Earnings Transcript for NLTX - Q4 Fiscal Year 2019

Operator: Good afternoon, and thank you for joining us today for the Neoleukin Therapeutics Conference Call. [Operator Instructions].I will turn the call over to Julie Rathbun, Communications for Neoleukin Therapeutics. Julie, please go ahead.

Julie Rathbun: Thank you. Good afternoon, and welcome to Neoleukin Therapeutics Year-end 2019 Conference Call. Joining me on the call today from Neoleukin are Jonathan Drachman, CEO; and Kamran Alam, Interim CFO. During today's call, Jonathan will provide an overview of recent events, an update on the company's progress and an outlook for 2020. Kam will then provide a summary of our year-end 2019 financial results. We will conclude the call with a question-and-answer session.Today's call is being recorded. It will be available for replay on the Investor Relations section of the Neoleukin website approximately 2 hours after the call for at least 30 days. Before we start, I'd like to remind you that today's call will include forward-looking statements based on current expectations. Such statements represent management's judgment and intention as of today and involve assumptions, risks and uncertainties. Neoleukin undertakes no obligation to update or revise any forward-looking statements. Please refer to the company's filings with the SEC, which are available from the SEC or on the Neoleukin website for information concerning the risk factors that could affect the company.I'll now turn the call over to Jonathan Drachman.

Jonathan Drachman: Thank you, Julie, and good afternoon, everyone. 2019 was a transformational year for Neoleukin Therapeutics. We started independent operations in January, became a public entity in August, following our merger with Aquinox Pharmaceuticals and ended the year with a follow-on financing to extend our runway, build our team and to enable advancement of our de novo technology platform and research efforts. Throughout this exciting time at Neoleukin, we have focused diligently on advancing NL-201, our lead program towards clinical testing as a novel immuno-oncology program. We believe this will be the first fully de novo protein therapeutic to enter clinical development. We've also built an experienced and dedicated team and completed a transition from being a private to a public company.I'd like to spend some time today briefly reviewing our technology and lead product candidate, providing an overview of the progress we've made to date and highlighting what we have to look forward to in the year ahead. First, on our technology platform. The Neoleukin platform is a set of proprietary computational algorithms that allows us to create entirely new or de novo protein therapeutics. This technology was licensed from the Institute for Protein Design at the University of Washington under the leadership of David Baker, one of the world's leaders in protein. The inventors left the University of Washington to cofound Neoleukin. Our approach represents a paradigm shift in the discovery of new biologics, enabling the rational design of highly specific protein therapeutics.Our lead asset NL-201 is a potent de novo agonist of both the IL-2 and IL-15 receptors to expand cancer-fighting effector T-cells and NK cells. Interleukin-2 or IL-2 is a natural cytokine, which has been extensively studied and approved for the treatment of renal cell cancer and melanoma, and demonstrated monotherapy response rates of approximately 15%, with 6% to 7% complete responses. However, high dose IL-2 has significant toxicities that require drug administration in a hospital setting and low-dose IL-2 does not have sufficient antitumor activity.The biology underlying these limitations is believed to be preferential binding of native IL-2 to the trimeric receptor, consisting of a high affinity alpha chain as well as the signaling components consisting of the beta and gamma subunits. Expression of the alpha chain on endothelial cells and T regulatory cells drives biodistribution and localization to these cells, which can cause severe side effects, such as vascular leak syndrome at high doses, as well as immunosuppression at low doses. At Neoleukin, we have addressed this biological problem by using our technology to design an entirely new de novo protein, one that does not exist in nature and is not based on the native sequence of IL-2. Our de novo protein has no alpha subunit binding domain and has also been redesigned, enabling high affinity binding and activation in the absence of the alpha chain. Furthermore, our computational algorithms create highly stable, compact and hydrophilic proteins, properties that make them less likely to be recognized as foreign by the immune system.NL-201 is a pure high affinity beta gamma agonist and is a potent activator of cells that normally respond to either IL-2 or IL-15, 2 related cytokines that share the beta and gamma signaling chains. Because IL-2 has more activity on T-cells, and IL-15 has more effect on NK cells, our de novo protein should efficiently activate both of these arms of the immune system. There's a lot of interest in the development of next-generation [Technical Difficulty] and IL-15 agonists for cancer immunotherapy. However, others are starting with native IL-2 or IL-15 and producing engineered, engineered variants. We believe that such molecules are likely to be less potent, less stable and retain residual binding to the alpha subunit. In contrast, NL-201 as a de novo protein is designed to be a highly potent [Technical Difficulty] with no expected alpha binding.Let me turn now to our progress with our lead asset NL-201, which remains on target for IND submission before the end of 2020. We've transferred our CMC process to a contract manufacturing organization, modified the downstream purification to meet GMP requirements and have successfully produced multiple batches to support preclinical testing. We've conducted multidose non-GLP and GLP toxicology studies in rats and nonhuman primates with no unexpected toxicities observed. Assays to support PK and immunogenicity testing as well as potency release are undergoing development and validation, and are on track to support IND submission and clinical activities.Additionally, we continue to learn more about NL-201's antitumor activity by studying a wide array of syngeneic tumor models and evaluating various dosing strategies and combinations. As we have reported previously, the clinical molecule has undergone modification to enable half-life extension, which we expect to support systemic dosing every 1 to 3 weeks in patients. Our first-in-human clinical trial will focus on intravenous monotherapy administration to patients with advanced solid tumors to determine the recommended dose and schedule. This will be followed by indication-specific cohort expansions to estimate safety and antitumor activity of monotherapy in more uniform patient populations.Turning to research and other programs in the pipeline. Our scientists are focused on 3 areas of de novo protein design. First, we're building experience and know-how that enables us to increase the sophistication and capabilities of the computational algorithms that underlie our platform. We expect that our technology will continue to evolve as we learn more about what works best in preclinical and clinical studies. Second, we're working on further widening the therapeutic index for potent immunotherapies. One very exciting opportunity is using de novo protein design to create conditionally activated cytokine mimetics that only engage the target receptor in the tumor micro environment. And third, we're building inhibitors of cytokine receptors that will enable treatment of inflammation and autoimmune diseases. The ability to design hyper stable de novo proteins that can withstand harsh environments, including low PH, high temperature and proteolytic enzymes may allow local administration of potent inhibitors to avoid systemic toxicities.The progress we've made in the past year would not be possible without a great team. Since we launched operations last January, the Neoleukin team has expanded significantly in our Seattle headquarters. We currently have more than 40 employees, approximately half are in research, including computational scientists, protein scientists and our immunology biology group. In addition, we've hired a Seattle-based finance group and recently announced the hiring of our Chief Financial Officer, Robert Ho, who will take over from Kam Alam effective next week. I'd like to take a moment to thank Kam and his team based in Vancouver, British Columbia. After the merger with Aquinox Pharmaceuticals, Kam stayed on an interim basis to help Neoleukin with the transition to becoming a public company. His contributions and strategic leadership have been very valuable, especially during our follow-on offering. He will stay on as a senior strategic adviser through the end of May.And with that, I'd now like to turn the call over to Kam to discuss our year-end 2019 financials. Kam?

Kamran Alam: Thanks, Jonathan. Before I get into the financial results, I'd like to thank the Board and the team at Neoleukin for the opportunity to contribute during the transition from Aquinox to Neoleukin. I look forward to continuing to support the company as a senior strategic adviser. I'd also like to thank the team in Vancouver for their professionalism and support. It's truly been a pleasure working with all of you.Now on to our financials. Cash, cash equivalents, short-term and long-term investments totaled $143.1 million as of December 31, 2019, compared to $76.9 million as of December 31, 2018.Research and development expenses for the year ended December 31, 2019, were $4.4 million compared to $41.8 million for the year ended December 31, 2018. General and administrative expenses for the year ended December 31, 2019, were $18.8 million from $15.8 million for the year ended December 31, 2018.Net loss for the year ended December 31, 2019, was $69.4 million compared to a net loss of $31.6 million for the year ended December 31, 2018. The increase was primarily due to the acquired in-process research and development expense of $47.7 million, resulting from the merger. We expect that our cash and cash equivalents will be sufficient to fund operations through 2022.With that, I'll turn the call back over to Jonathan for some concluding comments.

Jonathan Drachman: Thanks, Kam. Before I finish, I'd like to say a few words about the impact of COVID-19 on Neoleukin Therapeutics. Because we're based in Seattle, Washington, there's been intense attention during the recent outbreak. We are taking appropriate measures to protect our employees and still advance our programs. At this point, we do not anticipate any delays in our IND-enabling work, any shortages of critical reagents or obstacles to the start of our Phase I clinical trial as a result of the epidemic. We will be carefully monitoring the situation, and will provide updates in the future as appropriate.2020 will be another exciting year with significant milestones for our young company. In addition to submitting our IND by the end of the year, we have 3 abstracts that were accepted for presentation at the American Association for Cancer Research, or AACR Conference in San Diego. This includes 2 posters and 1 oral presentation. Now that the meeting has been postponed, we will be looking for an appropriate venue to present these data, and we'll keep you informed as our plans evolve. These abstracts highlight preclinical studies with our lead program, NL-201, as well as preclinical research highlighting the potential of de novo proteins as immunotherapy drug candidates.The Neoleukin of today has significantly evolved in the short time since its formation just over a year ago. Our transformational science is supported by a talented team, and we're only just beginning to tap into the many opportunities that de novo protein design holds therapeutic applications. It's been a pleasure to meet with many members of the investment community over the past months and introduce them to the Neoleukin story. We greatly appreciate the support of our shareholders and are truly excited about the work we're doing every day. Our goal is to advance the first fully de novo proteins into clinical trials and offer a potential benefit for patients with serious diseases, including cancer, inflammation and autoimmune diseases.Operator, we can now open the call up for questions.

Operator: [Operator Instructions]. Our first question comes from Tyler Van Buren with Piper Sandler.

Tyler Van Buren: Congrats on all the progress over the past year. I think you guys went public in record time. But I guess my first question is related to the AACR cancellation and you spoke about that towards the end of your prepared remarks, and it's great to hear that you had the 3 abstracts accepted. I guess, related to that, is it possible that you guys do something like a webcast or videoconference call, just given the fact that we may see conference cancellations for a while? Or are you more likely to preserve the data and even wait till a conference in the fall or something like that?

Jonathan Drachman: Well, thanks for the question, Tyler. It's new information that the conference was postponed. Obviously, we're thrilled that the abstracts were reviewed and accepted and even won with an oral presentation. So we're very pleased that, that happened, and we were looking forward to presenting and sharing this information. At this point, we're going to have to follow the situation and see how it evolves and figure out what the best opportunity would be, whether that would mean doing something, as you mentioned, like doing something as a webcast or waiting for an appropriate conference. And I think it's just too fresh right now to really understand what that timing will look like.

Tyler Van Buren: Okay, understood. And I guess, obviously, you can't disclose any details of the presentation or the two posters, but is there anything more you could tell us generally about the nature of them or kind of what to expect?

Jonathan Drachman: Well, you're right. They're still embargoed. And until we know more, we can't say a lot about the nature of the abstracts. As we said, there's a fair amount of preclinical data on the lead molecule, and these are the first data with the clinical molecule with the extended half life. And I think that those information will be quite interesting to people. And then the others are really ways that our immunotherapies can be used to help widen the therapeutic index to provide various combinations and ways of improving other therapies. There's a lot of really exciting approaches with our de novo protein design.

Tyler Van Buren: Okay. That's helpful. And then just finally, you mentioned all of the pre-IND or the IND-enabling activities that you guys have completed. It seems like you have most of them done, but can you just confirm for our purposes, what else needs to be completed prior to filing the IND later in the year?

Jonathan Drachman: Well, everything is in process. And I think we're on track for that. And there's still a lot of things to complete. On the CMC side, there's the scale-up and final GMP manufacturing and stability. There's some assays that still need to be validated and the GLP tox study is in the final readout phases. So things are on track, but there's still work to do.

Operator: Our next question comes from Michael Schmidt with Guggenheim.

Charles Zhu: This is Charles Zhu on for Michael Schmidt. Congrats on the progress. I had a bit of a follow-up from a prior question. How are you thinking about, in general, your combination strategy for NL-201? Based on competitor data, PD-1 seems kind of obvious, but any other strategies that you find particularly interesting?

Jonathan Drachman: Yes, great question. We're focused in our Phase I trial in understanding the monotherapy dose schedule and activity. And importantly, IL-2, and to some extent, IL-15 also have single-agent activity but with not the best safety margin or therapeutic index. So we believe that we have created a molecule which is going to have a significantly improved therapeutic index. And we were very interested in seeing what the monotherapy activity is like. As far as combinations go, there's a lot of different possibilities. Checkpoint inhibitors are just one of them. One of the things that we're really excited about is because this activates IL-15 and NK cells just as potently as it does T-cells, we believe this is something that could work really well with monoclonal antibodies that have ADCC and it could, in that way, enhance the ADCC and be quite synergistic. We think this could work really well with cellular therapies, whether it's NK cells or T-cells or CAR-T cell therapies. We think it could combine very well with almost any targeted therapy or chemotherapy which causes antigenic spread or increase in the immune microenvironment. So there's a lot more besides checkpoint inhibitors, and -- but we want to understand how to use it as a monotherapy first.

Charles Zhu: Got it. That makes sense. How are you thinking about the potential for T-cell exhaustion in your ongoing preclinical studies? And what are you seeing from other agents the clinic in this regard?

Jonathan Drachman: Well, I think that one of the hardest -- one of the most important things to figure out with immunotherapies is what's the right dose and schedule. And schedule is really important there because you can get exhaustion or refractory periods for immune responses. And so in our Phase I trial, we will be looking, not just at a dose escalation, but also at multiple schedules to try to understand what's the best schedule for having that continued immune activation.

Charles Zhu: Got it. Okay. Last question for me. Can you speak a little about Neoleukin's approach to a conditional activation in the tumor microenvironment that you mentioned previously? And maybe provide some color on what updates we can expect on this platform later this year.

Jonathan Drachman: Yes. So the conditional activation approach that we're using is one that takes advantage of de novo protein design, and uses something that native proteins wouldn't be able to do. I can't go into the exact details of what that is right now, but in part because of the embargo. But it does not use the kind of approaches that other people are using such as metalloprotease cleavage or pH-dependent changes. So it is a, we believe, a novel approach to conditional activation and may enable a very wide therapeutic index.

Operator: [Operator Instructions]. Our next question comes from Arlinda Lee with Canaccord.

Arlinda Lee: I mean had -- I know that the abstracts are still embargoed, but can you talk about what are some of the potential information that you would be looking for preclinically to help differentiate NL-201? And what would you think would be highlight as things that we should look out for? And then maybe can you talk about your initial clinical trial design for the Phase I that you're planning to file IND for at year-end?

Jonathan Drachman: Sure. Thanks, Arlinda. Thanks for the questions. The -- so we haven't -- we can't disclose exactly what the preclinical data are that we'll be talking about. But there are a lot of different syngeneic models that can be tested and looked at with both safety and efficacy. And we've also done a fair amount to understand schedule, potential combinations and we've also got safety data. So there's a lot that could be included in those data. And we look forward to being able to share them. And the other question?

Julie Rathbun: Initial trial design.

Jonathan Drachman: Well, the initial trial design, we're -- as I mentioned, we are focused on figuring out the dosing schedule initially, and we'll be looking at solid tumor patients to figure that out. And once we have a good sense of what the right dosing schedule is, we'll be looking at specific cohorts of patients. It's likely that we'll be looking at the types of patients that we think would [indiscernible] IL-2 and IL-15 like therapies. So I wouldn't be surprised if we were looking at renal cell melanoma and with the recent data on IL-15, working in nonmuscle invasive bladder cancer, urothelial cancers could be interesting. And then, of course, we'll be looking at signals during the dose identification part of the trial.

Operator: As there are no more questions, I'd like to turn the call back to Jonathan Drachman for closing remarks.

Jonathan Drachman: Okay. Thanks, everybody, for joining our call today. We look forward to sharing our progress with you in the months ahead. Thanks a lot.

Operator: Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program, and you may now disconnect.