Selecta Biosciences, Inc. (NASDAQ:SELB) Q1 2023 Earnings Call Transcript

Selecta Biosciences, Inc. (NASDAQ:SELB) Q1 2023 Earnings Call Transcript May 4, 2023

Operator: Good morning, and thank you for joining the Selecta Biosciences First Quarter 2023 Earnings Call. . I would now like to turn the call over to Blaine Davis, Chief Financial Officer at Selecta. Please go ahead.

Blaine Davis: Thank you, and good morning, everyone. Welcome to our first quarter 2023 financial results and business update conference call. The press release reporting our financial results is available in the Investor and Media section of Selecta’s website at www.selectabio.com, and in our quarterly report on Form 10-Q for the quarter ended March 31, 2023, which was filed earlier this morning with the Securities and Exchange Commission of the SEC. Joining me on today’s call are Carsten Brunn, President and Chief Executive Officer; Kate Kishimoto, Chief Scientific Officer; and Peter Traber, our Chief Medical Officer. During today’s call, we will be making certain forward-looking statements, including, without limitation, statements about the potential safety, efficacy and regulatory and clinical progress of our product candidates, our financial projections and our future expectations, plans, partnerships and prospects.

These statements are subject to various risks that are described in the filings made with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today, May 4, 2023, and Selecta disclaims any obligation to update such statements, except as required by law, even if management’s views change. With that, let me turn it over to Carsten.

Carsten Brunn: Good morning. I appreciate everyone taking the time joining us today. The first quarter of 2023 was marked by a significant milestone with the announcement of positive results from 2 Phase III studies of SEL-212 in chronic refractory gout, DISSOLVE I and II, both of which met their primary endpoints. As a reminder, SEL-212 is a combination drug product candidates consisting of 2 components. The first component is pegadricase, a potent enzyme that has been observed to reduce serum uric in refractory gout patients who continue to have serious disease symptoms such as debilitating joint pain and disfiguring tissue deposits of urate called tophi. The second component of the drug candidate is ImmTOR, which is our nano-encapsulate formulation of rapamycin that is designed to condition the immune system to reduce antibody formation to drugs that are administered at the same time.

The proposed mechanism of interaction is the induction of immune tolerance rather than immunosuppression as with other commonly used drugs. DISSOLVE I and II were identically designed, randomized, double-blind, placebo-controlled trials in patients with gout refractory to conventional therapy. Patients were evenly randomized across 3 treatment arms, placebo, or 1 of 2 doses of SEL-212 0.15 mg per kg or 0.1 mg per kg. Each arm receives their respective intervention as a single treatment every 28 days. DISSOLVE I randomized and dosed a total of 112 subjects in the U.S. and DISSOLVE II randomized and dosed a total of 153 subjects globally. DISSOLVE I met its primary end point, with 56% of patients receiving monthly doses of SEL-212 at 0.15 mg per kg, achieving a response, which was defined as achievement and maintenance of reduction serum urate below 6 milligrams per deciliter for at least 80% of the time during month 6.

DISSOLVE II also met its primary endpoint, with 47% of patients receiving monthly doses of SEL-212 at 0.15 mg per kg, achieving a response. Of note, in patients 50 years of age or older, the response rate of the 0.15 mg per kg dose was 65% in the U.S. study and 48% in the global study. We’re also very encouraged by the safety profile of SEL-212 observed in the trials. In the U.S. study, 75% of subjects who completed 6 months of therapy continue to respond through 12 months with no infusion reactions and no new safety signals. The infusion reaction incidence was 3.4% in the high dose group. In contrast to other urine lowering therapies, SEL-212 did not increase gout flare rate compared to placebo. We’re very excited about these results, which support that SEL-212 could potentially serve as a meaningful new therapeutic option, notably with a convenient once-monthly dosing schedule for patients suffering from chronic refractory gout.

Based on this data, our partner, Sobi, is preparing for a regulatory submission and potential commercialization in the U.S. We have long believed in the potential of our approach, and believe these data serve as validation for ImmTOR technology, which, to our knowledge, now represents the only immune tolerance platform with positive Phase III data. We expect to share full data from these trials at a scientific conference later this year. With this trial successfully completed, and the BLA filing by Sobi on track for the first half of 2024, we now have the opportunity to decide where to take our ImmTOR platform next. We have always appreciated multiple potential applications for our immune tolerance approach to solve the toughest challenges associated with unwanted immunogenicity from improving the tolerability profile of existing drugs, as we saw with the SEL-212 program, to expanding and enabling the applications for gene therapy and restoring self-tolerance in autoimmune disease.

However, in the current market environment, we recognize that we need to be especially thoughtful about our capital allocation and clinical development strategies. Together with our Board, we recently conducted a strategic review to focus our resources on key programs where we believe we have the highest potential to succeed. We believe that these steps, which I’ll now walk you through, will extend our cash runway into the second half of 2025. First, we plan to prioritize the development of ImmTOR IL for diseases of the liver. ImmTOR IL, which combines our proprietary Trex selective IL-2 candidate with ImmTOR represents the evolution of our precision immune tolerance platform and has potential to further enhance the magnitude and duration of immune tolerance in patients treated for autoimmune diseases.

Specifically, it is designed to restore natural immune system balance through induction and expansion of regulatory T cells in vivo versus the standard approach of broad immune suppression, which is associated with side effects and these patients are vulnerable to serious infection and malignancies. We remain on track to initiate IND-enabling studies for ImmTOR IL in 2023. Our initial focus will be on diseases of the liver, and in parallel, we continue to assess additional autoimmune indications for future development. We also intend to continue to support our existing partnerships and prioritize the work under these agreements. These include our collaboration with Sobi for SEL-212 and with Astellas for Xork. For the SEL-212 program, we are continuing to work with Sobi to prepare the BLA filing, which is expected in the first half of 2024.

As a reminder, under our agreement with Sobi, they are responsible for regulatory and commercial activities in all markets outside of China. Selecta is responsible for inter manufacturing, and we are entitled to receive up to $630 million in milestone payments as well as tiered double-digit royalties on net sales. We’re also advancing our partnership with Astellas for Xork, our next-generation immunoglobulin G or IgG protease. Xork will be developed to use with AT845, Astellas investigational AAV-based therapy for the treatment of Late-Onset Pompe disease in adults. The main IgG protease in development is derived through common human pathogens. And as a result, this high prevalence of preexisting antibodies against these protease that can restrict their utilities.

Xork is differentiated by its low cross-reactivity to preexisting antibodies in human serum. Many patients are currently ineligible for clinical trials with investigational AAV gene therapies due to the presence of naturally occurring antibodies against AAV capsids. Due to selective protease activity against anti-AAV Nabs, we believe Xork has the potential to expand access to life-changing gene therapies by addressing preexisting immunity to AAV. With respect to the remainder of our gene therapy assets, we have paused further development and are exploring alternative ways to advance these programs through potential partnerships. These include pausing enrollment of our ongoing Phase I/II reimagine study of SEL-302, our AAV gene therapy combined with ImmTOR for the treatment of methylmalonic acidemia, or MMA.

We have always intended to partner our gene therapy programs. And we believe pausing the reimagine trial will allow any potential partners to help inform the clinical and regulatory path forward for this program, while also preserving Selecta’s cash resources in the near term. In connection with this capital privatization initiative, we’ve undertaken the difficult decision to reduce our headcount by approximately 25% in order to align our workforce with our priorities and streamline our operations. I’d like to express my sincere gratitude to all of those who were impacted by this initiative. I’m confident that Selecta is well positioned to execute on the priorities I’ve outlined today. We continue to focus on leveraging our ImmTOR platform to bring new therapies to patients suffering from autoimmune diseases.

With that, I’ll turn it over to Blaine for a review of the financial results.

Blaine Davis: The first quarter financial results are detailed in the press release and 10-Q issued earlier today. So let me focus my comments here on some key points. Selecta ended the first quarter with cash, cash equivalents, restricted cash and marketable securities of $127.5 million. In light of the strategic initiatives announced today, as well as our expectation that we will receive a milestone payment related to SEL-212 development activities, we believe that our cash position will not be sufficient to meet our operating requirements into the second half of 2025. I will note that we do expect to incur a cash charge of approximately $1 million in the second quarter related to severance and benefit-related expenses following the targeted reduction in force.

Revenue for the first quarter of 2023 was $5.9 million as compared to $34 million in the first quarter of 2022. Revenue was primarily related to the shipment of clinical supply and the reimbursement of costs incurred for the Phase III DISSOLVE program, which was completed in the first quarter of this year. Research and development expenses for the first quarter of 2023 were $18.6 million versus $17.7 million for the first quarter of 2022. The increase was primarily the result of expenses incurred for contract license and milestone payments and personnel expenses, partially offset by a decrease in expenses incurred for the SEL-212 clinical program. G&A expenses for the first quarter of 2023 were $5.7 million, slightly higher than first quarter 2022 due to personnel expenses.

For the first quarter of 2023, we reported net loss of $21.7 million. Our basic net loss per share of $0.14. Let me turn the call back to Carsten.

Carsten Brunn: Over the past few months, we delivered 2 successful Phase III studies that could potentially pave the way for our lead asset to reach the market and offer a meaningful new treatment option to patients. This is an achievement that many biotech companies never realized, and I’m very proud of the team at Selecta that help us reach that important milestone. We both have some difficult decisions about how to advance our mission and position Selecta for continued success. As we now sharpen our focus on ImmTOR IL, while supporting our ongoing partnership with Sobi and Astellas, we believe we have the right strategy in place to add value for all of our stakeholders. I want to thank all our stockholders for your continued support, and we look forward to updating you on our efforts over the course of the year. Now I’d like to open the line to Q&A. Operator?

Q&A Session

Operator: . And our first question will come from Joseph Schwartz of SVB Leerink.

Joseph Schwartz: I was wondering if you can talk about your strategy to develop your IL-2 in liver diseases first. And how much of this is driven by the awareness of a specific antigen in PBC versus other factors? And have you identified other antigens that you can address in other liver diseases or even diseases outside the liver? And then I have a follow-up.

Carsten Brunn: Yes. Great question, Joe. So as you can tell, we’re extremely excited by moving ImmTOR IL forward. And we’ve identified liver diseases for a couple of reasons. One, as you pointed out, for PBC, for example, we know the autoantigen impacted. But also, we believe that in ImmTOR alone also will have an impact — a positive impact on liver diseases as well as it accumulates in the liver, and we’ve shown this in a couple of various animal models. But I’ll let Peter walk through a little bit what our thinking is around the liver disease approach. Peter? Peter, I think you’re mute.

Peter Traber: Yes, I was. Thank you. The — it’s a very important question, Joe. And the — we think that collectively, the autoimmune liver diseases, which are PBC, PSC and autoimmune hepatitis, represent a very good target for our therapy, primarily because they are all known to be T cell-mediated diseases. As you know, PBC has a specific antigen, but there are other antigens that have been identified, for instance, in autoimmune hepatitis certain classifications there. We are not currently identifying additional antigens, but investigators across various areas are identifying antigens, which could then be used. However, as Carsten said, we actually have — we have preclinical data that suggests that each step of the therapy, the ImmTOR alone, ImmTOR IL-2 and ImmTOR IL-2 as well as ImmTOR IL-2 plus antigen, all have additive effects in liver disease.

So we think that the approach is likely to yield results with individual agents as well are collectively better results with multiple agents. So that’s one of the reasons why we’re very interested in liver disease. However, what we find in T cell-mediated liver disease can extend to multiple other autoimmune diseases, which are known to be T cell mediated, such as type 1 diabetes, multiple sclerosis, SLE, et cetera. So we think that targeting liver diseases gives us one of the greatest opportunities to show efficacy of the various components, but will then set the stage for autoimmune diseases more broadly.

Joseph Schwartz: Okay. That’s helpful. And then sort of a different question. I was wondering if you can talk about the resources that Sobi is bringing to bear to support a successful rollout of pegadricase now that you have succeeded in Phase III? And what should we look for in terms of new data or analyses when it is presented or published?

Carsten Brunn: Yes, that’s a great question as well, Joe. And, obviously, we can’t really comment on the resources that Sobi is going to put behind this. The only thing I can say they’re extremely excited about this and they’ve publicly stated, this is one of their top priorities. We will definitely share additional DISSOLVE data at an upcoming scientific conference. And just from a timing and next step perspective, Sobi has guided to plan to file a BLA in the first half of 2024.

Operator: The next question comes from Kristen Kluska of Cantor Fitzgerald.

Kristen Kluska: What, in your opinion, is the size of the market opportunity for PBC and perhaps the liver space in general, where you believe you could show some benefits with ImmTOR IL? And then for PBC in particular, I know there’s just a major conference focusing on this indication and some of the unmet needs. And it seems that the field is moving towards ALP normalization and then also a pretty high unmet need for addressing pruritus. So just wondering with this mechanism, how you think broadly there could be potential impact on the different manifestations that occur with this disease?

Carsten Brunn: Yes. I’ll let Peter talk about the manifestation of the disease and our approach. I’m just going to comment on the market size. So we’re — we think it’s actually the sweet spot for Selecta. These are sizable indications, but a size where we can execute ourselves, both from a clinical perspective, these are not going to be huge trials, and also from a commercial perspective as well. So we think it’s a sweet spot us from a size perspective, but I’ll let Peter address the specific question.

Peter Traber: Yes. Thank you, Carsten, and it is a very good question, Kristen. The fact is that, collectively, the 3 indications of autoimmune liver disease probably affected about 280,000 patients in the United States. And if you take those that are resistant or fail current therapies, there’s over 100,000 people. So it’s a sizable group of patients and a market opportunity. You brought up another very good point and that is the targets that people have utilized for therapy in the past. You mentioned PBC and the fact is that, for approval of drugs, you only have to reduce alkaline phosphatase to 1.67x the upper limit of normal. There’s a lot of data now that suggests that normalization of alkaline phosphatase is much more effective.

And so, therefore, the therapeutic successes that have been identified thus far are using a standard, which is probably not adequate for full therapy. So normalization of alkaline phosphatase is really quite critical to reduce mortality, morbidity and the potential for a liver transplant. So that expands the market opportunity for a new therapy that addresses the underlying immunologic aspect. The same goes for the other diseases such as autoimmune hepatitis, where now normalization of transaminases is the goal where — but failure of other therapies has been with a higher transaminase level than normalization. For PSC, there are no therapies. So that’s wide open. But your point is very well taken. The field is evolving in terms of end points and that evolution favors a immunologic therapy that could potentially normalize alkaline phosphatase and transaminases in these diseases.

Kristen Kluska: And then for the MMA trial, can you confirm that the pause was really just a matter of prioritizing the pipeline, and there’s no specific issues relative to this program? And I guess, what essentially — you used the word pause versus discontinue outright. So what do you think can bring this forward? Is it really just looking for a partnership at this point?

Carsten Brunn: Yes. So there is nothing wrong with the program or the indication. It’s really a resource prioritization, and we felt it was not ethical for us to actually dose the first patient. So we actually paused the study and are looking for a partner to move this forward. It’s — if you like, it’s kind of a turnkey kind of situation here where it’s a single center trial at the NIH, and they are ready to go. So it’s truly a pause and not stop.

Operator: The next question comes from John Newman of Canaccord.

John Newman: Just had two questions. The first one is, can you talk about the expenses that you’re responsible for with regard to SEL-212 going forward with Sobi? And the second question is, what should we think about in terms of a timeline for the IL-2 program to enter the clinic?

Carsten Brunn: I should let Blaine answer the first question around the expenses on 212.

Blaine Davis: Yes. Thanks, John. So relative to the expenses for SEL-212, the agreement that we have with Sobi basically provides reimbursement for all activities associated with the preparation of the BLA, kind of the completion of the clinical trial activities as well as moving towards the manufacturing component on ImmTOR. So all of those expenses, as we think about them over the coming months, will be reimbursed by Sobi. So that’s — hopefully, it provides you the clarification you need there.

Carsten Brunn: And then just on the timelines for ImmTOR IL, since we’re just announcing the strategic shift. We’re not quite ready yet to give you an exact timeline when we’re going to be in the clinic, but we are on track to initiate IND-enabling studies for ImmTOR IL and obviously, we pool our resources behind this and make this the top priority for us moving forward.

Operator: The next question comes from Gil Blum of Needham & Co.

Gil Blum: So it’s never great to have to reduce headcount. But my question is when should we start seeing effects on your OpEx?

Blaine Davis: Yes, Gil. So on the OpEx line, I think what you’ll start to see is as we go throughout the year, specifically around R&D, you will start to see kind of a decrease in that operating expense. Just as a reminder, as we think about the reimbursement that we get on the SEL-212 activity specifically, those come in as revenue and then also kind of net out on the R&D expense line. But as we’ve gone through the prioritization, as we laid out in the call and in the press release, you should expect to see a decrease in the subsequent quarters, specifically on the R&D side. And then around G&A, you would also start to see a slightly more modest decrease there. But, overall, this prioritization obviously results in extending our cash runway out to the second half of ’25.

And we’re also doing this in a relatively — in a position of strength really. Given our cash position of $127 million, we believe that we will see a decrease, but still allows us to remain focused on the prioritized activities that we think can generate value over the longer term.

Gil Blum: And just a point of clarification. I didn’t see much in your comments about IgA nephropathy, and if you can provide clarity there?

Carsten Brunn: Yes, that’s a good question as well. Here, for IgAN, we’re basically evaluating next steps and trying to figure out the best path forward for the asset. We believe there is significant potential for the IgA protease, especially now that with the Phase III successfully completed on 212, which is kind of a similar approach to kind of redosing a highly immunogenic enzyme and lowering serum uric acid deposits in the IgA protease, we’re trying to debulk patients of immune deposits in the kidney. So there’s a lot of similarities. So we remain very excited, but something we’re looking at right now and see what the best path forward is for the asset.

Operator: The next question comes from Uy Ear of Mizuho.

Uy Ear: So first, I guess, could you sort of just expand on the IgA nephropathy decision valuation? I think before you were kind of excited about it because of T12 and the similarity. Just wondering like are you — like what has changed exactly? And I guess, secondly, you — the cash runway out into the first half of 2025 include some upcoming milestone payment for SEL-212. Wondering like what would the cash runway be without the milestone?

Carsten Brunn: Yes. So just elaborating a bit on the IgAN decision, we remain very excited, but we had to make resource decisions on where we allocate our investment. And the IgA protease, in a sense, is the single indication asset, whereas ImmTOR IL really opens multiple sizable indications. Liver diseases are where we are going to start, but that’s also broader application as well. So we think that’s the better choice in terms of we had to prioritize resources. But we still — as I said earlier, we remain excited about IgAN, and we think it’s a valuable indication and we’ll explore the best path forward for the program. Around the cash, one way — and maybe I’ll let Blaine talk a little bit about the thinking here on how we’re approaching this.

Blaine Davis: Yes. So on the cash runway piece, we feel very confident in our ability to achieve the milestone payment that we mentioned in the cash runway guidance. We can’t be specific about what activity that’s associated with. But just as a reminder, we have the opportunity to receive an additional $65 million in kind of development and regulatory milestones associated with the Sobi deal as well as up to $550 million in commercial milestones. As we think about the cash runway guidance we provided the prioritization that we walked through, combined with that milestone associated with the development, is what gets us to the second half of ’25. We haven’t incorporated additional milestones, right? So we think it’s a very achievable milestone that we anticipate.

We do anticipate receiving that well in advance of when that cash runway guidance is associated in the second half. So we’re not going to kind of go into detail about what it would be without that milestone given the confidence that we have in our ability to achieve that.

Operator: The next question comes from Dipesh Patel of H.C. Wainwright.

Dipesh Patel: In light of the fact that Selecta would not be exercising its exclusive option under the Selecta agreement, and your pausing of the Phase I/II MMA gene therapy study, how should investors think about the future of gene therapy redosing using ImmTOR? And then, secondly, do you feel ImmTOR is less suited for gene therapies?

Carsten Brunn: Yes. So that’s a good question. We definitely think that ImmTOR is well suited in gene therapy. As we’ve demonstrated with our empty Capsids study, actually, where we clearly demonstrated that even a single dose of ImmTOR meaningfully reduces NAb titers and redosing is a key challenge. But as additional benefits as well instead of kind of once-and-done approach, kind of the low and slower, you give multiple lower doses as well. That’s very attractive. We’ve always guided that gene therapy is a partner play, and we’ll continue to do that. I think we have demonstrated this year actually with an additional partnership with Astellas in an additional indication with our Xork program.

Dipesh Patel: And then second, did the current market conditions and/or DISSOLVE readouts, in any material way, impact your business relationship with Sobi? And then are you still on track to receive $65 million in development and regulatory milestones and up to $550 million in commercial milestones?

Carsten Brunn: Yes. So the market conditions don’t impact our relationship with Sobi. I think we’ve just delivered a very positive and successful Phase III program. Sobi is excited about this. They’re moving forward, pressing forward the filing of the BLA. So there’s no impact with the market conditions on that partnership or any of the milestone payments that you mentioned.

Dipesh Patel: Okay. And then as we think about strategic reprioritization, can you clarify your clinical development strategy for ImmTOR IL? So for example, is your goal to complete IND-enabling studies of ImmTOR IL and partner with an established player for clinical development and commercialization as an example?

Carsten Brunn: Yes. So I think we are — as I mentioned earlier, we’re quite confident that we can move this forward ourselves in autoimmune diseases of the liver. And at this point, we don’t plan on partnering in trial.

Dipesh Patel: Okay. And then as we kind of shift over to the DISSOLVE study readouts and speaking of the secondary endpoints, have you had a chance to analyze patient reported outcomes and gout flares between active treatment and placebo groups? If so, can you share any noticeable trends, particularly between ImmTOR doses in the context of pain, inflammation and joint damage?

Carsten Brunn: So the analysis of the secondary endpoints is ongoing, and we have not disclosed those yet.

Dipesh Patel: Okay. And then final question, as you dive deep into the DISSOLVE study readouts, were there any common baseline characteristics at play among nonresponders who participated in both DISSOLVE I and DISSOLVE II studies?

Carsten Brunn: Yes, I think it’s an excellent question, but also too early. We’ll provide additional data at a scientific conference later this year.

Operator: As there are no more questions in the queue, I’d like to turn the microphone back to Dr. Brunn.

Carsten Brunn: Thank you, operator, and thank you, everyone, for joining our call today. We look forward to keeping you up to date on Selecta Biosciences. Thank you.

Operator: That concludes today’s call, and you may now disconnect. Thank you.