Arena Pharmaceuticals, Inc.
Q1 2018 Earnings Call Transcript

Published: 15 May 2018

[Operator:]

Good day, everyone, and welcome to Arena Pharmaceuticals' First Quarter 2018 Financial Results and Corporate Update Conference Call. This call is being recorded [Operator Instructions]. I would now like to turn the call over to Kevin Lind, Chief Financial Officer of Arena. Please go ahead.

[Kevin Lind:]

Good afternoon, everyone, and thank you for joining us today. We hope you had a chance to review the news release we issued earlier today announcing our first quarter 2018 financial results. Joining me on today's call is Amit Munshi, our President and Chief Executive Officer. Before we begin, I'd like to remind you that we'll make forward-looking statements that involve risks and uncertainties, including statements about our focus, plans, goals, strategy, expectations, clinical programs, R&D, regulatory activities and operations, and other statements that are not historical facts. These statements are made in the context of the risks and uncertainties that are discussed in our filings with the U.S. Securities and Exchange Commission, which can be found on the SEC Web site at www.sec.gov, and include risks related to the amount and allocation of our available financial and other resources, regulatory decisions and discussions, patient recruitment for our trials, which is competitive and challenging and may take longer than we project, data related to drugs and drug candidates and the timing of that data, which may not be as expected or sufficient for further development, regulatory approval, or commercialization, and collaborative activities. Our actual results may differ materially from our forward-looking statements. Now, I'd like to turn the call over to Amit.

[Amit Munshi:]

Thanks, Kevin. Good afternoon, everyone, and thanks for joining our call. During my comments today, I will provide the pipeline and corporate updates as we continue advancing our most promising product development programs. Following this, Kevin will provide a financial review of the first quarter of 2018, and we will, as always, conclude by taking questions. We've had a strong start to the year, delivering overwhelmingly positive phase 2 clinical data for etrasimod in ulcerative colitis, achieving all primary and secondary endpoints, and demonstrating a statistically significant improvement on both three- and four-domain metrics of clinical remission. Additionally, in Q1, we completed a capital raise that we believe positions us well to continue our thoughtful and broad development strategy to deliver our potentially best-in-class compounds to patients as expeditiously as possible. Looking forward, we expect significant amount of potential value catalysts over the next 12 to 24 months. Specifically, we're focused on initiating multiple phase 3 studies for ralinepag in the second half of '18. In addition, following the exciting data on etrasimod, we are advancing toward a phase 3 program in ulcerative colitis, as well as planning a robust program in Crohn's disease. As a company, this provides us with a clear focus and prioritization around building a cardiopulmonary business anchored by ralinepag and supported by additional compounds currently inside Arena and building a gastroenterology-hepatology business around etrasimod. So with that, let's start with etrasimod. As a reminder, etrasimod is a well-characterized in-house developed once-a-day oral which we believe has the potential to be the preferred oral option for patients suffering from a broad range of T-lymphocyte mediated immune and inflammatory disorders, such as IBD. In March of this year, we delivered outstanding phase 2 results with the OASIS trial for etrasimod in 156 patients with ulcerative colitis in primary and secondary endpoints with physical significance for patients receiving 2-milligram dose of etrasimod for 12 weeks. Approximately one-third of patients achieved clinical remission on the three-domain Mayo score in week 12, with upwards of 40% of the patients having previously failed an anti-TNF [or integrin] [ph]. We are thrilled we were able to show such strong results, especially considering many of these patients had failed other therapies, suggesting that they were more difficult-to-treat patients. We're also pleased with the safety results which continue to support a potential best-in-class product profile. We believe that these are impressive overall results, and we're probably using these data to plan our phase 3 trial in ulcerative colitis. We're actively working to prepare for our end of phase 2 meeting with the FDA, and look forward to updating you on our progress. Moving on to other indications for etrasimod, in light of the positive phase 2 data in ulcerative colitis, we're also working diligently on a development path forward in Crohn's disease. We look forward to providing further detail on the Crohn's program as we move toward the back part of 2018. And we continue to enroll patients in the PBC, or Primary Biliary Cholangitis study. PBC is a chronic liver disease where T lymphocytes accumulate in the liver, resulting in the destruction of bile ducts. We view this disease as having significant unmet need and believe that S1P mediated reduction of lymphocyte activity has the potential to serve as a cornerstone treatment in PBC. In order to focus on PBC, the phase 3 programs for ulcerative colitis and adding a new broad program in Crohn's disease, we will at this time be concluding our enrollment in the pyoderma gangrenosum trial. We have a few patients who have either completed the trial or are ongoing in treatment, and we'll evaluate this data and present it at a future medical meeting. To summarize etrasimod, the positive phase 2 safety and efficacy data provides us with further conviction on the promise of etrasimod as a potential best-in-S1P class with broad clinical utility. We're excited to further evaluate etrasimod in multiple GI and hep indications, going forward, and we believe that the product offers tremendous promise to patients, and will be a key long-term growth driver for our company. Now, turning to ralinepag, as most of you know, last year we delivered unprecedented positive top line data from our phase 2 study in the treatment of WHO Group 1 PAH in a population where the majority of these patients were on dual background therapy. With the belief that ralinepag is a potential best-in-disease product, our phase 3 program is designed to elucidate the benefits of ralinepag in a broad patient population and, importantly, raised the bar for the treatment of PAH. As a result of its improved receptor potency and extended pharmacokinetics, a profile that's closer to IV prostacyclins than any other oral program. We believe that patients across the treatment continuum can benefit from this important medication, and the phase 3 program will be designed to enable greater access to patients, including first-line therapy through add-on therapy to refractory patients. As a reminder, the ralinepag phase 3 program is designed to be a comprehensive program consisting of two global registrational trial studies, an exercise capacity study, and a time to clinical event study. Each of these studies is designed to be a standalone for registrational filing, and additionally, [Indiscernible] non-registrational trials will be developed to provide evidence of differentiation for healthcare providers and payers. We believe this comprehensive program will create a robust package, elucidate the benefits of ralinepag and the broad appropriate use of the drug. We are taking a much more rigorous and comprehensive approach to ralinepag phase 3 program than others have done in PAH because we believe ralinepag is a best-in-disease therapy. We're confident that, collectively, the three studies, the three programs that I've outlined, will elucidate the benefits of ralinepag and are appropriate for a broad range of patients, which we tend to believe will benefit from this therapy. We look forward to initiating our phase 3 program in Q3 of this year. Moving on to Olorinab, formerly known as APD-371, a peripherally restricted, highly selective full agonist of [CBP] [ph], we believe this new program has the potential to be a significant advancement in the treatment of Crohn's pain and, broadly, visceral pain. Given the overwhelming positive data for ralinepag and etrasimod, the start of multiple phase 3 studies for ralinepag and substantial etrasimod regulatory activities toward starting the phase 3 program in ulcerative colitis and planning the path forward in Crohn's disease, we have made some important and prudent prioritization decisions of our resources. We now expect to complete enrollment on the ongoing phase 2 proof-of-concept study in Q2, with the data readout in Q3. So, with that, let me turn it over to Kevin for a corporate update and our financial review.

[Kevin Lind:]

Thank you, Amit. I will start with the business development update, and then review the Q1 financials. On May 1, we announced that we entered into a licensing agreement with Outpost medicine for an undisclosed preclinical compound for the potential treatment of urologic disorders. We are excited to leverage Outpost's scientific and disease-specific expertise, with the goal of bringing this novel therapy to patients. We believe this agreement further supports the world-class science done around Arena's legacy discovery platform. In addition to receiving an upfront fee comprised of cash and equity totaling $3 million, Arena is eligible to receive approximately $100 million in development and commercial milestone payments and up to low double-digit tiered royalties on annual net sales of the compound. We will continue to evaluate opportunities like this as they arise, with the goal of bringing novel therapies to patients and generating further shareholder value. Now, I'll provide a brief review of our first quarter 2018 financial results here, while more detailed results are discussed in our press release. For the first quarter, revenues were 1.8 million, consisting of 1 million in collaboration revenue and 0.7 million in royalty revenue from Eisai. In terms of costs, research and development expenses totaled 21.6 million, and general and administrative expenses totaled 11.2 million. Net loss for the quarter was 32 million, or $0.80 per share. We burned approximately 28 million in cash this quarter, excluding the 3 million we received from Siegfried. We expect that burn to increase as we go forward this year but are not going to provide guidance at this time, as the burn will depend on the initiation and specific trial designs of our phase 3 programs. At March 31, cash and cash equivalents and investments balance was 629.1 million, and approximately 49.2 million shares of Arena common stock were outstanding. Amit?

[Amit Munshi:]

Thanks, Kevin. In summary, our focus remains on working toward delivering transformational medicines to patients. We are incredibly excited about the catalysts ahead for us, the phase 3 program for etrasimod, in ulcerative colitis, the development program for Crohn's disease, initiating our two registrational studies for ralinepag in the second half of the year, and delivering on phase 2 data for APD-371. As we will soon have a number of large, late-stage clinical programs ongoing, and a substantial amount of data catalysts over the next year or two, we anticipate hosting an R&D Day in early October of this year to provide further details on each of our core programs. We're excited to further highlight our robust pipeline, including new programs and a series of future milestones later this year, and we look forward to a busy remainder of 2018 as we continue to work toward building the company. With that, I'll turn the call over to the operator to begin the Q&A session. Operator?

[Operator:]

[Operator Instructions] Our first question is from Martin Auster of Credit Suisse. Your line is open.

[Tiago Fauth:]

Hi, this is Tiago on for Marty. Thanks for taking the question. So, Celgene recently announced that a delay in the enrollment timelines for Ozanimod UC trial, the phase 3, so perhaps if you could talk to any potential impacts to etrasimod's UC program from a competition perspective, but also from a trial execution perspective?

[Amit Munshi:]

What I think we've been tracking over the last year has been the influx of programs running phase 2 and phase 3 trials in ulcerative colitis, all looking for very similar patients in enrollment. What we're starting to see is that we're on the back end of a large bolus of trials. Multiple trials will be coming off, winding down essentially, and allowing new programs to begin to initiate. And this was really driven by the follow-on [integrin][ph] programs, a large number of anti-TNF biosimilars. These programs really sort of clogged up the system. And as those wind down through the back end of 2018, you'll start to see an inflection in enrollment. In fact, I believe Celgene pointed to the exact same thing on their call. So we've been monitoring the situation very carefully, and we're really pleased to see that we were able to demonstrate a robust effect, where 40% of patients had failed in anti-TNF [and integrin][ph] gives us confidence that we were able to move into that broader set of patients that'll be coming off these clinical trials. And we feel very good about the profile of the compound in what we saw, and we're encouraged by the evolution in the marketplace as we begin to move forward in our phase 3 programs.

[Operator:]

Thank you. Our next question is from Jason Butler of JMP Securities. Your line is open.

[Unidentified Analyst:]

Hi, guys, it's Roy in for Jason. Thanks for taking the questions. Just had a couple quick ones I guess, on the PBC results, can you give us any sense on the timing?

[Amit Munshi:]

We haven't disclosed any further timing on PBC. We're continuing to enroll in the trial. And as we move toward getting closer to enrolling that trial, we'll provide more details on timing of the data. Recall that the treatment period there is six months, so it's a longer duration of treatment in that study.

[Unidentified Analyst:]

I had one on the phase 2 in Crohn's pan for APD-371. Just wonder what your expectations are when that trial reads out, what you expect to learn. Is there anything in particular? I know you guys are prioritizing a lot of programs, but anything in particular with the indication that has resulted in the slow enrollment?

[Amit Munshi:]

Yes, it's just simply a matter of prioritization here internally and where we put our clinical resources. We're still a relatively small company. We run our financial situation quite prudently. We tend not to staff up too far ahead of major clinical catalysts. And so as we started looking at pulling resources into running multiple phase 3 programs on ulcerative colitis and Crohn's disease, and continue to work on PBC, remember, Crohn's is an add. It's not something we'd planned previously. That's really where we're seeing some of the slowdown in activity. As you know, in many of these clinical studies, it takes a high level of ongoing site engagement. And again, as we re-prioritize resources, we just see a little bit of a slowdown as we move resources over to etrasimod. The phase 2 in Crohn's disease is an open-label study, as we've previously discussed. One of the things that we're really excited to learn from the study is how much are the effect size of analgesia versus inflammation, and we'll be looking inflammatory markers, pain disease scores, and even the CDAI, the Crohn's Disease Activity Index. So it'll give us a sense as to whether this product is really a visceral pain product or something that has broader applications in the GI space. And based on that, we'll make some decisions as to whether we proceed with the program or whether we would seek a potential partnership. And I think we've talked about that before. It was just a matter of trying to understand what the data tells us in terms of the activity of the drug.

[Unidentified Analyst:]

I just had one more quick one. On the pipeline expansion efforts, do you think we'll see additional compounds come in this year? And are you guys looking mostly externally, or do you guys still have compounds in-house that you might be looking at, as well?

[Amit Munshi:]

Yes, we have a broad basket of compounds in-house. And we've publicly disclosed previously that we'd be moving forward with another phase two-ready cardiovascular asset, which will fit really nicely in our cardiopulmonary franchise. So expect to see a clinical stage asset move forward in the second half of the year, and we're excited to share details of that program. We'll probably do that around the R&D Day that we talked about.

[Operator:]

Thank you. Our next question is from Joseph Schwartz of Leerink Partners. Your line is now open.

[Joseph Schwartz:]

I was hoping to ask some things on the PAH program. So as you embark on a CPET study, what things are in your control to refine in order to maximize probability of success there in terms of trial design? I know that six-minute walk studies often have strict baseline six-minute walk criteria. Are you able to enrich the CPET study in any way in order to maximize [indiscernible].

[Amit Munshi:]

Joe, I think there's really three areas where we'll be focusing on the CPET study. One is across baseline characteristics. So I'm very familiar with six-minute walk. There'll be some very clear baseline characteristics that we'll be looking for, some certain thresholds on [indiscernible], for example, as part of the including criteria. Number two, we're selecting sites that have experience in exercise physiology, and CPET has labs already in place. Number three, we'll be spending a lot of time on things like calibration of the equipment. And then, finally, we'll be actively working on training, not only at the beginning of the study, but with an ongoing field sales force in terms of people on the ground actively working with the clinical site. So those are really the four main measures kind of on the input side. On the output side, we will have centralized readout and centralized lab readings on all the measurements. So combining centralized lab reading on the output side and controlling the inputs gives us great confidence that we'll be able to manage the heterogeneity of this population in this specific endpoint.

[Joseph Schwartz:]

There seems to be a lot of variables to choose from with CPET. Which does the FDA care the most about? Is it aerobic capacity, ventilatory efficiency, or hemodynamics? Which would be [priority]?

[Amit Munshi:]

We're finalizing the protocols now, working with experts, IRBs and a little bit of back-and-forth with the agency, as well. And we'll come back to you in short order here and be able to provide you exact details on exactly how we're going to power the study and what the endpoints are going to be. But suffice to say that we have clarity from the agency that CPET is a exercise capacity, first and foremost, is an [approvable] endpoint, and that CPET is a appropriate measurement tool for exercise capacity. And we'll come back to you on some of the additional details shortly.

[Operator:]

Thank you. Our next question is from Joel Beatty of Citi. Your line is open.

[Joel Beatty:]

First question is on Celgene and the delay that they had with ozanimod due to metabolites. Could you share any views you have on what that means for ozanimod being a competitive agent to etrasimod, or any other implications to your program?

[Amit Munshi:]

As we all knew, ozanimod had four metabolites that had been previously characterized. We know those metabolites had differential half-lives, and we also knew the metabolites had off-target activity on S1P2. That's been well-demonstrated in our own labs, for example. The disclosure that they provided recently on their fifth metabolite, which turns out to have a very different set of characteristics, that fifth metabolite accounts for about 90% of the activity of ozanimod. And it has a 10 to 13 day half life. In the sense that ozanimod is a little bit of an accidental pro drug, this 10 to 13 day half life puts it in the same range as Gilenya. So one of the advantages that it had over Gilenya historically was the short half life of the parent compound. Now that we know this metabolite has a 10- to 13 day half, Gilenya now looks exactly like ozanimod, or ozanimod looks like Gilenya. And there's a real big question whether ozanimod really is a second generation compound here or not. So in our case, our compound was developed in house. We understand our metabolite profile. Our metabolites don't have any off-target activity, nor do they have differential half lives. We know we can recover lymphocytes to 95% within a week. Just as a contrast point, ozanimod, after two weeks, recovers about 60% of lymphocytes, and Gilenya's actually just a touch better than that, at about two weeks recovering about 70% of lymphocytes. So in the sense ozanimod really doesn't look much different than Gilenya, and that means etrasimod alone is a next-gen compound. When you add the metabolite issue on top of their high tissue and volume of distribution that they've previously disclosed, I think it's pretty clear that, competitively, we're in a very strong position as we continue to expand the utility of etrasimod.

[Joel Beatty:]

One other question on the PAH program. Could you discuss how your two registrational trials can help enhance the time to market compared to an outcomes trial?

[Amit Munshi:]

I think by the two studies, I think it's also important to recognize the two studies do not compete on enrollment. One is the incident patient, or naive patient. The other looks at prevalent patients who are already on amacron medications, for example. The idea simply is that there's different pockets of patients in different parts of the world, and this allows us the broadest possible label. So we're focused on just not only time to market, but also having the broadest possible label. So this allows us to capture a broader spectrum of patients right off the bat and choose our eventual label. From a accelerated path, we know that the two studies are going to start roughly simultaneously. The naive patient study, the exercise capacity study, is a fixed time study, so you can expect the treatment duration to look something similar to our phase 2 study, where the second study is an event driven trial, so that first study really gives us a potentially faster path to market, as well. I will point out that our time to clinical event study, the study in the prevalent patient population, is a smaller study than what you have previously seen in outcome studies. And that was really based on a tremendous amount of work we did internally looking at event rates and key event rates and benchmarking against external registries. And we learned that there may be a better way to run those kinds of outcome trials. And we've hired a significant amount of people with extensive PAH experience inside the company, and we're relying on their experience, their guidance, their learnings over the last decade, and being able to view things just a little bit better.

[Operator:]

Our next question is from Alan Carr of Needham. Your line is open.

[Alan Carr:]

Thanks for taking my questions, a couple of them, one of them around your phase 3 program in PAH. I think before you talked about two core registration trials, and then maybe another one for -- a supportive one that involved a head-to-head. I believe in the press release and in your comments, you mentioned it sounds like more than one extra one. I'm wondering if you could go into that a little bit more, how many beyond the two core registration trials are you contemplating. And then also, with respect to the Olorinab phase 2 trial that you're running now, how much can you tell us about the track record for that model for pain? Has that been used elsewhere before?

[Amit Munshi:]

So on the phase 3 in PAH, yes, we do have two large phase 3 programs. They're independent registrational trials. And what we've disclosed is that we have a differentiation program, and that program will have multiple studies in it. We haven't disclosed how many. We're still fine-tuning what those studies look like. And you may see a couple start this year, a couple start next year, and we're trying to fine-tune the best way to elucidate the benefits of ralinepag over competing oral agents. We know we have a 6.5 to tenfold improvement in potency over selexipag. We know that we have a 24 hour half-life. We look like intravenous prostacyclin on receptor coverage, specifically the IP receptor. And there are multiple ways to actually show those benefits, and there's multiple ways, both in patient selection type as well as in terms of outcome metrics, hemodynamics versus other metrics, for example. So we're taking all that into account, and we want to be able to really create a series of catalysts for the company and, importantly, a series of catalysts to further elucidate why we think ralinepag is better than the competing product. So yes, expect multiple studies. We'll come back to you at the same time as when we share more details on the phase 3 program. We'll come back to you guys with more details on those programs, as well.

[Alan Carr:]

Will these be substantial? Will they be on the same scale as the two core registration trials or a series of smaller ones? Can you characterize that?

[Amit Munshi:]

Sure, absolutely. These will be a series of smaller studies, large enough to be able to detect the difference, but definitely not registrational size.

[Alan Carr:]

And then, the other one about Olorinab?

[Amit Munshi:]

Olorinab, we're breaking ground here on two different attributes. One is there's a first time we've seen a full agonist to CB2, one with 1,000 formal selective move into the clinic. And so there's not a lot of precedent for a full agonist to CB2 moving in. We've seen a lot of partial agonists. We've seen compounds that are not as selective for CB2 versus CB1. So there's some uniqueness to the compound itself. And then, all the animal work we did suggested both the pain and anti-inflammatory benefit, and we were trying to find a setting that allowed us to explore both. And we thought Crohn's pain fit nicely with our GI focus and would be able to give us enough confidence that we have either a pain signal and-or we have an anti-inflammatory signal. It's important to remember that roughly one out of six to one out of eight IBD patients are on chronic opioids. And so we're not talking about flare pain. We're talking about chronic pain. So we're really breaking new ground on both the compound itself, as well as the indication. So we're very excited to finish enrollment in that trial in this quarter and be able to get you guys a look at the data in Q3. And again, we're trying to determine what the direction of this compound will look like long term.

[Operator:]

Thank you. And that does conclude our Q&A session for today. I'd like to turn the call back over to Amit Munshi for any further remarks.

[Amit Munshi:]

Great. Thanks, everyone, for joining us today. I know it's a busy time. We look forward to continuing to update you on our progress as we go forward. We are excited about the catalysts that we have ahead between phase 3 program. We're excited about hosting an R&D Day in early October to provide you with further details. And we look forward to continuing to communicate with you on the ralinepag phase 3 program as we continue to refine the clinical protocol. So, thanks again, everyone, and look forward to staying in touch.

[Operator:]

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