Arena Pharmaceuticals, Inc.
Q2 2015 Earnings Call Transcript

Published: 6 Aug 2015

[Operator:]

Good day, everyone and welcome to Arena Pharmaceuticals’ Second Quarter 2015 Financial Results and Corporate Update Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Arena’s Senior Vice President of Operations and Head of Global Regulatory Affairs, Mr. Craig Audet. Mr. Audet, please go ahead.

[Craig Audet:]

Good afternoon and thank you for joining us today. We hope you've had a chance to review our financial results news release we distributed earlier today for our second quarter of 2015. Joining me on today’s call with prepared remarks are Jack Lief, our President and Chief Executive Officer and Jennifer Bielasz, our Vice President of Accounting and Controller. Also participating in 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 about our goals, plans, expectations and future activities and events, including statements about BELVIQ and our drug candidates, including efficacy, safety, R&D, regulatory applications, and collaborations; commercialization of BELVIQ, including marketing, reimbursement and prescriptions, financial results, condition and guidance, and other statements that are not historical facts. Such statements may include the words plan, expect, believe, may, will, can 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 the timing, results and cost of R&D, manufacturing and commercialization and the regulatory process and decisions; data and other information related to drugs and drug candidates may not be as expected, favorable, or sufficient for further development, regulatory approval or commercialization; collaborations; and other risks identified in today’s financial results news release, as well as our SEC filings. I will now turn the call over to Jack.

[Jack Lief:]

Good afternoon and welcome. Arena was founded with a vision that our GPCR focused in technologies could create new therapies for unmet medical needs. Our research and development is delivering on that vision. In addition to discovering and developing and achieving regulatory approval for BELVIQ, which is an accomplishment that eludes most biotechnology companies, Arena has a robust pipeline of drug candidates at various stages of development. Let me point out that I don't believe our current market valuation reflects the potential of our pipeline for BELVIQ and we are committed to improving it by executing on two important activities. First, advancing our pipeline through valuation inflexion points; and second, supporting our collaborators efforts to increase patient access and use of BELVIQ including by working to obtain regulatory approval of BELVIQ in additional territories. I will begin today's call by elaborating on the recently announced initiation of our Phase 2 proof of concept study for APD334 in ulcerative colitis. After this, Craig will provide an update on other candidates in our clinical stage pipeline and on BELVIQ and Jennifer will review our financials. APD334 is a potent and selective orally available investigational drug candidate that targets the S1P1 receptor. These receptors are involved in the modulation of several biological responses, including isolating lymphocytes and lymph nodes where they're unavailable to effect tissue damage. Our Phase 1 multiple ascending dose trial showed mean decreases from baseline in circulating lymphocyte count up to 69%. Based on this mechanism of action, we believe APD334 has therapeutic potential in a variety of autoimmune diseases, including ulcerative colitis. UC is a chronic autoimmune disease, where the innermost lining of the large intestine becomes inflamed and ulcerated. The important goals of pharmacotherapy for ulcerative colitis are to induce and maintain remission, while improving the patient’s quality of life. Currently available treatment options have limitations in terms of long-term efficacy and side effects, have complicated administration regimens and also fail to induce or maintain remission. Therefore, a significant unmet need remains for differentiating agents that are efficacious for induction and maintenance therapy with a favorable side effect profile. Based on our clinical results so far, we believe APD334 could be such a drug. Our current Phase 2 trial is a multinational 12-week, three arm, double blind placebo controlled study that is planned to enroll approximately 240 patients at about 120 sites in 19 countries. The study will include male and female patients ages 18 to 80 years old with moderate to severe ulcerative colitis as defined by a three component male clinic score. It will assess the safety and efficacy of one and two milligram non-titrated doses of APD334 compared to placebo. The primary endpoint of this trial is clinical remission as assessed by the mayo component sub-scores at week 12. Continuation in a separate 40-week extension study will be offered to patients who complete the 12-week study, the primary endpoint of which is to evaluate long-term safety and tolerability. The secondary endpoint of this portion of the study is to evaluate the effect of APD334 on achieving and maintaining clinical response and/or remission over the course of one year. The timing of the 12-week portion of the trial will depend on patient accrual rates as well as other factors, but our current estimate is that we will complete enrollment mid-2016 with top-line data available around the end of that year. Physicians that we talked with are enthusiastic about S1P1 therapy for the treatment of UC, and note that APD334 could address significant unmet needs, given its [indiscernible] administration and emerging clinical profile. The global prevalence of UC is estimated to be approximately 1.5 million patients, which includes an estimated 700,000 to 900,000 people in the United States. In dollar terms, the global market in 2014 totaled approximately $3.6 billion. Our key opinion leaders indicate that S1P1 therapies may be used in a significant proportion of moderate to severe UC patients. They believe that the UC market has room for multiple oral competitors and view APD334 as having the potential to be either first to market or a competitive fast follower to Ozanimod. Based on its impressive lymphocyte lowering, we believe that APD334 could lend itself to additional autoimmune indications, which would contribute additional value over the patent life of the drug, which is currently projected to be 2035. In summary, we believe that the selectivity, mechanism of action and current clinical profile of APD334 represents a significant opportunity to provide patients with an effective treatment for UC, with an improved safety and dosing profile over current therapies. I’ll now turn the call over to Craig. Craig?

[Craig Audet:]

Thanks Jack, and good afternoon everyone. I would like to provide a brief update on some of our programs as well as some upcoming milestones. Further to our initiation of the Phase 2 proof-of-concept trial for APD334 that Jack discussed, we continue to enroll patients on our Phase 2 trial of ralinepag, our oral prostacyclin receptor agonist being studied for the treatment of pulmonary arterial hypertension. Prostacyclin receptor agonists, as monotherapy or in combination with other drug classes are a standard of care for advance disease and currently the most effective route of delivery is by continuous infusion. We believe that ralinepag’s unique PK profile and 25-hour half-life offer the potential to more closely mimic IV infusion with oral dosing, resulting in smaller peak to trough excursions in blood levels and improved receptor coverage. This can provide enhanced efficacy for ralinepag as compared to other orally administrative prostacyclin receptor agonists, leading to earlier and more extensive use in the treatment paradigm. In addition, we are preparing for a start later this year of our multiple ascending dose study of APD371, our highly selective and potent cannabinoid 2 receptor agonist in development for the treatment for pain. Our Phase 1 single ascending dose study showed excellent tolerability, where we dosed up to 400 milligrams with no adverse events that limited escalation. Food [ph] drug levels and blood at the higher doses greatly exceeded the concentrations needed to activate the CB2 receptor in vitro. On the BELVIQ front, IMS Health estimates that more than 183,000 prescriptions for BELVIQ were filled in U.S. in the second quarter of 2015, representing growth in total prescriptions of approximately 66% compared to the same quarter of last year and 8.6% compared to the previous quarter. In South Korea, Ildong estimates that approximately 1.8 million tablets were prescribed in the second quarter, which equates to more than 29,000 one-month prescriptions. The new drug application for our once daily extended release formulation of lorcaserin, which is planned to be marketed under the brand name BELVIQ XR is progressing nicely. We plan to submit it to the FDA later this year. Regarding co-administration of the lorcaserin with phentermine, we and Eisai are evaluating FDA feedback that we just received this week on potential further development to determine our course of action. For smoking cessation, we have expanded our market research effort to gain additional insight into the U.S. prescription market which we expect will be completed in the fourth quarter. Based on this, we have revised our timing estimate and do not expect to begin additional studies this year. On the BELVIQ registration front, we and Eisai met with the previous repertoire for BELVIQ in the European Union to discuss resubmitting the European marketing application. The next step in this process will be to meet with co-repertoire which is being planned for later this year. We also continue to support Eisai's efforts with health authorities in Mexico and Brazil as they seek to obtain marketing approval in these countries. The same is true of our support for CY Biotech and Teva in Taiwan and Israel respectively. In summary, this quarter was focused on work to advance our clinical pipeline of novel oral agents towards proof of concept which we believe can add significant value. In addition, we continue to evaluate life cycle management approaches for new formulations and indications for BELVIQ and to work towards marketing approval in new countries which we also believe will add value. I would now like to hand the call over to Jennifer who will review our financials.

[Jennifer Bielasz:]

Thank you, Craig. I will focus my comments on financial performance highlights for the quarter ended June 30, 2015 compared to the quarter ended June 30, 2014. I also refer you to today's financial results news release. For the second quarter 2015, we recorded revenues of $9.2 million, compared to $12.8 million for the second quarter 2014. Second quarter 2015 revenues include a $4.3 million from net product sales of BELVIQ, $1.2 million in reimbursements from Eisai primarily for clinical trial supply for the ongoing CBOT study and development work for the once daily formulation, and 2.1 million from amortization of upfront payments. Of the $4.2 million from that product sales of BELVIQ, $3.8 million from our share of Eisai’s U.S. net product sales, $0.4 million is from our share of Ildong's net product sales in South Korea and $0.1 million relates to redemptions of vouchers in the U.S. Consistent with prior periods, we recognized net product sales in the U.S. and South Korea when Eisai and Ildong shipped product to their wholesales. Eisai's net sales were $12.1 million and Ildong's net sales were $0.8 million for a total of $12.9 million in the second quarter 2015. During the second quarter of 2015, Eisai shipped approximately 128,000 60-count bottles of BELVIQ and Ildong shipped the equivalent of approximately 10,000 60-count bottles of BELVIQ to wholesalers. For the U.S. the gross to net discount was 53%, which reflects [indiscernible] more than $75 savings card program implemented by Eisai I January 2015. Cost to product sales of BELVIQ totaled $1.3 million for the second quarter 2015 and $1.5 million for the same quarter of last year. Due to smaller batch sizes for Ildong, as well as capacity of our manufacturing facility, we expect continued volatility in cost of product sales until production volume stabilizes. Research and development expenses for second quarter of 2015 decreased to $24.2 million from $27 million for the second quarter of 2014. R&D expenses for last quarter included $2.2 million in non-cash shared based compensation expense compared to $1.7 million for the same quarter of last year. General and administrative expenses decreased slightly to $8.8 million for the second 2015 compared to $9.1 million for same quarter of last year. G&A expenses for the last quarter included $1.9 million in non-cash share-based compensation expense, compared to $1.6 million for the second quarter of 2014. Net loss was $26.8 million for 2015, or $0.11 per share on a fully dilutive basis compared to net income of $7.9 million for the second quarter of 2014 or $0.03 per share fully diluted. The $7.9 million net income in the second quarter of 2014 included a onetime gain $33.3 million related to our sales of shares we held in Titan Biotechnology Company Ltd. At June 30, 2015, cash and cash equivalent totaled $217 million. We previously reported that we expected full year 2015 research and development expenses of approximately $114 million to $122 million, including approximately $13 million in non-cash expenses and $6 million in development expenses reimbursed by Eisai with such reimbursed expenses included in revenue. We are updating our guidance for 2015 R&D expenses to be approximately $103 million to $111 million, including approximately $13 million in non-cash expenses and $1.4 million in development expenses reimburse by Eisai with such reimburse expenses included in revenue. The decrease in our guidance relates to refinement of our forecast for our ongoing development program. All other guidance previously given remains unchanged. We will now open the call for questions. Operator?

[Operator:]

[Operator Instructions] Our first question comes from the line of Ted Tenthoff with Piper Jaffray. Your line is now open.

[Ted Tenthoff:]

My question has to do with 334, and specifically with receiving such a heterogeneous patient population, what kind of kind of enrollment criteria are you going to include to make sure that you're getting the right patients in the study, whether that would be earlier stage patients or maybe less refractory patients? Maybe you can just walk us through that?

[Bill Shanahan:]

So we’re recruiting patients with the matter to severe ulcerative colitis using the three component mayo score, which the FDA has approved for us. We are limiting patients -- the need to -- they can’t be on amino salicylates [ph] and corticosteroids. They cannot currently be on biologics or -- and then we are also trying to get people who are little bit earlier, but not too early trying to reflect the present population. [indiscernible] two biologic failures for example. We’re not taking highly refractory patients. They are a representative population.

[Operator:]

Our next question comes from the line of Alan Carr with Needham & Company. Your line is now open.

[Alan Carr:]

Can you elaborate on your -- I guess the process that you're going through here in deciding what to do for smoking with BELVIQ? You mentioned you're doing a market analysis, but what are you looking for there and where are you in discussions with the FDA about that? And then can you give us an update on 791 and the plans there and timeline? And then also I guess a bigger picture here, can you give us an update on your strategy here or do you plan to dose your own commercial organization with these – the number of drugs that are starting to move through your pipeline. Thanks.

[Jack Lief:]

So we and Eisai continue to assess BELVIQ for smoking cessation by conducting thorough analysis of the current opportunities and projected market opportunities as you can imagine. It's not just about the efficacy of the drug, but do we need a weight loss component in this? What are the current therapeutic options? Where are these options going to, and is this the best use of our focus right now? And we’ll see. We’re still in that process and we’ll let you know as we have more information about that. Regarding the 791 for pain, what was your question again Alan?

[Alan Carr:]

I was looking for an update, actually with 791. That’s Temanogrel. I was wondering where that and with all the data that one?

[Jack Lief:]

So Temanogrel is being studied in South Korea by our partner Ildong. It's a challenging study as we said earlier and they are looking at high risk patients who are undergoing cardiovascular reperfusion procedures and they’re looking at outcomes such as troponin levels and other things like that. Before they get deeply into that, obviously they want to make sure that the drug is safe and so we expect that they are going to be in the dosing of patients' mode sometime next year.

[Alan Carr:]

And then actually I wanted to follow up a bit on the smoking. So the gating event here is the near valuation in the market, but any discussions with the FDA in terms of what they would want for a regulatory trial there or are you just putting off a meeting with the FDA until after you finish this market analysis?

[Jack Lief:]

Yes, we want to figure out what we want to do first because as you can imagine, the FDA wants to see what your plans are and then they’ll give you thumbs up or thumbs down on those things or make some suggestions on that. Regarding strategy, we are talking with a number of potential big pharma partners continuously on not just any one product, but most of our products and clearly we're committed to improving the value, the overall stockholder value for Arena, and partnering its potentially one way of doing that. But we're open to a variety of possibilities and we’ll report as is appropriate. As you can imagine we don't talk about ongoing discussions.

[Operator:]

Our next question comes from the line of Simos Simeonidis with RBC Capital Markets. Your line is now open.

[Simos Simeonidis:]

On the phentermine BELVIQ combination, did you have a separate meeting specifically for that development program? And I know you receive the minutes, but at least can you tell us whether this is looking -- whether the feedback was positive about a potential combination strategy there?

[Jack Lief:]

Well, we did receive some information just now, but we can’t comment on ongoing discussions with FDA as has been our practice. So we will as is appropriate.

[Simos Simeonidis:]

Okay but there was a separate specific meeting for -- just for the phentermine BELVIQ combination?

[Jack Lief:]

Yes, we presented our -- some plans. They gave us a preliminary feedback and now we're going to be evaluating that with Eisai. But we have not had a chance to talk with Eisai about that.

[Simos Simeonidis:]

Okay and then on the smoking cessation, it looks like the plans for the next step have been pushed out while you're completing your assessment, and the latest you have set is that there is no study this year. Is it possible that you might not pursue this indication when we go into next year?

[Jack Lief:]

Well, there is a lot of possibilities Simos, but -- so I want to speculate on any of these. I think we just to get through the process. As you've heard, we have a lot of programs that are ongoing right now and we're focused on generating stockholder value with those programs. So I think BELVIQ is one of them. I think BELVIQ has a lot of good features to it. We believe it’s a product that addresses a real patient need, that there are significant [indiscernible] I believe, there is significant potential for this product and obviously reimbursement is important. There is treat and reduce obesity act. Eisai has a sale force of 320 sales reps. There is an ongoing cardiovascular outcome study that I think could be significant in the future. Opportunities here, I think Craig pointed out QD formulation and potential approval next year. And there is a lot of new territories that are begin evaluated. We are very successful in South Korea and that's doing well but see, it’s still yet to come. Hopefully we'll hear from Mexico, Brazil, Israel, Taiwan. There is an EU filing coming up at the end of the March based on what Eisai has communicated, and keep in mind that there was an 8% increase in scripts over the first quarter.

[Simos Simeonidis:]

Okay great and final question, again on BELVIQ; can you us what is the type of discounting that’s currently offered of the gross to net.

[Jennifer Bielasz:]

So in this past quarter, our gross to net discount was 53%. It was a little bit better than Q1. And I think that is due to seeing our new payment [ph] of $75-dollar savings program come onboard at the beginning of the year and see our voucher redemptions slightly decrease over that time period as well.

[Operator:]

Our next question comes from the line of Jessica Fye with JPMorgan. Your line is now open.

[Unidentified Analyst:]

Hi this is Uko [ph] on the call for Jessica. Could you provide a timeline on the recently initiated APD334 study? And also can you give progress on the DTC marketing for BELVIQ and how long you expect to continue the program? Thank you.

[Jack Lief:]

So I think as we said, the timeline -- the study just started and we expect to be fully enrolled around the middle of the next year. We expect a readout around the end of next year. Obviously all of this depends upon patient accruals and so we’ll be able to tell a better idea as next year progresses. So that’s the current timeline for 334. What was the next part of your question? DTC? For Eisai? So Eisai is spending dollars -- significant amounts of money on promotion. Craig, do you have any color on that?

[Craig Audet:]

They plan to continue the current DTC advertising for the foreseeable future.

[Operator:]

Our next question comes from the line of Bob Ai with Wallach Beth Capital. Your line is now open.

[Bob Ai:]

Can you two -- I know you don't want to talk about your communication with FDA regarding the phentermine combination, but can you tell us what's next? It's a more meeting, following up meeting with the FDA or you’re going to discuss this with Eisai and decide what to do?

[Craig Audet:]

For the combination part, this is Craig -- we literally just received the feedback from the agency. So we have not had a chance to discuss it with Eisai. So that is the next step. We need to look at -- we proposed a specific development plan. We need to see what the FDA thought of that development plan, what suggestions they have to potentially modify it, have the discussion with Eisai and then decide how to move forward from there. But remember Bob, one of the things that -- I know I sound like a broken record, I am sorry -- one of the things that we said with combination is that it really matters on how onerous the requirements are going to be for a combination study. If we have to do a BELVIQ like, and as I always say, I'm making the air quotes -- a BELVIQ like study with 8,000 patients and 20,000 echos and a CVOT [ph], that’s going to be pretty onerous. So we have to seriously reflect on whether we want to go forward with something like that.

[Operator:]

I’m showing no further questions on the phone lines at this time. I’d like to turn the call back to Mr. Craig Audet for closing remarks.

[Craig Audet:]

So this concludes our second quarter 2015 financial results call. We’d like to thank you for joining us today and for your continued support of Arena. Thank you very much.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. And you may now disconnect. Everyone have a great day.