SELLAS Life Sciences Group, Inc.SLSNASDAQ
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Operator: Good morning and welcome to the SELLAS Life Sciences third quarter 2018 financial results and corporate and business update conference call. All participants are now in a listen-only mode. There will be a question-and-answer session at the end. Please be advised that this call is being recorded at SELLAS’ request. I would now like turn the call over to Will O’Connor of Stern Investor Relations. Please proceed.
Will O’Connor: Thank you, operator. This is Will O’Connor with Stern Investor Relations. And welcome to SELLAS’ third quarter 2018 financial results and corporate and business update conference call. The news release became available earlier this morning and it can be found on the SELLAS website at sellaslifesciences.com. You may listen to a live audio webcast and replay of today’s call on the Investors section of the website. Before I begin, I would like to remind you that today SELLAS will be making statements relating to the company’s financials, future expectations regarding the further development of galinpepimut-S and nelipepimut-S, its interactions with regulatory authorities, its discussions with potential partners and its plan for future development of its other clinical candidates. These statements constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995 and cover many events and matters that are subject to various risks that could cause actual results to differ materially from those expressed in any forward-looking statements. You're referred to the company’s SEC filings and, in particular, to the risks set forth under the heading “Risk Factors” and Exhibit 99.1 in the company’s current report on Form 8-K filed on July 18, 2018 and in the company’s other filings with the Securities and Exchange Commission. In addition, any forward-looking statements represent the company’s views only as of today and should not be relied upon as representing the company’s views as of any subsequent date. While SELLAS may like to update these forward-looking statements at some point in the future, the company disclaims any obligation to do so even if the company’s views change. Participating on the call are Dr. Angelos Stergiou, Chief Executive Officer of SELLAS, and Gene Mack, Chief Financial Officer of SELLAS. With that, I’ll now turn the call over to Dr. Stergiou.
Angelos Stergiou: Thank you, Will. Good morning, everyone, and thank you for joining us on today’s call. This is our first earnings call following the reverse merger of SELLAS and Galena at the end of 2017. As you know, our mission at SELLAS is to develop and commercialize cancer immunotherapies for a wide area of solid and hematological cancers. Our late stage pipeline includes our lead candidate, galinpepimut-S, or GPS, which was in license with Memorial Sloan-Kettering Cancer Center and is currently being evaluated in multiple tumor types as a monotherapy and in combination with pembrolizumab or Keytruda, a PD-1 checkpoint inhibitor under our collaboration agreement with Merck. We are also developing nelipepimut-S, or NPS, or NeuVax, for which we just announced positive Phase IIb results in triple negative breast cancer and which originated MD Anderson Cancer Center. During Q3 and early Q4, we have made significant clinical and regulatory progress with GPS and NPS, which I will talk about shortly. We also made key corporate advancements with the closing of our approximately $22 million financing in July of this year, which bolsters our balance sheet and enables us to pursue our plans for our clinical programs. We have also just added $6.6 million to our balance sheet from a payment by JGB in connection of litigation with them. This followed of the dismissal by the court of JGB’s complaint against our company. SELLAS and JGB have also agreed to terminate the debenture and all related agreements. Just to be clear, our JGB debt is now extinguished and we have no other outstanding debt. Turning to the progress we’ve made with our pipeline, I’d like to first discuss where we currently stand with our lead clinical candidate, GPS. Given the compelling evidence from our Phase I and Phase II trials of GPS, including acute myeloid leukemia, we have been planning a pivotal Phase III study. As you may know, acute myeloid leukemia, or AML, is an area of serious unmet medical need and we have both fast-track and orphan drug designation for GPS in AML by the FDA and orphan drug designation by the EMA. Current treatments include chemotherapy or, in some instances, hematopoietic stem cell transplant, which aims to achieve a complete response, or CR. Despite this, essentially all patients in CR still harbor evidence of minimal residual disease. To date, no therapies, aside from allergenic hematopoietic stem cell transplant, which only about 7% of 60-year and older AML patients can receive, have been shown to provide meaningful benefit to patients in CR. This patient group, 60 years and older, constitutes the majority of AML patients and is the group we aim to treat. As a result, we see a real opportunity here for GPS to provide therapeutic benefit to these patients. As you know, we have already reached consensus with the FDA to enter into registrational Phase III AML trial and we expect to enroll the first patients in the study in early 2019. The second pillar of our development efforts around GPS is our collaboration with Merck with our Phase I/II, open label, five-arm basket type trial of GPS administered in combination with Merck’s anti PD-1 therapy Keytruda. The potential clinical efficacy of GPS and Keytruda is premised upon the immunobiological and pharmacodynamic synergy between the two agents, whereby the tumor microenvironment is mitigated by Keytruda, thus allowing the patient’s own immune cells, which are specifically sensitized against WT1 by GPS to invade and destroy cancerous cells. As a reminder, GPS was also studied in combination with nivolumab, or Opdivo, another PD-1 immune checkpoint inhibitor in open label, single arm, Phase I/II clinical trial at Memorial Sloan-Kettering in collaboration with Bristol-Myers Squibb. The study in 11 patients with recurrent ovarian, fallopian tube or primary peritoneal cancer who are in second or greater clinical remission was aimed to evaluate the safety and efficacy of this combination approach. We saw striking 70% of patients who receive at least one dose of GPS and Opdivo remained progression free compared to historical progression-free survival of no more than 50%. Furthermore, we also observed robust CD4 and CD8 immune responses, as well as 86% of patients mounting a WT1-specific IgG response. These data were presented at ASCO in June of this year and are informative of the possible activity of GPS in combination with a PD-1 blocker in ovarian cancer and other solid tumors in the presence of macroscopic disease, which is the setting that we’re studying GPS with Keytruda in the Merck combo trial. The basket study will include up to 90 patients and will concentrate on tumor types with high WT1 expression, but in which Keytruda treatment alone achieves an overall response rate of only 10% to 15%. The indications to be studied include colorectal, ovarian, small cell lung and triple negative breast cancers and AML-treated patients on hypomethylaters. We have activated numerous clinical sites and we have begun to screen patients. I’d now like to turn to our nelipepimut-S or NPS program, which we also refer to as NeuVax, for which we have had an exciting quarter with positive final data from our Phase IIb trial in HER2 1+/2+ breast cancer patients. These data were presented at the annual meetings of both the European Society of Medical Oncology and the Society for Immunotherapy of Cancer this fall. NPS is designed to prime the immune system to recognize and efficiently attack the HER2 protein, an antigen that is detected in the majority of breast cancers, including those defined clinically as triple negative breast cancer, or TNBC. TNBC patients make up around 15% of all breast cancer patients. They also experience highly aggressive recurrence rate of 36% in three years. The trial was a prospective, randomized, single-blinded, controlled Phase IIb, independent, investigator-sponsored clinical trial of the combination of trastuzumab, or Herceptin, plus/minus NPS targeting HER2 low-expressing breast cancer patient cohort. We reported interim data in April of this year which showed, with a median follow-up of 18.8 months, a clinically meaningful and statistically significant difference in the TNBC cohort of patients between the active and the control arm, with a low hazard ratio of 0.26 and the p-value of 0.023 in favor of the NeuVax plus trastuzumab combination compared to trastuzumab alone. After seven months of additional follow-up, at an analysis of the final data which was reviewed by the independent Data Safety Monitoring Board in October of this year, we observed that the TNBC cohort of 97 patients maintained the same low hazard ratio despite the longer follow-up period, benefiting from a 75.2% reduction in risk of relapse or death at the 24-month landmark and with an even lower, and thus more clinically and statistically significant, p-value of 0.013. Importantly, there were no noted differences in the safety profile of both arms. Based on these positive results, the DSMB reiterated its earlier recommendation to expeditiously seek regulatory guidance from the FDA on the most optimal development of NeuVax in TNBC. Last week, data from a preplanned secondary efficacy analysis was presented at the Society for Immunotherapy of Cancer annual meetings, showing consistent clinical effect across HLA allele subgroups in TNBC patients, including clinically meaningful and statistically significant benefit in the HLA-A24+ subgroup, which is highly prevalent in the Asian population with a p-value of 0.003 and a 90.6% relative risk reduction of relapse or death. We found this data to be particularly exciting as it indicates potential for NPS globally. We continue to work closely with the FDA and are meeting with the agency next month where we hope to reach agreement with the most optimal, efficient and expeditious development and regulatory path forward for NPS in TNBC. As we have also previously stated, we are continuing to advance potential partnering discussions for NPS and look forward to providing further updates to you very soon. Before I turn the call over to our CFO, Gene Mack, to go through the third quarter financial results, I’d like to note the importance for SELLAS of the two corporate events I mentioned earlier. The completion of our equity offering in July, which resulted in net proceeds of approximately $22 million, was important not only for the influx of cash, but also to have new fundamental investors into the company. This influx of cash in the early part of the quarter allowed us to ramp up our clinical and regulatory activities. The other very important development was the final resolution of the litigation commenced by JGB. This litigation brought by JGB in April related to a senior secured debenture, which our predecessor Galena had entered into in 2016. In late October, the US District Court of the Southern District of New York granted in full our motion to dismiss all of the JGB claims, while leaving in place our substantive counterclaims for breach of contract, thus deciding the underlying contractual dispute in our favor. Last week, we announced that we have reached a settlement with JGB of the remaining counterclaims, whereby they paid us $6.6 million and the debenture and all related agreements and security interests were terminated, and this removed all our debt from our balance sheet. We are indeed pleased to have this litigation behind us and to have received the damages we requested in our counterclaims, which includes reimbursement of our legal fees and litigation expenses. I’ll now turn the call over to Gene.
Gene Mack: Thank you, Angelos. As a reminder, the full financial results for the third quarter of 2018 can be found in our press release issued earlier this morning. I’d also like to note that upon the merger of SELLAS and Galena Biopharma, the financial statements of Galena became those of SELLAS, and thus the results reported here are those of SELLAS reflecting the acquisition of Galena as of December 29, 2017. Moving to our financial results from the quarter, as of September 30, 2018, unrestricted cash and cash equivalents were $10 million, which does not include the $6.6 million payment received by the company that was related to the settlement of litigation with JGB in November of 2018. At December 31, 2017, unrestricted cash and cash equivalents were $2.3 million. Net cash used in operating activities was $25.9 million for the nine months ended September 30, 2018, which includes $4.3 million used to reduce payables related to the merger. As Angelos just mentioned, on July 16, 2018, SELLAS completed an underwritten public offering of common stock and warrants for aggregate net proceeds of approximately $22 million, after deducting underwriting discounts, commissions and operating expenses. Research and development expenses were $1.7 million for the third quarter of 2018 as compared to $1.1 million for the third quarter of 2017. The increase was primarily due to the initiation of the Phase I/II clinical trial for GPS in combination with Keytruda in multiple tumor types and ongoing costs incurred during the third quarter related to the Phase IIb trial for NPS in combination with trastuzumab in breast cancer, as well as an increased licensing fees resulting from our expanded clinical portfolio. This increase was partially offset by a reduction in stock-based compensation during the third quarter of 2018. Research and development expenses for the nine months ended September 30, 2018 were $5.1 million and for the same period in 2017 were also $5.1 million. G&A expenses were $1.3 million for the third quarter of 2018 as compared to $3.2 million for the third quarter of 2017. The decrease in the current period was primarily due to a reduction in stock-based compensation and the accounting treatment for costs related to litigation and other legal matters associated with the settlement of the JGB litigation and resulting reimbursement of legal fees. The decrease was partially offset by an increase in personnel-related expenses, insurance and other expenses. G&A expenses for the first nine months of 2018 were $10.1 million as compared to $9.4 million for the nine months ended September 30, 2017. The increase was primarily related to costs associated with outside services, accounting and audit expenses, insurance and public company costs, partially offset by a reduction in stock-based compensation and a decrease in financing and advisory fees associated with the merger. Net loss attributable to common stockholders was $9.4 million for the third quarter of 2018 or a basic and diluted loss per share of $0.53 as compared to a net loss of $4.5 million for the third quarter of 2017 or a basic and diluted loss per share of $2.27. I want to remind you that there was a greater number of shares outstanding at September 30 of this year than there were in September 2017. The increase in net loss was driven primarily by non-cash charges related to equity issuances during 2018. Turning to our financial expectations, following the close of our most recent public offering in July 2018, we provided guidance that cash and cash equivalents would be sufficient to fund operations at least through March 2019, which we reiterate today. We will provide an update to that guidance when we report our fourth-quarter and full-year results early next year. With that overview, I’ll turn the call back over to Angelos.
Angelos Stergiou: Thank you, Gene. As I said at the start of the call, we’re really excited with the ramp up of our GPS clinical program with the start of a combination study with Merck this quarter and the registrational AML study next quarter. We are as well advancing partnering discussions around NPS and meeting with the FDA next month on an optimal development path forward, while putting the JGB litigation behind us. This has indeed been instrumental year for all of us and we believe we’re indeed well-positioned for 2019. I would like to turn over the call to the operator, please, for Q&A.
Operator: Thank you. [Operator Instructions]. And our first question comes from Hartaj Singh from Oppenheimer & Co. Your line is open.
Hartaj Singh: Great. Thanks for the questions. Can you hear me fine?
Angelos Stergiou: Yes, very well.
Hartaj Singh: Great. Thank you, Angelos, Gene. Just a few questions. So, maybe to start off with NPS where you had the most amount of news recently, I think you’re going to be presenting some more data at San Antonio. So, a couple of questions. One is, the data that you’re going to present at San Antonio, is that part of the overall dossier you sent to the FDA for your discussions in December? Just what expectation should we have around San Antonio and the discussion with the FDA? And then, Angelos, if you can just outline for us what are the two or three scenarios that you could see coming out of the discussions with the FDA on NPS? And then, I’ve got a few more follow-ups.
Angelos Stergiou: Yeah. Absolutely, Hartaj. Thank you for the questions. At San Antonio Breast, I think what you should be expecting is some additional relative data that we have done as part of the Phase IIb study. And it’s going to be data that hs not been previously disclosed. And I think as far as the FDA is concerned, as we have stated, Hartaj, we have submitted a robust briefing document to the FDA and we’ll be meeting with them in December. And I think as far as the outcomes are concerned, trust me, you’ll be the first one to know what that outcome will be. So, please stay tuned for that.
Hartaj Singh: Great, great. So, Angelos, specifically for TNBC, if, let’s say, one outcome was – and I know that, generally speaking, accelerated approvals are given only 10% or less of the time – but is there a target endpoint in triple negative breast cancer that could be used for an accelerated approval with, let’s just say, a follow-on trial being the confirmatory trial? Is that realistic or not really in TNBC?
Angelos Stergiou: Yeah. I think, Hartaj, you’ve known me long enough to know that I never speculate. And I think that one thing that I believe is important to note is the fact that the independent Data Safety Monitoring Board back in April and yet again in October stressed strongly to expeditiously seek regulatory guidance by the FDA and that’s exactly what we have done, both for the sake of patients as well as, obviously, for our shareholders.
Hartaj Singh: Yeah. No, that’s great. That’s great. I will be looking forward to getting that update. And then, just on NPS, last question there, which is that, as you're thinking about potential of partnering, how do San Antonio and the FDA discussions play into any discussions or any just thoughts you’re having in terms of potential partners or how to approach that?
Angelos Stergiou: Yeah. As we have stated, Hartaj, we’re actively pursuing an out-licensing strategy for NPS. As you can certainly appreciate, we cannot comment around third-party discussions, but I definitely believe that, December, with the FDA particularly is going to be important.
Hartaj Singh: Great. Great, fantastic. Then on GPS, Angelos, you’ve got the AML trial going, could you have a trial in AML that could be sort of a worldwide trial, global sort of one Phase III? I know that there’s other companies that have reached those kinds of agreements in AML because there is such a high unmet need. One of the companies I follow, Sunesis, actually had a global trial for Vosaroxin that didn’t work. But they could have gotten approval on one trial. Could you see in AML one Phase III – positive Phase III getting you to approval with GPS?
Angelos Stergiou: Yeah. The answer is yes. We have had discussions with the FDA and we would expect that one pivotal trial will suffice. If it’s positive and meets the primary endpoint, it would be warranted for regulatory approval.
Hartaj Singh: Great, okay. And then, I assume we’ll just get more updates on AML at the next quarter call or whenever you have something material?
Angelos Stergiou: That’s correct, Hartaj. I think, as I mentioned, we really look forward to enrolling our first AML patients in the first quarter of next year.
Hartaj Singh: Great. Great. You’ve also gotten fast track designation and orphan in multiple myeloma. Can you just talk a little bit about how you’re thinking about a potential trial there? Would it be also analogous to complete response 1s or 2s or what line of therapy or response would that be? Or it’s still a little bit vague before you get to that stage, Angelos?
Angelos Stergiou: If I may just make two or three comments on the multiple myeloma study, as you may recall, this was a trial where we treated patients with high-risk cytogenetics. Those patients unfortunately do really poorly. And they typically relapse within 12 months. Our data showed a median progression-free survival of 23.6 months. Having said that, really our core focus as a company is around the acute myeloid leukemia Phase III trial and the combination trial with PD-1. I think multiple myeloma is an important indication. And just like as we have done across all our assets, we will do what is necessary to optimize shareholder value here.
Hartaj Singh: Yeah. Got it, Angelos. And then, just the last question from me on just the basket trial, is there any sort of desire on your end or the end of SELLAS to have an update? If you have a 3+3 trial – just how could we see data flow there in 2019?
Angelos Stergiou: I think the basket trial, Hartaj, is indeed quite exciting because we have built – so, it’s five indications and we have built in quite sophisticated Bayesian statistics on adaptive design. So, this trial will indeed allow us various looks to provide both efficacy data as well as immunobiological data. So, certainly, in 2019, I think you should expect a rigorous news flow around the basket trial.
Hartaj Singh: Great. That’s the extent of the questions I have. I’ll get back in line if I have more. Thank you, Angelos.
Angelos Stergiou: Thanks, Hartaj.
Gene Mack: Thanks, Hartaj.
Operator: Thank you. Our next question comes from Caroline Palomeque from Maxim Group. Your line is open.
Caroline Palomeque: Hi. Thanks for taking the question. So, just wondering how you’re seeing trends in operating expenses for next year because I know you’re having some new trials coming in in the first quarter. Just wondering how you’re seeing that, how you’re thinking about that.
Gene Mack: Hi, Caroline. It’s Gene. We definitely have control over our current cash burn. Operating expenses, we've guided to previously, is that we have cash and equivalents to fund operations through at least March of next year and we’re going to update that guidance at the time that we report our fourth quarter early next year.
Caroline Palomeque: Great, thank you.
Operator: Thank you. And I’m showing no further questions from the phone lines. I’d now like to turn the conference back over to Dr. Stergiou for any closing remarks.
Angelos Stergiou: Certainly. Thank you again, everyone, for participating in today’s call. We very much look forward to updating you again very soon. Thank you.
Operator: Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.