Transcript of Inovio Pharmaceuticals, Inc. Third Quarter 2015 Financial Results November 9, 2015

Transcription

1 Transcript of Participants Jeff Richardson Investor Relations Peter Kies Chief Financial Officer Analysts Charles Duncan Piper Jaffray Thomas Shrader Stifel Jason McCarthy Maxim Group Presentation Greetings and welcome to the Inovio Pharmaceuticals Third Quarter 2015 Conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. ( Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jeff Richardson. Thank you, sir. You may begin. Jeff Richardson Investor Relations Today s call may contain certain forward-looking statements relating to our business, including our plans to develop DNA immunotherapies and electroporation-based delivery technologies as well as our capital resources. Please keep in mind that actual events or results may differ from the expectations discussed as a result of a number of factors, including uncertainties inherent in pre-clinical studies, clinical trials and product development programs (including but not limited to the fact that pre-clinical and clinical results referenced on the call may not be indicative of results achievable in other trials, studies and trials may not achieve the results desired, and they may not commence or be completed in the time periods anticipated). There may also be risks related to collaborative arrangements, including the timing and receipt of payments, the availability or potential availability of alternative therapies for the conditions targeted by the company or its collaborators, issues involving product liability, issues involving patents, the adequacy of our capital resources, the impact of government healthcare proposals and other factors set forth in our Annual Report on Form 10-K for the year 2014, our 10Q for the quarter ended September 30, 2015, and other regulatory filings from time to time. Finally, there can be no assurance that any product in Inovio's pipeline will be successfully developed or manufactured, that final results of clinical studies will be supportive of regulatory approvals required to market licensed products, or that any of the forward-looking information provided will be proven accurate. Now, Inovio s President & CEO: Dr. J. Joseph Kim

2 Good morning everyone -- thanks for joining us today. Let me get right to our look at the 3rd quarter and upcoming milestones. Executing on our oncology strategy, in August we signed a cancer collaboration and licensing deal with AstraZeneca s subsidiary MedImmune. In the deal, MedImmune acquired exclusive rights to Inovio's INO-3112 immunotherapy, which targets cancers caused by human papillomavirus (HPV) types 16 and 18. INO-3112, which is in phase I/IIa clinical trials for cervical and head and neck cancers, is designed to generate killer T-cell responses capable of destroying HPV 16- and 18-driven tumors. These HPV types are responsible for more than 70 percent of cervical pre-cancers and cancers. MedImmune will study INO-3112 in combination with their immunotherapy products. Both companies believe the benefits from immuno-oncology molecules in MedImmune's portfolio will be enhanced when combined with cancer vaccines that generate tumor-specific T-cells. In fact, MedImmune was recently quoted as saying this combination has the potential to deliver real clinical benefits for patients. We expect to start the first combination clinical study in the near future. In the deal, Inovio received an up-front payment of $27.5 million and we are entitled to $700 million in potential future milestone payments. MedImmune is paying all development costs and would pay up to double-digit tiered royalties on INO-3112 once commercialized. Within the broader collaboration, MedImmune and Inovio will develop two additional DNA-based cancer vaccine products not included in Inovio's current product pipeline, which MedImmune will have the exclusive rights to develop and commercialize. Inovio will receive development, regulatory and commercialization milestone payments and will be eligible to receive royalties on worldwide net sales for these additional cancer vaccine products. This strategic partnership with MedImmune represents an important step in executing our immuno-oncology combination strategy and advancing Inovio's cancer vaccine R&D pipeline with a leading cancer immunotherapy company. Notably, in light of the many collaborations being done in the immuno-oncology field that do not provide financial consideration, our deal with MedImmune does stand in a very small crowd of comprehensive immunooncology partnerships with significant financial terms. We appreciate MedImmune's recognition of our ability to activate best-in-class killer T-cells in vivo. This deal builds upon existing partnerships between Inovio and MedImmune on two research and development collaborations in the infectious disease area with DARPA grants totaling $57 million. We have two INO-3112 clinical studies progressing, with positive interim immune response data generated in an Inovio-initiated phase I/IIa head & neck cancer study. We reported last week that INO-3112 generated robust CD8+ T cell responses in all 10 tested patients with head and neck cancer associated with human papillomavirus (HPV) types 16 and 18. To reiterate and emphasize a critical point: we generated strong immune responses in patients with disease. These data were presented at the Society for Immunotherapy of Cancer conference last week. These results demonstrate we re on the right path using our DNA immunotherapies to fight cancer. In immunooncology, it's all about the T cells. With VGX-3100, we showed we can generate best-in-class T cell responses in vivo, that these T cells go to the diseased tissue, and that they clear diseased cells as well as the virus. Now in patients with cancer we are also showing that we have taken the first step of generating antigen-specific CD8+ killer T cell responses, which are essential to an effective immunotherapy. We expect various steps forward in our MedImmune partnership and on our expanding cancer R&D work. You have only seen the first steps, with much more to come. Page 2

3 Let me discuss what I think was another important Inovio accomplishment last quarter in a program that represents another strategic footing for the company: that is new results from our DNA-based monoclonal antibodies or dmabs. In a mouse study our dmab targeting the dengue virus provided protection against a lethal dengue virus challenge. Importantly, protection conferred by dmabs was very rapid, with 100% survival in mice less than a week after dmab administration this short time frame to achieve full protection is significantly more rapid than vaccine-driven protection, which can take weeks to months to reach peak efficacy levels. Together a dmab and antigen-generating immunotherapy offer the prospect of an ideal combination of both rapid onset and long term durability of immune protection. We are building a comprehensive dmab technology development program that includes immuno-oncology products as well as infectious disease dmab products, with significant funding already awarded by DARPA to enable our development of dmab based products against influenza, antibiotic-resistant bacteria, and other diseases. One area in which we are advancing dmabs is in our Ebola program. In September we received an additional option grant of $25 million. This option exercise, part of the $45 million Ebola program grant announced in April when Inovio received an initial $20 million award, was contingent upon Inovio successfully leading the completion of certain pre-clinical and clinical development milestones. DARPA has funded this program to develop a DNA-based vaccine against Ebola, a therapeutic dmab to treat Ebola infection, and a conventional monoclonal antibody to treat Ebola. Since the grant award in April, Inovio and its collaborators have already completed patient enrollment of the phase I clinical study for Inovio's Ebola vaccine, INO We expect to report interim safety and immune response data in the next few months. We expect to report various results and advancements from our dmab program relating to both cancers and infectious diseases through next year. Continuing with our infectious disease portfolio, we expect to move our vaccine for MERS, or Middle East respiratory syndrome, into a phase I clinical trial in healthy volunteers before year end. There is no vaccine or effective treatment against MERS, which spreads from human to human. Since 2012, MERS has infected over 1,500 people and killed almost 600 or 40% of those infected. Earlier this year, Inovio s MERS vaccine induced 100% protection from a live virus challenge in a preclinical study. We are moving rapidly from achieving complete protection from MERS in monkey studies to our goals of obtaining safety data from a phase I trial and moving forward to regulatory approval. Let me also remind you of two trials we initiated last quarter: First, a phase I trial of our global PENNVAX-GP vaccine. This latest HIV vaccine trial will allow us to test our universal HIV vaccine, with the potential to provide protection and treatment against viruses from all major global clades. This is a major step forward in extending our clinical experience with the PENNVAX platform and the innovation developed from our previous PENNVAX human trials. While HIV/AIDS is not the death sentence it once was, nearly 36 million people have died from HIV-related causes and 35 million are still living with HIV. Second, we initiated a phase I trial to evaluate Inovio's DNA immunotherapy in men with biochemically relapsed prostate cancer. The launch of this human trial follows strong pre-clinical results revealing that INO-5150 generated robust CD8+ T cell responses in animal studies including non-human primates. We expect to report in 2016 interim immune response data from both the prostate study as well as our htert study in patients with breast, lung, or pancreatic cancer. Page 3

4 Now, our CFO, Peter Kies with a financial update and a first for Inovio. Peter Kies Chief Financial Officer Thank you, Joseph. Good morning ladies and gentlemen. Let me start out by acknowledging the obvious: Inovio did report a profit and positive cash flow for the quarter. This result was primarily due to $15.0 million of revenue recognized in the quarter from the up-front payment received from our partner, MedImmune. Accounting recognition of the remainder of the $27.5 million upfront payment received in the third quarter has been deferred and will be triggered by future events. The other contributor to our revenue was development payments paid to us by DARPA for our Ebola program. These financial results are of course based primarily on a specific non-recurring event. The increase in revenue to $24.2 million and $34.6 million for the three and nine months ended September 30, 2015, compared to $1.8 million and $8.0 million for the same periods in 2014, was also mirrored by increased operating expenses. Our year over year quarterly operating expenses doubled to $20.5 million. This increase in operating expenditures has been due primarily to research and development costs. Going forward we do expect significant development payments from collaborators and funders such as MedImmune, Roche, and DARPA, that are related and will partially offset the higher operating expenses associated with our expanding programs and growth. The MedImmune upfront payment contributed notably to our treasury and as of September 30, 2015, cash and short-term investments were $170.8 million compared with $93.6 million as of December 31, At quarter end the company had 72.2 million shares outstanding and 78.9 million fully diluted. Now back to you, Joseph. Thanks, Peter. In the last quarter, Inovio achieved another first -- the publishing of an Inovio study in The Lancet, one of the world's leading medical journals. In September, The Lancet published a peer-reviewed article detailing the successful results of our phase IIb trial of VGX-3100 in treating women with high-grade cervical neoplasia. The Lancet reported that in VGX-3100 treated women who regressed their lesion, most, 43 out of 53, completely cleared their lesions to normal or a complete response. Moreover, 80% of VGX-3100 treated women who regressed their lesion also eradicated the infecting HPV genotype, which is type 16 or 18, in the cervix. Let me state that again. We were also able to clear the virus that caused the disease in the first place. This is an important outcome as persistence of the virus is associated with recurrence of the disease. All data analyzed per protocol or modified intent to treat were similar with equal statistical significance. Furthermore, analyses of patient immune responses showed that overall antigen-specific T-cell levels in women treated with VGX-3100 were greater than those treated by placebo at all observation periods. At week 14, for example, T-cell levels in women treated with VGX-3100 were ten times greater than those in the placebo group. Remember, for years medical researchers have tried to stimulate therapeutic immune responses against the human papillomavirus and cervical lesions with little success. This publication details that VGX-3100, a first-in-class product for treating high-grade cervical neoplasia associated with HPV, is the first therapy to demonstrate that activated killer T-cells induced in the body have the power to clear neoplastic lesions as well as the virus which caused the disease. Our DNA-based technology has overcome the elusive and this difficult challenge of activating and multiplying killer T-cells in the body to clear the established disease as well as eradicate the cancer-causing HPV virus. This is the first publication to our knowledge that Page 4

5 demonstrates the correlation of antigen-specific CD8 T-cells directly to clinical efficacy, and we think this is a big deal. Building on this proof of concept phase IIb study, Inovio is mobilizing to initiate a phase III trial for VGX-3100 next year. We are methodically setting up our phase III trial with a goal of achieving regulatory approval. To that end, we are preparing for our upcoming end of phase II meeting with the FDA. This meeting will also cover our proposed phase III design, scaling up manufacturing and testing of our delivery device with design optimized for clinical use that will also be used in phase III and in a commercial setting, and scaling up DNA plasmid manufacturing with a commercial CMO for the upcoming trial and for future commercial supply. While we are dealing with phase III launch logistics, we can't forget that for women with cervical dysplasia, there is no alternative treatment except for surgery, a procedure that can have side effects such as bleeding, birthing and fertility complications, and persistence of the virus with this implication for potential recurrences of the dysplasia. Our study of VGX-3100 provides hope for women that a safe, nonsurgical option will be available to them as soon as possible, and we really can't wait to get to our trial and hopefully eventual approval as soon as possible. Now I'm ready for our analysts' questions. Thank you, ladies and gentlemen. We will now be conducting a question-and-answer session. ( instructions). One moment while we pool for questions. Our first question comes from the line of Charles Duncan from Piper Jaffray. Please go ahead with your question. <Q>: So I had a question regarding the 3100 program. Thanks for the update on that but I'm wondering if you have actually scheduled an end of phase II meeting with the agency and if you can give us some color on when that will be or at least the design and timelines of the phase III that you are contemplating at this point, rough order of magnitude? We will be scheduling the end of phase II meeting imminently and we expect to hold the meeting mid-first quarter So that's the official formal end of phase II meeting with the FDA where we will look to refine and finalize our protocol as well as all of the other elements that go in to getting the green light for this phase III. We are methodically preparing our package, including the CMC devices as well as our clinical protocol. While I can't exactly comment on the detailed design of the protocol until we meet with the FDA, what I can tell you is that it's going to be very similar to our phase IIb study in which we were able to show statistically significant regression of the disease as well as the eradication of the virus. We expect the size to be about 2 to 3 times larger than our 150-patient study. So, we expect the total size to be in the 350- to 400-patient range. We also plan to do one-to-one randomization. So there are other elements that are going in that we hope will increase the overall efficacy based on our design as well as better the utility of the product as a commercial product. So, what I can assure you is we are very excited to get this study started and we expect this to start within a few months after our end of phase II meeting. We're very excited to get this started and we want to make sure that we design and execute this study perfectly and appropriately. Our team is working extremely hard and intelligently to achieve that. Page 5

6 <Q>: And just a follow-up to that, would you anticipate that trial to be a certain milestone analysis, like for example those endpoints that you mentioned, at a year or something like that? And is it possible that this could be the only trial that is necessary to drive approval of VGX-3100? So, the second question first. Those are the types of requirements and the answer we could only provide after our meeting with the FDA. So, I don't want to speak out of line but we are moving with the most aggressive projections and assumptions. What I can tell you is the endpoints we would look to analyze would involve a full patient set. It will not be a cancer type of survival at a certain date or design. So, it's going to be similar to our phase IIb design as was outlined in The Lancet publication. <Q>: And then last question is regarding the MedImmune partnership that you outlined earlier in the call. This is kind of a nebulous question but I'm wondering if you could share with us what your perspective is on the types of depth of diligence that they conducted or the timing of the diligence. I mean, are they just trying this out or, since there is some skin in the game, was it pretty extensive? No, there was extremely deep due diligence. They had seen our pre-published data from our phase IIb study of VGX-3100 and all of the up-to-date data from our head and neck and cervical cancer 3112 studies. So for them to invest $27.5 million up front, which is not trivial, and have extensive and substantial potential milestone payments, I do believe that as a methodical big pharma company they've done the diligence to make it work. As I said, there are trials that get started with drug-only combinations. But for INO-3112 we felt that such a onenight-stand approach wasn't the proper path. We just wanted to make sure that we get proper value for this partnership back to Inovio. Now Medi can speak for themselves, but we do believe, and based on the publicly released statements in the past, the combination of cancer vaccines that can generate T-cells in the body, like Inovio's INO-3112 as well as other products in our pipeline, would potentially complement and amplify the clinical efficacy in combination with an extensive arsenal of checkpoint inhibitor molecules that MedImmune possesses already. So, it becomes a perhaps logical but powerful one-two punch against cancer. We do feel and we do know that MedImmune is extremely committed to become the leader in this immuno-oncology field. Our next question comes from the line of Tom Shrader with Stifel. <Q>: I have a little bit of a question on the recognition of the upfront. Will it be lumpy rather than smoothly over the course of the collaboration? Can you give us any detail why? Peter Kies Chief Financial Officer I can answer that, Joseph. So, the revenue recognition is based on the deliverables in the contract is one of those. That's why it was mainly recognized up front because that trial is in progress. As part of the agreement, there will be other antigens that are developed and identified over the next two years. So, the remainder of that revenue will be recognized as milestone-based over probably about two years. The cash has all been received. It's just an accounting recognition policy. <Q>: But because it's triggered on specific events Peter Kies Chief Financial Officer Page 6

7 The new revenue recognition guidance [policy] from the SEC makes companies identify all the deliverables to the contract and then recognize a portion of that related to the upfront payment; and so a portion of that upfront payment has been allocated to those other compounds and will be spread out. It s not that the money would ever be returned. It's again just a revenue recognition policy with the SEC that spreads it out over the deliverable period, which will be the next two years. Our team is on it with our accounting partner, Ernst & Young, but I can't say I really appreciate or understand all of these intricacies of crazy accounting policies. But, rest assured, $27.5 million is in the bank and we are following all of the law and accounting procedures to properly recognize them. It's perplexing to many of us, as it is to you, Tom. <Q>: If we can switch to something we all know better, in the prostate cancer trial, is there a potential quick readout on efficacy to see a drop in PSA, or is PSA really the antigen? So a drop in PSA, you might just be scavenging the antigen. What's your sense of what a drop of PSA would mean in a trial like this? Because to wait for efficacy is very long. Is there a chance to get a quicker read on how things are going? The short answer is, yes. PSA measurement is one of the biomarkers we are tracking in this study. You made a good point. PSA is one of our antigens, but we have ways to dissect the anti-psa responses. To get to your overall point, we'll be getting the interim safety and immune response data next year before mid-year, I hope. To extend the answer to the question, in the VGX-3100 phase IIb study, we have shown that we can generate antigen specific CD8 T-cells in the blood and we can track them to the tissue, which led to clinical efficacy. In our head and neck 3112 study, which we just presented at SITC, we have extended into head and neck cancer patients the ability to measure, in the blood, these powerful levels of CD8 T-cell responses. Now we want to extend that to prostate cancer. Once we do that, we plan to move that into later stages with quicker survival endpoints, most likely in combination with a checkpoint inhibitor molecule. So, we want to be very aggressive in analyzing and dissecting and then making our path forward for the next steps in 5150 as well as our INO-1400 study which targets htert in many solid tumor targets. <Q>: And quickly, the last question on the CD8 T-cell response you just had after immunization with the HPV vaccine, do you have additional data on exhaustion markers on those T-cells? These are patients full of the antigen already, and you've measured a new response. Can you get into whether the T-cells are different than what would've been sort of assumingly slumbering there already? What kind of data will we see on the difference of these new T- cells? You will see a whole lot of that data. Currently, what I can tell you is we see newly activated CD8 T-cells from our VGX-3100 phase IIb study. We have published some of that. There will be additional publications from our phase IIb study that will further elucidate and add to the field, immunologically, of these cancer vaccine activities and potency. Without going too deep into the grass, I would just say that we are pretty certain that the CD8 T-cells we re measuring are activated CD8 T-cells from a vaccination, not from an existing expression from the tumors or HPVinfected cells. We could get into hours of discussion, but we're pretty certain of that, and more data will come, rest assured. Our next question comes from the line of Jason McCarthy from Maxim. <Q>: I kind of want to break off a little bit and ask when we could see more dmab data from Ebola, and not really about Ebola specifically because the more we look at the separation between CAR T and the vaccine space, clearly Page 7

8 the vaccine space is focused on lung, pancreatic, prostate, ovarian, and head and neck cancers, where those types of tumors are highly immunogenic, and they already have TILs in them often. So I'm wondering if you're going to get that dmab data. You already have the IL-12 and you also have immunotherapy. Are you thinking long-term towards using these in combination or even triple combination as you start to see your early data from your phase I studies and thinking about your phase IIs and kind of building out the vaccine space in these indications? Yes, absolutely. So, we re building an arsenal of weapons against cancer and very hard-to-treat infectious diseases, as you mentioned. Ebola and other IDs, MRSA and flu, have been the area of interest for DARPA to fund our dmab development program. So, we re really leveraging these external funds to bring about multiple products using the dmab technology. Ebola is just one of the first ones, including having a dmab against MERS, universal flu targets as well as MRSA, staph and pseudomonas. What I can tell you, Jason, is we have published two publications in the development of dmab. We expect to see about half a dozen more in the next few months. So, we are really going to bring out and showcase the power and the potential of the dmab technology. And you also touched on the other assets that we have. Obviously our cancer antigen targeting vaccines or immunotherapies are the most advanced part of our program: INO-3112, VGX-3100, 5150, That's really our four arsenals against cancer. You also mentioned about us having cytokine immune activators. We have our 12, 15, 33, 28. We have probably the biggest arsenal in terms of cancer antigen-specific vaccines, immune activators like cytokines and others in a DNA form, as well as the dmab technology. So, in the long run, we want to be the leading immunotherapy and vaccine development company. Along the way, as you stated, we're going to showcase and partner some of these assets as we have done with INO-3112, but our ultimate objective is to bring out our own products that we own 100% to the market through full commercialization and full phase III, up to phase III testing. That's really our ultimate objective. We're willing to use strategic partnerships and collaborations as the means to get to our end, which is to bring one or more products that we own wholly to the market. We believe that's the best path to enhancing and maximizing our shareholder and stakeholder wealth. Our next question comes from the line of Jonathan Aschoff with Brean Capital. <Q>: This is Sally in for Jonathan. Thank you for taking my question. Regarding 3112, can you tell us anything about any anti-tumor activities seen in the ten head and neck cancer patients you reported immune responses data for last week? That's a very good question. We are analyzing all the antitumor activities. Going forward we'll have a longer observation period, up to three years in these patients, but up till now we have not discussed any antitumor effects. I have to tell you, these head and neck patients are relatively healthy patients. We will likely see the greatest impact of the antitumor effect in the cervical cancer patients which is a sister study to this head and neck cancer study. As we go forward in combination with checkpoint inhibitors from MedImmune, and by the way, INO-3112 now belongs to MedImmune, our partner, we will be working diligently to bring about those anti-tumor responses. Page 8

9 Ladies and gentlemen, there are no further questions in queue at this time. I would like to turn the floor back over to management for closing comments. Thank you very much for great questions and listening to our quarter report. Certainly this was a milestone quarter for us. Although we can't guarantee recurrent profitable quarters because this was driven mostly through our MedImmune partnership deal, this was an extremely eventful quarter for Inovio, and there are a few reasons why. Number one, we published our phase IIb data in one of the world's top medical journals, which was a very important validation for us. Number two, we were able to leverage these results to get a large pharmaceutical cancer-based partnership done which had a huge impact on our top line, bottom line, and more so in the long run with the combination studies. Number three, although it may not be so visible from day to day, we are making tremendous progress in gearing up for our first phase III clinical study for VGX I am very certain we will be able to execute this as soon as practicable, and we are excited to launch this very important CIN study for VGX And lastly, we re very excited about all of the progress we are making with our immuno-oncology programs, INO- 5150, INO Oh, by the way, we will be launching another cancer target in 2016 which combines our various top cancer antigen choices, so please stay tuned. 2015, the rest of the year, is going to be very important for us going forward is going to drive many important catalysts for Inovio, our shareholders as well as all of the patients who are suffering from these cancerous infections. I'd like to thank you for listening to our call. Thank you very much. Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day. Page 9