Arcturus Therapeutics Holdings Inc.
Q3 2015 Earnings Call Transcript

Published: 17 Nov 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Alcobra Third Quarter 2015 Earnings and Corporate Update Conference Call. At this time, I'd like to remind everyone that their lines are on listen-only mode to reduce background noise, but later we will be conducting a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to introduce your first speaker for today, Debbie Kaye. You have the floor, ma'am. Debbie Kaye Good morning and thank you. On November 12, 2015, Alcobra announced financial results for the third quarter September 30, 2015. If you have not yet received this news release or if you would like to be added to the company's distribution list, please call LifeSci Advisors in New York at 646-597-6979, and speak with Mike. Before we begin, let me remind you that this conference call will contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Because such statements deal with future events and are based on Alcobra's current expectations, they are subject to various risks and uncertainties. Actual results, performance or achievements of Alcobra could differ materially from those described and/or implied by the statements on this conference call. For example, forward-looking statements include statements concerning among other things, the expected milestones and the development of Alcobra's lead product candidate and its various indications, including the timing and design of clinical trials, timing of reporting results of such trials, Alcobra's ability to better design future clinical trials and reduce high placebo response, the benefits of utilizing certain monitoring tools in our clinical trials, the cost of clinical trials reaching the milestones required for U.S. Food and Drug Administration approval, the potential of MDX to treat adult and pediatric attention deficit hyperactivity disorder and Fragile X, statements regarding Alcobra's recently filed public offering, timing of closing of such offering, and receipt of proceeds from the offering, the grants [ph] to be underwrited [ph] in the offering and exercise thereof, if it is exercised [ph], future uses of cash, and the sufficiency of the company's financial results as to meet further milestones, and whether such milestones may be achieved at all. It should be noted that the closing of the public offering recently announced is subject to customary closing condition. In addition, historical results or conclusions from scientific research do not guarantee that future results would not suggest different conclusions or that historic results referred to on this call would not be interpreted differently in light of additional research or otherwise. Also, while the FDA has indicated to Alcobra that positive efficacy results from certain clinical studies may be sufficient to demonstrate efficacy for approval of MDX, the FDA is not bound by these communications and, accordingly, may change its position in the future due to reasons within or outside the control of Alcobra. The forward-looking statements contained or implied on this call are subject to other risks and uncertainties, including those described in the Risk Factors section of Alcobra Limited's Annual Report on Form 20-F for the fiscal year ended December 31, 2014 filed with the Securities and Exchange Commission and in subsequent filings with the SEC, including Alcobra's final prospectus supplement, dated November 13, 2015. Except as otherwise required by law, Alcobra disclaims any intention or obligation to update or revise any forward-looking statements, which speak only as of the date of this call, whether as of the result of new information, future events or circumstances or otherwise. Hosting today's call from Alcobra senior management are Dr. Yaron Daniely, President and Chief Executive Officer, and Dr. Tomer Berkovitz, Chief Financial Officer. It is now my pleasure to turn the call over to Yaron. Yaron, please go ahead.

[Yaron Daniely:]

Thank you, Debbie, and good morning everyone. Today, I'll provide an update on the significant progress that we've been making in our development programs for our lead drug candidate, Metadoxine extended-release or MDX. I will then hand over the call to Tomer to review Alcobra's Q3 financials, which were previously disclosed. Before I provide you operational update, I'd like to say a few words on the equity financing, which we priced last Friday and expect to close tomorrow. With gross proceeds of approximately $40 million before the underwriter's option to purchase additional 15% of the offered shares, and on top of the Q3 cash balance of $35.5 million reported last week, this recent financing provides the company with an adjusted cash balance of approximately $73 million, which should be adequate to conduct our clinical development plans and see the company through the end of 2017. Tomer will provide additional details on the financing shortly, but I'd like to note that the decision to obtain additional capital was made following receipt of encouraging feedback from FDA on both our pediatric ADHD program, as well as the Fragile X program. We strongly believe in the potential for significant additional value these development programs bring to Alcobra's portfolio. Let me start with the significant progress we've recently made in our Fragile X program. As a reminder, Fragile X syndrome is a rare neurogenetic disorder, characterized by severe intellectual, behavioral, and learning challenges. It is the leading known genetic cause of autism, and there are no approved medications to treat Fragile X syndrome. Several weeks ago, we saw the FDA's feedback on the outcome of our Phase II placebo-controlled exploratory study in 62 adolescents and adults with Fragile X syndrome, the results of which were reported this past summer. We also submitted a request for Fast Track designation for MDX in Fragile X syndrome, as well as a meeting request to discuss the development path for an NDA submission for this indication. As we announced in September, the FDA awarded MDX a Fast Track designation, facilitating consultation, and expedited review of the development plan for MDX in this indication. At the meeting with the agency, the FDA concurred with our proposal, that results from a single short-term, adequate, and well-controlled efficacy study in adolescents and adult patients with Fragile X may be sufficient to support a claim of efficacy for approval of MDX in this indication. The FDA further confirmed that the Vineland-II Daily Living Skills Assessment, which was statistically significant in our Phase II study on the intent-to-treat population, could serve as the primary endpoint in the pivotal trial. As a reminder, the Vineland-II assessment has been extensively studied across a broad range of ages spanning zero to 90 years, demonstrating high reliability, consistency, and validity across a number of populations, including autism, intellectual disability, emotional disability, and learning disability. It has been used in multiple Fragile X syndrome studies, as well as studies of subjects with intellectual disability, and subjects with autism. The Daily Living Skills Assessment domain of the Vineland-II has been validated, and shown to be clinically meaningful. It is assessed through a clinical interview with a caregiver, and probes the level of patient confidence on a range of functional skills, including basic ones such as eating, dressing or undressing, and maintaining personal hygiene, to more complex skills such as assessing the subject, understanding, and proper management of time, money, phone, and computer use. As individuals with Fragile X syndrome typically have significant intellectual disability, including impairment in daily living skills, a statistically, and clinically significant effect on this assessment represents a meaningful change that is highly relevant to this population. Now in the past two to three years, there have been several Phase II and Phase III placebo-controlled trials of drug candidates in adolescents and adults with Fragile X syndrome, all of which have failed to show statistically significant outcomes in the intention-to-treat population on any major, primary, or secondary endpoint. In contrast, our Phase II trial yielded statistically significant findings on the very outcomes that clinicians and patients, and their caregivers find meaningful. Given the supportive dialogue with the agency, we intend to work collaboratively with FDA to finalize the clinical study protocol details over the next few months, and launch the pivotal study in this indication next year. We are committed to exploring the potential benefit that MDX may bring to Fragile X syndrome patients, and their families. Turning to our ADHD program, the pivotal Phase III adult study which we named MEASURE has begun enrollment, with a target of up to 750 patients. In addition to enhancing the powering assumptions, the MEASURE study includes multiple design and operational elements that are expected to provide rigorous controls over the magnitude of placebo responses, and response variability. Alongside study design elements, which include an extended treatment duration, careful selection and education of clinical centers, and FDA-approved patient screening and enrichment methods, we have upgraded our monitoring capabilities by utilizing an electronic source or eSource system, which allows real-time, remote, expert review of subject enrollment and assessment. The state-of-the-art technology records and documents patient selection and patient interviews, which are reviewed by remote experts, ensuring standardization and compliance with study procedures and training. We continue to believe that the updates to MEASURE greatly enhance our potential for a successful outcome. Enrollment in the MEASURE study is on track for data readout in mid-2016. We also made progress this quarter with the second track of our ADHD development program, pediatric ADHD. And in collaboration with FDA, we completed outlining the pediatric study plan or PSP, charting the path for NDA submission in children and adolescents with ADHD. As we've indicated before, the PSP primarily discusses the design of the two pediatric studies, a single Phase II, and a single Phase III which the FDA advise us may be sufficient to demonstrate efficacy for approval of MDX in this subpopulation. Following the completion of our pharmacokinetic safety and tolerability study in this population, we intend to launch the first of these two studies next year. This concludes my operational update. Let me now turn the call over to Tomer.

[Tomer Berkovitz:]

Thanks Yaron. Let me start by discussing our third quarter 2015 results, which were reported in our press release last week. We reported total operating expenses of 4.3 million for the third quarter of 2015, compared with 5.2 million in the second quarter of 2015, and 10.6 million in the third quarter of 2014. Total operating expenses include non-cash charges for stock-based compensation of 0.6 million this quarter, and 1 million in the same quarter last year. Most of our operating expenses are tied to our research and development activity. In the third quarter of 2015, R&D expenses were 2.9 million compared to 8.8 million in the third quarter of 2014. R&D expenses this quarter consisted primarily of costs associated with the ongoing Phase III adult ADHD MEASURE study. G&A expenses for the third quarter of 2015 were 1.2 million compared to 1.3 million in the same quarter last year. Pre-commercialization expenses were 0.3 million this quarter compared to 0.6 million in the same quarter last year. Finally, we closed the second quarter with 35.5 million in cash and bank deposits compared to 41.1 million at the end of the previous quarter. This of course does not include net profit of approximately 37.3 million that we expect to receive upon closing of our equity financing, which was last Friday. Our current balance reflects net cash used in operating activities of 5.4 million this quarter. We believe that our existing cash resources including funds we expect to receive from the recent offering will be sufficient to fund our operations through 2017, including the completion of the Measure study, the ADHD pediatric Phase II study, and the pivotal Fragile X Syndrome study. I would like to add a few more words about our recent financing that we expect to close tomorrow. The offering which was led by Jefferies and Barclays as joint book runners with Oppenheimer, Roth, and Cantor Fitzgerald as co-managers was closed with 8.7% discount to the prior day's closing price. Final profits from the transaction may increase by up to 15% in the event the underwriters exercise the option we gave them. We are encouraged to that Alcobra's stock shareholders as well as new well-known funds participated, thereby lending meaningful support and validation to the company's approach even in the current challenging market environment. The profits from this offering will allow the company to report the results of the Phase III adult ADHD study in May 2016 from a position of significant financial flexibility and strength. The transaction expands and deepens Alcobra's relationship with several major investment banks and supports the float and trading liquidity of our stock. We firmly believe that Alcobra's solid financial position will ensure its ability to execute its plans to the best capabilities and maximize the value to its shareholders. I will now turn the call over to the operator for the Q&A session.

[Operator:]

[Operator Instructions] Our first question comes from the line of Charles Duncan from Piper Jaffray. Your line is open.

[Charles Duncan:]

Yes, good morning, Yaron. Thanks for taking the question. I had a couple of questions. Regarding the MEASURE study in ADHD, can you give us a little more color on the enrollment progress thus far? You said that you are on track, but what does that mean in terms of numbers of patients or site initiations? And also, have you taken a blinded look at the patient characteristic thus far?

[Yaron Daniely:]

Thanks, Charles. Good morning. So with regards to numbers, we have kind of taken the position to try and refrain from creating a market accounting process, where folks are asking us daily how things are going. I think that statement, that projects data readout by the middle of the year, given the treatment period of the last patient in, would suggest that we are on track in terms of our enrollment projections. Enrollment in the pivotal study was monitored, so that initial enrollment in the 15 participating sites would be slow at first to ensure the appropriate quality and monitoring instruments that we are utilizing in the study. And it then basically picks up as we allow the sites to enroll more aggressively as we get comfortable with their quality. All sites that we originally intended to launch a study are activated, and we have a set of sites waiting in the wings that will be activated shortly, or can be activated later on in case we need a boost towards the end of the enrollment process. But at this point, all I can say is that things are on track according to plan, and I suspect that early next year once we get to the final stretch we'll be able to update even more clearly with a more specific update.

[Charles Duncan:]

Okay, that's helpful. And then, moving on to the Fragile X program, it's cool [ph] that you got their feedback from the FDA. It sounds like you are or not ready to pull the trigger on that pivotal study, is that fully designed, and can you give us some color on the size and duration of that study? And then, I have a follow-up to that.

[Yaron Daniely:]

Yes. That's a good question. So we have of course proposed and discussed with FDA at high level the study, particularly the patient population, adolescence and adult to be primary endpoint. We were very curious and motivated to see the FDA accepting the endpoint, the Vineland Daily Living Skill Assessment, which we hit with statistical significance in the exploratory Phase II study and some other elements that are related to study design, but we will be proceeding with really ironing out all the details of the protocol in collaboration with FDA over the next couple of months. So for an indication that no other drug has ever been approved for, FDA usually entertains, and sponsors usually take advantage of various path that allow you to really discuss more intently with FDA the various aspects of the protocol and then reach a binding or as binding as you can form of the protocol, and we think it would be a smart idea to go that route with the Fragile X opportunity. So although the key components of the trial were discussed and are -- we are aware of these, following the FDA meeting we would still like to have complete review of the entire protocol. With regards to the numbers you asked, we expect based on our assumptions and based on preliminary with the agency that we are going to be doing a trial of around 150 to 200 patients, but that remains to be confirmed and validated with the agency.

[Charles Duncan:]

Okay, that's helpful. And then, final question is regarding the recent financing. Tomer addressed very likely some of the drivers to that decision, but for me, really timing was a little bit of surprise to me. So I am just wondering if you can really share with us what was the primary driver. Was it some increased confidence or comfort with how the MEASURE study is going, or was it perhaps broadening the pipeline along the lines of increased development activities on Fragile X?

[Yaron Daniely:]

Yes. So I think it's more of the latter. I don't want to -- I certainly don't want to project any insight or familiarity with MEASURE study data, because the study is ongoing and we are blinded to it. But clearly what -- the feedback from FDA on the remaining half [ph] for the pediatric ADHD indication, a single Phase II and a single Phase III was very encouraging to us. We believe that MDX for ADHD could be a very significant commercial opportunity in the pediatric market. Charles, we originally -- back when we met a couple of years ago, we kept talking about adults and the focus was on adults, but given the traits of this drug candidate, which appears to be a very well tolerated but also a relatively fast onset non-abusable drug, we believe that the pediatric opportunity becomes very significant in a market with still significant unmet need. So we wanted to aggressively accelerate that program. We also based on the feedback from FDA realizing that a single relatively small study with the design that we were hoping for could pave the way for rapid regulatory development and possibly approval for MDX and Fragile X in orphan disease with an orphan designation and fast track designation, we also wanted to make sure that we are capable financially to support that activity as aggressively as we can. And maybe final note with regards to MEASURE, both are our valued shareholders, and the company look to the -- some of the turmoil in the markets recently and kind of re-evaluated what could happen when despite let's assume for a second a great outcome in the MEASURE study come middle of 2016, the company at that point would be only with a couple of quarters of cash left as we've guided previously that we have cash to end of 2016. We became concerned with some of the choppiness of the market that at that point even with fantastic clinical news, a strong financial overhang may form again with not enough of a cash runway. And so, we took advantage of many different elements and relative stability and relatively good performance of the stock year-to-date to really supplement the amount that we thought was required to support these activities. Aggressively pursuing the pediatric ADHD and the Fragile X program as well as be in a very strong solid financial position when we readout the MEASURE study to make that there is no financing overhang if the results are positive as we hope they will be.

[Charles Duncan:]

It makes sense to me. Appreciate the added color. Thanks.

[Yaron Daniely:]

Thanks, Charles.

[Operator:]

Thank you. That is all the questioners that we have at this time. So I would like to turn the call back over to management for closing remarks.

[Yaron Daniely:]

Thanks, Andrew. I wanted to thank all of you for participating in this morning's call. The entire Alcobra team is enthusiastically advancing our programs, and I look forward to communicating our progress as we move forward. As I said, our solid financial position will support our continued efforts to establish MDX as an effective pro-cognitive compound demonstrating significant clinical benefits together with a favorable, safety, and tolerability profile. Thank you all again for joining us this morning, and I hope to see some of you later today at the Healthcare conference. Have a great day.

[Operator:]

Ladies and gentlemen, thank you again for your participation. [Technical difficulty] This now concludes the program, and you may all disconnect your phone lines at this time. Everyone have a great day.