Allan Reine – Chief Financial Officer Steve Yoder – President and Chief Executive Officer Lou Matis – Senior Vice President and Chief Development Officer.

Jon Miller – Evercore ISI Pam Barendt – Cowen & Company Biren Amin – Jefferies Matt Phipps – William Blair Umer Raffat – Evercore ISI.

Greetings, and welcome to the Pieris Pharmaceuticals’ Third 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. Thank you. You may begin..

Good morning, everyone and thank you for joining us for our third quarter 2018 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 this morning, 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 related to the timing and progress of our clinical trials and preclinical programs.

Our partnerships and our financial position and actual results or events may differ materially from those expressed or implied by such forward-looking statements. Factors that might cause 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’ll hand the call over to Steve..

Thank you, Allan and thank you to everyone for joining us today for this 2018 third quarter earnings call. I’ll begin by giving a brief introduction to Pieris followed by an update on her clinical and preclinical pipeline. I will then go over some corporate highlights from this past quarter and discuss our plans for next year.

As a reminder, we are a clinical stage biotechnology company developing novel Anticalin-based therapeutics across multiple indications and are particularly focused on respiratory diseases in oncology. Anticalin proteins which are proprietary to Pieris are engineered lipocalins.

Lipocalins are proteins that are naturally abundant in the body whose function is to bind and transport different molecules. These proteins are small and monovalent and they’re distinct size and structure, allow us to pursue a variety of treatment options.

They also have good drug like properties, which continued to be demonstrated through clinical data, including data we will be discussing on today’s earnings call. We believe that having good drug like property is one of the two essential components of developing successful drugs.

The other is having biology that is differentiated from other drug, such as traditional monoclonal antibodies. To that point, we are engineering Anticalin proteins to be administered through inhalation and advantage over injectable monoclonal antibodies that informs our entire respiratory pipeline.

We are also engineering Anticalin proteins to drive distinct agonistic activity, a foundation of our bispecific immuno-oncology platform, which focuses on T cell costim agonism.

Turning to our core value drivers, our lead respiratory asset, PRS-060, is an inhalable IL-4 receptor alpha antagonist addressing the same target as the FDA approved dupilumab for the treatment of uncontrolled asthma. This molecule was designed to target a validated pathway in a localized way via inhalation.

In addition to be in a high-value commercial opportunity, it also serves as proof of concept for the novel delivery potential of our drug class. We are developing PRS-060 in collaboration with AstraZeneca, with retain co-development and co-commercialization rights in the United States.

Our lead oncology asset, PRS-343, is a fully proprietary immuno-oncology bispecific drug candidate composed of two Anticalin proteins targeted 4-1BB that are genetically fused to its antibody targeting HER2.

This tetravalent molecule was designed to preferentially activate tumor-specific T cells in the tumor microenvironment through a unique agonistic mode of action with the objective of providing a larger therapeutic window than that of traditional monoclonal antibodies engaging 4-1BB.

I will now give an update on our overall pipeline beginning with respiratory diseases and followed by immuno-oncology and other programs. Turning to respiratory. We’re pleased to announce that PRS-060 was safe and well tolerated in a single ascending dose Phase 1 study in 48 healthy volunteers.

The drug candidate was tested at nebulized doses ranging from 0.25 milligrams to 400 milligrams. We are very encouraged by the data from this study as it’s the first time Anticalin protein has been administered to human subjects via inhaled delivery.

We continue to enroll subjects with mild-controlled asthma who have elevated levels of fractional exhaled nitric oxide or FeNO in a placebo-controlled multiple ascending dose at Phase 1 study, where we are evaluating the safety, tolerability and PK profile of our drug candidates along with its capacity to reduce FeNO, which is an established marker of lung inflammation in subjects those with PRS-060.

We and our partner AstraZeneca expect to report full data from these Phase 1 studies at an upcoming medical meeting. After the completion of the Phase 1 studies, AstraZeneca will sponsor the Phase 2a study, which will focus on moderate-to-severe asthmatics.

Once the Phase 2 study is complete, we may exercise our options to co-develop and separately to co-commercialize this program in the United States.

PRS-060 is one of five programs we are developing with AstraZeneca as part of the collaboration, we signed with the company 2017 in which we have co-development and co-commercialization options for PRS-060 and two additional programs. Non PRS-060, we have initiated discovery efforts for one additional AstraZeneca program earlier this year.

We are also actively developing our own proprietary respiratory pipeline outside of the AstraZeneca alliance and we initiated discovery efforts on two programs earlier this year. I would now like to provide an update on our immuno-oncology pipeline. We continue to enroll patients in our dose escalation study for PRS-343.

We’ve had previously guided initial data released by year-end and I would like to provide an update on a tiny today. We now intend to record initial data for this study in the first half of 2019.

Although this represents a shift from our previous timeline, we believe that disclosing data after completing the dose escalation phase, while prioritizing the enrollment of patients across a range of immunotherapy responsive tumor types, will provide a more complete data set from which to evaluate the drug candidates potential.

As a reminder, the protocol allows for the flexibility to enroll up to 10 patients per cohort and the company has recently begun screening for the 11th cohort in this study. In August, we initiated a dose escalation trial of PRS-343 in combination with the PD-L1 inhibitor atezolizumab. And we intend to report initial data from this trial also in 2019.

Beyond PRS-343, we recently announced another 4-1BB anti-human bispecific addition to our pipeline, PRS-343. PRS-343 is a PD-Ll/4-1BB antibody-Anticalin fusion protein that we are developing as part of our immuno-oncology collaboration with Servier.

Published preclinical models of anti-PD-1 in combination with anti-4-1BB therapy have demonstrated robust antitumor activity and we are enthusiastic about the prospect of investigating the potential synergistic effects of a bispecific directed to this pair of targets.

We will present preclinical data from this program for the first time at the Society for Immunotherapy of Cancer SITC 2018 Annual Meeting at the end of this week. We continue to expand our immuno-oncology pipeline beyond this both proprietary and partnered with in our two IO focused alliances with Servier and Seattle Genetics.

As previously mentioned, we intend to file two INDs next year, one of which will be for a wholly owned program and the other one for one of the partnered programs we are developing within our Servier collaboration.

Finally, I would like to discuss PRS-080, which is a potent hepcidin antagonist known as the master negative regulator of iron metabolism. This program is nearing the end of an ongoing Phase 2a study in dialysis-dependent patients suffering from functional iron deficiency anemia.

Due to some technical issues, unrelated to the drug product near the end of the trial, we fell behind our intended schedule of enrollment completion by this stage. We plan to enroll one additional patient soon, and wanted to use the occasion of this quarterly earnings call to disclose highlights of data generated to date from the trial.

The study is evaluating five weekly doses of PRS-080 versus placebo at two different dose levels, 4 milligrams per kilogram and 8 milligrams per kilogram. To date, the drug appears to be safe and well tolerated at both dose levels tested, another example of an Anticalin therapy demonstrating a favorable safety profile in the clinic.

The drug also was shown to potently inhibited hepcidin and at both dose levels demonstrated substantial iron mobilization and increase the transferrin saturation, similar to what was seen in the Phase 1b single-dose study. To date, there has been no conclusive change in hemoglobin at either dose versus Placebo.

We believe that weekly doses of hepcidin antagonist may not consistently suppress the hepcidin levels to drive the hemoglobin effect due to hepcidin rebound, which may reduce the window of opportunity for the mobilize iron to drive increased hemoglobin levels.

We believe more frequent dosing could lead to more consistent, hepcidin suppression that could lead to more significant hemoglobin changes versus placebo. We plan to enroll the final patient this year and present the full data set from this trial in 2019.

We also plan to share the dataset with ASKA Pharmaceutical, at which point ASKA will decide whether to exercise its right to develop and commercialize PRS-080 in Japan and other Asian territories. Additionally, we plan to share the dataset with potential partners outside of ASKA’s optimal territories.

Moving beyond the pipeline, we are excited to welcome two new members to our Board of Directors, Dr. Peter Kiener and Dr. Matthew Sherman, Dr. Keener has served in multiple executive roles, most recently as the Chief Scientific Officer of Sucampo and Dr.

Sherman, who most recently served as Executive Vice President and the Chief Medical Officer of Acceleron Pharma. 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 2018..

Thank you, Steve. We recognized revenue of $8.3 million for the quarter ended September 30, 2018 as compared to $3.9 million revenue in the quarter ended September 30, 2017.

This increase in revenue is primarily related to the increased level of activity with respect to our collaboration agreements with both AstraZeneca, which commenced in June 2017, and Seattle Genetics, which commenced in February of 2018.

Research and development expenses were $11.4 million for the quarter ended September 30, 2018, as compared to $6.3 million for the year early quarter a year earlier. This increase in R&D expenses reflects advancement across our pipeline of programs as well as preparation for an advancement of clinical study.

General and administrative expenses were $4.7 million for the quarter, as compared to $2.9 million for the quarter ended September 30 of last year. This increase in G&A expenses reflects higher personnel costs and professional services cost for audit and legal as well as an increase in G&A costs to support the growing business of our company.

The net loss for the quarter was $6.2 million or $0.11 per share, compared to $7.1 million or $0.16 per share for the quarter ended September 30, 2017. Turning to the balance sheet. Total cash, cash equivalents and investments as of the quarter end September 30, 2018 totaled $137.3 million as compared to $82.6 million as of December 31, 2017.

This increase was driven primarily by the $47.2 in net proceeds from the February 2018 equity offering. The $30 million upfront payment as part of the Seattle Genetics immuno-oncology collaboration and the $12.5 million milestone payment from AstraZeneca achieved in the fourth quarter of 2017, that was paid out in the first quarter of this year.

This was offset by $35.7 million approximately of operating cash expenditures during the year. 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, while continuing to leverage the benefits of having a novel platform. We are pleased with the clinical data from PRS-060.

We believe that the PRS-080 clinical data are another example of a good-drug like properties of the Anticalin drug class, and we look forward to sharing PRS-343 data next year once we have the more comprehensive dataset to better inform on continued development of that program. Thank you for joining us on the call today.

We would now like to open the call for your questions..

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Umer Raffat with Evercore ISI. Please proceed with your question..

Hi, guys. It’s actually Jon Miller on. I have a couple of questions. Let’s start with the PRS-060 data that you say it’s an upcoming medical meeting’s.

Is this is still a 2018 readout? We’re still expecting this data this year or is this going to wait till next?.

Hi, Jon, Steve here. So we haven’t guide specifically on which upcoming medical conference that will be, given the fact that we liked the ability to talk about both the single-ascending dose and the multiple-ascending dose trials together. We like that opportunity. I think, you should be thinking about this as something beyond 2018.

And with a general reminder, I just got to say, typically there are two prominent respiratory conferences that people use. You have the American Thoracic Society in the spring and you have the European Respiratory Society in the fall..

Thank you. For PRS-343 seeing that the push out on data is there, I’m trying to figure out how to interpret that. It seems like you’re now going into this 11th cohort to the actual approved herceptin dose.

So have you seen any responses at all at lower doses? And do we have a way to differentiate responses from your molecule relative to the responses that you might expect if the herceptin does?.

Yes, look, it’s a fair question. I think as we mentioned, what we’re saying here is, we’re not going to comment on any trial data thus far.

What we have done, I think it’s a good practice, as when we set a goal for where we want our drug to deliver, we set qualitative and quantitative PD thresholds to release data prior to completing the enrollment in the trial. And we’re simply not there yet. I think there are a number of factors that can influence the right dose level.

And then as you noted, we are screening the 11 cohort, which is a dose in line with your trastuzumab as indicated at the metastatic setting. And we will be able to probe that cohort as well as we will be enrolling in that even prior cohorts..

All right. Thanks a lot guys..

Thank you. Our next question comes from the line of Chris Shibutani with Cowen & Company. Please proceed with your question..

Hi, this is Pam on for Chris.

Can you provide some rationale around or mentioned in the press release of now focusing on immunotherapy-responsive tumor types in the 343 monotherapy study?.

Sure. I think I’ll let Lou maybe talk to the clinical trial enrollment strategy. So we, as part of the dose escalation phase have allowed patients with any HER2 tumor type to be enrolled and that we, of course it – way to go forward at the outset. And we will continue to do that.

But what we’re seeking to do is now that we’re able to enroll a large number of patients in each cohort as we go forward to complete the dose escalation. We can focus on a number of different HER2-positive tumor types that we’ve been want to really explore detail from the outset, such as in particular gastroesophageal cancer and bladder cancer.

And to look at a number of patients with those kinds of tumors in the context that PD-1 pathway inhibitors have shown some activity in those tumor. And we would like to explore in more depth as we go forward with the activity of the drug in patients with HER2-positive subset – the HER2-positive subset of those tumor types..

Thank you. That’s very helpful. And just another quick follow-up for me. Can you comment on how the ultimate distribution of tumor types will look generally? How many patients can we except in the most prevalent tumor type, for example. Thanks so much..

Sorry. I missed the first thing you said the – what something distribution..

Sorry. The ultimate distribution of tumor types in the 343 monotherapy study.

Given that now you’re focusing a little bit more on the immunotherapy-responsive tumor types?.

So we’re not going to comment on the full distribution at this time. I think you can come back to when we disclosed data in June, where we have the road approximately 15 or 17 patients. That was the broadly distributed across several different HER2-positive tumor types.

As we go forward, we will continue to bias as we said towards specific tumor types, where we’re not going to disclose specifically what those are at the present time..

Thank you very much. Very helpful..

Thank you. Our next question comes from line of Biren Amin with Jefferies. Please proceed with your question..

Hi, guys. Thanks for taking my question.

Just maybe to start on 343, how many additional cohorts do you plan on dosing beyond this 11th cohort?.

Yes, let me pass that question over to Lou..

Yes. As written in the protocol, we initially design the trial to go up through cohort of 11, which is – we’re now screening patients with that cohort, which will be the highest dose cohort.

And we determined at the outside if the drug was safe and well tolerated through cohort 11 and factors such as bioavailability at the tumor side receptor occupancy with very higher doses, we will be prepared to explore it.

So I think that that’s an optionality that we have given the behavior of the drug to date but we would make that decision once we’ve seen – I mean, the initial activity of the drug in the cohorts coming out..

Got it. And then just on the current trial, I mean, you’ve amended it to include or to enroll patients with immunotherapy-responsive tumor types.

Are we talking about, patients that have PD-L1 high or are we talking about, patients were PD-1 inhibitors are more effective? Can you define what this population is?.

Yes, that’s because we were describing our strategy moving forward. We didn’t actually amend the trial, so to speak. It’s in the formal way. So we’re not – no, we’re not necessarily looking for certain biomarkers as inclusion criteria. Clearly, those are biomarkers that we are measuring as we go forward.

And as most immunotherapy development programs will look at whether PD-L1 positive tumors are conferring advantage in terms of responsiveness, but – so we’re measuring those that we’re not including any biomarkers as inclusion criteria at this time..

Got it.

And then are you looking at all at HER2 mutation tumor types in the 343 study?.

No, we were only looking at HER2-positive tumors that actually has elevated expression either by immunohistochemistry or FISH immunohistochemistry. And I think that the nature of the drug mechanism of action actually requires HER2 be elevated levels of protein on the cell surface.

That’s how the drug works to cluster the anti-4-1BB Anticalins and activate the T-cells [indiscernible]. The other thing we are doing, of course is, validation is we’re collecting longitudinal biopsies, where possible. So we can read introspectively confirm HER2 status by IHC.

And we have shown and presented at meetings our data that shows that the drug from the immunologic standpoint can activate 4-1BB T-cells for tumors that express HER2 less than 3-plus levels or 2-plus levels.

But as far as the criteria for enrollment in this trial were concerned, we restricted the patients to be enrolled to those that have equivalent of a 3-plus positive HER2 – 3-plus HER2 positive tumor.

Retrospectively, it would be longitudinal biopsies will be able to see exactly what the HER2 status was of the tumor at the time it should be – the drug was initially administered to the patient..

Got it.

And maybe just one last question on 060 in the mild asthmatic study that’s currently ongoing, what type of a result would be considered? It would be defined as clinically relevant in terms of reduction in FeNO?.

Yes. The amount of FeNO reduction that we require to move forward and consider a positive outcome was actually decided in consultation with AZ of course. And we used some data from previous studies and benchmarks.

The closest study to what we’re doing in terms of patient population who are looking at FeNO reduction in mild asthmatics came from the [indiscernible] single chain variable fragment study and they were presented at the American Thoracic Society meeting in May of 2017. So that was one clear benchmark.

But we also of course looked at FeNO reductions in some of the – that were achieved in some of the trials in patients with moderate-to-severe asthma as well.

And from that overall analysis of the data and the correlation of FeNO reduction with drug efficacy, we have – what we believe is a statistically significant reduction versus placebo benchmark whether we move forward.

And so, as part of the current multi-dose – multi-ascending dose trials in the mild asthmatics, we’re looking at FeNO reduction at multiple dose levels and from there we’ll be able to determine the appropriate dose for the Phase 2a study in the severe asthmatics..

All right. Thank you..

Thank you. [Operator Instructions] Our next question comes from the line of Matt Phipps with William Blair. Please proceed with your question..

Thanks guys. First one PRS-060, I’m not sure how much you can say at this point. But can you mention anything about the serum bioavailability between the nebulize in IV formulations and maybe half-life.

And then anything from preclinical studies is just that a dry powder inhalation might even improve the game by a little bit of ability above the nebulized formulation..

Yes. Hi, Matt, Steve here. We’re not disclosing any data in terms of – either be a single ascending dose or the ongoing multiple-ascending dose study. I think what we can say for the nebulized to dry powder formulation nuances that, a lot of this is driven by particle size.

And so, I think we have a really good understanding of what particle size that we need to resolve to have the drug be deposited in the right part of the airways.

Until I think with AstraZeneca’s world-class formulation capabilities and based on data that we generated, which we’re not at liberty to disclose today, we’re extremely confident that we have the right particle size in the nebulized formulation and we’re very confident that we’ll be there for the dry powder, which would be the formulation of the way into our Phase 2a study..

Thanks. And then, Steve, I’m not sure if I heard you correctly.

Did you say that you have pharmacodynamic kind of boundaries or benchmarks set in the PRS-343 trial and you haven’t met those yet? Can you clarify what you said there?.

Sure. I’m happy to do so. I think I was saying that what we’ve done as we do for all of our programs, we said, what is good enough look like in order to declare success as well as when we want to disclose the initial data for our program.

And for PRS-343, we said on qualitative criteria, how many different types of the biomarker results we’d like to see activity. And then we also said quantitative thresholds that we wanted to achieve prior to disclosing data, whether that was – that would be in the context of interim data before completing enrollment. And yes, we’re not there yet.

We’re not going to comment on the data at this time. We think a more fulsome data set would be the right way to disclose in terms of all these IL programs that are ongoing right now. And we wanted to try to respect the benefits of having a more fulsome dataset.

And so correct, we’re not there yet on the quantitative thresholds to justify coming out with the data set. But we are continuing to enroll as you saw, we were continuing to escalate and we continue to generate data from the more recent cohorts and we continue to over enroll within these higher cohorts..

Thanks. And then last thing, I guess. That’s exactly, but it seems like obviously you’ve seen something encouraging to support the IND-enabling studies of additional 4-1BB style biospecifics with this platform or maybe some of the other proprietary ones were not disclosed when you’re working on maybe have different mechanisms..

Sure. I think, yes, Matt. So we have not seen any showstoppers for PRS-343. With a lot of things need to be considered to have a good drug, drug like properties and their biology.

And on the ladder part the biology that will be a stake for PRS-343 is different than the biology of stake PRS-344, which is the PD-L1 4-1BB by specific where you have the benefit of a double IO engager on the PD-L1 one PD1 access disruption. And there’s still that localized benefit given where PD1 is expressed.

So there is significantly nuanced biology between those programs. I think certain merits, a continuation of IND-enabling activities for a number of programs including PRS-344. But again, I go back to reiterate the fact that we’re not there yet on PRS-343, it doesn’t mean we won’t get there.

We’ve got to just continue to work through escalation in every moment and look at the data as totality..

Excellent..

Thank you. Our next question is a follow-up from the line of Umer Raffat with Evercore ISI. Please proceed with your question..

Hi. Thanks so much for taking my question. John beat me to it on the first time around. So I had a quick follow-up if I may. I wanted to maybe spend a minute on the Novartis inhaled asthma program. And my questions were twofold. First, so Novartis management claims they’ve cleared all preclinical tox on their inhaled T slip program.

Is it fair to say that you’ve also completed a comprehensive preclinical tox on your inhaled IL-4 as well? And secondly, how significant is that competition? It sounds like they’re fast tracking at the Phase 2. So I just wanted to understand the timelines because this appears to be getting competitive relatively early stage..

So, Umer maybe I’ll take this – Steve here, maybe I’ll take a cut it out. I think there’s two different aspects to your question. The first considers the tox and I guess on the specific drugs in hand. And then the second one is the overall biology, maybe T slip biology versus IL-4 receptor alpha.

Maybe I can take the first one and I’ll let Lou take the second one. We have currently we’ve completed a four weeks tox for our drug PRS-060 that allows us to move through the 1a to 1b and then the Phase 2a study.

Beyond that we will then parallel process along with a Phase 2a development, the longer tox studies that will enable later stage development.

I think when you look at the tox data that we have, which we were very encouraged by, when we look at the safety intolerability data from the Phase 1a study, where we say we are safe and well tolerated and the fact that we continued to escalate in the multiple-ascending does study.

And we looked at the overall biology of IL-4 receptor alpha antagonism with the significant safety database for dupilumab. We’re very encouraged by the tox data we’ve generated to date considering the overall biology and the specific drug like properties of PRS-060.

So whether or not I would call it comprehensive tox, I would say, we’ve done absolutely what is needed to do to take this program through Phase 2a and we will be there in preclinical tox beyond that if necessary to carry us further development beyond that. And then with respect to T slip versus IL-4 receptor alpha, I’ll let Lou handle that one..

So obviously T slip is another quite interesting target for mild-to-severe asthma. And we are quite aware of the data. The Phase 2a data that published potentially show a benefit that was more broadly [indiscernible] FeNO type. But that was from a Phase 2a and depiction were very similar in that Phase 2 study.

So we’ll see how that has systemically administered piece that plays out in Phase 3, but it doesn’t mean that’s going to be more effective in the target patient population and we’re addressing with PRS-060.

I think that, for example, we were surprised to see that the energy capacity, but he was not active in atopic dermatitis where we did see quite active in the atopic dermatitis. And of course we found the market because, the inflammatory mechanisms did work in dermatitis and [indiscernible] we’re off to a significant extent.

So we’re aware of their data and we are very bullish and the IL-4 out there as a target for inhaled delivery..

Thank you very much..

Thank you. Mr. Yoder, there are no further questions at this time. I’ll turn the floor back to you for any final comments..

No, I have no further comments. I just wanted to thank everyone again for your attention today and for your continued support at Pieris. We’ll look forward to keeping you updated on our progress. And thank you again for joining the call. Have a great day..

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