Stephen Yoder - President & CEO Lance Thibault - Interim CFO.

Hartaj Singh - Oppenheimer.

Greetings and welcome to the Pieris Pharmaceuticals 2016 Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.

Stephen Yoder, President and Chief Executive Officer of Pieris Pharmaceuticals. Please go ahead..

Thank you, Mellissa, and good morning to everyone. Thank you for joining us for our fourth quarter 2016 earnings conference call and our 2016 full year update. With me today is Lance Thibault, our Interim Chief Financial Officer, who joined us in February of 2017 and is attending his first earnings call at Pieris.

Please join me in welcoming Lance to the team on an interim basis, while Pieris conducts a search for a full time Chief Financial Officer. I'll now hand over the call to Lance, to provide some introductory remarks before I provide an update pertaining to our several accomplishments in 2016 and provide an outlook for the rest of 2017..

Okay. Thank you, Steve. Good to join you for our fourth quarter earnings call for 2016. We announced financial results yesterday, March 22, after the market closed announced results for the 12 months 2016. You can access our press release on the Investor Relations page of our website at www.pieris.com and our full year disclaimer bear with me.

Before we begin to review the financial results and business highlight in compliance with the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995, I’d like to caution that comments made during this call by us may contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of operations of Pieris, including statements relating to the timing and progress of our clinical and preclinical trials.

Actual results or events may differ materially from results or events discussed in the forward-looking statements. Factors that might cause such differences include those set forth from time to time in our filings with the SEC, including without limitation, the company's form 10-K, 10-Q -- forms 10-K and 10-Q and 8-K.

Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast, Thursday, March 23, 2017. Pieris undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

So, with that, let me turn the call back to Steve, first for a business update before I get into the financial results..

Thank you, Lance. As most of you know, Pieris Pharmaceuticals is the proprietor of an entire class of next generation targeted protein therapeutics we call Anticalin.

We use our internal discovery platform, which is protected by an extensive portfolio of issued and pending patents to characterize and develop anti-calin proteins against a broad range of targets. As a class of biologic drugs anti-calin proteins share features in common with monoclonal antibodies, particularly drugs having good drug like properties.

Yet anti-calins can be deployed in ways that anti-bodies cannot due to biochemical and structural differences between these classes of molecules and many of these differences are exploited in the various proprietary drug candidates we are developing across a broad spectrum of disease ranging from immunology to asthma to anemia.

As a reminder, our business model seeks to create value and manage risk by advancing a diversified pipeline across multiple therapeutic areas both internally and with high-caliber partners, with the objective of ultimately commercializing therapeutics in the area of immunology and immune-oncology in the United States.

Our core R&D strategy involves addressing validated targets in ways that enable us to create potential best-in-class therapies, offering advantages over traditional monoclonal antibodies.

Our partnerships with leading pharmaceutical companies represent both external validation of our R&D capabilities and a reliable source of non-dilutive capital to help fund operations and advance our proprietary programs.

2016 was a highly productive year for Pieris, marked by broad advancement of our proprietary, clinical and preclinical programs, the completion of $16.5 million private placement financing that strengthened our shareholder base, the achievement of several milestones in our collaborative programs, and the expansion of our Board of Directors and the appointment of a Chief Business Officer.

As you'll also here momentarily, 2017 is off to a very strong start for us and we believe that 2017 has the potential to be the most value creating year in the history of our company.

I'll begin with a summary of the progress we've made with PRS-080, which is our most advanced program and which is a highly potent inhibitor of hepcidin, a key regulator of iron metabolism, which we believe can address a niche population of anemia called functional iron deficient anemia.

There is a clear need for novel therapies to help better manage the many complications of functional iron deficient anemia and PRS-080 represents a potential first-in-class therapeutic for this disease that engages this target.

We intend to develop this program through a multi-dose trial during the residual of 2017, following which time, we currently envision advancing the program via partnerships as Pieris becomes increasingly focused on advancing a clinical stage pipeline in the areas of immunology and immune-oncology.

As a reminder in 2015, we completed a Phase-1 single ascending dose study conducted in healthy volunteers, which demonstrated that a single dose of PRS-080 was well tolerated and resulted in a dose-dependent increase in serum iron and an increase in transferrin saturation or TSAT.

In the early part of the first quarter of 2017, Pieris completed a dosing of all patients in a Phase-IB single ascending dose clinical study in dialysis-dependent chronic kidney disease patients and we expect to present un-blinded data in the first half of this year.

We next will pursue a multi-dose of Phase-2A study in dialysis-dependent patients exhibiting this functional iron deficient anemia phenotype, which we currently estimate will be completed by year-end of 2017.

And as part of our ongoing transformation into immunology and immune-oncology focused company, last month we announced that we had granted Aska Pharmaceutical Company, an independent Japanese pharma company that has annual sales of approximately $400 million.

We granted them an exclusive option to license the development and commercial rights to PRS-080 in Japan as well as certain other Asian markets.

We believe this deal was a very appropriate one at this stage of development as it enables Pieris to invest upfront proceeds in improving drug manufacturing efficiencies and securing future drug supply in parallel to conducting a Phase-2A trial, which we believe will both enable a more seamless drug supply for future clinical studies by Aska and to facilitate potential future partnerships for PRS-080 in the U.S.

and the EU.

Under the terms of that option agreement, Pieris received an upfront payment of $2.75 million from Aska and should Aska exercise its option to develop and commercialize PRS-080 following results from the planned Phase-2A study, Pieris would be eligible for more than $80 million in combined option exercise fee and milestones stemming from successful development and commercialization in the first indication in Japan.

Pieris may receive further milestones for the development of additional indications in Japan as well as in other countries within the Aska territory and may also receive double-digit royalties on net sales of PRS-080 up to the mid to high teens. I would like to now turn to PRS-343 and our broader immune-oncology franchise.

As many of you know, our key therapeutic focus area is immune-oncology and our lead program PRS343 is a bi-specific protein and is being designed to selectively activate an important immune system protein CD-137 or better-known as 4-1BB expressed on the surface of tumor neoantigen specific T cells within the tumor microenvironment.

PRS-343 has been constructed by joining together via genetic fusion a monoclonal antibody that targets an important protein on the surface of several solid tumors called HER2 together with an anti-calin that targets this T-cell costimulatory receptor for 1BB.

We believe that the advantage of this approach is that we can selectively activate tumor-specific T cells within the tumor microenvironment and direct their activity to HER2 positive tumor cells, enabling us to achieve effective tumor cell killing without the kinds of systemic toxicity seen with conventional antibodies that cause unwanted T-cell activation in healthy tissues away from the tumor.

This mode of action, which demonstrated a differentiated approach over 4-1BB targeting antibodies was demonstrated in data presented at the CRI Cancer Immunotherapy Conference in September of 2016 and showed a differentiation not only over 4-1BB targeting antibodies, but HER2 targeting antibodies.

PRS-343 continues to advance through IND enabling studies and we remain on track to initiate a Phase-I multi-ascending dose study, involving HER2 positive solid tumors representing an unmet medical need such as breast, gastrointestinal and bladder cancers but also including other HER2 positive tumors and the intend to initiate this in the first half of 2017.

As a reminder, Pieris owns full global commercial rights for PRS-343.

Looking into the second quarter of 2017, we recently announced that IND-enabling data, which informed the design of a first in-patient clinical trial for 343 will be presented in a poster session at next month's annual meeting of the American Association for Cancer Research AACR to be held in Washington DC and as a reminder, this poster will be presented on Tuesday, April 4 in a session from 8 AM to 12 PM Eastern Time.

Aimed within immune-oncology but looking beyond PRS-343 in January of this year, we announced a transformative immuno-oncology partnership with Servier, an international pharmaceutical company headquartered in France with annual sales of more than €4 billion and a research budget of approximately €1 billion, where we are pursuing together several bi-specific therapeutic programs including our lead dual checkpoint inhibitor PRS-332.

PRS-332 is a novel PD1-based bi-specific comprising an anti-PD1 antibody, genetically linked to an anti-calin protein targeting an undisclosed checkpoint target. Pieris has developed PRS-332 with the intent to further improve unconventional PD1 therapy by enhancing the activation of tumor targeting T cells within the tumor microenvironment.

This important alliance with Servier includes four additional bi-specific programs and may be extended up to a total of eight immune-oncology programs.

Pieris and Servier will jointly developed PRS-332 and split commercial rights geographically with Pieris retaining all commercial rights in the United States and Servier having commercial rights in the rest of the world for our codeveloped programs. The collaboration may be expanded by up to three additional programs.

Pieris has the option at a pre-defined timepoint to codevelop and retain commercial rights in U.S. for up to three programs, beyond PRS-332, while Servier will be responsible for the development and commercialization of the other programs worldwide.

Under the financial terms of this alliance, Pieris received an upfront payment of approximately $31.3 million, intends to receive up to $1.8 billion in potential milestones and low double-digit royalties on sales of product by Servier in the territory.

This is a true partnership where Pieris and Servier have an equal voice, a shared strategic vision and roughly sharing cost for the development of these several novel bi-specifics where Pieris retains the full U.S. rights.

This deal with Servier met key corporate objectives that we set to achieve in closing our first anchoring partnership with immune-oncology, which included the retaining of full rights on PRS-343 our lead IO multi-specific, the retention of major market rights on several additional IO assets, receiving significant cash flow to help advance the rest of our pipeline and the segregation of the opportunity to enter into additional corporate partnerships.

At this point, I'd like to provide an update on our respiratory program PRS-060, which is inhaled anti-calin that functions by inhibiting a clinically validated target called IL-4 receptor alpha.

PRS-060 potentially represents the first effective inhaled treatment for uncontrolled asthma that is based on IL-4 receptor alpha blockade and we believe there are several important potential advantages for inhaled therapeutics over subcutaneously administrated anti-body approaches in asthma on the same targets.

And these include a potential for a significantly lower dose, a lower cost of goods, lower systemic target engagement with potentially fewer systemic side effects and increased patient convenience given this inhaled route of administration which conducts scale on top of standard of care.

PRS-060 is currently in IND-enabling studies and we expect to initiate a first in man clinical trial around the middle of this year. Pieris retains full global commercial rights for PRS-060, which targets a very large potential commercial opportunity of 20 million patients globally.

Before I turn the call over to Lance, I would like to provide a brief update on our other corporate partnerships and I am pleased to report that in addition to these investments I discussed with our proprietary programs in Servier, we also advanced our existing partnerships with Roche, Sanofi and Daiichi Sankyo.

Last year we reported the receipt of our ninth success based milestone payment for our R&D collaboration with Daiichi Sankyo, which was earmarked for the progression of the second of the two programs within the collaboration with Daiichi. In 2014, Pieris transferred that program to Daiichi who is responsible for further development of the program.

As a reminder, Pieris partnership with Daiichi contains more than €100 million per program in licensing fees for funding and milestones, not including royalties on sales from marketing anti-calins proteins resulting from this collaboration. Daiichi has exclusive marketing rights worldwide for these products.

Beyond Daiichi, our immune-oncology collaboration with Roche continues to advance towards candidate generation of anti-calins specific for an undisclosed immune-oncology target that has been nominated by Roche.

While Sanofi continues to advance a highly novel tetra-specific anti-calin based molecule for infectious disease through a preclinical evaluation stage. This concludes my prepared remarks and I would now like to hand back over to Lance to guide you through our financial results for the fourth quarter of 2016..

Okay. Thank you, Steve. As to the results, starting at the top, our revenues were $5.8 million for the year ended December 31, 2016. This compared to $2.9 million for 2015.

The increase also $2.9 million is primarily due to the recognition of $2.7 million of the upfront payment under our collaboration with Roche, which commenced in January of last year together with a further $1.4 million from research and development services we provided to Roche during the year.

No upfront payments or R&D service revenue was recognized for the prior year 2015. Further there was a $1.2 million decrease in milestone and grant revenue in '16 as compared to 2015.

Our research and development expenses were $19.7 million for the year ended December 31, 2016, which compares to $8.2 million for the year ended December 31, 2015, primary differencing due to a $5.6 million increase in preclinical and CMC cost for PRS-343 as we carry out IND enabling studies and prepare to move PRS-343 into first-in patient -- into a first-in patient clinical trial in the first half of 2017.

The increase also reflects development cost of our other 300 series IL programs. Additionally, I'll note a $1.2 million increase year-over-year in CMC expenses for our PRS-060 program as we carry out IND-enabling studies and prepare to move to a first demand study in the first half of 2017.

And then total expenses for our PRS-080 program decreased by $0.3 million due to lower CMC costs for the Phase-1A clinical trial having been completed in the prior year 2015. In the 080 program, a Phase-1B fed trial was initiated in the first quarter, excuse me, fed trial was initiated in the first quarter of 2016.

Other R&D expenses for us include personnel-related expenses, stock-based compensation, license fees related TUM and Enumeral, legal and consulting cost as well as general lab supplies. All together, these other expenses, other R&D expenses increased $4.9 million for the year 2016 as compared to 2015.

Turning to general and administrative expenses, these were $8.9 million for the year ended December 31, 2016, as compared to $8.4 million in the prior year 2015, the different being primarily due to higher personnel-related cost also stock-based compensation, higher legal, recruiting and costs associated with being a public company, which include a number of different items including audit, legal, systems, consulting filing fees, printing cost transaction fees.

Sum total, our net loss amounted to $22.8 million or $0.55 per basic and diluted share for the year ended December 31, 2016, which compares to $14.1 million or $0.41 per basic and diluted share for the year ended December 31, 2015. Our average shares outstanding for '16 were 41.7 million shares up from 34.4 million shares in 2015.

Finally, our cash and cash equivalents as of December 31, 2016, totaled $29.4 million as compared to $29.3 million as of December 31, 2015, the balance of our resources remains essentially the same year-on-year after the funding of our operation and the proceeds of the midyear financing. That concludes my financial report, Steve, final comments..

Thanks Lance. As you heard today, we had a very productive fourth quarter and full year at Pieris while we advance our clinical and preclinical programs in addition to making potential progress across our corporate partnerships, which included the entry in company transforming IO alliance at the beginning of this year with Servier.

Most importantly, we believe the progress we accomplished in 2016, will help make 2017 potentially the most value creating year in the history of our company based on the advancement of our proprietary pipeline and our partnerships, altogether our partnerships for generating approximately $80 million and cash flow date that could bring us approximately $2.5 billion in potential milestone payments as well as royalties on our future product sales.

With a strong balance sheet which we believe we can manage the pipeline effectively with a cash runway into 2019, we believe that we have the ability to achieve several key value inflection points in 2017 and beyond. Thank you for joining us today and for your continued interest and support. We would now like to open the call to any questions..

Thank you. At this time, we'll conducting a question-and-answer session. [Operator instructions] Our first question comes from the line of Hartaj Singh with Oppenheimer. Please proceed with your question..

Hi there. Hey Steve. Thanks for taking the question. Again, thanks for being at our conference yesterday and giving us pretty comprehensive update. Just a couple of very quick follow-ups to your presentation yesterday.

One is with 343 entering the clinic proceed to initiation in the first half and then what do you kind of, when do you expect the Phase 1 to sort of finish up roughly and what would be your expectations for in terms of what PK/PD profile and safety profile would you like to see before you move it to the next stage and I just got a couple of quick questions after that?.

Thanks, Hartaj. So, your question is regarding the Phase 1 timing for PRS-343 correct. So, as we mentioned, we firmly intend to initiate a first in-patient study with 343 in the first half of this year of course we have to finally align with FDA on the protocol, but we feel pretty confident in our protocol.

And it is designed in order to maximize the ability to get to an effective dose, but do it in a prudent and safe manner and we would publicly state that -- expect that trial to be an escalation phase trial to complete no later than say the early part -- first half part of 2018, although based on the enthusiasm that we're seeing from investigators and depending on the particulars of the design and recruitment rates.

If we can go faster than that, we would and of course like that.

In terms of the PK/PD, well, if you go back and look at our preclinical data on PRS-343, remember this is a bi-specific molecule targeting HER2 and 4-1BB we are able to show in preclinical models that by virtue of binding to HER2, which is a prerequisite for enabling the cross-linking and activation of T cells through 4-1BB cross-linking, we've been able to show that HER2 is not just a so-called magnet for our drug.

It's also shown to have on antitumor effect and so if we think about patients who are going to be receiving a therapy, we could potentially expect bifunctional benefit from our drug and so that's an unknown, but that's something that we are certainly going to look for.

In terms of the PK, we believe that this molecule is likely to have a half-life equivalent to full antibody potentially even longer based on our alimentary scaling predictions from [mouse] studies and so we would intend to dose it on a pre-weekly basis, which is analogous to have the PD1 antibodies to being developed right now.

So, we're looking to have the safety tolerability and in a desired PK first and foremost, but based on the bi-functional activity of the drug, we're certainly going to be mindful of watching correctively even in a monotherapy setting.

If we look beyond that, into 2018, we fully intend to robustly follow the data in an expansion phase, which among other things will include a combination with a to-be-determined PD1 antibody and it will also include [enrichment arms] and selected tumors whereas we mentioned we're prioritizing three particular tumors based on the data, based on the literature, which is gastric cancer, bladder cancer and metastatic breast cancer, but of course we're going to be mindful of the data as we read it if the trial reaches out in the expansion phase and allow that to inform -- the escalation phase and allow that to inform the expansion phase..

Got it. Thanks Steve. That helps.

PRS-060, the Phase 1 initiates middle of 2017, I know asthma is a different beast in oncology, just any quick thoughts on how do you see the Phase 1 the timing there and then what would that look like, high level and then I'm sure as the trails progress we can gain more information?.

Yes, it's a very different molecule. However, we're very confident in our ability to develop this because it's a pretty straightforward path to clinical proof of concept. If we simply follow the blueprint made by other IL4 engaging antibodies such as Dupilumab.

So, the Phase 1 trial, which will be conducted in Australia under a CTN, clinical trial notification, we intend to start with a single ascending dose followed by a multi-ascending dose trial in healthy subjects with a nebulized formulation.

Ultimately, we will cross over to a dry powder, precisely when it's still subject to discussion, but we ultimately see this product marketed as a dry powder and the nebulization route is clearly the fastest path to meaningful clinical readouts and that's a way we're looking at this program to get meaningful clinical based inflection points as soon as possible.

One thing that's still to be determined is how we handle the multi-ascending dose phase of the trial as this pathway is blessed with biomarkers that are relevant to both finding the patients and monitoring response to therapy.

So, depending on whether we enroll healthy subjects in the multi-ascending dose phase that may have a signature linked to something like exhaled nitric oxide FeNO, that could potentially impact enrollment, but also the impact of the readouts.

So those are the types of things that we're thinking through, but right now, we're looking to have the trial run from the middle of 2017 into the middle of 2018, following which we would move into our targeted patient population, which would be first and foremost eosinophilic high uncontrolled asthmatic patients, stratifying patients based on the eosinophilic count..

Great.

The device for your nebulized function, is that off the shelf? I assume it's off-the-shelf device that's been used without the products or is this something that's going to be unique to 060?.

That's correct. It is an off-the-shelf device. We have looked at multiple options and multiple devices and as this is not likely to result in a marketed device and the nebulization aspect I should say, we don't feel we have to or further investment in any specific customization of the devices warranted at this time..

Got it.

And then just one last housekeeping question, how do you expect sort of your OpEx just roughly speaking for a burn to progress over 2017? It seems you burned roughly $22 million, $23 million in 2016, is that the way to think about in '17 or with the increase in clinical activities that that could increase, but then any thoughts there would really help Steve and thank you?.

Sure. Thanks, Hartaj. So obviously as our pipeline is maturing and in the course of 2017 we will have three clinical stage candidates, our costs are going to increase and you saw that last year as our cost increased while we really kept G&A in check and we were really happy with that ratio.

It's fair to say the cost will be higher in R&D in 2017 than 2016, but we have made already a number of investments in 2016 to set the scene for the clinical execution this year.

So, when you think about the cost related to getting products ready for the clinic such as manufacturing, tox studies we've incurred a lot of those expenses -- recognize those expenses in 2016.

So, there will be an increase in '17, but I think it's very manageable and goes back to what we mentioned at the end of our prepared remarks, we do believe we can manage the runway with cash on hand, rather conservative projections and milestone income from existing partnerships into 2019..

Got it. Great. I really appreciate all the feedback. Thank you, Steve..

Thank you, Hartaj..

Thank you. [Operator instructions] Mr. Yoder, there are no further questions. I'll turn the floor back to you for any final remarks..

Thank you and thanks again to everyone for your attention today and for your continued support of Pieris Pharmaceuticals. We look forward to keeping you updated on our progress, which will include presentations and a variety of upcoming R&D conferences. Thank you for joining the call and have a great day..

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..