KZR - NASDAQ

Greetings and welcome to the Kezar Life Sciences Second Quarter 2020 Financial Results and Corporate Update Conference. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Miss Celia Economides. Thank you, you may begin.

Thank you, Donna. Good afternoon everyone and welcome to Kezar Life Sciences conference call to discuss our clinical business and financial updates for the second quarter of 2020. With me on the call today from Kezar are John Fowler, Co-Founder and Chief Executive Officer; Christopher Kirk, President and Chief Scientific Officer; Noreen Henig, Chief Medical Officer; and Marc Belsky, Chief Financial Officer. This afternoon we issued a press release detailing our second quarter 2020 financial results and updates for our clinical development programs. The press release is available on our website. I'd like to remind you that today's call is being webcast live on the investor relations page of Kezar's website, and a replay will also be available following today's call. During the course of this call, we will make forward-looking statements 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-Q 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 John.

Thank you, Celia. Good afternoon, everybody. And thank you for joining. First off, I hope that you and your loved ones are staying safe and healthy. These are trying times for all of us and I'd like to start by praising my team's amazing dedication and focus during this unprecedented health crisis. I've been incredibly impressed by my team's unrelenting efforts over the last several months, which underscores how deeply motivated we all are to help patients struggling with devastating autoimmune diseases and cancers. With each passing quarter, my optimism grows for the profound potential for our novel mechanisms of action. Both of our drug candidates target master regulators of cellular function, whether by inhibiting the Immunoproteasome with K

Thank you, John. First off, I'd like to echo John's sentiments regarding this stellar team that I've had the pleasure of working with for the last three months. It's been a whirlwind joining Kezar especially in the midst of a global pandemic, but the compelling and elegant science combined with the commitment to patients, that is the heart of Kezar drove me to join this dynamic and motivated team. I've always believed that hard clinical problems can be solved with increased understanding of the mechanism of the disease. What really excites me about Kezar's two lead assets K

Thanks, Noreen. Before Marc reviews our financials, I wanted to briefly touch on our drug discovery program focused on the protein secretion pathway and more specifically, small molecule targeting of the Sec61 Translocon. Sec61 is the initiation point of the protein secretion pathway for nearly all secreted in transmembrane proteins. That means that Sec61 regulates the expression of many proteins that are already targeted by biological therapies, such as JAF [ph], PD-1, HER3 and many others. By inhibiting the Translocon, we can potentially target multiple recognized hallmarks of cancer, such as the checkpoint that allow tumors to evade immune detection, growth factors that promote tumor cell proliferation, and cytokines and their receptors that mediate metastatic spread. We see Sec61 as a very promising therapeutic target in multiple solid and hematologic tumors, as well as many other diseases. Across a wide range of preclinical models, our novel inhibitors exhibit a very broad anti-cancer activity with minimal toxicity seen in vitro and in vivo, and we can see enhanced T-cell responses in validated models of immuno-oncology. We nominated K

Thanks, Chris. As John mentioned, we have a strong balance sheet. Cash, cash equivalents and marketable securities totaled $157.5 million as of June 30, 2020, compared to $78.2 million as of December 31, 2019. This increase was primarily attributable to the net proceeds from the underwritten public offerings in February and June of this year, net of cash used in operations to advance the K

Thank you, Marc. As we look ahead, at the remainder of this year, I can speak on behalf of the entire Kezar team in saying that we're more excited than ever about the potential of our therapeutic platforms. We derive meaning and hope from our commitment to serving patients and we believe that our novel approaches targeting master regulators of cellular function have the potential to generate huge wins for those most in need. We also believe that to make a big impact on the hardest to treat immune-mediated diseases and cancers, you need to affect multiple drivers of those diseases, which is exactly what our drugs do. We have a busy road ahead of us and we look forward to providing important updates in the quarters to come. At this time, I'd like to thank you all for joining us today. I'll now turn the call over to the operator for questions. Operator?

[Operator Instructions] Our first question is coming from Maury Raycroft of Jefferies, please go ahead.

This is Kazeem [ph] on for Maury. Can you help us understand better what factors predominantly contributed to better tolerability on Cohort 2c? Was it the lyophilized formulation like the triple dosing on the [indiscernible]?

Hi, Maury, this is Noreen. I'm happy to take that question. The better tolerability was seen to be through a combination of factors. First, we had moved from a frozen solution to a lyophilized formulation of K

Okay. To the new formulation, does this basically make the drug more stable or what is special about it?

Hi, I can answer that. It does not change the stability of K

That's great. Thank you. One final question is, in the Cohort 2c are there any more lupus nephritis patients.

Sorry, can you repeat the question?

In Cohort 2c are there any more lupus nephritis patients?

No, there are not any more lupus nephritis patients in the Cohort 2c.

Thank you so much.

Thank you. Our next question is coming from Ram Selvaraju of H.C. Wainwright. Please go ahead.

Hi, this is Blair Cohen on for Ram, just a couple coming from me. When do you think we could expect another update from the Stage 1b MISSION study and how many patients do you think we should expect in that data? Has the progression of the trial been impacted by COVID-19 at all? Any update on that?

Hello. So I think that our goal is to be able to provide an interim update by the end of this year, as we believe we will have fully enrolled our third and final cohort this month, and therefore we should have at least some initial interim data by the end with a follow-up phase to come in the first half of 2021.

Okay, great. To what extent would you say the PRESIDIO timeline has been impacted by COVID-19? Do you expect any issues with the integrity of the data?

Two good questions. So the PRESIDIO is enrolling a very rare disease patient population and there definitely has been some slowing of enrollment in the PRESIDIO trial. So we had initially guided to the end of 2021 for the completion of that trial and we are now looking to bring that into mid-2022. In the final question about data integrity is no, we do not at this point believe there will be any impact to data integrity.

Okay. And as far as your cash guidance with the new public offering, where does that take you?

Our cash runway gets -- our current balance is $157.5 million. That cash runway gets us through 2023 based on our current plans.

Okay. And then, just lastly for me for K

So, we will be filing the IND in Q1 of 2021 and hope to start the first clinical trial in solid tumors soon thereafter. We'll provide updated information on the trial design at a later date.

Great. Thank you very much.

Thank you. Our next question is coming from Kenneth Atkins of Cowen & Company. Please go ahead.

Hi, guys, thanks for taking my questions. You mentioned that a 50% reduction in proteinuria is associated with long term clinical benefit in patients with LN. Could you just elaborate on that a bit and sort of help us better understand how that specific cutoff was chosen for the primary endpoint?

In general, the proteinuria is a sign of disease activity and if you can modify the disease activity, the expectation is that the amount of protein spilled into the urine goes down significantly. Based on past clinical trials, to look at evidence of renal response, a reduction of proteinuria by 50% has become standard in current care. It is not ideal. Obviously, we'd love to reduce it to even more than 50%. For our first trial, that's what we have chosen to benchmark against existing and other trials.

Okay, thanks. That makes sense. Then with regard to the discontinuation of the MARINA study, what was driving the highest screening failure rate? And just wondering, if you're also seeing that across the other studies at K

So, MARINA was unique; in that the inclusion-exclusion was very, very selective kind of a precious patient population that probably doesn't really exist or at least didn't exist in the setting of trying to time patients to enter into a clinical trial. So while we saw a lot of interest from investigators and a lot of patients put forth for potential entry into the MARINA trial, there were actually no patients enrolled in the trial. So given the time that MARINA has been open without active enrollment and then added to the fact that we've learned a lot about K

Okay, that's helpful. Thank you.

Thank you. Our next question is coming from Matt Phipps of William Blair. Please go ahead.

Hi, guys, thanks for taking my questions. I just wanted to walk through a little bit of the changes to the MISSION trial Part 2 Phase 2 portion of it. So you drop the 30 mg dose because it already talked about adding the 60 mg dose but did you also drop the placebo dose? It's no longer a randomized trial, and then it mentions an open-label trial enrolling 20 patients in a single-arm treatment of 60 mg so that means there's also no longer 45 mg dose because last I'd seen on your updates, there was 4 arms and 16 patients per arm.

Yes, you've got it right. So we're focusing on the 60-milligram dose alone. That's because we didn't see a significant difference from pharmacodynamic effects or tolerability effects in the 1b portion of the study. So we've selected this as a dose that has a good chance of having therapeutic potential in this patient population and it is no longer a randomized controlled study. The reason for that is that we believe that we can enter 20 patients who are at various levels of their disease in terms of the duration of their diagnosis and exposure to different therapies and treatments that have obviously failed because they're being defined by their proteinuria when they enter the study and we're looking to see if K

Okay, thanks. And I guess you mentioned some modifications, including an exclusion criteria. Is it still a UPCR over one? And is there any cap on the upper end? Then, you talked about it but just debating whether a renal response is a 50% reduction in UPCR versus getting below 0.5 of mix per mg UPCR?

Those are great questions. So yes, the patients will come in with a proteinuria level greater than one, which helps define patients with active proteinuria that you could then measure a reduction in reliably. Then the goal in this initial six-month study is to see how many patients get to below 50% in that period of time. Obviously, we would love to do better than that, and doing better than that would have even more therapeutic benefits for patients. But for now, I'm setting the bar as a 50% reduction in the six months is our target goal.

Okay. And just one question at trial. What's the required length of therapy on standard of care without I guess, achieving a response, and how long do they have to be on that stable background meds to be enrolled in the trial?

Essentially, patients have to have essentially active proteinuria based on their stable medications and with an expected time to treatment. So if they've received induction, then they need to be a specific number of months outside of their induction. If we're testing on induction, having or never had a response to induction or on what is considered best maintenance that still have a proteinuria greater than one, they will be entered into the study.

Okay. As far as thinking about how obviously the COVID pandemic has gone here in the U.S. potential for kind of rolling challenges with the trial enrollment, are you guys exploring more geographies or anything to try to -- additional clinical trials to try to speed up enrollments, try to make sure you can hit these timelines because it has pushed things back a little bit from what people were originally expecting?

Yes, we are looking at enlarging our footprint not just in MISSION but in PRESIDIO and for future trials as well.

Thank you.

Thank you. Our next question is coming from Jim Birchenough of Wells Fargo, please go ahead.

Hi, thanks for taking our question. This is Yan [ph] dialing in for Jim. So first off a couple of questions on the MISSION UPCR data. Could you may be talk a little bit of the rationale whether you have seen IGG reduction as seen with Velcade in a small study in lupus nephritis? And whether you think there is additional mechanism of action originating from affecting T-cells and macrophages? Thanks.

So, Chris, I think you would speak most eloquently to all of the mechanism of action data that we have.

Sure. First, Yan, into your first part of your question which was looking at immunoglobulin responses. In both cases of the patients with lupus nephritis, they had high levels of anti-double-stranded DNA antibodies and you could see a reduction in those anti-double-stranded DNA antibodies occurring and actually pre-feeding in one case the improvement in renal function. We've also seen reductions in anti-double-stranded DNA antibodies in other patients with lupus in the trial, though, not patients with active LN. We've also seen improvements in serologic markers like complement that suggests that we're having an impact on pathogenic autoantibodies. At the gene expression level, we see reductions in inflammatory gene modules that cover innate immune effector cells like Type 1 interferon responses over-activated T-cells and B-cells, suggesting that there is more at play than merely reducing autoantibody levels being driven by plasma cell changes, though we do see reductions in circulating plasma cells in our patients as well and presented on that at ACR back in 2019.

Got it. Thank you. That's very helpful, Chris, thank you. Then on the amended protocol for MISSION, could you provide a little bit more context on the enrollment criteria comparing the new versus the old? What is the implication for the ultimate label or any other implications with this enrollment criteria change? Secondarily, you talked about the primary endpoint, but what might be response rate that you deem successful and could we look at Velcade in this indication or that's not entirely fair because Velcade has neurotoxicity and other AE problems? Thank you.

To your first question about the Criteria, I think the best way to think about it is that we've written the inclusion criteria to more reflect real-world practices of physicians. So often the guidelines talk about going from a sequence of quote-unquote induction therapy, which is often more potent but also more toxic or intolerable medications followed by maintenance strategies of what you've achieved with induction or following depletion of whole-cell lines. In practice, physicians tend to be more fluid without specific induction followed by maintenance phases in response to patient's lupus nephritis, as well as their other disease activity, that extra-renal but also due to lupus. So we've attempted to write our inclusion-exclusion criteria to be very inclusive and reflective of the real-world patient experience. With respect to if K

Got it. That is very, very helpful. Thank you so much for walking us through that. And lastly, MARINA, just curious how many patients have been enrolled? Maybe I have missed it on the call. Also, the screen failure rate was that mainly ITP or mainly AIHA or both? Thank you.

So, there have been no patients enrolled in MARINA to date, which is what's allowed us to just withdraw the study. The screen failure, there was a large number of patients referred to this study and the background disease was proportional to the prevalence of the diseases and the reasons for failure were myriad. But essentially, the stages did not reflect real-world conditions.

Got it. Okay. Thank you very much.

Thank you. At this time, I'd like to turn the floor back over for closing comments.

John, do you want to provide a couple of closing comments before the end of the call?

Happy to do that too. I didn't want to steal your thunder, but appreciate your team for that and appreciate the whole team out here fielding those questions quite well. And I know there's a bunch of excellent thoughts from our covering analysts. I appreciate everyone dialing in and sharing those. Once again, just to reiterate the appreciation and gratitude for the hard work of the entire Kezar team, not just at the management level, but all the way down the ranks to push forward and make really thoughtful and logical amendments and changes with the backdrop of these unsettled times we're all navigating together right now. So, we look forward to being in touch and being available to our covering analysts and investors in the months and quarters to come. Again, thank you, everybody, and thank you, Celia, for working with the operator to make this such a successful call.