Cytocom, Inc.
Q1 2015 Earnings Call Transcript

Published: 7 May 2015

[Operator:]

Welcome to the Cleveland BioLabs' First Quarter 2015 Investor Update Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Rachel Levine, Vice President, Investor Relations for Cleveland BioLabs. Thank you. Please go ahead.

[Rachel Levine:]

Thank you. Good morning, everyone. Joining us today are Dr. Yakov Kogan, Chief Executive Officer, Dr. Langdon Miller, President and Chief Medical Officer and Mr. Neil Lyons, EVP and Chief Financial Officer. Before we begin, I would like to remind all listeners that throughout this call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or the successful execution of the company's strategic plans, and involve risks and uncertainties. Additionally, I want to emphasize that some of the information discussed on this call, particularly our financial and cash outlook and our forward-looking development plans are based on information as of today, May 6, 2015 and that actual results may differ materially from the expectations and assumptions discussed today as a result of various factors. Such risks, uncertainties and factors, include the risks outlined in our company's filings with the Securities and Exchange Commission, including our most recently filed 10-K and S-1. The information provided on this conference call should be considered in light of such risks. CBLI does not assume any obligation to update information contained in this call. Dr. Kogan will open this morning's call with a review of recent events and pass the call to Dr. Langdon Miller to share more details regarding our clinical strategy. Mr. Lyons will then provide financial results for the period, update the financial outlook and hand the call back to Dr. Kogan, for closing remarks. We will then host a Q&A session. At this time, I would like to turn the call over to Dr. Yakov Kogan. Please go ahead.

[Yakov Kogan:]

Thank you, Rachel, and thank you to everyone for joining us this morning. I would like to start by sharing our progress with pre-Emergency Use Authorization or pre-EUA application. I am very pleased to say that the work on CBLI's end is substantially complete. We have submitted our documentation to a contract research organization, specializing in electronic submissions to the FDA. It is their job to organize all documents and data in accordance with international harmonization standards. Our entire package, including summaries, study reports, raw data and literature references will be internally hyperlinked to assist the FDA functional experts and help us speed up the overall review. This is a significant undertaking requiring several weeks to complete. We are assisting in this process by making sure our vendor is able to identify appropriate information and addressing questions they may have. As soon as this process is completed the package will be submitted to the FDA, which we expect to occur within the second quarter. The FDA does not have a PDUFA deadline for further review, but we expect the FDA will begin reviewing our electronic submission as soon as it is sent in. We would anticipate questions or follow up requests to start about 30 days, 45 days after they receive it. We currently anticipate the entire process lasting anywhere between six to nine months. Even if we cannot guarantee any specific timeframe or successful outcome, we believe our data is very strong and our team has worked hard to put together a compelling submission in line with our previous FDA discussions. EUA is the vehicle through which the U.S. government is able to administer unlicensed rescue therapies in emergency situations. We believe that achievement of the pre-EUA status in the United States, we will facilitate Entolimod's commercialization in the United States, as well as partnerships and boost interest in this program from foreign governments. We have already started reaching out to select foreign countries in order to educate and update them on Entolimod's advanced development status and our progress with the FDA. Obviously, we will keep everyone apprised of any major developments in this area as appropriate. In parallel, we are negotiating with the Department of Defense regarding two proposals, supporting additional studies needed for the filing of a Biologics License Application for full licensure, which we plan to do in the future. While we cannot guarantee that we will be successful in our negotiations, these proposals have a combined grant amount of approximately $15 million, that is $15 million, and have been recommended for funding, by peer reviewers. It is our understanding that program funding for these proposals needs to be allocated by September 30th of this year, the end of government fiscal year. We hope negotiations will be concluded within this time frame. Commercializing Entolimod's Biodefense indication remains our top priority. We are grateful to have a talented team behind this project, including our Head of Regulatory Affairs, Dr. Ann Hards and Dr. Langdon Miller, who recently transitioned from an Advisory role to be President and Chief Medical Officer at Cleveland BioLabs. I am very excited to have Langdon as a member of our executive team. Langdon's achievements over his more than 20 years in drug development include major roles in development of filgrastim and sargramostim, and in the approval of multiple additional cancer treatments. He has held leadership positions in government and in large and small biopharmaceutical companies, including the National Cancer Institute, Pharmacia Corporation, PTC Therapeutics, Calistoga Pharmaceuticals and Gilead Sciences. We have worked very closely over the past year and I deeply respect his experience, thoughtfulness and strategic perspective. His guidance will continue to be invaluable as we work to commercial Entolimod for Biodefense and achieve clinical validation for our pipeline of investigational drugs. Speaking of our pipeline, we recently announced the sale of most of our interest in our Incuron joint venture, which developed CBL0137. I will let Neil get into details of the transaction a bit later, but would like to share our [indiscernible]. First, let me say that we continue to believe in the potential of CBL0137, but recognize that significant additional financial resources, and time and attention will need to be put into this project to bring it to commercialization. Incuron will need to raise additional capital, and unless we are able to contribute, which we are not presently in position to do, our interest would be diluted. When evaluating the offer from Dr. Mogutov, the Chairman of the Board of Directors of Incuron and Founder of Bioprocess, we thought about the likelihood of successfully marketing our minority interest in an early stage drug development company based in Russia to an independent third-party and concluded in light of the company's cash position. It was the best interest of our shareholders to lock in a non-dilutive royalty and cash at the present time. Moreover, this frees up the time and attention of our management team to focus on the core opportunities at hand for our toll-like receptor platform, namely Entolimod and CBLB612. Over the years, CBLI has built an extensive knowledge base and strong intellectual property around the use of toll-like receptor agonists such as Entolimod and CBLB612, so that have an ability to stimulate the immune system in many beneficial ways. This understanding has now been further enhanced by the markets' growing collective experience with immunotherapies in cancer and other disease areas and we are gaining insights into new potential opportunities for our pipeline. I will now ask Langdon to review some of his prospects and give you a sense of where we are headed.

[Langdon Miller:]

Thank you, Yakov. I am looking forward very much to my expanded role at CBLI. I have really enjoyed working with the team over the past year and continue to be very enthusiastic about the CBLI scientific platform. As Yakov mentioned, there have been significant new discoveries and advances in the use of immunotherapies for multiple indications. In cancer alone, we can point to several recent approvals of drugs acting through inhibition of immune checkpoints and plethora of partnering initiatives between large and small pharma, pairing complementary immunotherapy approaches in an effort to maximize response rates. Market research projects cancer immunotherapy sales reaching $68 billion in 2018, so this area of research is really growing very rapidly. Let us take Entolimod as an example, we already know that efficacy of this drug as a radiation countermeasure is directly linked to its ability to stimulate the body's immune's response and produce regenerative cytokines critical to hematopoietic and gastrointestinal recovery and survival. Through our completed Phase I clinical study, we have also collected data showing that Entolimod induces activation into specific immune cells, such as certain subsets of T-cells, neutrophils and natural killer or NK cells that are associated with the body’s ability to fight cancer. These data will be disclosed in detail at the Annual Meeting of the American Society of Clinical Oncology or ASCO, which will be held from May 29th to June 2nd in Chicago, Illinois. A second Phase I study of Entolimod in patients with advanced cancer is ongoing in the Russian Federation. That study is intended to expand upon clinical observations made at the higher dose levels in the U.S. study and to gather further statistics on immune response through administrations of Entolimod. We currently expect those results to be available later this year. Our goal is to build upon these data, expanding the potential indications for Entolimod as a cancer immunotherapy and attracting commercial partnerships. To that end, we are currently investigating several directions. One avenue is combination with emerging immunotherapies, such as immune checkpoint inhibitors that benefit from a stronger immune cell response with a profile similar to Entolimod's. While immune checkpoint inhibitors are delivering breakthrough results in several challenging indications, it must be remembered that overall tumor response rates are only in the range of 20% to 30%. We are currently working with several preclinical models and hope to share these results soon. Another potential direction for Entolimod is local therapy, example, of non-invasive bladder cancer. As we have previously discussed, current first-line therapy in this indication is an immunotherapy targeting a different toll-like receptor. Unfortunately, recurrence rates are high, leaving patients without adequate treatment options. We believe that use in bladder cancer might be a particularly interesting indication for Entolimod given the high level of expression of Entolimod's target receptor in the bladder and the FDA is clearly trying to encourage new entrants into the field. We do have pre-clinical data for this indication, but need to complete appropriate IND-enabling studies before moving into the clinic. A newer immunotherapy initiative for Entolimod is to explore its potential use as a vaccine adjuvant. This is really an exciting prospect as vaccines represent a multi-million dollar global market. In this context, Entolimod's immune activity would be harnessed to enhance the efficacy of existing vaccines by eliciting a strong immune response to the vaccine's particular antigen. Many vaccines require an adjuvant to induce sufficient immune response. In fact, about one-half of the 30 most commonly used vaccines that are approved by the FDA, contain alum or aluminum salts as an adjuvant. Until recently alum was the only adjuvant approved by the FDA, and often was insufficient alone to allow new vaccines to reach adequate clinical potency. In fact, the shortage of effective and safe adjuvants is a major bottleneck in vaccine development. A new generation of vaccine boosters combines classic adjuvants mixed with immunomodulators like Entolimod. One example of this would be GlaxoSmithKline’s HPV vaccine, Cervarix, which is the first FDA-approved adjuvant combining alum with the proprietary TLR4 agonist. This vaccine confirms the immunoadjuvant utility of TLR activation. We are just starting with this work with Entolimod, but have already formed collaborations with thought leaders in the area. We look forward to sharing additional details as the program develops. While we continue to gather data on Entolimod, CBLB612 is also progressing in the clinic. This drug’s ability to induce a broad spectrum of hematopoietic stem cell lineages through its activation of toll-like receptors 2 and 6 as long been documented in several pre-clinical models, but more recent research indicates that stimulation of these toll-like receptors may also enhance antitumor efficacy. We believe an opportunity may exist for CBLB612 to offer a single-dose alternative to existing hematopoietic blood factors such as G-CSF, which comprise of multi-billion dollar market in support of chemotherapy administration. G-CSF modestly shortens the duration of chemotherapy-related neutropenia, but does not improve thrombocytopenia or anemia and does not provide antitumor efficacy. Phase I study in healthy subjects has evaluated CBLB612's pharmacological profile. This study was recently concluded. A maximum tolerated dose was established and changes in blood counts were observed, including neutrophilia. Induction of a variety of cytokines was also documented and full results will be available later this quarter. We think that the Phase I data supports a Phase II in a clinical model of chemotherapy induced myelosuppression. Plans for this study are already underway and will be supported by an existing contract with the Russian Ministry of Industry and Trade. At this point, I will hand the call over to Neil to review the financials.

[Neil Lyons:]

Thank you, Langdon. For the quarter ended March 31, 2015, our total revenues decreased by $700,000 to $600,000 compared to the first quarter of 2014. This decrease related to the deconsolidation of Incuron, which remained consolidated in Q1 2014 figures as it was not deconsolidated until Q4 2014, and the decrease also relates to reduced grant income from Panacela's Mobilan compound as this awaited approval to commence the Phase I trial. Research and development expenses for Q1 of 2015 decreased by $800,000 to $1.6 million compared to Q1 of 2014. This decrease was also primarily due to the deconsolidation of Incuron in the fourth quarter and variances in the levels of outsourced research. For Q1 2015, general and administrative expenses decreased by $100,000 to $2.3 million compared to Q1 of 2014. However, removing a $600,000 one-time charge for expenses associated with our February financing, general and administrative expenses decreased by $700,000 compared to the same period in 2014, with $200,000 of this decrease due to the deconsolidation of Incuron, and the remaining portion due to reductions in personnel and reduced usage of outside professionals. Accounting rules require the February financing expenses be charged to operations as the majority of the gross proceeds were considered derivative liabilities. Let us now review our existing liquidity and capital resources. On March 31st, CBLI had cash, cash equivalents and short-term investments of $5 million, $1.4 million of which was restricted for the use of our consolidated joint venture Panacela, leaving $3.6 million available for general use. On April 29th, we announced an agreement to sell our equity stake in Incuron for up to $4 million, which is in line with the valuation performed by the independent party that we used to record the deconsolidation at the end of last year. The sale was broken up into two tranches, with 75% of our stake in Incuron being sold for approximately $3 million on April 29th and an option being given to Dr. Mogutov to purchase the remaining ownership interest in Incuron for approximately $1 million before the end of 2015. Additionally, we assigned our remaining intellectual property relating to CBL0137 to Incuron in exchange for 2% royalty on the future commercialization, licensing or sale of the CBL0137 technology. At March 31, we had $1.5 million in funded contract backlog and $1.4 million in unfunded contract backlog, all related to contracts from the Russian Federation. Now, moving onto historical cash burn and cash guidance, please reference the table of non-GAAP cash burn measures included in our earnings release this morning, for a reconciliation of these non-GAAP measures to the comparable GAAP measures. CBLI's stand-alone monthly cash burn for the first quarter that is without Panacela, was $800,000 compared to our guidance of $1.1 million on average per month, due largely to slower than expected billings from pre-EUA vendors and lower than expected total pre-EUA costs. Adjusting for the slide in some pre-EUA payment into Q2, and nearing the completion of our pre-EUA submission, we anticipate to go forward monthly standalone cash burn to be approximately $1 million on average through September. Including the proceeds from the first tranche of the sale of our interest in Incuron, we believe, CBLI's standalone cash resources will last into September 2015. This does not include favorable impacts from anticipated contracts with the Department of Defense. CBLI's monthly cash burn consolidated was just under $800,000 for Q1 or less than the standalone cash burn largely due to a contract advance payment received by Panacela and reported in deferred revenue. We have been working on multiple avenues to finance the company as demonstrated by the recent sale of our ownership in Incuron and our pursuit of federal funding, which may result in the award of two contracts with a combined cost basis of approximately $15 million. The two DoD research contracts currently in negotiation will require us to hire outside vendors to perform additional animal and human trials. Only a portion of the funding under these contracts will actually pay for the time and expenses of our personnel. If and when awarded, we estimate that these contracts combined, will offset our current cost structure by $100,000 to $200,000 per month, which would reduce our forecasted average monthly burn to approximately $800,000 versus the $1 million I just mentioned. Additionally, NASDAQ has notified us that our stockholders' equity of $1.8 million at year end did not meet their $2.5 million minimum required for continued listing. As we published this morning, our consolidated stockholders' deficiency in assets was $1.4 million or approximately $4 million short of the $2.5 million listing standard at March 31. In response, we have submitted a plan to regain compliance. If our plan is accepted, NASDAQ may grant an extension of up to 180 days or until September 7th to evidence compliance. In summary, additional capital is needed to maintain our NASDAQ listing and to fund operations. Consequently, we filed a registration statement on Form S-1 for a public equity offering on April 10th. While we cannot guarantee ultimate success of a potential equity raise, we believe, we will need to raise sufficient capital to maintain NASDAQ compliance as we do not want to continually address this issue and to fund our operations through the FDA's pre-EUA submission review and the release of additional data for Entolimod and CBLB612. That concludes my comments. Yakov, please continue.

[Yakov Kogan:]

We continue to move forward and are committed to commercializing Entolimod for Biodefense, and achieving clinical validation for our toll-like receptor platform. We have made significant strides towards achieving those goals. In the last few months, with completion of our pre-EUA package and a growing body of clinical immunotherapy data for Entolimod and CBLB612, we are focused and determined to succeed. We will now open the call to questions. Operator, please begin the Q&A.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Walter Schenker with MAZ Partners. Please proceed with your question.

[Walter Schenker:]

Can you explain given the nature of your cash burn and at least the modest benefit of getting a DoD contract, can you explain why the timeframe seems to be stretching in getting approval on the first DoD announcement, which was a number of months ago, what needs still to be done to complete those negotiations?

[Yakov Kogan:]

Thank you, Walter. Neil, would you mind answering this question?

[Neil Lyons:]

Well, I believe we announced the first contract right at the 1st of this year, and the DoD had assigned a Contracting Officer to commence negotiations with us, what include after that that and was an announcement that we had been recommended for funding. What commenced after that was a back and forth between the government's technical people and our technical people confirming the scope of work, propose, fine-tuning the protocols, et cetera, to make the government satisfied with the scope of work they were contracting. Once done, then the government hands the [ph] to a cost and pricing group which has had several rounds of back and forth with our team on details of cost and pricing data and back and forth with the subcontracting vendors to refine the pricing amounts, so unfortunately, it is a long drawn out process that is what it is.

[Walter Schenker:]

Given it is a long drawn out process and we are almost five months into it is there any sense as to whether or not this drags on to the September 30th funding deadline or you have no control over this process?

[Yakov Kogan:]

We are doing everything on our side to speed up the negotiations and that means the technical and financial data requested by the program and contracting.

[Walter Schenker:]

Okay. Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Robert Brous with Wunderlich Securities. Please proceed with your question.

[Robert Brous:]

Thanks for taking my call. It is nice to see progress and you guys moving forward. That said, I cannot seem to understand and this company has a history of poor stewards of capital and cash, why does not the company, why does not the Management, the Board, work at cutting costs? That includes cutting salaries, deferring salaries, cutting compensation to the point that this company needs to recognize yes you may be on the verge of spectacular things, but you continue to destroy shareholder value as well as dilute shareholders with no end in sight and I just do not understand why management has not gotten that understanding. It is still to this date does not have that understanding. That may be a rhetorical comment, but I would like to hear anybody's response.

[Yakov Kogan:]

Neil, would you mind to answer this question?

[Neil Lyons:]

Management has taken a lot of costs out of this company. Our monthly burn rate has gone down. We have reduced our headcount to about a dozen folks here in the U.S., a couple in Russia that are pretty much totally paid for, by the Russian Federation anyway. The Board and Management scrutinize our costs continually. To the extent you start cutting people's salaries and deferring things, everyone can have a debate on that. At some point, you lose talent, so what is the benefit to the company if the correct talent is not place? Management is constantly focused on it and the board scrutinizes it as well. That is all I can say.

[Robert Brous:]

I mean, an example is, why spend money on filing patents? I mean, things like that, they do not matter right now, because if you do not get there, it does not matter.

[Yakov Kogan:]

Let me disagree with you, Robert. The patents in biotech is the most important value, because what the pharma, what government, what everyone wants is that you have protection, because otherwise, if you do not have a patent protection, which would help us to market the drug and protect us in the marketplace, there is no point.

[Robert Brous:]

The key to moving forward is 502 defense, right, so anything other than that is non-essential, right? If you do not get that, you do not get funding. You cannot move forward as an organization.

[Yakov Kogan:]

We have multiple values - Biodefense is definitely one of the lead products, which is positioned for commercialization and we need to have patent coverage as well as extended patent coverage to protect ourselves, we can market the drug and there is an interest from government to pay kind of money to purchase the drug and not a generic version of it. We also completed a clinical study, which is a very interesting data coming, clinical data, which are demonstrating the potential efficacy of drug in oncology, and this also needs to be protected, because otherwise, we would not get any interest from pharmaceutical partners.

[Robert Brous:]

Okay. I just want to make sure that everybody recognizes that this is not a comment on the hard work that management does and I know you all work very hard and everybody that is involved in moving things forward. It is a comment of the necessity to recognize being better stewards of capital. At the end of the day, you have got what you have got and you have got to work with it, so I think that just management needs to keep that focus going forward and focus harder on it.

[Yakov Kogan:]

Thank you, Robert. Again, as always, we truly appreciate your input and continue considering this.

[Robert Brous:]

Thank you very much.

[Operator:]

Ladies and gentlemen, thank you for your participation. Today's call will be available for replay until May 20, 2015. You may access the call by dialing, 877-660-6853 and enter ID number 13607703. The webcast will also be archived in the IR section of Cleveland BioLabs website. Thank you for your participation today. You may disconnect your lines.