Arena Pharmaceuticals, Inc.
Q2 2017 Earnings Call Transcript

Published: 8 Aug 2017

[Operator:]

Good day, everyone, and welcome to the Arena Pharmaceuticals' Second Quarter 2017 Financial Results and Corporate Update Conference Call. This call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, instructions will be provided at that time for you to queue up for questions. 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 this afternoon announcing our financial results for the second quarter of 2017. 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 involving risks and uncertainties, including statements about our focus, plans, goals, strategy, expectations, clinical programs, including the timing of results regarding ongoing trials and planned new trials, R&D, regulatory activities 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 website at www.sec.gov and include risks related to the amount and allocation of our available financial and other resources, patient recruitment for our Phase II trials is competitive and challenging and may take longer than we project, regulatory decisions, data related to drugs and drug candidates may not be as expected or sufficient for further development, regulatory approval or commercialization, collaborative activities and recruitment and maintaining key personnel. 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 updates on our pipeline, the team, our medical affairs activities as we continue to advance our multiple promising product development programs. Following this, Kevin will provide a financial review of the second quarter 2017, and we'll conclude, as usual, by taking questions. With important milestones expected over the next several quarters, this is an exciting time for Arena, as we continue to drive value through the continued advancement of the pipeline. Our focus is to continue to execute across all aspects of our business, including our end of Phase II meeting with the FDA on ralinepag, as well as ongoing Phase III planning. We also continue to expect to generate additional clinical data readouts for etrasimod and APD371. We look forward to data readouts from our partner Axovant Sciences on our drug nelotanserin. In July, we delivered strong positive topline results for our Phase II study for ralinepag in the treatment of WHO Group 1 Pulmonary Arterial Hypertension, or PAH. We believe ralinepag has the potential to be a best-in-class oral IP receptor agonist, with its markedly improved potency and pharmacokinetics. In this 61-patient, phase II, placebo-controlled 22-week study, we looked at pulmonary vascular resistance, or PVR. We also interrogated additional endpoints such as the 6 minute walk test. We are thrilled that we were able to show such strong results, especially considering most of our patients were already receiving dual background therapies. The primary take-home message for efficacy emerging from this study is that ralinepag drove a 20% reduction in PVR and a 36-meter increase in 6 minute walk compared to baseline values in a population where the substantial portion of the patients were on dual background therapies. We're pleased that the safety and tolerability profile was as expected. We believe that these are impressive results and we look forward to using these results to further refine our planning for Phase III. We've received a substantial amount of inbound questions on our plans for Phase III. While we're not going to provide specific guidance today, I would like to share a bit about how we are thinking about the program. Our primary objective is to balance time to market, with a study design which allows us to fully illuminate the benefits on ralinepag. And of course, that - which is acceptable to the various regulatory agencies. To that end, the teams are actively conducting substantial analysis on our Phase II data set, evaluating publicly available data from multiple U.S. and European registries to better inform the natural course of the disease and key risk parameters, and working with leading U.S. and European experts on our plan going forward. We're actively working to prepare for our end of Phase II meeting with the FDA, which we hope to be as soon as possible, and we look forward to updating you on our progress as soon as we can. Additionally, in the past quarter, we completed a pharmacokinetic pharmacodynamic or PKPD trial, comparing our existing twice-daily formulation of ralinepag, which is being used in our ongoing Phase II trial, to a new once-daily extended release formulation of ralinepag in healthy volunteers. We'll continue to evaluate the ralinepag XR formulation as part of our future clinical plans. So with that, let me turn my attention now to etrasimod and our strategy going forward for the treatment of multiple autoimmune diseases. We believe etrasimod has the potential to be a best-in-class S1P modulator with expanded clinical utility due to its high specificity for the S1P receptor subtypes 1, 4 and 5. For the Phase II ulcerative colitis trial, we remain on track for a data readout around year-end 2017, and into early 2018. With regards to the exploratory etrasimod trials as we've discussed previously, we have extensive experience with etrasimod, and our strategy is to progress the asset by leveraging its optimized receptor pharmacology to deliver broad clinical utility across multiple opportunities in the autoimmune space, specifically exploratory trials in dermatologic extraintestal manifestations, in patients with inflammatory bowel disease, pyoderma gangrenosum and primary biliary cholangitis. We've initiated trials for dermatologic EIMs and PG in March and remain on track to initiate the PBC trial in 2017. These trials and future indications which we may explore, are important strategic investments to leverage the unique profile of etrasimod and provide therapeutic benefit to patients and potentially accelerate our time-to-market. Moving on to APD371, our peripherally restricted, highly selective full agonist to the CB2 receptor. We're pleased to have initiated a randomized, open-labeled parallel Phase IIA study in up to 20 patients to determine the tolerability, pharmacokinetics and efficacy of APD371 in subjects with Crohn's disease experiencing abdominal pain. As discussed previously, we believe there is significant unmet need in the treatment of visceral pain with APD371 and with an initial focus on pain associated with Crohn's disease, which we believe will be an important therapeutic in this area. We intend to deliver topline data around the end of 2017, early 2018. Moving on to the team. On June 14, we announced that Jenn Jarrett had joined our company's Board of Directors. Ms. Jarrett currently serves as Chief Business Officer and Chief Financial Officer of Arcus Biosciences, a biotechnology company developing next-generation cancer immunotherapies. Prior to Arcus, she was the Chief Financial Officer of Medivation, which was acquired by Pfizer in 2016. We're excited to have someone with Jennifer's financial, business and strategic experience joining our Board at such an important time at Arena. We also continue over this last quarter to develop our relationships with patients, patient groups, physicians and clinical investigator communities, as we focus on developing our first or best-in-class programs. During the past 12 months, we've had 13 presentations at 6 major medical meetings and published data in 2 medical journals. The data are now available on our website. Going forward, we'll continue to work diligently to publish additional data on etrasimod, ralinepag and APD371 globally. So with that, let me turn it over to Kevin to review our financials.

[Kevin Lind:]

Thank you, Amit. Our detailed financial results are discussed in the press release. I will provide a brief review of our second quarter 2017 financial results here. First, in the second quarter, we executed a 1-for-10 reverse split. All relevant figures have been split-adjusted. Moving on, revenues totaled $6.5 million, including $2.1 million in net product sales, $1.8 million in manufacturing support payments from Eisai, and approximately $1.9 million of revenue associated with upfront payments from the BI, Boehringer Ingelheim and Axovant collaborations. Research and development expenses totaled $17.9 million. General and administrative expenses totaled $7.2 million. Net loss was $23.6 million or $0.77 per share. At June 30, 2017, cash and cash equivalents totaled $130.8 million, and approximately 31.8 million shares of Arena common stock were outstanding. This does not include the $162 million in net proceeds received through July 28, 2017, for issuing and selling approximately 7 million shares. We believe this provides us with a significant cash runway that can potentially get us through the Phase III trial for ralinepag. We are thankful for the support from the existing and new institutional investors and retail investors who participated in our public offering and view their participation as validation of our current strategy. Amit?

[Amit Munshi:]

Thanks, Kevin. In summary, our focus remains to continue building Arena as a strong product development company. We remain focused on our end of Phase II meeting with the FDA and preparations for Phase III planning for ralinepag, while at the same time, striving to deliver on the remainder of our pipeline. We believe that these compounds with their optimized receptor pharmacology and broad clinical utility, all have the potential to be first or best-in-class agents. We look forward to a busy year ahead for us as we look forward to multiple value creating opportunities. So with that, let me turn the call over to the operator and move to the Q&A session. Operator?

[Operator:]

Thank you. [Operator Instructions] The first question is from Joel Beatty of Citi. Your line is open.

[Unidentified Analyst:]

This is Shawn calling in for Joel. Regarding the upcoming Phase III trial for ralinepag, what might you able to do to get results faster than the 4 to 5-year GRIPHON trial of selexipag?

[Amit Munshi:]

Shawn, thanks for your question. As we've discussed previously, we think there's a broad range of potential clinical trial designs, ranging from a narrower trial on 6 minute walk, all the way out to the GRIPHON trial and we think the sweet spot might be somewhere in the middle. The teams are, as I mentioned before, actively looking at multiple data sets that are available publicly, various registries and working with advisers, both in the U.S. and Europe, to find a really a sweet spot balance between time-to-market and building a label that we think is going to be competitive in the marketplace. At the end of the day, we really have one overarching objective which is, we believe we have a best-in-class agent and we want to make sure that the study we do properly illuminates the benefits of ralinepag versus the competing therapies.

[Unidentified Analyst:]

Great. Thank you for that. And then as a quick follow-up, can you update us on what else is needed before making a decision on whether or not to advance the XR formulation of ralinepag into the Phase III?

[Amit Munshi:]

Yes, sure. So we're excited about the XR formulation. As we previously mentioned, we think it has the same area under the curve, while blunting the Cmax profile of the compound. So the idea is to create a more IV-like attribute for the compound. We feel good about where we're at today. We're looking at our Phase II data now, looking at plasma exposures and just making sure we double check that we're comfortable moving forward with XR. So we don't want to come in until we finish all the data analysis. This is an important decision. We feel strongly that our XR formulation gets us to where we want to be and we would just want to make sure that we think through this twice before we head down this path. So bottom line is, we feel confident right now. We just want to dot the i's and cross the t's.

[Unidentified Analyst:]

Great. Thank you so much.

[Operator:]

Thank you. The next question is from Bill Tanner of Cantor Fitzgerald. Your line is open.

[Bill Tanner:]

Thanks for taking the question. Amit, just wanted to continue maybe on with the XR. I mean is there any contemplation to being able to do some kind of a bridging study with the XR, so you get the immediate release. I don't know if you guys would call it that or the BID formulation approved for PAH. And then would you do something like a bridging or do you think this would go down a parallel path? And then I had one quick follow-up. Thanks.

[Amit Munshi:]

Yes. Hi, Bill. We feel very strongly that XR is likely to be the place where we go into Phase III with. We're doing a little bit of additional work to make sure that we're confident that there is no substantial difference. I'll just remind everybody that there's no difference in the actual molecule between XR and IR. It's simply a formulation change to essentially push the Cmax out, or blunt the Cmax. The half life of both the compounds is identical, the IR and the XR. And as I mentioned, the active pharmaceutical ingredient is the same between the two. So there's no change to the formulation. So we think there is de minimis risk moving directly to the XR for Phase III. However, before we make that final decision, we want to make sure that we've looked at every possible variable. We're doing a lot of PK/PD modeling to make sure that the plasma concentrations can be modelled from the IR to XR and make sure there is absolutely nothing here that gives us room for worry.

[Bill Tanner:]

Got it. That make sense. And then on etrasimod with UC data by the end of the year, can you just remind us on what the expectations would be just in, so far as the data that you think are going to be important, what people really are going to focus on? And then, at least maybe qualitatively or semi-quantitatively, what's kind of there to worry about in a go, no-go decision to move forward?

[Amit Munshi:]

Sure. So the - first of all, Bill, you have to let us just enjoy a moment of just being excited about ralinepag before you make us jump all the way to etrasimod. I'm kidding. Yes, so we're looking for etrasimod data towards the back end of this year and into early next year. The primary endpoint, as we've mentioned, is a continuous variable with a partial Mayo score. It's well documented in the literature and in FDA guidance documents and we're looking for a statistically significant change over placebo on the partial Mayo score. So we think that gives us enough of an indication that we've got a drug that's active. Naturally in this therapeutic category, with this class of drugs, we're going to be very closely watching safety. And as you know from our multiple Phase I investigations we had no first dose bradycardia with no titration and we think it's one of the key differentiating factors clinically so far that we've seen on this program and we want to make sure that holds up in actual UC patients. So we'll be looking closely at safety, making sure we've got safety that's comparable or better than the competitive products in the category. And we'll been looking for efficacy that's comparable or better than the products in the category and we think that will give us enough guidepost to progress the compound forward.

[Bill Tanner:]

Great. All right. Well, thanks very much.

[Operator:]

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

[Unidentified Analyst:]

Hi, guys. This is Dagon [ph] dialing in for Joe. Congrats on all the progress. So I was wondering if I could touch briefly on the ralinepag Phase III. I know you don't want to go into too much detail. But any thoughts on perhaps running a superiority or versus non-inferiority design kind of a trial given that there are several agents in the market? And I have a follow-up.

[Amit Munshi:]

Sure. So the way we really think about it is, in terms of next-generation compounds, there's really just selexipag and then the next-generation from selexipag is ralinepag. So while there's multiple compounds in the category as we all know, having a best-in-class compound with data that has never been seen before, this magnitude of effect in patients with dual background therapy, we think we're in a very strong place. I will tell you that we're thinking about our Phase III as a program, not a single study. Naturally, it's a single study that eventually gets to registration, but we think there is multiple things we can do in a broader program, smaller sidecar studies or specific cohorts in the Phase III that give us specific areas of competitive advantage. So I'm not going to address the head-to-head issue directly, but just to tell you that we're thinking about a broad range of options that's part of the ralinepag Phase III program. And I'll come back to what I said before, we want to give ourselves the best chance to illuminate the superior characteristics of ralinepag in the treatment of PAH.

[Unidentified Analyst:]

Great. And then just jumping ship a little bit here on the Phase II PBC study. I just wanted to get your take on if there would be any rate limiting step for initiating the Phase III PBC study, given that there is a competitor that recently disclosed their low dose data that seemed pretty promising. And also if you could comment on, perhaps mechanistically, how the S1P receptor modulator maybe more efficacious in addressing the underlying disease rather than a, say, PPAR ligand or FXR or agonist? Thank you.

[Amit Munshi:]

Sure. So let me take the first part of this and what do we think about the competitive profile. As we all know in this category of PBC, you're really talking T-lymphocytes that attack the bile duct. So you can talk about lots of different mechanisms on the early stages of disease stasis. At the end of the day, the disease progresses as T-lymphocytes destroy the bile ducts. And none of the other mechanisms, as far as I can tell, sequester T-lymphocytes or reduce circulating T-lymphocyte levels. So as far as I'm concerned, everything else is dancing around the edges, whereas we're talking about a much more direct mechanism of action to the treatment of PBC. So I think I addressed your first question. Can you please repeat the second part of that?

[Unidentified Analyst:]

Sure. I was just wondering, given that there are trials and now the actual commercial drug, would there be any rate limiting step in getting your trial up and running?

[Amit Munshi:]

Not as far as we're concerned. I mean, again, were talking to experts. We're designing the trial carefully. But from our point of view, all the other mechanisms kind of - again, they dance around the edges. PBC, at a most fundamental level, the inflammation, the destruction of the bile ducts, the eventual cholangitis, the fibrosis, everything that happens is all driven by circulating T-lymphocytes or lymphocytes attacking the bile duct. So again, our mechanism of action is much more directly on target to PBC and just to recall - just to refresh your memory, we've never discussed PBC as a stepping stone to a broader set of indications. I think a lot of the other compounds we're kind of thinking about it from that point of view. We're thinking about this fairly straightforward which is, this is a disease of T-lymphocytes attacking bile ducts and we know we reduce circulating T-lymphocytes.

[Unidentified Analyst:]

Great. Thank you very much Amit.

[Operator:]

Thank you. The next question is from Jessica Fye of JPMorgan. Your line is open.

[Unidentified Analyst:]

Hey, guys. This is Ryan on for Jess. Appreciate you taking our questions. Amit, you're talking about sort of thinking about the Phase III for ralinepag as a broader program. Is there any consideration for potentially exploring subpopulations in the PAH patients of those who may have failed on Uptravi Orenitram?

[Amit Munshi:]

Yes, thanks for your question, Ryan. Like I said, we're looking at all kinds of different subsets of patients. We're also digesting our full Phase II data sets. So as you know, we've released topline data. There's a pretty robust database behind that. We captured a lot of information in this trial. Naturally, we're reserving most of it for major medical meetings where we'll get a chance to put all this information out there. But as part of that, we are looking at different subsets, and naturally, we don't have Uptravi failures in our Phase II trial, but we are looking for patients in different subsets in different cohorts. So I prefer not to go into Phase III or look at it - of subset in Phase III program that we don't have any information on. So that just instinctively makes me a bit nervous, but the teams are actively digesting the market landscape, the natural progression of the disease. There's a tremendous amount of data out there available between the U.S. and the multiple European registries. Clinical working groups in the U.S. and Europe have done a phenomenal job of capturing important longitudinal information on these patients across a broad range of subsets of patients. And our ability to digest that and map that on top of our Phase II data will give us a very good sense of where to go forward in the Phase III.

[Unidentified Analyst:]

Okay, great. Thank you.

[Operator:]

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

[Jason Butler:]

Hi. Thanks for taking the questions. Just two quick ones on ralinepag. First, any update or thoughts on when we could see the data presented at a medical meeting? And then second, you talked about going to an end of Phase II meeting with FDA. Do plan on engaging in the formal scientific advice process with EMA as well? Thanks.

[Amit Munshi:]

Hi Jason, yes, thanks for your questions. We've submitted an abstract to a major medical meeting and we're waiting to hear back. It was a late breaker. So we'll wait to see if that gets accepted. It was -- the deadline happened to be only about 48 hours after we had the topline data. So a short time frame there. And absolutely, we plan to go to the EMA and have a similar discourse in terms of our plans going forward. We - as I mentioned a bit earlier, we're not just talking about U.S. registries and working with U.S. investigators. In fact, the team just got back from Europe where we've run a couple of important European Advisory Board Meetings and we're working through registry information in the U.K., France, the Czech Republic. We want to take a very holistic global approach to the program.

[Jason Butler:]

Great. Thanks for taking the questions.

[Operator:]

Thank you. The next question is from Alan Carr of Needham & Company. Your line is open.

[Alan Carr:]

Hi. Thanks for taking my questions and congratulations on your progress. A couple, one of them, do you - in terms of timing for this discussion with the FDA and EMA running into Phase II, is that something we can assume will happen by year-end '17? And then also, with respect to some of these other indications that you're looking at with etrasimod, I wonder if you can comment on your thoughts on when data might be available from some of those - the smaller trials. And maybe comment a little bit more about the timing of the PBC start and why there hasn't -- why that one has got a later start than the other 2. Thanks

[Amit Munshi:]

Sure. Thanks, Alan. Timing of the FDA, look, we'd love to get there before the end of the year. It all depends on when we get our work done. I'm much more interested in doing the right trial, the right program than trying to force some artificial time lines. It's absolutely critical that we get this right and the teams are, as I mentioned, working very diligently to make sure that we think through every aspect of the program. So we would love to get there before the end of '17. It will all depend on the progress of the work we have to get done. The smaller indications, these are, in some cases, these are ultra rare type of indications, like pyoderma gangrenosum. So it's very difficult to anticipate when the data will be available. The trials are actively enrolling. 2 of them are actively enrolling and as we get a little bit further in the enrollment, we'll provide guidance on when we can expect data. On the PBC start, PBC is a new area for us. We have not worked in liver diseases. As a fairly new management team, we've built some expertise in the gastroenterology space working through ulcerative colitis and then in the cardiopulmonary space with PAH. Liver disease is a new area for us. There's a lot for us to get up to speed on and get to the right experts in the field. As the question was asked a few moments ago, if there's a changing landscape out there in terms of competitive data. There's quite a few programs out there. So again, we just want to make sure that when we do, do the study, we do the right study. As you know, historically, Arena has been - it may not have always taken the right steps, the right indications and plan the right trials. And I think it is imperative upon us whether it's a quarter here or a quarter there, it's far more important to do the right investigation so that we get the right information that is interpretable in the context of current treatment patterns. So that's what the teams are working on now on the PBC side as well.

[Alan Carr:]

All right. Thanks very much.

[Amit Munshi:]

Thanks, Alan.

[Operator:]

Thank you. There are no further questions at this time. I'd like to turn the call back over to Amit for closing remarks.

[Amit Munshi:]

Thanks everyone for joining us today. We really, really appreciate your time. We'll continue to update you on our progress. A lot of questions on ralinepag, we'll make sure to come back to you in a as timely manner as possible. We continue to execute on the opportunities we see in front of us for Arena and it's an incredibly exciting time and thanks for sharing this journey with us.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect today. Good day.