Q4 2021 Progenity Inc Earnings Call

Greetings and welcome to the progenitor <unk> fourth quarter and full year 2021 earnings call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

Now my pleasure to introduce your host Chuck put all a managing director with lifestyle advisors.

Chuck you may begin.

Thank you operator, good afternoon, and welcome to <unk> fourth quarter, 2021, corporate update and financial results Conference call.

Joining me on the call of Alibaba.

<unk> Executive officer of identity, and Eric <unk>, Chief Financial Officer.

Before I turn the call up for Mr. Mohanty I would like to remind you that today's call will include a forward looking statements within the meeting maybe you got it.

The federal securities laws, including but not limited to the types of statements identified as forward looking statements in our annual report and Form 10-K that we will file later today and our subsequent periodic reports filed with the SEC, which will be available on our website in the industrial REIT investors section.

These forward looking statements represent our views only as of 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 statements.

For 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 the periodic reports filed with the SEC.

With that I'll now turn the call over to Alibaba at the CLO for Jenny.

Hello, everyone and thank you for joining us today.

My journey here started a couple of days before the last earnings call I was in the process of learning a lot about the details of <unk> various products people and plans at the time.

I have now had time to work with the team to absorb understand and refine our plans.

I came here because I saw a big potential for some of the assets and I saw the commitment of the company through a significant transformation.

I'm very happy I made that decision because I see continued commitment to our transformation at all levels of the company and I see an even greater potential than I first thought for the products, we will focus on going forward.

As the company transitions away from the diagnostics business. It allows us to focus all our resources on the potentially game changing all platforms that have been progressing within the company over the last few years.

I'll talk more about that later.

In the last few months, we have completed the sale of our available lab business as we forecasted in our last call.

Executed on a process for all other diagnostics assays, which we expect to stop developing further by next month and most importantly reset the organization to be aligned with our all therapeutics pipeline.

All of these actions have allowed us to significantly reduce the cash burn up the company.

On the other part of our transformation will initially focus our resources on two main platforms our platform for targeted localized delivery of drugs to the site of need for Gi diseases and.

Platform that can take IV or injectable drugs and make them available in a pill form to achieve systemic bioavailability, so similar therapeutic profile, but without the needles.

Let me first discuss our company transformation.

Thomas we completed the sale of our available lab affiliated in December .

We continue working towards finding beneficial ways to allow our remaining diagnostic assets to reach eventual commercialization.

This can take time, but we remain open to those options, while we stop spending on further developing allowing us to focus capital allocation towards the old therapeutics pipeline.

We made good progress with these programs as shown by the data presented at scientific conferences with our Kols.

We continue to strengthen our IP portfolio with further patent issuances announced recently and more expected to come this year.

We believe that in the last few months, we have positioned the company for long term success.

This will be a year of execution for the company.

We're now entering a phase where clinical data generation is one of our main priorities, we understand the impact data generation and subsequent clinical data readouts have on patients we serve and the investment community. We're working diligently to ensure our clinical development plan and clinical studies progressed smoothly and efficiently.

Gently.

The timing of our anticipated news flow will require some patience.

As is typical for any biotech company, although we expect the validation of our platforms and the potential value inflection should be quicker than other biotech product development.

As I cover the progress we've made over the last few months I will also provide additional guidance on milestones anticipated in 2022.

First.

Our targeted therapeutics platform.

Our initial focus with this platform is on ulcerative colitis or UC.

Annual global sales for UC drugs are estimated to be about $7 billion globally, and the inflammatory bowel disease or IBD space.

Is about $19 billion globally.

Our lead program PGM 600 is it liquid formulation of Tofacitinib delivered in the colon using our proprietary drug delivery system.

A capsule approximately the size of our fish oil pills.

Our version of Tofacitinib is approved for UC and commercially available.

Many drugs for UC are injected or IV, but tofacitinib is administered orally and like other drugs that are orally delivered is mostly absorbed in the stomach or the upper Gi track, whereas you see is a disease of the lower Gi track.

Currently approved drugs for UC do work for some patients for a period of time. However, none of the approved drugs work for all patients and long term remission remains a significant unmet need.

This leaves more than half of UC patients without long term options and in dire need.

There could be many reasons why so many patients do not benefit in up from current therapies. One theory is that we need to get significantly more drug in the tissue at the main site of the disease and the lower Gi tract and that cannot be achieved safely by any of the card options.

In conjunction with our scientific collaborators, we recently presented compelling evidence supporting the theory at the 17th Congress of the European Crohns and colitis organization.

34th edition of the Belgian week of Gastroenterology in February .

Materials presented included data from patients with moderate to severe UC, receiving commercial formulations of Tofacitinib.

GI tissue biopsies obtained from these patients and a clear correlation was identified between higher concentrations of drug in the tissue and improved outcomes. We believe our proprietary platform can significantly increase drug levels and disease tissue, while reducing systemic exposure.

Our preclinical results showed that treatment with PGM 600 leads to at least 25 times higher tissue concentrations in colon tissue compared to the equivalent standard oral dose, while showing significantly less systemic exposure.

This demonstrates the potential for PGM 600 to safely increase drug levels at the site of disease, which could dramatically improve disease management for UC patients.

The key feature of our platform is a precise targeting and localization of drug delivery and the lower Gi tract, where it is most needed.

We've already issued several patents covering the auto location capability of our technology that allows for the precise delivery of drugs.

Our platform offers the potential to deliver the right amount of drug at the site of need without systemic toxicity limitations, which could ultimately lead to superior clinical outcomes more rapid induction of remission and reduced safety events for patients with UC.

The same platform can be expanded for use in other diseases of the Gi track.

Also the potential reduction of systemic toxicity could enable combination therapies to further improve patient outcomes.

While we continued device development manufacturing, we're preparing to execute several studies to further the program this year.

We completed the first clinical study last year with our device and demonstrated its ability to accurately identify the colon and released the liquid payload in healthy volunteers.

This study was funded in part by the Crohns and Colitis Foundation.

We share their commitment to provide better longer lasting therapeutic options for patients with UC and other Gi diseases.

Foundation continues to fund a portion of this product development.

Following successful completion of the first study in healthy volunteers. We're now conducting a similar study in UC patients and have recently announced the start of patient enrollment.

Positive results in this study with further confirm the robustness of our platform, which can then be used to deliver a range of therapeutics to the colon and UC patients and beyond.

This will also enable us to move to the next phase of clinical development by initiating a phase one trial with PGM 600 in the fourth quarter.

As many of you know developing drugs, particularly for serious conditions requires several methodical stages and can be a bit of a test to patients and the early part of development.

Our development path may have some advantages because we are using molecules that have well known safety and efficacy profiles and once we finished proving that the device functions as desired.

Next steps are proving the combination should have a higher likelihood of success compared to many other drugs in early development.

Our current timeline.

To start the clinical trials in UC patients have some risks.

Because we're approaching the regulatory agencies with the plan that depends on the data we have generated to date.

We believe our current data could be sufficient to begin trials for our drug device combination. However, there is a chance that we will be required to provide data for additional animal studies before we're able to begin these trials.

These animal studies are planned for the coming months.

But if we need to complete them before initiating the phase one trial it could add another quarter or so to our projected start for the phase one trial pushing it into early next year.

We feel we have good rationale to begin the trial earlier, rather than later and we will provide updated guidance. After we meet with the FDA.

We plan to file the request in Q2.

We understand the patient's need for this product and are committed to progressing toward approval as quickly as possible while planning for all of the required stages of the drug and device development process.

Our phase one clinical trial with <unk> 600 will evaluate both blood and colonic tissue levels of purpose isn't it.

Given the data presented in February at the <unk>.

Clinical data generated in our phase one trial resembled the preclinical PGM 600 data we have generated we believe the likelihood of improving remission rates in subsequent studies in UC patients is high.

We believe we have reduced development risks for PGM 600, because of the well known therapeutic profile of the drug in standard oral formulations and the ability to utilize existing data on this formulations in our regulatory submissions.

Soon after the phase one trial is completed we will initiate a disease interventional study, where we may clearly learn about the benefits our solution can bring to UC patients each.

Each development stage that we successfully achieved is expected to increase the value of the current program as well as the value of the entire platform, thus, enabling us to better assess and discuss partnerships and future commercialization discussions.

It will also guide our plans for future product expansion of our targeted therapeutics platform.

We will present additional data at digestive disease week, DW and San Diego dismay.

We will be presenting in conjunction with our scientific collaborators further evidence for the need for local targeted delivery of <unk> therapeutics to the Colo D.

CDW is the largest international gathering of physicians researchers and academics in the Gi field.

Yeah.

Next I'll cover our systemic bio therapeutics platform.

The goal of this platform is to facilitate all administration of drug that would otherwise require injection or IV.

Our systemic therapeutics delivery solution is a needle free oral capsule that can deliver liquid formulations of large molecules like proteins peptides and nucleic acids into systemic circulation.

We believe this platform can help improve patient compliance lower IV infusion costs help expand the market for drugs across a range of chronic use indication and helped biotherapeutics such as monoclonal become more competitive with small molecule substitutes.

We have the potential to target and treat a wide range of pathologies with this platform.

During the fourth quarter, we continued to make progress with device design and manufacturing and implementing improvements that will increase device performance reliability and manufacturer ability.

We also advanced our understanding of animal models that are critical for completing preclinical work and expected translation of these models to humans.

In our systemic bio therapeutics platform. We're currently working with two lead candidates PGM Ob won a variant of Abilene, Nomad, which is a monoclonal antibody and PGN <unk> a high concentration formulation of the peptide liraglutide a GOP one receptor agonist.

We believe that on average by availability of around 10% to 15% of IV with repeat dosing will prove satisfactory for a large number of <unk> bio molecules and this would make them viable alternatives to the current needle based options.

We have multiple collaborators for this technology, who have validated our assumptions.

We have mentioned that Ireland is one of these collaborators and we're eager to share the names of our other collaborators however, due.

Due to contractual restrictions were not permitted to do so at this time.

It is quite encouraging that so many pharma companies see the potential of our technology and I don't want to get involved with us or are already collaborating with us our goal and focus with this program is to improve patient outcomes.

While we believe that a drug achieving 10% to 15% bioavailability through oral delivery would be considered potentially viable as a commercial product. We have already demonstrated in animal models that we can achieve up to 67% bioavailability for monoclonal antibody.

We anticipate generating additional animal data in the coming months and expect to share. These results through a combination of publication and COO presentations at key upcoming conferences.

As with our other platform Q2 will initially using drugs with established safety and efficacy profiles, which should have several advantages and the regulatory pathways and development plans.

We expect to run clinical studies to demonstrate the function of our systemic platform later this year.

These additional data could be sufficient to progress our collaboration discussions in the next pages as well as allow us to be ready for human clinical trials next year.

For now we plan to take one systemic therapeutic program forward to these latest stages, which will show the broad applicability of the platform for use with many other existing and in development therapeutics.

In addition to our targeted and systemic therapeutics platforms, we do intend to continue developing our other platform technologies for the future.

In 2021, we demonstrated in our clinical study the ability of our recoverable sampling system Rss, our third platform technology to collect and preserve our microbiome sample.

The results of this study will also be presented at <unk> in May.

We believe the ability to collect preserve recover and analyzed analytes from specific region of the intestine has numerous potential applications for diagnostics and for drug discovery and development.

In the near term, we'll focus on the targeted therapeutics and systemic therapeutics platform initially with one program for each.

As we execute and advance these programs will be able to add significant new programs to our pipeline either organically or with partners.

To summarize.

For our targeted therapeutics platform and UC, we're conducting a device function study in UC patients in early Q2 of this year we.

We hope to have FDA feedback by Q3 on our planned phase <unk> study for the combination device and drug study and if approved we will begin the phase one study in Q4, we plan to complete a larger animal safety study by year end and begin a disease intervention phase <unk> early next year.

We'll provide updates as we complete discussions with the FDA.

For our systemic therapeutics platform will continue generating preclinical data with our drugs and those of our pharma partners with the goal to move into clinical trials towards the end of this year.

We believe the transformation is helping company build towards having the best and broadest platform for oral delivery of biotherapeutics.

We will be highly focused on progressing our lead program that address serious unmet needs for patients as well as disrupt large markets like the $19 billion IBD market, the $13 billion GOP, one market and a substantially larger biologics market that is currently dependent on needles.

With that I'll now turn the call over to Erik for a discussion of our financial results and capital market activities. Thanks, Eddie and good afternoon, everyone. As already mentioned earlier, we made great progress towards transforming our company into a therapeutics company with a goal of leading the frontier of already available.

Therapeutic solutions, along the way the changes we have made focus our capital location decisions and significantly reduced cash burn profile.

After the sale of our ever sell it in December we've now achieved our original target of reducing annualized cash burn by more than $145 million and extending our cash runway to support our clinical development programs.

As we complete the company's transformation, we focus on our operations as a development stage Biotherapeutics company, which also changes the way we look at our financial picture.

Consequently, we are shifting our near term focus away from revenue generation from discontinued operations to concentrate on cash use and optimizing capital allocation to our pipeline with the goal of generating value through the achievement of key development milestones and clinical desktop generation.

Operating expenses, excluding stock based compensation expenses were $18 $2 million in the fourth quarter of 2021, representing a $6 $8 million favorable variance in the fourth quarter compared to our previous guidance demonstrating that we achieved a spend reduction associated with the elimination of our lab.

Operations during Q4.

G&A expenses in the fourth quarter were $11 8 million, including $1 $7 million in stock based compensation expense, representing a $2 million favorable variance from our last guidance.

R&D expenses in the fourth quarter were $8 $5 million, including zero point $7 million in stock based compensation expense, a $1 6 million favorable variance compared to our Q4 guidance and we expect to maintain our stage gated data driven approach to new capital commitments.

R&D expenses associated with remaining molecular testing assets are expected to be largely eliminated by the end of the first quarter of 2022.

So for this year, we expect to invest approximately $25 million in R&D activities, excluding stock based compensation expenses with a final spend profile driven by the timing of our targeted therapeutics and systemic therapeutics programs clinical work, which is subject to regulatory and payer.

<unk> enrollment processes.

That amount, we expect to invest approximately $8 million during the first quarter of 2022 and achieve a slightly lower spend level range of $5 million to $7 million during the following quarters.

After a molecular testing programs activities are completely eliminated.

With regards to G&A expenses, we expect to spend approximately $35 million in 2022, excluding stock based compensation expenses with approximately $10 million to be incurred in the first quarter.

As a result, our total operating cash burn is expected to be approximately $60 million in 2022, which is in line with our previously stated guidance of achieving an average monthly cash burn of between five and $6 million.

During the fourth quarter.

We raised $20 million in gross proceeds through a registered direct offering.

$46 million in gross proceeds through warrant exercises.

$5 million in gross proceeds through our ATM program and had a cash balance of $88 million as of December 31, 2021.

The capital raise in the second half of 2021 puts us in a strong liquidity position in 2022 and combined with the substantial completion of our company's transformation, leading to a reduced cash burn allows us to have runway well into 2023.

With that I will now turn the call over back to Andy.

Thanks, Eric we're excited about our transformation into a biotherapeutics company. We believe the milestones we've discussed today can materially enhance value and our pipeline addresses vast markets that have the potential to transform patient care.

With that operator, we're now ready for questions.

Yeah.

Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.

Perhaps starting with you I would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Okay.

Thank you our first question is.

From Joe <unk> with H C. Wainwright. Please proceed with your question.

Hey, guys. Good afternoon, thanks for taking the question.

Wanted to get a sense, maybe let's go backward in what you were describing Eric first with regard to Opex.

Thanks for the guidance and just curious with regard to the ft. Ftes at the company are you currently right size do you need to do any repurposing for your new strategic efforts.

Going away from molecular testing et cetera.

Hi, Joe this is already yeah.

We're pretty close to right side. So we've done a lot of that I think in the.

In our core.

Call, we talked about aligning the company. So we need now just tweaks on some skill sets, but we're pretty close to right size.

That's great and then so thanks for that and then just curious hopefully get a little more color on the UC program.

Maybe any more specific information on the animal studies that still need to be conducted and what kind of specific questions or answers youre looking to provide the FDA ahead of the start of the clinical program.

Okay.

So youre, referring to us filing in Q2.

We are looking to file with the FDA.

Our request.

Our upcoming phase one trial and in that we have a data package that includes our animal Tox studies. It includes references to existing Tofacitinib data as you know that Xeljanz is a form of tofacitinib. So theres a lot of existing data all of that package put together, we think is quite a.

Compelling package in fact this morning, we had a big meeting with some significant Gi thought leaders kols that are the who's who of Gi space.

Our thoughts are.

Planned made sense, however, sometimes the FDA wants a more conservative approach because we might say you know what do a few extra days of animal studies for this tox package. So that's the kind of small stuff. We're talking about the difference might be we think for package could be strong enough and thats why we are.

Going forward, we've talked to people about it.

But we just wanted to flag. The fact that it is possible when we go meet with the FDA might require a little more and so those little more are planned that will happen, but then we'll have to tweak our.

Our forecasted timelines as I mentioned by maybe a quarter and we will let you know when we finished talking about.

Sure always helps too.

Work hand in hand, with the agency and it just sounds like you'll just be dialing some eyes. There I appreciate the color.

Thank you. Our next question comes from Catherine Schulte with Baird. Please proceed with your question.

Hey, guys. Thanks for the update today I guess first any comments on how the story of Etfs partnerships are progressing and any feedback you've gotten from those partners and then what are the next steps for <unk>.

Hearing more details around that.

Oh, Hi, Katherine Thanks for the question.

No.

I call them collaboration and I think what I mentioned was we're really happy that people were interested in what we had it shows that we think theres potential here. These are early collaborations where we are able to work with them their molecule, we're able to work with us.

But they've been pretty.

How shall I say restrictive on us being able to share more.

We've made some progress we continue to make that progress. So later this year, we'll be at a stage, where we will have enough information for both sides to decide whether or not we can announce what the next stages are and give more detail. That's what we mean by progressing these partnerships to the point, where we can share all that with everybody.

We're happy that they have all stayed on with US we've been working with them in some cases for over a year and we continue to work with us. So that says that we're making good progress together, we're just not there yet we hope this year, we will be there and later this year, we'll be able to share a lot more.

Okay, Great and then any details on the process for finding a potential partner for <unk> you know what kind of feedback has been garnered from those conversations thus far and how should we think about timing of the potential outcomes.

Yeah.

So we have a couple of assets I think I mentioned, a couple of our diagnostics assets that we have been working on a.

Managed process with some external advisers I'm trying to figure out the best path forward for these assets.

These are kind of more difficult to predict in the case of the preclude you test the beta has been looking good so far however, some more work needs to be done in order to commercialize the test.

We'll have to run a for example, a clinical utility study, which can take more than a year and since we moved away from commercial diagnostics. It didn't make sense for us to continue to spend on that estimate and so we've been looking at ways that somebody could partner or work out ways that we could take the score.

That process has not yet resulted in anything that we could share.

But hopefully it will result in something and as soon as it does grow grew report back.

We also have the single molecule detection paas. So we're working on multiple fronts, it's progressing hasnt come to a place where we have anything to share yet.

As soon as we can.

Alright, thank you.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Okay.

Our next question comes from Liana <unk> with B Riley Securities. Please proceed with your question.

Hi, good afternoon team wishes Kazmi on for Mike just a couple of questions from us around the UC program as well could you provide a bit more color on the proposed sort of phase one two study design and some of the dose ranging work that's applicable in both the single and multiple dose segment that kind of can give you some safety information around.

Some of the JAK associated liabilities that we've seen and then also how youre thinking about how targeted delivery could push on efficacy and any sort of thoughts on durable remission and what sort of biomarkers, you're looking to generate.

Wildlife filled with a lot of questions in one question.

Okay.

<unk>.

I'll do my best to cover what you asked so you asked for a lot of different pieces there.

I can tell you that some of that we don't have fully answered yet because we have internal proposals and until we validate that with the FDA. It would be premature for me to sort of.

How you and tell everybody that that's what it is we do know certain things that.

The publications, we referenced show that we don't get enough drug to the tissue. So tofacitinib.

Current typical doses about 10, Megs twice, a day and that does not get enough drug in the tissue in the lower Gi, which is where the diseases.

We have tried to go to 20 and 30, but even at 10 Meg they start worrying about not just what's in the Gi tract, but what's in the serum so in the blood and growing higher doses increases what's in the blood and that's the toxicity issue. So that's where the safety concerns come you cannot push it out that far.

If you look at up Youll see.

Where physicians have tried to get to 30 mix because that might get a better response in the Gi tract, but then it ends up with substantial significance.

50 issues and its way outside of current approved label.

So we know.

From multiple ways that more drug could be good we've done endoscopic <unk>.

Studies that show more drug could be good, but we need to be able to get that in the lower Gi tract without getting more drug in the serum or in the entire system.

And the data we have shown so far.

Our platform first of all accurately detects on its own.

The right part of the colon and then releases the drug.

And the combination of the location as well as our formulation is such that that drop coat the entire lower part of the colon.

It's about 25 times more and at the site and substantially less than the entire body that allows us to do certain calculations that say that you know.

Maybe at.

Less than half the card does we could get a lot more drug in the location that is needed.

This is why I'm being careful about giving you exact numbers, we have them worked out but until were have a conversation or make a publication I want to be careful but in general that's the idea that nobody else can do is get it to the right location could be entire nor colon at a lower dose and currently is being prescribed.

To be able to get a lot more drug, which then leads to the faster reduction the better outcomes and that's what we've been talking about.

I went often explained a bunch of things I hope I covered your question.

No absolutely that was very helpful and it makes a lot of sense have you kind of get towards that FDA meeting, maybe then one more thinking about it at a more higher level here as you think about how the treatment might fit in the current treatment paradigm today and do you have any thoughts on some of the data released by arena and Pfizer.

<unk> and sort of where you see a targeted approach fitting into the treatment paradigm over time.

Yeah. So.

Ours is targeted and topical.

And so think about it as a topical that is.

Safer because it's not growing in the rest of your body.

At this point.

Tofacitinib, an oral version of Tofacitinib, which xeljanz as sort of a third line therapy.

We are able to show some of what I, just talked about which is the pass through rate.

Option.

Lower doses better safety that could move up to a number second line or even potentially a first line biologic. So it'll always be UCL <unk> got the anti TNF first line, but right after that all the biologics which is be close too.

7 billion that I talked about currently $7 billion.

Paul into first line second line third line. So we believe we can get all the way up to first.

Lines, however that depends on the data we need to start showing the data at which point. It is a multibillion dollar opportunity, but more significantly its a real option for patients who have not had anything.

Substantial and probably 20 years, even though theres all these approved drugs.

Great. Thanks, a lot for taking our questions and congratulations on the quarter very helpful.

Mhm.

Thank you there are no further questions at this time I'd like to turn the call back over to management for any closing comments.

I want to thank everyone for joining us today, we're eager to make progress with our pipeline using the best oral therapeutics platform technologies, we look forward to coming back and talking to everyone. Thank you.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.