Arena Pharmaceuticals, Inc.
Q1 2016 Earnings Call Transcript

Published: 9 May 2016

[Operator:]

Good day, everyone, and welcome to Arena Pharmaceuticals' First Quarter 2016 Financial Results and Corporate Update Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would now like to turn the call over to Arena's Senior Vice President of Operations and Head of Global Regulatory Affairs, Dr. Craig Audet. Dr. Audet, please go ahead.

[Craig Audet:]

Thank you, Denise. Good afternoon, everyone and thank you for joining us today. We hope you've had a chance to review the news release that we issued earlier this afternoon announcing our financial results for the first quarter of 2016. Joining me on today's call with prepared remarks are Harry Hixson, our Interim Chief Executive Officer, and Jennifer Bielasz, our Vice President of Finance and Accounting. Also participating on today's call is Dominic Behan, our Chief Scientific Officer, and Bill Shanahan, our Chief Medical Officer. During this call, we will make forward-looking statements involving risks and uncertainties, including about our and our collaborators focus, plans, goals, strategy, expectations, programs, R&D, regulatory activities, commercialization, financials, future activities and achievements and other statements that are not historical facts. Such statements may include the words, intend, will, may, believe, or similar words. You are cautioned not to place undue reliance on these forward looking statements, which represent our judgments and beliefs only as of the time they are made. For such statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. Risks and uncertainties that could cause actual results to differ materially from our forward-looking statements include those related to recruiting and maintaining key personnel, the amount, form and allocation of our available resources, the timing, results and cost of R&D; manufacturing, commercialization and the regulatory process and related decisions; data and other information related to drugs, drug candidates may not be as expected or sufficient for further development, regulatory approval or commercialization, patient enrolment for our ongoing Phase 2 trials is competitive and challenging and may take longer than we project, collaborative activities and other risks identified in today’s financial results news release and our SEC filings. I would now like to turn the call over to Harry.

[Harry Hixson:]

Good afternoon and welcome everyone. I am Harry Hixson, Arena's Interim Chief Executive Officer. On today's call, Jennifer will review our financials and then Craig will provide a status update on the activities we’re tracking for 2016. Before handing the call over to Jennifer, I would like to highlight our recent appoint of Amit Munshi as Arena’s new President, Chief Executive Officer and Interim Principal Financial Officer. Amit’s appoint is expected to be effective on May 11. Amit has more than 25 years of pharmaceutical and biotechnology experience, both in the United States and internationally, including executive management, business development, product development and portfolio management. He has served as Chief Executive Officer of Epirus Biopharmaceuticals and Percivia, Chief Business Officer at Kythera Biopharmaceuticals and has held management positions at Amgen, Astra Merck and Johnson & Johnson. The executive team and Board of Directors are delighted that Amit will be Arena’s new CEO and look forward to benefiting from this proven leadership and broad experience. It’s been a pleasure serving as Arena’s Interim CEO since last October. I believe that Arena’s clinical, pre-clinical and research programs offer the potential to significantly improve patient care, while increasing shareholder value. I look forward to returning to my original role as an outside Director of Arena and I am optimistic about what the future holds for our company and our shareholders. I will now hand the call over to Jennifer to review our first quarter financial results. Jennifer?

[Jennifer Bielasz:]

Thank you, Harry. I will focus my comments on financial performance highlights for the quarter ended March 31, 2016 compared to the quarter ended March 31, 2015. I also refer you to today’s financial results news release and quarterly report. For the following financial results, 2016 will refer to the three months ended March 31, 2016 and 2015 will refer to the three months ended March 31, 2015. For 2016, we recorded revenues of $9.8 million, compared to $12.3 million for 2015. 2016 revenues included $3.5 million from net product sales of BELVIQ, $3.1 million from the amortization of upfront payments, $2.2 million from reimbursements from our collaborators for FTE’s development and patent reimbursement expenses, and $1 million from toll manufacturing. Of the $3.5 million from net product sales of BELVIQ, $2.4 million represented 31.5% of Eisai’s US net product sales and $1.1 million were from net product sales from Ildong in South Korea. Eisai [Technical Difficulty] for total of $9.7 million in 2016. During the first quarter of 2016, Eisai shipped approximately 113,500 [ph] 60-count bottles to their wholesalers compared to approximately 153,000 in the first quarter of 2015. Ildong shipped approximately 28,000 60-count bottles BELVIQ to their wholesalers in the first quarter of 2016 compared to the equivalent of approximately 58,000 60-count bottles in the first quarter 2015. A large portion of Ildong’s Q1 2015 shipments to their wholesalers were primarily related to stocking for the initial launch. For the US, the gross to net discount was 70% in the first quarter of 2016 compared to 58% for the first quarter of 2015. The increase in the gross to net discount was primarily related to Eisai’s January 2015 launch of a new savings card program. Cost of product sales of BELVIQ totaled $2.4 million for 2016 and $3.2 million for 2015. Research and development expenses for 2016 decreased to $18.5 million from $22 million for 2015, primarily due to the fourth quarter 2015 reduction in workforce. General and administrative expenses decreased to $6.9 million for 2016 compared to $8.4 million for 2015, also primarily due to the fourth quarter 2015 reduction in workforce. Net loss was $21.5 million for 2016 or $0.09 per share on a fully diluted basis compared to a net loss of $24.3 million for 2015 or $0.10 per share fully diluted. At March 31, 2016, cash and cash equivalents totaled $139.5 million. Also at March 31, 2016, our payable to Eisai totaled approximately $13.6 million. At the end of Eisai’s fiscal year, March 31, the estimated price paid to us for product that Eisai sold to their distributors is compared to the Eisai product purchase price. And the different in this case is refunded back to Eisai for overpayment. We expect to pay Eisai approximately $9 million to $10 million of the $13.6 million balance in May 2016 and to pay the remaining balance in 2017. I will now turn the call over to Craig.

[Craig Audet:]

Thanks, Jennifer. I will begin by outlining the topline results we recently announced for the Phase 1b multiple-ascending dose clinical trial of APD371, our internally discovered potent agonist of the CB2 receptor with potential utility in the treatment of pain. Our scientists designed APD371 as highly selective, peripherally restricted, full agonist to provide pain relief without psychotropic effects, loss of efficacy overtime or the dependence of use potential or adverse event profile typically associated with other pain treatments. APD371 is differentiated from other compounds that are cannabis derivatives and that it is a new chemical entity. This study was designed to evaluate the safety, tolerability and pharmacokinetics of multiple-ascending doses of APD371. The result of this trial substantiate data from our prior single-ascending dose trial and that APD371 achieved dose responsive exposure without dose limiting adverse events across the range studied. Doses tested in the trial were 50, 100, 200 milligrams and drug levels absorbed in blood at all doses were well above those that we needed to stimulate the CB2 receptor. We are pleased with the Phase 1 program results and are in the process of evaluating several pain indications from potential Phase 2 development. As with all of our programs, decisions regarding further development will depend on available resources, our priorities in collaborative opportunities, so we believe this compound could represent a potential breakthrough for the treatment of pain. We are continuing enrolment in our Phase 2 trials for APD334, our S1P1 receptor modulator being studied for ulcerative colitis, and Ralinepag, our IP receptor agonist being studied for pulmonary arterial hypertension. We believe that both of these compounds have intrinsic pharmacological and/or pharmacokinetic properties that may distinguish them from the competition and we're looking forward to learning the clinical results in the second quarter of 2017. Regarding our collaborative programs, Axovant continues to expect top line results in the second half of 2016 for its first Phase 2 trial of Nelotanserin, Arena's internally discovered 5-HT2A inverse agonist. The Phase 2 study is being conducted in Lewy body dementia patients who experience frequent visual hallucinations. In addition, Axovant has initiated a second Phase 2 trial to evaluate Nelotanserin as a potential treatment REM behavior disorder in patients with dementia with Lewy Body. Axovant expects top line data from this second Phase 2 study in the first half of 2017. As a reminder, we are eligible to receive $101.5 million in development, regulatory and commercialization milestone and 15% of Axovant's net sales of Nelotanserin in exchange for supplying Axovant with finished goods. In regard to BELVIQ, the cardiovascular outcomes trial CAMELLIA has fully enrolled 12,000 patients and remains ongoing with top line results expected in 2018. When the trial is completed and the endpoints are met, it is expected that BELVIQ will be differentiated as the only available weight management drug with cardiovascular outcomes data. We continue to expect decisions on the pending regulatory applications in Mexico, Brazil and Israel this year and Taiwan early next year. The FDA’s review of our new drug application for the extended release formulation of lorcaserin which is planned to be marketed as BELVIQ XR has a Prescription Drug User Fee Act action date in the third quarter of 2016. The extended release formulation is designed to offer patients a chronic weight management treatment with simple, convenient, once daily dosing which along with diet and exercise may help maintain compliance with BELVIQ. In summary, our and our collaborators’ Phase 2 trials are designed to generate clinical data having the potential to demonstrate proof of concept and meaningful differentiation from the competition. BELVIQ XR and positive CVOT data will further distinguish BELVIQ from the competitors potentially leading to greater market uptake. We believe that each of these has significant market opportunity to address unmet medical needs and drive stockholder value. I'll now turn the call over to the operator for questions. Denise?

[Operator:]

[Operator Instructions] Your first question comes from Jessica Fye from JPMorgan. Your line is open.

[Jessica Fye:]

Hey, there, thanks for taking my question. I was just curious about any of your thoughts on the oral PAH market as we watch Uptravi launch and also whether or not that affects your ability to enroll your PAH study?

[Craig Audet:]

Hi, Jessica, it’s Craig. We actually see a quite an opportunity for Ralinepag as an oral based on the safety profile we've seen with the drug to date. We think that the smooth peak to trough ratios we have in terms of blood levels will differentiate Ralinepag significantly and potentially cause it to be used earlier in the treatment paradigm, so we see it, it’s a little bit of a different paradigm than the current products on the market. In terms of the enrollment, I think the – I don’t think that we have anything specific to an oral drug that's available commercially holding up recruitment for Ralinepag.

[Jessica Fye:]

Got it. And can you just remind us what in the trial design you did in ulcerative colitis could leave your sort of well positioned from a potential [indiscernible] profile?

[Craig Audet:]

Sure. Bill can answer that question please.

[Bill Shanahan:]

So we’ve designed this as a two part Phase 2 program. First we have an induction study in 12 weeks and then people who complete the induction phase has the opportunity to go into a 40 week extension phase and in that phase we re-randomize people who respond to it and then we will be able to assess the ability of the 334 to keep people in response or remission. So at the end we will have one-year of data, safety data based on induction and data on maintenance of response and remission.

[Jessica Fye:]

Okay. And finally, can you just remind me kind of where you are - I know you said enrolling well, but where you are specifically in terms of percent enrolled for these studies?

[Craig Audet:]

Jessica, we haven’t given that information out publicly.

[Jessica Fye:]

Okay, thank you.

[Craig Audet:]

We tend not to comment on ongoing trials.

[Jessica Fye:]

I thought I would try.

[Craig Audet:]

Okay.

[Operator:]

Your next question comes from Alan Carr from Needham. Your line is open.

[Nicole Germino:]

Hi, this is Nicole calling in for Alan. I have a couple of questions. First one, do you expect strategy to be revaluated once Amit Munshi joins the company?

[Harry Hixson:]

The answer I think simply is, yes although our understanding is that Amit wants to take some time to study the current status of Arena and programs and working with the board of directors he certainly will have the option to address or reevaluate our strategy.

[Nicole Germino:]

Okay, great. And going back to the APD371 what pain indications are appropriate and what are currently being considered and is it possible that Phase 2 development might be done in-house?

[Craig Audet:]

Nicole, we actually have not discussed specific pain indications other than to say that we are evaluating several different ones. We certainly want to find the one that we think is most appropriate to the CB2 receptor and in terms of the development we would plan, if we took it into Phase 2, we plan to do that unless there was some collaboration opportunity.

[Nicole Germino:]

Got it. And for the Boehringer collaboration, can you comment on maybe the goals and the timelines around this program?

[Bill Shanahan:]

The collaboration is around an undisclosed receptor as we previously announced but we can’t really speak any specifically to any timelines around this [indiscernible]

[Nicole Germino:]

All right, great. Thank you.

[Operator:]

Your next question comes from Jason Butler with JMP Securities. Your line is open. If your line is on mute, could you please un-mute your line? Your next question comes from Caroline Palomeque with WallachBeth Capital. Your line is open.

[Caroline Palomeque:]

Hi, I was just wondering if you could just give a little bit more – I don’t know if you have update for the PDUFA for next quarter actually for the NDA for BELVIQ XR. I actually haven’t seen, I was just wondering if you could be able to be more specific on the date and then my other quick question is just, I noticed that the BELVIQ prescriptions went down slightly this quarter over last quarter and I was wondering if you could just comment on that if you see that as just a function of the overall market or if there is something else that you are seeing some sort of trial? Thanks.

[Craig Audet:]

It’s Craig. We haven’t been any more specific than to say the third quarter of 2016 at this point and we still expect that PDUFA data to rip through. In terms of the prescriptions going down a little, that is true, but we’ve seen actually an overall market decline. So we think it’s proportional to the overall market decline.

[Caroline Palomeque:]

Okay, thank you.

[Operator:]

[Operator Instructions] Again, showing no further questions at this time, I would now like to turn the conference back to Dr. Audet.

[Craig Audet:]

So thank you, Denise. This concludes our first quarter 2016 financial results call. We’d like to thank you for joining us today and for your continue to support of Arena Pharmaceuticals.

[Operator:]

This concludes today’s conference call. You may now disconnect.