NewLink Genetics' (NLNK) CEO Charles Link on Q2 2016 Results - Earnings Call Transcript

| About: NewLink Genetics (NLNK)

NewLink Genetics Corporation (NASDAQ:NLNK)

Q2 2016 Results Earnings Conference Call

July 29, 2016, 08:30 AM ET

Executives

Charles Link - Chairman, Chief Executive Officer and Chief Scientific Officer

John Henneman - Executive Vice President and Chief Financial Officer

Nicholas Vahanian - President and Chief Medical Officer

Analysts

Peter Lawson - SunTrust Robinson Humphrey

Stephen Willey - Stifel

Eric Criscuolo - Mizuho

Operator

Good day, ladies and gentlemen, and welcome to the NewLink Genetics Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference Mr. Jack Henneman, Chief Financial Officer. Sir, you may begin.

John Henneman

Good morning and thank you for joining me; Dr. Charles Link, Chairman, Chief Executive Officer and Chief Scientific Officer; and Dr. Nicholas Vahanian, President and Chief Medical Officer for the NewLink Genetics' second quarter 2016 financial results conference call.

Earlier this morning, we issued a press release announcing financial results for the second quarter and summarizing operational progress toward our 2016 goals. On our call this morning, Dr. Link will discuss the operational, clinical and scientific progress we have achieved during the first quarter. Dr. Vahanian will provide an update on our clinical programs and I will wrap up with a summary of our restructuring and second quarter financial results.

Certain statements made during this call are forward-looking pursuant of the U.S. Federal Security Laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC.

The forward-looking statements made during this call speak only as of the date hereof and the company undertakes no obligation to update or revise the forward-looking statements. Information presented on this call is contained in the earnings release we issued this morning and in our Form 10-Q which we expect to file next week.

I will now turn the call over to Chuck.

Charles Link

Thank you, Jack. Thank you all for joining us today for our review of the second quarter financial results and operational performance. Notwithstanding the disappointment of the IMPRESS trial result, we moved quickly to restructure the company and substantially reduce ongoing expenses, and at ASCO we presented further clinical data for our proprietary IDO pathway inhibitor indoximod.

We had a productive quarter. We continue to be highly encouraged about our collaboration with Genentech and look forward to further validation of the IDO pathway as a target and of our candidate GDC-0919.

Of course the outcome of the Phase 3 IMPRESS trial was a great disappointment for the patient and physicians who participated in the trial, all of us at NewLink Genetics team who had worked so long on HyperAcute Cellular Immunotherapy program and our stockholders.

NewLink Genetics is a company that is committed to bring its Immuno-Oncology treatment to patient. We have a strong pipeline of therapies at various stages of clinical development and we are partnering with leaders in this field to advance our effort.

Our first priority after announcing the results therefore, was to restructure the company. Our restructuring had two purposes. First, to re-order of the company's priorities focused, primarily on IDO checkpoint inhibitors, rather than the HyperAcute Cellular Immunotherapy platform.

Second, to reduce our use of cash to allow for the opportunity to develop our pipeline of products. Now Nick will focus on some of the company’s initiatives and Jack will then describer the restructuring in some detail. Nick?

Nicholas Vahanian

Thank you, Chuck. Our key priority for us is the clinical validation of our IDO pathway inhibitors. The IDO pathway is increasingly believed to be a key checkpoint in the immune response to cancer. IDO has an important target, continuous to capture attention.

Ongoing Phase 1 and 2 clinical studies suggest that our IDO blockade in combination with other agents shows clinical promise. NewLink Genetics is well positioned to target IDO and develop their piece for IDO inhibition.

The most advanced drug candidate for IDO pathway inhibitor are indoximod, which is wholly owned and GDC-0919 which we partnered with Genentech/Roche group. We anticipated continued clinical progress in our IDO pathway inhibitor program and expect a number of trial updates through the first half of 2017.

This will include clinical updates evaluating indoximod in combination with temozolomide for refractory malignant brain tumors, as well as indoximod in combination with taxane chemotherapy for patients with metastatic breast cancer.

We reported on two clinical studies in two posters, highlighting the combination therapeutic potential of indoximod at the 2006 ASCO meeting in June. We were encouraged by these promising data, as details in our press release issued this morning, which also links to their abstracts.

We also anticipate an update on the progress of GDC-0919. As you know, our partner Genentech determines the communications under the collaboration, including the publication of their results.

This program includes a Phase 1b study of GDC-0919 in combination with their recently approved checkpoint inhibitor atezolizumab, which is anti-PD-L1 monoclonal antibody across a number of solid tumors.

Finally, we have maintained and actually expanded our active business development program and have the financial flexibility to take advantage of external opportunities as they come to our attention.

We have been winding down HyperAcute Cellular Immunotherapy clinical trials that are not combination trials with other agents. We conducted an early analysis of the available data for data trial which showed no statistic significant difference in median survival between the two groups.

The median survival was 14.6 months and 14.7 months for the control group and the study group respectively.

Now I will turn the call over to Jack to discuss our restructuring and the second quarter financial results. Jack?

John Henneman

Thank you, Nick. As discussed in our press release, we are much to the ways through executing a restructuring plan, designed a curve - to conserve cash until our IDO pathway inhibitor and other programs mature.

In addition to focusing the company in the future, the objective of the restructuring is to cut our rate of cash expense sufficiently to maintain our current guidance cash through at least the end of 2018 and leave capacity for one or two significant investments. The main reductions was indicated on a slide cash conservation initiatives.

We have substantially wound down the HyperAcute Cellular Immunotherapy, except for a couple of combination trials with inventory we have on hand. Since we were building our commercial manufacturing and supply chain infrastructure in anticipation of success, we were able to drive substantial headcount reductions most of which we completed in May. That in time will enable us to reduce our facilities footprint substantially and refocus our capital spending on research and development which is the future of the company.

The next slide is a before and summary of key metrics. We were excited about our future and the opportunities ahead for our team that we have maintained to take our company forward. We thank everyone for their patience through the last few months and are comfortable that we have the balance sheet to take advantage of other opportunities

Now I want to turn it briefly to our Q2 financial results. Before I move to Q&A, I want to provide a quick overview of our cash position. We will not review the P&L in detail on this call, please see the press release we issued this morning and the 10-Q that we file next week.

As we have talked about before, we are well capitalized and have the advantage of having partnered programs with both Genentech and Merck and substantial cash on the balance sheet.

We finished the quarter with $160.5 million in cash and equivalents, compared to $197.8 million at the end of 2015 and a substantially reduced rate of cash expense after taking into account the restructuring. We therefore plan to finish 2016 with more than two years of cash on hand.

Finally, since the beginning of the year we have presented at several Investor Conference, including Jefferies, Immuno-Oncology Summit in Jefferies Healthcare, the Needham Healthcare Conference, Bank of America, the Cantor Fitzgerald Healthcare Conference in July. We look forward to the fall conference schedule including Baird on September 7th and our own Investor Day in New York City on October 25 details of which will be forthcoming.

Now I'll turn the call over to Chuck for closing remarks. Chuck?

Charles Link

As you can imagine, the last two months have been challenging. However, the team is now reenergized and other promising opportunities in our pipeline, including our partner Genentech. We remain committed through our mission of developing important immunotherapy’s for patients with cancer.

And now operator, we'll open up for question.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first quarter comes from the line of Michael of Robert W Baird. Your line is now open.

Unidentified Analyst

Hey, guys. Thanks for the taking the question. Just maybe on indoximod if you can talk about where is the strategy going forward here, you have a number of Phase 1/2 studies and a few indications, do you plan maybe adding additional Phase 1/2 studies is it more do you sort of see – see the results from the ongoing studies and then sort of make decisions on the next step there? Thanks.

Charles Link

So I think there is a couple of basic principles that were moving towards in the indoximod study. The first is to develop correlative biologic activity. And so we are doing a modification to - for example, the pancreatic cancer study with ABRAXANE and indoximod, which we had published the preliminary data at ASCO, which showed an encouraging early response rate that needs to be explored. So we're adding in actually an extended cohort that we're going biopsy to see the effect of indoximod on potential side that implicates in the tumor.

The second thing that we're doing is with data sets where we're seeing initial signals, for instance in the data set in melanoma and the combination of indoximod, in particular with keytruda, the anti-PD-1 anti-body inhibitor, we are looking to expand those cohort as we published at ASCO in the first 15 patients in that sub-group from that study. The response rate was slightly over 50%. That was encouraging, but we need to accumulate more data to have more confidence in that data point.

From there, we'll do a strategic review of the studies, decide what studies are most appropriate to go into larger scale, randomized Phase 2 trials to try to nail down the overall contribution of indoximod to those response rate that we're seeing in some of the single arm data.

Unidentified Analyst

And then maybe if I can ask a follow up question, it seems like the 919 timing of that data seem to have slipped a little bit, I thought we were expecting a season dated as low, but it sounded like we're now looking at first '17?

Charles Link

Thank you for asking that question. Initially it’s an impact which is obviously in target with any announcement related to GDC-0919, we just follow their lead. That indicated that they were hoping to get initial data out from the Phase 1b portion of the study, combining the atezolizumab with GD-0919 at ASMO [ph] and then they have subsequent call, I guess, two or three weeks after that initial indication that the first data will probably come out some in 2017. That was at their discretion and so we reiterated that, as soon as we heard that from them.

That study, the combination Phase 1b is a large scale study involving several hundred patients that was launched about mid-year 2015. So they are developing a significant cohort, patients now in that study.

Unidentified Analyst

Any further announcements about the next step and development of GDC-0919 are they completely contingent upon Genentech making a public statement related to that in terms of the next phases of those - as those trials evolve?

Charles Link

Yes, I think you've heard us say before, in the billion dollar plus milestones that are built in the agreement with Genentech, a number of those milestones are earlier in development, in of a substantial magnitude that they would be material events for NewLink to potentially important financing events for us.

And so once those were made public we would disclose the details around the milestones, so that people could be aware of the benefit that we incur.

John Henneman\

And the only other think I can add to that Michael is, as Chuck stated as well, Genentech determine the communication around the collaboration. But as a group we've been very pleased with the collaboration and their commitment to this program. So we're very encouraged with our partnership.

Unidentified Analyst

Great. Thanks, guys.

Charles Link

Thanks.

Operator

Thank you. And our next question comes from the line of Peter Lawson of SunTrust Robinson Humphrey. Your line is now open.

Charles Link

Good morning, Peter.

Peter Lawson

Jack, thanks for taking the question. Could you give us some kind of help around cost for 3Q and 4Q, do they continue to decline at least x-restructuring associated because they continue to decline for the rest of the year or we've kind of find a new base for 2Q that continues into 3Q and 4Q?

John Henneman

Well, x the restructuring are sort of you know, asset expense, rate coming out of Q2 is very close to where we're going end up for the rest of the year. So we move pretty much - pretty decisively on heads. We had a small number of people from the total that we were keeping on for a transitional period, so there will be a little bit of payroll extending into Q3.

We are still in the middle of the footprint reduction exercise, working through. So to the extent we have breakages on leases and stuff. Those will be probably be Q3 items, not big, but they will be there.

And we're working through some other things with vendors and so forth as well. But most of the work around the restructuring is already happened, the rest is in detailed planning mode. The fundamental expense rate of a company is established.

So I think when you see the Q3 results we'll have an incremental charge, no, it won't be very big for restructuring, but the basic P&L in Q3 will be our basic P&L going forward with all the years – with all ups down quarter-to-quarter.

Peter Lawson

Okay. And then Nick, just the continuing HyperAcute programs, they have check when you did so, how many of this are running and the ones that you'll continue, those are just ones that we're just running like hopes, you're looking to start anything new check in combinations with vaccine?

Nicholas Vahanian

So right now we have the tergenpumatucel, which is our HyperAcute lung program in combination with indoximod and taxane agent and non-small cell lung cancer. Besides that obviously PD-1 inhibitors are also attractive combination for that and we are in discussion for following different opportunities and with that we would follow, depending on one, our own combination with indoximod and couple of interest and the collaborative efforts that we are pursuing right now.

Peter Lawson

So there is new HyperAcute program you could potential start…

Nicholas Vahanian

I am sorry, you are breaking up Peter.

Peter Lawson

Those will be new programs?

Charles Link

That could be a potentially a new small Phase 2 trial.

Peter Lawson

Got you. And just on that benefit Jack on the foot print reduction how much of cost is that?

Charles Link

Actually if I may answer than and then Ill let Jack, one of the – if you are going towards manufacturing, that one of the advantage we have already produced tergenpumatucel and stock pile, some of these trials are in combination that already manufactured. So there will be minimal effect to manufacturing and processing those - the product if that’s the direction you're going, I want to put some light to that and here to Jack…

John Henneman

I am sorry, Peter, I missed the question?

Peter Lawson

The cost benefit you get from the smaller facility footprint, how much is that?

John Henneman

We haven’t broken the specific benefit from the smaller facility per se. What we did show you if you saw before and after slide and the webcast, which I would direct you to, is pretty concrete data on reduction in the annual lease cost and the aggregate.

So we gave - so shared with you our annual lease expense in the aggregate, so that’s of the total facilities cost obviously, but gives you a feeling for it, it from 1.4 million to 800,000. We gave some square footage data and then we gave effectively, I'll use the slang term, effectively we give you the burn rate number that we estimate going forward. So that’s all in the before and after slide on the webcast.

Peter Lawson

Great. Okay, thank you so much.

Charles Link

Thank you.

Operator

Thank you. And our next question comes from the line of Stephen Willey of Stifel. Your line is now open.

Charles Link

Good morning, Steve.

Stephen Willey

Good morning. Chuck, thanks for taking the questions. I think you had mentioned the desire to develop some of kind of correlative biological activity with the ongoing indoximod studies. So can you just remind us at this point, I guess what if any of the studies are actually collecting biopsy data, if you plan to emend and if the ongoing studies to do so?

And then I guess just given that indoximod seems to have a bit of multi faceted role, what are some of the markers for immune activation that you're going to specifically looking for?

Charles Link

So the indoximod study in pancreatic cancer, metastatic pancreatic cancer, we reported that data at ASCO in the first 45 patients or so. That trial enrolling very nicely, close to 100 patients or so.

Then in that study we have modified to take biopsies to look at tumor micro environment and cellular infiltration and what type of cells are infiltrating into tumor micro environment.

Clearly the baselines versus on-study treatment of what's kind of changes in that cell and filtration, one of the exciting claims, more scientific hypothesis on IDO, is the ability - or indoximod is the ability to convert suppressor cells to helper cells. So that is besides the [indiscernible] changes, look at cellular infiltration and look at changes in infiltration base line versus on-study treatment.

With other studies with indoximod their proposals talking with the PIs. We are discussing those opportunities as well. But this one actually is in progress right now. And we would expect some data in 2017 as we discuss during our script.

Stephen Willey

Okay. I guess with respect to the incremental news flow on indoximod front is there any opportunity for updates in the second half of this year?

Charles Link

So we have submitted an abstract for our malignant brain tumor trial, indoximod, plus temozolomide to one of the scientific meetings site of new oncology. We expect to be presenting - updating that mid trial update for that study. But we will confirm that later.

Stephen Willey

Okay. And then just lastly, Nick I think I you talked about potentially looking at expanded BD opportunities and I am presuming you guys want to stay within the round immuno-oncology, and that’s obviously a fairly competitive space.

So just kind of wondering you how you guys are thinking about that and what level of cash deployment are you guys willing to sacrifice here in order to bring additional assets in? Thanks.

Nicholas Vahanian

Well, we as you know Steve we talked about two years ago, we started developing and active business development searching the valuation team, kind of opportunities team in province [ph] that team is fully functioning with NewLink. There is a number of different opportunities that we've been looking for. We haven’t felt what we felt was the right opportunities for us yet, but this ongoing evaluation of a number of different asset.

Of course the nature of the assets in terms of how far it’s developed its really going to determine what the cost might be to bring that asset into the company initially. And so it’s kind of hard to speculate about that.

But we are willing to make investments that we think are same, that are either immuno-oncology or things that we believe could be synergistic with some of the current programs we have in terms of tumor type, with our current immuno-oncology program with the two classes of IDO inhibitor.

Stephen Willey

All right. Thanks for taking the questions.

Nicholas Vahanian

Thanks, Steve.

Operator

Thank you. And our next question comes from the line of Eric Criscuolo of Mizuho. Your line is now open.

Eric Criscuolo

Hi, good morning. Good morning, guys. Seem to be a lot of my ex-colleagues on this call today. I guess on the – can you maybe compare or contrast a little bit again the differences between indoximod and 0919, just trying to see again just – or just to get a better feel of how these two assets can be differentiated in the clinics?

Charles Link

Thank you for the question. It’s actually a very important one for people to understand that two IDO pathway inhibitors we have, different mechanisms, action, even though they are both disrupting the IDO pathway based on a lot of preclinical science.

The GDC-0919 which is partnered with Genentech has an international patent filing and that program is being solely run by Genentech. The drug inhibits the isolated enzyme in minimal or concentration and is very effective sort of walker of the end genetic activity.

That results in a secession, a or reduction of tryptamine [ph] and breakdown the kynonian [ph] which is as you know tryptamine second messenger in the immune synapse and low tryptamine environments create T Cell to undergo cell and don’t proliferate. So get a reduction in T-cell proliferation.

T-cell proliferation is based on up regulation of the enthura [ph] pathway and indoximod in contrast does not bind well to the isolated protein, much less efficient – efficiency of biding with isolated protein compared to GDC-0919.

Yet in biologic experience and dendritic cells, it causes significant reductions tryptamine metabolism and therefore can lead to restoration of tryptamine and immune synapse, similar to GDC-0919 through a mechanism in - with regards to the IDO enzymes, its complex, so don’t fully understand.

However, Dr. David Munn [ph] who as you know as the first person with his group and Andrew Miller to describe the IDO key role in immune suppression has shown that the phenotype of T-cells can also be modified directly by indoximod which is fact that we haven’t seen with the GDC-0919 an agent that directly block the enzyme.

We can see a subsequent effect on T-cells from blocking the enzyme with GDC-0919, but doesn’t seem to be a direct on T-cell effects, and so far as we under mechanism now.

Indoximod, which is a very small molecule, it’s basically [indiscernible] seems to be able to over come the tryptamine in sufficiency signal. Their pathways in T-cells that sense tryptamine levels and when tryptamine levels are sensed to be low, there is a down regulation of the [indiscernible] pathway which create T Cell self cycle cessation and therefore T cells don’t proliferate and you get immune suppression.

We have evidence that indoximod can by pass that T-cell efficiency signal by a mechanism that’s not fully described, but we believe that indoximod seems to be fooling some of that sensing mechanism and it can by pass the suppression signal and you get an up regulation with emture.

So indoximod seems to have a multi factorial effects and GDC-0919 and I should say that inside compound is similar to as far as we understand it are both specific enzymatic inhibitors that were originally developed and screen against the enzyme, in vitro assays and in stated assays [indiscernible] animal experiment.

Interestingly we published a couple of years ago, might be three years ago now, we are at one of the ACR meeting because of the difference in mechanism action we can bind both agents with each other and we saw synergy between the true ages together in a animal melanoma model. So I think that speaks to the fact that there are different mechanism of action even though both in the IDO pathway.

So when you hear us say IDO pathway, that’s because we want to capture and include indoximod which is clearly suffice in the pathway, but is in a specific – we don think its major action –is inhibitor of the isolated IDO protein. Is that help?

Eric Criscuolo

That was a great overview. Thank you very much for that., and then just I guess a housekeeping question here, can we expect any data from the remaining running HyperAcute trials such as the lung plus indoximod trial this year?

John Henneman

We have a Investor Day on October 25 in New York, we will – programs that are running right now we've give an update in October 25 and then meeting all the data from various clinical trial. So just continue to collect data we will give an update on October 25, its one of our updates for the remaining of the year.

Eric Criscuolo

Got it. Okay. And then lastly on have you gained any insights from the sale trial that you did that you could use going forward for the development of any your candidates?

John Henneman

I would say that when we look at the data, the overall survival in the pancreatic cancer trial is as long as being reported large scale trial in United States by a good margin. And I think that when you see that type of prolong survival, I think that there is been shift in pancreatic cancer, in particular where a patient didn’t use to get much of all of its treatment at all and now we think that they probably go through a series of dozen treatment that’s different. That means that work on restricted pancreatic cancer indication the timeline to conduct such trial have gotten a lot longer, so that those studies become more difficult to do.

I think that with the checkpoint blocklaid combination studies, we're going to be focusing more on progression free survival type indication or response rate type indication as very good benefit, as opposed designing trials that has been a longer use if you will to follow long-term overall survival. In terms of making decision about moving clinical candidates forward in specific indication

Eric Criscuolo

Great. Thank you very much.

John Henneman

All right. Thank you.

Operator

Thank you. And I am showing a follow question from the line of Peter Lawson of SunTrust Robinson Humphrey. Your line is now open.

Peter Lawson

Nick, just as a follow up, around indoximod what are the next state points received that safer pancreatic and melanoma?

Nicholas Vahanian

Which one I am sorry?

Charles Link

Indoximod

Nicholas Vahanian

For indoximod?

Charles Link

What's the next data?

Nicholas Vahanian

So, as we said during our discussion earlier, one, investor day on October 25 we will give overall updates on most of our programs, perhaps as the data accumulates on that study as well. We will give a more specific update later this year we expect in the first half of 2017. But we will give an update of the programs on October 25 in New York City.

Peter Lawson

Thank you so much.

Nicholas Vahanian

Thank you.

Operator

Thank you. And I am showing no further questions at this time. I will like to turn the call over to Dr. Charles Link for closing remarks.

Charles Link

Thank you. We appreciate everyone's support and hopefully we look forward to see people on October 25. As you imagine the last two months have been challenging. Our team is now reenergized and other promising in our pipeline, including our partnership with Genentech. We remain committed to our mission of developing a broad immuno therapies for patients with cancer. Thank you very much.

Operator

Ladies and gentlemen, thank you for participating in today conference. This concludes today's program. You may all disconnect. Everyone have a good day.

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