Arena Pharmaceuticals, Inc. (ARNA) CEO Amit Munshi on Q1 2019 Results - Earnings Call Transcript

About: Arena Pharmaceuticals, Inc. (ARNA)
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Earning Call Audio

Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) Q1 2019 Results Earnings Conference Call May 8, 2019 4:30 PM ET

Company Participants

Kevin Lind - Chief Financial Officer

Amit Munshi - President & Chief Executive Officer

Preston Klassen - Chief Medical Officer .

Conference Call Participants

Jessica Fye - JPMorgan

Kennen MacKay - RBC Capital Markets

Joel Beatty - Citi

Dae Gon - SVB Leerink

Alan Carr - Needham

Shanshan Xu - Berenberg Capital


Good day, everyone, and welcome to Arena Pharmaceuticals First Quarter 2019 Financial Results and Corporate Update Conference Call. This call is being recorded. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

I will now turn the call over to Kevin Lind, Chief Financial Officer of Arena. Please go ahead.

Kevin Lind

Good afternoon, everyone, and thank you for joining us today. We hope you had a chance to review the news release we issued earlier today announcing our first quarter 2019 financial results. Joining me on today's call is Amit Munshi, our President and Chief Executive Officer; and Dr. Preston Klassen, our Chief Medical Officer.

Before we begin, I'd like to remind you that we'll make forward-looking statements that involve risks and uncertainties, including statements about our focus, drive, plans, goals, strategy, expectations, products, clinical and preclinical programs, R&D, regulatory activities and operations and those of our collaborators and licensees and other statements that are not historical facts. These statements are made in the context of the risks and uncertainties that are discussed in our filings with the U.S. Securities and Exchange Commission, which can be found on the SEC website at and include risks related to timing and outcomes of regulatory decisions and discussions; timing of preclinical and clinical trials and patient recruitment for clinical trials, which is competitive and challenging and may take longer than we project; preclinical and clinical data related to drugs and drug candidates and the timing of that data, which may not be as expected or sufficient for further development; regulatory approval or commercialization; our products that are in development stage and may not be approved for marketing; collaboration and licensing activities; and the amount and allocation of our available financial and other resources. Our actual results may differ materially from our forward-looking statements.

Now I'd like to turn the call over to Amit.

Amit Munshi

Thanks, Kevin. Hi, everyone, and thanks for joining our call today. During my comments today, I will provide pipeline updates as we continue to advance our promising programs. Importantly, on this call, Preston will provide details on the etrasimod Phase III ELEVATE UC program, as well as other pipeline programs. Kevin will thus conclude with a financial review of the first quarter 2019.

Arena continues to make strong progress on all fronts: clinical, operational and financial. As you may recall, during the first quarter, we delivered positive open-label extension data for etrasimod in ulcerative colitis, closing United Therapeutics deal, securing a strong cash position and continued scaling the enterprise, including building our commercial and medical affairs team in Boston to deliver in 2019 and beyond. We believe we are uniquely positioned to continue to deliver results for patients and shareholders with our potential best in class products, a world-class team and a strong balance sheet.

For etrasimod, we are moving to initiate a Phase III program in ulcerative colitis midyear, rapidly advancing our Phase IIb/III program in Crohn's and our Phase IIb program in the atopic dermatitis.

For olorinab, we are progressing a Phase IIb trial for gastrointestinal pain associated with irritable bowel syndrome, or IBS. And additionally, we continue to move other programs forward in our pipeline, including filing an investigational new drug application, or IND, for our preclinical asset APD418 for decompensated heart failure in the second half of this year.

So let me start with etrasimod. Etrasimod is a thoroughly characterized, in-house developed, next-generation, once-daily, oral S1P modulator with unique and best-in-class receptor selectivity and pharmacodynamics. It is the only next-generation S1P modulator and has the potential to be the preferred oral option for patients suffering from a broad range of breathless [ph] T-lymphocyte-mediated immune and inflammatory disorders such as IBD. As is our practice and as we get closer to the initiation of trials, we'll disclose it on the details.

So with that, I will turn the call over to Preston Klassen to walk through the Phase III ELEVATE UC program. Preston?

Preston Klassen

Thanks, Amit. As a reminder, last year, we delivered highly positive results from our Phase II OASIS trial of etrasimod for the treatment of moderate to severely active ulcerative colitis, or UC. And the patient population or a high proportion of patients at 40% had already failed the previous biologic therapy.

We believe these Phase II data demonstrates that etrasimod has the potential to be a best-in-disease products for UC, and IBD continues to have a large unmet need, highlighting the opportunity for etrasimod to make a real difference to patients. And we are pleased today to provide additional detail on the Phase III clinical program in UC, which will be branded as the ELEVATE UC program.

Before I walk through the details, we developed the ELEVATE UC program with the following goals in mind. A trial design that is appropriate to meet global regulatory requirements for approval, effective use of enrolled patients to speed time-to-market and targeted endpoints and other design elements to produce a competitive label for payers and providers, ultimately delivering a product that offers sustained and market-meaningful, long-term safety and efficacy to patients in a once-daily oral therapy.

We believe that etrasimod and the ELEVATE UC program will allow us to meet these imperatives. The etrasimod global Phase III ELEVATE UC registrational program will consist of two key trials to evaluate etrasimod 2-milligram, once-daily in subjects with moderately to severely active ulcerative colitis.

The first trial is ELEVATE UC 52, a treat-through trial design with a 12-week induction period and seamlessly followed by 40 weeks of maintenance for a total 52-week exposure. And the second trial is ELEVATE UC 12, which is a confirmatory 12-week induction period trial.

We plan to conduct additional studies to provide direct evidence and differentiation and value for health care providers and payers. These trials will elucidate the safety, efficacy and convenience benefits of etrasimod, particularly in the context of biologic and broadly immunosuppressive oral treatments. For competitive reasons, we will not go into specific details on these additional trials at this time, but we will provide those details when we are closer to initiation.

Across each of the two pivotal studies, we will target a population that includes both patients who are naive to prior biologic or JAK inhibitor therapy and patients who have previously been on and failed or are intolerant to prior therapy with a biologic or JAK inhibitor.

We will ensure that the program enrolls adequate representation from both biologic or JAK naive patients and patients with prior exposure to give prescribing physicians the important guidance on what to expect when etrasimod is used either ahead of these other therapies or after other therapies have failed.

We believe this program will maximize our speed to filing and provide a robust dataset to exhibit the potential benefits of etrasimod. And with that, I'll provide some additional detail on these two trials within the ELEVATE UC program.

ELEVATE UC 52 will be a 2:1 randomized, double blind, placebo-controlled trial to assess the efficacy and safety of etrasimod 2-milligram once-daily in subjects with moderately to severely active UC defined as a baseline 3-domain, modified Mayo Score of 4 to 9 with an endoscopic score of 2 or more and a rectal bleeding score of 1 or more.

This is a 1-year trial examining both clinical remission at 12 weeks, which is typically referred to as induction, and clinical remission at 52 weeks. The trial consists of a 28-day screening period and a 12-week treatment period, a 40-week treatment period and a 2-week follow-up period. We plan to enroll approximately 370 subjects. The primary objective of this trial is to assess the safety and efficacy of etrasimod on clinical remission after both 12 and 52 weeks.

The primary endpoint is the FDA-required, 3-domain, modified Mayo Score, which is similar to the primary endpoint in the Phase II OASIS study. And the trial is appropriately powered to achieve significance on the 12 and 52 week remission endpoints as co-primary endpoints at a population level.

In addition, we will be assessing several key secondary measures, including the efficacy of etrasimod on clinical response, symptomatic response and remission, endoscopic changes, corticosteroid-free remission and a total healing in these subjects at time points up to 52 weeks of treatment.

Other objectives include evaluation of etrasimod pharmacokinetics and a variety of exploratory biomarkers and the effect of etrasimod on health related, patient-reported outcome measures.

We continue to expect to initiate the ELEVATE UC 52 trial by midyear, and we plan to have data in 2021. The ELEVATE UC program will be conducted in approximately 450 sites across more than 40 countries, and I will provide additional color on our plans to execute the program and meet these timelines in a moment.

The second pivotal Phase III trial is ELEVATE UC 12, also a 2:1 randomized, double blind, placebo-controlled trial to evaluate the efficacy and safety of etrasimod 2-milligram once-daily in subjects with moderately to severely active UC using the same baseline disease severity definition.

This trial is a confirmatory 12-week induction study and consists of a 28-day screening period, a 12-week treatment period and a 2-week follow-up period. ELEVATE UC 12 will enroll approximately 330 subjects to assess the efficacy of etrasimod when administered for 12 weeks on clinical remission, again, using the same 3-domain, modified Mayo Score endpoint for remission. Secondary measures in this study are similar to those that I mentioned as part of the ELEVATE UC 52 trial.

We plan to conduct the ELEVATE UC 12 trial across the same global trial site network of approximately 450 sites developed for the ELEVATE UC 52 trial, and we plan to stagger enrollment to optimize conduct of the 1-year trial and ensure that the confirmatory 12-week trial is not rate limiting to completion of the program to enable NDA submission. I will speak to you additional aspects of the trial execution in a moment.

Importantly to both studies, after participation in the main trial, enrolled patients will have the opportunity to move into an open-label extension trial from which we'll gather additional long-term safety and efficacy information.

We have discussed in prior calls and presentations that in multiple quantitative market research surveys, providers and patients strongly prefer the Phase II generated profile of etrasimod's safety and efficacy and the convenience of once-daily oral therapy over alternatives, including biologics and JAK inhibitors. These 2 pivotal Phase III trials are intended to confirm this highly advantageous profile, and upon approval, have established same label.

I want to point out that the primary endpoint of clinical remission is the 3-domain, modified Mayo Scores, the current FDA standard and requirement for approval of products in ulcerative colitis. In the Phase II OASIS trial, using this 3-domain, modified Mayo Score endpoint, etrasimod demonstrated a placebo-corrected 25.4% clinical remission proportion over 12 weeks, which is an even greater separation from placebo than the 18.7% delta observed for the 4-domain, total Mayo Score endpoint in that study. And by way of contrast, 4-domain, total Mayo Score endpoints in Phase III from approved products or in Phase II from products still in development in ulcerative colitis have shown only approximately 7% to 11% placebo-corrected remission rates.

Furthermore, our experience from the Phase II open-label extension leads us to believe that remission rates will increase over time in contrast to biologic therapies, which often have a waning effect over time in part due to the presence of neutralizing antibodies.

Our Phase II data are extremely strong, highly competitive, and clinically, it represents a direct readthrough to the planned Phase III trials, providing us confidence and enthusiasm that address and will demonstrate clinically meaningful and market-leading evidence of efficacy and safety.

It is clear that IBD generally and ulcerative colitis specifically has a competitive landscape into the trial recruitment, and we are taking a proactive and broad approach through recruiting patients into the ELEVATE UC program. We recognized the need to set ourselves apart through our site-phasing strategy and using innovative approaches to trial enrollment.

One of the key themes in our approach to trial recruitment is taking direct ownership of site relationships, working on partner collaboratively and creatively with sites to address roadblocks to recruitment and enrollment.

Arena has developed a field-based team of health care professionals to interact directly and frequently with leadership at the sites, the PIs and study coordinators, with a focus on customer service. This is a different and additive approach compared to the typical process of delegating site relationships to a CRO.

We are extremely confident in our global CRO and their capabilities in the IBD space, and with them, we have developed a coordinated approach to drive excellent customer service to sites and their patients with an appropriate overlay of quality assurance with respect to trial execution.

Another theme in our approach is a focus on innovative partners and technologies to take advantage of opportunity that are cutting edge of trial conduct. Key areas of focus here are the logistics of patient participation, including communication, scheduling and transportation.

These are proprietary screening platforms to identify appropriate patients, the creation of enterprise-wide partnership with health care systems and the appropriate capture of patient referrals from outside the traditional site catchment areas.

As we incorporate these areas of focus into the execution phase of ELEVATE UC program, we will provide more specific details on these innovative approaches and where appropriate, the collaborations and partnerships that we develop.

The theme here is that Arena is not interested in standard practice trial execution. We think it takes a much more innovative approach, and we look forward to updating you on our progress with the ELEVATE UC program over time.

We fundamentally believe etrasimod has an opportunity to be a best-in-disease therapy that can truly shift the UC treatment paradigm and potentially offer patients an improved quality of life.

We are confident that the studies I have outlined as the pivotal trials within the ELEVATE UC program can confirm the benefits of etrasimod, enable a winning label and launch in this rapidly evolving market.

As we finalize the additional supplementary trials that we'll add to the ELEVATE UC program and serve to enhance the overall etrasimod value proposition, we will provide those details and updates as appropriate.

We are also continuing to work through an aggressive development path in Crohn's disease with etrasimod, and we are finalizing plans. We look forward to updating you as we enhance that program.

Let me shift focus now to the topic of etrasimod's metabolic profile. As you know, competitors have had challenges in this area and this is a question we get often. In addition to finalizing plans for the ELEVATE UC program, we have now completed our human mass balance study with etrasimod, and that confirms that etrasimod has no major circulating metabolism.

These data further support our belief that etrasimod is a well-understood compound and validate the decades of world-class science conducted at Arena, enabling the rationale design of compounds like ralinepag, etrasimod and olorinab, which have been validated clinically, as well as a host of additional early-stage compounds in our pipeline.

And with that, I'll turn the call back over to Amit.

Amit Munshi

Thanks, Preston. Moving to other indications for etrasimod beyond IBD. As announced, we are moving forward in atopic dermatitis. Current therapies have efficacy in a limited set of patients and range from simple emollients, to lower [ph] injectable biologics and other topical therapies.

We believe there is a significant opportunity to move this field forward with a once-a-day oral regimen that may safely impact not only the dermatologic manifestation but potentially the systemic implications of atopic dermatitis as well. We expect to initiate a Phase II trial this year from the data we got in 2020.

We're excited to further evaluate etrasimod in multiple indications going forward and continue to believe that it is the only next-generation S1P modulator in development with improved pharmacology and pharmacodynamics and demonstrated improved safety and efficacy, offering tremendous promise in the treatment of a broad range of immune and inflammatory-mediated conditions.

Moving on to olorinab, our peripherally active, highly selective, full agonist of CB2. We believe this product has the potential with significant advancement in the treatment of visceral pain.

In light of the positive phase IIa results that we delivered in September, we continue to advance the olorinab program targeting GI pain. We expect initiating multi-dose, 12-week, randomized, double blind, placebo-controlled Phase IIb clinical trial program targeting the treatment of irritable bowel syndrome pain this year. We look forward to updating you on the progress throughout the year.

So with that, I'd like to turn the call over to Kevin to review our financials. Kevin?

Kevin Lind

Thank you, Amit. I'll provide a brief review of our first quarter 2019 financial results here, while more detailed results are discussed in our press release from earlier today and in our 10-Q, which will be filed this week.

Revenues for the first quarter were $801.1 million consisting of $800 million of revenue from the United Therapeutics upfront payment and $10 million of royalty revenue. In terms of cost, research and development expenses totaled $45.4 million in Q1, including $3.2 million related to ralinepag development program incurred expenses prior to the transition to United Therapeutics and $6.7 million of noncash share-based compensation.

General and administrative expenses totaled $16.6 million, of which $6.3 million was noncash share-based compensation. We've earned approximately $52 million in cash this quarter, excluding onetime items. The company recorded a tax provision of $110.3 million as a result of utilizing the deferred tax assets that were recorded in the fourth quarter of 2018. And net income for the quarter was $620.1 million or $12.53 per share on a basic per share basis, and the diluted earnings per share was $12.10. At March 31, 2019, cash, cash equivalents and investments balance was approximately $1.3 billion, and approximately 49.5 million shares of Arena common stock were outstanding.


Amit Munshi

Thanks, Kevin. We'll continue to make significant progress across the board. Building a world-class company requires best-in-class products, a relentless focus on execution, a team that can deliver and, of course, capital. We believe we are uniquely positioned to deliver on the promise of our products.

We're excited to initiate the ELEVATE UC global program for etrasimod in ulcerative colitis around midyear with hopes of addressing a significant unmet need that still remains in IBD.

As you know, despite the advancements in therapies that is striking, but the majority of patients either not receiving or failing current standard of care. We look forward to the exciting months, quarters and years ahead as we continue to build a vibrant, sustainable enterprise around our assets.

So with that, I'll turn the call over to the operator to begin the Q&A session. Operator?

Question-and-Answer Session


Thank you. [Operator Instructions] And our first question comes from the line of Jessica Fye with JPMorgan. Your line is now open.

Jessica Fye

Great. Thanks for taking my question. Just a couple for me. Can you just elaborate a little bit more on the rationale for the lag between the start of the 2 UC pivotal studies?

And then second question is curious how you think about the IL-23s and how they'll sit into the UC space with Phase III data for a couple of them coming in a similar time frame to your Phase III results. Thank you.

Amit Munshi

Great. Yes, Jess. This is Amit. Let me take the IL-23 question and hand up to Preston on the trials. As with our biologics, they are limited in their use. So it's striking to me that after 2 decades of biologics in the marketplace, the 60% to 65% of patients with moderate to severe UC have never received a biologic. And these patients are sitting there with ongoing active disease, moving in and out of flares, adapting to different levels of corticosteroids but never moved into the biologics. So there's a real gap in the marketplace, and only an oral therapy, we believe, can fill that gap.

So as IL-23 has come out and other modalities in the biologics space, biosimilars, all these kinds of different biologics come out, they're still restricted to sort of that back end of treatment. And we see that over and over again. And as we've shared in the past, every piece of quantitative, global market research we do shall be exactly 2 things [indiscernible] oral therapies that prefer 2 out of 3 times, and there's a well kind of pent-up demand for something that's logged in both the full biologics and of course, all biologics wane in activity over time, so after the biologics. So we think the space is wide open. And with that, I'll hand you...

Preston Klassen

This is Preston. So in terms of the overall execution, we've got a large -- as I mentioned, a large global network of sites. It's around 450 in over 40 countries. That's what needed in the space to enroll these studies adequately. And we think it's an advantage to be running both studies through this global network that we create with our CRO.

But as you know, the long pole in the tent, so to speak, is the 1 year study, ELEVATE UC 52. And so we want to focus on getting underway with that trial in terms of enrollment and significantly down the road before we layer in the much shorter trial, ELEVATE UC 12 and -- but also doing so in a way that doesn't make the second study, the shorter study, actually [indiscernible] for the NDA submission. So we're focusing all our timeline on getting that 1-year file done, wrapped up and into an NDA submission format. And the UC 12 study will fall in between - in that window. Does that make sense?

Jessica Fye

Yes. Understood.


And our next question comes from the line of Martin Auster with Crédit Suisse. Your line is now open.

Unidentified Analyst

Hi, guys. EK Oj [ph] on for Marty Auster. A set of quick questions in regards to the CD trial. So given that there was an unexpectedly high placebo response rate for CDAI in a couple of other trials, we're curious about the potential efficacy endpoints that you're going to be looking at for your own CD trial to ensure that there is that expected clinical benefit.

Amit Munshi

Yes. Are you specifically referring to the amiselimod data?

Unidentified Analyst

I am, Amit.

Amit Munshi

Okay. Yes. So I think it's important to understand, file designing conduct is everything here. That was not only a relatively small trial, but the trials, they have endoscopy, for example. So it's a really complicated disease. There's a lot of heterogeneity. So if you're not controlling for inclusion criteria and you're not really managing the outcomes in a quantitative setting like endoscopy, you're going to see a lot of variability. So all autoimmune diseases, as you know, wax and wane.

So inclusion criteria is actually critical. Having hard endpoints at endoscopy is actually critical. And as you know, that trial failed on both of those measures in some study designs. So I think that sort of the critical aspect in thinking about the Crohn's disease trials.

Unidentified Analyst

Okay. Thanks.


Thank you. And our next question comes from the line of Kennen MacKay with RBC Capital Markets. Your line is now open.

Kennen MacKay

Thanks for taking the questions and congrats on the progress, it's been quite a year. Preston, maybe an initial question for you. The ELEVATE 52 time line that you sort of laid out, when I think about this and the 52-week endpoint, seems like you're aiming for enrollment -- complete enrollment about 1.5 years. That's sort of 2 times faster than some of the other trials we've seen in the space.

And I know you've done really impressive things around trial enrollment before in your previous role enrolling one of the fastest ever MACE trials. Is this going to be sort of a similar idea with the boots on the ground that you were talking about building out sort of -- not a sales force but a sort of trial recruitment force?

And then secondly, how will enrollment into these trials be communicated to The Street? Is this something we could expect to get time lines on at various landmarks, like when the trial reaches 50% enrollment or something?

Preston Klassen

Yes. Thanks for the question. So first of all, you're absolutely correct. The idea here is to take an approach that, as I've said in my opening remarks, focuses a bit more on customer service and direct site ownership. We know this specifically from our Phase II trial OASIS with etrasimod. As new management came in, that study had actually been underway for some time and had enrolled hardly any patients over a pretty extended period of time.

And what did we do? Well, we went out to sites, went out. Other members of the senior team went out to sites and just talked with people, explained who Arena was and the excitement that we had around the compound. And that did wonders in terms of trial recruitment.

Now what we have to do is scale all of that up x fold in order to be able to enroll a large Phase III program. And I've got, as you mentioned, experience doing this kind of thing in another setting, but I don't want to shy away from the fact that we know this is going to be a challenge, we know it's competitive, we're just taking a very aggressive approach. In terms of -- I will say that in terms of the overall planning expectations, I'm not going to go through details of our projections from along the curves, et cetera

But I will have say that we have looked carefully at recently completed programs by other sponsors. And I would not say that we are taking a step function change in terms of our expectations on patients per site per month enrollment as an example.

So it's a combination, we don't have unreasonable expectations for what sites can produce. I don't believe in hour calculations when we make our projections. And we're laying on top of that a very comprehensive Arena-owned approach to site relationships.

Kennen MacKay

Got you. Thank you. Really appreciate the color.

Amit Munshi

Yes. And then just the second part of your question around enrollment update. So it's not been our practice to provide enrollment updates predominantly because enrollment, the time lines and the shape of the curves usually are back-end loaded, there's a kind of site startup, et cetera. So historically and going forward, we will not be providing any updates on enrollment.

Preston Klassen

And if I'm also going to come back around and make one other comment, this is Preston. In terms of thinking about your opening part of your question around the other programs and twice as fast, that's everything. I just also want to point out that a key theme of the program -- of the UC program in particular was to streamline and how to use patients more efficiently, so that we could have a faster overall time to market, time to NDA submission and then market.

And so by using a treat-through design as opposed to 2 induction studies followed by a rerandomization of clinical responders into another maintenance study, we're actually able to have a program that is -- has several hundred fewer subjects than other competing programs that have used that more standard 2 induction study and do a maintenance study design. So it's a combination of a number of things.

Kennen MacKay

Got it. Maybe just another follow-up on that. Can you maybe just help us understand the powering of the trial? Or if you're not going to talk about the powering, maybe just what the assumptions for each arm are based on as it relates to the primary endpoint of 3-domain Mayo score? Congrats again on the progress.

Preston Klassen

Yes. So I'll do just kind of at a high level. We're not going to go through necessarily the nitty-gritty of anticipated assumptions around PIs and all kind of stuff other than to say, as you know and as I commented in my opening remarks from our Phase II work, we are a 25.4% delta from placebo in the proportion of clinical remission using the actual endpoint that will be used in the Phase III program. And obviously, we would not take that as the -- we're going to be much more conservative in terms of our overall assumed treatment benefit.

So I'll just say that we took a very healthy cut in that number that we saw, the observed number, we took a very healthy cut and then used that in terms of variable inputs for our power assumption -- our powering assumption.

And we also were very clear that we needed the program in our power and you can typically take an estimate just to what most people view as appropriate for powering on both the 12-week and the 52-week endpoint as co-primaries.

And it's important not at a patient level, it's at a population level. So it's simply the proportion of subjects compared to placebo who will hit remission at 12 weeks as one variable and then the proportion of patients who hit remission at 52 weeks compared to placebo as the other variable and then those 2 are considered co-primary. And we're adequately powered for that, no question.


And our next question comes from the line of Jason Butler with JMP Securities.

Unidentified Analyst

It's Roy in for Jason. I just had a follow-up to that -- the very last question on the powering. So you said it was powered at the population level. Is it powered for both the patients that have -- had prior JAKs or biologics and those that are naïve? And if for the -- okay, sorry, go ahead.

Preston Klassen

It's not independently powered on those factors, and it doesn't need to be by any means. But you do want to have -- we're going to more target having close to a 50/50 mix or some proportion around that of both biologic -- of prior biologic failures and a naive patient. You wouldn't want it to be lower than -- you wouldn't want one of those to be lower -- low single-digit numbers, right? I mean, you have to have a pretty robust grouping within that.

Unidentified Analyst

Okay. And it doesn't need to hit at both 12 and 52 weeks like you said that already?

Preston Klassen

Individual patients do not need to hit at both. But overall, the etrasimod group compared to placebo group needs to hit at 12 weeks. And separately the etrasimod group compared to the placebo group needs to hit at 52 weeks, and that's fairly standard.

Unidentified Analyst

Okay. Great. And then you mentioned these additional evidence of value trials that you will discuss the design when you get closer to starting. Just wonder if you could give us any sense of the timing when those studies might start?

Amit Munshi

I'm sorry, can you repeat that question?

Unidentified Analyst

So the additional etrasimod studies, I think you called them may be evidence of value studies that you're going to describe more when you get closer to starting them. Can you give us any sense of when this might start?

Amit Munshi

No. We're just not going to talk about those at this point. There's work that's ongoing in building a commercially potent program. A product that's going to really win in the marketplace requires lots of important pieces of information that both payers and prescribers are going to want to see beyond just what's in the approval package, and that's what the focus of those programs are. And so again, as we get closer to initiating, we'll talk about time lines when those data points will be available. Some of those will read out in closer time frames, some will read out around the time of NDA filing. So it will be -- there's a basket of those types of programs that we're working through now.


And our next question comes from the line of Alethia Young with Cantor Fitzgerald.

Unidentified Analyst

This is Emma on for Alethia. First, the Crohn's program. Do you think a similar staggered Phase III design makes sense? And can you just discuss the degree of site overlap you expect at ELEVATE? And how that could impact initiation time lines, sir?

Amit Munshi

Yes. Let me take the Crohn's and then I'll have Preston talk about the sites. So the Crohn's program is a little bit different. When we talk about publicly, it's a Phase IIb/III program. So it will look very different than the UC study. There was a -- there are some important questions that need be answered and they sort of lead in into some Phase III trial. So when we get closer again to initiate that trial, like we did on the call today, we'll be highly disclosive in the detail of that program. But for right now, we'll just leave it at that. So Preston, you'll take the second part of that.

Preston Klassen

Yes. Sure. Just in terms of the sites, I mean, it makes sense. The ELEVATE UC program global site network that we're developing there, you could make a reasonable assumption, I mean, if those sites also see patients with Crohn's disease and could be appropriate. But obviously, Crohn's is a bit of a different disease. And so we will also be taking a look specifically there. And so I --- it's safe to say, there will -- there won't be 100% overlap in terms of the sites that we're going to -- from the UC program network to the Crohn's disease program network. But we will provide those details more specifically as we finalize that program and get ready to get started, kind of what we've done today with the UC program.


And our next question comes from the line of Joel Beatty with Citi.

Joel Beatty

So if you could give color on the potential at this point for any first-dose monitoring for your S1P. And then -- I mean, I guess, the reason I asked, obviously, we know that Gilenya has it, but then more recently we're seeing drugs like Mayzent or siponimod to get approved about a month ago, and it doesn't have a first-dose monitoring, but they've used the dose titration and the Celgene agent is using the dose titration as well. So I mean, if you could just kind of review what gives you confidence there on that?

Preston Klassen

Sure. it's a good -- very good question. I think -- and I'm not going to go through necessarily the details of the protocol specifically on the call. But suffice it to say that we were really encouraged by what we saw come out of the siponimod approval in terms of a clear evidence that the FDA is willing to treat a cardiac issue related to first dose monitoring not as class labeling. And you probably know it already in terms of the public information that's been disclosed about that program and the protocols have been on mind with siponimod Phase III program that we did extensive monitoring. And in part that -- so that they can show there's not a need to continue to do that monitoring in the clinical setting in the marketplace. And so we are doing monitoring in our Phase III program. We've got to be able to show what the effect of etrasimod is when it's initiated. And as you know, we don't need to titrate because we have much more of a limited impact on the potassium channel that is the source of first dose and titrated dose cardiac conduction or heart rate related changes. So we will do monitoring the Phase III program and then we will run those data around and build a case for having a limited or no cardiac monitoring in the commercial setting if possible. And we're very confident that of all the compounds, either on the market or in development, for an S1P -- for the S1P class, etrasimod has the lowest kind of innate potential to create issues related to conduction.

Amit Munshi

Joel, I think there's a couple of other important points here that I think are critical around monitoring. I think a little bit -- while Preston said, it was really encouraging that the agency is willing to think about this as (inaudible) but you also have to remember that other drugs in the category, the first generation compounds have a lot of work -- workup -- patient workup that has to get done including genetic testing for certain -- the 2C9 genotype evaluation.

You've got -- you still have the 12-lead cardiac issue ahead of receiving first dose and only those patients that show no abnormalities would have no dosing. You still have to go through the titration period. You can still have effects out of day 5, 6, 7, 8. You saw the ophthalmic evaluation, the vaccine test, the liver function test.

You've got a whole bunch of workups that have to get done in these first generation compounds because you're just not clean compound. So as you know, we haven't seen any liver abnormalities.

We've -- just genuinely bigger profile, including not requiring titration. So across the board, it's -- we're excited about where the whole -- the category is going, where the agency is going, and we're excited about the profile of our compound.

Joel Beatty

Great. And then, maybe one other question on the olorinab program. For pain, why IBS pain as opposed to some other type of pain? And then also, within IBS, is there any rationale for your drug to improve other aspects of the disease behind just the pain?

Amit Munshi

Yes. So this is Amit. Let me take the strategy part and then Preston will add some clinical color. So first of all, we believe the program has applications in a broad range of visceral pain and GI makes sense for us. We're building infrastructure around GI, we're building relationships around GI, it makes perfect sense.

As you know that our proof-of-concept study, the Phase IIa study was done in patients with quiescent Crohn's and for Crohn's disease that were not -- did not have actual inflammation. And we know that, that looks mechanistically pathologically exactly like IBS pain, kind of like microvascular micro-inflammation happening in the gut. So the model fits really nicely with IBS pain. IBS pain is, of course, a lot easier to recruit. And in our study, we'll be looking at both IBS-C and D in this initial trial.

So again, a broader swath of patients. We do know that our drug does not have any effect on motility, so this is not a motility agent. But we know, most motility conditions are largely handled by over-the-counter agents. And it's really the pain that's the problem. And so to be able to use a pain product on top of over-the-counter motility agents makes a lot of sense for this population. Preston, any more color you want to add?

Preston Klassen

Yes, sure. Just briefly, olorinab may end up being more than a GI pain drug, more than a visceral pain drug. We'll understand that over time as we expand the indications -- potential indications that we evaluate. As Amit said, we're starting in on GI visceral pain specifically because the preclinical research demonstrated that CB2 receptors were located in the gut and specifically upregulated in inflammatory and micro-inflammatory conditions like IBS and in Crohn's disease. And so we feel very confident in everything we've seen preclinically through to the clinic and then in the clinic, albeit it was a small and single arm open label study, we saw 100% clinical response in these Crohn's patients that actually looked a lot like IBS patients because they did not have active inflammation. So we're excited to get underway with the IBS program. There's clearly a pent up demand and unmet need in pain management with IBS and as Amit mentioned, because it's not a motility agent, we actually get to go in all domains, IBS-C, IBS-D and IBS-M, which is mixed. So it's a program that I'm very excited about.


And our next question comes from the line of Joseph Schwartz with SVB Leerink.

Dae Gon

This is Dae Gon dialing in for Joe. Two questions for me. One on etrasimod. As we think about the profile of the drug, thanks for providing that information about (inaudible) and the metabolites. But just thinking about the lymphocyte recovery after the cessation of treatment, I was wondering, based on your market research, how important is that attribute of etrasimod as you're thinking about commercialization after the ELEVATE study's readout? And then the second question is, I know we're kind of early and you're still contemplating the specifics here. But as it pertains to the atopic dermatitis study, are you thinking about doing anything different from some of the other agents that are already in the clinic?

Amit Munshi

Yes. Dae Gon, let me take the first part of that in terms of the off-rate of the drug. The first market research we did large scale quantitative conjoint analysis across the U.S. and Europe was really before we even saw the Phase II efficacy data. And in those original surveys, etrasimod was selected 8 out of 10 times over ozanimod simply because of the on-rate, about 3x faster on-rate, and a much faster off-rate. So it is definitely a critical driver. Physicians, as you might know, really like to have the control. And anytime you are putting an immunosuppressive product in, being able to come out quickly is really critical. I would also add that as we did more research on the -- we compared our products across the broader range of oral products, including the JAK inhibitors, the safety profile and the safety advantage of those are well beyond just the off-rate. So while the off-rate is absolutely critical, as we think about our product relative to the JAK inhibitors, for example, the fact that we retain immunosurveillance, we don't have herpes zoster reactivation and malignancies and TB reactivation and a broad range of thromboembolic events seen with the JAK inhibitors really point to just a broader safety profile. We like to think this is just a more elegant way of approaching diseases that we're trying to mitigate the lymphocyte activity. So it's not just the on and off rates that drive it, that definitely drives it relative to ozanimod, but it's just a broader profile here that drives the utility of the drug, which leads directly to atopic derm. We think we've got a profile here that fits in really nicely with the more safety conscious dermatologist. So you want to quickly talk about the atopic derm study?

Preston Klassen

Yes, sure. In terms of your question, what aspects we're thinking about in -- specifically in terms of doing things differently. So I mean, it was starting with the phase II study. We need the proof of concept, right? We haven't put etrasimod in dermatologic conditions before. So we are conducting fairly typical Phase II placebo-controlled study in AD. And I look forward to getting starting on that later this year with data in 2021 -- I'm sorry, 2020, next year. And -- off of my ears. And I'm not sure is, what other aspects are you specifically looking for?

Dae Gon

Well, I guess, just in terms of any kind of primary endpoints or study duration or anything of a sort that you might differ from the traditional designs?

Preston Klassen

Yes. We're not necessarily talking about that at this time as we close on the program. Kind of like we've done today with UC, as we get closer to initiation, we will roll out all of those details, so absolutely.

Dae Gon

Okay. And then if I can squeeze in one more question for Amit. As we think about the ELEVATE trial, there is that lag between the ELEVATE 52 and ELEVATE 12. So just wondering, will you be announcing the top line results from ELEVATE 12 once that gets completed? Or will that data be somehow compiled with the 52 and wait until 52 is over?

Amit Munshi

I think they'll both come in around the same time just because of the lag. So it will all depend on enrollment speed and what else happen in the marketplace. But right now, they're designed to sort of all readout around the same time, feed into an NDA and get to the agency as quickly as possible. So I wouldn't expect a lot of separate readouts on this. I think we'll -- they're designed right now to come in around the same time.


And our next question comes from the line of Alan Carr with Needham.

Alan Carr

I want to come back to olorinab for just a second. It sounds like the strategy there is just around that one trial. You all don't plan to, I guess, evaluate that one in as many indications at once, is which you got going around with etrasimod. And then -- if you could confirm that? And then -- and the other is, you do have 418 coming along, but I'm wondering if you do have an extensive library of compounds that have been generated in past years? Are you happy with the 3 that you have? Or do you plan to move some other support or look at business development options for them?

Preston Klassen

Yes. This is Preston, I'll talk the olorinab question and turn over to Amit for the broader picture. So in terms of starting with Phase III study in IBS, it's really important that -- we're basically at the point where we reported etrasimod when we -- when new management came in at the company, we needed to make sure that there was evidence that the drug worked. And we obviously clearly demonstrated that with the OASIS study. And so it's kind of the same thing here, possibly even more so because CB2 receptor agonists, as you know, have -- this is going to be the first one evaluated in IBS. And to acknowledge, there is a major track record I know already in front of us. So the idea is to get in as quickly as possible. One of the things I like about IBS is it's going to be -- it should be easier to enroll, generally speaking, than in inflammatory bowel disease population and so we'll get an answer as quickly as possible. If those data look great, then yes, then I would definitely consider expanding. I would like to get back around to the Crohn's disease patient population personally. I'll have to do that evaluation at the time when we actually take a look at the IBS data.

Amit Munshi

And Alan, to answer the second part of the question. Our mid- to late-stage pipeline is as robust or more robust than any company even remotely in our market cap space as you might now. We've got 2 exciting compounds in 4 diseases with more applications on the horizon to etrasimod. We're staring at -- about to initiate and will initiate 4 massive Phase III trials between UC and Crohn's. We've got 2 Phase IIbs up and running -- or will be up and running this year between olorinab and the atopic derm. So we have a lot going on mid to late stage. And so our focus really has been thinking about what else off our shelf is early enough stage that kind of fits with the therapeutic area profile of the products. So we constantly ask that question, we're constantly looking and we have this translational medicine group that's growing, that's taking things off our shelf, looking at different animal models, looking to see what fits. And we've been enhancing our corporate development function to again look for early-stage things that we think are novel, not only within our realm, within our collaborators at Beacon, but externally as well. And our bar is very high, partly because we don't have to do anything. And if we're going to add programs even in early stage, then you can represent the type of science, the type of best-in-class chemistry and pharmacology that will accustom to here at Arena. So we are actively -- constantly actively look both internally and externally, sort of looking at that preclinical Phase I stage to think -- where we think if we're able to find things that are exciting, that we would want to execute on that. But in terms of mid stage to late stage, I think, again, we have as robust a portfolio as anybody in the market.


And our next question comes from the line of Shanshan Xu with Berenberg Capital.

Shanshan Xu

I do have one followup with etrasimod in atopic dermatitis. Can you please discuss S1P and its role in the pathogenesis of atopic dermatitis? And then secondly, with the field of atopic dermatitis getting more crowded, Dupixent is on the market, JAK inhibitors is in development and that we see MOR206 is also in development, that is IL-17C compound. Where do you see etrasimod fit in the treatment paradigm? And how should we think about the dosing regimen?

Amit Munshi

Sure. So I'll have Preston take the front end of that question on the biology, and then I'll talk a little bit about the market space.

Preston Klassen

Sure. So with atopic dermatitis, T-cell activation and that includes activation through dendritic cells, which reside in the skin and then transit to lymphoid tissue help to promote the activation of other T-cells, particularly C8 -- CD4 positive T-cells and help produce a, generally speaking, a Th2 of cytokine profile. And those cells transit back to the skin at those sites of activity. That's all about T-cell trafficking and an SNP modulator, as you know, impacts T-cell trafficking as well as other functions, including epithelial barrier function and some others. So we think there's a large degree of overlap in terms of the kind of underlying disease mechanisms in atopic dermatitis compared to ulcerative colitis. In fact, we know that there is a reasonable overlap in patients with UC who also had atopic dermatitis. And some of the folks who are opinion leaders in both UC and AD or one of the others -- one of the other will have -- have used the phrase, atopic dermatitis is ulcerative colitis of the skin. So there is some overlap in terms of that biology and that makes within clear sense for an SNP modulator. I'll let Amit talk a bit more about the broader picture of where etrasimod, we think, can play in the space.

Amit Munshi

Yes. So Shan, the market space is evolving, everyone talks about how crowded it is. The reality is, you've got really emollients, you've got topicals like EUCRISA that have not met with commericial success broadly. And then you've got Dupixent, which has done quite well, but is really reserved for last line treatment. So biologics tend to be reserved for last line treatment. So let me come back to the ulcerative colitis analogy. After 20 years of biologics being available for these patients, only about 1/3 of patients have ever received a biologic, and these are moderate-to-severe patients. So that's pretty striking. And of those patients, only about 20% to 30% are actively in remission. So biologics by and large have limited penetration, and where they gave you, they have waning effect just because of the neutralizing antibody. And this is true across every biologic treatment out there. So we think that's just a constant theme here. And so that really comes back to the second part, which is the JAK inhibitors. And again, I come back to the exact same point. If you could use a more specific mechanism that was not broadly immunosuppressive, that did not have the safety baggage of the JAK inhibitors, why wouldn't you use that first. And like you see where we demonstrated improved efficacy directionally comprising of JAK inhibitors and a highly preferential safety profile, we think that's just some more advantageous place. We know patients prefer orals over injectables across the board. So we think this is, again, wide open space. And the safety profile, the S1P1 and P4 activity of the etrasimod fits very nicely with the T-cell activity and the dendritic cell activity. So we think this is spot on in terms of both mechanism and market opportunity.


Thank you. Ladies and gentlemen, this concludes today's Q&A session. I would now like to turn the call back over to Amit for any closing remarks.

Amit Munshi

Well, thanks, everyone, for joining our call today. We look forward to updating you on our progress as we continue to execute on these opportunities. We're really excited to get up and running here on the UC ELEVATE program. And as Preston pointed out and I pointed out in my opening comments, as we move forward on these additional trials, both in UC, atopic derm and olorinab in IBS, we'll continue to provide you with details updates. So again, thank you for being with us on the call.


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 wonderful day.