Good morning and welcome to the ProQR investor call. Today's conference call is being recorded. At this time, I'd like to turn the call over to Sarah Kiely, Vice President of Investor Relations and Corporate Communications. Please go ahead.
Thank you operator, and good day everyone. We appreciate you joining our call. I am Sarah Kiely, Vice President of Investor Relations and Corporate Communications at ProQR. Today, we were very pleased to announce, along with Lilly, the expansion of our partnership. This press release can be found on our website at www.proqr.com. During today's call, we will provide an overview of the partnership expansion, as well as review our broader strategy with our Axiomer RNA editing technology platform. We will also share some highlights from our recent Axiomer presentation at TIDES Europe. On slide two, you'll find the agenda for the call and today's speakers. With me from the management team are Daniel de Boer, our Founder and CEO, Gerard Platenburg, our Chief Scientific Officer, and René Beukema, our Chief Corporate Development Officer and General Counsel. Following their prepared remarks, we will have a Q&A session.
In order to include your question on today's call, we request that you dial in to the telephone numbers provided in the press release announcing this conference call. During the call today, we will make forward-looking statements. There are risks and uncertainties associated with an investment in ProQR, which are described in detail in our SEC filings. I will now hand the call over to Daniel.
Thank you, Sarah. I would like to thank everyone for joining our call today. Ever since we started ProQR, we had the mission to develop RNA medicines for patients with high unmet need. Earlier this year, we focused our strategy exclusively on the development of medicines based on our proprietary Axiomer RNA editing platform technology, which allows for selective editing of individual bases in the RNA. To further solidify our focused efforts on Axiomer, we have today announced our expanded partnership with Eli Lilly. Back in 2014, we discovered Axiomer at the ProQR labs and filed our first patent on Axiomer RNA editing. Since then, we have advanced the science to become the leader of the RNA editing field and built an extensive IP portfolio consisting of more than 10 patent families that makes Axiomer ADAR-mediated RNA editing proprietary to ProQR.
In addition, over the last eight years, we have developed a deep understanding of the technology. Combined with our significant experience in the development of RNA therapies, we are well-positioned to execute on our business plan to capture the value of the RNA editing opportunity and ultimately bring new therapies forward to patients. Our Axiomer RNA editing platform enables base editing of individual nucleotides in the RNA. We do this in a highly specific and targeted way using the molecular machinery that is present in human cells called ADAR, which stands for Adenosine Deaminase Acting on RNA. At ProQR, we discovered a way to recruit ADAR by using a single-stranded RNA oligonucleotide. This way we can guide the ADAR to a place in the RNA where we want it to edit.
As we have patented this invention in more than 10 different patent families, we believe that the ability to recruit ADAR with an oligonucleotide is proprietary to ProQR. ADAR can edit individual bases in the RNA. Specifically, it can edit adenosines to an inosine in the RNA, and an inosine is translated as if it was a guanosine. We can use this in different ways. We can use it for correcting disease-causing mutations back to normal to a wild type sequence, or we can use it to altering a protein in a non-genetic disease such that it will help prevent or treat a disease. To capture the vast opportunity and value of the platform, we have a two-pronged strategy, in-house development of medicines based on the Axiomer technology on one hand, and to selectively enter into partnerships like the expansion of our partnership with Lilly today, on the other hand.
For our in-house pipeline, we plan to provide an update on what targets we will develop in early 2023. For this in-house pipeline, we have indicated that we will initially focus on the therapeutic areas of liver and CNS, which do have strong alignment with ProQR's oligonucleotide delivery approach. As mentioned, the second pillar on our Axiomer strategy is to selectively enter into strategic partnerships. Back in September 2021, we announced our first partnership around our Axiomer platform technology with Lilly, in which Lilly obtained the rights to five targets in a deal that's worth up to $1.3 billion. Lilly is a leader in innovative RNA science, making them a great first partner for our Axiomer technology. As the partnership has been very productive and collaborative, we have today announced an agreement with Lilly to expand this partnership.
In this partnership expansion, Lilly will gain the rights to an additional five targets with a focus in central and peripheral nervous system, on top of the five targets from 2021. The economics here are $75 million upfront from Lilly to ProQR, including an equity investment. In addition, Lilly has an option to expand the partnership with another five targets for an additional $50 million opt-in fee to reach a total of 15 targets. We believe the $50 million option could be exercised in the next 12 months as there are incentives to do so within that timeframe. On top of the milestone payments in the initial partnership, there is also another $2.5 billion of milestones plus royalties added into this partnership expansion.
Milestones are at discovery stage and beyond, bringing the total value of the 15 target partnership to $3.9 billion plus potential royalties. In addition, Lilly will provide ProQR with access to its proprietary delivery technology, which we can use for our wholly owned in-house pipeline programs. We had previously guided our cash runway into 2026, and today's announcement provides upside to that budget. We will provide an update to our runway guidance with our year-end figures. Importantly, this expanded collaboration is another validator of our leadership in ADAR-mediated RNA editing, our robust IP, and the potential of our broadly applicable Axiomer platform technology. We look forward to continuing the progress in the partnership with Lilly to improve the lives of patients together. I will now turn the call over to Gerard Platenburg, our Chief Scientific Officer and Co-founder of ProQR.
Gerard has decades of experience in RNA science and is widely acknowledged as a leader in the field. Gerard was also one of the inventors of the Axiomer platform technology and is going to provide an overview of the technology as well as some of the data, as was recently featured at TIDES Europe. Gerard.
Okay. Thanks, Daniel. Let me take you into ADAR. What is ADAR editing? ADAR editing is a RNA-based editing, which is naturally occurring in every cell in the body. Actually, it makes use of ADAR, which is an enzyme called Adenosine Deaminase Acting on RNA. It acts to bind double-stranded RNA to perform an A-to-I editing. Later, during the translation process, the I in the RNA is then read as a G, guanosine in the cell. What is Axiomer? Axiomer is something that we build on what nature has given us. As you can see on the middle panel, natural ADAR editing uses double-stranded RNA, where ADAR is binding to it. At the target adenosine, it converts that into inosine.
We study that, our EON-directed therapeutic editing uses the same approach where we develop EONs or editing oligonucleotides to bind to target RNA, creating this double-stranded structure that ADAR needs to perform its action. How does Axiomer work? I give you a step-by-step. We identify where an A-to-I edit could treat a disease and design an EON in the lab, which is then regularly delivered to the target organ or tissue, as you can see. The EON then binds to the target RNA and attracts ADAR to make this A-to-I edit, as you can see. Lastly, during translation, the I is then read as a G, resulting in a corrected or altered protein. The expertise that we generated drives the development of optimized EONs for therapeutic use.
The sequence, as you can see, defines the target RNA binding and provides stability. The molecules that we have, which are between 25 and 30 nucleotides, roughly fall into two domains where you have the ADAR-binding region, or ABR, and the EER, the Editing Enabling Region, which we can optimize. The optimized sequence and chemistry define the functionality, as you can see. Together with Peter Beal, who's a renowned ADAR scientist, we optimize the sequences. For instance, on this slide, you can see that if we take the EER, or the Editing Enabling Region, to optimize the sequence, we can actually see that over various models, target genes, we can improve the efficiency of editing up to ninefold even. It's a portable system where we can apply that knowledge to different target genes.
We did the same for the ABR, the ADAR-binding region, where we can use the backbone modifications variation to enable and optimize ADAR binding and improve, for instance, stability. On the right panel, you can see that in different cell types, we can greatly improve the editing efficiency. The SAR screening of the backbone is still ongoing, but we can see a tremendous improvement of the editing efficiency over different cells. That led us to focus on the EON design principles, where we took the different regions of the EON or editing oligonucleotides, focusing on the base or the ribose modification and linkages, where we very carefully modified and varied the different parameters, leading to an improved design of the molecules. This then led to a portfolio of our 13 foundational platform patents.
On this slide, you can see the optimization of Axiomer technology in different models and targets that we are choosing. We are using the retinal organoids, the liver organoids, and the brain organoids as our model systems to test and optimize the technology. That allows us to further think of the use of the EONs in the different model targets that we're generating, which will then take us into proof of concept for different therapeutic targets. On this slide, I'd like to show a little bit of a result as an early proof of concept in human and mouse retinal cells. You can see here where we take a household gene as β-actin, we can very clearly show a very efficient editing reaction in the different cell types.
If you take that into the complex cell system of retinal organoids, you can see that incubating the retinal organoids with our EONs is also yielding up to 40% of editing after gymn osis, as you can see over here. Taking that from the household gene into a more relevant target gene, as in this example, Septin 90, you can actually see that by applying our different design rules, we can go up to 20% in this editing reaction of these patient cells. Looking at the resulting protein correction, you can see that even at this level of editing correction, you can see a protein correction at two weeks of incubation.
As a next frontier, we looked at systems that would allow us to study editing in systems for brain cells, and the brain organoids are cultured very similarly as the retinal organoids. If you then incubate those structures as well, you can see that even in brain organoids we have a very, very efficient editing reaction, as you can see. Lastly, as a system that I'd like to show and share is the liver system because we have a high potential of EON activity in the liver cells. On the left you can see primary hepatocytes where we show up to 70% editing.
If you then attach a GalNAc or a liver-targeting ligand to the EONs, you can see that in the middle panel that the GalNAc does not interfere with the A-to-I editing reaction, which holds promise to target the EONs in vivo later to the liver hepatocytes. On the right there's an example of a very efficient editing reaction in patients that hold a mutation in SERPINA1 genes, and these patients suffer from alpha-1 antitrypsin deficiency. The last system I'd like to show is a complex liver microtissue system where you can actually mimic a lot of the reactions that we'd like to show as close as the human situation as possible.
On the left you can see the structures cultured, and on the right you can actually see that in these cells after prolonged incubation, you can see very relevant levels of editing going on, allowing us to show that this system is capable of editing reaction, and for later the development of therapeutic relevant targets as well. I'd like to show this example where we are targeting the editing of PCSK9, and in this particular case, we are generating a de novo generation of a loss-of-function variant to lower PCSK9 because it has been shown that in this particular case that people that have this particular mutation, they have a very low plasma LDL cholesterol, and that obviously leads to a improved cardiovascular phenotype of these patients.
What we try to do is in using the Axiomer technology, create this loss-of-function variant. As you can see on the right, we generated efficient molecules to do that. Using this particular editing reaction, you can see that by editing the PCSK9 messenger RNA in HeLa cells on the left, we achieve up to 25% of editing. If we then looked at the PCSK9 protein expression in the same cells, you can see that we could achieve up to 80% reduction of the total PCSK9 reduction as measured in these treated samples. It means that by a modest editing reaction, we can incur a large effect on the protein side knockdown of the PCSK9 protein. In summary, the technology potential is vast.
We can use the technology to repair G- to- A mutations for which there are many described in literature. More excitingly as well is that we can actually modulate and regulate the function of proteins. There's hundreds of different types of post-translational modifications known that can actually regulate protein activity, change the localization, but also, changing protein-protein interactions, and lastly but not least, create new proteins by also including protective variants as well. It shows that there's a broad therapeutic potential of this technology. We can only do this by working together with the best in the field of advisors. We are showing this slide that we are working with the best in oligonucleotide technology as well as in best people in the RNA-based editing field as well.
With that, I'll turn the call over to René for an overview of our IP. René ?
Thank you, Gerard, for this deep dive in the progress that we're making with Axiomer. We hope that this helps provide a glimpse of the breadth of the potential we see in the platform as a means to develop a diverse set of therapies. On IP, we have been building an IP portfolio since we began working on Axiomer in 2014. Therefore, we are confident we have a dominant and blocking IP position. There are two general categories of patents with some overlap. The first is covering the concept of recruiting endogenous ADAR, which guides that possesses a separate ADAR recruitment part, which can be a stem-loop structure or any other structure, such as an aptamer with affinity for ADARs.
The second category is patents covering guide designs, including EONs that bring desired pharmacological properties such as metabolic stability, target-based specificity, cataly by ADAR, and a variety of chemical modifications in the oligonucleotide backbone and/or bases. The earliest filed patents have already been granted in major jurisdictions such as the United States of America and EU, as indicated in the last column in the depicted slide. The others are in various stages of examinations and are expected to proceed to grant in due course. The Axiomer IP estate protects all the fundamental elements of the platform, using endogenous ADAR for therapeutic purposes beyond 2040. Therefore, in summary, ProQR's Axiomer leading IP portfolio is robust, broad, and provides coverage for all fundamental features of the technology beyond 2040. I'll hand the floor now to Daniel for a brief summary before we go to Q&A. Daniel, the floor is yours.
Thanks, René . We're pleased to have shared with you today the exciting news of the expansion of our partnership with Eli Lilly. As we have discussed today, the Axiomer platform has a strong value proposition, unparalleled leading IP position, the validation of an industry partnership with Lilly, which is now being expanded, and robust data across multiple targets and therapeutic areas with a very broad platform applicability. Much of the platform remains unencumbered and could be used for additional partnerships in the future, which we will contemplate on a selective basis. We will share more about our internal pipeline programs early next year, and we will host an investor R&D event in Q1 to share new preclinical data supporting our pipeline programs and also to provide more color on our technology and strategy.
We look forward to making an impact on the lives of patients through our in-house pipeline programs, as well as in our partnership with Eli Lilly, and to keep you updated on our progress with Axiomer. Operator, we'll now take questions.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. We will now take the first question. It comes from the line of Jon Wolleben from JMP. Please go ahead. Your line is open.
Hey, good morning. Congrats on the news this morning, thanks for taking the questions. Just a couple from me. Wondering if the progress you've made with the application of ADAR with Lilly's changed your thinking about your internal projects at all. Then with the update coming in first quarter, just wondering if you could give a little more context of, you know, what we should expect. Is this gonna be the targets you're looking at, discussion of, you know, lead series, or is it even gonna be having lead candidates? Just wondering if you could give us a little bit more, you know, context to what to expect.
Yeah, thanks for the question, Jon, good morning. Yeah, first of all, this partnership obviously validates the technology further. We're very pleased with this expansion and the validation it brings and also the financial means to further operate the business. This obviously solidifies the company from a financial perspective for years ahead. In many ways, this expansion of the partnership does not change our thinking of our pipeline. The partnership that we have now expanded with Lilly is a discovery partnership, so it does not include the programs that we will move forward into the clinic. Therefore, our timeline to our in-house clinical development programs is also not changing.
We are on track to announce those targets at the R&D Day in Q1 of next year. You know, at this R&D Day, Jon, I think you can expect a broad overview of our platform, the way we think about applying this Axiomer platform technology in different ways to treat both genetic and non-genetic disease. We'll obviously go into the details of the pipeline that we will then announce. A lot to come at the R&D Day to provide more color.
Perfect. Then one more, if I may. Just looking at the initial deal terms were valued up to, you know, $1.25 billion now, or it could climb up to $3.75 billion. Can you talk a little bit about the breakdown of, you know, what those downstream payments look like in terms of, you know, development, discovery, versus commercial milestones?
Yeah, sure. The total deal value is up to $3.9 billion. That is broken down in the upfront that we received at the time, the upfront that we receive now and the near-term potential option of in payments of $50 million, which brings the total near-term cash of this expansion to $125 million. On top of that, we receive up to $250 million in milestones per target, which are also front-loaded milestones. We have milestone payments as early as discovery, non-clinical and early clinical, and then obviously in later stage, clinical and commercial. On top of that, we do receive royalties for each of the programs on the net sales.
Terrific. Thanks you for taking the questions, and congrats again.
Thank you, Jon.
Thank you. We will now take the next question. It comes from the line of Steve Seedhouse from Raymond James. Please go ahead. Your line is open.
Hi, this is Nick on for Steve. Congrats on the expanded partnership. Can you just expand on the delivery technology that Lilly can provide? Any commentary on the therapeutic area or target that may include? Thank you.
Yeah. Nick, good morning, and thank you for the question. Look, indeed, as we have announced in the press release, we under this expansion of the partnership at ProQR get access to delivery technology that's proprietary to Lilly that we can use for our in-house pipeline. We can use it for the programs that we would develop outside of the partnership. This is structured relatively broadly, so it allows us to, in partnership with Lilly, get access to different forms of delivery technology, including for example, GalNAc technology that allows us to deliver to the liver. It's shaped very broadly. Obviously, Lilly has been doing a ton of work in the RNA therapeutic space, they have a whole range of different delivery technologies that could be helpful.
Depending on where we plan to apply those, we can get access to these technologies that are proprietary to Lilly. You asked how this may change our thinking around the targets and the target organs. Well, as we have announced before, at ProQR, we see our in-house pipeline primarily focus initially on liver applications. We think that within the liver, there's a wealth of opportunity of, you know, targets that currently have no treatments or no good treatment options available that we may be able to treat with this new mechanism of action. Yeah, obviously for liver delivery, you would consider GalNAc conjugation as a primary delivery option.
Got it. Thank you. Congrats again.
Thanks, Nick.
Thank you. We will now take the next question. It comes from the line of Jennifer Kim from Cantor Fitzgerald. Please go ahead. Your line is open.
Hi. Thanks for taking my question, and congrats on the deal. My question is on your IP. It's something that you've highlighted before, and I was wondering if you could go into the importance of that positioning as you think about the competitive space in RNA editing and specifically others who are also pursuing ADAR editing. Thanks.
Hey, Jen, good morning. Thanks for the question. Yeah, we discovered this technology about eight years ago when we were looking at different mechanisms of action that could modify RNA in human cells. We came across this mechanism, ADAR, that is present in all human cells. Back in 2014, when we made the discovery of using an oligonucleotide to recruit endogenous ADAR, we started filing patents. Yeah, most of our patent estate is currently published, and many of those are granted patents today. They do protect the fundamentals of using a chemically modified oligonucleotide to recruit endogenous ADAR. We feel very comfortable about our IP position and how that protects the platform for ProQR.
Okay, great. Thank you so much.
Thanks, Jen.
Thank you. As a reminder, if you wish to ask a question, please press star one and one on your telephone keypad. That's star one and one. We will now take the next question. It comes from line of Dae Gon Ha from Stifel. Please go ahead. Your line is open.
Great. Thanks for taking my questions. Good morning and congrats on all the updates today and with the lead partnership. I guess I've got two questions. One is with regards to the timing of the announcement. Couldn't help but notice it came a few days after the GSK Wave partnership. Wondering if there was some kind of internal milestone with regards to an in vitro or other preclinical assays that allowed Lilly to pounce on this expansion. In the prepared remarks, Daniel, you mentioned that the additional expansion from Lilly with the $60 million payment could happen within the next 12 months. Can you at least provide some additional color around what that milestone can be before they pull that trigger on that one? Second question is probably for Gerard.
I guess when we think about ADAR, recognizing the importance of these, the organoid models, can you speak to the ADAR basal level expression across the different PNS and CNS tissue types and what, I guess, gives Lilly confidence that expansion of the, applications in PNS and CNS indications could be de-risked as of the current, state? Thanks so much.
Yeah, thank you for the question, Dae Gon. I'll take them one by one and then hand it over to Gerard to address your last question. On timing, yeah, look, I think we're very pleased that we're this early in the partnership, within about a year from closing the first partnership, announcing now an expansion. I think as we mentioned earlier in the prepared remarks that the partnership has been very collaborative, very productive. We've been making really good progress, and that led for Lilly and us to come to the conclusion that we wanted to do more together and expand, you know, the reach of our partnership to additional targets, but also now to provide access to Lilly delivery technology, to ProQR.
This came together over the last several months and led to the announcement today. Was not triggered by a specific milestone or anything like that. Very pleased it happened this early in the partnership, and I think it speaks to the conviction that we have both at the ProQR side as well as the our partners at Lilly in the future of RNA editing and what this can mean for patients. On your second question, which was on the option that we provided to Lilly to expand the current partnership from 10 to 15 targets for an additional payment of $50 million.
This is built into the to the partnership that they have the right to expand to, from 10 to 15 targets for a payment of $50 million. There is incentives built into the contract that we think make it likely that this option will be triggered in the next 12 months. Hence we included that in the commentary. For your third question, I'll hand it over to Gerard.
Thanks, Daniel. Yeah, that's a very good question. I think the general answer is that we've put a lot of time in not only optimizing the technology from an EON standpoint, but also to assess the capability of the cells to actually perform the edit. ADAR is present in pretty much all cells of the body and organs. There are some exceptions in skeletal muscle, for instance. In general, the levels of editing are allowing us to assess that editing at a level that we feel should be taking us into the next step of development. We are using the organoid systems because we feel that those are the closest to physiological conditions as we can get it.
Obviously, testing in animals and later on in humans will be key to the further development. In general, ADAR is quite generally expressed, and we can use that in our model systems.
Great. Thanks so much and congrats.
[crosstalk] Thanks. Thanks, Dae Gon.
Thank you. We will now take the next question. It comes through the line of Suzanne van Voorthuizen from Van Lanschot Kempen. Please go ahead. Your line is open.
Hey, good afternoon, everyone. This is Sebastiaan from Van Lanschot Kempen for dropping in for Suz. We were just wondering regarding the cash runway, how is that extended? Maybe you can also comment a little bit on the internal pipeline. Can you give us some ballpark indication on when you expect the first programs to actually enter the clinic? Thank you.
Hey, Sebastiaan. Good morning. Thanks. On our cash runway, we have previously, our last financials, we have updated that we had EUR 100 million in cash in the bank, and with that we provided a runway into 2026. With this transaction announced today, we obviously provide upside to the budget with extending of the cash runway. We will provide an update with how this affects our runway exactly by when we announce our next quarterly financials. With respect to the internal pipeline, as mentioned, we are primarily going to focus on liver targeted indications. When we announce our targets in Q1 of next year, you can expect a focus in those areas.
We've also previously guided that we expect to be about 18 months away from the clinic at this point, and that guidance remains unchanged. You know, in a partnership with Lilly and also in a partnership expansion with Lilly, we have not included any of the development candidates that ProQR's worked on. This is a development discovery partnership that we have with Lilly on new targets that are to be discovered. For the internal pipeline programs that ProQR is working on, that's not affected and also our time to the clinic is not affected.
Great. Thank you very much.
Thanks, Sebastiaan.
Thank you. There are no further questions at this time. I would like to hand back over to Daniel de Boer for final remarks.
Yes. Thank you, operator. I wanna thank everyone for joining today's call, wish everyone happy holidays and we were pleased to share this exciting news with you today. Thank you.
That does conclude our conference for today. Thank you for participating. You may all disconnect.