Liminal Biosciences (NASDAQ:LMNL) Q3 2022 Earnings Conference Call November 10, 2022 8:30 AM ET
Company Participants
Shrinal Inamdar – Investor Relations
Bruce Pritchard – Chief Executive Officer
Nicole Rusaw – Chief Financial Officer
Operator
Good day and welcome to the Liminal Biosciences Third Quarter 2022 Results conference call. At this time, I would like to turn the call over to Shrinal. Please go ahead.
Shrinal Inamdar
Thank you, operator. Good morning, ladies and gentlemen. I am the Associate Director of Investor Relations and Communications at Liminal Biosciences, and I’d like to welcome you to our third quarter results conference call. This recorded webcast will be accessible from the Investor Resources page on the Liminal Biosciences website and will be available for replay later on today. For those of you dialing in, you can find a copy of our presentation slides on the webcast section of the website or via the conference call portal.
Moving on to Slide 2, I’d like to remind everyone that we will be making forward-looking statements during today’s webcast, including remarks or current expectations concerning future developments of the pipeline, the properties of our product candidates, the timing of initiation or nature of preclinical and clinical trials and potential therapeutic areas; regulatory plans, financing plans, our ability to resolve the NASDAQ listing deficiency and regain component NASDAQ with listing rules; the successful and timely integration of the new members of the executive leadership teams; and expected benefits to the company, its financial position, the impact of COVID-19 on our business and possible changes in the industry and competitive environment.
Given the ongoing unpredictability of the COVID-19 pandemic for our future operational objectives, we may need to amend guidance on the expected progress or nature of our business going forward with an improved understanding of how the COVID-19 pandemic may impact our future operations, research and development activities, including future clinical trials. These forward-looking statements are based on our current expectations and beliefs and on information currently available to us. These statements are subject to risks and uncertainties, including those contained in our updated reports that we filed with the U.S. Securities and Exchange Commission or SEC and Canadian Securities Commissions from time-to-time including our annual report on Form 20-F and our 6-K containing our press release of the results for the third quarter ended September 30, 2022, each of which we have filed with the SEC and on SEDAR that could cause actual results to differ materially from those contained in forward-looking statements. Please note that these forward-looking statements made during this webcast speak only of our expectations as of today’s date and Liminal Biosciences undertakes no obligation to update these statements to reflect subsequent events or circumstances, except to the extent required by law.
So as stated on Slide 3, during this morning’s webcast, Liminal Biosciences’ Chief Executive Officer, Mr. Bruce Pritchard will provide a brief summary of our key announcements this quarter; then Ms. Nicole Rusaw, Chief Financial Officer, will present the financial and operational highlights for the third quarter ended September 30, 2022. We will then follow with closing comments on the expected near-term milestones and a short question-and-answer period for financial analysts only.
I’d now like to welcome Liminal Biosciences’ Chief Executive Officer, Mr. Bruce Pritchard. Bruce, over to you.
Bruce Pritchard
Thanks, Shrinal and good morning, everyone. If I could now ask you all to move to Slide 4 in the presentation and I’d like to highlight some of our key achievements for this quarter.
Earlier this quarter, we updated the market on the outcome of our Phase 1a single ascending dose study in fezagepras within our disclosed time lines and provided an update on the resulting impact on our earlier stage development programs. Following on from this announcement, we look forward to nominating a preclinical candidate for our GPR84 program and announced a potential indication for clinical development within the coming months potentially by the end of 2022.
We also acquired 100% of the outstanding preferred and common shares of our non-core subsidiary, Pathogen Removal Diagnostic Technologies, Inc., PRDT, resulting in the company now having 100% control of PRDT. PRDT itself owns certain prion reduction technology. And despite this being considered non-core asset of the company, having full control of PRDT presents us with the possibility to monetize this asset.
An ongoing bid to reduce our cash burn and streamline our business we are pleased to have entered into a termination agreement, terminating a legacy CDMO agreement relating to our previously held plasma-derived therapeutics products. The termination of this agreement results in total go-forward cash savings of approximately CAD33.1 million.
In the third quarter, we also received approval to transfer our common shares from the NASDAQ Global Market to begin trading on the NASDAQ capital market. In connection with this transfer, NASDAQ granted us a second period of 180 calendar days or until February 27, 2023 to regain compliance with the minimum bid price requirement for continued listing by achieving a closing bid price on NASDAQ of at least $1 per share for a minimum of 10 consecutive trading days. We provided NASDAQ with our written intent to cure the minimum bid price deficiency during the additional compliance period by implementing a reverse stock split, if necessary, prior to the expiration of the second compliance period and we intend to hold the shareholders’ meeting to proceed with this reverse stock split in the first quarter of 2023.
We are also pleased to be announcing some changes to our executive leadership team. Nicole Rusaw, who has been serving us as Interim Chief Financial Officer since March 2, 2022, has been appointed as Chief Financial Officer effectively immediately. In her role as CFO, Nicole will continue to lead the finance function and implement progressive financial, operating and technical processes as a permanent member of our team. In addition to the appointment of Nicole as CFO, Dr. Gary Bridger, our current member of the Board of Directors and Strategic Advisor to the company has been named as Interim Chief Scientific Officer effective immediately. Also, Bridger will oversee the research and development function and assume responsibility for leading all aspects of the company’s research and development programs. Dr. Bridger continues to serve as a Board member of the company.
The leadership qualities, extensive experience in drug development and demonstrated track record of leading teams at large organizations comes in an important time as we prepare for key milestones for our small molecule pipeline. These changes will strengthen our capabilities to develop novel therapies for patients in need and I look forward to working collectively as one team to execute on the company’s priorities. The achievements made this quarter have contributed to the non-dilutive extension of our cash runway, which in turn internal results in us being able to provide guidance that we have anticipated cash and cash equivalents to fund our near-term development goals into the fourth quarter of 2023 with the possibility to further extend that runway into 2024 with the sale of non-core real estate assets.
So in summary, once again, this quarter, we have continued to build on our proven track record of delivering on our commitments and we look forward to building on these key milestones in the months to come.
At this point, I’ll hand over to Nicole Rusaw, who will talk through our financial and operating results for the third quarter ended September 30, 2022. So, Nicole, over to you.
Nicole Rusaw
Thank you, Bruce. Slide 6 is a quick reminder that this part of today’s webcast is based on the interim condensed consolidated financial statements for the third quarter ended September 30, 2022. All figures are prepared under International Financial Reporting Standards or IFRS and the full annual information and other important information can be found online at sec.gov and sedar.com. Our financial information is presented in Canadian dollars and all references during the webcast to dollars means Canadian dollars unless otherwise specified. For simplicity, some numbers being discussed have been rounded.
Now if we move on to Slide 7, given the company’s divestment of its former plasma-derived therapeutics segment, the company has presented results from discontinued operations in the current and comparative period. These comprise the revenues and expenses of most of the former plasma-derived therapeutics segment activities and net assets divested in 2021, with the exception of some remaining non-core assets and liabilities, which the company intends to sell or extinguish.
Research and development or R&D expenses from continuing operations decreased $1.5 million from $5 million in the comparative period to $3.5 million for the 3-month period ended September 30, 2022 due to decreases in intangible asset depreciation expense, royalty expenses and clinical trial costs of $0.4 million, $0.3 million and $0.2 million respectively and a general reduction in operating expenses.
Admin expenses from continuing operations decreased $5 million from $9.4 million in the comparative period to $4.4 million during the current 3-month period ended September 30, 2022. The decrease was mainly attributable to a decrease of $2.5 million in D&O insurance premiums resulting from the change in the company’s registered office from Quebec to Ontario in the latter part of 2021 as well as a $1.2 million reduction in both share-based payments expense and salaries and other benefits.
Finance costs from continuing operations decreased by $2.8 million from $1.9 million in the comparative period compared to a $0.9 million gain for the quarter ended September 30, 2022. Decrease in finance costs resulted from the repayment of our long-term debt earlier in the year. Net loss from continuing operations, net of taxes decreased by $5.2 million during the quarter ended September 30, 2022 compared to the corresponding period in 2021. This was mainly driven by reductions in R&D expenses of $1.5 million, admin expenses of $5 million, reflecting the reduction in the D&O premium coupled with the company continuing to streamline the business and improve operating efficiencies as well as a reduction in finance costs of $2.8 million due to the repayment of all long-term debt and an increase in foreign exchange gains of $0.9 million, given increased cash balances and favorable FX variances in global currencies.
Income from discontinued operations, net of taxes, decreased by $57.4 million during the quarter ended September 30, 2022 compared to the corresponding period in 2021. This decrease was mainly due to the fact that the quarter ended September 30, 2021 included the results of the sale of the operations of the plasma collection activities and the sale of the priority review voucher. The income from discontinued operations in the quarter ended September 30, 2022 was impacted by the termination of our legacy CDMO agreement entered into in August 2022. The termination agreement results in the distinguishment of the entire CDMO lease liability and the recognition of a gain on modification of a liability included in finance costs from discontinued operations of $16 million and a reversal in the CDMO onerous provision of $10.7 million included in R&D expenses from discontinued operations.
Moving to Slide 8, I’d like to walk through the major elements that impacted our cash and cash equivalents throughout the quarter. These cash flows include cash flows from both continuing operations as well as discontinued operations. We started 2022 with $108.5 million of cash and cash equivalents. During the first quarter, the company repaid its secured first and second term loans of $39.6 million, thereby terminating both the consolidated loan agreement and royalty stream agreement with Structured Alpha LP, or SALP. Canceling the outstanding warrants held by SALP issued pursuant to the 2019 restructuring agreement and releasing the security granted in favor of SALP over the company’s assets, including intellectual property.
During the third quarter, the company paid $11.2 million for the termination of the CDMO agreement leaving two remaining payments of $3.4 million each to be made in the first quarter of ‘23 and 2024 respectively. The company has used $25.5 million of cash in operating activities during the 9 months, all of which were incurred to support the small molecules business segment. At September 30, the company had $40.8 million in cash and cash equivalents.
I will now turn the call back to Bruce for some closing comments.
Bruce Pritchard
Thanks, Nicole. So on Slide 9, our near-term program milestones include our expectations to nominate a preclinical candidate for our GPR84 antagonist program in the coming months and potentially before the end of this year, along with guidance on potential target disease areas. Shortly after nominating a preclinical candidate, we plan to commence IND or CTA enabling studies for regulatory approval for a Phase 1 clinical trial. We aim to follow on with nominating a preclinical candidate for our OXER1 antagonist program in 2023, along with guidance on potential target disease areas. We look forward to providing further updates on these potential opportunities as our data becomes available.
Moving on to Slide 10 to wrap up, in addition to these programs, we plan to have the ability to explore other development opportunities to add to our pipeline for our in-house discovery engine as well as potential opportunities to acquire early clinical stage compounds in current therapeutic areas of focus. We continue to work towards opportunities both to reduce costs and for the disposition of our remaining non-core assets to provide additional funding for our ongoing operations and programs beyond 2022 and are focused on delivering our highest priorities for 2022 and 2023.
We would now like to take this opportunity to address any questions that any of our financial analysts may have. Operator, can I hand over to you, please, for the question-and-answer session.
Question-and-Answer Session
Operator
Bruce Pritchard
Thanks very much, operator and thanks to everyone who has listened in on the phone this morning. We look forward to providing further updates on the company’s progress over the coming months. Thank you and good morning.
Operator
This concludes today’s call. Thank you for your participation. You may now disconnect.
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