Good afternoon, ladies and gentlemen, and welcome to the NewLink Genetics Second Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded..

I would now like to turn the call over to Lisa Miller, Director of Investor Relations. .

Hi. Thank you. I would like to remind everyone that certain statements made during this call are forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations.

Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC. The forward-looking statements made during this call speak only as of the date hereof and the company undertakes no obligation to update or revise the forward-looking statements.

Information presented on this call is contained in the earnings release we issued this afternoon and in our Form 8-K, which may be accessed from the Investors page of the company's website..

I will now turn the call over to Dr. Link. .

Thank you, Lisa. Good afternoon, and thank you for joining Dr. Eugene Kennedy, Chief Medical Officer; Dr. Nicholas Vahanian, President; Mr. Jack Henneman, Chief Administrative Officer; Mr. Carl Langren, Chief Financial Officer; and me for NewLink Genetics' Second Quarter 2018 Conference Call..

After the market closed, we issued a press release reviewing recent highlights and second quarter financial results and updating the company's clinical programs and organizational structure. I will provide an overview of our clinical activities, review our revised clinical priorities and discuss the corporate reorganization, Dr.

Kennedy will highlight -- will review highlights of our clinical development programs, Dr. Vahanian will discuss our initiative in pediatric brain tumors, and Jack and Carl will wrap up with the second quarter 2018 financial results and comment on our cash position..

Over the past few years, NewLink Genetics has published extensive data supporting indoximod as a potentially important immunotherapy. Promising results of multiple clinical trials suggest that indoximod is able to produce significant and durable antitumor responses in different therapeutic combinations across a number of different cancer indications.

Evidence of clinical activity has been observed when indoximod has been combined with PD-1 blockade, chemotherapy, radiation and vaccine in cancer indications such as advanced melanoma, pancreatic cancer, pediatric brain tumors, acute myeloid leukemia and prostate cancer.

In addition, recent data have shown that indoximod, an IDO pathway inhibitor, possesses a truly differentiated mechanism of action from that of direct IDO enzymatic inhibitors, which may account for indoximod's potential for efficacy where others have proven less successful.

That said, given the changing competitive immuno-oncology landscape, NewLink Genetics felt it prudent to undertake an extensive review of its clinical programs and its organization to determine the best path to produce validating data within its financial horizon..

As a result of our clinical review, we have narrowed our indoximod clinical programs to those focused on recurrent malignant pediatric brain tumors, frontline DIPG and frontline AML. We have encouraging clinical data with the potential to produce validating results over the next 2 to 3 years.

We also have promising results from our Phase II trial of indoximod plus PD-1 blockade as frontline treatment for patients with advanced melanoma, presented recently at ASCO. While we decided not to pursue a Phase III trial indication, a trial on advanced melanoma for those who have failed frontline PD-1 therapy is still under consideration.

In addition, we will continue our Phase I dose escalation trial with NLG802, a prodrug of indoximod with the potential for significantly higher pharmacokinetic exposure in patients. Dr. Kennedy will discuss these programs in greater detail in a few moments. In parallel, we are also exploring potential [ enlightening ] opportunities..

It was also necessary to realign our organization to support our clinical programs for the next 3 years. As a result, the company has substantially reduced its headcount and has made several changes to its leadership team.

Effective immediately, Jack Henneman has been appointed Chief Administrative Officer for a transition period to end in November of this year; Carl Langren, the company's Vice President of Finance and Principal Accounting Officer has been promoted to Chief Financial Officer; Lori Lawley, Corporate Controller, has been promoted to VP, Finance and Controller; and Brad Powers, the company's Associate General Counsel has been promoted to General Counsel.

In addition, Brian Wiley, Chief Commercial Officer, has departed as the company refocuses on its current clinical programs..

Carl Langren has been a senior finance executive at NewLink since 2005. His activity in that role and his long tenure at NewLink make him well-suited to serve as CFO. Lori Lawley has worked with Carl since 2015 serving as Corporate Controller and Head of SEC reporting after a successful career at Ernst & Young.

Brad Powers' service as Associate General Counsel and his legal expertise prior to that have prepared him well for his role as General Counsel. I look forward to continue to work with Carl, Brad and Lori in their new roles..

NewLink is grateful for the contributions made by Jack, Brian and all of those who have been a part of the NewLink team in its effort to develop novel therapies for the treatment of patients with cancer, and we wish them the best in their future endeavors..

And now, I would like to turn the call over to Gene Kennedy who will discuss our clinical programs in greater detail.

Gene?.

Thank you, Chuck..

We are focusing our clinical priorities on indoximod in a limited number of specific indications. We are continuing our evaluation of indoximod plus standard of care radiochemotherapy for patients with recurrent malignant pediatric brain tumors.

Distinct from this group of patients, we continue to enroll a cohort of frontline patients with DIPG who receive indoximod in combination with standard radiotherapy followed by indoximod plus chemotherapy. We are also continuing to pursue indoximod plus standard of care chemotherapy in frontline AML.

In all of these indications, we have produced promising early clinical data suggesting the potential for indoximod to improve the lives of these patients..

To discuss the pediatric brain tumor programs in detail, I would now like to welcome Nick Vahanian back to our earnings call. Those of us who here at NewLink know that Nick has been back with us for a while now, but this is the first chance to recognize his return more formally. Welcome back, Nick. .

Thanks, Gene..

I know many of you realize that I had to step away for a time to address an unexpected health problem. It is great to be back. Moving NewLink forward is something I have been committed to since the company's founding..

NewLink has presented some very encouraging data in its malignant pediatric brain tumor programs. In general, approximately 4,600 new cases of pediatric brain tumors are diagnosed each year. Approximately 70% of the most common types of pediatric brain tumors now have survival rates in excess of 5 years.

However, once the tumors are lapsed, conventional therapy has limited benefit and recurrent brain tumors represent the greatest single cause of mortality in pediatric cancer..

Last November, we first presented promising Phase Ib data for pediatric patients with recurrent malignant brain tumors, including recurrent ependymoma, glioma and medulloblastoma, at the Society of NeuroOncology Annual Meeting.

That early data suggested that adding indoximod to radiochemotherapy may act as an endogenous vaccine and allow patients to respond to additional therapy after previously having become refractory to treatment.

The trial is continuing to enroll, and we have recently compiled encouraging early evidence of a real survival data in this patient population, which we hope to present early next year.

These encouraging maturing data from this trial, an unmet need in the recurrent pediatric brain tumors in general, support our decision to continue our research in this target area..

I will now discuss DIPG, a distinct subtype of pediatric brain tumors that NewLink is evaluating. Although a rare tumor with a few hundred new cases a year in the U.S., the prognosis for DIPG patients is especially dire with approximately 20% survival at 2 years and approximately 1% survival at 5 years..

These patients are treated quite differently from other pediatric brain tumor patients with radiotherapy being the only standard of care therapy used in the frontline setting.

Neither radiotherapy nor any experimented therapeutic efforts to-date has been shown to prolong survival for these children but does provide some degree of symptomatic relief after completion of therapy..

The safety data and initial signs of potential antitumor activity in the recurrent pediatric brain tumor trial encouraged the company to initiate a subset cohort of frontline DIPG patients and ultimately extend that cohort to 30 patients.

That cohort continues to enroll and the company presented promising initial Phase Ib data from the DIPG cohort subset at the AACR in April and then updated their experience at the International Symposium of Pediatric Neuro-Oncology or ISPNO in July..

At ISPNO, NewLink presented updated data for 10 newly diagnosed patients with DIPG, showing initial symptomatic improvement in all 10 patients when treated with indoximod plus radiochemotherapy. Additionally, radiographic improvement was seen in the majority of patients, including one CR and several deep responses..

As of July 2, when these data were presented, 9 of 10 patients remained on study, with the longest time of study of 8.5 months.

A subset of this cohort developed waxing and waning inflammatory symptoms that could be consistent with immune activation in the tumor, and these symptoms were all well managed, such that patients were able to remain on the study..

I will now turn the call back over to Gene to review our other clinical priorities.

Gene?.

Thanks, Nick..

Another area of clinical focus for the company will be AML. AML is a malignancy for which there remains great unmet need. For the National Cancer Institute, in excess of 19,000 new cases are expected in the U.S. each year. Of these newly diagnosed patients, only about 25% are expected to survive more than 3 years..

Initial treatment for AML is determined by the age and fitness of patients at the time of diagnosis. Roughly half of patients are classified as young enough and fit enough at diagnosis to receive classic aggressive 7+3 induction chemotherapy. It is these patients we are currently looking to treat with indoximod..

The majority of recent clinical development work has been in the second line or relapse setting where genetic markers drive targeted therapies. There has been substantially less success in improving first-line treatment for young, fit patients.

Recent approvals in frontline AML have been, in large part, limited to the subset of patients expressing one particular genetic marker and a subset of older patients with AML. There remains a substantial opportunity to improve treatment and outcomes for a large proportion of newly diagnosed AML patients..

Historically, a significant limitation to improving frontline AML treatment has been the size, duration and complexity of performing a traditional randomized trial, looking at overall survival as the primary endpoint. The continuing evolution of therapies beyond frontline treatment acts as a significant confounder..

The most important clinical outcome from frontline therapy for AML is achieving a complete response or CR after initial therapy. This has traditionally been determined by morphology.

Newer approaches that focus on detecting minimal residual disease or MRD through flow cytometry or PCR have greatly improved the ability to detect which patients with a CR have very little to no residual cancer versus which still have a significant tumor burden that suggests a poor prognosis.

Regulatory authorities have accepted these MRD approaches as the basis for clinical development in pediatric leukemias and, quite recently, as the basis for approvals in adult acute lymphoblastic leukemia or ALL..

We believe that a regulatory strategy based on MRD and AML can be successful. If we can accomplish this strategy, we believe we can validate indoximod in AML with substantially fewer patients and at a lower cost than traditional approaches..

To-date, we have presented preliminary clinical data from our Phase Ib trial evaluating the addition of indoximod to standard 7+3 chemotherapy for patients with newly diagnosed AML able to undergo aggressive chemotherapy.

In the early cohorts of patients, 7 of 7 patients that achieved CR after induction therapy also had no evidence of minimal residual disease by a sensitive flow cytometry-based assay..

Details of the trial design and the presentation are available on our website. These initial data compare favorably with historical data according to our key opinion leaders. We look forward to updating these data by the end of the year..

We continue to enroll additional patients to our Phase Ib trial, utilizing the recently finalized formulation of indoximod to generate a more robust data set to further establish the MRD status of these patients.

In addition, we are developing a control data set, evaluating the MRD status of patients who received upfront 7+3 chemotherapy without indoximod using the same MRD assay we are employing.

These additional clinical results will further inform our decision process as we look towards designing a larger-scale Phase II randomized trial to validate this approach..

We have previously stated that we will not move forward with the large randomized trial in advanced melanoma. This decision was a realistic acknowledgment of the changed environment in melanoma and not the result of a reevaluation of our data in the indication, which remain promising as they mature..

We continue, however, to receive strong interest from the melanoma investigator community. Working with our investigators, we are exploring approaches to evaluate indoximod in PD-1 refractory patients.

In our Phase II study, we observed promising response rates in PD-L1 negative melanoma patients and in those patients who received focal radiation as part of their overall melanoma treatment. We and our investigators are interested in building on these observations.

Any such clinical trial would be narrow in scope and would be done within the cash guidance we give today..

We also plan to continue to progress NLG802, a prodrug of indoximod, through the ongoing Phase I dose escalation trial. As you may recall, our preclinical research on NLG802 showed significantly higher pharmacokinetic exposure with this prodrug. We began a Phase I trial with NLG802 late last year and have seen encouraging PK results thus far.

We continue to enroll this trial and expect to present clinical data later this year..

In summary, we continue to be encouraged by our data produced thus far in malignant pediatric brain tumors and frontline AML and look forward to presenting additional data in these indications later this year and early next.

We believe that indoximod has the potential to improve the lives of the patients with these devastating diseases, and we'll work diligently to validate this hypothesis..

Now, I'll turn the call over to Jack and Carl to discuss organizational alignment, the financial results for the quarter and our cash forecast. .

Thank you, Gene..

It was necessary for NewLink to align our organization with our plan to validate indoximod within our financial horizon, to reduce cost and to match the capabilities of our continuing team with our requirements over the next few years. All told, we are reducing our headcount by approximately 30%..

As part of that alignment, I will be leaving NewLink in November confident that the team we have now is the right one for the company. In 4 years, I have put a lot of emotion as well as effort into this fine company and made many friends along the way..

Carl Langren has been NewLink's enormously effective Vice President of Finance and has been with us for 13 years. I'm quite confident that those of you who do not know Carl already will be delighted that he is at the finance helm.

Brad Powers joined us 3 years ago and, in that time, has demonstrated both the skills and the character necessary to be an excellent General Counsel. I will do everything I can both before November and after to support them and the rest of the company and a smooth transition..

With that, I'd like to introduce Carl Langren, our new Chief Financial Officer, who has been with us on all our quarterly calls so far flying air support.

Carl?.

Thank you, Jack, and thank you for the kind words. Before we move to the Q&A, I will comment on our revised cash guidance and recent shelf filing and provide an overview of key financials for Q2..

With a new clinical program and streamlined organization announced today, we have substantially reduced the rate at which NewLink will be using cash. We now anticipate a cash use of approximately $10 million per quarter once the restructuring is completed, which allows the cash runway to extend well into the second half of 2021.

This excludes any additional financing, new partnerships or the impact of a priority review voucher, should one issue in connection with the approval of our Ebola vaccine candidate..

As a reminder, in 2014, the company entered into a license agreement with Merck to develop, manufacture and commercialize NewLink's Ebola vaccine candidate. Merck has previously stated that it intends to file a BLA with both the FDA and EMA in 2019.

When and if the FDA approves this Ebola vaccine, this would trigger the issuance of a priority review voucher owned by Merck and which NewLink Genetics has a substantial economic interest. Thereafter, NewLink would have a right to monetize its interest in the voucher.

Of course, we can't predict the value of priority review vouchers in the future, but recent open market transactions have valued them at over $100 million. We do believe the FDA will recognize the clinical value of this vaccine and approve the drug, given the recurrent risk this deadly disease poses to global public health..

Finally, last week, we filed a registration statement renewing NewLink's shelf, which was set to expire. We have no plans to raise money at current valuations but want to maintain our long-standing practice of being in a position to do so if an opportunity arises..

NewLink Genetics reported a net loss of $17.4 million or $0.47 per diluted share for the second quarter of 2018 compared to a net loss of $16.7 million or $0.57 per diluted share for the second quarter of 2017. The company ended Q2 2018 with 37.2 million shares outstanding.

NewLink Genetics ended the quarter on June 30, 2018 with cash and cash equivalents totaling $137.1 million compared to $158.7 million for the year ending December 31, 2017. Please refer to the press release we put out this afternoon for more detail on financial [ results ]..

Looking ahead, NewLink Genetics plans to participate in the Baird Healthcare Conference on September 5 and the Cantor Fitzgerald Healthcare Conference in early October, both in New York City. I hope to meet many of you there..

Now, I would like to turn the call back over to Chuck before we open up the call to questions.

Chuck?.

Thank you, Carl..

Over the past few years, NewLink Genetics has produced data in numerous cancer indications suggesting that indoximod in combination therapy has the potential to improve the lives of patients with cancer.

To reiterate, we have narrowed our clinical focus on frontline AML and malignant pediatric brain tumors as we believe these indications possess the greatest potential to produce validating data within our financial horizon.

We have presented data demonstrating that indoximod has a mechanism of action significantly different from direct enzymatic inhibitors, and we believe that this distinction may continue to show indoximod to be efficacious in treatment regimens where others may not have been..

We deeply appreciate the patients who participated in our trials and the investigators with whom we collaborate. We look forward to presenting additional clinical data in AML malignant pediatric brain tumor indications in medical conferences later this year and beyond..

With that, we will open up the call for questions.

Operator?.

[Operator Instructions] Our first question comes from Ying Huang with Bank of America Merrill Lynch. .

This is Jenny on for Ying. So just in terms of questions that we had, so [ I was thinking about ] DIPG as well as like metastatic brain cancer.

Can you maybe talk a little bit more about the market size here as well as your regulatory path, kind of what kind of trials would you need in order to have a regulatory filing?.

Hey, certainly. This is Gene. Happy to take those 2 questions..

So for DIPG, it's a rare disease in the United States, roughly 300, 400 patients a year in the United States.

Given the fact that it's a rare disease, great unmet need, and there has been a unfortunate track record of trials failing in this indication, it's our belief that you could move forward with this indication with a rather small and focused trial..

As far as recurrent pediatric brain tumors go, as we said, there's about 4,600 newly diagnosed pediatric brain tumors each year in the United States, of which 30% do not achieve the 5-year survival. So that's a little bit more than 1,000 patients a year who could potentially be available with NewLink's therapy.

Again, given that these are relatively rare in the pediatric population, a focused narrow trial, we believe, is a plausible approach to success here as well. .

Our next question comes from Stephen Willey with Stifel. .

Just some questions on AML. So what kind of regulatory discussions have you had to-date, I guess, specifically around this notion of utilizing CR or MRD-negative status as a primary endpoint within the newly diagnosed setting? I know it's something that FDA has talked about in the relapsed refractory setting but not so much in the frontline setting..

And then maybe any color you've had around regulatory discussions regarding the MRD assay itself, which I know is still kind of a bit of a -- it's a bit of a point of a functional debate amongst the KOLs regarding which assay is the best, which methodology is the best.

And I think there's still some debate around kind of the divergence of results that are achieved with various assays. So just wondering what kind of regulatory commentary you've received... .

So we generally -- so Steve, we generally don't comment on specific regulatory discussions with the agency. However, the agency has been discussing with a number of investigators and a number of key opinion leaders at various meetings conceptually the importance of MRD.

Given the complexity and the multiple salvage therapies available with AML in terms of how do you better assess drugs and move them forward, that could be beneficial upfront without going into trials that are thousands and thousands of patients to be involved in the trials..

You ask a very good question about the nature and type of the different MRD assays. There are, I suspect, approaching a dozen different assays that are using various technologies to measure MRD.

The majority have been dominated by PCR assays for specific genetic mutations in specific cohorts of AML patients which they have that mutation that follow MRD. The other assay is being flow cytometry-based.

We're working with a group out of Seattle called Hematologics that have worked on developing the MRD assay for pediatric leukemia, a lot of experience there. So the -- each assay has to be developed for the specific overall population that you're tackling..

Gene, I don't know if you want to comment on that. .

I think one key differentiator for us, it's something you hit on here, is that there are many MRD assays put forward by many primarily academic groups. And they're often in competition with each other, and there's been little alignment. The pediatric world, as you know, is different.

With the cooperative group approaches, there's a lot of alignment in the pediatric world..

And we're working with the commercial reference laboratory that has worked with pediatric groups for a long time. And they have received -- they've had their MRD assay reviewed by FDA for the pediatric population.

So the fact that they've been there already and have had success in the pediatric population gives us a starting place of confidence that we could replicate this approach in adults. .

And I would say, Steve, that the reason I think that we favored the flow cytometry assay to what we're doing currently is that it encompasses a broader group of patients.

So if you had a specific PCR assay that was only applicable to one specific type of mutation that might be present in only a fraction of AML patients, then that would limit that MRD assay to that fraction of the total patients. Of course, they have different sensitivities for different assays. That's kind of the reasoning that we have behind it. .

Okay.

And then any guidance around how many patients worth of AML data we might see at the end of this year when you guys update the Phase Ib?.

We're not providing that guidance at this time. .

Our next question comes from Peter Lawson with SunTrust Robinson Humphrey. .

I guess just around, I guess, 802 initial data there.

Anything you can tell us around how many patients you think you could potentially have or kind of how you'll be releasing that initial data?.

So obviously, our goal is to release the data in a -- under a peer-reviewed scientific meeting, hopefully before the end of this year. As you know, there's a lot of abstracted lines over the next -- the past week or 2. And so we have worked up an abstract. We -- it's a dose escalation 3-plus-3 design trial.

I don't know what final dose data will be available at the time that the presentation is made, a little hard to get that. But look, we've been making significant progress, and we've been very encouraged by the results that we're getting thus far and think it's best presented sort of in a peer-reviewed setting..

As you know, 802 as a prodrug in the preclinical models, both in smaller animals and, importantly, in primates, showed that it can improve the pharmacokinetic level about 4 to fivefold with the drug.

And there's some evidence that increased exposure over and above potentially what we do with indoximod might be able to give more favorable biologic effects of this class of drug.

And obviously, these 2 drugs are the only drugs that are in this class that's really dominated by lymphocyte-specific activation activity, both in the ability to turn on CD8-positive T cells that are repressed independent of kynurenine levels, very importantly, in its ability to convert the phenotype of CD4-positive T cells from Foxp3 regulatory T cells that are highly immunosuppressive to CD4 helper Thc17 (sic) [ Th17 ] positive cells, which are helper phenotypes..

So the indoximod class is obviously quite different in nature than specific enzymatic inhibitors. And this is another step in building this new sort of classes of compounds in terms of IDO pathway inhibition and bringing forward maybe to another hypothesis testing in terms of dose ranging that we can't achieve at the current indoximod. .

The dates are in the second half of AML, is that going to be new patient dates or longer duration of existing patients? Anything around that you can help us kind of flush out the story on the AML side?.

Since we've presented the data last year at EHA, the trial has continued. And obviously, the trial continued to enroll additional patients, and we've gained more information on the patients that were previously enrolled.

So I think with those 2 statements, that we're updating the data set we have, you could infer what we'll be able to show people at the end of the year. .

Yes. Yes. .

Our next question comes from Mike Ulz with Baird. .

I guess I just had a question about the comment you made about considering moving forward in PD-1 refractory melanoma. And it sounds like the investigators are supportive here.

And I'm just curious what's the trigger to moving that forward from your perspective? Or what do you need to see from here to make that decision?.

So we're in the -- so I would characterize it -- and I'll let Gene expand on this. We're in discussion with a number of different investigators, some of whom participated in our prior trials, some of whom did not. I think there's a great interest in biomarker subsets of PD-1 [ therapy ].

As you know, despite all the tremendous success of PD-1 inhibitors, the most common patient in the clinic is about to be PD-1 failures across a broad range of malignancies that were thought to be immune-treatable -- immunotherapy-treatable.

And so trying to understand the biology of the different classes of PD-1 primary refractory or failures in progressors is really important..

We're aware of some different data sets looking at IDO in that setting that suggests that IDO might be one of the key players that differentiates different subsets in malignant melanoma in -- both in primary treatment and in failures.

And we're going to actually have -- hope to have some follow-up data on that to present in terms of our own experience with more biomarker-driven analysis. And so we haven't made final decisions about that..

There's also sort of questions circling around what's the best way to create a vaccine effect potentially in melanoma patients where you get some type of tumor killing that could then be enhanced by immune therapy since there's a lot of experimental evidence that might be useful.

And as you've -- as we've previously shown in some of our pediatric brain tumor data, there's enough scope of effect where, in the pediatric patients, we have evidence where you'll radiate a lesion in one part of the brain in a childhood recurrent tumor, and yet we get responses in tumors that are outside of the radiation field.

That, as you know, have been previously described with PD-1s in melanoma as well and a small sort of sliver of data out of our Phase II advanced melanoma data with the PD-L1 treatment and indoximod.

And those patients who had prior radiation therapy had a surprisingly high complete response rate, I think it was over 30%, but the caveat is that it was a small subgroup of patients within the trial.

But there may be a general theme that applies to treatment where if you create the right vaccine effect, and radiation may be able to do that, that there could be an important interplay between radiation specifically and indoximod effects. .

[Operator Instructions].

All right. With that, we thank you all for your interest and look forward to seeing you at investor conferences in the fall. .

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a great day..