Inovio Pharmaceuticals, Inc.
Q4 2015 Earnings Call Transcript

Published: 14 Mar 2016

[Operator:]

Greetings and welcome to the Inovio Fourth Quarter and Year-End 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session with analysts with research coverage on Inovio will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bernie Hertel, Vice President, Investor Relations and Communications for Inovio. Thank you, Mr. Hertel. You may begin.

[Bernie Hertel:]

Thank you. Good morning, ladies and gentlemen. Thank you for joining Inovio’s call today. Today’s call may contain certain forward-looking statements relating to our business, including our plans to develop DNA immunotherapies and electroporation-based delivery technologies, products and product candidates, as well as our capital resources. All of which involves certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. Description of these risks can be found in the latest SEC disclosure documents and recent press release. These statements speak only as of today’s date and we undertake no duty to update or revise them. Presenting today are Dr. J. Joseph Kim, Inovio’s President and CEO; and Peter Kies, our CFO. I will now pass the call over to Joseph.

[Joseph Kim:]

Good morning, everyone. With our review of 2015 and a look ahead at 2016, you’ll see that we are executing on our strategies with multiple milestones coming to fruition this year. We think we are in an enviable position among development-stage biotech companies. We have the cash, the products, the positive data, and the passion to deliver on our commitment to shareholders, regulators and patients with six major steps forward this year. While it is most pertinent to look ahead, we have had an outstanding year of accomplishing many things over the past 12 months. Let me give you a brief review of 2015. Our highlights for the year were

[Peter Kies:]

Thank you, Joseph. Year over year, our fourth quarter revenue increased from $2.5 million in 2014 to $5.9 million in 2015. Revenue for the comparative years increased from $10.5 million to $40.6 million. The increases in revenue were primarily due to the development payments from our DARPA Ebola grant and $16 million of revenue recognized from the MedImmune upfront payment for our partnership. Accounting recognition of the remainder of the $27.5 million upfront payment has been deferred and will be triggered by future events. Total operating expenses increased from $13.5 million to $20.5 million for the fourth quarter year over year and from $50 million to $74.9 million for the comparative year. These increases were related to greater R&D investments and our product development programs, as well as increased general and administrative expenses. As of December 31, 2015, cash and cash equivalents and short-term investments were $163 million compared to $93.6 million as of December 2014. This strong cash position will allow us to proactively advance our program without being compromised by the market storm we’ve all endured for the last year-and-a-half and provides funding for all of our key initiatives which we are committed. As of December 31, 2015, we had 72.2 million shares outstanding and 78.9 million shares fully diluted. You can view Inovio’s balance sheet and income statements in this morning’s earning release. Form-10 providing the complete 2015 financial report can be found on Inovio’s website under Investor Relations tab. Now, Joseph, back to you.

[Joseph Kim:]

Thank you, Peter. Inovio has well-defined strategy for product development, partnerships, and commercialization. I’ve told you today, how we are on track, executing on our strategies for the benefit of our shareholders, patients and employees. I’ll end by saying that this is an exciting time to be connected with tomorrow’s medicine. My feeling is that there is a growing wave of emerging breakthroughs in medical research, especially for cancer. Inovio is at the leading edge of this wave, pioneering the field of DNA immunotherapies and vaccine. As described earlier, we are taking bold steps this year to bring treatments and disease prevention where it non-exists. We look forward to reporting on these, the progress of these steps throughout this year. I thank you, our investors, for their support in 2015, and for placing your commitments next to ours in 2016, as we develop products to ease and end suffering for many and also create value for our shareholders. I am now ready to answer any questions. Thank you.

[Operator:]

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Charles Duncan with Piper Jaffray. Please proceed with your question.

[Charles Duncan:]

Good morning, Joe Kim, Bernie and Peter. Thanks for taking my question and congratulations on a good year of progress for your broadly applicable platform.

[Joseph Kim:]

Thank you.

[Charles Duncan:]

So, Joe, my first question is regarding the end-of-phase-II meeting that we you’re anticipating with FDA for 3100 for cervical pre-cancer. What do you think the focus of the meeting will be and expectations, if you will, regarding design - dosing and design of the phase III trial?

[Joseph Kim:]

Yes. So that question actually answers the first question or last part of your question. So basically we want to get to confirm of our protocol overall design as well as the specific endpoints that we have proposed. So all of the written packages into the FDA and we have a base step for this meeting. There will be ongoing discussions back and forth leading up to that meeting, which is set for early second quarter. And we expect to come out of this overall interaction and out of this meeting with the said IDO on the trial, protocol design, including the size, total sample size, as well as the endpoints. The current estimation of the sample-size currently is around 350 to 400 total patients. But we’ll have better refined tie-down information coming out of that meeting. And we look forward to starting the phase III studies a month or two or a quarter after that. So we are projecting the start of the phase III studies in the early third quarter of this year.

[Charles Duncan:]

Okay. That’s helpful, Joe. And, I guess, just correlated to that, do you still anticipate that the positive phase IIb that we saw on the last year is good in terms of informative of and design endpoints?

[Joseph Kim:]

Yes. Our positive phase II efficacy and phase III readouts from our phase IIb study, we are very encouraged by that and it’s a great step forward. We think we can build from that in phase III to get this product onto the market post-phase III. And the significance of our phase II data was validated with our publication of the results in the Lancet last fall. So, yes, we feel very strongly that our final phase III design and protocol will be very much similar to what we did in phase II, with some tweaks and refinements.

[Charles Duncan:]

Okay. That’s helpful. And then, my last question is on the early stage virus programs, you made a pretty impressive list of different VCs that you folks are involved with. And you have moved quickly. I guess, my question is, really which of those early stage programs are you most enthusiastic about in terms of first of all demonstrating the technical capabilities of your platform, but then, secondly, in terms of the commercial potential of the platform?

[Joseph Kim:]

So, I guess, a very nice question, Charles. I will say, Zika, because of the potential and the outspread outbreak of this new virus in the western hemisphere and the potential to hit the United States later this year has biggest commercial potential as well as the global health threat potential. As I said in the prepared statements, Inovio has shown that it can react the fastest by generating the vaccines faster as we operate. Getting through the animal efficacy data as soon as possible, and then we expect us to be in the human safety and immunogenicity study by the end of this year, if not, earlier. We are trying to get there as soon as possible. And then taking the MERS cases in example, we’ve gone from a validated animal testing data last summer to phase I clinical initiation in January of this year. So we’ve gone from bench to IND and human studies in about or less than 12 months. We are expecting to beat that with Zika, so we are very excited about that. And Zika isn’t our only for the first product of vaccine that we’re then preparing to combat Flaviviruses or viruses that are carried by these mosquitoes. So we have vaccine candidate for dengue. We have a published data on vaccine candidate for Chikungunya and we see in the future in a commercial path, maybe not this year, but going forward, where we should have a trivalent or quadrivalent combination vaccines to prevent infection against these mosquito-borne viruses that are impacting millions of people across the world today. So we think that has both global health as well as the commercial benefit potential for Inovio and its shareholders.

[Charles Duncan:]

That’s helpful, Joe. Just one last question regarding the Zika virus and potential impact on partner engagement particularly DARPA and Ebola, your DARPA collaboration for Ebola, I am wondering if you or Peter could remind us of the terms and the duration of the [indiscernible] and have you seen any change in terms of the partner engagement as a result of the emergence of Zika?

[Joseph Kim:]

So I will address it very quickly. With the $45 million contract to Inovio and our consortium partners, which include MedImmune and now with our David Weiner’s lab, it was $45 million split into two tranches, $13 million and - $25 million and $20 million or something like that. But that’s a last year exercise of the first option. So we have a four spending budget of $45 million between us and our partners is split into the vaccines as well as the dMAb for Ebola. And we have previous dMAb contract from DARPA for another $12 million and chain. So this has been substantial funding from DARPA. And I have to say DARPA has been one of the best agencies for us to work with including commercial partner. So I think that partnership has been very beneficial to Inovio. And I feel that DARPA probably you can speak for itself, but I think the relationship has been very positive mutually. Going forward for Zika is the one we have gotten into some funding discussions for Zika and MERS. And those discussions when they turn into actual agreements that we will update public as transparently as possible.

[Charles Duncan:]

Okay. Thank you for taking my questions.

[Joseph Kim:]

Thank you, Charles.

[Operator:]

Our next question comes from the line of Thomas Shrader with Stifel. Please proceed with your question.

[Thomas Shrader:]

Hi, good morning. Thanks for taking the questions. Return to what Charles was talking about, there is a size of the trial depend strongly on what you get an end point in reduction in cervical dysplasia versus resolution at cervical dysplasia without a big effect on trial size?

[Joseph Kim:]

Yes. So both of those as we call though initial primary end point for the phase II study was regression down with thin one, which is a low grade or normal. And we’ve done a Post-Hoc analysis where most of the responders were completely responders down to number of service closed. The result, the sample size with depends on that and we expect both of those end points to be a primary and secondary, it just depends which one is the primary and that will take actual size of the trial.

[Thomas Shrader:]

And the 350 was the assumption that would be reduction in grade rather than resolution?

[Joseph Kim:]

The 350 to 400 with our best guess based on that, yes, among others, yes.

[Thomas Shrader:]

And then, you think this would be the basis for accelerate approval and then we will have to follow with the longer trial showing reduction in development of cervical cancer or would this be for full approval? Do you have a sense of that yet?

[Joseph Kim:]

Yes. Those questions are what we are going to confirm with the FDA, so I would not want to front-run the FDA, but these are really good questions, Tom.

[Thomas Shrader:]

Okay. I don’t blame you for the fed, I guess.

[Joseph Kim:]

Good try.

[Thomas Shrader:]

The MedImmune collaboration will you have access to checkpoint inhibitor. Is there - can you pursue that for an infectious disease or is that cancer only collaboration?

[Joseph Kim:]

So I think, I can’t speak for MedImmune, but there are cases were I’ll think special in chronic infections where a checkpoint inhibitor that can shut down the viruses shielding effect. I could imagine inside Hepatitis B or HIV or other very major chronic infections could benefit from a checkpoint inhibitor therapy. We also need to caution and way that with potential tolerability and toxicity of these molecules. As you already know, no drugs are totally say for totally tolerable. So those are the things that owners of the checkpoint molecule should weight. What I can tell you is combining in cancer setting where you knock down the shield of the tumors with checkpoint inhibitor molecules and there are multiple molecules that Medie and others have in development not just PD-1, PD-L1. There are dozens of other molecules that these pharma companies have. Second shut down the shield of tumors and then really what we have shown the best at Inovio is to generate tumor-specific and antigen-specific killer T-Cell that traffic to these tumors and finish off the job, where checkpoint inhibitors start. So I think it’s a great one-two punch and we are looking very much forward to showing that with INO-3112 as well as INO-5400, both of which we’re starting combination therapies this year.

[Thomas Shrader:]

Okay. And then, one question on Zika, is Zika is complicated as dengue where you have multiple different sub types being different one type we make it. It makes more sensible to other types. Is Zika simpler of the antigens better known or is it again quite a complicated story?

[Joseph Kim:]

So my quick answer is, is the complicated story. Stronger answer is, than he has been study for last - extensively for last 20 years, but even much longer. Zika was discovered in 1947, in the Zika forest of Uganda that were the maintained from. And nobody gave a hoot for the last 60 years. That’s a tremendous - embarrassingly scarce of scientific or medical publications in the last 60 years on Zika. That’s being said, there is a lot of renewed interest and research being done. That’s just in the pathogenesis of Zika causing these birth defects and diambre [ph] and other problems of the nervous system, but the virus itself is being studied more extensively. And on top of that, I think there are some early research showing that actual co-infections with dengue or other Flavi or mosquito-borne viruses can impact the disease that’s called Zika infection. So, yes, I think we are not with this story. And unlike Ebola, which starts in a flare-up and dies down, I think the Zika is going to be with us specially in this hemisphere for the next several years.

[Thomas Shrader:]

Okay, great. Thanks a lot for the answer.

[Joseph Kim:]

Thank you, Tom.

[Operator:]

Our next question comes from the line of Jonathan Aschoff with Brean. Please proceed with you question.

[Jonathan Aschoff:]

Thanks. Good morning, guys.

[Joseph Kim:]

Good morning, Jonathan.

[Jonathan Aschoff:]

I was wondering, what’s been a change in incidence of since two, three if any over the past few years given it’s been 10 and seven years since Gardasil and Cervarix approvals?

[Joseph Kim:]

Yes. I don’t believe there is a huge drop off in the actual incident of since two, three in U.S. and Europe, especially with uses of Gardasil and so on. What I do expect over a long-term to see is a change in serotype from dominancy by 16 and 18 causing infections to other major serotypes that will come out because of the vaccine pressure. So I expect that those numbers not to change for indicator. So….

[Jonathan Aschoff:]

Okay. But you’d expect a similar amount of problem with non-16 and non-18, is it similar?

[Joseph Kim:]

Yes. So I’d expect of non-16 and 18 and become more important. Classically what KOLs had been saying is, 16 and 18 cause about 70% of all cancers and pre-cancers. I think that still remains to be more or less to, but that number is going to decrease and the other major sales types are going to come up. In obvious, already working on the second generation, just the way that Gardasil 9 replaced Gardasil at Merck for preventive vaccines, we expect to - it’s very easy to straight forward for us to add additional serotypes to our final vaccine combination, that’s now plasmid for us to add.

[Jonathan Aschoff:]

All right. Thanks. I was wondering what would be involved in taking a product with, say, which you’re already running through the trial with a needle delivery device, but you want to converted to delivery from whatever form of delivery device you determine in the future of the best needle-free device. What you would to do?

[Joseph Kim:]

First, typically, thank you asking that and typically it requires a bridging study if the product is already in the market. But those are all the conversations that we would have with regulators. And I just want to clarify, they buyback acquisition is not to replace CELLECTRA 5PSP device, which is our phase III and commercial device for immunotherapy products including VGX-3100, INO-3112, INO-1800, last two with NEVI and Roche respectively. So it’s really the high-end delivered, electroporation fully integrated automatic device. 5PSP is our commercial device, that’s what I call the corvette of electroporation system. Now what we think is important for and the other side of it MERS vaccinations like there is an outbreak as we see with Zika, and we want to those millions of people that’s going to require certain things. Number one, high tolerability, so we have developed a pain free or pain-less electroporation, surplus electroporation that doesn’t even penetrate the skin. But what good is to have a surface EP, when you still have to use a needle and syringe to deliver the vaccine. So that’s where our acquisition of Bioject comes in. They have developed a jet injection technology, where you pain-freely inject through propulsion of a jet to put the vaccine into the skin. And we’ve gotten a great set of data from research collaboration in animal model, and that’s why we decided to bring that in house. So that will allow us to have an automatic one button push, low disposable cost, because there’s no needle to buy or syringe to buy allowing us to setup for these mass vaccination global health positioning approach for our vaccine delivery. So we are greedy. We’ve got the high-end immunotherapy route path down. We feel very happy about where we are. We spent millions of dollars in building up the CELLECTRA 5PSP for immunotherapy product delivery. Now, we are going to spend, and we are in a great position to dominate pain-free skin needleless delivery of our DNA vaccines to treat things [ph] universal flu, RSV, Zika and others that we’ve been working for the last several years. So it opens up a huge avenue for our vaccine delivery, when we combine our surface EP plus jet delivery.

[Jonathan Aschoff:]

All right. Thanks, Joe. And just lastly, as for things, I mean, I can remember back TUGAIS [ph], SARS and avian flu, and then - I mean, everything through Zika. Will you maybe in the future restrict your efforts to viruses, let’s call it more like Zika and less towards those for which it’s easy to make an origin and set the commercial opportunities more or less, because it doesn’t seem to me that you need to demonstrate much more in a way of early indications of efficacy or demonstrate again a relatively rapid pace to vaccine development.

[Joseph Kim:]

So we feel like we have a platform that we can apply to have our case in needed to, which is to be the wall against these emerging infectious diseases. These are first responders like the New York City firemen and police, get out there and be the wall, protecting us from these scary and emerging diseases. But also, we think there are ways to do that with other people’s money. We’ve shown - we’ve gotten over a $130 million from NIH, DOD, DARPA and others in the past six years for these efforts and we expect to get more - as much as that or more going forward. So we can do that and there are commercial - and these are through biodefense stockpile program, through BARDA and others when it comes to MERS and Ebola. And there are other commercial - there is a huge potential in infectious disease targets for vaccines for these larger market potential diseases. So, yes, we’re going to focus - we have the potential and platform. We have the cash. As Peter mentioned, we ended the last - this year - in 2015 with $163 million. We can get always more grants and other funding from non-dilutive sources going forward. So we feel like we’re in a great position to take on any challenge that we may face. And we’re advancing our lead product into phase III, our Medie product into phase II. I think we are showing true fundamental advancements of our pipeline products up and down across our portfolio. So I feel very good about where we’re sitting right now. And looking forward to showing more advancements even with these infectious disease program including Ebola, MERS and Zika in this year.

[Jonathan Aschoff:]

And, Joe, thanks for that. I was just wondering at the end here, very quick, did you guys say how long your cash runway was or did I not I miss that?

[Joseph Kim:]

We haven’t strictly said. We expect the runway to cover us at least through to the end of 2018. So we have plenty of cash at this point.

[Jonathan Aschoff:]

Thank you.

[Joseph Kim:]

Great. Thanks.

[Operator:]

Our next question comes from the line of Jason McCarthy with Maxim. Please proceed with your question.

[Jason McCarthy:]

Hi, Joseph. Congratulations on all the progress. Thanks for taking the question. I want to go back to - if you don’t mind to the infectious diseases side in general. And when you’re talking about your dengue vaccine or the Ebola vaccine or now Zika or MERS, are you generating - I know that your vaccine approach generates robust CD8 T-cells which is good for killing virally infected cells. Can you talk about the antibody fighters that you’re generating, and if you’re going to potentially need a DNA based monoclonal like you’re making for Ebola to supplement for a T-cell generating vaccine?

[Joseph Kim:]

The quick answer is we tend to focus on the CD8 T-cells because that’s an arm of the immune responses that almost every other platform for immunotherapy and vaccines are poor at generating. So that’s a true differentiating factor Inovio’s immunotherapy for oncology as well as vaccines for IV. But I don’t want to under-stress our ability to generate antibody responses against these viral targets. So we do generate very high levels of binding and neutralizing antibodies against these targets. It’s really the one-two punch from the immune protection perspective, being able to generate very quickly the antibodies against these viral antigens and have the T-cells come - arise enough to clear all of the remaining. So I think we need to do a better job of showcasing the antibody generation out of our platform. But let me add to the other part of your question, which was the dMAb. dMAbs are different. dMAbs are strictly - these aren’t - we’re not using our own immune system to generate these monoclonal or induce it. It’s actually - it’s prepackaged into our DNA plasmids. It is full-length sequences for the monoclonal antibodies. So all we need is a bunch of cells in our body to make them. They become the factory for our monoclonal antibodies. Thereby, we can take out the middlemen like Merck and Amgen and so on, who manufacture these monoclonal antibodies in huge vats and chose cells that are either mammalian cells and have to worry about all the intricacies of manufacturing them safely and worrying about those folding of the monoclonals and so on. We cut through all of that. We let the patient, the person who the receives the dMAb, to make the level of monoclonals are sufficient to ameliorate or control the disease, whether they’re shutting down cancer cells or improving anti-inflammatory responses or neutralize viruses. So it’s a true game-changing paradigm-shifting technology. And that’s why DARPA who are really known to fund these rocket-launchers and things like that, that’s why they were intrigued by our technology, because this may be the only platform that can achieve that in a practical sense. And just in the last 18 months, or actually less than that, we’ve gone from designing the proof-of-concept vaccines or plasmid section, express monoclonals; now, we are consistently generating very high levels of blood-level monoclonal antibodies in animal then in these dMAbs shown to be functionally active. We publish so we can prepare against dengue challenge using a dMAb against dengue virus. And we’ll - as I said in the prepared remarks, we’re going to have up to maybe half-a-dozen publications that will come out in 2016, really showcasing the potential and the power of this dMAb approach and we expect to have multiple clinical studies next year or by end of this year which will start, where it could really flourish in 2017. So we got the great funding from DARPA and we’re using it to really advance our whole platform.

[Jason McCarthy:]

Okay. Great. And just a follow-up, given the size of the Zika virus outbreak and the Ebola outbreak, in an emergency setting, you guys - I mean, Inovio has the ability to single dose, which might be a tremendous advantage over somebody making a viral vector-based vaccine for any of these indications, would you agree with that or is that how you see the infectious disease?

[Joseph Kim:]

So Ebola is a different - slightly different story. I mean, there are relative viruses like Marburg and so on we can also combine into a single dose. Zika, I think, I mentioned this earlier, there are other viruses that spread similarly in the same area by mosquitoes like dengue, yellow fever and Chikungunya. Although chick-Vs and also Flavi, the comorbidity is very high. So, yeah, the difference between us in combining these different - into a trivalent or quadrivalent is as simple as of mixing bunch of plasmids together into single injection. Viral vectors, is highly more complicated. Several log some more difficulty. And we think that’s another advantage that we have with Inovio’s platform.

[Jason McCarthy:]

Great. Thanks. Looking forward to the phase III of VGX.

[Joseph Kim:]

Absolutely. Thank you, Jason.

[Operator:]

Our next question comes from the line Yi Chen with H.C. Wainwright. Please proceed with your question.

[Yi Chen:]

All right. Thank you for taking my question. I just wanted to…

[Joseph Kim:]

Hi.

[Yi Chen:]

Hi, currently there is no plan to use the Bioject technology in the VGX-3100 program, right?

[Joseph Kim:]

Correct, yes, that’s - preventive indications going forward. Go ahead.

[Yi Chen:]

So when do we expect to see the utilization of Bioject technology in the preventive vaccines in terms of clinical trials?

[Joseph Kim:]

So I would say they would take at least a year-and-a-half, two years to fully integrate that into our pat. In the meantime, in a fully integrated capacity, in the meantime, we will do a lot of development work. And second, we use the [think early] [ph] in sequentially that could be earlier than that. So, yeah, I mean, it really depends on what the outbreak needs are. We are fully prepared to go step by step, but also accelerate as the market needs to come up here. But - it takes about two years to build a fully integrated system that gets fully tested and vetted, just like CELLECTRA 5PSP. These things don’t just appear like a genie in a magic. It takes a lot of - thousands of man-hours and millions of dollars to prepare. No matter how much money you throw in, there are certain things that testing and so on that occurs. So I think sometimes people will lose sight of how long some of these things take. But, yeah, I mean, we have this underlying technology that’s going to make our skin delivery, the preventive vaccine application of our vaccines much more advantageous, easier to deliver and I would say, I will project more efficacious in the field. And I’m very excited about bringing this technology in the folds of Inovio. You may ask also - if the Bioject technology is so great, why are we able to acquire that. Well, it’s because as a standalone technology, it really was providing a service to a need that didn’t exist. But in our hands with Inovio’s surface EP, it becomes a very integral portion of the solution that we can provide with SEP plus jet we can provide this very important mass vaccination capabilities to DNA vaccines which was lacking. So I think it’s very similar to different acquisitions we’ve done as a corporation in the past. So it really is a win-win going forward for us.

[Yi Chen:]

Okay. Thank you very much.

[Joseph Kim:]

Thank you.

[Operator:]

We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

[Joseph Kim:]

Yes, I think the analysts asked really great questions. I would just stress here, Inovio has the cash. Inovio has the partnerships. Inovio has the technology over 1,000 patents now protecting our assets. We have all these exciting key programs coming through in 2016 and beyond. And we have lot of catalysts that will drive the market interest. So please stay tuned. And we look forward to executing on all of these things including our phase III going forward. So thank you very much.

[Operator:]

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.