Lumos Pharma's (LUMO) CEO Rick Hawkins on Q1 2020 Results - Earnings Call Transcript

Lumos Pharma, Inc. (NASDAQ:LUMO) Q1 2020 Earnings Conference Call May 28, 2020 4:30 PM ET

Company Participants

Lisa Miller – Director-Investor Relations

Rick Hawkins – President and Chief Executive Officer

John McKew – Chief Operating Officer and Chief Scientific Officer

Gene Kennedy – Chief Medical Officer

Carl Langren – Chief Financial Officer

Conference Call Participants

Eun Yang – Jefferies

Ted Tenthoff – Piper Sandler

Yasmeen Rahimi – Roth Capital Partner

Operator

Good afternoon. Ladies and gentlemen, and welcome to the Lumos Pharma's First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I will now turn the call over to Lisa Miller, Director of Investor Relations.

Lisa Miller

Thank you. Before we proceed with the call, I would like to remind everyone that certain statements made during this call are forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC.

The forward-looking statements made during this call speak only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements. Information presented on this call is contained in the earnings release we issued this afternoon and in our Form 8-K, which may be accessed from the Investors page of the company's website.

Joining me on today's call are Rick Hawkins, CEO, President and Chairman; John McKew, Chief Operating Officer and Chief Scientific Officer; Gene Kennedy, Chief Medical Officer; and Carl Langren, Chief Financial Officer. Rick Hawkins will provide a corporate update and comment on COVID-19. John McKew will review the company's lead therapeutic candidate and target indications. Gene Kennedy will go over the design of our planned Phase 2b trial, and Carl Langren will wrap up the call with a review of the Q1 2020 financials and an update of cash guidance.

I will now turn the call over to Rick.

Rick Hawkins

Thank you, Lisa. Good afternoon and thank you for joining us on today's call. After the market closed, we issued a press release reviewing recent corporate events, updating our clinical and business development strategy and highlighting financial results for the first quarter of 2020.

It has been an extraordinarily busy and exciting time for Lumos Pharma. On September 30 last year, we announced our plans to merge with NewLink Genetics. And on March 18, saw a close of this merger with overwhelming shareholder support. The following day, the company's stock began trading on NASDAQ under the new symbol LUMO.

In conjunction with this merger, the new Board of Directors consisting of seven members was formed and held its first meeting on March 26. Now with our solid balance sheet and integrated experienced management team, Lumos Pharma is in a strong position to execute on its strategy to develop LUM-201, our oral therapeutic candidate for pediatric growth hormone deficiency, or PGHD.

We continue the preparatory work to begin our Phase 2b trial and believe that this oral therapy has the potential to disrupt the standard of care of daily injectable treatment regimen for this indication that has stood for decades as well as long-acting formulations in development. In addition, the anticipated monetization of our priority review voucher will further strengthen our balance sheet, allowing us to pursue additional business development opportunities in the rare disease sector.

We have also strengthened our management team with the recent promotion of John McKew into Chief Operating Officer and Chief Scientific Officer; and have hired biotechnology veteran, Aaron Schuchart to our Chief Business Officer. These executives, along with the entire Lumos Pharma management and operational team, will support the company's clinical and strategic plans to develop, acquire or license and commercialize therapies for rare diseases.

Our newly formed Board of Directors with three members from each of the previously independent Lumos Pharma and NewLink Genetics plus one member independently selected will provide support to the company's management team and their efforts to implement Lumos Pharma's strategy.

While Lumos Pharma has gotten off to a great start, I would like to briefly discuss the coronavirus pandemic and its potential impact on our business. These are truly unprecedented times, as everyone is aware. On March 11, the World Health Organization declared this virus a pandemic and soon thereafter, social distancing mandates were issued across most of the U.S. and the world. We have at, Lumos Pharma, have implemented similar precautionary measures throughout our organization and continue to encourage our employees to work from home when possible. This global pandemic has caused disruption in the pharmaceutical industry as it has to every other industry and society at large.

For biopharmaceutical company, the widespread social distancing restrictions have caused many academic center trial sites to close and have curbed patient visits to clinicians in general. For many companies, this has resulted in halted clinical trials, incomplete data collection and the onerous prospective restarting trials, all with potentially significant financial consequences. For others, in the process of initiating trials, this pandemic has forced delayed starts with unclear time lines for trial completion and data readouts.

Lumos Pharma is in the latter category. Recently, the company announced that we now anticipate the initiation of our Phase 2b trial targeting PGHD before the end of 2020, somewhat later than our prior guidance of a start date in the middle of this year. We believe this to be a conservative estimate based on our conversations with a number of our site investigators and the fact that many areas in the U.S. and nations around the world are beginning to open up again.

Lumos Pharma has targeted trial sites to expand varied geographies as well as types of centers from private practices to academic centers. We are, therefore, optimistic that this will allow our trial to proceed with less disruption than other has faced. In addition, we are well financed and are managing our cost conservatively.

So we continue to believe that our current cash on hand will be able to fund current operations through the readout of this Phase 2b trial. Again, the anticipated monetized priority review voucher provides us with substantial, non-dilutive funding for our operations going forward, including expanding our pipeline with additional rare disease assets.

So with that overview, I would now like to turn the call over to John McKew to review LUM-201 and the opportunity we see for this drug candidate. John?

John McKew

Thank you, Rick. As Rick mentioned, we are in the process of preparing to begin our Phase 2b trial evaluating LUM-201 in PGHD and believe our therapy may offer a significantly treatment option for a subset of children suffering from growth hormone deficiency. Growth hormone deficiency is the consequence of lower – absent secretion of growth hormone from the pituitary gland. Children with untreated growth hormone deficiency will experience significant growth failure and in many cases, attain adult height significantly less than five feet, with other potential consequences, including decreased bone mineralization, decreased lean body mass and increased fat mass.

PGHD is a long recognized condition that affects approximately one in 3,500 children in the U.S. and maybe of genetic origin or caused by exogenous factors. The market is well established and over $1 billion in size across the U.S., Japan and five major countries in Europe. This market consists of the current standard of care of daily injections of recombinant human growth hormone typically administered to a child for approximately seven years.

LUM-201 represents a significantly different treatment option for PGHD, both standard of care therapy and other therapeutic option currently in development represent treatment regimes consisting of a bolus, a recombinant growth hormone delivered by injection. LUM-201, on the other hand, is an orally administered growth hormone secretagogue that selectively acts on receptors, primarily in the pituitary as well as those in the hypothalamus, stimulating the body's ability to release growth hormone, utilizing the same mechanism and endocrine pathways that occur naturally.

LUM-201 also stimulates the secretion of growth hormone in a pulsatile fashion, similar to the body's normal growth hormone cycle. Mimicking pulsatile release of growth hormone has been shown in preclinical studies to produce greater efficacy than continuous exposure to growth hormone. LUM-201 acts by increasing the amplitude of the natural pulsatile growth hormone secretion and its stimulatory effect is regulated by the same growth hormone IGF-1 feedback loop that occurs naturally, ensuring a proper balance of growth hormone in IGF-1 levels in the body. We believe this is key differentiating factor for daily or weekly formulations of recombinant human growth hormone.

Since LUM-201 works to stimulate the endogenous production of growth hormone, individuals must be able to make and release some growth hormone for this drug candidate to be efficacious. As early as the 1970s, the growth hormone deficient population has been bifurcated into those who are severely versus moderately growth hormone deficient. The severely growth hormone deficient population is characterized by those who cannot make growth hormone at all or produce growth hormone in very limited quantities and is not the target population for LUM-201.

Instead, likely responders to LUM-201 therapy are those with the ability to produce growth hormone, but only at a level insufficient to achieve normal growth in height. Based on our analysis, this targeted patient population represents approximately 50% to 60% of the total PGHD population. Once an individual has been diagnosed with PGHD, the measurement of baseline IGF-1 level, plus the measurement of circulating growth hormone after the administration of a single dose of LUM-201, should identify those who would likely respond to LUM-201 therapy. These identification markers are intended to serve as what the FDA describes as predictive enrichment markers, or PEMs. These PEMs are suggestive of potential LUM-201 efficacy in this patient population and are expected to accurately identify patients for a trial and for treatment should LUM-201 be approved by the FDA.

I would now like to turn the conversation over to Gene Kennedy, our Chief Medical Officer, to discuss our planned Phase 2b trial. Gene?

Gene Kennedy

Thanks, John. As both Rick and John have mentioned, we are preparing to initiate our Phase 2b trial of LUM-201 in PGHD. While we now anticipate this trial to get underway a bit later than originally planned, we are proceeding with all activities under our control to ready our company and our investigators to begin to enroll patients. We have identified and continue to qualify the clinical sites for the trial and are preparing the drug product inventory required for the trial.

The primary focus for this Phase 2b trial is to generate the efficacy and safety data necessary to move LUM-201 into a Phase 3 registration trial. There are also two additional expectations we have set for this trial. The first is to prospectively confirm the utility of our predetermined predictive enrichment markers in selecting patients we expect to respond to LUM-201. The second is to determine the optimal dose of LUM-201 to move forward in our Phase 3 trial. The Phase 2b trial will treat naive-to-treatment patients and randomize them to one of four treatment arms. Three different doses of LUM-201: 0.8, 1.6 or 3.2 milligrams per kilogram, and a comparator arm of standard of care dosing, injectable recombinant human growth hormone. Dosing [Technical Difficulty] annualized growth height velocity as the primary outcome measure.

Our interaction to date with FDA have been fruitful, and we received a study-may-proceed letter from FDA after their review of our study protocol. As trial initiation is currently delayed by the COVID-19 pandemic, we are evaluating whether there is opportunity within the Phase 2b study to address additional FDA feedback that could improve Phase 3 registration readiness. Again, we anticipate this Phase 2b trial to be initiated before the end of 2020.

Based on our analysis of preclinical and clinical data thus far, we believe orally administered LUM-201 has the potential to release a substantial subset of PGHD patients of the need for repeated injections over the course of years to attain their normal height. We continue to execute on our clinical development plan to achieve the goal of delivering a therapeutic alternative for the PGHD population.

Should the data from our PGHD studies warrant, we plan to expand our clinical development program to evaluate LUM-201 in other indications for which recombinant growth hormone is an approved therapy with Turner syndrome and children born small for gestational age being the first two priorities. Beyond LUM-201, we are pursuing business development opportunities to license or acquire other rare disease assets in order to expand our pipeline and our ability to provide innovative therapies for those suffering from rare diseases.

I will now turn the call over to Carl Langren, our CFO, to discuss financial results for the first quarter and review our cash forecast. Carl?

Carl Langren

Thank you, Gene. Before we move to the Q&A, I will comment on the CARES Act and its impact on our Q1 financial results. I will also review our cash guidance and provide an overview of key financials for Q1 2020.

To respond to the devastating effect of the coronavirus pandemic, which has had on business worldwide, on March 27, 2020, Congress passed the CARES Act to provide financial assistance to American workers, families and businesses. Due to one of the provisions of the act, the company's Q1 2020 financial results include a tax benefit of approximately $4.5 million. This is resulting from changes to the carryback treatment for U.S. income tax net operating losses.

We ended the first quarter of 2020 with cash and equivalents of $85.8 million compared to $5 million and pro forma $95.5 million on December 31, 2019. We continue to anticipate cash use of approximately $6.5 million to $7.5 million per quarter, which we believe is sufficient to fund our current operations through the data readout for our planned Phase 2b trial in PGHD. This excludes any additional financing, new partnerships or the anticipated funds from our 60% interest in our priority review voucher.

While we can’t guarantee the value of priority review vouchers in the future, the most recent open market transaction in February of this year valued these vouchers at approximately $110 million. Our voucher derives from the licensure of our Ebola vaccine candidate to Merck. We hold a 60% interest in the voucher and are in the process of monetizing the PRV, anticipated non-diluted funds should serve to further strengthen our balance sheet and support our product candidate acquisition strategy beyond LUM-201.

Lumos Pharma reported net income of $340,000 for the first quarter of 2020 compared to a net loss of $2.1 million for the first quarter of 2019. The company ended Q1 2020 with approximately 8.3 million shares outstanding. Please refer to the press release we put out this afternoon for more detail on financial results.

Looking ahead, we hope to speak to many of you participating virtually in the Jefferies Healthcare Conference on June 2 and at other investor conferences throughout the year.

Now, I would like to turn the call back over to Rick before we open up the call to questions. Rick?

Rick Hawkins

Thank you, Carl. We’re excited about the future of the company and are executing on our clinical and business development plans. We are fortunate to be in a position of financial strength, which gives us confidence that we’ll be able to pursue our strategy.

With that, we’ll open up the call for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Eun Yang from Jefferies. Your line is now open.

Eun Yang

Thank you. So, Phase 2b trial discussion, has it been finalized with the FDA?

Rick Hawkins

Gene, do you want to answer that?

Gene Kennedy

I mean we have a study-may-proceed letter. So, we are free to move forward at this time with that study-may-proceed letter. Obviously, in a clinical development program, your discussions with FDA are ongoing through filing an NDA. So, it’s hard for you to say that it’s “finalized”, but we do have that study-may-proceed letter. That said, there’s always additional aspects to a clinical trial, things you want to address that sometimes can be handled within the Phase 2, Phase 3 study, sometimes are done on smaller size studies. And ideally, since we have the time now, we’re trying to see if we can optimize this and do it in a streamlined fashion.

Eun Yang

Yes. So you also mentioned that you guys are evaluating whether Phase 2b could address another FDA feedback. What was the – can you disclose what the feedback was from the FDA?

Gene Kennedy

There’s a lot – I’m not going to get into all the details. I mean there’s obviously a lot of routine boilerplate that FDA asks you about – on any program. And as I said, sometimes you can handle that right within your study and sometimes you need to do a small separate study on the side. And we’re just trying to see if we can optimize that. I don’t really want to get into all the little details with back and forth with FDA. I mean we have the study-may-proceed letter. We’re very satisfied that things that – we have our IND. And we’re really excited about that.

Eun Yang

Okay. So – and so I don’t think you mentioned how many patients are going to be enrolled in Phase 2b. Is that still ongoing discussion?

Rick Hawkins

All right. Gene, why don’t you answer that question, too?

Gene Kennedy

Yes, certainly. I mean our guidance, up to this point; have been approximately 80 patients in this study. We haven’t guided to a different number. But again, if we can accomplish some of the sort of side things you need to do with FDA within the study, that number may change somewhat. We don’t – but at that – when we have more to share, we will.

Eun Yang

Can I ask you, if it’s still like 80 to 100 patients, once you start the study, do you have any guesstimate how long you may take to enroll the patients?

Rick Hawkins

Yes. Eun, we mentioned that there’s a slight delay in the start of our trial to the end of the year due to COVID-19. And so as a result, we’ve not really given any guidance as to the readout. We will do that shortly as soon as we circle back with our trial sites and we get greater clarity from them.

Eun Yang

No. My question is, once you start the study, how long you would take it to complete the enrollment of about 80 to 100 patients?

Rick Hawkins

Yes. Gene, do you want to answer that?

Gene Kennedy

Yes. I mean certainly. I mean, we obviously have CROs that are – that we’re working with and the sites that we’ve talked to you directly, and they have metrics on how many patients you see per site and how long it takes to enroll those. And what’s visible to the outside world is that a couple of the Phase 3 studies that were done in this area enrolled within two years. What that data doesn’t reflect, though, is that is there going to be any change in the slope or rate of enrollment of screening of patients coming to the clinic as this pandemic sort of winds out through hopefully, a decrease and ultimately a vaccine or some other solution to the problem. So, without really knowing if sort of that slope of enrollment has changed, we can’t be real precise, but our base case expectations were based around the data that 200-patient trials took about two years.

Eun Yang

Okay, great. And then you also mentioned the pipeline extension and expansion to the BD activities in the rare disease portfolio. Is there any specific therapeutic areas of rare disease? Or you – would you primarily focus on endocrinology area?

Rick Hawkins

Well, I think we’re going to focus – we’re a rare disease company. That’s where we’re going to focus. Although we believe our compound probably has other indications far beyond that, but we’re focusing strictly on rare disease indications.

Eun Yang

And then my last question, is this a BD activity for pipeline expansion contingent upon the sale of a PRV?

Rick Hawkins

Yes. I mean that will give us the flexibility to look at a wide variety of opportunities. We’ve already initiated that process.

Eun Yang

Thank you very much.

Rick Hawkins

Okay.

Operator

Your next question comes from the line of Ted Tenthoff from Piper Sandler. Your line is now open.

Ted Tenthoff

Great. Thank you very much and thanks for the update, everybody. A question with respect to trial site enrollment, and I’m wondering whether or not there’s the potential through this sort of delay to either strengthen or increase relationship to maybe even make up for maybe some of that delay by considering some additional trial sites, just as we’re sort of all of the holding pattern here. Thanks so much for answering that.

Rick Hawkins

Yes. And Gene, I’ll let you take that.

Gene Kennedy

Yes, certainly. Our – Ted, nice to talk to you. As we’ve said before, we plan to do the trial with large U.S. presence, but also in Europe and in Australia and New Zealand. These parts of the world has had a different impact. Some have – you’ve either been more fortunate or better prepared. You can debate that to the end of time. But yes, I think it has given us a chance, especially in some of these other ex-U.S. places to be a little more thorough – not more thorough, but just be more complete in really finding what we feel will be the best sites for us. So it’s – as I said, things were delayed beyond our control rather than sit on our hands. We’re trying to do everything we can to optimize this thing. So, once it’s up and running, we’ll be efficient.

Ted Tenthoff

Great.

Rick Hawkins

And Ted, it goes without saying that this is the first oral product in this field. And as a result, the interest from the experienced investigator and KOLs out there are pretty high. So we're evaluating new folks as they come into.

Ted Tenthoff

Excellent. Well, thank you so much. And look, great progress over last year. I'm glad you highlighted all the – all that's gotten done at Lumos and excited for what's to come once the study starts. Thanks so much.

Rick Hawkins

Thank you, Ted.

Operator

Your next question comes from the line of Yasmeen Rahimi from Roth Capital Partner. Your line is now open.

Yasmeen Rahimi

Hi team, thank you so much for taking our questions. I have a number of them for you. The first one is can you shed some light into – if you're able to utilize the patient registries or claims databases currently to really extract out which patient population or which centers could be ideal to be screened as soon as sites are ready to go. So are you working on that?

And to the extent you can provide color would be helpful. The second one is, we are very excited for the Virtual Annual Meeting starting June 8. I would love to hear if there will be additional data that you will be presenting and to the extent that you can comment on what type of data we should be hoping to see would be helpful. And then we have a last follow-up question.

Rick Hawkins

Okay. Gene, why don't you take the first one in terms of the sites?

Gene Kennedy

Yes. As far as using the patient registries, we're focusing on naive-to-treatment patients on this first trial. So though you may see some patterns of presentation of certain sites. If you were to dig through those, they're not going to find us, our patients, because we want naive to treatment. So what we really focused on is finding sites that have high-volume and regularly screened patients and have a long track record of participating in these trials. We have members of our team who have been involved in growth hormone trials going back decades. And we're relying as much on those connections that experience those relationships as we are, the metrics and data that we have through our CROs and other sources, to really find the sites we think are going to perform for us.

Rick Hawkins

Yes. And John, do you want to answer the question about the ENDO meeting?

John McKew

Sure. Yes, we had submitted an abstract to the ENDO meeting. They canceled the meeting and then didn't really guide us on what they were going to do after that. So we actually withdrew the abstract and submitted it to the SP meeting and then the SP meeting got canceled. So we decided to – and then later, they – ENDO decided they were going to do a virtual presentation. So we actually just decided to write those off, those publications and try to submit them as quickly as possible. So that's what we're in the process of doing.

Yasmeen Rahimi

Thank you. Another question for you is we recently had spoken with leading experts of growth hormone deficiency. And you actually commented on the large number, more than even 50%, 80% of kids who are still producing growth hormone and for which secretagogue would be ideal. Can you maybe help us to understand how you – or remind us how you derive the 50%? And whether maybe given what – and I understand it was a single physician we spoke with – whether that number is significantly higher, more than 50%? And if you could share that, that would be very helpful.

Rick Hawkins

John McKew, why don't you take that question?

John McKew

So I think we started out by just trying to be conservative in how we guide in that patient population. We had to base our estimates on a small sample of kids who were given the therapeutic, given LUM-201 and then had their growth hormone levels measured, and then that we could correlate back to their height velocity, right? So it's 68 kids altogether that we could do that with. So it's not a big population that we are working with.

We can do some estimates from that and look at other larger databases, but they really become estimates at that point, right? So we can screen a larger number of kids to correlate back to the growth velocity of six months. Our best guess – right now, our best guess being conservative is 50% to 60%. And it may well be that Dr. Rosenfeld was right and there are a larger portion of kids but that, I think, would be a great surprise as we start to test more kids and evaluate their growth.

Yasmeen Rahimi

Thank you. And then sorry, one last question. Can you maybe shed light to us in regards to your – how you're working closely maybe with the pediatric growth hormone. Advocacy group already preparing everything to – that could be very helpful of raising awareness of an oral product that is in development.

Rick Hawkins

And Gene, you work directly with Carol, so you go ahead and answer that question.

Gene Kennedy

Yes. We're fortunate to have someone on our team named Carol Dutch. She has a long history of working with patient groups and efficacy groups in rare diseases, and she's great. And she has been on this subject for – essentially since Lumos acquired 201. And we do believe it's going to be a key part of the overall strategy to get patients screened and get patients [indiscernible] with this drug, should we show it to be safe and efficacious. So those efforts have been underway for some time.

Yasmeen Rahimi

Thank you so much for taking our questions and congrats on the continued progress you're making.

Rick Hawkins

Thank you, Yas.

Operator

Your next question comes from the line of Rob Gibb from GLI [ph]. Your line is now open.

Unidentified Analyst

Hi, congratulations on some of the progress and restarting some of the studies. I've got a past – question from the past merger or – any interest in some of other activities such as that you used to work on COVID or anything in that nature that you might take a look at?

Rick Hawkins

The answer to the question, Gil, is no – or Rob, it's no. And we are sticking to our LUM-201 at our compound. It has no indication or use in COVID in any way that we're aware of. And I think that's all there is to it.

Unidentified Analyst

All right. Thank you.

Rick Hawkins

Okay.

Operator

Thank you. I'm showing no further question in the queue at this time. I'll hand the call back to Rick for closing remarks.

Rick Hawkins

Okay. Thank you. So just let me say our thoughts are with those suffering from the current pandemic, and we wish everyone the best of health and the wherewithal to sustain themselves through these difficult times. We want to thank you for your interest and look forward to speaking with investors at the Jefferies Healthcare Conference next week and other venues for the rest of the year and beyond. So thank you.

Lisa Miller

Operator?

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.