Arena Pharmaceuticals, Inc.
Q3 2017 Earnings Call Transcript

Published: 8 Nov 2017

[Operator:]

Good day everyone, and welcome to Arena Pharmaceuticals' Third 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 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 third 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 US 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 trials is competitive and challenging and may take longer than we project, regulatory decisions, the timing and 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 pipeline, team and corporate updates as we continue to advance our multiple promising product development programs. Following this, Kevin will provide a financial review of the third quarter 2017, and we'll conclude by taking questions. This continues to be an exciting time for Arena as we deliver on milestones, continue to cleanup on important legacy issues and look forward to important catalyst expected over the next several quarters. We may focus on executing across all our aspects of our business including our expected upcoming meeting with the FDA and phase 3 plans for ralinepag in Pulmonary Arterial Hypertension or PAH, as well as phase 2 clinical data readout for etrasimod in ulcerative colitis and for APD371 in pain associated with Crohn's disease. We also reported important data read-outs from our partner Axovant Sciences with [neural] cancer and visual hallucinations in Lewy body dementia and REM sleep behavior disorder. So let me start with ralinepag, in July we delivered strong, positive topline results from our phase 2 study of ralinepag for the treatment of two groups on PAH. We believe ralinepag has a potential to be a best-in-class oral IP receptor agonist with markedly improved potency and pharmacokenitics. As you might be aware last week we presented this little data in a late breaking abstract [abchest]. As a key milestone for us, we have requested a meeting with the FDA to discuss elements of planning for the phase 3 program. Given ralinepag as the first oral drug with IV-like therapeutic exposure and in order to unlock its full value potential, we are developing a comprehensive plan that contemplates phase 3 as a program not just a single phase 3 platform. As such we have four priorities where we are focused on ralinepag as we move forward and these are; time to market, breadth and scope of the event for the label, broad physician experience with the product, and finally, direct comparison to current products in the category. We intend to deliver on our primary objective on balancing time to market for the program design that allows it to fully illuminated the benefits of ralinepag and of course that which is acceptable for various regulatory agencies around the world. We are in the process of conducting substantial analysis on our phase 2 dataset, a value of publicly available data from existing US and European registries to better reform the natural course of the disease and risk parameters and of course working with US and European experts on the best tasks forward. We look forward to updating you on our progress with the FDA and providing further details on our phase 2 program as appropriate. Now I’d like to turn my attention to etrasimod. We believe this compelling drug candidate is the potential to be a best-in-class S1P modulator with expanded clinical utility due to its high specificity for the S1P receptor subtype activity, its superior PKPD pharmacokinetics and pharmacodynamics and its potential best-in-class safety profile. We are incredibly excited about the promise of this next generation S1P class. We recently reviewed over 100,000 pieces of scientific literature in over 20,000 indications identifying diseases where S1P was implicated and then applied various commercial development and regulatory focus to that screen. The key takeaway there was that S1P is involved in over 80 commercially viable indications. Given etrasimod’s optimized receptor pharmacology and ideal pharmacokinetics, we believe the compound has the potential to deliver on broad clinical utility in numerous auto-immune conditions every time. The next step in evaluating the broad potential of etrasimod is our ongoing phase 2 ulcerative colitis study. To that end we are pleased to announce an important milestone in this program. We’ve enrolled the trial with a 148 patients as of today. The study formally concludes enrolment on November 9 and as such there may be a few additional patients randomized. As a reminder, this is a randomized double-blind placebo controlled parallel group dose ranging study to determine safety and tolerability [dose] being conducted at a number of sites globally. We enroll patients with moderate to severe ulcerative colitis using a 3 point Mayo score of 4 to 9 that includes endoscopic sub-score and rectal bleeding. Efficacy endpoints including proven on the partial Mayo score, remission response and mucosal healing versus placebo and of course dose response. For this phase 2 ulcerative colitis trial, we remain on track for a data readout in Q1 2018. Following this we will determine the appropriate next step for our etrasimod clinical development plan. Moving on to other indications, we are pleased to share that we have met our goal of initiating the trial for Primary Biliary Cholangitis or PBC as previously stated. As a reminder, PBC is a chronic liver disease where acute lymphocytes accumulate in the liver resulting in destruction of bile ducts. We view this disease as having a significant unmet need and believe that S1P1 immediate reduction of lymphocytes levels has a potential to serve as a cornerstone treatment for PBC. The PBC study will be open label study, with dose escalation. The primary efficacy endpoint will be change in alkaline phosphate from baseline. We will also explore additional endpoints including pharmacokinetics and pharmacodynamics, inflammatory markers and measure of liver and biliary function, liver stiffness and patient quality of life. And of course we will be monitoring safety and tolerability as the study progresses. We will provide more color as we move forward on this program. Continuing on to other etrasimod indications, we have initiated trials previously PG and the dermatologic extra intestinal manifestation of IBD in March. The PG study is ongoing and continuing to enroll patients. We’ve also enrolled patients in the EIM trial; however the UC study also includes patients with extra intestinal manifestation of IBD. As a consequence we intend to assess the impact of etrasimod on these EIM patients in a combined dataset between these two trials. The EIM trial therefore no longer needs to continue as a standalone trial. These trials and future additional indications which we may explore are important aspects of our strategy to optimize the full value of etrasimod, potentially accelerate our time-to-market, and provide therapeutic benefits to a vast number of patients. So moving on to APD371, our peripherally restricted, highly selective, full agonist to the CB2 receptor. As discussed previously, we believe there is significant unmet need in the treatment of visceral pain as highlighted at the opioid public health emergency. Approximately one in eight patients with IBD is chronically treated with opioids. APD371 with an initial focus on pain associated with Crohn’s disease may be an important therapeutic in this area. The study is continuing, the trial is continuing to enroll and we intend to deliver topline data in Q1 2018. Moving on to a few corporate issues, as far as the team concerned, we are delighted to announce that Dr. Christopher Cabell has joined Arena’s leadership team as Senior Vice President, Clinical Development. Dr. Cabell was most recently the Senior Vice President, US and Canada, Head of Sales, Account Management Operations at QuintilesIMS. Chris is a Duke trained and was on faculty in the cardiology group at Duke. We are excited to have someone with this clinical operational and strategic expertise to join our team at this important time in our evolution. Finally, as we continue to reconcile legacy issues we would like to update you regarding the security class action litigation that’s been ongoing since 2010. On November 3, 2017, we and the lead plaintiff signed a stipulation and agreement of settlement or stipulation to resolve the consolidated class action. Under the terms of the stipulation and in exchange for a release of all claims by class members and the dismissal of the consolidated class action with prejudice we have agreed that our insurers will pay class members and their attorney at total of 12.025 million and Arena will pay class members and their attorney approximately 11.975 million in either shares of common stock or cash at our election. The terms of the settlement remain subject to approval by the District Court and other important conditions. We are pleased with this resolution as it represents an important closure on the legacy issue and reflects our continued efforts to reconfine Arena in the context of our promising pipeline. So with that let me turn the call over to Kevin for our financial review.

[Kevin Lind:]

Thank you Amit. Our detailed financial results are discussed in the press release. I will provide a brief review of our third quarter 2017 financial results here. Revenues totaled 7.9 million including 3.1 million in net product royalty sales of BELVIQ, 1.7 million in manufacturing support payments from Eisai, and approximately $1.9 million of revenue from Boehringer Ingelheim and Axovant collaborations. Research and development expenses totaled 17.3 million, general and administrative expenses totaled 7.8 million, and as Amit just discussed we had a litigation settlement expense of 11.975 million, which all resulted in a net loss of 32.4 million or $0.86 per share. At September 30, cash and cash equivalents totaled 278.7 million and approximately 39.3 million shares of Arena common stock were outstanding. This includes the 162 million in net proceeds received through the July financing for issuing and selling approximately 7 million shares. We are thankful for the support from the existing and new top tier institutional investors who participated in our public equity offering, and view their participation as validation of our current strategy. Amit?

[Amit Munshi:]

Thanks Kevin. In summary our focus remains on continue to grow Arena’s as a strong product development company. We remain focused on our discussions with the FDA as well as phase 3 planning for ralinepag, while at the same time striving to deliver on both the promise of etrasimod broadly and APD371. We believe these compounds with their optimized receptor pharmacology and broad clinical utility has the potential to be the first of best-in-class agent. We look forward to a busy 2018 ahead of us, with multiple value creating opportunities. I will now turn the call over to the operator and begin the Q&A sessions. Operator.

[Operator:]

[Operator Instructions] And our first question comes from the line of Joseph Schwartz from Leerink Partners. Your line is open.

[Joseph Schwartz:]

My first question is on ralinepag and then I have one on etrasimod. So first of all on ralinepag, when do you think that you’ll have your meeting with the FDA to discuss the future development path for ralinepag? What will you be proposing and how do the various options look to you in terms of the order of attracting us in terms of the attributes you mentioned like time to market, cost and market impact?

[Amit Munshi:]

The timing of the meeting is really up to the agency and their calendar, so we are waiting for a response back from them. So I can’t give you any context on that. In terms of how we are thinking about this is, I really think about this not as an or but an and. It’s a rare occurrence in this business as you know Joe to have a product or an asset that has the qualities that ralinepag has and a chance to be – and used to potentially even in standard of car in PAH. So as a consequence we are taking a very bold stance, and for me it’s not an either or between time to the market and buy quick label, it’s an [and]. So the four priorities we laid out, you’d expect a program that would address each one of those four key attributes.

[Joseph Schwartz:]

So would possible scenarios and be something like an accelerated approval based on six minute walk and following patient’s longer term for survival or other disease progression metrics is that one of the cause that you might have.

[Amit Munshi:]

Yeah, if you think about the four priorities, time to market, exercise capacity is definitely one of the potential considerations where it is more than way to get to market than maybe others. And then moving from there thinking about a broader outcomes based study in terms of explaining the label. Now whether that’s one study or two study that’s not a comment we are willing to make today. And then moving from there, you have to think about transition experience, we think that’s very important in this category, making sure we get this product in the hands of many physicians around the world, who treat this grievous illness. We want to make sure they have a chance utilize this product as part of the clinical experimentation. And the finally comparative direct head-to-head and those you can expect the series of potential smaller types of trials that would help establish. We firmly believe to be true that will impact as a potentially best-in-class agent. So again we are taking a very bold stance and as soon as we get some initial read from the agency we’ll continue to provide greater color on the totality of the program.

[Joseph Schwartz:]

And then for etrasimod and UC, where is the boogie you hope to hit there and how would this differentiate your approach versus others who are going for this indication. In other words, how does the best-in-class S1P modulator distinguish itself here?

[Amit Munshi:]

Sure. The first thing that we want to emphasize and we think that’s super important is that the S1P category has broad applicability across as we said 80% potential indications and we’ll continue to explore those as we go through 2019. We don’t think this as a fit for purpose IBD product; we think this is a product that has a broad clinical utility in that context. Of course our first data readout is in the ulcerative colitis space and our primary data readout is a partial male score of 3 point partial male score looking at rectal bleedings still frequently and of course endostatic measurements and those data points are on, and it’s a continuous variable. We’re looking for a change from baseline compared to placebo. So we haven’t provided any [talent] calculations any magnitude of effect, but I think if you look at the comparative products in the category, you will see some partial male score read-outs in there in the publications and it will give you a sense of kind of the magnitude and response we’d expect to see. So we’re excited about looking at the safety profile of the compound, given the highly selective receptor pharmacology. We have a faster on-time of products in the category, we see FX below 50% of (inaudible) by day three, and we have the fastest recovery of any product in the category in terms of recovery back to baseline (inaudible). So we think that all adds up to a superior product profile and we’re hoping that the phase 2 data are really the first chance we get to eliminate those key attributes of the product.

[Joseph Schwartz:]

So is there a bogie that you’re hoping to head in order to determine whether you see is that indication that you’ll pursue off the bat or rather go for some of these other indications?

[Amit Munshi:]

Yeah, I think there’s sort of three variables to consider around UC as a key parameter going forward. The first is the magnitude of response. To our knowledge none of the other competitive products have released a partial (inaudible) in endoscopic healing. So we’re not going to discuss how we’re powered and the magnitude effect we are looking to see. But there are real clear head-to-head comparisons there. We will be reporting on other attributes where investors and analysts will one to draw head-to-head comparisons of [etrasimod]. The second key parameter is the competitive landscape. You may have seen competitive products in the category, substantial delays in their ulcerative colitis trial, recruiting the function of it being a very crowded space. So what they’re continuing to look and see how the space evolved. Other products in the category have had substantial safety issues of recent. So, the third big landscape may look very different six months from now than it does today in terms of the attraction. And then third, while we are not dependent on the partnership, we have a plan to give up the product on their own using some of the smaller indications as we’ve previously discussed. If ulcerative colitis and IBD broadly is interesting to a partners, we would be open and receptive to having those conversations. And the (inaudible) is part of a broader portfolio play as a company. So those will be the kind of three big areas we’ll be looking at as we head in to 2018.

[Operator:]

And our next question comes from the line of Jason Butler from JMP. Your line is open.

[Unidentified Analyst:]

Hi its (inaudible) on for Jason. Thanks for taking the question. Amit I just want to follow-up on the last comment, you kind of touched on to competitive landscape. So it’s interesting that (inaudible) the timing in your label, but your timelines are intact, is it simply bit of safety or is there something else you can comment on about the competitive landscape to these agents in that setting.

[Amit Munshi:]

I think if you did a scan of clinicaltrials.gov you’d see there is between 40 and 50 phase 2 and phase 3 studies up running for ulcerative colitis globally. It’s just a function of the innovation that’s happening in this space combined with some of the older biologics with patent [slimming] you get the buyers similar in that space. So it’s just a very crowded space and it will try to get to the space connotations for their clinical programs. So it’s more of a clinical program issues rather than a market opportunity issue. But we’ll access that as we get in to 2018, and these landscapes as you know change pretty quickly. We are looking at other overall categories in the IBD space now and having substantial issues with side effect profiles. So we have to think through how we look at the market landscaping at times. The safety comments in the category have really been around products like some [listed] products, not really directed at the S1Ps. So the S1P had remained solid and its – as I firmly believe there are only next-gen S1P modulators in the market addressing the massive landscape and its cell genes ozanimod compound and etrasimod compound.

[Unidentified Analyst:]

Regarding the subset analysis on the ralinepag data, is there any particular analysis that you’re keen to get finish before your meeting with the FDA. Anything in particular you want to show them?

[Amit Munshi:]

We haven’t specifically commented on things that the agency might want to see or not want to see. It is less of a substance now since its more meeting with experts. We’ve submitted our request in the meeting, which means we submitted our questions and as a consequence most of that work has already been done. We continue to liaise closely with experts in the US and Europe and we’re fine off thinking around the overall clinical program. As I mentioned, our objective is to be bold and make sure that our program fully illuminates the potential of this compound. So I think we’re pretty much done with all the work we need to do internally, but we continue to keep our eyes are ears close to the ground and take good ideas where we could get them.

[Unidentified Analyst:]

It’s a quick on expenses, can you guys give us sense of the expense outlook for the rest of the year?

[Kevin Lind:]

I think we’re not providing updated guidance around that, but our sense is we should be - continue to be in that range of 20 to 25 a quarter in burn excluding one-time items like litigation expense that sort of thing.

[Operator:]

And our next question comes from the line of Jessica Fye of JP Morgan. Your line is open.

[Unidentified Analyst:]

This is Ryan on for Jess, appreciate you taking our questions. Amit I’d just like to get your thoughts on how much you think that the UC data will be provide in terms of information about etrasimod in terms of the potential in other sort of indications. Once you get that data set will you be able to have a better understanding of the characterization of the asset or do we need to wait for data from some of the other indications before you can better build that characterization out?

[Amit Munshi:]

Ryan, that’s a great question. One of the ways we think about this category and we think about etrasimod specifically is, we got such high receptor selectivity we clearly understand the rapid on-time (inaudible). We have a good sense of where the product is better than the competitive products. The more important thing is these products as you know work on multiple immune cell types and the primary one being T lymphocytes. So we’ve seen in healthy volunteers ability to reduce T lymphocytes very rapidly also recover very rapidly, they are fast on time and off time. And we’ve seen that we can get to that high 60s and low 70s type of range that all the other products have in terms of steady state T lymphocytes reduction. So that translates well from our point of view in to senior clinical signals. So once we see that type of T lymphocytes reduction in patients, I think that’s from our vantage point we believe that’s a good read through to other indication there are T lymphocytes mediated. As I mentioned our very thorough and exhaustive analysis suggestions like broad market opportunity across dozens and dozens of potential indications that are primarily T lymphocytes mediated. Unlike, for example, the Jak inhibitors that have far more ubiquitous activity across all types of tissues in the body, here we’re focusing on not only just T lymphocytes reduction and being narrowly focused here really provides a much better read-through from the lead indication to a broader set of indications.

[Operator:]

And our next question comes from the line of Joel Beatty from Citi. Your line is open.

[Unidentified Analyst:]

This Shawn calling in for Joel, thanks for taking my question. I have two on the (inaudible) and one quick on (inaudible). First with the new EIM data now coming in combination with the UC, how did that change the trial design, any sort of indication. What are your estimates for patient number there and how did you find success in that EIM indication.

[Amit Munshi:]

On the EIM as you know we started looking at [DERM] EIMs in a separate study as we look at the blinded data so that we’ve got a number of patients we haven’t disclosed and won’t disclose the number of those patients. Our existing UC study which currently stands at 148 patients, and as I mentioned we may have a few more stragglers between now and November 9 in the study. And the idea here very simply is that there are enough patients in there where we combine the patients we already enrolled with the patients in the study that will get an initial read-through. And if you recall those an open-label look, and we were simply looking at dermal manifestation and things like psoriasis, spontaneous psoriasis, different kinds of erythema that occur in ulcerative colitis patients spontaneously and we’re looking at the clearance. So we’ll have that both qualitatively and quantitatively between both the studies. We’ll be able to pull that and you can expect that data read-out to be commensurate with the ulcerative colitis data readout.

[Unidentified Analyst:]

And then the second one on etrasimod, are there indications that the S1PR4 activity of etrasimod could have efficacy in to the other S1Ps of (inaudible)?

[Amit Munshi:]

In non-clinical studies we definitely see that to be true. In non-human studies I should say in multiple animal models, we believe the S1P4 access activity in dendritic cells migration and proliferation, and how that actually translates in to a clinical benefit is yet to be seen. It’s that P4 activity in dendritic cells that got consistent in the dermal manifestations. So we’ll see how that plays out when we see the EIM data from your first question. And we haven’t really spent enough time yet exploring the full implications, and we definitely think it’s a positive attribute, it’s just going to be a matter of time for us to be able to elucidate the clinical benefit. So give us a little bit of time on that. We are learning more about the compound every day, and we’ll know more out of the UC study and we’ll continue to press across those broad range of indications that are available to the S1P class.

[Unidentified Analyst:]

And my last question, following the just data released on the exploratory end point for ralinepag, what sort of work has to be done in that area prior to your phase 2 meeting with the FDA?

[Amit Munshi:]

Well as you know the process for FDA conversations use so many questions in the [instrumental] briefing package and as you said we submitted the questions and we are waiting for a date from the agency with some of the briefing package. Most of the work on the ralinepag side is done in terms of analysis of the data. It’s a matter of making sure that we’re really tight in terms of the endpoints, the study design etcetera, the statistics before we get to the agency. So, and as you know there’s lots of non-clinical issues too that need to be addressed. So we’ll be addressing a range of those overtime, and again the key near-term priorities to make sure that we get our clinical package or clinical program type and as soon as we get to the agency we will able to come back to you guys with some clarity there.

[Operator:]

And our next question comes from the line of Alan Carr from Needham & Company. Your line is open.

[Alan Carr:]

Regarding your interactions coming up with the FDA, perhaps the outcome from those discussions, wondering how you’re going to convey that to the street? After you got your feedback from them, are you going to immediately give a sense of what the program looks like or is it going to be a little while until you actually start the program that and we’ll get a sense of what is going to involve? And then another quick question around etrasimod including (inaudible) and some of these more specialized indications, I’m wondering as PDC and these other couple ones that you can get now, any (inaudible) should be starting some others in 2018?

[Amit Munshi:]

Let me start with etrasimod and then back to ralinepag. On the etrasimod, we fully anticipate to continually exporting etrasimod in the broad range of indications. As we’ve discussed before we’d love to try to keep them therapeutically clustered as we can. We can deliver these as an interesting point, as you all know that the liver tox profile for etrasimod looks favorable compared to the competitive products and there’s a range of potential liver conditions that are T-cell mediated that we think maybe potentially very exciting for us beyond PBC. So we’ll be spending time evaluating those and making sure we get some of the experts in the field understanding the biology, understanding potential clinical path and we’ll come back to you guys (inaudible) more about the broader plan for etrasimod. We’d love to do that, and around the time that we have the etrasimod phase 2 data on ulcerative colitis. So you have a complete picture of what the strategy for etrasimod is. So we’re planning about that and look forward to having a conversation. Coming back to your ralinepag question, I’m sorry can you repeat your ralinepag question, I want to make sure I got than right.

[Alan Carr:]

I am just wondering about how you’re going to convey the outcome meeting and that what those program is going to look like. Are you going to tell us whether it’s a near-term event here soon after you complete your discussions or is that something that’s going to take a little while to put together and then you will tell us as you’re sort of getting there as that gets your program running?

[Amit Munshi:]

I don’t have a date for the FDA interactions and I think once we get to the agency, we’ll tell you more, but I don’t think we delay much beyond having the FDA interaction. There is only a narrow set of potential options here, I am sure you guys have looked to the space long enough. When we talk about six minutes’ walk and broader exercise capacity, you’re talking about a range of potential outcomes type study. There’s only so many different ways to slice this. So we don’t think it’s going to be overly complicated. We just want to make sure we’re absolutely buttoned up before we come back to you guys. So I don’t anticipate a substantial delay from the time we have our interaction to the time we have our conversation with the street broadly.

[Operator:]

This concludes today’s Q&A session. I would now like to turn the call back over to Amit Munshi for closing remarks.

[Amit Munshi:]

Thanks everyone for joining us today and it looks a busy earning season, lots of competing priorities. Really, really appreciate you guys been on the call today. We look forward to updating on our progress as we continue. We’ve got exciting milestones ahead and will continue to focus on execution and making sure we deliver per patients and shareholders. So thanks everyone.

[Operator:]

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