Vivoryon Therapeutics N.V. (VVY) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of Vivoryon Therapeutics AG. At our customer's request, the conference will be recorded. [Operator Instructions] May I now hand you over to Manuela Bader, who will start today's conference? Please go ahead.

Good afternoon, good morning, and welcome to our 2019 full year conference call and webcast. My name is Manuela Bader, Director, Investor Relations and Communications at Vivoryon Therapeutics. Before we start, I would like to remind you that during this conference call, we will present and discuss certain forward-looking statements concerning the development of Vivoryon Therapeutics' core technology, the progress of its current research and development programs and the initiation of additional programs. Should actual results differ from the company's assumptions, ensuing actions may differ from those anticipated. You are, therefore, cautioned not to place undue reliance on such forward-looking statements, which speaks only as the date hereof. With me on the call are Ulrich Dauer, our Chief Executive Officer; and Michael Schaeffer, our Chief Business Officer. You can find the agenda for this day's call on Page 4. In the presentation, we will start by giving you an operational review, followed by a review of the financial results of 2019. After that, we will close with the outlook for 2020. The presentation will last about 20 minutes. After the presentation, we will all be available for your questions. You will find the slide deck of this presentation on our corporate website. And with this, I would now like to hand over to Ulrich Dauer.

Thank you, Manuela. Before I start with our report, I'd like to emphasize that with the high dynamic of the potential implication of the coronavirus epidemic, like additional measures to increase social distancing, we'll obviously have to deal with an additional layer of uncertainties. For the time being and as far as we are able to assess it from today's perspective, we are on track to meet the goals and time lines in our projects. However, we want you to be aware that this may change with further developments in this pandemic situation. We will responsively give public updates whenever we'll encounter related implications for our operation. At this point, I also want to express my special thanks to all of our employees, among them, parents who have to deal with the additional burden of taking care of children who can't go to school or kindergarten and at the same time, continue to be committed to make sure Vivoryon can meet its business goals. The highlights in 2019. 2019 proved to be a pivotal year for Vivoryon, during which we established ourselves with a new name and a reenergized corporate vision with unified -- with a unified goal: to discover and develop small molecule therapeutics to meet high medical needs. During the past 12 months, Vivoryon has undergone a corporate transformation, designed to build value for shareholders, patients and collaborators, meant to steer the company towards success. With a solid financial position, strong strategic partnerships and growing clinical knowledge, Vivoryon has entered 2020 with the momentum required to reach future milestones. From a financial perspective, 2019 was important -- was an important year for the company, in which securing adequate funding was particularly critical for the advancement of PQ912 in Alzheimer's disease. At the start of the year, we received USD 15 million grant from the NIH. After that, the company raised EUR 8.2 million from investors in a successful private placement of new shares, followed by a EUR 43 million capital raise. These monetary developments put us in an optimal position to continue to advance our pipeline. Based on our clinical development efforts in 2019, we are now reaching the final stages of preparation for the European Phase IIb clinical trial, VIVIAD, testing PQ912 in patients with early Alzheimer's disease. In parallel, the funding from the NIH will be allocated to our U.S. Phase IIb trial in Alzheimer's disease, which we aim to initiate as soon as the required financial resources have been secured. Our lead candidate, PQ912 is a first-in-class inhibitor of the QPCT enzyme that addresses a very distinct disease pathway in contrast to many other Alzheimer's disease drug candidates in development. Building on positive Phase IIa data, we aim to continue to validate our approach in this complex neurodegenerative disease and look forward to initiating VIVIAD in Europe with the second quarter of 2020 and here again, with a comment that potential future implication of the current pandemic has not been taken into account in this projection. The preparation for the VIVIAD trial also involved 2 strategic relationships that add significant value to the trial design. We kicked off the new year by announcing our research and development collaboration with Nordic Bioscience for the clinical development of PQ912 for Alzheimer's disease as well as for the development of blood-based biomarkers for the identification of those patients that may benefit most from treatment with PQ912. We also involved Winterlight Labs, a company that has developed a proprietary technology that assesses cognitive changes by analyzing hundreds of language markers from short snippets of speech. During last year, we also made rapid progress in the immuno-oncology space as illustrated by both the collaboration with the University of Kiel as well as our exclusive option agreement with MorphoSys. I'm getting to our value drivers. Vivoryon's growth trajectory consists of 3 major components: a Phase IIb trial in patients suffering from early stages of Alzheimer's disease currently in preparation, which is scheduled to read out data towards end of '22. This informed trial is based on encouraging safety data from a Phase I trial in 200 subjects and efficacy and safety data from a Phase IIa trial in 120 patients. As mentioned, we entered into the field of immuno-oncology with our QPCTL inhibitors for which we closed an exclusive option deal with MorphoSys, who, in return, invested EUR 15 million in equity. We have a strong and growing patent portfolio for QPCT and QPCTL inhibitors, which can be monetized for other neurological and inflammatory diseases. Now after decades of R&D investments, Alzheimer's disease still is the disease with probably the largest medical need, and all the numbers and facts within this slide are underlining this claim. On the other hand, the huge socioeconomic burden caused by this devastating disease makes this market highly attractive for efficacious disease-modifying treatments which were able to at least slow down disease progress and give patients additional time for a self-determined life in dignity. To remind you of our approach with our small molecule PQ912, we are targeting glutaminyl cyclase or QPCT, which is found to be overexpressed in those brain regions which are known to be particularly responsible for learning and memory functions. In a disease situation, QPCT is capitalizing a conversion from certain Abeta monomers in a toxic species called pGlu-Abeta, which is driving multiple Alzheimer's disease-associated processes, including oligomer aggregation, neuro-inflammation and tau-mediated neurotoxicity. With this, our approach is interfering with all 3 pathological hallmarks of the Alzheimer's disease. Based on our encouraging results of a Phase IIa trial on which we reported already, we designed a European Phase IIb study planned to initiate 10 sites in Germany, the Netherlands and Denmark and to enroll 250 patients. The trial is planned to start with a dose escalation from 50 to 600-milligram twice daily for the first 12 weeks, followed by treatment of at least 36 weeks of a maximum of -- up to a maximum of 84 weeks on a stable dose of PQ912. The trial is named VIVIAD, an acronym for advancing disease-modifying treatment and noninvasive diagnostics of Alzheimer's disease. Primary objective is safety for dose escalation and efficacy of PQ912 on working memory and attention, which is defined by the CogState NTB elements of detection and identification. Secondary end points include brain activity by EDT, cognition and activity of daily living. We also included a series of exploratory end points like cognition by a digital symbol substitution test (sic) [ digit symbol substitution test ]; language-derived cognition by the Winterlight Labs speech assessment, which I already mentioned; functional neuronal network activity and connectivity by EDT; biomarkers measured in the cerebrospinal fluid, plasma and serum. Again, the trial is scheduled to enroll patients in the second quarter and read out first data towards end of '22. We have prepared an additional and complementing trial in the U.S. with our partner ADCS under the leadership of Professor Howard Feldman. This trial is focusing on essentially the same patient population, however, with a plan to include 462 patients and CDR sum of boxes as primary readout, an established composite score to stage severity of Alzheimer's dementia and mild cognitive impairment. Should both trials, the European VIVIAD trial as well as this trial, read out positively, it could pave the way for a conditional approval based on Phase IIb data. To be clear here, the conduct of this year's trial, however, is contingent to a partnership that would allow to fully finance this trial. And to this end, we have ongoing discussions with such potential partners. There is no intention to go back to the capital market with the goal to finance the VIVIAD trial. We strongly believe that our thoroughly designed VIVIAD trial will, in case of a positive readout, demonstrate solid clinical proof-of-concept and not be the major milestone for value inflection. I'm switching to the immuno-oncology potential of our QPCTL inhibitor platform and our option agreement with MorphoSys, which we entered into in July last year. The key parameters of this agreement include an exclusive option to license our QPCTL inhibitors, including PQ912, in the field of oncology. In return, MorphoSys committed a EUR 15 million equity investment into Vivoryon. This commitment has been implemented in our rights offering end of last year. If MorphoSys decided to execute the option, there will be an execution fee or upfront payment; milestone payments, contingent to the achievement of certain development and commercial milestones; and on top, Vivoryon will be eligible to royalty payments. During the option period, MorphoSys will conduct further preclinical studies and Vivoryon will retain the right in other fields outside oncology. The mutual goal of this deal, of course, is but not limited to the augmentation of the efficacy of tofacitinib but also to tap the full potential of this novel immune checkpoint technology also in combination with other antitumor antibodies. Now I'm getting to the important question, why can our QPCTL inhibitors be efficacious in Alzheimer's disease as well as in immuno-oncology? The function of the QPCT and QPCTL enzyme is twofold: first, stabilizing certain proteins and thus the prevention from fast degradation; and secondly, modulating protein-protein interaction. And exactly such a protein-protein interaction between a surface protein, CD47, which is expressed on many tumor cells; and SIRP-alpha, which is expressed on macrophages, is being catalyzed by QPCTL, which induces a "don't eat me" signal for elements of the innate immune system. By inhibiting QPCTL with PQ912 for other Vivoryon compounds, we can disrupt this immune silencing signal and turn on the phagocytosis of macrophages. With this strategy, we direct and prime the innate immune system to fight tumor cells. This novel therapeutic principle has been established with CD47 antibodies mainly. However, we believe that small molecules like PQ912 have numerous advantages over antibody approaches. For example, small molecules better and more easily penetrate microtumor environment. Often seen with CD47 antibodies is the antibody zinc effect, which describes the activation of antibodies by red blood cells on which CD47 is also expressed. Due to the same reason, anemia is being observed as frequently occurring side effect of CD47 antibodies. In contrast, PQ912 has already clinically demonstrated that it is not limited with respect to these downsides. The recent and almost USD 5 billion takeover of Forty Seven, Inc. by Gilead shows the apparent attractiveness of the newly described CD47-SIRP-alpha checkpoint in the field of immuno-oncology. This cartoon shows the enzyme QPCTL residing in the Golgi apparatus and introducing an important binding feature at the end terminals of CD47, which contributes to more than 50% of the binding energy to SIRP-alpha binding. By inhibiting QPCTL, this binding feature won't be introduced and the checkpoint signal is being silenced, while still keeping all other binding sites fully functional on CD47, especially those that may be important for antitumor mechanism. Here's the representation of our current pipeline with PQ912 as most advanced compound with the plan to start a Phase IIb trial in the second quarter. At the same time, PQ912 is a potential development candidate in immuno-oncology. We are putting additional emphasis on the development of new QPCTL inhibitors like PQ1565, which we believe can achieve clinical status within a few months. And not to forget, we have 60-plus additional QPCTL inhibitors as part of our patent portfolio, which are preclinically well characterized and forming the basis for new projects and partnerships in cancer, but also other indications where QPCTL is an important modulator for disease pathologies. Vivoryon's financial summary of 2019. As mentioned already, with 2 capital measures, we raised more than EUR 50 million gross proceeds in 2019, in particular, with the EUR 8.2 million private placement in April last year; and in October, with a EUR 43 million rights offering, where MorphoSys implemented its EUR 15 million commitment as a component of the option deal. With the capital measures last year, our shareholder structure changed with MorphoSys becoming our largest shareholder. Also joining last year, next to Claus Christiansen, Founder of Nordic Bioscience; were the Danish funds, DDF and T&W, as well as Lupus alpha; and the pension fund, Mackenzie. The free float as of December 31, 2019, was approximately 40%. Vivoryon's shares are being traded at the Euronext in Amsterdam under the ticker symbol VVY. We have 19,975,482 shares outstanding. The share price peaked in 2019 at a level of EUR 7.81, while starting weak beginning of 2019 with a low of EUR 1.29. Overall, the share price development in 2019 was positive and clearly outperforming most general and biotech indices. Important P&L figures according to IFRS and as compared to 2018. R&D development expenses slightly decreased by 1.8% with minus EUR 4.8 million. G&A expense increased by 4.6% to EUR 3 million. Operating loss accumulated to minus EUR 7.7 million, which is a 0.2% increase compared to 2018. Net loss for the period is EUR 7.8 million and with this increased by 1.1% with respect to 2018. Some additional key figures from a balance sheet and cash flow perspective. Equity end of 2019 stood at EUR 42.7 million, which is significantly improved over EUR 1.2 million in equity end of 2018, and again, reflects the outcome of the 2 successful capital measures implemented in 2019. This also improves our equity ratio to 93%. Total balance sheet end of 2019 was EUR 45.9 million. Operational cash flow was minus EUR 11.6 million and thus distinctly higher than 2018. Net cash flow from financing activities were EUR 49.4 million, and cash at the end of the period stood at EUR 41.5 million. Loss per share is EUR 0.62 as compared to EUR 0.94 end of 2018. Now what can you expect from Vivoryon going forward? PQ912 is being prepared for the European Phase IIb trial, scheduled to start enrollment in the second quarter and data readout in late '22, and I'm not repeating my disclaimer made at the beginning. At the same time, we are continuing our preparation for a U.S. trial, which will provide the opportunity, together with the European trial, for a conditional approval based on these 2 Phase IIb trials. Again, the U.S. trial will be contingent to a partnership yielding the financial basis necessary for the conduct of this trial. In the field of immuno-oncology, we are awaiting the decision of MorphoSys to execute the option, and if so, to enter into combination trials with tofacitinib and probably further antibodies. Finally, we expect to leverage potential in further indications of our portfolio of QPCT and QPCTL inhibitors with additional partnerships. Specifically, for 2020, our goals are the enrollment of the first patient of our European Phase II VIVIAD trial, IND filing for PQ912 as important element for the U.S. trial with PQ912. We exploit the potential of our technology in immuno-oncology, where, currently and with the exclusive option right, MorphoSys is in the driver seat. Finally, we want to add robustness to our R&D pipeline with leveraging additional potential of our QPCT and QPCTL inhibitors in other indications and exploring the potential of other post-translational modifying enzymes through collaboration. Also beyond 2020, our priorities will continue to focus on the execution of VIVIAD with PQ912, with the goal to read out data towards end of '22; to continue to leverage the new potential of PQ912 and other QPCTL inhibitors for immuno-oncology together with our partner MorphoSys; to extend our activities, along with the potential of our technology in other indications; and to enter into additional licensing partnerships in the field of Alzheimer's disease but also in new indications, which can be addressed by our technology; and finally, of course, to strengthen our pipeline with new programs but also compounds. I'm concluding our report with reminding you of our important events in our financial calendar. On May 14, we will publish our first quarter interim results of 2020. On June 24, 2020, we plan to have our AGM at our site in Halle. Our half year results are scheduled to be reported on August 27 and the third quarter interim statements on November 16. And with that, I ask the operator to open the call for your questions.

[Operator Instructions] And we've received the first question. It is from Samir Devani of Rx Securities.

It's actually a couple of questions I've got. Uli, just on the U.S. Phase IIb study, I appreciate you're in discussions, perhaps can't comment too much. But perhaps, you could just give us a flavor as to how they're progressing, perhaps how far you feel you're down the line in closing that? And then the second question is just on PQ1565. Just to confirm, if MorphoSys executes their option, does that then fall within their remit?

Thank you for joining the call and your questions. I mean as you indicated, we are in discussions, in particular, discussions which we feel are quite advanced. But I don't want to stick out my head and give you any kind of time line as to when we believe it will materialize in the deal. But we are in discussions, and we have seen new dynamics coming into the field also with, for example, aducanumab now being again, a candidate for approval. As to your second question, PQ1565, again, yes, that would also fall into the -- into this option deal. So that would also be part of the pool of compounds which MorphoSys would have access to in the field of oncology.

The next question is from Christian Ehmann of FMA Research (sic) [ FMR Research ].

I have a few questions if I may. First, could you give us a little bit more update on the maturity of the licensing talks regarding the portfolio? So when can we expect news in this regard? And second, if I may, I have some questions concerning the cooperation with Winterlight Labs and what might be the potential advantage? Do you think of something like an early mechanism to detect cognitive disabilities within the speech in early stage without using invasive methods? And yes, that would be my 2 questions for the moment.

Yes. And also thanks to you for joining the call and your questions. Yes, I can only repeat what I have said in the first -- in reference to the first question. So we feel we are advanced, so we have pretty mature and concrete discussions here, but we don't want to give further guidance as to when we would expect anything which we can formally publish. To the Winterlight, I mean, this is a very interesting technology. And one challenge in the trials with Alzheimer's disease is to really, longitudinally, follow the cognitive ability of the patients. And there are some standard methods and there's some standard technologies established like the Mini-Mental State Examination. However, that has shown to be somehow sensitive also to the assessor and to the way patients are being interviewed. And this Winterlight assessment is another kind of approach to follow the cognitive performance of patients with a very innovative approach. So what patients are asked to do is to describe a scenery within a picture with their own words, and what is being detected is patterns of the phonetic in this -- in the way the patients are describing the picture and, of course, the level of sophistication they are using words in their description. And it's an exploratory end point, but we have the expectation that, that would further be an element to have a more objective assessment of cognitive decline in the trial.

Would this be something you would recommend as a prevention method -- for example, if one could think this method through on this idea so that maybe all the people do this on a general schedule, and then once you see a decline, you can say, okay, we have to look at this a little more closely looking at patients earlier?

With a diagnostic tool rather. Well, on that -- that's probably -- it's probably speculative. I mean that's not the way we would use it. Again, we would focus on following the cognitive decline during the trial using this method rather.

Okay. And if I may have another question. Can you give us more detail on the nature or the guidelines for this partnership, which would then fund or partially fund the U.S. trial? What are you looking for in a partnership with other potential partners?

I mean the structure is very simple. So what we want is, we want to have a partner who is probably taking a local license and that does not necessarily have to be U.S. rights and, in return, is contributing to the funding of this trial. So that's the expectation we have here.

At the moment, there are no further questions. [Operator Instructions] We haven't received any further -- oh no, we've received now a question. It is from Chris Redhead.

Just a quick question. On the MorphoSys results call a couple of days ago -- a few days ago, they were referring to applications outside of C47. It wasn't clear as to whether they're referring to you or going to your compounds or something else. Could you just clarify whether or not any things in your portfolio in your pipeline would or would not be applicable outside of C47?

CD47? Yes. I mean it's really hard for us to comment on statements of proposals. When we talk about potential outside CD47 and potential in oncology, what we can mention in this context is also activity on certain cytokines. And I don't know whether Michael would like to comment on that. He will.

Oh, that's Michael. So yes, certainly, there are also actually from our side, published literature, I can share with you, if you will, concerning a role of QPTCL or QC in -- with regard to the CCL2 axis as it's called. So that's a monocyte attractant axis, basically a chemokine, which is regulated via glutaminyl cyclase as well. And this has been implicated in processes like metastasis and then any other -- many other tumor-related steps actually. So yes, there are -- there is a use for QC inhibitors in oncology outside CD47. I didn't hear the MorphoSys call, so I do not know what they exactly have been saying. But obviously, they are aware of these findings as well.

Yes. They say -- yes, I don't think we can read too much into what they said. It was slightly ambiguous. So I don't want to draw too much attention. But I actually just raised the issue as to whether there were applications outside of CD47. So that's great.

There are no further questions. I would like to hand back to you.

Yes. Thank you very much, everybody, for joining the call, and please stay tuned. As I said, we are continuing to update you on our developments. Thanks a lot. Good afternoon, and bye-bye.

Bye-bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.