Aerpio Pharmaceuticals Inc. (OTCQB:ARPO) Q3 2018 Earnings Conference Call November 7, 2018 8:30 AM ET
Mike Rogers – Chief Financial Officer
Steve Hoffman – Chief Executive Officer
Steve Pakola – Chief Medical Officer
Kevin Peters – Chief Scientific Officer
Jonathan Aschoff – National Securities
Adnan Butt – Guggenheim
Chad Messer – Needham & Company
Yi Chen – H.C. Wainwright
Good morning, ladies and gentlemen. Thank you for standing by and welcome to Aerpio Pharmaceuticals’ Third Quarter 2018 Financial Results and Business Update Conference Call. As a reminder, this conference call may be recorded.
It is now my pleasure to turn the call over to Mike Rogers, Aerpio's Chief Financial Officer. Please go ahead, sir.
Okay, George. Thank you. Good morning and thank you for joining us for Aerpio's Third Quarter 2018 Earnings Call. Joining me on the call today from Aerpio is Steve Hoffman, Chief Executive Officer; Joseph Gardner, President and Founder; Steve Pakola, Chief Medical Officer and Kevin Peters, our Chief Scientific Officer.
This morning Aerpio released financial results for the third quarter ended September 30, 2018. If you have not received the news release or if you would like to be added to the company's distribution list, you can do so on the Investor Relations page of our website at aerpio.com.
I'd also like to remind you the remarks made on the call today include forward-looking statements about Aerpio. Such statements may include, but are not limited to, those related to Aerpio and its business and its product candidates, including their planned clinical development and therapeutic potential. Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in that statement.
A more complete description of these and other material risks can be found in the Aerpio's filings with the SEC including our Form 10-K for the year ended December 31, 2017, which is filed with the SEC. Aerpio does not undertake any obligation to update publicly any forward-looking statement whether as a result of new information, future events or otherwise.
I will now turn the call over to our CEO Steve Hoffman. Steve?
Thanks, Mike and good morning everyone. Thank you for joining us today. We're pleased with the progress Aerpio made in the third quarter as we continued to work towards advancing our pipeline of first-in-class products that activate Tie2 to treat ocular diseases and diabetic complications.
As a reminder, the TIME-2b study was designed as a double-masked, placebo-controlled, multi-center trial where 167 patients were randomized to receive 48 weeks of treatment with either AKB-9778 15 milligrams subcutaneous once daily, AKB-9778 15 milligrams subcutaneous twice daily or placebo subcutaneously twice daily. The primary endpoint of the TIME-2b study is the percentage of patients who improved by two or more steps in their diabetic retinopathy severity score in the study eye.
Secondary objectives of the study include assessment of DRSS improvement in the fellow eye in patients that have bilateral disease, proportion of patients that develop diabetic macular edema and/or proliferative diabetic retinopathy, progression of diabetic retinopathy and improvement in renal function as measured by change in the urinary albumin to creatinine ratio or UACR from baseline.
We are encouraged by our data from the previous TIME-2 study and recently presented the renal function data obtained from a post-hoc analysis of the TIME-2 Phase 2 clinical trial of 9778 in diabetic retinopathy patients at the American Society of Nephrology in San Diego.
The post-hoc analysis of kidney function that we observed is very compelling and demonstrates the potential of AKB-9778 to become a significant treatment option for patients suffering from diabetic complications, which we believe is consistent with Tie2 activation by 9778. As we've stated previously, if the upcoming results of the TIME-2b study are successful, we expect to initiate the Phase 3 trials in NPDR in early 2020.
Moving beyond our program for diabetic retinopathy, we are continuing to evaluate AKB-9778 for additional therapeutic indications. We're looking forward to beginning a Phase 1b study for a topical eyedrop formulation AKB-9778 in patients with open-angle glaucoma in the second quarter of 2019 and expect to report top line results later in the year.
As a reminder, we also announced a license agreement with our partner Gossamer Bio earlier this year. Under that agreement we granted Gossamer an exclusive worldwide license to develop and commercialize AKB-4924 now known as GB004 for the treatment of inflammatory bowel disease. We believe this agreement is mutually beneficial as Gossamer Bio is the ideal partner to develop 4924, given their expertise and successful track record in the development of IBD therapeutics.
The partnership also allows us to focus our resources and time on the development of our lead programs in ophthalmology and diabetes where we believe we are best suited to succeed. The agreement also gives us a great source of non-dilutive capital as Gossamer gave us an upfront payment of $20 million with the potential to receive up to $400 million in development, commercial and sales milestones.
As you can see, this has been a busy year for Aerpio and we are approaching what could be potentially a transformative period. As we reflect on the year, I'm struck by all that we've accomplished. The company has expanded its senior leadership team, we completed enrollment of TIME-2b over three months ahead of schedule and over enrolled by about 10%, we demonstrated a potential benefit of 9778 on kidney function in our TIME-2 study, and while not our doing we also witnessed both Regeneron and Roche validate what we observed in TIME-2 by demonstrating an improvement in diabetic retinopathy by Tie2 activation of their angiopoietin-2 inhibitors.
In addition, we out-licensed 4924 to a world-class IBD development team in Gossamer. We strengthened our balance sheet with Nova [ph] subscribed $50 million follow-on financing and uplisted on to the NASDAQ exchange. We had four great sell-side analysts initiate coverage on our company. And finally, we are poised to expand our pipeline early next year by initiating clinical development of a topical dose form of 9778 in glaucoma. We basically hit every milestone we set for ourselves this year. We look forward to providing you further clinical and corporate development updates, including the reporting of top line data from our TIME-2b study as we continue to make progress.
I'll now turn the call back over to Mike to review the financials for the quarter.
Okay, thanks Steve and good morning again everyone. The earnings release details our financial results for the quarter. So I won't go into too much depth or repeat for you what is written in the release. For those interested, more detail than what is in our press release about our operational results and financial condition is included in our 10-Q, which will be filed later today or tomorrow. However, I'll take this time to quickly point out a couple of items. I'll start with the income statement.
You will note that we had revenue for the quarter as well as a net profit. Both of these items were the result of the recording of revenues from the Gossamer license. As you may recall, we received an upfront payment of $20 million in the transaction, which was signed in late June. The upfront payment was recorded as revenue starting in late June over a 90-day period during which we had continuing obligations to assist with the transition of AKB-4924 to Gossamer.
So most of the revenue fell into the third quarter. As a result, we recorded $18.8 million in Q3. The $18.8 million in revenue that we recorded resulted in a net profit after operating expenses for the quarter or $11.5 million. Incidentally, as Steve pointed out, the 4924 compound in Gossamer's hands is now known as GB004.
The other item to note is our cash balance. As of September 30, cash and cash equivalents totaled $68.8 million. This is compared to $20.3 million as of December 31 of 2017. The growth from year-end 2017 to September 30 of this year is attributable to the $20 million upfront payment we received from Gossamer as well as the net proceeds of $48.1 million from our equity financing at the end of June – of the June quarter, partially offset of course by our operating expenses.
Coincidently you will note that our cash balance at September 30 of $68.8 million is the same as the cash balance we had last quarter on June 30. This is due to the fact that the closing of the partial exercise of the underwriters' over-allotment option or greenshoe of our late June financing actually occurred in early July. So those greenshoe net proceeds of $6.2 million were not on the balance sheet at June 30.
Those proceeds received in the third quarter offset our net operating expenses for the quarter and hence the same balance at September 30 as we had at June 30. Overall, our current cash balance puts us in a strong capital position as we approach our 9778 data readout in early Q2 of next year. Based on our current operating plan, our cash would last through the first quarter of 2020, which is one year past the 9778 data.
So that concludes the financial summary for the quarter. I'll be happy to answer any questions you have in the Q&A, which we will begin now.
George, can we open the call for questions?
Thank you. [Operator Instructions] And our first question comes from the line of Jonathan Aschoff with National Securities. Your line is now open.
Thanks, good morning, guys and congrats on the progress. I was wondering what qualifies as a clinically meaningful UACR benefit and can the trial statistically test for that?
Good morning, Jonathan. So the study is not – is designed to measure the effect of 9778 in diabetic retinopathy and it's not designed to show necessarily a statistical benefit in changing UACR. We're hoping to replicate prospectively what we saw in a post-talk analysis of TIME-2 by showing a roughly 20% improvement in UACR in those patients receiving 9778 compared to baseline and we hope to see a benefit over patients who received placebo. But again emphasizing, this study was not designed to show an effect in kidney function and we were hoping to replicate what we saw in the post-talk analysis of TIME-2.
Okay. I was wondering, can you help us understand what kind of progress you've made with the topical formulation ever since you started developing it, just to give us a sense of just how likely you could go from twice-daily or once-daily subcutaneous to something as easy as topical?
Well, again we've presented the data we have from the TIME-2 study in corporate presentations. We've also developed a topical ocular formulation of 9778 at roughly 40 milligrams per milliliter. We've demonstrated an effect on intraocular pressure reduction in New Zealand white rabbits given that once a day and twice a day and the data seems to be consistent that it reduces intraocular pressure.
And that animal which by the way is a normal intensive bunnies, they don't have elevated intraocular pressure naturally. We are in the process of developing – we're doing the GMP manufacturing of the topical formulation. We completed the non-clinical in-life phase of the topical toxicology studies and we expect to position to file an IND for the topical ocular formulation in the first quarter of next year and start then clinical trials in normal subjects in the second quarter next year.
Okay. And lastly, what was new and exciting at the recent AAO Conference in your view?
Well, we didn't present any new information at AAO, although we did discuss Tie2 activation and inhibition of the vascular endothelial protein tyrosine phosphatase as part of regulating intraocular pressure and potential new approach to glaucoma at the OIS Conference just before AAO. At AAO itself we were – we're actually really very gratified to see all the attention being given to the Tie2 pathway in some part due to Roche moving their bispecific antibody called Faricimab, which is their anti-VEGF, anti Aag-2 bispecific antibody into Phase 3 in diabetic macular edema.
So there was a fair amount of discussion about that. But every presentation we went to and panel discussion around Tie2 talking about Aag-2 inhibition, there was also a lot of discussion about Tie2 activation by 9778. Presentations including vascular by Peter Kaiser from the Cleveland Clinic talking about Tie2 activation and the management of diabetic retinopathy and DME and Dr. Khanani from Reno, who spoke about targeting the Tie2 pathway in DME and DR. We're actually getting quite a bit of buzz and I was excited to see all the physicians and KOLs talking about Tie2 and also 9778. Those are the big takeaways from it Jonathan.
Okay, thanks. Thank you very much, Steve.
Thank you. And our next question comes from the line of Adnan Butt with Guggenheim. Your line is now open.
Hey, good morning. Thanks for taking the question. A couple from me as well. First, we have recently seen very strong data from the anti-VEGF and NPDR. Do you think that changes the bar for what should be expected for 9778 or is it a different ideal patient for one versus the other modality mechanism?
I'd like to have Dr. Pakola address that, if he could please.
Sure. Thanks Steve and thanks Adnan for the question. Yes, so those results came out in the Regeneron press release, so we just had the information from the press release. Nothing was presented at either Retina Sub-Day or AAO. So what we have is the top line results from one year of treatment. And we already have the 6-month results that were press released and subsequently presented earlier in the year.
As you mentioned, they were strong results in terms of treatment of moderately severe to severe NPDR without DME. What we've heard from the Retina Community as recently as AAO where we had a chance to speak to a lot of the KOLs that Steven already mentioned as well as a lot of others is; one, not really a big surprise given that we already knew the six-month results.
Yes, they saw at least as good a response and better, particularly if you dose every other month, that the recurring theme that we hear is that this still involves repeated intravitreal injection and invasive procedure into one or both eyes since most patients have bilateral diabetic retinopathy and that in particularly the NPDR population with outside threatening complications, these are the patients that generally are visually asymptomatic and that's precisely the patient population that doesn't want to start getting injections into the eye.
And we heard that over and over again and also even in some of these podium, roundtable discussions where – that's really what makes this really a different treatment approach where no matter what the treatment response is, you're still left with that very invasive repeated injection procedure that's simply not going to be sustainable for the majority of asymptomatic patients.
Now this understandably isn't going to stop Regeneron from advancing with the potential label expansion. So they have a PDUFA date for first half of next year. So we very much expect Regeneron to educate the community on the need to diagnose NPDR before sight threatening complications develop and that's actually very consistent with what Genentech is already doing with regard to their LUCENTIS franchise where there is already a lot of advertising and trade journals about the need to diagnose NPDR and potentially re-grass, turn back the clock, if you will, to help prevent the risk of developing a threatening complication.
So for us we see this as really a win to educate the community on the importance of treating and finding first actually these patients who have a risk of developing sight threatening complications. But in our case, we have a potentially sustainable treatment option, because we have a subcutaneous product that can treat not one, but both eyes, and also potentially treat other disease vascular bed that occur in diabetics such as the kidney and peripheral vasculature and critically can do this without the need to be injecting either eye repeatedly over time. So all in all, Adnan, we see this as really positive for our program.
I did want a quick follow-up on that one. The DRSS end point, I'm sorry – the two-step improvement, have you ever set an expectation as to what you'd like to see before you decide to advance 9778 to a Phase 3, just on the retinopathy endpoint?
So the good news is, there is a lot of history with the DRSS scale. So both in our ongoing study and eventually in the Phase 3, we feel we have a good understanding of what to expect with natural history in a negative control arm.
Now, to your question of what type of effect size you'd expect to see or want to see, what we've seen and heard from speaking to a lot of retina specialists is a treatment effect of 20%, for example, would be clinically meaningful and the reason for that is the fact that a non-invasive treatment doesn't require the IVT injection. So that's sort of the clinically meaningful threshold that we've discussed in the past. Our clinical trial – our ongoing clinical trial is hovered at over 85% to show a positive outcome on the primary endpoint assuming such an underlying true effect size.
Okay. And I think the company also recently published – presented some renal function data at ASN. I wanted to ask if you know how many patients in the Phase 2b have compromised kidney function or if you're looking for a certain kidney function level? And then what would be the natural course for those patients over the course of a year, what would you expect UACRs to in at least the placebo arm?
Well, for the ongoing Phase 2b study, since it's ongoing, we're not prepared to go into any kind of quantitative answer to such a question just because the study is ongoing. We can say that from the prior TIME-2 study, which is a similar population in terms of diabetic retinopathy severity, we saw about half of the patients had some degree of albuminuria by the standard definitions that we look at for UACR elevation. I can say just in a general sense, we're seeing something similar to that in the ongoing study, but the actual details we will come out with at a later date after unmasking of the study.
To your question of what you would expect with natural history, there is a lot of variability as you probably won't be surprised, depending on specifically what population you're looking at. So I wouldn't want to speculate too much on what you'd expect to see here. What I would say is unless you are dramatically changing the underlying treatment of the patients of their underlying diabetic disease, which we're not doing.
We've maintained a steady well controlled population during the study, you certainly wouldn't expect any improvement in renal insufficiency in those patients who have some degree at baseline. But again, I wouldn't want to speculate too much on what we might see in the natural – in the negative control arm of the ongoing study.
Great, thank you.
Thank you. And our next question comes from the line of Chad Messer with Needham & Company. Your line is now open.
Great, thanks good morning. And thanks for taking my question. Just wondering if you do repeat this kidney function benefit on UACR in TIME-2b, are there additional endpoints that you could put into Phase 3 or even additional studies that you could run as part of a Phase 3 program to capture a kidney benefit of this drug going forward?
Again, Steve, would you mind answering that question please?
Sure. So the other common noninvasive measure in addition to UACR that would be natural to look at would be eGFR or estimated glomerular filtration rate. So that's another standard one that certainly would be included in any Phase 3 study. So the nice thing about both UACR and EGFR is you basically get those for free since you have all these diabetic retinopathy patients where we know there is a high overlap of patients who have a diabetic retinal disease who also have renal insufficiency.
And again I refer to that roughly half of the patients that we saw have that overlap in our completed study, that would be a natural second one. There are some other more exotic biomarkers that people have looked at and certainly in a Phase 3, we could – we look at outcome measures in these kind of patients where at each phase of development we have the benefit of looking at longer and longer treatment and with more and more patients where we'll have the power to potentially show a benefit on some of these important markers of renal insufficiency.
Okay. And then maybe could you just speak a little bit about how important and in what ways you would like to see this kind of information on your label to kind of help differentiate?
A big point here is that we wait till we see the data of course. So we get a lot of data from our ongoing study with a year of treatment in both untreated and treated subjects. And once we have that data we'll be in a position to consider steps such as hierarchical statistical testing that we can build in prospectively.
So for example, if we were to confirm a signal on one or more of these exploratory endpoints that would put us in a position to build that in a statistical hierarchical testing approach that if we hit on our primary endpoint as well as a follow-on or a sequential secondary endpoint or endpoints that would put us in a position to include those findings potentially in the clinical section of our label which obviously would be very important and valuable.
We do know from our ongoing study, as well as completed studies that although our Retina Community and our clinical trial list in the Retina Community are focused on the eyes of their patients we've had a lot of it enthusiastic feedback from these investigators on how their patients look at the potential for not only an eye benefit, but potentially even a renal benefit.
So we do know there's a lot of enthusiasm and there would be a lot of traction, particularly if we were to get something in the label. But again I caution we really want to see the results first to see, which are the secondary endpoints that we would want to potentially prioritize prospectively in Phase 3.
Great, thanks. Appreciate your thoughts.
Thank you. And our next question comes from the line of Yi Chen with H.C. Wainwright. Your line is now open.
Thank you for taking my questions. Can you give us an update on the preparation status for the glaucoma trial for 2019 and whether – how the topical 9778 can be positioned on the market against drugs like Vyzulta and Rhopressa?
Kevin, would you mind addressing the first part of Yi's question and then maybe Steve Pakola could pick up the second part?
Sure. So thanks for the question. I think as Steve mentioned at the beginning of the call, we're kind of in the middle of the IND enabling studies and as you know those are mainly comprised of the safety studies required to push forward into the clinic in a first-in-human trial. So we're engaging potential CROs to help us with that trial. These are – I mean these are all kind of standard procedures that are done prior to getting into a first-in-human with a new formulation.
We don't – based on what we've experienced so far, we don't anticipate any issues, getting to the IND sometime in the first quarter of next year, as Steve mentioned and then following up, getting into the first-in-human trial sometime in the second quarter.
Then on the second part of your question, how do we see this program fitting in, in the new landscape, for example, with Vyzulta now in the market as well as AERI's Rhopressa program. This is obviously an event that's been quite awhile since any new mechanism has gotten approval in the glaucoma space, but I think the AERI market cap certainly speaks to the potential value of a therapy that are getting specifically the conventional outflow pathway.
And we'll see how Rhopressa does on the market, but certainly the ability to affect the conventional outflow pathway, we think, is the biggest unmet need since that's where you can potentially and you predict that you'd have the most additive effect on top of the prostaglandin analogues, which of course are the current standard of care.
So we view our target product profile as relatively straightforward that if we can have a reasonable IOP reduction, something in that 5 millimeter reduction in a monotherapy setting in a ocular hypertensive or glaucoma population, that really sets us up with this mechanism working on conventional outflow pathway to believe that we should be able to achieve a clinically meaningful additive effect over and above PGAs, prostaglandin analogues.
And what will be key I think down the road is, can you achieve that without significant hyperemia. So again, we know that Rhopressa has a fair amount of hyperemia. There's a lot of different views on how that will or will not impact prescribing and retention of patients on therapy. But certainly if we can have a similar efficacy with similar or hopefully improved tolerability, particularly as it relates to hyperemia and none of the other, for example, corneal effects that have been seen with Rhopressa, we're set up to have a pretty solid target product profile to move forward.
Here again, we'll have to go through our Phase 1 program and see what we see in terms of tolerability, hyperemia and potential early single signal on an IOP. But again this will be a generally healthy volunteer population, but at least the downstream view in positioning relative to these programs we feel pretty comfortable related to your question.
Thank you. And we show no further questions at this time. I would like to turn the call back over to CEO, Stephen Hoffman for closing remarks.
Thank you very much everybody for participating in this morning's call. As I said, we're excited about the progress that we've made this year and we're very much looking forward to 2019. If we don't see you before then, I'd like to invite everyone to come to our presentation a week from today at 8 o'clock in the morning at the Stifel Healthcare Conference in York City. And if we don't see you there perhaps we will see you at the JPMorgan Conference in San Francisco in January. Thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a great day.