Aclaris Therapeutics, Inc.
Q1 2018 Earnings Call Transcript

Published: 13 May 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q1 2018 Aclaris Therapeutics, Inc. Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Kamil Ali-Jackson, Chief Legal Officer. Ma'am, you may begin your conference.

[Kamil Ali-Jackson:]

Thank you, Candace. I am Kamil Ali-Jackson, Chief Legal Officer for Aclaris. Please note that earlier today, Aclaris issued its press release announcing first quarter 2018 financial results. For those of you who have not seen it, you will find the release posted in the Investors section of our website at www.aclaristx.com. Joining me for the call today are

[Neal Walker:]

Thank you, Kamil. Hello, everyone, and thank you all for joining us this evening. I'll start with a brief update on our clinical development programs and other business highlights. Then I will hand it off to Brett Fair, our Chief Commercial Officer, who will address the ESKATA launch. Next, Stuart Shanler, our Chief Scientific Officer, will review our clinical development plans and timelines, after which Frank Ruffo, our CFO, will review our financial results. Following our prepared remarks, we'll open up the line to take your questions. Chris Powala, our Chief Regulatory and Development officer, will also be available during the question-and-answer portion of the call. As we announced yesterday, last week, we completed the ESKATA National Sales Meeting, and we are now officially launched. Anyone who is interested in ESKATA can go to www.eskatahcp.com for more information. Brett Fair will cover this in more detail later in the call. On the development front, in March, we announced the positive update on the 3-month post-treatment follow-up portion of the WART-203 Phase II trial of A-101 45% Topical Solution for the treatment of common warts. We have an end of Phase II meeting scheduled with the FDA and plan to advance the twice-weekly regimen into pivotal Phase III trials in the second half of this year. Over the last year, we also advanced our Janus kinase or JAK inhibitor programs in alopecia areata, androgenetic alopecia and vitiligo. We have multiple trials ongoing and expect readouts starting in the coming months. With regard to our early stage immunology pipeline, we continue to advance the development of our selective MK2 inhibitor, portfolio of ITK inhibitors and our portfolio of JAK inhibitors. We recently published an article on ATI-450, our MK2 pathway inhibitor, in the Journal of Experimental Medicine and are rapidly advancing this asset towards the clinic. We remain excited about the potential of these preclinical assets in a variety of indications and therapeutic areas. I will now turn it over to Brett Fair, our Chief Commercial Officer, who will provide an update on our commercial activities. Brett?

[Brett Fair:]

Thank you, Neal. Good morning -- good afternoon, everyone. I'm excited to say that we have officially launched ESKATA. We assembled the entire organization last week for the ESKATA launch meeting, where we rolled out our HCP campaign, along with all relevant tools, resources and initiatives. Our team facilitated a highly productive meeting that included KOL panels and dynamic workshops, aimed at delivering on the ESKATA opportunity. The team's deep understanding of dermatology and buy-and-bill aesthetics, coupled with the level of excitement and enthusiasm for ESKATA, created a powerful learning environment setting the table for a great meaning. We were able to capitalize on a very successful ESKATA early experience initiative and carried that momentum into our launch meeting. The early experience initiative exceeded expectations as we expanded enrollment in response to the market demand for ESKATA. We had originally targeted 350 accounts and in the end, expanded it to over 700 accounts. We believe the success of the early experience initiative demonstrates the level of interest and excitement in the market for ESKATA. Due to the tremendous efforts of our sales force, we generated a high number of ESKATA preorders ahead of the launch meeting, and we gained valuable information from our target physicians and patients during the early experience initiative. As part of the initiative, we conducted both physician and patient surveys, which enabled us to understand how ESKATA delivers on its value proposition. Here's some of the takeaways from those surveys

[Stuart Shanler:]

Thanks, Brett, and good evening, everyone. First, regarding our clinical trials of A-101 45% Topical Solution for the treatment of common warts. In March of this year, we announced positive results from the 3-month post-treatment follow-up evaluation period of the twice-weekly Phase II trial, WART-203, of A-101 45% Topical Solution, an investigational new drug consisting of a proprietary high concentration stabilized hydrogen peroxide being developed as a prescription treatment for common warts or verruca vulgaris. Over the 3-month post-treatment follow-up period, clinically and statistically significant greater improvements in common wart reduction and clearance versus vehicle were observed amongst subjects treated with A-101 45%. The primary efficacy analysis of the WART-203 trial was the mean reduction in the 4-point Physician's Wart Assessment, or PWA, score. At day 56, the change in PWA score on the target warts was 0.87 points in subjects who received A-101 45% compared to a mean reduction of 0.17 points for the subjects treated with placebo and had a P value of less than 0.001. At day 134, the 3-month post-treatment follow-up time point, the mean reduction in PWA score on the target warts was 1.0 points in subjects who received A-101 45% compared to reduction of 0.39 points per subjects that received placebo. The result was statistically significant with a P value of 0.0004. Secondary and exploratory endpoints of the WART-203 trial included the following analysis

[Frank Ruffo:]

Thanks, Stu. As I walk through our first quarter 2018 financial results, please reference the financial tables that can be found in today's press release. As of March 31, 2018, we had cash and investments of approximately $187 million. We anticipate this capital will be sufficient to fund our operations into the second half of 2019, without giving effect to any potential new business develop transactions or financing activities. During the first quarter of 2018, our total operating expenses were $31.1 million compared to $12.9 million in the same quarter of 2017, which included $5 million and $3.2 million of noncash stock-based compensation, respectively. Our net loss was $30.2 million for the first quarter of 2018 compared to $12.6 million for the first quarter of 2017. Our operating cash burn for Q1 2018 was $21.9 million, as we incurred $6.2 million in noncash charges and $2.1 million in cash provided from changes in our working capital. R&D expenses increased $5.8 million to $13.6 million for Q1 2018 compared to the prior year. This increase was due to a $2.7 million increase in our JAK inhibitor technology and related programs, a $1.4 million increase in noncash charges, which consisted of a $900,000 fair value adjustment to contingent consideration and a $500,000 increase in stock-based compensation. We also expressed an $800,000 increase in our Phase II trials for the treatment of common warts. And finally, a $1.3 million increase for medical affair activities and drug discovery programs that were not incurred in the first quarter of 2017. These quarter-over-quarter increases were offset by a $500,000 decrease in development expenses related to ESKATA experienced during the first quarter of 2018. Selling and marketing expenses increased $9.8 million to $11.2 million for Q1 2018 compared to the prior year. The change was mainly the result of a $5.8 million increase in direct marketing and professional services in Q1 2018 as we prepared for the launch of ESKATA. There was also an increase of $4 million in personnel-related expenses, including stock-based compensation due to increased headcount as we essentially completed the hiring of our commercial team, including our field sales force in January of 2018. General and administrative expenses increased $2.5 million to $6.3 million for Q1 '18. The increase was mainly the result of a $1.6 million increase in personnel-related expenses, including stock-based compensation due to increased headcount. Also, a $400,000 increase in professional and legal fees and a $500,000 increase in facility, support and other G&A expenses. With regards to our financial outlook for the full year 2018, we reiterate our expense guidance from our last earnings call in March of this year. We do not intend to provide quarterly or annual revenue guidance until we have greater clarity on the product launch sales trajectory and key trends underlying product revenue. As a reminder, we expect 2018 GAAP R&D expenses to be in the range of $67 million to $75 million, including estimated stock-based compensation of $9 million, and expect 2018 GAAP SG&A expenses to be in the range of $80 million to $86 million, including stock-based compensation of $14 million. As of March 31, 2018, we had roughly 30.9 million shares of common stock outstanding, assuming no material issuances of equity, we would expect our full year 2018 weighted average shares outstanding to be about 31.1 million. With that, I'll turn the call back over to Neal for a few closing remarks.

[Neal Walker:]

Thank you, Frank. It has been an exciting start to 2018. In January, we reported positive Phase II data demonstrating clinically-meaningful clearance of common warts, a difficult-to-treat condition that has no FDA-approved treatments. We also completed the onboarding of our highly experienced field force and began driving a successful early experience initiative for ESKATA, the first approved treatment for raised SKs. On Monday, we announced the official launch of ESKATA. We now have evolved into a commercial-stage pharmaceutical company with a deep clinical-stage pipeline, a broad dermatology and immunology portfolio focused on small molecule therapeutics and a robust discovery engine. We look forward to updating you on our lunch progress and multiple clinical pipeline readouts throughout the year. Candace, can you please poll for questions?

[Operator:]

[Operator Instructions]. Our first question comes from Louise Chen with Cantor Fitzgerald.

[Louise Chen:]

I had a few here. So first question I had was on ESKATA. Can you give us some more color on the key performance metrics that you're going to be providing this year for us to follow that launch? And then secondly, on ESKATA, how is the efficacy of the product in your limited sort of trial of the product right now compared to what you saw in the clinical trial setting? And then I have a couple other questions.

[Neal Walker:]

Okay. Thanks for your questions, Louise. I'm going to hand that over to Brett to address both of those.

[Brett Fair:]

Great. Thanks. How are you Louise? So in terms of the KPIs, yes, well, right now we're focused on the early experience initiative. And then ultimately, we'll start giving guidance a little bit later in the year around things like account adoption. That will be obviously a key performance indicator for us as well as the productivity within the accounts, time to reorder, size of reorders, that will come later in the year. In terms of the efficacy that we saw in the early experience initiative, I think we're pretty impressed by it. There's a little bit of a technique to it and they're able to figure out the technique pretty quickly with this. And that's a good sign for us. So the efficacy is, it's kind of exceeded our expectations. And we've been pretty pleased with what we've heard in terms of the feedback on how the treatment feels. The patients enjoy it, it seems to be a comfortable treatment, we're getting a lot of positive feedback on that. And the other thing is the -- the providers are having a lot of fun applying it. They like to watch it whiten up and see it work. So it's been a pretty fun expense all the way around for the providers, that we've gotten in the hands of.

[Louise Chen:]

Okay. And then just on your JAK program, do you have a lot of readout coming this year and into next year as well? But as it pertains to say, over the next 12 months, what do you think is the most important data readout? And why? And then my last question is just on the common wart market, based on the efficacy, you've seen thus far, what kind of market share do you think you can take of the common wart market?

[Neal Walker:]

Yes. So thanks, Louise, this is Neal. In terms of the JAK programs, I think when you look over the next 12 months, obviously, we're honed in on looking at the eyebrow data, that will be kind of the first to come into view and we think that's important in terms of proving out the topical efficacy. And then, of course, the full Phase II study that we'll report out at the end of the year is a much larger, more robust Phase II. And so that will also be important. We have a PK/PD study that we'll be reporting on in the coming weeks that will give us a nice, kind of early qualitative look at efficacy with the topical. So they each have their kind of space in the queue. But I think certainly, the topical program for eyebrows is kind of the first big readout, and then followed by the 120-page -- or 120-patient study due at the end of the year. As it relates to common warts, just a reminder, there is nothing FDA-approved for that. So when we look at 22 million prevalent population and then 2 million to 3 million patients already coming into the doc office and no FDA-approved prescription to give them, we're pretty bullish on how we might penetrate that market. We think we're going to get a pretty good chunk of that. And it's because of the practice dynamics, right? The docs usually use multiple modalities. So even those patients who were getting the procedure in the office will absolutely walk away with a script to use at home. And that's just standard of care is the polymodality. So we're really excited about the common wart product. The data we generated initially and then the follow-up data was even better. That's pretty unusual to see that. And again, this comports with our philosophy, going after whitespace opportunities gives us a big leg up when we think about reimbursement dynamics for a product like this. So this is something we feel that we ought to be getting some more credit for in the coming months.

[Operator:]

And our next question is from Adnan Butt with Guggenheim Securities.

[Adnan Butt:]

Let me ask one on the PK/PD study. What are you looking for. Is that think anything beyond plasma concentration? The reason I ask is because it will be reading out before, I guess, the eyebrow data. So can it -- is it informative in any way on what happens in the PK/PD to what could happen in the eyebrow study?

[Neal Walker:]

Yes. Thank you, Adnan, this is Neal. That's a good question. So it's a couple of things. One is, certainly, we want to see what we're getting from a PK perspective, and if we're getting blood levels, if so, where are they? But we're also very interested in the PD portion. And across a number of parameters there, that will help inform actually the mechanism of action, decreasing a number of things like, the P stats, of course, and then looking at ALODEX scales and things like that. So that will all directionally point us in the right direction and help inform what we may see in the eyebrow study. And of course, qualitatively, over 28 days, you're very, very unlikely to get any clinically meaningful hair growth. But you ought to be seeing something going on in the early days. So those are kind of the 3 things that we'll be reporting out on. I think, we'll give a window into what the eyebrow study will look like and then, of course, that will give a window into what the 120-patient study will look like towards the end of the year.

[Adnan Butt:]

So Neal, those of the components you'll be putting in a press release?

[Neal Walker:]

That's correct. Some flavor, three pieces.

[Adnan Butt:]

Okay. And then on to the eyebrow study. There is an extension study now listed on ClinicalTrials.gov. Is that for the eyebrow study? Or is that for just your alopecia studies in general?

[Neal Walker:]

Well, if it's the extension, I think, that you're referring to, it's probably part of the PK/PD study, which we decided since we had gone to all the effort of recruiting these patients in, that it made sense to enroll them in an open-label extension. So everybody that is in the PK/PD study just rolls over after 1 month into a 6-month extension. So that will be helpful on a couple of levels. One is looking at those patients who might not have eyebrows and kind of getting an early read there. And then obviously, just adding to the database kind of rolling into the 120-patient study.

[Adnan Butt:]

Last quick one on the pipeline. Could be a bit too early. But conceptually, could 450, could that work in TNF-refractory patients or is it too soon to tell?

[Neal Walker:]

Yes. So I think, a little early to tell on that front. But certainly, when we think about -- the way we think about the positioning of this compound is, it's an oral anti-TNF, oral anti-IL-1 beta. So we just think about those markets and they're pretty much dominated by injectables. And so just that alone, let's not even talk about potency or the safety aspect, but just that alone is a huge value prop. So our big bogey for that program, what we've seen so far in the preclinical studies is a good safety profile. So when we roll into an IND, what we'll be looking at very closely is the tachyphylaxis. And so far, at least in pre-clinical models, the hypothesis has held true there. So we're really excited about that program. We think it's a major value driver. It actually comes into view in the first part of next year. So it's a -- we're rapidly getting there.

[Operator:]

And I'm showing a question now from Tim Lugo with William Blair.

[Timothy Lugo:]

For the ESKATA early experience initiative, it sounds like the response has been positive. Has that informed or changed your thoughts around when you turn on DTC for the product?

[Brett Fair:]

Tim, this is Brett. I think we're still holding the line for that October time frame. The bigger the base of accounts we have, the better when we activate DTC. So we still think the timing is good. I'm very encouraged by what we've seen in the early experience initiative, and I think that just sets the table nicely for a better DTC campaign in full.

[Timothy Lugo:]

Great. We'll be looking forward to that. And for the eyebrow study -- excuse me, for the eyebrow study, will you be sharing SALT scores between baseline and 12 weeks? And I believe you've talked about potentially having response rate data. I just want to know what informs that response rate? Is that physician assessment or a patient assessment? And also the entry criteria, I know, you're looking between patients of six months to 7 years of hair loss? It seems like a broad range. Is there kind of a sweet spot there that you're looking at?

[Neal Walker:]

In terms of the time -- the time frame, I'm not sure that there is a sweet spot. I think the sweet spot is what the range that you defined, at least for a clinical trial, six months to 7 years. When you start getting into patients with, perhaps, 20-plus year disease, it tends to be a little bit more recalcitrant. So we are kind of guided to that inclusion criteria after dialogue with the agency. As it relates to measures of efficacy, for at least the eyebrow study, it's really a qualitative approach. There is a small amount of quantitative analysis there. But it's not the traditional SALT score. The SALT score is more germane to overall disease when you're factoring in the scalp and a broader surface. So we'll be mainly, kind of, guiding to pictures and looking at clinically meaningful hair growth and reporting things on a percentage basis. And that really was the intent of the eyebrow study, is just to get -- kind of get that -- pull that kind of early look at efficacy value forward.

[Timothy Lugo:]

Okay. Fair enough. And I believe you used to have an NME in development for AGA. Has there been some data maybe pre-clinically that's shown JAK inhibitors are more useful for AGA than you'd previously thought? And is there something with the -- I know the mechanism of action for the other NME wasn't a JAK inhibitor. Can you just maybe talk about how that's evolved over maybe the past 2 years?

[Neal Walker:]

Yes. I think, the data that got us excited about it basically came out of Columbia. And so Angela Christiano, who did all the seminal work in alopecia areata, also looked at various other forms of hair loss, including mail/female-pattern and also scarring alopecias, and is one of those classic serendipitous discoveries that in a kind of the standard antigen or hair growth phase model in mice that showed a very stark effect. And there's been some published literature on that. And I think that's what emboldened us in this respect. And there's also just some know-how, some things like that, that aren't published that kind of pushed us into looking at this clinically. So we're pretty excited about it. We wanted to get a study up and running relatively quickly, and that's why we designed it as an open label and just to get an early read on it.

[Timothy Lugo:]

Well selfishly, I hope you could expedite that program a bit. I think we have few years left given this position.

[Neal Walker:]

You've got company there.

[Operator:]

[Operator Instructions]. Our next question comes from David Steinberg with Jefferies.

[David Steinberg:]

I had a question about business development. A couple of years ago, you in-licensed the JAK inhibitors. Last year, you went out and added to your pipeline with some early-stage R&D programs, pre-clinical stage. Just curious, how much of a focus, given all that you have on your plate, is business development? And if it is a focus, do you expect to do something this year? And now that you have ESKATA in the market, would you consider buying some on-market products?

[Neal Walker:]

Yes. So David, this is Neal. Thanks for the question. Yes, I mean, look, we're -- we've -- were always engaged in a BD cycle, looking at things that will generate value for our shareholders. We do, as you say, got a lot of things going on. We've got a number of clinical programs. We've got the early-stage assets that kind of create a high bar for looking at anything early-stage because we're really bullish on those and we want to invest in the assets we acquired. But certainly, now that we moved into a commercial stage company, one always has to kind of look at how you might develop some synergies there. But we don't typically comment specifically on BD, except that we're always looking at ways to increase the value of the company.

[Operator:]

I'm not showing any further questions at this time. Ladies and gentlemen, this does conclude your conference. You may disconnect now.