on INKmune.

Yes, there are three important elements here. The definition of whether we have MCI, mild, moderate, or severe is based on cognitive testing. So you get categorized based on measures such as EMACC or ADAS-COG, or CDR or MMSE. The next thing we do is to assess neuroinflammation and whether you’re APOE4 allele positive or not. There will be MCI patients and mild patients that are not eligible for our trial. The Roche trial is using amyloid positives but with normal cognition, trying to prevent them from progressing to MCI. In our case, we are focused specifically on those with established MCI.

Understood. Now that's super helpful clarification and distinction, R.J., I appreciate it. And then like I said, there's a two-part question on INKmune. Looking across the landscape, we've kind of recently seen data from peers in the NK cell therapy space, highlighting potential benefits of pairing NK cell therapy in some fashion with stem cell transplants. Given the focus on high-risk MDS and leukemia, I was wondering if you can comment on the average lapse you're seeing. I know this is super early days enrollment-wise, but the average lapse you're seeing between best prior response and initiation of INKmune. It sounded like some of your patients had transplant experience. So, I was curious if that transplant angle means anything to you or would you anticipate the benefits of INKmune are equally relevant regardless of when it is introduced in the course of treatment for leukemia?

We have explicitly pursued the hematologic malignancy space, focusing on MDS because the therapeutic options have been less effective overall. Most NK cell therapy companies target AML as they are primarily including those patients with transplant experience or who have failed previous lines of therapy, which has been the standard approach. However, we believe that the greatest opportunity for INKmune lies in solid tumors, as 90% of tumors are solid tumors. The market potential is much larger, and the competition is lower. We have preclinical activity in renal cell carcinoma and nasopharyngeal carcinoma, and we've announced an ovarian cell carcinoma Phase I trial. I anticipate we’ll focus more on solid tumors moving forward. The discussions about intervals and lapses in the hematologic malignancy context may not be relevant to our broader strategy. So, as Wayne Gretzky said, what made him great is he used to skate to where the puck was going to be. We are moving towards where we believe the biggest opportunities lie, specifically in solid tumors, as opposed to competing in the well-trodden AML space. So, we thank you for listening. I want to reemphasize that we, as a company, are quite excited about the progress we have made. On the other hand, we are frustrated by some of the hiccups in enrollments and we recognize these issues. Today, we have made it clear that part of the XPro issue was related to manufacturing delays, which are always a daunting problem for any biologic. The bottom line is we are working hard. We will do better, and we are confident that the trial designs that we have chosen will produce results that will translate into increased value for investors.

This does conclude today's conference call. You may disconnect your lines at this time. Thank you for your participation and have a great day.