Allan Reine - SVP, CFO & Treasurer Stephen Yoder - CEO, President & Director Louis Matis - SVP & Chief Development Officer.

Akash Tewari - Evercore ISI Pamela Barendt - Cowen and Company David Hoang - Jefferies Matthew Phipps - William Blair & Company.

Greetings and welcome to the Pieris Pharmaceuticals First Quarter 2018 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Allan Reine, Chief Financial Officer for Pieris Pharmaceuticals. You may begin..

Thank you. Good morning, everyone, and thank you for joining us today for our first quarter 2018 earnings conference call. On the call today, we also have Steve Yoder, our President and Chief Executive Officer; and Lou - Dr.

Lou Matis, our SVP, Senior Vice President, Chief Development Officer, who will be available, following our prepared remarks, for Q&A. We announced financial results this morning, and you can access the press release on the Investor Relations page of our website at www.pieris.com.

Before we begin, I'd like to caution that comments made during this conference call may contain forward-looking statements involving risks and uncertainties regarding the operations and future results of operations of Pieris, including statements relating to the timing and progress of our clinical trials and preclinical programs, and actual results or events may differ materially from those expressed or implied by such forward-looking statements.

Factors that might cause such differences are described in our filings with the SEC, including our annual, quarterly and current reports. The information being presented is only accurate as of today, and Pieris undertakes no obligation to update any statements to reflect future events or circumstances. With that, I will hand the call over to Steve..

Thank you, Allan. Good morning, and thank you to everyone for joining us today for our 2018 first quarter earnings call. I'll begin by giving a brief introduction to Pieris and mentioning some corporate highlights from this past quarter before discussing our pipeline progress and our plans for the remainder of this year.

As a reminder, we are a clinical-stage biotechnology company currently with three assets in clinical development, focused on discovering and developing Anticalin-based therapies primarily for oncology and respiratory diseases. Anticalin proteins are engineered versions of human lipocalins.

They are small, stable, monomeric molecules with unique advantages over traditional antibody-based therapies. Their size and structure make them well suited to binding to a variety of targets and potentially offer safer and more efficacious treatment options with more convenient administration routes.

At Pieris, our core R&D strategy involves addressing clinically validated targets in new ways, which allows us to take relatively lower target risk than first-in-class monoclonal antibody approaches.

And our business strategy involves pursuing a combination of fully proprietary and partnered/codeveloped programs, which allows us to use proceeds from our partnered programs to help fund our proprietary pipeline while retaining commercial opportunities in the U.S. for several partnered programs.

We also have broad IP and freedom to operate in the Anticalin protein space, enabling us to take full advantage of the Anticalin drug candidate-generating platform for many years to come.

Our lead oncology asset is PRS-343, a fully proprietary immuno-oncology bispecific drug candidate composed of 2 Anticalin proteins targeting 4-1BB or CD137, genetically fused to an antibody targeting HER2. This molecule was designed to preferentially activate tumor-specific T-cells in the tumor microenvironment.

Our lead respiratory asset is PRS-060, an inhalable IL-4 receptor alpha antagonist, addressing the same target as the clinically validated dupilumab for the treatment of uncontrolled asthma. We are developing PRS-060 in collaboration with AstraZeneca, with retained codevelopment and co-commercialization rights in the U.S.

Additionally, we have a noncore asset, PRS-080, a half-life-optimized Anticalin protein to treat anemia currently in Phase IIa in which we can provide - we could use this drug candidate to provide further drug class validation as we continue to establish a position of leadership in certain areas of immuno-oncology and respiratory diseases.

Beyond these clinical-stage programs, we have a rich pipeline of earlier-stage programs in development, both proprietary and in collaboration with other companies, including our IO strategic partners, Servier and Seattle Genetics. We made significant progress this past quarter in advancing our long-term vision.

Our key opinion leader or KOL event in February featured some of our distinguished scientific advisers whose oncology and respiratory research bolsters the significance and relevance of our clinical projects.

The event featured offered - featured and offered investors and analysts an in-depth opportunity to explore the rationale behind how we are approaching our core areas of development. And you can find, as a reminder, a replay of the event on the Investors section of our website.

Also, as part of our continued effort to leverage the experience of industry experts, we recently appointed Ann Barbier, MD, Ph.D. to our Board of Directors. Dr. Barbier currently serves as the Chief Medical Officer of Translate Bio.

In the past quarter, on the partnering front, we signed a multi-program collaboration and codevelopment agreement with Seattle Genetics, in which we received a USD 30 million upfront payment, and we have the potential to earn up to USD 1.2 billion in success-based milestone payments.

The collaboration leverages the expertise and core technologies of both companies to develop novel antibody Anticalin fusion proteins, and it recognizes Pieris' position of leadership in the targeted costim agonist space.

In this respect, Pieris will provide agonist costimulatory Anticalin protein building blocks to combine with Seattle Genetics' tumor-targeted antibodies to advance its suite of novel tumor-targeted costimulatory agonists, including 4-1BB and, as yet, undisclosed costim-engaging Anticalin proteins beyond 4-1BB.

This deal fits within our strategy to leverage the breadth of our platform to become a fully integrated biopharmaceutical company, where we have an option to codevelop and co-commercialize one of the three programs in the United States.

Following the announcement of the Seattle Genetics collaboration, we completed an equity raise totaling USD 47.2 million in net proceeds.

That raise, together with cash on hand and the Seattle Genetics upfront fee, will allow us to execute on our clinical pipeline and advance multiple preclinical candidates through IND-enabling studies while continuing to invest in further drug discovery efforts. Now for an update on our clinical projects in more detail.

In immuno-oncology, enrollment of patients for our lead and fully proprietary IO program, PRS-343, is progressing well, and we remain on track to report initial data from the dose-escalation portion of the trial later this year. These data should include an assessment of the safety, tolerability, pharmacokinetic and pharmacodynamic data.

And as a reminder, we will be analyzing paired biopsies in the trial with one potentially important biomarker being the evidence of post-biopsy CDA immune effector cell activation and proliferation. As a reminder, PRS-343 is, to our knowledge, the first bispecific costim T-cell agonist to enter the clinic.

This bispecific approach is intended to cause activation of tumor-specific T-cells in the tumor microenvironment of HER2-positive solid tumors leading to effective immune-mediated killing while reducing the systemic toxicity associated with conventional systemically active 4-1BB-targeted antibodies.

For Pieris 343, we are focusing on HER2-positive tumors where standard treatments have failed or stopped working. And enrollment to date includes a diverse population of HER2-positive tumor types.

Although our current Phase I trial is designed to study the effects of PRS-343 as a monotherapy, we also want to understand the potential benefit in combination with other therapies, including disruption along the PD-1, PD-L1 access.

And in this vein, we're pleased to announce that we recently signed a drug supply deal with Roche to gain access to TECENTRIQ, atezolizumab, for use in combination with PRS-343. We plan to initiate this combination study later this year.

We are also evaluating other compelling combination strategy for PRS-343, specifically the ability of PRS-343 in combination with agents to help turn the so-called cold tumors to hot or to lead to increased CD8 positive T-cells in the tumor microenvironment as well as other 4-1BB-expressing immune cells in the tumor microenvironment.

And with respect to our growing IO pipeline beyond 343, we remain on track to file two INDs in 2019, one for a fully proprietary compound and one from our collaboration with Servier. We plan to provide further updates on our preclinical pipeline later this year. I'd now like to provide an update on our respiratory pipeline.

The Phase Ia trial for PRS-060 began in December 2017 and continues to enroll healthy subjects according to plan. We plan to report initial data from this trial in the second half of this year.

Later this year, we also plan to sponsor and initiate a Phase Ib multi ascending dose study, the cost of which will be reimbursed by AstraZeneca under our partnership. After the Phase I trial is complete, we will hand over the program to AstraZeneca, who will then run the Phase IIa trial in collaboration with Pieris.

At that point, we may exercise an option to codevelop and separately co-commercialize this program in the United States, namely following the completion of the first Phase IIa trial. PRS-060 is 1 of 5 programs we are developing in the alliance with AstraZeneca as part of the collaboration deal we signed with them in May of 2017.

And beyond these respiratory programs, we are initiating discovery efforts for 2 proprietary Pieris respiratory programs this quarter. Finally, turning to PRS-080, a noncore program, we reiterate our guidance that data for the ongoing Phase IIa trial are expected during the second half of this year.

As a reminder, PRS-080 is a potent hepcidin antagonist, known as the negative master regulator of iron metabolism, and is being tested in patients with a specific type of dialysis-dependent anemia, known as functional iron deficiency anemia.

This concludes my prepared remarks, and I would like to now hand back over to Allan to guide you through our financial results for the first quarter of 2018..

Thank you, Steve, and good morning again, everyone. We recognized revenue of $4.2 million for the quarter ended March 31, 2018, as compared to $1.3 million in revenue in the quarter ended March 31, 2017. This increase in revenue was due to revenue recognized as part of our collaboration agreement with Seattle Genetics, signed on February 2018.

Research and development expenses were $7.9 million for the quarter as compared to $5.4 million for the quarter ended last year. This increase in R&D expenses reflects advancement across our pipeline of programs as well as preparation and advancement of clinical activities.

General and administrative expenses were $4.4 million for the quarter ended March 31, 2018, as compared to $4 million for the same quarter last year.

This increase in G&A expenses is attributable in part to the transaction fee for the successful close of the license and collaboration agreement with Seattle Genetics and those associated with the recent equity raise.

Additionally, investment in the company's G&A functions, including personnel costs, recruitment costs and professional services, have increased to support the growing business.

The net loss for the quarter ended March 31, 2018, was $8.7 million or negative $0.17 per share compared to a net loss of $8 million or $0.19 per share for the quarter ended March 31, 2017. Turning to the balance sheet.

Total cash, cash equivalents and investments as of the quarter ended March 31, 2018, totaled $162.2 million as compared to $82.6 million as of December 31, 2017.

This increase was driven primarily by the $47.3 million in net proceeds from the February 2018 equity offering, the $30 million upfront payment received as part of the Seattle Genetics immuno-oncology collaboration and the $12.5 million milestone payment from AstraZeneca we achieved in the fourth quarter but received during the first quarter of 2018.

And this was offset by $11.7 million of operating cash expenditures during the year year-to-date - during the year up until the end of the first quarter. With that, I will turn the call back over to Steve..

Thanks, Allan. In summary, we are focused on developing our clinical assets, both proprietary and collaborative. And we're very laser-focused on clinical execution of PRS-343 and PRS-060 through the rest of this year, and we plan to report initial data from these programs as well as for PRS-080 in the second half of this year as we have guided.

I want to thank you for joining us on the call today. And we would now like to open the call for your questions..

[Operator Instructions]. Our first question comes from the line of Akash Tewari with Evercore ISI..

When we think about 343's mechanism of action, how much of a contribution do you expect from HER2 inhibition itself? And at what levels would we start expecting significant HER2 - a significant HER2 inhibitory effect? Additionally, given 343's reduced CD16 interaction, what type of HER2, 4-1BB synergy would you expect versus Herceptin in 4-1BB mAb alone? Now on 060, can you talk to us about some of the commercial challenges of a nebulized formulation versus a dry powder formulation, specifically on commercial yield protein stability and potency and aggregation in the lungs?.

Sure. Thanks, Akash. I think for the first question, I'll turn it over to Lou. That's a number of things on the 4-1BB, HER2 biology. So with that, I turn it over to Lou..

Thanks, Steve. Yes, that's a great question. And it's actually - because we have what we believe is a unique molecule in that there are not only two targets but both targets are potentially relevant to the antitumor activity of the drug.

So we are very cognizant of what doses of anti-HER2, of Herceptin would be effective, and we are convinced that the standard clinical dose of Herceptin of 6 milligrams per kilogram is well above that dose necessary to see anti-HER2 activity.

And we believe - I won't put any specific numbers on it, but we believe we'll be at doses, quite soon, in our dose escalation phase where the anti-HER2 activity can be manifest. So the other question is really also an excellent one, the other part of the question, which is what kind of synergy can you see.

And I think that - answering both aspects to your question, what kind of synergy can we see in light of the fact that our drug has a modified Fc region and doesn't activate ADCC in those cells that are binding to an active Fc region? And the answer is that some very elegant work has been published in high-quality journals indicating that the synergy between anti-HER2 and either - in one case in a study, either anti-PD-1 or anti-4-1BB is not dependent at all on ADCC.

Rather, addressing the tumor with an anti-HER2 inhibitory signal leads to the upregulation of both type 1 and type 2 interferons, and that's what drives the synergy with anti-4-1BB. So we're very excited about that mechanism of action.

And we think that, again, at doses lower than the 6 mg per kg, substantially lower than that, we'll be seeing anti-HER2 activity. And I think we're exploring some novel and very exciting biology with this drug, which has what we referred to as intramolecular synergy.

So obviously, we will be reporting on our initial data in the second half of this year, and we look forward to exploring the multiple functionality of this drug. From the standpoint of getting an ADCC effect, we have some very interesting combinations that we've been discussing that would allow for that in concert with our - with 343 alone..

Got it.

And just on 060 and the nebulized versus dry powder formulation?.

Yes. Thanks, Akash. Steve here. I can take that one. Maybe as a general reminder, we are in the Phase Ia and Ib phase of this trial. We will be continuing to deploy a nebulized formulation for PRS-060. However, we will move to a dry powder formulation for subsequent clinical development. And I think that's important to keep in mind.

And as a reminder, we've started with the nebulization formulation as it represented the fastest path to patients in what is a biomarker-rich pathway, and I think that should be very informative in the early phase of - phases of the trial on some biomarker-driven go/no go decisions.

Now as far as the DPI formulation goes, I mean, I think we couldn't be happier to have partnered with AstraZeneca as they are world leader in not just device technologies but in formulation activities.

And I can say, at this juncture, we're very pleased with how the formulation work is going within the collaboration, although we're not at liberty to provide any specific details at this time.

What I can say then, to answer your questions around efficiencies, I think when you think about the overall efficiencies of the deposit of API in the lungs from nominal doses in the nebulizer, the general efficiency, I think, if you can generalize, of the neb is maybe ranging from, say, 15% to 25% efficiency.

And I think it's fair to say that our drug is operating within that bandwidth. And then when you go to a dry powder formulation, you can see a 2 to 2.5, 3x multiple off of that. And I think that's what we're believing that we will also achieve.

So given the - I think, the PK/PD data that we're going to continue to assess and based on our preclinical work, I think we remain very optimistic that we will be able to not only deliver enough protein effectively to the lung. We will have the biomarkers to know that early in the game.

And we also, based on our current projections, believe that, that will offer not just a more convenient regimen but a much more cost-effective therapy compared to systemically administered antibodies, where they're hitting IL-five receptor or four receptor alpha like PRS-060..

Our next question comes from the line of Chris Shibutani with Cowen and Company..

This is Pam Barendt on for Chris Shibutani. Congratulations on the drug supply deal with Roche. You had noted that a lot of these collaborations would be on molecules that would not be disclosed, I presume, for competitive reasons.

But can you give us some sort of color around when we can learn the target these are heading for, not just for the Roche collaboration but for the others as well even in respiratory?.

Thanks, Pam. So just to clarify, I think you're asking, with respect to our immuno-oncology pipeline beyond PRS-343, within the 300 series, for example, when we will be disclosing the specific target combinations..

Exactly..

Yes. It's a good question. I think it's a very competitive world out there. We are, first and foremost, biology driven, and we have a number of, I think, what I would characterize, well-behaved building blocks. We really like 4-1BB.

We both - we like both the biology and how the Anticalin protein building blocks exhibit good drug-like properties when genetically fused to other protein modalities, particularly monoclonal antibodies.

I think it's fair to say that if things go according to plan, which is continuing to generate preclinical dataset as we move towards the clinic, as we've been guiding, if there are no major surprises in the competitive landscape and if we are able to timely secure intellectual property like we're planning, I think that, looking at the fall IO medical conferences, scientific conferences, that would, in our perfect world, be a good opportunity to start to disclose some of those program targets, pull back the curtain, so to speak.

So it's not yet ripe, but we believe the second half will provide opportunities to provide more color beyond what we've guided so far publicly..

Got it.

And regarding specifically the respiratory programs with AstraZeneca, can you provide some insight into whether AstraZeneca will be disclosing the non-PRS-060 molecules there? Or is that something that you would be revealing at some point?.

So I think it's too - it's a little early to say.

It's a mixture of - remember, it's a mixture of fully - let's say, fully partnered assets where we would receive a milestone and royalty income on sales, and then it also includes a mixture of codevelopment, co-commercialization opportunities, qualitatively, along the lines of how we structure the PRS-060 asset in that multi-program alliance.

I would say that we're really focused on getting PRS-060 through key clinical data - clinical phases first. We are working with Astra on prioritization of the discovery processes for the additional programs. We have identified the targets, and that was more or less a mutual target-picking process.

And we are working on those programs - we intend to work on those programs starting later this year as well as our own targets that are outside of the respiratory alliance with Astra as we do believe that there are multiple opportunities for us to create value outside of that alliance. And then maybe one final reminder.

The AstraZeneca alliance is a respiratory disease-focused alliance for the inhaled administration of Anticalins, not specifically limited to asthma, but it includes other respiratory disorders. Beyond that, that's probably all that we can say. I would not expect any specific target disclosures the rest of the year.

Unlike IO, we are guiding towards wanting to provide some more information in the second half of this year..

Our next question comes from the line of Biren Amin with Jefferies..

This is David Hoang on for Biren. I guess, on the decision to pursue combo of PRS-343 with TECENTRIQ, I was just wondering if you had any previous work or preclinical data that shows synergy between PD-1 and that molecule.

And additionally, would that combo trial be funded by Pieris? Or would there be additional support coming from Roche?.

Okay. I'll take the first part of the question. We do have data with our molecule in a number of different assays clearly demonstrating that the combination of PRS-343 with a PD-1 pathway inhibitor definitely synergizes in enhancing a T-cell immune response. We know that.

As to the combination more generally, there's really a plethora of model data, preclinical data demonstrating the - in particular, the synergy between anti-4-1BB T-cell activation and the removal of inhibition by blocking the PD-1 pathway, either with PD-L1 targeted agents or PD-1 targeted agents.

So there is really - there's a tremendous amount of data, multiple studies showing that, that's a particularly powerful synergy in preclinical models of cancer..

And then the second part of your question around the cost of the funding for the drug supply and the trial itself, I would characterize the drug supply agreement with Roche on atezolizumab as a rather conventional drug supply agreement that is being pursued by a number of companies these days.

And that means that Roche is supplying the drug to us at no cost to Pieris. We will drive that trial, we will sponsor that trial and we, of course, will pay for that trial, but we are receiving the drug at no cost..

[Operator Instructions]. Our next question comes from the line of Matt Phipps with William Blair..

First, how do you look at prioritizing some of these wholly owned compounds versus those being developed in collaborations? And importantly, do you want to see some real proof-of-concept data with the 4-1BB construct of 343 before you move some of these others into the clinics?.

This is Lou starting the answer to your question. I think we prioritize all of them as key. I mean, we are really committed to performing in our partnerships and, of course, our own proprietary asset, which we have been now testing clinically since September of last year.

It's - clearly, the single most important - priority one was 060 in terms of clinical-stage assets. So I think that the idea of waiting for data from this study with respect to the other targets is really only reflected in whether those other targets are functionally similar or targeting the same target.

But some of the second - the next generation of bispecific coming forward are against different targets and, therefore, have different mechanisms. And so we believe that there's sufficient supportive evidence that the new mechanisms from the other bispecifics that we'd be testing are differentiated, and we would move forward with those regardless..

Yes. Matt, maybe to add on to that, maybe some corporate - maybe corporate strategy element to that just to reiterate. With Lou, these are all high-priority projects for us. We are regarding our - a number of our preclinical assets in IO as more of fast followers to that paradigm that targeted 4-1BB therapy as evidenced by 343 represents.

We believe we can rather cost-effectively advance a suite of those molecules forward.

And when we see from biomarker data to response data for PRS-343, that will put us in, I believe, a position strength to have a number of fast followers to continue to double down on this paradigm, biology that we find as very exciting and complementary to PD-1 blockade in particular.

So I think it's fair to say that we're going to be aware of the costs that increase once we get into the clinic.

And we want to make sure that we have some comfort with the 343 paradigm that it represents before we move multiple projects into the clinic behind it, but I do believe we're well positioned to take advantage of positive data, should that be the case, to have a number of fast followers..

Great. And then you mentioned the initial proprietary inhaled programs.

Are those going to be in asthma or some other respiratory disease? Could they potentially be in lung cancer? Can you disclose that yet?.

Well, I can say that we're looking within and outside of asthma, where we are particularly excited about opportunities where we can offer high differentiation compared to monoclonal antibodies. And that just doesn't end at cost.

That reflects addressing targets that might be rather intractable antibodies because of their maybe systemic expression patterns where we're leveraging the local nature of our approach. But it's beyond asthma.

I think, at this stage, we're not going to disclose specifically what indications they are, but we want to pursue those projects and then provide more detail once we have data to support our belief that they can offer high differentiation to monoclonal antibodies..

And then one last question. I assume in the Roche deal - it seems pretty typical that Roche would then be kind of privy to see data as it comes in..

Are you referring to the atezolizumab?.

Yes. Yes, sorry, the atezolizumab supply agreement..

Yes.

So do you mind clarifying sort of the question?.

So would they be able to kind of see data from the ongoing trials kind of as part of the agreement, not just whenever you present it publicly?.

Yes. This is Lou. They will be aware of the data as generated..

Mr. Yoder, there are no further questions. I'd like to turn the floor back to you for any final comments..

Thank you. And I just want to thank everyone again for attending and your attention and for, of course your ongoing support of Pieris. We look forward to keeping you updated on our progress throughout the rest of the year, particularly on the fully proprietary programs PRS-343 and PRS-060. Thanks.

Thanks for joining us on the call, and have a great day..

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