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Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN)

Piper Jaffray Healthcare Conference

December 4, 2013 12:00 p.m. ET

Executives

Milind Deshpande - President and CEO

Mary Kay Fenton - SVP & CFO

Analysts

Ed Tenthoff - Piper Jaffray

Ed Tenthoff - Piper Jaffray

Great, good afternoon everyone. Thanks for joining us for our next presenting company Achillion. My name is Ed Tenthoff, I’m a senior biotech analyst at Piper Jaffray. Before I begin, I am required to point out certain disclosures regarding the relationships between Piper Jaffray and Achillion which are located both at the back of the room and also at the registration desk.

So as you probably know, Achillion is developing drugs to treat hepatitis C. Some investors may think this is a waste of time now that Gilead has gained approval of Sofosbuvir. But we don’t think that the rest of big pharma has gotten that memo yet. Achillion faced a recent setback when the FDA refused to let the partial clinical hold on protease inhibitors of Sovaprevir which is previously known as Ach 1625. Frankly, this drug had shown in our view underwhelming efficacy in combination with the NS5A inhibitor and we will talk about that combination and about the company’s plans to develop phase II combination data in 2014. In particular I think people are excited about a preclinical nuke [ph] Ach-3422 which was the subject of posters representing down at the AASLD meeting last month in Washington DC.

Importantly these drugs do remain wholly owned providing Achillion not only with development, control and flexibility but also positioning the company either for future partnerships or as a potential take out. I am pleased to have to Milind Deshpande who is the president and CEO of Achillion, also Mary Kay Fenton who is senior vice president and CFO and Glenn Schulman who is director of IR and corporate communications. So I am going to jump right in here and start with some disappointing news that we got on Sovaprevir.

The FDA did not lift the hold. Remind us the details kind of around what led to that hold, and cynically I ask, why even bother get the drug off hold, still focus is going to be on other compounds going forward?

Milind Deshpande

Thanks, Ed. Appreciate the opportunity to be here. Before I answer the questions, I would like to point out that during the course of this discussion I will be making some forward looking statements. And there are certain risks and uncertainties associated with those statements and those risks are disclosed in our routine SEC filings.

So to answer your question regarding the clinical hold on Sovaprevir, the compound was based on clinical hold, when we noticed drug-drug interactions between Sovaprevir and Atazanavir level was boosted with ritonavir. So as we all know ritonavir is a potency peer for inhibitor and in that study we saw up to 50-fold increases in plasma concentration of Sovaprevir, when it goes dose in combination with Atazanavir and ritonavir.

Associated with these increases in plasma concentration, there were also increases in ALT which was reversible after we stopped dosing. And the main concern from the FDA’s point of view is that the exposures that we signed presence of ritonavir are above the mark, typically if there is a drug-drug interaction we tend to see 15, 20-fold increases. But in this case we saw about 50-fold increases, and so the question is aside from three or four inhibition are there any other contributing factors that could lead to these increased exposures of Sovaprevir. We are doing some additional experiments as well as analyzing all the data that we have in order to assess whether there are any other intrinsic or extrinsic factors that could lead to increased concentrations of Sovaprevir. That analysis is ongoing, we will submit the full analysis to the agency towards the end of first quarter of next year and hopefully resolve the clinical hold issues before the first half of next year.

Ed Tenthoff - Piper Jaffray

And the importance of doing that – really to build and maintain that relationship with the agency, is there a plan to continue to develop Sovaprevir or why is the focus on doing it, I mean do you think it’s a good time to do that --

Milind Deshpande

Couple of reasons. If you look at the overall clinical as well as non-clinical data we have for Sovaprevir, that compound has been dosed in over 560 subjects today. In the 12-week therapeutic trial that we did, the compound was well tolerated. In the last 12 week trial that we completed in combination with the NS5A inhibitor. The safety of the drug – both the drugs was fine and there was really no issues in the 12-week dosing duration that we saw with Sovaprevir and 3102. So, overall given the size of the data that we have for Sovaprevir for safety as well as efficacy, and we will do our best to work with the agency to address the concerns that they have. But their question is well taken especially given the fact that we have Ach 2684 which is a second protease inhibitor and which is right behind 1625 of Sovaprevir. So I approach to the clinical hold on Sovaprevir is that we will try to remove the clinical hold by mid next year. If we get a complete removal of clinical hold, then at that time we will have two options for protease inhibitors. We can either decide whether we want to plug Sovaprevir back into the development, our continued development with Ach 2684 in combination with other deals that we have.

Ed Tenthoff - Piper Jaffray

I want to add to that because in conjunction with the news that the FDA didn’t lift the clinical hold, you also reported that Sovaprevir plus NS5A inhibitor, ACH 3102, achieved an RVR rate of 79% and this is really not competitive with the threshold that’s been set by Gilead and even (inaudible) with their all oral regimens. Have you been able to kind of tease out the relative performance or the relative activity between these – this is really important in terms of [indiscernible] 3102.

Milind Deshpande

Absolutely. So again a great question Ed. The data is still – we don’t have the full clinical virology and to answer your question, I think we have to understand the clinical virology and the base – are the changes in mutations that occur on frequently. So before I go there, couple of things to note regarding that trials, both in genotype 1a and 1b, we see very rapid reduction in HCV RNA in the first two weeks. So our patients achieved with the combination. So when Sovaprevir and 3102 in presence of ribavirin are dosed in genotype 1a as well as 1b patients in the first two weeks all subjects achieved vRVR, that is all subjects go to less than 25 IUs per meal in the first two weeks of treatment. What this indicates to us is that the combination is both – and we see very rapid reduction in HCV RNA levels where most patients actually go to below undetectable levels in the first two weeks of treatment. After that, there is a difference in (inaudible) that emerges between genotype 1a and genotype 1b.

That [indiscernible] suppression seems to be maintained in genotype 1b so that there is no on-treatment viral rebound but in genotype 1a, we see our treatment viral rebound in some of the patients that we have looked at up to week 4. So the question is what is the reason for the viral relapse or viral rebound rather on-treatment that we are seeing in genotype 1a and so far we have data for four patients that did not achieve vRVR. The trend that we are seeing in all these patients is that in genotype 1a, the patients who did not achieve RVR have the R155K mutation in the NS-3 protease domain, and taking one step further into analyzing this mutation and if that is the resistance, R155K is what is called as a one-step mutation. There are some mutations where you need two changes in the cordon while the mutations to occur and those are considered high level resistance mutations or those are difficult to take place because you need two changes in the cordon. R155K, you need only one change in the cordon, that’s mutation is considered to be a mutation that occurs at a higher frequency because it has a low barrier. And so again it is hard to tease out 100%, but based on the data that we have so far it looks like the first mutation to appear is probably in the NS-3 protease domain which is R155K mutation.

Ed Tenthoff - Piper Jaffray

And the NS-3 being the protease, not the NS-5…

Milind Deshpande

That’s correct.

Ed Tenthoff - Piper Jaffray

Just to clarify that. So your current plans are to progress forward with your follow-on protease inhibitor as you mentioned ACH 2684, and I believe you have completed your phase I study of that and that is phase II ready. So tell us what you saw kind of the profile of this compound and maybe how it’s a little different than 1625?

Milind Deshpande

Based on all the information that we have so far the differences are in two areas. One is in virology, 2684 is about 10-fold more potent than Sovaprevir it is probably one of the most potent PIs that we have tested and we have compared the profile of 2684 to other protease inhibitors that are in development and it looks like it is a potent inhibitor. So that’s one thing to keep in mind. The second thing is the (inaudible) PK profile of Ach 2684 as compared to Sovaprevir. Sovaprevir is a substrate for the organic anionic transport of proteins that are involved in uptake of Sovaprevir delivered, 2684 is not a substrate for OATP, it gets into the liver just by passive diffusion. So, these are the two key differences that we have seen so far in the profile of these two compounds.

Question-and-Answer Session

Unidentified Analyst

I wanted just a follow on the 2684 [Question Inaudible]

Ed Tenthoff

The question is – does the follow on PI have activity against the mutant that caused – potentially has caused a breakthrough with Sovaprevir.

Milind Deshpande

From the in vitro assays what we see is that there is about a 10-fold shift in the EC50, for the R155K mutant. If you look at the EC50 the replicon assay for wild type it is about 0.2 nanomolar or 200 pico-molar and for the activity against R155K, the EC50 is about 2 nanomolar. So it remains to be seen in a clinical setting whether or not we can inhibit the R155K mutation.

Ed Tenthoff

Just to make sure that we understand that, so 2684 is more potent, but does that mean that Sovaprevir is better taken up into the liver, is that an appropriate statement or it’s just different?

Milind Deshpande

It’s different. The mechanisms of uptake are different.

Ed Tenthoff

Your current plans are to conduct the phase II combination study next year with 3102, and this follow on protease inhibitor 2684, walk us through the design of that trial and what’s your hope to learn from that study?

Milind Deshpande

The reason for conducting a combination study of 2684 and 3102 is multiple fold. We will generate 12-week data with 2684, I think which will be important aside from that if you look at the overall picture in terms of how the HCV treatment is rapidly changing, one of the things that is I think is very likely to occur in the 2016-2017 timeframe is the treatment duration for HCV is probably highly likely to be less than 12 weeks. We are looking at treatment duration of eight weeks based on all the conversations that we have had with our key advisors. All say that this, the difference between eight and 12 weeks is meaningful. And there was even some data at ASLD last month suggesting that even a six week treatment duration can be achieved with a combination of on [Nucleotide NS5A and NPI] are non-nuke. And so the reason to conduct the study between 2684 and 3102 is to generate the 12-week data for that combination, but we would also like to evaluate a triple combination with 3422 plus 3102 which is the NS5A with and without a PI, to explore shorter treatment durations. I think that’s where the field is going to be in the next couple of years.

Ed Tenthoff

Great. Then in Washington at the Liver Meeting you presented a poster that I mentioned that was very well received on your pre-clinical nuke ACH 3422, tell us about the findings that have come out of the preclinical work so far. And what remains to be done before filing an IND early next year?

Milind Deshpande

There are couple of comments on the chemical structure of ACH 3422, it is a uridine nucleotide prodrug, and it is important to note that because overall I think the safety of uridine nucleotides has been better as compared to (inaudible) nucleotides. In terms of the anti-viral activity we have benchmarked the compound against the sofosbuvir and all the replicon assays as well as the biochemical assays. The activity is at least as good as sofosbuvir in certain genotypes. It is about 5 to 7 times better than sofosbuvir and that data was presented at a surgery.– So in virology I think the compound looks quite potent. We have also determined the levels of triphosphate that has formed in different cell types as well as after oral dosing in non-clinical species and benchmarked those triphosphate levels to the formation of triphosphate that is observed with sofosbuvir and the levels are very comparable. So the conversion of the nucleotide prodrug to the triphosphate is very similar to sofosbuvir and the third thing that we have done and spent a lot of time is assessing the mitochondrial toxicity for ACH 3422 at an enzymatic level as well as at cellular level and we have done a number of assays with the appropriate controls and I think based on the information that we have, it looks like the potential for mitochondrial toxicity is fairly low.

Ed Tenthoff

And this is some of the concerns that (inaudible) compound and prior (inaudible) compounds that you run into, correct?

Milind Deshpande

Yes, so looking at the data that was presented for some of the other compounds, (inaudible)– those companies, the structures are known, we have used those compounds as “positive controls” in all assays and we see differences are potential reasons for the toxicities that were observed with those compounds in the mitrochondrial assays.

Ed Tenthoff

And as you have reported – no significant findings in 14-day safety study today preclinically, so what remains to be done prior to filing the IND?

Milind Deshpande

We are on the process of completing all the GLP studies which include 28-day dosing in two species which are in our case we have done the GLP studies in rats and dogs. All the in life portion of the GLP studies will be completed in the next few weeks. After that we will write up the reports and submit all the regulatory documents for initiation of phase I trial.

Ed Tenthoff

And I know that this is a tricky area and certainly more complicated than my background gives me confidence, but around the intellectual property – tell us sort of where you sit and how it’s differentiated versus some of the other IP that’s out there?

Milind Deshpande

Just a broad comment regarding the IP for our portfolio if you look at the applications, the patterns for Sovaprevir as well as 2684, the pattern for Sovaprevir has been granted. The pattern for 2684 is a divisional filing based on that, so it will be issued in due course of time. The pattern for 3102 was published last year and based on the chemical structure that we have seen I think we have a fairly clear runway, for ACH 3422 we have made modifications in the base as well as in the sugar part of the molecule and we have obtained two independent opinions from very well respected IP law firms for freedom to operate as well as composition of matter and we feel quite comfortable with it.

Ed Tenthoff

Excellent, that is helpful. So assuming it augur as well, how are you going to prioritize the kind of phase II combo studies to be starting late next year and when do you think with again assuming augur as well, when do you think you could actually reach some market?

Milind Deshpande

So for productization there are two approaches that we are taking. One is to start the combination of Ach 2684 and 3102 are generating the 12-week data and also I think it is important to generate that data in genotype 1b for shorter treatment durations without ribavirin. We can get into a separate discussion regarding why that is important but also that will help us set the stage to start the triple combination of the nucleoside with the intent of reducing the treatment duration while maintaining the higher CR rates in a broader HCV population which encompasses all genotypes.

Unidentified Analyst

[Question Inaudible]

Milind Deshpande

That’s correct. We have not made that decision and we will make that decision in the next few weeks. I think most likely we will end up doing that study ex-US, and the reason for that is we are looking at compressing the timelines, from first in man to start up a 12-week trial with ACH 3422. So it’s really the efficiency that we can build in moving rapidly between single ascending dose studies, multiple ascending dose studies, proof of concept and to a 12-week trial.

Unidentified Analyst

[Question Inaudible]

Milind Deshpande

No, that will be 2684 and 3102.

Mary Kay Fenton

And we will be running that steady -- in parallel with 3422 program?

Ed Tenthoff - Piper Jaffray

So back to my opening comments with the high hurdle that Gilead’s put up, how will you or frankly anyone for that matter look to compete with Gilead in the future?

Milind Deshpande

We have articulated our strategy in HCV as – we will continue development in HCV only if we meet the thresholds for SVR, which is 90% plus high safety and a treatment without ribavirin which is less than 12 weeks. If we meet those thresholds then we will continue to invest in hepatitis C. So let’s assume that was – one of the questions that you had asked earlier is what is the launch timeframe, and if you look at the preliminary map that we have for completing phase II and phase III trials, we are looking at completing the phase III trials with the triple combination towards the mid of 2017.

It is at that timeframe where I think you will see treatment regimens with shorter treatment duration and one other things that we have spent a lot of time in the last six to eight months is trying to understand on the commercial side how the HCV landscape is going to shake up. On the scientific side, we know the hurdles for SVR, safety and treatment duration. From the payers perspective, they are looking for cost effectiveness for HCV treatment without compromising on SVR safety and treatment duration. And so looking at everything that is going on in HCV and if I have to look at my crystal ball I think there are probably going to be four or five players in this field with very similar product profiles and product entries in the 2016-2017 timeframe with the three categories that I mentioned. And I think there is going to be a competition in terms of cost effectiveness and that’s where you will see companies gaining market share.

Ed Tenthoff - Piper Jaffray

Fortunately, Achillion is in a very strong financial position with $173 million, I believe as of the third quarter. So how long will this take you?

Mary Kay Fenton

You are bringing out a great point, Ed. And our balance sheet is strong as it’s ever been and fortunately that provides us a lot of optionality for developing the portfolio as Milind outlined. So under the current plan wherein we are developing doublet to eventually enter a triplet, we have cash for the better part of two years. So we are fine through 2016.

Ed Tenthoff - Piper Jaffray

Well thank you with that. I think we are right at end of our allotted time. So thank you for all joining this event.

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