Assembly Biosciences, Inc.

Good morning, and welcome to the Assembly Biosciences Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session after the prepared remarks. As a reminder, this conference call is being recorded. I would now like to hand the call over to Lauren Glazer, Senior Vice President of Investor Relations and Corporate Affairs for Assembly. Please go ahead.

Thank you, Bridget. Good morning, and thank you for joining us on such short notice. Today's announcement of our strategic collaboration with Beijing is an exciting and significant milestone for assembly. This collaboration provides a strong foundation to accelerate the development in China of our hepatitis B portfolio, which currently consists of three clinical stage core inhibitors, ABI-H0731 and ABI-H2158, which are an ongoing phase two clinical trials, and ABI-H3733, which is in phase one development. The press release and the slides we will refer to during the call are available in the news and events section of our corporate website at www.assemblybio.com. Please note that a replay of today's call and webcast will also be available from our website. In a moment, I will turn the call over to Dr. John McCutcheson, Assembly's Chief Executive Officer and President, who will discuss the important and strategic benefits of our collaboration with Beijing. Then, Tom Russo, Chief Financial Officer, will review the financial terms and economics of this collaboration for Assembly. Finally, John, Tom, and Jason Okazaki, our chief legal and business officer, will be available for the Q&A portion of the call. Before we begin, I want to remind you that we will be making forward-looking statements, such as statements regarding the potential of our collaboration with Beijing, future milestones and royalties that may result from the collaboration, our future research and development plans, the timing of clinical trials, trial results, and therapeutic potential of our development programs, as well as financial estimates and guidance. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, and we caution you not to rely on these statements. We intend any forward-looking statements to be covered by the Private Securities Litigation Reform Act of 1995. They involve certain assumptions, risks, and uncertainties that are beyond our control, and actual results may differ materially from those forward-looking statements. A description of these risks can be found in our latest SEC disclosure documents and press releases. Assembly does not undertake any obligation to update any forward-looking statements made during this call. I'll now hand the call over to Assembly CEO, Dr. John McCutcheson.

Thank you, Lauren, and thanks to everyone who is joining us this morning. During our recent call in early May, we talked about the significant pipeline progress we have made with our Hepatitis B portfolio and our acceleration of activities over the last six months. As a company that is focused on advancing new therapeutic options for patients with hepatitis B, China has always been and is a priority for us. The People's Republic of China has an enormous burden due to this disease. It is home to one-third of the world's population living with chronic hepatitis B infection. Addressing this significant unmet need in China has always been a critical component of our strategy. Today we are thrilled to announce our collaboration with Beijing, a partner that shares our mission and is well positioned to help us achieve it. As we have previously stated, establishing a collaboration in and for China has been one of our top priorities this year also. It was important to us that we identify a partner that shares our commitment to scientific and clinical excellence and has deep expertise and experience in bringing products to patients in China. In Beijing, we are fortunate to have a partner that shares our values, commitment and priorities. Beijing is ideally positioned to deliver on the high expectations we place on addressing the disease burden in China. I'd like to step back and discuss what we were focusing on in the China partnering process and why Beijing is the premier and best choice for our partner. First, we were looking for a company with world-class and well-established operational infrastructure in China, with strong capabilities spanning clinical development, regulatory and commercial. Beijing has over 3,200 employees in China, including approximately 700 professionals in clinical development and around 1,300 in its science-based commercial group. Hepatitis B is a significant unmet need in China, as I've said, and Beijing has an extensive network of investigators and sites that we can additionally leverage for this important liver disease indication. Beijing's network offers the capability to enroll large numbers of patients quickly in clinical trials also. We believe their infrastructure, their network, and experience will accelerate our clinical development efforts and the data generated will support our registration in China and potentially other geographies as well. Beijing's team currently markets five approved therapies in China with plans for more in the future. They are a trusted partner to global biopharmaceutical companies, including Amgen, Bristol-Myers, Seattle Genetics, and others. Its collaboration with Amgen, which just closed in January, is a proof point in the transformative potential of Beijing's unique clinical development capabilities to accelerate global drug development. With that deal, Amgen, widely recognized as an industry leader, has entrusted three commercial products and joint development of a deep pipeline of oncology products to Beijing. Secondly, we were looking for attractive financial terms that reflect the potential value of our hepatitis B product portfolio, which we believe we have achieved. And Tom will go over those details in a few minutes. Finally, we were looking for a partner with good chemistry with assemblies, business philosophy and teams. From our first discussion at the highest level of the companies many months ago, it was clear that we were aligned, both at the executive levels as well as across the working team. We share a view about the importance of treating patients with this disease in China and the need for new treatment options. Through the diligence process also, Beijing showed us that they are clearly a world-class organisation, from the leadership again and from top to bottom across the organisation and in China also. Already we have seen great synergies and alignment between our company's research, development, manufacturing and corporate teams. Together, we share that commitment to executing a critical mission to deliver not only a chronic suppressive therapy, but also a potential finite duration therapy as we drive towards a cure for patients with chronic hepatitis B infection. Now that we've signed the agreement, what are we focused on next? Our key priority is advancing the development of our lead core inhibitor 731. We continue to conduct study 211 our ongoing Phase 2 open-label extension trial. As we have talked about previously, we are beginning to transition patients off combination therapy with 731 and standard of care nuke therapy to then monitor them for sustained virologic response, or SVR. For China specifically, we are in the end of Phase 2 meeting processes with China regulatory authorities. We hope to incorporate data and our learnings from Study 211 into the design of our future Phase 3 programs in China and globally. We believe we could potentially initiate registration studies in China for 731 as early as the first quarter of 2021 next year. We plan to share more details around our Phase 3 plans after we complete discussions with the regulators. So stay tuned for more on this, please. For our next generation, more potent core inhibitor 2158, we have initiated a randomized placebo-controlled phase two trial that will evaluate 2158 with nuke versus placebo with nuke in approximately 80 treatment-naive patients who are e-antigen positive chronic hepatitis B infection without cirrhosis. In phase 1b, 2158 was well-tolerated and demonstrated potent antiviral activity at the 300 milligram dose, the dose we will study in phase two. And for our third core inhibitor, 3733, we are conducting a phase one trial in healthy volunteers. I'll now turn the call over to Tom.

Thanks, John. I echo your enthusiasm about our new partner, Beijing, what they bring to this collaboration, and the positive fit we've all experienced working together over the past several months. This is an important milestone for Assembly and provides valuable operational support and funding for the work we are doing. Let me share some specifics about the financial considerations of the collaboration. The agreement includes development and commercialization of our three core inhibitors, 731, 2158, and 3733. in China, including Hong Kong, Macau, and Taiwan. Outside of this partnered territory, we've retained full worldwide rights for our HBV portfolio. The terms include a $40 million upfront payment and approximately $500 million in total potential milestones. These are comprised of up to $114 million in development and regulatory milestones, as well as up to $385 million in net sales milestones if all our products are approved. Additionally, Beijing is contributing the initial $45 million for clinical development in China, with costs shared equally by the parties in the territory thereafter. So in total, this represents at least $85 million in near-term non-dilutive capital, which is significant for our company. We're also eligible to receive tiered royalties on net product sales, with percentages ranging from the mid-teens to the low 30s. This enables us to retain a significant stake in the future value of our products in the large China HBB market. It's important to note that this collaboration further strengthens Assembly's cash position and extends our runway. The additional near-term sources of funding, together with the $249 million in cash on our balance sheet as of the end of March, are expected to extend our funding of operations into the second half of 2022. I'll now turn the call back over to John.

Thanks, Tom. Before opening up the call to questions, let me share a few additional thoughts on why we have prioritized China for our first partnership. At Assembly, we are focused on providing potential new treatment options for patients suffering with chronic hepatitis B virus. This is a major public health problem. With 250 million individuals chronically infected worldwide, 80 to 90 million of whom are in China. HPV is a leading cause of chronic liver disease and the eventual need for liver transplantation, and unfortunately is still responsible for up to 1 million deaths annually on a worldwide basis. At present, no curative or finite treatment regimens exist, so the standard of care for patients is lifelong suppressive treatment with therapies that reduce but do not eliminate HPV. There are several million hepatitis B patients on treatment today in China and we see this as a significant opportunity to treat more patients with better treatment options. We're excited to work on new therapies with this disease with our novel mechanism of action with core inhibitors with first and best in class potential because this is the right thing to do for patients and the right path as we drive towards a cure for chronic hepatitis B infection. We will now open the call for questions. Bridget, you may open the question and answer session, please.

Ladies and gentlemen, if you have a question at this time, please press star and the number one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question on the line is from Brian Scorney with Baird. Your line is open.

Hey, good morning, guys. Thanks for taking the question. Congrats on what looks like a really good deal. I was hoping maybe you could kind of talk a little bit about balancing having a partner on the ground with the execution capability in China that Beijing does. to begin development rapidly there versus maybe waiting out until you have some of the cure data there, and how would you kind of think some of those clinical development milestones relate to that? Thanks.

Yeah, thanks, Brian, for the nice words about the announcement. I'll just start briefly and answer the first part of your question regarding the balance, and then I'll hand it on to Tom. Look, without us as a small company having any infrastructure in China and having to build that and now having an opportunity to collaborate with an organisation that has clearly been very successful in being able to do things effectively, efficiently and successfully in China, we've saved ourselves years really. So that was really important to us and it was important for me because of our ability to to start work in China and to have initially a chronic suppressive therapy, that we should start this relationship now. And I've said that earlier on, that we always wanted to have our partner in place by the middle of this year so we could potentially start a registrational strategy early next year. So it's for all of those reasons that I thought the balance was important, that we start this early, we start it now, and we don't wait for further down the line. Tom, would you like to add more flavor?

Yeah, no, I think I would just add, Brian, that from a structural perspective, we're very happy with the terms of this collaboration. The upfront, the milestones, the R&D funding, those are near-term, non-dilutive sources of capital, but also equally the downstream portion. The royalty tiers from mid-teens up to low 30s, That's really structured such that really the better the product profile is, the better it improves over time, the better we both do. Assembly would share and participate in the upside here. So it's really a combination of the operational and strategic rationale that John went through, and then the structure of it is there to benefit both parties down the road. Great.

Thanks, guys. I'll hop back into the queue.

Thank you. And our next question comes from the line of Michael Yee with Jefferies. Your line is open.

Hey guys, good morning and congrats on this deal as well. It's fantastic. We had a question about China hepatitis B market and what if any work you've kind of looked into, how many patients you guys think are already getting Intacavir or generic Viriad or talk to the amount of people that you think are treated there with nukes, how to think about that and what you know about the issues there and how you can drive that with obviously better therapy.

Hey, Michael, this is Tom. So for China, as we mentioned on the call, the prevalence of HBV is generally accepted to be in the 80 to 90 million range, so that's one-third of the world's HBV population. In terms of patients treated, there's various estimates out there, but the number is at least several million that are on treatment today, conservatively. So it's a large market today. There's also enormous potential for more patients to be treated with better therapies, and in particular, finite treatment and curative regimens. And in terms of what the patients are on, I think it's as you'd expect. It's the nukes you mentioned in tecovir. There's tenofovir. Femliditaf is approved and on the market in China, as well as siminofuron. But it's a public pay market, and the trends in terms of regulatory review, reimbursement frameworks, all of those things are improving. And and encouraging. So I think we're, you know, we're excited to work with Beijing and develop and commercialize our products in China.

Great.

Yep. Our next question comes from the line of Salim Syed with Mizuho. Your line is open.

Great. Good morning, guys. And I'll add my congrats here to John and Tom and the entire team. A few from me, if I can. One is, could you confirm, John, that as part of the Beijing negotiations, the team there in China did not, there wasn't any SVR data at all, SVR two weeks or SVR four. I believe you guys started taking patients off, quote, unquote, by June. Can you just confirm that there wasn't any SVR data that they had access to? Two is on the standstill agreement. It looks like from the 8K that the standstill is only in place for two years. I was wondering what the logic was behind that. Was that something that you guys had suggested or, you know, maybe alternatively another way to ask this, did Beijing approach you guys or did you approach Beijing on this initial negotiation. And then just lastly, I noticed in the disagreement language in the 8K that 731 wasn't included as part of, you know, if there was a disagreement on the 731 Phase 3 at the end of the Phase 2 trail, you know, who could terminate, et cetera. How should we be interpreting that? Have you guys already locked in a Phase 3 design? for China on 731, or how should we be interpreting that? Thank you.

Okay. Salim, it's John. I'll start. Thanks for your nice words. Beijing did not have SVR data or access to SVR data, and nor do we. Okay? Okay. Even though we did, as you say, start to transition people off therapy. Okay. I'll let Jason address some of the standstill and some of the other issues that you raised in the 8K. Before Jason, let me say a couple of things. I've said for almost eight months now that we were talking to people about a partnership. So we had reached out to other people and many other people in China as well. So that would answer one of your questions as well. In terms of the program and whether we've locked in a Phase 3 program for 731, let me just remind you that, you know, we're in the middle of negotiations. I've said we're talking to regulators. I've also said previously that, you know, when we've got things locked down about what a strategy would look like, what the patient populations would look like for two clinical trials for registration, et cetera. And as I said today on the call, we'll talk about that. So stay tuned. We're in the middle of that process now with regulators at the CDE. Jason, would you like to address the other questions, please?

Yeah, thanks for the question, Salim. Nice to speak with you for the first time. So on the Stancil, as you can imagine, the term of a Stancil was highly negotiated. Obviously, in a collaboration of this type, You know, going to your point about SVR data, we want to obviously make sure the Stancil took us well beyond the point we'd have SVR data. So, you know, at the end of the day, two years is what we arrived on as part of the negotiations, so I think that's probably all I'd say on that. On your question about 731, I think John covered that really well. As you can imagine, given where 731 is right now, both parties have a better viewpoint on that, whereas with respect to 2158 and 3733, you know, being a little bit further off, that's why that option is in there. You know, again, that's one of those things, like, Any legal term in a collaboration agreement is really meant to cover a downside scenario that we really don't anticipate happening.

Understood. Super helpful. Thanks so much, guys.

Thank you. Thank you. Our next question comes from the line of Brad Canino with SBB Lee Rink. Your line is open.

Thank you, and congratulations as well. Really great deal terms here. I had a follow-up on the last question. I understand that no one has access to SVR data, but has Beijing had access to further open label extension data beyond what we and investors saw last ASLD in November 2019? And then I have a follow-up.

Hey, Brad, this is Tom. I think, first, we have provided additional data on May 7th, on our May 7th HPV call, so beyond what was at AASLD, and obviously the partner has had a chance to see that. John, I don't know if you wanted to make any other comments on the data.

No, I mean, there have been further discussions in diligence and further aspects of the various different programs have been discussed, as you would expect in any diligence process. So, yes, I mean, Beijing has seen additional data that isn't necessarily in the public sector, but nothing to do with SVR and nothing material that is different from what you've seen in the May timeframe. So thanks, Brad. Thanks for your nice words too.

And if I can have one follow up, I wanna ask how this deal might impact your ability to conduct potential combination studies with other mechanisms that you might partner with other companies. Will Beijing have a say in this process?

So I'll start and then Jason might, he's thought about this a lot in various different things. But in terms of combinations, triple combinations, you know, we're free to do whatever we would like outside of the China territory. And in China, we'd discuss it with Beijing if we were wanting to bring a third mechanism in. Also for pre-registrational programs, phase two programs, whether we conduct them in China or elsewhere, we're really free to do what we would like to do. Jason, anything else?

Yeah, no, John, I think that covers it really well. It's a pretty open collaboration. As you can imagine, we're both incentivized to bring the best products forward, so we would anticipate doing that, bringing our HPV expertise to that collaboration, whether that be clinical collaborations or otherwise.

This is the great thing, Brad, and we've discussed this as companies. These folks have extraordinary depth in China, clinical, regulatory, and commercialization. And we bring the expertise in the therapeutic area. So I think it's going to be a wonderful collaboration. If we have good ideas for doing something early in development and doing it in China, we'll discuss it with the Joint Development Committee and both sides will provide input and that will hopefully lead to better trials and better products that are more effectively brought forward.

Thank you. Sorry. Thank you. And ladies and gentlemen, as a reminder, if you'd like to ask a question at this time, please press star and the number one on your touchtone telephone. And our next question comes from the line of Raju Prasad with William Blair. Your line is open.

Hi there. This is Samion for Raj. Congrats on the update. Seems like a great deal for you guys. Now that you're partnering with BiGene, Will they be taking the lead on the interactions, the regulatory interactions with China? And how should we be thinking about the cadence of trials in the U.S. going forward now that China is your priority? Thanks.

Hi, thank you. Best to Raj too. I appreciate your kind words. It is a great deal. We feel the same. Look, so far we've led the regulatory interactions with the CDE. Beijing will be at the table as well, going forward as well, and there'll be a helpful transition period. They have the expertise there, and as I've said before, we have the therapeutic expertise. In terms of the cadence in the US, don't expect any change. As I've said, we have a number of other things we want to achieve in the US. We'll continue regulatory interactions going forward with the FDA. this year, about 731, will accelerate 2158, which is a global phase two trial, 3733, and other programs outside the China territory. So this doesn't signal a reduction in global activities outside of China. Tom, do you want to say something?

Yeah, no, I think just to add to that, we feel we have the capability to run the trials outside of China, whether that's U.S. or other parts of the world. We have a team that's done that before for the last 10 years. So we can do that work ourselves. And I think just as a reminder, we've retained the program and the full economics worldwide outside of the China territory. Thanks.

Thank you. And I'm not showing any further questions, so I'll now turn the Oh, I'm sorry. We do have a follow-up with Salem Syed with Mizuho. Your line is open.

Yeah, thanks so much for squeezing me in, guys. Just one quick follow-up from me. John or Tom or Jason, maybe could you just speak to, preliminarily, how you're thinking about the pricing differential between the U.S. and China for the core inhibitors in general, so we can help, so we can start modeling the China opportunity?

So, Salim, this is Tom. I wouldn't want to get into any type of pricing strategy or discussion like that. It wouldn't be appropriate for us to do that, given we have a partner now for the territory. So, there is information in the public domain about the prices of nukes, and you can look at that. Ben Liddy was added to the NRDL list in November at branded type pricing. So I think, you know, we're optimistic about the commercial opportunity. And as I said earlier, the regulatory and reimbursement trends in the China market are positive.

Got it. Thanks, Tom. Thanks, Salim.

Thank you. I'm not showing any more questions. I'll now turn the call back to Assembly CEO and President Dr. John Mitch Hutchison for close remarks.

Thanks, Bridget. Thank you again all for joining our call this morning. In closing, I'd like to thank all our employees, including the Hepatitis B and the microbiome teams, as well as our corporate team that championed the process that resulted in this important partnership. Our progress is the result of their commitment and their great work. I'm proud to lead the team. and the progress we are making towards our vision of a cure for hepatitis B. We look forward to updating you in the future and sharing our continued progress. So again, thank you for your time today, and this concludes our call.

Thank you for your time, and this concludes our call. Have a great day.