Arena Pharmaceuticals, Inc.
Q3 2016 Earnings Call Transcript

Published: 7 Nov 2016

[Operator:]

Good day, everyone, and welcome to Arena Pharmaceuticals Third Quarter 2016 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. [Operator Instructions] I will now turn the call over to Kevin Lind, Chief Financial Officer. 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 2016. 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 will make forward-looking statements involving risks and uncertainties, including statements about our focus, plans, goals, strategy, expectations, clinical programs and timing of results regarding ongoing 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 & 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 enrollment for our ongoing Phase 2 trials as competitive challenging and may take longer than we project, regulatory decisions, related to drugs and drug candidates may not be as expected or sufficient for further development, regulatory approval or commercialization, collaborative activities and recruiting 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 today. So for today's agenda, I'd like to go through a couple of things as far as updates are concerned. I'll start with our pipeline, talk a little bit about our medical publication plans going forward, our collaborations and our overall transition to becoming a high-performing clinical department organization and then Kevin will go through a financial review of the third quarter 2016 and then we'll open it up to questions. So as far as the pipeline is concerned, it continues to be a very exciting time at Arena as we begin to execute on the schedule we laid out previously. As you'll recall, we are transitioning Arena from a high-performing -- high to a high-performing clinical development company as we focus our organization around the basket of products we have in development. In the past quarter we've continued to enroll patient in our Etrasimod and Ralinepag Phase 2 trials. As discussed previously, we expect data on Etrasimod by year-end 2017 and ralinepag by midyear 2017 and in terms of APD371, we are preparing for the initiation of the Phase 2 trial in pain associated with Crohn's disease, which we expect to start by early 2017. As previously discussed, we have a need to begin to build an active dialogue with patients, patient groups, physicians and the clinical investigation community as we begin to focus more heavily on our pipeline programs. We need to migrate the company from an inside-out organization to an outside in organization and to that end, during this quarter we began the publishing of our first abstracts on Etrasimod at the UEGW Meeting in Vienna in October. The data was then presented in a podium presentation by [Dr. Laron]. In addition we have four abstracts on Etrasimod at the upcoming Advances in Inflammatory Bowel Disease conference or AIBD Conference in December. Going forward we will continue to work diligently to get out important data on Etrasimod, Ralinepag and APD371 at major medical meetings globally. In terms of our partnership, Eisai recently launched BELVIQ XR, once-daily version of lorcaserin in the United States, which we manufacture at our Zofingen facility. Let me spend a few minutes just continue to talk about our transition as an organization. As we begin -- as we discussed on our last call, we're highly focused on clinical execution. We've made further advances in bringing a new leadership for our clinical teams, expanding our clinical operations organization globally and improving our clinical research organization interface. Additionally in the past quarter, Beacon Discovery was formed as an independent entity in order to reduce our cash burn of potentially unlocking the value of Arena's historical discovery platform and Kevin will talk a little more about that in just a few moments. So in summary we're continuing our progress toward building is called focused development stage company. Importantly, we remain on track for all of our major milestones and with that, I would like to turn the call over to Kevin for the financial review.

[Kevin Lind:]

Thanks Amit. Our detailed financial results are discussed in the press release. I will provide a brief review of our third quarter 2016 results. Revenues totaled $19.2 million including $3.3 million in net product sales of BELVIQ and $11 million in milestone payments earned from Eisai for the BELVIQ XR and Mexico approval. Research and development expenses totaled $17.5 million, G&A expenses totaled $8.6 million, restructuring charges totaled $0.2 million, net loss was $12.4 million or $0.05 per share. At September 30, 2016, cash and cash equivalents totaled $101.6 million and approximately 243 million shares of Arena common stock were outstanding. With regards to Beacon Discovery, since Beacon would not be able to support its activities without the Arena and Boehringer Ingelheim fee-for-service work, Beacon is considered a variable interest entity and as a result, we will be consolidating Beacon on our financial statements. However to be clear, Beacon is an independent entity and its expenses are Beacon's responsibilities, not Arena's. Arena is eligible to sharing Beacon's economics via a share of the revenues received by Beacon from new collaborations they form, a right of first refusal or negotiation on compounds once they reach a certain stage of development, a royalty on any sales they may generate and a percent of the consideration received that Beacon has ever sold. With that, I'll turn it back over to Amit.

[Amit Munshi:]

Thanks again, Kevin. In summary we remain focused on execution, our goals are to develop our proprietary pipeline in a time and cost conscious manner with a focus on delivering first or best-in-class compounds. We remain on track to initiate the Phase 2 study for APD371 in early 2017 and importantly, to announce data on Ralinepag midyear 2017 and Etrasimod by year-end 2017. We look forward to providing updates as the year proceeds. I will now turn the call over to the operator to begin Q&A session. Operator?

[Operator:]

Thank you. [Operator Instructions] And our first question comes from the line of Jessica Fye from JPMorgan. Your line is open.

[Nico Dil:]

Hi. This is Nico on the call for Jessica. Thank you for taking our questions. Regarding the APD334 program what are you looking for in a Phase 2 data readout moved program into pivotal trials and also would you talk a little bit about what are some of the potential key points of differentiation compared to other S1P1 modulators?

[Amit Munshi:]

Sure absolutely. So to reiterate the APD334 program is designed to focus on remission as a primary endpoint in the clinical program, percentage of patients in remission relative to placebo. We'll be exploring three arms in the trial, placebo of course of 1 milligram and 2 milligram. As far as point of differentiation for the molecule, the team here has been optimizing this molecule for quite some time and specifically optimizing the receptor pharmacology. We believe we've got a very clean molecule in terms of -- in terms of its construct relative to specific receptors. We have specific activity against S1P one, four and five and we avoid activity on S1P two and three which other products in the category may actually trigger and so as a consequence we have a receptor profile that’s highly optimized for the diseases we’re seeking to treat. We hope to see that these receptor pharmacology differences manifest themselves in safety and efficacy. In our clinical programs however that's going to be dependent on us getting the data as we move forward.

[Nico Dil:]

Thank you.

[Operator:]

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

[Nicole:]

Hi, this is Nicole dialing in for Alan. Thanks for taking my questions. In regards to the Beacon Discovery how many people are there and can you share any specific disease areas that are of interest and with the size of the budget and do all candidates go to Arena?

[Amit Munshi:]

So, I will turn that over to Kevin to answer the question on Beacon

[Kevin Lind:]

Sure. So there are approximately 15 employees at Beacon today. In terms of Beacon again they're going to run their business independently from us and so they were not highly focused on the number of employees they're going to hire or not. They’re going to grow their business how they want to grow their business. What was the second question?

[Nicole:]

And what's the size of the budget that's allocated to them and do all the candidates go to Arena or yes.

[Kevin Lind:]

Yes, so we are going to contract with them to do some early stage work on some of our current compounds. We haven’t disclosed that amount and in terms of the compounds that are eligible for the right to first refusal or right to first negotiation all compounds discovered by them go to Arena at when they reach a certain development stage. Interruption

[Amit Munshi:]

Yes, just to be clear we've set our option and some of them are right first refusal, some of them right first offer so it depends on the compounds and the product categories that the compounds fall into.

[Nicole:]

Okay. And also just piggybacking on the previous question, what constitutes success rate for each of the drugs for also APDs 371 for Crohn's disease? What do you expect to get that to move forward to the next clinical phase?

[Amit Munshi:]

Okay, so I think there were two parts to your question let me take the second part first APD 371 you were asking - correctly you are asking on what constitutes success or what's the next that to get into clinical is that correct?

[Nicole:]

Yes.

[Amit Munshi:]

Yes, so we’re just -- we're in the preparation of the clinical protocol, the investor brochure and making regulatory submissions. We’re spending a lot of time with external experts in the space both on Crohn's disease and specifically experts in the area of pain to understand how best to structure the trial and so that’s the work that’s ongoing now in its we mentioned previously we expect to be in clinic in the first part of 2017.

[Nicole:]

Okay, thank you so much.

[Amit Munshi:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Christopher James from FBR and Company. Your line is open.

[Christopher James:]

Hi, good afternoon guys so, just a point of clarification. I think you previously mentioned APD 371 is having no effect in the CNS does it actually cross the blood-brain barrier, because I know that there are cannabinoid receptors in the CNS.

[Amit Munshi:]

Hi, Chris this is Amit. Let me take this one. The 371 molecule does not have any activity against receptors in the brain to our knowledge and are the animal work has been done so far we've not seen a partition into the brain. It remains peripherally restricted and that's on purpose in terms of what we were trying to design on the molecule.

[Christopher James:]

Okay great. That’s helpful. And then on etrasimod you previously mentioned additional indications to expand into when could we hear more these potential indication extensions? Thanks.

[Amit Munshi:]

So, Christ what we’re working on now is spending time with external experts in IBD broadly and another potential indications and defining what are the things we can afford to do as a company our size and which ones are worthwhile in terms of the competitive landscape, unmet medical needs for patients. So, we’re going through this process and I think through the first part of next year, you'll be hearing us disclose some of these indications, but we definitely want to make sure we do our homework and build a program that has value to patients and shareholders.

[Christopher James:]

Great, thanks. That’s helpful. I’ll jump back in the queue.

[Amit Munshi:]

Thanks Chris.

[Christopher James:]

Thank you.

[Operator:]

Thank you. At this time I’m showing no question in the queue. I’ll like to turn the call back over to our Amit Munshi for closing remarks.

[Amit Munshi:]

Thanks everyone for joining us. It’s a busy time and this week is looking to be an extremely busy time for everyone as we glue to our TVs tomorrow. We look forward to updating you on our progress at Arena as we continue to execute and we’re excited about what the future holds for Arena. So look forward to talking soon and thanks again for joining us today. Take care.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a wonderful day.