Orchard Therapeutics (ORTX) Q1 2020 Earnings Call Transcript – Motley Fool

Image source: The Motley Fool.

Orchard Therapeutics(NASDAQ:ORTX)Q12020 Earnings CallMay 9, 2020, 8:30 p.m. ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Orchard Therapeutics First Quarter 2020 Investor Conference Call. [Operator Instructions]

I would now like to hand off the conference over to your speaker today, Renee Leck, Director of Investor Relations. Please go ahead, ma'am.

Renee T. Leck -- Director, Investor Relations

Thanks, Sonia. Good morning, everyone, and welcome to Orchard's First Quarter 2020 Investor Call. You can access the slides for today's call by going to the Investors section of our website, orchardtx.com.

Before we get started, I'd like to remind everyone that statements we make on this call will include forward-looking statements. Actual events and results could differ materially from those expressed or implied by any forward-looking statements as a result of various risk factors and uncertainties, and including those set forth in our annual 10-K filed with the SEC and any other filings we may make. In addition, any forward-looking statements made on this call represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update or revise any forward-looking statements.

And with that, I'll turn the call over to our CEO, Bobby Gaspar.

Bobby Gaspar, M.D., Ph.D. -- Chief Executive Officer

Thanks, Renee. Hello, everyone, and welcome. I'd like to start by first acknowledging the tremendous efforts of our organization and our partners in the healthcare field to ensure patients in need continue to receive care during this difficult time. Thank you, everyone. The last few weeks have been an important period for Orchard. Since taking on the leadership, Frank and I, together with the executive team, have thought very carefully about what the new Orchard can become, how we can ensure that Orchard can fulfill its true potential and what we need to do to make that happen.

When we think about our strategic vision as a company, it's really all based on the potential of the hematopoietic stem cell gene therapy platform, where it can take us and the benefit it can provide for many patient populations even beyond our current portfolio of ultra-rare diseases. We have taken some bold and decisive actions that we believe will allow Orchard to achieve long-term growth and focus the company on sustainable value creation. This vision is supported by a new strategic plan that we have developed and which is built around four pillars. Each of these forms a chapter in our remarks this morning.

First, operating efficiencies. We have made a series of important changes to our operations that will enable us to sharpen our focus and more efficiently execute our strategy, which I will detail in a moment. Second is our commercial build. We are focused on establishing the right model for the diagnosis and treatment of patients undergoing HSC gene therapy, and see the true value of this approach over a series of ultra-rare products. Third, one of the most exciting areas in gene therapy right now is the innovation taking place in manufacturing technologies that have the potential to deliver economies of scale. We want to be leaders and invest in this space, knowing that our near-term capacity needs are covered by our experienced CDMO network.

Finally, central to this strategy is prioritizing our portfolio to enable the expansion of Orchard's pipeline beyond ultra-rare to less-rare indications. We are disclosing two new research programs for the first time today, and these are a genetic subset of frontotemporal dementia or FTD, and a genetic subset of Crohn's disease. We believe that the biological and clinical validation that has already been shown in our ultra-rare indications allow us to expand with confidence to these larger indications.

Turning to the first chapter in our new strategic plan. We are focused on improving the operational efficiency throughout the organization. This started with an extensive evaluation over the past six weeks of each program in our portfolio using several criteria that are shown here on the left-hand side of slide five. We undertook an objective analysis that involved both financial metrics and strategic considerations in identifying those programs where there was high need for patients and high-value creation for shareholders. As you can imagine, these were difficult decisions given the potentially transformative nature of many of these programs. Each has value, and we intend to realize that in different ways and over different time horizons.

Today, however, we believe our resources are best focused on Metachromatic Leukodystrophy, Wiskott-Aldrich syndrome, the MPS programs and our research programs. This also means that we have a balanced portfolio with late, mid and early stage programs. The programs I haven't mentioned such as OTL-101 and ADA-SCID and the transfusion-dependent, beta-thalassemia program, OTL-300, will have a reduced investment moving forward. We will look for alternative ways to realize value with those programs, including through partnerships.

So slide six brings together a summary of the operational changes that we've announced today. We believe these changes were important and necessary to enable Orchard to execute its mission and objectives at the highest level by matching our attention and resources to a set of core imperatives for the business. As summarized here, we expect to realize cash savings of approximately $15 million from the prioritization of our portfolio. Another $60 million in savings results from the decision to consolidate our R&D teams to one site and defer the investment in the manufacturing facility. Finally, the more staged approach to the commercial build-out and 25% reduction to our existing workforce and future headcount planning will each yield another $25 million in savings.

All of these cash savings are expected to be realized over 2020 and 2021, and result in total expected savings of $125 million over that period. With the revised plan, we now have cash runway into 2022 and no near term need to finance. It's worth briefly mentioning that this $125 million savings is after making investments in the following key areas to support our new strategy, shown on slide seven. In commercial, diagnostic and screening initiatives, including no-charge testing programs to help identify patients with MLD and other neurodegenerative conditions in time for treatment. In manufacturing, the technology, process innovations and efficiencies to drive scalability.

In R&D, initiatives in less-rare diseases that have the potential to fuel the company's future growth in a substantial way. This wasn't just an exercise to reduce expenses, but important decision-making to ensure our capital is deployed in a disciplined manner, while building a pipeline that can leverage our success across all phases of our business.

Now let me turn the call over to Frank to discuss additional key elements of the new plan.

Frank Thomas -- President and Chief Operating Officer

Thanks, Bobby, and good morning, everyone. As you can tell from this morning's press release, we have carefully examined each aspect of our business. You heard that a moment ago from Bobby, with the way we are creating operational efficiencies, and I think you will see additional evidence in the next two sections as we summarize our latest thinking around commercial deployment and manufacturing. Starting with commercial. We understand the importance of developing a commercial model that will demonstrate our ability to execute and bring these therapies to the market successfully. This model and the infrastructure that we build will also be leveraged for any future product launches.

As you'll note from the bottom of slide nine, each rare disease has certain dynamics that will impact the launch trajectory and speed with which we can penetrate the market. In fact, we anticipate our first two potential launches in WAS and MLD having distinct but complementary launch curves, as you can see from the illustrative diagrams. Let me start with MLD on the left, where we expect to launch first in the EU, followed by the U.S. and then other countries around the world. We think an important inflection point on the revenue curve with MLD will come later when newborn screening is established, providing an opportunity for an acceleration in growth rate. Disease progression is a second important dynamic that will affect market penetration. Because MLD advances so rapidly, it will be important to diagnose patients early and get them treated.

For Wiskott-Aldrich syndrome, the dynamics are very different, and it's reflected in the shape of the curve on the right. Unlike MLD, this disease is slower progressing and more readily diagnosed. We believe that WAS will provide an opportunity to treat a number of prevalent patients from the outset and also give us additional long-term revenue stream. This program, the BLA and MAA filings are on track for 2021. Turning back to MLD for an update on the regulatory time line. We are on track to get a decision from the European Medicines Agency later this year, and if approved, launch in the EU in the first half of 2021.

In the U.S., we recently engaged with the FDA on our planned BLA submission of OTL-200 for the treatment of MLD. The FDA has provided written feedback on the sufficiency of the company's data package, including the clinical endpoint, the natural history comparator and the CMC data package. As a result of this feedback, we intend to file an IND later this year and also seek RMAT designation, both of which we believe will facilitate a more comprehensive dialogue to discuss the data more fully and resolve the open matters before submitting a BLA. We are committed to working closely with the agency, and we'll provide updated guidance on the new filing time lines for the BLA after further regulatory interaction.

On slide 10, you can see that we're tracking nicely for the launch of OTL-200 in the EU in the first half of 2021, if approved, with Germany being the first country where we expect to treat commercial patients. Many of the prelaunch activities are under way, and the team has been able to keep up momentum during the pandemic to work with key centers and progress with site qualifications. We intend to set up a network of treatment centers where MLD patients are often referred and who also have transplant expertise. These same centers can be leveraged in future launches, especially for programs in the neurometabolic franchise.

I previously mentioned the importance of diagnosis in MLD to identify patients at early stages of disease, and we are taking the necessary steps to achieve long-term success. Beyond typical disease awareness efforts, we are also looking at initiatives such as no-charge diagnostic testing with partners such as Invitae, and we are looking to facilitate newborn screening for MLD with funding of upcoming pilots in New York State and Italy that are designed to validate the assay and provide the data for wider implementation. Success in these key initiatives will support early MLD patient identification.

Coming up quickly behind MLD and the neurometabolic franchise, our two proof-of-concept programs in MPS disorders, where we have made recent progress even during this challenging period with COVID-19. For MPS-I, over the past year, we've shown promising preliminary proof-of-concept data with positive engraftment, biomarker correction and encouraging early clinical outcomes, and we are excited to announce our plan to begin a registrational trial next year, bringing this program one step closer to commercialization.

For MPS-IIIA, we announced late last month that the first patient was treated in a proof-of-concept trial at Royal Manchester Children's Hospital, with enrollment planned to continue this year and interim data to be released in 2021. You can see graphically on slide 12 how the aggregation of these commercial markets lead to sustainable revenue growth. In addition, the infrastructure build is designed to provide the necessary commercial capabilities to realize the potential of the portfolio. On this slide, we've included the incidence figures for MLD and the incidence and prevalence figures for WAS to help you understand each opportunity as we see it today.

Given the dynamics at play for MLD that I described on slide nine, we believe this opportunity should largely be tied to the incident patient population, which we believe ranges from 200 to 600 patients per year in countries where rare diseases are often reimbursed. We've taken a more conservative view than previously on the addressable patient and market opportunity in countries such as those in the Middle East and Turkey, where the literature has a wide range of differing incident figures. Also, over time, with improved disease awareness, there may be prevalent patients identified who also could benefit from therapy. Our commercial strategy has always been and continues to be based not only on one product, but rather the aggregation of multiple potential products launching off one HSC gene therapy platform and infrastructure.

Turning to manufacturing. We've also made some key changes to our approach in manufacturing and how we allocate capital in the short and mid-term. On slide 14, you'll see the main tenets of our new manufacturing strategy. First, in the near term, we plan to focus on innovative technologies to enable commercial scalability.

Second, to ensure the appropriate focus on those technologies, we've made a decision to consolidate R&D to a single site in London, which brings together our organization in a more efficient way. This will allow efforts made to improve our manufacturing processes to be quickly and easily shared and then scaled commercially to transfer to our third party manufacturers, all of whom are currently located in Europe. As part of this consolidation, we will close our California site, including the termination of the Fremont project and associated capital spend.

Third, we have strong relationships with CDMOs that will ensure supply of clinical and commercial product to satisfy near-term requirements. And longer term, we intend to identify a new site in the U.S. to eventually bring manufacturing capabilities in-house with a facility that is appropriately sized and fitted for future techniques and operations.

Slide 15 shows the three phases of our approach in manufacturing: invest, partner and build. Today, we are investing, and we'll continue to invest in technologies such as transduction enhancers, stable producer cell line and closed automated processing of the drug product. This will potentially reduce the amount of vector needed, drive down COGS and potentially change the way products are manufactured, making it less labor-intensive, less expensive and more consistent. In the near and mid-term, we will continue to rely on our manufacturing partners for the early planned launches in MLD and WAS. For example, MolMed has been with these programs since the beginning, and they've been a reliable commercial partner with Strimvelis.

In addition to our existing CDMO network, we have begun to search for a drug product partner in the U.S. to complete a tech transfer and serve the U.S. market, thereby reducing scheduling challenges and creating some redundancy. And finally, over time, we plan to build in-house manufacturing capabilities closer to when there is a need for additional capacity. This enables us to explore options that are more aligned with our business in terms of scale and timing.

And with that, I'll turn the call back over to Bobby.

Bobby Gaspar, M.D., Ph.D. -- Chief Executive Officer

Thanks, Frank. In this section, I'm going to briefly highlight the potential of HSC gene therapy to correct not only blood lineage cells, but also how through natural mechanisms, specific cell types may allow correction of disease in specific organ systems and enable expansion of our portfolio into new research indications. As many of you know, and as shown on slide 17, through HSC gene therapy, we are able to insert a working copy of the gene permanently into the genome of HSCs, and these genetically modified cells can lead to multiple corrected cell types in the bloodstream, including immune cells, red blood cells and platelets.

In addition, HSCs can differentiate into cells of the monocyte macrophage lineage that naturally migrate into various organ systems, and thus gives us an opportunity to deliver genes and proteins directly to those organs, including the brain and the GI tract. Within the neurometabolic space, in particular, we have understood through our preclinical and clinical programs in MLD, MPS-I and MPS-IIIA how HSC gene therapy can deliver genes and proteins to the CNS to correct neurodegeneration. Here is an example of this natural mechanism at work in slide 18.

Data shows that there are a population of gene-modified HSCs that can naturally cross the blood-brain barrier, distribute throughout the brain, engraft as microglia and express enzyme that is taken up by neurons. We have seen this approach results in clinical benefits for patients with MLD, and we are also using the same approach for MPS-I and MPS-IIIA. Beyond this, we see that the HSC gene therapy approach could be used to deliver specific genes and proteins for other larger neurodegenerative conditions which have high unmet need.

One of the conditions we are disclosing today, and shown on slide 19, is a specific genetic subset of frontotemporal dementia, where the underlying pathogenesis has a number of parallels with the neurometabolic conditions that we are already addressing. This program involves a broad strategic alliance with Dr. Alessandra Biffi, Boston Children's Hospital and Padua University in Italy, to further explore the potential of ex vivo HSC gene therapy in neurometabolic and neurodegenerative conditions. In other organ systems, such as the GI tract, there are similar mechanisms at work which are illustrated on slide 20. Tissue resident macrophages in the gut wall are required to respond to bacterial invasion from the gut lumen and prevent infection. In certain disorders, such as X-linked chronic granulomatous disease or XCGD, defects in macrophage function results in an abnormal immune response and severe colitis.

Moving on to slide 21. We have already seen in our XCGD program the modification of HSCs and migration of gene-modified cells into the gut can lead to resolution of colitis through presumed reconstitution of the immune response. Certain subsets of Crohn's disease are also associated with mutations in genes that affect the response of macrophages to infection, and so our clinical observations that HSC gene therapy for XCGD suggest that the same approach may be applicable to this genetic subset of Crohn's disease. This preclinical work is ongoing in our Orchard research laboratories.

As we advance our work in FTD and Crohn's disease, and assuming we show preclinical proof-of-concept, these will become exciting opportunities for us to expand and address larger patient populations, either alone or in partnership. We believe we have truly just begun to explore the potential for HSC gene therapy in diseases such as these and others, and are excited to share more about the preclinical development of these programs later this year.

So to summarize our path forward on slide 22, the next 12 to 18 months offers many important milestones as we continue our evolution to a commercial stage company and advance our next wave of clinical stage therapies. We anticipate approval and launch of OTL-200 for MLD in the EU, additional regulatory filings in Wiskott-Aldrich syndrome and MLD, a new registrational study next year in MPS-I, multiple clinical data readouts from our neurometabolic franchise and further detail and progress on our research programs in FTD and Crohn's disease.

To wrap up our prepared remarks, we are confident that our new strategic plan and operational decisions announced today will set us on the right path to achieve long-term growth, build sustainable value and serve an even larger number of patients who could benefit from hematopoietic stem cell gene therapy.

Thank you very much. And now we'll use the rest of the time to answer your questions. So let's have the operator open up the line.

Operator

Thank you. [Operator Instructions] And our first question comes from Whitney Ijem from Guggenheim. Your line is now open. Please go ahead.

Whitney Ijem -- Guggenheim -- Analyst

Hey guys, thanks for the question. So first, just wondering, can you give us some more color maybe on the discussions you're having with the FDA in MLD? Kind of what are they looking for? And I guess is the IND just sort of a tool to get RMAT? Or is there additional kind of clinical work you plan you think you'll need to do?

Bobby Gaspar, M.D., Ph.D. -- Chief Executive Officer

Hi. Whitney, Bobby here. Thanks for that. In general, we can't go into all of the details, obviously, of the discussions with the FDA. But I think in the release and in the script, we've talked about the fact that they've commented on certain endpoints, the natural history, the CMC package, etc. Now I think I'd just like to say this is a and obviously, a very complex disease, a very ultra-rare population, we have extensive data set, and we have already filed with the EMA. Now for historical reasons, there hasn't been an IND in the U.S., and so we haven't had the opportunity to discuss that data in full with the FDA.

What I can say is that we do have an extensive body of data. We want to be able to talk to the FDA and have a comprehensive dialogue to be able to explain that full data set. We feel confident that we have the endpoints that they are looking for and the data that they are asking for. But we need to have that conversation with them in order to be explain to be able to do that fully. So that's why we're filing an IND filing, filing the RMAT, so we can have that dialogue. And once we can clarify those issues, then we can go ahead with submission of the BLA.

Whitney Ijem -- Guggenheim -- Analyst

Okay. Got it. And then just one quick follow-up on MLD. Can you remind us where you are with newborn screening, I guess, both in Europe and then in the U.S.?

Bobby Gaspar, M.D., Ph.D. -- Chief Executive Officer

Yes, sure. So newborn screening for MLD, I think, is an important, a very important issue, because, obviously, that means that we'll be able to get earlier diagnosis and have more patients be able to access therapy. So it's a very important part of our kind of diagnostic initiatives in this disease. What we have so far is that we have worked with a key scientist, where an assay has been developed, that's been published to show that there is an assay that we've done on a dry blood spot to understand the decrease in the enzyme activity and also the increase in the sulfur-type levels.

And that assay is now going to be put into pilots, and we are funding a pilot in New York State, and that will start later this year. And we're also looking at pilots in other states as well. We're also transferring that assay to Italy and that and we're funding a program in Tuscany and in Italy where that will be rolled out. And we're also looking for opportunities in other EU states as well. So I'd say, there are already two that are going to start, we are looking to fund other pilots as well.

And together, that data will allow us to validate the assay but also allow wider implementation of newborn screening, and also for nomination, for example, onto the WAS panel for implementation in states in the U.S. So I say there's a lot of work going on in order to make sure that happens.

Whitney Ijem -- Guggenheim -- Analyst

Great, thanks.

Bobby Gaspar, M.D., Ph.D. -- Chief Executive Officer

Thank you.

Operator

And your next question comes from Esther Rajavelu from Oppenheimer. Your line is now open. Please go ahead.

Esther Rajavelu -- Oppenheimer -- Analyst

Hey guys. Congrats on all the changes. I guess, my first question again on MLD is I'm trying to understand the duration between EU approval and NBS. I don't know if that math or if that graph was drawn to scale, but it looks like it's almost a four-year lag from first approval to newborn screening. Can you help us understand the time line there?

Frank Thomas -- President and Chief Operating Officer

You mean between EU and U.S. or around newborn screening or both?

Esther Rajavelu -- Oppenheimer -- Analyst

Around newborn screening, generally, between EU approval and newborn screening.

Frank Thomas -- President and Chief Operating Officer

Yes, sure. As Bobby mentioned, there's a pretty active program planned around newborn screening that I think we will expect will come over time in order to even apply for the Ross Panel, there are certain requirements that need to be met in terms of the number of patients or a number of children that have to be screened, identifying the positive patients and then you can apply on the Ross Panel. And then from there, there's a process that you go through in the U.S., at least, on a state-by-state basis to get it added.

So I think there are a number of steps along the way. We haven't guided specifically on the time line, but I think there are other precedents out there that suggest that this could take years. Once we screen the once we apply for the Ross Panel to get sort of full reimbursement, but obviously, we'll focus on states initially after that approval that have the largest populations.

Esther Rajavelu -- Oppenheimer -- Analyst

And my Yes, go ahead.

Bobby Gaspar, M.D., Ph.D. -- Chief Executive Officer

Esther for I was just going to say for the EU, obviously, we're looking for approval for MLD later this year. As far as people screening in the EU is concerned, that's on a country-by-country basis, and sometimes it's even certain states. But I've worked on newborn screening for SCID, for example, in the EU. And now there are numerous countries in the EU that are screening for SCID with a number of pilots also in the pipeline as well. And so with that kind of experience, and we would be looking to kind of really facilitate that uptake in the EU and as in and in the U.S., as Frank has already mentioned.

Esther Rajavelu -- Oppenheimer -- Analyst

Understood. And then the decision to defer capex, is that related to some of the time lines for U.S. versus EU approvals and the newborn screening? Or what really kind of went into that delay, given you already have some cost into that facility?

Frank Thomas -- President and Chief Operating Officer

Yes. I can start, and Bobby can add on that again. I think, obviously, we continue to believe in-house manufacturing is an important capability that we're going to want to have over some period of time. It really comes down to sort of when is the need for that capacity and capability relative to the various programs we have. Working with the CDMOs that we have today, we know that we have capacity for the MLD and WAS launches and for a period beyond the launch. So there's not an imminent need to secure the capacity today, and we think that deferring it makes the most sense. We'll continue to work with CDMOs on those launches.

We will look at bringing on a U.S. supplier for drug product to be able to more easily service the U.S. market. And then longer term, look at, potentially, in-house manufacturing at a site and location that we think is more fitted to what the capacity needs will be. So I wouldn't say it's tied to any sort of launch time lines because the plan always was to utilize CDMOs for WAS and MLD. But certainly, as those launches roll out and demand grows, our capacity needs will grow and that will be the appropriate time, we think, to make the investment.

Esther Rajavelu -- Oppenheimer -- Analyst

Understood. Thank you very much.

Bobby Gaspar, M.D., Ph.D. -- Chief Executive Officer

Thank you.

Operator

And your next question comes from Anupam Rama from JPMorgan. Your line is now open. Please go ahead.

Tessa Romero -- JPMorgan -- Analyst

Good morning, guys. This is Tessa on the call this morning for Anupam. You pointed out that updated interim data from the proof-of-concept trial for OTL-203 and MPS-I is expected at ASGCT upcoming here next week. Can you remind us of what will be the size and scope of data that we will see at the conference? And maybe can you just clarify if there is any other newly updated clinical data we should be thinking about for other programs at ASGCT?

Bobby Gaspar, M.D., Ph.D. -- Chief Executive Officer

Okay, fine. Bobby here, and I'll take this question. On MPS-I, so just to remind you, the proof-of-concept study has enrolled all eight patients, so that's been fully recruited into. What we've shared with you previously is biochemical data showing the overexpression of IDUA activity, the decrease in the heparan and dermatan sulfate, the engraftment of gene-modified cells and some early clinical data on patients who have got beyond the one-year time frame after gene therapy. There was only previously one patient who had reached that time point.

So there's been further follow-up on those eight patients. We'll be able to show you longer-term engraftment of the gene-modified cells, more consistent overexpression of enzymatic activity, longer follow-up, decrease in GAG levels and also more clinical data on patients who have got to longer endpoints as well. So we'll be able to show data assay on clinical data on patients after longer follow-up. And this will be both on their cognitive outcome, but we also will have data on, for example, growth parameters as well, which is again a big issue in MPS-I. So that is for MPS-I.

We will also be sharing data on OTL-101 as well for ADA-SCID. There will be further follow-up on patients who have undergone treatment for transfusion-dependent beta-thalassemia, so longer follow-up on the patients who have been treated so far. So there's really quite, as well as other programs. So there's really quite an extensive body of data, and it just showcases the potential of Orchard's platform across a number of different diseases and how HSC gene therapy can correct the underlying defects in immune deficiencies, neurometabolic deficiencies and hemoglobin opportunities as well. And obviously, we'll give you more detail on those different abstracts next week.

Tessa Romero -- JPMorgan -- Analyst

Great, thank you.

Bobby Gaspar, M.D., Ph.D. -- Chief Executive Officer

Thank you.

Operator

Read the rest here:

Orchard Therapeutics (ORTX) Q1 2020 Earnings Call Transcript - Motley Fool