Earnings Transcript for PIRS - Q4 Fiscal Year 2021

Operator: Greetings, and welcome to the Pieris Pharmaceuticals Year-End Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to Tom Bures, Chief Financial Officer. Thank you. You may begin.

Thomas Bures: Thank you. Good morning, everyone, and thank you for joining us for our year-end 2021 conference call and corporate update. On the call today, we have Steve Yoder, our President and CEO, who will provide a corporate overview and outlook on our pipeline; Tim Demuth, our Chief Medical Officer; Hitto Kaufmann, our Chief Scientific Officer; and Shane Olwill, our Chief Development Officer, who will be available for Q&A. You can access the press release released this morning on the Investor Relations page of our website at www.pieris.com. Before we begin, I'd like to caution that comments made during this conference call may contain forward-looking statements involving risks and uncertainties regarding the operations and future results of operations of Pieris, including statements relating to the timing and progress of our clinical trials and preclinical programs, our partnerships and our financial position, and actual results or events may differ materially from those expressed or implied by such forward-looking statements. Factors that might cause such differences are described in our filings with the SEC, including our annual, quarterly and current reports. The information being presented is only accurate as of today and Pieris undertakes no obligation to update any statements to reflect future events or circumstances. I'll now turn the call over to Steve.

Stephen Yoder: Thank you, Tom, and thank you to everyone for joining us today for our 2021 year-end earnings call. Last year was a busy year of execution for us. We entered into several collaborations, including the respiratory and ophthalmology collaboration with R&D leader Genentech and a collaboration to further expand our partnered 4-1BB bispecific pipeline. We also initiated multiple clinical trials, including first-in-human studies for our 4-1BB PD-L1 bispecific and we unveiled a new proprietary program in our respiratory franchise. All of these have set the stage for an exciting 2022. I would like to now take you through some of these highlights from last year and to discuss what to expect for this year. As many of you are aware, our lead respiratory program is PRS-060/AZD1402, an inhaled IL-4 receptor alpha inhibitor that we are developing alongside AstraZeneca for the treatment of moderate to severe asthma. The program is currently in a multicenter placebo-controlled Phase 2a study as a DPI formulation. Earlier this year, we announced the successful completion of Part 1a, or the safety portion of the 1 mg and the 3 mg dose cohorts in that study. In that portion of the study, 31 moderate asthmatics controlled on standard of care asthma therapy, which consists of medium dose ICS with MAVA, were dosed twice daily over 4 weeks, randomized 1

Thomas Bures: Thank you, Steve. And good morning again, everyone. Cash and cash equivalents totaled $117.8 million for the year ended December 31, 2021 compared to a cash and cash equivalents balance of $70.4 million for the year ended December 31, 2020. The increase since December 2020 was due to cash received from new and existing collaboration agreements, including milestone achievements. In addition, during 2021, the ATM program was utilized to raise a total of $38.5 million in net proceeds at an average price of $4.85 per share. These increases in cash were partially offset by cash used to fund operations in 2021. The year-end cash position also does not include the impact of the Bavarian government grant as those proceeds will be reimbursed for qualifying program costs that are incurred during the PRS-220 development period. R&D expenses were $66.7 million for the year ended December 31, 2021 compared to $46.5 million for the year ended December 31, 2020. The ramp-up of R&D expenses relates to CMC activities required in advance of starting clinical trials, for which Steve noted the 2 IO trials started right around the end of the year, and we are planning the initiation of PRS-220 later this year. In addition, we incurred higher clinical costs on Cinrebafusp Alfa and higher employee-related costs. These increases were partially offset by lower manufacturing costs on PRS-060, which are fully reimbursable. G&A expenses were $16.5 million for the year ended December 31, 2021 compared to $16.7 million for the year ended December 31, 2020. We continue to leverage the capabilities of our G&A functions such that total G&A spending was consistent year-over-year. In 2021, higher fixed and variable compensation and higher insurance costs were offset by lower legal, accounting and project management costs. We also incurred lower office and building equipment costs as there were a number of one-time costs related to the move to the new R&D facility in Hallbergmoos, Germany in the prior year. For the year ended December 31, 2021, $3.7 million of other income was recorded for PRS-220 program costs that qualify for reimbursement under the Bavarian grant that was announced in June of 2021. Net loss was $45.7 million or $0.71 loss per share for the year ended December 31, 2021 compared to a net loss of $37.2 million or $0.68 loss per share for the year ended December 31, 2020. With that, I will turn the call back over to Steve.

Stephen Yoder: Thank you, Tom. In closing, I just want to say last year was characterized by heavy-lifting and execution that's necessary to set us up for an eventful 2022. We added new partners to our roster. We initiated new clinical trials and we maintained a healthy balance sheet. There is a clear focus on upcoming catalysts, including the Phase 2a data from PRS-060 later this year and our subsequent opt-in decision as well as our CINRA and PRS-344 readouts and our PRS-220 clinical initiation. I look forward to keeping you updated on those key inflection points as the year progresses. So thank you for joining us today, and we would now like to open the call for your questions.

Operator: [Operator Instructions]. Our first questions come from the line of Jonathan Miller with Evercore.

Jonathan Miller: Let's start on PRS-060. It's the first time I think I've really heard you suggest that you might not opt in all the way or that maybe your body language there was feeling a little softer. Assuming the data is still good, how are you feeling about the 2 different levels of opt-in here? Are you still leaning towards a full option or what are the drivers of you maybe not going all the way there?

Stephen Yoder: And I think what we were able to start doing after aligning with AstraZeneca on the detail which we want to communicate around the opt-in contours, we've now been trying to educate investors on what the baseline value is on the royalty and milestone income should we not choose to opt in at all. And then as well as the contours of the 2 distinct opt-in decisions that we could make with our unfettered discretion in how those could be funded, whether through milestone streams or other means such as traditional equity financings. So, I think data will be partly responsible for how much enthusiasm there is and how we would fund this. But I think it's good to go a little bit deeper and I'll turn it over to Tom to provide a little bit more color on why, for example, the first opt-in level of 25% is particularly attractive, and we're certainly not going to rule out the other one, but we want to make sure everyone understands the affordability of this in all cases.

Thomas Bures: So, I think in the different levels, right? So just to clarify, if we do nothing, we will get development milestones that are meaningful, so the traditional milestones you'd expect for the various phases of clinical development. And then, we get our sales milestone of royalties that we would normally get for any type of collaboration that is commercialized for a product. If we move on to the 25% co-development opt-in, here we think that this could be an attractive option for us because the development milestones are similar to those if we did nothing from the co-development opt-in. So, at a 25% cost share, we would have sort of a significant offset from the ongoing development milestones. And here, then we have much greater potential upside on the sales milestones and royalties that we would be entitled to if we opted in to 25%. So we think that's, again, an attractive option. And again, the meaningfulness of the development milestones makes this something that we think we can really sort of look forward to in terms of our ongoing development and how we're planning for this. At the upside, we would have a 50% co-development share. Here, we would -- by doing that, there would be lower development milestones than in the first co-development scenario. But the upside would be the gross margin share that we would get on the commercial sales of the program, which again would even be a further step-up from the sales milestones and royalties that we would get. I think it goes without saying, obviously, that any of our decisions that we take are going to be based upon the data itself and how good those look post the Phase 2a results, right? That is going to be most meaningful to us.

Stephen Yoder: And then, the other important piece of this component is, it's not just the data that we'll have and be able to communicate publicly but also a go-forward plan, and we'll have a budget. So it won't be like there will be a black box here. It will be very thoughtful and informative, and we'll be able to put an FP&A accordingly. So we're going to wait and see. And the good news is, I think, we feel pretty good about opting in, given how it's structured even at the lower rate. And if the data are there and the plan makes a lot of sense in the eyes of our investors, then the 50-50 would also be a very viable option, we believe, as well. So stay tuned.

Jonathan Miller: The one other thing that I wanted to touch on is, I noticed your commentary on the geopolitical environment. Obviously you've got one site in the Ukraine on the PRS-060 study right now. And obviously we're all watching that situation very carefully, not just thinking about the fundamental impacts on companies obviously. But from the perspective of this trial, what are the circumstances here that would result in a meaningful impact to the time line given only one of your sites is in the Ukraine itself?

Stephen Yoder: Yeah. So we've used the Ukraine and Australia for the safety portions of the study. The safety portions are a little different nuanced over what we would use for the efficacy portion. And the Ukraine side had played a fair role, a fairly important role for us in the safety study. So we're also enrolling the safety portion, as we mentioned, and the highest cohort, the 10-milligram cohort in parallel to the 2 doses in the efficacy cohort. So, depending on patient access in Ukraine, that could be something that would impact the safety timelines on the third cohort, but we're not changing anything today. We're just letting investors know that we have used Ukraine and this terrible development notwithstanding, it does directly involve our program because we've used them a lot for the safety study. They are involved in the efficacy portion as well, as you know, on multiple sites. So, there's certainly ways to navigate around that for the efficacy portions. So this is really just us in the good corporate housekeeping, letting investors know that this is something we're looking at. And AstraZeneca is going through very thoughtful discussions with the CRO to be able to reconfirm timelines. And if not, we will make an update in the orderly course of business, as we mentioned. So no changes today for sure.

Jonathan Miller: I think that makes sense. And obviously we're all dragging that situation very closely.

Operator: Our next questions come from the line of Matt Phipps with William Blair.

Matthew Phipps: First on CINRA, just wanted to clarify that the update later this year in HER2-low, that would be from Part A of that kind of Simon Two-Stage design and, again, exceeding the target you guys have laid out, you had then just progressed to Part B to kind of confirm that or in a larger patient population.

Stephen Yoder: Essentially that's right. I mean, we set really high bars that we think would be meaningful if we achieve them into 20 patients. And we think that having the ability to -- if we have the ability to achieve and you hit that bar, a 40% ORR for HER2-low in 20 patients, we think that that will be regarded as very meaningful both in the eyes of the investment community and, in particular, in industry. And so, then that should open up a number of options for go forward. I think one natural progression is, of course, progressing forward after the 20 patients into broader expansion. But we'll, of course, look at the totality of the data and consider even partnering options at that stage as well. But that's the data readout for the end of the year, just to make it clear. That's what we're aiming for 20 patients ORR.

Matthew Phipps: You mentioned Seattle -- sorry, Seagen continue to progress an additional update later this year. Are those -- I know you can't take too much but disclose the targets or do you expect any milestones from the collaboration this year?

Stephen Yoder: So, again, we have to align with our partners, and Seagen is a great partner, but we have to align with them before we can say more color than we would with a proprietary program. I can say, what we're really pleased with the progress that Seagen is making with the lead program, we look forward to providing updates which we anticipate we could provide later this year, there's still a lot of year in front of us. And the way we structured the deal, I can't remember, [indiscernible] was exactly public, but you can imagine that there are clinical milestones, and Tom might be able to share a little bit more color here. There are clinical entry milestones and subsequent development milestones that would -- one would expect from this. And I think at some point, there would be not just a communication of progress but also probably more color around the program itself. We have to align with Seagen and all that detail. And I don't know if Tom wants to add any more color here on the milestones.

Thomas Bures: Steve, you're right. I mean, we would be entitled to milestones as they enter into the clinic and progress through that. So those are the things we would obviously look forward to not only just the development of the program, but some financial benefits from that as well.

Matthew Phipps: And lastly, kind of following on Jon's first question. So, you mentioned that Ukraine and Australia was coming from the safety portion of the trial. Does that mean there's -- maybe the real near-term risk is kind of the higher dose Part 1b or whatever getting that done or can that be all done now in Australia?

Stephen Yoder: I mean that's certainly one potential implication. Definitely we could rely on Australia. And I think the Australian situation last year, I think, was very different than it is right now around COVID. The country was practically locked down across various states for most of last year, and that certainly impacted the ability to recruit. And that's where Ukraine was meaningful. But now that COVID evolved and we're kind of getting back to normal in many jurisdictions, geographies, we feel that we could more effectively leverage Australia than maybe we had a year ago.

Operator: [Operator Instructions]. Our next questions come from the line of Roger Song with Jefferies.

Roger Song: So, just curious because of the co-development option already improved this gross margin sharing. Just -- can you just comment on the core commercialization options? So what will be the additional upside if you kind of decided to co-promote this PRS-060?

Stephen Yoder: I'm going to turn this over to Tom. Just say at the outset, there's not a lot more color we can provide on the co-co right now before aligning especially with AstraZeneca on a communication around that. But maybe Tom can provide just a bit more kind of color around what that entails versus the co-development option.

Thomas Bures: I think when we're looking at this, this is obviously something that's going to be a decision point that we have later, clearly once we're into Phase 3 and how we want to sort of think about commercialization of this alongside AstraZeneca, so -- where they potentially would be funding us for the co-commercialization. So it's sort of a nice option to have as we think about potentially being integrated from a biotech perspective, moving into the commercialization and sales aspects and being able to develop the sales force. But again, I think it's probably very early days in terms of us saying, that's something that we're giving a lot of thought. I think for right now, we want to focus on sort of the execution and looking forward to the co-development options that we have and how those can be meaningful for us as a company.

Stephen Yoder: And I would say, it's fair to also mention, Roger, that the economics that we've been talking about, as Tom shared around the 25% opt-in or the 50% opt-in. Those are fixed as a function of the co-development structure itself. The co-commercialization is really independent of that. That's really what is there to help facilitate us getting a foothold in the commercial spectrum, as Tom said, for integration. And I think, we would like to be able to explore that if we are co-developing and we would be able to do that we feel if we wanted to. But I think the key here, not to forget, is all the economics we mentioned are whether or not we do the co-commercialization option or not.

Roger Song: And so, for the IO program, we all realized -- aware of the recent kind of next-generation HER2-targeted therapy, in particular ADC. So some kind of exciting news for the breast cancer, not necessarily gastric cancer, but curious your thoughts around the reissue from those targeted ADC versus your 4-1BB bispecific kind of HER2 [indiscernible].

Stephen Yoder: And Roger, are you referring to the HER2 low study, recent data from ADC in HER2-low?

Roger Song: Yes. HER2-low, yes.

Stephen Yoder: Yeah, it's good. So there's some really data that was announced from -- in HER2. I think that's really great for patients. And I think it doesn't change how we're thinking about the placement of a 4-1BB or immuno-oncology agent relative to either classic HER2-targeted therapies, whether an antibody or a TKI or now bringing a toxic payload with next-generation ADCs. And I think it goes back to the fundamentals of IO fundamentals of 4-1BB. We've talked about this in the past, but Shane's joining the call, and maybe he is probably the best scripted person to talk about this. And Shane can share in a couple of sentences, again, why we think that a 4-1BB agonist could have a major role within the treatment paradigm, alongside next-generation ADCs. Shane, do you want to take that one?

Shane Olwill: Roger, thanks for the question. So, as Steve pointed out, there's fundamental differences in mechanism of action here. The fact that the HER2-low environment is being exploited by others now just shows the opportunities there. But in essence, from our perspective, nobody is taking advantage of a T cell targeted agent in this space. Our preclinical data and data coming out of our Phase 1 study showed us we can elicit a strong immune response based on quite low levels of HER2 expression. And how is that manifesting? It's manifesting by an induction of 4-1BB agonism. We believe that will lead to T cell expansion, NK cell expansion. And it will change the tumor microenvironment in favor of destroying that tumor. From a 4-1BB perspective, you're going to elicit a memory response. You will -- that will lead to a durable impact. And we see that in the Phase 1 study as well. Those patients that responded to CINRA had a durable response. Another key facet here is the safety profile. So, we have a very acceptable safety profile with CINRA, and that allows us to work as either a monotherapy or combined with other agents. And if you think about, for instance, ADCs, it's going to be pretty difficult to combine them with other agents. So, we look forward to our Phase 2 data coming out of both the HER2-high and HER2-low arm asking very different biological questions, but it will give us a very strong position in terms of -- as a go-forward plan in both the HER2-low and HER2-high space.

Operator: There are no further questions at this time. I would like to turn the call back over to Steve Yoder for any closing comments.

Stephen Yoder: All right. Thank you. No other comments other than to thank everyone again for your attention and for your continued support of Pieris. I want to wish everyone a great day. Thank you.

Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.