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Edited Transcript of ABUS earnings conference call or presentation 14-Mar-18 8:30pm GMT

Thomson Reuters StreetEvents

Q4 2017 Arbutus Biopharma Corp Earnings Call

Burnaby Mar 15, 2018 (Thomson StreetEvents) -- Edited Transcript of Arbutus Biopharma Corp earnings conference call or presentation Wednesday, March 14, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Koert VandenEnden

Arbutus Biopharma Corporation - Interim CFO & VP of Finance

* Mark Joseph Murray

Arbutus Biopharma Corporation - CEO, President and Executive Director

* Michael J. Sofia

Arbutus Biopharma Corporation - Chief Scientific Officer

* Tiffany Tolmie

* William T. Symonds

Arbutus Biopharma Corporation - Chief Development Officer & Executive Director

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Conference Call Participants

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* Antonia Borovina

Bloom Burton & Co., Research Division - Associate of Equity Research

* Keay Thomas Nakae

Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics

* Liisa Ann Bayko

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Madhu Sudhan Kumar

B. Riley FBR, Inc., Research Division - Analyst

* Michael Jonathan Yee

Jefferies LLC, Research Division - Equity Analyst

* Yu Xu

William Blair & Company L.L.C., Research Division - Co-Group Head of Biopharma Equity Research, Partner & Biotechnology Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Arbutus Biopharma Fourth Quarter and Year-end 2017 Financial Results and Corporate Update. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to hand the floor over to Tiffany Tolmie, Manager of Investor Relations. Please go ahead.

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Tiffany Tolmie, [2]

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Thank you, and good afternoon. And thank you for joining us as we review our 2017 year-end financial results and provide a corporate update. Speaking on today's call are: Dr. Mark Murray, Arbutus' CEO; Dr. Mike Sofia, Arbutus' Chief Scientific Officer; Dr. Bill Symonds, Arbutus' Chief Development Officer; and Koert VandenEnden, Arbutus' interim CFO. Mark will provide some opening comments. Mike will provide an update on our 2 new exciting agents' plans and for the clinic this year. Bill will provide an update on the soon-to-be initiated ARB-1467 combination study. Koert will review our 2017 year-end financial results, and then Mark will finish with a closing summary and outlook on the year ahead. I'd like to remind everyone that certain statements made on today's call constitute forward-looking statements under applicable securities laws. Forward-looking statements discussed in this conference call include, but are not limited to, developing our delivery technology with Roivant Sciences, expected benefits of consolidating our operations in Warminster, Pennsylvania, our clinical plans for ARB-1467 and AB-423, along with their potential efficacy and timing of reported results, plans for our preclinical assets such as AB-506 and AB-452, our expected cash run rate and expected revenues from our current and potential licensing agreements. All of these statements involve certain assumptions, risks and uncertainties that are beyond our control and can cause our actual results to differ materially. A description of these risks can be found in our latest disclosure documents and recent press releases. In addition, Arbutus does not undertake any obligation to update any forward-looking statements made during this call. This conference call is being webcast live and the archive will be made available on our website at www.arbutusbio.com following today's call. At the end of the prepared comments, we'll open up the call for questions. I will now turn the call over to Mark.

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [3]

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Thank you, Tiffany, and thank all of you for joining us today on the call and the webcast. I will provide a brief recap of last year's achievements and outline our corporate objectives for 2018. First, I'd like to spend a few minutes expanding on some significant recent developments in our business.

We began the year from a strong financial position after closing a $116 million financing with our strategic partner, Roivant Sciences. With over $200 million in cash to start the year, we are well capitalized to fund our current development plans well beyond 2019. On February 13, we entered an exclusive negotiation period with Roivant to negotiate, on an exclusive basis, the terms and conditions of our proposal to jointly develop Arbutus' nucleic acid delivery platform, based on our Lipid Nanoparticle and GalNAc technologies through a new company that would jointly own, manage and develop these technologies. Arbutus will retain its patisiran royalty entitlements as well as the continued right to these technologies for all applications in HBV. This is a complicated transaction involving technology, intellectual property, people and facilities.

We've made considerable progress, but we need a little more time to complete the agreements needed, so we have triggered the 30-day extension period contemplated in the original exclusivity agreement. Last year, our LNP technology achieved a major clinical validation after the successful completion of Alnylam's Phase III trial for its patisiran product, which is enabled by our LNP technology. Alnylam has since completed regulatory filings required for approval of patisiran, which could result in regulatory approval in the second half of this year. Arbutus is owed a low- to mid-single-digit royalty tiered based on global sales of patisiran, and we can receive our first royalty payments late this year. The company anticipates that this royalty could provide meaningful runway, extending capital to fund our HBV development programs.

Recently, we announced settlement of litigation initiated by Acuitas in October of 2016. The settlement terminates Acuitas' right to use or further sublicense any of our LNP technology. This is a major milestone which establishes Arbutus as the owner and only source of this industry-leading technology platform, with the ability to develop a full range of applications. We also recently announced our plan to consolidate our HBV R&D activities and our business operations around our new research site in Warminster, Pennsylvania. Our objective is to improve operational and financial efficiencies, as we continue to focus on our mission to cure HBV. As we transfer activities to Warminster and reduce our overhead, we will look for opportunities to leverage Roivant's infrastructure and human capital to expedite more efficient advancement of our HBV assets.

Now on to our HBV mission. Last year, we completed a series of cohorts in HBV patients, with our lead RNAi interference agent ARB-1467. In these studies, we were able to demonstrate significant stepwise additive reductions in surface antigen levels in patients with repeat dosing of ARB-1467. Importantly, several patients in these studies reached very low absolute surface antigen levels after 3 months of bi-weekly dosing. This year, we are undertaking a study of ARB-1467 in combination with standard of care tenofovir and peginterferon. Bill Symonds will describe this study later in the call.

Last year, our first-generation capsid inhibitor, AB-423, completed Phase I single-ascending and multi-ascending dose studies in healthy volunteers and demonstrated itself to be safe and well tolerated. We have also been rapidly advancing a far superior next-generation capsid inhibitor, referred to as AB-506 towards clinical development, which Mike will describe shortly. Apart from advancing our capsid inhibitor program, this year, we are also advancing our novel and unique HBV RNA destabilizer agent. This is a small molecule that facilitates degradation of all HBV viral RNAs, resulting in reduced protein levels. I'll now turn the call over to Mike to describe these programs for you. Mike?

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Michael J. Sofia, Arbutus Biopharma Corporation - Chief Scientific Officer [4]

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Thanks, Mark. We have assembled a robust portfolio consisting of multiple HBV assets, complementary mechanisms of action interfere at different points in the virus' life cycle to impede viral replication and antigen reduction and reawaken the host of NUC systems.

Our strategy is to improve treatment options for HBV patients with drug combinations including our proprietary agents, each of which has the potential to improve standard of care, contribute to a curative combination regimen. We consider capsid inhibitors to be an important element of a curative combination regimen for HBV. While current standard of care NUC therapy reduces HBV DNA levels in patients, there are still substantial virus replication in the liver and continued production of large amounts of viral antigens.

Capsid inhibitors are direct-acting antivirals that have a dual mechanism action that impacts the HBV life cycle. They inhibit pre-genomic RNA encapsidation and they also block capsid disassembly, which inhibits cccDNA synthesis. Addition of a capsid inhibitor can contribute to further reducing or eliminating HBV replication in the liver. There is already clinical proof of concept data that shows capsid inhibitors reduce HBV DNA in patients.

The capsid inhibitor space is competitive. Late last year, a new benchmark of roughly 3 log reduction in HBV DNA after 28 days of treatment was set. Based on internal modeling, evaluating the likely drug levels required to achieve a corresponding decrease in HBV viral load, we believe our AB-506 can meet or exceed this level of viral load reduction. The low nanomolar intrinsic potency and promising pharmacokinetic properties of AB-506 suggests a competitive profile. In order to prioritize our use of resources, we intend to continue rapidly advancing AB-506 into clinical testing before proceeding with additional clinical evaluation of AB-423.

We anticipate completing IND or CTA enabling studies and completing a regulatory filing for AB-506 by mid-year. Results of additional preclinical studies, including AB-506 drug combinations with agents acting via different mechanism of actions, will be presented throughout 2018 at various scientific conferences. This year, we will also advance the clinic AB-452, a novel, orally-available, small molecule HBV RNA destabilizer with a broad genotype coverage. This is a very potent molecule which mediates degradation of all HBV viral RNAs, and thus, all viral antigens, potently inhibiting all stages of the viral life cycle, including HBV S-antigen.

AB-452 also shows synergistic effects when combined with RNAi agents in vitro. AB-452 has ideal characteristics for inclusion in a combination regimen, with potential for once-daily oral dosing. We expect to file an IND or CTA on this molecule by mid-year to enable a Phase I study in healthy volunteers. At Arbutus, we believe that a key component of any curative regimen will be agents that drive S-antigen to low levels in patients. Therefore, we have made a commitment to S-antigen reduction in our pipeline.

I have just reviewed AB-452, which reduces S-antigen, and Bill will talk about our current clinical study with ARB-1467 designed to reach S-antigen loss. In addition to these programs, we have also developed a GalNAc RNAi conjugate technology that we're applying to HBV. This Arbutus proprietary technology will enable sub-cutaneous administration of an RNAi therapeutic that targets S-antigen and all other HBV antigens. This GalNAc HBV agent could complement our small molecule agent, with more convenient dose administration than ARB-1467. We recently nominated a candidate to proceed to IND or CTA enabling studies and anticipate advancing this product as quickly as possible. We'd now like to turn the call over to Bill.

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William T. Symonds, Arbutus Biopharma Corporation - Chief Development Officer & Executive Director [5]

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Thanks, Mike. I will provide an overview of our clinic -- current clinical study of ARB-1467. I will remind you that ARB-1467 facilitates potent knockdown of all the viral proteins, especially S-antigen. Last year, we studied ARB-1467 in a series of Phase II multidose cohorts in virally suppressed patients. In this study, we learned several things, which we are incorporating in our current clinical study with ARB-1467. The goal of this study is to drive hepatitis B surface antigen and hepatitis B virus DNA levels as low as possible and potentially achieve undetectable levels of these that are sustained off-treatment.

This triple combination study is the first of its kind for an RNAi agent in HBV patients. The 30-week trial will enroll 20 E-antigen negative treatment naive patients who will receive biweekly doses of ARB-1467 at 0.4 milligrams per kilogram, along with daily tenofovir, followed by the addition of weekly pegylated interferon to maximize S-antigen reductions and allow for evaluation of the effects on the immune response in patients who have achieved low HBV DNA and hepatitis B surface antigens. Patients who meet predefined treatment criteria in week 6 will qualify for the addition of weekly interferon treatments for the remaining 24 weeks, while nonresponders at this time point will discontinue all medications.

The study will conclude with a 24-week post-treatment follow-up period to evaluate all treatment response. Interim on-treatment results from the study are expected in the second half of 2018, followed by final results in 2019. We believe that this regimen has the potential to significantly drive towards S-antigen loss, which if durable, could pave the way for later stage studies and a potential approval pathway for ARB-1467. Also, these data will help inform the design of future combination studies with other agents with -- from our pipeline. I would now like to turn the call over to Koert.

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Koert VandenEnden, Arbutus Biopharma Corporation - Interim CFO & VP of Finance [6]

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Thanks, Bill. I'll review the financial highlights for the fourth quarter of 2017. So first, I'll touch on the income statement. Arbutus' net loss for Q4 2017 was $35.9 million or $0.65 per share as compared to $218.7 million or a loss of $4.05 per share in Q4 of 2016. The Q4 loss in 2017 was largely impacted by noncash items, including an impairment of intangible assets of $40.8 million, which was offset by a deferred tax benefit of $24.3 million. The deferred tax benefit relates to the intangible asset impairment and the impact of a reduced tax rate resulting from U.S. tax reform.

In Q4 2017, we recorded revenues of $2.5 million versus a reversal of revenue of $200,000 in Q4 2016. Revenues recognized were primarily related to the ongoing license agreement with Gritstone Oncology and related services performed.

Now turning to expenses. Total research, developments, collaborations and contracts expense was steady at $17.8 million compared to $17.2 million in Q4 of the year prior, as we continue to invest in developing our clinical assets and in our preclinical pipeline, as described by doctors Murray, Sofia and Symonds earlier on this call. G&A expenses have decreased to $3.6 million compared to $4.7 million in Q4 2016. This decrease was largely a result of the expiration in Q3 2017 of repurchase rights on shares issued as consideration in a 2015 merger, which historically resulted in noncash, stock-based compensation charges.

Other income increased from a loss of $1.4 million in Q4 2016 to a flat net figure of nil in Q4 2017. Other income includes foreign currency income or loss, net interest income and noncash changes in fair value of contingent consideration.

Finally, I'll discuss our cash position and run rate, which we have strengthened and extended substantially around the end of 2017, with the completion of $116.4 million strategic investment by Roivant Sciences. During the fourth quarter, we closed the first tranche of this financing for gross proceeds of $50 million. This largely offsets our 2017 operating cash burn. As a result, we had a year-end aggregate cash and investments balance of $139 million at the end of 2017 compared to $143.2 million at the end of 2016.

Following shareholder approval in January 2018, we closed the second tranche of Roivant's investment for additional cash proceeds of $66.4 million. On a pro forma basis, including the second tranche proceeds, we start 2018 with a cash balance of $205 million. With the close of the investment from Roivant and efficiencies from our site consolidation, we expect our current cash balance to fund the company well beyond 2019. The potential benefit of our future royalty entitlements from Alnylam has the potential to further extend our cash run rate. With that summary, I'll turn the call back over to Mark.

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [7]

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Thanks, Koert. We closed with an excellent fourth quarter, while starting this year off from a solid financial position to advance our HBV pipeline. In conclusion today, I would like to highlight a few key points that I believe will continue to drive value for Arbutus and its shareholders in the coming year.

Our LNP licensee, Alnylam, has projected regulatory approval for its patisiran product by the second half of 2018, which could result in Arbutus receiving royalty payments this year. We are initiating our first combination study of ARB-1467 tenofovir and pegylated interferon. We'll share interim on-treatment data from this study in the second half of the year. And by mid-2018, we plan to complete regulatory filings of our novel HBV DNA -- HBV RNA destabilizer, AB-452 and the next-generation capsid inhibitor, AB-506, to enable the start of Phase I studies in human volunteers this year.

Overall, it was another outstanding year for Arbutus, and we look forward to you joining us for another pivotal year in 2018 and beyond. Thank you. Operator, please open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we do have a question from the line of Katherine Xu with William Blair.

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Yu Xu, William Blair & Company L.L.C., Research Division - Co-Group Head of Biopharma Equity Research, Partner & Biotechnology Analyst [2]

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I'm just wondering, with regards to 452 how potent it is. So from the data that you have so far, Mike, how does the potency compare to 1467, and how does that compare to the GalNAc candidate that you have?

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Michael J. Sofia, Arbutus Biopharma Corporation - Chief Scientific Officer [3]

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Well, I will say that 452 is a very potent molecule. I think we've reported it's about 1.9 nanomolar EC50 in all cell lines that we look at HB -- inhibition of HBV S-antigen production. We see a very strong inhibition of S-antigen production in HBV animal models, greater than 1 log reduction in these models. It's hard to compare the 2 technologies. They work very differently. But I think as we said, one of the things we believe is that these molecules could work synergistically together to get maximum reduction in S-antigen overall, and we certainly have seen that in preclinical models. So it is a very potent molecule, the AB-452. Related to our GalNAc, we've not disclosed any data on that yet, and I think we will actually be disclosing some data in some upcoming scientific meeting. But safe to say it's a very -- it's, again, very potent agent.

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Yu Xu, William Blair & Company L.L.C., Research Division - Co-Group Head of Biopharma Equity Research, Partner & Biotechnology Analyst [4]

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Great. And with regard to the combination 1467 plus NUC plus interferon, what kind of data do you intend to generate that you think would be the hurdle [on to meet] to getting to Phase III? And then from previous monotherapy or in the new combo study, it seems like the IL28 cc patients were the responders. Do you still expect that in this triple combo?

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [5]

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Yes. So I think, Katherine, in terms of what we expect in this study, it's a study involving 20 patients. In this pilot study, we're looking for the effects on the immune system. Of course, we're doing a lot of the different testing to see what happens in the immune system and how it reawakens, if possible, as we drive S-antigens down -- S-antigens level down lower and lower. A good outcome, of course, would be to see patients who have sustained S-antigen loss after coming off therapy. We'll see what happens. We definitely expect to see S-antigen reductions over time which should be accelerated by the addition of interferon as we've seen with some other molecules out there in the past. So at this point in time, we're open to the different possibilities of what the data tells us as we generate it. And then in terms of your second question, what -- could you remind me what your second question was?

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Yu Xu, William Blair & Company L.L.C., Research Division - Co-Group Head of Biopharma Equity Research, Partner & Biotechnology Analyst [6]

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The L-28 cc.

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [7]

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Yes. So again, we will be evaluating that again in this study. That was, of course, a small group of patients in the first trial. It's something we're intrigued by and something which, I think, scientifically can make some sense. So we'll be looking at that further in this trial.

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Operator [8]

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And our next question comes from the line of Keay Nakae with Chardan.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [9]

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Yes, 2 questions. First, what's your best guess at this point if you file IND or CTAs for 452 and 506, when we might see first interim data from those studies?

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Michael J. Sofia, Arbutus Biopharma Corporation - Chief Scientific Officer [10]

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So we plan to file, for 506, a regulatory filing before the end of the first half of this year. It will go on to healthy volunteers to do the SAD, MAD. And then we anticipate going into HBV patient studies by the end of this year, and we should have some data certainly in the first half of next year of that molecule. For 452 again, regulatory filing by mid this year. So some time probably in the first half of next year, we should see related data in HBV infected patients.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [11]

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Okay, great. And then maybe for Mark. With the settlement with Acuitas, can you remind us what primary improvements you've made to LNP post that cut-off date in that agreement, 2010?

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [12]

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Well, I think, Keay, we've continued to work on different lipids and different features of the platform. And in addition to that, we continue to generate more issued patents over the last couple of years. So -- and our focus in the last couple of years has been really to sort of adapt the technology from RNA interference triggers to larger messenger RNA-like structures. That has been the kind of the generate -- the direction of our work for the last couple of years.

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Operator [13]

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Our next question comes from the line of Michael Yee with Jefferies.

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Michael Jonathan Yee, Jefferies LLC, Research Division - Equity Analyst [14]

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Two questions, one is on the combination study of 1467. Can you tell me what defines a "responder", and then how you will think about the interim results? You sort of alluded you've been looking at a lot of things, but what defines success for an interim? Is that 0 conversion, like, what are you looking for there? And what would you have for an interim? And then the second question is on your capsid inhibitor program. Just wanted to confirm if 423 was actually going to go in to hep B patients, or is that just totally on pause? I would figure you just want to at least get some efficacy there and be able to compare it as you think about developing 506.

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William T. Symonds, Arbutus Biopharma Corporation - Chief Development Officer & Executive Director [15]

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Yes. So Mike, it's Bill Symonds. So as far as the combination study and interim results, what we're talking about there is basically results from that first 6-week period, which leads to the responder/nonresponder time point, where we decide if someone goes on to receive interferon or not. To be considered a responder, you basically -- a patient will have to demonstrate a certain level of reduction in hepatitis B surface antigen and also be below a certain threshold. So they've got to get below a certain number and then they also have to demonstrate the ability to drop their S-antigen. So that would be the definition of someone who's a responder. And then in terms of what we would expect to see there in terms of the interim results in the fall, you'll probably be seeing hepatitis B surface antigen and HBV DNA levels, would be the 2 main things we will be looking at there. And again, it depends where the patients start, of course. But you can imagine patients will be starting with logs of either of those parameters. So in a 6-week time period, I wouldn't expect to see S-antigen loss at that point in time. But over the 30 weeks, I think that's where you can think about seeing these much, much lower levels.

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Michael Jonathan Yee, Jefferies LLC, Research Division - Equity Analyst [16]

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So just to be clear, I mean, at the end of 24 weeks, you could see people who have complete reductions of S-antigen DNA and potential 0 conversion, could you not?

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William T. Symonds, Arbutus Biopharma Corporation - Chief Development Officer & Executive Director [17]

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You could, you could, yes. I mean if you recall from the Phase II study we ran last year, that we had patients after the 12-week treatment period, who had absolute levels of hepatitis B surface antigen, very low, well below 100 actually in quite a number of those patients. So that's what gives us the thinking that when we just add a little bit more to their regimen with something such as interferon and give them an additional boost to try and push patients like that even lower is the concept there.

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Michael Jonathan Yee, Jefferies LLC, Research Division - Equity Analyst [18]

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Okay. And then you will just remove the -- okay.

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William T. Symonds, Arbutus Biopharma Corporation - Chief Development Officer & Executive Director [19]

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Yes, yes. So everything will then stop at 30 weeks, and we'll look for off-treatment continued sustaining of the initial response.

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Michael Jonathan Yee, Jefferies LLC, Research Division - Equity Analyst [20]

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Great. Okay. Then on capsid -- yes?

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [21]

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So Mike with respect to the capsids, I think as Mike alluded to earlier, we believe that we have proof of concept in humans already. And we've made very rapid progress in getting 506 to be clinic-ready. It's essentially on top of 452. And we just think it's a better use of our cap -- I'm sorry, 423, and we just think it's a better use of our capital to move 506 forward and then make a comparison between the 2 of them.

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Michael Jonathan Yee, Jefferies LLC, Research Division - Equity Analyst [22]

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But to be clear, you don't have DNA and RNA reductions in patients, correct, the 423?

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [23]

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Correct.

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Michael Jonathan Yee, Jefferies LLC, Research Division - Equity Analyst [24]

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Yes. When do we want to see that, or you just feel like no need, just go to 506?

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [25]

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I think we believe that 506 is going to be superior, number one. And we feel that we, in the field, pretty much knows what these capsid molecules are going to do of certain potency. So we don't think it's necessary to do that to make the comparison.

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Operator [26]

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And our next question comes from the line of David Martin with Bloom Burton.

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Antonia Borovina, Bloom Burton & Co., Research Division - Associate of Equity Research [27]

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This is Antonia on the line for Dave. So my question is again...

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [28]

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I'm sorry, I didn't catch your name.

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Antonia Borovina, Bloom Burton & Co., Research Division - Associate of Equity Research [29]

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Antonia on the line for Dave.

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [30]

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Antonia, okay.

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Antonia Borovina, Bloom Burton & Co., Research Division - Associate of Equity Research [31]

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So my first question is related to the design of the Phase II combo study. And I'm just wondering what the rationale is for only testing peginterferon in ARB responders as opposed to all patients, which would enable you to see whether ARB response leads to more functional cures or other evidence of efficacy.

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William T. Symonds, Arbutus Biopharma Corporation - Chief Development Officer & Executive Director [32]

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Sure. I'd be happy to answer that. So basically, the concept is that we want to drive the S-antigen level down first because there is a lot of data out there showing that patients who start interferon therapy, with hepatitis B with lower surface antigen levels, typically below 1,000, tend to have a higher probability of achieving S-antigen loss. So we're basically using ARB-1467 to drive S-antigen down to give then the interferon a better shot at working, so basically, creating a group of patients who are more likely to respond. And that, we think, is the best way to think about how to use interferon in combination with 1467 at this point in time. With the patients who don't respond as well to 1467 in the initial 6 weeks, we don't feel it's really worth putting that patient into a trial with interferon at that point in time if they haven't had an initial response to ARB-1467 and the NUC.

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Antonia Borovina, Bloom Burton & Co., Research Division - Associate of Equity Research [33]

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Okay, that's helpful. And then just my second question is related to your GalNAc program. What gives you confidence in the safety of your delivery and that you won't run into some of the other issues that I've seen with earlier versions of GalNAc?

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Michael J. Sofia, Arbutus Biopharma Corporation - Chief Scientific Officer [34]

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Well, I mean, we do a sort of a pretty extensive preclinical safety assessment. And this molecule has been in multiple animal models and so forth, so we know at this point that it's a very safe and certainly effective in animal model agent. So I think we're very comfortable with the safety profile of this molecule at this point in time and feel it's ready to move forward.

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Operator [35]

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And our next question comes from the line of Liisa Bayko with JMP Securities.

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Liisa Ann Bayko, JMP Securities LLC, Research Division - MD and Senior Research Analyst [36]

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Just a follow-up to Mike's question. You said a certain level of S-antigen loss and, I think, DNA reduction would constitute a response. What levels are you talking about, are those defined?

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William T. Symonds, Arbutus Biopharma Corporation - Chief Development Officer & Executive Director [37]

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We haven't disclosed that publicly but it's, basically, we want patients to be below a certain threshold level of hepatitis B surface antigen. And it was also a reduction in the same surface antigen, not DNA. So you have to demonstrate the ability to drop S-antigen in the presence of 1467 and then get below a certain threshold to denote a patient who is a responder.

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Liisa Ann Bayko, JMP Securities LLC, Research Division - MD and Senior Research Analyst [38]

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Okay. And responder is different than getting toward the functional cure? Or is that...

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William T. Symonds, Arbutus Biopharma Corporation - Chief Development Officer & Executive Director [39]

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Correct. This is just identifying people who are getting S-antigen level down below a certain level to where we think interferon has a better shot at being more effective. And there's quite a bit of literature on that out there, yes.

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Liisa Ann Bayko, JMP Securities LLC, Research Division - MD and Senior Research Analyst [40]

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Okay, okay. And then as you think about your RNA destabilizer and the new capsid inhibitor and starting to formulate kind of what -- where those will be placed. I mean, do you have all the pieces in place to kind of get off of -- do you think interferon -- or how do those kind of fit into the overall profile? Or is it that you would potentially lose your RNAi? I'm just trying to figure out kind of how those kind of fit into the overall vision of getting to that functional cure.

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Mark Joseph Murray, Arbutus Biopharma Corporation - CEO, President and Executive Director [41]

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Well, Lisa, this is Mark. I think -- obviously I think we've said for a long time that we believe you're going to need to do multiple things here to, first of all, cripple the virus and then activate or allow the patient's immune system to reactivate. So I think what things like 506 and 4052 represent are small molecule possibilities to address the viral elements that we have, up to now, been using RNA interference to address, right. So I think our near-term focus or medium-term focus here is to use those agents alone in combination to see if we can drive down HBV DNA and S-antigen to very low levels. And then we'll have to consider the immune reactivation portion of it and how that works. And we may learn something very important from the study that Bill just described about that.

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Operator [42]

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And our next question comes from the line of Madhu Kumar from B. Riley FBR.

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Madhu Sudhan Kumar, B. Riley FBR, Inc., Research Division - Analyst [43]

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So in your discussion with experts about this Phase II combination study, what is a sufficient amount of S-antigen reduction to, as you discussed earlier, kind of be predictive of interferon response? Is it like 0.5 log, 1 log? Or what visibility do you have when you [speak to entrants] about what is sufficient surface antigen suppression in this kind of short-term dosing period?

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William T. Symonds, Arbutus Biopharma Corporation - Chief Development Officer & Executive Director [44]

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Sure. I think there's quite a bit of data that's been published over the years really, looking at correlations between starting S-antigen levels in populations of patients and then starting interferon and what the outcome is. And I think they consistently show that lower levels of S-antigen to start with, typically, some studies use cut-offs of 1,000. I've seen 750, 500, et cetera. But typically, below 1,000 where patients who start at that point in time have a better likelihood of actually achieving S-antigen loss. There's quite a bit of data out of a number of different investigative sites in Asia, for instance, that show this. So that's kind of part of the thinking around the design of the study. So really, again, use 1467 to drive S-antigen down and then start the interferon after a period of time.

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Madhu Sudhan Kumar, B. Riley FBR, Inc., Research Division - Analyst [45]

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So then an absolute reduction not a relative reduction to a patient's baseline surface antigen level.

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William T. Symonds, Arbutus Biopharma Corporation - Chief Development Officer & Executive Director [46]

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Yes. So the patient has to demonstrate both. So -- I mean because depending where the patients start, they have to have, say -- say they have to have at least 3 logs of S-antigen when they come in and some patients could have up to 6 or 7 logs. So you've either got to show -- you have to show that you can drop S-antigen by coming down a certain number of logs, and then you've got to get below that cut-off as well. So it kind of accounts for both of those situations there. We want to make sure people are responsive.

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Operator [47]

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(Operator Instructions) And that concludes our question-and-answer session for today. I'd like to turn the call back over to Tiffany Tolmie for any closing comments.

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Tiffany Tolmie, [48]

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Thank you, operator. We appreciate your participation on the call today, and we look forward to sharing updates on our progress with you in the months ahead. This concludes our call today. Thank you, everyone.

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Operator [49]

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Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a great day.