Earnings Transcript for NLTX - Q4 Fiscal Year 2020

Operator: Good morning and thank you for joining us today for the Neoleukin Therapeutics Conference Call. At this time, all participants are in a listen-only mode. Following the conclusion of the prepared remarks, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's conference call is being recorded. I would now like to 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 2020 Conference Call. Joining me on the call today from Neoleukin are Jonathan Drachman, CEO; and Bob Ho, CFO.

Jonathan Drachman: Thank you, Julie and good afternoon. I'm pleased to have this opportunity to review our recent progress as well as look ahead to our priorities for 2021. 2020 was a remarkable year for Neoleukin Therapeutics. It was our first full year as a public company and despite the challenges of the pandemic we grew significantly doubling the size of our team and establishing our new headquarters in Seattle. Our key scientific accomplishments for the year include; first, completing preclinical development of NL-201, our lead de novo protein program and submitting regulatory applications in the U.S. and Australia. Second, presenting new preclinical data demonstrating potent monotherapy activity and combination data across a broad range of tumor types; and third, designing and testing NL-CVX1 a de novo protein decoy for SARS-CoV-2, which has demonstrated the ability to protect rodents after intranasal prophylaxis. 2021 will be another exciting year for the company as we anticipate transitioning to clinical development. Our priorities this year are first, we're working diligently to address the clinical hold for NL-201 and initiate what we believe will be the first clinical trial with a fully de novo protein. Second, we are focused on our pipeline developing future IND candidates using the de novo protein platform to address unmet medical needs. And third, we will continue to invest in our people and culture as we believe this is critical to long-term success and achieving our ambitious goals.

Robert Ho: Thanks Jonathan and good afternoon everyone. We ended 2020 with cash and cash equivalents of $192.6 million compared to $143.1 million in 2019. The increase year-over-year was primarily driven by the completion of a common stock offering in July 2020 for net proceeds of $71.3 million. Research and Development expenses for the year were $24.3 million, compared to $4.4 million in 2019. The increase was primarily driven by expenses incurred from IND-enabling activities related to our lead product candidate NL-201 and investments in connection with the advancement of other technologies in our de novo protein platform. G&A expenses for the year were $17.2 million compared to $18.8 million in 2019. The higher G&A expenses in 2019 are a result of one-time expenses incurred in the merger between Aquinox and Neoleukin. G&A expenses in 2020 also reflect increases in personnel and facility related costs, as well as professional service fees.

Jonathan Drachman: Thanks Bob. Neoleukin has evolved significantly in just over two years since the company's formation. I'm excited about the transformational activities that are planned during the remainder of 2021. We look forward to the start of clinical trials for our lead oncology product candidates including both systemic and local administration. We will continue to progress our de novo protein research, and we will be expanding our development pipeline by creating new product candidates for cancer and inflammation. We've enjoyed meeting virtually with many members of the investment community over the past year and look forward to times when we can meet again in person. We're thankful for our dedicated team at Neoleukin and for the support of our shareholders. Throughout it all, we remain focused on our overriding goal to advance our de novo protein technology platform to benefit patients with serious diseases, including cancer, inflammation, and autoimmune diseases. Operator, we can now open the call up for questions.

Tyler Van Buren: Hey guys, good afternoon and congratulations on all the progress. I guess the first one is the statement in the release and the prepared remarks, where you say that you expect to resolve the clinical hold as well as begin enrollment of patients in the first half of the year. I guess another three months last year, so that sounds pretty promising. I guess, could you say anything about the nature of the FDA's questions and maybe what you've resolved since the original hold was put into place that gives you guys confidence that you'll be able to do that?

Jonathan Drachman: Great, thanks. Thanks for the question, Tyler. So first, as far as the clinical hold goes, since we were notified by the FDA of their questions, we've been working really hard at addressing those specific issues, and they are really related to methods-of-use testing not assays or anything that would be used as part of the clinical trial. Fortunately, there were no issues that would require long time periods to go back and repeat things like manufacturing or toxicology or anything like that, and we really felt like what was being asked was fairly straightforward, and that we would be able to do this in a number of months. So, we are not going to be providing more details other than reaffirming our timeline and just as a reminder that we are looking at initiating the trial both in Australia and in the U.S. As far as the clinical data and when we could present information, I think that we will present data as soon as it makes sense from having enough information to really be meaningful. I think that most likely that would be in 2022 and that would be my guidance at this point.

Tyler Van Buren: Okay.

Jonathan Drachman: And obviously in terms of biomarkers, it's the usual things looking at PK, immunogenicity, and obviously changes in proliferation of target cells as well as what's happening at the tumor and the tumor microenvironment.

Tyler Van Buren: Okay, perfect. Thank you so much.

Jonathan Drachman: Sure.

Operator: Thank you. Our next question comes from Greg Harrison with Bank of America. You may proceed with your question.

Unidentified Analyst: Good afternoon. Thanks so much for taking our question. This is Jason from Greg's team on the line. Congrats on the progress and for the color thus far. I was hoping you could provide a little bit more commentary on how the delay for the 201 trial affects the overall R&D approach. Is this something that's going to impact other programs down the line, and is this something that you can see is getting out of the way or is this unique to 201, any sort of insight would be very helpful? Thanks.

Jonathan Drachman: Thanks for the question, Jason. I don't see that the issues that were raised on review as having any impact on the rest of our portfolio or program. This was really focused on the fact that this is a very potent immune agonist that is going into people for the first time, and just having a level of precision that might be greater than what you would have with other mechanisms of action was something that the reviewer wanted to see. I don't see that as having an impact on the other things that we're doing or necessarily on future programs.

Unidentified Analyst: Got you. So in terms of maybe validating the platform along with the precision of the molecule, do you think that has any impact at all?

Jonathan Drachman: Not in terms of the assay that we're working on. That was really about how we wanted to measure very small quantities of protein. So I think that from the precision standpoint that has to do with the mechanism of action and how the protein is designed and now that's not anything that's in question.

Unidentified Analyst: Perfect, fair enough. Thank you so much for the color. I appreciate it.

Jonathan Drachman: Sure.

Operator: Thank you. Our next question comes from Arlinda Lee with Canaccord. You may proceed with your question.

Arlinda Lee: Hi guys, congrats on the progress, and I have a couple questions. One, can you maybe talk about how you expect to develop the locally -- local administration versus IV administration? Are you planning to go into similar indications or not, and how do you think about that? And then secondly, on your COVID competitors, I'm wondering, I think in the Science article, you talked about how this might help to address variants and I'm curious how that was engineered into the program? Thank you.

Jonathan Drachman: Sure. Let me, I’ll start with the local administration question and then go, move to the COVID molecule. With local administration, various cytokines have been used locally for years. And one of the rationale to look at that is that, it enables you to get much higher local concentrations without getting the high systemic concentrations. There's a lot of different ways that you can administer an immune activator locally. It could be directly injected into or around the tumor, it could be given in an intravesical form as an IL-15 agonist is being done into the bladder, it could be used inhaled or other formats, and in all of those cases, the goal would be to get a very strong local response, and then there's a possibility that that would also create activated immune cells that could go to other parts of the body and have an abscopal effect, and so either by itself or in combination with other systemic therapy, it could result in better results. It's -- I think that it's very important to understand whether, whenever you have a very potent molecule, if the activity is being driven more by the local activation or the systemic activation, and then cells moving to the tumor, and this will really help us to understand that and help us to plan future molecules that might be either systemic or targeted. So I'm really excited about that trial and learning a lot more about NL-201. I think it will complement what we learned systemically in a -- in many ways. As far as the COVID molecule goes, when it was designed using the de novo platform, the goal was to exactly or as exactly as possible to mimic the portion of the angiotensin-converting enzyme 2 or ACE2 protein, that interacts with the receptor binding domain of the spike protein. And the reason that that was important and not just to bind the spike protein anywhere, was we wanted to have an exact interface that looked like the human receptor for entry of the virus. And the reason was, even a year ago, we were thinking if the virus were to mutate or evolve as RNA viruses do, it still needs to bind ACE2 to get into human cells. And by making something that would compete with ACE2, we felt that it would be almost -- it would be very difficult for the virus to mutate in such a way, that it could still get into human cells and would not be blocked by this protein. So, that still needs to be empirically tested as variants evolve. But if a new variant evolves that is more infectious, it should also be binding to the NL-CVX1 protein more tightly. So there should be a correlation between the -- any mutation of the virus and it shouldn't be able to evade our protein and still bind to ACE2. Does that make sense?

Arlinda Lee: Yes, thank you very much.

Jonathan Drachman: Sure.

Operator: Thank you. Our next question comes from Michael Schmidt with Guggenheim. You may proceed with your question.

Jonathan Drachman: Michael, you are on mute.

Robert Ho: Operator, we're not hearing, Michael. Josh, are you still there? So it seems like we lost our operator. I'm not sure if there are any other questions, but happy to follow up with folks as needed. Jonathan, do you want to close it out?

Jonathan Drachman: Sure. Well, I'd like to thank everybody for joining our call today and we look forward to sharing our progress with you in the months ahead. Thank you very much.

Robert Ho: Hey Julie, are you there?

Julie Rathbun: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.