ImmunoCellular Therapeutics Ltd

OTC:IMUC

Earnings Call Transcript

[Operator]

Good day, ladies and gentlemen, and welcome to ImmunoCellular Therapeutics Fourth Quarter and Full Year 2017 Financial Results Conference Call and webcast. [Operator Instructions]. And as a reminder, this conference may be recoded. I would now like to turn the conference over to Ms. Jane Green, Investor Relations. Ma'am, you may begin.

[Jane Green, IR]

Good afternoon. Welcome to ImmunoCellular Therapeutics' conference call to discuss financial results for the fourth quarter and full year 2017 and to provide a business update. Today's call is being recorded and is also available via webcast.

Participating in today's call are President and CEO, Anthony Gringeri; Senior Vice President of Research, Steve Swanson; and Chief Financial Officer, David Fractor. Following this introduction, Dr. Gringeri will discuss the company's performance and future outlook, Dr. Swanson will provide an update on the Stem-to-T-Cell program and Mr. Fractor will discuss the company's financial results. Then the company will take questions.

If you've not receive a copy of today's press release, you can obtain one by visiting the company's website, www.imuc.com. ImmunoCellular would like to remind everyone that during the conference call, members of the management team will make certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Examples of these statements may include comments about our plans, objectives, expectations and intentions with respect to the potential and timing for success of our scientific approaches to cancer immunotherapy, our product candidates and research programs, clinical development efforts, operations, financial condition and other statements that are not historical in nature.

Our actual results may differ materially from those projected in these forward-looking statements. Important factors known to us that could cause actual results to differ materially from those expressed in such forward-looking statements include those set forth in our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed with the SEC. Please review these and the company's other filings. We undertake no obligation to update any forward-looking statements after this call.

Now, I'd like to turn the call over to ImmunoCellular's President and CEO, Tony Gringeri.

[Anthony Gringeri, CEO, President & Director]

Thank you, Jane, and thank you, all, for joining our call today. We welcome the opportunity to discuss our 2017 performance and provide an update on our programs and our strategy. One of our significant achievements in 2017 was to strengthen our company's financial condition. As we noted in January and as David will shortly describe in more detail, we ended 2017 in a strong financial position with approximately $6.6 million in cash and $4.6 million in both working capital and stockholders' equity. During the fourth quarter of 2017, we received approximately $5.6 million of net proceeds from exercises of warrants issued in our July 2017 underwritten public offering, and we implemented payment programs with our key vendors, both of which contributed to a strengthening of our balance sheet.

In the second half of 2017, we also reduced our expenses and are operating in what we believe is a capital efficient manner, which should meaningfully extend our cash runway. We believe that with our current financial plan, we may successfully be able to regain compliance with the New York Stock Exchange American Listing Standards regarding stockholders' equity.

In the fourth quarter of 2017 and as Steve will comment on in a few minutes, we achieved a key milestone in our Stem-to-T-Cell research program by successfully packaging T cell receptor DNA into a viral vector and transferring that DNA into human hematopoietic stem cells. This is an important first step in using the patient's immune system to produce killer T cells designed to specifically target and attack cancer cells. We are currently working to achieve our next milestone in this program, optimizing transfection conditions for the hematopoietic stem cells, which will then enable preclinical testing. While this work is still in its early stages, we believe that our stem cell program has the potential to be a game-changing treatment for cancer. Additionally, we are completing the wind-down of ICT-107 activities while continuing to seek partnership opportunities for our clinical stage anticancer assets.

In addition, as previously announced, we recently retained Ladenburg Thalmann & Co. as our strategic financial advisor to assist us in the review of our business and assets and the exploration of strategic opportunities for enhancing stockholder value, including the potential sale or merger of the company. It's important to remember that we cannot guarantee that this process will culminate in a transaction. Nevertheless, it is a top priority for our management team and our board, and we are optimistic that this next phase can identify further opportunities for creating value for ImmunoCellular stockholders. It's important to remember that we cannot guarantee that this process will culminate in a transaction.

We remain focused on achieving our vision for the company, that is to develop immunotherapeutic solutions for intractable cancers, extending the lives of cancer patients and providing hope for a potential cure. Advancing our Stem-to-T-Cell program is central to that vision to develop therapies that can be used in addition to the standard of care. This program is at the research stage today, but we are making strong progress, and we expect to achieve a number of meaningful milestones over the next 12 to 18 months.

2017 was a year of realistically facing our challenges and making difficult but prudent decisions about what is best for our company to continue operations, where value resides in our technology and programs, and securing the resources we need to meet our goals and obligations to our stakeholders. Right now, we are focused on continuing to move our promising stem cell program forward, generating value for patients and in so doing for our shareholders.

And now, I'd like to ask Steve Swanson to provide an update on our stem cell program progress. Steve?

[Steven Swanson, SVP, Research]

Thanks, Tony. I'd like to provide some additional color on the scientific work that underlies the progress we've made in our Stem-to-T-Cell program and the work that is currently underway to achieve our next milestones. First, for a bit of background on our core stem cell technology, which we licensed from the lab of Nobel Laureate Dr. David Baltimore at Caltech. Dr. Baltimore worked with hematopoietic stem cells were isolated from mice. Now these are the cells that live in the bone marrow and produce all the red blood cells, white blood cells and platelets that the animal is going to need for its lifetime. One type of white blood cells produced is called cytotoxic T cells, or also known as killer T cells, and these work by binding to very specific region of tumor cells and then subsequently kill those tumor cells. The part of the T cell that is responsible for first recognizing the cell as being a tumor cell and then binding to that tumor cells is that T cell receptor or TCR.

One way to fight cancer is to destroy tumor cells by supplying killer T cells that would only bind to and then kill the tumor cells but not healthy cells. And that would be engineered for specific tumor cells. The TCR is what allows the T cell to identify and bind to tumor cells. Plus, Dr. Baltimore and his team sought a way to produce a large number of killer T cells that would recognize the tumor. The key initial step is to isolate killer T cells that can bind to the tumor target, and then isolate the genetic material that allows the T cell to make a specific TCR so that the TCR gene could be reproduced.

One approach being used by other companies is the foundation of CAR-T therapy, which is to take cytotoxic T cells and transfer chimeric receptor onto their surface, which allows the T cells to attack cancer cells. Dr. Baltimore's approach, however, was to isolate mouse hematopoietic stem cells and identify and clone the TCR gene from killer T cells that had been shown to recognize a specific tumor cell. His team then transferred the gene for the TCR into the hematopoietic stem cells and returned those stem cells to the mouse's bone marrow where they started producing killer T cells that were able to attack a specific tumor in those mice.

There are many potential advantages to this approach as opposed to the CAR-T approach. Most importantly, after transfecting hematopoietic stem cells, these stem cells would return to the bone marrow and produce killer T cells. These killer T cells should be produced at a steady rate, perhaps indefinitely, which could provide a long-term immune surveillance against tumor recurrence. One problem that has been seen with the CAR-T approach is that a very large number of these cytotoxic T cells create rapid duck, and this can result in a patient's immune system overreacting, which can result in very serious side effects. This should not be the case with the Stem-to-T-cell approach because the cells should be produced more slowly and gradually. Also, the Stem-to-T-cell approach has a potential to be long-lasting as these transfected stem cells would reside in the bone marrow, possibly for the entire life of the patient, and could produce a lifetime supply of these specific killer T cells that could prevent the tumor from recurring.

Dr. Baltimore's approach is the basis of our Stem-to-T-cell program. Because these experiments have only been conducted in mice, we have to discover the best way to accomplish each one of the steps that Dr. Baltimore's team established and do that safely and effectively in humans. As with any scientific approach, it can take multiple painstaking experiments over a long period of time to identify the right conditions to accomplish the goal. We have organized a scientific program into a series of small steps that will provide the ideal scientific conditions that would enable patients to produce killer T cells to attack and destroy their specific tumor.

The first step was to isolate and purify human hematopoietic stem cells. This process is routinely done where stem cells are performed. For our purposes, in developing this new therapy, we've been able to purchased from a commercial source a supply of hematopoietic stem cells that have been isolated from donors. The next important step of our program was to isolate a gene for a TCR from a population of human killer T cells that were engineered only to bind and kill a specific tumor cell. This was the basis of our collaboration with Dr. Cassian Yee the MD Anderson Cancer Center in Houston. Researchers and Dr. Yee's lab identified a population of killer T cells that isolated the gene that encoded the TCR from those T cells. His team provided us the DNA sequence, so we could use that TCR gene.

Our next milestone was to package the DNA and coding the TCR gene into a vehicle that would allow us to transfer the DNA into the hematopoietic stem cells. We decided to use a lentivirus vector. Viruses work by infecting healthy cells and transferring their genetic, essentially turning the healthy cell into a factory for producing virus particles. Our lentivirus vector has been modified, so that it only transfers the genetic material that we package into it, which is the gene encoding of TCR. Packaging DNA requires a lot of repetitive experimentation in order to identify the right conditions.

Most recently, we reported the initiation of experiments to transfect isolated human hematopoietic stem cells with a lentivirus vector containing the T cell receptor gene. We are collaborating with a laboratory in the San Francisco area to perform these experiments and identify the ideal conditions to allow the lentivirus to transfer the genetic material, encoding the TCR gene.

There are several scientific challenges we are addressing. One is to create conditions to grow these cells for multiple cycles and ensure their survival. We are addressing important questions, such as how long should the stem cells be cultured before they're transfected? How many lentivirus particles should be used for each of the stem cells, which means multiplicity of infection? And how should stencils be grown after transfection before the lentivirus particles are removed? We have to ensure that we can isolate the TCR gene within the genetic material of the transfected hematopoietic stem cell. In other words, we need actual evidence of successful transfection. We are making significant progress, and optimistic that within the next few months, we will be able to proceed to the next phase of the program -- preclinical in vivo experiments. These entail adding the transfected stem cells into preclinical models to monitor when killer T cells are produced. For this work, we will use mice that have been transformed to have a human life immune system, so we can still use the human transfected hematopoietic stem cells. We will look forward to seeing results from these experiments by the end of this year. At the same time, at the University of Maryland, we have 3 different programs we are working from, which we expect to get additional readouts in the second or third quarter. These data readouts should help us better understand how immunotherapies work and some defense that we can do to make them work even better.

Now back to you, Tony.

[Anthony Gringeri, CEO, President & Director]

Thanks very much, Steve. Now I'd like to ask David Fractor to report our fourth quarter and full year 2017 financial results.

[David Fractor, CFO]

Thank you, Tony. In 2017, we incurred a net loss of $14.3 million compared to $22.1 million in 2016. The 2017 net loss available to common stockholders was $17.7 million or $1.23 per share compared to $22 million -- $22.1 million or $7.89 per share in 2016. The 2017 net loss available to common stockholders includes the net loss of $14.3 million plus $2.3 million of deemed dividends, and $1 million of original issue discount associated with the convertible preferred stock issued as part of the July 2017 financing. There were no similar charges during 2016.

The decrease in net loss between years is due to reductions in both research and development and general and administrative expenses. Research and development expenses in 2017 decreased to $17.1 million from $19.1 million in the prior year. The decrease reflects the suspension of the Phase III trial of ICT-107 in June.

In 2017, G&A expenses were $4 million compared to $5 million in 2016. Simultaneous with the suspension of the ICT-107 trial, we reduced the number of administrative personnel, downsized our office space and reduced other expenses. These reductions were partially offset by higher professional fees.

Additionally during 2017, we recognized the gain of $7.7 million related to the derecognition of a liability resulting from the advances from the California Institute of Regenerative Medicine.

In 2016, we recognized a gain of $3.8 million related to the revaluation of our warrant derivatives. During 2017, we adopted ASU 2017-11, which allowed us to reclassify our warrant derivatives' reliability. Accordingly, there we're no gains or losses associated with warrant revaluation during 2017.

The net loss for the quarter ended December 31, 2017 was $430,000 or $0.01 per basic and diluted common share, compared to $6.3 million or $1.36 per basic and diluted common share for the quarter ended December 31, 2016. The decrease in the net loss is attributable to reductions in research and development expenses associated with the suspension of the Phase III trial of ICT-107 as well as certain discounts that we negotiated with key vendors. As Tony mentioned earlier, we received $7.8 million in net proceeds from the exercise of warrants during the fourth quarter -- $5.6 million, rather. We're using the financing proceeds to move forward with a restructuring plan focused on winding down ICT-107 activities, advancing early-stage research programs while continuing to seek partnership opportunities for development stage assets. As of December 31, 2017, we had $6.6 million in cash, $4.6 million of working capital and stockholders' equity, and we also had 41.9 million shares of common stock outstanding. Tony?

[Anthony Gringeri, CEO, President & Director]

Thank you, David. ImmunoCellular Therapeutics today is committed to developing solutions for intractable cancers, extending the lives of cancer patients and providing hope for a potential cure. We believe that our Stem-to-T-cell program is potentially a game-changing treatment for cancer and we look forward to continued progress. We are also optimistic that our expanded strategic review can identify additional opportunities to enhance stockholder value.

Operator, would you now please open up the call for questions?

[Anthony Gringeri, CEO, President & Director]

I want to thank everyone again for participating in today's call and webcast. We look forward to continuing to communicate with investors in the coming weeks and months and to providing you with additional updates on our progress. Thank you, and goodbye.

[Operator]

Ladies and gentlemen, thanks for participating in today's conference. This does conclude your program. You may all disconnect. Everyone, have a great day.