Q3 2021 Progenity Inc Earnings Call
Good day, and thank you for standing by welcome to Virginia third quarter, 2021 earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
You ask a question during that time, you will need to press star one.
So if you require any further assistance please press star zero.
I'd now like to turn the call over.
Two a moderator today, Robert <unk>, managing director with ICR last week.
<unk> Investor Relations. Thank you. Please go ahead.
Thank you operator, good afternoon, and welcome to Progenitive third quarter 2021 financial results Conference call. Joining me on the call is arty Mohan the new CEO of progenitor <unk> and Eric <unk>, Chief Financial Officer before I turn the call over to Mr. Mohan I would like to remind you.
Today's call will include forward looking statements within the meaning of the federal Securities laws.
Including but not limited to the types of statements identified as forward looking in our quarterly report on Form 10-Q that we will file later today and our subsequent periodic reports filed with the SEC, which will all be available on our website in the investors section. These.
These forward looking statements represent our views only as of the date of this call and involve substantial risks and uncertainties, including many that are beyond our control.
Please note that the actual results could differ materially from those projected in any forward looking statement for a further description of the risks and uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements as well as risks related to our business. Please see our periodic reports filed with the.
SEC.
A slide deck with some supplemental information is also now on the website, but it will not be directly referenced by the speakers on the call today.
With that I will now turn the call over to arty Mohanty, the new CEO of progenitor.
Thank you Robert Hello, everyone I'm happy to join our call today and really happy to have joined the company in such a pivotal time.
While doing my diligence I was absolutely impressed with the innovation the signs and data behind the programs here towards entity.
These have the potential to have positive paradigm changing impact on the diagnosis and treatment of serious diseases.
<unk> has also made significant progress on its transformation.
Im looking forward to accelerating this process and creating clearer focus.
Focus on doing the right thing for patients while also ensuring that we're doing the right thing for all our other stakeholders our shareholders our employees our partners.
In the coming days, we will accelerate our transformation generate and capture value from our unique assets have a clear focus on advancing our pipeline and deliver for our card partners and explore further partnerships and collaboration while making efficient use of our resources.
I look forward to coming back soon to talk about our progress.
Now I will turn the call over to Eric to cover our quarterly update.
Thank you Eddie will come to the team and thank you all for joining us this afternoon.
During the third quarter the company made great progress in its transformation directed at materially reducing its burn rate.
All accelerating a transition to an innovation led biotherapeutics company.
On its oral delivery of body of the molecules and it's G IBD platforms.
We more recently added biotherapeutics capabilities to our management team with the addition of <unk> as the new CEO and to our board of directors and governance structure with appointment of Jill.
Direct <unk> and our other chair and the appointment of our lead director with Jeffrey altar as board chair, we materially reduced our cash burn profile successfully raised capital and started optimizing our capital structure by reducing our debt level and announced the issuance of important patents protecting our innovation pipeline.
We believe the third quarter was a pivotal period positioning the company for long term success.
Let me first cover all bar Therapeutics program.
The goal of this program is to achieve oral delivery and systemic uptake of borrowers biotherapeutics, especially monoclonal antibodies, but also other proteins peptides and nucleic acids. In total we're targeting an estimated $250 billion potential global biologics market that is prime for these oral delivery.
<unk>.
During the third quarter 2021, we continue to make progress with device and manufacturing improvements and further refine our animal models and our understanding of expected performance in humans.
As a reminder, we have two lead candidate candidates PGN it'll be one variant of at Illumina and monoclonal antibody and PJM will be to a high concentration formulation of the peptide Liraglutide AGL Piedmont.
We believe that an average by availability of around 10% to 15% of IV with repeat dosing will prove satisfactory for a large number of bio molecules.
We anticipate generating additional data in the coming months as we are initially using known drugs with established safety and efficacy profiles. We believe we should be able to generate compelling death in animal models and provide clinical proof of concept with first in man studies.
We believe the <unk> platform can one help improve patient compliance and lower IV infusion costs.
To help expand the market for <unk>, one agonist than other drugs across a range of chronic use indications.
<unk> held bio therapeutics, such as monoclonal has become more competitive with small molecule substitutes and finally, we have the potential to target and treat a wide range of pathologies, including liver diseases.
Our strategy is to advance our own pipeline, while continuing to partner with third parties to also leverage their drug candidates and resources to help make the Nvidia is a leader in the oral delivery of biotherapeutics.
During the third quarter, we entered into an additional partnership with a large pharmaceutical company to evaluate their therapeutic with UBS. This marks the third collaborations for the UBS further demonstrating the interests of the industry and oral delivery of large molecules and in our <unk> platform.
Moving to our <unk> program as a reminder, DDS stands for drug delivery system.
While the <unk> is designed to achieve oral delivery and systemic uptake of biotherapeutics. The DBS is designed to treat Gi localized diseases with minimal systemic breakthrough.
The goal of this program to deliver sort of belies high dose pharmaceuticals to specific locations along the GI track initially to treat inflammatory bowel disease IBD.
We are developing drug device combination products designed to deliver proprietary <unk> formulations of drugs directly to the side of the disease in the Gi tract, thereby maximizing the available dose in tissue and achieving drug distribution throughout the call. We are first targeting the estimated $15 billion.
Market IBD market with our two lead drugs PGM 600 deficit of nib, a small molecule normally absorbed in the stomach and upper Gi track with our initial focus being ulcerative colitis or UC.
And potentially also PGM jaws of one variant of at Illumina and monoclonal antibody. We continue to believe we have the potential with this platform to achieve rapid induction superior clinical remission rates and we do safety events for the treatment of IBD Slash colitis.
During the third quarter, we continued advancement of device development and manufacturing. We also conducted our first official and cemetery bowel disease clinical Advisory Board meeting and the meeting are world renowned Advisory Board members. We view the data generated to date and aligned on the clinical program for the remainder of 2002.
21 and 2022.
As a reminder, during the first quarter, we completed our first study with a prototype autonomous DDS successfully evaluating the capsule safety targeting and tilda mobility in the Gi tract or 12 normal healthy volunteers. We were pleased with the result, and no safety issues were reported with <unk>.
To conduct a similar study in UC patients in the first half of 2022 to confirm the device safety and function and disease patients.
We then intend to conduct proof of concept studies to demonstrate the delivery of therapeutics with our device can achieve desired pharmacokinetic and pharmacodynamic effects in UC patients.
We believe our <unk> platform will significantly advance the treatment of GI disease. Initially for IBD and you see our strategy begins with transforming established drugs with known efficacy and safety profiles, but we believe the DDS platform has the potential to significantly in the hands any compatible drug directed a treat in Gi.
Local localized disease, and then they will enable new effective IBD treatment regimens, such as rapid induction and drug combination therapies.
The potential for the DDS, that's been recognized by the Crohns and Colitis Foundation as they continue to provide funding for the development of the technology.
Our near term focus is very much on our drug pipeline and delivery platforms and as a result, we have shifted our work with diagnostic devices to engineering the development of second generation builds to enable larger scale manufacturing.
In the third quarter, we did complete a small proof of concept study with the Rss device to collect preserve and analyze the microbiome and normal normal healthy subjects and compare the bacterial composition to fecal samples. We are currently preparing those results for potential publication.
Moving to our remaining women's health innovation platforms, we have previously announced the successful completion of the validation study for 104 for our preclude a rule out test for preeclampsia.
Our preclude you test achieved the primary hazard ratio endpoint of the study protocol and demonstrated strong performance results of our values. They shouldn't study are included in a scientific paper drafted by the independent principal investigators, which was submitted to a peer review journal for review and subsequent publication.
As a result, we are limited in our ability to provide more details regarding the specific results here, but we look forward to the upcoming publication.
Very pleased with the test performance, which we believe gives <unk> the potential to transform patient management by enabling physicians to rollout preeclampsia in women with signs and symptoms of Covid.
Yep.
Combined with an important patent allowance for one of the key assays and our novel test and potentially more on the way we believe the strength of our growing preclude the IP portfolio will support our ongoing licensing efforts.
We have now formally launched a managed process and engaged an advisory firm to work with our internal team to out license and maximize the potential value of this asset for the company and our shareholders.
<unk> also has potential as an IBD immuno diagnostic kit, which can better serve the global unfortunate T. Our preference is to identify a commercial partner, who can facilitate physician and patient access and reimbursement in the U S market and do the same for the CE IBD global markets.
Moving to our financial performance and capital market activities.
We mentioned in our last earnings call that changes, we implemented that already achieved at that time at $97 million reduction in our annual operating expenses run rate.
During the third quarter, we further reduced our spend profile to achieve a $110 million annual expenses, one weight reduction and once the separation of our favorable affiliate is completed we expect to have secured a total of approximately $145 million in operating expenses annual run rate reduction.
From where we were in the second quarter.
Which we expect will extend our runway significantly and reduce our dependency on the capital markets.
We generated $9 $6 million in revenues during the third quarter out of which $9 4 million came from discontinued operations. However, as we complete the company's transfer transition shift away from molecular testing operations and focus our operations as a development stage Biotherapeutics company.
We are changing the way we look at our financial picture. Consequently, it is important to remind everyone that we are shifting our near term focus away from revenue generation to concentrate on managing cash burn and optimizing capital allocation to our innovation pipeline.
With a goal of generating value through the achievement of key development milestones and thus had generation.
Operating expenses, excluding stock based compensation expenses were $32 $7 million in the third quarter of 2021, representing a $9 million favorable variance in the third quarter compared to our previous guidance and as we complete our spend reduction associated with a lot of operation during Q4.
Sure, we reconfirm our expectation that total operating expenses before stock based compensation expenses will reach less than $25 million in the fourth quarter.
More importantly, our monthly run rate of operating expenses before stock based compensation expenses are expected to reach less than 7 million by the end of the fourth quarter. The majority of which will be allocated to R&D illustrating the benefit of the company's focus on our innovation pipeline. We also reconfirm our target in 2022.
Monthly operating cash burn profile to be in the range of $5 million to $6 million post transformation.
G&A expenses in the third quarter were $17 9 million, including $2 7 million in stock based compensation expense for Q4, we expect G&A expenses before stock based compensation expenses to be approximately $14 million as we finalize the company transition in line with our overall cost reduction.
<unk> profile.
R&D expenses in the third quarter were $12 3 million, including $1 $1 million in stock based compensation expense and we also expect to maintain a stage stage gated data driven approach to new capital commitments.
In parallel we are shifting our women's health programs R&D spending towards partnership and licensing support activities. As a result, our R&D expenses before stock based compensation expenses are expected to be approximately $10 million in Q4, a slight reduction from our prior guidance.
During the third quarter, we raised $40 million in gross proceeds through an underwritten public offering private placement and had a cash balance of $54 million at the end of the third quarter of 2021.
Since then we've raised an additional $20 million in original registered direct offering in October and have received more than $19 million in warrants exercises as of the date of this call.
The capital raised so far in the second half of 'twenty, one puts us in a strong liquidity position heading into 2022 and combined with a gradual completion of our company's transformation, leading to a substantially reduce cash burn and allows us to have runway well into the third quarter of 2022.
Finally, we started proactively managing our capital structure by reducing the balance of our convertible notes through a $22 2 million exchange represented a representing a 38% reduction in the non affiliated balance of the notes, we think that to investors. We've provided consumptive proceeded with the exchange during the current lockup.
<unk> and the convertible note holders, who work with us to reach a successful closing of the transaction with.
We intend to continue to continue proactively reducing our debt as we look to optimize our capital structure.
Our transformation is advancing as expected at this juncture and we have already realized a significant reduction in operating expenses run rate. We are sharpening our focus on disrupting to borrow the molecule market through oral delivery via the obs and developing new treatment options for IBD colitis with our <unk> platform.
Also looking forward to generating potential licensing revenues from our preclude a rule out test, which could enable us to capture our share of an approximately $3 billion market in the U S alone.
We're excited about our transformation into a biotherapeutics company future milestones, we'll discuss today are expected to enhance value as we make progress with our innovation pipeline addressing vast markets and in certain instances have the potential to be commercially transformative. We're excited by the continued progress and focused execution.
Near term potential and the Optionality will provide for future value creation.
With that operator, we're now ready for questions.
Thank you as a reminder to ask a question you will need to press Star then the number one on your telephone keypad.
Its star one on your telephone.
Again to ask a question you will need to press Star then the number one on that.
Yeah.
Our first question from the line of Catherine Schulte from Baird. Your line is now open.
Hi, guys. Thanks for taking the question. This is actually Tom on for Catherine today.
I wanted to start first maybe.
On the pre clarity of strategy.
Sort of how conversations have been progressing.
On the fraud and the consulting group in around the licensing opportunities here and then maybe additionally.
How that affects kind of <unk>.
On the enable side, what youre thinking about that platform going forward.
Yeah sure. So thank you Tom for the question.
Eric here I'll take that question.
Well I think at this stage, we're still in the initial phase of the outreach to potential licensees for <unk>. So I can't give much detail. However, I can I can tell you that so far.
All the data that we've seen reconfirms, our belief that there is good value there, but we'll have to see how the process goes so I think the best thing for US is to revert back when we have some tangible progress to.
To present.
With regards to the other and Natal I think youre, probably referring to a single molecule detection platform is that is that correct.
Yes, that's right, yes, yeah. So we're still progressing with the development of that program. However, because it is still in development stage.
And as we mentioned during the call our goal is to very much focus on.
Our drug device combination programs, we're very much trying to program to progress this program.
But it's not going to be the first priority for the company. So our goal is to figure out a way to a license and potentially.
Partner that asset as well so our strategy hasn't changed there, but we will have more update and hopefully in the near future.
Great and then.
Great to see that you guys announced.
<unk> pharma partnership four of EPS in the quarter.
Just curious you know any any sort of amount of details.
Can provide here beyond just the partnership signing and then going forward do you guys have sort of an annual target partnership figuring youre looking to achieve.
Indication by indication basis. Thanks.
Hey, Tom.
This is avi im going to jump in.
It's.
Very exciting stage to have these discussions with these large companies, but it's still early for us to be giving you that kind of information and guidance.
What we should focus on is the data that's being generated and theres. Some really good data being generated and these programs get seriously de risked and seriously more valuable with early data. So I think for now we're going to focus on getting that data and then.
We're out a lot more of the details around these potential partnerships, which there's quite a lot.
And how we want to progress that very soon so we'll wait till we have more information.
Great. Thanks, I appreciate it.
Thanks, Tom.
Thank you. Our next question comes from the line of Joe <unk> from H C. Wainwright. Your line is now open.
Good afternoon, everyone. This is Matt actually on for Joe. Thanks for taking our question. So just very broadly I Wonder if you guys could maybe talk a little bit more about what we can expect from upcoming PK PD data in UC.
And then secondly, if you can provide any additional thoughts on what the timing design of future clinical trials using the DDS platform might look like.
So.
Matt.
What I'll do is say give me a couple of weeks I've been here 30 days.
Deliberately focused on getting that that was a big draw for me right. So the oral delivery platform is absolutely fantastic and you have to think of these programs a little differently than normal drug development. These are programs that use currently safe and effective drugs.
Devices that we've already shown safety and human data with so there is some more data to be generated in the very short near term that I would call more validating more helping us define what the studies are that we need to do and don't think of it as a typical drug development program.
This could get significantly derisked and a very short period of time, So give me a little time to get that together, we will give you more specifics, but I think it's in the very near term that the value change happens with the data that we're planning to generate in the near term.
Yeah fantastic completely understandable, thanks for taking my questions.
Thanks, Matt.
Thank you again I would like to remind everyone to ask a question you will need to press star and the number one on your telephone keypad Thats Star one on your telephone.
I'm sure.
Im showing no further questions at this time I would now like to turn the conference back to Adam.
Oh for <unk>.
Thank you operator, and thank you all for participating on the call today. Thanks for your interest in <unk>.
I am absolutely very very happy to be here and excited to be able to come back and share more progress will be participating in the Piper healthcare conference in December we look forward to meeting many of you at that time.
If you have additional questions. Please feel free to contact us have a good evening. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
Okay.
Right.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Yes.
Okay.
Yes.
Yes.
Okay.
Yes.
Okay.
Yes.
Yes.
Yes.
Okay.
Yes.
Yes.
Yes.
Yes.
Okay.
Yeah.
Yes.
Okay.
Yeah.
[music].
[music].
[music].