Q4 2019 Liminal BioSciences Inc Earnings Call
Mar 23, 2020 PM UTC
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PLI.TO - Liminal BioSciences Inc
Q4 2019 Liminal BioSciences Inc Earnings Call
Mar 23, 2020 / 12:30PM GMT
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Corporate Participants
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* Kenneth H. Galbraith
Liminal BioSciences Inc. - CEO & Director
* Murielle Lortie
Liminal BioSciences Inc. - CFO
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Conference Call Participants
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* Douglas W. Loe
Echelon Wealth Partners Inc., Research Division - Analyst of Healthcare and Biotech
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Presentation
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Operator [1]
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Ladies and gentlemen, thank you for standing by. And welcome to the Liminal BioScience Inc. Fourth Quarter Results Call.
(Operator Instructions)
I would now like to hand the conference over to your speaker today, Murielle Lortie, CFO, Financial Officer. Please go ahead.
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Murielle Lortie, Liminal BioSciences Inc. - CFO [2]
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Thank you, operator. Good morning, ladies and gentlemen. This recorded webcast will be accessible from the Investor Resources page on the Liminal BioSciences website and will be available for replay later on today. I'd like to remind everyone that we'll be making some forward-looking statements today during the webcast. These forward-looking statements include remarks concerning future development of pipeline, regulatory plans, our company 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 from time to time, including our annual report on Form 20-F that we have filed with the Securities and Exchange Commission, 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 this webcast speak only 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.
During this morning's webcast, I will present the financial and operational highlights for the fourth quarter and fiscal year ended December 31, 2019. Liminal's Chief Executive Officer, Mr. Ken Galbraith, will provide an update on key developments, milestones and also regarding the COVID-19 pandemic, which we will then follow with a short question-and-answer period for financial analysts. If I could ask you now to move to Slide 4 in the deck.
As a quick reminder, this part of today's webcast is based on the audited financial statements for the years ended December 31, 2019 and 2018. All the figures are prepared under International Financial Reporting Standards, or IFRS, and the full annual information and 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 and all references to U.S. dollars means U.S. dollars.
On Slide 6, we've highlighted some of the significant events that impacted 2019 results. On a corporate basis, the financial restructuring transaction events that occurred in April, which consisted of a conversion of all but $10 million of our outstanding debt with our major creditor, Structured Alpha LP, or SALP, into $229 million of equity, a $75 million private placement and $39 million rights offering. Helped -- These transactions helped us pivot Prometic Life Sciences, Inc. to Liminal BioSciences, Inc. Our short-term corporate priorities included performing a reverse stock split, implementing a name change, listing our common shares on the NASDAQ stock market, or NASDAQ, and selling our bioseparations business.
Additionally, during the year, there were changes to management share-based compensation to align with these new objectives, resulting in noncash expense impact to the P&L of $21.5 million.
Management restructuring occurred within the Small Molecule Therapeutics segment, along with an analysis of preclinical and clinical data of our product candidates, including Fezagepras and PBI-4547.
A Phase I trial in PBI-4547 was launched in Q3 and subsequently, voluntarily suspended, pending review of pharmacokinetic, or PK data for the first 3 cohorts obtained in the first quarter of 2020.
The focus in the plasma-derived therapeutics segment changed to solely-apply efforts on the resubmission of the Biologics License Application, or BLA, with the U.S. Food and Drug Administration or FDA for Ryplazim. This resulted in impairments of some of our planned manufacturing and tech transfer facilities, along with the announced planned closure of our R&D center in Rockville, Maryland, which we intend to close by the end of 2020. We also explored and are exploring alternatives for the future commercialization of Ryplazim, if approved, including through a third-party marketing collaboration.
On Slide 7, I'd like to review selected information from our results from continuing operations for the year. In 2019, our revenues of $4.9 million are primarily from the sales of specialty plasma collected from our plasma collection center located in Winnipeg, Canada. This center and a second center located in Amherst, New York, awaiting FDA approval, will secure the supply of normal source plasma needed in the manufacturing of Ryplazim. In 2018, the majority of revenues were derived from the sales of excess normal source plasma inventory, explaining the majority of the variance between years.
R&D expenses during the year were $75.1 million, with $15.4 million or approximately 20% invested in the Small Molecule Therapeutics segment on preclinical and clinical operations. In the plasma-derived therapeutics segment, $37.1 million was invested in production of Ryplazim for both engineering runs in preparation for the BLA resubmission and production to supply clinical trial patients and certain other patients in connection with expanded access programs, including on a named patient basis and via a compassionate use program until Ryplazim is commercially approved and available, if ever.
$2.4 million was invested in clinical trials, preclinical studies and the validation of analytical assays and in-process controls in the manufacturing of Ryplazim. The total R&D spending in 2019 was $9.7 million less than the corresponding period in 2018 due to a reduction in spending with third-parties on clinical trials.
Administration, selling and marketing expenses for 2019 were $45.3 million and included $14.8 million of employee noncash share-based compensation expense as well as increased legal, audit and regulatory filing fees as a result of the number of complex transactions incurred and the preparation for listing of our common shares on NASDAQ. Finance costs of $14.1 million for the year ended December 31, 2019, decreased by $8 million compared to the corresponding period in 2018 due to the lower level of debt during 2019, following the April 23, 2019, debt restructuring, discussed previously.
Loss on extinguishments of liabilities was $92.4 million for the year ended December 31, 2019, mainly due to the debt restructuring agreement on April 23 with SALP. The debt was reduced to $10 million plus interest due in exchange for the issuance of 15,050,312 common shares.
The difference between the adjustment of the carrying value of a loan of $141.5 million and the amount recorded for the shares issued of $228.9 million was recorded as a loss on extinguishment of a loan of $87.4 million. This amount essentially representing the immediate recognition of the accreted interest that would have otherwise been recognized as finance costs over the years until the maturity of the long-term debt.
Impairment losses of $12.4 million were mainly the result in the change of our plasma segment strategy to focus solely on the potential commercialization of Ryplazim, if approved, and the resulting change in production requirements, which impaired assets held for manufacturing and tech transfer development. These transactions resulted in a net loss from continuing operations of $234.2 million for the year ended 2019, which is a decrease of $5.6 million compared to the corresponding period in 2018, mainly driven by the decrease on the impairment losses of $137 million in the year December 31, 2019, compared to the corresponding period in 2018, but partially offset by an increase in loss of extinguishment of liabilities of $126 million, which was principally caused by the debt restructuring that occurred in April.
The increase in the share-based payments expense from continuing operations of $15.1 million was partially offset by the decrease in other R&D expense.
If I could ask you now to move to Slide 8 in the deck, where I'd like to provide further details on the divestment of Prometic Bioseparations Ltd., or PBL, and its subsidiary, which were the majority of our bioseparations division, to a subsidiary of private equity group, KKR & Co., or KKR, which closed in Q4 2019. The combination of the upfront payment received and receivable as at December 31, 2019, was $51.9 million, which resulted in an accounting gain of $26.3 million recorded in our Q4 2019 financial results. There are also some additional earn-out milestones payments over the course of the next several years, in which Liminal could be entitled to receive up to $22.3 million from KKR based on the achievement of future annual revenue thresholds of our divested business and a further $4.3 million holdback if certain matters occur. However, please note these future milestone payments have not yet been recognized in our financial statements due to their uncertainty and our inability to influence the outcome. This transaction provided an upfront cash contribution to our balance sheet, removed the need for further investment by us to grow the now divested PBL business, may provide potential additional cash payments based on the success of the business and simplify our business structure on a go-forward basis. The divestiture of PBL and its subsidiary resulted in these operations being reclassified as discontinued operations in the current and comparative results.
Moving to Slide 9. I'd like to walk through the major elements that impacted our cash and cash equivalents throughout the year. We started 2019 with a cash and cash equivalents balance of $7.4 million and total debt of $125.8 million. In the first quarter of 2019, we drew $18.7 million of net proceeds from our line of credit with SALP to fund operations until we were able to complete our restructuring transactions, which, as previously mentioned, included the conversion of debt into $229 million of common shares and raised proceeds of $75 million of capital from Consonance Capital Management and SALP in a private placement, along with $39.2 million of net of fees from other existing shareholders via the rights offering.
The proceeds from the sale of PBL, net of the cash divested, provided $45 -- $44 million gross proceeds of cash. Our cash and cash equivalents balance as at December 31, 2019, was $61.3 million. As of December 31, 2019, the company's working capital, meaning the current assets, net of current liabilities, amounts to a surplus of $63.6 million compared to $5.1 million as of December 31, 2018. We also have an unutilized line of credit from SALP of $29.1 million as of March 19, 2020, which will automatically be reduced by the amount of net proceeds generated upon the occurrence of either a licensing transaction for Ryplazim, commercialization or equity raises, and expires on May 11, 2021.
As we look to 2020, on Slide 10, our current and announced reductions in our operating footprint and our headcount, which as of December 31, 2019, was 300, a 154 reduction from our December 31, 2018, we anticipate a reduction in our base operating expenses that will enable our current cash position to support operations for at least the next 12 months.
I'd now like to welcome Liminal's Chief Executive Officer, Mr. Ken Galbraith to the call and invite him to talk about recent -- about key recent developments and anticipated milestones for 2020.
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Kenneth H. Galbraith, Liminal BioSciences Inc. - CEO & Director [3]
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Thank you, Murielle. Further to our separate press release this weekend, I'd like to spend a few minutes acknowledging the impact of the COVID-19 pandemic on our employees, our communities, our industry and specifically, on our operations. We've been following all the best available data and advice since the situation began to unfold in the first quarter of 2020. We believe we've taken active steps to protect our talented workforce and ensure continuity in our operations as many of our employees begin to work remotely. For those employees who need to continue to work in our production facilities, laboratories and administrative offices, we believe we've taken reasonable precautions and steps to ensure a safe and healthy workplace.
We've restricted travel policies in place to follow government reductions and to avoid any nonessential travel. Fortunately, today, we've not had any material disruptions to our ongoing business activities, although it is always possible that they could be subject to material disruptions as the situation evolves.
The current COVID pandemic and our industry's response is a reminder of the critical importance of innovation in health care and the value of development of new medicines to sustain and improve human health. We at Liminal BioSciences remain committed to advancing our own work in discovering, developing and commercializing novel treatments for patients suffering from diseases related to fibrosis, including respiratory, liver and kidney diseases that have high unmet medical needs.
Despite not having virology research group or vaccine capability in our company, we're still evaluating specific ways that we can be helpful to our industry and government response to the COVID pandemic. Our wholly-owned subsidiary, Prometic Bioproduction Inc., or PBP, is focused on bioseparation technologies to isolate and purify biopharmaceuticals from human plasma. We have production facilities in Laval and also an R&D center in Rockville, Maryland.
On March 19, the U.S. FDA announced that it continues to play a role in facilitating medical countermeasures to treat and prevent COVID-19. In that same announcement, the FDA indicated there is interest in evaluating whether therapies such as convalescent plasma and hyperimmune globulin, antibody-rich blood products that are taken from blood donated by people who have recovered from the virus, could shorten the length or lessen the severity of the illness. We are currently evaluating whether any of our plasma-based product candidate development experience or facilities could be useful to these efforts.
We are reviewing our own research conducted on plasminogen and other plasma-derived product candidates to determine if there are any further steps we could be taking towards evaluating the potential benefit to COVID patients. Given the global health care emergency, we expect to coordinate further actions, if any, with other researchers, government departments, regulatory authorities and international public health organizations, all of whom continue searching for potentially effective treatments and vaccines.
With COVID at the forefront of our thoughts, we remain focused on achieving the corporate goals that we set for ourselves for 2020. And we'll continue to monitor ongoing developments and adapt our work environment as necessary to follow the advice of governments and other regulatory agencies. In addition to our efforts on behalf of our stockholders, we'll continue to operate as an employer with caring concern for our employees and mindful of the impact of the COVID-19 pandemic on our suppliers, collaborators and the local communities that we work and operate in.
I would like to now discuss the development of our R&D pipeline since our last conference call in November. Our plan to resubmit a BLA with the FDA for Ryplazim for the treatment of patients with congenital plasminogen deficiency remains on schedule for the first half of 2020. Over the course of the past 2 years, our employees have worked diligently and professionally to address the chemistry, manufacturing and controls issues raised in the complete response letter we received from FDA in 2018. We look forward to our planned resubmission and working with FDA to review our BLA resubmission during 2020.
As previously discussed, we have explored and continue to actively explore arrangements for the commercialization of Ryplazim, including a third-party marketing collaboration. With respect to Fezagepras, we expect to initiate an additional Phase I clinical trial in the second half of 2020 to evaluate multiple ascending doses in healthy volunteers, at dose levels higher than those previously evaluated in our completed Phase I and Phase II clinical trials.
The data from this Phase I clinical trial will inform dose selection for future clinical trials of Fezagepras, including placebo-controlled randomized Phase II clinical trials in respiratory disease indications, such as idiopathic pulmonary fibrosis, or IPF, and other interstitial lung diseases or ILDs.
For PBI-4547, we look forward to providing an update soon on the Phase I clinical trial we initiated in September 2019, which we voluntarily suspended, pending review of the pharmacokinetic data for the first 3 cohorts obtained in the first quarter of 2020. For the remainder of our early-stage R&D pipeline, we're focused on expanding our pipeline of assets for the treatment of diseases in respiratory, liver and kidney and specifically intend to develop oral GPR84 antagonist to treat fibrosis.
With respect to personnel changes since our last conference call, we have established a small footprint near Cambridge, U.K., to house the drug development team for our small molecule product candidates that was previously co-housed with our PBL offices, prior to the sale of PBL to KKR. We expect to grow this group over time to manage the later-stage development of Fezagepras and other product candidates.
As you're aware, Moira Daniels was hired in November as our new Head of Regulatory Affairs and Quality Assurance, to be based in Cambridge U.K. She's actively working on both our Ryplazim BLA resubmission to the FDA as well as our future regulatory pathways for Fezagepras and other product candidates. As was previously discussed on the call, we do intend to close our R&D operations in Rockville by the end of 2020.
On an interim basis, we've been utilizing the contracted services of Dr. Gary Bridger, a board member of Liminal; and Dr. Jeff Smith, an independent consultant, in the roles of scientific and medical advisers, respectively, as we continue to develop Fezagepras, PBI-4547 and the rest of our early-stage small molecule R&D pipeline.
Both of them are experienced in the field of drug development and are previous founders of their own biotech companies, AnorMED and Alder Pharmaceuticals, respectively. We believe the scientific direction of the company and our clinical development strategies are in capable hands as we add to our product candidate development team during 2020. These are certainly challenging times for any business to operate in, and we will provide any necessary updates should the rapidly changing situation have a meaningful impact on our business outlook. But we are fully committed to continuing our work in developing product candidates for patients.
We would now like to address any questions that financial analysts may have. And I'd like to turn the call back over to the operator to do so.
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Questions and Answers
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Operator [1]
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(Operator Instructions)
Your first question comes from the line of Doug Loe from Echelon Wealth.
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Douglas W. Loe, Echelon Wealth Partners Inc., Research Division - Analyst of Healthcare and Biotech [2]
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Ken, your comments on everyone's favorite virus, I think we're particularly germane to the current environment. I just -- an IVIG would, obviously, be the most relevant plasma product in that realm. Just wondering if you might be able to provide a little bit more granularity on sort of magnitude of available plasma you might have in your inventory or perhaps even amounts of IVIG that could be sort of deployed, sooner rather than later, in order to address the current need?
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Kenneth H. Galbraith, Liminal BioSciences Inc. - CEO & Director [3]
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Yes, it's a good question, Doug. Maybe a little too soon to do that. I mean with respect to plasminogen, all of our supply of plasma that we now have was dedicated to making material to support our compassionate use and eventually, hopefully, launch material this year. So at this stage, we haven't tested plasminogen in any clinical studies in COVID. So that's one thing. With respect to IVIG, you are aware, we did have a development program in that. We do not have active materials of IVIG that we could use nor likely a manufacturing process that we could carry on with that. So we are looking at the assets we have, as I said, and the expertise and also the facilities and reaching out to others to understand where we could be helpful and potentially not realize it or others may not realize the capabilities we have. So I think it's a little premature to dictate a further strategy until we had the time to really review some of those internally. And if we do take any actions, obviously, we'll work with others to do that and make that known.
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Operator [4]
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There are no further questions at this time. I'll turn the call back over to Ken.
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Kenneth H. Galbraith, Liminal BioSciences Inc. - CEO & Director [5]
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Well, that's great. Thank you, operator, and many thanks to those of you on the call today, and please be safe, and we'll look forward to updating you at our Q1 earnings call in -- to be held in May or sooner as material developments require to do so. So thank you very much, and please be safe everyone.
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Operator [6]
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This concludes today's conference call. You may now disconnect.
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