Celyad Oncology SA (NASDAQ:CYAD) Q4 2022 Earnings Call Transcript

Celyad Oncology SA (NASDAQ:CYAD) Q4 2022 Earnings Call Transcript March 24, 2023

Operator: Greetings. Welcome to the Celyad Oncology Full-Year 2022 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. . Please note that this conference is being recorded. At this time, I will now like to turn the conference over to David Georges, Vice President of Finance and Administration. David, you may now begin.

David Georges: Thank you, operator. Thank you all for joining us today. Before we begin, I would like to remind everyone that today’s event may contain forward-looking statements within the meaning of applicable securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks and uncertainties, which might cause actual results, financial condition, performance or achievements of the company to differ materially from those expressed or implied by such forward-looking statements. A list and description of these risks, uncertainties, and other risks can be found in the company’s US Securities and Exchange Commission filings and reports, including in its annual report on Form 20-F filed with the SEC on March 23, 2023 and subsequent filings and reports by the company.

These forward-looking statements speak only as of the date of this call and the company’s actual results may differ materially from those expressed or implied by these forward-looking statements. The company expressly disclaims any obligation to update any such forward-looking statements made on this call to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, unless required by law or regulations. Let me now turn the call over to Michel Lussier, Interim Chief Executive Officer of Celyad Oncology. Michel, the floor is yours.

Michel Lussier: Thank you, David. And thank you everyone for joining us today as we report the financial results for 2022 and provide an operational update. Joining me from the management team is our VP, Finance and Admin, David Georges; and our Head of R&D, Eytan Breman. We will start today’s call with an operational update, an overview of the financials and then discuss the key milestones we expect to achieve over the next several months. After our prepared remarks, we will ask the operator to open the line for your questions. So through the past year, Celyad Oncology has seen important changes and turning points. Early 2022, we continued to deliver a steady stream of data across multiple programs that advance our position in the field of allogeneic CAR-T cell therapies, among others, the validation of our proprietary shRNA platform, with the data from IMMUNICY-1 study evaluating CYAD-211 represented a major achievement for the company by demonstrating the safety of shRNA, which was the primary goal.

However, we face challenges stemming from insufficient clinical efficacy in our CYAD-211 program and delays and additional costs resulting from the clinical hold in our CYAD-101 program. This stream of events led to the decision of the Board of Directors to reshape the strategy of the company to focus on its core assets, its world class research unit and intellectual property. So throughout the year, but more specifically since October 2022, we have implemented a staged strategic shift from an organization focused on clinical development to one prioritizing R&D discovery and the monetization of its intellectual property estate through partnerships, collaborations, and license agreements. W3e stretched our cash runway by divesting our manufacturing business units and discontinued our clinical program to focus on selected critical R&D efforts to mitigate the current limitations of CAR-T cell therapy.

The company also compiled foundational and broad IP estate that controls key aspects of developing therapy in the allogenic cell therapy space. With our attractive portfolio, we are able to strategically develop both novel cell therapy candidates and potential partnerships within the allogenic landscape and beyond. In summary, while our clinical results have not lived up to expectations, we are hopeful for the many patients who have been successfully treated in these programs and the solid foundation it has created to move these therapies further. We believe that our clinical accomplishments, strengthened with the current and future research efforts, can lead to commercially successful products. With that, I’ll turn over the call to Eytan Breman to provide more details on our research activities.

Eytan?

Eytan Breman: Thank you, Michel. And thank you, everyone, again for joining us today. As Michel just discussed, our clinical programs have clear potential. And even if they did not deliver sufficient clinical efficacy to initiate a registration trial, they provided a proof of concept of our technology. We have demonstrated the non-gene editing technologies can be used to engineer allogeneic CAR-T cell therapy with a reduced risk of graft-versus-host disease or GvHD. No GvHD was reported among the 19 patients treated with CYAD-211 in the IMMUNICY-1 study nor in the 25 patients treated with CYAD-101 in the alloSHRINK study. We validated our propriety shRNA platform, but only with the data from the IMMUNICY-1 in CYAD-211 where T cell receptor was downregulated to prevent the graft-versus-host disease, but also with the data from the CYCLE-1 study in the CYAD-02 where the expression of NKG2D ligand were downregulated to increase the CAR-T cell persistence.

All this provided us a solid proof of concept of the versatility and safety of our shRNA technology. With the new strategy for prioritizing R&D discovery and the monetization of our intellectual property, we are pursuing our efforts shRNA platform. We have successfully multiplexed the shRNA technology to enable the targeting of multiple targets simultaneously using our all-in-one vector system. This is of great importance as, in most cases, a single target will offer only limited uses. For example, in the case of allogenic candidates, one target is needed to combat graft-versus-host disease and additional targets are needed to combat recognition by the host immune system in order to improve cell persistence. Similarly, immune checkpoint inhibitors are important targets for downregulation, since multiple tumors have been shown to express the ligand to these receptors, which can be involved in the inhibition of CAR-T cell responses or other T cell mediated responses.

The large number of candidates for downregulation at once makes the perfect candidate for our shRNA technology. In short, this multiplexing platform potentially allows us to generate CAR-T cells candidates with optimized features, like increased persistence, efficacy, or the ability to evade complex or immunosuppressive tumor microenvironments. This clearly allows for a very broad therapeutic functionality, which is especially important in the context of solid tumors. Currently, the shRNA multiplex platform has been validated to include up to four different targets in a plug-and-play manner. Next to the ability to downregulate the target or targets of interest, the dynamic range that can be achieved using the shRNA multiplex platform means that the each candidate protein can be modulated.

This is important in instances when a reduction of protein expression is of benefit rather than complete removal of the protein expression. For example, removal of the HLA Class I leads to recognition of the cell by host NK cell, which in turn will lead to low cell persistence. Modulating the protein expression to such an extent that it is not target by an NK cell can help engineered cells evade the host immune system. In addition to our multiplexing platform, we’re also working on CAR-T cells with dual or multi targeting capabilities. The reasons behind the possible failure of a single targeting CAR-T cell are multifactorial, and include the tumor microenvironment, antigen escape or loss, among others. With a multi or dual targeting CAR, several antigens can be targeted together by the same CAR products.

We therefore developed the dual CAR platform focusing on the NKG2D receptor. The NKG2D receptor specifically targets NKG2D ligands that are induced by different stress responses. This offers a very different strategy from dual CAR-T cells that target similar antigens, such as lineage antigens like CD-19 and CD-20. By targeting NKG2D ligands, a broader range of antigens can be targeted simultaneously that are not limited to only one specific tumor indication. Thus, the implication and the applicability of the NKG2D based dual CAR-T cell is suitable not only in situations where the antigens can escape or a loss may occur, but in situations where multiple organs are impacted, such as is the case of metastatic and solid tumors. These malignancies are very difficult to target with conventional means.

And use of an NKG2D based dual CAR system may offer a much needed alternative. In parallel, we are also making efforts into identifying new targets expressed by a broad range of indications. For this, we are currently developing immunotherapies targeting B7-H6, which is a ligand expressed in a broad range of cancers and was shown to be associated with tumor progression, poor prognosis and lymph node metastasis. With these platforms, we aim to provide solutions to solve the main limitations of current CAR-T cell therapies, including the lack of validated targets beyond B cell malignancies and the issues concerning T cell persistence, efficacy and fitness. We’re very excited about our latest advancements in the work and look forward to providing more details on our shRNA multiplexing capabilities and new candidates in the near future.

With that, I will now turn the call over to David for an update on our financial statements of 2022.

David Georges : Thank you, Eytan. Turning to our financials, I’d just like to remind you all that our full financial details are available on the Celyad Oncology website in both French and English languages. Research and development expenses were €18.9 million in 2022 as compared to €20.8 million in 2021, a year-over-year decrease of €1.8 million. The decrease in the company’s R&D expenses is primarily driven by the company’s decision to discontinue some of the preclinical and in-process development costs after the company’s decision to adopt and implement a new business strategy over the last few months of 2022. General and administration expenses were €10.5 million in 2022 as compared to €9.9 million in 2021, an increase of €600,000.

This increase is primarily related to higher insurance costs and consulting fees, partially compensated by the decrease of the expenses associated with the share-based payment, non-cash expenses related to the warrant plan offered to our employees and directors. The fair value adjustments of €14.7 million relating to the contingent consideration and other financial liabilities as of December 31 of 2022 is mainly driven by the full reversal of the liabilities. This liability is a result of business combination accounting IFRS 3, which requires the liability to be recorded unless the possibility of any outflow is removed. This impairment comes as a result of the company’s strategic shift in focus away from clinical development and the early stage nature of the implementation of the Celyad 2.0 strategy, which involves shifting from an organization focused on clinical development to one privatizing R&D discovery and the monetization of its intellectual property portfolio through partnerships, collaboration and license agreement.

To date, no effective sublicense contract nor collaborations contract has been entered into. And as a result, there is an uncertainty as to the timing and amount of associated short, medium and long-term revenue. Given this uncertainty, and after accounting standards, the company recognizes a full impairment loss on the remaining value of goodwill in process research and development and Horizon Discovery’s shRNA platform resulting in a non-cash impairment of €35.1 million on a consolidated basis for the financial year ended December 31, 2022. This accounting conclusion does not affect management’s commitment to continue in its efforts to pursue the potential monetization of the company’s IP. If and when such a firm sublicense or collaboration contract occur, and hence increases the probability of revenue, the management will estimate the reversal of the impairment, which will be limited, so that the carrying amount of the asset does not exceed its recoverable amount, along with the remeasurement of the related contingent liability.

We posted net other income of €9 million for 2022 compared to a net other income of €3.4 million for 2021. The company’s other income is principally coming from the gain on sales of the CTMU activities for €5.2 million, which is resulting from the terms of the asset purchase agreement between Celyad Oncology and Cellistic, under which Cellistic agreed to acquire Celyad Oncology manufacturing business unit. Remaining net other income is mainly associated with grants received from the Walloon Region for a total amount of €1.6 million, mainly in the form of recoverable cash advances. Net loss for the year ended December 31, 2022 was €40.9 million or €1.81 per share compared to a net loss of €26.5 million or €1.70 per share for the same period in 2021.

As noted above, the increase in net loss between periods was primarily due to the non-cash impairment adjustments on the oncology intangible assets. Net cash used in operations for the year ended December 31, 2022, which exclude non-cash effects, amounted to €28 million, which is in line with the net cash used in operations of €26.6 million for the year ended December 31, 2021. As of December 31, 2022, our treasury position was €12.4 million or $13.3 million. Based on our current scope of activities, we estimate that our cash and cash equivalents should be sufficient to fund operating expenses and capital expenditures requirements into the fourth quarter of 2023. The net assets of the company as of December 31, 2022 on a Belgian GAAP non-consolidated basis has fallen below half of the company’s capital.

As a result, in accordance with the Article 7:228 of the Belgian Code for Companies and Association, the Board of Directors plans to submit for vote at its May 5, 2023 shareholders meeting is business plan, including a proposal to continue the company’s activities. The Board of Directors will publish a detailed report regarding this proposal on or around April 3, 2023 together with the convocation with proposed resolution for the shareholders’ meeting. With that, I will now turn over the call to Michel for closing statements.

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Q&A Session

Michel Lussier : Thank you, David. So, in closing, Celyad Oncology is more focused than ever on our mission. And although we faced several challenges during the last year, we believe that we are now very well positioned to unleash the power of our IP estate and to help making the cell therapy approach a success. As such, we look forward to announcing exciting upcoming milestones in the remainder of 2023, including updates from our shRNA multiplexing platform and our dual CAR platform and business development in the second quarter of the year and appointment of our new Chief Executive Officer following an extensive and very fruitful search process in the in the coming weeks. So, in that regard, we are very pleased to announce that Georges Rawadi has been appointed as our new Chief Executive Officer and succeeding to me.

Georges is not only a seasoned executive with over 20 years of experience in pharma biotech, but he also spent four years at Celyad Oncology from 2014 to 2018 as Vice President, Business Development and Intellectual Property. So, we are convinced that Georges’ solid business development track record and immunooncology in-depth knowledge will make Georges a great leader for Celyad Oncology. Finally, I wanted to mention that all the work done up to now has created new foundation, building on our current research platform, helping to generate next generation candidates in the future. So, I’m deeply grateful to all our team members who tirelessly deliver each and every day with dedication in pursuit of our mission to develop innovative cell therapies against cancer.

With that, I’ll turn over the call to the operator in order to take your question. Operator?

Operator:

Michel Lussier: Thank you, operator. So I’d like to thank everyone for joining us today and your interest in Celyad Oncology. We remain steadfast in our mission to bring novel and innovative CAR-T cell therapy to cancer patients with unmet medical needs. We look forward to speaking to you again soon. Thank you.

Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.