Arcturus Therapeutics Holdings Inc.
Q3 2016 Earnings Call Transcript

Published: 15 Nov 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Alcobra Q3 2016 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today's conference Ms. Debbie Kaye from Alcobra. You may begin.

[Debbie Kaye:]

Good morning and thank you for listening in. Earlier today, Alcobra announced financial results for the third quarter and nine months ended September 30, 2016. If you have not yet received this news release or if you would like to be added to the company's distribution list, please contact us at 646-597-6979. 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. For example, forward-looking statements include statements regarding measure study, the removal of any safety concerns and any basis thereto, the potential clinical benefit of MDX, expected expenses and sufficiency of capital resources, timing and design of future preclinical and clinical studies and content and timing of discussions with the FDA and possible positive outcomes of such discussions. Such statements are subject to the section titled forward-looking statements including the press release we issued earlier today. Hosting today's call from Alcobra's senior management are Dr. Yaron Daniely, President and Chief Executive Officer; and Dr. Tomer Berkovitz, Chief Operating Officer and Chief Financial Officer. It is now my pleasure to turn the call over to Yaron. Yaron, please go ahead.

[Yaron Daniely:]

Thanks Debbie. Good morning, everyone. Today, I will provide an update on our development programs for our lead drug candidate, MDX. I will then hand over the call to Tomer to review Alcobra's Q3 financials and will hold a Q&A session after we conclude our prepared remarks. As we previously announced, the Division of Psychiatry Products at FDA placed a full clinical hold on the MDX development programs resulting in a pause in new subject enrolling and subject treatment in measure our Phase III Adult ADHD study. The whole letter noted the division's concerns regarding neurophysiological findings in previously submitted long-term animal studies treated with supratherapeutic doses of Metadoxine showing adverse effects on peripheral nerve conduction. The division recommended we schedule a meeting to discuss the collection of relevant human safety data as part of our development program. Importantly the FDA's action was not based on any clinical safety data observed in the measure study or previous clinical studies with MDX. In response to this recommendation, we've submitted a Type A meeting request to the division with the goal of better understanding the foundation for its concerns as well as ways to address them within our development plans. The division granted our request for a face-to-face meeting and scheduled it for next month. As a reminder, Metadoxine has been commercially available outside the U.S. as an immediately release strong for nearly four decades with millions of patient days of exposure and dozens of journal publications reporting no significant safety concerns. Our own experience with Metadoxine extended release or MDX, includes over 400 subjects in multiple clinical studies and similarly demonstrated no significant safety concerns. Furthermore the measure study Independent Data Monitoring Committee or IDMC, which has reviewed safety data from the study on three separate occasions, identified few if any safety concerns and repeatedly recommended the continuation of the study. Given this amount of clinical safety information, we were naturally disappointed with the division's action and are eagerly awaiting the opportunity to discuss this further. With the help of our team of consultants including past FDA division directors and top experts in the fields of nerve physiology and nerve conduction, we've compiled a robust and comprehensive briefing document for this meeting and requested the division's comments on our proposed action plan. We are proposing the inclusion of periodic nerve conduction assessments performed by trained electrophysiologists within the previously planned long-term MDX patient study. It's acceptable this study can start enrollment in a few dedicated days sites in the U.S. early next year and address the division's request for collection of human safety data in our development program. We're additionally proposing the introduction of similar noninvasive, brief, neurological assessments into the measured study protocol itself with the intent of the division allowing resumption of enrollment in measure while monitoring for the well-being of the subjects in the trial. We are also seeking the division's view on the possibility of conducting certain analyses of the efficacy data already collected in the measure study. At a point when whole display, 326 subjects were randomized in measure of which 281 had a post baseline efficacy assessment, rendering them part of the full analysis step. The number of valuable subjects in measure is therefore comparable to similar Phase III Adult ADHD studies conducted with other compounds. As an example the two adult Phase III Atomoxetine studies at an average of 268 randomized subjects and the Mixed Amphetamine Salts Extended-Release or Adderall XR Phase III study had 255 randomized subjects. Finally, as we previously disclosed, the pooled standard deviation of the primary endpoint assessment in the data collected thus far favorably compares to the one observed in our previous Phase III study and is in line with our Phase IIB MDX study, as well as other successful ADHD drug trials. So taken as a whole, this suggests that the dataset collected today in the measure study maybe sufficiently robust to identify the clinical benefit of MDX in this population. To recap, we look forward to an opportunity to discuss with the division the basis of their stated concerns as well as to export past to lift the clinical hold with the launch of our previously planned long-term safety study and relevant additional monitoring within measure. In addition, we will be exploring possibility of un-blinding and analyzing the extensive data collected to-date in the measure study. Following the meeting with the division next month, we will evaluate the path best serving Alcobra's shareholders and proceed accordingly. We intend to report on the FDA meeting and our path forward as soon as we can after the meeting is held. I'll now turn the call over to Tomer as Tomer will further explain our financial position, allow us to carefully weigh our options and determine the preferred path forward without creating a financial overhang. Tomer, please go ahead.

[Tomer Berkovitz:]

Thanks Yaron and good morning, everyone. Earlier this morning we reported our third quarter 2016 results. We reported total operating expenses of $7.9 million for the third quarter of 2016, compared to $4.3 million in the third quarter of 2015. Total operating expenses include non-cash charges for stock-based compensation of $0.6 million, both this quarter and in the same quarter last year. Our net operating expenses were therefore $7.3 million this quarter and the net cash used was $6.7 million. Most of our operating expenses in the third quarter were driven by research and development activities, the accelerated enrollment rating measure up until the clinical hold, led to an expected increase in investigative payments. In the third quarter of 2016, R&D expenses were $6.4 million, compared to $2.9 million in the same quarter last year. Out of the $6.4 million R&D expenses this quarter, approximately $4 million were directly related to measure. As you may recall, we originally estimated the cost of the measure study at around $18 million. As of the end of the third quarter, we've invested $11 million in the study. We currently estimate that the clinical hold could potentially add $4 million to the cost of the study for a total of approximately $22 million or $11 million beyond our investment to-date. The exact amount will depend on the timing of the study resumption in any additional monitoring measures that may be added following regulatory discussions. Alternatively un-blinding of the study and data analysis would only require approximately $3 million beyond our investment to-date. G&A expenses for the third quarter of 2016 were $1.2 million similar to the third quarter of 2015. Finally we ended the quarter with $54.3 million in cash, bank deposit and marketable securities compared to $61.1 million at the end of the previous quarter. With the delay in expenses related to measure, we now believe that our cash balance to support our activities through at least middle of 2018. I'll now turn the call over to the operator for the Q&A session.

[Operator:]

[Operator Instructions] And our first question comes from Charles Duncan with Piper Jaffray. Your line is open.

[Charles Duncan:]

Hi guys. Thanks for taking the question, it seems like the agency may be concerned with peripheral neuropathy. I guess I'm wondering if in the clinical hold letter that you received from the agency, was there any other observations, it sounds like nonclinical, but anything else that they mentioned in terms of this issue other than the long-term animal studies that you mentioned?

[Yaron Daniely:]

Thanks for the question Charles, this is Yaron. So no, the letter from the FDA was relatively brief and much of our comment on that letter actually site or quote directly the language that was used there. They only referred to these findings which we talked about the slowing of the nerve conduction in those nonclinical studies and again recommended that we meet to discuss the kind of data that they would like us to collect as we move forward in development of the drug.

[Charles Duncan:]

Things that you mentioned seem reasonable for the longer term safety study in terms of looking at safety for the drug over time. That said, I'm wondering if you think about the measure study and think about 281 patients that have had at least one baseline, can you provide some thoughts on updated powering and then in terms of those 281 patients, how many have completed dosing, do you know that?

[Yaron Daniely:]

Yes, so let me start with the second part, of the 281 valuable subjects that would be part of the full analysis set, the data currently shows 180 give or take one that have completed the full 10-week treatment period. Again the reason I am saying give or take one is clinical data generated at clinical site and monitored by sponsors. So until the databases is lost I won't know the exact number, but with 180 subjects going through the full treatment period even that number is well within the number of completed subjects that both at the trials that I mentioned in my prepared remarks for Atomoxetine and for Adderall XR as well as other trials as well as our previous trial are in the same range of 150 to 200 is usually the range of fully completed subjects. With regards to powering, powering depends on what the effect size of the drug is and that can only be known when the results are available, what I can say is when one designs the trial, you need to make some assumptions about the effect size meaning assumptions about the separation between the two groups and the overall standard deviation of the entire treated group. And with that we already know that the overall pooled standard deviation in our sample is well below the previous trial and in fact the number that we've used to power this study. Now with regard to the delta between drug and placebo I don't know. That could only be done after un-blinding. So that's as much information as I can probably provide for the first part of your question on powering.

[Charles Duncan:]

Yes, that's helpful Yaron, but you did make some assumptions of our effect size going in and I guess not knowing the data level from this study, but what about your going in assumption if you just put in 180 and assume the reasonable level of statistical variation, but what do you -- how do you feel about being able to conduct the evaluation on 180 patients?

[Yaron Daniely:]

Yes, so we have assumed the -- so in designing AL16, the measure study, we took the effect size that seen in the first Phase III the failed Phase III and used that as the critical effect size for success ending up with 600 randomized or up to 750 enrolled subjects. If you take that same critical effect side and you put of course only 281 valuable subjects, you would not come up with the 90% that the original trial was powered for, but you also don't come up with under 50%. You actually come up with a more probable than not scenarios. So, just to give an example, in our previous trial on the selection criteria which were modeled, yielded an effect side that was about 0.24 with a lower rate of randomizations and completion than we already have in measure and using these models the trial was statistically significant. So we may be getting into layers of statistics that are a little bit too complicated to discuss without some sort of notebook or a calculator, but what I would just propose is that 281 valuable subjects or 326 randomized subjects is a sample size that would provide sufficient power to drive a statistically significant effect size in even a very moderate outcome in this study given again the standard deviation, which we're seeing in the population.

[Charles Duncan:]

Yes, that’s helpful. I actually appreciate the details. Final question may be more simply in terms of communication, it seems that it might make sense to wait for the agency's written response, but would it be your intent to communicate at least your verbal impressions post that meeting and could that happen yet this year?

[Yaron Daniely:]

Yes so, I think I have said that in the past a little while ago, my experience has been that if you come out of a meeting with the agency where you’re unclear on how the meeting went or what were the agreements and disagreement points, it’s probably an opportunity that was not fully utilized. So my feeling and my experience suggest that we will be take away the agency's feedback, the divisions feedback, on our proposals to resume the measure study and launch the safety study as well as to analyze in one form or another the data that we've collected to-date. And then take it in-house and discuss our path forward and communicate. So, we hope and intend to be able to communicate that later in December after the meeting and unless there is something that’s unforeseen, which has happened to us once or twice with FDA, but hopefully will not happen time around -- that's our timeline for communication.

[Charles Duncan:]

Okay. Makes sense. Appreciate the added color. Good luck with the meeting, thanks.

[Operator:]

Thank you. And our next question comes from Jay Olson with Oppenheimer. Your line is open.

[Jay Olson:]

Hi thanks for taking the question. So it sounds like if you do un-blind early, you should have adequate statistical power, but in the event that you don't, is there any statistical modeling you can use to include patients who didn't complete the treatment phases study?

[Yaron Daniely:]

Yes, hi Jay thanks for the question. So the statistical model that was written in the statistical analysis plan when this study was designed more than a year ago is the MMRM model, the mixed-effect model repeated measure, which emerged in recent years at the preferred analysis for FDA replacing the LOCF method. And that is actually the preferred method exactly for the reason that we’re discussing now and you’ve asked about. The MMRM is based essentially on two assumptions that the missing data is missing at random and whatever missing data or drop-out data, these would behave similarly to the other patients in the same treatment group, possibly was similar co-variants. So in simple terms, it doesn’t simply replace missing data points with the one before it or imputes in any way. It takes into account the totality of the data for the subject, for the treatment group, for the study and estimate the missing information. So this is a situation where we have a group of subjects that discontinued before finishing 10 weeks of treatment due to a completely random external event, which the MMRM model is potentially very well suited for and we believe that this would also be appropriate and acceptable to the agency.

[Jay Olson:]

Okay. Thank you. So that I think you said is around 190 patients?

[Yaron Daniely:]

Well again the MRM model take every single data point into accounts. So it's 281 subjects, 180 that have full 10 weeks and another 100 that have anywhere from two weeks to two-10 weeks efficacy data, they're spread all over the place. So the MMRM will essentially completes or treat every signal data point that's dealt by those 281 valuable subjects.

[Jay Olson:]

Okay. Thank you. And then I guess if the clinical hold is lifted, what is the window of opportunity to resume the measure trial or I guess at what point would you not consider that?

[Yaron Daniely:]

Well, I think, I'll try and answer this. I hope I understand your question correctly whether its timing or strategy, but I think that what we want to do is we want to go into the agency meeting and fully explore these various opportunities, the one is to work out with FDA what kind of safety data collection whether its within measure using those community devices or whether it's through the separate safety study or a combination of both to resume enrollment in measure as quickly as we can. And in parallel to that explore with them the appropriateness and the types of analyses that could be done on the existing data set to support the efficacy claims for MDS in adults with ADHD and after hearing what FDA has to stay on these path, we will take it in house and think what’s the best thing for our shareholders in terms of where should we invest resources in the short-term and in the long-term based on the information that FDA gave us. At this stage, I’m having a hard time giving any clearer guidance because our decision is going to primarily based on the agency's feedback.

[Jay Olson:]

Okay. Great. That's very helpful. Thank you very much.

[Yaron Daniely:]

Sure.

[Operator:]

Thank you. And our next question comes from Michael Higgins with Roth Capital Partner. Your line is open.

[Michael Higgins:]

Thanks operator. Good morning, guys. I apologize we are juggling few calls this morning, if this has been asked just let me know, but question going in was on the preclinical, electrophysiological neurologic findings where these evidence Metadoxine reviews for alcohol abuse that you're aware of, but are now finding to be more problematic given the larger patient population or given its potential use in kids and a follow-up, is it too early to say if this may have an impact on the Fragile X program?

[Yaron Daniely:]

Yes, thanks. So we are not aware of any findings in our studies to-date, in any publicly available information on Metadoxine use in almost 40 years in human. We're unaware of any results in clinical findings or toxicities associated with nerve conduction and it may be worth noting that immediate release Metadoxine has been primarily used in patients suffering from alcoholic liver diseases who would be highly susceptible to developing these peripheral neurological effect. So, we’ve not seen and are not aware of any such cases in millions of exposure days to Metadoxine immediate release and in our MDX studies to-date. I think that this is primarily and this in line with the agency's letter. This is primarily an effect that they've seen in long-term studies, employing high doses of Metadoxine and what they want, if they want to discuss what information should we be collecting to essentially provide the data that this event is not happening in humans. So outside of what has been observed generally in the community, outside the U.S. and in our MDX studies to-date they want to be -- they want us to be proactive in collecting the information to show that the findings that we're seen in animals are not happening when you do -- when you treat at lower doses in humans and that’s what we intend on doing.

[Michael Higgins:]

Thank you. Just want follow up, it seems the FDA is being cautious more than they are being conclusive, what’s your best estimate for us on the timing for this to turn around, is there something that can be turned around first half of next year or might it take longer and what kind of odds may you bracket that around?

[Yaron Daniely:]

Yes, I am going to try and let FDA decide for themselves. I can tell you that if our proposals are acceptable and I think our approach to this meeting has been to provide what we believe are reliable, comprehensive, regret safety data evaluations, that’s we hope and our consultants support would be acceptable to the agency. So if proposal are acceptable in initiating the previously planned safety studies as well as resuming the measure enrolment in using some neurological monitoring for the measure subject themselves, both these studies could launch back in the first quarter of next year. Alternatively if we decide to underline and analogue the data to-date and it could come either as an interim analysis or a final analysis, that could also come in the first quarter and is likely to come in the first quarter of course of next year. And the choice of this and the clarity around this and the probability would become just abundantly clear when we come out as soon as we can after the meeting with FDA next month and share it with all of you.

[Michael Higgins:]

Very helpful. Look forward to it. Thanks guys.

[Yaron Daniely:]

Thanks.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from Mara Goldstein with Cantor Fitzgerald. Your line is open.

[Mara Goldstein:]

Thanks very much for taking the question. I had a couple and the first is are you able to provide any more characterization on the effects that the FDA noted in the animal studies in terms of the decline in nerve conduction? Was it over a period of time? Does it appear to stabilize? If there is any calculation you can give us that will be great?

[Yaron Daniely:]

Thanks Mara. So, the non-clinical studies have the nerve conduction assessments done at the start of the studies and at the end of the study. So I don't have a time course for these evaluations. They have referred to the reduction in velocity and some reduction in amplitudes. So together they’re calculated as the nerve conduction data at the end of the study. I can’t tell you which doses specifically are they talking about, but we can only assume looking at the data ourselves that they are talking about the terminal nerve conduction assessments that were done at the higher doses. I think that we will be a lot clear on that once we explore with them next month…

[Mara Goldstein:]

Okay. Thank you. And should the agency agree that it's okay to do an internal look at the existing study population that's been treated, what happens if you do that work and let's say the data is not mature enough to achieve significant, how does that affect then the overall filing of the studies assuming that you would take that to the completion of pre-specified end point?

[Yaron Daniely:]

Yes, so look there are a lot of different ways of conducting interim analysis. So if we're not conducting a final analysis on the data set for one reason or another, an interim analysis could come in the form of utility analysis. So we can establish some sort of a lower boundary that we want to win over or be the higher than that kind of analysis conducted by the un-blinding statistician for the IDMC, not for Alcobra, would only yield a go, no-go type of information, but does not cost any statistical penalty. The other common form of analysis which all of you have been familiar with is an efficacy analysis, that's kind of flip side. So there you essentially establish certain upper bar for an affect side that if you reach that far, you can essentially declare efficacy and stop the trial, that is usually done at a more conservative P-value, so would not be done at a 0.5 P-value, but let’s say a 0.01. And this is how you essentially get penalized if you decide to continue the final P-value in the study, would have to be not lower than 0.05, but lower than an adjusted probability and that adjusted probability depends on the P-value and the sample size that you are conducting the interim analysis with. So these are things that we can explore with the agency. There are very common and given that the dataset that was collected clearly does not fall short of other pivotal studies, there is potential for the agency to engage in and accept these kind of evaluations. It all depends on what are the other alternatives and what's the best path forward that would drive the most value for Alcobra's shareholders.

[Mara Goldstein:]

Okay. Thank you.

[Yaron Daniely:]

Sure.

[Operator:]

Thank you. And I'm showing no further questions at this time. I would like to turn the call back to Dr. Yaron Daniely for any closing remarks.

[Yaron Daniely:]

Sure, thanks. So I want to thank all of you for participating in this morning’s call. And I look forward to communicating the outcome of our discussion with the agency and the path forward for MDX development programs. Have a great day.

[Operator:]

Ladies and gentlemen, thank you participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.