Oncolytics Biotech Inc Q2 FY2020 Earnings Call

Good day, everyone, and welcome to the Oncolytics Biotech Second Quarter 2020 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Tom Galassi of LifeSci Advisors. Please go ahead, sir.

Thank you, Operator. Good afternoon, everyone, and welcome to Oncolytics Biotech second quarter 2020 conference call. Earlier today, Oncolytics issued a press release providing their financial results and corporate updates for the second quarter of 2020. A replay of today's call will be available in the investor relations section on the Oncolytics website approximately two hours after its completion. After remarks from company management, we will open the call for Q&A. As a reminder, various remarks made during this call about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of the company's most recent Annual Report on Form 20-F that’s on file with the SEC. In addition, any forward-looking statements represent the company's views only as of today and should not be relied upon as representing their views at any subsequent date. Except as required by law, Oncolytics specifically disclaims any obligation to update or revise any forward-looking statements, even if the company's views change. Now, I will turn the call over to Dr. Matt Coffey, President and Chief Executive Officer of Oncolytics Biotech. Matt?

Thanks, Tom. And thanks to everyone listening for joining us on the call today to discuss our second quarter corporate update. Now in addition to Tom, I'm joined by Andrew de Guttadauro, our Global Head of Business Development, and Kirk Look, our Chief Financial Officer. As I begin today's call, I'd like to say how incredibly proud I am of all the members of the Oncolytics team. Their talents and unwavering dedication has allowed us to make truly remarkable progress over the last quarter, particularly in light of the unpredictable and industry-wide challenges posed by the COVID-19 pandemic. Through the efficient implementation of a robust business continuity plan, Oncolytics was able to achieve five clinical milestones, including three data readouts in the second quarter. Completion of these milestones has proven important clinical validation of our unique Oncolytics virus immunotherapy platform, while also advancing our lead breast cancer program towards the initiation of a registration study. Looking forward, we are well positioned to continue recording a steady cadence of value creating milestones across our diverse clinical pipeline. Now let's move on and provide some of our highlights from our productive quarter. We remain focused on the clinical advancement of pelareorep, our intravenously delivered immuno-oncolytic virus, towards a registrational study in HR positive and HER2 negative metastatic breast cancer. A substantial unmet need exists in this indication as currently approved therapies are unable to produce a meaningful survival advantage for the over 112,000 patients with the disease in the United States alone. To address this unmet need, we continue to build on the results of our Phase 2 study IND-213, a metastatic breast cancer trial that showed a near doubling of overall survival with pelareorep treatments in HR positive HER2 negative patients. Encouraged by this data, we are conducting our AWARE-1 and BRACELET clinical studies, the completion of which will determine the design of our Phase 3 registrational program. Together these ongoing studies aim to achieve three objectives to facilitate the initiation of a Phase 3 trial. First, they aim to confirm pelareorep’s immunotherapeutic mechanism of action to support the promising efficacy data generated by IND-213. Second, they aim to validate the clinical utility of a novel blood-based biomarker measuring T cell clonality to predict patient response to pelareorep. And finally, they will evaluate pelareorep’s ability to enhance the efficacy of checkpoint inhibitors to improve patient outcomes, as there is a robust preclinical and clinical data set supporting the synergistic potential of pelareorep and checkpoint inhibitor combination therapies. With these objectives in mind, I'm happy to report that the second quarter featured achievements have multiple key milestones, which continue to drive our sustained progress towards the registrational trial. The first of these milestones AWARE-1 window of opportunity study in early stage breast cancer. This study is being conducted by SOLTI in Spain and represents the first use of our clinical supply agreement with Roche. Following a recent expansion in the number of AWARE-1 trial sites, we are rapidly enrolling patients in the study thanks to doubling the number of study centers that coincided with Spain's reopening. Also, thanks to last week's successful safety committee review we once again verified pelareorep’s outstanding safety profile. The progress has been further bolstered by positive data generated such as the recently announced compelling data presented at the 2020 ESMO Breast Cancer Meeting. This data was also highlighted in a recent key opinion leader call featuring Dr. Aleix Prat share SOLTI and the lead translation investigator of AWARE-1. During this KOL call, Dr. Prat spoke to how AWARE-1 data confirmed pelareorep’s immunotherapeutic mechanism of action support the critical utility of T cell clonality as a predictive and prognostic biomarker, and demonstrated pelareorep’s potential to synergistically combine with checkpoint inhibitors across multiple breast cancer subtypes. Specifically, the data show that systemic pelareorep administration was followed by tumor-specific replication, which led to the creation and mobilization of tumor-targeting CD positive T cell clones, and increased tumor PDL-1 expression. Notably, the AWARE-1 results also showed that pelareorep treatment leads to an increase in CelTIL, a measure of tumor inflammation and the study's primary endpoint. Such data is particularly exciting when considering that patients with CelTIL scores have improved clinical outcomes. The increased CelTIL also correlated with peripheral T cell clonality coordinates use of the biomarker which may allow us to select and stratify patients who are more likely to respond to treatment in our clinical studies. Taken together, previously reported results from AWARE-1 demonstrate the substantial progress made towards achieving the critical objectives necessary to move our lead breast cancer program into registrational studies. Looking ahead, we expect therefore this trial to continue in earnest. We're highly encouraged by this progress and will keep you up to date as the trial advances. Moving on now to BRACELET-1, our Phase 2 trial evaluating the safety and efficacy of pelareorep combination therapy in HR+ / HER2- metastatic breast cancer patients. Like in AWARE-1, the exceptional work that Oncolytics team and its partners throughout the midst of this pandemic has allowed us to achieve critical milestones in the study. As we recently enrolled our first patient following the opening with the first two sites in the study, we expect to see an acceleration of opening additional sites over the next quarter as hospitals adapt to ongoing studies in the COVID-19 pandemic environment. As a reminder, the BRACELET design was developed in collaboration with Pfizer and Merck KGaA and is essentially identical to the study design that was utilized in our prior IND 213 study. Firstly, the study focuses exclusively on HR+ / HER2- subsets of metastatic breast cancer patients, which is the patient population in which we saw the pronounced overall survival benefit in IND 213. Second, this is an additional study to evaluate pelareorep in combination with Pfizer, Merck, anti-PDL-1 checkpoint inhibitors Bavencio. As mentioned earlier, this design was developed to support the overall survival advantage observed in IND 213, by demonstrating pelareorep’s ability to induce a robust anti-tumor immune response in an identical patient population. Additionally, the study aims to validate T cell clonality utility as a clinical biomarker and evaluate the efficacy of pelareorep checkpoint inhibitor combination therapy. Importantly, we believe that our AWARE-1 and BRACELET studies present multiple opportunities for value inflection points in the near future. Particularly given how prior data and regulatory interactions de-risk our overall breast cancer program. As those who have been following us for some time may know, we have previously received favorable feedback from the FDA and the phase 2 meeting, a favorable EMA Final Advice Letter, Fast Track Designation, and a special protocol agreement for our metastatic breast cancer program. These regulatory achievements combined with our PrECOG and BRACELET-1 and compelling AWARE-1 showing that we are on track to meet the clinical objectives needed to initiate a registration study demonstrate how the hard work of our employees, partners, patients, and investigators have de-risked our lead clinical program, positioning Oncolytics for near and long-term success. Now I want to shift gears a bit and talk briefly about the recently announced expansion of our breast cancer program into a new disease subtype, triple-negative breast cancer. About a month ago, we announced our new IRENE study, which is a phase 2 investigator-sponsored clinical trial designed to evaluate pelareorep in combination with Incyte's anti-PD-1 checkpoint inhibitor retifanlimab. This trial aims to address a critical unmet medical need as there are over 460,000 triple-negative breast cancer patients in the U.S. alone. Importantly, while checkpoint inhibitor therapy is approved for the treatment of triple-negative breast cancer, it has significant limitations. Only about half of triple-negative breast cancer patients have the 1% PD-L1 expression level needed to become eligible for checkpoint therapy at this time; of those, 40% are likely to respond to treatment. This represents a very interesting clinical and market opportunity for pelareorep, which is highlighted by the AWARE-1 data showing an ability to increase tumor PD-L1 expression with pelareorep treatments across multiple breast cancer subtypes. These data highlight pelareorep's potential to increase the number of patients that are eligible for and can respond to checkpoint inhibitors, thereby helping to address this pressing unmet need in triple-negative breast cancer. Moving on, I'd now like to shift the discussion away from our primary focus on metastatic breast cancer and towards the progress made in hematological and gastrointestinal cancer indications. These programs demonstrate both the depth of our pipeline and the broad commercial opportunity offered by pelareorep's continued advancement. Milestones were achieved in each of these programs in the second quarter as new clinical data from trials evaluating pelareorep in multiple myeloma and pancreatic adenocarcinoma were presented as part of the ASCO meeting held in May. We saw some promising clinical proof-of-concept data in multiple myeloma, which is a disease where the incredible immunosuppressive nature of the cancer microenvironment has hampered the success of checkpoint inhibitors. In patients that are part of the multiple myeloma trial treating with pelareorep in combination with carfilzomib (Kyprolis), we saw the activation of a profound inflammatory response accompanied by 50% overall response rates and 83% clinical benefit rates. These results also included the first reported incidence of cytokine release syndrome associated with clinical response in multiple myeloma. The induction of cytokine release syndrome, which can be effectively managed with well-established therapies, highlights the ability of pelareorep combination treatments to induce robust immune cell activation and tumor lysis in multiple myeloma patients. The compelling data seen here are even more noteworthy when considering that the trial was carried out in carfilzomib-refractory patients, who are notoriously difficult to treat. Importantly, when this recently announced data is considered together with clinically reported trial results showing a dramatic increase in PD-L1 expression with pelareorep treatments, it strongly supports the success of our ongoing clinical study evaluating pelareorep, trastuzumab, and immune checkpoint inhibitor therapy in multiple myeloma. Finally, before I hand off the call to Andrew to elaborate on our PD-L1 efforts, I'd like to give a brief update on our work with GI cancers. As in breast cancer and multiple myeloma, we have compelling clinical data from our GI malignancies, demonstrating pelareorep’s potential to synergistically increase the effectiveness of immune checkpoint inhibitors. This includes data presented at ASCO from a trial evaluating pelareorep and Keytruda combination therapy in second-line pancreatic cancer patients. These data show that the therapy was well tolerated and resulted in tumor-specific replication, a high degree of T Cell repertoire turnover, and the creation of new T cell clones in the peripheral blood of these patients. Looking ahead, these recently reported results as well as the robust set of clinical data showing pelareorep's ability to prime the immune system across several types of GI cancers are driving some very interesting discussions around potential industry and academic collaboration that may complement our existing relationships quite nicely. Now that you have some more insights into these exciting collaborations and other ongoing business development efforts, I'll hand the call over to Andrew.

Thanks, Matt. As we mentioned in the past, there's a growing interest from large pharma and biotech companies in the efficacy of checkpoint inhibitors by pairing them with Oncolytics Biotech, which has been marked by several deals from companies such as Merck and J&J, which have typically then preceded by initial collaborations designed to evaluate the feasibility of potential combination. This is the exact approach Oncolytics is taking with our ongoing pelareorep study to evaluate potential synergies with Tecentriq, Pfizer and Merck KGaA, and now also retifanlimab. The way in which we have been able to gain such central industry collaborations has been by leveraging our robust clinical datasets, and the exciting market opportunities presented by the clinical AWARE-1 study. One recent example of successful execution of this strategy is the IRENE study Matt discussed earlier. As pelareorep's stability to increase tumor PD-L1 levels is precisely what led to the initiation of the clinical trial. This collaboration, along with our ongoing co-development agreement with Pfizer and Merck KGaA in the post-treatment study, are just two examples of how we're constantly leveraging our compelling clinical data to initiate and foster relationships within the pharma and biotech sectors. It’s also important to note that the commercial opportunity of using pelareorep to improve checkpoint inhibitors expands beyond just breast cancer. As a whole, the checkpoint inhibitor market is expected to reach $25 billion by 2022. Even though less than one in five patients respond to these therapies, further accelerating and expanding growth, checkpoint companies must look to safe and efficacious ways to further expand their potential implications. Pelareorep, with extensive synergy data and the ability to be administered intravenously, represents an exciting opportunity for advancement. As Matt discussed earlier, we have a robust clinical data set demonstrating pelareorep's potential to increase the percentage of patients responding to checkpoint inhibitors. Not surprisingly, we find that these data consistently drive exciting business development opportunities across our pipeline. For example, we're currently working with BMS on a promising study evaluating pelareorep and carfilzomib combination therapy in multiple myeloma patients. Looking forward, our goal is to secure global clinical and commercialization partnerships to facilitate pelareorep's improvement and maximize its commercial opportunity. We expect clinical data, particularly based on BRACELET-1 and AWARE-1, to drive us towards this goal through ongoing discussions with potential partners across the pharma and biotech industries. With that, I'll turn the call over to Kirk Look, our CFO to discuss our financial results for the quarter.

Thank you, Andrew, and good afternoon, everyone. I'm pleased to report that Oncolytics remains in a sound financial position as we advance pelareorep towards registration. Our balance sheet continues to remain strong with cash equivalents of $29.9 million at the end of the second quarter, which includes net proceeds of $6.4 million from our at-the-market facility which was recently removed, and importantly, extends our financial runway to the end of 2021. Research and development expenses for the second quarter of 2020 were $2.5 million compared to $3.4 million for the same period last year. These activities centered on progressing our AWARE and BRACELET studies, supporting our other checkpoint inhibitor combination trials, and securing our clinical supply with the start of cGMP production ramp. Operating expenses for the second quarter were $3 million compared to $1.8 million in 2019. During this period, the increase in our operating expenses related primarily to an increase in our Investor Relations and business development activities, as well as an increase in our Directors and Officers insurance premiums. Finally, our net loss in the second quarter was $6.8 million compared to $5.3 million last year, equating to a loss per share of $0.17 for the quarter versus $0.26 for the quarter in 2019. With that, I'll hand it back to Matt. Matt?

[Technical difficulty] viruses, which, as Andrew have mentioned, is an area of great interest to large pharma. Almost all other oncolytic viruses development, either have at least one and often both of these two characteristics: they require special handling procedures due to BSL-3 classification or they require intra-tumoral delivery and therefore cannot reach metastatic disease. Notably, pelareorep is administered systemically by nursing staff and requires no special handling procedures while being clinically demonstrated to selectively replicate in local and metastatic tumors. These characteristics offer substantial competitive advantages over other oncolytic companies. Further, pelareorep is the only bio-agent to show a survival benefit in late-stage metastatic breast cancer and is supported by data from multiple clinical studies demonstrating its potential to augment checkpoint inhibitor therapy. Looking ahead, we expect to build value through the sustained progression of our clinical programs and continued development of our industry partnerships. We believe we're well on our way to advancing our lead HR+/HER2- metastatic breast cancer program into a registrational study and we continue to work diligently with our academic and industry collaborators to broaden the commercial opportunities in hematological and GI malignancies. Though we expect that the future of the pandemic will present challenges across the biotech industry, the extraordinary dedication and talent displayed by our employees and partners over the last several months makes us confident that we will continue to build on the positive momentum generated last quarter. This will allow us to continue generating value for our shareholders and most importantly, for the lives of cancer patients. With that, I would now like to open the lines and take some questions. Operator?

Thank you. [Operator Instructions] Our first question comes from Jonathan Aschoff with Roth Capital Partners.

Thank you very much. Because the lines are a bit shattered, so I hope you can hear me. We've had a bit of a storm over here. But over the past six – yes, well really over the past six months or so about moving into GI cancer, and I think I heard you extremely brief in your prepared remarks, but can you better elaborate on the developments in that disease setting?

Yeah, no. Andrew's been very busy in this regard. We are working on various protocols now. What we're contemplating and hopefully in the context of an industry partner will be a GI BRACELET study, if you will. We've seen positive results in colorectal; we just published those results. EMCI published a positive study in pancreatic cancer and pre-selected patients for cancer expression. And so we very much believe it's an area that we should be pursuing. We do have a number of industry partners that are awaiting these protocols that are nearly completed. So I think it's just a question of execution and then hopefully, that will be at 2020 event. Obviously, everybody's stuck working from home, so it's hard to get committee approvals. But Andrew's done a phenomenal job of moving these initiatives ahead for us. And it's something we hope to be able to announce second after the year.

Okay. There's a second question. A couple of -- just kind of bear with me. But, when you see a critical mass of data on breast cancer, some line of breast cancer, I mean enough data so that you can construct a pivotal trial containing only one variable between only two ones so that you can best see the contribution from pelareorep?

It was a great question. And it's one that comes up all the time, 77 patients in the study is a small number, and that's very, very clear. Obviously, people are looking for a larger sample size, but we were -- I think there were people looking at the results and saying, well, this is fantastic, but the protocol was really written as it being cytotoxic. And now you're seeing this delayed clinical benefit you're seeing on proportionality; it's very clear that this is an immunotherapy. Unfortunately, 213 didn't capture that therapy data. What we're getting from that is some of the most compelling data that demonstrates nearly definitively what's happening on a cellular level because there are paired biopsies between the initiation of the study and the final mastectomy. We can, by looking in the tumor microenvironment and the peripheral blood, paint a complete picture of why 213 was a success. The immune system was engaged; we can measure the relative contribution of natural killer cells versus the T cells. We are living in the middle of the pandemic. The AWARE study was paused for three months. We used this time to double the number of centers. That group is very excited about the study going forward. We did have a KOL call with the investigator discussing the future of the agents. I think AWARE-1 gives us a complete study. And right now, we just finished the safety evaluation with the DSMB. They found no concerns. So now we can enroll the remainder of the study. Always when you start these studies, there's a bit of a risk because we are giving a checkpoint inhibitor to women who have a fully functional immune system. We wanted to proceed slowly to ensure we weren't putting anyone at risk. But frankly, it appears the safety profile looks exceedingly good. The investigators have submitted abstracts regarding safety for the San Antonio press conference. To my mind, in terms of a complete picture of the biochemistry and the relative role that the checkpoint inhibitor plays, will be presented at the San Antonio press conference. The final proofs -- the final nail in the coffin, if you will, is the BRACELET study which is now enrolling. I'm hoping that it gives us a very clear indication of the relative contribution of the checkpoint inhibitor in the metastatic setting. But biochemistry is biochemistry; if we see a decrease in the threshold that we need to achieve to improve cell infiltration in the presence of the checkpoint inhibitor, I think we could start planning that phase 3 well before BRACELET finishes. To my mind, that will complete the biochemistry picture. In 36 patients with AWARE-1, I believe half of the 77 patients enrolled in 213, and then whether or not pharma needs that last bit of data coming from BRACELET will be seen, but it's a clinically randomized study that shows us. To my mind, I think we're done with AWARE-1. Naysayers and people who are sitting on the fence will likely wait for the BRACELET results, which should finish enrollment next summer with final data likely presented at the San Antonio press conference in 2021. In any case, we’ve made some clinical hires and we're planning for the phase 3 now that we can do a gap analysis to ensure that, in the context of the final partner, we can go develop it that they can look at us and our clinical team and say, yes, this is a critical group that can run the partnership they are contemplating.

Okay. And the former CMO, what -- why was the departure and what caused that?

Typically, this type of disclosure, we could say someone worked there, then they didn't. We brought on Dr. Tom Heineman. He's got a background in infectious disease and oncology. He's a fantastic hire for us, and actually has been working to already integrate and perfect our clinical team over the last several weeks. So I would look to him, but we really don't discuss why people leave organizations.

Okay. And the last, two-part question: was there any ATM usage since June 30th, and what it means to either way on ATM?

Yeah, we've used it in July for $1 million through the ATM post-renewal.

Okay. And what is the amount on it?

That'll be 38 million.

Hi, guys. Thanks for taking the question this afternoon. My question is on the BRACELET study. I'm just curious if you can talk to us specifically about what you're looking for in terms of T cell clonality? And just wondering if you could talk about, in the past, for example, when the PD-L1 inhibitors were first being developed, why people weren't able to look at that level of detail that they are now?

Great question. The T cell clonality that we talked about is really a snapshot in time of what your T cells are doing. T cells are a great way of demonstrating that you've had the vaccination effects. Everyone now is very focused on vaccines and what have you. Things like T cell clonality can actually guide patients: you can look for an antibody response or you can look for a T cell response. But essentially what we're looking for is -- and in a three-arm study with Paclitaxel as the standard cytotoxin, we still expect the T cell clonality to increase. Our expectation is that patients will receive the Paclitaxel, and we'll look at a baseline in three weeks later. We really don’t anticipate there'll be much of a change in the composition of T cell responses. If we see successful vaccination effects and we draw natural killer cells to the tumor and we get licensed, what we expect to see is the generation of brand-new T cell clones. And if anyone's ever seen our plots, what happens is at baseline you don’t have the T cell clones; and post-treatment, what we're looking for is the generation of 200, 300, 400 unique novel clones that are likely to act on tumor epitopes and viral epitopes. These are typically shown on the vertical axis of our abundance plot. Really, all that's telling us is, yes, this patient has now had their immune system exposed to viral epitopes and tumor epitopes, and they've had this very positive response. Checkpoint inhibitors, other than CTLA-4, which we haven't worked with clinically, don’t generate new T cell clones; they don’t prime the immune system. So we should be able to tease out that the virus is doing very nicely compared to what the checkpoint inhibitors are doing. In the study, we will administer Paclitaxel and the virus. What we want to see is a great enhancement of that middle area, along with the accumulation of T cell clones. Additionally, with our [indiscernible] we can measure the tumor microenvironment, so we can look at activation markers on T cell clones. We can characterize which immune cells are present, and early results from our animal studies are now starting to show that when we treated with reovirus, we get a big increase in inflammatory cells, but we see a slight diminishment of anti-inflammatory cells like TREGs. We presented a poster in collaboration with Taylor's arm when we added a checkpoint inhibitor. What we found was, within the tumor microenvironment, the anti-inflammatory cells, these TREGs, are eliminated from the tumor microenvironment. We now have a much more complete picture of which inflammatory cells are there, which are not, and which immune responses have been activated. The early results suggest that this is what happens through the activity of checkpoint inhibitors. We are hoping to provide that full accountability from the AWARE-1 study as well as when we get into the BRACELET study.

Okay. Great. Thank you.

Thank you. [Operator Instructions] It appears that all the time we have for questions. I'll turn the call back over to our speakers for any final or additional remarks.

Thank you, operator. I appreciate that. And listen, thanks everyone for taking the time to listen to the calls. I appreciate it. Our earning season is very busy. Other than that, I just wanted to thank everyone for their time and I want to say to all the staff and Oncolytics for all the hard work and all the collaboration and all the industry participation and the patients and their families to participate in the studies. Thanks very much, operator.

You are quite welcome. That does conclude our conference call for today, everyone. Thank you all for your participation. You may now disconnect.