Arena Pharmaceuticals (ARNA) Presents at 35th Annual J.P. Morgan Healthcare Conference (Transcript)

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Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) 35th Annual J.P. Morgan Healthcare Conference Call January 12, 2017 12:00 PM ET


Amit Munshi - President and Chief Executive Officer


Jessica Fye - JP Morgan


Good morning, everyone. My name is Jessica Fye. I’m one of the Biotech Analysts at JPMorgan, continuing day four of the 35th Annual at J.P. Morgan Healthcare Conference this morning with Arena Pharmaceuticals.

Delighted to be introducing the CEO, Amit Munshi, and I’ll turn it over to him.

Amit Munshi

Thanks Jess and thank you JPMorgan for allowing us here to tell our story from what is really a company reset and a new direction for Arena. So we will be making the requisite forward-looking statement here. We’re making forward-looking statements throughout the presentation, actual results may be different and for full risk factors PCR SEC filings.

So jumping right in, over the last six months, we have moved to essentially reset and restructure the entire company. We've been rebuilding key functional areas of the business and the result of – all of that is essentially a focused company with three unencumbered best-in-class potential products all in Phase II and all with significant readouts in 2017. We also ended the year 2016 with $90 million of cash on the balance sheet.

Two of the major initiatives over the last six months as we've begun to restructure the business to become a clinical development organization has been to spinout our discovery research function. We were driving about $25 million annual expenditure in our discovery research function. We were able to spin that out into a new entity Beacon Discovery, independently owned separate organization run by Dominic Behan, the former co-founder of Arena.

Importantly for us, we retained certain rights on products and technologies out of that group as well as economics going forward. The deal recently announced and far more substantive and substantial for our business was to restructure our agreement with Eisai Pharmaceuticals.

Some of you know historically the Eisai distribution agreements have provided for healthy royalty back to Arena with the performance of the product in the marketplace and the cash burn that we were on the hook for over the next three years. We felt it prudent to restructure this agreement. We were able to workout an agreement with Eisai to provide us approximately $100 million in total consideration.

We retain nominal royalties going forward between approximately 10% and 18% and ongoing future milestones. Most importantly, we are off the hook on about $80 million of development costs over the next couple of years. So we felt that was the right move for us, given our new focus on the pipeline.

That leaves us with a company with three highly differentiated assets, what we believe are substantial market potentials. We'll go through each one of these in some detail, but importantly here, we will have major data readouts throughout 2017. One of our partnered programs of the 5-HT2A and Inverse Agonist is partnered with Axovant and that product Nelotanserin is expected to have readout here in the first quarter. We captured about 15% economics on that program going forward.

Etrasimod, Ralinepag and APD371 are our three unencumbered assets. We start with data mid-year 2017 in the Ralinepag PAH study. That study is fully enrolled and again we expect data mid-year this year. Following from that, we expect additional data from APD371 in Crohn's Pain as well as Etrasimod in ulcerative colitis later in 2017. So very busy year for us in terms of data readout as we refocused the company on these programs and continue to move them forward.

Part of what we've been able to accomplish over the last six months is to restructure the entire management team, we've built a focus on the clinical development organization run by Dr. Cheryl Lassen. We've built a program management function. These things were absent in the Arena historically.

We’ve retained some key executives from historical Arena with tremendous breath and depth of experience in where these programs came from and where they're going including Maurice Mezzino and Steven Spector and we brought in talent that we think will help us build the company going forward including Kevin Lind who came to us from TPG and Vince Aurentz, who was an Executive Vice President at Merck Serono.

Beyond this about 50% of the entire staff of Arena’s new brought in last 120 days and approximately 90% of all senior executives have been brought in the last about 120 days. So a complete restructuring of the management team, a refocus on the pipeline and divestiture of core and non-core assets going forward.

So speaking about the Etrasimod, we believe this is the high specificity of the product gives it the opportunity to be a potential best-in-class S1P modulator. We think the potential safety profile, which I'll share with you in a moment gives us encouraging early readouts.

We are currently in a Phase II multinational trial for ulcerative colitis and we continue to assess as a new management team revisit and re-challenge protocol changes, protocol design to make sure that we can continue to manage and optimize costs, improve timely readouts on the data and make sure that we continue to watch patient safety as our primary concern. The data from all these studies will of course lead us into contemplating a Phase III program after we turn this data card over. We've also initiated a series of exploratory studies, which I'll touch on in a moment.

The key element of this program is the optimized receptor activity. There are five receptor subtypes for the S1P modulator, activity ranging from 1 to 5, 1, 4 and 5 are the good actors, 2 and 3 in the autoimmune space were the bad actors. We work on 1, 4. We like to say, we tickle 5 and we will avoid 2 and 3 and this is not ubiquitous across other programs, first generation programs hit multiple receptors in fact at all receptors and some of our predecessor second generation molecules hit for example 1, 5 and 2 and that data is available if anyone interested and taking a look at it.

From the early studies, we have early indications of efficacy. We see a 69% reduction in lymphocyte counts at the designate time point, at our designated high dose in our Phase II study. The product has a short half life of 35 hours, allowing rapid recovery, should it be needed and we think this is a good proxy for the efficacy of this program going forward.

We also have seen – the first dose heart rate effects and we don't require titration. The product is self titrating and allows us unlike again the competing products to avoid any first dose heart rate effects and avoid titration schedules, which can be quite cumbersome for these patients.

So the program as a whole, we see excellent lymphocyte modulation and encouraging cardiovascular safety profile. We haven't seen any AV conduction issues to-date and we have a clean [indiscernible] profile, which we'll talk about momentarily as an implication for where we go after receptor – where we go after in terms of new indications.

We've also seen a very favorable pulmonary profile. So pulmonary often is the rate limiting dose toxicity in our large species animal experiments. We see a safety margin of over 400 times human dose, whereas some of our competing products see something in the five times range. So with pulmonary again being the rate limiting dose toxicity. And again it's all driven by the optimize activity on the S1P modulator.

We announced late early this year that we will be expanding into some other indications that we think are very exciting. Primary is our ulcerative colitis, extra-intestinal manifestations approximately 40% of patients with ulcerative colitis develop some form of extra-intestinal manifestations and approximately half of those are of dermatologic nature.

We think this is a substantial subset of these patients and we are uniquely suited to serve these patients driven by the S1P1 activity, but also the S1P4 activity on dendritic cells. So this unique receptor profile allows us to go into some very unique areas that that will make an impact for patients going forward.

One of these extra-intestinal manifestations is Pyoderma Gangrenosum, ulcerative disease of the skin. It occurs in the context of ulcerative colitis. It also occurs independent of ulcerative colitis. So we'll be looking at this independent of ulcerative colitis as well and again this would be a smaller indication and should be pursue this path could believe to an accelerated path into the marketplace.

Primary Biliary Cirrhosis, lot of interest and excitement around PBC lately, we are not thinking about this currently as a stepping stone to Fatty Liver or Nash. Right now our focus is that we believe this product – this condition is a T-lymphocyte accumulation and with our robust profile on lymphocyte sequestration. We think this is an ideal target for our program.

Our second program Ralinepag, which was – again reads out in mid-year 2017. It's an oral highly selective IP receptor agonist. It's a strong partial agonist to the IP receptor and it targets the prostacyclin pathway for PAH patients. It's demonstrates superior in vitro performance, which I will go through and again the data is expected mid-year.

As some of you know who follow the PAH base, IV prostacyclin is the gold standard as where you want to take patients, people try to deliver the IV product in multiple different forms including various devices. The advantage that we would like to confirm the marketplace in the development of this program is to build a once a day oral product that has IV-like pharmacokinetics and I'll share that with you in momentarily.

The way we first started thinking about this was to compare our product Ralinepag to Iloprost as a gold standard and MRE-269. MRE-269 is the active metabolite of Actelion Selexipag program and you can see we do a better job of receptor activation as measured by up regulation of cyclic AMP.

We do a better job tenfold shift in the right on IC50 in potency of vascular remodeling and then again about an eightfold improvement in platelet aggregation. If those are the features, the benefit is that in human PAH tissue, we see a log full change in vasorelaxation compared to Selexipag.

Ralinepag also has a very optimized pharmacokinetic profile to match its potency I share with you on the previous slide. If you look at the IC50s that we again shared on the previous slide and you look at where MRE-269, the active metabolite, Selexipag as you see it does not get to the IC50. The product has a peak to trough issue with Ralinepag we can with BID dosing get above and stay at the IC50.

Importantly, right behind our BID dosing, we have an XR formulation, once a day formulation. And you can see the once a day formulation compared to Selexipag, we actually begun to accomplish what we set out to do, which is to build an oral once a day prostacyclin agonist that has IV-like activity. So we're very excited about this program and looking forward to seeing the data at mid-year.

Our third program is APD371. It's a peripherally restricted, highly selective, full agonist to cannabinoid-2 receptor. We're taking this into a new area and pain associated with Crohn's disease and then we will talk a little bit about the broad area of visceral pain and why we think it's an exciting program for that indication. The product is peripherally restricted. We see no psychotropic effects. It's highly selected for CB2. We see no activity on other endocannabinoids targets and no activity on CB1.

And it's a full agonist as opposed to the previous programs have all been partial agonist, which allows us to avoid tachyphylaxis to full agonism allows the receptor to recycle and does not create a stranded receptor and again downstream tachyphylaxis. We think this could provide with this product profile, a pain option to opioids and it's really driven by the specificity of the molecule and we expect Phase II to start this year and we expect readout late in 2017.

One of things are got us really excited about the syndication is the actual presence of these receptors and the CB2 receptors are expressed throughout the GI track. There expressed in the mucosal lining of the GI tract to over expressed in patients with Crohn's disease at the actual ulcerative margin and there expressed on the visceral effort nerve. So the combination of the expression in the enteric nerve system and the actual activity in the gut for CB2 gives us a reason to believe that we're heading in the right direction with this program.

Crohn's Pain is an area that we spend some time thinking about as we look at the biology and we went out and started spending time with patients and about half of Crohn's patients in the published literature experience persistent symptoms including chronic pain and this is in the presence of a clinical remission, about one out of eight patients on with Crohn's diseases are on chronic opioids. So just imagine having a small bowel obstruction and then being on chronic opioids probably not the best idea.

There's a range of pre-clinical experiments that have been done here about the endocannabinoid system in Crohn's. We see that synthesis of endocannabinoids are decreased in active inflammatory Crohn's and then in some several animal experiments we shown evidence that CB2 activation can alleviate abdominal pain. So we feel very strong that we’ve got good preclinical support completed multiple Phase I studies here as we have our other programs and are prepared to go into Phase II here.

Long-term for this program in an area that I think is super exciting is to look at a broader visceral pain application, most pain products as you know are being developed for neuropathic pain or nociceptive pain. We think visceral pain here is the place to go long-term and tremendous amount of work now to think about where to go next, spending time with external experts in the pain space. We believe that areas like [indiscernible] are highly under-served.

So again the APD371 program is a highly selective full agonist CB2 for Crohn's pain. It's expressing multiple cell types in the GI tract. We've got a strong set of animal experiments that suggest we’re heading down the right path and we're ready to head into the Phase II program.

So as a company, over the last six months to recap, we have right sized the organization. Some of you probably read about some of the reduction of forces that we've unfortunately had to execute on. We've begun to rebuild critical parts of the company that were decimated previously like clinical development, product operations, manufacturing. We've rebuilt a medical affairs function. We've begun to put key publications out there on these programs previously there were none. You can find a range of these on our website.

And importantly, we've begun to divest all the non-core areas. So the team, our financial resources can be highly focused on the core areas of the clinical pipeline. This has taken six months of a tremendous amount of effort from the team and I want to thank the team for sticking through this rough time in terms of getting this done. But we emerge on the other side as an evolved entity. We emerge as a company with three unencumbered Phase II assets, which we believe in many ways or all have the potential to be first or best-in-class.

Importantly 2017 is a monstrous year for us and we expect significant readouts on the range of our programs across a range of indications starting with the Axovant data nelotanserin and then following from our own molecules mid-year 2017 for Ralinepag and then fourth quarter for Etrasimod and APD371. So that the team is excited, we think we've taken an aggressive approach to rethinking and value maximizing the programs and we've got a balance sheet that's helping us to get us through key milestones for the company.

Question-and-Answer Session



Amit Munshi

So with that, I'm going to stop and move to questions.

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