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Inovio Pharmaceuticals, Inc. (NASDAQ:INO)

Q2 2014 Earnings Conference Call

August 11, 2014, 9:00 AM ET

Executives

Bernie Hertel - IR

Joseph Kim - CEO

Peter Kies - CFO

Analysts

Charles Duncan - Piper Jaffray

Brian Klein - Stifel

Jonathan Aschoff - Brean Capital

Operator

Greetings, and welcome to the Inovio Pharmaceuticals Second Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Bernie Hertel. Thank you, sir. You may begin.

Bernie Hertel

Thank you. Good morning, everyone. Today's call may contain certain forward- looking statements relating to our business, including our plans to develop electroporation-based drug and gene delivery technologies and DNA vaccines and our capital resources.

Please keep in mind that actual events or results may differ from the expectations discussed as a result of a number of factors, including uncertainties inherent in pre-clinical studies, clinical trials and product development programs, including but not limited to the fact that pre-clinical and clinical results referenced on the call may not be indicative of results achievable in other trials, studies and trials may not achieve the results desired, and they may not commence or be completed in the time periods anticipated, risks related to collaborative arrangements, including the timing and receipt of payments, the availability or potential availability of alternative therapies for the conditions targeted by the company or its collaborators, issues involving product liability, issues involving patents, the adequacy of our capital resources, the impact of government healthcare proposals and other factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2013, our Form 10-Q for the quarter ended June 30, 2014, and other regulatory filings from time to time.

Finally, there can be no assurance that any product in Inovio's pipeline will be successfully developed or manufactured, that final results of clinical studies will be supportive of regulatory approvals required to market licensed products, or that any of the forward-looking information provided will be proven accurate.

Now, Inovio's President and CEO, Dr. J. Joseph Kim.

Joseph Kim

Thank you, Bernie. Good morning, everyone. In the last year, Inovio has performed on multiple fronts. First, we reported additional immune response data, reinforcing our claim of activating best-in-class T-cells. T-cells are essential weapons to eliminate infected and cancerous cells.

Second, we concluded a valuable yet uncommon strategic partnership with a leading pharmaceutical company for two immune therapies. I call this an uncommon partnership because it was a deal involving pre-clinical immune therapeutic candidates and it was completed prior to having validating efficacy data from a human study.

And third, we secured funding at an attractive valuation to bring our working capital well above $100 million. Our founding mission and our goal today is to revolutionize the fight against cancers and infectious diseases. On this journey, we’re also transforming Inovio.

Three weeks ago, we took a momentous step forward for our technology, our company and the field of immune therapies. We announced top line data showing for the first time that a DNA-based immunotherapy had achieved clinically meaningful efficacy.

By any measure, Inovio has executed on its plan, and we intend to continue executing on our strategy to transform the field of immune therapies, and Inovio with commercial products meeting an array of unmet medical needs.

Today, Inovio takes an important step in this transformation. We announced this morning that we will initiate a Phase III program for our immune therapy for a pre-cancerous condition called cervical dysplasia. It is important to note that persistent and untreated cervical dysplasias lead to cervical cancer. Our therapeutic agent, called VGX-3100, widely targets these pre-cancers and cancers caused by human papillomavirus, or HPV, which is one of the most prevalent cancer-causing viruses in the world.

We advance this therapy into a late-stage pivotal trial based on the breakthrough results delivered by our Phase I and Phase II trials for this pre-cancerous medical condition. Three weeks ago, we announced Phase II data demonstrating that this product can stimulate the immune system to eliminate high-risk HPV infection, and induce regression of a disease process that frequently leads to cancer.

The efficacy levels we reported have never previously been attained with an active immunotherapy, nor any non-surgical treatment for this condition.

I can’t stress enough the importance of the non-surgical nature of our approach to treat cervical dysplasia and HPV infection. Physicians have told us that if a therapy could clear HPV infection they would immediately adopt it. We hear from women that if they had a therapeutic option to clear their pre-cancers, they would ask for our therapy over a surgical procedure, their only treatment option today.

The surgical standard of care today is highly invasive. It has been linked to pre-term births and low birth weights. Furthermore, it does not have the ability to eliminate cells residing outside of the surgically treated area that are infected by HPV.

After surgery, a patient may be comforted to know that an identified pre-cancer has been removed. However, she will not have the confidence of knowing that an active agent is working to eliminate disease-causing virus that may exist outside of the treated area. Remaining untreated HPV could potentially renew the cycle of causing cellular changes of neoplasia that could lead to cancer or this untreated HPV could be transmitted to others.

I’m not going to repeat all the details of the clinical study and data already reported, but let me emphasize critical points. Our Phase II data demonstrates that we have the potential to offer women with this emotionally challenging high-grade pre-cancerous condition called CIN 2 or 3, a 50% of chance of regressing this disease to a low-grade condition or complete clearance.

We’re also able to repeat the class leading, robust T-cells in this larger, controlled study as we had previously observed in our Phase I study. I want to impress upon our listeners that underneath the top line numbers, we already reported there is compelling additional data.

For example, one of the reasons we are so excited to advance VGX-3100 is that the rate of complete clearance of cervical dysplasia was very impressive. We have to keep the specific numbers under wraps until we achieve peer-reviewed publication, but, matter of factly, I want our followers to be aware of this outcome.

I do want to re-emphasize one set of reported numbers. 40% of VGX-3100 treated patients experienced not just the regression of dysplasia, but also full clearance of HPV in conjunction with dysplasia regression, while only 14% of the patients in the placebo group did so. Others have reported viral clearance that does not necessarily coincide with this disease group regression. What we have achieved as a coinciding effect is a powerful clinical outcome.

It means these women will benefit from complete or notable regression of the disease and complete elimination of the virus that caused it. No medical intervention today is capable of providing this benefit to the significant extent of VGX-3100.

Does this data mean we’re going to immediately replace the surgical procedure that is playing an important role in preventing (technical difficulty) and a vital role to play in the medical treatment of late-stage cervical dysplasia and potentially other HPV-associated diseases? Absolutely.

While our medium-term goal is to conduct a successful Phase III clinical trial leading to marketing approvals and a new treatment paradigm for CIN 2/3, I’ll share with you what we talk about inside the company.

Our ultimate goal is to own the HPV therapy space. This market includes other pre-cancers such as the low-grade cervical dysplasia, which has no treatment, as well as the vulvar, vaginal, and other anogenital neoplasias, as well as the cancers of the cervix, head and neck, which is the fastest growing cancer in men, and the anogenital area.

The unmet need is definitive and significant in value. According to cancer.gov, high-risk HPV types account for approximately 5% of all cancers worldwide. In just the U.S. and EU5 countries, the two highest-risk HPV types that Inovio is targeting are responsible for roughly 60,000 HPV-related cancers annually, and there are roughly 3.4 million incidences of low-grade and high-grade cervical pre-cancers.

Together, HPV-associated diseases represent a multi-billion dollar market opportunity. Our goal is to own this therapeutic HPV space. We will continue to take the right steps to achieve this goal.

Supporting this opportunity, there is now a better detection and monitoring of HPV infection based on new HPV diagnostic tests. The management of HPV associated diseases is undergoing a change from the conventional practice, and this will enhance the impact of our non-surgical approach can have in treating and managing these diseases.

As we have previously stated, we have already invested in planning a Phase III clinical design, scaling up manufacturing, and advancing a commercially and clinically ready delivery device. We expect to have our end-of-phase II meeting with the FDA in 2015. We expect we could launch the Phase III clinical studies by early 2016.

So, a key question, how much will it cost, and how will we pay for it? We estimate that a Phase III program could cost as much as $100 million through to marketing approval. In assessing the merit of advancing a Phase III program independently versus in a partnership, naturally there is the trade-off of risk and expenses in the nearer term versus the financial benefit to Inovio over the longer term.

Our pharmaceutical level expertise in managing pivotal clinical study, combined with small biotech nimbleness puts us in a proper position to optimally manage this Phase III study to maximize potential profit of this program to the company and its shareholders. So we will independently continue to advance VGX-3100 although we remain open to a partnership that will enhance the value of our overall HPV franchise.

Beyond VGX-3100, the positive Phase II data has significantly de-risked our technology and the numerous immune therapy products we have in our pipeline today and will create tomorrow based on this technology, and this data has instantly opened new doors or opened existing doors wider for both product and business development opportunities.

This brings us to an update on the second key product within Inovio’s primary focus on cancer. We are co-developing our prostate cancer immune therapy, INO-5150, with Roche. We initially set out with the intent to treat INO-5150 alone in a biochemically relapsed prostate cancer population to assess immunogenicity and safety, with the expectation we would later add complementary technology options in the next stage of development.

During a recent strategic review, Roche and Inovio determined that castrate resistant prostate cancer is a more favorable setting for timely development and potential integration of immunomodulatory drugs from Roche's pipeline. The development team consequently decided to reposition this study to a Phase Ia/Ib study in this population.

What are other new elements of the study? The team determined that strategically it would be more proactive and timely to immediately assess a more comprehensive set of parameters and combination of INO-5150, and additional new prostate cancer antigens that the team has been developing under the Roche/Inovio research collaboration, and Roche's portfolio of immunomodulatory drugs, including checkpoint inhibitors. This transition will delay the Phase I initiation, but we expect it could get us to commercialization faster. We intend to initiate the first human study of INO-5150 in 2015.

We all know cancer is complex and challenging. We couldn’t be more excited to work with one of the world’s leading oncology company on an aggressive program to advance a powerful prostate cancer treatment.

And now, Peter Kies, our CFO.

Peter Kies

Thank you, Joseph. I wanted to highlight key points from our Q2 financials. While expenses have gone up, payments from Roche to Inovio have gone up as well. We have a strong, strong cash position of $109 million that provides operating runway through 2017.

We have previously stated that our existing capital covers current and planned projects and operating expenses and will not fund the announced VGX-3100 Phase III clinical study. We do expect to raise incremental capital to fund this program.

Joseph, back to you.

Joseph Kim

In closing, there are few, if any, life science companies of our size who can show investors; number one, a partnership with a global pharma giant; number two, the stability and flexibility that comes with more than $100 million in the bank and no debt; number three, pivotal efficacies data that puts a distinct line in the sand in terms of validating the broad applicability and commercial potential of our novel active immunotherapy technology. We’re talking about a technology with the potential to produce dozens of products addressing cancers and infectious diseases.

I said several years ago that our goal was to transform Inovio into the next Gilead or Amgen. Our impressive Phase II efficacy and immunogenicity data and our advancing of VGX-3100 into Phase III, which we announced today, puts us on a clear path to achieve this goal.

Let me assure you that the entire Inovio team and I are razor focused in our dedication to achieving the following objectives; first, we will continue to innovate our technology and products to extend our position as the leader in active immunotherapies; second, we’ll continue to take the steps that will optimize the value of our company for the benefit of our dedicated stakeholders.

Thank you for your time and attention. Now, I’m ready for your questions.

Question-And-Answer Session

Operator

(Operator Instructions) Our first question today is coming from Charles Duncan from Piper Jaffray. Please proceed with your question.

Charles Duncan - Piper Jaffray

Good morning, gentlemen. Thanks for taking my question and congratulations on the recent progress, Joe.

Joseph Kim

Thank you very much.

Charles Duncan - Piper Jaffray

So I had a question with regard to VGX-3100 and the Phase III development plan. Can you help us a little bit to -- more with the assumptions behind that Phase III plan in terms of the steps or any data needed to inform the design of that Phase III? What is really the pacing item there?

Joseph Kim

We have been quite impressed with the efficacy, overall primary and secondary endpoints that we’re able to meet. Certainly, the overall regression from CIN 2/3 down to CIN 1 or no disease have been quite impressive, but as I alluded to, the treated group had significant lower or greater reduction of CIN 2 or 3 disease down to no disease, compared to the placebo. It’s that value we’re holding back for our peer-reviewed publication as you would understand, so that’s quite impressive.

We’re also able to generate the regression of the virus, clearance of the virus along with a regression of the disease, so not only does that mean over 40% of the women who were treated with VGX-3100 not only cleared the disease that the virus caused, but made the virus, the etiologic agent which caused the disease in the first place disappear. So, this is a tremendous advantage over the current surgical standard of care. So those efficacy readouts have been quite impressive.

As I stated earlier, the T-cell immune responses, which we were able to generate in the Phase I clinical study, were directly translated into a larger 150 patient Phase II study. So, those T-cell responses are quite impressive as well and exact details of those magnitude and the breadth and the quality of those killer T-cells will definitely be included in the publication.

Now, what are the other passes to the design? Certainly, we want to minimize the patient population. We want to be able to get to the approval stage as soon as possible. We also want to make sure that we can establish the beachfront, beachhead into the whole HPV therapeutic markets as I alluded earlier. That includes the other dysplasias markets through this efficacy and immunogenicity into [ven] [ph] and vein and anogenital neoplasias as well as the cancers. Over 60,000 patients are suffering from HPV-related cancers in the U.S. and the top five countries in Europe. So that’s the approach we’re taking.

As I had discussed with you before, we’ve taken the proactive approaches for the last several quarters to prepare for this Phase III study. So, we started the scaling up of our manufacturing process for our biological, the plasma side of our products. We’ve also fancied up, so our delivery systems could be more commercial ready. So all of these endeavors will come together to launch the Phase III studies in early part of 2016.

Charles Duncan - Piper Jaffray

Joe, that's helpful. We were also impressed with the data that was read out recently. But what I'm specifically asking is in terms of Phase III in 2016 versus, say, even early 2015 is the driver to those timelines more of, say, the scale up of the manufacturing of the product candidate? Or are there clinical data reads that you're anticipating to take full, call it broader approach, than just cervical dysplasia with the product candidate?

Joseph Kim

Those are important points, but we control that timeline. The biggest impact to our developmental timeline is our timing of our end-of-phase II meeting with the FDA. So whether we can meet earlier with this set of very good efficacy and very favorable safety and immunogenicity data or whether we have to wait for the full completion of the Phase III analysis will determine - offset the timeline by about half a year. So we’re giving more conservative numbers at this point. Obviously, none of us can control the timing of the FDA actions and meetings, but we are very optimistic but we want to be as conservative in our outline as much as possible.

Charles Duncan - Piper Jaffray

Okay, that's helpful. And then, with regard to presentation of any of this study data, have you targeted certain clinical meetings and have any abstracts been accepted or could you at least give us some sense as to the timing of additional data presentations?

Joseph Kim

So our plan is - the top line data was presented the third week of July at the DNA Vaccines Conference, and we expect a full set to be submitted for publication in a top medical journal, as well as some of the upcoming clinical conferences later this year or early part of next year.

Charles Duncan - Piper Jaffray

And you continue to follow these patients so say after some are beyond nine months and you may have more data at, say, 12 months or something like that?

Joseph Kim

We have safety and immunogenicity as well as other follow-ups through week 88 from the start, so the readout from the efficacy and primary efficacy was at week 36. So we continually follow these patients. Really they hold a tremendous amount of information for the development of VGX-3100, but as well as all of our other pipeline programs.

Since you mentioned, I’d like to give our special thanks to the patients who volunteered for the study, and certainly also for their caregivers who enroll these patients and all of the other clinical sites that helped us to bring this historic study to its outcome.

Charles Duncan - Piper Jaffray

Thank you, Joe. We look forward to those additional follow-ups.

Joseph Kim

Thank you, Charles.

Operator

Thank you. Our next question today is coming from Brian Klein from Stifel. Please proceed with your question.

Brian Klein - Stifel

Great, thank you for taking my questions. First, I just wanted to dig a little bit. I know that you're still waiting to present a lot of the data at an upcoming meeting, but on a per patient individual basis, have you been able to link the regression from CIN 2/3 down to CIN 1 or a complete resolution? Have you been able to link that event to a decrease in HPV fighters as well as a link to increased T-cells on a per patient basis?

Joseph Kim

So, Brian, I think you’re trying to give away our punch line for our publication and our future presentations. It does go back to our hypothesis we had at the beginning of this program that if you can generate powerful levels of antigen-specific killer T-cells, could you regress these lesions by solely relying on the patient’s own immune system to do that? The answer to that is yes.

We’ve shown that we can generate high levels of robust T-cells in these patients and we can certainly see the clinical outcome, the clinical efficacy resulting from this, and then we have even a further hypothesis, seeing that well, can you not just get rid of the disease, but the causative agent of the disease, the virus, the actual HPV virus that cause the disease? And the resounding answer is yes, and all of the other detailed mechanisms and so on will become - we don’t want to give away the punch lines at this time.

This data set from VGX-3100 Phase II study will have far-reaching implications, not just for this program as well as the other HPV therapy programs that we have in our pipeline to own this space, but also other who have outstanding reach to other treatments of cancers using our immune therapy approach as well as how to get rid of the virus in a chronically infected patients, so this will have impact to our antiviral programs that we have ongoing in hepatitis B, hepatitis C, as well as our HIV and other chronic infection programs. So we’re quite excited about all the different efficacy and immunogenicity data we have gotten.

Brian Klein - Stifel

Along these lines, I was wondering if you could comment on the placebo rate here and why you think it was different from your initial expectations.

Joseph Kim

So the placebo rate in the literature was literally all over the place, from 5% to 40% cell progression in these patients. I don’t think - we made the sticking your finger in the mouth guess of 25% when we designed the study. We hit around 30%. So I think we guessed pretty well. This is how clinical studies happen, you have certain guesses, but when the numbers come out, that’s why you do the controlled, double-blinded studies to maintain and determine these outcomes.

But we are thankful in our design and in our ability to really show the difference in the actual clearance, and as I alluded earlier, we’re quite excited about the full clearance, the actual clearance of the disease in the treatment group versus the placebo. Again, we’re holding that back as one of the main key points of our publication, but let me just stress that when you combine the viral clearance and the regression as the criteria as we had done with our secondary endpoint, the placebo group just comes down below 15%.

So as you add in the stringency, we still retain the quite high level of efficacy in the treated group, but the placebo group comes down into the mid-teens. So we’re quite pleased and excited about this data and where we’re going to build up of this program as well as where Inovio is going to go as a company.

Let me just add one more thing in the context of this. This is the first time that any active immunotherapy has proven its efficacy endpoint in a double-blinded placebo controlled Phase II efficacy study, and as shown that there are linkages to the T-cell that allows the mechanism of action part of it. So, this is a momentous and historic time for this therapeutic field as well as where Inovio is in this field and we’ll continue to build and innovate and expand our footprint in this industry with our programs that we’re building out on our own, as well with our current and future big pharma partners.

Brian Klein - Stifel

And then, maybe just one last question. On the partnered prostate cancer program, I just wanted to specify here, you mentioned CRPC, is that going to be a chemo-naive population?

Joseph Kim

So we’re going to be looking at all of those different populations. When we got the exciting efficacy data from this, we found a way by working with Roche to maybe take a one step back in terms of a near-term delay and take three steps forward in terms of accelerating this very important therapeutic product towards commercialization, and we found that this population is the best set of the field to test our not just our active immune therapy, but combine it plus minus with Roche’s extensive portfolio of checkpoint inhibitors and other immunomodulatory drugs that they have.

So the potential is limitless here and that’s why we wanted to really build out a larger Phase Ia/Ib program instead of just focusing on the immunogenicity and safety that we had initially. So, we see this as a positive event although there is a little bit of delay in the get-go, we’re going to be able to leapfrog the timeline together. So, this is why we get in terms of achieving certain efficacy readouts from our VGX-3100 and also working closely with the best and the largest oncology company in the world.

Operator

Next question today is coming from Jonathan Aschoff from Brean Capital. Please proceed with your question.

Jonathan Aschoff - Brean Capital

I was wondering Roche, do they desire -- can you tell us how they desire to alter your construct? And maybe if it's the alteration of the construct or more with a wish to combine it with that is making them -- push it out about six months?

Joseph Kim

Overall, there is no alteration of constructs. What we have designed from the beginning is to bring about 5150 into the clinical evaluation, but at the same time we’ve been working with Roche to develop new cancer antigens for prostate cancer, but all based on our [indiscernible] construct design approach, so we have those things going.

Roche independently have their checkpoint inhibitor developments ongoing. So we wanted to bring all these assets into one single probably the most important patient population of castrate resistant group, so that’s where it came to. This really signals perhaps the best path forward and the quickest and the most meaningful path forward for 5150 and our prostate cancer franchise with Roche.

Jonathan Aschoff - Brean Capital

You can't help us at this point with the antigens that are under -- that are potentially going to be --.

Joseph Kim

No, that’s confidential at this time, but we’ve screened dozens and came up with a few additional ones that will become an additional arsenal to help fight off prostate cancer in the patients.

Jonathan Aschoff - Brean Capital

Would it be safe to say, Joe, that a Phase III program with VGX could be any HPV indication, let's say, even with or without IL-12? And maybe that's what you're trying to learn over the next year? No?

Joseph Kim

No, without IL-12 into our cancer programs, because cancer cells are inherently more difficult for the T-cells to tackle, so having additional T-cells from our IL-12 kinetically earlier, we felt that it would be advantageous for the cancer indication. We feel VGX-3100 as it’s formulated and as it’s designed, is sufficient for the pre-cancer indications sensitive to indication and we aim to span that into other neoplasia indications as they are.

We’ll add IL-12 in the cases where it will be helpful. We’re also combining with checkpoint inhibitors on the cancer side, because at the end of the day whether it’s HPV-related cancer programs or other cancer programs that we’re working with Roche or potentially with other partners, is T-cells are the main - the name of the game are the T-cells. You create new antigen-specific T-cells targeting the cancer cells and you also double them with strong hit with the checkpoint inhibitors from the partners, and then you can more easily thwart and get rid of these cancer cells in the patients just by using their own immune system.

We are changing the paradigm. We and others are developing the checkpoints and our other immunomodulatory drugs, we are changing the current paradigm of how we treat cancer patients, and we’re going to do this perhaps more safe, more tolerable and currently more efficacious in the future.

Jonathan Aschoff - Brean Capital

Lastly, could you help us on what percentage of spontaneous regressions in CIN 2/3 also had a full viral clearance, if any?

Joseph Kim

Less than 15%.

Operator

Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

Bernie Hertel

We’re good. Thank you very much for your time.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

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Source: Inovio Pharmaceuticals' (INO) CEO Joseph Kim on Q2 2014 Results - Earnings Call Transcript

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