Atossa Therapeutics Q2 2023 Earnings Call Transcript

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August 14, 2023

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Atosa Therapeutics Q2 2023 Conference Call. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Eric Van Setten, Vice President of Investor and Public Relations. Mr.

Operator

Van Setten, you may begin.

Speaker 1

Thank you, Kevin. Good morning, everyone, and welcome to Atos' Q2 2023 corporate and financial update conference call. Earlier this morning, we issued a press release providing an overview of our recent corporate highlights and financial results for the quarter ended June 30, 2023. The press release can be accessed on the Investor portion of our website at investors. Atosatherapeutics.com.

Speaker 1

Joining me on the call today are Doctor. Stephen Quay, Atos' President and Chief Executive Officer and Greg Weaver, our Executive Vice President and Chief Financial Officer. During today's call, we will be making certain forward looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from the anticipated or estimated future results. These forward looking statements are based on current information, assumptions and expectations that are subject to change. A description of potential risks can be found in our latest SEC disclosure documents and our press release.

Speaker 1

You're cautioned not to place undue reliance on these forward looking statements and Atosa disclaims any obligation to update these statements. I will now turn the call over to Doctor. Quay.

Speaker 2

Thank you, Eric, and thank you to everyone who joined the call today. I'm very proud of the progress we've made in Q2. From a clinical perspective, each of the 3 ongoing Phase 2 trials investigating our proprietary Z Endoxifen reached important milestones. I'll start with the Karizma endoxifen trial, which is a randomized Double blind placebo controlled efficacy study of oral endoxifen in premenopausal women with measurable breast density. This is a single site trial at the Karolinske Institute in Stockholm led by Doctor.

Speaker 2

Per Hall, One of the world's foremost authorities in breast cancer epidemiology. Participants in the study are randomized into 1 of 3 cohorts to receive placebo, 1 milligram or 2 milligrams of indoxifen daily. Participants will take indoxifen for 6 months, over the course of which mammograms are conducted to measure reduction in breast density. Patients will also have a mammogram at 24 months to assess the durability of density changes. Last month, we announced that 70% or 170 of the anticipated 240 patients have been enrolled in the trial.

Speaker 2

We expect the study to fully enroll in the Q4 of this year and data to be available in mid-twenty 24. Mammographic breast density is a growing health crisis. Between 40% 50% of all women Cancer and dense breast tissue both appear white on a mammogram, which makes mammography less sensitive and more difficult to interpret. As a result, cancers are often larger, more advanced and more difficult to treat when found in women with dense breast tissue. Additionally, mammographic breast density is a strong independent predictor of breast cancer risk And women with the highest density are 4 to 6 times more likely to develop breast cancer compared to women with the least dense breasts.

Speaker 2

Our vision for Endoxone in the mammographic breast density setting is to both make mammograms more reliable and decrease the risk that women with dense breast tissue will develop cancer in their lifetimes. In addition to our MBD trial, there are 2 additional Ongoing Phase 2 trials investigating indoxifen in the neoadjuvant setting, which is the window of time between the diagnosis and the primary treatment, which with estrogen sensitive breast cancer is almost always surgery plus radiation and or chemotherapy. The intent of neoadjuvant therapy is to slow the cancer growth or even shrink the cancer prior to surgery. Doing this makes surgery more effective and with breast cancer it may alter the surgical approach, meaning some patients could have a lumpectomy instead of a mastectomy. Neo adjuvant therapy has also been shown to reduce the likelihood that the cancer returns.

Speaker 2

The first of the 2 neo adjuvant trials investigating indoxifen is being conducted through the iSPY network, which is a collaborative effort among academic investigators from major cancer research centers across the United States. The I SPY trial is enrolling newly diagnosed pre and postmenopausal women with estrogen receptor positive breast cancer. As a reminder, about 80% of all breast cancers are ER positive. Patients in the study received daily treatment with This is a smaller trial with only 20 subjects expected to participate, And we announced in June that the trial was already 30% enrolled. Given the size of the iSPY network, which includes 41 of the largest cancer centers in the United States.

Speaker 2

We expect full enrollment either later this year or in early 2024. The 3rd Phase 2 trial is the EVANGELINE study, which was profiled at the American Society of Clinical Oncology meeting in Chicago in June. This is also a neoadjuvant study, although it differs from the I SPY trial as only premenopausal women are being enrolled. The Evangeline trial will enroll up to 175 women. The primary objective is to evaluate the endocrine sensitive disease rate measured by Ki-sixty seven after 4 weeks of treatment with indoxifen compared to treatment with current standard of care, which consists of an aromatase inhibitor plus ovarian function suppression.

Speaker 2

Ki-sixty seven is a measure of tumor cell proliferation or how fast the tumor is growing. The importance of this is that studies have shown that Ki-sixty seven above 10% at the time of surgery confers a higher risk of recurrence and a worse survival rate in patients with early breast cancer. Evangeline trial started with a 6 patient Pharmacokinetic run-in cohort, which was designed to determine if the 40 milligram dose delivers steady state plasma levels of between 501,000 nanograms per milliliter, which is the optimal to target protein kinase C beta inhibition and enhance Endoxifen's antitumor mechanism of action. We already know that Endoxifen binds to estrogen receptors in breast cells and stops the body's own natural estrogen from attaching to them. This cuts off the cancer's fuel source and prevents it from growing and spreading.

Speaker 2

By further targeting PKC beta, We expect endoxant to have an even greater antitumor effect by both blocking the estrogen receptor and by inducing apoptosis, which is a cellular equivalent of a self destruct button. This is where we could see not only slower progression, but also a reduction in the size of the tumor. We recently received data from the initial 40 milligrams As with our previous trials, no treatment related safety or tolerability issues were identified. While the 40 milligram per day dose was well tolerated, it did not achieve optimal plasma concentrations, which means per the protocol, We are in the process of initiating a second dose level at 80 milligrams. Based on concentration levels Achieved at 40 milligrams per day, we expect the 80 milligram per day dose will deliver the desired steady state plasma concentrations.

Speaker 2

Efficacy data was also captured as part of the PK run-in, including Ki-sixty seven at baseline and at 4 weeks and MRIs taken at diagnosis and again after 12 weeks of treatment. We are extremely encouraged by these results and we hope to share them in detail at an upcoming medical conference. Before I turn things over to Greg for a financial update, I wanted to touch on one additional project that we have recently announced, which is our research partnership with Weill Cornell Medicine in New York City to study the potential of inducing estrogen receptor expression in triple negative breast cancer. The term triple negative breast cancer refers to the fact that the cancer cells don't have either estrogen or progesterone receptors And also don't make any of the other receptors including the human epidermal growth factor receptor 2 or HER2 protein. The tumor cells thus test negative on all three tests.

Speaker 2

Triple negative breast cancer or TNBC accounts for about 10% The 15% of all breast cancers and a difference from other types of invasive breast cancer in that it tends to grow and spread faster, Has fewer treatment options, has a higher risk of recurrence and tends to have a worse prognosis. The goal of the research we are doing with Weill Cornell is to determine if treating TNBC With extracellular vesicles carrying the estrogen receptor will change the cancer phenotype and turn on the estrogen receptor. Converting the tumor to ER positive would make it sensitive to hormone therapy, including treatment with Zendoxifen. This was fundamentally transformed the treatment approach and outlook for these patients. With that, I'll turn things over to Greg.

Speaker 2

Greg recently joined us as CFO, but he knows the company extremely well having served on the Board for over 10 years. He is a seasoned financial executive with over 30 years of experience leading finance, operations and business development at several I am thrilled to have him as part of our executive team and will turn things over to him for our financial update. Greg, take it away.

Speaker 3

Thank you, Steve, and thank you to everyone for joining today's call. This is our first Earnings call as we reinvigorate our communications with investors and these quarterly calls will be an important pillar of that going forward. From my perspective as an investor in natosap, it's a pivotal time for the company with Phase 2 trials in multiple settings, Cendoxifen is positioned to read out data over the next 12 to 18 months, providing investors with the opportunity to join in the value creation and innovation for breast cancer patients. And looking ahead strategically, our clinical development strategy for the breast density and the new adjuvant Breast cancer indications includes forming alliances for future Phase 3 development and commercialization. So as the clinical data continues to mature, one of the key objectives we have is to build relationships with prospective partners And brokering alliances is something I've done previously in my career and look forward to leveraging that experience here at Atosa.

Speaker 3

Okay. Let's turn to the financial update. So beginning with cash, the end of Q2 total cash position was $99,400,000 as compared to $104,000,000 at March 31, and $111,000,000 at year end 2022. The 6 month Year to date change in cash was $11,500,000 $4,500,000 used in Q2, dollars 7,000,000 in Q1. So as we model cash runway going forward, you can clearly see the multi year resources available to drive our multiple Phase 2 clinical programs to their next significant value inflection points and through to completion.

Speaker 3

The strong cash position we have is also strategically important longer term as we position ourselves to invest in the Phase 3 registration trials and potentially to consider adding to the pipeline. Let's move to the comparison of the 3 month numbers ended June 30, with total operating expenses of $7,800,000 For the 3 months ended June 30, an increase of $1,200,000 from the 3 months ended June 30 prior year. R and D expense for the 3 months ended June 30, 2023, dollars 3,700,000 compared to $3,400,000 Same quarter prior year, the increase of just under $300,000 primarily due to increased spending on clinical trials and non clinical activities. G and A expense for the 3 months ended June 30 was $4,100,000 compared to $3,200,000 for the same quarter prior year. The increase of just under $1,000,000 due to G and A compensation expense, which increased primarily due to severance costs to our former CFO And the increase in overall compensation, along with legal and professional fees increasing due primarily to higher patent activity for Zendoxifen and higher Investor Relations and Accounting fees.

Speaker 3

Interest income was $1,000,000 for the 3 months ended June 30, a sharp increase compared to prior year due to a higher average invested balance and higher earned interest rates. And non cash charges in the 2nd quarter included an impairment charge we booked for $2,900,000 on an investment in Dynamic Cell Therapies or DCT and a non cash stock compensation charge of 1,600,000 And finally, on the quarterly numbers, a net loss of $9,800,000 for the 2nd quarter compared to the net loss of $6,300,000 in the 1st quarter and $6,700,000 for the comparative Q2 of last year. Pivoting to the 6 month ended June 30 numbers, Total operating expenses of $14,900,000 for the 6 months, which is an increase of $3,500,000 from the prior year. With R and D expenses for the 6 months of $7,200,000 compared to $4,900,000 for the same quarter prior year, the Increase of $2,300,000 due primarily to increased spending of roughly $1,800,000 related to the endoximine clinical trial costs We remain to establish alliances with several research institutions. Pivoting the G and A expenses for the 6 months ended June 30 totaled $7,700,000 an increase of $1,300,000 compared to the prior year's $6,400,000 With the key fluctuations again being the compensation expense increase in part attributable to the increase in overall compensation of roughly 900,000 A decrease in non cash stock based comp and an increase in the severance costs for our exiting CFO.

Speaker 3

And also again, legal and professional fees increased due to higher activity in both areas. Interest income for the 6 months, $1,800,000 also increased related to higher average balances invested in higher average interest rates. The non cash charges for the 6 months included the Q2 impairment charge on the investment in DCT and non cash stock compensation. The net loss for the 6 months was $16,100,000 and that compared to the net loss of $11,500,000 year to date prior year. And then one additional topic to touch on is that we announced a share repurchase program in June to purchase up to 10,000,000 shares of our common stock.

Speaker 3

This program is authorized through the year end 2023 And the rationale for the program is to recognize in our view the disconnect in the market value of Atosan shares. In Q2 2023, we purchased just under 120,000 shares of stock at a cost of approximately $150,000 And today, we purchased approximately 840,000 shares for $1,000,000 This activity has Thank you for your attention. I'll turn the call back to Steve. Steve?

Operator

Steve, you're on mute.

Speaker 2

I'm sorry. Can you hear me?

Speaker 4

Yes. You're good.

Speaker 2

Thank you, Greg. And from a clinical development perspective, we expect to see data from all three of our ongoing Phase 2 trials over the next 12 months to 24 months. This data along with feedback from the FDA will allow us to design Phase 3 protocols, which will support strategic business development alliances. Short term, you can expect to hear from us with enrollment updates and other developments. You should also expect these quarterly update calls to continue with our next one being our Q3 call in November.

Speaker 2

I'd now like to ask the operator to open the call for Q and A. Thank you, operator.

Operator

Our first question comes from Jason McCarthy with Maxim Group. Your line is open.

Speaker 4

This is Michael Kinewich on the line for Jason. Thank you so much for taking my questions today.

Speaker 2

Greetings, Michael.

Speaker 4

All right. So I guess, first off, I'd just like to see with the Karizma and Doxifen trial approaching Full enrollment by year end and completion in 2024, could you just remind us, is there a certain level of density reduction or some upper Threshold you need to cross in order to consider it a meaningful result where you'll get an improvement in early detection Or reduction, incidence of breast cancer. I'm trying to get at how you evaluate a meaningful reduction in breast density?

Speaker 2

Yes. That's a great question, Michael. There are 2 main measures of density on the mammograms themselves. And then I'll discuss the concept of statistical significance and clinical significance, which comes up in every single clinical trial of any drug you'd be involved with. So The first, the measurement endpoint.

Speaker 2

Radiologists have for almost 2 decades used a ABCD Categorization of approximately quartiles, where A is the lowest density and D is the highest density. There's an abundance of research results looking at those density measurements and for example, the effect on sensitivity of finding cancers, The effect on 5 year incidence of cancers going forward. So the long history in mammographic density is that ABCD categorization. Now We've gotten to the point where we now have 510 cleared measurements, which are quantitative. The machine does it for you with software.

Speaker 2

Those give you a score from 0 to 100. And so we have less long term experience with those, but they do map onto what you'd expect where A radiologist calling a breast A, the machine calls at 0 to 25, 26 to 50, 51 to 75, 76 to 100. So the biggest winners are when you cross the thresholds Between groups because that's the highest level, statistical significance will probably require a pretty small amount, perhaps 3% or 4% will be enough. The breast In these premenopausal women, the breast will be changing less than 1% per year. When they get near menopause and you'll see a 5% or 6% drop over a couple of years.

Speaker 2

But so statistical significance would be a couple of percent. Clinical significance will be larger drops and perhaps changes in the ABCD categorization.

Speaker 4

All right. Thank you for that. I do appreciate the additional clarity there. And then in terms of the Evangeline study, I'd like to see how many sites you plan to open in Canada and how many would that bring it to

Speaker 2

Yes. I mean, we have one site in Canada, which was the requirement for getting the filing and getting permission to go forward there and we'll continue to recruit additional trials, and we are always recruiting trials centers into this trial on an ongoing basis. We haven't disclosed the number of centers that are open currently, but there is a website that you can go to if you have

Speaker 4

All right. Thank you. Then one last one for me and I'll hop back into the queue. So you guys have a fairly impressive cash balance right now. Are there any plans to And the earlier mid stage pipeline with additional M and A or are you focused on deploying that capital pretty much purely to get This current set of studies do those readouts over the next 12 months to 24 months.

Speaker 2

Yes. Thanks, Michael. Great question. I'm going to let Greg weigh in on that if he would.

Speaker 3

Happy to, Michael. A great question. We're blessed with a very strong balance sheet. And as I look at it In my 1st weeks here as the CFO, really strategically positions us to not only fully fund the current protocols, Execute on the trials that we've just discussed in full to and through completion. But it appears to me that there's additional bandwidth here to seriously consider adding to the pipeline.

Speaker 3

And so as we go forward, we'll be Just with some discretion, having a look, to be honest. And I would just say, We don't have any disclosures at this time except that there is an intent to take a look at the landscape and see what might be a good strategic fit for us.

Speaker 4

All right. Thank you very much and congrats on the progress this quarter. Excellent. Thanks for joining us.

Speaker 3

One moment.

Operator

One moment for our next question. Our next question comes from Edward Ryu with Ascendiant Capital. Your line is open.

Speaker 5

Yes, congratulations on the progress. My question is on dynamic cell therapies. What drove the impairment charge this quarter?

Speaker 2

Yes. Thank you for your question. I'll let Greg go into that. It's a financial analysis exercise.

Speaker 3

Yes. Thank you, Ed. Good morning. The Dynamic Cell Therapies investment was made into their CAR T business As a strategic investment, second half of last year, the accounting treatment for GAAP is to take a look at The fundamentals of the actual business under investment and in this case, The accounts considered the cash runway for that investment business It is less than a year and as they look at that, they run it through their parameters for investment carrying value on the balance sheet and recommended an impairment charge be booked against it. So it's a non cash Evaluation, we still think that there is value in that investment and they continue to carry it going forward.

Speaker 5

Great. Then my next question is on the 3 trials that is going on right now. How would you characterize patient enrollment? Is it as expected, faster or slower Then you expect it?

Speaker 2

Always a good question. I've got 7 approved drugs and about 30 clinical trials under my belt. And I can say Pretty definitively that there's a high correlation between good enrollment and a successful drug after FDA approval and marketing. So With respect to the I Spy trial in neoadjuvant, we've already we indicated that we had 30% enrollment within a couple of months. The This trial in the Karolinska Institute in breast density accruing right on schedule despite the Swedish Culture, I guess, where they take a full month off in the summer, for example, things like that.

Speaker 2

So it's enrolling very well. And There's a buzz about the trial, the Evangeline trial It's going to happen to get the Mayo Clinic, because again, we're trying to see if we can step into the standard of care, which is effective and safe, but has a quality of life issue. So it's sort of the 3rd leg of a stool in clinical development with ovarian function suppression. So that is the standard of care now, but it produces an extremely strong decrement in the standard of care for these patients. We're seeing if our endoxifen is so strong at stopping the estrogen receptor that it can tolerate the up regulation of estrogen that happens in women that have functioning ovaries in the presence of hormonal therapy.

Speaker 2

So if we can achieve the same equivalent efficacy, the same safety profile and an improved quality of life, It will be a game changer. So all three of the trials have the non statistically significant addition of being really strong trials.

Speaker 5

Great. Well, thanks for answering my questions and I wish you guys good luck. Thank you.

Speaker 2

Thank you.

Operator

I'm not showing any further questions at this time. I'd like to turn the call back over to Doctor. Clay for any closing remarks.

Speaker 2

Well, I want to thank everyone for listening and to our analysts for their questions. We appreciate the support and look forward to next quarter's

Operator

This concludes today's conference call. Thank you for joining us. You may now disconnect your lines and have a wonderful day.

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Atossa Therapeutics Q2 2023
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