Athenex, Inc.

Good day, ladies and gentlemen, and welcome to the Etherex third quarter 2022 earnings conference call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two.

Please note, this event is being recorded.

I would now like to hand the conference over to Tim McCarthy, Managing Director of Investor Relations at LifeSci Advisors. Thank you, and over to you.

Good morning, and thank you for joining our conference call. Today, an update on the Phoenix's business will be provided, as well as a review of financial results for the third quarter of 2022. The news release detailing the results crossed the wire earlier this morning and is available on the company's website. A replay of this call will also be archived on the company website. During the conference call, the company will make projections or forward-looking statements regarding future events, including statements about financial, business, and clinical milestones anticipated in fiscal year 2022 and beyond. We encourage you to review the company's past and future filings with the SEC. which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements. You can find our SEC filings in the EDGAR database at www.sec.gov or in the Investor Relations section at our website at www.athenix.com. Speaking on the call this morning will be Dr. Johnson Lau, Chief Executive Officer, Dr. Dan Lang, President of Athenix Cell Therapy, Dr. Dal Cohen, Chief Medical Officer of Cell Therapy, Mr. Jeff Yordan, Chief Operating Officer, and Mr. Joe Annone, Chief Financial Officer. I will now turn the call over to Johnson for introductory remarks.

Thank you, Tim, and thank you everyone for joining our conference call this morning. It has been another productive quarter for Affinex as we work to transform the company into a pure play leader in NKT Cell Therapy. First, we raised $38 million via an equity offering in August. I'm also very pleased to announce that we are tracking well to achieve the targeted 50% reduction in operating expenses compared to last year. We also remain on track with our financial guidance. Internal expense targets and our financial priorities remain unchanged. We continue to strengthen our balance sheet by monetizing non-core assets and identifying potential sources of value within the business while staying focused on prudent capital allocation. To date, we have deployed our combined due process to pay down a significant portion of our debts from $150 million at the end of last year to $47.5 million as of September 30, 2022. We previously announced our intent to divest our China API business in July. Due to COVID-related restrictions, certain administrative procedures have been delayed. However, I'm pleased to say that we have met all closing conditions and are in the final stages of closing the transaction. We are confident that we can complete the closing and received 70% of the proceeds from the sale as soon as the COVID restrictions are lifted by the government, with the remaining amounts to be received over the following few months. I would now like to provide an update about our NASDAQ listing. As you may know, we asked to receive a second 180-day calendar extension to regain compliance with the $1 trading rule in September. This request was rejected by NASDAQ, and we subsequently appealed the NASDAQ decision. We had a panel meeting with NASDAQ on October 20th, and are delighted to announce that our appeal was successful. The NASDAQ hearings panel granted our request to continue listing and extended our period to regain compliance until March 14th. We are now planning to hold a virtual special shareholders meeting on November 22nd at 9.30 a.m. Eastern Time and we issued a proxy filing on October 11th that provides additional details. This meeting is being held to authorize a potential reverse split of the stock, among other things. A favorable outcome provides the board with the authority to effect a reverse split. In the case that the share price does not rebound over $1 by March 14, 2023. We encourage you to review the proxy and vote in favor of the outline proposals. Now, let me turn to a few pipeline updates. We continue executing our strategic pivot. to transform into a leading NKT cell therapy company and remain well-positioned to evolve into a competitive player in the attractive and growing immune-effective cell therapy sector. Our top priorities are to advance our innovative NKT cell therapy platform through dose escalation and continued patient enrollment and present results to scientific and investor communities. With respect to our UK regulatory submission of oral paclitaxel in metastatic breast cancer, we remain on track with all regulatory interactions with the MHRA and have submitted comprehensive responses to their questions in September. We will provide another update on our progress at the appropriate time. Our Oropracatexol is being studied in iSpy2 trial, a phase 2 program evaluating Oropracatexol in combination with Dostarumab plus or minus carboplatin in the new adjuvant treatment of breast cancer patients. The study is being conducted by the Quantum League Healthcare Collaborative and in conjunction with FlexoSmithKline, which is the Dostarumab manufacturer. This study is expected to be completed before year end. We hope to be able to share data from this program when it's available. If results are positive, then our next step would likely be to advance Oropracatexel into a pivotal study, and we would seek to do so in collaboration with a development partner. Our APD business is tracking in line with our internal targets for the third quarter. We are maintaining the previously issued product sales growth guidance in the range of 20 to 25%. We continue to advance new product launches and maximize revenue opportunities by prioritizing products listed on the FDA's drug shortage list. At the same time, we are steadily working to improve our profit margins. With that, I'll turn the call over to Dr. Dan Lang to provide some updates on our NKT Cell Therapy Program.

Dan, please go ahead. Thank you, Johnson, and good morning, everyone. We remain focused on advancing our first-in-class NKT Cell Therapy platform with potential to overcome limitations of current immune-infector cell therapy approaches. The combined innate and adaptive immune properties of NKT cells together with the ability of CAR-NKT cells to target both tumor and tumor microenvironment enable the potential for a highly effective off-the-shelf treatment that is lower in toxicity and more accessible to a broader patient population. Our ongoing clinical trials in both solid tumors and hematological malignancies have demonstrated early promise, and we remain highly encouraged by the therapeutic potential of this novel cell therapy approach. This past quarter, we continue to advance our two lead investigational programs, CURE501 and autologous GD2 CAR-NKT cell therapy for patients with relapsed refractory high-risk neuroblastoma, and CURE502 and allogeneic CD19 CAR-NKT cell therapy for patients with relapsed refractory B-cell malignancies. We provided interim Phase I dose escalation data updates from the GENICAT-2 study of CURA501 at ASGCT in May and from the ANCHOR study of CURA502 at ASTCT in April. Data from both studies supported consistent findings including encouraging responses at low dose levels, favorable kinetic profiles, demonstrating the ability of CAR-NKT cells to safely expand post-adoptive transfer in all patients and peaking about one to two weeks post-infusion. Also promising was the fact that CAR-NKT cells home to tumor sites. Both programs have maintained a favorable safety profile without any infusion-related reactions, those limiting toxicities, neurotoxicity, graft-versus-host disease, or severe side effects related to CAR-NKT cells. The few cases of low-grade cytokine release syndrome that did occur were manageable and reversible. Overall, those data support wide therapeutic windows for both CURE 501s and CURA502 with potential to dose escalate further to help safely drive deeper, more durable responses. As a reminder, the interim data for GINCA2 study of CURA501 in heavily pretreated patients with relapsed refractory high-risk neuroblastoma included three objective responses in 12 patients, with two of these three patients achieving responses at dose level four that included a durable complete response persisting for over 12 months. Predictors of response included CURO501 exposure and CV62L expression. Given the encouraging data with CURO501 in high-risk neuroblastoma, we continue to explore GD2 CAR-NK T-cell therapy opportunities in more prevalent solid tumor indications with leading experts. As another reminder, results from the interim anchor study of CURI-502 in heavily pretreated patients with relapsed refractory B-cell malignancies also showed encouraging responses. Out of the five evaluable patients with non-actual lymphoma treated at low doses, a 60% overall response rate was observed, including two complete responses persisting over six months, and complete or partial responses in two of four patients who were previously treated with CD19-directed CAR-T cell therapy. A 50% overall response rate was also observed in the two patients with ALL at the first dose level, including one complete response lasting until the patient died six weeks later due to unrelated causes. The clinical efficacy achieved this early in Phase I clinical trial followed a single infusion of CURE502 at the low doses of 10 million and 30 million cells per meter square, portends a high probability of technical success moving forward with dose escalation. Lastly, for our CURE503 program, an allogeneic GPC3 CAR and KT cell therapy for patients with advanced GPC3-expressing solid tumors, we presented early preclinical data at ASCO in June. This data highlighted enhanced persistence and antitumor activity with BATF3 compared to IL-15, providing foundational support for clinical development in patients with advanced GPC3-expressing hepatocellular carcinoma. We remain highly optimistic with these encouraging early data and look forward to providing additional updates as our data matures further. With that, I will now turn the call over to our Chief Medical Officer for Cell Therapy, Dr. Daryl Killman, who will discuss next steps for our NKT Cell Therapy pipeline. Daryl?

Thank you, Dan, and good morning, everyone. Our NKT cell therapy programs continue to steadily advance. I'm highly enthusiastic by the outpatient potential of NKT cell-based treatments and their potential for improved safety, efficacy, and accessibility over other immune effector cell therapy options. Our development pipeline supports clinical evaluation of both autologous and allogeneic NKT cell therapy options for solid tumors and hemological malignancies. The natural tropism of NKT cells to home towards tumor sites, expand following administration, and persist, indicates a durable therapeutic potential for these cell types. It is notable that the potent anti-tumor activity that we are seeing in early dose escalation studies of our first two investigational CAR-NK T-cell therapy products is occurring at those levels that are substantially lower than those needed to achieve clinical efficacy with CAR T-cell and CAR-NK cell therapies. This potency enables the ability to dose escalate and repeat doses to safely drive deeper and more durable responses. Looking ahead for CUR501, enrollment of additional primarily pediatric patients with relapsed refractory high-risk neuroblastoma in the single-institution GENOKIT2 study of autologous GD2 CAR-NKT cells at the two highest dose levels, starting with dose level 5, or 300 million cells per meter squared, while still maintaining the opportunity to offer a second cycle of treatment for consolidation, is ongoing. We anticipate providing a data update for this study, evaluating the dose escalation, safety, and preliminary efficacy in the first half of 2023. We ultimately hope to make a go or no-go decision about initiating a pivotal registration-directed study soon thereafter, following operational feasibility assessments and health authority feedback. For CUR502, the single institution anchor study of one or two cycles of allogeneic CD19 CAR-NKT cells is presently expanding into a multicenter Anchor 2 study in order to expedite enrollment of patients with relapsed refractory B-cell non-Hodgkin lymphoma, chronic lymphocytic leukemia, or acute lymphocytic leukemia. We are also in the process of amending the protocol to explore two higher dose levels, as well as a multiple weekly times three dosing regimen that may further enhance the depth and duration of the clinical responses already observed at the lower dose levels. We expect to have another interim phase one anchor dose escalation safety and preliminary efficacy data update in the first half of 2023. Lastly, we plan to file an IND application for CUR 503 in 2023 for the investigational treatment of patients with advanced GPC3-expressing hepatocellular carcinoma. The ability of NK T-cells to combine the best of both NK cells in terms of avoiding graft-versus-host disease without the need for T-cell receptor gene editing and T-cells in terms of manufacturing, including proliferation, post-activation, and cryopreservation, as well as memory and persistence, continues to support the vast therapeutic potential of NKT cells as the Goldilocks of cellulotherapy. I will now turn the call over to Jeff to discuss operations. Jeff?

Good morning, everyone. I want to begin by talking about some of the growth drivers of our business. Let me start with an update on our upcoming MyloPharma launch. We currently anticipate launching the first product at the end of 2022 or early in the first quarter of 2023. We are very excited about this launch as this product is consistently on the FDA shortage list and we expect competition to be very limited. Turning to Gland Pharma, we just completed a deal with Gland. which should enable us to launch a new exciting product in the first quarter of 2023. I also wanted to provide more visibility on our U.S. partnership with Ampure and its injectable company, Abbott. Athenics already launched the first product from this collaboration in the third quarter. This product was isoproteranol. otherwise known as ISOPREL, under the Abbott label. By the end of the year, we plan to launch the same product under the Athenics label. We are also on target to launch two additional products from this partnership before the end of the year. Additionally, we have been offered the opportunity to launch one of the most important products in the mCure pipeline, and we are working with them to potentially launch this product at the beginning of the new year. The other significant products from our collaboration are anticipated to launch throughout 2023. MTIR is also back integrated in the API on many of these products, which provides a very competitive transfer price to Athenax. These future launches can be a significant growth driver for our business. In May, we launched two injectable drugs, pemetrexate and bortezomib, at market formation. Both drugs attracted a large number of competitors, and as a result of that, the price eroded very quickly. Both of these drugs have very few barriers to entry, which I mean readily available API, no manufacturing issues, and no complex formulation puzzles to solve. And in the future, we focus on products that do have significant barriers to entry, and we expect larger revenues after patent expiration, as well as better margins. We are pleased to report that our APD and APS businesses achieved our objectives for the third quarter. We still expect to meet our previously stated 20 to 25% revenue growth guidance. I will now turn it over to Joe to discuss our financial performance.

Thank you, Jeff, and good morning, everyone. As we continue in our season of breaking down and building back up, I am pleased to report that we are delivering on the plan we outlined earlier this year on our fourth quarter call to divest non-core assets and reduce operating expenses. And in the midst of turbulent markets, we have recently also experienced favorable winds that have helped us move forward. In the first half of 2022, we raised $125 million from the sale of assets. Continuing on that plan the second half of the year, the closing of the sale of our China API operations will bring in gross proceeds of approximately $18 million over the coming months. Also, over the coming months, we will continue to keep you informed as you execute on additional strategic transactions. We have used these asset sale proceeds to reduce our debt balance from $150 million at the end of 2021 down to $47.5 million at the end of September 2022, with more reductions to follow. We further strengthened our balance sheet with our equity offering in August, which generated proceeds of $30 million. In parallel, cash burn remains top of mind, so I want to again highlight a figure that you can think of as a proxy for this metric. This figure is our cash flows from operating activities and continuing operations. This number excludes results from a Dunkirk sale, the Closuri royalty sale, and the pending sale of a China API facility, which are reported under discontinued operations. For the third quarter of 2022, the cash to use was $15.7 million. This compares to the cash used in the third quarter of 2021 of $33.2 million, which represents a year-over-year decrease of 53%. And on a sequential basis, this change from the second quarter of 2022 represents a 14% decrease. For the first nine months of 2022, cash used totals $52.5 million, down 46% from the $97 million in the first nine months of 2021. Now let's review the third quarter financials. I ask that you please refer to our press release that was issued earlier today for a full summary of our results, but I will highlight the following. Total revenues for the third quarter of 2022 were $33.5 million compared to $31.4 million for the same period in 2021. Product sales revenue increased by $5 million, or 19%, over the third quarter of 2021. R&D expenses totaled $9.2 million for the third quarter, a decrease of $8.5 million, or 48% year-over-year, attributed primarily to a reduction in oral paclitaxel development costs, as well as other operational costs. SG&A expenses totaled $9.4 million for the third quarter, a decrease of $8.7 million, or 48%, as compared to $18.1 million in the prior year quarter, which was primarily related to decreased oral paclitaxel commercialization expenses. Net losses attributable to Phoenix for the third quarter 2022 were $19.7 million, or 14 cents per diluted share, versus $36.1 million, or $0.33 per diluted share, in the third quarter of 2021. As of September 30, 2022, Athenix had cash, cash equivalents, and restricted cash of $40.4 million. I will now turn the call back to Johnson for closing remarks.

Thank you, everyone, for joining our investor call today. We continue to execute on a Phoenix transformation into a streamlined PurePlay NKT Cell Therapy Company. This quarter, we have made significant progress and continue to strengthen our balance sheet. As we pursue our goal, we plan to seek additional opportunities to monetize non-core assets, reduce operating expenses, and extend our cash runway while at the same time appropriately supporting the growth of our exciting NKT Cell Therapy business. We are confident that our NKT cell therapy programs have the potential to become market leaders that can benefit patients with solid tumors and hematological malignancies worldwide.

Thank you for your attention. Thank you very much. We will now begin the question and answer session.

To ask a question, you may press star and 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.

At this time, we will pause momentarily to assemble our roster. Thank you. The first question comes from the line of Jonathan Miller with Evercore ISI.

Please go ahead.

Hi, guys. Thanks so much for taking my question, and congrats on your progress moving towards a pure plate company. I'd like to focus my questions on that topic, if I may. Starting with maybe oral Paclitaxel, obviously, we haven't seen I-SPY2 yet, but you suggested that you'd start a pivotal, possibly with a partner. Is that as opposed to outright divestiture of the asset? Can you maybe give me some updated thoughts on what your plans are for oil-packed butaxil in the various case scenarios for I-SPY-2? And then secondly, we had several pieces of commentary on the spec pharma business and growing that out, increasing margins. Are you still planning on divesting that business outright as well? And if so, what is the gating factor for selling that? Thank you for your question.

As we have indicated in the past that we have made a decision to pivot the company into an NKT sales hierarchy company. So therefore, we will consider all options to unlock value for the shareholders with regard to all the non-core assets. And obviously, I mean, assets that are not related to NKT cell therapy will be considered as non-core assets that we would like to explore different approach with regard to unlocking shelter value. So with regard to your first question, we are expecting the completion of the iSight data study very soon, before the end of the year. And once we have more information and then we can get the information the partnership's interest, then we'll explore what's the best way to unlock value. And all options are on table for consideration. Now with regard to your second question, with regard to the specialty farmer asset, again, certainly we'll consider all strategic options. But then it is a very healthy division, showing very good growth, and therefore we consider that it has a lot of value. Jeff, do you want to add on any comments to the question?

No, you said it perfectly. We certainly will evaluate what's in the best interest of our shareholders as we move forward.

Thank you. Mr. Miller, do you have any other questions?

That's all for now. Thank you. Thank you.

Thank you. The next question is from the line of Yael Jin with Laidlaw & Co. Please go ahead.

Good morning, and thanks for taking the questions. Just focused on the NKAT cell at this point. For 501, you have two doses to escalate I'm just curious at this point whether you already completed the first dose of moving to the second one, or how should we think about the status of this progress?

Then I have a follow-up. Dan? Hi, Yeo.

Thanks for the question. Just as a reminder, we presented data on dose level four, where we show two responses out of three patients. And one of the patients was a complete response lasting for about 12 months. So we're very excited about that data. What we said in the past is that now we're looking to dose escalate into dose level five and dose level six, which is 300 million cells per meter square and a billion cells. We don't give incremental update in terms of patient enrollment, but we look forward to presenting data at the next appropriate medical conference or venue. So please stay tuned.

Okay, great. That's helpful. And maybe on 502, which is the anchor study you anticipate to provide internal data sometime next year, first half of next year, how should we think about in terms of a possible number of patients by the time you have that internal analysis? data report, as well as maybe the duration of some patients? In other words, what sort of expectations we should think about for that internal analysis?

Yeah, thanks for the question. So I can provide some framework for you to think about the answer to your question. Again, we don't provide incremental update on patient enrollment and duration of response and follow-up. But we got our, you know, company sponsor IND back in March of this year, which allows us to expand the current single center study at Baylor to a multi-center study, you know, for what we call Anchor 2, our 502 product. So we're, you know, working hard to stand up, you know, different sites. We're looking to stand up, you know, up to 8 to 10 sites over time. We have, you know, this is really a function of, you know, how many patients, you know, are being enrolled, as well as the maturity of the data. So, you know, it's going to be, you know, those factors will be inputs into when we present the data in an appropriate medical conference or a venue sometime in the first half of 23. Okay, great.

That's, again, very helpful. Maybe just squeezing one more. In terms of the API, the special pharma business, the cost of goods this year over the last three quarters seems lower than prior years. Should we anticipate going forward this will improve? And what may be the basis for improvement? Just a little bit of color on that as well. And thanks. Jeff?

Yeah. Thanks for the question, Neil. The process that we go through on the more mature products is we're constantly looking for alternative suppliers that can either reduce the profit shares that we have or, most importantly, reduce the transfer price. We've been very successful on that. Many of the products as we move into the future do not include profit sharing. And many of our partners are back integrated in the raw material, which gives us a much lower transfer cost and a much higher margin because of no profit share. Lastly, when we have now moved forward on the M-Cure deal, we've launched the first product. All of these products will have no profit sharing And M-Cure is back integrated in almost all the raw material. So, the transfer price is very good. So, I think that the trend of higher margins, lower transfer price will continue as we move forward.

Okay, great. Thanks a lot. That's very helpful. And thanks. The best luck for things to move forward.

Thank you. Yeah. Thank you. Again, if you have questions, please press star and 1 on your touch-down telephone. This is a reminder to the participants. To ask a question, you may press star and 1 on your telephone keypad. As a run of further questions, this concludes our question and answer session.

I would like to turn the conference back to Dr. Johnson Lau for closing comments. Over to you.

Thank you, everyone, for joining us today. We'll continue to pivot the company towards focusing on NKT cell therapy. We continue to advance our programs in NKT cell therapy. We're expecting iSPY to study completion before the end of the year, and we'll continue to be working to strengthen our specialty pharma, but at the same time, looking for strategic options to unlock value as well. We'll continue our mission to develop anti-cancer therapy for patients, and the process to unlock value for the shareholders.

Thank you very much for your attention. Thank you. The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.