Regulus Therapeutics Inc.
Q1 2017 Earnings Call Transcript

Published: 7 May 2017

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Regulus Therapeutics First Quarter 2017 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Allison Wey, Vice President of Investor Relations and Corporate Communication.

[Allison Wey:]

Thank you. Good afternoon, everyone, and thank you for joining us today to discuss Regulus's first quarter 2017 financial results and corporate restructuring also announced today. We are joined by Dr. Paul Grint, Jay Hagan, Dr. Tim Wright and Dan Chevallard. Paul will take a moment for an introductory remark, Jay will provide additional comments around today's announcement, Tim will share progress on the pipeline programs, and then Dan will review the financial results before we open the lines for questions. Before we begin, I'd like to remind you that this call will contain certain forward-looking statements concerning Regulus's future expectations, plans, prospects, corporate strategy and performance, which constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our filings with the SEC. In addition, any forward-looking statements represent our views only as of the date of this webcast and call and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update such statement. I will now turn the call over to Paul.

[Paul Grint:]

Thank you, Allison. As we said on our fourth quarter call in March, 2017 is a year focused on operational execution, delivering on the portfolio and key milestones. In the first quarter, following the announcement of continuation of the RG-101 clinical hold, we took a very close look at our portfolio and prioritized our most promising programs and stopped earlier-stage development in areas that were more exploratory in nature in order to extend our cash runway through potential significant milestones in 2018. As a result of this review, we have today announced and are currently implementing a corporate restructuring to streamline our operations. As part of this restructuring, I have made the decision to resign as President, CEO and the Director of Regulus. When I joined Regulus almost 3 years ago, I was excited by the size of microRNAs. Today, as I leave the company, and based on our experience gained over the past 3 years, I still believe in the potential to generate important medicines by targeting microRNAs. I wish Jay and the entire Regulus team every success for the future and look forward to watching the scientific and clinical success of the portfolio and the company. Jay?

[Jay Hagan:]

Thank you, Paul. With the decision we made last quarter to trim the breadth of and spend on our earlier-stage portfolio in order to concentrate our cash resources on our most promising programs comes the most difficult decision that - which impacts our colleagues at Regulus. Today, we announced that we are reducing the workforce by approximately 30% across all functions to better align the organization to fit our adjusted strategy of balancing internal activities with an increased use of external resources to support our current programs. Our aim is to better utilize our resources through reorganizing and streamlining our processes, which, we believe, is in the best interest of our stakeholders, including the shareholders. We have a strong team in place at Regulus, including our newly appointed Chief Financial Officer, Dan Chevallard, who has been with the company in roles of increasing responsibility over the last 5 years leading finance, IT, accounting and facilities. Dan will address the first quarter results as well as the financial impact of the restructuring later in the call. Let me reinforce that the overall strategy of the company has not changed. Our therapeutic strategy is to target disregulated microRNAs implicated in diseases of high unmet medical need. We are focused on diseases where we know we can effectively and preferentially reach the target tissue, namely, liver and kidney. We believe that our growing portfolio of programs in these areas represent attractive opportunities to further develop and expand our portfolio given the synergies from our understanding of tissue-targeting approaches for microRNA therapeutics. Now I will turn the call to Tim, who will provide an update on the RG-012 clinical program as well as other programs. Tim?

[Tim Wright:]

Thanks, Jay. Amidst this recent news, I will provide an update on continued progress across our portfolio. Let's begin with our lead program, RG-012, for Alport syndrome. We recently completed dosing RG-012 in the Phase I multiple-ascending dose study in healthy subjects. Preliminary data from the MAD study indicated that RG-012 was well tolerated with no serious adverse events reported in any subject. The plasma pharmacokinetics profile of RG-012 was in line with expectations with a dose-dependent increase in plasma exposure seen across the 3 dose groups. Based on the data generated to date in the program, we have chosen the dose and dosing regimen to move forward into both the Phase II HERA study and the renal biopsy study, which are both on track to commence by midyear. Just to remind you, we modified the RG-012 clinical development program to accelerate patient enrollment and potentially achieve proof of mechanism later this year. The HERA study is a randomized, double-blind, placebo-controlled study to evaluate the safety and efficacy of RG-012 in Alport syndrome patients with rapid renal function decline. The study is 48 weeks in duration with an interim assessment at 24 weeks. Now by removing the biopsy requirements, together with a single dose and single subcutaneous injection every other week, the revised HERA design has improved statistical power, is more operationally streamlined and will be a more patient-friendly study. The separate Phase I renal biopsy study that we plan to run in parallel with the Phase II HERA will evaluate RG-012 renal tissue pharmacokinetics, target engagement and downstream effects on genomic disease biomarkers. Data from the ATHENA Natural History Study conducted while the Phase I work was being completed, has provided important insights for the design of the RG-012 interventional studies. Namely, the longitudinal data have enabled us to define a population of patients who are experiencing a more rapid decline in kidney function, which should improve our ability to detect the signal of RG-012's potential therapeutic effect. It has also enabled us to build relationships with key investigators, who have helped design the separate renal biopsy study in order to more rapidly enroll eligible subjects and gather more quickly data on biomarkers of disease activity and target engagement. We plan to submit the final protocols to the FDA shortly. European submissions will follow soon thereafter. Based on the projected enrollment rate, data from the renal biopsy study is expected in Q4 2017, and interim data from the HERA study is expected in mid-2018. IND-enabling activities are ongoing for RGLS5040 for cholestatic diseases and RGLS4326 for ADPKD. Assuming acceptable outcome of our nonclinical pharmacology and ongoing toxicology studies as part of the IND package, we anticipate filing INDs for both of these programs before year-end. Before I turn the call back to Jay for financial review, I would like to mention a recent key addition to our management team. Dr. Mark Deeg joined us 4 weeks ago as our Vice President of Translational Medicine. Mark received his M.D. and PhD in pharmacology at the University of Minnesota. His residency - after his residency in internal medicine at the University Hospitals of Cleveland and a postdoc in structural biochemistry at Case Western Reserve University, Mark completed subspecialty training in endocrinology at the University of Washington. He served on the faculty at Indiana University for 11 years conducting translational research before joining Eli Lilly. During his tenures Lilly, Mark held multiple roles, the most recent being the Chief Medical Officer of The Chorus Group, an autonomous early drug development division focused on innovative approaches to drive rapid and efficient proof-of-concept decisions. We are delighted to have Mark join our leadership team to advance our approaches to streamline search and development and to rapidly drive our programs forward to key milestones. Dan will now take you through the financials. Dan?

[Dan Chevallard:]

Thanks, Tim. Before turning to our first quarter financial results, I want to expand on Jay's earlier comment of how we think about our portfolio and the corresponding deployment of capital. We've outlined our process to allocate resources to our most promising programs. In some cases, this resulted in delaying or stopping certain early-stage discovery efforts that were more exploratory in nature. Having ended the first quarter with $57.5 million in cash and cash equivalents, our first quarter cash burn of approximately $18.5 million was in line with our plan and included approximately $6 million in certain nonrecurring cash outflows, most notably the non-GMP and GMP manufacturing campaigns to support our 2 new clinical candidates. As a result of the corporate restructuring we announced today, we estimate that we will record charges of approximately $2 million for employee severance and other termination-related benefits and approximately $3 million in onetime noncash stock-based compensation charges. Severance payments are expected to be paid in full by the end of the second quarter of 2017. Looking to the second half of the year, we expect our quarterly cash burn to significantly decrease, further providing us runway through important plan milestones over the coming quarters and into mid-2018. Moving now to our operating expenses. Our first quarter 2017 R&D expenses were $15.8 million, down from $16.8 million for the first quarter of 2016. This decrease was primarily driven by our planned reduction in clinical spend on the RG-101 program due to the FDA clinical hold, partially offset by an increase in other R&D costs, driven primarily by IND-enabling costs for our 2 new clinical candidates, including the manufacturing activities I previously mentioned. G&A expenses were $4 million for the quarter compared to $5.1 million in the first quarter of 2016. This decrease was primarily driven by a reduction in noncash stock-based compensation. Finally, our net loss per share, both basic and diluted, decreased to $0.38 per share in the first quarter of 2017, down from $0.40 per share in the first quarter of 2016. With that, I'll turn the call back over to Jay.

[Jay Hagan:]

Thanks, Dan, Before we open the line for questions, I want to personally thank Paul for his leadership and contributions to Regulus over the last several years. I feel privileged to lead Regulus, and I'm particularly excited about the maturing pipeline. The team at Regulus remains squarely focused on the advancement of the overall portfolio and expect to have many key catalysts on the horizon. Operator, please open the line for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Matthew Luchini from BMO Capital.

[Matthew Luchini:]

I guess, first, I just wanted to get a point of clarification as it relates to the changes in cash burn and expenses. And that's the new runway or the existing runway we expect to - cash now to last through mid '18. Is that correct?

[Jay Hagan:]

Yes. Matthew, we are not changing our guidance. That was our guidance before, mid-2018. The steps we took today only marginally increased that runway, so we're not indicating a significant increase in runway from the moves.

[Matthew Luchini:]

Okay. And then as we think about HERA, could you comment a little bit more on the dose selection and the criteria? What was actually selecting criteria used to inform that decision?

[Jay Hagan:]

Sure. I'll let Tim answer that question.

[Tim Wright:]

Thanks, Jay. Well, suffice it to say that it was a complex analysis of a lot of data that we have accumulated over time, and that includes both PK data across species as well as some new data that we generated in the last several months while we were performing our multiple-ascending dose that gave us confidence to be able to alter the dosing frequency to every other week. And so basically, we took a fresh look at the data set in-hand and for several reasons, believe we were on the inflection point in terms of efficacy and where - we chose the dose where we feel very confident about the efficacy and the safety of that dose going forward.

[Operator:]

Your next question comes from the line of Alan Carr from Needham.

[Alan Carr:]

A couple. I wanted to clarify which programs are still going to be active. Is it just narrowed down to 012 and then 5040 and 4326 with some waiting on 101? Are those the only 4 internal programs that are going to be continued? Or is there going to be some - or is there some other programs behind that? And I guess a bigger picture, concerning the change in management here. How should we interpret, Paul, your departure today?

[Jay Hagan:]

Yes, sure. Alan, the company, I think we've talked about in the past, historically had a pretty broad exploratory footprint. And as we face the clinical hold and the need to conserve resources, we took a very careful look at where we were spending money. The programs that we're talking about and focusing our resources are not ones that have been broadly disclosed. So it's more just putting a tighter set of scrutiny on the rationale for pursuing certain targets before we spend significant capital on them. And that's why today's announcement, while reducing our employee-related costs, we're not indicating any cost savings from additional program terminations.

[Alan Carr:]

So there's still - in essence, there's still some work going on for some potential candidates out of the - okay, got you.

[Jay Hagan:]

Yes. Yes, definitely. We still have an active and discovery effort ongoing. It's just the dollars that we put towards that as well as with the addition of folks like Mark that Tim mentioned really focus on trying to identify the killer early experiments before we expand significant resources in later preclinical work. I don't know, Tim, if you want to add anything to that.

[Tim Wright:]

Yes. I think just to assure you that we're going to continue our exploratory work with a focus on the organs that we know we can deliver to. And so right now, we are focusing on that target validation efforts and identifying and prospectively analyzing targets that we feel will be quite valuable and have a high probability of making it to clinical candidates.

[Operator:]

Your next question comes from the line of Madhu Kumar from Chardan.

[Madhu Kumar:]

I'm just trying to think about for RG-012. What is the [indiscernible] data from the Natural History Study? And how has that kind of informed the strategy on the Phase II HERA trial?

[Jay Hagan:]

Yes. I'll let Tim take that.

[Tim Wright:]

Sure. Well, we continue to analyze the data from ATHENA. What I can tell you is that it's been very informative in terms of giving us a sense of a rapidly progressing group that progresses. And we're not revealing the actual rate of progression. But suffice it to say, it's multiples of the overall group progression. And with that information, we can now identify not only retrospectively patients who've been part of ATHENA who qualify for the proof-of-concept HERA study, but also prospectively identify subjects who are in the process of rapid renal decline. So with the data we have now in-hand, this allows us to set a set of criteria for it that will enable us to rapidly recruit the HERA study. And I might say, we already have double-digit eligible individuals that are part of ATHENA, whereas they still need to consent to be part of HERA. But we have identified that order of subjects, who have potential for rapidly joining the study when we open it around midyear.

[Madhu Kumar:]

Okay, great. So then following on from that, when will we get visibility on new data from ATHENA, things that will inform kind of this rapid progression group?

[Tim Wright:]

So ATHENA remains an ongoing study in terms of recruitment. We're planning on continuing the recruitment at least for several months while we initiate HERA, and we're still now just deciding exactly when we will close the recruitment down on that study. A lot of it will have to make that decision based on the recruitment time lines in HERA. But suffice it to say that we're engaging the investigators there, very anxious to close the study sometime in the not-too-distant future, but we're not disclosing when, at which time we will wrap up the data and publish it.

[Operator:]

[Operator Instructions] Your next question comes from the line of Jim Birchenough from Wells Fargo Securities.

[Yanan Zhu:]

This is Yanan Zhu in for Jim. So first question, perhaps trying to have a little more color on the cash runway because I think you have HERA, and the biopsy study is coming online in the second half. Are those - are the costs for those studies being - mainly being offset by the reduction in preclinical spending? Or how should we think about that?

[Jay Hagan:]

Yes, no, thanks. That's a good question. We have not changed our guidance, as Dan had mentioned in his prepared remarks. The first quarter cash burn was in line with our plan, which includes initiation of HERA and the biopsy study here midyear, with enrollment assumptions that we've outlined would have us having data on the biopsy study by the end of the year and the HERA study fully enrolled by the end of the year, enabling interim analysis in mid-2018. So all of those factors are included in our cash burn guidance. The steps we've taken today, we mentioned that after severance charges, will result in approximately $6 million reduction in overall employee-related costs, and that will hit in 2018. And as you can see, we're burning around $50-ish million a year. That's why we didn't indicate that this is a material increase in our runway.

[Yanan Zhu:]

Got it. That's helpful. Then a quick question on HERA, the size of HERA. I think HERA was designed as a 30-patient, 3-arm study. You mentioned that you have now chosen a single dose. Does that mean the size of the study has been reduced to 20 patients?

[Tim Wright:]

No. Our current plan, and we haven't finalized the exact sample size as yet, but - because we're in the midst of a statistical consultants review based on additional ATHENA data, which enables us to then model the outcome even more precisely. But our current proposal and current plan is actually to maintain the 30 subjects total but divide them 15 per arm. So this will give us greater power to see a clinically meaningful effect, and we're also considering augmenting that based on some of the ongoing statistical analysis. But suffice it to say, we want to give this program the best chance for success. And if that means augmenting the sample size slightly because of additional ATHENA data that's coming in now, we will do so. Jay, do you want to comment on that?

[Jay Hagan:]

Yes, no, I just wanted to add that we work very closely with our partner here in the design and launch of this Phase II program, and we feel that the time that's been afforded with the completion of this multi-ascending dose we've used very valuably in changing key elements of the program now that lead to better statistics, as Tim alluded to, based on now just down to a 2-arm study, one active and one placebo, better enrollment by removing the embedded substudy of a renal biopsy population within the HERA study. And then because we pulled that out and are doing it separately, we can now get data earlier in the program. Now we'll have data by the end of the year regarding target engagement and proof of mechanism. So all 3 things, I think, strengthen the program here for us as we embark on this Phase II effort.

[Yanan Zhu:]

That's very helpful. And for the biopsy study, as you mentioned, it was isolated because of enrollment - potential enrollment issue if it's included in the larger HERA study. But I'm just wondering, is there any strategies being implemented to ensure the enrollment for the biopsy study to go smoothly because this is going to be an important data readout and it's come relatively early?

[Jay Hagan:]

Sure. Well, in fact, the biopsy study including criteria will be similar to HERA, although there will be some slight differences. And because of those differences, we actually believe that the biopsy study will enroll pretty quickly. We've actually engaged some investigators, who routinely do renal biopsies on patients with Alport syndrome, and they're very optimistic about a rapid recruitment rate. And some of these subjects are already identified in our HERA population - in our ATHENA population rather. And because of a variety of different inclusion/exclusion criteria, they most likely will not be immediately eligible to participate in HERA. So this is an opportunity for them to participate in an interventional study because there will be the opportunity for an open-label extension after the renal biopsy. So we're planning a 48-week open-label extension after the renal biopsy treatment phase is completed.

[Operator:]

I'm showing no further questions at this time. I would like to now turn the call back over to Mr. Jay Hagan.

[Jay Hagan:]

Yes. Thanks very much for your continued support of Regulus. We look forward to providing updates on our program in the future. Thank you.

[Operator:]

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