Arcturus Therapeutics Holdings Inc.
Q3 2014 Earnings Call Transcript

Published: 17 Nov 2014

[Operator:]

Good day, ladies and gentlemen and welcome to the Alcobra 3Q 2014 Earnings Results Conference Call. At this time, all participants are in 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 conference call is being recorded. I will now turn the conference over to Paul Arndt, Managing Director of LifeSci Advisors. Sir, you may begin.

[Paul Arndt:]

Thank you, Candice and good morning and thank you. Before the market opened this morning, Alcobra announced financial results for the third quarter ended September 30, 2014. If you've 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 area code 646-597-6979 and ask for Veronica Molina. 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 that Alcobra is expecting to complete data analysis, file it and then meet with the FDA and afterwards launching of the second adult Phase III study, as well as timing thereof, designing future trials in a way that would reduce placebo response, statements that imply Alcobra will receive favorable results in clinical trials of MDX, statements regarding Alcobra’s future uses of cash, statements regarding the design, timing of initiation and dosing and successful completion of enrollments in the company’s clinical trials if such trials are commenced at all, statements regarding the sufficiency of the company’s financial resources to meet certain milestones and whether such milestones may be achieved at all and the potential size of the MDX market. In addition, historical results or conclusions from scientific research do not guarantee that future results would not suggest different conclusions or that historical results referred to on this call could be interpreted differently in light of additional research or otherwise. The forward-looking statements contained or implied in this call are subject to other risks and uncertainties, including those described under the headline Risk Factors in Alcobra Ltd.’s annual report on Form 20-F for the fiscal year ended December 31, 2013 filed with the Securities Exchange Commission and in subsequent filings with the SEC. 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 conference call, Monday, November 17, 2014, whether as a result of new information, future events or circumstances or otherwise. Hosting today's call from Alcobra's 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. Please go ahead.

[Yaron Daniely:]

Thanks Paul. Good morning to those of you joining us today. Today I’ll review the status of our development program for our lead drug candidate, Metadoxine extended-release or MDX. I’ll also provide an update on clinical milestones which are expected near term for MDX in both ADHD and Fragile X syndrome. I will then hand over the call to Dr. Berkovitz to review Alcobra’s Q3 financials which were disclosed earlier this morning. Last month we announced topline data from our first Phase III trial of MDX in adult subjects with ADHD. The results did not show a statistically significant finding on the intent to treat population evaluated on the primary end point. Yet a collection of pre-specified as well as post-hoc analyses presented at the time of topline data release and subsequently at the AACAP annual meeting, provided a consistent signal of efficacy. Specifically we’ve shown that both the primary measure of the trial as well as multiple secondary measures all yielded consistent, favorable trends, in some cases reaching statistical significance which were adversely affected by a high and unusual placebo response and a large degree of response variability. We were encouraged that the drug response in the trial appeared consistent with results from our previous MDX trials and aligned with drug responses reported for other approved agents participating in adult ADHD Phase III trials. We are eager to move forward with our program, given the affirmation of the strong tolerability profile of MDX, as well as the consistent findings of benefit in ADHD symptoms and executive functions in our clinical trials to date. These days we’re completing the analyses from our first Phase III study and are preparing to file the full data set with FDA. We anticipate launching our second adult Phase III study in the second quarter of 2015. The second Phase III study will include design elements and monitoring tools that may provide rigorous controls over the magnitude of placebo responses and response variability. There are several methods available which result in a more predictable and manageable placebo response in neuropsychiatric clinical trials in general and ADHD trials specifically, some of which have been utilized by our peers in their Phase III studies. For example a placebo leading design in which the primary analysis is conducted only on patients who do not show a clinical response to a blinded short course of placebo treatment, was used in both Phase III trials of Atomoxetine in adults. We look forward to recoding more on our path forward with regard to intended study design after the meeting with the agency takes place in the first quarter of 2015. As you may know, Alcobra is actively recruiting patients into two additional advanced studies. The first is our Phase II study AL015 in adolescents with ADHD. This study is recruiting very well and we expect to complete recruitment late this year. AL015 is a single dose safety and tolerability study in 82 adolescents ages 13 to 18. It is a multi-center placebo controlled study designed to collect the safety information required to proceed to a Phase III study evaluating both safety and efficacy. Interestingly, Phase III trials for children and adolescents with ADHD have historically shown a significantly higher effect size with a lower placebo rate for all accrued ADHD compounds as compared with adults. We therefore look forward to completing AL015 and establishing the safety of MDX in this pediatric population so we can look forward with a pediatric Phase III study. Given the non-scheduled prospect of MDX, as well as its strong tolerability profile, we believe it could present an extremely attractive option for pediatric ADHD as well as adult ADHD. In addition, we continue recruitment in AL014, our Phase IIb study in adolescents and adults with Fragile X Syndrome. AL014 is a multi-center, double blind placebo controlled study of 60 adolescents and adults suffering from Fragile X Syndrome. As a reminder, Fragile X Syndrome is a neurogenetic disorder characterized by severe intellectual disability, behavioral and learning challenges. It is the leading known genetic cause of autism. According to the U.S Center for Disease Control and Prevention, approximately one in 4,000 males and one in 8,000 females have Fragile X Syndrome or roughly 50,000 Americans and a similar number of Europeans. Alcobra is evaluating MDX in Fragile X Syndrome based on a comprehensive pre-clinical data set demonstrating significant improvement in learning, social and cognitive functions into well validated Fragile X mouse model. In addition, data accumulated and presented to date on the mechanism of action of MDX, including pharmacological MRI studies, point to a modulation of the GABA glutamate circuit by MDX. Fragile X Syndrome has been closely linked in the medical literature to problems in GABA transmission. And so a mechanistic rationale exists for evaluating MDX in the system. Finally, the clinical benefits on ADHD symptoms and more specifically improvement in attention and executive functions, further suggest a potential benefit of MDX in the Fragile X population. We are highly committed to this development program particularly given the advance stage of development of MDX as compared to other viable Fragile X drug candidates today and the lack of any FDA approved medication to treat this rare disease. As a reminder, the FDA granted orphan drug status to Metadoxine in the treatment of Fragile X Syndrome last year. We’ve had the opportunity to leverage learnings from the Phase III ADHD study results in this ongoing Fragile X study. As a result, we have tightened our control and monitoring and increased our presence and communication with the clinical sites participating in the study. These interventions, which are based on our understanding of the drivers for the high placebo response in the Phase III ADHD study, serve to ensure that we provide this trial and more importantly this patient population the best possible outcome. With these supportive actions in place, we now expect to complete recruitment in this trial during the first quarter of 2015. In summary, over the coming months, we will be communication further about the regulatory path forward for MDX in adult and pediatric ADHD. We also intend to complete our report data from our Fragile X program. We remain encouraged by the signal of efficacy and unique safety profile seen with MDX to date and look forward to updating you on our ongoing and future clinical trials. This concludes my update. Let me turn over the call to Tomer now to present our Q3 financial statement.

[Tomer Berkovitz:]

Thank you, Yaron. Today I will be comparing third quarter 2014 results to second quarter 2014 results unless otherwise stated. Total operating expenses for the third quarter of 2014 were $10.6 million as compared to $7.8 million in the previous quarter. Netting out non-cash charges for stock-based compensation of $1 million this quarter and $0.9 million in the previous quarter, resulted in net operating expense of $9.6 million this quarter compared to $6.9 million in the previous quarter. As we’ve stated in the past, our operating expenses are closely linked to the clinical development plan. In the third quarter of 2014, research and development expenses were $8.8 million compared to $5.9 million in the previous quarter. The difference is mainly driven by expenses related to our Phase III adult ADHD study, which was recently completed as well as the launch of our two Phase IIb studies in pediatric ADHD and Fragile X. Pre-commercialization expenses and G&A expenses were $0.6 million and $1.3 million respectively, similar to the previous quarter. Finally, our liquidity position as of September 30 was $29.4 million, which includes $2.7 million in cash and cash equivalents, as well as $26.7 million in short-term deposits. This is compared to total liquidity of $38.9 million as of the end of the second quarter. The company’s cash position allows us to complete the two ongoing Phase IIb trials in pediatric ADHD and Fragile X syndrome and fund the company’s activities through the end of 2015, including a second Phase III study in ADHD. I will now turn over the call back to Yaron.

[Yaron Daniely:]

Thanks Tomer. Before we conclude, I’d like to remind you that we will be participating in several conferences this month and next. Please follow our announcement as we would appreciate the opportunity to meet with you face to face on these occasions. I want to thank you all for participating in today’s call. Despite some disappointment we all shared due to the topline outcomes of the first adult ADHD study, Alcobra’s management and broader team remain both confident and excited about the path forward. We will update you as we finalize the details of the second Phase III study, as well as share the outcomes of our ongoing Phase II studies in ADHD and Fragile X. With sufficient capital in hand to execute our ongoing studies as well as an additional Phase III study, we will continue and intensify our efforts to generate data, establishing MDX as an effective compound, showing significant cognitive benefits together with favorable safety and tolerability. I will now turn over the call back to the operator for a Q&A session.

[Operator:]

Thank you. [Operator instructions]. Our first question comes from the line of Charles Duncan of Piper Jaffray; your line is now open.

[Charles Duncan:]

Good morning guys. Thanks for taking the question. My first question is really -- I’m not sure if I missed this, but in terms of the pediatric trial that’s ongoing, when do you anticipate to read out data on that? And can you provide a little bit more color on the steps that were taken to ensure quality of patients in this trial as well as Fragile X trial?

[Yaron Daniely:]

Thanks Charles. I’ve indicated in my comments that we expect to be on track with completing the enrolment of AL015 which is our adolescent ADHD study later this year. We do expect that data will be read out and communicated in the first quarter of 2015 as we get ready for the launch of the second adult Phase III study. Again, I remind you it’s primarily a safety and tolerability study and the most critical component of AL015 is the pharmacokinetic analysis looking at the levels of MDX in circulation of pediatric patients. With regards to the control and monitoring of inclusion of patients, what we have done is we have initiated quite rapidly a rigorous training module for clinicians that are involved both in A014 Fragile X study and 15, the adolescent ADHD study to kind of refresh and clarify and practice the screening criteria. We’ve also engineered some methods into the monitoring and database so that when certain deviations or certain significant changes in data are flagged by the system, we are able to rapidly communicate with a particular investigator and in case we need, actually visit the site and sit down with the investigators who a certain that the rating or the assessment was done properly. So there are many things you do even without touching the trial design or the intended analysis of the design simply to tighten your communication and control over the right application and the proper application of both screening and assessment tools in these trials.

[Charles Duncan:]

Okay, that makes sense to me and I guess you folks have gone back and done some analysis and believe that that may have changed -- I’ll call it the broad quality of the patients in the trial that just read out. Or do you think that perhaps a little bit different design like you suggested was used with Atomoxetine whereby they looked at a placebo responder group upfront. What would have been most effective?

[Yaron Daniely:]

I think it’s always a combination of both making sure that the right patients enter the study, not patients that are either highly suggestive or even perhaps perceiving of their condition in kind of a distorted way, as well as using structural elements, including the example that we just discussed, the placebo leading, but also duration of trial, sample size, frequency of visits, burden of each visit, minimizing the therapeutic encounter. All these things dramatically affect both the magnitude of the placebo response as well as the expected variability of response. So it’s really the totality of the patient selection as well as changes or I guess modifications to the trial design.

[Charles Duncan:]

Okay that’s helpful. Then my final question is regarding the sizing and design implications that you’re considering, given that you saw activity across subtypes in the recently read out study. What are you anticipating being able to do in terms of the start of that Phase III in Q2?

[Yaron Daniely:]

Well, the recent study AL012 was powered to show or at least was powered to test differences between the two subtypes, an analysis that came out positive but was not powered in our previous Phase IIb study. And as you indicated, what this analysis showed is that most patients with combined type ADHD, which are the majority of the patients, both pediatric and adults as well as predominantly inattentive ADHD, seemed to fair relatively similarly, both by the way primarily benefiting from an improvement on their attention impairment. This practically leads to a more classical approach which our peers have taken in the inclusion/exclusion design of future studies which is an inclusion of all ADHD subtypes. You would still be reporting on the subtypes, like all other drug studies I’ve done, but we are not going to necessarily agree or request to continue to stratify and ensure a certain number. It’s really all going to be about the quality of the patient and the quality of the assessment not necessarily forcing the trial to be composed of a particular number of one subtypes or the other.

[Operator:]

Thank you. And our next question comes from the line of Annabel Samimy of Stifel. Your line is now open.

[Annabel Samimy:]

Hi, thanks for taking my question. Just on that last comment not forcing enrollment of a particular subtype, naturally given that the population is spread out the way it is between inattentive and combine type, do you need to do any forcings end up at a I guess a composition of patients that equate to what you had in the Phase III trial?

[Yaron Daniely:]

No, you are absolutely right, Annabel. In the adult population, even by random selection of patients, there’s always going to be a fair amount of predominantly inattentive patients. In clinical trials, it’s been on the lowest side, about 30%, 35% because in academic trials symptoms for hyperactivity and inattention are usually easily found in the general population. This number is somewhat larger. But, no, when I mentioned forcing I meant in the form of stratification. So I meant to imply that it is not necessarily the case where the second Phase III study would include the type of stratification, meaning the requirement to have at least 100 patients that are predominantly inattentive. Having said that, it is very likely that we would still be exceeding that number simply by random sampling of the adult population.

[Annabel Samimy:]

Okay, great. And you already described some of the changes that you can make to trial to sort of control this placebo response. But maybe you can help us understand a little bit the -- we still get questions on the different types of post-hoc analyses that were done, the first one excluding four patients, but the second one was modified to exclude 10 patients. And maybe you can help us understand the differences in those modifications you made on the MITT analysis. And following to that, if you could help us understand whether you think FDA is going to make you do yet another Phase III on top of the next one that you’re going to do, given the results of this one. Can you help us frame what the clinical progression is from here?

[Yaron Daniely:]

Sure, I’ll try. When we released the topline analysis, we released the analysis on the ITT population, but we’ve also released data that we had at the time in our hand that shows that the failure to reach significance on the ITT analysis was driven primarily by a large and unusual placebo response. This is easily seen by the data that we’ve released since then where the drug changed from baseline, -- drug route change from baseline is very similar to our previous experience, whereas the placebo change from baseline seems to be significantly higher as well as the standard deviation. In doing that, we have performed an analysis identifying the reason for that large placebo outcome and as it turns out, the large placebo outcome was disproportionally affected by a handful of patients that had shown a dramatically large improvement from baseline two weeks that appeared both using statistical tests as well as clinical tests to be highly unusual and never reported in some other Phase III studies. When communicating the topline data, we wanted to also communicate the information we had in hand about the contribution that those four identifiable placebo patients had on the general outcome. This analysis was post-hoc. This is how we’ve described it in our announcement and in the webcast when we released the topline. It was a post-hoc analysis. A few weeks later, Professor Adler presented at a conference multiple additional analyses that reiterated the ITT analysis, which was not found to be statistically significant, but utilized additional secondary analyses to continue to unveil the results and the meaning of the results in the study. He showed really three types of analyses. One was a pre-specified analysis looking at a blinded statistical test that measures changes from baseline in the drug and placebo group and again a blinded manner and identifying which patients in both groups have results that lie outside the three standard deviation confidence in a row from the mean for their group. That blinded analysis yielded only two patients out of the 297 evaluable patients that were found to be greater than pre-standard deviations, equal or greater to pre-standard deviations away from the mean. So this pre-specified analysis, which is found in our statistical analysis plan which was signed when the database was still blinded, was presented by Doctor Adler. A second analysis was done identifying entry criteria violators per ICH guidelines. This analysis is post-hoc and it looks through the advice of an independent blinded committee which of the 300 patients who were enrolled in the study failed to meet inclusion criteria and would otherwise not be eligible upon further analysis to be in the study. This analysis, again done by a blinded external expert, revealed that eight patients were basically major entry criteria violators and Doctor Adler presented that P value as well. For the completeness of argument, because there was no overlap between the exclusion of the two patients in the pre-specified analysis and the exclusion of the eight patients in the post-hoc entry criteria violator analysis, we’ve also presented the combination of these two. This is the 10 patients, basically two plus eight and we’ve provided the P value. This P value is completely different from the P value that was described in the topline data as is the P value that was described for the pre-specified three standard deviation rule that was different from the P value that was described by the topline data which was the post-hoc analysis. This is -- and again it was kind of a long winded explanation. And we did release the PR the morning after the AACAP presentation, which goes through and explains that more clearly maybe than I was able to do that now and that PR is available on our website. With regards to the FDA’s response and Phase III, I don’t think it’s wise to speculate or carry a negotiation or a discussion with FDA over an earnings call about what is acceptable and what is not. What I would say is that I think in looking at the totality of the data and that’s usually what FDA looks at when it looks at the first trial, the first Phase III or well controlled studies, it is clear that the ITT primary analysis did not reach significance, but all the analyses, whether they’re the pre-specified or post-hoc analyses on the primary or on the multiple secondary endpoint, seems to be very coherent in suggesting a clear direction of benefit of the drug treatment over the placebo treatment. Some of these secondary analyses, you actually get statistically significant findings in the ITT population and some of them only after you’ve done a pre-specified or post-hoc analysis. At the end I believe that we will argue to FDA and hopefully FDA will accept the fact that the totality of the data suggests that a single, additional well controlled adult study, together with the pediatric package which we will be working on will be sufficient for registration of this drug.

[Operator:]

[Operator instructions] Our next question is from Bill Tanner of FBR Capital Markets. Your line is now open.

[William Tanner:]

Thanks for taking the questions. Yaron hit a few of them. The first one I guess is if you just characterize maybe what the general tone of the expert feedback has been from release of the data and Dr. Adler's presentation at AACAP. I’m assuming that you guys have heard from some of the experts in the field and they’ve expressed some opinions about the data.

[Yaron Daniely:]

Sure. There are a lot of experts, Bill, in the field. Thanks for the question. There are a lot of experts in the field and we’ve heard many opinions. I think that we have taken some time to sit with the investigators of the AL012 study with our clinical advisory board, which is composed of other clinicians who did not participate in AL012. And we also paid a lot of attention to comments that were made after Professor Adler’s presentation as well as after the poster presentations that were done at AACAP. We feel very supported and encouraged by the findings and by the comments that most people have made. I think I have heard almost across the board, if not from everyone, that there is a clear rationale and a need to proceed to a second Phase III study. We’ve been collecting ideas and comments about what in terms of design elements, patient selection, would be helpful for us to consider as we finalize the design of the next study. But by and large the comments from both clinicians that participated as well as clinicians that have heard about the study was that a well-tolerated, effective, non-scheduled drug for ADHD is still a very significant unmet need and that we should pursue a second study with the required modifications.

[William Tanner:]

Okay. And then as relates to – and I guess it’s water under the bridge and don’t want to give the appearance of throwing rocks, but as you talk about some of the things that you can implement in the next trial, some of them are fairly standard. So I guess I’m curious as to why they were not implemented in the first trial, obviously understanding that you did not know exactly what the data were going to be. It was informed based on the data from the 08 study. Just trying to understand a little bit better that.

[Yaron Daniely:]

Exactly, Bill. So hindsight is a bit of a dangerous proposition. At the end of the day we came out to do AL012 with a very positive successful Phase IIb study in AL008 on 120 patients. We did not feel that the placebo response in AL008 suggested the need to have any additional structure element that would control it better or minimize it significantly. And we felt that the design of AL008 is the design that by and large needs to be reproduced and reiterated in 012. At the end of the day, the drug group did reproduce the same kind of connection and behavior. It is the placebo group that disappointed us to some extent. And so we will be making the necessary adjustment as you said some of them more trivial or common than others to ensure that the next study would have those in place too. And we’ll read it out and we’ll see what happens.

[William Tanner:]

Okay. And then another one on the PI or the adolescent ADHD study, I know that – I think the comment was made about PI patients being enrolled was that where in the 08 study the best response had been – was seen. And so I’m just curious, is the differential efficacy MDX and PI-ADHD versus garden-variety ADHD, is that still a working hypothesis? So, meaning that it seems like you try to design this study to bias things in your favor to see a response, but I guess that wasn’t exactly supported by data from the 012 study.

[Yaron Daniely:]

So first let me clarify, 015 is a safety and tolerability study. There was no requirement to do it in any particular subtype or not. Primary endpoint is safety events and we are measuring pharmacokinetics and it’s an acceptable study so that we could proceed to an efficacy study. The reason we’ve enrolled PI-ADHD in this study as you’ve clearly suggested, the rational at the time was that this population seemed to be based on AL008 extra responsive in terms of the response rate and also based on AL011. If you remember that study was a crossover 36 patient adult study that also only enrolled predominantly inattentive study that also employed an acute dose, a single dose period, one day. And so the idea was to really build on those two findings for the panel of exploratory efficacy assessments that are included in the study. But at the end of the day the major read out from the study would be the allowance or the ability to move forward to a real efficacy study. And to that extent the enrolment of predominantly inattentive versus combined type versus garden variety is not very meaningful.

[William Tanner:]

Okay. And then maybe the final question is either for you, Yaron or for Tomer, just as relates to the cash. That would allow the company to complete the second Phase III study in adults?

[Tomer Berkovitz:]

Yeah, that’s correct. With the cash that we have on hand right now which I mentioned is $29.4 million as of the end of the third quarter, that’s sufficient to fund the two ongoing trials, the two Phase IIb studies in adolescents and Fragile X as well as another Phase III study in 2015.

[William Tanner:]

With the presumption that it’s going to have to be expanded probably relative to maybe what has been done – what was done with 012?

[Tomer Berkovitz:]

The presumption is that it’s going to be different. There are changes that actually incur some additional expense, but there are also changes that incur a reduced expense. And so I think a good working assumption is that the trial will be at the same magnitude of expense, maybe slightly more expensive but should not be significantly different in terms of overall resource requirements than AL012.

[William Tanner:]

And could you remind us ballpark-ish what was the cost of 012?

[Yaron Daniely:]

The point of reference, that was around $9 million, $9.5 million all inclusive. Sorry, go ahead.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude the question-and-answer portion of today’s call. I would like to turn the call back over to Yaron Daniely for any closing remarks.

[Yaron Daniely:]

I don’t have any closing remarks. Thanks everyone for joining us this morning. Have a great day.

[Operator:]

Ladies and gentleman, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.