Athenex, Inc. (NASDAQ:ATNX) Q3 2022 Earnings Conference Call November 3, 2022 8:00 AM ET
Company Participants
Tim McCarthy – MD, Investor Relations
Johnson Lau – Chief Executive Officer
Dan Lang – President, Athenex Cell Therapy
Darrel Cohen – Chief Medical Officer, Cell Therapy
Jeff Yordon – Chief Operating Officer
Joe Annoni – Chief Financial Officer
Conference Call Participants
Jon Miller – Evercore
Yale Jen – Laidlaw & Co
Operator
Good day, ladies and gentlemen and welcome to the Athenex Third Quarter 2022 Earnings Conference Call. [Operator Instructions] 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.
Tim McCarthy
Good morning and thank you for joining our conference call. Today, an update Athenex’s business will be provided as well as a review of financial results for the third quarter of 2022. The news release detailing these 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’s website.
During the call, the company will make a projections or forward-looking statements regarding future events, including statements about financial, business and clinical milestones anticipated in the 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.athenex.com.
Speaking on the call this morning will be Dr. Johnson Lau, Chief Executive Officer; Dr. Dan Lang, President of Athenex Cell Therapy; Dr. Darrel Cohen, Chief Medical Officer of Cell Therapy; Mr. Jeff Yordon, Chief Operating Officer; and Mr. Joe Annoni, Chief Financial Officer.
I will now turn the call over to Johnson for introductory remarks.
Johnson Lau
Thank you, Tim and thank you everyone for joining our conference call this morning. It has been another productive quarter for Athenex as we work to transform the company into a pure play leader in NKT cell therapy. First, we’ve raised $30 million, we are an equity offering in August. Also, we’re pleased to announce that we are tracking well to achieve the target 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 noncore assets and identifying potential sources of value within the business while staying focused on prudent capital allocation. To-date, we have deployed our combined 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 receive 70% of the closing from the sale as soon as COVID restrictions are lifted by the government. With the remaining amongst you will 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 Credit extension to meeting compliance with the $1 trading rule in September. This request was rejected by NASDAQ and we subsequently appealed the NASDAQ decision. We have had a meeting with NASDAQ on October 20 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 14, 2023. We are now planning to hold a virtual special shareholders meeting on November 22 at 9:30 am Eastern Time, and the issue of proxy filing on October 11 that provide 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 dollar by March 14, 2023. We encourage you to review the proxy and the 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 remains 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 in 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 the questions in September.
We will provide an update on our progress at the appropriate time. Our oral Paclitaxel is being studied in I-SPY 2 trial, a phase two program evaluating oral Paclitaxel in combination with dostarlimab plus or minus carboplatin in neoadjuvant treatment of breast cancer patients.
The study is being conducted by the Quantum Leap Healthcare collaborative, and in conjunction with GlaxoSmithKline, which is the [indiscernible] direct 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 will likely be to advance Oral Paclitaxel into a pivotal study. And we will 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 advise new product launches and maximize revenue opportunities by prioritizing products listed on the FDA drug shortage list. At the same time, we’re 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.
Dan Lang
Thank you, Johnson. And good morning everyone. We remain focused on advancing our first in class NKT cell therapy platform with potential to overcome the limitations of current immune effector cell therapy approaches. The combined innate and adaptive immune properties of NKT cells together with the ability of current CAR-NKT cells to target both tumor and tumor microenvironment and they both have potential for a highly effective off the shelf treatment that is low in toxicity and more accessible to a broader patient populations.
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 KUR-501 and autologous GD2 CAR-NKT cell therapy for patients with relapsed refractory high risk neuroblastoma and KUR-502 and allogeneic CD19 CAR-NKT cell therapy for patients with relapsed refractory B-cell malignancies. We provided interim phase one dose escalation data, updates from the GINAKIT2 study of KUR-501 at ASGCT in May, and from the ANCHOR study of KUR-502 at ASGCT 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 safer extend post adoptive transfer in all patients and peaking about one to two weeks post infusion. Also promising with the fact that CAR-NKT cells clone to tumor sites. Both programs that maintain 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. A few cases of low grade cytokine release syndrome that did occur were manageable and reversible. Overall, those data support wide therapeutic windows for both KUR-501 and KUR0-502 when potential to dose escalate further to help safely drive deeper, more durable responses.
As a reminder, the interim data for GINAKIT2 study of KUR-501 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 KUR-501 exposure and CD62L expression. Given the encouraging data with KUR-501 in high risk neuroblastoma we continue to explore GD2 CAR-NKT cell therapy opportunities in more prevalent solid tumor indications with leading experts.
As another reminder results from the interim ANCHOR study of KUR-502 in heavily pretreated patients with relapsed refractory B-cell malignancies also showed encouraging responses.
Out of the five evaluable patients with non-Hodgkin 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 or four patients who were previously treated with CD19 targeted CAR-T-cell. 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 one clinical trial for a single infusion of KUR-502 at a low doses of 10 million and 30 million cells per meter square portends a high probability of clinical success, moving forward with dose escalation.
Lastly, for our KUR-503 program, and allogeneic GPC3 CAR-NKT therapy for patients with advanced GPC3 expressing solid tumors who presented early preclinical data at ASCO in June. This data highlighted enhanced persistence and anti-tumor 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 we’ll 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. Darrel Cohen, who will discuss next steps for NKT cell therapy pipeline. Darrel?
Darrel Cohen
Thank you, Dan. And good morning everyone. Our NKT cell therapy programs continue to steadily advance and I am highly enthusiastic by the outpatient potential of NKT cell based treatments and the 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 hematological 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’re seeing in early dose escalation studies of our first two investigational CAR-NKT cell therapy products is occurring at dose levels that are substantially lower than those needed to achieve clinical efficacy with CAR-T-cell and CAR-NKT cell therapies. This potency enables the ability to dose escalate and repeat doses to safely drive deeper and more durable responses.
Looking ahead KUR-501 enrollment of additional primarily pediatric patients with relapsed refractory high risk neuroblastoma in the single institution GINAKIT2 study of autologous GD2 CAR-NKT cells at the two highest dose levels, starting with those level five 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 ultimately help 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. Our KUR-502 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-Hodgkins lymphoma, chronic lymphocytic leukemia or acute lymphocytic leukemia. We are also in the process of amending the protocol to explore to 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 KUR-503 in 2023 for the investigational treatment of patients with advanced GPC3 expressing hepatocellular carcinoma.
The ability of NKT 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 best therapeutic potential events of T-cells as the Goldilocks of cellular therapies.
I will now turn the call over to Jeff to discuss operations. Jeff?
Jeff Yordon
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 [Mylo Trauma] 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 [Emcure] and its injectable company Abbott. Athenex already launched the first product from this collaboration in the third quarter. This product was isoproterenol otherwise known as isopro under the Abbott label. By the end of the year we plan to launch the same product under the Athenex 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 [Emcure] 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. Emcure is also back integrated in the API and many of these products, which provides a very competitive transfer price to Athenex. These future launches can be a significant growth driver for our business.
In May, we launched two injectable drugs pemetrexed 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.
Joe Annoni
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 wins that have helped us move forward. In the first half of 2020 we raised $225 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 we execute upon additional strategic transactions. We have used these assets 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 with $30 million. In parallel, cash burn remains top of [indiscernible]. 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 Klisyri 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 used was $15.7 million. This compares to the cash used in the third quarter of 2021 $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 totaled $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. Federal 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 our 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 decrease oral Paclitaxel commercialization expenses. Net losses attributable to Athenex for the third quarter of 2022 were $19.7 million or $0.14 per diluted share, versus $36.1 million or $0.33 per diluted share in the third quarter of 2021. As of September 30, 2022 Athenex had cash, cash equivalents and restricted cash of $40.4 million.
I will now turn the call back to Johnson for closing remarks.
Johnson Lau
Thank you everyone for joining our investor call today. We continue to execute on Athenex transformation into a streamlined pure play NKT cell therapy company. This quarter, we have made significant progress in continuing to strengthen our balance sheets. As we pursue our goal, we plan to seek additional opportunities to monetize noncore 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.
Question-and-Answer Session
Operator
Thank you very much. We will now begin the question and answer session. [Operator Instructions] First question comes from line of Jonathan Miller with Evercore ISI. Please go ahead.
Jon Miller
Hi, guys, thanks so much for taking my question. And congrats on your progress moving towards pureplay 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-SPY 2 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 oral Paclitaxel and the various cases scenarios for I-SPY 2? And then secondly, we had several pieces of commentary on the spec pharma business and growing that out and increasing margins. Are you still planning on divesting that business outright as well as and if so, what is the gating factor for selling that?
Johnson Lau
Thank you for your question. As we have indicated in the past that we have made a decision to pivot the company into NKT cell therapy 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 shareholder value.
So with regard to your first question, we are expecting the [indiscernible] completion of the I-SPY data as the study very soon before the end of the year. And once we have more information and then we can get the subpar partnerships, 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 pharma asset, again, certainly we will 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?
Jeff Yordon
No, you said it perfectly. We certainly will evaluate what’s in the best interest of our shareholders as we move forward.
Operator
Thank you, Mr. Miller do you have any other questions?
Jon Miller
That’s all for now. Thank you.
Johnson Lau
Thank you.
Operator
Thank you. The next question is from the line of Yale Jen with Laidlaw & Co. Please go ahead.
Yale Jen
Good morning, and thanks for taking the questions. Just focused on the NKT 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 and moving to the second one, or how should we think about the status of this progress? Then I have a follow up?
Dan Lang
Hi, 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 were looking to dose escalate into dose level fives and dose levels sets, 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 as the next appropriate medical conference or venue. So please stay tuned.
Yale Jen
Okay, great, that’s helpful. And maybe one on 502, which is the ANCHOR study, you anticipate to provide interim data, sometime next year or first half of next year. How should we think about in terms of a possible to a number of patients by the time you will have that internal data report as well as maybe the duration of some patients? In other words, what sort of expectations we should think about for that interim analysis?
Johnson Lau
Yes. 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 the follow up. But we got our company sponsor R&D back in March of this year, which allows us to expand the current single cell study at Baylor to have multicenter study for what we call ANCHOR 2, 502 product.
So we’re working hard to stand up different sites. We are looking to stand up to 8 to 10 sites over time. We have, this is really a function of how many patients are being enrolled as well as the maturity of the data. So it’s going to be both factors will be inputs into when we present the data in an appropriate medical conference or a venue sometimes in the first half of ’23.
Yale Jen
Okay, great. Again, very helpful. Maybe just squeezing one more in terms of the API [Specialty] 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 color on that as well. And thanks.
Johnson Lau
Jeff?
Jeff Yordon
Yes. Thanks for the question Yale. 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 in 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 move forward on the Emcure deal, we’ve launched the first product all of these products will have no profit sharing, and Emcure is back integrated almost all the raw material. So the transfer price is very good. So I think that the trend of higher margins or lower transfer price will continue as we move forward.
Yale Jen
Okay, great. Thanks. That’s very helpful. And thanks. Best of luck for things move forward.
Johnson Lau
Thank you. Yes.
Operator
Thank you. [Operator Instructions] As there are no 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.
Johnson Lau
Thank you, everyone for joining us today. We’ll continue to visit the company towards Athenex focusing on NKT cell therapy. We continue to advance our programs in NKT cell therapies. We’re expecting I-SPY2 study completion before the end of the year and we will continue to be sort of 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.
Operator
Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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