LMNL - Liminal BioSciences Inc. (LMNL) Q4 2022 Earnings Call Transcript

2023-03-17 16:08:04 ET

Liminal BioSciences Inc. (LMNL)

Q4 2022 Results Conference Call

March 16, 2023 08:30 AM ET

Company Participants

Shrinal Inamdar - IR

Bruce Pritchard - CEO

Nicole Rusaw - CFO

Conference Call Participants

Antonia Borovina - Bloom Burton

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Liminal BioSciences, Inc. Fourth Quarter 2022 Results [Foreign Language] Conference Call. [Operator Instructions] This call is being recorded on Thursday, March 16, 2023.

I would now like to turn the conference over to Shrinal Inamdar. Please go ahead.

Shrinal Inamdar

Thank you, operator. Good morning, ladies and gentlemen. I’m the Associate Director of Investor Relations and Communications at Liminal, and I’d like to welcome you to our fourth quarter and year ended December 31, 2022, results conference call.

This recorded webcast will be accessible from the Investor Resources page on the Liminal BioSciences website and will be available for replay later today. For those of you dialing in, you can find a copy of our presentation slides on the webcast section of the website or via the conference call portal.

Moving on to Slide 2. I’d like to remind everyone that we will be making forward-looking statements today during the webcast, including remarks or current expectations concerning future developments of the pipeline, the properties of our product candidates and the timing of initiation or nature of preclinical and clinical trials and potential therapeutic areas, all potential of our programs to address significant unmet medical needs, our regulatory plans, financing plans, our company, our financial position, including our expected cash runway, our ability to actively seek and closing opportunities to monetize noncore assets or to continue or comply with Nasdaq listing rules and possible changes in the industry and competitive environment.

These forward-looking statements are based on our current expectations and beliefs and on information currently available to us. These statements are subject to risks and uncertainties, including those contained in our updated reports that we file with the U.S. Securities and Exchange Commission or SEC and Canadian securities commissions from time to time, including our annual report on Form 20-F and 6-K containing our press release of the results of the fourth quarter and year ended December 31, 2022, each of which we have filed with the SEC and on SEDAR that could cause actual results to differ materially from those contained in the forward-looking statements.

Please note that these forward-looking statements made during the webcast today speak only of our expectations as of today’s date. And Liminal BioSciences undertakes no obligation to update these statements to reflect subsequent events or circumstances, except to the extent required by law.

As stated on Slide 3, during this morning’s webcast, Liminal BioSciences Chief Executive Officer, Mr. Bruce Pritchard, will provide a brief summary of our recent achievements and upcoming expected milestones. Ms. Nicole Rusaw, Chief Financial Officer, will then present the financial and operational highlights for the fourth quarter and the year ended December 31, 2022. We will then follow with an executive summary and a short question-and-answer period for financial analysts only.

I’d now like to hand over the call to our Chief Executive Officer, Mr. Bruce Pritchard. Bruce, over to you.

Bruce Pritchard

That’s great. Thank you very much, Shrinal, and good morning, everyone. We begin 2023 in an exciting position having met all of our previously disclosed milestones for our GPR84 and OXER1 antagonist development programs.

If you could all move now to Slide 4 in the presentation, I’d like to recap some of our key achievements since our last update. So I’m very pleased to be updating you today on all of the continued progress we’ve made during the last quarter and subsequently to deliver our objectives and accelerate the development of our pipeline.

At the end of December 2022, we delivered on our objectives to monetize noncore assets by completing the sale of a noncore real estate asset for a purchase price of CAD 3.175 million paid in cash at closing. In January, we held a special meeting of shareholders to vote on a 10:1 share consolidation and received approval to implement the share consolidation, which was implemented effective February 1, 2023.

Share consolidation was primarily intended to bring the company into compliance with Nasdaq’s continued listing requirements. Following implementation of the share consolidation in February, the company announced that it received written notice from Nasdaq confirming that the company had regained compliance with Nasdaq listing rules as a result of the closing bid price of the company’s common stock having been greater than $1 per share for at least 10 consecutive trading days.

In January this year, we made progress on our GPR84 antagonist program by selecting LMNL6511 as our candidate for clinical development. We’re continuing our clinical trial-enabling work for 6511 and expect to submit a regulatory application to commence first-in-human clinical trials during the second half of 2023.

Ongoing experiments are expected to allow us to select the lead clinical indication for this program in the coming months. We believe that the GPR84 receptor could be an important biological target in several therapeutic areas of interest. GPR84 is broadly expressed and may play an interesting role in the relationship between inflammation, obesity and diabetes.

Our preclinical research combined with published work from other groups indicates a potential role for antagonism of GPR84 in fibrotic disease, including NASH, IBD and IPF. More recently, 3-hydroxydecanoate, an agonist of GPR84 and a metabolite of decanoate acid was found to be enriched in circulation of obese individuals compared to nondiabetic controls. This was associated with adipose information and increased fasting insulin levels.

Consequently, we intend to incorporate biomarker measurements of diabetes and lipids to our planned first-in-human Phase I study of 6511 with the goal of identifying an early indicator of biological activity. We’re also pleased to announce that we’ve added a new drug discovery program targeting the development of a liver-safe GPR40 agonist compared to other compounds in development as a possible treatment for type 2 diabetes.

Several companies have focused on developing small molecule GPR40 agonist. And based on published preclinical and clinical studies, activating GPR40 can enhance glycemic control by promoting insulin secretion that is dependent on glucose levels. We believe the identification of a GPR40 agonist that does not exhibit liver toxicity is achievable, and a discovery in medicinal chemistry is ongoing.

From a cash standpoint, we’ve anticipated cash and cash equivalents to fund our near-term development goals into early 2024 with possibilities to further extend that runway with the sale of noncore real estate assets. So in summary, once again, this quarter, we’ve continued to build on our proven track record of delivering on our commitments, and we look forward to building on these key milestones in the months to come, which I’ll talk about in a few moments.

I’ll now hand over on Slide 5 to Nicole Rusaw, who will talk through our financial and operating results for the fourth quarter and year ended December 31, 2022. Nicole, over to you.

Nicole Rusaw

Thank you, Bruce. Slide 6 is a quick reminder that this part of today’s webcast is based on the audited consolidated financial statements for the year ended December 31, 2022. All figures are prepared under International Financial Reporting Standards or IFRS. And the full annual report and other important information can be found online at sec.gov and sedar.com.

Our financial information is presented in Canadian dollars, and all references during the webcast to dollars means Canadian dollars unless otherwise specified. For simplicity, some numbers being discussed have been rounded. As mentioned on the slide here and as disclosed in the company’s annual report on Form 20-F for the fiscal year ended December 31, 2022, the company has restated the company’s interim financial statements for the period ended March 31, 2022; June 30, 2022; and September 30, 2022.

On Slide 7, I’d like to review selected information from our results from continuing operations. Given the company’s divestment of its former plasma-derived therapeutics segment, the company has presented results from discontinued operations in the current and comparative periods. These comprise of revenues and expenses of most of the former plasma-derived therapeutics segment activities and net assets divested in 2021 with the exception of some remaining noncore assets and liabilities, which the company intends to sell or extinguish.

Research and development expenses from continuing operations was $15.3 million for the year ended December 31, 2022, compared to $18.3 million for the year ended December 31, 2021. The net decrease of $3 million was mainly attributable to decreases in clinical trial costs, depreciation expense on intangible assets and reduced consulting fees. The decrease in R&D expenses was partially offset by increases in preclinical studies expense relating to our GPR84 and OXER1 antagonist programs.

Administration expenses from continuing operations decreased $14.1 million from $31.9 million in the comparative period to $17.9 million for the year ended December 31, 2022. The decrease in admin expenses was primarily attributed to a decrease of $9.2 million in insurance expense as a result of reduced D&O insurance premiums resulting from the change in the company’s registered office from Quebec to Ontario in the later part of 2021. Admin expense decrease is also due to reductions in share-based payment expenses and salaries and other benefits of $2.7 million and $1.7 million, respectively.

Finance costs from continuing operations decreased by $5.3 million from $6.3 million in the comparative period compared to $1.1 million for the year ended December 31, 2022. Decrease in finance costs resulted from the repayment of our long-term debt earlier in the year.

Net loss from continuing operations, net of taxes, decreased by $16.1 million during the year ended December 31, 2022, compared to the corresponding period in 2021. Reduction in net loss from continuing operations was mainly driven by the reductions in admin expenses of $14.1 million reflecting the reduction in insurance expense, a decrease in finance costs of $5.3 million due to the termination of all long-term debt and an increase in foreign exchange gains of $1.6 million. These decreases were partially offset by a reduced gain resulting in change in fair value of financial instruments measured at fair value through profit and loss of $8.2 million.

Total income from discontinued operations, net of tax, decreased by $27.1 million during the year ended December 31, 2022, compared to fiscal 2021. During 2021, income from discontinued operations included the results from the sale of our Ryplazim business and the priority review voucher of $138 million as well as a gain on the sale of our plasma collection centers of $2.5 million, offset by relevant operational expenses of the discontinued operations of $83.1 million.

Income from discontinued operations in the current year is comprised of the decrease in expenses due to the termination of the CDMO agreement and the resulting reversal in the associated owner’s provision and lease liability totaling $27.8 million as well as a gain from the disposal of our facility in the amount of $2.3 million. Net income was $0.6 million for the year ended December 31, 2022, compared to net income of $12.2 million for the year ended December 31, 2021.

Moving to Slide 8, I’d like to walk through the major elements that impacted our cash and cash equivalents throughout fiscal 2022. These cash flows include cash flows from both continuing operations as well as discontinued operations.

We started 2022 with $108.5 million of cash and cash equivalents. During the first quarter, the company repaid its secured first and second term loans of $39.6 million, thereby terminating both the consolidated loan agreements and royalty stream agreement with Structured Alpha LP or SALP, canceling outstanding warrants held by SALP issued pursuant to the 2019 restructuring agreement and releasing the security granted in favor of SALP over the company’s assets, including our intellectual property.

During the third quarter, the company paid $11.2 million for the termination of the CDMO agreement, leaving 2 remaining payments of $3.4 million each. The first payment of $3.4 million was made in January 2023, and the final payment will be made in January 2024.

During the fourth quarter, the company completed the sale of our Labrosse facility, a noncore real estate asset for a purchase price of $3.2 million. The company has used $31.8 million of cash on operating activities during fiscal ‘22, all of which were incurred to support the small molecules business segment. At December 31, 2022, the company had $37.1 million in cash and cash equivalents.

As stated on Slide 9, I will now turn the call back to Bruce for some closing comments.

Bruce Pritchard

That’s great. Thanks very much, Nicole. So on Slide 10, to recap on expected milestones, our drug discovery engine and expertise in G protein-coupled receptor pathways has resulted in a pipeline made up of 3 development programs, which we believe have the potential to provide us with commercial opportunities in several metabolic, inflammatory and fibrosis-related therapeutic areas.

Our pipeline is poised to deliver on some key milestones in the next few months. I mentioned earlier, for LMNL6511, ongoing in vivo experiments are expected to allow us to select a lead clinical indication in the coming months. And subject to continued satisfactory results in ongoing clinical trial application-enabling work, we expect to seek approval to commence a first-in-human Phase I clinical trial of LMNL6511 during the second half of 2023.

We aim to follow on with nominating a preclinical candidate for our OXER1 antagonist program in the first half of 2023 for further development as a potential therapy for eosinophil-driven diseases and are aiming to commence a first-in-human clinical trial in 2024. Our GPR40 antagonist development program is currently in the discovery stage, and we look forward to providing further updates on all of our programs as data becomes available.

So finally, on Slide 11 to wrap up on key takeaways, we closed December 31 with just over CAD 37 million in cash, which is anticipated to support our near-term development goals into early 2024. We also continue to identify potential opportunities to expand our cash runway with the monetization of remaining noncore assets.

Today, we’re a debt-free company with global rights for novel compounds all under the control of Liminal BioSciences. In addition to our pipeline, we have the ability to explore other development opportunities from our GPCR drug discovery platform to discover and develop differentiated GPCR targeted therapies for unmet medical needs.

And with confirmation from Nasdaq that we’ve regained compliance with the Nasdaq listing rules, our continued listing on the Nasdaq Capital Markets allows us the opportunity to raise capital to continue the development of our novel compounds. We’re excited for the next few months, given the important clinical milestones expected for GPR84 and candidate selection for OXER1 and believe our GPCR drug discovery engine allows us opportunities for both raising capital and business development as we’ve seen in recent months in this space.

So we’d now like to address any questions that any of our financial analysts may have. And operator, if I can hand over to you for the Q&A section, please.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Antonia Borovina with Bloom Burton.

Antonia Borovina

So my first question is for Bruce. So you now have a GPR84 antagonist in your pipeline, and you just announced the GPR40 agonist. So my question is, you did have an earlier drug, fezagepras, in your pipeline. And this mechanism is proposed to be dual GPR40 agonism and a GPR84 antagonism. And it produced mixed or underwhelming results in clinical studies. But as far as I know, it didn’t have a safety signal. So I’m just wondering like why you think having these 2 specific drugs targeting these mechanisms of actions, specifically why they will fare better in the clinic? And then I have a couple of follow-up questions for Nicole.

Bruce Pritchard

Sure. That’s great. Thanks, Antonia. Well, let me tackle the question on the drug compound first. So you’re right. Originally, the fezagepras asset had a stated mechanism of combined GPR84 and GPR40. But I think as you probably remember, as we went further with clinical activity, we looked at the activity on those receptors and actually felt that the activity was actually on different receptors, not GPR84 and GPR40 but looking more at PPAR-alpha and GPR84.

That particular asset, as you know, once we went into additional clinical work in single-ascending and multiple-ascending dose studies did not provide us with a PK profile that we felt was suitable for taking forward for further development. The GPR84 selective antagonist and the GPR40 selective agonists are being specifically designed from the ground up as just that single-receptor candidates.

And our approach for doing this is really very much based upon not only the literature around both of those receptors and the kind of the biological arguments for antagonism or antagonism of those receptors, but also from work that has already been done by others in the space who have looked at these receptors for commercial purposes before.

Now we believe, as I mentioned in the presentation, that with our in-house medicinal chemistry capability and the capabilities of the rest of our group be able to design structurally different compounds that can engineer out some of the challenges that those individual drugs have seen historically. And so we’re quite excited about the opportunity to take these new chemical entities designed by our in-house team forward in programs for individual receptors that have already been kind of well elucidated, both in the literature and by others targeting them. Hopefully, that answers your question?

Antonia Borovina

Yes. That’s helpful. And then just following up from a cash management perspective, just wondering, do you anticipate that you could have the GPR84 Phase I data in hand prior to any planned raise? And then what other noncore real estate assets do you still have that you think you could sell to extend the cash runway? And that’s it for me.

Bruce Pritchard

Perhaps, Nicole, I’ll start off on this and if there’s anything...

Nicole Rusaw

Yes, that’s fine.

Bruce Pritchard

You could jump in. But in terms of the runway, Antonia, it really very much depends upon the pace at which we can get through the remaining sort of CTA-enabling activity and into the clinic. But the reality is that the data from any study is likely to come in early 2024.

So the data is going to come very close to the point where we would be based on current guidance out of cash. Obviously, if we can extend that runway through incremental use of the noncore real estate assets, then that changes that position. In terms of the specific assets that we’re talking about here, these are the remaining assets that we hold from the acquisition of Telesta that the company did several years ago.

Operator

[Operator Instructions] There are no further questions at this time. Please proceed.

Bruce Pritchard

Okay. Thank you, operator. So thank you very much, ladies and gentlemen, for taking the time to join our call this morning. We’re excited by the progress that we’ve made so far and indeed are further excited by what’s in the -- on the slate for the coming months ahead. And we look forward to updating you our progress over the coming quarters. Thank you for joining the call this morning, and I wish you all good day.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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