Allan Reine - SVP and CFO Stephen Yoder - President and CEO Louis Matis - SVP and Chief Development Officer.

Hartaj Singh - Oppenheimer & Company Mike King - JMP Securities.

Greetings, and welcome to the Pieris Pharmaceuticals Third Quarter 2017 Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow a formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allan Reine.

Please go ahead, sir..

Thanks, Kevin. Good morning everyone, and thank you for joining us for our third quarter 2017 earnings conference call. On the call today we have Steve Yoder, our President and CEO; and Lou Matis, SVP and Chief Development Officer who will be available for Q&A.

We announced financial results yesterday, November 08, 2017, after the market closed for the third quarter ended September 30, 2017. You can access the press release on the Investor Relations page of our website at www.pieris.com.

Before we begin to review our financial results and business highlights 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 conference call by management may contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Pieris including statements related 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 including those set forth from time to time in the company's filings with the SEC, including without limitation, the company's Form 10-K, 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, November 09, 2017. Pieris undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that, I'll hand the call over to Stephen..

Thank you, Allan and thanks to everyone today for joining us for our 2017 third quarter earnings call.

At Pieris Pharmaceuticals, we continue to advance our proprietary class of next generation therapeutics called Anticalin proteins, which has unique advantages over traditional antibody therapies including truly novel multi-specific format, which were deployed particularly in the field of immuno-oncology as well as the inhalation potential of the drug class, which we’re exploiting to address respiratory diseases locally in the lung.

We have broad intellectual property and protein engineering knowhow providing us both the freedom to operate in a high barrier to entry.

Our core R&D strategy involves addressing known targets in new ways due to these unique features of our drug class allowing us to take relatively lower target risk in the first-in-class monoclonal antibody approaches.

Further our diversified business model, which involves advancing a mixed proprietary in co-develop portfolio drug candidates in multiple immunology related therapeutic areas is another effective mechanism for managing scientific and balance sheet risk.

The third quarter of this year marked a very exciting milestone for the company within our fully proprietary pipeline, as dosing commenced for PRS-343 our lead immuno-oncology assay.

PRS-343 is to our knowledge the first immuno-oncology bispecific co-stimulatory T-cell agonist to enter clinical development, which is a real testament to not only our protein engineering expertise, but also our scientific leadership in a very complex area of biology.

This combined protein engineering and biology expertise allowed us to advance PRS-343 from the idea stage to the clinic in just over three years, which we believe is proving to be a computable paradigm at Pieris.

To this end we are developing an emerging pipeline of early stage immuno-oncology bi and multi-specifics that we believe can repeat the paradigm that PRS-343 represents. 2017 has been our most active year on the partnering front.

The company signed three deals in the first half of the year, receiving approximately $80 million in upfront licensing fees and has now announced [ph] a total partnership deal potential of $4.5 billion in milestone payments as well as royalties on future sales. Not to mention several opportunities for direct commercialization in the United States.

In January we entered into a global co-development and co-commercialization partnership with Servier in immuno-oncology. In May we entered into a global co-development and co-commercialization deal with AstraZeneca in the area of respiratory diseases, which is built around our lead inhaled Anticalin protein PRS-060.

In between these two anchor alliances, we signed an option agreement with ASKA Pharmaceutical to commercialize PRS-080 our anemia program in Japan and other Asian territories, as we continue to explore thoughtful ways to monetize this asset as it becomes noncore and is undergoing the final clinical trial that we anticipate sponsoring before a full divestiture of that asset.

I will now go into more detail on PRS-343 and focus on our anchored partnerships in both immuno-oncology and respiratory disease followed by a discussion on our noncore anemia program PRS-080.

Looking first to immune-oncology, this is a key therapeutic focus for us particularly multi-specific protein therapies in the tumor targeted T-cell agonist space. Our lead and wholly owned program PRS-343 is a bispecific fusion protein made up of two parts.

First it's an Anticalin protein directed against a cell surface protein called CD137 also known as 4-1BB, which is expressed on the surface of tumor specific T-cells within the microenvironment. And second is a monoclonal antibody against HER2.

We believe that one advantage of this bispecific approach is that we can activate T-cells within the tumor microenvironment and direct their activity to HER2 positive tumor cells for effective tumor killing without having the unwanted T-cell activation in healthy tissues that could lead to a systemic toxicity seen previously with conventional 4-1BB targeted antibodies.

Targeted tumors will focus on those that are HER2 positive and were conventional HER2 interventions have failed to demonstrate or no longer demonstrate efficacy.

Beyond its potential as a immunotherapy our drug candidate we believe will be synergistic with other immune-oncology drugs, namely checkpoint inhibitors in combinations we're focused particularly in that area.

At the end of September, we announced that the first patient was dosed in our Phase I multi-ascending dose trial of PRS-343 in HER2 positive solid tumors. As a reminder, initial cohorts are composed of a single patient evaluated over a 21 day period for dose with the new toxicities.

We hope to provide initial safety and efficacy data next year from the trial and to initiate expansion cohorts evaluating PRS-343 in HER2 cancers with unmet needs such as metastatic, gastric and bladder cancer patients.

Beyond PRS-343 our global immune-oncology partnership with Servier is a key to our IO strategy and covers the development of five committed bispecific therapeutic programs that maybe expanded to up to 8 programs in total.

This partnership features our dual checkpoint inhibitor PRS-332, which is a novel bispecific protein comprised of an anti-PD-1 antibody genetically linked to an Anticalin protein directed against an as yet underscores checkpoint target, which we believe is synergistic with PD-1 blockade.

Beyond PRS-332, we are continuing preclinical evaluation of two additional bispecific programs within the Servier collaboration. We expect to provide more details regarding these programs next year at one or more medical conferences.

Looking beyond, our immune-oncology efforts, I would like to now provide you with an update on our lead respiratory program PRS-060. As indicated earlier, in May of this year, we signed a transformative global strategic partnership with AstraZeneca anchored around this program.

This partnership allows us to leverage Astra's established expertise in complex inhalation formations and devices for respiratory diseases as well as their global commercialization capabilities as a leader in the space.

The collaboration covers up to five programs including PRS-060 with co-development and separate co-commercialization opportunities for both PRS-060 and multiple additional programs within this alliance. PRS-060 itself is an Anticalin that blocks IL-4 receptor alpha thereby inhibiting the activity of two key cytokines both IL-4 and IL-13.

This is similar to Regeneron and Sanofi's drug dupilumab, which is also an IL-4 receptor alpha inhibitor put in dose systemically via subcutaneous injection unlike PRS-060, which is targeting the disease locally via direct inhalation into the lung.

Phase III results for dupilumab were released in September of this year and demonstrated again a robust effect in moderate to severe asthma patients with elevated levels of eosinophils.

We believe these data validate the role of blocking IL-4 and IL-13 vis-à-vis IL-4 receptor alpha in the pathogenesis of overactive airway disease and is an example of our strategy of addressing known targets in new ways, mainly driving benefits of a localized therapy on a target highly validated in the clinic with a systemic therapy.

As far as future milestones are concerned we remain on track to initiate a first anemia clinical trial for PRS-060 before year end, as trial sponsor replan to dose healthy subjects in a clinical trial, which will be funded by AstraZeneca.

The dosing of the first subject would trigger a milestone payment of $12.5 million by AstraZeneca, which comes in addition to the $45 million upfront payment Pieris already received.

Following the successful completion of Phase I, Pieris would hand the program over to AstraZeneca who would be responsible for executing a Phase IIa trial in collaboration with Pieris.

And looking farther ahead following the first proof of concept Phase IIa trial in asthma patients again to be funded and sponsored by AstraZeneca Pieris any exercising an option to co-develop and separately to co-commercialize this program in United States.

Exercising this co-development option will entitle Pieris to a larger royalty up to the high-teens or a gross margin share of future sales depending on the level of co-development investment by Pieris. We look forward to providing an update on PRS-060 and other program within this alliance at a future date.

Finally I’d like to discuss PRS-080, which is a highly potent inhibitor of hepcidin key negative regulator of iron metabolism. And as a reminder hepcidin is up-regulated in states of chronic inflammation such as chronic disease effectively trapping iron in the body’s iron storage cells.

And this in turn causes what is called functional iron deficient or FID anemia. PRS-080 represents a potential first in class therapeutic for this disease. During the fourth quarter Pieris initiated enrollment of a randomized placebo controlled Phase IIa trial for PRS-080 in FID anemia.

This Phase IIa trial will enroll two cohorts of FID anemic patient at 4 milligrams per kilogram and 8 milligrams per kilogram by body weight.

Patients who need enrollment criteria will receive a five weekly infusions of therapy with one objective of the trial being to assess whether PRS-080 can elevate hemoglobin levels after four weeks of exposure to therapy.

Completion of this trial will trigger our partner in Japan ASKA Pharmaceutical to exercise its option to co-develop and co-commercialize PRS-080 in Japan and certain other Asian markets subject to the payment of an undisclosed option fee.

Our strategy for this molecule in other territories will involve out-licensing assuming positive Phase IIa data as we focus our resources on developing our IO and respiratory pipeline as an increasingly immunology focused organization.

This concludes my prepared remarks, and I would now like to hand back over to Allan to guide you through our financial results for the third quarter of 2017. .

Thank you, Steve and good morning again everyone. We recognized revenue of $3.9 million for the three months ended September 30, 2017, as compared to $0.8 million revenue in the three months ended September 30, 2016.

For the nine months ended September 30, 2017 we recognized revenues of $7.1 million as compared to $3.1 million in revenue for the nine months ended September 30, 2016.

This increase in revenue for the three and nine months period revenue recognized with regard to our collaboration agreements with both Servier and AstraZeneca signed in the first half of 2017. Research and development expenses were $6.3 million and $17 million for the three and nine months period ended September 30, 2017 respectively.

Research and development expenses in the corresponding 2016 period were $4.6 million and $12.8 million respectively with an increase in research and development expenses reflect advancement across our pipeline of programs as well as preparation and advancement of clinical activities.

General and administrative expenses were $2.9 million and $11.2 million for the three and nine months period ended September 30, 2017. General and administrative expenses in the corresponding 2016 period were $2.3 million and $6.7 million respectively.

The increase in the 2017 periods as compared to the corresponding periods in 2016 is largely attributable to $1.8 million transaction fees for the successful close of our licensing collaboration agreement with AstraZeneca.

Recruiting and personnel related costs are increasing as we continue to build the organization and require increased outside professional services including intellectual property, corporate legal work, auditing, finance, communications and in other facets of the business.

The net loss for the third quarter 2017 was $7.1 million or $0.16 per share for the quarter ended September 30, 2016, compared to a net loss of $6.2 million or $0.14 per share for the quarter ended September 30, 2016.

The net loss for the nine months ended September 30, 2017 was $25.1 million or $0.58 per share compared to a net loss of $16.2 million or $0.39 per share for the corresponding 2016 period.

And turning to the balance sheet, total cash and cash equivalents as of the third quarter ended September 30, 2017 totaled $89.9 million as compared to $29.4 million as of December 31, 2016.

This increase in cash was driven primarily by the upfront payments received from Servier and AstraZeneca and the option payment received from ASKA offset principally by $29 million in operating cash expenditures during the year. With that, I will turn the call back over to Steve. .

Well, thanks, Allan. In summary, during the third quarter, the company continued its transition more advanced clinical entity and we expect to have three products in various stages of clinical development by year-end.

In addition, we continue to progress multiple earlier stage programs from both our proprietary pipeline and our numerous collaborations. We look forward to providing additional details on these programs next year as they advance closer to the clinic. Thank you for joining us on the call today. We would now like to open the call for your questions..

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Hartaj Singh from Oppenheimer & Company. Please proceed with your question. .

Yes, thank you. Hey, thanks everyone for allowing me. A couple of questions, one is Steve, just wanted to ask you on PRS-343 the design on clinicaltrials.gov I was just looking it over, and I know you gave some color on it on the call already.

But when you're looking for the MTD, I guess you're dosing at three week dosing and then you might switch to a two week or four week.

I guess just walk us through the steps of how many patients you'll need to get to that comfort level a three week MTD stat if you don't get there then how do you switch over to a two week versus four week? And then finally how do you -- the additional 30 patients that you're expanding too, is that the expansion cohort on the various tumor types you're looking at across various cancers? And I just got a quick follow-up question after that..

Hey, Hartaj. Thanks for those two questions and ensure we'll then come back to you for the follow-up question. I think for both of those questions as it bears on the clinical trial strategy. I am going to turn you over to Louis Matis who's going to try to answer your questions..

Thank you, Steve. Good question Hartaj. With immunotherapeutics in cancer identifying the preferred Phase II dose, recommended Phase II dose actually really involves significant amount of biology and we have ongoing in our dose ascending phase of the trial really robust biomarker analysis, which will involve larger tumor biopsies.

And the key to what we've learned from those biopsies is the amount of immune-activation that we see in the tumor microenvironment by dose. We actually are working very actively with and we're pleased to announce our third site that has just come online is part of the dose escalation phase MD Anderson.

They have a very robust immunology program -- immunology biomarker program that will accompany the dosing of the patients. And that kind of information will be really key in terms of identifying the recommended dose for Phase II study.

And so the trial as you know is going according to plan, we dosed our first patient, as announced in September and things are proceeding along the lines that we had originally described. And we will be announcing the activation of a fourth major U.S. cancer center participating in a dose escalation phase within the next week.

So once again, in terms of identifying the dose in dosing interval that will be driven to a very significant extent by the biological marker by the immune activation data that we regenerate as we choose the patients in dose escalation manner. So, [indiscernible] very clear differences..

Got it, Lou that’s actually very interesting. Just Lou one follow-up to that, is that -- is there a possibility that in the next one to two years we could see for example an abstract or a poster presentation detailing the study design, I mean, it seems like you are doing a lot of interesting work.

Is that something that could become part of a future, just a presentation or it sort of to be determined?.

Yes, actually we have guided last time during the previous quarter’s call, we think there is a potential to actually have interesting data in terms of immunologic activity of the drug in the second half of 2018. And that certainly there is a possibility and if so we will clearly be reporting that at a major conference..

Great, fantastic.

And then just a quick follow-up on PRS-080, Steve I know you’re going to partner that out, that’s not core asset, but if you want to partner it out, I mean, what sort of -- just roughly speaking what is the sort of deal metrics assuming it happens that we could think about? I mean, I know that AZ and Servier were really, really amazing deals, I don’t know whether this could be something analogist to that maybe less than that, I mean, or maybe just had expectations as to if it was to happen what should we be sort of thinking about? And thank you..

Sure, thanks for Hartaj.

So as far as PRS-080 is concerned as you mentioned this is a noncore asset and we do want to be clear that our ambition is to complete the Phase IIa trial and then in addition to if the data are positive expecting ASKA hopefully to exercise their option intent to then look to partner who are capable of moving this forward to the next stage of development and commercialization, particularly in the U.S.

It’s really hard to crystal ball gaze as far as deal terms are concerned.

The management team, part of the management team who have done a lot of deals, in their current life and former lives there is so many factors that influence that from if the programs prestige is particularly hot, if there is a competitive process I think knowing how Pieris has partnered this year you can rest assured that if the data are there we will run as competitive process as possible and we will seek to extract maximum value for our shareholders out of what is becoming an increasingly noncore asset.

So beyond that I think it would be reluctant to comment anything specifically at this time. .

Great, thank you. .

Thank you. .

[Operator Instructions] Our next question today is coming from Mike King from JMP Securities. Please proceed with your question..

Hey, good morning guys. Thanks for taking the questions. I had one or two for Steve and Lou and one for Allan.

So on 060 couple of questions on that, first is when you talk about -- I know the first trials would be in healthy volunteers, but will there be any biomarker data that we can get at least some sense of activity from the study, blood markers or cytokines or other things that might be suggestive of activity in larger studies?.

Sure, thanks Mike, great question. I think at this time we are not prepared to provide further public guidance or information on the full details of the PRS-060 trials. Beyond what we have disclose publicly, but I can remind you and everyone that one of the reasons we are so excited about this program in this pathway is that it is biomarker rich.

And if you simply look at the task that dupilumab took to go from early clinical to now completion of what is probably a registration trial in asthma. There is an excellent blueprint for things that we expect to be able pursue in collaboration with AstraZeneca. And having an early handle on PKPD is something that of course would be of high value.

And so we look forward to providing more details on that probably in the course of 2018. But this is a co-developed asset with Astra, we certainly want to lineup of on a more comprehensive communication strategy before providing more details..

Okay.

So is the agreement has drown right now Steve is it the responsibility of AZ to disclose the results of the Phase I is it because you are running and it is up to you or is it a joint decision?.

It’s effectively a joint decision, this is true partnership where we are the sponsor they are funding, which is nice, but we are driving this Phase I trial as the sponsor. And we would be for which not to consider their high level of expertise in maximizing the value for this first trial.

So it will be a joint decision of course got to respect for the calibration. But I think there is a great deal of enthusiasm for both companies to socialize the data at the appropriate time..

Right. Okay. .

So -- but beyond that, I mean, we also have preclinical data that we generated, which of course help to motivate the parties to collaborate now that they did and I think if you think about 2018, as a time to also get a deeper inside on preclinical data at medical conference for that although no promises at this stage that something that’s we're discussing right now.

So expect more data in 2018, hopefully to be disclosed what a preclinical and or clinical I think the full first point of course would be preclinical data..

Okay, great.

And then just beyond asthma are you guys contemplating any other immune related disorders as potential development pathway for 060, I'm thinking particularly the things like atopic derm or some of these orphan disorders as well?.

And you are speaking Mike again specifically for PRS-060 or for other….

Yes. Well specifically 060, but if you want to elaborate on other programs that's fine too. I’d just think mechanistically 060 was the focus for my question..

Yes, so again as a remind the alliance with AstraZeneca is of course anchored by PRS-060 and there are four additional new programs that we will start in partnership with AstraZeneca. Each of the programs has an activity that will be directed at local intervention among for respiratory disease, includes but it's not limited to asthma.

So there are different pathologies for that you could imagine would benefit a local invention as oppose to systemic invention with PRS-060 representing a repeatable pipeline here. As far as PRS-060 development goes, there are potential other interacting application outside respiratory disease for that drug.

And we continue to explore how best to extract value in that area, including atopic dermatitis and that’s something that at this present time we're not providing further details on, but it's based on the data we're seeing atopic dermatitis is certainly an interesting area for IL-4 receptor alpha agent..

Okay, great. That's helpful.

And then just for Allan, real quick Allan, just as far as revenue recognition off of the upfront, just hoping to maybe get some clarity on how we should be thinking on about that as on a quarter-over-quarter basis?.

Yes, I mean, you can kind of take the run rates we're going out and use that to kind of put your numbers going forward. We kind of don't break it out for U.S. kind of what accounting units we’re using to go through our revenue recognition.

But obviously from a cash flow basis you kind of know when the cash comes in the door and we'll update our -- we always update our cash balance. From a revenue recognitions standpoint again it's we're not going to go into that level of detail of our financial models work with our various partnerships..

Okay, understood. Thanks for taking the questions, guys. Congrats on the progress..

Thanks so much, Mike. .

Thank you. We reached the end of our question-and-answer session. I’d like to turn the floor back over to management, for any further closing comments. .

I just want to end by saying thanks again to everyone for your attention today and for your continued support of Pieris Pharmaceuticals. We certainly look forward to keeping you updated on our progress. And I want to thank you again for joining the call. And wish you a great rest of the day. Thank you.

Thank you. And that concludes today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today..