Arena Pharmaceuticals' (ARNA) CEO Amit Munshi Presents at 28th Annual Piper Jaffray Healthcare Conference (Transcript)

| About: Arena Pharmaceuticals, (ARNA)

Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)

28th Annual Piper Jaffray Healthcare Conference Call

November 29, 2016 1:30 pm ET

Executives

Amit Munshi - President and CEO

Analysts

Ted Tenthoff - Piper Jaffray

Ted Tenthoff

Please come in and join us for our next presenting company. My name is Ted Tenthoff and I'm a senior biotech analyst at Piper Jaffray. Before I begin, I'm required to point out certain disclosures regarding the relationship between Piper Jaffray and Arena that are posted at the back of the room and also at the registration desk.

For many of you sitting in the audience, this next presentation will be a pleasant surprise. This is probably not the Arena that you remember. The Company is going through a turnaround. The new management team has slashed the workforce, incubated the GPCR discovery capabilities in the newco Beacon, and is focusing the Company's resources on its clinical stage assets. We'll wait to hear more about the future plans for obesity drug, BELVIQ, which is partnered with Japanese pharmaceutical company, Eisai.

I'm pleased to have the new CEO, Amit Munshi, here. Amit, thanks so much for joining us. I really appreciate it. So especially you may be new to some of the people in the audience, so I thought maybe you could tell us a little bit about your background and what attracted you to Arena?

Amit Munshi

San Diego, [indiscernible]. I've been in pharma biotech for about 26 years, first half of my career in big pharma companies, largely running business units and line management functions, including the immunology inflammation business at Amgen and then running nephrology for Amgen in Europe. The second half of my career has been in smaller companies and building companies from scratch. We were just having a conversation on - I built a couple of companies starting with three people [indiscernible]. So coming into Arena is a slightly different endeavor given the historical background of the Company.

What got me excited here is, if I was to describe the pipeline at Arena as having three Phase 2 stage first or best-in-class assets and a sizable balance sheet, I think most people would be hard-pressed to actually identify the Company that I'm describing, and that's what's got exciting here is to be able to strip this Company back down to an area of focus and back down to some core elements and begin to rebuild a development stage biotech company.

Ted Tenthoff

So let's get into specifics on that. What steps have you taken to refocus Arena since you and Kevin joined?

Amit Munshi

Sure. So, the first thing we did was we recognized that historically Arena has been a bit of a barbell. So on one side you've had the GPCR discovery platform, the other side on BELVIQ, and in the middle was a couple of pipeline assets that frankly didn't get a lot of attention. So, what we've tried to do is we've tried to strip away all the infrastructure related to what we call the non-core activities, the core activities being the development of the pipeline.

So we have reduced or eliminated our discovery research platform, spun out a piece of that into Beacon Discovery as Ted pointed out, and on BELVIQ we have substantially deemphasized our internal efforts. We continue to support our partner Eisai in whatever contractual obligations we have. However, we don't spend a lot of time thinking about BELVIQ or chasing the scripts or doing anything above and beyond what is contractually required. And every incremental, every marginal dollar, every marginal moment of focus is on the pipeline.

Ted Tenthoff

That's really helpful. So one quick question, with respect to Beacon Discovery, because it is what Arena has been known for, what are your retained interest and plans for Beacon?

Amit Munshi

Sure. So, Beacon spun out with about 15 of the key scientists including Dominic Behan. Dominic remains our Head of our Scientific Discovery Advisory Board, advises us on a whole series of issues. Of course he's got a lot of history with compounds. Beacon is located on our campus. They are a separate legal entity. We are a customer of Beacon's and Beacon provides us services to support our existing pipeline. We also have certain economic rights in a small group of their products going forward. But essentially it's a new legal entity. They are getting their new clients, new business and working on new projects that are independent of Arena.

Ted Tenthoff

Great. You mentioned deemphasizing BELVIQ. What does that exactly entail? I know that Eisai just recently launched BELVIQ XR, the extended release version. They have some upcoming geographic approvals. They just got approved in Mexico, for example. So, what can you really tell us about, a little bit more color on what that de-emphasis mean?

Amit Munshi

Sure. I actually have no idea what you're talking about, Ted. Internally, historically and from the time I got there, there has been a tremendous amount of physical infrastructure to support BELVIQ. So we continue to manufacture BELVIQ. But on top of that we had legal teams chasing Eisai, we did a lot on patent support, we did a lot of finance support, we were in many ways mirroring a lot of the functions that Eisai had, and all of that has been sort of stripped away now. And more importantly it's a bit of a mindset shift inside the Company where we are not spending every week looking at BELVIQ scripts, we're much more interested in enrollment growth on our pipeline programs, what new indications we should go after, what infrastructure should we build, how many new physicians should we bring to the Company.

As you and I have discussed, when I joined the Company, of the 220 people inside the Company, there were only three people in clinical operations supporting the pipeline. Now in a Company of approximately 50 people, we have about 18 people supporting the clinical pipeline. So, a much more focused effort on the clinical pipeline and a lot less of shadowing Eisai and chasing BELVIQ.

Ted Tenthoff

That's actually really helpful just to kind of articulate that more. So with that legacy stuff out of the way, let's focus on the pipeline. Your lead drug is Etrasimod or APD334, which is an S1P1 agonist. Please remind us a little bit about this target. It really received a lot of validation from Celgene's $7 billion deal with Receptos a few years back. So, tell us about sort of the target and how your compound rates?

Amit Munshi

It's unfortunate, they bought the wrong drug. So, APD334 is a home-grown asset at Arena, as are all the programs we are going to talk about. We rely heavily on the strong chemistry, historical chemistry platform, the receptor pharmacology platform. As some of you know, there are five different receptor subtypes on the S1P modulator. APD334 Etrasimod hits the top three, 1, 4 and 5, and avoids 2 and 3. And as a consequence we've seen in the data to date, we have seen a very clean safety profile in our multiple Phase 1 studies in our animal activities that we have concluded to date. We hope that plays out in the Phase 2 as well. We haven't seen any [indiscernible] bradycardia, as an example. We haven't seen any activity in the CNS region either. So, it's a clean molecule and we think it's part of this next generation of S1P modulators that are being developed and we have to be the one right behind Receptos.

Ted Tenthoff

Great. Now I know you're currently conducting a Phase 2 study in ulcerative colitis. This can be sometimes a tricky area to develop drugs. But remind us of your word about the study design and when to expect data.

Amit Munshi

Sure. So, the study design is very conventional study design looking at both a clinical remission and mucosal healing. We expect to have data in the fourth quarter of 2017. It's not unlike any of the other Phase 2 ulcerative colitis trials that are ongoing today that could include the JAK inhibitors, the integrins or even ozanimod at Celgene. So, it's a very conventional study design.

I think the more important part for us as a small biotech company is we're going to start spending a lot of time exploring new ideas with the molecule. Traditionally, Arena, given the resources and the amount of capital it's been able to raise, has taken sort of a larger pharmaceutical company mindset and not done a lot of pilot studies. So you'll start seeing a lot of that from us, looking at new, interesting, exciting indications where we can begin to differentiate the molecule, set the Company apart but also begin to shape a little bit more of our own destiny going forward.

Ted Tenthoff

Got you. Can you give us any examples of what those studies might look like? Are we talking about orphan autoimmune or orphan inflammatory conditions here?

Amit Munshi

We are starting with obesity. I'm just kidding. We are looking at those kinds of indications, smaller indications. It could be orphan, it could be really big unmet needs, but we are really focusing on where there is an unmet patient need where sequestering [indiscernible] would be useful. So, again this is an effort that has not historically been done. So, rallying in experts around the world across multiple therapeutic areas to begin to think about where we should go is important. And then of course there is the commercial landscape, the commercial overlay and the regulatory overlay. So, all that work is being done now.

Ted Tenthoff

Great. So we'll stay tuned and hope to hear more about that during the year. So, I want to switch to one of the other drugs that you have in clinical development, APD371, which is an oral CB2 receptor. So walk us through the data here. I think you're also looking at this study in ulcerative colitis pain. So, kind of tell us how that program is evolving?

Amit Munshi

So we're really excited about this. So about one out of six Crohn's patients, ulcerative colitis patients, are on chronic opioids and roughly 50% of these patients have residual pain. Even if when they are in clinical remission, they have flares, et cetera. So we are starting with Crohn's pain but we could expand over time into ulcerative colitis and other GI areas.

What makes this product exciting is that it's a peripherally restricted CB2. There is no activity in the CNS. It is highly selective to CB2 and no activity on the CB1. And it is a full agonist, so it does not partially agonise the receptor creating long term tachyphylaxis.

So, we think it's an exciting molecule from the fantastic chemistry work that's been done historically. We looked at this indication because in my simple way of thinking, I asked a question about where are these CB2 receptors, where they sort of replete, were they over-expressed in disease. It turns out it's in the gut. And it also begins to form the basis of some therapeutic focus for the Company, right.

So, as a small-cap biotech company, we can't – you follow the GPCR platform, you could find yourself in 15 different therapeutic areas. So, trying to build some therapeutic experience, expertise inside the Company is very important. So Crohn's pain is what we are starting. The CB2 receptors are over-expressed in the ulcerative margin in IBD patients. So, we think that's a pretty exciting place to be.

Ted Tenthoff

Yes, that makes a lot of sense. I'm going to ask about ralinepag, which is an oral prostacyclin agonist. This class has traditionally been used to treat pulmonary artery hypertension or PAH, which is a busy area. So how does ralinepag differ from the competition and what are your plans, because this sounds like sort of outside of this disease area focus that you’re [indiscernible]?

Amit Munshi

I spoke to a couple of investors today, and when I was kind of first looking at this job and I looked at PAH, I kind of rolled my eyes, and thought, boy, you've got the PD5s, you've got the ERAs, you've the IV, you've got the inhaled prostacyclins, you've got [azulene] [ph and selexipag, I don't see it [indiscernible], you’ve got a small patient subset. Coming into the Company and diving into the data and actually spending time at chest in the American Heart Association, spending time with key opinion leaders, the level of enthusiasm is incredibly high for this program, partly because for the first time an oral could potentially mimic IV prostacyclin.

So, if we can have an improved peak-to-trough ratio, an improved half-life profile, you could actually begin to mimic what IV prostacyclin looks like. And as folks have used selexipag or read the selexipag literature would suggest, it doesn't come close.

So, I was encouraged by two things. One, the profile of the compound, the work that's been done pre-clinically on platelets and vaso relaxation, muscle cells. And then secondarily, I'm very, very excited about the uptake that the oral prostacyclin selexipag has had. So, it's a fantastic proxy for what this program could be.

Ted Tenthoff

That's helpful. And then I guess when you think about sort of this pipeline, how are you thinking about partnering going forward?

Amit Munshi

This is really a tricky one. I really believe that companies need to be in control of their own destiny. That's important for me, it's important for our management team. Having said that, you can't do everything, right. So, as the data comes out, we'll have to be selective and think really carefully about where and how we partner the programs. Geographic partnerships, outside of United States, are definitely more interesting to us than U.S. partnerships. Having said that, we'll have to kind of let this play out into 2017. And I guess it's a fantastic place to be to have a small company entirely focused on three Phase 2 outputs in 2017. It puts us in a very advantageous position to make these decisions.

Ted Tenthoff

Great. So, the Company does have a history of partnering drugs, BELVIQ with Eisai. One that I think really has probably gone under-appreciated and you were kind enough to remind me, and I'd be remiss if I didn't bring this up, is nelotanserin, which is an inverse agonist of 5-HT2A. You've partnered this with Axovant. So, tell us about this drug and this deal.

Amit Munshi

So, it's really interesting. I don't know why it's under the radar screen, why just kind of historically not a lot of noise got made about it, but it's being developed for Lewy Bodies dementia. It's in the hands of Axovant. The company has got substantial resources to develop it. We have a 15% royalty on the molecule. We also currently have the manufacturing rights. So we manufacture the molecule and we have got a nice chunk of royalties on it. And we are excited to see the data. I think it's scheduled for the first quarter of next year. So, that would be kind of another critical milestone for us.

Ted Tenthoff

Great, excellent. So I just want to see if there are any questions from the audience before we continue on. Yes, please.

Question-and-Answer Session

Q - Unidentified Analyst

[Indiscernible]

Ted Tenthoff

So the question was on the balance sheet.

Amit Munshi

Yes, so we don't have any debt except for the sale-leaseback obligations. They are reflected. So there is no conventional debt, there is no encumbering debt on the balance sheet. And the last, the last report it was $102 million on the balance sheet. So this goes back to my point. If I sort of walked around in Boston, hung out with other biotech CEOs and talk about having three Phase 2 assets with key data readouts, all best-in-class or first-in-class assets, and $100 million on the balance sheet, that's a pretty exciting place to be if you could actually strip away all the other stuff inside the Company.

Ted Tenthoff

So, one other question I want to ask about, there is a little bit of a legacy, is temanogrel, and this is an oral serotonin 2A inverse agonist that was partnered in South Korea with Ildong, treatment for thrombotic disorders. What's the latest here? Is this sort of in their hands and they are going to report data, then you'll sort of [indiscernible]?

Amit Munshi

Yes, they have Korea rights. So they are kind of progressing in Korea at a pace that's not something that we would do, right. We're trying to move through a clinical decision a little quicker, get the data a little quicker. We have just recently internally started to rethink about temanogrel and what do we do with it. It's at the forefront of actually a couple of assets that are in that cardiovascular or acute cardiovascular space and there are some other applications for it. So, we're just starting to kind of get our heads around internally. 90% of the management team has been hired in the last hundred days. I joined about six months ago. Kevin, our CFO, joined five months ago. So, some of this is, we are opening up closets and finding really interesting things and then try figure out what to do with them, and temanogrel is definitely one of those.

Ted Tenthoff

The other asset that you mentioned is a manufacturing facility in Switzerland. Certainly maybe there are some tax benefits to that, to a partner or are you also still generating some revenues in terms of BELVIQ and for example maybe even nelotanserin, and I can't remember if you mentioned that one or not, but what would be sort of the longer-term plan for that asset?

Amit Munshi

Yes, correct. We are going through that now. One of the options on the table is to make it into a ski lodge. So, anybody looking for a ski vacation, we've got space in Switzerland. So, we are starting to think of what to do with the facility long-term and how long we stay engaged in BELVIQ manufacturing. Our current basic state is, we have actually reduced that facility by about 20% or 30% in terms of headcount. There was a sense that we were going to go out and get additional toll manufacturing and expand and become – kind of border around the whole CMO idea. I'm not particularly fond of that. Again, this goes back to focus of the Company and how much time our accounting department spends consolidating the Swiss entity. So, we are going to look at options in 2017 about what we want to do on that. For now, we are committed and contractually obligated to manufacture both BELVIQ and nelotanserin.

Ted Tenthoff

Great, excellent.

Ted Tenthoff

So, if there's no other questions, so a lot of moving pieces here, a lot of change, a lot of really exciting readouts coming into 2017. So, I think it will be an exciting year and I look forward to having you here next year so we can kind of talk about everything that you have accomplished. Thanks a lot, Amit.

Amit Munshi

Thanks. Appreciate it. Thanks Ted.

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