Hervé Brailly – Chairman and CEO Catherine Moukheibir – Senior Advisor of Finance.

Michael Schmidt - Leerink Partners Unidentified Analyst.

Presentation:.

Ladies and gentlemen welcome to the Innate Pharma Conference Call. I now welcome Mr. Hervé Brailly, CEO to review the First Half 2014 Financial Results Review. Mister please go ahead..

Thank you. Good afternoon everybody in Europe, good morning to those in the U.S. I am Hervé Brailly, from Innate Pharma, I am the CEO. I have with me today Catherine Moukheibir who is Senior Advisor and in charge of finance. I am sitting at the Executive Committee.

We are pleased to welcome you to today's conference call to discuss our financial results for the first half of 2014. After I give you an overview of the progresses that we have made this semester, Catherine will comment on the financial results and then I will be free to open to all the questions that you may have.

Let me start with the appointment of Pierre Dodion as the Chief Medical Officer that was announced yesterday evening. Pierre, as some of you might know, has a world class experience in drug development and approval with a specialization in oncology.

He contributed to the development, approval, and launch of very well known products such as sunitinib, letrozole, ponatinib. He has worked for major pharma on big biotech companies.

So that’s going to be really a key person for leading the clinical development and our regulatory strategy as we all know moving ahead we need some mentoring in this very exciting period with talks of clinical trials for the IPH2201 and IPH4102.

So after the arrival of Nicolai Wagtmann exactly one year ago as the Chief Scientific Officer, this is another demonstration of the ability of Innate Pharma to attract high profile and that really is a (inaudible) in the expansion of the team. Pierre would be based in [SA] to look after clinical development, and this is really a good news for us.

Now Marcel Rozencweig who has been a CMO for a while is now appointed as the President of Innate Pharma, Inc., also (inaudible) in the U.S. It will represent Innate in its interactions with all U.S. stakeholders. Marcel is actually based on work in the U.S.

As you know, he has an invaluable network in medical oncology, and we are very pleased to continue to benefit from this network and of course from his expertise to enlarge our footprint in the U.S. Pierre Dodion and Marcel were (inaudible), did work together in the past and they would both be sitting at Executive Committee of Innate Pharma.

Now let me move to summarize the progresses since the beginning of this year. I will begin with lirilumab, our anti-KIR antibody, the most advanced program, the most major assets, partnered with Bristol-Myers Squibb. As you know, we have three clinical trials with lirilumab currently running.

The double-blind placebo-controlled randomized Phase II trial testing lirilumab as a maintenance treatment in elderly patients suffering with Acute Myeloid Leukemia in first complete remission, that's the EffiKIR trial has now completed its target enrolment of 150 patients this summer, exactly on track with our projections.

And therefore, the primary efficacy endpoint which is looking at the three-year survival based on statistical hypothesis assuming that the success criteria is met, is expected by the end of 2015 that’s going to be a very important year for these assets.

On the safety side, there was a second Data and Safety Monitoring Board (“DSMB”) meeting in March, which recommended the continuation of the trial assets. The next DSMB will take place in end of September, to know of course all the patients in the trial being recruited.

Also on the safety side, the Phase I trial with lirilumab was completed through the single agent safety trial in patients with different variety of hematologic and solid tumors, slowly progressive, stable disease, or complete response, so a very heterogeneous group suitable to assess the safety, but there was no measurement of tumor response.

37 patients received up to four doses of lirilumab from 0.015 mg/kg up to 10 mg/kg on lirilumab felt to be well tolerated with a safety profile consistent with early observation with IPH2101 that was the parental version of anti-KIR manufactured in (inaudible).

The entity was not rich, and so these results paved the way for the Phase II EffiKIR trial with lirilumab back in 2012. As for the combination trial with nivolumab, so the trial from BMS and so it reminds us that trial which is run by Bristol-Myers Squibb we announced in March the start of the cohort expansion portion of the Phase I.

We are happy to say that the recruitment of these cohort expansion is almost completed. So the Phase I trial testing the combination of lirilumab on ipilimumab on CD4 is still ongoing in the dose escalation part.

So that's all with respect to first clinical effect of lirilumab and definitely we expect 2015 to be a very important year delivering results for this very important asset. Now I will give some insights on the clinical development panels.

The second proprietary asset IPH2201, as you are all well aware we announced in February the acquisition of the full development and commercialization rights to be on anti-NKG2A antibody and that's the transaction that we completed with our official partners and shareholders Novo Nordisk.

With this acquisition we got full hands on a first-in-class antibody targeting NKG2A. NKG2A is a checkpoint receptor that can beat the anti tumour activity of effected T-cells namely infiltrating CD8 T cells on NK cells. IPH2201 mechanism action is we are inventing both inflammation on immuno-oncology.

It has been initially developed in collaboration between Innate and Novo for concerned indications. After exiting the concerned field Novo initiated clinical development and information and conducted the next Phase I trial with moderate to severely rheumatoid arthritis patients controlled by Methotrexate.

The data from this file demonstrated a good safety profile for both the IV and subcute routes at single and multiple administration. The trial has been now completed on the manuscript, the paper is being produced.

Based on the clinical data and the evidence of safety obtained from the Phase I we announced in April an ambitious clinical plan with IPH2201 for oncology.

Among the indications with -- we have chosen to have a focussed development plan with the following criteria; high expression of NKG2A lay in HLA-E which is actually homogenously expressed on the tumors and we have some indications where most of the patients do express HLA-E. So there is no need of a biomarker I would say as an eligibility criteria.

The second criteria for the selection of the indications is the -- is having a rapid result or rapid potential development pact on the testing of both single agents on combination targets. According to this criteria three indications have been prioritized Head and Neck cancer, Chronic Lymphocytic Leukemia, and Ovarian cancer.

IPH2201 will be tested as a single agent in different combinations in five trials in those indications. We are working on the protocols. We are doing this together with progress. So, it is having the first patient enrolled in the first trial this year as we announced in April and the trials will begin in 2015.

So we are absolutely on track to start a focussed clinical development plan with seven proprietary assets. Though we have a further ahead which is both can reach clinical development that is IPH4102 which is an anti-KIR3DL2 antibody.

The EMEA has recently granted open drug designation to IPH4102 for the treatment of cutaneous T-cell lymphomas this year which is a group of rare lymphoma initially affecting the skin. CTCL or disease in advanced stage, treatment responses are being complete (inaudible). No treatment has proven benefits in terms of survival yet.

IPH4102 is the first-in-class cytotoxic anti-KIR3DL2 antibody, aiming at passing of cutaneous T cell lymphomas cells. So it is not fake immunogenera but cytotoxic antibody of the IgG1 subtitle. IPH4102 is currently in advanced studies.

As we have announced we do expect to start Phase I clinical trial in 2015 that is going to be our first programming clinics addressing an open indication with the potential to generate efficacy signals quite practically in the clinical development.

So all in all we certainly have a very busy first semester with advances in all the programs on a major step to improving the clinical pipeline with the acquisition of IPH2201.

Catherine will discuss in more details but let me just add that we also raised in June 50 million Euros through specialize investors to fund the clinical development of IPH2201. So we have now a cash flow origin by 2017 and by this time all of clinical stage development stage program will have major clinical data.

We have very exciting year ahead of us and a very positive compared as you know for our immuno-oncology. And we are looking forward to this development. I will now pass over to Catherine Moukheibir, Member of the Executive Board, in charge of Finance to run you through our financial results for the first half of 2014..

Thank you Hervé, hello everyone. So I will now very quickly put what Hervé has told you in financial implications for the company over the first half of the year 2014. So going back to the event, the (inaudible), the first half for Innate, what does that mean in numbers.

The first event was the acquisition of anti-NKG2A in April, term sheet signed in January, acquisition completed in April for a cash cost of 2 million Euros and then a further 5 million Euros in issued equity to Novo Nordisk.

So how does that translate in the financial statements, we now have a line of intangible assets of 6.271 million which represents the amortization of the assets over 4 years, which is how we’ve decided to amortize it. So the amortization for the first half of the year is 729,000 Euros, you will see that.

And then a cash decrease of 2 million and an equity issuance of 5 million. That is how that is reflected in the accounts. Therefore, you should expect to see the 7 million value depreciated over 4 years, first half of which was first half of 2014.

The second from a logically important item is this capital increase, which resulted was 50 million gross, 47.8 million net amount added to the numbers in cash.

And then the third item, which is buried in the financial statement but is important for you to know is another 1 million Euros that came into the company from the exercise of warrants by various employees during the first half. So that is the immediate impact of the three significant events of the first half.

If we now review the financial statements, if you look at revenue for the first six months of 2014, you will see that revenue is 4.1 million versus 7 million for the same period in 2013. The main element affecting that is a higher R&D cost, so 10.9 million Euros in the first half 2014 versus 7 million in the first half of 2013.

And the difference here represents the increase in the preparations for IPH41 to enter the clinic, mostly, and a little bit of preparations for IPH22. This is mostly the effect of the pre-IND enabling trials for IPH41.

G&A is very much in line as you can see, so for total operating expenses up 13.2 million in the first half versus 9.1 million a year ago. On the financial income, this is basically interest on the money that we have in the banks, so it’s fairly stable.

We might expect this number to decrease going forward, but that’s way beyond our control, so that’s that, and as for a net loss on the first half of 9 million versus 2 million a year ago.

In terms of cash, the total cash position at the end of June is 78.9 million Euros which represents the cash before the capital increase plus the net amount of the capital increase plus the 1 million coming in from the conversion of the warrants. The total financial debt is lower by the amount of the repayment on the lease of the facilities.

There is no new debt taken. If you would like to drill down on the revenue and the other income, the revenue line has declined from 4.5 million in June 2013 to 1 million in June 2014 reflecting essentially the tapering of the recognition of the upfront from BMS.

As you know, when we received $35 million or 29 point something million Euros in July 2011, which was depreciated over six years of the total amount, 1.8 million still remains at June 30, 2014, and will be depreciated over the next year.

Government funding is slightly higher reflecting the fact that we are doing more R&D for IPH41, so it is higher at 3.1 million versus 2.4 million for total revenue and income of 4.1 million.

So in a business like ours this isn’t a recurring number as you know, but it is important to see what is driving increases or decreases and if it is basically deals from partners.

In terms of operating expenses, of the total 13.2 million spent in the first six months to June 30, of course and as you might expect and want us to do the lion share goes to R&D expenses of 10.9 million of the 13.2 million. G&A are fairly stable at 2.3 million.

The variance as I told you earlier is mostly due in R&D to IPH41 getting ready to do the -- to start the clinical trial part during the first half of 2015.

In terms of operating expenses if you would like to drill down and understand what is the details here that you are providing on page 6 of the financial statements that you received, you will see that the two big variance numbers are other purchases and external expenses going from 4.5 million in 2013 to 7.4 million in 2014.

That is again the cost of outsourcing work for CMT and other things related to IPH41 very much so.

And then you will have the number -- the depreciation going from 430 in 2013 to 1.08 million in 2014, that difference 700 is what they have explained to you at the beginning of this call relating to the first half of the annual full year depreciation 42A (ph).

In terms of cash again, the main number is indeed the 79 million that we had at the end of June, that number confirmed what Hervé said is sufficient to fund all projects that are currently at Innate in various stages of development as well as the company to the end of 2017.

As the trial starts and take on we will be revealing the actual designs, the actual time, and the actual cost and then we will see how that goes. But I confirm the guidance to end of 2017. That's it for this part. We will now open this for questions..

Yes, thank you Catherine and I will now handover to the operator for questions..

Operator Instructions). We have a question from Michael Schmidt from Leerink Partners. Please go ahead..

Thanks for taking my questions and congratulations on the progress.

I had one on your earlier map, I believe you stated in the past that the Phase II study in AML that will provide data late next year, is registration quality and I was wondering assuming in case the study is positive what would be the next steps for AML, for lirilumab, in AML study?.

Right, what we have stated is that the study is conducted, the (inaudible) trials has offered discretional quality, meaning that we have centralized review of the relapse. We also have the notion that the positive indication and maintenance treatment of our elderly patients is not eligible to the (inaudible) is a high medical need.

That being said, there have been two things, first we haven’t talked to the agency at this stage, so it is obviously going to be data driven and dependent on the outcome of the trial. But we have not done that at this stage. Second, the product is in the hand of BMS, who is going to be in charge of the next set -- on regulatory footage.

So that’s all what I can say at the moment. This is a study of registration quality addressing a high unmet medical need with investigators that are very enthusiastic about it, but I cannot make any further forward-looking statements regarding the next development on registration steps..

Great, okay, thanks, and on IPH2201, I guess can you remind me what the first Phase II trial will be and then what are your evolving thoughts with regards to exploring combinations with the PD1 or a PDL1 antibody in addition to the planned studies?.

Right, at this moment, that has been what we announced on April. We focus on immunotherapy on combination with other agents and other immunotherapy antibodies. The first indication and we maintain that is likely it will be Head and Neck Care contract.

This is also an area of unmet need on an indication where you can get quite a rapid signal about the activity of (inaudible), also an indication where I think that immuno-oncology agents might have some activity.

So we have no defaulters from the program initially presented, which opens new track regarding development of combinations, one of these exciting new track is a combination of anti-NKG2A antibody with a cytotoxic antibody working through ADCC and this is based on competing evidence that the HLA-E NKG2A are involved in the down regulation of ADCC in tumor situation.

Of course, as you mentioned, it is going to be an exciting opportunity further down the road to explore a combination of anti-NKG2A with some other agents. I will just draw your attention that like PD1, the NKG2A and that’s a bit in contrast with anti-KIR also activates tumor infiltrating CD8 T-lymphocytes.

So the profile pharmacologically is in a way somewhere between the anti-KIR and the anti-PD1. It will be interesting that being said and we do have plans to look clinically, on translational research at the potential to a combined anti-NKG2A IPH22 with other agents, other sequence inhibitors or others..

Okay, great. Thanks and congrats on the progress..

Thank You, Michael..

(Operator Instructions). A question from Nick Cooper, from Edison (ph). Please go ahead..

Good afternoon. Two quick questions on IPH41. At the moment, you are going after a fairly small indication with head and neck..

Nick, sorry 41 is not head and neck. CTCL..

CTCL, yes..

Sorry not 41, that’s correct but sorry, thank you.

Going after eventually small indications clearly were this high on that medical need, I was just wondering if or not you have been approached with some of the larger indications be it lung -- lung cancer whether or not that you might have the collaboration where there wouldn’t be a licensing of the product to a partner, but where you might explore the possibility of combining in one (inaudible) tumors?.

Yes, first, let me say that head and neck care is not such a small indication. If I remember well, the equivalence is in the region 650,000 cases for per year, so it is quite, quite large.

Of course, it is heterogeneous, but it’s an area which is (inaudible) indication as you mentioned a very high medical need since the morbidities in the region of 50%.

Now maybe to a direct part of your question, I have a point from the overall development strategy that is that we focus initially on indications which might provide both proof of concept but also registration track where indications, where the level of expression of HLA-E is very high, it means that about 80% of the patients are being reported to express HLA-E on their tumor.

So, that's the opportunity to start and at the same time to validate by a marker that could be used further down the road to address larger indications while you need to have HLA-E expression as an eligibility criteria.

And that's indeed the case (inaudible) for instance where you have homogeneous expressions but in the subset of patients which are in the age of I remember of 40% to 45%. Right, so it is also one of the driving force.

Now the other part of your question is whether we would consider further down the road a licensing but with our partnering of any kind that would let's say provide the opportunity to expound the development plan and therefore to increase the value that we can extract out of these assets. Certainly that is something that we would consider.

There are many different means to do that through collaboration of partnering and I will not comment on the different formats that could be done..

Okay, thank you..

(Operator Instructions). We have no other questions for the moment..

Alright..

So, if no other questions lets finish this call and I thank you all for your interest in Innate Pharma. I am looking forward to our interactions in the near future for sure 2015 would be a very exciting year and we will have plenty of opportunities to talk in person on the progresses that we are going to make. Thank you and have a good day. Bye there..

Ladies and gentlemen, this concludes the conference call. Thank you for attending, you may now disconnect..