AnaptysBio, Inc. ($ANAB)

Hello again, everyone. I'm Etzer Darout, senior biotech analyst at Barclays. My pleasure to have AnaptysBio CEO, Dan Faga, with us this morning. And maybe just to kick us off, Dan, if you could just give us an overview of AnaptysBio for those less familiar with the story.

Perfect. We're in exciting times right now. We're approximately a month or 2 out from creating a second company called First Tracks Bio, which will be the biopharma operations from Anaptys that we're spinning off. Anaptys has been around for over 20 years, developing antibodies. We have 2 successful programs so far out of our platform, one Jemperli dostarlimab, which is being sold by GSK, it's an oncology drug PD-1 antagonist. And the second has a PDUFA date at the end of the year. It's called imsidolimab for GPPs, which hopefully will be sold at the end of this year by a company called Vanda. Those 2 programs will stay behind, forming a royalty-based financial company that will retain the name AnaptysBio. In the biopharma business, we have a couple of exciting programs. One is AMB033, CD122 antagonist. It's being developed in celiac disease as well as EoE Phase Ib. We have rosnilimab, which is a PD-1 depleter. We had positive Phase IIb data in arthritis this past year. And currently, we are assessing how best to move that program forward into Phase III. We're meeting with the FDA this quarter, and we'll be looking for strategic or other financial capital to further finance the program with an update in the second quarter. And lastly, we have AMB101, which is a BDCA2 modulator in Phase Ia. There's a proxy program being developed by Biogen, which is in Phase III and SLE and CLE. We think we have best-in-class programs across all 3 of those antibodies. So excited to get that second company up and running in the next month.

Great. And I think we've sort of heard both sides of the debate about sort of separating a company where whether you have the ability to self-fund or being able to kind of unlock value, if you will, for the 2 individual entities. Maybe just go over sort of the rationale for now being the right time to be able to separate those 2 businesses.

Yes. I mean I think we've had a great response from the separation. We have 2 very different -- we will have 2 very different businesses in the end. One is a financial instrument that, again, with what we're leaving behind at Anaptys will be very high EBIT margin in the mid- to high 90% range, less than 10 FTEs or contractors, less than $10 million OpEx a year. And on the top line, with the royalties and just with the lead program with Jemperli out of GSK. Last year, Jemperli did on a run rate coming into this calendar year, $1.4 billion of revenue translated into approximately $100 million of royalties for us. And that is a very fast-growing mid-teens quarter-over-quarter growth asset. So that's getting very big quickly just from the monotherapy development that's ongoing there and the approval already in endometrial cancer. So that's really exciting and very different type of investor that's looking for profitability and high EBIT profile. It's really a proxy of the high-growth vertical at GSK, which overall is a neutral growing big pharma. So very different and unique in what we're creating relative to the biopharma business, which is pretty typical in terms of the shape and size. When we split out almost every employee will be transferred over to the new business. Our labs will be transferred over along with the assets. And we will fund that company off our balance sheet out of the gate, we'll have cash through milestones being driven by celiac and EoE disease into next year. Minimally.

Yes. Got it. And you talked about sort of allocating capital, obviously, across the pipelines for First Tracks Therapeutics. I'm assuming ANB033 is going to sort of take the bulk of that. And maybe kind of talk through sort of how you're thinking about capital allocation in the new business.

Yes. So we had $310 million coming into the year. It's approximately $10 a share -- on share counts. So a large portion of that will move into the biopharm business. I was saying earlier, the Anaptys company on an OpEx basis, it does not need a lot of cash to get through cash flow positivity. It will be GAAP positive right out of the gate. But we project cash flow positive when we pay down nonrecourse debt with Sagard, which we expect to be into mid-2027. So it doesn't need a lot of cash. The biopharm business does need capital. More specifically, $100 million will put us into Q3 of 2027, $200 million will put us into the back half of 2028, fully funded, which is dominantly AMB033. We have a choice to make, which we'll make over the next month of where within that range off the balance sheet, we look to capitalize any capital that we do not put into first tracks will remain behind it will be available for return of capital to shareholders and out of the gate, potentially things like share buybacks.

Got it. Maybe shift gears to AMB033. Obviously, a product candidate that you're excited about. First, maybe the design strategy for celiac disease, which will have obviously an update in the second half of this year. How it's sort of different from what others have done, and can you just take it from there.

Yes. So AMB033, like I mentioned, is a CD122 antagonist. It blocks the signaling of IL-2 and IL-15, which are 2 pathways that target inflammation within celiac disease. So gluten is digested, the byproduct, gliadin is picked up. It's the antigen in this disease. It's picked up by APCs that are then presented to Th1 CD4 cells. You see a release of IL-2 and instigates the inflammatory cycle. So we're hitting that pathway direct by blocking the activation and proliferation of CD4 T cells. We're also blocking IELs, which are very similar to phenotype and CD8s, and they survive off of IL-15. So by blocking that signaling, you see a reduction in ILs. So we're hitting both sides of it. In order to test the hypothesis, we've taken a very creative design of Phase Ib. It's traditional to see patients who are very well controlled that have celiac disease treated with a gluten challenge or targeted with the gluten challenge. So you're inducing damage or mucosal injury in patients who don't see it otherwise. We measure that via histology look of the destruction of the villi measured by VHCD, villous height-to-crypt depth ratio. So these patients start with a higher VHCD. We're giving them drug versus placebo, 1:1 randomization at subcutaneous at baseline, week 0, week 2, week 4. Then for 14 days, they're ingesting gluten. So now it's week 6. We're doing a scope. If you take in the placebo, the gluten will induce that damage. You just see a deterioration of VHCD. On drug, you'll see something more neutralized in terms of the impact. And we're looking for statistically significant difference between placebo and drug at week 6 on those biopsy results relative to baseline. The second thing we're looking at is severity and frequency increase of symptoms for patients that were on placebo relative to drugs so looking to prevent symptoms. So this trial design is relatively standard. You see it typically with all celiac drugs in Phase Ib. The second cohort that we're assessing is patients who show up thinking they're well controlled, but via the biopsy results, we're finding that their VHCD is less than or equal to 2, meaning that their villi is showing signs of mucosal injury. It would be unethical to give them gluten. Instead in this cohort, so 1:1 randomization again versus placebo, giving subcutaneous drug at baseline week 2 and week 4. But instead of administering gluten, we're waiting. We're waiting until week 12, so 8 weeks later off drug to assess if there's been healing. So is there an improvement on VHCD on drug relative to placebo. This patient population is more representative of the commercially viable population for patients with celiac disease. The difference here, these patients are -- have mild symptoms, whereas in a Phase IIb, you would be assessing patients with mild, moderate and severe patients. But it's a good proxy to show that we're driving at targeting the inflammatory pathways and inducing improvement via the histology assessment. In this population or in this cohort, we are not expecting or putting a prerequisite for ourselves that we need to see statistically significant results for placebo. It's exploratory. We're looking for a numerical trend on VHCD. No one has done this before with this cohort, but it's an exceptional additional piece of information that we will have to then go off and design a more robust Phase IIb that should be further derisked that we would typically see from just the gluten challenge and the information there.

Got it. And with that information from the 2 cohorts what would the Phase II look like? Would you sort of design maybe 2 separate trials? Would you ultimately find sort of some way to kind of measure and include sort of both cohorts of patients in a Phase IIb? How would you think about that?

Yes. So there is draft FDA guidance on the primary endpoints. And I've now spoken to both of them. You need a histology outcome, which VHCD would -- the ratio there and the change of ratio there would qualify, and you need a PRO. The PRO that we're assessing is the celiac disease symptom diary. It measures frequency and severity of symptoms over time. So again, statistically significant results in the Phase Ib and the gluten challenge on both of those that we're assessing. In the second cohort, we're looking at only VHCD numerical score. We're also capturing symptoms, but I'm not sure we're going to see since patients present feeling better controlled than the typical population. So we know what the primary endpoints would be. The difference is we have a 3-month trial in that second cohort. We'll be looking more at 6-month, 1-year long plus endpoints. In a much larger trial, we'll probably look at multiple doses. We're looking at one dose in the Phase I. And it's to be determined how Phase IIb into Phase III looks like. But we'll generate the data this year. We should have results from the Phase Ib in Q4 of this year, and then we'll go speak with the FDA on how to move forward in the fastest way possible.

Got it. And sort of the competitive landscape, one is sort of you've had data from competitors, I think that ultimately gave people more confidence around the mechanism. But then inevitably, the question around differentiation will come up. So how are you thinking about sort of the competitive landscape here for ANB033 relative to what we've seen from others?

Yes. So I think there's encouraging signals that targeting one or both of these inflammatory pathways can drive meaningful results for patients. There's 3 other programs that are in the IL-15, CD122 pathway right now that have proof of concept in celiac disease specifically. Teva and Novartis have IL-15 blockers. That's only going to hit one side of the 2 inflammatory pathways in this disease. And there is just another CD122 program that had positive trending Phase Ib results. The Teva program should have data from their Phase IIa as a gluten challenge later this year as well as the CD122 competitor with Phase IIa gluten challenge data later this year. So again, the distinction here is the gluten challenge there will be read-throughs not just from the Ib data that exists from these competitors, but also from Phase IIa, which will be longer tenured trials beyond 3 months, but also only in gluten challenge. So I think we'll be generating something very different with that second cohort. I described earlier how the mechanism of action at a high level works with the CD122 antagonists. We have a subcutaneous format that is very potent is based off the combination of the affinity and the epitope of which we bind onto CD122, which on CD8 and CD4 cells, the way this works is there's a dimeric or trimeric receptor, you're targeting one of those receptors. But based on where we are in the epitope, we think we have distinguished signal blocking of IL-2, which is really bound to directly the CD25, which is part of that trimeric receptor on CD4 cells. So there's differences between the drugs. We think we potentially have something that's more potent. And like I said, the administration profile is differentiated. So excited about what we have. I think when you look on paper in a year, we're all more or less on the same place in celiac disease and development time lines. However, we have that additional information from that second cohort, which I think gives us a distinct advantage as we think about moving and derisking Phase IIb.

Great. And obviously, celiac disease is just the tip of the iceberg here with AMB033. If you can maybe talk to EoE, the opportunity there and then sort of what we can expect next from that program?

Yes. So we're excited about the second trial. It's just initiating EoE right now. We'll have data in 2027, a 50-patient trial, 1:1 randomization. And we're looking at, again, 2 distinct endpoints that we are powered for, which are also the co-primary endpoints in Phase IIb, Phase III trials in this disease. There is a histology look. It's really actually measuring a cell type that gets infiltrated in this disease called eosinophils. We're looking to target the inflammatory pathways and block eosinophils from being recruited into the inflammatory environment. The second is our PRO. This one is called DSQ. We're powered to assess statistical significance versus placebo on both of those endpoints. EoE is -- it's different than celiac in that we're going to be able to show in this trial that we're targeting Th2 CD4 cells as well as ILC2s. And the reason I bring this up, that's one side of the inflammatory cascade. This is the side that Dupixent targets, which is the only approved therapeutic in EoE. We've shown preclinically through an aspergillus eosinophil-induced model, the reduction or prevention of Th2 proliferation and ILC2 increases. We've shown this on the cell types as well as other biomarkers that you would tend to see. What's important about that is just by targeting that pathway as well as CD8s, we are upstream from those eosinophils and we're preventing their increase. We don't target them directly. And I think that's one of the key differences and one of the key differences with Dupixent, which is the only other drug that's shown to be effective in this disease is that drugs that have targeted eosinophils directly downstream or other proxies of that, you might be able to prevent eosinophil influx, but you're not actually treating the inflammatory pathways of the disease. So there has been failure in this space, but we're taking a very different approach by hitting the Th2-ILC2 side as well as the CD8 side. There is proof of concept here. So Novartis IL-15, the precursor company that they acquired Calypso, did run a small EoE Phase Ib, again, just targeting CD8 cells, again, not eosinophils upstream. In that study, they showed a prevention of eosinophil recruitment and a reduction or prevention of symptoms getting worse by treating that disease. So there's a proof-of-concept surrogate in humans from treating that just that one side of the pathway. We're doing both with a CD122 antagonist. The opportunity here is Dupixent is only effective or modestly effective in 60% plus of patients. The other 30% plus, you do see an increase in IL-15. So we actually think we can have a potential solution here for all patients, and we will be recruiting patients who are both Dupixent experienced and Dupixent naive. So excited about the other opportunity here, different than celiac. And if we're successful, it will open up the pathway to many other diseases. This landscape has across the competitors I've already mentioned, there are folks focused in atopic dermatitis, vitiligo, alopecia. Teva is talking about EoE as well as a potential additional indication. So a number of places that folks already are playing plus expansion opportunities for us or maybe others in the future. A lot of data coming out across the landscape over the next 12 months in celiac disease and the other diseases I mentioned.

Got it. Yes. And then actually, to that point, I guess we'll see because the [indiscernible] is in the details, but we -- one of the competitors is vitiligo data this half and alopecia data sometime in 2026. Does failure read through in those specific indications recruit ANB033 mechanisms given sort of the differentiation there? Or do they still see sort of a viable opportunity because of what you've seen preclinically for those other indications?

Yes. Look I mentioned very specifically, there's human proof of concept that's positive in celiac disease. I think these are all different diseases. We are not running a trial in vitiligo. We're going to wait and watch and look at the results. I think there's a very good thesis for targeting CD8 cells that are present in the setting of vitiligo. It could be a great target for just an IL-15 that doesn't have the power of blocking IL-2 as well and the IL-15 signaling have multiple different types of cells. So we're looking at those results, obviously. Vitiligo is a potential third, fourth, fifth indication for us. And if we see success in the field, once we get our own data in the two diseases that we're focused on, then there's a big opportunity to expand in other Phase II diseases, and it could include markets like vitiligo.

Got it. And I think you've sort of in the past mentioned sort of diseases like type 1 diabetes as well as a potential opportunity. Just quickly the rationale there, just sort of given the size of that opportunity relative to, I guess, the other indications that could certainly be attractive.

Yes. So we haven't -- we have not said publicly that it's a disease that we're looking at. Explicitly, it's one of the target diseases that is rational given the influx of CD8 cells and the impact it makes on these [ FLT-producing ] cells in the disease. So I think it's another thing that we will be assessing through the course of this year into next year. But I'm not going to get into more details. I don't want to sit here and speculate right now on which diseases we will be pursuing, but there are multiple options for us for third, fourth and fifth. And I mentioned different capital needs for the company. The $200 million that brings us in the back half of 2028, that does include expansion to at least a third or fourth indication beyond moving celiac and EoE into Phase II.

Got it. Great. And then sort of back to the royalty business for a couple of questions. Obviously, Jemperli, significant grower for that business. Vanda could come online with their royalty stream by the end of the year. Are there other revenue opportunities that you see or consider that could be sort of valuable for shareholders from that business?

Yes. So specifically, the business model here, and you could tell what the de minimis infrastructure we're looking to put is to protect and return the value from the royalties we already have from the Anaptys platform. We're not looking to expand with other drugs. That said, Jemperli is growing in the mid-teens quarter-over-quarter off that $1.4 billion run rate. GSK has guided to far north of GBP 2 billion, which is $2.7 billion. We believe that, that's achievable as early as 2029, which results in very close to $400 million of royalties given the royalty stack here goes from 8% to 12% to 20% to 25% through all those tiers under that target number set by GSK. And it's important to note that GSK is on record from now multiple years ago and has repeated over time, just success in endometrial cancer, which is where they're currently approved with an overall survival data package that's differentiated from KEYTRUDA, which does not have overall survival data. And the second indication is rectal cancer, which they have announced later this year. There will be pivotal results available as a proxy for that. In Phase II, they showed a 100% ORR, which is unprecedented. So we're excited to have high expectations there. Those 2 diseases alone GSK has said we'd get to those peak sales numbers of $2.7 billion. We should also see data on the primary completion in a Phase II trial in MMRP colon cancer is scheduled to be this year. There's 2 additional pivotal trials going on, DMMR colon where there's Phase II proof of concept and head and neck cancer, where there's proxy read-throughs from KEYTRUDA. What's interesting here and you think about the growth over time is we have at least a decade to go of composition of matter in the U.S., then a year later in Europe and 2037 in Japan. So there's a lot of IP left with the program. GSK on a monotherapy basis is competing in spaces where KEYTRUDA doesn't have data or is not being developed. So we feel very well protected here when you look over the horizon relative to what's going to be going on with the KEYTRUDA franchise with Merck. So I think in the short term, there will be -- there will continue to be a lot of growth for monotherapy development. But in the mid- to long term, there's a huge, huge opportunity. It's just this year, it's gone from the 20th largest drug in the company. This year, it's projected by consensus to be the sixth largest. Consensus has really shown to be laggard here, backwards looking about 1/3 of the analysts are showing negative growth this quarter. So it's not a good proxy for value, but it does give a good reference point of just how important this drug is to GSK's overall business. It's the largest oncology program in the company, but it's the fastest-growing drug, over $1 billion of sales times 3. So really important to the future, I think GSK's franchise, which gives us a lot of confidence here to anchor the royalty business around the Jemperli royalty. And like I mentioned earlier, Vanda has a PDUFA on December 12, looking for approval in GPP, generalized pustular psoriasis. It's best-in-class IL-36 receptor antagonist. So we should exit this year with 2 commercial stage royalties. Exciting.

Great. So we're up on our time. Dan, thank you so much for your time this morning, and thank you for our listeners, and we'll be back for our next session. Thank you.

All right. Thanks, everyone.