Terns Pharmaceuticals, Inc. (TERN) Earnings Call Transcript & Summary

All right. Thanks, everybody, for joining us. This is Kelly McCarthy from the Morgan Stanley Healthcare team, and I'm so happy to be here with the Terns Pharma team. I'm here joined by CEO, Amy Burroughs; and Chief Development Officer, Scott Harris. So thank you for joining us. Hopefully, it's been a productive conference for you so far. Before I get started, I'm just going to read a quick research disclaimer. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So let's get into it.

But Kelly, first, I get to make my statement that we'll be [indiscernible] forward-looking statement, and please refer to our website for relevant disclosures.

Thank you for doing that. Yes. It's good housekeeping. So maybe Amy, we can start with you. And just for those who may not be as familiar with the Terns' story, maybe you can provide a little bit of the background and what you're most excited for today looking forward?

Sure. Well, first, I really want to thank you, Kelly, the Morgan Stanley team and everybody here in the room today for being with us to hear our story. It's a really exciting time for Terns. We have 2 clinical readouts coming out in Q4, which I'd love to talk more about. We're a company that's been around for 8 years. We've got a strong clinical and execution team. And we're -- yes, we're excited to be here. So the 2 readouts that we have in Q4 is really for our lead asset, which is TERN-701, our allosteric BCR-ABL inhibitor for chronic myeloid leukemia, which we really see as a potential best-in-class really best drug potentially for chronic myeloid leukemia, a chronic disease for which there's significant unmet need. And then we have TERN-601, our GLP-1 receptor agonist in a Phase IIa 12-week study for obesity.

Okay. So exciting few months ahead for you guys.

Yes.

Let's go deeper on TERN-701, your lead asset. And maybe you can talk a little bit high level around the CML landscape and what the current treatment paradigm is and particularly the limitations of existing therapies in that space.

Sure. I'd be happy to do that. So CML was really changed from a fatal disease to a chronic disease in 2001 with the first-generation BCR-ABL inhibitor, imatinib or Gleevac. Very exciting. It has really transformed the disease. And since that time, there's been second-generation BCR-ABL inhibitors that have been developed and improved on efficacy, but really they each have their own safety liabilities, including things like pleural effusion, arterial occlusive events that can be really limiting and life-threatening for patients. And then there has been an allosteric inhibitor, our first-generation allosteric inhibitor developed, asciminib, that really has raised the bar on safety and efficacy. And we'll talk a little bit about why allosteric inhibitors have -- are more selective. They bind to a different pocket than the active sites do. And that's the reason that they are safer and have also been shown to be more effective.

Okay. So as you think about TERN-701 entering this space and maybe even talk about how your enrollment progress to date speaks to the unmet need in the second-line plus setting. How do you see your drug fitting into this existing [ landscape ]?

Yes, absolutely. So no drug in CML has been shown to have what's called a major molecular response, which is the endpoint in CML. In the third-line plus setting, the response rate is only 25%. And so we really see an ability to raise the bar on that. We -- sorry, I've like lost my train of thought here for a second. Can you say the question?

Yes, of course. So where do you see yourself fitting in? You've done a good job laying out what the existing treatment paradigm is in CML. But you're enrolling this study, you're going to read it out in the fourth quarter and the second-line plus. Where do you see yourself kind of breaking in? And maybe also just talk about the differentiation of 701 and what you expect to see?

Yes. So there's a lot in that question. Let me start with differentiation. So we really set out to make a better allosteric BCR-ABL inhibitor. And we see that it's better in 3 ways in terms of preclinical and clinical evidence. The first is really we had an oral presentation at European Hematology in June, showing that we have better potency, better coverage of mutations than asciminib. And we also have the same level of selectivity, which has been shown over a long period of time with asciminib to lead to a better safety profile. The second thing, and we really went into detail on this last week, we did an investor webinar where we talked about and our CMO and Scott talked about our enhanced, better target coverage than asciminib. And a lot of the reason that we have -- can have better target coverage is that we have a wider therapeutic window. So we did our dose escalation last year. We said in January, we completed dose escalation. You asked about patient recruitment. We were able to complete that in under a year. And we took the body of data to the FDA to propose expansion doses. And we proposed expanding at our highest dose of 500 milligrams. And at our next lowest dose of 320 milligrams, which is different from a PK standpoint in terms of project optimus requirements so that we can pick the best dose. Both of those doses have significantly higher target coverage than asciminib, which we believe could lead to better efficacy.

Great. And I'm glad you mentioned the webinar you did and everyone who's interested in this program should definitely go and listen to that because I think it's helpful in terms of just expectation setting. I guess maybe on that topic, what do you think were kind of the key takeaways from that session and kind of as we look to the data set, anything you should -- you want to say in terms of what you expect the bar for success to be or what you're hoping to read out?

Yes. So the key points in that webinar were and to go back to some of your previous questions, is the significant unmet need. So even though asciminib, frankly, is the best drug in CML, there's still opportunities to improve on efficacy, and we talk about the patients. More than 1/3 of patients in the frontline do not respond, do not get to major molecular response. And as you go down in the treatment algorithm, there's even more patients. So there's a great unmet need there. There are also issues with asciminib with pancreatic toxicity, and this is in their label, elevated amylase lipase, clinical pancreatitis and rates of hypertension. And they also have to be -- they have a food effect. So a 60% reduction in AUC when taken with food. So there is a 3-hour fasting requirement, and that's not something that we have with TERN-701. Where that leads us in terms of this readout? This readout is really about -- and Scott will talk more about some of the specifics, but about benchmarking to other Phase I trials to evaluate whether the things we've talked about really lead to a competitive and a better profile in terms of efficacy and safety and tolerability. And longer term, we really see developing this to have a label in all lines of therapy. We think that allosteric will really become the predominant therapy, and we're pretty in line with Novartis on this. Around 60% will be an allosteric and that the other 40% will be generic first- and second-gen TKIs. They are good drugs. They're not as good as the allosteric. But I think important to understand also is that there are cost and access considerations. And for some patients, they're not as high risk, right? So if you have an 80-year-old that then some physicians might say, I think imatinib is good enough because they've got other issues. I think the side effects and things like that, this is an acceptable trade-off. If you have a 40-year-old with CML, you're really going to want the most effective and safe drug. This patient is likely going to be on a drug for the rest of their lives. In the second line, with the presence of a second allosteric, we actually see allosteric following an allosteric, particularly if we can continue to show rescue and better responses in those patients, and that's what these initial trials are set up to potentially show.

Okay. You started to go there a little bit with the food effect and the benefit there that you have. And I think that speaks importantly to just the patient experience. But anything else you would share that you have learned along the road in terms of -- from patients or from prescribers who could potentially be prescribing this drug in terms of their experience with it?

Yes. It's really -- it's a little bit around what I just said about the physicians. They do segment their patients into higher risk and lower risk. What I didn't share is once a patient becomes second line, a lot of patients never switch. from their first-line therapy, particularly an allosteric will have lower rates. About 40% to 50% will switch with the first and second gen due to efficacy or tolerability. Once they become a second-line patient, you're more concerned about them. Particularly if you're a community hematologist, you're like, "Oh, I don't like where this is going. I really want to have the most effective drug for CML". And that's where we think having a competitive and better efficacy will be important and will lead TERN-701 to be a treatment of choice. I think the second thing is a friend of mine and fellow CEO has CML and came to speak to our company about a month ago and talked about just his initial decisions and just said, I really -- I have such an active life. I've got kids, I travel all the time. I don't want pleural effusion. I don't want the food effect. I don't want -- they're all -- he didn't like any of these choices. And so I think that really highlights the unmet medical need for patients and had some trouble getting to major molecular response.

So assuming success in your upcoming readout, I believe the next step for this indication would be a pivotal study. So can you talk a little bit about your current plans and the discussions you'll have following your data?

I'd love to ask Scott to talk to you about that.

Yes. So I mean right now, our focus is continuing to enroll in dose expansion and dose escalation. The dose expansion portion of the study has come on at different times due to regulatory reasons outside of the U.S., ethics committees. But we're really focusing on generating enough data at our 2 expansion dose levels to really go to the FDA and propose one of those dose levels in a pivotal study. That first registrational study would be a second-line plus indication. That really is the fastest path to market. It's a very similar patient population to what we're currently enrolling. Obviously, one of the big exceptions would be that you're going to be enrolling patients that are not in MMR already, which we are also enrolling patients that have MMR as steady entry in the Phase I portion. That study itself, we expect will be 300 patients or less. And then in a staggered parallel fashion to that, we would intend to open a frontline study as well. The reason for the staggered start to that is really the FDA wants to see sufficient safety data before they allow you to go into a frontline population. So we'd expect to start the second-line study. And then within a, say, 6- to 12-month period after that, we would launch a parallel frontline study as well.

That could potentially really open up the size of the market opportunity here.

Absolutely. We ultimately see this as a drug that is a frontline drug and we'll have hopefully approval for all lines of therapy. As far as the endpoints in these studies, the second-line plus study has a 6-month MMR achievement rate, that's for an accelerated approval. In the frontline study, the endpoint is MMR achievement as well, but it's over the course of the year for accelerated approval.

Okay. All right. That's helpful. And maybe just taking a step back on CML and the competitive dynamics here, what do you see as the competitive other programs out there? Or how you're thinking about other programs that are parallel tracking to yours as well?

So we will be releasing data next quarter. And I think that the data that we'll release will really be a benchmarkable data set that you'll be able to take the data and actually look at Phase I studies in a second or third-line plus population and really do a comparison between those. For us, we would be looking at asciminib as really a true competitor for us in their third-line plus study in the Phase I, they had a 24% MMR achievement rate and then in their pivotal study, a 25% MMR achievement rate. Although there's another program out there, Enliven is developing an active site inhibitor. They've recently released data at EHA. And in their data set, they were able to show a 32% MMR achievement rate in a third-line plus population.

I think I'll also just add to that, that as far as we know, there's not another credible allosteric in development. There's a product with a very different profile in China that has -- we see as a later-line drug due to some of its safety liabilities. But in terms of allosteric, as Scott said, we really see that as the competitive set. And there are not others beyond, as Scott mentioned, Novartis.

Okay. Very helpful. Maybe one last one on CML. I know we talked about the treatment paradigm, but how do you kind of actually size up this market in the first and second line? Anything you can share on kind of commercial opportunity?

Yes. So it's important in this population to really think about the incident population because that's where the commercial opportunity comes. It's newly diagnosed and those that are switching because they've had efficacy or tolerability issues. So we're pretty in line with Novartis on that size of that patient population. It's about sort of 17,000 in the frontline in the G7. And so again, we see competing for sort of that 60% allosteric share. And then there's about 7,000 in the second line, about 6,000 in the third-line plus. And again, we see ourselves being primarily used in the front and second line. And then it actually is to have third-line plus therapies that are effective, will also really help to move allosteric up to earlier lines.

Okay. Great. Maybe let's turn to your obesity pipeline. I think very topical, the obesity space has become quite competitive in recent years. And we've actually seen some mixed news in the past couple of months with respect to some of the oral therapies that are being developed. So can you share just your high-level thoughts on this space and where TERN-601 could fit in?

Yes. So just to speak a little bit about the competitive space, I think there was a lot of disappointment with Lilly's data because it did not meet expectations. I would say we have a slightly different view, which we think that Lilly has really set the bar. We think as we talk to patients and physicians that there is a huge unmet need for an oral. They're going to be the only oral GLP-1 receptor agonist like that on the market. And we think that Lilly is going to be very successful with that drug. And for us, it really sets the bar, right? Like we have to be better than that. And the bar is not as high as some people had expected. We think that the weight loss is sufficient and the real unmet need is around tolerability. Having 23% vomiting in a primary care market is really difficult to manage, not only for patients, but as we go and we talk to physicians who are treating, they say, I just don't have time for patients to be calling me and asking how to manage this. I also don't have time for them to call me and say, I'm on step 3 of the 6-step titration. I just took a few days off. Do I have to go back to step 1. And the answer from our clinicians and scientists is, yes, actually, you can't just titrate once in your life on these things. You actually -- if you go off of them, you basically desensitize to them, have to go back. So we see a real need for better tolerability and for simpler titration, maybe 1 step, maybe 2 steps, but 6 steps is a lot. And we don't see other therapies in development beyond TERN-601 that really have simple sort of titration schedules. And we believe that's because our molecule could be inherently more tolerable. We saw some of that in our 28-day data. 28 days really wasn't sufficient to be able to demonstrate that. And we think we've designed a 12-week study to really see the level of tolerability. You can see in our slides, we have pretty simple titration profiles. I mean, at our lowest dose, it's 2 weeks at 100 milligrams and then you're at your target dose of 250. And so we are -- we said that we'll turn that data card over really shortly early in Q4. And I think it's also important to know about Terns. We really see our future in oncology and in CML. It's a great program for a small company. And obesity is really something for the big pharma games, particularly as you get past Phase II. And so we've set the bar very high for our Phase IIa study. We're really looking to see differentiated tolerability with this distinct titration profile. We see that. We're really interested in partnering it and finding a pharma company with deeper resources to really take this to such a large market. And if we don't see that, we think it's prudent from a strategic perspective to focus our future capital allocation on TERN-701 and CML.

Okay. So just looking ahead to the Phase II FALCON readout that's right around the corner. I mean you mentioned differentiated tolerability, but what else needs to come together in that data set for you to consider it a success?

Yes. So we announced results of our 28-day study last year. And in that study, we're extremely pleased to see a pharmacological activity at all the doses that we evaluated. So at the top dose, we were able to see absolute weight loss of up to 5.5%. And even at the lowest dose, we saw about 2% weight loss over the course of 28 days. So we're working in the same dose range as we did in the 28-day study. Now importantly, in that 28-day study, the tolerability was in line with other molecules, and that was in light of the fact that at our mid- and high dose, we were titrating every 3 days. So we've taken what we learned in that study, and we've gone to a 12-week study now where we're slowing down the titration, really narrowing in on that 500-milligram dose level. And our expectation is that for this program to be competitive over the course of the 12-week study, we'd expect to see weight loss of at least 6%, and based on the fact that we're slowing down the titration from what we did in the 28-day study, we would hope to see tolerability, specifically GI tolerability, nausea vomiting rates that are about 50% of what the other programs have produced.

Okay. Great. I know data coming in early Q4, and you mentioned that this is a potential value driver from a business development perspective for your pipeline. You have multiple assets in your obesity pipeline that could serve you in that way. I guess with respect to those plans, what do you think it would take for those assets to be attractive to pharma? Do you think that this data set could support that? Or how are you thinking about why it may fit into a pharma pipeline with the competitive dynamics that are at play in obesity today?

Yes. I think it goes back to what I was saying about unmet need and really differentiation from these other assets in the pipeline. In terms of our pharmaceutical properties, which we haven't gone into depth today, but our PK profile and the things that could lead to this tolerability. I think we're seeing and a lot of investors talk about the fact, well, these later-stage deals, and we haven't seen a lot done. We've seen these preclinical deals done. What could we see here? And we think because there's not a lot of differentiation, right? People look at this and we say, Lilly and Novo we're so far ahead. The only way I want to get into this game is about differentiation. We heard a big pharma earlier this year, licensed a preclinical asset because they really feel like it's going to be differentiated. So we think it's all about differentiation. Listen, we do see it as highly competitive. Will Phase IIa data be sufficient to partner this? We don't know. And -- but we've really designed, as Scott said, the Phase IIa data to demonstrate this differentiation. If you have differentiation in Phase IIa versus a preclinical asset, that could be attractive and we really just have to see.

And before we leave the obesity theme, I mean, anything you'd highlight on the earlier programs and particularly looking at different targets and anything interesting you've learned from those -- advancing those?

Yes. So our 2 other programs, we have what we see as a potential best-in-class THR-ß has Phase IIa data that's shown to be differentiated. We think that, that could be well positioned to combine really with any GLP-1 receptor agonist TERN-601 or others. And then we have a GIPR modulator program and particularly focused in research on GIPR antagonist. And one unique feature about Terns is that we have a portfolio of assets there that we're interested in partnering.

Okay. Great. I know you've publicly guided to cash runway into 2028. Can you talk a little bit about what that means practically for not only the -- of course, the 2 updates that we're going to have later this year, but what else is on the horizon? Where does that actually take you to?

Yes. So we have $315 million on our balance sheet. Many of us have been in biotech for a long time, and we appreciate how valuable a dollar is. And so we've run this company in a pretty capital-efficient way. And so we see being able to really pursue the ideal development plan for TERN-701 to really advance to those pivotal studies into getting that label that Scott and I talked about into 2028. In that time frame, there'll be multiple additional catalysts. The CARDINAL study, the Phase I will continue to read out longer-term efficacy and safety data, and we expect to get feedback from the FDA around moving to a pivotal trial and pivotal trial design. So there's a lot in that runway. We do not include in that runway any spending on metabolic.

Okay. Good to know. And maybe, Amy, you can talk a little bit more about the team that you've assembled at Terns. Do you have the right pieces in place today to execute on these plans that you've laid out?

Yes, absolutely. So Kelly, I think as you know, I've been in the position for about 1.5 years Unfortunately, our previous CEO passed away, and there was a lot of management change that needed to happen. So have hired a great team. Fortunately for me, Emil Kuriakose was there as the Chief Medical Officer when I came in. He's really a tremendous leader. And frankly, it was too busy running the programs to be here today. Scott his partner as the Chief Development Officer. They make a fantastic team in terms of running all things, research and development. Andrew Gengos joined as our Chief Financial Officer in February, has deep experience in finance and corporate development. And we also have brought on a great Chief Legal Officer, Caryn McDowell, and Melita Sun Jung as our Chief Business Officer and a very seasoned Chief People Officer. So yes, we've had quite a bit of change at Terns, but we've been now together for a while and really prepared to move forward and execute on these plans we've outlined.

Okay. With just a few minutes left, I'd love to ask you kind of just what is the most exciting. I know you have a very busy couple of quarters ahead, and you laid out some of the longer-dated plans that you have. But what would you want to share with investors and with our audience that we haven't talked about related to the vision you guys have at Terns and what excites you the most going forward?

Yes. Our vision really -- all of our programs at Terns were internally discovered. So we have a lot of people at our company who have been there for a long time and have brought these programs forward and executed. And frankly, some of the programs that like as happens in biotech and drug development, not everything that you pursue ends up being able to move forward to patients. But our vision really is to bring these therapies to patients. And even though I talked about in metabolic disease, we really believe that TERN-601 could be a best-in-class metabolic asset and make a huge difference in people's lives. And we believe that partnering that with a big pharma company is the best way to achieve that. So our vision really is to continue to develop best-in-class small molecules that can make a difference in people's lives. And we are really excited about TERN-701 as that's developed as we've seen more of the preclinical and clinical data as we've been outlining to investors, we have strong conviction that this is a program that really will reach patients and really will improve on patients' lives and efficacy and safety. And so that is really what we're about. Scott, would you add anything to that?

No. I mean we're obviously excited about the quarter ahead with 2 big data releases coming. I do suggest that folks listen to the webinar that we did last week just to get an appreciation for really what to look for in that data set. And we get asked questions, what's going to be important? What are the important aspects of that data? And we described that in the webinar. We'll have greater than 50 patients in this data set, which is a substantial increase in the end from what we released last year. Again, we talked about the fact that 6-month MMR achievement is really going to be the main endpoint to take a look at. But even within that, we will present data looking at subpopulations as well, things like patients that have previously been on asciminib, patients that have previously been on imatinib, patients that have failed their last TKI. And the reason we're doing that is because it will really give you an overall picture of what the profile of the molecule really looks like.

Yes. When you're in drug development, this is a really exciting time. They're both really pretty important data sets coming up that will really give a glimpse into the potential of these drugs to reach patients and make that difference we were talking about. And yes, I agree with Scott. Please listen to the webinar if you're interested in Terns and TERN-701 because we gave a lot of information about what to expect and what matters in evaluating the TERN-701.

Well, we will stay tuned, and we will be rooting for your success across not just one, but both clinical readouts as you advance across your pipeline. And we're really glad that you're both able to join us today and hope it's been a great conference, and we'll be on the lookout for updates.

Thanks so much, Kelly. We appreciate you and your team and everybody in the room that we've met with this week. It's been a great week.

All right, thank you.

Thank you.