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Oncothyreon (NASDAQ:ONTY)

Q4 2013 Results Earnings Conference Call

March 13, 2014, 4:30 p.m. ET

Executives

Julie Eastland - CFO

Robert Kirkman - CEO

Julie Rathbun - Investor Relations

Analysts

Joel Sendek - Stifel Nicolaus

Mara Goldstein - Cantor Fitzgerald

[Yatzen Senha] - Cowen & Company

Operator

Good day, ladies and gentlemen, and welcome to the Oncothyreon fourth quarter 2013 financial results conference call. [Operator Instructions] I would now like to introduce your host for today’s conference, Julie Rathbun. You may begin.

Julie Rathbun

Good afternoon, and welcome to Oncothyreon's financial results conference call for the full year and fourth quarter of 2013. 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 results for the full year and fourth quarter of 2013. After that, Dr. Kirkman will review Oncothyreon's corporate and pipeline highlights and discuss upcoming milestones. We will then open up 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 of 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 tecemotide, the commercial outlook for tecemotide, and clinical development activities for ONT-380, and ONT-10.

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 Eastland

Thank you. As reported in our press release today, the loss from operations was $41.2 million for the year ended December 31, 2013, as compared with $28.5 million for the year ended December 31, 2012.

The increase in loss from operations resulted primarily from an increase in research and development expenses to $33.2 million from $22.0 million, which included a $10 million up-front payment to Array BioPharma upon the execution of the collaboration agreement with Array in May of 2013.

The net loss for the year ended December 31, 2013 was $38.8 million, or $0.62 per basic and diluted share, compared with a net loss of $3.4 million or $0.06 per basic and $0.53 per diluted share for the year ended December 31, 2012.

The increase in net loss was primarily attributable to the difference in the change of the fair value of warrant liability with $2.3 million in noncash income for the year ended December 31, 2013 compared with $25.5 million in noncash income for the prior year.

Research and development expenses also increased, primarily due to the $10 million up-front payment to Array. As of December 31, 2013, our cash, cash equivalents, and investments were $72.6 million, compared to $83.8 million at December 31, 2012, a decrease of $11.2 million, or 13.4%.

The decrease was primarily attributable to $36.3 million of cash used in operations during 2013. This decrease were offset in part by net proceeds of $25.9 million from the sale of Oncothyreon common stock and warrants to purchase common stock.

Before I turn the call over to Bob, I’d like to provide financial guidance for 2014. Please note that we believe this guidance to be correct as of today, but that circumstances may change, and we assume no obligation to update this guidance.

Oncothyreon currently expectations operating expenses in 2014 to be lower than in 2013, which included the one-time up-front payment to Array. We currently expect cash used in operations in 2014 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.

This concludes the financial update. Let me now turn to presentation over to Oncothyreon’s president and CEO, Bob Kirkman. Bob?

Bob Kirkman

Thanks, Julie, and thanks to all of you who are listening to our call this afternoon. We appreciate the opportunity to provide a review of Oncothyreon’s year in 2013 and to look ahead to 2014.

In reviewing 2013, there are three events we believe to be particularly important to our future. The first is our collaboration with Array BioPharma for ONT-380, a potent and specific inhibitor of HER2.

The second is the release of data from the START trial of tecemotide, coupled with Merck Serono’s decision to continue development of this therapeutic cancer vaccine in non-small cell lung cancer.

And the third was our presentation of the first clinical data for ONT-10, our wholly owned follow-on cancer vaccine. So let me take you through these in turn, beginning with ONT-380. In late May, we announced an agreement with Array for the development of ONT-380, a small molecule inhibitor of HER2 discovered by Array and which they refer to as Array-380.

ONT-380 has two characteristics which we found attractive in a development candidate. First, it’s a very potent inhibitor of HER2, but not of the related target, EGFR. To our knowledge, ONT-380 is the only small molecule in clinical development that inhibits HER2 without inhibiting EGFR.

HER2 is a highly validated therapeutic target in breast cancer, but blocking EGFR is not thought to contribute to efficacy in this disease. However, blocking EGFR does cause significant toxicity, especially skin rash and diarrhea.

For the second characteristic, ONT-380 has demonstrated significant activity in animal models of HER2-positive tumors implanted in the brain. Metastases to the central nervous system are a major unmet medical need in the treatment of HER2 positive breast cancer, with about one-third of women with metastatic breast cancer eventually developing brain mets, and no currently available agents targeting HER2 effective in treating them.

Array completed a phase I trial of ONT-380, which included 43 patients with HER2 positive breast cancer, all of whom had failed therapy with Herceptin and most of whom had failed Tykerb.

This first in man trial demonstrated that the drug was active, with a clinical benefit rate of 27% in patients who received a dose of at least 600 mg twice a day. It also demonstrated a low incidence of the side effects associated with EGFR inhibition, with no patient experiencing grade 3 diarrhea and only a single patient experiencing a grade 3 rash.

Our development program for ONT-380 is designed to take advantage of both the potential for an improved tolerability profile and the potential activity in the CNS. We have initiated two phase IB trials of ONT-380, both in combination with other agents. The first trial is a combination trial with the antibody toxin conjugate Kadcyla, more commonly known as T-DM1.

The trial is a dose escalation study and up to 48 patients who have been previously treated with Herceptin and a taxane for metastatic breast cancer, and the primary objective is to determine the maximum tolerated or recommended phase II dose of ONT-380 in combination with the approved dose of Kadcyla.

We believe it’s particularly important to demonstrate that ONT-380 can be combined with T-DM1. T-DM1 is currently approved for the treatment of second-line metastatic breast cancer, but it is likely to move to first line over the next year or so. We currently plan to initiate a phase II trial of ONT-380 in combination with T-DM1 late this year.

The second trial is a phase IB trial of ONT-380 in combination with Xeloda, or capecitabine, and/or Herceptin, in patients who have been previously treated with Herceptin and Kadcyla for metastatic HER2 positive breast cancer. The trial is a dose escalation study in which the primary objective is to determine the maximum tolerated or recommended phase II dose of ONT-380 in combination with the approved dose of either Xeloda or Herceptin, or both.

Both of these trials are designed to help us obtain preliminary evidence with respect to the activity of ONT-380 in the central nervous system. Patients with treated, stable central nervous system metastases from HER2 positive breast cancer are eligible for the dose escalation portions of both trials, while patients with CNS metastases, which are either asymptomatic and untreated or progressive following local therapy, may be included in expansion cohorts in each trial once the recommended dose is determined. Each trial is expected to enroll approximately 50 patients.

In addition, the Dana-Farber Cancer Institute in Boston is currently conducting an investigator sponsored trial of ONT-380 in combination with Herceptin in patients with brain metastases from HER2 positive breast cancer. This trial, which has been ongoing since last September, is also expected to enroll up to 50 patients.

There are, therefore, three ongoing trials, each of which includes patients with brain metastases. From a combination of these trials, we would expect by the end of 2014 to know if ONT-380 is active in the brain, and whether further trials are justified to continue testing that hypothesis.

Let me turn now to tecemotide, previously known as Stimuvax or L-BLP25. At the American Society of Clinical Oncology meeting last June, Dr. Charles Butts, a leading investigator with tecemotide for many years, presented the results of the START trial of tecemotide in stage 3 non-small cell lung cancer.

START was a phase III multicenter randomized double blind placebo controlled clinical trial designed to assess the efficacy and safety of tecemotide in patients with unresectable stage III non-small cell lung cancer, who had a response or stable disease after at least two cycles of platinum chemoradiotherapy.

While the START trial did not meet the primary endpoint of improving overall survival in the overall patient population, data from an exploratory analysis of a predefined subgroup of patients who received tecemotide after concurrent chemoradiotherapy showed that these patients achieved a median overall survival of 30.8 months versus 20.6 months in patients treated with placebo. The subgroup was very large, 806 patients, and the result was statistically significant.

START was conducted by Merck Serono, the pharmaceutical division of Merck KGaA, to whom tecemotide is licensed. In September, after extensive consultation with regulators in both Europe and the U.S., investigators, and key opinion leaders, Merck Serono announced that they will conduct a confirmatory trial called START2.

This will be a new phase III trial in the same population as START, but confined to patients who have received concurrent chemoradiation. We expect the first patient to be enrolled in this trial very shortly.

We believe that the results from START and Merck Serono’s decision to go forward with START2 provide significant validation of MUC1 as a target for immunotherapy, and are supportive of our going forward with the development of ONT-10, our follow-on therapeutic vaccine against this target.

ONT-10 differs from tecemotide in two ways. First, the antigen is bigger, glycosylated, and attached to the liposome in a slightly different way. These changes are designed to induce an antibody response in addition to the cellular immune response seen with tecemotide. ONT-10 also incorporates our novel proprietary adjuvant, PET-Lipid A.

We presented preliminary results from a phase I trial of ONT-10 at the annual meeting of the Society for Immunotherapy of Cancer last November. The trial is a first in man dose escalation trial in patients with advanced previously treated malignancies of types associated with the expression of MUC1.

At the time of the presentation, the trial had enrolled 33 patients with advanced malignancies. ONT-10 was well tolerated, with no treatment related serious adverse events. Importantly, we saw the production of a significant antibody response to the vaccine, as predicted by our animal models.

31 patients were evaluable for anti-tumor activity. 20 of these patients, or 65%, were progression-free at the time of the first tumor assessment at week 9 or 10, while progressive disease occurred in 11 patients.

Eight patients were still progression free for six months or greater, with a range from 6 to 18 months. Three of these eight patients were reported to have a history of progressive disease prior to beginning ONT-10 while an additional patient had a rising tumor [marker], and a decrease in the size of known disease was seen in two patients with ovarian cancer.

Since the presentation in November, we’ve completed the enrollment in the dose-escalation portion of this phase I trial with 46 patients now included. We currently plan to provide more detailed data from this trial at ASCO.

We are also currently considering our options for the further development of ONT-10. We plan to enroll two expansion cohorts of our current trial, one in patients with breast cancer, and one in pats with ovarian cancer, and we look forward to providing more details about future trials later this year.

As Julie has already reviewed, we enter 2014 with a solid balance sheet. We ended 2013 with no debt, and over $72 million in cash, of which we currently plan to spend between $30 million and $33 million this year.

That concludes my prepared remarks for today. As always, we very much appreciate the support our shareholders. And operator, we’d now be happy to answer questions.

Question-and-Answer Session

Operator

[Operator instructions.] Our first question comes from the line of Joel Sendek with Stifel.

Joel Sendek - Stifel Nicolaus

On ONT-380, I have a couple of questions. You outlined the studies that you’re doing, and wondering when you’ll get the data from all three of the studies, and if, when you do get those results, how will that dictate what you’ll do in phase II. For example, will you just do a brain mets study? Or might you do multiple different studies subsequent to determining the dose?

Bob Kirkman

We expect to have data from all three studies toward the end of this year. At that point, it’s unlikely that the expansion cohorts in our two trials will be complete, but we expect to have a fairly significant amount of data at that point.

Now, from some combination of the three trials we have ongoing, we expect there will be enough patients enrolled with brain mets for us to have a pretty good idea about the activity of ONT-380 in that setting. And if we see evidence of that activity, then it is certainly our intention that taking that pool, in that particular setting, would be very high priority, as we think that would be a particularly efficient way to get the drug registered.

We do plan a trial that would focus on first-line metastatic or second-line metastatic disease, in combination with T-DM1. For that trial, we’d need to get the safety data from our current dose expansion trial, and to be sure that we know what the recommended dose should be going forward. But once we have that, we plan to go ahead and initiate that trial.

Joel Sendek - Stifel Nicolaus

And when you think about the trial itself, what percentage of the patients will have brain mets, do you think? Do you have a certain target? How do you think about that?

Bob Kirkman

Obviously in the data from our investigator sponsored trial, they all do, because that’s the trial. In the dose escalation parts of our current trials, it’s a little hard for me to know that answer yet. The early experience suggests that it will be a significant portion, but I just don’t have enough information yet to give you a definitive answer to that question, but we think there will be a significant number.

Operator

Our next question comes from the line of Mara Goldstein of Cantor Fitzgerald.

Mara Goldstein - Cantor Fitzgerald

I’m just wondering if you could maybe remind us of the assumptions underlying progression of brain mets in the population that ONT-380 is being studied in?

Bob Kirkman

I’m not entirely sure I understand the question, but in the dose escalation portions of our current trials, the patients have to have treated and nonprogressive brain mets. They can’t be actively progressing in this phase of the trial. And in the dose escalation portions, they can be untreated, and/or progressing. Is that what you’re asking?

Mara Goldstein - Cantor Fitzgerald

Right, but for those that are in the untreated and progressing arm, I know this is not a registration trial, but what would your expectation be around how many doses patients should be able to go through before they would consider not responding to treatment?

Bob Kirkman

I’m not prepared to answer that question at this point. I don’t know the answer to that yet.

Operator

Our next question comes from the line of [Yatzen Senha] of Cowen.

[Yatzen Senha] - Cowen & Company

My first question is on ONT-10. I know you guys have not clearly given us guidance on what would be the next step, but would you wait for a partner first, or would you see an opportunity where you can directly go into phase III development with this compound once you see more data from the ongoing trial?

Bob Kirkman

I don’t think we can go directly into a phase III trial for this without a partner. The obvious phase III trial with ONT-10 is the same trial that would look a lot like the START2 trial, and that’s clearly something we would need a partner to be able to take forward. However, I do think there are some smaller scale trials that will add significantly to the value of ONT-10 that we can undertake.

We’re going to begin by expanding our phase I trial into the two disease specific cohorts I mentioned, one in breast cancer and the other in ovarian cancer. We are designing a trial in triple negative breast cancer that we think we’ll have more to say about a little bit later this year, and we’re also very interested in potentially combining ONT-10 with other immunomodulatory agents and think that those trials will be of a scope that we can undertake ourselves.

So it’s definitely our plan to move forward with the development of ONT-10 on a scale that we think we can manage at this point.

[Yatzen Senha] - Cowen & Company

And then for the next trials that you are planning, would you see that you can do a combination trial, maybe with a checkpoint inhibitor as well? Could you have multiple arms in that trial?

Bob Kirkman

We are considering some trials around that kind of combination. They probably would be a separate trial rather than an arm of a bigger trial, but that’s definitely an approach that we would like to be able to take.

[Yatzen Senha] - Cowen & Company

I just have one more question on tecemotide. I know you mentioned that the trial is expected to enroll the first patient shortly, but can you give us any color on how quickly you think that this trial can enroll patients, and then how quickly we can get data from this trial?

Bob Kirkman

Since the trial is just getting underway, I don’t have any experience to guide my expectations about enrollment, except to say that we think there’s a fair amount of enthusiasm in the investigator community, because of the results from START, and we think that it will probably enroll relatively rapidly.

Nevertheless, this is a survival based trial. You’ll remember that it took about six years for START. My guess is it will be shorter for START2, because we won’t, hopefully, have the clinical hold issue. But I think we’re still probably looking at four to five years before we have data from START2.

Operator

I’m showing no further questions. I’d like to hand the call back over to Dr. Kirkman for any further remarks.

Bob Kirkman

Again, we thank you very much for your attention this afternoon. We appreciate the support that our shareholders have shown to the company, and we look forward to sharing our milestones with you as we go forward over the course of this year, with an update on ONT-10 at ASCO and data from our ongoing trials with ONT-380 later in the year.

Thanks very much, and operator, that concludes our call today.

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