Good morning, everyone, thank you for joining the Selecta Biosciences Q2 2023 earnings call. At this time, all participants are in a listen-only mode. Following management's remarks, we will hold a question-and-answer session. At that time, lines will be open for you. If anyone should require operator assistance, please press star zero on your touchtone telephones. At this time, I'd like to turn the floor over to Blaine Davis, Chief Financial Officer at Selecta. Please go ahead.
Good morning, everyone, thank you for joining our second quarter 2023 financial results and business update conference call. The press release reporting our financial results is available in the Investors and Media section of Selecta's website at www.selectabio.com. In our quarterly report on Form 10-Q for the quarter ended June 30th, 2023, which was filed earlier this morning with the Securities and Exchange Commission. Joining me on today's call are Selecta's President and Chief Executive Officer, Dr. Carsten Brunn, and Peter Traber, our Chief Medical Officer. During today's call, we will be making certain forward-looking statements, including, without limitation, statements about the potential safety, efficacy, and regulatory and clinical progress of our product candidates, our financial projections, and our future expectations, plans, partnerships, and prospects.
These statements are subject to various risks that are described in the filings made with the SEC, including our most recent report on Form 10-K and quarterly report on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today, August 17th, 2023, and Selecta disclaims any obligation to update such statements except as required by law, even if management views change. With that, I'd now like to turn the call over to Carsten.
Good morning. Thank you everyone for taking the time to join us. Thus far, 2023 has proven to be an important year for ImmTOR, our precision immune tolerance platform, which we're leveraging to develop tolerogenic therapies that selectively mitigate unwanted immune responses. In March, we were thrilled to share positive data on both phase III trials of SEL-212 in patients with chronic refractory gout. As a reminder, SEL-212 consists of two components. First, pegadricase, a potent enzyme that has been observed to reduce serum urate in refractory gout patients who continue to have serious disease symptoms, such as debilitating joint pain and disfiguring tissue deposits of urate called tophi. Second, ImmTOR, which is our non-encapsulated formulation, rapamycin, that is designed to condition the immune system to reduce antibody formation to drugs that are administered at the same time.
The proposed mechanism of ImmTOR action is the induction of immune tolerance rather than immune suppression, as with other commonly used drugs. In May, we had the opportunity to showcase this positive data during a late-breaking session at the European Alliance of Associations for Rheumatology or EULAR Congress. This was the first scientific presentation of our data to the key opinion leaders and physicians who treat patients with gout and who are well aware of the limitations of current treatment options. We were extremely encouraged by the response to the data, which reinforces our belief that SEL-212 could potentially serve as a once-monthly, safe, and effective urate-based intervention for refractory chronic gout, without the need for separate oral traditional immunosuppressants. We're currently focused on working with Sobi, our SEL-212 development partner, to prepare for a Biologics License Application or BLA filing in the U.S.
The filing remains on track for the first half of 2024. As a reminder, under our agreement, Sobi is responsible for regulatory and commercial activities in all markets outside of China, while Selecta is responsible for ImmTOR manufacturing. Selecta is entitled to receive up to $615 million in remaining milestone payments from Sobi, as well as tiered double-digit royalties on net sales. With the potential for peak sales of SEL-212 for the treatment of chronic refractory gout to exceed $700 million, we believe that SEL-212 has the potential to deliver significant and meaningful long-term stockholder values. Importantly, the SEL-212 program serves as a validation for ImmTOR platform, which represents the only immune tolerance platform with positive phase III data.
While we firmly believe that the balance of our pipeline beyond SEL-212 has the potential to generate meaningful returns for our stockholders, we recognize that significant capital and time would be required to advance these assets to value-creating inflection points on our own. As such, we want to taken the decision to suspend further investments in all programs beyond SEL-212, and instead plan to pursue potential licensing and corporate development initiatives for these assets. These include ImmTOR, which can be combined with a variety of therapeutic approaches to reduce immunogenicity across a range of indications. ImmTOR-IL, which combines our proprietary regulatory T-cell selective IL-2 candidate with ImmTOR, SEL-302, an AAV gene therapy combined with ImmTOR for the treatment of MMA, Xork, a next-generation IgG protease for the mitigation of pre-existing anti-AAV antibodies, and our next-generation IgA protease for IgA nephropathy.
To note, we'll continue to work with our partner, Astellas, to advance the development of Xork in combination with AT845, Astellas' AAV-based therapy for the treatment of late-onset Pompe disease in adults. As a reminder, we have observed a unique low cross-reactivity profile in Xork that may provide therapeutic benefit to patients with pre-existing immunity to AAV. We believe our actions today will enable us to preserve capital and also to maintain stockholder interest in SEL-212, without dilution that would have been necessary to support the continued development of the balance of our pipeline assets over the long term. With that, I'll now turn the call over to Blaine to review second quarter financial results.
Thanks, Carsten. The second quarter financial results are detailed in the press release and 10-Q issued earlier this morning, let me focus my comments on some key points. Selecta ended of the second quarter with cash, cash equivalents, restricted cash, marketable securities of $115 million. As a result of the initiatives we announced today, we expect these resources will be sufficient to extend our operating requirements into 2027. Collaboration and license revenue for the quarter of 2023 was $5.2 million, as compared to $39.3 million in the second quarter of 2022. Collaboration and license revenue was primarily related to the shipment of clinical supply and the reimbursement of costs incurred for the Phase III DISSOLVE program under the license agreement with Sobi.
Research and development expenses for the second quarter of 2023 were $17.8 million, versus $19.2 million for the second quarter of 2022. The decrease was primarily related to the capital prioritization initiative that was enacted in the second quarter of 2023. G&A expenses for the second quarter of 2023 were $6.1 million, as compared to $6.2 million for the same period in 2022. The decrease was primarily the result of a reduction in expenses incurred for stock compensation. For the second quarter of 2023, we reported a net loss of $11.4 million, or basic net loss per share of $0.07. Let me turn the call back over to Carsten for some closing comments.
In summary, we believe the initiatives we've announced today represent the best path forward to maximize long-term stockholder value. We look forward to continuing to work with Sobi in preparation for the planned BLA filing for SEL-212 in patients with chronic refractory gout in the first half of 2024, and for the balance of our pipeline, look forward to exploring opportunities to partner these programs in the coming weeks and months. Now, I'd like to open the line to Q&A. Operator?
Ladies and gentlemen, at this time, we'll begin the question-and-answer session. To ask a question, you may press star and one using a touchtone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the numbers to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Joseph Schwartz from Leerink Partners. Please go ahead with your question.
Hi, thanks very much for the update. I was wondering, since you alluded to the limitations of current treatment options for treatment refractory gout and Krystexxa sales have been quite strong, I was wondering if you could walk us through how the SEL-212 value proposition will compare to Krystexxa and how you get to your market opportunity estimates? Thank you.
Yeah, thanks. That's a great- that's a great question, Joe. Yeah, so we're-- we, we remain very encouraged. We have done some market research recently, which confirms the potential. I think we, we believe that a key differentiator is the fact that this is a monthly potential therapy, and where we don't have to use an oral immune suppressant, whereas it's a, it's a very targeted approach. With ImmTOR, you, you basically induce tolerance. We believe that, given the strong efficacy profile we have seen in the phase III, with the, you know, safety and tolerability we've also observed, given the once monthly dosing, we, we think there's a tremendous market opportunity. We're actually encouraged by the strong sales of Krystexxa. I think it's a great backdrop.
It's a very attractive market, with significant potential.
Okay, thanks. Which of the pipeline programs do you think could garner the most interest with partners? Have you, you know, had any intelligence from, you know, the market for such assets? What is the timeline for securing partnerships, and what form of partnership would you seek to enter versus would be less interesting for Selecta?
Yes, I think we, we believe, obviously, there's value in all our assets, but I think specifically, you know, we, we had initially focused on ImmTOR-IL, and we think that remains a very attractive asset for partnering and specifically for use in autoimmune disease. You know, we, we believe that adding ImmTOR to an IL-2 is, is really differentiating, actually. We're excited about this, but we believe Xork has, you know, holds potential value, but also the IgA protease in combination with ImmTOR. I think all those assets-... are, are of high value. We have not reached out to potential partners at this point. We'll do so in the, the coming weeks and months, and we'll keep the market updated.
Thank you for taking my questions.
Thank you, Joe.
Our next question comes from Kristen Kluska from Cantor Fitzgerald. Please go ahead with your question.
Hi, good morning, everybody. For ImmTOR-IL, curious to hear more about the decision here, given I know how excited you've been on this program. I guess, why not conduct some initial IND-enabling studies in-house and then look to partner off of this? You know, would that be too expensive with your plans? Then just given the versatility of the program, even perhaps outside of autoimmune, how do you plan on approaching partners?
Yeah, I think the, the why now is a good question, Kristen. I think we've just looked at the development costs and the timelines to get to a meaningful clinical readout versus the high value of SEL-212, and came to the conclusion that it's, it's in our stockholders' interest, to stop all investment, basically. We, we haven't, you know, talked about our partnering strategy, but I think the, the low-hanging fruit is really what we were focused on initially, which is ImmTOR-IL, for the use in autoimmune diseases, I think, because we have, you know, pretty detailed development program in place already. I think there's also value in some of the larger autoimmune indications where maybe IL-2 alone struggles. I think that's another approach where, you know, the differentiation by adding ImmTOR to the mix, you know, might be helpful also.
We'll update the markets, you know, once we, we had some initial discussions.
Okay, thanks. With your new cash runway guidance, I'm curious how much of this is implementing any potential milestone and/or royalty payments?
Yeah, Kristen, so the way we thought about the runway, we've, we've only incorporated the next regulatory milestone in the calculation of our cash runway. As you think about, you know, the potential BLA filing in the first half of 2024, we haven't built in any future milestones or royalties to that calculation around 2027. You know, we, we feel that that runway, you know, represents a conservative approach. As SEL-212 moves forward through the regulatory process, obviously, we will look, look at that cash runway and look at the initiatives we put into place and the ultimate impact on the cash runway overall.
you know, in 2027, we feel very comfortable with, and we've only incorporated a, a single, regulatory milestone into the calculation of that runway.
Okay, got it. Thanks. You've certainly kept us on our toes on partnerships in the past, so looking forward to seeing what comes out of that in the next months here. Thank you.
Thanks, Kristen.
Our next question comes from John Newman from Canaccord. Please go ahead with your question.
Hi, guys. Good morning, and thanks for taking my question. The question is, you've got a very interesting structure around the royalties from SEL-212 with Sobi. If I can remember correctly, you basically don't pay taxes on those royalties. My question is, will you look to retain that royalty structure long term, in order to bring in potentially substantial royalties that will be tax-free? Are you considering monetizing that royalty, as it's, it's pretty unique. We see a lot of royalties monetized, but very few, if any, that have a tax-free structure. Thanks.
Yeah, that's a great question, John. We haven't made a final decision on this at this point, but you are right. We have tax optimized this royalty stream, which I think a lot of investors actually haven't fully appreciated. We basically won't pay any taxes up to an amount of about $400 million, actually, which is very significant. We have not made a decision. I think for now, we just want to, you know, maximize the potential value for our stockholders.
Great. Thank you.
Our next question comes from Gil Blum, from Needham & Company. Please go ahead with your question.
Good morning, thanks for taking our question. With the refocusing of... Just, just to help us understand, with the refocusing of, of your efforts here, what additional oomph can you get to, you know, help SEL-212 along? Is, is this gonna, you know, change anything in your current relationship with Sobi? Just, just to help us understand. Thank you.
Yeah, I don't think there is a change, Gil. We obviously, working closely with Sobi to support the BLA filing. We remain responsible for the ImmTOR manufacturing. I think what's important as well, we get reimbursed for those efforts, right? I think that, that doesn't change in our plans moving forward.
Okay. And maybe kind of as a follow-on, what would you say is, you know, the, the next big thing for us to focus on, on, on the street? Thank you.
I think we're putting the focus on SEL-212, and really the next big kind of milestone look for is actually the filing off the BLA in the first half of 2024, and then, you know, look for potential partnerships that for the remainder of the pipeline.
Our next question comes from Uy Ear from Mizuho. Please go ahead with your question.
Guys, thanks for taking my question. Just curious, is there any conditions or financial conditions that would allow you to maybe reverse course? Are you considering partnership for ImmTOR and everything as a sort of the way going forward? Thanks.
Yeah, obviously, we're, we looked at this very carefully, and we believe, what we've announced today is the best path forward.
Okay. How should we kind of think about spending, because, you know, this quarter, it didn't look like the, there was a significant change from first quarter to second quarter, and your cash runway sort of imply that spending would come down significantly? Would it be sort of immediately in the third and fourth quarter, or, it's sort of more in the 2024 timeframe? Thanks.
Yeah. A couple of comments there. You know, as you might remember, the way we report R&D expense, it is inclusive of SEL-212 related activities. As Carsten mentioned, that is a fully reimbursed set of expenses. While, while you might see some ups and downs in reported R&D, we also would receive revenue from those reported expenses, specifically associated with SEL-212. On the whole, when you look at overall R&D spend, it will continue to come down as it relates specifically to the initiatives we announced earlier this year, as well as the update that we provided today. That will carry forward through the second half of this year, and then also throughout 2024 as well.
Again, there's a little bit of a, a nuance there in the sense that the way with which we report the SEL-212 related expenses, those will obviously continue as we move forward in partnership with Sobi and moving to BLA. But overall, we do expect to see R&D expenses come down as we move forward from here.
Okay, thank you.
Once again, if you would like to ask a question, please press Star and then one. Our next question comes from Dipesh Patel from H.C. Wainwright. Please go ahead with your question.
Hi, good morning, team. Thanks for the update. A few questions from us. Firstly, you indicated that you are interested in potential partnerships to advance the pipeline. Maybe, just to take a step back, can you give us a sense of or maybe a high-level update regarding the circumstances that led to the termination of agreements you formerly signed with Takeda, Sarepta, and Spark? What implications or what pointers or lessons we can learn from this that could potentially help you, you know, as you think about future partnerships?
Yeah, that's a good, that's a good question. Obviously, if you look at specifically Takeda partnership, Takeda decided to exit AAV gene therapy and disbanded this unit completely, they terminated all partnerships, including ours. You know, Sarepta decided not to move forward. Obviously we, we had positive data along the way, as was shown by the milestone payments we received, but they ultimately decided against this. We're definitely, you know, we have a lot of experience doing partnerships, and you know, we're positive that we'll be able to monetize the various assets, and not only in gene therapy. I think, you know, we have a much broader potential pipeline as well.
Okay, thanks for the color. Then, late April, you announced a targeted headcount reduction of 25%. Today, so let's say after implementing today's update, how many employees you might possibly have?
Yeah, we, we are not announcing a RIF today, and we haven't guided to that. I think today is really focused on announcing that we are focusing efforts on SEL-212, and that requires obviously quite a bit of, you know, headcount, which is reimbursed by Sobi, and we're looking to partner our assets out. We're not announcing a RIF at today at this point.
All right. Thanks so much.
Ladies and gentlemen, it's showing no additional questions. I'd like to turn the floor back over to Carsten Brunn for any closing remarks.
Thank you, operator, and thank you, everyone, for joining our call today.
Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.