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Oncothyreon Inc (NASDAQ:ONTY)

Q4 2012 Earnings Call

March 14, 2013 8:30 am ET

Executives

Julie Rathbun

Julie M. Eastland - Chief Financial Officer, Principal Accounting Officer, Secretary and Member of New Employee Option Committee

Robert L. Kirkman - Chief Executive Officer, President, Director and Member of New Employee Option Committee

Analysts

Simos Simeonidis - Cowen and Company, LLC, Research Division

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Oncothyreon Fourth Quarter and Year End 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference may be recorded. I would now turn the call over to Julie Rathbun. Please go ahead.

Julie Rathbun

Good afternoon, and welcome to Oncothyreon's financial results conference call for the full year and fourth quarter of 2012. With us this afternoon are Dr. Robert Kirkman, Oncothyreon's President and CEO; and Julie Eastland, Oncothyreon's Chief Financial Officer and Vice President, Corporate Development. In the first part of the call, Ms. Eastland will review Oncothyreon's financial guidance for the full year and fourth quarter of 2012. She will also provide financial guidance for 2013. After that, Dr. Kirkman will review Oncothyreon's corporate and pipeline highlights and discuss upcoming milestones. We will then open the call to questions.

Before I turn the call over to Ms. Eastland, let me first remind you that during this call, we will be making a number all forward-looking statements. These forward-looking statements include Oncothyreon's expectations regarding the use and adequacy of cash resources, future expenses, the clinical development of Stimuvax, the commercial outlook for Stimuvax and clinical development risks for PX-866, ONT-10 and ONT-701.

Forward-looking statements involve risks and uncertainties related to Oncothyreon's business and the general economic environment, many beyond the company's control. These risks, uncertainties and other factors could cause Oncothyreon's actual results to differ materially from those projected in forward-looking statements. For a detailed description of these risks and uncertainties, you are encouraged to review our annual report on Form 10-K filed with the SEC and other official corporate documents filed with the securities regulators in the United States on EDGAR, and in Canada on SEDAR.

I would now like to introduce Julie Eastland, Oncothyreon's Chief Financial Officer and Vice President, Corporate Development. Julie?

Julie M. Eastland

Thank you, Julie, and good morning, everyone. As reported in our press release this morning, loss from operations for the year ended December 31, 2012, was $28.5 million compared with $24.7 million for the year ended December 31, 2011. The increase in loss from operations primarily resulted from an increase in research and development expenses to $22 million from $17.9 million, partially offset by a decrease in general and administrative expenses to $6.5 million from $6.9 million.

The increase in research and development expenses in 2012 compared to 2011 was primarily the result of increased development activity for Oncothyreon's product candidate, PX-866. The decrease in general and administrative expenses in 2012 compared to 2011 was primarily the result of a noncash reduction in share-based compensation related to the decrease in fair value of the restricted share unit liability, whose value was affected by the change in our stock price. The reduction in share-based compensation was partially offset by higher salaries and benefits expense due to increased headcount and higher legal and accounting expenses related to our patents and regulatory compliance.

Net loss for the year ended December 31, 2012, was $3.4 million or $0.06 per basic and $0.53 per diluted share, as compared with the net loss of $42.7 million or $1.12 per basic loss and diluted share -- excuse me, for the year ended December 31, 2011. The decrease in net loss was primarily attributable to noncash income of $25.5 million as a result of the change in the fair value of the warrant liability for the year ended December 31, 2012, compared to the noncash expense of $17.6 million for the year ended December 31, 2011. It was partially offset by an increase in operating expenses to $28.5 million in 2012 from $24.8 million in 2011.

As of December 31, 2012, Oncothyreon's cash, cash equivalents and investments were $83.8 million, compared with $66.4 million at December 31, 2011, an increase of $17.4 million or 26.2%. This increase was attributable to the closing of an underwritten public offering in April of 2012, of 13,512,500 shares of Oncothyreon's common stock, which generated net proceeds of approximately $50.3 million.

This increase was offset in part by $27.3 million cash used in operations, $4.1 million cash used in full repayment of a term loan with General Electric Capital Corp and $0.9 million cash used for principal payments on notes, and lastly, $0.8 million cash used in expenditures -- excuse me, capital expenditures during the year ended December 31, 2012.

Before I turn the call over to Bob, I'd like to provide financial guidance for 2013. Please note that we believe this guidance to be correct as of today, circumstances may change, and we assume no obligation to update the guidance.

Expenses in 2013 are expected to be slightly higher compared to 2012, primarily as a result of the continuing development of PX-866 and the ongoing Phase I clinical trial of ONT-10. Oncothyreon currently expects cash used in operations and capital expenditures in 2013 to be approximately $30 million to $33 million. As a result, Oncothyreon estimates that its existing cash, cash equivalents and investments will be sufficient to fund operations for at least the next 12 months.

Let me now turn the presentation over to Oncothyreon's President and CEO, Bob Kirkman. Bob?

Robert L. Kirkman

Thanks very much, Julie, and thank you, everyone, for joining our call this morning. Since this is a year-end call, I realize it's incumbent upon me to review the events of 2012, and indeed, it was an eventful year for the company. But in doing so, I would very much like to focus your attention on upcoming events in 2013. Much of what we accomplished in 2012, particularly with respect to PX-866 and ONT-10, was prelude to data events we currently expect in 2013. Even with respect to Stimuvax, for which we obviously had a major result in 2012, decisions with respect to its future are expected this year. As a company, we are always looking to our future and we intend to keep that focus.

Because it was the major data event for 2012, let me start with Stimuvax. Please note that I am referring to it by that name as it's familiar to all of you, but this is the last time I will do so. Merck Serono, our partner for Stimuvax, has informed us that Stimuvax will not be approved as a trade name and have requested we stop using it to refer to this product candidate. They are now referring to it as L-BLP25, the old Biomira name for the product.

As all of you are aware, at the end of 2012, we received news from Merck Serono that the pivotal Phase III clinical trial of L-BLP25, known as START, did not meet its primary endpoint of an improvement in overall survival in patients with unresectable, locally advanced stage IIIA or stage IIIB non-small cell lung cancer who achieved a response or stable disease after chemotherapy. START was a randomized multi-center, double-blind, placebo-controlled trial that began in February 2007 and enrolled over 1,500 patients from 33 countries. The trial was conducted by Merck Serono, a division of Merck KGaA of Darmstadt, Germany, under our license agreement with Oncothyreon. Despite not meeting the primary endpoint, Merck Serono indicated that notable treatment effects were seen for LBLP-25 in certain subgroups.

At that time, Merck indicated they would discuss the data with external experts and regulatory authorities and that the detailed results from the START trial would be submitted for publication and a peer-reviewed journal and presentation at upcoming scientific meetings. Based on our subsequent interactions with Merck, we understand that the discussions with key opinion leaders and the regulatory authorities are ongoing and that an abstract based on a data has been submitted to the American Society of Clinical Oncology meeting, which takes place at the very end of May. As of today, we do not believe Merck has reached the decision about next steps, if any, for LBLP-25, and indeed, that is what they indicated in their own year-end earnings call last week.

In the meantime, the additional studies of LBLP-25 in non-small cell lung cancer our ongoing, including the Phase III INSPIRE trial and a Phase II in Japan. Merck Serono has indicated that these trials will continue pending discussions with the regulatory authorities.

While we await Merck Serono's decision regarding LBLP-25 and the currently expected presentation of the START data at ASCO, we are continuing with the development of ONT-10, our follow-on vaccine directed against the same target, MUC1. ONT-10 is a liposomal vaccine, similar to LBLP-25, but which incorporates a larger and glycosylated antigen and a novel proprietary adjuvant. In preclinical models, ONT-10 produces a robust tumor immune response, as well as a cellular response comparable to that seen with LBLP-25.

We initiated a Phase I trial with ONT-10 in March 2012, which consists of 2 parts. Part 1 will study a dose escalation schedule in up to 48 patients to determine the maximally tolerated and/or recommended dose of ONT-10 administered either once every other week or once every week over an 8-week period. Part 2 will further investigate the safety of ONT-10 at the maximally tolerated or recommended dose in up to 15 additional patients at either the weekly and/or the biweekly schedule. The ability of ONT-10 to induce both a humoral and a cellular immune response will be investigated in both parts of the study.

Part 1 of the study has gone very well and we expect to enroll the last dose escalation cohort in the second quarter of this year. We currently are planning to continue with part 2 in the second half of the year and are actively considering potential next steps with ONT-10. We expect that we'll be able to update you on our plans for ONT-10 sometime in the third quarter when we have more of the data from our Phase I and when next steps, if any, for LBLP-25 may be clearer.

We believe this Phase I trial of ONT-10 is of particular interest because of the adjuvant component of the vaccine, a fully synthetic lipid A analog called PET-Lipid A. This adjuvant is a fully synthetic, toll-like receptor 4, TLR4, agonist which is proprietary to us. The adjuvant has demonstrated enhanced potency compared to adjuvant MPL, the only currently approved TLR4 agonist adjuvant. Because it's fully synthetic, we believe there are significant manufacturing and potentially cost advantages in favor of PET-Lipid A. This trial is the first in man for this adjuvant, and we believe the data from this trial may enable us to interest other vaccine developers in evaluating this adjuvant.

Let me now turn to review our PX-866, our small molecule inhibitor of PI-3-kinase. During 2012, we made significant progress in advancing a broad Phase II development program for PX-866 designed to evaluate the compound, both in combination and single-agent settings. This program includes 4 open label Phase II trials, as well as a Phase 1/2 trial started in 2012. Together, these trials are evaluating PX-866 in 6 different cancer indications. Our efforts in 2012 were primarily focused on getting these trials enrolled as expeditiously as possible. For 4 of these indications, we have completed enrollment and are currently expected to have data in the second quarter of this year.

This includes the randomized trial of PX-866 in combination with docetaxel in patients with locally advanced, recurrent or metastatic non-small cell lung cancer who are receiving second or third-line treatment. We completed enrollment of over 90 patients in this trial last summer. This trial has a progression-free survival primary endpoint, and we currently expect to have the primary endpoint data in the second quarter of 2013.

In addition, the randomized Phase II trial of PX-866 in combination with cetuximab in patients with metastatic colorectal carcinoma, who have a history of progression or recurrence following primary -- following prior treatment regimens containing irinotecan and oxaliplatin is fully enrolled. This trial has a primary endpoint objective response rate, and we also currently expect the primary endpoint data in the second quarter of 2013.

Finally, data from our single-arm Phase II trial in glioblastoma and the original cohort in the Phase II trial in castration-resistant prostate cancer have been submitted for the ASCO meeting. These single-agent trials are being conducted by the National Cancer Institute of Canada's Clinical Trials Group. The second part of the prostate cancer trial, which focuses on patients who have progressed while receiving abiraterone is continuing to enroll patients. We have also nearly completed enrollment in both of our trials of PX-866 in patients with squamous cell carcinoma of the head and neck. The randomized trial of PX-866 in combination with docetaxel is over 80% enrolled, while the trial in combination with cetuximab is over 95% enrolled. We expect complete enrollment in both trials by midyear for topline data around the end of 2013.

The most recently initiated clinical trial, which we began in 2012, is the Phase 1/2 trial of PX-866 in combination with vemurafenib, being conducted in collaboration with the Melanoma Research Foundation Breakthrough Consortium. This trial is currently enrolling the Phase I dose escalation portion.

As this brief review makes clear, we have made substantial progress with our PX-866 development program in 2012, and we have a lot of data expected in 2013. We intend to be guided by these data as we consider our future plans for the development of PX-866. One of the major goals of this broad Phase II development program was to give us options to select the best opportunity for later-stage development of PX-866. We are looking for strong signals from these trials, not necessarily higher statistically significant outcomes. If the data are supportive, it's our intention to move PX-866 into a Phase IIb or III trial as soon as possible. We will be driven by the data in choosing the indication, which may mean waiting for the head and neck data later this year before making a commitment. We will also be sharing the Phase II data with potential partners for PX-866, the competition in the fields of drugs targeting PI-3-kinase is intense, and we believe a partnership for later-stage development of PX-866 would be beneficial. However, we don't intend to wait for such a partnership to get started on the next trials, and fortunately, we are in a financial position to do this.

We continue to be careful in our expenditure of cash. Our guidance for cash used in operations for 2012 was for $30 million to $33 million, and as Julie reported, we came in below that guidance. In fact, we were able to pay off our only outstanding debt of about $4 million and remain at just over $33 million in total cash used. As a result, we ended the year with just under $84 million in cash, cash equivalents and investments. We again are currently guiding to using between $30 million and $33 million in cash in 2013, and as a result, expect to end the year with over $50 million in cash. This provides us with the financial resources to support our ongoing trials and to move to the next phase with both ONT-10 and PX-866.

In closing, we look forward to the coming months and to sharing our milestones with you. We greatly appreciate your support. Thank you for your time today and for your interest in Oncothyreon. And operator, we'd now be happy to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question from Simos Simeonidis from Cowen and Company.

Simos Simeonidis - Cowen and Company, LLC, Research Division

Bob, first on LBLP-25, just to be clear, all that you're guiding for today is that the abstract or abstracts have been submitted for ASCO, nothing else.

Robert L. Kirkman

That's correct.

Simos Simeonidis - Cowen and Company, LLC, Research Division

And you also mentioned on the call that both INSPIRE, the Phase III in Asian patients and the Phase II from Japan are continuing enrollment?

Robert L. Kirkman

I think the Japanese trial is actually fully enrolled or nearly so. I actually think it may be. The INSPIRE trial is still enrolling patients.

Simos Simeonidis - Cowen and Company, LLC, Research Division

Okay, okay. And then on PX-866, you -- in terms of your commercialization plans, you're leaving the door open for partnership that's -- this is not something that you necessarily plan to do or have to do. You could go into a potentially pivotal trial or a Phase IIb, as you said, on your own. But do you think that you have to do a trial -- sorry, you'd have to do a partnership with these assets?

Robert L. Kirkman

No. We're not in a position where we have to do a partnership and we absolutely intend to move it into phase -- into the next phase trial, whether that's a IIB or a Phase III trial on our own and to get started on that. It's just that with the competition in this field, I think a broader Phase III program is probably going to be indicated, and we would need some help with that. I think that our absolute intention is to maintain some marketing rights for this product and whatever our partnership we might structure would do that.

Simos Simeonidis - Cowen and Company, LLC, Research Division

Okay. And finally on the data that we expect to see from 866 in the second quarter, both of the single-arm trials and the monotherapy trials in prostate and GBM and in the lung and colorectal combination trials, is it going to be the final data? Or is it going to be -- rather, are they mature data, are they topline data?

Robert L. Kirkman

For the 2 single-arm trials, they'll be fairly mature data. For the 2 randomized trials -- and those 2 have been submitted for ASCO, so we would expect to see a fairly full report. For the 2 randomized trials, it'll probably be topline data only with the plan to present the full data a little bit later in the year.

Operator

Our next question comes from Joel Sendek from Stifel.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

I have 2 questions, Bob. The first is on Stimuvax -- what's the name, LBLP-25? It rolls off your tongue. Actually, not for that one, for ONT-10 is my question. Might you be able to get a higher dose? I mean, since you haven't -- you said that you didn't get an MTD yet, so could this have efficacy advantages? I know you stressed the notion of the adjuvant, but is there a hope here maybe that you could see differentiation on efficacy?

Robert L. Kirkman

Well, we know that's true in preclinical models. If you do a head-to-head comparison of the 2 antigens that are in the 2 vaccines and preclinical models, there's clearly an advantage for ONT-10. So -- and that's using -- and those experiments were done basically using the same adjuvant, using our own, so the comparison is between the 2 antigens and the vaccine. So we are hopeful that, that may turn out to be the case. Whether that is helped by going to a higher dose of the vaccine is really hard to know. One of the issues all vaccine developers in oncology face is that we don't have a good pharmacodynamic marker for the vaccine. So once we start to see robust immune responses to the vaccine, that's probably as far as we need to go. Whether you could go higher or not, safely, is really hard to know.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Understood. On 866, I'm looking at my old notes and it seems to me that I'd written for the lung and colon, we might -- I originally expecting that data in the end of the first quarter. The fact that you moved it to the second quarter, does that suggest that it might be early in the second quarter as opposed to around the time of ASCO for lung and colon?

Robert L. Kirkman

It's not meant to. We are a little bit behind the guidance that we originally said, partly for reasons that patients continuing in the trials in one case and partly just for a matter of getting the data cleaned up, to be honest. So we are -- you are correct from your old notes, we are a couple of months behind our original guidance on the lung trial.

Operator

Our next question comes from Mara Goldstein from Cantor Fitzgerald.

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

Just 2 questions, one on 866. I believe you mentioned in the prepared remarks, Bob, about looking at robust response, not necessarily specifically significant response, which we certainly understand for a trial at this stage of development. But I'm just curious as to whether you're looking at -- you'll be looking at response and the differential relative to control or historical control or what the metric will be on that? And then I had a question on ONT-10 afterwards.

Robert L. Kirkman

Well, for 866, is the -- whenever this company undertakes a trial of a combination regimen, it will be a randomized trial, I won't use historical controls for that. So for the non-small cell lung cancer, which is in combination with docetaxel, and then the colorectal, which is in combination with cetuximab, those are both randomized trials with contemporary enhanced controls. They're powered to be able to see differences, just not -- we're using these as indications for finding trials, and I don't want people to be expecting a highly statistically significant result like you might see in a Phase IIb. They weren't set up that way. They're designed to help us figure out what's the right trial for a bigger registration-type trial. The 2 single-arm trials, they were set up using a protocol that the NCIC uses -- their Clinical Trials Group uses to do early stage evaluation of experimental agents in which they have preset criteria for response and stable disease that they're looking for, and so the drugs will be measured against those preset criteria, and that's what you'll see at ASCO.

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

Okay. And just on ONT-10, which is actually really my question on PET-Lipid A and from a business development perspective. Is there an effort underway to look at licensing opportunities of just the adjuvant? And if so, can you tell us kind of where you are in that process?

Robert L. Kirkman

I think our effort at this point is to get it into the hands of as many people as we can and let them play with it. We are not expecting license agreements that actually produce monetary reward to us in the current year. We're much more focused on just getting it into the hands of as many people as we can and let them play with it. And yes, we're working hard on that.

Operator

I am currently showing no further questions at this time. I will now turn the call back over to Robert Kirkman for closing remarks.

Robert L. Kirkman

Well, thank you very much, all of you, for joining the call this morning. We appreciate your listening and your enthusiasm for Oncothyreon, and we thank you very much. And operator, that will conclude our phone call.

Operator

Thank you. Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.

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