Stealth BioTherapeutics Corp (MITO) CEO Reenie McCarthy on Q4 2020 Results - Earnings Call Transcript

Stealth BioTherapeutics Corp (NASDAQ:MITO) Q4 2020 Results Earnings Conference Call April 6, 2021 8:30 AM ET

Company Participants

Henry Hess - Chief Legal Counsel

Reenie McCarthy - Chief Executive Officer

Jim Carr - Chief Clinical Development Officer

Rob Weiskopf - Chief Financial Officer

Brian Blakey - Chief Business Officer

Conference Call Participants

Charles Duncan - Cantor Fitzgerald

Yi Chen - H.C. Wainwright

Operator

Greetings. Welcome to the Stealth BioTherapeutics Fiscal Year 2020 Financial Results and recent Business Highlights. At this all participants will be in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

At this time, I’ll turn the conference over to Henry Hess, Chief Legal Counsel.

Mr. Hess, you may begin.

Henry Hess

Good morning. I'd like to remind listeners that management will be making forward-looking statements on today's call, including, for example, the company's expected timeline and plans for development of Elamipretide and other pipeline programs, regulatory interactions and financial position and cash runway.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of Stealth Form 20-F filed with the SEC on April 1st, 2020.

While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so if our views change.

Now, I'd like to turn over the call to Reenie McCarthy, Stealth's, CEO. Reenie?

Reenie McCarthy

Thank you, Henry. And thanks to those on the line for joining us today. With me and Henry on the line are Jim Carr, our Chief Clinical Development Officer; Rob Weiskopf, our Chief Financial Officer; and Brian Blakey, our Chief Commercial Officer.

So during 2020, our team rallied from very challenging circumstances coming into the year to define a new path forward in rare cardiomyopathies. We continue to execute strongly on our dry AMD trial through the COVID-19 shutdown. And we made significant progress toward advancing our rare neurology pipeline.

We expect 2021 to be another strong execution year, ahead of several key milestones expected in 2022. We have made progress in our efforts to develop an IVT formulation for dry AMD with a goal of informing Phase 3 formulation decisions commensurate with our Phase 2 data readout right around this time next year.

In our rare cardiomyopathy franchise, as you can see from our press release, we've had a number of very recent interactions, including just last week with senior officials at both the office and division level of FDA, who have been very engaged in evaluating a path to registration in Barth. This may lead to a delay in our NDA submission if we agree to generate additional data, including by utilizing the existing open-label patients as FDA has suggested. We're evaluating various options along these lines, and we're continuing to seek engagement with the agency.

As previously announced, we have rare pediatric designation for Barth. For other rare cardiomyopathy indications are Friedreich's trial we’ll start in the next several months. And we plan to engage with FDA regarding our Duchenne trial later this year.

For our neurology platform, we plan to initiate Phase 3 trials in the prespecified subgroup of patients who responded in our mitochondrial myopathy program. We are also continuing to generate preclinical data with SBT-272, and other rare neurology indications, which we expect would be diseases affecting the central nervous system such as ALS. And now - [Author ID1: at Thu Apr 8 22:16:00 2021

]that's ahead of completing the toxicology work necessary to test SBT-272 [Author ID1: at Thu Apr 8 22:47:00 2021

]in patients hopefully next year. We also have other first-in-class development initiatives in our discovery pipeline.

With that, I'll turn it over to Jim Carr, our Chief Clinic Clinical Development Officer to provide some more color on our clinical initiatives. Jim?

Jim Carr

Thanks, Reenie. And good morning to those on the line. We met with the division of Cardiology and Nephrology in late February, and it was a very well attended meeting with many representatives from the agency joining. FDA recommended that we provide additional analyses of the data generated to date, which we are undertaking to complete.

Understand [ph[Author ID1: at Thu Apr 8 22:49:00 2021

]] [Author ID1: at Thu Apr 8 22:49:00 2021

]that the agent subsequently met with patient advocacy in early March in a non-product specific meeting to understand the patient perspective, regarding the risks that efficacy may not be definitively concluded given the ultra rare nature of Barth and the ensuing [ph] [Author ID1: at Thu Apr 8 22:49:00 2021

]clinical development challenges.

We met again with FDA last week, and as Reenie mentioned, most of that meeting was discussing ways to efficiently collect additional data with senior office and division level leadership. If we proceed in this direction, one viable path is to withdraw elamipretide from the open level [Author ID1: at Thu Apr 8 22:49:00 2021

]label[Author ID1: at Thu Apr 8 22:49:00 2021

] [Author ID1: at Thu Apr 8 22:49:00 2021

]patients who have been taking the drug for over two years. Although we may also want to enroll some additional patients in a protocol of that nature. We are evaluating various options, but steps to generate additional data if we agreed to do so could potentially start as soon as the summer subject to IRB approval.

Beyond Barth, since Reenie, alluded to some of these initiatives at the start of the call, I'll keep this fairly brief. On the cardiomyopathy front we're looking forward to initiating the Friedreich study, which is an investigator initiated study at the Children's Hospital of Philadelphia. That should start this quarter, again with COVID-related delays now easing. We hope to have interim data from this study next year to inform pivotal trial design.

For Duchenne's, we're planning to socialize our trial protocol with our key external experts in the coming months, teeing [ph] [Author ID1: at Thu Apr 8 23:15:00 2021

]us up for a FDA engagement during the latter half of the year, that again will be a withdrawal study. So learnings from a Barth withdrawal protocol could be informative to our design and execution.

In ophthalmology as enrollment is complete in our dry AMD trial, we are planning for data [ph] [Author ID1: at Thu Apr 8 23:24:00 2021

]in the [Author ID1: at Thu Apr 8 23:24:00 2021

] [Author ID1: at Thu Apr 8 23:24:00 2021

]first half of next year, while continuing to progress development of an intravitreal formulation. Our goal is to complete our assessment regarding usability [Author ID1: at Thu Apr 8 23:24:00 2021

]feasibility[Author ID1: at Thu Apr 8 23:24:00 2021

] [Author ID1: at Thu Apr 8 23:24:00 2021

] [Author ID1: at Thu Apr 8 23:24:00 2021

]of an intravitreal formulation to inform Phase 3 trial design early next year, and we believe we are on track to meet that objective.

We're also looking forward to additional presentations of our Phase 1 data and our Phase 2 baseline demographics at upcoming OptimaLogic [ph] [Author ID1: at Thu Apr 8 23:25:00 2021

]ophthalmologic[Author ID1: at Thu Apr 8 23:25:00 2021

] [Author ID1: at Thu Apr 8 23:25:00 2021

]conferences this year. We think that some of this work underscores the highly differentiated nature of our approach to this relentless disease, which may offer the hope of visual improvement for affected patients rather than simply when disease progression.

Finally, on the neurology front, we're eager to get back from the clinic by year end in a Phase 3 trial in those patients responding to therapy in our primary mitochondrial myopathy program. We expect that group to represent a reasonably large, rare disease patient population of about 7000 patients. So,[Author ID1: at Thu Apr 8 23:27:00 2021

] we are continuing to refine our estimate.

We're also excited by the potential of SBT-272 for neurologic diseases such as ALS, so looking forward to our first round patients, which will [Author ID1: at Thu Apr 8 23:29:00 2021

]we [Author ID1: at Thu Apr 8 23:29:00 2021

] [Author ID1: at Thu Apr 8 23:29:00 2021

]hope to start next year.

With that, I will now turn the call over to Rob to review our recent financial results.

Rob Weiskopf

Thanks, Jim. And thank you all for joining us today. Before reviewing the financials from the year, I also want to highlight a few important recent financial updates. In February 2021, upon completing our milestone for complete enrollment of our Phase 2 dry AMD trial, we received $10 million second tranche of funding under the Development Funding Agreement announced in November 2020. In February 2021, we also received gross proceeds of 4.7 million from a registered direct offering of ADSs.

As we've issued our press release this morning with our full financial results, I'll try to be brief and focusing on the highlights from 2020. Our cash and cash equivalents were $32.8 million at December 31, 2020, compared to $50.8 million at December 31, 2019. We believe our existing cash and cash equivalents at December 31, 2020, along with the $10 million received under the Development Funding Agreement in February 2021, and $4.7 million in gross proceeds received from our registered direct offering the ADSs also on February 2021, will be sufficient to fund our operating expenses into the fourth quarter of 2021.

We did not have any revenue in 2020 compared to the prior year of $21.1 million in 2019. Revenue in 2019 represented non-refundable upfront payments under the Alexion Arrangement that were recognized in full in accordance with applicable accounting standards as we completed our performance obligation in 2019. Alexion terminated the agreement in January 2020, and as such, no additional revenue will be recognized under the Alexion Arrangement.

R&D expenses decreased by $15.3 million to $29.3 million for the year ended December 31, 2020, from $44.6 million for the year ended December 31, 2019. This decrease was primarily due to a net decrease of $8.7 million in employee and consultant related costs attributable to the strategic repositioning,[Author ID1: at Thu Apr 8 23:48:00 2021

] implemented in Q1 2020, a $3.2 million decrease in contract manufacturing, a $1.8 million net decrease in clinical costs primarily driven by the closeout of our PMM development efforts which ended in December 2019, a $1.4 million decrease in preclinical costs and a $0.2 million net decrease in regulatory costs.

G&A expenses decreased by $2.9 million to $19.4 million for the year ended December 31, 2020, from $22.3 million for the year ended December 31, 2019. The increase was primarily attributable to a decrease of $4.3 million in pre-commercial activities offset in part by a $1.4 million increase in professional services for various financing transactions and increased costs of insurance.

Other expense decreased by $17.1 million to $8.8 million for the year ended December 31, 2020 from $25.9 million for the year ended December 31, 2019. Other expense in 2020 consisted of $7.1 million non-cash expense due to the change in fair value of the DSA [ph] derivatives liability and $1.8 million in interest expense offset by $0.1 million in interest income.

Other expense in 2019 consisted of a $22.7 million loss on extinguishment of debt recorded in conjunction with the IPO, $6.7 million in interest expense mostly related to the convertible debt and $0.3 million loss due to the change in fair value of the warrant liability, offset in part by a $2.8 million gain from the fair value adjustment of the derivatives liability associated with the convertible debt and $1 million in interest income.

Net loss was $57.5 million or $0.10 per basic and diluted net loss for ordinary share for the 12 months ended December 31, 2020, as compared to $71.7 million or $0.19 basic and diluted net loss per ordinary share for the same period in 2019. The decrease in net loss of $14.3 million in 2020 was primarily attributable to the $17.1 million decrease in other expense, offset in part by the increase in a loss from operations of $2.8 million.

I'll turn it back to Reenie to conclude.

Reenie McCarthy

Thank you, Rob. Before opening for questions, I want to just reiterate our strategic objectives for 2021. First, our differentiated approach to the treatment of dry AMD, which offers the potential to improve visual function in addition to slowing disease progression in this disabled - disabling disease that affects over 5 million older individuals worldwide. It could be transformative to understanding the breadth and promise of our platform of mitochondrial targeted therapeutics.

The coming months will throw a spotlight on this space with other Phase 3 readouts expected for companies adopting a compliment approach to delayed progression of late stage dry AMD. Our expectation from our Phase 1 data is that if we intervene early enough, we may not only delay progression, but could also restore visual function for affected patients. We look forward to our Phase 2 data in intravitreal feasibility results during the first half of next year.

Second, for our cardiomyopathy franchise, we remain committed to our Barth program for which we have rare pediatric designation. But we may have a delay in NDA submission. There are no therapies approved for this devastating disease. And we're very pleased that the FDA is partnering so closely with us and elucidating a path to meet our commitment to the patient community to progress the regulatory process.

Since our conversations with the agency have been extensive and quite recent, we are actively evaluating our next steps and expect to provide additional guidance going forward. Importantly, the cardiac signals observed in the Barth program offer crucial insights relative to designing our Friedreich's and Duchenne cardiomyopathy trials. Since we now know the timeframe within which elamipretide mediates reverse cardiac remodeling.

Finally, we are getting closer to defining the potential scope of our neurology platform with promising data suggesting modification of multiple neurodegenerative disease pathways with SBT-272. As we move elamipretide into a Phase 3 trial in the subgroup of responders from our PMM program later this year, we fully expect that SBT-272 will be a close follower in the fields of rare neurodegenerative conditions. We're thrilled to be moving forward with these initiatives to deliver upon our mission of developing therapies for the serious unmet medical needs affecting our patients.

With that, we'll turn the call over for questions.

Question-and-Answer Session

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question comes from the line of Charles Duncan with Cantor Fitzgerald. Please proceed with your questions.

Charles Duncan

Morning, Reenie and team. Thanks for taking our questions and also appreciate the cadence on the call with the prepared remarks. Quick question regarding Barth. You - it seemed like when Jim was presenting that there was a decision point. And I guess I'm wondering if you could provide us some additional color on what would be that decision in terms of a randomized withdrawal four Barth? And then if you were to open an additional - open up the cohort to enroll additional patients, what numbers are you thinking? And timing of the data…

Reenie McCarthy

Sure. Yeah. So I mean, we literally concluded a meeting with the agency Friday afternoon. And we obviously are expecting some additional feedback from that meeting, as well as some additional answers that the agency has committed to provide us to our pre-NDA questions. So we're really like evaluating a number of different options there.

In terms of, you know, starting a withdrawal protocol, we think that could be as early as early summer. We have not sort of decided what the duration of that might be yet. So that's something we're sort of actively looking at. And if we were to add additional patients, again, this is subject to continued[Author ID1: at Fri Apr 9 00:15:00 2021

] discussions with the agency, but we're thinking less than a handful. Jim, anything to add there for you?

Jim Carr

No, I agree with that, Reenie.

Charles Duncan

Okay. So just one additional kind of question on the withdrawal, I know that you're still working out the protocol. But are we thinking, you know, call it weeks, months or quarters in terms of keeping patients off throughout - to evaluate what kind of clinical results?

Reenie McCarthy

Yeah. And that's something that we just haven't really kind of washed out. So it's not, you know, I don't think we're prepared to speak that thus yet. We just need a little bit more time. Again, these are very recent conversations we've had.

Charles Duncan

Okay. Moving on to the neurology franchise and primary mitochondrial myopathy observation that you made in certain patients, I like that precision medicine approach. I'm wondering if you could provide us additional color on what would define the phenotype? And, you know, kind of the observations made in the previous study?

Reenie McCarthy

Yeah, absolutely. I'm going to start this and sort of ask Jim to finish it. And just to remind you that the PMM trial was a basket trial design. We were looking at patients irrespective of their genetic mutations. And so it enrolled patients with both mitochondrial DNA mutations, which introduces the concept of heteroplasmy in terms of mutation load, as well as patients with nuclear DNA mutations, which coincidentally Barth would be a nuclear DNA mutation. And so we're really - really where we saw the clearer response within the nuclear subgroup? Jim, do you want to speak a little bit more about, you know, the exposure response relationship, and maybe, you know, the phenotype other comments to elucidate for Charles?

Jim Carr

Yeah, pertaining to nuclear. And we're focused primarily on the replisome genotypes within nuclear. And within the nucleus, as Reenie alluded to, there was evidence of a dose response, which - just it reassures us that the effect is likely real, we did not see any evidence that [Author ID1: at Fri Apr 9 02:03:00 2021

]with [Author ID1: at Fri Apr 9 02:03:00 2021

]o[Author ID1: at Fri Apr 9 02:03:00 2021

]f a [Author ID1: at Fri Apr 9 02:04:00 2021

] [Author ID1: at Fri Apr 9 02:04:00 2021

]dose response relationship with the mitochondrial DNA cohort. So again, it's just - it's more confirmatory evidence that we're seeing a real effect in that patient population.

Charles Duncan

Okay. Looking forward to more information on that trial design. Last question is going over to dry AMD. I'm just wondering if you could speculate on strategic objectives with that. It would seem to me that that would be an indication that would have broader appeal for not only patients, but strategics. So when you see that data or could you anticipate increased strategic kind of input on that program over the course of the next year?

Reenie McCarthy

Brian, you want to jump in on that?

Brian Blakey

Yes. Hey, Charles. Yes, I believe that we - you know, we've had early discussions with some companies that are interested in this platform. And certainly, as we get that data in, in combination with the ongoing work with the IVT formulation, we think there'll be potential for a partnership that could be worldwide with us maybe owning a small piece in the US for commercial.

Reenie McCarthy

Just to add on, to bolt on to what Brian said, the IVT in addition, could open up the potential. There's been interest in other indications like glaucoma as well, there's good preclinical data there. So, you know, that could be a part of a broader ophthalmology platform that partners might be interested in.

Charles Duncan

Okay, look forward to the progress. Thanks for taking my question.

Reenie McCarthy

Thanks.

Operator

Next question is from the line of Matt Luchini with BMO. Please proceed with your question.

[Author ID1: at Fri Apr 9 02:27:00 2021

]

Unidentified Analyst

Hey, this is Genome. Yeah, thanks for taking our questions and congrats on the progress. Just two questions for me. So regarding the withdrawal, randomized withdrawal protocol, you guys previously mentioned seven days as a duration. But it seems a little bit different now. So what is driving the change? And I have a follow up if that’s okay.

Reenie McCarthy

Yeah. So you know, the challenge with seven days withdrawal, we were looking to kind of assess cardiac imaging endpoints and because, you know, just the preferred imaging techniques were not ones that we use, we use echocardiogram versus cardiac MRI. So it just - it seems like a less suitable design with discussions with the agency. So it's just, you know, kind of what kind of imaging biomarkers we were looking at.

Unidentified Analyst

Got it. Okay. Yeah, that's helpful. Apellis with GA [indiscernible] is reading out in third Q. Is there any particular data points that you guys are watching that you think may be related to your own work?

Reenie McCarthy

Oh, gosh, I mean, I think that, you know, Apellis is obviously targeting compliment, which is a different approach to the disease. They are treating slightly, you know, more. You know, we're intervening a little bit earlier with our inclusion criteria, which certainly [ph] maybe interested to see, you know, if hopefully, they'll, you know, repeat the results from their Phase 2, which would be great for patients.

But they did not see improvements in visual function. So they obviously saw slowing of GA progression. We believe we saw slowing of GA progression, it was a Phase 1. So relative to the natural history, but then in addition, we did see visual function improvements.

So I think that certainly looking forward to that data. And we think it's very important, obviously, for the treatment of this disease. But we're hoping by going a little bit earlier with a different mechanism, you know, we might be able to bolt on in terms of restoring visual function as well.

Unidentified Analyst

Got it. And if I can just like sneak in one more question. Do you guys have an agreement with the FDA? They you guys in the withdrawal, post-NDA filing? Or is FDA still consistent about running the trial prior to NDA and what are like potential next steps that are you guys thinking about? That'll be it?

Reenie McCarthy

Yeah. I mean, FDA have asked us to generate additional clinical data, you know, they recommended that, you know, prior to submitting our NDA. And so that's certainly something that, you know, is a topic of ongoing conversations, whether that's feasible in a relatively short period of time, which, you know, again, was one of the reasons I think that, that they suggested this withdrawal protocol, because obviously, most of the patients that are already identified. But really, we're just actively evaluating sort of all this information that we've so recently, you know, gotten with this great engagement with the agency. And so we're hoping, probably by the time, you know, of our first quarter earnings, you know, we'll have had a little bit more time to absorb this and plan for next steps and can give some clearer guidance.

Operator

Thank you. [Operator Instructions] And the next question is from the line of Yi Chen with H.C. Wainwright. Please proceed with your question.

Yi Chen

Thank you for taking my questions. So for the Phase 3 trial in the subgroup of the primary mitochondrial disease patients, when do you expect to start the Phase 3 and how many patients do you expect to enroll for the subgroup? Thank you.

Reenie McCarthy

We're hoping to start at year end. And Jim, do you want to sort of little preview of what you're - what we're thinking for trial design?

Jim Carr

Yeah, we're still evaluating not the design so much, but the sample size. And it really boils down to some assumptions that we're making with inclusion and exclusion criteria, but in the neighborhood of let's put it this way, in the neighborhood of 100 patients for the primary analysis population, which would be the replisome [ph].

Yi Chen

Got it. And for geographic atrophy, once you have the - Phase 2b replays to be read out in the first half of next year. Is there going to be a bridging study for the IVT formulation?

Reenie McCarthy

Yeah, we're - I mean, I think we’re doing feasibility on that right now. So we've definitely made some progress. I think we would need to sort of - we're actively sort of planning for what additional studies we would need to do if we decide to transition formulations. And obviously, as Brian mentioned, with the potential partnering interest and our interest in partnering that program, that's something that we also want to be collaborating with potential partners on also [ph].

Yi Chen

Got it. Thank you.

Reenie McCarthy

Yeah.

Operator

Thank you. At this time, we’ve reached end of our allotted time for question and answers, I'll turn the call back to Reenie McCarthy for closing comments.

Reenie McCarthy

Great. Thank you. So thanks, again, to everyone for joining us today. We've got quite a year ahead of us, again, team is very engaged, executing strong. We’re thrilled with some of the signals we're seeing out of our pipeline, as well as you know, the clinical promise ahead of us across our cardio myopathy and ophthalmic programs, which are primarily owned optometrists [ph] asset. So look forward to talking again in a few short weeks with our first quarter earnings update, and we should have some additional feedback on our plans in Barth at that time as well. So thanks again.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.