Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

William Boni - VP of IR

Paolo Pucci - CEO

Brian Schwartz - CMO

Peter Lawrence - President and COO

Rob Weiskopf - VP of Finance

Tom Chan - SVP, Discovery and Preclinical Development

Analysts

Mark Monane - Needham & Company

Glenn - Needham & Company

Joel Sendek - Lazard Capital Markets

Han Li - Stanford Group

Ren Benjamin - Rodman

Katherine Kim - Banc of America

Howard Liang - Leerink Swann

George Zavoico - Cantor Fitzgerald

ArQule, Inc. (ARQL) Q2 2008 Earnings Call Transcript August 11, 2008 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2008 ArQule, Incoporated earnings conference call. My name is [Shaquana] and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr. William Boni, Vice President of Investor Relations. Please proceed, sir.

William Boni

Good morning, everyone. Welcome to the ArQule investor conference call reviewing operational and financial results for the second quarter of fiscal year 2008. This is Bill Boni. I am here today with Paolo Pucci, Chief Executive Officer of ArQule, Brian Schwartz, Chief Medical Officer, Peter Lawrence, Chief Operating Officer, and Rob Weiskopf, Vice President of Finance.

This morning, we issued a press release that reported results for the fiscal quarter ending June 30th, 2008. This release is available on our website at www.arqule.com. Leading the call today will be Paolo Pucci, ArQule's new Chief Executive Officer, who joined the Company on June 9th from Bayer AG. Shortly thereafter, ArQule added another member of senior management with the arrival on July 14th of Dr. Brian Schwartz, our new Chief Medical Officer.

Details regarding the extensive oncology product development backgrounds of both Paolo and Brian are contained in press releases posted on our website. Following this morning's operational update by Paolo, Rob Weiskopf, Vice President of Finance, will provide a financial review of the quarter.

Before we begin, please note that we will be making forward-looking statements as defined in the Private Securities Litigation Act of 1995. Actual results may differ materially from those projected in the forward-looking statements, due to numerous risks and uncertainties that exist in ArQule's operations, development efforts and the business environment, including those factors discussed in our press release announcing this call and posted on our website, as well as in our reports on forms 10-Q and 10-K, and subsequent documents filed with the Securities and Exchange Commission. The forward-looking statements contained in this call represent the judgment of ArQule as of today. ArQule disclaims any intent or obligation to update any forward-looking statement except to the extent required by law.

I would now like to welcome Paolo Pucci and Brian Schwartz to their inaugural conference call at ArQule.

Paolo Pucci

Bill, thank you very much for your kind introduction. Thank you, all, ladies and gentlemen, for joining us this morning. My name is Paolo Pucci and as you heard, I very recently joined ArQule at a very important point in the life of this Company, which I feel is on the verge of fully exploiting its potential.

The potential of ArQule rests in multiple projects that are in different stages of development, but also into its emerging discovery platform that we believe has immediate utility in further exploring the field of oncology, but further down the road has applicability further beyond oncology.

As the investor community, we are also here at ArQule focused on our lead candidate, which is ArQule 197, a novel and highly differentiated small molecule, which is an inhibitor of the c-Met receptor tyrosine kinase. We have advanced, as you know, into a Phase II program for ArQule 197 and we are actively looking for that proof of principle about -- and the data that supports the therapeutic impact of this candidate on c-Met inhibition. Which as you know is one of the most exciting targets today in the field of oncology.

While the data that Royal Marsden hospital in London has generated for ArQule 197 shows that 197 inhibits c-Met effectively, the data also suggests that our current Phase II programs might benefit from an increased dosing level for ArQule 197. So diligently, we have taken the information that has emerged from the Royal Marsden study and we have discussed it with clinical investigators and we have amended our trial protocols to allow --for these protocols to incorporate higher dosing regimen.

You will remember that our regional dosing regimen was 120-milligram, administered twice daily, and that is the regimen that had been implemented until the Royal Marsden study was presented at ASCO. And going forward, we are working with information that there is maximum tolerated dose of 300 milligrams BID, as identified by the Royal Marsden investigators. So, we will use going forward for our Phase II programs the equivalent of the 300-milligram BID dose identified at the Royal Marsden study.

Now, the trials that we have ongoing for 197 are in MIT tumors, pancreatic cancer and those trials are continuing and also continuing is the Phase I trial for ArQule 197, with the Erlotinib combination. And also in this trial, we will be applying the recently acquired dosing knowledge that came from the Royal Marsden study.

We are also looking then at ways to evolve all those trials to protocol adjustments that address the dosing, but also address other items that are of importance, like expanded end points, which are suitable to this class of drugs in their very specific characteristics.

Obviously, we are not forgetting that a trial program Phase II leading to a Phase III leading to a label is only as good as the opportunity it affords you down the road to achieve success for commercial entry. This is a very important aspect for us, as ArQule 197 would be our first commercial entry in the market.

So, we are running in parallel to the process of assessing our current development program, a process of assessing the potential of each one of those development studies for affording us a proper commercial entry. And we are taking into consideration very complex elements, like ability to achieve the proper pricing point and to achieve the proper reimbursement at that pricing point down the road. It's never too early to look into those opportunities and challenges.

The program, the four that we are working on is the parallel assessment and prioritization of our Phase II currently random program for 197, additional opportunities that could be available for augmenting that program, and each one of those opportunities is as a tumor type opportunity intended to be is assessed by the commercial point of view. So, we hope that we will be reconfirmed and prioritize lists of tumors where we are going to continue to explore 197 and we hope to share this prioritized list later on with the investment community.

For the purpose of executing these two parallel processes, ArQule has added to a very capable team that was here, I would think that I could bring, based on my experience, some significant commercial expertise and I would hope and actually my heart's sure that Brian Schwartz will bring the development expertise that is needed at such a critical time in the development of 197.

As you know, I have worked with Brian before and Brian has been one of the key figures in the development of one of the most successful tyrosine kinase inhibitors recently launched in the market, the product is sorafenib. And his practical knowledge of state-of-the-art chemical operations combined with his understanding of the U.S. market as well as with his international expertise will help us move forward the process that I have described in a very timely fashion.

We believe, we are in a good, competitive situation and we are looking to stay in that good competitive situation. The only way that one can do that is through the proper refinement but do that timely. And I think we are equipped for doing just that.

Moving beyond our Q197, which is the lead compound but not the only candidate with the -- and not the only asset within ArQule, we should mention briefly ArQule 621, which is a specific EG5 inhibitor and one that our scientists in discovery believe can be further developed, avoiding toxicity that has been observed so far in other similar molecules.

We are completing GLP toxicity testing for this compound and we have recently completed positive, what I would characterize as positive discussions with the FDA. Those discussions are required prior to an IND submission, which we plan to execute by year end.

Further, we need to discuss briefly 761, which is a second generation compound in our E2F-1 program, which as you know, we are developing in partnership with Roche. As for ArQule 621, we are on track to file an IND for 761 by the end of this year. Discussion with our partner, Roche, for the E2F-1 program are ongoing, and as you know, our partner, Roche has an opportunity until the end of the year to extend for further one-year -- to exercise the option to extend for a further one-year this partnership on the E2F-1 program.

Let me say a few words about our discovery platform. In discovery, we're continuing to develop our emerging candidate discovery capabilities. We are very excited about the potential of this platform, which is led by our head of discovery, Tom Chan. And we are exploring the biological and chemical space in which it can be applied. This space contains indeed multiple kinase targets in oncology, but also in other therapeutic areas.

To begin to validate the platform capabilities we believe we have, we plan to nominate the first compound from this platform during 2009. I will not want to leave you with impression that we are planning to create value for all of our assets, exclusively with the resources, financial and of personnel that are available to ArQule. We do understand that for a small company like we are, we need to explore our flexibility in bringing in additional capabilities and additional financial resources to fully execute on a potentially broad plan of development for the Company.

So, in parallel with these priorities that we have just discussed, to which we are working independently, we are also entertaining very significant interests from multiple potential partners for both ArQule 197 and for the capabilities of our kinase inhibitor discovery platform.

We understand the value of and the impact of corporate partnership. I believe that I have learned some of that over the past few years working as Co-Chair of the Bayer-Onyx corporation platform that developed sorafenib. And we know that, when properly structured, such partnership can enable companies like ours to leverage expertise infrastructure, financial resources for a win-win partnership for the ultimate success of physicians and patients that benefit from our drugs.

In summary, we are focused on our top priorities and I have mentioned four of those top priorities and I have mentioned them in order. We are also leveraging our internal resources to proceed timely in making gain in the plans for addressing those priorities and we are also in parallel assessing partner opportunities as described before with that specific intent.

The financial community and our shareholders will be hearing more as we complete both the technical and commercial analysis that I describe, which are focused on the 197 path to market. In the near future, we will give more details. And we are looking forward to sharing our conclusions and we trust that they will identify how and when greater value can be created from the projects that we are working here at ArQule.

With that, I conclude, I will certainly come back for any questions you might have. Thank you, again, for joining us and pass the mike to Robert Weiskopf, who is our Vice President For Finance.

Rob Weiskopf

Thank you, Paolo. Good morning. I would now like to discuss ArQule's financial performance for the second quarter of fiscal year 2008 ended June 30th. The Company reported a net loss of $16 million, or $0.37 per share for the second quarter of 2008 compared to a net loss of $13.4 million, or $0.36 per share for the second quarter of 2007.

For the six-month period ending June 30th, 2008, the Company reported a net loss of $30 million or $0.68 per share, compared to a net loss of $27.9 million or $0.77 per share for the six-month period ended June 30th, 2007.

At June 30th, 2008, the Company had a total of approximately $102.5 million in cash, cash equivalents and long-term marketable securities. Revenues for the second quarter of 2008 were $2.6 million, compared to $2.2 million for the second quarter of 2007. Revenues for the six months ended June 30th, 2008 were $6.1 million, compared to revenues of $3.9 million for the six months ended June 30th, 2007. Increased revenues for the 2008 periods are primarily due to revenues from Kyowa Hakko.

Total costs and expense for the second quarter of 2008 were $19.3 million, compared to $16.9 million for the second quarter of 2007. Total costs and expenses for the six months ended June 30th, 2008 were $38.4 million, compared to $34.1 million for the same period in 2007.

Research and development costs for the three-month and six-month periods ended June 30th, 2008 were $15 million and $28.4 million respectively, compared to $13.1 million and $26.8 million for the 2007 three-month and six-month periods.

Increased R&D costs in 2008 were primarily the result of clinical development and related costs for two ongoing Phase II trials and an ongoing Phase I trial with ArQule 197. General and administrative costs for the three-month and six-month periods ended June 30th, 2008 were $4.3 million and $9.9 million, compared to $3.8 million and $7.3 million for the comparable periods in 2007.

The increased 2008 general and administrative expenses were primarily due to non-cash stock-based compensation costs resulting from the Company's employment agreements with its previous and current chief executive officers.

I would now like to provide an update on our auction security investments. We review our portfolio of these investments on an ongoing basis and at June 30th, we determined that we had a temporary impairment of $4.1 million, an increase of $0.4 million over that that was recorded in the first quarter of 2008.

This impairment reflects current illiquidity in the auction rate market, not the quality of the underlying collateral. To ensure the liquidity of our financial resources, therefore, we entered into a collateralized revolving credit line agreement secured by our auction rate securities for up to $47.5 million on July 8th, 2008, and we drew $46.1 million against this line in July 2008.

As previously stated for 2008, ArQule expects revenues to range between $10 million and $10.5 million related to the Company's ongoing partnerships with Roche and Kyowa. Net use of cash is expected to range between $55 million and $60 million. Net loss is expected to range between $69 million and $74 million and net loss per share to range between $1.57 and $1.68 for the year.

ArQule expects to end 2008 with between $75 million and $80 million in cash, cash equivalents and long-term marketable securities. That concludes our financial summary and I would now like to turn the call back to Paolo for questions.

Paolo Pucci

Thank you, Rob. Before we begin Q&A, I would like to thank all of our present and past investors for their support of ArQule, particularly our current investors for their continued support of ArQule and I look forward to open the dialogue. And this is our first opportunity to have such dialogue and without further, I would open it to Q&A.

Question-and-answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Mark Monane with Needham & Company. Please proceed.

Mark Monane - Needham & Company

Good morning and greetings from New York City. Thanks for taking our questions.

Paolo Pucci

Good morning.

Mark Monane - Needham & Company

It's a little cloudy here, which is reminiscent of my question I'm going to ask regarding dose response and maximum tolerated dose. You mentioned that 300 milligrams twice a day is the maximum tolerated dose, but is that necessarily the most effective dose? I know you have information from the Royal Marsden study. Is more better in this situation?

Brian Schwartz

Mark, this is Brian Schwartz responding. In terms of determining the recommended dose moving forward, we are using a number of criteria that have been generated primarily out of the Marsden. The one that has emerged is that above a 100-milligram twice daily dosing, we get significant inhibition of our target, which is c-Met. Therefore also, we have seen that our pharmacokinetic profile is within the higher range, will give every patient the opportunity to get a significant amount of the drug, which would then potentially inhibit the target.

In terms of efficacy, that's the real test of the Phase II studies moving down the line, but it appears that if c-Met is an important target that the doses we'll be giving at 300-milligrams will be able to inhibit their target successfully in a majority of patients where their target is regulated.

Mark Monane - Needham & Company

How much inhibition are you looking for? Is it a step function where you get, you don't get a clinical or physiological effect until you get a certain level, or is it more like a linear response?

Paolo Pucci

I think this is a question is best answered by Tom Chan, who has been working with a product that (inaudible) he should have the informed answer.

Tom Chan

Good morning, Mark. Tom Chan here. I think the typical inhibition that we've been seeing so far, the Royal Marsden study were basically 66% to 75% inhibition of the tumor c-Met expression and that's kind of what we can expect going forward.

Mark Monane - Needham & Company

Okay, very helpful. And in regard to the time line, are you going to dose escalate the current patients, or are you going to enroll new patients and how does it affect the time line for the MIT and for the pancreatic cancer studies, please?

Brian Schwartz

Mark, in terms we are currently working with our investigative, as well as regulatory authorities and IRBs, to move an amendment through as quickly as possible. As you note in our Phase I, we did do intrapatient dose escalation, as well as in our placebo trial, we did intrapatient dose escalation, so we know that it's quite simple to dose escalate patients up as we move forward. So, we will be, as quickly as the rules of clinical trials allow us, to move patients to the new doses.

Mark Monane - Needham & Company

That's fair. And Brian, while you're on the line, I know that you have experience with

Brian Schwartz

Sorafenib

Mark Monane - Needham & Company

Nexavar and maybe you can talk about if you see any similarities between 197 and Nexavar in its potential and why you decided to join the Company?

Brian Schwartz

I think with going into any new area, where a new and attractive target is emerging is exciting for me and I think entering the sorafenib world was the new world of small molecule VEG-Fs primarily and now at ArQule is the sort of new target, the c-Met target. In terms of the TKIs, the similarities we really observed are related to how these drags are evaluated in terms of end points primarily, in that we observed with sorafenib very, very low response rates.

However, impact in terms of progression-free survival and quality of life, very difficult to assess in Phase II uncontrolled settings, but a very similar type picture that we are currently seeing now. The third observation is that it appears that the drug has activity against a number of different potential, tumor targets, which is something we saw with sorafenib relatively early on as well.

Mark Monane - Needham & Company

Very helpful. One financial question for Rob.

Glenn - Needham & Company

Rob, on your auction rate securities that you have a collateralized agreement on, it seems to me you had about $63 million in auction rate securities and you have about $47 million line of credit on that, what are the terms in terms of paying it back and how does that work out going forward into 2009? This is Glenn by the way.

Paolo Pucci

Let me preface, before Robert gives you the technical answer, let me preface with the fact that having all of us read the latest news about settlements for auction rate securities, I think our objective for the future is really to go and move past this current general liquidity situation of ARS and it seems like that objective is now shared by some of the major banks. Just last week, UBS, which is our bank, announced intention to enter into a settlement for investments in ARS that totaled $19.4 billion. So, firstly, we wanted to make sure with our strategy that we had no questions about our ability to borrow against auction rate securities and that was a short-term tactic that we employed, I think successfully, moving our loan facilities from $15 million that we had when we reported Q1 to in excess of $40 million that we are reporting now.

So, the longer-term strategy, for which we have a very clear opening as of last week, is to resolve this matter altogether. Obviously, these things have their own times. The magnitude of the numbers is significant. We're talking about $20 billion and greater than that, if you look at the whole industry. So, this is the general frame. But let me let Rob give you the specific of the details that you are looking for.

Rob Weiskopf

Thank you. So, we have $65.3 million face value in these securities and, as Paolo alluded, we are currently in discussions with UBS to determine the impact of the $19.4 billion agreement that they have -- was just put in place in terms of what that means for our specific auction rate security investments. So, we're hoping that that will restore complete liquidity over a period of time to us. So, in terms of the actual arrangement that we had, again, it was $15 million in Q1, it's now up to $47.5 maximum, and it is callable, but again, with the recent developments, we're optimistic that we'll have increased liquidity.

Mark Monane - Needham & Company

Thank you for the added information. We'll step back in the queue.

Rob Weiskopf

Thank you.

Operator

Your next question comes from the line of Joel Sendek with Lazar Capital Markets. Please proceed.

Joel Sendek - Lazard Capital Markets

Hi, thanks a lot. Couple questions on the Phase II studies. Can you give us some idea of how many patients have enrolled at the lower dose already?

Peter Lawrence

Yes, Joel, this is Pete Lawrence. I've spoken about this in the past, so maybe it makes sense for me to speak about it today. We have not given any guidance or information, I guess is a better word in terms of the number of patients that we have enrolled, but what we have said is with respect to the MIT trial, we would expect by the end of the year to have dosed enough patients to be able to come to the market and give some idea about where we are in the context of that trial.

Now, Mark had asked whether the changing of the dose in that trial is going to slow us down. What I would say about that is we continue to dose patients, so we'll have a body of information on patients at 120 BID and as quickly as possible we will begin to get information at the new recommended Phase II dose in that trial and hopefully we'll have some of that information to share.

So, because it's an open label study, it will be conducted on a rolling basis and I think by the end of the year, we'll have a very nice cohort of patients on which we are able to report. With respect to the pancreatic study, I think that we are looking at amendments for that protocol as well. I think what I had originally said in prior conference calls is that we had hoped that by the end of this year or early next year, we would again have enough data at that point to be able to say something about that study. And I don't think that's changed either. That may be pushed out a little bit, but very little. So, I think we're more or less on track in terms of the timing on which we have given guidance in the past.

Paolo Pucci

The one thing that we should add, Pete, is that versus past conference calls, we are beginning to see a greater ability to recruit patients to the MIT trial. At some point in time, that was a concern and we are beginning to see more centers coming online and better recruitment. Now, that varies from tumor to tumor. As you know, underlying MIT there are two sarcomas and one carcinoma, and I wouldn't generalize the statement that I made across all tumor types. We are seeing better recruitment in the sarcomas than we have seen so far into the carcinomas.

Joel Sendek - Lazard Capital Markets

Okay. So just to be clear, the enrollment of both studies is not on hold. It's pending the amendment. It's still going forward as we speak?

Paolo Pucci

The enrollment for the MIT study, where we can up dose is ongoing.

Joel Sendek - Lazard Capital Markets

Okay. And how about the other trial? The amendment?

Peter Lawrence

With respect to…

Paolo Pucci

We have an amendment, yes.

Peter Lawrence

So, we're working on amendment in connection with both trials.

Joel Sendek - Lazard Capital Markets

Okay. I'm just unfamiliar with how these amendments, when have you an amendment, does that mean everything's on -- maybe the dosing of the current patient continues at the old dose and then you just don't enroll any patients until the amendment's through, is that how it works?

Paolo Pucci

I think Brian can help with some detail on that.

Brian Schwartz

I think in terms of the technicalities, in terms of the MIT trial, it's a seamless process and as each institutional review board, or IRB, approves the amendment, as well as the regulatory authorities approve the amendment, we can automatically go and institute the amendment. So, some sites may open up within as short a period as one month and others take up to four or five months before the amendment goes through. In the MIT, we continue to accrue. In the pancreas trial, patients continue to receive drugs and we are amending that trial as we move forward.

Paolo Pucci

And obviously in the IRBs, there is different sense of urgency depending on the condition for MIT, there is very great sense of urgency because there is no viable alternative obviously for the pancreas trial there is a viable alternative, which is [GEMSA], so the amendments are looked at a little bit more closely by the different regulatory authorities and IRBs.

Joel Sendek - Lazard Capital Markets

Okay, and the data you said, maybe you might have some available by the end of the year. Presumably that's interim data and would that be the form of a press release or medical meeting?

Paolo Pucci

We will have to assess that. Obviously, if it is data that has great scientific relevance, we will have to assess whether or not we protect that data for dissemination in a major medical conference. It is hard to say at this point in time, not having the data in hand.

Joel Sendek - Lazard Capital Markets

Okay. Thanks a lot.

Paolo Pucci

And that's by the end of the MIT. Now, I shall point your attention to the fact that that data will be data that comes from patients treated with 120-milligram BID dose mostly.

Joel Sendek - Lazard Capital Markets

Okay, okay. Thank you.

Operator

Your next question comes from the line of Han Li with Stanford Group. Please proceed.

Han Li - Stanford Group

Yes, good morning. Thank you for taking my questions. On the protocol amendment MIT study, you said by year end, we are going to have 120-mg update. If I remember right, this is a two-stage study. Can you break down the 120-mg study to make a decision to go on to next stage using the same dose or a higher dose of 300?

Brian Schwartz

The amendment that we put forward calls for a similar type stage 2 design, but calls for slightly more patients to be included in the first stage so that we could assess the higher dose as well.

Paolo Pucci

So, the answer to your question is yes, we are proceeding one with the next stage of the study based on what we have seen in terms of safety from the patients that have come through and the unmet need is still entirely there and I could do a very quick commercial assessment of the MIT potential. It's a small tumor, but it provides, if successful, a relatively fast to market opportunity and certainly unlike other circumstances does not provide any concern of finding a way to price and enter the market in the most appropriate way.

Han Li - Stanford Group

Okay.

Peter Lawrence

Let me just add an addendum to what Paolo said because he may have been speaking in a colloquial and not protocol technical point of reference there when he said we're moving on to the second stage. We're really, we're moving on with the trail. We have not said, nor are we indicating on this call, any information with respect to the protocol defined end point. So, do not take it in that context. We will be giving information with respect to that at the end of the year.

Han Li - Stanford Group

Okay. On the Phase I study off of non-small lung cell cancer Tarceva combination, are we going to see any data sometime later this year?

Brian Schwartz

Sorry. With regards to the non-small-cell lung cancer trial, there was a Phase I, a Tarceva combination trial which has provided us with the information required to start the Phase II randomized trial, which will start up Q3/Q4 so that dependent on the data generated on the Phase I trial, we will be presenting it in the appropriate forum, but it rarely provided a quick set of data to start the Phase II randomized trial in non-small-cell lung.

Han Li - Stanford Group

Okay. Also, I think earlier you mentioned there could be other combination studies or any other indications. What's your plan for starting new indications? Sometime this year or next year?

Paolo Pucci

This is part of the process that we were outlining. This is the part of the process of assessing the priorities and the development programs, strictly from a technical point of view and then overlaying a commercial assessment. So, we could be very clear on your question before. Do we proceed on with the MIT-style in the Phase II setting as clarified by Peter? The answer is yes. We don't have such a clear answer for you now about what additional tumor types we will pursue in a different setting, but we are actively looking at it.

It takes a little bit of time. I've been here a month and a half. Brian has just joined two weeks ago. There was a body of evidence that had been used before to assess additional tumor opportunities and we are starting with that, but obviously we can inform it based on the experience we have accumulated in the past. So, just as I give you a clear yes about continuing the Phase II program for the MIT with the higher dose, I have to give you an interlocutory answer here.

Han Li - Stanford Group

I understood. One last question on the Kyowa Hakko potential milestone or time line, what could be the next milestone event? Is that starting on Phase II or…

Paolo Pucci

It is part of the discussion we are having with Kyowa Hakko. There are several elements of those discussions, like the discussion around the dose, additional tumor types and we will disclose that when we have a clearer understanding of when that might come. As you can see, milestones have been achieved during this year, as proof of the fact that Kyowa is developing the appropriately and with enthusiasm.

Han Li - Stanford Group

I see. So, Kyowa Hakko is doing their dose adjustment, too?

Paolo Pucci

No, we are saying…

Han Li - Stanford Group

For the trial?

Paolo Pucci

What I have said is that once we come to milestone, there are several elements that need to be taken into consideration in order to give an answer to that question. We have revealed in this conference call that the new information that has emerged from Marsden is being discussed internally at ArQule the way I have described and you can also imagine that that information is to the attention of our partner Kyowa. They are proceeding with the planning for the next year, as we are. The moment that the planning for the next year is completed, we will be able to give guidance on when we would see additional milestones, because those milestones are tied to the development line.

Han Li - Stanford Group

I see. All right. Thank you very much.

Paolo Pucci

You're welcome.

Operator

Your next question comes from the line of Ren Benjamin with Rodman. Please proceed.

Ren Benjamin - Rodman

Hi, good morning. And thanks for taking the questions. Lot of questions have been answered, but I guess I want to go back to the increase in dose schedules. It seems to me, looking back at my previous notes that 120 mgs twice a day was determined because it wasn't necessarily due to an MPD, but pharmacokinetically, it seemed like no more fosfamet could be inhibited. So, what was the inhibition that you were seeing before and now it seems like you're seeing 60% to 75% inhibition. Can you give us some more details as to why a dose was determined before and now we're nearly doubling?

Paolo Pucci

So I think probably Peter is the person, who is in the best position to answer that question because he represents a continuity versus old dose and the new dose and a number of other things. What you need to consider, though, before I let him answer is this was a strategy that pushed forward the fastest possible development for this drug and then extended underneath sort of a safety net which was the Marsden study. And I think this is a strategy that is working because, as you see, we can adjust as we go the clinical trial program the way that we believe will afford the drug better chances of success. But to reconcile the old dosing decision with the new dosing decision, I'll let Peter on so he can provide you with the history, which obviously you have as well.

Peter Lawrence

So, thanks, Paolo. It was relatively straightforward. In our initial Phase I 101 study, we believed what we saw was a plateauing of drug exposure in the blood and we thought we were seeing that right around the 100 BID level and that was leaving us to conclude that maybe 120 was a good dose and with a targeted therapeutic, we felt that it was not an inappropriate way to proceed.

Now, in addition to that, I don't think we would have done that if that had been the sole indicator, but we also had the other indication of relatively strong signs of efficacy at or below that dose level. We saw PRs below the 100 level. So, when we took the data that was available at that time, which was the nice efficacy profile that was emerging from the Phase I study, if you can really call that efficacy in a Phase I study, as well as what we thought was plateauing of the blood plasma levels, we thought 120 made sense. And as Paolo suggested, we were very interested in moving forward into a Phase II setting as early as possible. There is competition. We're a small company and timing was very important to us.

Now, at the same time, we did allow Johann de Bono at the Royal Marsden to dose to an MTB because we were hearing both from Johann as well as other key opinion leaders that they would be very comfortable if they could see an MTB in this drug since we hadn't seen one in the 101 study.

And unfortunately, there are not great biomarkers yet for targeted therapeutics and the best biomarker continues to be signs of toxicity. So, we let Johann dose up to the dosing toxicities that we saw at 400. That resulted in his calling and our calling an MTB at 300. We've seen good inhibition of c-Met in human tumor tissue at a number of dose levels, from as low as 100 milligrams BID up to the 300. But we do think that, given there aren't good biomarkers, we will give the drug the best possible chance and our advisors believe that we will give the drug the best possible chance if we dose it at the MTB, and we don't want another situation like this, some drugs have experienced where it wasn't dosed at the MTB and possibly efficacy was left on the table.

Paolo Pucci

What I need to focus your attention on, though, is that the side effect profile of the drug has been maintained benign through the dose escalation. So, an element, an important element of consideration for us, for the IMBs and for the regulatory authorities is that there is not a very significant, significantly different side effect profile, a higher dose than we have observed after the 120 milligrams. As you know, the only significant side effect that has been observed was trends in neutropenia in the Marsden study. So, it's important to really construct the history but it's also important to underline what the progress of the last few months has informed us with. And this is an important element, if you think of the future potential combination landscape for TKIs and emerging technology.

Ren Benjamin - Rodman

Okay, great. And I guess just a follow-up, then, have you seen a dose response, as best as you can determine it, based on the biomarkers, so based, it's a question of fosfamet, do you see a dose response as you're increasing the doses?

Brian Schwartz

Unfortunately, the c-Met was only really done in the Marsden trial and we were able to see c-Met inhibition from 100-milligrams BID upwards in terms of paired samples. Below 100, we did not use the same biomarker tool, so we are not sure if we see that effect below 100 or not and in truth, we haven't seen any significant correlation as yet, but with a lot of these compounds, you want to ensure that every patient has a chance of having a response. Therefore the higher the dose, the more likely you are to bring the lower patients up. I think in terms of inhibition at lower doses, we do see that.

Peter Lawrence

Brian, just an addendum to what you said, in two of the three patients in which we saw high levels of phospho-c-Met prior to being dosed and significant inhibition in the tumor tissue after being dosed, in two of those three, there was no correlation to response. And I'm not sure for any of the statistically significant given the very low numbers, in the third patient, it was a breast cancer patient, she was in the poster at ASCO, there was an 11% response in her cutaneous lesion. She had high phospho-c-Met pre-dosing, significant inhibition post dosing at 300 milligrams, we saw some resolution of cutaneous lesions from her breast cancer. It was an 11% shrinkage, but she then had a silent lesion appear in her clavicle. I think the investigators believe that was a dose response, but whether it's statistically significant at this point is highly unclear, given the very small numbers of patients, but this really gets to the need to run the Phase II trials.

Ren Benjamin - Rodman

Okay, got it. One final question. Milestones for the remaining part of the year, any other data presentations we can look forward to, even preclinical, but anything else coming up for the remainder of this year?

Brian Schwartz

The only scientific presentation remaining is really going to be an update on the Marsden data at the Geneva triple meetings in the late fall.

Ren Benjamin - Rodman

Terrific. Thank you guys very much.

Brian Schwartz

You're welcome.

Operator

Your next question comes from the line of Katherine Kim with Banc of America. Please proceed.

Katherine Kim - Banc of America

Hi, thank you for taking my questions as well. The first question is when you have the data, the interim data for MiT as well as pancreatic in the time lines that you had talked about earlier, will you be able to make a go or no-go decision on the interim data or will you have to look at additional data at higher doses, the 300-mg?

Peter Lawrence

I think, Katherine, if I had to -- if I can jump in here, I think it depends on the quality of that data. I think it depends on obviously what the data shows at that point in time. If the data is very persuasive, that could lead to one set of conclusions. If the data is inconclusive at that point, we may need to continue on and dose more patients.

Katherine Kim - Banc of America

Okay. So, as it refers to the MiT study, if, let's say, at that point you are able to make a go decision, meaning that you move forward with the program, I would say is it possible for you to go to the FDA with the interim data to talk about potential registrational study?

Paolo Pucci

Depending on the quality of the data, certainly MiT looks to remain, Katherine, an unmet need. And as you know, the FDA is very sensitive to those unmet needs. If we have compelling enough data, it will be more than a business obligation, an ethical obligation for us to go to the FDA with that data. My experience is, having been there for renal cell carcinoma when there was a ratably unmet need that the FDA does listen under those circumstances.

Katherine Kim - Banc of America

Okay, and when you do have the data by year end, are you going to have any patients on the higher dose?

Paolo Pucci

I'll let Brian take this one.

Brian Schwartz

Katherine, as I've said, the goal is to get them at the higher dose as soon as possible. Some of the sites that we currently are working with do have the ability to move reasonably quickly. So, the hope is that a number of patients will be up titrated. Fortunately and unfortunately, some of the sites that we are using are big academic sites where amendments sometimes take a number of months to be processed. So, in those sites, it will take a little bit longer, but we hope to get some of the patients that, at other sites aren't titrated as quickly as possible.

Katherine Kim - Banc of America

Okay.

Paolo Pucci

We are working with a great sense of urgency on this one, being unmet.

Katherine Kim - Banc of America

And then, moving on to other tumor types, can you just give an update on whether or not you are pursuing I know Kyowa was responsible for gastric cancer potentially and then also on the prostate, the HRPC tumor?

Paolo Pucci

It's a very good question, Katherine, because this is part of the priorities that we are assessing. I would be not doing the professional job I need to be doing, if I were to give you an instinctive answer. We have a process running for sure. The tumors that you have mentioned are potentially interested. The question is, are they more interested in other tumor settings that we have not looked at with the proper due diligence yet? And we will be able to give an answer as soon as the process is completed. Where we need to consider and it's not irrelevant also from a commercial point of view, we need to look at our market entry tumors. I say that MiT does not give us any risk. I don't see any risk in terms of entering the market with MiT and being able to price 197 at or above the price level of the current and leading TKIs. You would argue that a market entry with a study that is successful, however successful head-to-head with GEMSA in pancreas, might provide pricing reference point which is not ideal for the purpose of matching or exceeding the current price as charged by the leading TKIs. And these are very important consideration, Katherine, because as reported in the orange book, the patent life for 197 is very, very favorable. It is a very long patent life.

So, my experience tells me the longer the patent life, the more carefully you have to plan your market entry so that you can use all of that patent life commercially after the big upfront investment. So, I'm not able to answer now, but as soon as we're completed, we'll be able to answer and in a rational way explain why we see certain tumor types as priorities and certain other tumor types are less of a priority. Which ones are going to be the tumor types we will continue to invest in a focused way our resources and which ones are the tumor types where we will try to be a little bit more creative and, as you know, for certain tumor types, there are opportunities to further develop with corporative groups or with some alternative way.

Katherine Kim - Banc of America

Okay. Thank you for that.

Paolo Pucci

You're welcome. Obviously I don't expect, I cannot comment for Kyowa, but we are discussing with them gastric is a very important tumor type for that area of the world, hepatoma is very important tumor type for that area of the world as well. We are talking Japan, so non small-cell lung cancer is as well. So, will it be difficult to find a convergence on a prioritized list with our partner Kyowa? I don't expect it to be. I think if suffices, we go to the next call, if there is one in the queue.

Operator

Your next question comes from the line of Howard Liang with Leerink Swann. Please proceed.

Howard Liang - Leerink Swann

Thanks very much. If I can follow up on Ren's question earlier with regard to the difference between the initial Phase I and the Royal Marsden study PK and MTD findings, do you have an understanding of what has led to the difference between these two studies and why the Royal Marsden results are more reasonable?

Brian Schwartz

I think with, as you know, with small numbers in cancer patients' pharmacokinetics, you often get intra and inter-patient variability as you move through. With the original study done in the U.S., we actually got unexpectedly high exposures to start, which then continued and it appeared as if the PK was, the exposure was plateauing. When we took it to our higher dose and now evaluate all the PK from a dose, a low dose of 20 all the way up to a dose of 400, it appears that that dosing period between 100 and 180, the plateauing wasn't as much as we saw now that we can see the entire spectrum of PK.

Howard Liang - Leerink Swann

Okay. Thanks. And in terms of the protocol amendment for the two ongoing trials, are the total numbers of patients changing after the amendment?

Brian Schwartz

I think it's going to depend on a number of factors. It may be slightly higher numbers, but it's going to dependent on how many patients that are currently ongoing, we are able to up dose as well.

Peter Lawrence

I think that's right. Howard, as Paolo just got through saying to Katherine, we're going to come through with a comprehensive plan that we're going to be reporting to the street in the not too distant future, certainly in the fall and I think at that time we'll have definitive statements as to what we'll be doing. So as Brian said, numbers may be slightly higher, but we're moving ahead.

Howard Liang - Leerink Swann

Okay, great. And I don't know if I heard this correctly. I think you said that in addition to the dose amendment, dose adjustment, you may be adding an additional endpoint or independent endpoint. Can you talk about that?

Paolo Pucci

We, we can't describe it just yet, because we are assessing it, we're discussing it with the regulatory authorities as well as the investigators. But our experience tells us that a number of expanded, consideration regarding expanded points could better inform our future decisions and we will be remiss if we didn't take the opportunity to do that right now, that we are at this turning point, turning of events point while we are introducing the higher dosage. I wish, I could comment more, but those discussions not much were enough for us to be able to comment. There will be much more at the time that we prioritize because obviously the final set-up of those protocols it's informative for the process of prioritization as well. But we are not, I would like to stress, looking for the most part at any major change to what you have known so far to this program.

Howard Liang - Leerink Swann

Okay, great.

Paolo Pucci

So, we are looking at refinements, but those are refinements that don't make us waste any time in the process, don't end up costing likely a lot. They are not very expensive to implement, so they are, so to speak, low-hanging fruits that we need to capture with a little bit of diligence and that's what we are doing now.

Howard Liang - Leerink Swann

Okay. If I could ask a couple of questions about the preclinical programs, on EG5, I think you spoke about that you think there's a difference between the toxicity of 621 and other similar drugs. Can you review for us the other toxicities, the toxicities of the other compounds and why you think that 621 does not have those toxicities?

Paolo Pucci

It is early preliminary work, so we are not offering much detail about the EG5. We will be offering more details once we have completed the GLP toxicity, Howard. As you might have noted, I did not say that we had completed the GLP toxicity, but that we were in the process of completing GLP toxicity. And I think proper time for us to comment is once we have filed the IND. Maybe Peter can give just a little bit more detail, but really we would like to comment further once we have completed GSP toxicity, as well as the filing, but…

Peter Lawrence

Principally, and Tom is not here, Tom Chan, he's the best person to talk about this, Howard. But Paolo and I talk to Tom and Brian all the time about this stuff and the difference between some of the more advanced clinical EG5 programs and our EG5 program, the ARQ 621, is that we have seen the sparing of bone marrow cells throughout all of our preclinical experiments, which is very encouraging and in vitro, we have certainly seen what looks to be a fairly potent inhibitor.

So, I think the dose limiting toxicities that some of our colleagues who are running clinical trials now have seen has been problems with the bone marrow and it has resulted in very restrictive dosing schedules that would be suboptimal, we believe, for inhibition of the tumor types that you'll be going after. We have not seen that yet, it's early days. I think we need to get this into man hopefully very soon to see if we receive the nice efficacy profile and the bone marrow sparing that we have seen preclinically, so I would say that's what -- and that really is from medical summary with respect to EG5 and we'll know more once we get it into man.

In terms of other programs, Paolo mentioned 761. We've talked about that in the past. That's the next second generation molecule in the E2F-1 program behind 501. We all know what happened to 171, we saw some QT prolongation that resulted in the discontinuation of the development of 171, totally different scaffold from 501 and from 761.

As we've said in the past, you can think of 761 as a kind of as a pro drug of 501. What have we liked about 501? We've always liked its activity profile, but it does have off-target hemolytic anemia, which has been somewhat problematic. And because it's beta-lapachone, a natural substance, it does not have competition of matter protection. 761 has a different formulation than 501 because we combined it with metabisulfate, which hydrolizes when it hits the blood stream and then it turns into 501, but that new formulation confers composition of matter, at least we filed the composition matter patent. We think we will get it.

And it also -- 761 is formulated with significantly lower amounts of cyclodextrin, which is in itself a hemolytic agent. So, although, we don't know yet whether 761 will have a broader therapeutic window, we do hope that it will and obviously that's what Roche is hoping as well.

Howard Liang - Leerink Swann

Okay. Last question is regarding to -- you mentioned there is a corporate interest or a partner, potential interest from partners on the kinase inhibitor platform. How would you be able to take advantage of those interests? Is this more -- would this be in the form of you will be working with potential collaborators, other kinase inhibitors?

Paolo Pucci

There are different models. There are different models that are available, and those models vary depending on the capabilities of the potential partner, Howard, and there are at least a couple that we are considering as opportunities.

Peter Lawrence

I think what Paolo said generically, Howard, was that we are talking to -- we've said this frequently that we're talking to a number of partners about all of our assets, and I don't think it's appropriate to be overly specific at this point.

Howard Liang - Leerink Swann

Okay. Thank you very much.

Paolo Pucci

You're welcome.

Operator

(Operator Instructions) Your next question comes from the line of George Zavoico with Cantor Fitzgerald. Please go proceed.

George Zavoico - Cantor Fitzgerald

Hi. Thank you for taking the questions. And Paolo and Brian, welcome.

Paolo Pucci

Thank you.

George Zavoico - Cantor Fitzgerald

A couple of quick questions. Can you just briefly update progress on the 501 trial?

Peter Lawrence

I think, so George, in terms of 501, the only patients that are still on those trials are, I don't know if you would call it compassionate use, or those who I guess…

Paolo Pucci

Continued use.

Peter Lawrence

Continued use, thank you, Paolo, who are still able to receive drug. I don't think that we have come out with any final data on the pancreatic study, the combination study with gemcitabine. I do believe that we now have most, if not all of that data in-house with respect to 12 month data, because we've just been tracking the patients. And I would expect at some point we would be talking about that data in the not too distant future.

And in terms of the…

Paolo Pucci

First with Roche and…

Peter Lawrence

I think, Paolo, going first with our partner and then later with third parties.

George Zavoico - Cantor Fitzgerald

Okay, thanks. And with regard to the c-Met program, you mentioned before that there's sort of a lack of good biomarkers. Are you working to solve that problem as well?

Brian Schwartz

We have incorporated a lot of different biomarkers within our Phase II and myself coming on board have had some new ideas and as Paolo said, we are evaluating all of these different options. But yes, we are working hard, looking at the literature and Tom Chan's group has a very active biomarker group, which has continued to evaluate it.

George Zavoico - Cantor Fitzgerald

Okay. And with regard to the kinase platform, which it sounds like you all are getting somewhat excited about, the kinase space, as you well know, is quite crowded and there are a lot of companies out there with fragment-based structural biology based, high through-put screening types of technologies and platforms to find kinase inhibitors, of which as you know there are dozens, if not hundreds in clinical trials right now. How would you distinguish your platform now from your competitors? And how do you plan on catching up?

Paolo Pucci

First, you are correct. It's a very competitive landscape. One would catch up, if one were to be doing the same thing that the other competitors are doing. We believe that 197 has informed our ability to search for targets much more efficiently than otherwise. The ultimate approval of how we can differentiate ourselves is in scientific publications that are fully validated, and one the things that are indeed working out is relating a little bit more information further down the road about how we do that discovery here. I characterize it as a more pragmatic approach to discovery, but even though Peter has been in his capacity also head of business development for ArQule discussing with -- more intensively with some of the partners, I would like for him to add a little bit of perspective of what potential partners find is unique in our platform.

Peter Lawrence

Thanks, Paolo. So, George, I think that we have talked about the unique mechanism of inhibition of ARQ 197 publicly, and we do think that it is different than the other c-Met inhibitors that are currently being developed today. Unlike some breakthrough molecules and ours may or may not be, we'll see how the clinical trials go, but I want to refer to Gleevec that is a Type II inhibitor. It's a wonderful molecule. It's a great drug, but Type II inhibitors don't inform the structure of Type II inhibitors in the crystallographic structure does not inform how you go about finding additional Type II inhibitors.

We believe that the discovery of ARQ 197 has informed our ability to discover similar inhibitors of other receptor tyrosine kinases. So, our platform is now designed to go after targets that we believe fit what we call the Type IV inhibitor model, and we think that that is unique currently, and we also have seen significant proof of principles since we have started this program. And we also believe because Type IV inhibitors inhibit kinases in a different way, that there is a significant amount of IP space there that has not yet been gone over. So, we think that we are in a very nice, I don't want to call it a niche because it's actually quite broad, but a very nice area in kinase inhibition and we're excited about the work we're doing there.

Paolo Pucci

And for the purpose of further giving perspective on how this could be of interest to potential partners is multikinase inhibitor could be probably better augmented by selective inhibitors rather than otherwise in combination strategies. And as you know, there's plenty of interests in what are the future combinations that will emerge are -- what are those combinations? We have all seen the results of our combining TKIs with the cytotoxic and those results probably have not been terribly exciting. So, we think that the platform that produces more selective agents brings value to the table. And that seems to be also the perspective of some of the potential partners that have expressed interest in, at this point in time, discussing what our capabilities will be.

George Zavoico - Cantor Fitzgerald

You mentioned earlier that you might, with regard to that platform, you might go beyond the oncology space.

Paolo Pucci

It is early for us to comment. Intuitively, you would argue that the ability to look specifically to certain targets with selected compounds might hold that promise. As you see, and as the number of questions you had for us today justify, we have to work on our priorities and I will leave that for quite a bit later on than today.

George Zavoico - Cantor Fitzgerald

Okay. You've piqued my curiosity. I look forward to seeing more information about how this platform has evolved and what else might come from it.

Paolo Pucci

Thank you. As we have, as we work through the priorities, as you know, one important priority for us was over the past month to resolve in a tactical way the ARS situation and I hope we have done so satisfactorily. And that since last week from the strategy point of view, we are looking at a far better scenario for those kind of investments than we were at three months ago. The priority number two, as you've heard, was to do the necessary refinements in the 197 program.

I would still consider the higher dosing requirements and I would still like for you to view that decision more as a proof that we are confident in -- so confident in the side effect profile of this drug that we can take at face value the advice that we have received, if you wish from the Royal Marsden study. And then, the top priority now is to incorporate that into the current protocols with some other refinements that might be useful to take at no significant cost nearing the financial course, nor in the time to execution. And those are the key priorities we're working on. Obviously, we have always as key priorities the obligation with our partners and that's the reason why we are working diligently, as one program with Roche because the partner is always the priority.

George Zavoico - Cantor Fitzgerald

Okay. One last really brief question, how many employees do you have now?

Paolo Pucci

We have about 116 employees today in the Company.

George Zavoico - Cantor Fitzgerald

116, 1-1-6?

Paolo Pucci

1-1-6, 1-1-6.

George Zavoico - Cantor Fitzgerald

Okay. Got you.

Operator

At this time, there are no further questions.

Paolo Pucci

So, I would like to thank you all for having joined us in this first conference call for the Q3. I obviously would like to thank also my colleagues here and Bill for organizing it. And we're looking forward to an even more informative call for Q3. Thank you all. Have a good day. Bye-bye.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: ArQule, Inc., Q2 2008 Earnings Call Transcript
This Transcript
All Transcripts