AnaptysBio, Inc. (ANAB) Earnings Call Transcript & Summary

So thanks, everybody, for joining. My name is Dave Risinger. Very much pleased to welcome Anaptys, and Dan Faga, the company's CEO. So sorry, we're getting started a few minutes late here, but looking forward to the discussion. So thanks again for joining us.

And maybe you could just start off with some key comments, probably interesting to start on Jemperli first, and then we'll take it from there.

Perfect. Yes. So we announced 6 months ago, we were breaking the company into 2. We're approximately 45 days, maybe less away from, I think, the best case scenario in doing that, which is also our base case. We flipped the Form 10 public last week and described, and we'll get into this later, what the operating business, the biopharma operating business, will be that we're dividending out. What we're leaving behind is 2 royalties, one for Jemperli, which is a commercial program sold from GSK. The second is imsidolimab, which has a PDUFA date at the end of -- or mid-December of this year, which will be sold by Vanda. So we should exit the year with 2 commercial royalties, leaving behind NOLs, cash, that will be in the parent company that will remain in Anaptys. So as it relates to Jemperli, there just continues to be quarter-over-quarter excitement with the way the launch has gone in endometrial cancer in the United States, and we think more recently, Europe and certainly through this year, expansion through Europe in endometrial cancer. Jemperli ended on a $1.4 billion run rate, and GSK has guided to far north of peak sales of $2.7 billion. So they're more than halfway there on a run rate basis for a drug that's growing in the mid-teens quarter-over-quarter. We think that there's a couple of catalysts this year that matter a lot, including pivotal data in rectal cancer that GSK has guided to later this year. They did receive a priority voucher, which would allow for rolling submissions in the 1- to 2-month approval time frame. So it's conceivable that they will be in a second indication in this one, dMMR rectal cancer, where KEYTRUDA is not even present. So we do see consistent growth as they have geographic expansion and label expansion this year and then continuing on for the next many years. That will be the anchor in the parent company that will remain in Anaptys. So we have a very large outsized royalty as it relates to this program, 8% at $1 billion, escalates up to 25%, north of $2.5 billion of sales. So last year, we did about $100 million of royalties. This year, it could be closer to $200 million at "peak", which we think -- I'll use air quotes for peak. We think that could be as soon as 2029, and we'll have close to $400 million of royalties when GSK achieves $2.7 billion. So really big numbers that are growing quite quickly. And we think the parent company here that houses these royalties will be cash flow positive as early as mid-2027 after we pay down some non-recourse debt that's still outstanding given the size of the royalty growth. So we don't need a big business to run the parent, less than $10 million of OpEx, less than 10 FTEs. It will be, generally speaking, a virtual company that we're leaving behind. So that will be present in the next 45 days, and then we can answer any other questions on this one or transition to the biopharma business. So it's exciting what's going on.

That's great. That's great. Well, I guess, I am curious if you could just comment on the ongoing litigation with GSK.

Yes. So I just described excitement around Jemperli as an asset in monotherapy development. We have litigation outstanding that really speaks to, we think, contractual breaches in the way GSK is developing their oncology portfolio in combination with PD-1 antagonists. So what I mean by that is they're not only looking to combine their ADCs with Jemperli. They're also looking to combine their ADCs with KEYTRUDA. We think that violates, breaches in materiality on exclusivity, materiality on disclosures that they have owed to us over time and on an ongoing basis of where they're moving with the drug as well as a breach in CRE obligation. That's a very high bar. It's atypical for big pharma companies, but we did put this contract in place in 2014 with TESARO that requires optimum commercial return. And very specifically, that high bar, if you're spending money on developing a competitor in KEYTRUDA and/or then commercializing in combination with KEYTRUDA, that's all going to be at the expense of Jemperli and therefore, not optimum if you're only looking at Jemperli in a vacuum, which TESARO, the subsidiary, is required to do. So there's 3 different claims. If we win on any of them, and the contract is pretty clear that Jemperli would revert back to Anaptys. There is a counterclaim issued by GSK that initiated the public litigation. There was a hearing last week where we filed a motion to dismiss, and we should hear the results to see if their claim will just be dismissed out of hand. It has to be issued within 60 days of the hearing. So I think we -- that hearing, we had good arguments on the merits, and we'll see where the judge comes out later this month or next month.

Excellent.

The trial for our claims will be July 14, the bench trial in Delaware Chancery Court. So it's upcoming over the next 4 months.

Perfect. And then why don't we transition to the business that will be spun off? I guess, clearly, you're not worried about it because it's an opportunity, at least as I see it with respect to the litigation, but you're planning on the spin-off irrespective of the timing of the resolution of the litigation with GSK. Is that correct?

Yes. So the separation of the biopharma assets with cash, specific liabilities like our lease, and these types of things, all our -- effectively all our employees will be transitioning over to First Tracks Bio, ticker will be TRAX. It's not dependent on the litigation at all. And we've been saying that for quite some time. We announced the intent to separate long before the litigation existed. From a legal perspective, we filed the Form 10. This is a dividend. We'll be giving out shares that represent the biopharma business. It will be a taxable transaction to the corporate parent, which is Anaptys, which I believe any potential tax will be shielded principally by the NOLs that we're leaving behind. So it's just not dependent on the litigation. We are in a best case scenario from when we announced the intent to separate on how things have gone with the financial audits, the dialogue with the SEC, where, like I said earlier, April is the fastest time, and we're trying to target into April and make the separation effective. So yes, it's exciting. It's close, long time coming, it feels like.

Phenomenal. That's great. So why don't we pivot to ANB033. So super exciting opportunity in celiac disease. And it's in Phase I development. So if you could just start with just a high-level quick framework, and then we'll go into some details.

Perfect. ANB033 is we're describing this as the anchor for the biopharma business. And it's not necessarily a value driver. We'll talk about rosnilimab later, and there's a lot of opportunity there, but it is where we're going to be focusing on our operating energy. We believe that this program in celiac disease, EoE, these are 2 markets where we can run quickly for a biopharmaceutical company. We can grow up the business and really have aspirations to be fully integrated. We can commercialize in disease like celiac where there are no approved therapies to treat patients who otherwise are on a gluten-free diet, and there's 0.25 million patients that are diagnosed with celiac disease who are not controlled on their gluten-free diets in the United States alone. So it's a big market opportunity if you have the right drug that can target the inflammatory pathways in that disease. ANB033 is a CD122 antagonist. So it binds to a dimeric or trimeric receptor on various immune cells and blocks IL-15 and IL-2 signaling. So in the landscape of development, there's a lot going on here right now. There's a couple of IL-15 only cytokine blockers in development by Teva and Novartis. And there is one other CD122 focused biopharmaceutical small cap player that we're also competing with. I think when you step back and look at celiac disease, since you raised it, there's already proof-of-concept in all 3 other players in celiac disease. We think we're doing something different. We think we have a differentiated drug, but it's an exciting first place for us to be targeting in Phase Ib.

And remind everyone about your differentiation versus Forte CD122?

Sure. There's a lot of preclinical data that we've generated. I think the output of why we think these molecules are differentiated is we are administering a subcutaneous formulation. We've shown data from our Phase Ia study at a mid-dose SAD data that was highly effective. It eliminated 98% of CD122 expressing NK cells in the periphery in healthy individuals and mid-70 percentile of CD8 expressing CD122 cells, which are one of the target cells in the diseases that we'll be talking about. The fact that we're doing this in one subcutaneous administration allowed us to then pull through in the Phase Ib, the trials for both celiac and EoE, a subcutaneous formulation where we're dosing in one of the cohorts in celiac at week 0, 2 and 4, and we're waiting 8 weeks before we take biopsy results at month -- I'm sorry, week 12. So 8 weeks later, month 3. So we're already looking at long-term PD that we observed preclinically and we observed in the Phase Ia study. And so we think there's a lot of opportunity for a commercially viable dose right out of the gate, and we'll explore more dose finding in the Phase IIbs. The reason we can get to subcutaneous dose is ultimately a difference in potency. Forte is an IV-administered drug at this point in time. We do think Forte has a -- I mean, they've obviously shown enough potency to see results in celiac disease. So there's a drug there, but we do think there's a distinction.

Excellent. So why don't we talk a little bit more about celiac disease. So how is that condition currently managed? How many people really need treatment that can't manage their disease with food management?

Yes. There's, in the order of 2 million to 2.5 million prevalent -- from based on prevalence, celiac patients in the United States. More than 1 million have been confirmed, diagnosed via biopsy. About 0.25 million patients in the United States are not controlled on a gluten-free diet. And so all patients cannot be near gluten or they generate a response. Some patients -- and it's to be determined, trace amounts of gluten really initiate the autoimmune cycle here. And that's where that 0.25 million patients. And we're showing this in our trial. We're running a gluten challenge, which are patients who are well controlled ultimately versus placebo. You're administering drug or placebo for that first month. You're giving gluten for 14 days. And then you're doing a biopsy at week 6 to see the patients on placebo should be getting worse. You should see injury via measured by the villi deterioration, measured by VHCD, Villus Height/Crypt Depth Ratio. You should see that getting lower. You should also see acute symptoms rising if you're on placebo. If the drug is effective, you won't see those things happen, you should be preventing disease. That's the gluten challenge. But for patients who end up presenting with VHCD ratio less than 2, that means that the villi already shrunk; there's already injury. So these are patients who actually think they're controlled. But when they go to the biopsy at the baseline, they find out they're not. And that represents a big portion of what we believe this population will be. So these are patients with no to mild symptoms that have deterioration in the villi. So the purpose of our second cohort is to treat these patients with VHCD less than 2. And like I mentioned earlier, you're giving drug versus placebo for that first month, then you're waiting a week 12 to see if you've induced healing. So that population is representative of -- we can show a numerical trend towards healing at 3 months of the broader 250,000 patients that would present regardless of symptoms, not just none to mild acute symptoms, but also the moderate to severe acute presenting patients. So we think it will be a much larger population for Phase IIb, but we'll be able to show in a very controlled setting, you can treat the -- target the inflammation and treat the mucosal injury with our drug. So that's the idea: 2 different cohorts, 2 different sets of information. One would be comparator. We're looking for statistical significance in the gluten challenge. You can look at our drug relative to the others in the class. And then a very unique set of data that we will be the only ones that have that will inform the way we think about dosing and the design of a Phase IIb trial, the commercially relevant and we think what the FDA would be looking for in terms of endpoints on VHCD and the PRO around symptoms for the Phase IIb trial. We should have that data across both cohorts in the fourth quarter of this year.

Excellent. Let me pause there to see if there are any questions from the audience. All right. We'll keep rolling. So what are you watching from a safety standpoint?

With any autoimmune driving disease that targets inflammation, you're always looking at things like infection rates. In the Phase Ia, we didn't see any evidence of infection or any safety issues whatsoever. It's often talked about there's a PD marker. Many NK cells, somewhere in the order of 60% to 80% of NK cells in healthy individuals are expressing CD122. We showed a 98% elimination of those NK cells that are expressing CD122. The remaining NK cells that don't are functional. We do believe that there's enough there, a lot of discussion with KOLs that you sustain immune competency by not touching the NK cells that don't express CD122. That's something that we're tracking over time in the Phase Ia. Others in the class, Teva has a potent IL-15. These NK cells are highly sensitive to IL-15 for survival. So you're seeing a similar PD outcome with an IL-15 targeting agent as well as the CD122 blockers. Teva has data that's out over 2 years with long-term PD similar and no safety issues. So to date, we haven't seen anything. We weren't limited in tox and where and how we're able to dose. The data we presented in our Phase Ia data, the 1 SAD dose, I was referencing on NK cells as well as CD8 expressing CD122 cells. This drug is effective at the mid doses there, and that's what we're showing. So we have a lot of room here to continue to push dose. And then we have a no regret dose is what we're calling in the Phase Ib. So there's nothing we've seen so far. There's nothing we're specifically, therefore, looking for of concern. And I think that goes for the whole class at this point, not just our drug.

Excellent. That's great. And is there anything you could say about the latest on enrollment, the investigator experience to date?

Yes. So we are -- these -- each of the cohorts, it's a 60-patient trial in celiac disease. Each cohort is 30 patients. It's 1:1 randomization, so 15 on drug and 15 on placebo. So it's not a huge trial. We've started in Australia and New Zealand. We're incrementing into Europe in real time right now in terms of enrollment. We'll ultimately be progressing into the United States. So we're going to have more than enough sites, robustness across countries and the heterogeneity of the patients. So things are on track. We guided to Q4 when we initiated the trial in October of last year, and we're on track to deliver the data in that time frame. So things are going well.

Perfect. Can you talk a little bit about onset of action for your CD122 and potential differentiation?

So we've shown preclinically concentration curves, which I don't think is exactly what you're asking about, but relative potency to the other IL-15s and CD122s. And a little bit of what I was saying earlier is in a subcutaneous formulation, we are highly potent with a lot of room to operate. And then our modeling and what we saw in the Phase Ia, we did have a pretty profound impact on TEMRA, CD8 expressing TEMRA cells. It's about 75% reduction off of 1 dose. You see that within the first 3 weeks of the trial in the Phase Ia. We used the CD8 -- CD122 expressing CD8 cells to model what we need to be targeting in diseases like celiac IELs, which are generally speaking, a CD8 phenotype, but we would need to hit the IELs in the gut. So we use that to model what we're looking for. But in terms of the PD effect, it's less so about speed of impact, although that's there. It's really more around the long tail you have on the elimination of the cells that are expressing CD122. And that was what was observed and consistently with the more potent agents targeting these NK cells as well as the CD8 cells.

Got it. And then with respect to the frequency of dosing, so 033 would be dosed more frequently than Teva's IL-15. Is that relevant? Or how do you think about that?

I think it's way too early to project what the dosing will ultimately be here as we get to later-stage trials. When you're running a 1 dose Phase Ib, we like to think of that as a no regret dose. So we are administering subcutaneously at week 0, 2 and 4. We think of that as an induction. And the idea here is based on the modeling is to drive above the IC90 in tissue. So in this case, gut, lamina propria, and then remain above the IC90 for concentration through the week 12 endpoint. We're not -- we don't believe we're going to miss that by dosing 3 times in that first month. It's to be determined if that's what's needed in an ongoing basis, but we're not going to miss that right now when you're only taking one shot. I think the other way to think about that is we're looking at an endpoint, the key efficacy endpoint is 8 weeks off the drug. So Teva is talking about 1 dose that could be quarterly, maybe longer. And we're running a Phase Ib that starts to directionally get towards that type of thinking after an induction. I think there's always opportunity to bring the dose down lower in the Phase IIb/III is when we're doing more dose finding.

Got it. Okay. Very helpful. Let's talk about EoE. So if you could go into some detail on that, please.

Yes. I'm just going to refer back quickly on celiac, because there's 2 pathways of inflammation there. We're targeting the CD8-driven IELs, and we're also targeting CD4 cells that are really Th1 expressing CD4 cells. And they're the ones that are activated when the downstream product of gluten is processed, digested, presented, and that's what's instigating the cycle. So we're targeting both the CD4s that are then secreting interferon-gamma and IL-2, which is a big characteristic as well as then IL-15 that gets instigated with epithelial destruction, which pulls in the IELs. We're hitting both sides of that. In a similar way, we're doing that in EoE as well, slightly different cells. So there's proof-of-concept in this disease with Calypso, which Novartis bought an IL-15. They ran a small Phase Ia or Phase Ib study, and they showed that targeting CD8 cells by blocking IL-15 prevented the recruitment of eosinophils. And so in EoE as a disease, there's 2 primary endpoints the FDA looks for approval. One is the reduction of eosinophils, which are stimulated by the inflammatory environment in esophagus. And the second is a PRO. So it's the clinical outcome, which, in this case, is measured by DSQ, is the acronym for the questionnaire. We're powered to see both of those outcomes. But in Calypso's Phase Ib study, they showed just targeting the CD8s prevents eosinophil recruitment. There's one therapy approved in EoE today, it's DUPIXENT. Neither an IL-15, CD122 targeting drug or DUPIXENT, which targets the IL-4 receptor, none of those are expressed on eosinophils. They're all upstream. What's interesting about CD122 is we're obviously going to do the same thing on CD8. So we're going to block their survival, blocking IL-15. But we also are going to be able to hit the CD4, similarly in celiac. In this case, they're Th2 cells. Our preclinical data supports this, there's an animal model that we put out on aspergillus-induced eosinophilia. And we can show that there's an impact on Th2s. But I think what's also unique here, and this is what Dupi also does well, is they starve ILC2s, which are not really present in a meaningful way in healthies. You see these immune cells, which are also densely saturated with CD122, where in our animal model, we're showing the prevention of ILC2s as well. So Dupi is hitting the Th2 and ILC2 cells upstream, we're doing that. CLPS already showed targeting CD8 cells impact eosinophils, we're doing that. So we think there's an opportunity here for the 175,000 patients in the United States that are biologic eligible, meaning that they are no longer responsive on PPIs. If you look at the market population, the market size, Dupi has only showed efficacy in 60% to 70% of patients at various levels. The 30% that they don't, there is a correlation to an increase in IL-15. We think we can potentially have an answer here for the entire patient population. Now the base case is, if Dupi is not efficient, you go into a second line, there's nothing else in the second line, which we might have a leg up on for those types of patients. But there's a chance here that we look Dupi-like or better across the entirety of the population and then potentially better since we're hitting both inflammatory pathways. So that's the biologic case for why we think this should work and how that translates into pretty big numbers. Dupi is estimated to sell, I think, over $2 billion last year in EoE alone. So it's a big market for the only biologic that exists. Dupi is administered weekly subcutaneously, chronically. There's a lot of drug that they're also getting for only 60% of the population that's effective or mildly effective in them depending on who you are.

Excellent. That's a great rundown. Thank you. And so, I guess, just to wrap up since we're going to be running out of time shortly, beyond celiac and EoE, how do you see additional optionality?

So there's 4 drugs that are covered in this landscape. Today, they're being developed across 5 diseases. So we're focused on celiac data later this year, EoE data in 2027. Atopic dermatitis is being developed by Novartis with their IL-15. Forte and Teva are going to have vitiligo data in the second quarter. Forte is also in alopecia, Teva is talking about moving into EoE and alopecia, you're going to start to see more and more overlap across those 5 diseases and there are other opportunities. So what we're talking about in the biopharma business is seeding with enough capital to get us through at least the back half of '27 out through the back half of 2028. So it depends on how much money we put into the business, but all the assumptions drive towards Phase IIb for celiac, Phase IIb through EoE as well as 2 additional patient indications running Phase IIb trials. So we are looking to exit 2027 into 2028 in 4 different diseases. We have to make a selection of what those are. We have plenty of ideas, and we just named a couple that could be interesting just based on where other people are playing.

Phenomenal. And then just in terms of First Tracks, when will we get more details specifically on the numbers?

As soon as the Form 10 becomes effective, there will be a number in there for how much cash we're putting in. And the rationale not to put all the capital in, again, the CEO of one company today and both companies in the future, the royalty business isn't going to be consuming cash in the way the biopharma business will, but we do think there's an opportunity to do things like repurchase shares in the short to medium term when the company is not cash flow positive. We do view Jemperli and imsidolimab on top of that, which we didn't even get to today as being undervalued even at today's total market cap of the companies combined. There's opportunities both ways in terms of how deploying cash, and we think we can create value for shareholders in both businesses today with the capital we have.

Excellent. Well, that's a great way to wrap it up. Thanks so much for being here with us.

Thank you very much, David. Appreciate the time.