Genocea Biosciences, Inc.
Q1 2016 Earnings Call Transcript

Published: 9 May 2016

[Operator:]

Good morning and welcome to the Genocea First Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call up for questions. Please be advised that the call is being recorded at the company’s request. At this time, I would like to turn the call over to Maren Killackey of Stern Investor Relations. Please proceed.

[Maren Killackey:]

Thank you, operator. Good morning. This is Maren Killackey with Stern Investor Relations and welcome to Genocea’s first quarter 2016 financial and operating results conference call. This morning we issued a press release, which outlines the topics that we plan to discuss today. This release is available at www.genocea.com under the Investor Relations tab. Today on our call, Chip Clark, President and CEO will review the company’s recent business and clinical highlights and then Jonathan Poole CFO will review the financial results. Seth Hetherington, CMO will be with us today for the Q&A. Before we begin, I would like to remind everyone that statements made during this conference call relating to Genocea’s expected future performance, future business prospects, or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the Safe Harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecast due to the impact of many factors beyond the control of Genocea. Genocea expressly disclaims any duty to provide updates to its forward-looking statements whether as a result of new information, future events or otherwise. Participants are directed to the risk factors set forth in Genocea’s 2015 Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission. With that, let me pass the call over to Chip.

[Chip Clark:]

Thanks, Maren and good morning everyone. Happy, Cinco de Mayo. I will begin today’s call by reviewing the positive Phase 2 12-month efficacy data we reported in March for our lead development candidate, GEN-003, a first-in-class treatment for patients with genital herpes infections. At 12 months after dosing and with no boosters given, GEN-003 has demonstrated a sustained and statistically significant reduction in viral shedding, which is the necessary precursor both to visible genital lesions and to disease transmission. GEN-003 also demonstrated sustained efficacy at multiple dose levels across secondary endpoints measuring the impact on clinical disease, including a potential Phase 3 endpoint of percent of subjects without outbreaks at 12 months. Needless to say, these data are very encouraging and point to a possible annual treatment regimen for GEN-003, which may offer patients with genital herpes clinical benefits similar to a full year of daily administration of oral antivirus. GEN-003 was well-tolerated by patients with no series adverse events related to the vaccine in the trial. For more detail on the trial results, you can listen to the replay of our call on March 31, which is available on our website along with the accompanying slide presentation. For the remainder of the year, we anticipate several milestones. In Q3, 2016, we expect to report virologic efficacy data from our recently initiated Phase 2b trial. Positive results, if achieved, would confirm the activity of GEN-003 manufactured with Phase 3 processes at increased scale, an important step toward the FDA and the Phase 2 meeting, which is expected in the first quarter of 2017. This trial has enrolled about 135 subjects across the U.S. that have a history of recurrent genital herpes. Subjects are randomized to one of three dose groups, placebo, 60 micrograms per protein and 50 micrograms of adjuvant and 60 micrograms per protein plus 75 micrograms of adjuvant and will be monitored for 12 months. Around the end of 2016, we expect to report six-month clinical efficacy from this Phase 2b study. This placebo-controlled data represents the first opportunity to measure the new GEN-003 material against the potential Phase 3 endpoint of percent lesion three at six months after dosing. And finally, we expect to start a Phase 2b antiviral combination study. Clinical efficacy data from this trial is expected in the first half of 2017. If GEN-003 is additive to the effect of chronic suppressive oral antiviral therapy, this would further strengthen GEN-003’s value proposition to patients and physicians. We firmly believe that GEN-003 could become the cornerstone treatment for patients with genital herpes infections given the magnitude and durability of effects. Specifically, GEN-003 offers durable efficacy via novel mechanism of action with GEN-003 potentially as a first line therapy. Oral antivirals could be used as a rescue medication if outbreaks occur. GEN-003 also offers greatly improved convenience over oral antivirals which may derive significantly better real world efficacy than oral antivirals, which rely on high and sustained levels of treatment compliance for optimal benefit. With that, let me turn to our immunooncology effort briefly, where we are applying our ATLAS platform to cancer vaccine target discovery and development. We believe that our efforts in infectious disease headlined by GEN-003 show that the most clinically compelling vaccines in immunotherapies require the best target antigens. As we say here targets matter particularly for T-cell responses. A point of consensus in the immunooncology field is that T-cells can kill tumors. We believe that the ATLAS platform affords a unique ability to identify targets of T-cell responses to create effective vaccines. We continue to advance our academic collaborations in immunooncology and expect to provide further updates on our potential test of the clinic in 2017 for a neoantigen-based cancer vaccine in the coming months. Let me now turn the call over to Jonathan to review our financials for the quarter. After that, we will open the call for your questions. Jonathan?

[Jonathan Poole:]

Thanks, Jeff. In today’s press release, we reported cash, cash equivalents and investments of $95.7 million at March 31, 2016 compared to $106.4 million as of December 31, 2015. We continue to expect that these funds will be sufficient to fund our operations into the second half of 2017 when we expect to be entering into Phase 2 trials for GEN-003. R&D expenses for the first quarter of 2016 decreased by $1.2 million to $7.3 million compared to the same period in 2015 reflecting lower clinical costs due to the completion of the GEN-004 Phase 2a trial, which was ongoing in the first quarter of 2015 and the conduct of the smaller Phase 2 trial for GEN-003 in the first quarter of 2016 compared to the same period in 2015. GEN-003 manufacturing costs also decreased due to the timing of activities in support of clinical trial supply. These lower costs are partially offset by higher personnel and lab-related costs to advance our preclinical product candidates and develop the ATLAS platform for immunooncology. G&A expenses for the first quarter of 2016 were $3.9 million compared to $3.4 million for the same period in 2015. The increase reflects higher personnel costs, consulting and professional fees and depreciation expense, all of which support our expanding R&D operations. This quarter, we also recorded a one-time gain of $1.6 million resulting from cash received pursuant to contractual obligations under a collaboration agreement with Isconova since acquired by Novavax. To refund, R&D expenses we paid to Isconova between 2009 and 2011 relating to development of the Matrix-M2 adjuvant technology. Then finally, net loss was $9.8 million for the first quarter of 2016 compared to $12.1 million for the same period in 2015. With that, let me hand the call back over to Chip to wrap up.

[Chip Clark:]

Thanks, Jonathan. In conclusion, we are hugely encouraged by what we are seeing in the GEN-003 program. 2016 will continue to be a rich year for GEN-003 clinical milestones with virologic and clinical efficacy data from our Phase 2b study in the third quarter and around the end of 2016 respectively. And in end of Phase 2 meeting with the FDA following these milestones in the first quarter of 2017. We remain well funded into the second half of 2017 enabling us to deliver these multiple clinical and research milestones from a position of strength and continue to benefit strategically from full control over the rights to our assets. With that we will now open up the call for your questions, operator?

[Operator:]

[Operator Instructions] And our first question comes from the line of Bill Graham [ph]. Your line is now open. I am sorry Mark Graham.

[Mark Graham:]

Hi. Thanks for taking my question guys. So just surf with the combo trial that you are planning, if you could kind of us a more details on what the design is going to be, how many patients with the treatment arms are going to be?

[Chip Clark:]

Yes. Hi Mark. This is Chip and I am going to hand this over to Seth, our Chief Medical officer who is also on the call.

[Seth Hetherington:]

Hi Mark. We are still sizing up this trial, but the goal is obviously to assess the additive effect of GEN-003 on chronic antiviral usage. We expect that this will be a two arm trial. One arm gets randomized Valtrex plus the placebo vaccine and the other one gets Valtrex plus GEN-003. The primary endpoints of such trial would be the proportion of subjects who are lesion free or current free at 6 months and 12 months which we anticipate to be which has our main Phase 3 endpoint. And we would expect the six-month data from this trial around the first half of 2017. Again we are still in the process of size moves up and that may change based on how we end up. But the 12-month data would call that probably in the second half of that year. So the key point here is that we have a novel mechanism of action here to Valtrex. And this is really the paradigm of treating chronic viral infections is to combine two or more different therapeutic agents that have a complementary mechanism of action to give the patient more benefit than could be achieved with either arm.

[Mark Graham:]

Okay, it’s great. And I mean what’s your kind of initial thoughts on what a clinically meaningful increase in lesion 3% would be for patients?

[Seth Hetherington:]

We haven’t really got into that point yet. Again, this is going to be a discussion with our key opinion leaders, our investigators and also how we end up sizing the trial. But you could have imagine if for instance Valtrex reduces or preserves current free to about 50% at six months and maybe 35% at 12 months, you can guess that something if people would be interested in would be north of there I don’t think anybody is expecting a 100%. But something greater than 50% at six months greater than 34% in 12 months would be a reasonable estimate.

[Mark Graham:]

Okay. And then last, I know you are planning on having end of Phase 3 meeting here early next year which would be an advancement of getting this data, can you kind of talk of Chip, maybe this is best for you, the rationale for doing that meeting in advance of seeing any of the combination data?

[Chip Clark:]

Well, I think at the end of Phase 2 meeting is principally about the design of Phase 3 program. And while we may continue to explore combinations in the Phase 3 program that’s not the main point. And what we want to have in advance at the end of Phase 2 meeting is safety data from that combination just to confirm that as would be expected in clinical practice the products would be used together. So, really the critical path is driven by the ongoing 2b study as well as the safety read out from that combination study.

[Mark Graham:]

Okay. Thanks a lot.

[Chip Clark:]

Thank you, Mark.

[Operator:]

And our next question comes from the line of Ted Tenthoff with Piper Jaffray. Your line is now open.

[Ted Tenthoff:]

Great. Thank you very much. I just want to dig in a little bit more with respect to the immune-oncology efforts and so what we can expect in terms of updates through this year and into 2017, I think that can become increasingly interesting and important?

[Seth Hetherington:]

Yes. Thanks Ted for the question. So just to expand a little bit on what we said in the prelude here, we have academic collaborations with Memorial Sloan Kettering investigators, they are looking at investigating potential T-cell targets of response looking at patient individual mutations there so called neo-antigens. Meanwhile in parallel, we are looking – working with Dana-Farber, an investigator there, at responses to tumor associated antigens. The updates we expect to provide this year will fall into two categories. The first will be data from these collaborations. We can’t give you specific timings on those, but you will recall that last year when we had our first read out just based on that handful of patients from the Dana-Farber collaboration, we were able to secure a late breaker poster at SITC. The point here is this, the ATLAS platform is we believe unique. We are able to characterize responses to tumors and the checkpoint inhibitor therapies in a completely unique way. And we believe the scientific community will continue to show great interest in our output there. And so at appropriate meetings later this year we will share data. The second type of update we would expect to provide Ted will be on the path forward with our own vaccine. As we said earlier, we do believe we can develop a personalized cancer vaccine. And later this year we anticipate providing the following categories of information which indication we expect a target initially and from that what types of patients, the nature of the vaccine that we would be administering the patients. And broadly speaking, both when we would expect to go into the clinic and roughly what that clinical trial would look like. As we said all along, we believe it maybe possible to achieve this in 2017 and we hope to be able to further clarify that later.

[Ted Tenthoff:]

Okay. Super, helpful. I am looking forward to those updates.

[Seth Hetherington:]

Thank you, Ted. I appreciate the question.

[Operator:]

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

[Stephen Willey:]

Yes. Good morning. Thanks for taking the questions. Just going back to the combination study again, would you be designing reoccurrence in the same way that you have defined it in the studies conducted to-date, I am just curious as to whether or not you would more to have patients with maybe a greater number of outbreaks on a baseline perspective such that you can maybe better elucidate difference in lesion free days versus Valtrex?

[Chip Clark:]

Yes. I am going to have Seth talk about how exactly we measure percent reoccurrence free.

[Seth Hetherington:]

Right. So we do it the way that has been done before with other similar trials for Phase 3 registration. And it includes patient identifying that they are having an outbreak. They are going to see their physician who as they get examination and the physician collects a swab sample for analysis by PCR. The end point itself is what the patient reports. The value of swab is that in active therapies the proportion of those swab samples, among a group of patients that are actually pause rate I speak to will decrease not because of, but it’s not an HSV-2 outbreak, but because we have reduced the shedding to odd, reduced the duration and shape to the point that it’s much more difficult to detect. So, that’s very important information. Your other part of the question has to do with the inclusion criteria for the trial. And you will know that previously we have used this range of three to nine outbreaks. And yes we could expand that beyond that so that we get an overall higher base line number and that would potentially allow us to see a better differentiation from Valtrex. It’s a very good point, again we are still in process of putting this trial together as the design and we will be discussing questions like that with key opinion leaders and our investigators.

[Stephen Willey:]

Yes. Just to clarify, would these patients be prophylaxing with Valtrex or they just be treating acutely during the course of an outbreak?

[Chip Clark:]

Yes. The key point is they will be on chronic daily suppression with Valtrex which we know does not completely eliminate shedding and does not completely eliminate recurrences. And we are trying to improve specifically on the second of those two.

[Seth Hetherington:]

Yes. And Steve, referring back to our presentation around the six month data, you saw that patients on daily suppressive Valtrex even with the enrollment criteria broadly submerged from our – to that from our clinical trial reported that roughly 50% had outbreaks at six months. So, we expect that there is significant headroom to improve on that.

[Stephen Willey:]

Okay. And then, I believe you guys are also talking about an IND filing for NextGen HSV vaccine next year. Is that going to be a prophylactic vaccine? And I guess, if so can you maybe just talk a little bit about how the antigen selection process via ATLAS in terms of looking for something as a prophylactic versus therapeutic, how that process differs and I guess whether we would expect to see kind of a different spectrum of antigens included in that vaccine versus what you have in GEN-003? Thanks.

[Chip Clark:]

Yes. So, Steve, the power of the ATLAS platform is that it enables us to identify a target of T-Cell response, a T-Cell antigen called ICP4 and we believe that, that has been the decisive difference between our vaccine and those of others whether in the past or more recently to generate impact on virology and impact on disease as an HSB immunotherapy. We also think that positions us very well to develop next generation programs whether a therapeutic in which the aim would be to develop a product that could ultimately surpass GEN-003 provide even greater and/or more durable efficacy, but it also positions us to develop a prophylaxis, where as you would expect the aim would be to prevent infections in otherwise healthy population. The work that we have done previously to identify priority targets of T-cell response has enabled us to use as a base that input for both a therapeutic and a prophylactic program. We are not yet betting on a favorite as to which of the two programs would be the one entering into the clinic, for which rather we would file an IND in 2017. But broadly speaking, you would that a new formulation, a new program would be drawing on the lessons and in some ways the composition of GEN-003, but adding or slightly changing the mixture of components whether on the antigen side or potentially even on the adjuvant side. But as for the specifics as we get closer to IND and have more data to share we will obviously be able to be more specific about the ultimate output.

[Stephen Willey:]

Understood. Thanks for taking the questions.

[Chip Clark:]

Thanks, Steve.

[Operator:]

And our next question comes from the line of Alan Carr with Needham & Company. Your line is now open.

[Alan Carr:]

Hi, thanks for taking my questions. One is financial, if you can comment more about that refund and R&D and the other is just a follow-up on just one of Steve’s first questions there around the patients for this combination trial, you are expecting the patients to have already been on chronic suppressive therapy heading into the trial or would they be not on treatment before hand? And then you would randomize them into antiviral suppression plus or minus placebo? Thanks.

[Chip Clark:]

Thanks for the question, Alan. I will let Seth answer your clinical question first and then Jonathan will take your financial question.

[Seth Hetherington:]

Yes, it’s an easy question. We will take people who have been on and are currently on chronic antiviral suppression, but those who are not, but want to come into the trial, they have to go through a 14-day period where they take – they start their product suppressive therapy. That’s more than enough time for them to reach steady state and then they can be randomized into the therapies.

[Jonathan Poole:]

And in relation to the one-time R&D credit we received this quarter. So, I guess that the history of our developments at GEN-003 was both on the antigen selection side which Chip talked earlier, but also the adjuvant selection side. And way back when I guess in 2009, we identified Matrix-M2 as preferred adjuvant for GEN-003. And at that point in time, it’s going over with independent Swedish company. And in order to ensure that we develop the adjuvant in line with progress on the antigen and broader vaccine development front, part of the collaboration agreement with Isconova involving us helping from the R&D and development over the Matrix-M2 adjuvant technology. And simply as part of that contract that was – and this is the potential for that R&D funding to be repaid and that became repayable as of January this year, hence we will receive that money from Novavax in the first quarter. This is a one-time game numeric here. We don’t expect any further payments and no further payments are due under that collaboration agreement?

[Alan Carr:]

Okay, thank you. And then I guess I have to follow-up on that, you have – you mentioned that there are two different kinds of I guess patients that you are considering enrolling in the combination trial, I mean does that, I am wondering about what sort of uncertainty that raises when you enroll some patients that ever on chronic suppressive therapy and then some that haven’t, is it preferable to have a better feel for the recurrence rate for these patients heading into this trial, especially when you have a change in therapy 14 days before?

[Seth Hetherington:]

We don’t think it translates into any risk in the trail and that can be mitigated in the further by stratification. So we just don’t think that’s going to be an issue.

[Alan Carr:]

Okay, thanks very much.

[Chip Clark:]

Thanks Alan.

[Operator:]

[Operator Instructions] And our next question comes from the line of Jeff Hung with UBS. Your line is now open.

[Unidentified Analyst:]

Yes. Hi, this is [indiscernible] for Jeff. Thanks for taking the question and Happy Cinco de Mayo too. I have a couple of questions. One of them is basically, the current Phase 2b study that’s going on, it’s largely successful, how would it change sort of your thinking about the Phase 3 design and whether or not it may change the regulatory process that you are thinking of understating with bringing GEN-003 to the market? And I have another one?

[Chip Clark:]

Okay. That’s – let me just address that question first. The principal difference between previous clinical studies and the 2b study is the material that we are using. This is material manufactured for Phase 3, the agency typically requires clinical data from such material before allowing one to go into Phase 3. Otherwise the patient enrollment criteria, the ways in which we are measuring virologic and clinical efficacy, etcetera and in fact even the sites are the clinical trial sites were the same. And so I say all this to say that success in this trial which we think we have a reasonable expectation, reasonable confidence about we would not fundamentally change the way we think about our Phase 3 strategy. We still expect to conduct a couple of Phase 3 trials, the size of which will be subject to the discussion with the FDA. But we continue to maintain our belief that this is a program we could conduct on our own for U.S. approval. I guess you had another question.

[Unidentified Analyst:]

I was wondering about with 12-month data and it appears that the 12 months regimen will probably will be the winning one at the end, are you sort of internally changing your press assumption, I know that it’s early to talk about that?

[Chip Clark:]

Yes. It is in fact very early to talk about it. But I think what you are getting at is our previous communications around the potential value of GEN-003 of approved exceeded a $1 billion revenue in the U.S. and that was predicated on several assumptions earlier clinical data and crucially maintenance dosing every six months. If in fact you are ultimately asking if yearly maintenance dosing schedule would be more compelling for patients and we expected it will be. But it’s too early for us to comment concretely about more generally the impact on the market potential and certainly too early to comment on how it would affect our pricing strategy. But we continue also I should know to monitor the patients from the current trial and further trials we will monitor if there is even the possibility that durability of effect is longer than yearly. And certainly that would – such a finding would positively effects both our long-term forecasting potentially our pricing flexibility.

[Unidentified Analyst:]

Great. Thank you.

[Chip Clark:]

Thank you.

[Operator:]

Thank you for joining us today. You may now disconnect.