Gritstone bio, Inc. (NASDAQ:GRTS) Q1 2023 Earnings Call Transcript May 11, 2023

Gritstone bio, Inc. beats earnings expectations. Reported EPS is $-0.3, expectations were $-0.33.

Operator: My name is Erika and welcome to Gritstone bio First Quarter 2023 Earnings Conference Call. Please note this event is being recorded. At this time, I would like to introduce George MacDougall, Director of Investor Relations and Corporate Communications at Gritstone. Please go ahead, sir.

George MacDougall: Thank you, Erika, and thank you, everyone, for joining us from Gritstone bio’s conference call to discuss our financial results, clinical and business updates for the first quarter 2023. With me on the call today from Gritstone bio are Andrew Allen, Co-Founder President and CEO and Celia Economides, Executive Vice President and Chief Financial Officer. Today after the market closed, we issued a press release providing our first quarter 2023 financial results as well as clinical and business updates. The press release is available on our website. I’d like to remind you that Today’s call is being webcast live via a link on Gritstone’s Investor Relations website, where replay will also be available after its completion.

After our prepared remarks, we’ll open up the call for Q&A. During the course of this call, we will make forward-looking statements that are based on current expectations. These forward looking statements are subject to a number of significant risks and uncertainties. And our actual results may differ materially from those described. We encourage you to review the risk factors in our most recent Form 10-K filed with the U.S. Securities and Exchange Commission and available on our website. All statements on this call are made as of today based on information currently available to us. Except as required by law, we disclaim any obligation to update such statements even if our views change. With that, let me turn the call over to Andrew. Andrew?

Andrew Allen: Thanks, George. And good afternoon, everybody. Thanks for joining us for our first quarter 2023 conference call. This is a really exciting time for Gritstone, significant momentum has been established for our personalized cancer vaccine or PCV program called GRANITE , which is driving towards randomized clinical trial data. And with infectious disease, we’re making great strides in realizing the untapped potential of self-amplifying mRNA. I’ll begin today’s call with a review of recent clinical and corporate developments, including the expansion of the GRANITE study we announced today. Celia will then present the financials and I’ll come back to share closing remarks. Okay, let’s dive right in. So most important to share with you today is the update regarding GRANITE , which is currently in Phase 2 part of a Phase 2/3 study in patients with newly diagnosed Metastatic Microsatellite Stable Colorectal Cancer.

I’ll refer to this MSS-CRC. This morning, we shared an enrollment update from the study. And I’m delighted to tell you that we’re enrolling at a rapid pace and very close to achieving our initial target enrollment of 80 patients We also announced that we’ve made the strategic decision to expand the Phase 2 portion of the Phase 2/3 study to 100 total patients. And in order to do this, we’ll be shifting near term funds from our off-the-shelf neoantigen program SLATE. SLATE is a key part of the future. But our planned randomized trial is not expected to deliver data near term of course, and thus must play second fiddle to GRANITE as we maximize the potential of this high value PCV opportunity. Now over the years, you’ve heard me speak of our strong belief that OUR PCV approach could be uniquely capable of unlocking the power of immunotherapy for patients with immunologically cold tumors.

Our Phase 1/2 data from GRANITE in advanced cancer patients that included immunologically cold tumors, published in Nature Medicine last summer, provided strong clinical data in support of the therapeutic hypothesis. Moderna’s recent positive Phase 2V data presented at ACR in April, provided further evidence supporting the PCV approach. In Moderna’s case in the immunologically hot context of adjuvant melanoma. And then just yesterday in Nature, a Vinod Balachandran and his team from Memorial Sloan Kettering published data in the adjuvant therapy of pancreatic ductal adenocarcinoma with some provocative immunology and clinical data, potentially further supporting PCV this time in the cold context of pancreatic cancer. Our current GRANITE trial is how this all comes together with our Phase 2 study potentially being the first to deliver randomized data, supporting a new neoantigen based PCV against MSS-CRC.

And I think it’s widely recognized that if GRANITE delivers benefit in metastatic MSS-CRC and notoriously cold tumor that is difficult to treat with immunotherapy, the opportunity for further application is enormous and potentially encompasses all solid tumors both hot and cold. Now, there are several reasons why we elected to expand the Phase 2 study. Let me detail them. Firstly, a large number of patients will provide a better estimate of treatment effect size, which will in turn inform an optimal Phase 3 study sample size. So to drill down on that point, the current study is designed as a Phase 2/3. And to remind you the primary efficacy endpoint for the Phase 2 component is molecular response, or ctDNA response, with secondary endpoints including progression free survival or PFS and overall survival or OS.

Now we anticipate discussing the Phase 2 data with regulatory authorities in the first half of 2024 and then moving into Phase 3. The Phase 3 primary efficacy endpoint is to be determined based on our interaction with regulators, but it is likely to be traditional endpoints such as PFS, OS. Powering the Phase 3 study for a time to event endpoint will be done using observed Phase 2 data. Since the Phase 2 and 3 components are statistically separate. The greater the precision of the estimate of treatment effect size from Phase 2 data, the easier it is to power Phase 3 appropriately. Secondly, momentum behind study enrollment has been very strong as of May the 10th, 2023, we’ve randomized 71 of the initially planned 80 patients, and that number is already gone up.

And approximately half of these were randomized in 2023, all sites of screening and consenting enthusiastically and we expect this strong enrollment trend to continue for the foreseeable future. We anticipate completing enrollment of the full 100 subjects in the third quarter of 2023. Now sadly and worth reflecting on, this momentum arises in part from the high unmet clinical need. Colorectal cancer is the second leading cause of cancer death in the United States and over 150,000 people are expected to be diagnosed with CRC this year alone. Median survival for patients with metastatic disease is around two years. Better therapeutics are desperately needed, innovation is needed. And we aim to deliver both. Thirdly, GRANITE is the tip of the spear for our neoantigen programs.

The basic idea is that delivering many neoantigens to solid tumor patients in a potent vaccine that drives strong CDA T cell responses will drive clinical benefit. Now GRANITE seeks to do exactly that. Leveraging our neural network epitope identification platform, EDGE, to accurately predict which subset of tumor DNA mutations forms true neoantigens that will stimulate an effective anti-tumor immune response and our published clinical data show that patients mount strong T cell responses to most of the administered neoantigen with T cells trafficking into their tumors and killing tumor cells, as evidenced by the approximately 50% molecular response rate that we’ve observed. And as you are well aware, our data further show that those patients with molecular responses experience extended overall survival versus those without.

However, a PCV approach will always take more time and cost than an off-the-shelf approach. We’re rapidly building out our off-the-shelf program, SLATE, which delivers shared tumor specific antigens to each patient, but it is temporarily behind GRANITE in development. It takes work and time to identify high quality shared tumor specific antigens that can be combined into a single vaccine that delivers multiple relevant antigens to each patient. So where GRANITE leads SLATE will likely follow. However, showing the GRANITE delivers efficacy in a randomized controlled trial is our highest near term priority. Now before we move on from GRANITE and oncology, I’d like to draw your attention to the value of circulating tumor DNA or ctDNA as an efficacy biomarker reduction in ctDNA, referred to as a molecular response is rapidly emerging as a likely superior surrogate biomarker of efficacy over radiology in the early assessment of solid tumor immunotherapy.

It makes particular sense for us at Gritstone to assess molecular response in our studies, because we aim to drive T cells into tumor lesions, where we have shown that they can meet cognate antigen and proliferate, potentially making the lesions appear bigger. This obviously makes radiology based tools susceptible to errors of mislabeling lesions that increase or remain stable in size, or label this progressive disease or stable disease respectively, when in fact, the patient’s immune system may be newly at war with their tumor i.e. anything but stable. ctDNA dynamics are costing light on the key issue of what’s actually going on in those complex lesions. Tumor cell destruction is reflected by a decrease in ctDNA over time. Now, molecular response is defined as a 30% reduction in ctDNA as the primary endpoint for the Phase 2 portion of our GRANITE study.

We originally powered the study for this endpoint. And we’ve waited for mature clinical data from our Phase1/2 study in advanced cancer patients to allow us to carefully define molecular response in a data driven manner that is expected to best predict overall survival in colorectal cancer. And to remind you, no one’s done this before. So we’ve had to build the framework ourselves. No one’s ever generated strong de novo neoantigen specific T cell responses in cold tumor patients before. No one’s combined this with checkpoint inhibition. So there is no off-the-shelf answer to the question, what’s the best surrogate endpoint for overall survival? We’ve had to find the answer. And that’s exactly what we’ve done. We’ve generated data in Phase 1/2 and we’re now deploying a data driven definition to establish efficacy in a randomized controlled Phase 2 trial.

Once efficacy has been demonstrated in Phase 2, we’ll proceed into a pivotal Phase 3. And as I’ve already noted, we anticipate using a traditional efficacy endpoint such as PFS, or OS in the pivotal trial, but there is a possibility that molecular response will have accrued enough support by 2024 to be used as a surrogate endpoint for accelerated approval. We would like that, but we are not dependent on it. We’re very excited by the GRANITE Phase 2 trial, the momentum it’s gained, and its potential to serve as a major advance in cancer immunotherapy as we seek to extend the emerging benefits of PCV to cold tumors. We will update you further on enrollment once complete, and we look forward to sharing preliminary data in the first quarter of 2024.

Now let’s move over to infectious disease, where data demonstrating potential advantages of self-amplifying mRNA or samRNA over first generation mRNA vaccines continue to flow from our clinical stage CORAL program centered on SARS-CoV-2. And the differentiation of samRNA from mRNA is now becoming clearer. The prolonged antigen expression associated with samRNA vaccines appears to be translating into a more durable neutralizing antibody response, potentially reducing the need for frequent booster vaccinations. And the replication of the RNA once in the cell appears to enable similar immunogenicity as non-amplifying mRNA at a fraction of the dose, offering a cost of goods benefit. In April of this year, we presented new six month neutralizing antibody data from our ongoing Phase 1 called BOOST and called CEPI studies at the 33rd European Congress of Clinical Microbiology and Infectious Diseases, also known as ECCMID.

These presentations in Copenhagen demonstrated that the robust neutralizing antibody responses driven by our samRNA vaccine candidates persist for at least six months, regardless of setting and across multiple subject populations. Of note in the call CEPI presentation, we reported high neutralizing antibody levels and persistence at six months in over 100 vaccine naive subjects, a meaningful increase in subject numbers versus our prior data reports. samRNA is rapidly emerging as a tolerable immunogenic and flexible next generation platform for vaccines against infectious diseases, including COVID-19. And the induction of broad, long term and potentially variant proof immune responses that we’re seeing in our Phase 1 studies is highly promising for the field.

We look forward to continuing to work with collaborators to demonstrate the full potential of our samRNA platform against both SARS-CoV-2 and other important viruses. We expect to share additional data from our CORAL program this fall. And these data will relate to different immunogen designs, illustrating the flexibility of the platform to accommodate both B Cell and T cell epitopes in efficient formats. It is clear that there is still need for next generation solutions against COVID-19 and the recent actions by the White House and BARDA are encouraging signals that the pursuit of enhanced breadth and durability of protection is not going to the wayside. Outside of our PCV and SARS-CoV-2 programs, our forward looking efforts to identify and develop potentially transformative vaccines continues.

Our partnership with Gilead to develop a vaccine based curative immunotherapy treatments for HIV remains active and ongoing in a Phase 1 study, and promising results from a preclinical study in non-human primates within this program were presented at the Conference on Retroviruses and Opportunistic Infections in January. And our preclinical projects against Human Papilloma virus, influenza, and a new combination vaccine against multiple respiratory viruses continued to progress well. I’ll now turn it over to Celia, who will provide more color on our financial results for the first quarter of 2023. Celia?

Celia Economides : Thank you, Andrew. Good afternoon, everyone. We maintained a strong cash position in the first quarter of 2023 and have been able to extend our runway for multiple sources, adding this recent quarter with $153.2 million in cash, cash equivalents, marketable securities, and restricted cash. Our runway has now been extended into mid-2024. In addition to utilizing our ATM program from time to time, you’ll recall we also have an $80 million credit facility with Hercules Capital and Silicon Valley Bank, the division of First Citizens Bank. During the first quarter, we drew an additional $10 million from the from the facility totaling $30 million to date. We also have the option to draw an additional $10 million before the end of 2023 and the remaining $40 million will be available through June 15, 2024 upon achievement of certain milestones by Gritstone.

While we’ve taken steps to extend our runway so far in 2023, we also have multiple potential avenues to secure additional capital. These include but are not limited to drawing down additional funds from our existing credit facility, establishing new or expanding existing collaborations, and other non-diluted funding sources, such as a potential $40 million milestone payment from Gilead on our HIV Care Partnership. Turning now to our first quarter 2023 operating results, we reported a net loss of $34 million, compared with $28.9 million for the same period last year. Our research and development expenses were $30.5 million for the three months ended March 31, 2023, compared with $28.2 million for the same period in 2022. The increase in R&D costs was primarily due to increases in personnel related costs and laboratory supplies.

Specifically for our GRANITE program related expenses, we incurred $5.4 million in the first quarter of 2023 compared to $2.7 million for the same period last year. The increase was primarily due to the continued execution of the ongoing Phase 2/3 trial and first line maintenance MSS-CRC. For the period ending March 31, 2023, we were able to reduce general administrative expenses to $6.7 million from $8 million for the same period in 2022 by managing our spend on outside services, and facilities related costs. You may recall that the establishment of collaborations and partnerships is a core part of our business strategy, as we continue to leverage our unique platforms and capabilities Gritstone’s collaboration license and grant revenue for the first quarter ending March 31, 2023 total $2.4 million compared to $7.2 million for the same period in 2022.

These also include collaboration revenue of $0.1 million related to the Gilead agreement and $0.4 million related to the 270 bio agreement. This also includes grant revenue of $1.5 million on the CEPI funding agreement and $0.4 million from the Gates Foundation. Finally, as of the end of the first quarter, 2023 Gritstone had 87,848,417 shares of common stock outstanding and pre funded warrants outstanding to purchase 13,573,704 shares of common stock at a nominal exercise price of $0.01 per share. And 13,274,923 shares of common stock at a nominal exercise price of 100th of a cent per share. In summary, we are pleased to have maintained a strong cash position and extended our runway during the first quarter of this year and are confident in our ability to execute on our strategic objectives.

I’ll now turn the call back over to Andrew for some closing remarks. Andrew?

Andrew Allen: Thanks Celia. So as described today, happily Gritstone is in a period of significant momentum, robust enrollment within our PCV program, GRANITE has enabled steady expansion, and the generation of additional clinical and scientific data to inform the future development of GRANITE and further validate our approach to solid tumors. Within infectious disease, we’re pioneering a novel technology that could represent the next RNA platform approach against SARS-CoV-2 and beyond. We look forward to continuing to share our findings with you as progress continues. And with that, I’d like to thank you all for joining us today. And I’ll now turn the call over to the operator for questions. Erika?

Q&A Session

Operator: [Operator Instructions] Our first question comes from Marc Frahm from Cowen.

Operator: Our next question comes from Ted Tenthoff from Piper Sandler.

Operator: Our next question comes from Jonathan Miller.

Operator: Our next question comes from Kaveri [inaudible] with BTIG.

Operator: Our next question comes from Mayank Mamtani from B. Riley Securities.

Operator: Our next question comes from Sean Lee from HC Wainwright.

Operator: Our next question comes from Corinne Jenkins from Goldman Sachs.

Andrew Allen: Great, thank you, Erika. Thank you, everybody. Appreciate your time and attention today. If you have any further questions, obviously you know where we are. Otherwise, we will update you from completion of enrollment of the study. Thanks very much. Have a great evening.

Operator: This concludes today’s conference call. Thank you for attending.