Good afternoon, ladies and gentlemen, and welcome to the Lumos Pharma's Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded.

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

Thank you. Before we proceed with the call, 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.

Joining me today on our call are Rick Hawkins, CEO, President and Chairman; John McKew, Chief Operating Officer and Chief Scientific Officer; Gene Kennedy, Chief Medical Officer; and Carl Langren, Chief Financial Officer.

Rick Hawkins will provide a corporate update and comment on COVID-19, John McKew will review the company's lead therapeutic candidate and target indications, Gene Kennedy will discuss our planned Phase 2b trial, and our pharmacodynamic trial, and Carl Langren will wrap up the call with a review of Q2 2020 financials and an update of cash guidance.

I will now turn the call over to Rick..

Thank you, Lisa. Good afternoon and thank you for joining us on today's call. After the market closed, we issued a press release reviewing recent corporate events, updating our clinical and business development strategy, and highlighting financial results for the second quarter of 2020.

The second quarter continued to be a busy time for Lumos Pharma, culminating in some very exciting quarter news announced in July. As we mentioned on our first quarter call, we've been actively engaged in the monetization of the Priority Review Voucher issued on December 2019 when Lumos Pharma held a 60% interest.

This voucher was granted in conjunction with approval of the U.S. Food and Drug Administration, and the vaccine developed by the company's licensee, Merck, for the prevention of Zaire Ebola virus disease.

Our key diligent effort during the second quarter and beyond lead to the announcement on July 27 at Lumos Pharma that entered into a definitive agreement to sell its Priority Review Voucher from Merck. Based upon an agreed valuation of $100 million, Merck will pay Lumos $60 million, or company's 60% interest in PRV.

The monetization of this voucher further strengthens our balance sheet and provides an important source of non-dilutive capital to support our clinical and corporate strategy.

Beyond this corporate activity, we are progressing towards initiation of our Phase 2b trial of oral growth hormone therapeutic candidate, LUM-201, and Pediatric Growth Hormone Deficiency or PGHD.

The FDA provided our company with a Study May Proceed letter, and with that letter in hand, we continue to anticipate the initiation of our Phase 2b trial prior to the end of 2020, as we guided last quarter, and are engaging in the required activities to ensure that our clinical sites are prepared and oral drug products are ready.

In conjunction with our Phase 2b trial in PGHD, we also plan to conduct a separate single site trial in PGHD focused on the pharmacokinetic and pharmacodynamic aspects of LUM-201, and further explore LUM-201's pulsatile mechanism of action. Gene Kennedy, our Chief Medical Officer will discuss our clinical trials later.

We believe that LUM-201, an oral therapeutic, has the potential to disrupt the injectable PGHD therapeutics, whether represented by daily injections of growth hormone or anticipate as long-acting formulations in development, and could also serve as a platform therapy for numerous other indications currently treated by injectable growth hormone.

In addition to our clinical programs outlined, our business development team has been busy as well. Lumos Pharma's mission is to develop new therapies for people with rare diseases targeting indications where the medical need is high, and the pathophysiology is clear.

In that effort, our team continues to actively pursue opportunities to expand our pipeline to the potential purchase or licensing of other rare disease assets.

The strength of our balance sheet and the extensive experience of our management team in the rare disease space should support our efforts to expand our portfolio to treat those suffering from other rare disorders. As you can see, we are executing well on our goals laid out over the last several months.

I do want to touch briefly though on the coronavirus pandemic and its impact. As we all know, the coronavirus pandemic has disrupted activities on a global and industry-wide scale as well on a personal level.

On a broader scale, Lumos Pharma is taking the necessary steps to progress its clinical and business development programs to serve patient populations on which we are focused.

It's encouraging that the industry-wide trial interruptions caused by the coronavirus pandemic have recently appeared to subside with the restarting of clinical trials originally delayed.

We believe that the industry will continue to proceed with its reopening, although we acknowledge that potential resurgence of this pandemic remains a risk to pharma and the biopharmaceutical sector at large.

At Lumos Pharma, we continue to look forward to the initiation of our Phase 2b trial and PGHD before the end of the year, and believe that the broad geographic footprint of our clinical trial site locations, and the fact that our sites include both private clinics and academic centers, should mitigate the risk of interruption to this trial.

At personal level, our company is taking every precaution to keep our employees safe during this pandemic. In this effort, we have encouraged our employees to continue to work-from-home, limit trips outside the home when possible, and wear a mask when in public. So far, these measures appear to be successful, and that our staff remains healthy.

The company is also preparing guidelines to keep our employees safe when everyone returns to the office environment. These will include increased sanitization of our office space, and the provision of personal protective equipment for employees, among other policies to be implemented when our staff returns.

With that overview, I would now like to turn the call over to John McKew, our Chief Scientific Officer to review LUM-201, and the opportunity we see for this unique drug candidate.

John?.

Thank you, Rick. As Rick mentioned, we continue to focus on evaluating LUM-201 in Pediatric Growth Hormone Deficiency or PGHD and are progressing toward the initiation of our Phase 2b trial on that indication.

We believe LUM-201 may offer an important differentiated treatment option for a significant subset of children suffering from growth hormone deficiency. To review growth hormone deficiency is due to low or absent secretion of growth hormone from the pituitary gland.

If left untreated, children with growth hormone deficiency will grow to an adult height markedly below normal, and in many cases, will reach adult height significantly less than five feet.

Other potential consequences of untreated Pediatric Growth Hormone Deficiency include decreased bone mineralization, decreased lean body mass and increased fat mass. PGHD market is well-established and over $1 billion in size across the U.S., Japan, and five major countries in Europe.

This market consists of the standard of care of daily injections of recombinant human growth hormone administered to a child for seven years on average. Lumos Pharma's therapeutic candidate LUM-201 represents a significantly different treatment option for PGHD, both in its route of administration and in its mechanism of action.

One of the most important differentiating factors is that unlike current PGHD therapies, and those in development, all of which consists of an injectable treatment regimen into a one is an orally-administered therapeutic, a mini pill, smaller in size than a baby Aspirin.

The current standard of care for PGHD consists of around 2,500 injections administered to a child over the average seven-year treatment timeframe. This is often painful for the child and difficult for the parents who administer these injections in the child's early years, and as a consequence, may lead to compliance issues.

Data have shown that missing even one or two doses of growth hormone therapy per week can result in sub-optimal growth. LUM-201 as an oral agent would obviously alleviate the issues of pain and other cumbersome aspects related to injectable therapies, and therefore, could potentially improve compliance and efficacy in this patient population.

Another key differentiating aspect of LUM-201 is its mechanism of action. Both current therapeutics for PGHD and those in development consists of an injection of a bolus of growth hormone, which acts outside the body's natural feedback mechanisms.

LUM-201, on the other hand, is not actually growth hormone, but it's instead a growth hormone secretagogue that selectively acts on receptors in the pituitary and hypothalamus, stimulating the body's ability to release growth hormone, utilizing the same mechanism and endocrine pathways that occur naturally.

In addition, LUM-201 stimulates the secretion of growth hormone in a pulsatile fashion, similar to the body's normal growth hormone cycle. Normally, growth hormone is secreted in 23 to 25 pulses over the course of 24 hours.

LUM-201 stimulates this natural pulsatile secretion of growth hormone and acts simply by increasing the amplitude of these natural pulses of growth hormone secretion. Data from preclinical studies have shown that amplifying the pulsatile release of growth hormone, as LUM-201 does, produces greater efficacy than continuous exposure to growth hormone.

In addition, acting in an endogenous fashion, LUM-201's stimulatory effect is regulated by the same growth hormone IGF-1 feedback loop that is found naturally, ensuring a proper balance of growth hormone in IGF-1 levels in the body, a mechanism of action differentiated from that of injectable growth hormone therapies.

Given the endogenous nature of LUM-201 activity just described, individuals must have an intact, but diminished pituitary access. Lumos Pharma is therefore targeting the moderate PGHD population, those who are able to naturally produce growth hormone, but in insufficient amounts to attain normal adult height.

Based on our analysis of prior clinical data, predictive enrichment markers, or PEMs, identify the modern PGHD patient group likely to respond to LUM-201 therapy, which represents approximately 50% to 60% of the total PGHD population. For Phase 2b trial, we plan to use the same predictive enrichment markers to identify potential LUM-201 responders.

These PEMs consists of a baseline IGF-1 level with a cutoff above 30 nanograms per ml, and a peak growth hormone level of greater than or equal to 5 nanograms per ml in response to a single dose of LUM-201.

We believe that by using these predictive enrichment markers, our upcoming clinical trials will confirm data from earlier trials showing the potential for LUM-201 to treat a significant subset of the PGHD population within our oral therapeutic.

I would now like to turn the conversation over to Gene Kennedy, our Chief Medical Officer, to discuss our PGHD trials.

Gene?.

0.8, 1.6 or 3.2 milligrams per kilogram, and a comparator arm of standard of care dosing of injectable recombinant human growth hormone. Dosing will be administered over six months with annualized growth height velocity as the primary clinical outcome measure.

We have chosen the dose levels of LUM-201 for our Phase 2b trial and PGHD based on supporting data from a prior PK/PD study of LUM-201 in healthy adults. First, the pharmacokinetic or PK data in this adult study confirmed that higher doses of LUM-201, administered due results in higher plasma concentrations of LUM-201.

The pharmacodynamic, or PD data from the study are even more relevant, the PD data shows that as you increase the dose of LUM-201 given the body secretes more growth hormone, up to a plateau level of growth hormone reached, where the natural feedback loop John mentioned, comes into play.

The 25-milligram dose administered to adults is approximately equivalent to the lowest dose of 0.8 milligrams per kilogram we plan to use in our Phase 2b trial. While the higher dose range of 100 to 200 milligrams in adults here approximates the highest dose for children we plan to use in our trial.

As this PD data show, there is the potential for a significant increase in growth hormone secretion between our base level and highest to plan dose for our Phase 2b trial. Again, this Phase 2b trial will help determine the optimal dose for a Phase 3 registration trial in PGHD.

As we mentioned in our press release this afternoon, Lumos also plans to initiate a concurrent trial of LUM-201 in PGHD by Q1 2021. This trial is intended to further explore the effects of the mechanism of action of LUM-201 and amplifying the natural pulsatile secretion of growth hormone.

The study will focus on the pharmacodynamic and pharmacokinetic endpoints at two different doses, and a limited number of children with PGHD. Corroborating the amplified pulsatile secretion demonstrated in prior LUM-201.

The trial is being conducted at a single specialized pediatric center with the capacity to conduct the more frequent [technical difficulty] and monitoring required for these types of clinical trials. This study will run in parallel with our announced Phase 2b trial with the intention that the data will be supportive in any future regulatory filing.

Finally, as Rick mentioned LUM-201 may serve as a platform therapy for other indications for which recombinant growth hormone is approved, should the data from our PGHD studies warrant.

We plan to expand our clinical development program to evaluate LUM-201 in these other indications with Turner Syndrome, and children born small for gestational age, being the first two priorities.

Beyond LUM-201, we are pursuing business development opportunities to license or acquire other rare disease assets in order to expand our pipeline and our ability to provide innovative therapies to those suffering from rare diseases.

I will now turn the call over to Carl Langren our CFO, to discuss financial results for the second quarter and review our cash forecast.

Carl?.

Thank you, Gene. We ended the second quarter of 2020 with cash and equivalents of $72.7 million. We continue to anticipate cash use of approximately $6.5 million to $7.5 million per quarter, which we believe is sufficient to fund our clinical program for LUM-201 through data readout.

This quarter in cash balance, excludes the anticipated $60 million in proceeds for our 60% interest in our Priority Review Voucher. On July 27, we announced that Lumos Pharma had entered into a definitive agreement to sell our Priority Review Voucher to Merck.

This PRV was granted in conjunction with the FDA's approval of ERVEBO, a vaccine developed by the company's licensee Merck for the prevention of Ebola. Under the terms of the license agreement Lumos has entitled to retain 60% of the value of the PRV based upon an agreed valuation of $100 billion for this voucher.

Merck will pay Lumos $60 million in two installments. The first payment of $34 million is anticipated in the third quarter of 2020 with the remaining $26 million to be paid in the first quarter of 2021.

The transaction remains subject to customary closing conditions, including routine antitrust review, which we anticipate to be completed by early September. These non-dilutive funds strengthen our balance sheet and support our product candidate acquisition strategy beyond LUM-201.

Lumos Pharma reported a net loss of $5.4 million for the second quarter of 2020 compared to a net loss of $2.6 million for the same period in 2019. Please refer to the press release we put out this afternoon for more detail on financial results. Looking ahead, we hope to speak to many of you participating in the H.C.

Wainwright Global Investment Conference and the Cantor Fitzgerald Healthcare Conference, both of which are scheduled for mid-September. Now I would like to turn the call back over to Rick before we open up for questions.

Rick?.

Thank you, Carl. We are excited about the opportunities before the company. We believe that with our oral therapeutic candidate LUM-201, we have the potential to disrupt the PGHD market sure by a treatment regimen of frequent painful injections, while also actively looking to expand our rare disease portfolio to address other patients in need.

With our solid balance sheet, plus non-dilutive funds from the recent sale of the priority review voucher, we believe we're in a strong position to execute on our clinical and development plan. With that, we'll open the call for questions.

Operator?.

Operator Instructions] Our first question comes from the line of Yasmeen Rahimi of Piper Sandler. Your line is open..

Hi, good afternoon. This is [Rachel] [ph] on for Yasmeen. Thanks so much for taking our questions.

So, our first question for you, in regards to starting the Phase 2b study and PGHD, can you provide some more color on what are the next steps from now to year-end to start preparing for the Phase 2b study, and also related to LUM-201, can you provide some details on timelines and next steps for advancing it into other indications, including Turner Syndrome and children born small for gestational age, and how well-defined are the regulatory pathways for those indications? And I have a follow-up.

Thank you..

Thank you for those questions, Yasmeen Rahimi.

And Gene, would you answer those questions?.

Yes, certainly, Rick. So, the steps to get the trial open by the end of the year from where we are now are just routine clinical operations issues. I'm sure, as you know every site has to have its own contract and paperwork in such time since we've been through the initial hurdle of interacting with FDA.

We are in that process, and we expect it to go routinely with an occasional curveball from the pandemic, but we believe we can handle that, and we are confident we'll be open by the end of the year.

As your second question of advancing LUM-201 into other indications, as we've been saying, our first plan is to focus really on this Phase 2b study, and it's a dose finding study, it's also our PEM selection confirmation study, and we believe those data would be informative for any future indication.

So, we're really going to focus on that Phase 2b study first. And the third point, I'm sorry, I didn't write down..

Oh, it was about like, how well-defined is the regulatory pathways for those indications?.

Oh, yes. The treatment of PGHD is very well-defined. The other programs are defined as well. We have an advantage that we're not plowing new ground here from a regulatory point of view.

We are trying to disrupt this market from having an oral therapy, not an injectable, but things such as these they are all approved therapies for these other indications. So, things such as endpoints are already established. So, we think that's really an advantage for us moving forward, and then you said you wanted to ask a follow-up..

Yes, thank you so much, that was extremely helpful. So, we also want to congratulate you on the sale of the Priority Review Voucher.

So, based on voucher, can you share with us how you're planning to use the proceeds? I guess in regards to how you're thinking about acquiring additional assets or programs, can you share with us any criteria that you would use for potentially selecting new programs? Would these be clinical assets, would they still be in endocrine space? Thank you..

Thank you for the question, and Rahimi, we would prefer to stay in the endocrine space, but we know we have to cast a pretty wide and large net, because excellent assets that may be available are hard to come by, and we have a program that's really led by a senior member of our team, our Chief Business Officer, Aaron Schuchart, who has got about 25 years of experience in business development from both small and large pharma primarily to the endocrine space.

We have a very active program, and we are screening a number of opportunities, and actually pretty excited about what we see. We would prefer something in the clinic, or near the clinic, and also in the endocrine space..

Okay, that's perfect. Thank you so much, and congrats again on the progress..

Thank you..

Thank you. Our next question comes from the line of Ed White of H.C. Wainwright.

Your question please?.

Thank you, and good afternoon. So, just a couple of questions; first, Carl had mentioned that you have cashed through the data readout that you are expecting.

Just wondering if you can give a timeline for when you do expect to see the data readout from the Phase 2b study and the PK/PD study?.

Gene, I'm going to let you answer that question..

Will do, Rick. As you well know, we haven't given specific guidance on data for our Phase 2b study yet. We've been somewhat conservative because of the uncertainty surrounding how clinical sites are handling the coronavirus pandemic.

We believe we have enough information and have confidence in our sites that will be up and running by the end of the year. A well-established field of research, the high-enrolling sites are known, we re working with them. We know the target enrollments that they have provided to other companies doing investigations here.

What we've been saying is as a general benchmark, a couple of the larger Phase 3 trials that recently enrolled, they were in the neighborhood, shall we say, of 200 patients, and they took closer to two years to enroll and made a 12-month readout. We have half as many [technical difficulty] group, and we have a six-month readout.

So we would -- you know, we think most people can infer general range from that. Once we are up and running, we'll have a better opportunity to inform the markets specifically of when the data will come. As far as the PK/PD trial, as I said, it's a smaller trial, we think it's an informative, but it's a single site.

So, there's going to be a little bit of variability in how many [indiscernible] treatment patient kids will come in, and as we have a better idea of how that site starts to perform we can provide guidance on that as well..

Okay, thanks, Gene.

And then, Rick, we've talked about this in the past and you mentioned it again today, what studies have shown regarding misdoses in PGHD, maybe you can just talk a little bit about the issue of non-compliance, you know, in other words, how many children are missing doses, how many children are missing multiple doses, and what that really means for their growth going forward? Thanks.

And then I have a follow-up as well..

Yes, good question, Ed White, and I think the reason why so many companies have been working on a longer acting formulations for quite some time is trying to solve this very significant problem, but if you miss a couple of doses a week, you can lose according to a couple of references of almost half of your potential growth velocity, and so, in addition to the problem of kids who are as they get older, they're going to overnight stays with their friends or on trips with their families, their drug has to be refrigerated, the difficulty of that, and just the fact that given right now a daily injection is a problem, and as a result, that is pretty clear that there are kids who miss a lot of doses over the course of their treatment..

Thanks, Rick. And then lastly, you had talked about potential BD opportunities.

Are these going to be the focus of the company moving forward? Or are you going to be more focused on adding these other potential indications, such as you mentioned, Turner Syndrome or Prader-Willi, SGA et cetera?.

Well, if it's a dual approach, I mean, we have a large enough staff and experienced enough staff to be able to do both of these activities on a parallel basis.

Obviously, our first and foremost importance is getting this study up and running and conducting it well and working towards a readout, but we have an experienced staff, who we rely on to do an in-depth evaluation of these assets. And once again, I said, that's ongoing, and I'm actually very encouraged by what we've seen so far..

Great. Thanks, Rick..

Thank you. Our next question comes from Eun Yang of Jefferies. Your line is open..

Hi, thank you. So, I have a question on this PD/PK study that you are going to be conducting at the same time as Phase 2b.

So, first is in this trial, are you also selecting patients based on PMT?.

So, John, will you answer that question?.

So, we haven't given details out on that aspect of the trial yet, but it will parallel very closely what we are planning to do with the Phase 2b, but the focus really is on the pharmacodynamic and pharmacokinetic outcome from treatment LUM-201..

So, I don't think you have mentioned what are the two doses you're testing in a previous study. So is it fair to assume that the two different doses that you're going to be testing in this PK/PD study.

So it is fair to assume that the two different doses that you are going to be testing in this particular study will be the two doses out of the three that you are testing in Phase 2b?.

John, go ahead..

Yes..

Okay. Then a couple other questions, so normally, companies do PK/PD prior to kind of like a dose escalation or dose finding study. So I'm kind of wondering why not PK/PD first before you starts the Phase 2b, and the second question is, is this PK/PD study required by the FDA, or are you doing it for your known information? Thank you..

John, please answer that..

So we designed our doses, as Gene described, based on the PK/PD study that's already available and that we've shown in normal healthy volunteer adult, and we've also shown some data that connect that to a single point data that we have for pharmacodynamic response in kids with PGHD, who are PEM positive.

So that's really the basis for how we design the Phase 2b study, and we wanted to explore more deeply than that. So, to really understand pulsatility across a 24 hour time period, you have to sample quite frequently, right, a couple of time points is really not enough to capture just because the peaks are small and they're 23 to 25 across the day.

So it takes a very specialized centre to be able to do that kind of work and allow us to really look at the growth hormone secretion and amplification of individual peak, and so, this is really a finer understanding of the mechanism of action, and this has been done and published on previously with this molecule in healthy adults, and we're very excited to see that data in these PGHD children that we are going to enroll in this study.

So it's really to help us understand better the mechanism and the contribution of pulsatility to grow..

Oh, and then another question.

I mentioned, either this PK/PD study required by the FDA, or are you doing it to better inform or learn about the drug or profile?.

Go ahead, John..

It's for us to learn more about the drug. It's not a requirement..

Okay, thank you..

Thank you. Our next question comes from Elemer Piros of ROTH Capital Partners. Your line is open..

Yes, thank you. Thank you very much, gentlemen. And I have a one housekeeping question and one related to formulation. So what I'd like to little bit better understand is, so there has been a discontinuation of the dosing before and the formulation has been changed.

What is the current formulation? Is it resembling the prior formulation or the second formulation that was instituted or maybe even a third variety?.

John, he'll go ahead with that question..

So, in the Merck pediatric trial there were two different liquid formulations that were used. For all of the adult work that was done, the adult clinical studies that were done by Merck, it was a fixed dose tablet formulation. So our many tablet formulation is really based on that original Merck formulation.

So we're not using anything out of the liquid formulation, the original tablet formulation..

I understand, thank you. And the housekeeping question was maybe geared towards Carl. Carl on the balance sheet, there was an estimation for the PRV value of $88 million and there was also a PRV- related liability of $36 million.

I presume that these are estimations before you actually had the deal, and I just want to clarify that the $36 million plus $24 million that you expect to receive. You don't have any obligations to pay to anyone, anything from that. So it's net amount..

So your comments with regard to the balance sheet and its carrying value, exactly correct. We did not have knowledge of the current transaction when those values were posted. The $60 million is our gross proceeds from the 60% and the $100 million.

So we did have assistance from Jefferies in the transaction, and there will be some other costs related to it. But those will be borne out in more detail in Q3..

I say in roughly what is it while 4%, 5%, single digit percentage that they could do a net value….

I don't think….

-- just an estimation..

I think it would be fair to say that our fee is customary for I think and in line with previous PRV transactions that we're aware of in terms of what Jefferies has..

I see..

And work with others..

Okay. Thank you so much for that..

Thank you for your question..

Thank you. At this time, I'd like to turn the call back over to Rick Hawkins for closing remarks.

Sir?.

Yes, thank you. We thank you for your interest and look forward to speaking with investors at the September investor conferences and other venues for the rest of the year. Thank you again..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..