Athenex, Inc. (ATNX) on Q1 2021 Results - Earnings Call Transcript
Operator: Welcome to the Q1 2021 Athenex, Inc. Earnings Conference Call. My name is Richard, and I’ll be your operator for today’s call. . I am now going to call over Mr. Steven Rubis, Senior Director, Investor Relations. Mr. Rubis, you may begin.
Steven Rubis: Good morning, and thank you for joining our conference call. Today, we will provide an update on Athenex’s business as well as a review of financial results for the first quarter of 2021. The news release detailing the results crossed the wire earlier this morning and is available on the company’s website. A replay of this call will also be archived on the company website. During the conference call, the company will make projections or forward-looking statements regarding future events, including statements about financial, business and clinical milestones anticipated in fiscal year 2021 and beyond. We encourage you to review the company’s past and future filings with the SEC, which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements.
Johnson Lau: Thank you, Steve. I will provide an overview regarding our efforts to address the complete response letter for oral paclitaxel and updates on Klisyri performance and the Kuur Therapeutics acquisition before turning the call over to our Chief Medical Officer, Dr. Rudolf Kwan. The top priority remains addressing the complete response letter we received from the FDA for oral paclitaxel at the end of February. Over the past several weeks, the organization worked diligently to collect additional data and perform additional analysis to support our risk reward assessment of oral paclitaxel. We plan to request a type A meeting before end of May. And expect the FDA to schedule the meeting within 30 days. In a type A meeting, we hope to better understand the agency’s concerns expressed in the complete response letter as well as to align with the agency on the optimal pathway forward required to obtain for approval. We continue to believe both that oral paclitaxel demonstrate that a very strong clinical profile and then it offers superior efficacy and safety compared with IV paclitaxel. If approved, we intend to position it as a chemotherapy of choice in metastatic breast cancer. Klisyri, our first-in-class microtubule inhibitor for the treatment of actinic keratosis, or AK, of the face or scalp, launched in the U.S. in February, led by our partner Almirall. The December approval and subsequent launch of Klisyri represent important milestones for Athenex. Klisyri represents this first propriety Athenex product that the company successfully progressed from discovery through FDA approval. Klisyri represents a significant step forward in the treatment of AK due to its short five-day treatment protocol, proven efficacy and safety profile. Athenex retains attractive economics around the company’s partnership with Almirall for Klisyri. In addition to the $50 million in upfront and additional milestone payments already received prior to the first quarter of 2021, Athenex received a $20 million milestone payment in the first quarter checked by U.S. launch of Klisyri and is eligible to receive up to an additional $45 million in aggregate milestone payments associated with the Klisyri launch and expansion into additional indications. Additionally, the company is eligible to receive sales milestone payments and is eligible to receive tiered royalty payments starting at 15% of annual net sales.
Rudolf Kwan: Thank you, Johnson. Despite our disappointment regarding the CRL, we are working diligently to address the CRL and to fight forward for oral paclitaxel. Let me begin by providing some detail on how we plan to respond to the CRM. For the past several weeks, the team and I have been working to develop our response to the FDA. Our preparation include developing additional analysis in collecting additional data to address the agency’s questions and concerns in the CRL. Additionally, as part of our preparation, we have engaged several advisors and consultants, including regulatory and biostatistics advisors to assist us. We are finalizing our meeting request submission package. Our plan is to submit a type A meeting requests by the end of May, and expect to accept the type A meeting by the end of the second quarter. We continue to be hopeful that we can reach an agreement on a path forward that addresses the FDA concerns outlined in the CRL.
Dan Lang: Thank you, Rudolf. On May 4, we announced the acquisition of Kuur Therapeutics, the leading developer of allogeneic CAR-NKT cell therapy. The acquisition of Kuur bolsters Athenex’s existing cell therapy program. We have been looking for a potential disruptive technology for almost a year and we have spent significant time evaluating several technologies in cell therapy that could be synergistic with our TCR technology. I would like to walk you through what drew us to this innovative platform technology. While Kuur’s first-generation autologous CAR-T approach has generated compelling clinical safety and efficacy, there remains several limitations including extended manufacturing time, patient to patient variability, costs, and relative mix data on solid tumors. We believe one of the key elements of success for a leading cell therapy company in the future will require an off the shelf allogeneic approach. We believe a course NKT cell technology could be a transformative platform that could lead for current first-generation cell therapies. We believe the NKT cell is an ideal cell type to be developed as an allogeneic cell therapy. NKT cells have low graft versus host disease risk because they don’t have the classical TCRs. NKT cells have two important anti-tumor effects. They have direct type of toxic effects on tumor cells like NK cells. In addition, through their interactions with dendritic cells, NKT cells can recruit and activate NK cells and T-cells through the release of cytokines, thus further propagating the cascade of the immune response.
Jeff Yordon: Thank you, Dan. I will provide an update on current developments within our infrastructure and supply chain and the existing commercial business. The Athenex specialty pharmaceutical business generated product sales of 20 million in the first quarter. COVID-19 spike in the fourth quarter had a negative impact on our first quarter results. The impact was manifested by hospitals ordering excess inventory in Q4 2020 to be better prepared for the pandemic and the significant spike in COVID cases in India causing long delays in receiving inventory from our partners. The biggest contributors to sales growth recently have been products such as Dexmedetomidine, Azithromycin, Piperacillin and Tazobactam and Levothyroxine. We also recently launched a room-temperature-stable Cyclophosphamide, which has significant advantages over competitive products.
Randoll Sze: Thank you, Jeff. I’ll go through a few key financial updates for the first quarter. Revenue from product sales in Q1 increased to $20.4 million, a year-over-year increase of 10%, primarily attributable to an increase of sales of 503B products. API product sales increased by $0.8 million. These increases were offset by a decrease of $2.3 million in APD sales. For the first quarter, we recorded $20 million of license revenues pursuant to the 2017 Almirall License Agreement upon the launch of Klisyri in the U.S. and $0.5 million related to the upfront fee pursuant to the Second Amendment to the 2011 PharmaEssentia License Agreement. Cost of sales for the first quarter totaled $16.4 million, down from $19.6 million a year ago. The decrease was primarily due to the $2 million royalty payment to Hanmi incurred in 2020 on the license revenue from Xiangxue. R&D expenses for the first quarter totaled $23.1 million, up from $17.2 million a year ago. Increase was primarily due to an increase in pre-launch product development costs and preclinical operation cost. This was partially offset by decrease in clinical study and patient costs on oral paclitaxel after completion of the Phase III study as well as decreases in regulatory, API development and 503B development costs.
Johnson Lau: Thank you, Randoll. We’ll now open the call for questions.
Operator: And our first question in line comes from Umer Raffat from Evercore ISI.
Umer Raffat: This is Umer. Maybe one for Rudolf and Johnson. You elaborate on what additional data collection and analysis are going for the oral paclitaxel regulatory pathway? For the additional data, does that mean some more data from the Phase III breast cancer trial or from other trials that have U.S. sites? And for the additional analysis, does that include the sub analysis that you’re going to present at ASCO or some kind of population PK analysis?
Johnson Lau: Thank you. Rudolf?
Rudolf Kwan: Yes. Thank you for the question. Our additional data collection and analysis are to address the FDA concerns in the CRL and these include data-related neutropenia-related sequelae, the primary endpoint of objective response rate conducted by the BICR and additional risk mitigation strategies to improve toxicity. Regarding to the ASCO question, in ASCO, we’ll be providing molecular subtypes data regarding to the O11 study and that data are not new to the FDA. So that is not part of the analysis in the submission.
Operator: Our next question in line comes from Kennen MacKay from RBC Capital Markets.
Kennen MacKay: Just wondering, if you could help us, have you had any conversations or exchanges with the FDA since the CRL, just to clarify some of the feedback from the CRL? I know that was certainly a question last time we had spoke. And then secondary to that, we had seen obviously Odonate walk away from their oral paclitaxel, docetaxel or paclitaxel after the FDA had asked for an additional trial there, additional data there. Just wondering if that’s something that could even be on the table here or what differences do you see between the trial that they ran and their FDA feedback perhaps versus the situation that you’re in?
Johnson Lau: Thank you, Kennen. Rudolf?
Rudolf Kwan: Yes. Kennen, first question. We are waiting to talk with the FDA on the CRL based on the meeting request. So we have no additional exchange yet as we speak. So the next exchange will be at the timely meeting, which we shall be requesting. Regarding the Odonate, we...
Johnson Lau: Rudolf – Kennen, it’s our company policy that we do not comment on other companies' products, and certainly everyone can have their own interpretation. We have our interpretation, but we have a company policy that certain aspects we’ll not be making comments. And hopefully you can understand, Kennen.
Operator: Our next question online comes from Jonathan Chang from SVB Leerink.
Jonathan Chang: First question, I guess, just to follow up on the previous questions. Do you have any thoughts on next steps for Oraxol? How do you think about the different scenarios that could play out and whether or not you would proceed with the development of the program?
Johnson Lau: Thank you for the question, Jonathan. Certainly, we now have a complete response letter from FDA. It will be essential for us to do our best to provide additional analysis, provide additional data to try to address FDA’s concern so that we can move forward. We are hopeful that this is going to happen very soon, hopefully before the end of the second quarter. In the meantime, we have programs that explore the potential of oral paclitaxel in other indications. In particular, were programs that were active in cutaneous angiosarcoma as well as the use of oral paclitaxel in combination with immunotherapy. They are also actively being pursued right now. As a team together, Dr. Kwan, myself and our entire team, we have firm belief that oral paclitaxel is an important addition to the arsenal of drugs for patients with cancer. And we are pushing forward as hard as we can and as diligently as we can to ensure that we provide the information to satisfy FDA’s concerns.
Jonathan Chang: Got it. And second question, can you discuss the rationale behind the Kuur acquisition and further investment into your cell therapy efforts? I’m also curious to know how the Kuur acquisition impacts your existing TCR cell therapy efforts?
Johnson Lau: Certainly, before I turn it to Dr. Dan Lang to share our philosophy and also what we have seen, let me highlight the fact that I think there were a lot of questions with regards to the timing, with regards to doing such a transaction. Let me emphasize that Athenex is trying to develop the best cancer therapy for patients. We have been developing different strategies with regard to creating value for our stakeholders. And then the rationale behind with regards to timing, with regards to how we actually evaluate, and also to take this opportunity, I will refer this to Dr. Dan Lang to address the question.
Dan Lang: Sure. Thank you, Johnson. Jonathan, so we actually embarked on evaluating different technologies that could really augment our current TCRT program. When we did an analysis on what are the key elements of success for a future leader in cell therapy, we believe that having an off-the-shelf allogenic approach is a very critical element. Current generation of CAR-Ts have interesting efficacy and safety data that are helping patients, but they also have their limitations considering the long manufacturing time, the costs, patient-to-patient variability and other limitations that I’m sure you’re aware of. So over the past nine months, we’ve been spending a lot of time looking at different technologies and companies to try to bring in, to bolster and enhance our currency TCRT program. And we really believe current therapeutics is one of those transformative technologies that could help us leapfrog current first-generation CAR T therapies. And when you ask a question on how does this complement our current TCRT program. One could put a TCR onto the NKT cell platform, which could allow us to have an off-the-shelf allogeneic approach to address the unmet medical need for solid tumors. So I hope that answers your questions, Jonathan.
Johnson Lau: Jonathan, we look at is, obviously we can express the engineered TCRs on the NKT cells and that very active and targeting the tumors with the appropriate case antigens. And also that, if this is the case, then with NKT cells, this will be an allogeneic product and there might be other current T-cell based therapies. And I hope that this addressed your questions, Jonathan.
Operator: Our next question online comes from Robyn Karnauskas from Truist Securities.
Robyn Karnauskas: More on the new acquisition a little bit. Can you just give us some updated, I know the abstracts are out, but how many patients are we actually going to get next week? I know I think it’s 11 patients in the abstract. And then second, could you give us some color on the stable disease, the characterization of the stable disease patients? Like how far out could we get for these patients from durability? And then the other question was on cash. It was just a little confusing. Cash I think previously guided the cash for 2022, but with this acquisition, when it completes, it’s going to tie up a lot of cash. How are you thinking about need for capital and how you’re going to manage cash going forward? And I have a follow-up.
Dan Lang: Sure. Thank you, Robyn, for the question. Relating to the GINAKIT2 neuroblastoma study, Dr. Heczey is going to present at the ASGCT conference on May 14 with additional information. So I don’t want to pre-empt his presentation, but it’s going to provide additional information to the 11 patients that we have enrolled in the study. We really cannot discuss further information on the data ahead of the ASGCT conference because of the embargo. The longest duration of response that we have so far in the study is about six months. And then in terms of the cash question, I would defer to either Johnson or Randoll.
Johnson Lau: Randoll, do you want to comment on the cash position and the confidence that we are going to be able to execute on all fronts based on our current projections? Randoll?
Randoll Sze: Yes. Sure. Thank you, Robyn, for your question. So our latest cashflow guidance has actually accounted for expenses associated with advancing our cell therapy programs, including the Kuur platform. And ever since we received the CRL, we have been very cautious and we have been thinking very carefully about how to manage our resources efficiently and effectively. And we’ve been trying to conserve cash until we have more clarity on the path forward for oral paclitaxel. So we’ve been actively evaluating multiple scenarios for our business to maximize shareholder value during this uncertain period. So our current priorities are to maximize the growth potential for our currently platform and our cell therapy programs. And at the same time, we’re continuing to support APS and APD business. So we’re balancing these priorities against prudent capital allocation as we seek to further extend our cashflow beyond near-term catalysts. Hopefully, that addresses your question on our cashflow.
Robyn Karnauskas: Yes. And then on manufacturing, obviously I know for allogeneic it’s a little cheaper, but even so these are expensive therapies. What is the current status of your manufacturing ability for these new CAR-NKT cells, and is someone else manufacturing for you? Do you have it in-house?
Dan Lang: Sure. Thank you, Robyn. So for both of the Phase I clinical programs, the GINAKIT2 neuroblastoma and the Phase I program the ANCHOR study for CD19 positive relapsing refractory lymphoma, both of those studies are supported by the GMP Baylor cell manufacturing facility in Houston. And we’re actually – in addition to that, we’re actually building our own cell manufacturing facility in our Buffalo headquarter, which will be up and running and be able to support a Phase I program in, probably in Q4 this year. So we have a current GMP out of Baylor to support the additional patient enrollment, which will continue to happen. And then we’ll have a backup facility in a Buffalo headquarter that will come online in a few months.
Operator: Our next question online comes from Kevin DeGeeter from Oppenheimer.
Kevin DeGeeter: I want to follow up on Kuur as well. Really interesting transaction. If I understand the GD2 program at this point, this is an autologous construct. Just any general thoughts you have in terms of continued investment in autologous or should we think about that program for neuroblastoma transitioning into potentially an allogeneic? And any timeframe you can provide with regards to when we may see some updated data from ANCHOR?
Dan Lang: Sure. In terms of the autologous approach for the GINAKIT2 study, this was embarked upon a couple of years ago, and the goal at the time was to show that it’s safe and efficacious to use NKT cells as a cell type for adaptive cell transfer. So whether we are going to invest into an allogeneic program in the future, we haven’t made that determination yet. But suffice to say, because of the NKT cell low graft versus host disease, that positions itself as a very ideal allogeneic approach. I would think that we’re going to invest additional resources into the allogeneic approach in the future. Going back to the GD2 for neuroblastoma, because it’s an orphan drug disease, an autologous approach is okay, because there are very few patients. I think there will be only about 1,500 patients a year in this disease state. In terms of the accrual for ANCHOR, our plan is to expand the current single center study out of Baylor into a multicenter study that will help accelerate accrual of patients in this very important allogeneic CD19 CAR-NKT study.
Kevin DeGeeter: Great. And then, as we think about, building on the last question of manufacturing, any meaningful royalty stack or other components that evolve as you think about building out a financial model and think about net economics?
Dan Lang: There’s royalty that we would owe to Baylor once the product is commercial, but there is no other warranty that we would have to pay during the R&D process. As part of the transaction that Johnson described, there are $115 million of milestone payments, but those are really based on clinical and regulatory success and hitting those milestones. So those are not what I would consider to be royalties.
Johnson Lau: To go further Kevin is that this transaction, we are delighted to see that all the shareholders and also Baylor College, they do have a lot of confidence in us, that the transaction in terms of upfront payment were basically a stock based sort a transaction. So therefore it didn’t impact our balance sheet at all. And then we’re delighted to receive their confidence working in us. Going forward, the royalty that we owe our data is such a small percentage, very, very small percentage, and the overall economics remain to be very attractive.
Operator: Our next question line comes from Chad Messer from Needham.
Chad Messer: Sure appreciate you getting around to my questions. Could you just start with Oraxol? I know we’ve talked about this a bit, but if I remember correctly, one of the FDA concerns or one that surprised me, that it was a bit worried about what a concern over adjudication of the data, that there was somehow a bias. So just wondering, specifically, if that’s something you think you can address with this additional data? If that’s something you can comment on. And as a follow-up to that, you guys have a really extensive clinical program going on, not just with Oraxol with other oral chemotherapies. Just wondering if there are any sort of lessons learned from this incident about, whether it’s the collaborator network or trial design or anything that’s existing or future plan studies that you think needs to change to sort of stay out of the way of this sensitivity that the FDA, or at least this division of the FDA appears to have?
Johnson Lau: Thank you, Rudolf?
Rudolf Kwan: Chad, thank you for the question. We feel strongly the PICL analysis, the question the FDA regarding the primary endpoint is problematic from the FDA perspective. In the sense that the PICL is the industry scientific standard for open label study. So we believe we have a very strong casing argument and we intend to get external validation of their position and position it back to the FDA. Regarding to the other indications for the oral discovery platform, certainly we are a lot more strategic and we certainly take our experience from the Oraxol metastatic breast cancer going forward. So for angiosarcoma program, for example, we will be consulting with the FDA early on using the orphan drug status for the I-SPY2 program is a collaboration with Glaxo and also QuantumLeap, which we leverage extensively external input in the U.S. on that and the companies of obviously, we are all conducting very much in large centers in Mayo clinic. So we hope that those programs will take those lessons we have learned into those programs. I hope that answers your question, Chad.
Johnson Lau: Chad, Johnson here. Just to add a bit further, as an organization, we firmly believe that FDA is a very good government agency. And then it’s a slight pullback when they’re providing feedback, we should take them seriously and learn from them as well. So in this context, I think that they have related questions. They are not really a source of saying that we are doing is not right. What we have to do is to show as much data as possible to convince the government agency. A very fair government agency, that we have been doing it correctly. Now with regard to your question, whether we’ve learned something from FDA on this occasion, we will be able to avoid certain sensitivities going forward. The way that we look at it is that we are always learning. And then for FDA to be able to share with us their concern and guidance would lead to directions. We’re taking them very seriously in all of our planning, for all our programs going forward, to ensure that whatever data we provide is up to the highest standard as requested by FDA. So either way, we are working very closely with FDA and we intend to work with FDA to resolve all the concerns as well as the differences in opinions so that going forward, we’ll be able to enjoy a more smooth path going forward. Thank you.
Operator: Our next question line comes from Matt Kaplan from Ladenburg Thalmann.
Matt Kaplan: Just wanted to focus on the Kuur Therapeutics acquisition, very interesting transaction. I guess more from the point of view of safety and tolerability of the CAR-NKT platform. Can you talk a little bit about the conditioning regimen that’s currently being utilized for these patients and what are your thoughts, I guess, kind of going forward and potentially the pre-conditioning regimen?
Johnson Lau: Thank you. Dan?
Dan Lang: Sure. Thank you, Matt, for the question. So for the lymphodepletion pre-conditioning regimen, it’s the standard that has been used for the current cell therapy field, which includes cyclophosphamide and fludarabine. In terms of the safety and tolerability that we’ve seen so far, we saw one grade two CRS in the GINAKIT2 study, which is a neuroblastoma study, out of 11 patients. So obviously, small numbers, but that’s about 10%. And I think that compares very well against the current first generation CAR-T programs, which have a higher CRS rates. In addition to that, in the ANCHOR study we have enrolled two patients so far and reminding you that that’s an allogenic program, and we currently have not seen any graft versus host, any CRS or neurotoxicity. So safety so far appears to be pretty good and well tolerated. And I think you asked an additional question, whether we can maybe ameliorate or reduce the burden of lymphodepletion. That’s certainly a question that we’ll like to explore at some point later in time, but currently we don’t want to confound the Phase I with too many questions then make it very hard to interpret the data. Thank you.
Johnson Lau: To add a bit further, Matt. With our background, in fact, my background was also immunology. I will be delighted to share that based on our review of the data and the biology of NKT cells, we will be planning to explore the option of reducing the DP conditioning. And there’s a possibility that we are going to be able to, in certain circumstances, to eliminate majority of DP conditioning. And that is one of the attractive points of the program, which got us very excited. I just wanted to share with you what we are currently thinking, Matt.
Operator: Our final question comes from Umer Raffat from Evercore ISI.
Umer Raffat: Thanks a lot for the follow-up question. I want to clarify that the additional data collection for the paclitaxel program does not include additional data from the other U.S. trials that you’re running. And for the Kuur acquisition, could you maybe share some thoughts on the durability of the allogeneic COVID-19 program? And is there any technical barrier for redosing?
Johnson Lau: Thank you. For the first part of the question, Rudolf, do you want addressed, whether the additional data like angiosarcoma data that you’re going to incorporate in our response?
Rudolf Kwan: The current planning, we are obviously collecting data as we speak in all the studies, including safety data from all the other studies and efficacy data from the angiosarcoma. Nevertheless, the meeting with the FDA focused on the complete response letter, and we will definitely respond with additional data if they ask that question. But right now the focus is on the complete response letter.
Johnson Lau: With regard to your second question on the allogeneic approach and the data, Dan?
Dan Lang: Sure. So for the ANCHOR study, we had two patients enrolled and we have two responses. The first patient with the PR, his initial response was about three months, and then the second patient with a CR, his response so far is it’s about six months. And I think you had another question related to the ANCHOR study, which I forgot. Can you repeat that please?
Umer Raffat: Barrier for redosing for this allogeneic study?
Dan Lang: Yes. No, that’s a great question because with the allogeneic approach, redosing becomes more of a reality, which is certainly a limitation for the first generation CAR-T. Re-dosing has been done in the past, in the Autologous GINAKIT2 study. In fact, I think there were two patients that received, redosing in a GINAKIT2 neuroblastoma study, and we are planning to do the same thing with the redosing or testing the hypothesis of the ability to redose these patients in the ANCHOR study. We want to gather more single dose data first. So far, we won’t have two patients. So once we gather more single dose data, we’ll explore and maybe potentially amend the trial so that we can allow for redosing. So one idea could be for a patient that have a stable disease, can we turn that SD into a PR with a redosing? So these are all things that are on the drawing plans, and hopefully we’ll be able to report more details once we make a decision.
Johnson Lau: To add further, is that both from a scientific perspective, the feasibility and technicality, and also the market potential, redosing is certainly something that is well within the scope of what we can do. I hope that we addressed your question.
Operator: We have no further questions at this time. I’d like to turn the call over to Johnson for closing comments.
Johnson Lau: Thank you all for joining us today. We continue to work toward clarity from the FDA on oral paclitaxel while supporting our cell therapy program and the APD, APS businesses. Our goal is to continue to allocate capital efficiently while executing on opportunities to unlock value for our shareholders. We look forward to updating everyone again this summer. Thank you for participating in this call.
Operator: And thank you, ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.
