Arcturus Therapeutics Holdings Inc.
Q4 2014 Earnings Call Transcript

Published: 12 Feb 2015

[Operator:]

Good day, ladies and gentlemen. Welcome to the Alcobra Limited's Fourth Quarter 2014 Operational Update and Financial Results 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 is being recorded. I would now like to turn the call over to Ms. Debbie Kaye, of Alcobra. Debbie, you may begin.

[Debbie Kaye:]

Good morning and thank you. Before the market opened this morning, Alcobra announced financial results for the fourth quarter and year ended December 31, 2014. 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 Veronica. 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 candidates and its various indications, including the timing and design of clinical trials, timing of reporting results of such trial, timing of meeting with the FDA, the potential of MDX adult and pediatric ADHD and Fragile X Syndrome, statements regarding Alcobra's future uses of cash and the sufficiency of the company's financial resources to meet certain milestones and whether such milestones may be achieved at all. In addition, historic results or conclusion from scientific research do not guarantee that future results would not suggest different conclusions or that historic results referred to on this would not 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 in the Risk Factors section of Alcobra Limited's Prospectus Supplement dated January 9, 2015, and in Alcobra Limited's Annual Report on Form 20-F for the fiscal year ended December 31, 2013, filed with the Securities and 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 call, Thursday, February 12, 2015, whether as of the result of new information, future events or circumstances or otherwise. Hosting today's call from our 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:]

Thank you, Debbie. Good morning, all. Today, I will provide an update on the status of our development program for our lead drug candidate, Metadoxine extended-release or MDX. I will also provide an updates on near-term clinical milestones expected in both our ADHD and Fragile X Syndrome programs. I will then hand over the call to Tomer to review Alcobra’s Q4 and 2014 financials, which were disclosed earlier this morning. Before I provide you the operational update, I would like to say a few words on the equity financing, which we completed a few days after the close of the fourth quarter. This financing provides the company with a financial backing to conduct a rigorous second Phase III clinical trial in adult ADHD, which I will expand upon shortly. With net proceeds of approximately $28 million from this financing on top of the December 31, 2014 cash balance reported earlier this morning, the company began 2015 in a financial position to execute and later leverage our critically important second Phase III trial as well as support our development activities through 2016. Tomer will provide additional details on the financing shortly, but let me discuss the use of these proceeds as they relate to our second Phase III study. Back in October 2015, we announced top-line data from our first Phase III trial MDX in adult subjects with ADHD. We have shared these data with multiple experts, including our clinical advisory board, headed by Professor Lenard Adler of NYU, our senior regulatory consultants, which include previous heads of the FDA division for psychiatric products and additional expert clinician statistician and the feedback has been consistent. AL012, our first Phase III study did not generate the results we had hoped for, but MDX is clearly an active drug. Given the affirmation of the strong safety and tolerability profile of MDX, as well as the consistent findings of benefit in ADHD symptoms in our clinical trial today, we are eager and fully committed to moving forward with this development program. We anticipate launching our second adult Phase III study in the second quarter of 2015, following a meeting to discuss the protocol with FDA scheduled for this quarter. The study will include design elements that are expected to provide rigorous controls over the magnitude of placebo responses and response variability. For example, this trial with extended duration of the treatment period in order to minimize placebo response, as placebo reportedly decreases with the duration of treatment. The trial will employ a more focused group of clinical site, starting to potentially reduce variability and drawing only on experienced academic and established practioners. The trials will also limit the frequency and duration of trial visits in order to minimize the burden to participating patient and investigators. We may also utilize certain patient selection and enrichment method in accordance with FDA guideline and what our peers have used in the past to control placebo raters in adult ADHD trial. Finally, we plan to increase the sample size in the second study, further enhancing the powering assumptions and increasing the likelihood of statistical significance. We believe each updated design element in and of itself would greatly enhance the results being with MDX in the next trial. Together, we have meaningfully enhanced our potential for success with this trial. Moving onto our adolescent ADHD program, we recently completed enrollment in AL015, our Phase II study and expect to report data later this quarter. AL015 is a single-dose safety and tolerability study in 82 adolescent ages 13 to 18. The trial is designed to collect the safety information necessary before we proceed to an efficacy evaluation in this population. This is the first trial of MDX in ADHD subject under the age of 18, establishing the safety tolerability and pharmacokinetics of a single dose of MDX in this population will serve as the base as performing the clinical development plan for MDX in pediatric ADHD. Now, given the lack of abuse potential seen to-date with MDX as well as its strong tolerability profile, we believe that MDX has presented an extremely attractive treatment option for pediatric ADHD in addition to adult ADHD. Phase III trials for children and adolescents with ADHD; have historically demonstrated a significantly higher effect size with the lower placebo rate for all approved ADHD compounds as compared to adult trials with the same drugs, giving us confidence in the probability of success for MDX in pediatric ADHD. We look forward to reporting the data from AL015 and establishing the safety of MDX in this pediatric population, so we can continue to advance the pediatric development program. 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 with Fragile X Syndrome. As a reminder Fragile X Syndrome is a rare neurogenetic disorder characterized by several intellectual behavioral and learning challenges. It is the leading known genetic cause of autism. According to the U.S Center for Disease Control and Prevention, roughly 50,000 Americans, and a similar number of Europeans have Fragile X Syndrome. As a reminder, the FDA granted orphan drug status to Metadoxine in the treatment of Fragile X Syndrome back in 2013. Now, on top of the clinical benefit shown to-date by MDX on ADHD symptoms and executive functions, we have present a comprehensive pre-clinical data demonstrating significant improvements in learning, social and cognitive functions in the well-validated Fragile X mouse model. In addition, the mechanism of action of MDX points to modulation of the GABA glutamate circuit, which has been closely linked to Fragile X Syndrome in the medical literature. We are on track to complete recruitment in this trial this quarter and report outcomes of this trial in the second quarter of 2015. This concludes my operational update. Let me now turn the call over to Tomer to present our Q4 financial statement.

[Tomer Berkovitz:]

Thank you, Yaron. Today I will be comparing fourth quarter 2014 results to third quarter 2014 results and fiscal year 2014 results to fiscal year 2013 results unless otherwise stated. Total operating expenses for the fourth quarter of 2014 were $6.8 million as compared to $10.6 million in the previous quarter. Netting out non-cash charges for stock-based compensation of $0.8 million this quarter and $1 million in the previous quarter, resulting in net operating expense of $6 million this quarter compared to $9.6 million in the previous quarter. Our total operating expenses for fiscal year 2014, our first full year as a public company, were $33.1 million compared to $10.3 million in the previous year. Netting out non-cash charges for stock-based compensation of $4.1 million this year $1.5 in the previous year, resulting in net operating expense of $29 million this year compared to $8.8 million the previous year. As we stated in the past, our operating expenses are closely linked to the clinical development plan. In the fourth quarter of 2014, research and development expenses were $4.9 million, compared to $8.8 million in the previous quarter. The difference is primarily driven by the wind down of expenses related to our first Phase III adult ADHD trial. For the full year, our R&D expenses were $25.1 million in 2014 compared to $7.1 million in 2013, reflecting greater investment in R&D as we progress to late stage clinical trial. Pre-commercialization expenses for fiscal year 2014 were $2.1 million, including $0.3 million in the fourth quarter of the year and $0.4 million in the third quarter. G&A expenses for the fourth quarter of 2014 were $1 million, in line with the previous quarter. For the full year, our G&A expenses in 2014 were $5.8 million, relative to $3.2 million in the previous year. Finally, our cash and short-term deposits as of December 31, 2014 were $21.7 million. This is compared to $29.4 million as of the end of the third quarter of 2014 and $50.1 million as of December 31, 2013. Our reported cash balance does not include net profit of $27.9 million from our equity financing completed on January 14, 2015. We believe that the company's strong cash position will allow us to complete our ongoing Phase II trial in pediatric ADHD and Fragile X Syndrome and fund the company's activities through 2016, including the completion of our second Phase III study in adult ADHD. I would like to add that our recent financing, in addition to strengthening our cash position allowed us to formalize relationships with some of the leading and most recognized healthcare-dedicated institutional investors. We are thankful for their support and proud of the participation and significant demand seen in the offering. I will now turn over the call back to Yaron.

[Yaron Daniely:]

Thanks, Tomer. I wanted to thank all of you for participating this morning. We remain both confident and excited about the path forward and look for to communicating with you over the next weeks and months, the clinical outcomes from our Phase II pediatric ADHD and Fragile X studies, thus providing more detail on the design and timing of our second adult Phase III trial. Our solid financial position will support our continued efforts to establish MDX as an effective compound demonstrating significant cognitive benefit together with a favorable safety and tolerability profile. I will now turn the call back to the operator for Q&A session.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Annabel Samimy with Stifel. Your line is open.

[Annabel Samimy:]

Hi. Thanks for taking my questions. I had a couple, I guess, first of all what are your specific goals for the FDA meeting. I mean, the trial and enhancements are good, but they don't seem too unusual for ADHD trials. Is there anything else that you are trying to establish with FDA such as how many successful Phase III trials would be required if pediatric Phase III trial is okay et cetera, so maybe you can give us a little clarity on that. Then I know that you are going to update us maybe a little later, but maybe you can give us your latest and best guess on the timing of Phase III data released in NDA filing.

[Yaron Daniely:]

Okay. Thanks, Annabel. With regards to your first question, we have communicated before the FDA meeting really has two main goals. It is quite an extensive meeting, but it has two main goals. The first goal is to present and discuss with FDA, the AL012, the Phase III adult ADHD study, its complete analysis and present the protocol for AL016, the second Phase III adult study and reach an agreement with FDA on whether any additional efficacy work would be required for the adult ADHD indication. I have communicated before that our view is that no additional trials would be needed for adults' approval and once the meeting minutes are finalized, we would be able to communicate more definitively about that part of the discussion. The second part of the discussion has to do with initiating the dialogue regarding pediatric development plans, so with the completion of AL015, we are able to initiate the process with FDA on finalizing what is called the PSP or the pediatric development plan, pediatric safety plan, which FDA has mandated. This is a process by which you through one or two iterative exchanges with FDA, you are able to formalize and finalize the required studies for pediatric label of pediatric approval. The meeting is basically the kickoff for that process, which will likely take a few months post meeting and end essentially with a signed off finalized plan for the entire pediatric development work that needs to happen. With regard to your question on unclear timelines for the data readouts and the submission for the MDX NDA, there is really no additional clarity beyond what we have stated so far. We do expect to have the data reported out by the middle of next year and NDA filed by the end of next year that is our goal and that is our work plan. It will of course depend on the timing of the recruitment of the first patient and the recruitment rate of AL016 and then the other trials in adult and pediatric population that we may or may not need to run for the NDA. In general, the guidance stands for data readout.

[Annabel Samimy:]

Okay. Great. Thank you.

[Operator:]

[Operator Instructions] Our next question comes from Charles Duncan with Piper Jaffray. Your line is open.

[Charles Duncan:]

Good morning, Yaron. Thanks for taking my questions. A quick question regarding adult versus the pediatric indication, you mentioned the effect size in pediatrics generally better. Is that a function in your view of reduced noise or placebo effect or are their differences in terms of either the drugs out there [ph] being in terms of potency metabolism or really disease severity or etiology?

[Yaron Daniely:]

Thanks, Charles. We believe it is a combination of both essentially. First and foremost pediatric trials used as a primary measure not a patient reported outcome, which is evaluated by an investigator or not, but by some sort of an observer outcome like a parent or a teacher you don't ask a kid how their ADHD is. You ask a caregiver or a teacher. That lends itself to a more accurate description of the benefit and potentially less placebo response. With less placebo response of course you get greater effect size. That's one thing. The second thing you mentioned may also be true and that is kind of more of the biological underpinning of potentially having these drugs in general be more effective for treating pediatric ADHD. There is really no hard data to suggest that, but there is also no data to suggest the opposite, so by and large drugs seem to show both lowered placebo effect, but also independently greater improvement when used in the pediatric population than in the adult population. Again, giving rise to our interest, particularly now where the drug has shown similar benefits to both, subtypes of ADHD, are to move forward with the pediatric development plans for MDX.

[Charles Duncan:]

Okay. That is helpful. I appreciate it. Then another question that I had kind of a long those same lines, you just answer a good question regarding the goals of the FDA meeting. It seems like there is potentially two group different timelines in terms of the definitive outcome of that meeting. First of all with regard to adults, then secondly the PSP, I guess I am wondering what your PR plans are around that one or we can really get some additional color and visibility on the next steps?

[Yaron Daniely:]

Our intention is to communicate the outcomes of the FDA meeting once these outcomes are finalized in minutes in some sort of a public forum after the minutes were finalized these would be either late this quarter or more likely next quarter, early next quarter. I believe that we will not be going into tremendous detail. You are going to have for AL016 clinical trials that go with the record that shows exactly what is the trial design that was agreed to by FDA, but I do expect to use a public opportunity to comment on the future in terms of additional studies required for the adult indication. That again is as soon as the meeting minutes are finalized. With regards to the PSP, you are right. This is a process that only gets kicked off at the meeting and is normally a process that involves one or two backs and forths with FDA. It should not be too complicated given that, again, most drugs or all drugs for ADHD have already been approved for pediatric population, so trial design and development plans in general are not unknown or uncertain, but it would still take a little bit longer. I would expect to communicate on that part of the discussion probably later than when then the adults' pathway is communicated.

[Charles Duncan:]

Okay. That makes sense to me. Then with regard to the recent financing, do you now believe that given the potential design elements and sizing and timelines that you mentioned with regard to the next steps that you have sufficient cash to complete that trial?

[Yaron Daniely:]

Thanks for the question. That was in the large part the incentive of actually accomplishing this financing despite what was a challenging decision to make because of the share price and the enterprise value. The idea was to be able to secure financing that would allow us to conduct the trial that would be composed of both, saving the downside elements which means enrolling more patients powering the study for success as well as allowing us to design structural elements to increase the chances of a greater effect, lower placebo rate, which I have Itemized below. Really with the approximately $15 million in cash that we have in the bank post that financing, we believe that we have the cash runway, the patients and the ability to conduct these critically important trials as they should be conducted, not to rush through them, not to underpowered them, not to really take any risk other than giving the chance for this drug to show its efficacy in a properly designed trial.

[Charles Duncan:]

That is helpful. Final question then I will hop into the queue. Regarding the Fragile X study yet to readout this quarter, how would you define success there and do you see that as a key strategic potential indication or a nice to have relative to say ADHD?

[Yaron Daniely:]

Yes. Thanks for that. The way to answer our expectations of AL014, although the trial is still recruiting is, first to kind of take the perspective of no Phase II efficacy study in Fragile X to-date as far as I am aware and I may be missing something as ever succeeded. Even if you look at programs like the Roche program and the Novartis programs that moved on to Phase III, they do not necessarily move on to Phase III because of a statistically significant finding on the primary endpoint in a Phase II study. It is because there were major clinical findings and signals in those Phase II studies that were promising and lend support to moving on to pivotal programs. Essentially in a rare indication you are somewhat limited in the size of the trial that you can conduct. We have conducted a rigorous, a large Phase IIb study, still conducting it, 60 patients in 13 sites, but still 60 patients, 30 patients in drug, 30 patients in placebo is not a powered or normally would not be powered to show the type of effect size that you may expect in this indication. This was my long answer, the short answer to your question, Charles, is that we believe that significant trends and meaningful consistent trends across multiple endpoints and we have used multiple endpoints in this trial, would be very encouraging. They would once again reiterate the biological activity of the drug. More importantly, I think, they would indicate the possibility of a clinical benefit in this population, which is currently completely underserved, no drugs approved, no drugs in late-stage clinical development. I think that is what we are going to be looking for. We are going to be looking for a signal that permeates through several functional domains in this population, even if it doesn't hits statistical significance, it still needs to be clear, coherent and consistent and we will report that as I said in the next quarter fully with all data at hand.

[Charles Duncan:]

That is helpful, Yaron. Thanks for the added color.

[Yaron Daniely:]

Thank you.

[Operator:]

Thank you. At this time, I am showing no further question. I would now like to turn the call back over to Yaron Daniely for further remarks.

[Yaron Daniely:]

Well, I do not have any further remark. Thank you, all, again for joining us this morning. Have a great day.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect.