Arena Pharmaceuticals, Inc. (ARNA) CEO Amit Munshi on Q1 2020 Results - Earnings Call Transcript

Arena Pharmaceuticals, Inc. (ARNA) Q1 2020 Results Conference Call May 7, 2020 4:30 PM ET

Company Participants

Laurie Stelzer - CFO

Amit Munshi - President & CEO

Preston Klassen - Head R&D

Conference Call Participants

Jim Birchenough - Wells Fargo

Kennen MacKay - RBC Capital Markets

Alethia Young - Cantor

Jason Gerberry - Bank of America

Yatin Suneja - Guggenheim Partners

Alan Carr - Needham & Company

Joel Beatty - Citigroup

Operator

Good day, everyone. And welcome to Arena Pharmaceuticals’ Corporate Conference Call. This call is being recorded.

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

Laurie Stelzer

Good afternoon, everyone, and thank you for joining us on our call. We hope you had a chance to review the news release we issued today announcing our first quarter 2020 financial results. As the quarter was relatively straight forward, on today's call, we will go directly into a question -and-answer session. Joining me on the call is Amit Munshi, our President and Chief Executive Officer; and Dr. Preston Klassen, our Head of Research and Development.

Before we begin, I'd like to remind everyone that we will be making forward-looking statements that involve risks and uncertainties about our goals, expectations, beliefs, timing of event or future results, including those risks and uncertainties related to the COVID-19 pandemic and its potential impact on our business. Forward-looking statements about plans and expectations related to our pipeline, financial projections, and 2020 financial guidance, involve certain assumptions, risks and uncertainties that may be beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in our earnings press release, and our latest SEC disclosure documents. All forward-looking statements are based on information currently available to Arena and we disclaim any obligation to update these forward-looking statements.

Now, I will turn the call over to the operator to begin the Q&A session. Operator?

Question-and-Answer Session

Operator

[Operator instructions]. We have our first question from the line of Jim Birchenough from Wells Fargo. Your line is now open.

Jim Birchenough

So, I guess the first thing is just on the COVID-19 environment. Could you maybe talk through the logistics of monitoring things like Mayo Scores remotely and what adjustments you have to make for the protocol just to make sure you're capturing data and I guess any interactions you've had with FDA and other regulators on the adequacy of any adjustments you’ve made?

Amit Munshi

Sure. Jim, this is Amit. Let me hand it off to Preston to comment.

Preston Klassen

Yes, as of right now, we haven't had to make major adjustments. Our focus is really on making sure that: Number one, patients enrolled in the trial have access to drug. We've been successful on that front. Number two, that patients when they need to get in for a clinic visit are able to do so. Again, we've been successful on that front. And so net-net, overall, we haven't needed to make major adjustments. In terms of the Mayo Score, obviously, the endoscopic finding is something that is required on site and then for the patient outcomes as for the frequency and rectal bleeding, we of course, provide electronic methodologies for the patients to -- on a very frequent basis. So, that's not an issue.

So, we have not needed to enter into specific discussion with the FDA about how we're conducting the trial or what we need to do, anything specific from the COVID perspective, we're simply executing the trial as we normally would. Now, again, what we really are spending a lot of time doing, understanding the impact of COVID is on things like site activation, drug supply and making sure that patients when they need to can get to the sites for the appropriate visit.

Jim Birchenough

And then just more broadly, could you just talk about lifecycle management with etrasimod and any efforts you have going with alternate formulations, extended release that sort of thing?

Amit Munshi

Yes, this is Amit. We announced earlier the CR formulation which is designed to take -- we believe is a best-in-class compound and a best-in-class profile and make it even better, we've got really from the point of view of lifecycle management. So Preston, do you want to quickly talk about the CR program and how we are approaching and how we’re bridging into future trials.

Preston Klassen

Sure. So, what we've done is we've taken an initial work, Phase 1 work with -- just we’re looking at a variety of controlled release delivery profiles to make sure that we could see what we thought we needed to see in terms of what an actual control of this formulation might look like, and that was a subject of our press release and call a number of weeks ago. And in doing this, the entire goal was to smooth out, so to speak, the overall delivery of a 24 hour period of time with the drug and see if we could take what was already we believe a best-in-class impact in terms of cardiac conduction, that first dose cardiac conduction that is inherent to S1P class. We believe that etrasimod has the lowest intrinsic potential of all of the S1Ps are being developed today. So we can take that and make it even less of an impact. And so, one of the things we talked about was -- in April, in our clinical study, OASIS is the largest clinical trial we conducted to-date. We saw high single-digit delta from baseline in terms of impact on heart rate. We've taken that with the controlled release delivery profile down to single -- low single-digit now, and it's a small absolute change from high single-digits to low single-digits, that's just kind of speaks to the point that we didn't have far to go. But from a relative perspective, it's actually a 75% reduction in the overall heart rate effect over that first 4 to 6 hours, which is really the important part [Audio Gap] of AV block actually is greatest. So, we're really pleased with the delivery profiles and now the next step is to turn that into an actual formulation and then get that formulation into a clinical program -- clinical trial program. We believe that we can do that in time for Phase 3 across all of our indications with the exception of UC, which of course is underway right now. And so we would anticipate finishing UC with the immediate release product, launching that and then at the appropriate time doing a market switch over to the controlled release. So, that's kind of a high level of where that we view it as a fairly aggressive early on lifecycle management play that we think is important in terms of even further diminishing any aspect of first dose conduction effect that could be attributed to S1P class. We think the trial’s [indiscernible] will be close to nil and then potentially expanding or extending our patent franchise.

Operator

Next question is from the line of Kennen MacKay, RBC Capital Markets. Your line is now open.

Kennen MacKay

Wondering if you could maybe just put into context, how sort of the enrollment into ELEVATE sort of looked throughout Q1. If you could see any changes in sort of the pace, obviously not related to any specifics around the trial due to COVID? Just trying to really firm up senses around how COVID has impacted enrollment there? Thank you.

Amit Munshi

Sure. So again as we mentioned in our press release, as of today -- and I really emphasize, today, we remain on track. None of this has been easy for anybody involved in the clinical trials across the board. We were well ahead of enrollment when the slowdown started. We were affected like others in terms of sites going offline, slow down in site activation, slow down in enrollment. The good news for us was not only were we ahead, but we also have a global study with a lots of dozens of countries, hundreds of sites. And as some geography slowed down, others came back online and continue to come back online. So, that's really been fortunate for us.

But again, I think just like everybody else, when you get experience and continue to experience slowdowns in site activations, screenings and enrollment, again the broad base of the trial really comes into play here. The other thing that really comes into plays is the bulk of our sites in the U.S. are community-based, so just not seen or experienced the same impact as hospital based sites.

And then finally, having oral agent here, close to a infused agent or an injected agent seems to have really helped. Having said all of that and as we continue to caveat, this is an extremely difficult situation for everybody involved, the clinical sites, as well as our teams and other companies in the same position we are. We're actively monitoring every site, every country, every patient every day and we'll keep updating the screen in terms of our progress and how the study is progressing as we go forward in time. But yes, we were fortunate in terms of getting lots of sites activated before the slowdown. We were very fortunate being well ahead of all of our metrics. And while we've experienced slowdowns, we've been able to -- be able to absorb some of that and also be able to see some of the sites coming back online, some of the countries coming back online.

Kennen MacKay

And maybe just a similar question on your Phase 2b ADVISE trial in atopic dermatitis. Obviously, you have a lot of clinical catalysts coming up later this year. I am just trying to get a sense again of whether there's any COVID impact there, if there's anything even sort of tangentially you can perhaps put into perspective how the rate of enrollment has changed there?

Amit Munshi

I can say, it’s almost exact the same situation. We're well ahead on screening and enrollment. We continue to guide toward data before the end of the year on ADVISE and we think we're in a good position. So, we've been able to really navigate through this. And like I said, none of it's been easy. The teams have been doing just an amazing job and it helps to be -- helps in being well ahead of where we need it to be and be able to absorb some of the delays associated with COVID. Similar to the ELEVATE trials, again it's a broad-based trial. Plenty of sites, so we some states were coming offline, other states were still open. Those states closed, other states opened up. So, again having a balance of a broad ranging number of clinical sites and really useful. So, we'll continue to guide toward having the atopic derm data before the end of the year.

Operator

Next in line is Alethia Young from Cantor. Your line is now open.

Alethia Young

I just want to kind of continue on -- just kind of you have kind of massive bridges here with $1 billion and a lot of different pipeline programs, I guess with your earlier phase programs. Do your priorities shift or change as it relates to like the cardiovascular program or the same program in light of what's going on with the COVID thing?

Amit Munshi

Yes, so the pain program, the CAPTIVATE study continues to enroll and we still guide toward the end of year, so nothing really changes there. Definitely on some of the early preclinical things or things we can slow down, there's levers we can push. As we mentioned in our press release, we've really spent time thinking through activities in terms of market shaping, market development, keeping into development. Kind of the market development thing that you would normally do and being able to take a one or two quarter delay in those things to be able to kind of fine tune some of the spending is really, really important, and we've been able to do that. And really get a tighter handle on overall spend for the year, really driven not by the clinical catalyst, but different things that were sort of more in the G&A buckets, commercial, medical affairs, and then also spending time thinking through some of the early programs and begin to prioritize there. So, it is definitely important at this juncture for everybody involved to continue to do things like slow down hiring and reduce spend in non-clinical areas. But we definitely want to stay highly focused on our clinical objectives and not really impact the long-term value of the company and the long-term delivery of the clinical milestone. So, that's kind of how we've approached it.

Alethia Young

And does it affect anything that you might be doing with cash of $1 billion?

Amit Munshi

No. We're going to hold our cash to kind of get to our milestones and we find ourselves in an incredibly fortunate position to have the balance sheet we do. And unlike a lot of other companies who are going to be actively looking to raise capital issue, we don't have a need to do that, and it really allows us to weather the storm, so to speak. So, nothing else to do with the cash, other than to manage to our milestones.

Operator

Next in line is Jason Gerberry from Bank of America. Your line is now open.

Jason Gerberry

I was just wondering if you could give us any insight in your ability to capture endoscopy data lately. Have you found it challenging and how are you're thinking about things going forward. Are you planning or do you have any thoughts on if we do get a second wave, if you're going to be able to navigate it?

Amit Munshi

Sure, let me hand this to Preston on trial combo.

Preston Klassen

Yes, I'll just say that we've navigated the first wave. It's not necessarily over and it's not necessarily easy. But it's really a testament to sites and the site staff. It’s a testament to our internal team that really on top of everything along with our vendors, that’s CRO, et cetera. And it's a testament to the patients and the significant unmet need that exists, right? This is not -- we talked about the GI, societies, et cetera, let's avoid elective procedures. There's not really an elective procedure, you get into the study because you're having an acute flare and it's absolutely critical then to get the follow up 12 weeks and then again 52 weeks for our UC 52 study. And patients and staff know that. This is an important illness for them, for their lives. They're looking for things that have added benefit for them from a clinical perspective. And so everyone is trying hard to make sure we can get these things done. We do have to stay on top of the logistics and making sure we can get patients into the site at the right time. That is more difficult today than it was six months ago, no question. But so far, we've been able to manage that navigate it. And I’d say to FDA’s credit, they're also recognizing and have in fact put out guidance around how sponsors are supposed to try to deal with this as best as possible. So, I think moving forward as we come out of this and we may -- might experience additional waves of this, it's going to be industry working with FDA together to make sure that we don't have a problem with not being able to utilize well collected data in an area where you need to have made some adjustments. So, I think everybody is thinking the right way, FDA, industry, our staff sites and our patients. So, we've been very fortunate to-date. And as Amit said, as of right now today, and it's important to caveat that this is today's guidance. We do remain on track with our clinical programs.

Operator

We have our next question from Yatin Suneja from Guggenheim Partners. Your line is now open. Please ask your question.

Yatin Suneja

So, first question I have is on a competitor because I think Bristol today announced that ozanimod data are coming in Q3. So, could you maybe talk about your expectation from the readout and direct -- relatively to etrasimod, what we should be looking at from your perspective that could help us guide to the product differentiation that you have talked about relative to ozanimod?

Amit Munshi

Sure. So, I think a good part of the story of the differentiation is already been written and because it's about the intrinsic features of the compound. As we’ve discussed before we have a faster on-rate with no titration, that's important for both patients and clinicians, a faster off-rate, really important for the clinician community being able to maintain control. We've demonstrated a very low cardiac conduction issues and heart rate again with no titration. None of the LFT, PFT type abnormalities seen with [ozanimod]. And then on top of the safety advantages, we recognize that etrasimod is very clean compound with no active metabolites, no drug interaction issues. And compared to ozanimod, which we all know is an accidental pro drug and we see that sort of the intrinsic features of compound are very, very different. And a lot of that story is already been written in terms of seeing their safety label from the [MSI]. What's exciting here is, as we head into the efficacy, looking at the efficacy picture, we know that their magnitude of signal from Phase 2 was significantly smaller, approximately half of what we saw with etrasimod. We know they had to overpower their Phase 3 trials and we expect to see a compound that's active. We expect to see an efficacy signal but we firmly believe that we've got a compound here that is both potentially safer and potentially has the ability to deliver a better efficacy signal in terms of our -- comparing our compound to ozanimod. So, Preston anything else you'd like to add relative to their Phase 3?

Preston Klassen

No, I think you've covered it.

Yatin Suneja

And just one more follow up here. On the size of the trial because obviously the ozanimod trials are much bigger, close to 1,000 patients. What gives you confidence that given that you're enrolling a much smaller trial design that it is sufficiently powered to detect the signal that you want. Because I do remember I think, ozanimod trial has to be upsized. So, just help us understand the difference and your confidence in the pilot?

Amit Munshi

Sure. So, not knowing the details of their trial, their data is their data, we don't get to see it on a patient level. So, it's difficult to asking as exactly why they upsized the trial. We do know that the -- our 3-domain Mayo Score delta was approximately 26, their 3-domain Mayo Score delta was about 16. So, adjusting for effect size, has a big part to do with their overall study size. That's a big piece of it. Again, not knowing where they did the studies. For example, if they were hunting the world for looking for patients who are RNF or biologic, naïve for example, that would have taken longer, they may have seen more heterogeneity in that patient population, they may have had to go to countries far afield India, China et cetera to build that patient database. And again, when you move to those countries, you get larger standard deviations which require larger sample size. So, we hypothesize that some of that has to do with the fact that they had been looking for TNF or biologics naïve patients and some of that is just simply a function of the effect size that they saw coming out of their Phase 2. So, I guess this is just a hypothesis. We'll see the full dataset when it comes out. But those would be two logical reasons why they would have had to potentially upsize their trial.

Preston Klassen

And sorry, this was Preston, I just want to jump in here. I want to point out something specific though, as we've talked about in the past, our program is a more efficient streamlined program, certainly efficient in terms of utilization of patients. So, previous programs and in particular the ozanimod program had two induction trials. And then the clinical responders at the end of the induction period are re-randomized into the maintenance period for the rest of the one year, and that's fine, that's the way it's been done in the past. But that means that you have to overenroll or overpower if you will, those two induction trials in order to have enough clinical responders to power the maintenance study. So, that is a less efficient use of patients. We have a program where we are conducting one 52 week study with a co-primary endpoint at week 12 and week 52 and then a second week 12 study. So, there's no re-randomization of clinical responders. And so we don't have to upsize that induction part just to enable powering of the maintenance period. And we discussed that with the FDA and it makes absolute sense because the whole idea of an induction period versus a maintenance period for the ones a day oral where the dose doesn't change, starts to make less sense. So, we view it as early response and later continuation of response. And so, that in and of itself saves us several hundred patients just from a powering perspective, even if all other assumptions are the same.

Operator

Next in line is Alan Carr. Your line is now open.

Alan Carr

So, a couple for you. I didn't see this explicitly in the press release. I don't think I heard it on the call. But you're still planning to have the UC etrasimod data in the second half of '21, is that right? And then the other thing is around some of the other programs, you said that you might conserve some cash in this environment. But how does that impact 418? Can you give us an update on that? Thanks.

Amit Munshi

Sure. So, all the ongoing trials remain on track. The studies that haven't started yet, we're still hoping to start those this year like EoE and AA. But again, that's going to depend on what the rest of the year looks like and the ability to start trials. Again, it's very different in this environment that studies are already ongoing, especially studies that share clinical sites. And as far as 418 is concerned, as you know it's a Phase 1 study. A lot of Phase 1 sites including ours are on temporary hold. We still expect to get that done this year and be able to move to a Phase 2. But again, that's going to really be dependent on the external environment there. That's a little bit out of our control in terms of Phase 1.

Alan Carr

And what's your thinking -- I understand that Phase 2 timing might be later in the year. But what's your current thinking on design and what you’re off to accomplish in Phase 2 for 418?

Amit Munshi

We haven't disclosed anything around the Phase 2 design. So, as soon as we get through

Phase 1, and we're able to successfully initiate Phase 2. As soon as things continue to improve and the macro environment, we'll come out and talk a little bit about the Phase 2 design.

Operator

We have our next question from the line of Joel Beatty from Citi. Your line is now open.

Joel Beatty

I guess the first one, I'll ask a follow-up to 418 and how about the ongoing Phase 1 trial, what do you expect to see from that and anything beyond just safety and…?

Amit Munshi

Sure. Preston, do you want to take that 418, Phase 1?

Preston Klassen

Yes, 418, Phase 1. So, as you said it's just -- thinking, one of the things we talked about in the past is that the β3 receptor is actually not highly expressed in the normal state. And so you wouldn't necessarily expect to see a lot. And so you just need to make sure that there isn't something that at a high level and from a safety perspective -- and then we conclude and wrap if possible into Phase 2. And the focus there is clearly going to be on mechanism of action, proof-of-concepts. And we -- are we doing what we think we can do, as opposed to for example, looking at lengthy clinical outcomes. But as Amit said we will be talking about that more as we get through the Phase 1, take a look at the data and we'll talk more specifically about what we have planned for Phase 2, but that’s a compound we're really excited about and we should be able to in a pretty rapid fashion get to mechanistic kind of data.

Joel Beatty

And then one other question. Any update on Arena Neuroscience or Beacon Discovery collaboration?

Amit Munshi

Sure. So, Arena Neuroscience continues to do its work. As we mentioned, we'll be coming out of self-mode around midyear and that’s still on track. A lot of the work that's been ongoing now and just completing some pre-IND work, wrapping up some intellectual property that has to get wrapped up and then we'll be talking about it kind of in the mid-year timeframe. So, excited about that and the work continues to pace. The Beacon collaboration, Beacon of course having lab-based services and having a functioning lab has experienced some slowdowns as one might expect. They're also starting to come back online and we'll continue to provide updates on both of those as we get to the middle of the year and the better visibility into Q3 and Q4 will allow us to provide better updates on those two.

Operator

Next in line is Martin Auster from Credit Suisse. Your line is now open.

Unidentified Analyst

This is Thomas on for Marty. I guess just a quick one from me maybe on cash burn. Curious if you can give us any more details on how to think about burn rate going forward. I think you said in the press release today you plan on judiciously managing cash during these COVID-19 uncertainties. Can you maybe discuss what specifically you're doing to keep that burn down? And then, any color on how to think about that going forward obviously, with the caveat that we've got these ongoing uncertainties? Thanks.

Amit Munshi

Sure. So, yes. So let me put the color -- a little bit of color then hand out to Laurie. The whole idea here is, the balancing act is, how do you make sure a long-term catalyst, a long-term milestone, the continuation of the programs, and at the same time be judicious about cash burn. And so, we've really done a slow down hiring in certain parts of the company, put things out a couple of quarters and then be able to reassess later in the year. There’s spend in non-clinical areas, things that we wanted to get done for the long-term growth of the company systems, market development, those things we can put on hold for a couple of quarters and kind of reassess again at the end of the year. We think that's the prudent way of handling this. If you don't want to pick the company off the rails, you want to -- as we discussed internally, you want to react but not over react. So, we want to make sure that we can still deliver the key catalyst for the company, while being able to manage around the edges and that has a fairly substantial impact on burn. So Laurie, do you want to just touch on that?

Laurie Stelzer

Absolutely. So, Thomas, we did guide to a new cash burn -- operating cash burn level of $400 million to $430 million. So, it's down from the previous guidance for all the reasons that Amit laid out. And I will point out on the last earnings call, we did a guide to $95 million burn in Q1 and we're about at $94 million. So we hit that, but we've reduced the last three quarters of the year to get us into that full year $400 million to $430 million range.

Operator

At this time, I would like to turn it back to Mr. Amit Munshi, President and CEO, for closing remarks.

Amit Munshi

Thanks, everyone, for joining us today. We apologize for the technical issues. I think it's been sort of par for the course today. But again, thanks for your patience. As we continue to build toward bringing these important medicines to patients and building the company, we're tightening our focus around the execution of the ongoing clinical programs, the key timelines, the key milestones and we continue to explore ways to reduce spend in non-clinical areas. We're excited that the ongoing clinical trials, remain on track, and we'll continue to monitor the potential impacts of COVID-19 as we get to the next quarter and we'll provide timely updates, so everyone is aware of what's going on. I just want to take this opportunity to thank everyone for the ongoing support and really thank the Arena team for their unwavering relentless work, during this time period. As Preston pointed out and I pointed out, this has not been easy for anybody, making sure patient safety, employee safety is paramount and then simultaneously balancing that with progress across our multiple opportunities. So, thank you again and stay safe everybody.

Operator

Thank you, presenter. So ladies and gentlemen, I do apologize as well for the technical issue encountered. This concludes today’s conference call. Thank you all for participating. You may now disconnect. Have a great day.