Synlogic, Inc.
Q4 2018 Earnings Call Transcript

Published: 12 Mar 2019

[Operator:]

Good morning. Welcome to Synlogic's Fourth Quarter and Full-year 2018 Conference Call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session at the end of this call. Please be advised that this call is being recorded. I would now like to turn the call over to Dr. Elizabeth Wolffe, Head of Investor Relations and Corporate Communications. Please proceed.

[Elizabeth Wolffe:]

Thank you, Michelle. Good morning and thanks for joining us on today's conference call. Earlier this morning, we issued a press release which outlines our fourth quarter and full-year 2018 financial results and several other topics that we plan to discuss today. The release is available on the Investor section of our website. Joining me on this call are Aoife Brennan, President and Chief Executive Officer, and Todd Shegog, Chief Financial Officer. Aoife will provide a brief outline of our recent progress, Todd will summarize our financial results for the quarter and the full-year for 2018 and, finally, Aoife will cover our upcoming milestones. Following our prepared remarks, we'll open up the call for questions. As we begin, I'd like to remind everyone that comments from today may include forward-looking statements made under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made as of the date hereof and are subject to numerous factors, assumptions, risks and uncertainties which will change over time. Actual results could differ materially from those contained in any forward-looking statements as a result of various factors, including those described under the heading forward-looking statements in Synlogic's press release from earlier today or under the heading risk factors in Synlogic's most recent Form 10-K or in later filings with the SEC. Synlogic cautions you not to place undue reliance on any forward-looking statements. Now, I'd like to turn the call over to Aoife.

[Aoife Brennan:]

Thanks, Liz. Good morning, everyone, and thank you for joining us on our first quarterly update call of 2019 where we will be discussing our financial results, progress in 2018 and what's shaping up to be a big year for Synlogic in 2019. At Synlogic, our mission is to design for life, to rationally engineer living medicines that have potential to dramatically change the life of patients. We're developing a novel class of living medicines using synthetic biology to engineer non-pathogenic bacteria to perform therapeutic functions that may be missing or impaired in a patient. There is a growing appreciation that there are notable advantages to living medicines, which can act catalytically like little bioreactors. And in the case of Synthetic Biotic medicines can be programed with more than one therapeutic function. We believe that there are many patients today with diseases for which there are no or inadequate treatments. This may be because the disease biology is too complex to be addressed with a single molecule. These diseases provide opportunities that may be uniquely addressed by our cellular therapies, programed for efficacy and control, allowing us to fulfill our mission of making a difference in patients' lives. While we believe that the opportunities for our platform are very broad, we're focused near turn in two areas of biology, namely metabolic diseases and immunomodulation. Our initial strategy has been to select internal programs for which there is well validated biology that provide us with a clear idea of the metabolic function that we need to engineer into the bacteria in order to have a therapeutic effect. We work with a nonpathogenic strain called E. coli Nissle that is well understood, readily engineerable and grows quickly. We use a core principle of synthetic biology in the development of our Synthetic Biotic medicine, a concept known as design-build-test. This is an approach in which we rapidly create and test rationally designed strain and then iterate on them to optimize their activity and potency. Our platform is incredibly plastic. We can rapidly engineer candidates strains and have created over 40 strains that have different functionality in vitro. From a platform perspective, we have recently been focusing on two areas to realize the therapeutic potential of our Synthetic Biotic medicines. The first is predictive pharmacology. We need to be able to predict activity at the site of action in humans by developing pre-chemical model systems that we can continue to validate and optimize as we learn more in the clinic. Secondly, we focus on learning how to optimize the activity of our strains in vivo. To achieve this second platform objective, we have ongoing collaborations to evaluate complementary technologies that may help us to improve strain activity. Our collaboration with Ginkgo Bioworks leverages their massively parallel approach to screening genetic constructs. We have also recently initiated a collaboration with a technology company called enEvolv to evaluate the use of a directed evolution approach. I'm not going to go into much details about this now. However, this is part of our continued development of the platform and particularly important as we learn from our initial programs and establish activity parameters and standards for the advancement of additional Synthetic Biotic medicine into our pipeline. We made a decision to take our technology into clinical trials and into patients as rapidly as possible in our first design-build-test cycle. We wanted to confirm that this approach was safe, that our engineered bacteria were doing what they were programmed to do in the human body, and to gain a better understanding of the predictive value of our pre-clinical model systems and how they translate to the clinical experience. In addition, we're also learning the platform strength and what's the sweet spot for our technology by prosecuting programs that are active in different parts of the body – small intestine, colon and tumor. In tandem, we've been developing, manufacturing an appropriate formulation processes and capabilities. I'm very pleased to share that the last year has been a period of significant progress and learning for Synlogic regarding the safety and translation of our lead programs, manufacturing and platform positioning. In summary, we've completed and reported data from clinical trials in healthy volunteers of two of our orally administered Synthetic Biotic medicine – SYNB1020 to address hyperammonemia and SYNB1618 for phenylketonuria or PKU. We have demonstrated that both are safe [indiscernible] GI tract on set patient of dosing and are performing the function they were designed to perform. We're currently evaluating both strains in patients and expect that the data that we will obtain for each sometime in the middle of this year will provide important information for further development of these program that I will discuss later as well as valuable input on how we select, design and build the next set of clinical programs. We've published supporting preclinical data from both programs in high-impact journals. More recently, data from our SYNB1020 program that included preclinical data and data from our Phase I healthy volunteer study were published in Science Translational Medicine. As we explore building strains for immunomodulation in our AbbVie collaboration, it became evident that there were opportunities for our Synthetic Biotic platform in cancer immunotherapy. Late last year, we announced the selection of our first immune-oncology candidate SYNB1891, a strain designed to have multiple effects on the immune system in the tumor based on properties of our chassis and a circuit designed to express its STING agonist. Our approach is to use inter-tumoral administration to understand safety and the potential of our Synthetic Biotic approach in IO. SYNB1891 is currently in IND-enabling studies with the goal of filing an IND in the second half of 2019. We're on track to meet that goal and expect to have more details to share around the development path for that program on future calls. As I mentioned earlier, we've been investing in process development in parallel with our ongoing clinical work and, last year, announced an agreement that provided a cost effective solution that enabled us to expand manufacturing capabilities and allow in-house manufacturing of liquid and solid forms of our drugs for early and mid-stage clinical trials. This is game changing for us as we advance into our next stage of clinical testing as it maximizes our ability to move quickly and with our own developers running the process with a higher degree of confidence in the product. We began our clinical testing with the liquid formulation of our bacteria. However, going forward, all studies of our orally-administered therapy will use a solid formulation which is more patient friendly and one that could be developed for commercialization. An important part of our investment is the hiring of Head of Technical Operations, Tony Awad. Tony had an immediate impact on the organization based on his experience at process development, manufacturing and regulatory affairs. He has built out the GMP manufacturing team and they're already operating in our cleanroom suite. On a similar note, we added a new member to our Board of Directors, Dr. Patricia Hurter, Senior Vice President of Pharmaceutical and Preclinical Sciences at Vertex Pharmaceutical. Trish is a well-recognized innovator in the area of product development and manufacturing and has successfully led the development to several high-impact medicines that have required paradigm-changing approaches in pharmaceutical science. We're looking forward to benefiting from her pioneering spirit and [indiscernible]. Before I provide more detail on our expectations for each of our two clinical trials that we'll readout later this year, let me hand over to Todd who will briefly summarize our financial results for the fourth quarter and full year of 2018. Todd?

[Todd Shegog:]

Great. Thank you, Aoife. And good morning, everyone. As you know, earlier today, we released our financial results for the fourth quarter and full year ended December 31, 2018. And I'm pleased to review the highlights of those results with you now. Revenue was $0.1 million for the fourth quarter of 2018 and the same for the same period in 2017. Revenue is associated with payments received for services performed under Synlogic's collaboration with AbbVie, to develop a Synthetic Biotic medicine for the treatment of IBD. Total operating expenses for the fourth quarter of 2018 were $12.8 million compared to $12.0 million for the same period in 2017. Research and development expenses were $8.9 million for the fourth quarter 2018 compared to $7.7 million for the corresponding period in 2017. The increase was primarily due to an increase in compensation-related expenses associated with our increased headcount and increases in expenses related the lease of our facility 301 Binney Street in Cambridge, which Synlogic occupied in January of 2018. General and administrative expenses for the fourth quarter ended December 31, 2018 were $4.0 million compared to $4.3 million for the corresponding period in 2017. The decrease was primarily due to decreases in professional fees, partially offset by increases in compensation-related expenses associated with increased headcount and increases in expenses related to the lease of Synlogic's facility at 301 Binney Street. For the fourth quarter ended December 31, 2018, Synlogic reported a consolidated net loss of $11.9 million or $ 0.47 per share compared to a net loss of $11.7 million or $0.74 per share for the corresponding period in 2017. For the full-year 2018, revenues were $2.5 million compared to $2.4 million for the same period in 2017. Total operating expenses were $53.8 million in 2018 compared to $43.3 million in 2017, with the increase primarily attributed to compensation-related expenses associated with increased headcount, increased expenses related to the lease of Synlogic's facility at 301 Binney Street and increased external costs associated with the development of Synlogic's Synthetic Biotic programs. The net loss for the full year of 2018 was $48.4 million or $2.03 per share compared to a net loss of $40.4 million or $6.00 per share for 2017. Turning to the balance sheet, Synlogic ended the fourth quarter of 2018 with $122.7 million in cash, cash equivalents and short-term investments. This number does not include the payment from AbbVie that was triggered as a result of a milestone that we announced just last week. I'm pleased to say that Synlogic is in a solid financial position as we begin 2019, with cash that will take us through 2020 under the current plans. We look forward to an exciting and busy year ahead as we continue to advance our pipeline of Synthetic Biotic medicine. Thank you. I will now the turn call back over to Aoife.

[Aoife Brennan:]

Thank you, Todd. 2019 will be a year of significant progress for the company, with patient data from two metabolic disease programs in mid-2019, as well as our immunomodulation programs, our IO program advancing towards the clinic and continued advancement of our IBD program in collaboration with AbbVie. As I mentioned earlier, lessons learned from our lead programs allow us to iterate on our platform in terms of advancing platform capability and rationally designing our next wave of Synthetic Biotic medicines. Now, I'd like to take this opportunity to briefly run through the type of data that you can expect from the two clinical studies that we'll readout later this year and how these data will inform our plans and pipeline. First, let me outline the SYNB1020 study. We are evaluating SYNB1020 in patient with cirrhosis and elevated blood ammonia level, who have not yet been hospitalized with a crisis. This strain was designed to consume ammonia which, when elevated in the blood, contributes to cognitive impairment and crisis. The primary endpoint of the study are safety and tolerability and we began, at the FDA's request, by treating extensional cohort of six patients with mild liver damage to ensure that SYNB1020 was well tolerated in this population which often has impaired gut barrier function and is susceptible to infections. The data were assessed by a safety committee and we proceeded with our planned, randomized, placebo-controlled, double-blind study. In addition to safety and tolerability, we're also evaluating the effect of SYNB1020 treatment on blood ammonia levels. Knowing the variability of this measure, we've done a significant amount of work with each of the sites to ensure that they have a good baseline for normal blood ammonia and that the ammonia testing, which is done locally, is carried out rapidly on fresh samples. Patients also do not enter the six-day study unless they are determined to have elevated blood ammonia levels after a five-day run-in period of a standardized diet in an inpatient setting. We made certain assumptions about the variability of the ammonia measurement in the pairing of this study; and at an interim time point, we'll have having an independent observer assess the ammonia data and inform us if we had treated a sufficient number of subjects for the results to be informative. We are also evaluating a number of exploratory endpoints that are relevant to hepatic encephalopathy, including inflammatory markers and cognition. The question we want to answer is whether the strain's activity, which we demonstrated in the healthy volunteer trials, is sufficient to be clinically meaningful in patients. With ammonia-lowering data and other supportive outcomes in this population, which we expect to happen in the middle of this year, we will make a decision as to the development path for SYNB1020. We expect the top line data will be released by press release and that the full data set will be presented at an appropriate medical meeting. We look forward to updating you all later this year. Our second ongoing clinical trial is to evaluate SYNB1618, our Synthetic Biotic medicine for the treatment of PKU. This is an expansion of the study that we reported last year in healthy volunteers and is now evaluating SYNB1618 in a single dose and a multiple dose cohort in patients with disease. SYNB1618 was designed to consume phenylalanine, or Phe, which when elevated in the blood results in cognitive impairment. Again, this is a randomized, placebo-controlled, double-blind study and will provide us with important information regarding the activity of SYNB1618 in patients. Specifically, we will learn if and how the pharmacodynamics of this medicine differ in patients with PKU who have elevated Phe. Our 1618 strain has more sophisticated engineering than 1020 and we've engineered two mechanisms for consuming Phe into the bacteria. The first is a phenylalanine lyase gene that expresses an enzyme PAL and the second is L-aminoacid deaminase gene that expresses the enzyme LAAD. While those consume Phe, PAL is particularly useful because it consumes one molecule of Phe and leads to the production of an equivalent amount of the useful biomarker called trans-cinnamic acid or TCA. This biomarker can be detected in the serum and can be metabolized in the liver to produce hippuric acid which is excreted in the urine. Based on these biomarkers, we were able to determine that the strain was working as designed in healthy volunteers. In our current study, we will be looking at biomarkers for both enzymes in order to build an understanding of SYNB1618's impact on patient Phe levels. When we analyzed and presented data from our healthy volunteer cohorts in the study, we reported dose-dependent increases in TCA and hippuric acid from both a protein meal and a stable isotope tracer. However, we did not have a good assay for LAAD in vivo, and so could not confirm that it was contributing to Phe consumption. The LAAD enzyme product, phenylpyruvate, is difficult to measure and less useful as a biomarker as it can be converted into multiple different products, and so is not quantitative. In parallel with the execution of the clinical study, we've been working on developing an assay that will allow us to determine if LAAD is consuming Phe in humans. In addition, we've been working on quantitative models that allow us to determine the relationship between these biomarkers and the approvable endpoints in patients with PKU, which is Phe lowering. While we will, of course, measure Phe levels in patients in the current study, this is a small study, and so not powered to demonstrate a statistically significant Phe lowering. To answer that question, we expect to carry out a larger patient study in which subjects are evaluated over a longer period of time and do not have to be dosed in an inpatient setting. Our new manufacturing capabilities will also enable us to shift from a liquid formulation to a solid oral formulation for patients to use at home and we see potential for that to enable dosing in this next study. In summary, we will measure Phe in the ongoing Phase I/IIa study and we'll measure TCA, hippurate and LAAD metabolites with the goal of understanding how SYNB1618's activity in patients compares to its activity in healthy volunteers. We're on track to have data from this study midyear and I look forward to updating you. Again, we expect to release topline data in a press release and to provide a more detailed data set at an appropriate medical or scientific meeting later. In terms of our other milestones for 2019, in the second half of 2019, we expect to file an IND application for our first IO program, SYNB1891, a bacterial strain that expresses its STING agonist and will be intertumorly administered. Our expanded manufacturing capability allows us to manufacture clinical trial material for Phase I study inhouse. I look forward to providing more detail as to our clinical trial design on a future call. As you may have seen from our recent announcement, we've also made significant progress in our collaboration with AbbVie to develop Synthetic Biotic medicine to treat inflammatory bowel disease, which triggered a milestone payment to Synlogic. This collaboration has enabled us to broaden the reach of our platform in inflammatory and autoimmune conditions, while advancing our internal pipeline. AbbVie, who'll provide a depth of expertise in the biology of IBD, exemplified the type of partner that we would look for again to help us explore larger therapeutic areas. In this collaboration, we designed and evaluated Synthetic Biotic strains to address certain targets. The recent milestone was triggered per the agreement by advancing the program to a stage where, with AbbVie, we moved certain Synthetic Biotic strains into lead optimization. The collaboration has been a great learning experience for us, allowing us to explore other targets in immunomodulation – in fact, prompting our own IO program. again, I hope to share more details on our collaboration with AbbVie in future calls. As Todd outlined earlier, we ended 2018 with $123 million which puts us in a solid financial position to execute on all of our planned activities in 2019. In the year ahead, we believe that we will gain additional insights into the potential of our lead program to treat human disease and that this will greatly informe the promise of our platform across metabolic, immune and oncology indications and potentially enable us to realize our goal of significantly changing the lives of patients. We will be presenting at the following upcoming conference – Oppenheimer's Annual Healthcare Conference later this month and the Needham Annual Healthcare Conference in April. And we look forward to keeping you updated on our progress throughout 2019. I'd like to thank you all for joining us and will now open the call for questions. Michelle?

[Operator:]

Our first question comes from Yigal Nochomovitz of Citi. Your line is open.

[Samantha Semenkow:]

Hi. This is actually Samantha on for Yigal. Thanks for taking our questions. I wonder if you could tell us what are your expectations for the degree of ammonia reduction you think you could achieve in the cirrhosis patients based on your preclinical data and the data you've generated so far in healthy volunteers.

[Aoife Brennan:]

Great. So, I think the degree of ammonia lowering that we would like to see is really based less on our preclinical experience and more on our understanding of patients with hyperammonemia. So, the study was designed to enroll patients who have an elevated ammonia, above 1.2, the upper limit of normal. And based on prior studies that have been performed in this indication, we feel that an ammonia lowering of between 15% and 20% is likely to lead to decreased hospitalizations and other clinical endpoints later. So, it was really designed around those considerations rather than our preclinical animal models, most of which are little artificial in terms of predicting – in terms of predicting clinical disease. There are lots of important differences there. So, it was really based on prior clinical experience and information from other trials.

[Samantha Semenkow:]

Great. And you think that 15% to 20% can maybe – you mentioned translating into some clinical factors such as [indiscernible] inflammatory and cognition biomarkers. Are you able to tell us what some of those are?

[Aoife Brennan:]

Sure. So, just to be clear, there's two different presentations of elevated ammonia. There's the acute presentation where a patient presents to hospital with very elevated ammonia and it's kind of a crisis situation. Their ammonia can be very, very elevated. What we are targeting is actually the chronic and administration where we're intending to prevent those acute crises and to improve cognition and quality of life in patients chronically as opposed to the acute setting. And when we look at prior studies that has been performed in the chronic setting, what we see is that those patients have ammonia levels that are about 1 to 1.5 times the upper limit of normal and that interventions that decrease those chronic ammonia levels by 15% to 20% lead to improvement in performance on cognitive testing and to fewer subsequent hospitalizations. So, that's kind of how we've been thinking about this. Separate to ammonia, but very much related to the underlying pathophysiology of liver disease is we know that these patients have got barrier dysfunction and there's a lot of recent research into the role of the GI tract in the hyperammonemia and in liver disease more generally. Because we're using a bacteria-based strain, there's reason to suspect that we may actually be able to impact some of those other biologies in terms of improving systemic inflammation, improving gut barrier integrity and then improving cognition. So, the endpoints that are very exploratory, not powered, this is a very early phase study, we don't yet know what we're going to see on those endpoints, but we included them based on the evolving understanding of the pathophysiology of chronic liver disease. So, those will be the exploratory endpoints that we'll have when we look at the data. And we're not looking for statistical significance here. We're just looking for kind of arrows pointing in the same direction that makes sense based on our understanding of the pathophysiology of the disease. Does that make sense?

[Samantha Semenkow:]

Yes, thank you. Very helpful. And just one more, and maybe in general, is there any reason to believe, based on the disease biology between cirrhosis patients and PKU patients that either 1020 or 1618 could be likely to show a deeper response in reducing the targeted toxic metabolites respectively?

[Aoife Brennan:]

So, you're talking about patient segmentation. Is that your question? Is there subsets of patients with the disease for which our treatment may be more beneficial, is that your question?

[Samantha Semenkow:]

No. Just more broadly, which of the drugs broadly in each of the disease populations would be more likely to show a deeper response?

[Aoife Brennan:]

So, you're asking me to handicap the clinical programs? Yes, you're asking me to choose my favorite child. So, I think the rationale and the thinking behind why we selected the three programs that we're now moving forward into the clinic was because we felt that they were each with a beachhead in a different area of administration. So, for the PKU program, we require small intestinal activity. For the ammonia programs, our understanding is that it will require colonic activity because that's where most of the ammonia is produced. And then, the IO program will involve inter-tumoral activity of the bacteria. And we chose those three programs very strategically because they would really allow us to understand how our preclinical models can predict activity at that site of administration. As well as these programs have been very interesting in and of their own right, we also felt that it would allow us to identify kind of where is the low hanging fruit for this platform, where can we have more certainty of that preclinical strains as we move additional programs into the clinic. So, that was kind of the rationale for choosing each of those three areas. Each area of administration or theater of operation, if you will, has different pros and cons. And I think we'll learn a lot from these readouts in terms of kind of – that will inform the next wave of programs we take forward because, for sure, some routes of administration will be easier than others and we just need to identity kind of what those rules are to inform our next set of programs. So, I wouldn't say necessarily that one data set is stronger than another or that I'm going to give you odds around probability of success for each of the readouts that we have upcoming. But I think it is important to understand the strategy behind kind of choosing the three programs that we've chosen to move forward into development and how it informs subsequent pipeline decisions.

[Elizabeth Wolffe:]

I think we have a question coming from Mark…

[Operator:]

Our next question comes from Mark Breidenbach of Oppenheimer. Your line is open.

[Mark Breidenbach:]

Hey, good morning. Thanks for taking the questions. And I won't ask you to choose between your favorite children. But I am curious about basically the plans for assuming we see proof of concept in midyear for 1020 and/or 1618. I am wondering what you have in mind for what would be required in terms of repeating dose escalations and dose optimization as you transfer to the solid oral formulation.

[Aoife Brennan:]

Yeah. That's a great question. As you know, Mark, the current studies are being performed with the minus 80 liquids and we were very conscious, starting off, that that formulation, while being very useful and enabling a lot of learnings, would really not be suitable for outpatient dosing that would be required subsequently for more longer-term studies. So, we've been working a lot in the background in terms of coming up with an approach to bridging to kind of the next formulation. And this is no different than the procedure you would undergo if you were developing a biologic product where you're bridging to your next formulation as you go through developments. And I think our approach philosophically would be very similar. It starts off with analytic comparability where we've established a lot of assays now that assess the quality and the performance and the potency and the strength of our product and we look at our new process compared to our kind of old process side-by-side in those comparability studies. Then, if that looks good, we will go into in vivo preclinical testing. An advantage for us is that we do have the preclinical models that we can assess kind of new versus old process head to head. And then, depending on the magnitude of the changes between process one and process two, it may require chemical bridging where we would perform a Phase I study in healthy volunteers bridging to the new formulation depending on the magnitude of the change. So, very similar regulatory framework in our mind to what would be pursued for protein or any other type of biologic product where we'll be making process changes as we move forward in development. I think the important thing is to get close or to get to your commercial presentation before initiating pivotal studies, and that's certainly our plan. But it's likely that we will be doing some form of kind of bridging from one – first gen to second gen product and potentially even third gen product as we go through development as you would with any other program.

[Mark Breidenbach:]

That's helpful. And if I'm remembering correctly, the multiple dose cohort in the PKU trial, I thought you were previously targeting 20 patients for enrollment. Was this cohort resized or was it always 10 patients?

[Aoife Brennan:]

No, it was 10 to 20 initially and it's looking like there will be six active and four placebo. And so, it's kind of approximately 10 is what we're targeting. As you know, sometimes it's difficult to adjust the spigot immediately when patients are in the works and everything else. So, there may be a little bit of over enrollment depending on how we can – how closely we can manage the kind of end-of-enrollment period. But 10 would be expectation. But like all of our Phase I studies, we write the protocol with some flexibility, so that we don't have to amend the protocol if patients drop out or if we end up finding something where there is unanalyzable data for whatever reason. So, if you're following along on clinicaltrials.gov, you'll see that we have that kind of flexibility around numbers and baked into most of our protocols that are available on there.

[Mark Breidenbach:]

Got it, got it. okay. Well, congrats on the progress and thanks for taking my questions.

[Aoife Brennan:]

Thanks so much, Mark. Thanks for joining the call.

[Operator:]

Our next question comes from Ted Tenthoff of Piper Jaffray. Your line is open.

[Ted Tenthoff:]

Great. Thank you very much. And appreciate the question and all of the detail really in terms of outlining the studies and what to be expecting this summer. Super helpful. Question, if I may, on 1618. I'm trying to get a sense for what is required to really help these kids and these patients with respect to Phe lowering? Do you have a sense of sort of what the clinical threshold is or the efficacy threshold is? And, ultimately, do you see this being used in combination with other therapies maybe to alleviate the burden or kind of provide some flexibility in meals or just, ultimately, do you think could be a replacement product for PKU? And then, I have a real quick housekeeping for Todd. Thanks.

[Aoife Brennan:]

Yes. Great. And that's a great question. So, like every development program, often it's easier to come up with your target product profile, which is ideally what you want to do with the product which, in this case, we'd love to be able to allow patients to maintain Phe levels in their target range and to have an unrestricted diet. So, kind of knowing what that is. It's often easier. I think what's sometimes more difficult, particularly when it comes to rare diseases, is defining what's the kind of minimum threshold that really makes an impact to patients. And I think here, my personal philosophy is, we all have our biases, but often if you kind of ask the end user what's meaningful to you, you can get a really informed answer. And so, we've done a lot of work in ad boards with patient groups right from the very beginning of this development programs. I've been pretty astounded by the response that we've gotten from them in terms of small amounts of protein that really would be transformational in terms of their lives. So, most of these two and three-year-olds are taking 6 to 10 g of protein, which is basically what my kids would spill on their face and clothes when eating a meal. So, when you actually talk to these patients and find out how difficult their life is because they're managing on this knife edge, they've told us that doubling the amount of protein, particularly for small kids, if they're allowed to take, would be transformational for them. Obviously, there will be some regulatory back and forth about kind of what's appropriate from an approval and an efficacy perspective, but certainly there is big appetite from patients for interventions that really help them consume more protein while managing their Phe levels in target. So, we've been very much encouraged there. And, certainly, my assumptions were incorrect in terms of what's meaningful for patients. So, I think that's been very positive. On the other part of your question around combination with available or potential future products, we see this as very much complementary to currently available products. We know that a small proportion of patients, 20% to 30%, respond well to Kuvan. But even in responders, a lot of them haven't actually achieved target Phe levels. While they have a nice decrease, they're still not in the normal range. From a mechanistic perspective, there is no reason why our product would not be combined with Kuvan. Obviously, when we determined and started to study that and development will vary. Similarly, for other therapies that are early in development, we see that there is a lot of potential and synergy there. So, our aim is to develop this broadly across populations, broadly across severity of disease and to make a difference for the most patients that we possibly can as we go through development.

[Ted Tenthoff:]

Makes a tons of sense. Really exciting program. Todd, I want to make sure I get you involved. Just from the AbbVie collaboration, I don't believe it was disclosed what the amount was, but any guidance you can give us on the amount of the milestone and what is sort of the process towards getting the AbbVie compound into the clinic? Thanks a ton.

[Todd Shegog:]

Yeah. Certainly, Ted. So, later today, we'll release our 10-K and you'll see it noted in the subsequent events section that the milestone earned, which will be received in cash, is $2.5 million. So, that will be in the disclosure later today. The progress towards IND and to getting the product in the clinic is sort of a normal stepwise process of candidate selection, identification in partnership with AbbVie. As you know, that's the objective is to deliver an IND candidate that then they will take and develop in the clinic with our support.

[Ted Tenthoff:]

And then, last question if I may. How will that $2.5 million milestone be recognized? Will it be all within the quarter or will it be amortized? Thanks a lot.

[Todd Shegog:]

Yeah. Sure. It'll be allocated over the period of performance between when this milestone was earned and when we anticipate completing the next step in that process towards IND.

[Ted Tenthoff:]

Okay, cool. Awesome. Thank you.

[Operator:]

Our next question comes from Ram Selvaraju of H.C. Wainwright. Your line is open.

[Raghuram Selvaraju:]

Hi. Thanks very much for taking my questions and I also really appreciate the comprehensive detail here. First question is with respect to the hyperammonemia situation. If you could give us some additional color on what specifically you're going to be using to evaluate the cognition function in these patients and what you expect the likelihood of being able to detect an impact on cognition. Thank you.

[Aoife Brennan:]

Yeah. So, Ram, I think that's a great question. The tool that we're using in this study is called a pheS. It's basically a battery of performance tests where patients are asked to perform specific tasks and their timed in the performance of those tasks. It's been used pretty extensively in studies of HE. Based on the fact that this is a very early study, short duration of treatment, we included this as an endpoint in the current trial to really get experience with it at sites to understand the test, retest, and some of those other components that would be required to design a more definitive study later. So, pretty low expectations from me in terms of the outcome. I think if we see something interesting, that will be great. But what it really sets us up for is do at the next study, potentially designed around the cognition as an endpoint. So, we included this as exploratory. We're doing it as a way to kind of gather information. But no real expectation based on the duration of the study and the small sample size and the fact that we really don't have a lot of experience with this assessment tool at this stage. I think it truly is exploratory. So, hopefully, that answers your questions.

[Raghuram Selvaraju:]

No, that's very helpful. The other two questions I had regarding clinical development in the non-IO space were related to the PKU program. I was wondering whether since your last update there's been any further feedback from the FDA or any other regulatory agency regarding the clinical path forward in PKU, and in particular, what the scope of a potential pivotal study might be? And also, if you could comment on whether or not we can really say there's a linear relationship between therapeutic impact and hippurate production.

[Aoife Brennan:]

Yeah. So, to answer your first question, we don't disclose discussions with regulators. But as soon as we have agreement and we have identified a path forward, we'll certainly be sharing those plans with investors and others externally. In terms of the hippurate production, your question is around, is there a linear dose response. Certainly, in terms of the dose given and the HA production that we've seen in healthy volunteers, that appears to be the case. We've no reason to believe that the linearity would be different in patients with PKU. And as you know, we're only studying a single cohort now in the PKU patients really to answer the question of, at a given dose level and with the same study design, how different or similar are PKU patients compared to healthy volunteers. But we don't anticipate that the linear dose response relationship will be different in PKU patients That's based on our experience in the preclinical models. So, that's our assumption right now.

[Raghuram Selvaraju:]

Okay, great And then, just a couple other things. I was wondering if you believe that 1891 would be best studied in a particular kind of combination regimen context in formal clinical studies and when you expect you might have arrangements in place to actually conduct those trials because, obviously, those might involve doublet or triplet therapy combo regimens and drugs that are currently marketed by other companies? If you could give us some context on that please.

[Aoife Brennan:]

Yeah, as I mentioned earlier, I think we'll be aiming to provide an update on our chemical plan on a later call. Haven't gotten into details on it now. But what we have discussed previously, and similar to other early phase IO programs, the study that we would execute would have two phases. Number one phase will be evaluating monotherapy really around safety and feasibility of injecting bacteria into a tumor. And then, there will be a combo phase subsequently in terms of a combination with a checkpoint inhibitor. We've not disclosed what that checkpoint inhibitor is or what the patient characteristics would be for that trial. And as soon as we're in a position to discuss those plans, we'll absolutely do that. But our plan has not changed in terms of the monotherapy, combo therapy Phase I study design that we had discussed at the end of last year.

[Raghuram Selvaraju:]

Okay, perfect. And then, I wanted to ask you sort of a more philosophical, platform related question. I'm sure you're aware of this other company called Kaleido, which is focusing on microbiome metabolic therapies. And I only mention this simply because Kaleido has indicated an interest in hyperammonemia, urea cycle disorders as well as HE. And I wondered if you could maybe walk us through the notable differences between their approach and your approach and where you think you might have advantages.

[Aoife Brennan:]

Yeah, absolutely. Kaleido, I think, are a great company. I think they're doing very solid science and have good capabilities. To the extent that – what I'm aware of in terms of the data they have is based on reading the S-1. So, I don't have any further insights or information than are available broadly. My understanding of their approach is they use glycans or sugars as a way to influence the population of bacteria that are growing and thriving within the GI tracts of patients with disease. And the idea is that that will then translate into metabolic changes systemically. So, I think while there are some similarities with their approach and ours, I think the opportunity set of diseases will overlap, I think, in the case of HE, but I think there are also lots of disease where that approach will not be amenable for our approach maybe and vice versa will also apply. So, we think they're doing interesting science. We're following the data that they generate. But, for now, their approach hasn't changed our plans in any way. So, that's the extent to which I can comment on what they're doing.

[Raghuram Selvaraju:]

Okay, perfect. And then, just two quick things for Todd. I was wondering if you could maybe give us a sense of whether the R&D spending you recorded in 4Q 2018 is going to be more indicative of spending levels in 2019 or if there's going to be a significant jump? And also, if you could give us a sense of how you expect stock-based comp to trend over the course of 2019 versus 2018? Thanks.

[Todd Shegog:]

Sure. To your first question, I think Q4 spending in general is pretty indicative of the trend looking forward. I don't see it deviating dramatically from that. So, I think that that would be a good benchmark to look at from a guidance standpoint. Stock-based compensation, we have not commented on that publicly. But I think if you look at, again, the trends in 2018, I think that's a reasonable starting point to be thinking about.

[Raghuram Selvaraju:]

Great. Thank you very much for taking my questions.

[Operator:]

Our next question comes from Joseph Schwartz of SVB Leerink. Your line is open.

[Joseph Schwartz:]

Great. Thanks very much. You provided some helpful insight on the target product profiles for 1020 and 1618. And I was just wondering, if these are not achieved in either case, do you have any strategies to evolve your approach to optimize activity further and/or other target indications that you might consider pursuing in instead that you've come along your strategies or other indications that you're intrigued by along the way? Thanks.

[Aoife Brennan:]

That's a great question, Joe. Thanks for bringing that up. So, I think one of the key advantages of our platform is this ability to iterate very rapidly. And often, you can be iterating till the cows comes home, but not necessarily understand what's good enough. So, we moved into the clinic to get a handle on kind of what's our ability to predict how good preclinically is good enough for the clinic. And I think we'll learn a lot through these upcoming readouts. But we've absolutely been advancing the platform underneath all of that. So, I think we have continued to iterate and improve on targets that we think are interesting for us as a company going forward. And we've also been advancing preclinical candidates to the stage where they're ready to be put into our new decision machine once we start to learn kind of what the clinical and how the preclinical release to clinical activity, which as I mentioned earlier was a key driver of our choice around these three programs. So, I think it's a yes and yes. I think, yes, we have follow-ons for the two lead programs enabled by some of the technology collaborations I've outlined earlier. And also, we have another – all of our other strains are kind of lining up based on learnings. Not all of them will meet our bar. Some of them, based on what we learn from the clinic in these first two programs, will be in the zone where we think they have good probability of success. Others may require further work to tee them up for advancement. But I think this idea of building predictive pharmacology and focusing on areas with low to moderate biology risk will really enable us to move rapidly once we learn how to make good decisions with regard to program advancement. So, that's 100% the strategy that we're pursuing right now. Does that make sense?

[Joseph Schwartz:]

Yeah. That's helpful. Thanks. And just as a follow-on to that, what is your understanding about what causes the therapeutic index for your two lead orally-administered agents to peak out wherever they will? The DLT was some nausea, doses which were above where you could see some attractive efficacy, but I'm wondering if you can share any thoughts about whether you have any strategies to either raise the dose at which you can – what you see the DLT were, perhaps extract some more efficacy at doses that are well tolerated?

[Aoife Brennan:]

Yeah. Yeah. So, to address that question, I think we work on both sides of the equation. So, we work on improving tolerability and we work on increasing potency, such that we achieve similar efficacy at a dose that's substantially lower than the dose we currently have in the clinic. So, we're working on both fronts. In terms of the tolerability situation, we don't yet know for 100% certainty what causes that, but I think we have suspicion that it's related to our process because we moved in with this very early liquid formulation that was non-optimized where we had some dead cells and cell debris in the presentation that patients consume. I think until we get back into the clinic again with the next generation product that's been optimized, we won't be able to know that for sure. So, we're also kind of working on the low end in terms of creating that bigger window by increasing the potency of the strains and are making good progress there and understanding what we need to do and where the bar is. So, I think it's been, as I mentioned earlier, great learning year in 2018 and more learning to come in 2019.

[Joseph Schwartz:]

Great. Thanks again for the thoughts.

[Operator:]

[Operator Instructions]. Our next question comes from Julian Harrison of BTIG. Your line is open.

[Julian Harrison:]

This is Julian on for Tom. Thanks for taking my questions. First off, just curious how we should be thinking about the potential readthrough from cirrhosis to UCDs, assuming the cirrhosis data are positive to show activity. I guess, more specifically, are the benchmarks for efficacy comparable here or is there like basically nuance?

[Aoife Brennan:]

Yeah. So, I think there are important differences in UCD and He to think about from a development perspective, Julian. Both diseases result in elevated ammonia. I think the prevalence is very different and the regulatory path is going to be different in each one. We know for UCD, the feedback from regulators has been that ammonia lowering is the approvable endpoint in that disease. Obviously, we have to demonstrate that the ammonia lowering is clinically meaningful, but ammonia lowering is the endpoint for pivotal trials. That's not the case in HE. We would have to demonstrate an impact on something that's clinically meaningful, i.e. how a patient feels functions or survive in order for that program to achieve regulatory approval. So, that's one of the key differences. I also think just the kind of development path and commercial opportunity is quite different in each indication. So, as we said before, we'll look at the data from the ongoing study. We'll look at the development path emerging, competitive landscape, the opportunity, the unmet need in both indication and make a decision, that path forward, once we have data in hand from the current study. So, that continues to be the plan.

[Julian Harrison:]

Okay, thanks. That's helpful. And for my last question, sorry if I missed this, but do you have any sense of this time when the transition from liquid to solid formulations for 1020 and 1618 is expected to be complete?

[Aoife Brennan:]

Yeah. So, in terms of the transition, it depends on what you call a transition. So, we're certainty working. We'll be sharing some data later this year from our kind of solid oral formulation. And then, I think when we get back into the clinic, it will really depend on the timing of the outcomes of these studies and discussions with the regulators and an inability to get back into healthy volunteer component. And as soon as we have line of sight to kind of those milestones, we'll certainly be sharing them with the investment community.

[Julian Harrison:]

Okay, great. Thanks very much.

[Aoife Brennan:]

You're welcome.

[Operator:]

Our next question comes from Taylor Feehley of Chardan. Your line is open.

[Taylor Feehley:]

Good morning, everyone. So, most of my questions have already been answered. But maybe I'll follow up a little bit on that last question. So, is it clear that the healthy human dosing will be required for bridging between the liquid to the oral?

[Aoife Brennan:]

So, my experience here is based on kind of prior products. And what I will say is that clinical bridging is not always required when making changes from one process to another. That really depends on the magnitude of the changes, how good your preclinical analytics are and how convinced regulators are that you really understand your critical quality attributes and then how predictive your preclinical models have been to clinical activity for subsequent programs. So, we don't know the answer to that yet. It's not clear that chemical bridging would be required in every case. And my assumption is that the decision process will be very similar to the decision process for other types of products and will really depend on kind of multiple factors and be subject to a regulatory buy-in and negotiation. So, I don't think it's a given that chemical bridging is always going to be required. It's really kind of a it-depends question, I think, Taylor unfortunately, which is unsatisfying. But I think the good news is, from our perspective, I feel like we've been building a lot of credibility with the regulatory groups. We discussed it at your panel last week the importance of kind of continuing to work closely with them and kind of build credibility and make sure that you're doing high-quality science and presenting that in a way that enables good decision-making by regulators. And we certainly plan to continue to do that.

[Taylor Feehley:]

Great. Thank you so much for that. And then, one quick follow-up, best case scenario, am I interpreting your last response correctly – your response to the previous question asker correctly in thinking that it's possible to see larger patient studies by the end of this year or is that something that's potentially a little overzealous?

[Aoife Brennan:]

I think that we're getting into forward-looking statements territory here, Taylor. The good news is that we will be providing kind of more guidance in terms of what that looks like and the timing of initiating those next studies as we move closer to kind of having certainty about what the required steps are. For sure, it's enabled by having control over manufacturing because as soon as we have a process locked down, we're basically just transferring into our own manufacturing facility and starting work on that GMP batch. There's not a two-year lag as we get its lots and transfer to a contract manufacturing organization. So, I think that certainly enables speed. But there are some components that just cannot be speeded up. We can't speed up stability. We can't speed up some things. So, there's a certain minimum amount of time even with all of the investments that we've made that are going to be required. So, as soon as we have that full timeline locked down, we'll absolutely be transparent about our plans and timing.

[Taylor Feehley:]

Okay, great. Thank you so much for that. And then, one last question on the manufacturing side. How will the learnings from 1020 and 1618 help with 1891? Because I'm imagining that the process there will be a little different given the inter-tumoral delivery?

[Aoife Brennan:]

Correct, yeah. So, that's kind of a beachhead in a different size of administration. I think there are some things related to manufacturing that are very applicable across the board. There are some things then that are related to kinetics within the tumor microenvironment and pharmacodynamics and behavior. And safety, obviously, that will be different. So, for sure, we feel like there is a shared learning around analytics and manufacturing, but I think the chemical learnings will be very kind of unique for 1891, given the route of administration and the likely kinetics of bacteria within the tumor compared to bacteria within the GI tract. So, we really think 1891 sets up potential pipeline of products following a similar route of administration, but doesn't necessarily provide as much insight in terms of the oral programs from a clinical and translational perspective.

[Taylor Feehley:]

Okay, fantastic. Thank you so much for answering all my questions.

[Operator:]

There are no further questions. I'd like to turn the call back over to Dr. Brennan for closing remarks.

[Aoife Brennan:]

Great. Thank you so much to everyone for participating. And thank you, Michelle. We'd like to thank you for joining us on today's call. We look forward to updating you on progress across our developing pipeline in the coming months and being able to answer a lot more of the questions that were asked today around timing and other components. And we'll be available later today if there are any follow-up question. So, thanks so much everyone. And thank you, Michelle, again.

[Operator:]

You're welcome. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone, have a great day.