Gritstone bio, Inc. (NASDAQ:GRTS) Q4 2022 Earnings Call Transcript

Gritstone bio, Inc. (NASDAQ:GRTS) Q4 2022 Earnings Call Transcript March 9, 2023

Operator: Greetings. My name is Joe and I’ll be your conference operator today. Welcome to Gritstone bio’s, Fourth Quarter and Full Year 2022 Results 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 operator and thank you everyone for joining us from Gritstone bio’s conference call to discuss our financial results, clinical and business updates for the fourth quarter and full year 2022. With me on the call today from Gritstone bio are Andrew Allen, co-founder President and CEO and Vassiliki Economides, Executive Vice-President and Chief Financial Officer. Joining us for the Q&A portion will be Karin Jooss our head of R&D. Today after the market closed we issued a press release providing our fourth quarter 2022 and full year 2022 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: Thank you, George. And good afternoon, everybody. Let me begin by first thanking our entire team for the tremendous progress that we made in 2022. I’m proud of the work we’ve accomplished which started seven years ago with the ambition to take the next big step in cancer immunotherapy. We’re now just months away from seeing early data from the first randomized trial testing our hypothesis. This is an incredibly exciting time for Gritstone, and a big year for personalized cancer vaccines. The prospect of opening up most common solid tumors to the survival benefits of immunotherapy lies immediately ahead of us at Gritstone with preliminary proof-of-concept data from our randomized controlled GRANITE study in colorectal cancer expected in the fourth quarter of this year.

If positive, these data could be transformational to the field, and would encourage us to develop our platform in other common, cold solid tumors, such as ovarian, prostate and breast cancers, which remain largely refractory to simple immune checkpoint blockade, and still accounts for a huge number of deaths from cancer every year. The top line data shared by Moderna and Merck in December of 2022 are very encouraging for our product concept. And these data provide initial proof-of-concept from neoantigen based personalized cancer vaccine approach, albeit within the hot tumor context of melanoma. In total, randomized data from the three big players in the field, ourselves Moderna and BioNTech are expected in 2023. As I mentioned at the outset, this is an exciting year for personalized cancer vaccines.

So let’s dive into our work in oncology. First, I’ll address GRANITE, our fully individualized vaccine program. Let’s step back and remind ourselves of the therapeutic hypothesis that underpins this program and the clinical data we’ve generated in support of it. Most patients for solid tumors have immunologically cold tumors, wherein there is no evidence of immune system recognition that tumor neoantigens, no detectable new antigen specific cytotoxic T cell response and thus no T cell substrate for checkpoint inhibitors to work on, leading to their relative inactivity, as therapeutics in such patients. Our original idea was and our approach remains to identify tumor neoantigens and build vaccines containing these antigens, and then deliver them to patients alongside checkpoint inhibitors to induce strong new antigen specific PDA T cells, also known as cytotoxic T cells.

Once administered and generated, these T cells could then traffic to tumors, meet their antigen, proliferate and kill tumor cells leading to clinical benefit. This approach was described in our Nature Medicine paper, published in August of 2022. We’ve been diligently working on each step in this chain and have shown positive results in patients with advanced disease with a focus on colorectal cancer. Specifically, we have shown the following. First, we can predict human new antigens with high accuracy, a positive predictive value of over 75% at this point, and we continue to refine and improve our prediction model continuously. Secondly, in patients with no detectable neoantigen specific T cells at baseline, our simple vaccination schedule elicits strong responses promoting CD8 T cell, which can be readily detected in blood using traditional assays such as LS bought.

Thirdly, these new antigen reactive T cells traffic into tumors and proliferate, changing the T cell composition of the tumors and critically, turning cold tumors into hot ones. Mostly, these T cell responses are associated with tumor cell destruction, as measured by reductions in traditional biomarkers, such as CEA and CA 19-9, often elevated in advanced colorectal cancer patients, as well as parallel reductions in circulating tumor DNA or ctDNA and emerging biomarker of value to immunotherapy drug developers. These molecular responses had been observed in approximately half of the third line colorectal cancer patients retreated. And finally, molecular response was then associated with extended overall survival. Such the molecular non responders experienced a median overall survival of 7.8 months, exactly as expected in this context, whereas molecular responders have not yet reached median overall survival, although it will exceed 22 months.

So having observed the success of its approach and a single arm study in advanced disease, we launched our randomized controlled Phase 2/3 study in newly diagnosed metastatic colorectal cancer patients, whereby patients are randomized to receive maintenance therapy with standard of care, 5-fluorouracil, or 5-FU plus Bevacizumab, or 5-FU plus Bevacizumab, plus our GRANITE immunotherapy. This is a registration or quality study discussed with FDA back in August 2021. And we are enrolling 80 subjects in the open label Phase 2 component with preliminary data expected in the fourth quarter of this year. We anticipate sharing both ctDNA and progression free survival data evaluated using both RECIST and iRECIST criteria on patients completing at least four months of treatment.

We then plan to discuss the results with FDA in the first half of 2024 to align on the appropriate primary efficacy endpoint and then move into the Phase 3 components of the trial. On a related note, I’d like to acknowledge our industry, the clinicians, the patient advocates and the regulators for the work currently being done to evaluate and corroborate the association between molecular responses and extended overall survival. The draft guidance for FDA issued in mid-2022 regarding ctDNA as a potential predictor of response among early stage cancer patients represented an important step forward. And the work being done across the industry to incorporate ctDNA into drug development, and patient and treatment selection is on-going. The burgeoning data and rapid adoption of ctDNA across healthcare sectors gives us conviction that we’re following the right path for Gritstone and for patients alike.

With GRANITE, note that this trial which again is in a common and cold tumor type, potentially opens the door to a transformation in cancer immunotherapy. Put otherwise, if GRANITE works in colorectal cancer, one of the hardest to treat cancers, it is reasonable to think it will work in many other solid tumor types. We believe that generation and or amplification of potent new antigen specific CD8 cytotoxic T cells is always a good thing for cancer immunotherapy and for cancer patients. And the potentially vaccines like GRANITE may become a foundational component of solid tumor immunotherapy. If we’re successful in this endeavor, biomanufacturing of personalized vaccines at scale will be a critical requirement. Importantly, recall that we manufacture our own vaccines at our GMP biomanufacturing facility in California.

Our decision to manufacture in house has offered us many strategic benefits since we built the facility several years back. Our manufacturing process continues to improve in efficiency and capacity as we plan to scale out the Phase 2 with an eye to commercial scale. Now to SLATE which is our product platform that leverages the same biology as GRANITE but seeks to do so in an off the shelf manner. Now off the shelf vaccines are attractive in that they can be administered rapidly upon patient selection. The key issue for the field has been to identify shared tumor specific antigens that can be included within an off the shelf product. The commonest shared new antigens derived from mutant KRAS proteins. And this is where we began our SLATE program a few years ago.

In September of last year, we shared initial results from the Phase 1/2 study of K RAS directed SLATE in late-line patients. Just as in the GRANITE Phase 1/2 study, we observed induction of new antigen specific CD8 cytotoxic T cells across all tumor types evaluated in the study, including metastatic microsatellite, stable colorectal cancer, and non-small cell lung cancer. Also, as in GRANITE, we saw molecular responses in roughly half of the valuable patients. The largest single group of patients had advanced non-small cell lung cancer, or refractory to checkpoint blockade. And in this group, molecular responses were associated with approximate doubling of overall survival, compared with subjects who didn’t experience molecular response. This is very consistent with what we observed in GRANITE.

The symmetry of these observations across products and across tumor types is suggestive of consistent biology and true efficacy signal. Following the same playbook as with GRANITE, our next step is to verify findings in a randomized control trial in newly diagnosed metastatic patients. And we’re launching such a study later this year. SLATE is a fascinating program that will diversify over time, as more shared tumor antigens are identified and included in our vaccines, enabling applications beyond just mutant care as patients. Underlining the notion that stimulation of tumor antigen specific T cells is likely always a good thing, we’ve recently begun a clinical collaboration with Dr. Steve Rosenberg at the National Cancer Institute, combining his mutant KRAS specific cell therapy with our mutant KRAS specific vaccine.

We’re excited by the science behind this approach, and believe that significant potential to extend the benefit of vaccine and cell therapy to potentially broad set of patients, combinations of our vaccine with small molecule mutant care as inhibitors may also make sense. And this is an area of interest at Gritstone. Now on the infectious disease side of our business, we continue making strides in putting clinical data onto the self-amplifying mRNA or samRNA platform via call our program evaluating vaccines against SARS-CoV-2. Through our three phase 1 CORAL studies, we continue to demonstrate the potential broad utility of samRNA to serve as a next generation platform vector. In August 2022 we reported six month neutralizing antibody data from the first two cohorts of our ongoing CORAL boost trial, which is evaluating our samRNA vaccines as a boost following Vaxzevria and or mRNA primary series.

Our numbers are small results showed in all observable patients the strong neutralizing antibody responses originally reported in January of 2022, persisted without decay up to six months. In the fourth quarter, we were notified that our NIAID sponsored CORAL NIH study had completed enrollment, and we also shared additional interim data updates from our CORAL Boost and CORAL-CEPI studies. These additional data demonstrated robust and potentially durable neutralizing antibodies, along with CD8 T cell responses. Enrollment in the CORAL-CEPI study is now complete. And we plan to share further data from the studies at the ECCMID Conference in Copenhagen in April. SamRNA is rapidly emerging as a well-tolerated, scalable and widely applicable platform technology, likely with distinct characteristics versus first generation mRNA.

We believe the data we’re generating against SARS-CoV-2 provide clinical proof-of-concept for the continued application of samRNA across a wide range of infectious diseases. Outside of SARS-CoV-2 our partnership with Gilead to develop a vaccine based curative HIV immunotherapy treatment remains active and ongoing in a phase 1 study. Results from a preclinical study in non-human primates within this program were presented at CROI just last month, demonstrating strong durable viral antigen specific CD8 T cell responses further augmented by immune checkpoint blockade. In addition to these clinical stage programs, we have exciting preclinical projects ongoing, including development of an optimal immunogen for therapeutic human papillomavirus vaccine that is supported by the Gates Foundation.

We were also researching an influenza vaccine, as well as a new combination vaccine against multiple respiratory viruses. We look forward to sharing additional updates on our infectious disease programs and research throughout the year. And finally, I’d like to address some recent developments related to our intellectual property position, which we believe to be a strong asset for Gritstone. In late 2022, we received two United States patents related to samRNA. One includes claims covering Gritstone’s individualized cancer vaccine candidates within the GRANITE program, and the second includes claims covering antigen encoding samRNA vectors in general and has broad applicability across Gritstone’s candidates in oncology and infectious disease.

Additionally, we received recently a third U.S. patent directly to Gritstone’s proprietary chimpanzee, adenovirus, or ChAd vector, which is modified to improve viral production. We use ChAd to prime within our oncology programs, and it is a key asset in our GRANITE strategy to turn cold tumors hot. We view these patterns as critical parts of a competitive moat around our therapeutic strategies. These recent patterns further strengthen our IP position, which also includes our Edge platform key for accurate Cancer New antigen prediction. I’ll now turn over to Celia who will provide more color on our financial results for the fourth quarter and for the full year 2022. Celia?

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Vassiliki Economides: Thank you, Andrew. Good afternoon, everyone. Gritstone ended 2022 with $185.2 million in cash, cash equivalents, marketable securities and restricted cash. We took several measures to extend our runway in 2022. And these include net proceeds of $42.4 million from a private placement secured on October 2022, and $19.6 million in net proceeds from utilizing our ATM offering program. We also secured an $80 million credit facility from Hercules Capital and Silicon Valley Bank in July 2022 and drew $20 million of that total at closing. Throughout the year we also implemented several capital conservation measures that helped to extend our runway while enabling us to pursue our corporate goals. We currently have cash runway into the second quarter of 2024, with multiple potential avenues to secure additional capital in 2023.

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 tour partnership. Turning to our full year 2022 operating results. Our reported research and development expenses were $111.4 million for the year ended December 31, 2022 compared with $97.5 million for the year ended December 31 2021. The increase in R&D cost is primarily due to increases in personnel related costs, and clinical trial expenses. We reported that general and administrative expenses were $29 million for the year ended December 31, 2022 compared with $25.9 million for the prior year.

The increase was primarily attributable to an increase in personnel related costs and an increase in outside services to support our ongoing operations. We also reported that collaboration license and grant revenues were $19.9 million for the year ended December 31 2022, compared to $48.2 million for the prior year. Our 2022 revenues include $1.6 million in collaboration revenue related to the Gilead cooperation agreement, and $7.7 million in collaboration revenue related to the $2.75 agreement. $9.5 million in grant revenue related to the CEPI agreement, and $1.2 million in grant revenue related to the Gates agreement. The net loss was $31.3 million for the fourth quarter of 2022 compared with $29.8 million for the same period last year. The net loss was $119.7 million for the full year 2022 compared with $75.1 million for the same period last year.

Finally, as of December 31 2022, Gritstone had 86,894,901 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 an exercise price of 100th of a cent per share. This brings the total pre funded warrants outstanding as of December 31 2022 to 26,848,627 . I’ll now turn the call back over to Andrew for some closing remarks, Andrew?

Andrew Allen: Thank you, Celia. Gritstone was formed to pursue a big idea and take a bold approach to driving a potentially transformative novel product class. Over the seven years since our founding, we’ve carefully curated and advanced our set of capabilities and technologies, with the aim of driving more potent and durable tumor specific immune responses, and then infectious disease immune responses. We now sit at the threshold of proving out our new antigen approach in metastatic colorectal cancer and the accomplishment that could open up cold solid tumors. Additionally, we’re pioneering a novel technology that could represent the next RNA platform approach against infectious disease. We look forward to what will be an exciting year ahead for Gritstone and to continuing to share our findings with you throughout that time. And with that, I’d like to thank you all for joining us today. I’ll now turn the call over to the operator for questions. Operator?

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Q&A Session

Operator: Thank you. Our first question comes from the line of Marc Frahm with TD Cowen. Please proceed.

Marc Frahm: Hi, thanks for taking my questions. Maybe just to start off with Andrew. Just as we look towards that data in Q4, you’re given the size of the data set. What type of difference in a ctDNA responses do you think is the kind of minimum that’s likely to predict ultimately at some data fully matures? A PFS significant PFS?

Andrew Allen: I would change the question slightly because what we care about is not a PFS difference, what we care about is an OS difference. So that obviously is the goal here really, of course, that is the efficacy endpoint that matters is the only one that matters aside from quality of life type endpoints. So living longer, functioning better, and feeling better are the sort of classic trio. So really is about overall survival. And ctDNA appears to be a better surrogate with novel immunotherapies to that endpoint. It’s not been well characterized in this context, as you know, it’s been well characterized, in the adjuvant setting identifying patients at high risk of disease recurrence. And it seems to track without come extremely well in that setting.

It’s increasingly being validated in, in lung cancer immunotherapy. And friends of cancer research have published some data showing again, that ctDNA response correlates with overall survival. And their data suggested that the nuances were not that important. They looked at different thresholds of percentage reduction. They looked at different techniques for determining whether it’s a mean or median example. And the evidence from their manuscript was that actually didn’t matter that much, which is good, because strong signals should obviously shine through and make small tweaks to assessment, frankly, rather irrelevant. So we’re doing this for the first time in the setting of metastatic colorectal cancer. And so we didn’t really know the answer to your question.

We’ve powered the study to detect at least a 20% difference in ctDNA response rate between the two arms. So it doesn’t anchor on an absolute value, it anchors on the delta between the two arms, which I think obviously is reasonable. I don’t know that that 20% is the right number. I don’t know obviously, what we’re going to see, we could see a much bigger number. And how that mathematically correlates with overall survival is hard to know at this point. It’s impossible to know at this point, what we’ve learned from others is that as you might expect, and as is true with most tumor markers, if you start a new therapy and the markers go up, that’s bad. If they stay flat, that’s good. And if they go down, that’s best. I think that’s likely to be true here, as we’ve discussed.

So 20% is what we’re statistically looking for. But I think it’s an open question as to how changes will actually correlate with overall survival.

Marc Frahm: I think that’s very helpful. And then maybe for CELIA, just given what’s going on in the wider market with one of your lenders, can you can you remind us if there are any clauses associated with that that might allow them to accelerate payback on that on the loan?

Vassiliki Economides: Yes, thanks Mark. So we do for the loan is actually with both Hercules and SVB with the majority of it actually being with Hercules capital, there is a financial covenants that kicks in which you can renew your 10K. But that does kick in in April of this year, we have to have 55% of the outstanding loan on our balance sheet, we’ve only drawn down $20 million at this time.

Marc Frahm: Okay, fair enough. Thank you.

Operator: Our next question comes from the line of Ted Tenthoff with Piper Sandler. Please proceed.

Ted Tenthoff: Great. Thank you very much. And thank you for the update everybody. So my question is on SLATE. And again, kind of digging in a little bit deeper in terms of how you intend to advance and what that product could look like. I’m sorry, what that next study could look like with a KRAS product. Thanks.