Lyra Therapeutics, Inc. Q2 FY2021 Earnings Call

Welcome to the Lyra Therapeutics Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s prepared remarks, there will be a question-and-answer session. Now, I’ll turn the call over to Ms. Stephanie Marks with Argot Partners.

Thank you, operator, and welcome everyone to today’s call. With me today are Dr. Maria Palasis, Lyra’s President and Chief Executive Officer; Don Elsey, Chief Financial Officer; Dr. Robert Kern, Chief Medical Officer; and Corinne Noyes, SVP of Commercial Strategy and Market Development. This afternoon, Lyra issued a press release announcing its second quarter 2021 financial results and business updates. A copy of the announcement can be found in the investor relations tab of the company's website. During the conference call, management will make forward-looking statements, including statements related to the clinical development of the company's product candidates, business strategy, and planned operations. These forward-looking statements are based on the company's current expectations and inherently involve significant risks and uncertainties. Lyra's actual results and the timing of events could differ materially from those anticipated in such forward-looking statements due to these risks and uncertainties. Factors that could cause results to be different from these statements include factors described in the section titled risk factors and the company's current report on Form 10-Q filed today. Lyra cautions you not to place undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements. And with that, I’ll turn the call over to Maria.

Thank you, Stephanie, and thank you all for joining us this afternoon. I hope everyone is doing well. The second quarter has been an exciting one for Lyra. We released the full data set from our positive LANTERN Phase 2 study, had a very successful End-of-Phase 2 meeting with the FDA for our lead program, entered into a licensing agreement in Greater China and other Asian markets with LianBio, and reported positive top-line results from the PK study, which supports a 505(b)(2) new drug application for LYR-210. Our fundamentals are strong, and we are in a position to successfully execute against our upcoming milestones. The foundation of our company is our proprietary XTreo technology platform, which is grounded in drug formulation chemistry and polymer science. Our product candidates are pharmacologic interventions that target highly potent therapeutics directly to the site of disease for management of chronic illnesses. Our ability to deliver the right drug to the right place for the right amount of time translates into a number of potential benefits for patients, including increased efficacy, improved compliance, and avoidance of systemic side effects. Deep drug formulation expertise has been a core capability of Lyra, developed over many years. This expertise provides us with a distinct advantage over others in the field. Lyra is now at a major inflection point. We have a strong validation of our technology in our first two indications. Our first indication, chronic rhinosinusitis (CRS), as demonstrated by the randomized controlled LANTERN Phase 2 study, showed high statistical significance that LYR-210 works as designed, providing six months of symptom relief for CRS patients from just a single treatment. We are preparing to advance clinical programs for both of our de-risked pipeline candidates, LYR-210 into Phase 3 and LYR-220 into Phase 2, both around the end of this year. We are in a strong position to bring these new therapies to CRS patients who need them. Chronic rhinosinusitis has been described as an unrecognized epidemic in the U.S.; about 14 million people have CRS, and 8 million of those patients are treated each year. However, at least half of them fail current medical treatments. Out of the 4 million patients who failed medical management each year, only about 400,000 go on to have invasive surgery, while the rest remain undertreated. This is an enormously underserved market, and we know patients do not want to sign up for surgery. Similar dynamics apply globally, with millions of CRS patients underserved in Asia and Europe. We believe our current candidate for the treatment of CRS will completely transform the treatment landscape by uniquely addressing the unmet need in the broad CRS market. LYR-210 and LYR-220 are designed to provide a therapeutic option for the full spectrum of CRS patients treated by ENTs, including both those seeking to avoid surgery and those returning after surgery. The ENT physician community is particularly eager to have a safe and effective treatment for the millions of CRS patients who are undertreated. Lyra’s product candidates are the only ones designed to address this vastly under-penetrated patient population. We remain confident that the purposeful design of our pharmacologic interventions, the strong data generated in the clinic, and the relationships we are building with the ENT community give us a chance to truly create best-in-class products that will benefit millions of CRS patients. Dr. Robert Kern, our Chief Medical Officer and Chair of Northwestern’s ENT department will share his insight into the current treatment landscape and unmet need in CRS and review our recent regulatory developments.

Thank you, Maria. I treat CRS patients every day, and I can attest to the fact that we have very few medical options and no FDA-approved therapies for the vast majority of patients suffering from chronic rhinosinusitis. Consequently, LYR-210 truly has the potential to change the CRS treatment paradigm. LYR-210 is designed to fit into the sinonasal anatomy of an unoperated patient. In a matter of minutes, with a single administration in a simple non-invasive office procedure, ENT surgeons can provide patients with relief for up to six months. LYR-210 delivers the highly potent anti-inflammatory drug Mometasone furoate continuously and directly to the affected tissue for a prolonged period of time, thus exerting the maximum therapeutic effect and maximum symptom relief for patients. Our products are designed to deliver the drug directly to the epicenter of sinusitis, eliminating drug washout and the need for patient compliance, thus addressing the three major limitations of current topical treatments. Furthermore, our products are designed to avoid systemic side effects, which are a potential issue with costly biologics and certainly a major issue with oral corticosteroids. I believe LYR-210 will become the standard of care for the 60% of CRS patients—2.4 million patients—who have failed medical management and have not yet had sinus surgery. For the remaining 1.6 million who have had a prior surgery and seek to avoid a second surgery, Lyra has designed LYR-220. Keep in mind that surgery is not curative in the majority of cases and usually requires ongoing medical management to handle residual and recurrent CRS symptoms. LYR-220 is an enlarged mometasone furoate eluting matrix designed to fit into the operating sinus cavity and is also intended to provide up to six months of symptom relief for patients with recurrent disease. LYR-210 and LYR-220 have been created to help patients avoid surgery, whether it's their first, second, or third. I know firsthand that most patients would prefer a simple office treatment rather than surgery. It’s important to note that no other products in this space target the breadth of CRS patients that we do. The products currently available address about 10% of CRS patients—those with polyps—while LYR-210 and LYR-220 have been developed to treat 90% of the CRS patient population, providing an option for the vast majority of patients including those without polyps. We believe these products have the potential to represent the most important advance in the medical care for CRS patients since the introduction of intranasal corticosteroids over 30 years ago. I truly believe that LYR-210 and LYR-220 have the potential to fill the void in the CRS treatment landscape with a novel and differentiated approach to this burdensome disease. As we reported in June, following our positive Phase 2 meeting with the FDA, the company now has a clear path forward on our pivotal program for LYR-210. Our Phase 2 study was highly successful, and we view the upcoming Phase 3 as significantly de-risked as a result. The Phase 3 program will largely mirror that trial and will consist of two multicenter randomized patient-blinded controlled trials evaluating LYR-210 at a 750 microgram dose with approximately 180 CRS patients per trial. These patients will have failed medical treatments and continue to be symptomatic. The single primary endpoint of the pivotal program will be a composite score of the three cardinal symptoms of CRS at 24 weeks: nasal blockage, nasal discharge, and facial pain. As a reminder, in the Phase 2 LANTERN study, LYR-210's 750 microgram dose showed highly statistically significant improvement over control at this endpoint, with a P value of 0.003 at week 24. We also recently reported positive top-line results in the pharmacokinetic study of LYR-210. There are two important takeaways from this PK trial: first, safety data provides assurances to support a 505(b)(2) approval pathway, and second, this was our first U.S. study of LYR-210, which was fully enrolled across four states in just 11 weeks, during the fall of 2020 amidst high rates of COVID infection. We believe that Lyra is well-positioned to address this large underserved market with unique and disruptive CRS products that have the potential to alter the current treatment landscape. Don will next discuss the financials.

Thank you, Rob. The earnings release we issued today outlines our financial results in full. So I'll only provide a summary here. As of the end of the second quarter, we had $69 million in cash and cash equivalents, compared to $74.6 million as of December 31, 2020. We believe that Lyra has sufficient cash to fund the company through planned operations into 2023. Total operating expenses for the second quarter were $11.1 million, compared to $4.5 million for the same period in 2020. This increase was driven by our tech transfer program and clinical operations, as we wrapped up the Lyra-210 Phase 2 trial and prepared for our FDA meeting. Net loss for the second quarter was $11.1 million. Lyra’s shares outstanding, as of June 30, 2021, were approximately 13 million shares. And with that, I'll turn the call back to Maria.

Thank you, Don. As you heard, we are sufficiently funded to drive all our clinical programs forward into next year. We are at an exciting inflection point in Lyra’s evolution. We have strong validation of our technology and our first indication and several important catalysts on the horizon. Preparations are already underway for advancing our two clinical programs. We're manufacturing the clinical product and have already selected our CRS sites. I'm also pleased to announce that we recently received approval in Australia to begin our Phase 2 clinical trial for LYR-220, which will then expand into the U.S. We remain on track to initiate two clinical studies around the end of this year: the first Phase 3 for LYR-210 and the Phase 2 trial for LYR-220. With both of these programs significantly de-risked, our stellar team, and our deep clinical and regulatory expertise, I'm highly confident in our ability to execute. We expect to begin seeing data from the LYR-220 trials towards the end of 2022 and readouts from the LYR-210 trials in 2023. In addition, we are making meaningful progress with the LianBio team and are confident in our ability to bring LYR-210 to Asia through our partnership. We have additional significant events in the near term. On Tuesday, August 31, we will be hosting an event with KOL for a deep dive into the current CRS treatment landscape and how LYR-210 and 220 could impact management of their patients. The event will be moderated by Rob and include two leading ENT physicians, Dr. Amber Luong and Professor and Vice Chair of Otolaryngology at the University of North Carolina School of Medicine. Additional details will follow soon, and we look forward to your participation. We are very proud of the commitment we have to conducting high-quality science at Lyra and are excited to have our work acknowledged by leading journals. We've had two abstracts accepted for podium presentation at the Annual Meeting of the American Otolaryngology Society in October, where we will present long-term follow-up from the LANTERN study and the full data set from the PK study of LYR-210, which was selected by the Academy as a top clinical abstract. Also, we recently received further validation of our work with the acceptance of two publications in leading scientific journals. The full LANTERN data has been accepted for publication in the International Forum of Allergy and Rhinology, and our preclinical research on LYR-210 has been accepted for publication in the American Journal of Rhinology and Allergy. We expect they will both be available online shortly. We've come a long way, and I'm very proud of what we've accomplished. We have demonstrated the safety and efficacy of Lyra’s lead product in three clinical studies. It's important to understand that this data not only provide validation for our products for CRS but also for our XTreo technology platform, which has broad potential across a wide range of chronic diseases. We can now begin to take concrete steps to leverage our technology to expand our pipeline for the future. And now we'd be happy to take your questions.

Our first question is from Bert Hazlett from BTIG. Your line is now open.

Yes, so thank you for taking the questions. A couple of them for me. First of all, just with regard to LYR-220, could you provide a little bit more color on the kind of study size, endpoints, things like that? Then, secondly, I'd like to ask about the pace of R&D spend? And then I'll follow up with another one after that.

Hi, Bert. I hope you're doing well. So, LYR-220 is the larger matrix that we've developed for patients who have had surgery, so it's designed to accommodate that larger anatomy. It'll have the same dose of drug—750 micrograms—and the release kinetics are aligned with LYR-210. We estimate approximately 60 patients in that study. We're going to be evaluating the safety and doing pharmacokinetics while also assessing the CRS symptoms via the SNOT-22 score and the three cardinal symptoms. As I mentioned earlier, there are three arms to that study: we'll have a control group, and then we have two designs that we'll be evaluating, again, both with the same dose of drug.

Terrific. That kind of the pace of R&D spend and then, my other question is there has been some M&A in the sector recently. I'd love your thoughts on what that means for Lyra in the near-term, and maybe the longer term with regard to commercial infrastructure and/or other strategic implications?

I'll take that, Bert, and Corinne, if you want, you can add some color with respect to the commercial opportunity. There was an announcement that Medtronic is acquiring Intersect ENT, which we think is really great news for us. We've been saying that the market is huge and vastly under-penetrated, and apparently Medtronic also agrees and has taken steps to participate more fully in the market. We suspect that Medtronic will be aggressively developing the ENT market, which will benefit us when we get to that point. At the same time, I think it's important to note that LYR-210 does not overlap with Intersect's products. When we get to that point, we'll be able to really address the lion's share of the market. Corinne, do you have anything you would like to add?

No. I think that's exactly right; it validates what we're trying to do and will benefit from what they're doing in the marketplace. Our products are uniquely differentiated and targeting a different patient population that we believe we can leverage and be positioned to benefit. So it's great news.

Terrific, thank you very much, I'll get back in the queue.

And our next question is from Tim Lugo from William Blair. Your line is open.

Thanks for taking my question, and congratulations on all the progress during the quarter. Thank you for setting up the upcoming R&D day; those are always very helpful. Maybe a question for Dr. Kern. Can you comment, given your experience in treating CRS patients, on how LYR-210 will be differentiated from the biologics? I think there's still a big disconnect between how the market is viewing the respective opportunities between LYR-210 and the biologics, which isn’t unusual, but I’d love to hear from your perspective.

Sure. The biologics are really, practically speaking, only going to be applied to patients who have failed surgery and have extensive nasal polyps. So you're talking about a pretty small chunk of the market. We're looking at 4 million patients; they're looking at probably by their own admission about 100,000. That's the first point. The second is that biologics are very powerful but they're systemic drugs with systemic side effects. There's going to be huge approval hurdles for those products from insurance companies, and they can cost $35,000 to $38,000 a year basically for the rest of the patient's life, creating a massive commitment. We're focused on the completely opposite end of the market. LYR-210 is for patients that have had no surgeries and are symptomatic but continue to live with it. They don’t like using nasal steroids, and steroid nasal sprays aren’t effective for the vast majority of them. Moreover, it offers a simple in-and-out office procedure with minimal commitment from both the patient and the insurer. So, it's really a different approach; it’s like apples and oranges. I may not have fully answered your question.

No, that's very helpful. Thank you. And maybe kind of pivoting to the LianBio agreements and the clinical program in Israel. Should you, I guess Maria or whoever wants to address this, can you maybe talk about the regulatory environment there? What the study is going to look like? Is there a kind of similar 505(b)(2) pathway versus the U.S. and also just the prevalence there?

Tim, hi. So, I'll take that and then Corinne, I'll turn it over to you.

Okay.

The agreement and collaboration with LianBio is going very well, so we're very pleased with how things are progressing. The regulatory environment there doesn’t have a 505(b)(2) process, but we are going to be able to leverage our U.S. data in China and we’re very confident about that. Corinne, would you like to follow up on the commercial question?

Sure. In China, what we know is that there is a treatment pattern that looks very similar to what exists in the United States, with patients starting with medical management. After medical management fails, a substantial percentage moves to surgery, roughly 50%. We know there are over 80 million patients in China that have CRS, and they are captured in a concentrated hospital setting where patients go in for treatment, even for outpatient treatment. What we can currently say about the market is that we know it’s at least as large, if not larger, than what exists in the U.S. And with the development plan we are putting in place, we’re excited about the potential to access China and other territories shortly after a U.S. approval.

Thank you for that.

Our next question is from Ashwani Verma from Bank of America. Your line is open.

Hi. Thanks for taking our questions. This is Ashwani from Bank of America. I have a couple of follow-ups to what has been discussed earlier. Regarding LYR-210, is there any inclusion/exclusion criteria difference between the Phase 3 that you plan to conduct versus what you had in Phase 2? That’s my first question. Separately, just on the LianBio milestone payments, any color around the timing of these $135 million milestones? Is that based on your activity or does LianBio have to conduct some operations for that?

Hi, Ash. Regarding the LYR-210 trial, the inclusion/exclusion criteria for the Phase 3 program will largely mirror that of the Phase 2 trial, as the latter was very successful. We were pleased with the results, despite COVID forcing us to stop it short. We were still able to see statistical significance in many of the endpoints, including SNOT-22 for cardinal symptoms and rescue medication. One notable difference, however, is that we did imaging in Phase 2 using MRI, due to concerns about radiation burden outside of the U.S. However, in the U.S., CT is the standard. So, we’ll be utilizing CT rather than MRI. Other than that, we are talking about a very similar trial. As for the milestone payments, what we’ve disclosed publicly is that they are regulatory, clinical, and commercial payments, both in the U.S. and Asia. Beyond that, we haven't provided any more specifics.

Yes. Okay. I'm just interested in OpEx. I wanted to go back to that. I think Don, you mentioned that the R&D line includes both tech transfer and clinical operations spend. Have you given the breakdown of those two lines by any chance? Just curious because I think G&A also came in a bit above expectations. Is that a new run rate that we can expect?

As for the breakdown between those two spending categories, we haven’t provided that detail. It’s not really our intention to get that granular. Regarding general and administrative expenses, it’s not necessarily indicative of a new run rate. There are some factors that drove Q2’s expenses a bit higher than what I would consider a run rate due to episodic events. However, as we expand activities with China and similar initiatives, there will definitely be some additional spending in that category; although, it won't be particularly material.

Yeah. Okay. Great. Thank you so much.

You bet.

I am showing no further questions at this time. I would now like to turn the conference back to Ms. Maria Palasis, CEO. Thank you. Thank you so much for joining us today. Please keep an eye out for details about our upcoming KOL event. We look forward to updating you as we make progress. Thanks again. Have a good evening. Thank you for presenters. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.