Pieris Pharmaceuticals Inc. (NASDAQ:PIRS) Q2 2016 Earnings Conference Call August 11, 2016 10:00 AM ET
Stephen Yoder - President, Chief Executive Officer
Darlene Deptula-Hicks - Senior Vice President, Chief Financial Officer
Michael King - JMP Securities
David Bautz - Zacks Investment Research
Michelle Gilson - Oppenheimer
Greetings and welcome to the Pieris Pharmaceuticals 2016 Second Quarter Conference Call. At this time, all participants are in a listen-only mode. An interactive 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 our host, Ms. Darlene Deptula-Hicks. Thank you, you may begin.
Thank you, Matt, and good morning everyone, and thank you for joining us for our second quarter 2016 earnings conference call. With me today is Stephen Yoder, Chief Executive Officer. We announced financial results yesterday, August 10, 2016 after the market closed for the second quarter and six months ended June 30, 2016. You can access this press release on the Investor Relations page of our website.
Before we begin to review financial results and business highlights, in compliance with the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995, I’d like to caution that comments made during this conference call by management may contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of operations of Pieris, including statements relating to the timing and progress of our clinical and preclinical trials. Actual results or events may differ materially from results or events discussed in the forward-looking statements. Factors that might cause such differences include those set forth from time to time in the company’s filings with the SEC, including without limitation the company’s Forms 10-K, 10-Q and 8-K. Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast, August 11, 2016. Pieris undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
With that, I will now hand the call over to Stephen Yoder, CEO.
Thank you, Darlene, and thanks to everyone today for joining us for our 2016 second quarter earnings call. I am pleased to report that Pieris has had a very productive second quarter, during which we strengthened our balance sheet and shareholder base, while continuing to advance both our proprietary pipelines and our large pharma partnerships.
Darlene will review our financials in more detail momentarily, but it is worth noting at the outset of this call that the $16.5 million private placement we completed in June demonstrates our continued ability to attract high quality investors to our story. The size of the raise also we believe reflects a prudent approach to managing our balance sheet to reach a material inflection point as we advance our proprietary pipeline and continue to explore additional partnerships opportunistically.
During the last quarter, we continued to advance our proprietary pipeline of Anticalin- based programs both pre-clinically and clinically. As you know, Pieris is developing a next-generation class of targeted protein therapeutics derived from a class of human proteins called lipocalins, and we call these lipocalin-derived protein Anticalins. So lipocalins and by extension, our derived Anticalins, share features in common with monoclonal antibodies, which we believe has led to drug candidates having excellent drug like properties.
This includes the fact that both recombinant antibodies and Anticalins are based on human extra cellular non-immunogenic specific binding molecules. Yet, Anticalins can be deployed in ways that antibodies cannot due to inherent differences between these classes of molecules, and importantly it is these differences, which are manifested in our various proprietary drug candidates we are developing across a broad spectrum of diseases ranging from immuno-oncology multi-specifics, asthma and anemia that we want to share in more detail with you today.
Now our most advanced Anticalin program, PRS-080 for anemia of chronic disease is currently in its second clinical trial, which is the first-in-patient single ascending dose study in end-stage renal disease hemodialysis patients, exhibiting anemia of chronic disease. Patient recruitment and enrollment are ongoing in this trial in Germany under the approval of the German BfArM. As a reminder, PRS-080 functions by [Indiscernible]. It is a small protein target that is generally regarded as the master negative regulator of iron metabolism.
[Indiscernible] in state of chronic inflammation, including chronic kidney disease, effectively traps iron in the body’s iron storage cells, which can hinder the body’s ability to create an adequate supply of red blood cells. This in turn causes what is called functional iron deficient anemia. PRS-080 represents potentially the fastest path to clinical proof of concept for the Anticalin drug class at large by assessing the ability of the drug candidate to elevate hemoglobin in these anemic patients.
As part of our efforts to complete the ongoing trial and subsequent multi-dose trial in a timely manner, we are happy to report that we recently increased the number of sites in Germany from three and six and we continue to estimate that we will be successful in recruiting all cohorts for the single ascending dose study by year-end. Importantly through these trial sites, we believe we already have identified a sufficient number of patients to complete now just the current single ascending dose trial, but also the subsequent multidose trial, in which we plan to assess the ability of PRS-080 increase hemoglobin levels among other parameters over a period of about four weeks.
As mentioned previously, the multidose trial has an estimated completion date of around the middle of 2017. I would now like to provide an update on one of our other proprietary programs, PRS-060, which is an inhaled Anticalin that functions by potently inhibiting a target called IL-4 receptor alpha directly in the lungs. By targeting the IL-4 receptor PRS-060, inhibits both IL-4 and IL-13 significantly as both of these cytokines signal through this receptor, and we believe that targeting both IL-4 and IL-13 is a superior approach to targeting either of these targets individually.
At least one subcutaneously administered antibody is being developed in clinical studies on this target, yet PRS-060 could potentially represent the first effective inhaled treatment for uncontrolled asthma that is based on IL-4 receptor blockade. The potential advantages for inhaled therapeutics over subcutaneously administered antibody approaches in asthma include the potential for a significantly lowered dose, a lower cost of goods, lower systemic target engagements and of course, increased patient convenience.
As you may recall, we have achieved in vivo proof of concept with the inhaled delivery of PRS-060 in now [Indiscernible], while also establishing the technical feasibility for inhalation formulations. This program is currently in IND enabling studies and we expect to initiate a first-in-man clinical trial by the end of the first half of 2017 as previously reported.
Next I would like to review the progress we have made during the second quarter in our immuno-oncology pipeline. As you know, immuno-oncology is a critical focus area for Pieris, and our lead program PRS-343 is a bi-valent, bi-specific fusion protein that has been designed to selectively activate or agonize an important immune system protein CD137, which is also known as 4-1BB, which is present on activated but exhausted T-cells in the tumor microenvironment, including on several HER2 positive tumors. We believe our unique bi-specific approach can be capable of driving efficient local activation of tumor-specific T-cells, while avoiding some of the systemic toxicity that has been observed with conventional antibody approaches. In the second quarter, we presented data at the AACR conference, which represents the first in vivo proof of concept data for PRS-343 in a preclinical mouse model in which we showed not only evidence for tumor localized HER2 dependent T-cell activation but also an enhanced therapeutic index compared to a conventional CD137 antibody approach.
Looking to the reminder of 2016, we expect to present at various R&D conferences additional data sets that confirm our intended mode of action. In the meantime, we continue to propel this program through IND-enabling studies and we remain on track to file an IND with FDA for a Phase 1 multi-ascending dose study in HER2 positive solid tumor patients in the second half of 2017. In that study, we plan on targeting high unmet medical need cancers, which include HER2 positive gastrointestinal cancers, muscle invasive bladder cancer, and HER2 positive metastatic breast cancer.
Now for the final aspect of our proprietary immuno-oncology pipeline that we want to share with you today, I want to refer to the transaction we completed in the second quarter of this year with Enumeral Biomedical, in which we strengthened our ability to develop novel, multi-checkpoint antagonist therapeutic proteins. In that transaction we in-licensed specific intellectual property related to anti-PD1 antibody sequences for the purpose of developing novel multi-specific fusion proteins that comprise at least one checkpoint targeting Anticalin, genetically linked to one of these in-licensed anti-PD1 antibody sequences.
We remain very excited about this transaction because we think it will enable us to build novel multi-specific centered on PD1 blockade, which has emerged as a core component of the standard treatment regimen in immuno-oncology. This licensing transaction has provided Pieris with a PD-1 position that is both highly differentiated over standard PD-1 antibodies and independent. And this transaction is allowing us to develop synergies within our own pipeline given the strong rationale to combine PD-1 blockade with CD-137 agonism, which again is the mode of action of our lead IO program, PRS-343.
So in closing, I am pleased to also report that beyond the progress we made in the second quarter in strengthening our financial position and in advancing our pipeline of wholly-owned programs, we also advanced our partnerships with Roche, Sanofi and Daiichi Sankyo. Our R&D collaboration did Roche, which is completely separate from our proprietary immuno-oncology pipeline you heard about today is now well underway, and we are pleased with the progress the team has made already in lead candidate generation of Anticalins, specific for an undisclosed immuno-oncology target nominated by our partner, Roche.
We are pleased with the validation and the value our existing partnerships have generated for Pieris so far, and we will continue to explore additional collaborations that could make for a compelling fit with our corporate strategy, and which could generate substantial value for shareholders.
This concludes the corporate update, and I would now like to hand back over to Darlene to guide you through our financial results for the second quarter.
Thank you, Steve, and good morning again everyone. Let me begin by saying that in June we closed a private placement financing, consisting of 8.2 million units at a price of $2.015 per unit, for total gross proceeds of approximately $16.5 million, before deducting placement agencies and offering expenses netting approximately $15.3 million.
The financing was led by BVF Partners and included a select group of new and existing highly regarded institutional healthcare investors. We expect to use the proceeds from the financing towards advancing the development and pre-clinical and clinical work for our core assets, as well as progressing our next generation IO assets.
Turning to the financial results for the quarter. We recognized revenue of $1.1 million for the three months ended June 30, 2016 compared with $0.2 million in revenue in the three months ended June 30, 2015. The $0.9 million increase in revenue was due to the recognition of $0.7 million of upfront payments under our collaboration with Roche, and $0.4 million from research and development services, also primarily attributable to the Roche collaboration, and both of which commenced in January of 2016, offset by $0.2 million in decrease in grant revenue. No upfront payments or R&D service revenue was recognized in the three months ended June 30, 2015.
Research and development expenses were $4.5 million and $1.7 million for the three months ended June 30, 2016 and 2015 respectively. The $2.8 million increase in research and development expenses quarter-over-quarter is primarily due to a $0.6 million increase in CMC and other preclinical costs associated with our asthma program, PRS-060, as we carry out IND-enabling studies, and a $0.5 million increase also for CMC and other preclinical costs associated with our IO program, PRS-343, as we also carry out IND-enabling studies as well as pre-clinical development costs for our other 300 series programs, both of which were offset by a $0.4 million decrease in expenses for our PRS-080 anemia program, as that Phase 1 trial was completed last year and the Phase 1b single ascending dose trial was initiated in Q1 this year using existing drug supply.
Other R&D activities increased $2.1 million due to approximately $6.6 million in personnel related expenses, including stock-based compensation expense due to the hiring of additional R&D resources, as well as an increase of $1.0 million for the in-license fee on the Enumeral license. General lab supplies also increased by $0.1 million; consulting by $0.2 million; and travel and other R&D costs by $0.2 million. The total R&D expenses include $0.2 million and $0.1 million in non-cash based stock compensation expense for the three months ended June 30, 2016 and 2015 respectively.
Turning to general and administrative expenses, G&A expenses were $2.4 million and $2.0 million for the three months ended June 30, 2016 and 2015, respectively. This $0.4 million increase resulted primarily from an increase in higher personnel related costs, including an increase in stock-based compensation expense due to the hiring of additional G&A staff, as well as some transaction costs associated with the in-license agreement. This amount was offset by $0.1 million in lower legal and other costs. Total G&A expenses included $0.4 million and $0.2 million in non-cash stock-based compensation expense for the three months ended June 30, 2016 and 2015 respectively.
The net loss in the second quarter 2016 was $5.9 million or $0.14 per basic and diluted share as compared to a net loss of $3.6 million of $0.12 per basic and diluted share for the second quarter of 2015. Our average shares outstanding for the second quarter were 40.9 million shares, up from 29.4 million shares in the comparable quarter of last year.
Now turning to the balance sheet, total cash and cash equivalents as of the second quarter ended June 30, 2016 totaled $40.4 million as compared to approximately $29.3 million at year-end ’15. In addition to the closing of our private placement financing in June, as you will recall in January, we received a $6.5 million upfront payment resulting from the Roche collaboration, which was signed in December last year. Our balance sheet is strong and it allows us to further the development of our product pipeline and pursue our corporate initiatives. We believe with expected revenues and current cash on hand, we have sufficient cash to operate the business and fund our R&D programs well into 2018.
With that, I would like to turn the call back over to Steve.
Thanks again, Darlene. As you have heard today, we have had a productive second quarter at Pieris, focusing primarily on advancing two exciting programs through R&D enabling studies, which is PRS-060, our inhaled targeted approach to asthma; and PRS-343, a very unique bi-specific therapeutic protein for targeted T-cell agonism in the tumor microenvironment of HER2 positive tumors. This comes in parallel to continuing to advance PRS-080 through the first-in-patient study in anemia of chronic disease, while making notable progress in our IO focused collaboration with Roche.
We thank you for joining us today and for your ongoing interest and support. We would now like to open the call to your question.
Thank you. [Operator instructions] Our first question comes from Mike King from JMP Securities. Please go ahead.
Good morning guys. Thanks for taking my questions. Congrats on the progress. Wanted to ask a couple of quick questions, first on PRS-080, just wondering Steve if you could talk about once you guys have passed the multiple ascending dose portion of the drugs development, what are your thoughts about future development as far as taking it into Phase 3 or another Phase 2 or do you think at that time once that is – assuming that is successfully completed, would be look to out-license the program?
Thanks Mike for the question. Do you want to outlay the other questions before we go through them one by one?
Well, if you could also quickly talk about the value proposition for PRS-080 just relative to the other options out there whether they will be ESA, [small molecules] et cetera, and then just quickly on IO, just wondering as you think about kind of strategic value creation, I don't know if you are willing to share at this point with us how you are kind of thinking about that aspect, but are you thinking about sort of dual checkpoint inhibitors, single checkpoint inhibitors, or checkpoint [Indiscernible] all the above, et cetera? Thank you.
Okay, that's a big question but we'll try to do our best. So, let me, thanks for the question. So, let me start with the first two as it bundles with PRS-080. The thoughts on future development of the molecule. Let's see, first and formal, we're going to be data driven with this program. And we think the ability of PRS-080 to impact hemoglobin levels is the most relevant near-to-midterm readout, which we are hoping to achieve around the middle of 2017. I know you may expect thinking about how we do our pipeline in totality. As we generate more data from the Anticalin drug class or pre-clinically and importantly clinically, now there are three Anticalin's in that or in or have been in the clinic.
We feel increasingly comfortable taking more informed in calculated risk as far as the biology is concerned leading naturally to what we think will be more highly differentiated products. For later stage development of this particular program PRS-080, we currently think that advancing that molecule via partnership makes a lot of sense, especially as we work to generate critical mass in our IO multi-specific franchise. And what we believe is given the importance of the hemoglobin readout, if we're able to show that the mobilization of iron which we believe we convincingly demonstrated in the healthy volunteer study as a single dose last year and which we hope to repeat in patients at the end of this year. If that translates into hemoglobin say by the middle of next year, we believe we have a compelling case that the mode of action works.
Now, as for the value proposition, as we are pursuing anemia of chronic disease, a particular type of chronic disease, in chronic any disease patients, this is going to be naturally in the bundle and so we have to be mindful of the pharmacoeconomic position or value proposition that we're putting forward. And so, the particular type of the anemia that we are focusing on is what we do call this functional iron deficient anemia which is characterized by high hepcidin, high ferritin and low-to-moderate TSAT. And these patients, a large subset of them we believe are hyper responsive to not just intravenous iron but also high dose ESAs. And we believe at a relatively small size of that patient drives the majority of the prescriptions for ESAs and by positioning ultimately this drive as a ESAs sparing drug among other things. We believe that there is a pharmacoeconomic advantage to developing this even in United States under the bundle.
So, that's what we would be looking to do and again we believe that moving this forward longer term, finding the right partner to help us move that into later stage development probably makes the most sense as we host we look at our pipeline. If we look at the IO franchise, I mean, there are lot of things that play and I think it's reflective of the fact that in the early stage, Pieris has an extremely robust protein engineering capabilities. But we want to translate that protein engineering uniqueness into drug uniqueness, drug differentiated drugs. And we really believe that our targeted TNF-receptor superfamily agonistic approach as evidenced by PRS-343 as any molecule is something that antibodies are going to struggle to do on their own. And so, that scenario of highest excitement.
But it's not the only thing we're doing, as you know when we talk about how our intra, we call the intra-pipeline synergistically building our pipeline, we believe that having and independent PD1 based approach makes a lot of sense. And so, as we think about building our own pipeline in the synergist big way, we believe it will continue to comprise a mix of targeted agonist not just based on CD137-HER2 and not just based on CD137 but other targeted agonistic approaches but also complimented with the benefits we can bring through dual checkpoint blockade. And we're talking not just about creating cheaper drugs where you can hit two targets at the same time under one IND, at only one, at price of one therapeutic but also finding the unique combinations that drive synergistic biology on the dual checkpoint blockade.
And we believe that the particular dual checkpoint blockade we are pursuing with the PD1 based antibody sequences is an example of that and we will be revealing the target pair on that, in some future point in time, once we have a data that we feel comfortable releasing. In terms of how we build the value, it's going to be a mixture I would say of holding on to assets that we believe we have a clear line of sight to proof of concept and we believe that is the case for PRS-343 as well as leveraging through partnership, other things that we're working on. And so, I think you could see if things go as planned in the mid-to-long term, we would have a multi-project franchise in the immuno-oncology that's a mix of proprietary assets as well as partnered assets.
So, I hope that addresses your questions?
Yes, thanks Steve. I appreciate it.
Our next question comes from David Bautz from Zacks Investment Research. Please go ahead.
Hi, good morning. Thanks for taking the questions. So, I think you did touch on this a little bit in the last answer but I was going to ask if you're looking at teaming up multiple different checkpoint inhibitors with the PD1 antibody or have you already identified a specific one that you're ready to move into pre-clinical and hopefully clinical testing?
Yes, thanks David. So, the answer is "Yes." We have identified multiple immune checkpoint targeted approaches that we think are synergistic with PD1 blockade. We already have at least one Anticalin against a checkpoint that we are pursuing and we have already built various permutations of that bi-specific molecule and are currently assessing which candidate might be best suited for a development candidate nomination. And if things go as planned we would seek to have a development candidate nomination for that product by the end of the year. And then ultimately, long term the vision is to after having monotherapy data which appear as 343 and then having monotherapy data with that PD1 based by specific, we could ultimately combine to have the alternate intra pipeline synergy.
Okay. Thanks for that. And are there other antibody product like come out of the Enumeral collaboration outside of the PD1's?
So, what we have disclosed publicly is that in addition to securing access to PD1 based antibody sequences, we have an option on up to two additional antibodies which are defined but not publicly disclosed and we have approximately one year from the anniversary date of that announcement to exercise that option if we feel that it's appropriate to do so. And that's in the unfettered discussion of Pieris.
Okay. And lastly really quickly on 080. Are the patients in the single ascending dose study, are they just going to be rolled over into the multiple ascending dose study?
That's a great question. I think the current thought is probably not, as we don’t want to do anything to take the multi-dose data set as well as the benefits of generating a broader safety database. As I mentioned, we believe that with the sites that we've already enrolled, we have already identified more than enough patients that would be for both the single and the multi-dose phases of this combined or this trial, these trials. So, I think the thing is we don’t believe we have to rely on those patients to do that and I think that's a good position to be in, not completely settings permanent, that's the current thinking.
Okay, sounds good. Thanks for taking the questions.
Well, thank you, David.
Our next question comes from Michelle Gilson from Oppenheimer. Please go ahead.
Hi guys, congratulations on your progress this quarter. I was just wondering if you could comment a little bit on this space in general for 4-1BB agonist and Pfizer had some pretty impressive data at ASCO. And maybe how you both depend on differentiating yourselves in the space? First space, like.
Sure, thank you Michelle. Thanks for the question. Yes, we're obviously thinking a lot about the differentiation of our program against the currently the clinical stage, antibodies and development, development which is urelumab from BMS and utomilumab from Pfizer. A couple of things, I think if you look at the modes of action of those drugs, they are different and I think that translates, is translate and has translated into different potency of those molecules in patients. There was a paucity of data at ASCO on 4-1BB in the data that I think you're referring to is the preliminary results from a 1b study I believe of pembrolizumab PD1 with utomilumab in patients with advanced solid tumors.
I think it's challenging to make the need for interpretation of the results at this stage, primarily because it's our understanding that those patients who received utomilumab and pembrolizumab, at least a fair portion of them were probably PD1 naïve. And so, it's difficult to extrapolate from the data if new responses which have been observed and stable as [indiscernible] if those are a result of PD1 blockade, 4-1BB agonism or both. And so, I think we still just don’t know. But what I do think is that looking at the biology of 4-1BB, we believe that a localized approach we will make for a potent and efficient activation of 4-1BB and our approach is quite simply stated to provide a superior therapeutic window for 4-1BB agonism which then would allow for even an more meaningful combination therapeutic a strategy with other drugs, including PD1 based blockade.
So, maybe a longer answer to say we're not sure how to interpret those data but I think it doesn’t affect in any way our belief that our approach is highly differentiated and has not affected in any way, our desire to move this into patients as quickly as possible.
Okay, right. And will we be doing any pre-clinical data from you guys this year?
That's our intention. So, we generated additional pre-clinical data and we are hoping to present those at various IO related conferences this year. So, CRI, City, the triple conference later in after Thanksgiving, those are conferences where I think you should expect to see us present and presenting.
All right, great. Thank you.
Thank you, Michelle.
Thank you. As there are no further questions, I'd like turn the floor back over to management for any closing comments.
I think I just want to say thanks again for your attention today and for your continued support at Pieris. Also, of course want to thank our entire organization for the excellent efforts once again. We look forward to keeping you all updated on the progress, particularly as we planned as I just mentioned to certainly present the progress of our programs at a number of R&D conferences over the balance of 2016.
So, thanks again for joining and have a great day.
This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.
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