Biora Therapeutics, Inc.

Good day and thank you for standing by. Welcome to the Progenity 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. To ask a question during that time, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to our moderator today, Robert Yule. Managing Director with ICR Westwick Progenity's Investor Relations firm. Thank you. Please go ahead.

Thank you, operator. Good afternoon and welcome to Progenity's third quarter 2021 financial results conference call. Joining me on the call is Adi Mohanty, the new CEO of Progenity, and Eric Desparbis, Chief Financial Officer. Before I turn the call over to Mr. Mohanty, I would like to remind you that 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 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 Adi Mohanty, the new CEO of Progenity.

Thank you, Robert. Hello, everyone. I'm happy to join our call today and really happy to have joined the company on such a pivotal time. While doing my diligence, I was absolutely impressed with the innovation, the science, and data behind the programs here at Progenity. These have the potential to have positive paradigm-changing impact on the diagnosis and treatment of serious diseases. The company has also made significant progress on its transformation. I'm 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 current 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. Welcome 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 while accelerating a transition to an innovation-led biotherapeutics company focused on its oral delivery of biomolecules. and its GI IBD platforms. We more recently added biotherapeutics capabilities to our management team with the addition of Addy as the new CEO and to our board of directors and governance structure with the appointment of Jill Au as a director and our other chair and the appointment of our lead director, Jeffrey Alter, 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 our oral biotherapeutics program. The goal of this program is to achieve oral delivery and systemic uptake of 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 primed for these oral delivery solutions. 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 candidates, PGN-OB1, a variant of adalimumab, a monoclonal antibody, and PGNOB2, a high-concentration formulation of the peptide liraglutide, a GLP-1. We believe that an average bioavailability of around 10 to 15 percent of IV with repeat dosing will prove satisfactory for a large number of biomolecules. 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 data in animal models and provide clinical proof of concept with first in-man studies. We believe the OBDS platform can, one, help improve patient compliance and lower IV infusion costs. Two, help expand the market for GLP-1 agonist and other drugs across a range of chronic use indications. Three, help biotherapeutics such as monoclonals 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 OBDS 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 the OBDS. This marks the third collaboration for the OBDS, further demonstrating the interest of the industry in oral delivery of large molecules and in our OBDS platform. Moving to our DDS program. As a reminder, DDS stands for Drug Delivery Systems. While the OBDS is designed to achieve oral delivery and systemic uptake of biotherapeutics, the DDS is designed to treat GI localized diseases with minimal systemic breakthrough. The goal of this program is to deliver solubilized high-dose pharmaceuticals to specific locations along the GI tract, initially to treat inflammatory bowel disease, or IBD. We are developing drug-device combination products designed to deliver proprietary solubilized formulations of drugs directly to the site of the disease in the GI tract, thereby maximizing the available dose in tissue and achieving drug distribution throughout the colon. We are first targeting the estimated $15 billion market, IBD market, with our two lead drugs, PGN600 tofacitinib, a small molecule normally absorbed in the stomach and upper GI tract, with our initial focus being ulcerative colitis, or UC, and potentially also PGN001, a variant of adalimumab, a monoclonal antibody. We continue to believe we have the potential with this platform to achieve rapid induction, superior clinical remission rates, and reduce 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 inflammatory bowel disease clinical advisory board meeting. In the meeting, our world-renowned advisory board members reviewed the data generated to date and aligned on a clinical program for the remainder of 2021 and 2022. As a reminder, during the first quarter, we completed our first study with the prototype autonomous DDS, successfully evaluating the capsule's safety, targeting, and tolerability in the GI tract for 12 normal healthy volunteers. We were pleased with the result and no safety issues were reported. We plan to conduct a similar study in UC patients in the first half of 2022 to confirm the device safety and function in diseased patients. We then intend to conduct proof of contact studies to demonstrate that delivery of therapeutics with our device can achieve desired pharmacokinetic and pharmacodynamic effects in UC patients. We believe our DDS platform will significantly advance the treatment of GI disease initially for IBD and UC. Our strategy begins with transforming established drugs with known efficacy and safety profiles But we believe the DDS platform has the potential to significantly enhance any compatible drug directed at treating GI localized disease and enable new effective IBD treatment regimens such as rapid induction and drug combination therapies. The potential for the DDS has been recognized by the Crohn's 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 bills 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 in 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 PRO104 for our Precludia rollout test for preeclampsia. Our Precludia test achieved the primary hazard ratio endpoint of the study protocol and demonstrated strong performance. Results of our validation 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. We are very pleased with the test performance, which we believe gives Precludia the potential to transform patient management by enabling physicians to rule out preeclampsia in women with signs and symptoms of preeclampsia. Combined with an important patent allowance for one of the key essays in our novel test, and potentially more on the way, we believe the strength of our growing Preclude IP portfolio will support our ongoing licensing efforts. We've 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. Preclude IP also has potential as an IVD immunodiagnostic kit which can better serve the global opportunity. Our preference is to identify commercial partners that can facilitate physician and patient access and reimbursement in the U.S. market and do the same for the CE IVD in global markets. Moving to our financial performance and capital market activities, we mentioned in our last earnings call The changes we implemented had already achieved at that time a $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 run rate reduction. And once the separation of our Avero 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 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 the goal of generating value through the achievement of key development milestones and data 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 our last operation during Q4, 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 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 2022 monthly operating cash-run profile to be in the range of $5 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 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-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 a registered direct offering in October and have received more than $90 million in warrants exercised as of the date of this call. The capital raised so far in the second half of 2021 puts us in a strong liquidity position heading into 2022, and combined with the gradual completion of our company's transformation, leading to a substantially reduced cash burn, allows us to have a 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 $20.2 million exchange, representing a 38% reduction in the non-affiliated balance of the notes. We thank the two investors who provided consent to proceed with the exchange during the current lockup period and the convertible note holders who worked with us to reach a successful closing of the transaction. We intend 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 the biomolecule market through oral delivery via the OBDS and developing new treatment options for IBD colitis with our DDS platform. We're also looking forward to generating potential licensing revenues from our Precludia rollout test, which could enable us to capture our share of an approximately $3 billion market in the US alone. We are excited about our transformation into a biotherapeutics company. The future milestones we 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 we 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 1 on your telephone keypad. The star 1 on your telephone. Again, to ask a question, you will need to press star, then the number 1 on your telephone. We have our first question from the line of Katherine Schultz. From there, your line is now open.

Hi, guys. Thanks for taking the questions. This is actually Tom on for Catherine today. I wanted to start first maybe on the pre-Ecludia strategy and just sort of how conversations have been progressing since you've brought the consulting group in around the licensing opportunities here. And then maybe additionally, you know, how that affects kind of development on the natal side and what you're thinking about that platform going forward.

Yeah, sure. So thank you, Tom, for the question. This is 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 Precludia. So I can't give much detail. However, I can tell you that so far all the data that we've seen reconfirms our belief that there's 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 present. With regards to the other in natal, I think you're probably referring to our single molecule detection platform. Is that correct?

Yes, that's right.

So we're still progressing with the development of that program. However, because it's 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 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 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 a third form of partnership for OBDS in a quarter. Just curious, you know, any sort of amount of details you can provide here beyond just the partnership signing? And then, you know, going forward, do you guys have sort of an annual target partnership figure you're looking to achieve, or is it sort of an indication-by-indication basis? Thanks.

Hey, Tom. This is Adi. I'm going to jump in. It's a 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 there is 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 figure 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 until we have more information.

Great. Thanks. Appreciate it.

Thank you. Thanks, Tom. Thank you. Our next question comes from the line of Joe Pond Guinness from HC Wainwright. Your line is now open.

Good afternoon, everyone. This is Matt, actually on for Joe. Thanks for taking our questions. So just very broadly, I wonder if you guys can maybe talk a little bit more about what we can expect from upcoming PKPD data in UC. And then secondly, if you can provide any additional thoughts on what the timing and design of future clinical trials using the DDS platform might look like.

So, Matt, I think what I'll do is say give me a couple of weeks. I've been here a few days. I'm absolutely focused on getting – 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, with devices that we've already shown safety in human data with. So there's 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 de-risked in a very short period of time. So give me a little time to get that together and 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 question. Thanks, Matt.

Thanks. Thank you. Again, I would like to remind everyone to ask a question. You will need to press star, then the number one on your telephone keypad. That's star one on your telephone. I am showing no further questions at this time. I would now like to turn the conference back to Adi Mohanty, CEO of Progenity.

Thank you, operator. Thank you all for participating on the call today. Thanks for your interest in Progenity. I am absolutely very, very happy to be here and excited to be able to come back and share more progress. We'll be participating in the Piper Healthcare Conference in December. 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.