Pieris Pharmaceuticals, Inc. (NASDAQ:PIRS) Q3 2016 Earnings Conference Call November 10, 2016 10:00 AM ET
Stephen Yoder - President, Chief Executive Officer
Darlene Deptula-Hicks - Senior Vice President, Chief Financial Officer
Joe Pantginis - Roth Capital Partners
Welcome to the Pieris Pharmaceuticals Q3 Earnings Call. [Operator Instructions]. It is now my pleasure to introduce your host Darlene Deptula-Hicks, Chief Financial Officer. Please go ahead.
Thank you, Lotena, and good morning everyone, and thank you for joining us for our third quarter 2016 earnings conference call. With me today is Stephen Yoder, Chief Executive Officer. We announced financial results November 9, 2016 after the market closed for the third quarter and six months ended September 30, 2016. You can access this press release on the IR section of our webpage also.
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 our filings with the SEC, including without limitation our 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, November 10, 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 would like to hand the call over to Stephen Yoder, CEO.
Thank you, Darlene and thanks to everyone today for joining us for our 2016 third quarter earnings call. During the third quarter we build on the substantial progress made in the prior quarter across all operational areas at Pieris including the advancement of our proprietary pipeline of Anticalin- based programs both pre-clinically and clinically as well as our large pharma partnershions. Darlene will review our financials momentarily but I wanted to remind everyone at the outset that in completing a private placement in June we were able to attract new high quality investors as well as to extend our financial runway to reach material inflection points well into 2018. Five months later that research remains equally valid.
Before we begin a review of the quarterly results I would like to remind briefly everyone that Pieris is developing a next generation class of targeted protein therapeutics derived from a class of human proteins called lipcalins and we call these engineers lipcalins anti-calins. Anti-calin proteins share features in common with monoclonal antibodies particularly good drug like properties yet anti-calins can be deployed in ways that anti-bodies cannot due to inherent differences between these classes of molecules and many of these differences are exploited in the various proprietary drug candidates we are developing across a broad spectrum of disease ranging from a new oncology to our anemia.
We are very excited about the progress we made during the third quarter in our immuno-oncology pipeline and given the tremendous ongoing excitement in this field I'd like to start our pipeline update in this area. Immuno-oncology is a critical focal area for Pieris and our lead program PRS343 is a by-specific fusion protein that has been designed to selectively activate or agonize an important immune system protein CD137 which is better known as 41BB [ph] expressed on the surface of activated but exhaustive T cells particularly in the tumor microenvironment especially on including several HER2 positive solid tumors.
We believe that there are ample data from the literature that indicate the benefits of driving an efficient activation of tumor specific T cells within the vicinity of the tumors in the space called the tumor microenvironment which thereby avoid some of the systemic toxicity that has been observed with conventional antibody approaches which can cause unwanted T cell activation in healthy tissues away from the tumor.
At the CRI Cancer Immunotherapy Conference in September we presented additional in-vivo preclinical data demonstrated a differentiated mode of action for Pieris PRS-43 [ph] over not only a conventional HER2 target antibody but also 4-1BB targeting agonist antibody. These data showed that the treatment of animals bearing HER2 positive tumor with our drug candidate Pieris 343 provided a dose dependent activity by increasing the frequency of the tumor infiltrating lymphocytes TILs as well as strongly inhibiting tumor growth. Importantly these data demonstrated our ability to generate tumor microenvironment localized costimulatory T cell activation and both a reduced systemic toxicity and higher efficacy in comparison to conventional agonistic 4-1BB antibody approaches. PRS-343 continues to advance through INDNA enabling studies and we remain on track to initiate a Phase-1 multi-ascending dose study in HER2 positive solid tumor patients in the first half of 2017. In this forthcoming study we plan on targeting high on the medical cancers which include but are not limited to HER2 positive gastrointestinal cancers, muscle invasive bladder cancer and HER2 positive metastatic breast cancer.
Before I move on to our next program I would like to briefly remind everyone that we continue to exploit our powerful anti-calin based drug discovery engine and our unique protein engineering capabilities with the objective of constructing a pipeline of next generation IO multi-specifics including anti-body anti-calin multi-specific fusion proteins. This includes the development of a multi-checkpoint locker named PRS-332 which is comprised of anti-PD1 anti-body genetically linked to an anti-calin against the undisclosed checkpoint agent. We will provide you with further updates on this program at a later today. Once we have generated additional preclinical data and file for appropriate patent protection.
Next I'd like to note the progress that we made with our most advanced anti-calin program PRS-080 for anemia of chronic disease. As many of you know PRS-080 functions by potently neutralizing hepcidin which is a small protein that is regarded as the master negative regulator of bio-metabolism. Hepcidin up regulation in states of chronic inflammation such as chronic kidney disease effectively traps iron in the body 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. There is a clear need for novel therapies to help better manage the many complications of functional iron deficient anemia and PRS-080 represents a potential first in class therapeutic protein addressing this target. PRS-080 is currently in it's second clinical trial which is a first in patient single ascending dose study in the 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 and we continue to estimate that we will be successful in recruiting all cohorts with a single ascending dose study by year-end. As mentioned previously we plan to then move into the multi-dose trial in which we plan to assess the ability of PRS-080 to increase hemoglobin levels among other parameters over a period of about four weeks of exposure to drug and as we have mentioned previously that trial has an estimated completion date around mid-2017. We believe this can be a significant inflection point for this program and more broadly [indiscernible].
At this point I would like to provide an update on our highly differentiated respiratory PRS-060 which is inhaled anti-calin that functions by inhibiting in the lungs a clinically validated target called IL-4 receptor alpha. PRS-060 inhibits both IL-4 and IL-13 signaling as both of these cytokines signal through the IL-4 receptor and we believe that targeting both IL-4 and IL-13 is a superior approach to targeting either of these targets individually. 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 competing subcutaneously administrated anti-body approaches in asthma are many and these include the potential for a significantly lower dose. A lower cost of goods, lower systematic target engagement and increased patient convenience. This program like PRS-343 is currently in IND enabling studies and we expect to initiate a first demand clinical trial during the middle of 2017.
Before I turn the call over to Darlene, I would like to then provide a brief update on our corporate partnerships. I'm pleased to report that in addition to the advancements made with our proprietary programs we advanced our partnerships with Roche, Sanofi, and Daiichi Sankyo. In fact shortly after the call to the quarter we reported to receive our 9th success based milestone payment for our R&D collaboration with Daiichi Sankyo specifically the milestone payment was triggered by Daiichi's decision to initiate a GLP toxicity study in non-human primate for this program. In 2014 you may recall that Pieris has transferred program to Daiichi Sankyo who is responsible for further development of the program completing IND enabling studies in clinical development.
As many of you may know under the terms of that agreement in 2011 Pieris has received committed research funding and has received and will continue to receive payments for the achievement of research preclinical, regulatory and commercial milestones for these programs. Our partnership with Daiichi could encompass more than a €100 million per program in licensee fees funding in milestone not including loyalties no sales from the market in anti-calin proteins resulting from the collaboration. Daiichi will have exclusive marketing rights worldwide for all such products. Continuing with the discussion of our partnering highlights I'm happy to report that our R&D collaboration with Roche remains very active and continues to advance with our team making exciting progress in lead candidate generation of anti-calin specific for an undisclosed a new oncology target nominated by Roche. So overall we’re pleased with the value of our existing partnerships that we generated so far and we will continue to explore additional collaborations that could make for a compelling fit with our corporate strategy and which we believe could generate substantial value for shareholders.
As our pipeline matures we are becoming increasingly optimistic about our ability to create value through yet additional partnerships. This concludes my prepared remarks and I would now like to hand back over to Darlene to guide you through our financial results for the third quarter of 2016. Thank you.
Thank you, Steve. Good morning again everyone. Let me begin by saying that Q3 results were in-line with our expectations, we recognize revenue of 0.8 million for the third quarter of '16 as compared with 0.4 million in revenue in the third quarter of '15. This $4 million increase was due to the recognition of 0.5 million of the upfront payment and 0.3 million from research and development services both under our recent collaboration with Roche which commenced in January of this year. This is offset by a 0.4 million decrease in milestone revenue.
Research and development expenses were $4.6 million and $2.0 million for the quarters ended September 30, 2016 and 2015 respectively. The 2.6 million or 125% increase in R&D expense quarter-over-quarter, it's primarily due to a $1.6 million increase in preclinical and CMS cost for our PRS-343 as we carry out IND enabling studies and prepare to move into a first-in patient trial in the first half of 2017. As well as development cost for our 300 series IL program.
Additionally we had a $0.2 million increase in expenses for our anemia program PRS-080 resulting from the initiation of the Phase 1b single ascending dose trial earlier this year and a 0.2 million increase in CMC and other preclinical cost associated with our asthma program 060 as we carry out IND enabling studies and prepare to move to a first in clinical trial also in the first half of 2017.
Other R&D expenses also increased by 0.6 million due to 0.5 million increase in personnel related cost which include stock based compensation expense and increase of 0.1 million for legal and patent cost and 0.1 million increase for general lab supply. These were all offset by a decrease of approximately $0.1 million in recruiting and other total cost. Total R&D expense includes 0.1 million in non-cash stock based compensation expense for both the third quarter of 2016 and 2015 respectively. General and administrative expenses were 2.3 million and 2.2 million for the third quarter 2016 and 2015 respectively. This 0.1 million or 4% increase resulted primarily from 0.3 million in higher personnel related cost which also include stock based compensation expense and 0.2 million increase for recruiting in-rent expense. These amounts were offset by 0.4 million in nowhere legal consulting and other cost.
Total G&A expense includes 23 million in non-cash stock based compensation expense for both the third quarter of 2016 and 2015 respectively. Our net loss in the third quarter of 2016 was 6.2 million or $0.14 per basic and diluted share as compared to the net loss of 3.9 million or $0.10 per basic and diluted share for the third quarter of '15.
Our average shares outstanding for Q3 2016 were 43.1 million shares, an increase from 38.9 million shares in the corresponding 2015 quarter. Turning to the balance sheet, total cash and cash equivalents as of the end of September 2016 totaled 36.6 million as compared to approximately 29.3 million at year-end 2015. As you may recall in addition to the closing of a 16.5 million growth private placement financing in June this year, in January we also received a 6.5 million upfront payment resulting from the Roche collaboration 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 the expected revenues in cash on hand we had sufficient cash to operate the business and fund our R&D programs well into 2018. With that I will turn the call back over to Steve.
Thanks again. Darlene. As you heard today we had a very productive third quarter at Pieris where we advanced all our clinical and preclinical programs in addition to making material progress across our corporate partnerships. Our team continues to be extremely hardworking and our company based assets and I cannot thank them for their tireless work. With our strong balance sheet, talent team and clear set of drug development objectives we remain confident in our ability to achieve several clinical stage and partnering related inflection points in 2017. Thank you all for joining us today and for your continued interest and support of Pieris. We would now like to open the call to your questions.
[Operator Instructions]. Our first question comes from Joe Pantginis with Roth Capital Partners. Please proceed with your question.
I was wondering maybe since of course you mentioned in the press release and in your prepared comments about seeking additional potential collaboration. So I was wondering if you can maybe add a little more color with regard to your overall business development strategy you've already attracted some good partnerships. You have a platform to be able to seek other ones but how active are you in looking for these collaborations and what about inbound for looking at potential research projects so maybe just some broad comments on your business development strategy. Thank you.
If you look at our partnering strategy and our partnering activities to-date there I would characterize as the noble drug discovery deals. When our partner comes to us with a target idea and against an upfront fee and funded research we generate anti-calin made the order hand them over and the partners are then responsible for IND enabling studies, continued clinical development and have exclusive commercial rights.
Those have brought in premature, they brought with cash flow and they bring the potential of future cash flows and to remind everyone that existing collaborations with Daiichi, Sanofi and Roche aggregate to more than $700 million and future cash flow potential excluding royalties and the royalties go up to at the higher end up to low double digits on sales of products. So those are good partnerships for us already, but as we have a maturing pipeline that we believe show differentiation particularly in the areas of respiratory and immuno-oncology we're really excited about the power of having a discovery engine that can do ever multiple assets beyond our lead candidates in those two franchises.
So as we have the capital to continue to move these forward and don't have the partner, I think that puts us in a good position whenever we have discussions and so we will never promise a deal. I can say that we have a lot of interest in what we're doing and the types of deals that we would prioritize are those that allow us to retain more value than we currently have from the existing partnerships that could come for example in the form of maybe retained commercial rights of some sort in certain geographies and with large -- it could likely involve multiple assets beyond one of the existing programs. I think in a perfect world we would like to move PRS-343 forward to significant inflection points on our own as we have I think we have the vision, we have the team we have the capital to move that to significant clinical based inflection point but behind that we have a number of other immuno-oncology assets that are attractive. So those are the types of things we'd like to do and maybe that will happen. We can't predict when but I'm encouraged by the types of discussions that are happening in different areas going forward.
[Operator Instructions]. There are no further questions in queue at this time. I would like to turn the call back over to management for closing comments.
Well I would just say thanks again for everyone for your attention today and for your continued support of Pieris Pharmaceuticals. We certainly look forward to keeping you updated on our progress which we will continue to include presence at R&D conferences and business development conferences as well and we thank you for your attention today and wish you a great day. Thank you very much.
You may disconnect your lines at this time. Thank you for your participation.
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