Exscientia PLC

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Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Operator]

Hello, everyone. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Exscientias' Business Update Call for the First Quarter 2024. [Operator Instructions]. After the speakers' remarks, there will be a question-and-answer session.

At this time, I would like to introduce Chin Okeke, Associate Director of Strategy and Investor Relations. Chin, you may begin.

[Chinedu Okeke, executive]

Thank you, operator, and welcome, everyone, to Exscientia's First Quarter 2024 Financial Results and Business Update Conference Call. A press release and 6-K were issued this morning with our first quarter 2024 financial results and business update. These documents can be found on our website at investors.exscientia.ai, along with the presentation for today's webcast.

Before we begin, I'd like to remind you that we may make forward-looking statements on our call. These may include statements about our projected growth, revenue, business models, preclinical and clinical progress and results, and business activities and performance as well as our anticipated cash [indiscernible]. Actual results may differ materially from those indicated by these statements. Unless required by law, Exscientia does not undertake any obligation to update these statements regarding the future or to confirm these statements in relation to actual results.

On today's call, I'm joined by Dr. Dave Hallett, Interim Chief Executive Officer and Chief Scientific Officer; and Ben Taylor, Chief Financial Officer and Chief Strategy Officer. And with that, I will now turn the call over to Dave.

[David Hallett, executive]

Thank you, Chin. While the first quarter of 2024 has been my first officially leading Exscientia, the turn of the year marked the beginning of my fifth year as a senior executive at the company. With this experience and perspective in mind, I firmly believe that 2024 will be a year of opportunity for Exscientia to continue making substantial progress on our mission to shift the curve of the pharmaceutical industry.

The tangible benefits of our investment in platform and infrastructure are gaining pace. When we at Exscientia refer to shifting the curve, we are referring to reducing the cost and timelines of contemporary drug discovery, design and development, while also increasing the probability of success. We have already demonstrated a repeated ability to lower the cost and time in the discovery phase of drug design projects.

Our clinical pipeline has multiple shots on goal this year, to start to improve upon the low probability of success historically seen by the wider industry. These include our most advanced program, GTA-EXS-617 or 617 for short, a potential best-in-class CDK7 inhibitor. We expect to present top line clinical data from the dose escalation phase of the [ elucidate ] Phase I/II study in the second half of this year. EXS4318 or 4318, a selective PKC theta inhibitor designed by Exscientia and in licensed by Bristol-Myers Squibb for immunology and inflammation indications. 4318 has shown positive early results in its Phase I study and has the potential to be a first-in-class immunology drug. And two compounds designed for Sumitomo Pharma, which are currently in psychiatric disease that could read out this year. All these candidates were created by Exscientia because traditional methods have resulted in compounds with major developmental issues. Initial data from several programs will begin to demonstrate, that our design solutions can significantly improve probability of success in the clinic.

Today, we are providing updates for our highly differentiated LSD1 inhibitor, EXS74539 or '539, which continues its progression towards a Phase I clinical trial in acute myeloid leukemia patients. For the first time, announcing our plans for our MALT1 inhibitor EXS73565 or '565 as a potential treatment for B-cell lymphomas, including chronic lymphocytic leukemia. We have built a platform with a focus on the efficient discovery, design and development of highly differentiated small molecule compounds. Our first of its kind automation lab integrating AI design capabilities with automated design make test loops launched towards the middle of last year. We have already transitioned three programs over to the facility and will continue to add more during 2024.

Prior to the opening of the lab, every compound we have designed has been synthesized at a CRO or by our partners. We have analyzed synthesis data from these legacy campaigns, and believe that at least 75% of these multistep compounds, and 90% of the overall reaction types are automatable and could have been run through our facility. This is important as we aim to push through the logistical and time bottlenecks of working with third parties and reduce the CRO costs associated with these activities.

We are already starting to see an initial positive impact from the studio, with like-for-like biology resource requirements coming down by at least 75%, and in many cases, by more than 90%. We developed and optimized assays directly on the platform rather than through an intermediate step. We have started to run unattended overnight assays, are executing multiple assays on the same plate, and providing the teams with great opportunity to collect data. The active learning driven nature of our entire approach, from AI to design through automation and across the entire experimentation cycle, means we can accelerate the discovery process even further than before, and in a more cost-effective manner for Exscientia. We are seeing operational efficiencies from the multiyear investments into our integrated platform.

With these developments in mind, we are continuing to shape our business around the automation of the design, make test learn loop, and ramping up activity through the automation lab. Our laser focus on this process creates the necessity to scale back or discontinue legacy activities that are not directly aligned with our core transformative purpose, automation, advancing our design platform, pipeline development and partnerships.

As part of this process, we intend to anchor our precision medicine capabilities on those aspects that directly influence our pipeline, or contribute to our discovery and translational activities. As a result of the sharpened operational emphasis, we expect to make a total reduction in head count of somewhere between 20% and 25% of global staff, including reduced activities at our Vienna sites. These changes will result in at least $40 million of annualized savings beginning in 2025.

These changes are the natural progression for a technologically driven company and reflect our deep rooted commitment to efficiency, not only with respect to what we do but critically how we execute and deliver it. Importantly, this step reaffirms our commitment to the key value drivers of our business. Meaning our pipeline, our partnerships and our drug design and automation capabilities.

As I have already mentioned, we will share a few key updates across our pipeline as we look to build long-term value for our business, starting with '539, our LSD1 inhibitor. As a reminder, we believe that in '539, we have designed the first LSD1 inhibitor that uniquely combines a reversible mechanism of action with an appropriate half-life and CNS penetration. CNS penetration is an important property, because it has the potential to address brain metastases, which are prevalent in advanced disease.

We believe that having a reversible mechanism of action is important, because irreversibly deactivating LSD1 can contribute to poor control of platelet levels. Having a long half-life has the potential to have the same effect and so the pharmacokinetic properties of the compound are also important. We have previously demonstrated in Rodent studies that platelet levels are able to recover even with super efficacious doses of '539, whereas they remain depleted even for intermittently dosed irreversible LSD1 inhibitors.

This unique combination of properties offers '539 best-in-class potential. The stoplight chart on this slide is color-coded to show how close a profile compound is to an optimized target product profile. Green represents no deviation from the ideal property range. Amber, a minor deviation and red a major deviation. The column on the right-hand side represents '539, which is green for all profile properties. The first two columns represent 2 LSD1 inhibitors developed by other companies. Both compounds have made your deviations, both have long human half-lives and neither a CNS penetrant. The Phase I/II compound also irreversibly deactivate the enzyme compounding a long half-life and presenting a challenge to managing platelet levels.

What is interesting is that despite these deviations, the Phase I/II compound has been able to achieve proof of concept in an AML study, achieving complete responses in 33% of patients. On the face of it, this is a good result. However, it should be noted that to achieve this, patients had to be dosed intermittently, and even then, high rates of grade 3 and 4 platelet count decreases were seen.

We have previously shown data that demonstrates '539 preclinical efficacy is comparable to this compound. If this activity translates into the clinic, '539 has the potential to be just as efficacious but with a better safety profile. With this in mind, we plan to submit an IND to support a Phase I/II trial in AML in the third quarter of this year, with the aim of opening the first clinical trial site across the end of 2024.

We retain an interest in the development of '539 for solid tumors, including small cell lung cancer. By entering AML first, we are derisking our program where clinical proof of concept has already been established. We believe we can leverage what we learn from this regulatory process for future opportunities for '539 in other indications. This Phase I/II trial will initially have a monotherapy dose escalation phase to help us identify the appropriate dose we're testing, followed by a seamless Phase II dose expansion to assess safety and efficacy at that dose.

Throughout this, we will continue to pursue our precision medicine approach to help support with biomarker selection and patient response prediction. In addition to '539, I'm also going to provide updates about '565, our MALT1 inhibitor. '565 has been precision designed to be highly selective including over the enzyme UGT1A1. [ UGT1A1 ] mediates [ bilirubin glucuronidation ] and inhibition contributes to hyperbilirubinemia. Hy's Law is an assessment of high fatality risk from drug-induced liver injury that is based on elevated levels of liver enzymes and total bilirubin in the absence of other factors, for example, viral hepatitis or alcohol abuse.

Many of the current standard of care treatment options that could be used in rational combination with a model inhibitor, such as BTK inhibitors are known to cause drug-induced liver injury, with concomitant elevations of liver enzymes. This would make combination with BTK inhibitors difficulty in practice for those more inhibitors that do not share '565 selectivity profile.

We previously shared data at ESMO late last year, showing vivo activity of '565 as a monotherapy and in combination. The combinations with ibrutinib demonstrated tumor growth regression in animal models. We have also recently generated compelling data in-house for combinations with next-generation BTK inhibitors, which we look forward to sharing at a medical meeting later this year. '565 is currently progressing through IND-enabling studies, and we plan to launch a clinical trial for patients with B-cell lymphomas, including chronic lymphocytic leukemia in early 2025.

It has been demonstrated from preclinical data that there are synergies between MALT1 inhibition and current standard of care treatment options. It has even been demonstrated that MALT1 combinations have the potential to overcome standard of care resistance for some B-cell lymphomas. As you can see from this slide, there are approximately 22,000 B-cell lymphoma patients that fall into the second line of treatment each year. Our clinical development strategy will lay the groundwork for our ultimate goal of using '565 in combination with current standard of care treatment options. We will take the first step towards this by submitting either an IND or CTA application before the end of this year. I will now hand over to Ben to walk us through the business and financial updates.

[Ben Taylor, executive]

Thank you, Dave. Partnerships have been and will continue to be an important part of our business model. We have brought in almost $230 million from partnerships over the last few years, and expect to generate significant additional near-term cash inflows. Our Sanofi collaboration is showing strong progress across multiple programs. and the Merck KGaA collaboration now has all of the programs in early discovery.

Drug discovery and early development are under pressure across the injury and we believe Exscientia has the ideal solution. One of the main industry problems is that approximately 50% of drugs fail in Phase I. These failures are usually tied to safety and dosing. These are two areas where the Exscientia platform excels beyond traditional methods.

In addition, the integration of our AI-based design and our automation lab can enable a new level of speed and cost efficiency. The impact we create is being demonstrated by our PKC data inhibitor that is partnered with BMS. It recently achieved positive early results in its Phase I study, and has the potential to be a first-in-class immunology drug. PKC data is a target where over the last 15 years, more than a dozen biopharma companies have tried and failed to create a potent and selective inhibitor using traditional design methods. We were able to move from design initiation, to identifying the development candidate in less than 12 months, delivering a better quality drug with balanced properties faster.

I will now take a minute to close with highlights from our financial results. Full results are detailed in our press release and Form 6-K. I will review the results in U.S. dollars using the constant currency rate of 1.26 to the pound.

We ended the quarter with $417 million in cash, providing us with a cash runway well into 2027 without additional business development. This enables us to deliver on a multitude of pipeline and platform milestones during that time. You can see the impact of our improving efficiencies and disciplined spending through the 29% decrease in operating cash burn from $55 million in the first quarter of last year to $39 million in the first quarter of 2024.

We did this while moving CDK7 [ Ford ] in the clinic, bringing two new drugs into IND prep, executing on our partnerships, launching our automation lab and setting the standard for small molecule design technology. Today, we have evolved our business again to recognize the benefits of technological efficiency and in doing so, expect to realize annual cash savings from 2025 onwards of more than $40 million.

We have a strong track record of delivering business development, and that has supported us since our IPO. We are focused on achieving those pipeline and collaboration milestones that will validate the substantial leadership position we have built with our platform. And with that, I will turn it back over to Dave.

[David Hallett, executive]

Thank you, Ben. Our foundational work leveraging AI-driven precision drug design has culminated in the development of a focused, high-value oncology pipeline, which we believe has the potential to dramatically improve patient outcomes. We expect to be providing data this year from at least one program, namely CDK7.

Our platform that drives both the pipeline and partnerships is working, and we believe with the integration of automation has the potential to drive extraordinary efficiencies through our business. The changes we announced today result in annualized savings of $40 million from 2025 and beyond. These changes will help us achieve our medium- to long-term goals. These are delivering efficacy data for our current clinical programs, CDK7, LSD1, MALT1 and PKC theta, delivering hundreds of millions of dollars in milestones from our partnerships, advancing the next generation of automation supported projects into the clinic, and quantifiably demonstrating the full use case of integrating generative AI with automated experimentation. We believe this will cement our position as the leader in technology-driven drug design. And with that, we will open the call for questions and answers.

[Operator]

[Operator Instructions]. Your first question comes on the line of Alec Stranahan with Bank of America.

[Alec Stranahan, analyst]

Just a couple from us. First for CDK7, how should we be thinking about activity with mono versus combos here? And anything in terms of safety profile you'd like to see in terms of gauging combined ability? And given the announced cost reductions, how are you balancing executing on your partnerships while driving your pipeline forward? Any color around the balance of efforts here would be great.

[David Hallett, executive]

Thank you for that question or questions. I'll let Ben take the first question, which is about CDK7, and then I'll follow on with that with your question around the balance of the pipeline and partnerships.

[Ben Taylor, executive]

Alec, thanks for the question. So CDK7, we would expect to see some level of monotherapy activity. This is both a cytostatic and a cytotoxic mechanism. However, in clinical use, it will almost certainly always be used in combination. And so what we're looking at right now, and we'll have more on this in the near future is what's the right next step. So it's in a monotherapy dose escalation, and that will be the data that is coming out later on this year. And then we'll look at the appropriate combination to put that into for probably a brief escalation and then an expansion into that area.

We've seen some good track record of CDK7, CDK4s other CDKs that have been out in the clinic. And I think we feel really good about our profile. The critical issue that you really have to manage with CDK7 is toxicity. GI tox will definitely be a big part of it. You both lose patients as well as have variable absorption if you do have GI toxicities. And so that's something that I would definitely be focused on. But we -- if you remember the profile of our inhibitor, it was specially designed to have a -- to get around an issue that a number of the other competitive molecules have, which is being a transporter substrate.

So we think we've got a really nice advantage in there. And hopefully, you'll be able to see that in the data. Because if we can get a nice safe profile, this is a mechanism that clearly should work, and there's a number of different combination opportunities for it.

[David Hallett, executive]

Thank you, Ben. Part two of your question. Partnerships will remain a cornerstone of our business. The reasons that Ben highlighted, one of those, they've brought substantial cash inflows into the organization. As I mentioned in my remarks, is that the potential for the current collaborations over the next 2 to 3 years is to bring in hundreds of millions of dollars of potential milestones.

More importantly or just as importantly, they allow us an opportunity for our platform to learn and to kind of leverage the capacity that we've created. The Sanofi partnership, for example, is also making kind of great progress in the last couple of quarters. We've not only announced the addition of a new program we've enhanced economics that started out life within Exscientia but more recently, the first kind of discovery stage milestone from that collaboration. But kind of the new collaborations are also benefiting from utility of our automation platform. So whether it be BMS or Merck or Sanofi or Gates or Rallybio, all our partnerships are important to us.

[Operator]

Your next question comes from the line of Vikram Purohit with Morgan Stanley.

[Vikram Purohit, analyst]

We had two, one on partnerships and one on the pipeline. So revisiting the topic of partnerships. Could you speak a bit about how you're kind of thinking about and passing through opportunities or biopharma partnerships versus more tech-focused partnerships and kind of how your appetite for each of those could evolve throughout the year? What you'd be looking for from each different type of partnership?

And secondly, on the pipeline, you mentioned in your prepared remarks that the PKC data, initial data has been promising. Just wondering if you could share a bit more about what you've learned with that compound and what the next public-facing communications on that program could reflect?

[David Hallett, executive]

Vikram, let me start with your second part first, if that's okay. Immensely kind of proud of the progress that PKC theta has made. This has been a very challenging project. Over the course of the last kind of like probably last decade, I estimate that kind of more than 10 companies have tried and failed to try and bring an ally bioavailable, selective, potent inhibitor into the clinic, and they pretty much all failed to do that.

So this is -- I think this is proof of the first evidence of what we've spoken about for over many quarters now, about the capabilities of our design platform to deliver where others have failed. PKC theta remains within the BMS portfolio. It has progressed kind of through Phase I. We can't say any more at this stage, but we are working with BMS to be able to tell you more in the coming quarters.

In terms of partnerships, is that we continue to look for both target kind of base kind of partnerships, whether they be the kinds of collaborations that we've done historically with Sanofi, for example. But I think what the automation platform is allowing us to do, in terms of the efficiencies and the kind of changing cost base, is also to potentially attract kind of early stage kind of collaborators, like biotechs or even start-ups. So that's kind of one area where business development kind of conversations are taking place at the moment.

In terms of technology, the conversations that we have and continue to have with the major technology players are really about the excitement we're generating in terms of the investment we've made into our automation studio. I think a lot of people that have been -- and have the force to visit that site have recognized the potential and the value of actually bringing together the kind of the computational world with the real world of kind of engineering and that closed-loop test environment. So the kind of conversations that we're having with kind of technology partners are really around how best can they help us support that going forward. So we will update you, of course, kind of over the course of the next couple of quarters, but I'm confident we'll see progress on both aspects of our business in that regard.

[Operator]

Your next question comes from the line of Peter Lawson with Barclays.

[Peter Lawson, analyst]

Great. I guess initially just a question around the CDK7 combination agent you're thinking of using and the data sets, what indication we should be thinking about?

[David Hallett, executive]

Thank you, Peter. I'll pass that question over to Ben.

[Ben Taylor, executive]

Sure. So we still have some flexibility, but I'll give you a few ideas of where we could go with it because I think there's some really interesting avenues. The most common path here would be to go after ER-positive [ HER2-negative CDK4/6 ] refractory breast cancer patients. And that may seem like a tough patient population for CDK inhibitors. But actually, we've seen some positive early data out of Pfizer CDK 4, showing that even if you're going after CDK 4 after 46, you can have good positive responses as well as some early signs out of CDK7s.

I think we just have a lot better overall balanced profile than the inhibitors that are out there on the market. And as we've talked about before, we think the CDK7 is a class, could really have some advantages over some of the other CDKs. So I think we will be able to obviously explore that area if we wanted to. But because of our safety profile, that also opens up some other areas. There's a lot of great preclinical data showing that CDK7 can be beneficial with immunotherapies, and that is often not been pursued or the clinical trials haven't been very successful, because of toxicity.

And part of the reason there might be, they have very different toxicity profiles. And so you put them together, you can get an overwhelming tox burden. But if we're able to manage that CDK7 toxicity better, there should be very complementary activity. So that -- that's another example of how our profile and what we're able to do with our platform actually could open up markets that other drugs are unable to reach. So -- there's a number of different places that you could go with CDK7, because it is a more fundamental mechanism, but that gives you an example of what we're thinking about.

[Peter Lawson, analyst]

Got you. And then combination agents for CDK7 to immunotherapy, I guess, is one potential?

[Ben Taylor, executive]

Yes. So it will really depend on where you go. So if you went with that, ER-positive, HER2-negative, CDK4/6 resistant breast cancers. You'd probably be with a SERD fulvestrant is obviously a pretty common standard of care there. If you went after something like a lung cancer indication, you may go with a PD-L1. There are, obviously, other indications you could go after, and it really depends on the standard of care. I think we would need to start around second line in most indications, but that could give you a good sense.

[Peter Lawson, analyst]

And then any guidance around cash burn expectations for Q2 and how that kind of measures out to financial year '24?

[Ben Taylor, executive]

Sure. I'll keep going on that one. So obviously, hopefully, it was noticed we had a 29% decrease year-over-year despite a lot of execution. In our first quarter results, I think we intend to continue that into the year. Our guidance had been the cash burn -- the operational cash burn this year will be less than last year, and we're still holding to that. I think with what we announced today that puts our cash runway well into 2027. You may remember our previous guidance was well into 2026. That's actually a really important 12-month period, not only because it gives us more control over our own destiny, which is always a good thing.

But that also means that we have the ability without additional BD or financing to get through things like CDK7 Phase II data and/or initial Phase I data on LSD1 and/or MALT1. Plus there's a lot that should happen in our partnered pipeline over that time period. And obviously, we get to see the automation really play out well. So there's a lot going on over the next couple of years, and we wanted to make sure that we were in full control over that time period.

[Operator]

[Operator Instructions]. There are no further questions at this time. I will turn the call to Dave Hallett for closing remarks.

[David Hallett, executive]

Thank you, operator, and thank you to everyone on the call today for your continued support of Exscientia. In closing, let me reiterate why we are in a strong position for the future. The positive results for our partnered PKC theta inhibitor program, the upcoming Phase I data for CDK7 and the progression of our LSD1 and MALT1 inhibitor programs into the clinic, all provide meaningful advancements of our pipeline.

The integration of our AI-led drug design capabilities now supercharged by experimental automation will help us drive towards maximum speed, quality and ultimately, autonomous drug design. We continue our journey to truly transform how drugs will be invented in the future. Finally, leveraging technology advancements and streamlining operations to realize annual savings of $40 million will extend our cash runway well into 2027 and help Exscientia deliver on our mid- and long-term goals. Operator, you may now disconnect.

[Operator]

Thank you. This concludes today's conference call. Thank you for joining. You may now disconnect your lines.