Gracell Biotechnologies Inc.
Q4 2020 Earnings Call Transcript

Published: 10 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Gracell Biotechnologies Fourth Quarter and Full Year 2020 Conference Call. I would now like to turn the conference over to Kevin Xie, CFO. Please go ahead.

[Kevin Xie:]

Good morning, and welcome to Gracell's Fourth Quarter Earnings Conference Call and Webcast. This is our first earnings call as a public traded company. Yesterday, we issued a press release announcing unaudited financial results for the 3 months ended December 31, 2020. We encourage everyone to read this press release as well as Gracell's Form 20-F for the year-end December 31, 2020, which will be filed with the SEC by April 30, 2021. There is a slide presentation accompanying today's call. This slide presentation and the fourth quarter earnings release can be accessed on the Investor Relations section of Gracell's website at gracellbio.com. I would like to remind you that this call is being recorded for replay.

[Dr. William Cao:]

Thank you, Kevin, and again, welcome, everyone, to our Fourth Quarter Earnings Conference Call. For those of you that are new to Gracell's story, we are a global clinical stage biopharmaceutical company dedicated to discovering and developing breakthrough CAR-T cell therapies. CAR-T cells can be classified in two groups

[Dr. Martina Sersch:]

Thank you, William. As mentioned before, Gracell is developing a rich clinical stage pipeline of multiple autologous and allogeneic product candidates for the treatment of cancer. We partner with renowned hospitals in China where investigator-initiated trials are conducted with several of our pipeline assets. Our lead program is a multiple myeloma BCMA/CD19 dual-targeting CAR-T product, GC012F, which has a highly differentiated design and is manufactured using the FasTCAR platform. We presented data for patients with relapsed/refractory multiple myeloma at ASH 2020, and we are continuing to developing GC012F, expanding to other indications and lines of therapy. We are planning on submitting an IND application in both the U.S. and China in the first half of 2022. We are also applying the FasTCAR platform to other indications, including, but not limited to, C-ALL and C-MHL. Based on our strategy to advance first-in-class products, we are currently assessing our targeted platform to serve the best candidate for BNHL.

[Kevin Xie:]

Thank you, Martina. Let's continue with Slide 22. Strong capabilities in CAR-T cell manufacturing are critical components for both our clinical development and future commercialization as CAR-T cell therapies are complex and, in the case of autologous therapy, highly personalized. Now we control our manufacturing through our GMP-compliant manufacturer facility in Suzhou and the process development center in Shanghai, which will enable us to be self-sufficient in the production of CAR-T cells for clinical development and early-stage commercialization in China. In the U.S., we will work with a well-known CDMO with whom we are in the last stages of finalizing the contracts. Currently, our U.S. operations have started with finance and clinical coordination. We're also planning to establish our R&D facilities in the U.S. Turning to our financials on Slide 23. I would like to touch on a few financial trends for the fourth quarter and the fiscal year 2020. The fourth quarter ended December 31, 2020, R&D expenses were RMB 60.7 million or USD 9.3 million, as compared to RMB 38 million in the prior period. This increase was driven by increased spending to advance our preclinical and clinical programs as well as higher depreciation costs related to our expanded manufacturing facilities. Now let's focus on the results for the full year 2020 versus 2019. For the full year 2020, R&D expenses were RMB 168.8 million or USD 25.9 million compared to RMB 119.2 million for the full year 2019. This increase was due to increases in manufacturing and other costs to support the progress of our preclinical studies and clinical trials, higher personnel expenses related to the expanded R&D head count and increased depreciation expense 4 of manufacturing facilities. Net loss attributable to ordinary shareholders for the year was RMB 274.6 million or USD 42.1 million compared to RMB 200.9 million in 2019. As of December 31, 2020, we had RMB 773.1 million or USD 118.5 million in cash and cash equivalents and short-term investments. In early January, as we mentioned, Gracell completed an IPO on the asset of 11 million American depository shares, each representing 5 ordinary shares at a public offering price of $19 per ADS. With the full exercise of the over-allotment provision by the underwriters, the company realized net proceeds of approximately $220 million. As of January 31, our cash level is approximately 338 million. So the company is well financed. We expect our cash use to be approximately 120 million for the year of 2021 primarily to fund our R&D programs in the U.S. and China and expansion of our GMP manufacturer facilities in Suzhou. Following this recent business accomplishments, the Gracell team is energized as we work towards accomplishing our operational goals for 2021. Looking ahead, we have many upcoming targets, as we show on Slide 24, to develop our R&D programs and expand our operations in China and in the U.S. We have just recently received IND approval in China for GC012F our FasTCAR enabled CAR-T therapy for the treatment of B-ALL. So now we have 2 IND studies open in China. Our teams are working aggressively to prepare for the IND applications in the U.S. and China for GC012F for the treatment of multiple myeloma with the immediate next step being to announce the U.S. CDMO we will be partnering with. Also, we will continue providing clinical program updates, including longer follow-up at various medical conferences, including an update at AACR on GC027. Furthermore, we're supporting our clinical operations by expanding our GMP manufacturing facility in China and establishing R&D facilities in the U.S. We see these important operational targets will enhance Gracell sales effort to advance its clinical pipeline. With that, I'd like to turn it back to the operator to open the session for your questions. Operator?

[Operator:]

Our first question today comes from Mohit Bansal of Citigroup.

[Mohit Bansal:]

And congrats on all the progress. So maybe one question regarding the IND for 12F. So in terms of the steps from now to filing the IND, could you help us understand -- so you mentioned that U.S. CDMO selection is one step. But could you help us understand what other IND work that would be needed even after you select the U.S. CDMO? And also, in terms of your talks with the FDA regarding starting a trial in high-risk versus standard patients, could you just talk a little bit about the flavor of that discussion how do you plan to discuss with the FDA?

[Dr. William Cao:]

Dr. Sersch?

[Dr. Martina Sersch:]

Yes. Thank you, Mohit. Great questions. So as we already kind of talked about, we have to perform the tech transfer after we sign a contract with the CDMO, and we are planning on conducting several -- probably several interactions with regulatory agency, FDA and in China to proceed and get insights from them based on their recommendations. And we are not basically, at this point in time, giving out information on our clinical plans. And that is to your question about high-risk versus all-comers, et cetera, et cetera. Those discussions are still confidential.

[Operator:]

The next question comes from Kelly Shi of Jefferies.

[Kelly Shi:]

And congrats for the great IPO and also the pipeline progress. So I have a question regarding the data events over in this year. Could you help us with that expectation on -- like what are the details you can provide regarding the patient number and a follow-up for both GC012F and also GC027?

[Dr. William Cao:]

I think Martina take that one

[Dr. Martina Sersch:]

Sure. Thank you. So you will be seeing data at AACR so that we can say we have been accepted for poster presentation at AACR. That is for 027, and that data will be long-term follow-up. As you may remember, we presented last year's data with a cutoff of February 2020. So now you have 1 year longer follow-up for those patients we have treated. In regards to 12F, we are also planning on presenting different time line updates during the course of this year. So you will be seeing data at least one of the center's conferences during 2021 and, following longer-term follow-up, respective to time line updates.

[Kelly Shi:]

Great. And I also have a follow-up. I just want to dig a little bit deeper into details for the GC012F assume next key data update would be in 12 months, follow-up on the duration readout. Just curious about your take regarding any difference, you say, of the treatment paradigm for multiple myeloma patients in China. And what do you think that will be the impact on the duration? When are we trying to compare to competitors' trial running in the U.S.? And also, what is the impact of high-risk patients? I mean do you have a large proportion enrolled on our trial? And what would be the expected on the duration from that perspective?

[Dr. Martina Sersch:]

Yes. Just one clarification. So the longer 1 year 12 months is based on the data cutoff for 027. That was February last year. So submission to AACR was in January. That is that 12 months. For 012F, we will be providing updates based on availability of that data. And what we can say now is that all patients that we would report on will have passed at least the 6-month follow-up landmark. Now as you may remember, this is always dependent on the submission time line for those conferences. So obviously, a time line presentation only makes sense if the patients have passed that time line, and then we can report on all of the patients we have treated to get the full picture. Now about the expectation for high-risk patients, I just also want to caution us that we must be reasonable. 6 months in the life of a high-risk patient who is relapsed and/or refractory with many prior lines of therapy, having seen basically all the standard of care that is available is already a very long time, even though it may not sound like it. Usually, those patients relapse very soon after treatment, and that could already be after 2 or 3 months. So having seen those patients what we already presented passing the 6 months and maintaining their stringent complete negative response is already very long time. The expectations for the 12 months, again, for high-risk patients will be different as compared to regular risk patient. And that is due to the fact that those patients exhibit certain marks of their disease that make them progress very fast. And that is true, just to give you another example, in frontline setting, patients do relapse often within 1 year. And that is in a frontline setting where high-risk patients have not seen any therapy. So usually, those patients have a very long and durable response, but not the high-risk ones. So I just want to caution about the expectation and the comparability of our data, and high-risk patients should not be compared with data on regular patients.

[Operator:]

The next question is from Tyler Van Buren of Piper Sandler.

[Tyler Van Buren:]

I have 3 questions for clarification. I guess the first one is for 12F, do you guys still plan to start the frontline study cohort in China? And then the second one is with respect to just kind of pipeline prioritization. I see that 19F is listed but not 7F. So it seems like you guys might have decided on 19F. Just curious to get any color there. And then the third one is on GC008E for ovarian and breast. Clearly, very interesting indications being solid tumors. Can you just provide a little bit more background on that program as well?

[Dr. William Cao:]

I think Dr. Sersch will address the first two questions, I'll take the third question.

[Dr. Martina Sersch:]

Yes. Sure. So absolutely, we are still actually in the planning stages for our frontline protocols, which we will have more than one, and we are really excited about that. As we discussed in prior meetings, CAR-T may play a major role for frontline patients in different settings. And based on the other questions kind of on the solid tumor part, I would, I guess, take it over to William, who will respond to the preclinical questions here. This is still in the preclinical stages. And for 7F and the prioritization, so we would like to focus on dual CAR, dual FasTCAR. There is a huge gap, as we can see. The single CAR, they do have activity. However, the activity is, in many instances, not good enough. So we are hoping with dual targeting to increase that activity and provide even better responses and longer duration of responses for the divisions. William?

[Dr. William Cao:]

Yes. Regarding the GC008E for solid tumor, that is early pipeline and the timing to enter clinical IITs later this year. So we are still in a vigorous process of in vitro and in vivo testing. The animal model just started. So we do not expect any significant data coming out in the coming months, but hopefully, we have some readouts in this year, for sure.

[Tyler Van Buren:]

Are you able to say what target that is? Or are you guys not disclosing that yet?

[Dr. William Cao:]

Not yet.

[Operator:]

The next question is from Nick Abbott of Wells Fargo. .

[Unidentified Analyst:]

The first one is on the definition of high-risk patients, myeloma patients. So Martina, do you think these criteria have regulatory relevance with respect to patient selection for a clinical trial?

[Dr. Martina Sersch:]

So that's a very good question. Actually, from my prior work-life and experience with regulatory interactions, they do. FDA looks at the small criteria. However, we may choose to use different criteria for frontline study, and that may be based on -- cytogenetic risk and ISS stage.

[Unidentified Analyst:]

And then the frontline trials that you are proposing to conduct in China, do you think those patients could contribute to a U.S. label, I mean, like a more of a global strategy in frontline disease?

[Dr. Martina Sersch:]

So the way we think about it, these are proof-of-concept studies is really important for, I would say, the community to understand about the efficacy and frontline setting as we do believe this will be highly efficacious, and patients may need that really deep response early on to then even provide more benefit and longer benefit later on. However, these are concepts. So we went back to show this. Using patient data for international approvals requires, however, more steps. And one of the steps is the manufacturing processes need to be transferred and then compared, which is one of the steps we are taking now while we are providing all the data of the tech transport to regulatory agencies to accept that data. However, the outcome, of course, we can't say anything at this point in time but is the.

[Unidentified Analyst:]

So I think that answers my next question, which is, I can understand why U.S. IND would be delayed for 12F because of the tech transfer and just all the steps that have to go through, but I was surprised that China IND was delayed. So is that because you want to ensure comparability between products made in the U.S. and China facilities?

[Dr. Martina Sersch:]

There's several reasons. One of the reasons is that we would like to use the patient data we generate with the product for the regulatory filings. In China, as you may know, some of the processes take a lot longer just nearly from a time line perspective, and that is not even a delay. It's just basically the way and faster. One of the hopes we have is the outlook for the overall time line for us has not changed. We see, at this point in time, there are gaps, meaning there is no other studies ongoing in CAR-T in relapsed/refractory. So there's a lot of patients waiting for therapy. We believe enrollment will be very fast. And what we do now in preparation for it is extremely important. So we don't have any gaps or delays later on, which then will be having more impact than doing the ride from the get-go.

[Unidentified Analyst:]

Okay. And so can you just elaborate on use of -- I think you said shared use of patient data? Sorry, can you just elaborate on that, please?

[Dr. Martina Sersch:]

So basically, the use of the patient data usually is allowed for safety, for example. So as you may know, the regulatory guideline is you have to conduct Phase I, II , in some instances, if you need a randomized study Phase III study, really important are the first steps, and that is safety. To establish safety is really -- it's the longest process because that study can only enroll if it's an IND study, patients one by one with an adequate observation period. Now if we have adequate safety information already available, this may help us having a faster seamless design possible in China and in the United States. As we have shown for 7g while we did have an IIT study and data available, which we presented to the regulatory agency, and they were amenable of allowing us to have a registrational study from the get-go, combining a short abbreviated Phase I part with the Phase II part, so that is the plan as well now for our regulatory interactions in the U.S. and China for the other compounds and products.

[Unidentified Analyst:]

Terrific. A very interesting and aggressive strategy. And then last one for me. Can you comment on -- you have all these IITs lined up for the new products. I guess, maybe my question doesn't make as much sense in the context of your last comment, Martina, but is there a time -- a general time line between the IIT and the IND? However, I guess, if you want to use the IIT data to help you with the leapfrogs and steps in the IND, maybe that's not as relevant to the question.

[Dr. Martina Sersch:]

So you are asking about a gap time between the IIT or how the IIT then goes over without any gap?

[Unidentified Analyst:]

Well, originally, I was thinking you do the IIT and then next month later, you would file an IND, and I wondered if there was an acceleration of that time line, as the company gets more experience making products and has more facilities. But it sounds like you're using the IIT really to help sort of bridge over to the IND so that when you file the IND, you can start, like you said earlier, a short Phase II into a registration trial as opposed to starting a classic Phase I dose escalation trial.

[Dr. Martina Sersch:]

Yes, exactly. So if you think about it, we already learn a lot the IIT study, which otherwise, you only learn after you start the Phase I study after the IND. So we already -- when we file our IND know the drug has efficacy, and we kind of understand the preliminary safety profile. That, by itself, abbreviates the process because we can go in even with the manufacturing process being finalized because now we don't need to wait as some companies do a Phase II or Phase III to finalize their manufacturing process, which then takes longer and may lead to delays later on as regulatory agencies do not like particularly changing manufacturing during the phases of development. So that gives us a unique advantage here going in right away with the finalized manufacturing. And that is also the discussions then, of course, that are very critical for us. And that is why we decided for other complexity to now file the IND in the first half of 2022.

[Kevin Xie:]

Yes. Let me just add one small point here for the significance of and all these points well spoken. One minor point, but sometimes could be very important, because our product design is mostly a first human and the risk profile and perhaps also CMC could be at early stage to have finalized the version, so during the IIT, we would have opportunity to patch up and to do compatibility studies if we need to. So that's sort of additional dimensional benefits.

[Operator:]

There are no additional questions at this time. I would like to turn the call back to Dr. William Cao for closing remarks. .

[Dr. William Cao:]

Thank you again to everyone for joining us on the call. The Gracell team is very proud of what we have accomplished in the 3.5 years since our funding. We have rapidly expanded our teams in China and in the U.S. with exceptional talents. We have advanced many clinical programs and de-risked others through clinical investigator-initiated trials in China while also expanding our manufacturing facilities to support our extensive pipeline. We look forward to the continued advancement of our clinical programs, and we'll keep everyone updated along the way. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's presentation. Thank you once again for your participation. You may now disconnect.