Eloxx Pharmaceuticals, Inc.
Q2 2018 Earnings Call Transcript

Published: 12 Aug 2018

[Operator:]

Good afternoon, everyone, and welcome to Eloxx Pharmaceuticals Second Quarter 2018 Earnings Webcast and Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to Ms. Barbara Ryan, Eloxx’s Investor Relations Officer. Please begin.

[Barbara Ryan:]

Thank you, Sara, and welcome and thank you to joining us – those of you joining us this afternoon for a review of Eloxx Pharmaceuticals’ Second Quarter 2018 Financial Results and Business Update. Joining me this afternoon are Robert Ward, Chairman and Chief Executive Officer of Eloxx Pharmaceuticals; Dr. Greg Williams, our Chief Operating Officer; David Snow, our Chief Business Officer; Neil Belloff, our General Counsel; Greg Weaver, CFO; and Matthew Goddeeris, Senior Principal Scientist. Before we begin, I’d like to remind you that any statements made during this call that are not historical are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the Risk Factors section in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and our other reports filed with the SEC. Any forward-looking statements represent our views as of today, August 7, 2018, only. A replay of this call will be available on the company’s website, www.eloxxpharma.com. And you can also find the dial-in information for the replay in today’s press release, as well as on the company’s website. I would now like to turn the call over to Robert Ward, Chairman and CEO of Eloxx Pharmaceuticals.

[Robert Ward:]

Thank you, Barbara, and welcome to Eloxx Second Quarter 2018 Earnings Webcast and Conference Call. We’re pleased to report that we continued to make substantial progress in growing our company and advancing our lead investigational compound, ELX-02, in both cystic fibrosis and cystinosis. We accelerated the submission of our clinical trials application for ELX-02 for cystic fibrosis to the Federal Agency for Medicines and Health Products in Belgium, and I’m pleased to report our CTA has received final approval. Our Phase 2 protocol has been reviewed and given a high priority ranking by the European Cystic Fibrosis Society Clinical Trial Network, and we plan to initiate a Phase 2 clinical trial in cystic fibrosis patients with the G542X CFTR mutation, which is the second most common mutation globally and accounts for roughly 4% of the cystic fibrosis population. In addition, here in the U.S., our investigational new drug application for ELX-02 for Phase 2 in cystinosis is now open. I’m also pleased to share that we achieved an additional important milestone in advancing these clinical programs with the successful manufacture of a lyophilized dosage form of ELX-02, which is convenient for patients and physicians that can be stored at room temperature. This is a significant milestone towards development of a final commercial drug product. We’ve just received notification from the North American Cystic Fibrosis Society that our abstract titled, Measuring Messenger RNA Levels in Cystic Fibrosis Organoids with Nonsense Mutations Following Treatment with ELX-02, has been accepted for presentation on Thursday, October 18th at the Annual Cystic Fibrosis Meeting in Denver, Colorado. We ended the second quarter with $63.4 million in cash and cash equivalents, and are well funded to advance our clinical programs through delivery of top line data in cystic fibrosis and cystinosis. Since our successful capital raised in April, which resulted in net proceeds of $53.6 million, I’m pleased that we are attracting a growing team of seasoned and accomplished industry leaders at this critical time in the acceleration of our company. These leaders have demonstrated success in developing and commercializing global blockbuster brands, strong relationships with drug regulators, and in building high performance cultures. I’m hopeful you saw the announcement that Dr. Greg Williams recently joined us as Chief Operating Officer. Dr. Williams has a long-tenured career leading clinical and regulatory teams responsible for the development and approval of many leading brands in multiple indications across a variety of both large and small biopharmaceutical companies, including the Medicines Company, NPS, and most recently Radius Health. Additionally, I’m very pleased that David Snow has joined Eloxx as Chief Business Officer. He brings over 25 years of experience in the pharmaceutical industry developing global brands, leading large commercial organizations across major markets, driving transformational growth, and delivering on high profile business development objectives. Neil Belloff recently joined Eloxx as well as our General Counsel from Celgene Corporation. And he has more 30 years of legal and business experience. In addition to his corporate governance and compliance expertise, Neil was also an Executive Vice President at Deutsche Telekom and served as a Senior Attorney Advisor at the SEC in Washington. Also joining us on the call today is Dr. Matt Goddeeris, distinguished cell biologist and rare disease expert, who’s currently serving as a Senior Scientist at Eloxx. I’m very pleased to announce that Dr. Thomas Haverty, a distinguished Senior Clinical Executive with an extensive track record of successful drug and new indication development, has agreed to serve as our Senior Medical Advisor. Tom’s deep expertise will be a major contribution to the advance of our clinical programs. The addition of these talented and highly experienced executives to our team gives me great confidence that we can accomplish our mission of bringing safe and effective medicines to patients who need them as rapidly as possible, and to do that on time and on budget. You should expect that we’ll continue to add key talent as part of our commitment to delivering on our clinical and corporate milestones. I’d now like to ask David Snow, our Chief Business Officer, to overview how the orphan drug markets continue to represent one of the most exciting segments of our industry today. David?

[David Snow:]

Thank you, Bob. I’m very excited to be joining Eloxx and see tremendous opportunity for ELX-02 in cystic fibrosis and cystinosis patients with limited treatment options. I’m also looking forward to progressing the Eloxx library of novel compounds which have the potential to be disease modifying in a large number of orphan diseases associated with nonsense mutations. As you know, orphan disease research and therapies have expanded significantly, and the category is expected to achieve over 20% of worldwide branded pharmaceutical sales by the end of the decade. This mean orphan drug growth should exceed 10% over the next five years, year over year, and continue to substantially outpace the overall pharma category growth rate. The respiratory subcategory will continue to be a major growth factor in rare diseases as well. The orphan category is attractive for companies like Eloxx because of the high unmet needs, strong networks of engaged researchers and advocates, and modest commercialization and launch requirements. I’d like to briefly mention a few points about the cystic fibrosis category. First, cystic fibrosis continues to be one of the most common of the rare diseases, affecting over 70,000 people globally. As you know, recent advances with disease-modifying therapies in the form of potentiators and potentiator/corrector combinations are transforming cystic fibrosis treatment and patient expectations. Of the pre-approved DMTs, you can see that on Slide 6 the uptake of these therapies occurs more rapidly as physicians become more experienced with mutation-based labeling and patient genetic screening becomes more common. It’s encouraging that since the advent of DMTs, cystic fibrosis patients are now living longer with over half of patients today living over – being over 18years of age. However, this also requires continued effort to develop additional treatments for many of the less frequent mutations that have no current approved treatment options. In the pie chart on Slide 7, you can see a simplified breakdown of the most common of mutation types. While the available DMTs provide treatment options for many CF patients, there remains a substantial unmet need group with nonsense mutations on one or both alleles that represent about 10% to 13% of all patients. Remember that these nonsense mutation patients fall into a Class 1 category, often among the most severe phenotypes, and there are no approved therapies for nonsense mutation patients today. On the smaller pie chart on the right, nonsense mutation patients are represented most often with four mutations. Collectively, they represent over 70% of all nonsense patients. G542X alone represents about 5% of the total cystic fibrosis patient population, which is about the same size of the G51D mutation population Vertex studied for its initial approval of Kalydeco. So in summary, Eloxx remains focused on understanding and developing clinical and preclinical data on these key nonsense mutation types as we move ELX-02 development forward. I’ll now turn the call back over to Bob.

[Robert Ward:]

Thanks, David. I’d like to now ask Matt to discuss the highlights from the data we’ve generated for ELX-02 in cystic fibrosis patient-derived organoids and how we’re applying this data to inform the design of our clinical trials.

[Matt Goddeeris:]

Thank you, Bob I’m happy to be here. For those of you that attended the European Cystic Fibrosis Society Conference in Belgrade, Serbia, you’ll recall that Eloxx presented data with ELX-02 in cystic fibrosis patient-derived organoids. I’d like to summarize our observation of ELX-02’s ability to achieve functional restoration of the defective CFTR channel in patient- derived organoids. As you can see in the picture, the patient-derived intestinal stem cells adapt a three-dimensional structure called an organoid. Unlike healthy organoids, cystic fibrosis patient organoids adopt a deflated ball appearance that can be induced to inflate when functional CFTR protein is restored, for example, when the drug is added in the right photo. The HUB has reported that this forskolin-induced swelling response, or FIS, has high correlation to FEV1 measures found in clinical studies. In our first example from a CF patient bearing 2 G542X nonsense mutations, or a homozygous organoid, you will see the FIS response to ELX-02 alone. These data demonstrate that functional CFTR protein has been produced in this organoid we believe due to the read-through of the nonsense mutation due to ELX-02. While potentiators and correctors alone have no effect on this patient organoid, and added FIS response is observed when they are combined with ELX-02 Similarly, in complex heterozygous patient organoids with only one nonsense mutation, we observed that ELX-02 alone, and in combination with potentiator and corrector, demonstrates robust activity. In this instance, the organoid has a G542X mutation combined with a Class 2 R1066C missense mutation. Consistent with ELX-02 mechanism of action, other common nonsense mutations are found to be responsive to ELX-02 treatment. For example, the R1162X nonsense mutation, a complex heterozygous organoid with an F508 deletion, is responsive to ELX-02, while potentiator and correctors have either a modest or no response at all. In our last example of a complex heterozygous organoid, there is a positive FIS response with potentiators and correctors in combination. In this genotype, adding ELX-02 in combination with potentiator and corrector provided an additive effect in CFTR function. We believe this is due to engaging the CFTR gene copy that harbors the nonsense G542X mutation, providing more CFTR protein for the potentiators to act on. We believe the robust FIS response observed in organoid cultures with ELX-02 is consistent with our clinical focus on patients with G542X nonsense mutations. Additionally, we believe our program is the only clinical program focusing on this patient type. Finally, I’d like to share an important control and a final data slide. ELX-02’s mechanism of action requires an organoid to have at least one nonsense mutation. This organoid has two F508 deletions, and we find that ELX-02 does not induce organoid swelling as we anticipated. These data support our belief that ELX-02 will demonstrate activity when a patient has one or more nonsense mutations. Thank you. I’ll now turn it back over to Bob.

[Robert Ward:]

Thank you, Matt. I’d now like to ask Dr. Williams to provide an update on how we’ve integrated the learnings from the organoids into our two clinical programs for ELX-02 in cystic fibrosis and cystinosis.

[Greg Williams:]

Thank you, Bob. I’m very pleased to have joined Eloxx at this important and exciting time, and I’m impressed with the potential opportunities for ELX-02. To update you on our Phase 1 studies, we expect that the results of our Phase 1 SAD study will be published in a manuscript later this year. And I’m also pleased to let you know that today, we completed dosing the 4th cohort of the MAD study and are preparing to start our 5th and final cohort. In cystic fibrosis, our CTA has been approved, and we are now engaging with investigators to modify our clinical protocol based on their feedback in order to ensure rapid execution of our Phase 2 trial. We will be evaluating changes in sweat chloride at multiple ascending doses of ELX-02, which is consistent with other successful Phase 2 programs for approved drugs as the traditional biomarker measuring transporter activity. We confirmed that we plan to have our first patient visit later this year and reach top line clinical results in 2019. Our planned Phase 2 clinical trial in cystic fibrosis will enroll patients with the most prevalent nonsense CFTR mutation, G542X nonsense mutation on at least one allele. The trial protocol calls for multiple increasing doses in order to identify an optimal dose to carry to further development, and the study will be posted on clintrials.gov. As David mentioned earlier, there is a high unmet medical need in this patient population. In cystinosis, our IND in the U.S. is now open, and we are very pleased to have alignment with the FDA on a focused Phase 2 clinical trial enrolling six cystinosis patients. As part of their assessment, the FDA reviewed all available Phase 1 safety data, and the FDA has also granted ELX-02 orphan drug status for cystinosis. In this study, we will be measuring the dose dependent effect of ELX-02 on 15 levels in white blood cells; the biomarker used in the development of the two most recently approved drugs for cystinosis. 15 levels in white blood cells inform on the total cysteine burden in the body, and a decrease in these levels may be considered a surrogate marker likely to predict clinical benefit. As you know, cystinosis is a genetic metabolic disease typically diagnosed by the age of two. The disease is progressive with low life expectancy, and most patients will have a kidney transplant by the age of 20. In cystinosis, data has previously been reported at the WORLDSymposium by Dr. Paul Goodyer, which shows that ELX-02 decreases the cysteine content in cellular and animal models. In summary, we plan to report top line results of ELX-02 on sweat chloride in cystic fibrosis patients and on white blood cell levels of cysteine in cystinosis patients in 2019. We will also be presenting additional new data on ELX-02 in cystic fibrosis at the North American Cystic Fibrosis Meeting on October 18th in Denver, Colorado. As Bob previously mentioned, we’ll be using the lyophilized drug dosage form we are now manufacturing in these clinical trials, which is convenient for both patients and physicians and an important accomplishment on the path to a final commercial product. Regarding our pipeline, we are on track for advancing a second novel development candidate. Of the 170 compounds in our library, we have completed screening of read-through activity on 30 and will advance one to IND-enabling studies this year. With these compounds, Eloxx holds global rights and has an extensive patent portfolio with long life on composition of matter and use. I look forward to keeping you apprised of our continued progress this year and next as we complete the MAD study and report top line results from our two Phase 2 studies for ELX-02 in cystic fibrosis and cystinosis. I’d now like to turn the call back over to Bob.

[Robert Ward:]

Thank you, Greg. I’d like to now ask Greg Weaver, our Chief Financial Officer, to provide you with an update on a review of our financial results for the second quarter and for the first six months of 2018

[Greg Weaver:]

Thank you, Bob. For the three months ended June 30, 2018, the company reported a loss of $13.4 million, or $0.42, per share as compared to $3.9 million for the three-month period ended June 30, 2017 or a $1.04 per share. This operating loss included $6.2 million of non-cash expense related to stock-based compensation. Our use of cash related to operating activities in the second quarter of 2018 was $8.5 million. And for the six months ended June 30, 2018, the company reported a loss of $22 million, or $0.74, per share as compared to $6.6 million for the three3-months period ended June 30, 2017, or $1.77 per share. This operating loss included $6.9 million of non-cash expense related to stock-based compensation. Our use of cash related to operating activities in the first six months of 2018 was $14.2 million. Our R&D expenses were $4.2 million for the three-months ended June 30, 2018, as compared to $2.6 million for the three-month period ended June 30, 2017, an increase of $1.6 million. Our R&D expenses were $8.5 million for the six-months ended June 30, 2018, compared to $5 million for the six-months ended June 30, 2017, which is an increase of $3.5 million. These increases in R&D expense were due to increased clinical development costs and related fees and salaries. Our general and administrative approximately $9.6 million for the three-months ended June 30, 2018, as compared to approximately $0.6 million for the three-months ended June 30, 2017, which is an increase of approximately $9 million. The increase in G&A expenses was primarily related to an increase in non-cash stock compensation expense of $5.9 million, along with increases in headcount-related salaries, other personnel-related costs and professional service fees. Our G&A expenses were $13 million for the six months ended June 30, 2018, compared to $0.9 million for the six-month period ended June 30, 2017, which is an increase of $12.1 million. The increase was again primarily related to an increase in our non-cash stock compensation expense, headcount-related salaries, other personnel-related costs and professional service fees. We expect that our R&D costs will increase in 2018 to support clinical activities for ELX-02 in cystic fibrosis and in cystinosis. We also expect that our G&A expenses will increase as we build our organization and capabilities and add additional headcount. The current headcount stands at 22 FTEs. As of June 30, 2018, we had cash and cash equivalents totaling $63.4 million. As Bob mentioned, in April we announced a successful oversubscribed underwritten public offering of common stock, raising net proceeds of $53.6 million and were uplisted to the NASDAQ Global Market. We have no debt, and we expect that our current cash will be sufficient to fund our operations to 2020 and to top line data for the 2 Phase 2 trials for our lead investigational product, ELX-02, in cystic fibrosis and cystinosis. We expect that our R&D costs will increase in 2018 to support clinical activities for ELX-02 in these same indications, CF and cystinosis. For your modeling purposes, our total shares outstanding as of June 30, 2018, was 34.9 million shares. In summary, we’re well funded to 2020 and to top line data readouts for our 2 Phase 2 studies for ELX-02 in cystic fibrosis and cystinosis, which we plan to initiate this year. I’ll now turn the call back over to Bob.

[Robert Ward:]

Thank you, Greg. These are exciting and busy times at Eloxx. To accomplish our goals on time and on budget, we’re rapidly expanding our seasoned executive leadership team and expertise upgrade across the organization. We’re pleased that our CTA in cystic fibrosis has been approved and that our IND in the U.S. for cystinosis is now open. As Greg mentioned, we expect to initiate Phase 2 trials in these indications by the end of this year and report top line data in 2019. We remain very encouraged by the substantial activity observed in both the homozygous and the heterozygous cystic fibrosis organoids after introduction of ELX-02. These data were reported at the European Cystic Fibrosis Society Meeting in June, and we believe these are potentially predictive of clinical response and has led to the high level of enthusiasm in the scientific and clinical community. We plan to report additional data on October 18th at the North American Cystic Fibrosis Meeting in Denver. Tomorrow, we’ll be making a webcast presentation and hosting one-on-one meetings at the 38th Annual Canaccord Genuity Growth Conference here in Boston. In September, we’ll be participating in Citi’s Biotech Conference, the Oppenheimer Fall Summit focused on specialty pharma and rare diseases, and both the ISI and the Piper Jaffray healthcare conferences. We look forward to engaging with you at those conferences. Thank you for joining us on our second quarter earnings call. We look forward to continuing to update you on our progress. And Sara, can we now open up the call for questions?

[Operator:]

[Operator Instructions]

[Robert Ward:]

Why don’t we go ahead to Ted’s question.

[Operator:]

Your first question comes from the line of Ted Tenthoff. Please go ahead.

[Robert Ward:]

Hello, Ted.

[Operator:]

Ted Tenthoff, your line is open.

[Robert Ward:]

Well, if there are no further questions at this time, operator, I’ll go ahead and make closing remarks. Clearly, it’s a remarkable time for Eloxx with the opening of our IND and CTA and our preparation for progression to Phase 2. The company is in solid funding to carry forward our plans, and with our ability to grow – attract talent and continue to grow our pipeline, we’re very pleased about the future. Thank you very much for participating on our second quarter earning call. We’ll look forward to engaging with you again next quarter. That would conclude our call for today.

[Operator:]

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may now disconnect.