Lytix Biopharma AS

OSE:LYTIX

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Oystein Rekdal, executive]

Good morning, everyone, and welcome to Lytix Biopharma's Q2 report presentation, where we will present the company's latest highlights. My name is Oystein Rekdal, I'm the CEO and Co-Founder of Lytix Biopharma, and today, I'm joined by our CFO, Gjest Breistein. Today's presentation is being recorded and will be available at our website later today. At the end, there will be a Q&A session, and to ask questions, follow the instruction via the webcast platform.

Lytix Biopharma is a clinical-stage immune oncology company that is developing a new class of cancer therapy that differentiates from existing cancer therapies. We have two ongoing Phase II studies and a third Phase II study to be started very soon. Our technology is commercially validated through a licensing deal with Verrica Pharmaceuticals that recently reported very positive data from their Phase II study in basal cell carcinoma. Our technology is also scientifically validated by top experts in the field, including the Nobel Prize winner and founder of modern immunotherapy, Jim Allison, who also is a member of our Scientific Advisory Board.

Our drug candidates represent an entirely new and unique treatment principle. They are injected directly into the tumors, where they kill cancer cells locally in the injected tumor. And then secondly, activate immune cells that will search for and kill cancer cells elsewhere in the body. So a local administration of our drug has the potential to involve systemic anticancer effects in the treated patients.

With this, let's move on to the highlights for the second quarter of 2024, plus some first quarter events. As mentioned, our licensing partner, Verrica Pharmaceuticals, is running a Phase II trial in basal cell carcinoma, which is the most common type of skin cancer globally. And mid-August, Verrica announced very positive top line results from this study with an 86% overall reduction of tumor size and complete clearance of treated BCC tumors in more than half of the patients, indicating that LTX-315 could potentially be used as a first-line therapy in this cancer indication.

In our ongoing ATLAS-IT-05 study, late-stage melanoma patients have been treated with LTX-315, in combination with an immune checkpoint inhibitor. These patients had previously failed to respond to same type of immune checkpoint inhibitors as well as other lines of cancer treatments. An updated interim analysis showed a disease control in 40% of the patients with a long-term stabilization of the cancer disease for up to 17 months.

In addition, one more patient has had partial response, giving two patients with partial responses, which is very encouraging in such a late-stage and heavily pretreated cancer population. In April this year, regulatory authorities approved an investigator-led Phase II study for early-stage melanoma patients, where LTX-315 will be given in addition to current standard of care. This study is called NeoLIPA and is planned to start before end of this quarter at the Oslo University Hospital, Radiumhospitalet. We are very excited to see this Phase II study being started in early stage melanoma patients with a more robust immune system.

We're also very excited to announce that our team has succeeded in developing a new formulation for our next-generation drug candidate, LTX-401, with significantly improved efficacy. A patent application has been submitted for this new formulation that could extend protection substantially for LTX-401, which is very valuable for future commercialization for LTX-401. And in April, we succeeded to raise NOK 50 million, primarily from existing shareholders, which extends the cash runway into 2025. Cash at the end of Q2 was NOK 60 million.

This takes us to the clinical and operational update, where we start with a more detailed update on the Phase II study in basal cell carcinoma, run by Verrica Pharmaceuticals. Basal cell carcinoma is the most common of all cancer types globally and therefore, represents a multibillion dollar market, expected to grow significantly in the coming years. Through our licensing agreement with Verrica Pharmaceuticals, Lytix could potentially receive milestones payment of up to USD 110 million in addition to royalties from future sales. And with the promising results Verrica presented earlier, a major milestone is reached that significantly increases the likelihood of LTX-315 being commercialized as a cancer drug.

Top line results from the Phase II study in basal cell carcinoma show an 86% reduction in tumor size in average for patients treated with 315. Furthermore, complete clearance of BCC tumors were achieved in 51% of the treated patients. And among the patients who did not achieve complete tumor clearance, tumor size were reduced by 71% in average, meaning that more than 2/3 of the tumor were eliminated by the treatment in this remaining population. We will later explain why this is also very positive results. It is also important to note that no serious side effects were observed during the treatment with LTX-315.

As mentioned, BCC is the most common cancer type globally and more than 1/3 out of 3 new skin cancers -- sorry, 1 out of 3 new skin cancer cases diagnosed is basal cell carcinoma. The market for this type of cancer is expected to have an annual growth of more than 7% -- growth of more than 70% with a projected global market in 2028 of more than USD 11 billion.

If LTX-315 successfully reached the market, it will provide significant financial returns for our shareholders. Patients diagnosed with basal cell carcinoma have a 35% increased risk of developing new tumors within the next 3 years and 50% increased risk of developing new tumors within 5 years. This can pose significant challenges for the patients, because about 80% of BCC tumors develop in sun-exposed areas such as the head and face, and the majority of these tumors are currently removed by surgery. And the major challenge with surgery is that often an area around the tumor needs also to be removed to ensure that all tumor cells are removed.

To the right is an example where a relatively large surgical procedure was performed on a patient with a basal cell carcinoma lesion on the nose. Such surgical interventions can lead to significant cosmetic challenges for patients, especially if they had to remove several tumors from the face or head, which often can be the case as mentioned in the previous slide. The preliminary positive results achieved with LTX-315 indicate that LTX-315 potentially could represent a much more gentle treatment than surgery, because in more than half of the treated patients, complete tumor elimination and subsequent skin healing were achieved, so there was no need for follow-up surgery with subsequent scarring. In the remaining 49 patients, LTX-315 treatment resulted in reduction of the tumor size to less than 1/3 in average, and therefore required a significantly smaller surgical procedure than if the patient had not been treated with LTX-315 beforehand.

Additionally, Lytix has documented that LTX-315 can activate the immune system to recognize and attack the patient's cancer cells, which could potentially prevent the development of new tumors and Verrica is conducting immunological analysis to investigate 315's ability to activate the immune system in this patient group and we look forward to seeing the results of these analyses.

The licensing deal gives Verrica global rights to develop and commercialize LTX-315 for the treatment of several types of skin cancer in addition to BCC. And since Verrica has already developed medication for other types of skin diseases, they have demonstrated that they have the resources and expertise to bring LTX-315 all the way to market for basal cell carcinoma. As mentioned earlier, Verrica's further development of LTX-315 could trigger development and milestone payments to Lytix exceeding USD 100 million in addition to royalty payments ranging from 10% to 15% of Verrica's sales revenues.

We are entering into an exciting period where the next milestone for Verrica is the database lock in the third quarter of this year, where all the results will be finalized. Based on the final results, a clinical study report will be prepared during the fourth quarter of this year. During the first quarter of 2025, Verrica will complete the immunological analysis from the study, which will provide insights into 315's ability to activate the immune system in BCC patients and indicate the likelihood of immunological protection against the formation of new tumors as a result of the LTX-315. In the first half of 2025, Verrica will apply for an end of Phase II meeting with the FDA to evaluate the safety provide plans and study protocols before a potential Phase III study can be initiated.

We then move on to an update on the ATLAS-05 study in late-stage melanoma. The ongoing ATLAS-IT-05 trial is assessing the effect of LTX-315 in combination with the immune checkpoint inhibitor, pembrolizumab, in patients with metastatic melanoma who have previously failed treatment with an anti-PD-1, PD-L1 immune checkpoint inhibitor. These patients have also been treated with several additional lines of treatment and therefore have a very poor prognosis with rapid disease progression and few available treatment options left. Our recent interim analysis performed in August 2024 showed a disease control rate of 40% and a durable stabilization of the disease for up to 17 months. One more patient has reached a confirmed partial response and both patients with partial responses are still receiving study treatment.

Shrinkage of both injected and non-injected lesion was confirmed in a substantial number of the treated patients and as can be seen in the photos down to the right, a relative large non-treated tumor is currently almost completely eliminated in one of the patients with partial response with the current size of 1 millimeter. This indicates that the patient's immune system has been activated by the treatment, resulting in killing of cancer cells distant from the treated tumor, which is impressive in such a late-stage patient population with a rather compromised immune system. Some of the patients have now been followed over a longer time, showing durable stabilization of the disease up to 17 months after starting treatment, which highlights the long-term impact of the treatment in patients with a progressive disease before start of treatment. Five patients are still on treatment and further updates will be shared at later time points.

We then move on to an update on the new Phase II study in early-stage melanoma named NeoLIPA. Neoadjuvant immunotherapy is expected to play an increasingly significant role in future cancer treatment strategies since this patient population often have a more robust and responsive immune system than late-stage cancer patients with a more weakened immune system. And in collaboration with Dr. Henrik Jespersen at Oslo University Hospital, we are ready to initiate the neoadjuvant study, NeoLIPA, in patients with early stage melanoma within this quarter.

Use of LTX-315 in a neoadjuvant setting refers to the administration of LTX-315 before surgery. And the study has, therefore, certain similarities to the Verrica's study, where 315 was also given before surgery. In addition to having a more responsive immune system, the commercial potential in early stage melanoma is much larger due to a larger patient population compared to late-stage and PD-1 therapy refractory patients. In this Phase II study, LTX will be given prior to surgery in combination with the immune checkpoint inhibitor, pembrolizumab.

While neoadjuvant checkpoint inhibition has demonstrated a significant reduction of the risk of relapse, many melanoma patients still experience limited effects. And the NeoLIPA study aims to address whether combining LTX-315 with standard of care in the neoadjuvant setting could improve clinical outcome for early-stage melanoma patients. In addition to the opportunity to expand into the neoadjuvant treatment setting, Lytix's financial responsibility for these trials is mainly limited to the drug supply and a small research grant to Radiumhospitalet.

Our last part of the update will be on our next drug candidate, LTX-401. LTX-401 is our second drug candidate. It has a similar mode of action as 315, but it is a small molecule, which seems to be more ideal for deep-seated cancers such as liver cancer. Our new LTX-401 formulation not only potentially offers an extended patent protection, but has also demonstrated superior anticancer effects. And we are now preparing for seeking scientific advice from regulatory authorities in Europe for moving this new formulation of LTX-401 into clinic in an optimal manner.

These two figures demonstrate the superior effect of LTX-401 in new formulation compared to LTX-401 without the new formulation into hard-to-treat preclinical cancer models. As can be seen from the two survival curves, LTX-401 in a new formulation showed much better anticancer effects compared to LTX-401 without the new formulation. And we are very eager to bring this new promising formulation of LTX-401 forward to clinical studies.

With this, I now hand it over to our CFO, Gjest, who will provide you with a financial update.

[Gjest Breistein, executive]

Thank you, Oystein. In light of the recent good news, it's a pleasure to be presenting the Q2 results here today. The licensing agreement with Verrica is a central value driver for Lytix as we are entitled to receive contingent milestone payments and royalties on future sales. The royalties and the promising results are important for two reasons: First, the value of the licensing agreement increases as it is more likely that 315 will come to the market. Second, it validates our technology platform, which increases the value of both LTX-315 outside the Verrica agreement, but also our technology platform.

In addition, it is encouraging to get an update on the clinical results from ATLAS-IT-05, showing that the treatment is able to reduce and stabilize the tumor burden over time in several patients. The NeoLIPA study at the Radium Hospital will start recruiting patients in Q3. This study represents a huge commercial opportunity for Lytix, which we look forward to follow.

Total operating expenses for the 3 months ended June 30, 2024, amounted to NOK 21.5 million compared to NOK 24.4 million for the same period last year. The decrease in operating expenses is mainly a result of lower activity in the ATLAS-IT-05 study as it's through its most active phase. Several patients are still on the trial and continue to receive treatment. The last patient may continue on the trial until Q3 2025. And part of the cost reduction is due to the cost saving initiatives we implemented at the end of 2023, aimed at enhancing our operations and organizational efficiency to prioritize our company's clinical development efforts.

For the three figures showing expenses on this slide, we have excluded NOK 9.2 million in cost for the production of 315 sold to Verrica in the first quarter. By making this adjustment, the figures for Q1 2024 are more comparable to other quarters. Direct R&D expenses decreased to NOK 13.2 million for the second quarter compared to NOK 24.4 million for second quarter 2023. Patients are continuing on the ATLAS-IT-05 study as the combination regimen is resulting in prolonged stabilization in these heavily pretreated patients with poor prognosis.

Payroll and related expenses decreased to NOK 4.7 million compared to NOK 7.4 million for the same period last year. Other operating expenses increased to NOK 3.4 million compared to NOK 2.2 million last year. And a part of that increase is linked to the fundraising we did in April and May 2024. Lytix's cash position, including short-term financial investment, amounted to NOK 60.2 million at the end of the period compared to NOK 50.5 million at the end of December 2023.

In April 2024, Lytix successfully raised NOK 50 million in gross proceeds in a share offering primarily directed towards existing shareholders, extending the cash runway into 2025. The strong shareholder support enabled us to take the company through important upcoming milestones, working towards realizing both the next steps of current clinical studies, but also the initiation of the NeoLIPA study. Lytix is looking forward to continue the clinical development of 315 and create shareholder value while ensuring our financial support for our endeavors.

I will now hand it back over to Oystein. Thank you.

[Oystein Rekdal, executive]

Thank you, Gjest. Lytix has progressed significantly on several programs lately, which together bring the company closer to commercialization. And we are well positioned to advance the development of our two lead candidates, which both address critical challenges in current cancer therapy and therefore have the potential to be an integral part of future cancer therapy.

We will continue to execute on our strategy and do our best to reach important value inflection points in the near future. We are looking forward to receive the results of the immunological analysis of BCC patients treated with LTX-315 in Q1 2025, which could indicate the potential of LTX-315 to reduce risk of new lesions in this patient population. And we will support Verrica in preparing for the end of Phase II meeting with FDA in first half year of 2025 to evaluate the Phase II results and further development plans towards a Phase III study.

Within this quarter, we will initiate the third Phase II study with LTX-315 in early-stage melanoma patients in collaboration with Dr. Henrik Jespersen at the Oslo University Hospital to assess the commercial potential in cancer patients with a healthier immune system, and we plan to represent the first interim results from this study next year.

We are also very motivated to start preparing 401 in the new superior formulation for clinical Phase I and plan for a meeting with regulatory authorities first quarter next year to discuss the optimal development path for LTX-401, the new formulation. The ATLAS-IT-05 study continues to yield promising long-term results, and we will continue to monitor these patients and expect finalization of the study second half of 2025.

In parallel, we continue to proactively produce strategic partnership for late-stage development and commercialization. And with the positive Phase II data in basal cell carcinoma and the encouraging results seen in late-stage melanoma, we are in a much more favorable position to attract partners and investors to accelerate the development of LTX-315 and LTX-401.

With this, I will now hand over to Gjest, who will take you through the Q&A session.

[Gjest Breistein, executive]

Thank you, Oystein. We have received a lot of questions today. I've tried to group them and we're going to start with a question regarding Verrica and the study we do together with them.

Have you discussed with Verrica how they intend to fund LTX-315 in the future since they now have limited funds?

[Oystein Rekdal, executive]

So first of all, I would say we are very happy with the very strong results seen in basal cell carcinoma performed by Verrica. We have a very good and strong collaboration with Verrica Pharmaceuticals. Very important to note that the study is completed and most of the cost for the Phase II study are already paid. There are some costs regarding -- smaller costs regarding immunological analysis finalizing the study, but in majority, the costs are already paid.

And with the end of Phase II meeting in H1, the first half year 2025, and then preparation for potentially a Phase III study, I'm sure that we are in a situation where Verrica has proper time to prepare and be ready for finalizing the next step with LTX-401.

I would also like to mention that when Verrica announced the positive data with BCC in a separate press release, the share price increased 30%. So it's very good to see the positive response in U.S. and also the positive response we have achieved on this data in BCC.

[Gjest Breistein, executive]

Thank you. We move on to a question regarding NeoLIPA. Assuming there will be no control arm in this study, what will constitute a good outcome for the treatment? Is there, for example, a robust data set for pembro-only treated patients to compare the outcome with? And if so, how will you define the significant improvement compared to this?

[Oystein Rekdal, executive]

So we are combining LTX-315 with the immune checkpoint inhibitor, pembrolizumab. And pembrolizumab is starting to be used as a standard of care. And it has been shown in study that pembrolizumab alone can induce a complete pathological response in, yes, more than 25% of the patients, 27% I think. And the combination with 315 should increase that bar significantly. Our primary endpoint is to see the response on the treated lesion, complete pathological response. And we should, yes, reach maybe towards 40%, I would expect, would be strong results.

There was another study that has been announced with combination of two checkpoint inhibitors, ipilimumab and nivolumab. But that was focused only on Stage III melanoma patients, whereas we include some subtypes of Stage IV. So that is not really comparable. But they also show quite promising effects. So we, of course, need to look to that, but that's not really a direct comparison.

[Gjest Breistein, executive]

Another quick question regarding the NeoLIPA study. How long will it take to conclude on the efficacy of the treatment for each patient, whether it will take 1 year or 2? And for how long will it conclude to -- how long time will it take to conclude for the efficacy of the treatment for 1 patient...

[Oystein Rekdal, executive]

In the Verrica study?

[Gjest Breistein, executive]

No, in the NeoLIPA.

[Oystein Rekdal, executive]

In the NeoLIPA, sorry. Yes. So the positive thing with the NeoLIPA is that we look at primary -- the primary endpoint is the effect on the tumor. So that will go within the weeks we treat, and maybe the surgery be in week 11, 12. So it's a very short time frame to see our primary endpoint, which is complete pathological response.

Our secondary endpoint is the time to relapse, because these patients, when they do only surgery, this is a combination with 315, pembrolizumab, followed by surgery. When you only do surgery, these patients often see a relapse within 5 months. So secondary endpoint is also a rather relative short-term period to see the effect of the immune response towards this -- in these patients.

[Gjest Breistein, executive]

Thanks. Now there is a question regarding ATLAS-IT-05 study. Can you please compare the updated results from the study with expected result for this group of patients based on literature or other similar studies?

[Oystein Rekdal, executive]

So there have been several studies in this population, late stage patients that have been heavily pretreated and have failed on immune checkpoint inhibitor, where a new drug has been used in combination with immune checkpoint inhibitor. The challenge here is that there is quite a heterogeneity, because many patients have got a number of different treatments in addition to immune checkpoint inhibitors. So there is quite heterogeneity. So it's really difficult to compare our patients with patients in another study, because they have had different lines of treatment in addition to immune check inhibitors.

But we are very pleased to see that we have this long-term stabilization of the disease up to 17 months in these patients that without this treatment would have progressed very quickly after many -- and have progressed after many treatments. Also that we continue to see more responses as of now and even partial responses, and the study is still not finished. We are following 5 more patients. So we are looking very much forward to see how this develops further until finalization of the study that is expected in H2, second half of 2025.

[Gjest Breistein, executive]

Thank you. Now a question regarding financing. How long will your cash last? And do you plan to raise any capital anytime soon?

I think I should answer that question myself. When Lytix successfully raised capital just before this summer, we stated that the new capital will take us into 2025. But we also stated that this capital enables us to reach very important value inflection points in the short-term future. And we have delivered on that promise and with a very good clinical readout from Verrica. And now we are very excited about starting the NeoLIPA study very soon. But the positive results from Verrica has boosted our motivation to push our clinical development forward and I believe also it showcases the huge potential of our technology platform.

The data is also very important for the value of the licensing agreement, as it's more likely that 315 will come to the market in BCC. But at the same time, it validated the technology platform for LTX-315 outside the Verrica agreement, but also on our next-generation drug candidate LTX-401.

With regards to a potential share issue, I cannot comment on such matters. I can say that the Board will continue to follow up the financing needs in the company, and we will communicate anything on that when it's necessary.

So another question we have on the financing is will the cost continue to decline or will the cost stabilize at the current level?

And my answer to that is I expect the cost to stabilize at the current level. We have seen a decline due to lower activity in the ATLAS-IT-05 study, but now we have a certain amount of patients still enrolled in the study, and they still continue to receive treatment. So that's going to -- and they are stable for quite some time. So we expect them to continue to be stable. So yes, I expect the costs to stabilize at the current levels.

It seems like that was all the questions we received today. And that ends the Q&A session. Thank you for joining this webcast and for all your questions.

[Oystein Rekdal, executive]

Thank you.