Achieve Life Sciences, Inc. (ACHV) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Achieve Life Sciences second-quarter 2019 earnings conference call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Jaime Xinos.

Thank you, Kirby, and thanks, everyone, for joining us. With me today from Achieve are Rick Stewart, Chief Executive Officer; Dr. Cindy Jacobs, Chief Medical Officer; and John Bencich, our Chief Financial and Operating Officer. Dr. Anthony Clarke, Chief Scientific Officer, is unable to join today's call. Before we begin, I would like to remind everyone that today's conference call contains forward-looking statements based on current expectations. These statements are only predictions, and actual results may vary materially from those projected. Please refer to Achieve documents filed with the SEC concerning factors that could affect the Company, copies of which are available on our website. I will now turn the call over to Rick.

Thank you, Jaime. The highlights of the second quarter has been the ORCA-1 Phase 2b trial results. On today's call, I will review the results in more detail and discuss the next steps in our cytisinicline clinical development program. Following that discussion, John will provide an update on our second-quarter financial results. As announced in June, data from the ORCA-1 Phase 2b dose optimization trial exceeded our expectations and provided powerful insights into cytisinicline performance as an antismoking drug and to inform our future Phase 3 trial development program. As a quick reminder, ORCA-1 was a dose selection study comparing the efficacy and safety of cytisinicline versus placebo. Why was it conducted? Achieve needed to explore whether other doses and dosing schedules might improve upon the currently marketed product in Central and Eastern Europe which has already treated over 21 million patients. In the ORCA-1 trial, we evaluated 1.5 and 3 milligram doses of cytisinicline using both the currently marketed declining titration schedule and a new three-times-daily dosing, or TID, schedule. All subjects were treated for 25 days. The primary endpoint was reduction in daily smoking at the end of treatment. The secondary endpoint was continuous four-week abstinence rates from the end of treatment to week eight. Most importantly, the four-week abstinence rate is the relevant endpoint for FDA approval in Phase 3 smoking cessation trials. ORCA-1 enrolled a total of 254 smokers at eight centers across the US in record time. On average, ORCA-1 subjects have been smokers for 32 years, starting at the age of approximately 16; and on entering the study, were smoking around 20 cigarettes a day. These subjects were considered by key opinion leaders to be very difficult to treat, given their prolonged nicotine addiction specific to patients in the US. Given this profile, they were extremely impressed by cytisinicline's efficacy benefit which we will discuss shortly. In the trial, subjects were treated with either cytisinicline or placebo for 25 days and were provided with face-to-face behavioral support over the full eight-week course of the study. Smoking abstinence was measured at week four, which was the end of the treatment period. Continuous four-week abstinence was then measured from weeks five through eight which was the end of the study. Abstinence assessments were verified weekly by measuring expired carbon monoxide, or CO, a biochemical measure of smoking activity, to ensure accurate reporting. Additional key elements that were assessed included safety and adherence to treatment. In summary, the results show that ORCA-1 subjects on the 25-day cytisinicline treatment regimen, regardless of dose or schedule, experienced significant improvements in both abstinence rates and reduction in the number of cigarettes smoked compared to placebo. Additionally, and consistent with the number of cigarettes smoked, subjects receiving cytisinicline had a greater decline of expired CO in comparison to placebo. There were no serious adverse events reported. A favorable safety profile was observed. And strong adherence to study treatment was reported. ORCA-1 was designed to provide clarity on the optimal dose and administration schedule to advance into future Phase 3 trials. The most impressive results were observed in the treatment arm evaluating the 3 milligram dose on the three-times-daily schedule. The trial data, in conjunction with previous FDA feedback and commercial considerations support that going forward, we will utilize the simplified 3 milligram, three-times-daily dose in future trials. I would now like to focus on those 3 milligram, three-times-daily results beginning with abstinence rates, the most relevant endpoint for future trials and FDA approval. The 3 milligram, three-times-daily treatment arm demonstrated a 54% quit rate at week four compared to 16% for placebo, with a highly significant p-value of less than 0.001. This was an impressive result. In addition, continuous four-week abstinence measured from weeks five through eight in the 3 milligram, three-times-daily arm was 30% for cytisinicline compared to only 8% for placebo, with again a highly significant p-value of 0.005. Additionally, in the 3 milligram, three-times-daily arm, the self-reported 74% reduction in cigarettes smoked was matched by a similar 80% reduction in carbon monoxide. This was the highest level of CO reduction in the study and provided objective verification of the 74% reduction in cigarettes smoked. In contrast, the placebo group had a self-reported 62% reduction in cigarettes smoked but could not be verified by CO measured. The placebo group only had a 38% decline in CO, indicating significant underreporting of the number of actual cigarettes smoked. Finally, an additional measure of success frequently used in smoking cessation trials is odds ratios. Using this analysis, we had a very strong outcome across all treatment arms by the end of treatment at week four. Specifically to the 3 milligram, three-times-daily arm, the odds ratio was 6.3, meaning smokers using 3 milligram cytisinicline three times a day were over six times more likely to quit smoking by the end of the treatment compared to placebo. In summary, from an efficacy perspective, the 3 milligram, three-times-daily arm provided the highest continuous abstinence rates of both the four and eight-week measurements, the largest biochemically verified decrease in smoking among the treatment arms, and also had an impressive odds ratio of 6.3. Turning now to safety and treatment adherence. The safety profile of cytisinicline in this trial was excellent and reflected prior safety experience with the drug. In the 3 milligram, three-times-daily arm the most commonly reported adverse events all occurring at a rate of 6% or only three subjects out of 50, compared to 2% for placebo were constipation, abnormal dreams and insomnia. Additionally, 6% of subjects on the 3 milligram, three-times-daily arm reported upper respiratory tract infections and nausea compared to 14% and 10%, respectively, for placebo. Clearly the placebo side effect rates were higher for both. When safety events were pooled across all cytisinicline arms, no adverse events exceeded 10%. The clean safety profile of cytisinicline continues to show real potential benefits for smokers with little to no issue around side effects that might be treatment-limiting. The side effects observed in currently available smoking cessation treatments are likely a major deterrent to smokers' willingness to consider and maintain compliance to prescription medication. Our trial subjects were closely monitored for treatment adherence by drug diaries and by direct monitoring of medication packaging at each visit. In the 3 milligram, three-times-daily arm specifically, adherence to cytisinicline treatment was 97.6%, which is virtually unheard of. The high level of adherence across all arms of the ORCA-1 trial was impressive, given historic experience in other smoking cessation clinical trials where compliance has been an issue. In conclusion, the ORCA-1 trial was extremely successful and exceeded our expectations with significant abstinence rates in the simplified dosing schedule. This is important because the trial was not designed to show this level of smoking abstinence, and yet it did. The 3 milligram dose, three-times-daily specifically showed robust efficacy, excellent safety, and adherence. Now we have given you lots of numbers and statistics showing how well cytisinicline performed in ORCA-1, but feedback from the patients themselves are perhaps more powerful. In a post-study survey that was completed by 116 smokers who received cytisinicline treatment, 90% stated that they would recommend it to a friend or family member. And here are some direct quotes from cytisinicline treated subjects: "It was awesome. I couldn't have taken a better research study. I wanted to quit for years, and this study worked in such short weeks." And another one: "I appreciate the opportunity to become smoke-free after 25 years. Thank you for giving my life back." A further one: "Staff was great. Feel like friends. Finally quit for good after 20-plus years and multiple times trying. Thank you so much." We look forward to sharing additional data from ORCA-1 trial at the upcoming Society for Research on Nicotine & Tobacco, or SRNT, European meeting. Two oral presentations featuring cytisinicline data will occur during the meeting being held in Oslo on September 12 to 14. Now I'd like to share a couple of other brief updates from the quarter. We continue to advance our NDA supportive studies including the maximum tolerated dose, or MTD, study. As previously mentioned, this study fulfills an FDA requirement to evaluate potential safety issues in the event a smoker exceeds the recommended dose in an overdose situation outside of a clinical trial setting. It is not intended to inform our Phase 3 dosing in any way. To date, a single dose of 21 milligrams of cytisinicline has been evaluated without evidence of toxicity, and the study will continue up to a 30 milligram single dose. You may remember that we had to pause to get ethics approval for higher doses, which we now have, and expect to recommence dosing next week and report the final study results in the third quarter. Additionally this quarter, we announced that we have extended our strategic collaboration with the National Institutes of Health, or NIH. The NIH has been extremely supportive of the development of cytisinicline, committing nearly $6 million of research to the program. Under the extended collaboration, they will provide research efforts to conduct additional nonclinical studies which are expected to be completed next year. That concludes our updates for the second quarter. We will now turn our focus to a number of key priorities for the coming months. With ORCA-1 results in hand, we are finalizing our Phase 3 clinical trial protocols and scheduling discussions with the FDA to review the ORCA-1 data and confirm plans for future trials. At our FDA meeting in May 2018, the Phase 3 trial design was agreed in principle, but we will want to modify based on the outcome of the ORCA-1 results. We will continue to execute an additional NDA nonclinical supportive studies such as long-term carcinogenicity. And importantly, we are progressing discussions with potential development and commercialization partners both in the US and internationally. I will now hand the call over to John to discuss our financial results.

Thanks, Rick. I'd like to provide an update on our cash balance as of June 30, 2019, and also our operating expenses for the second quarter of 2019. As of June 30, 2019, the Company's cash, cash equivalents and restricted cash were $10.5 million. Our cash balance reflects an increase from our March 31, 2019, cash balance of $9.7 million. The increase in cash over the prior quarter is primarily related to the $4.2 million in proceeds we received from the exercise of warrants during the second quarter, offset by the operating expenses incurred during the quarter. Turning to our statement of operations, the Company incurred a net loss of $3.6 million for the quarter ended June 30, 2019, as compared to a net loss of $2.8 million for the quarter ended June 30, 2018. Research and development expenses in the second-quarter 2019 increase to a total of $2.0 million compared to $1 million in the second quarter of 2018. General and administrative expenses for the quarter ended June 30, 2019, were $1.6 million compared to $1.8 million in the quarter ended June 30, 2018. As expected, and highlighted during our call in March, operating expenses were elevated in the first half of 2019 as we fully enrolled and announced results of our ORCA-1 trial. We expect our quarterly operating expenses to decline over the next two quarters, in line with the completion of the ORCA-1 trial and in advance of initiating the Phase 3 development of cytisinicline. That concludes the summary of our second-quarter financial results. I would now like to turn the call back over to Rick.

Thank you, John. For Achieve, the ORCA-1 trial was a major derisking event -- the success we demonstrated a favorable efficacy, safety, and compliance profile for cytisinicline. Direct comparisons are difficult until head-to-head studies are conducted. But cytisinicline appears favorable when compared to published clinical data and the prescribing labels of other prescription medications for smoking cessation. There have been no new prescription treatments for smoking cessation approved since Chantix, which was over 10 years ago. Patients want to quit smoking and need new treatment options. The ORCA-1 results show that cytisinicline has the potential to be that new treatment with a strong efficacy, safety, and compliance profile. There remain over 34 million smokers in the US of which approximately 500,000 die a year as a direct result of smoking cigarettes. New threats are on the horizon with an increasing risk of nicotine addiction from the use of e-cigarettes, which is an area we will target once cytisinicline has been approved for smoking cessation. So in summary, the great ORCA-1 results have now focused our attention on the Phase 3 trial program which we intend to commence at the beginning of next year, finance permitting. That concludes my remarks, and I will hand you back to the operator.

[Operator Instructions]. Your first question comes from the line of Michael Higgins of Ladenburg Thalmann. Your line is now open.

Thanks, operator. And thanks, guys, for taking some questions. First off, as we look ahead to Oslo in September, what additional data might we look for in that oral presentation? Thanks.

You'll be able to actually see the whole overview of the ORCA-1 from deposition of patients, demographics, and more detail as far as the efficacy results as well as safety. The other presentation is going into more on the compliance and how it was done, and more detail on all of the treatment arms regarding compliance as well.

Okay, looking forward to that.

Michael, I think that compliance element is really significant. If you look at -- well, we had the 97.6% compliance on the 3 milligram TID arm. But, frankly, on all arms, we got very significant compliance. We were very pleased with that, so I think that will be an interesting presentation as well.

Why do you think it was so high? This is the first time you have used behavioral, but any other reasons you can point to that can explain why it was so high? It's just very well-tolerated, maybe?

Yes, I think there is a couple of reasons. I think, one, is it is well-tolerated, and that really leads to people wanting to continue on the drug. Many of these patients clearly had several quit attempts. With the side effect profile of some of the other drugs that are out there, I think they clearly didn't experience the same thing, and that was a real incentive for them to keep going.

I also think compliance was actually increased. Because if you are looking at a short treatment as well, subjects look at that commitment more easily than a very long time. And so compliance probably was beneficial in that regard. And we did have certain -- in the study -- had text messages, and the bonding with the site with the behavioral support clearly does help with compliance.

Makes sense. Thanks for that. Maybe I didn't catch it, Rick, in your prepared comments. Just checking on the timing for discussions with the regulatory bodies, the end-of-Phase 2 discussions. What was the timing again for those?

Yes, you are well observed, Michael. We are looking at meeting with the FDA in the fourth quarter this year.

Anything lined up then for Europe?

For Europe, at the moment, I think we now need to think extremely carefully about what we do in Europe, given that the 3 milligram, three-times-daily is clearly the preferred treatment option. The historic studies that have been done in Europe really have been using the commercial 1.5 milligrams titration dose. So I think our focus clearly is on the US market right now. I think that has got to be the priority. So we need to do a little bit more thinking around what we are going to do in Europe. It may well be that we defer, wait for the results of the Phase three trials using 3 milligram, three-times-daily, and then readdress Europe. I think you have got to basically put out the best treatment option you have got. And we clearly believe 3 milligrams, three-times-daily is that one.

Okay, my next question was on partnering, how those discussions are going all kind of dovetail from your answer, as well; if the partnership discussions are going into your thought process and how to move forward in Europe as well?

We have been waiting, as I think we said earlier, for the results of ORCA-1. And now we have got those, we have got some real validity to move the partnering discussions forward. But, again, the focus and priority is here in the US. So, too early to call in terms of expectations around timing. But we are initiating those discussions on a fairly wide basis and we will keep you updated as we move along.

Okay, fair enough. And then lastly, any updates for us on the 2,000-patient, investigator-initiated RAUORA trial? Any feedback for us on that?

I will be able to give you a greater kind of color on that one because -- we haven't yet mentioned it, but there is a further presentation at the SRNT Oceania conference in Sydney, so we will be getting an update on RAUORA at that point. That is going to be in October.

And when's that--?

October.

October? Okay. Very good. I will jump back in the queue. Appreciate it. Thanks, guys.

Your next question comes from the line of Jason McCarthy of Maxim. Your line is now open.

Hi, actually this is Naureen on for Jason this afternoon. By the way, congrats on the quarter. I was just wondering -- a few questions. If you could clarify the nonclinical NDA-enabling studies that remain outstanding to date; and which ones will be conducted by the NIH, if some or all?

Sure. There is a number of nonclinical studies that need to be done. We have completed all except for we have one more chronic toxicology study, giving cytisinicline for nine months. Obviously, the FDA requires two carcinogenicity studies. One has started. One will start hopefully next year. And then we also have to have a completion of reproductive toxicology and fertility. And that is where the NIH has really done all of those studies. And we have one more to do, and that is what they are completing as well.

Great, that's great. That's actually very helpful. And I was just wondering, Rick mentioned with regards to we will be hearing more about the compliance aspect of the ORCA study that was just completed. I was just wondering in terms of how many quit attempts were there by the patients that were in this study? Did you actually look at the average quit attempts that were made by the patient population, the demographics that you had there?

Yes, the mean was 4.5 quit attempts, so 4 to 5 quit attempts in the past.

Great. And one last question. In your opening remarks, you mentioned about cytisinicline potentially targeting the vaping and e-cigarette market. I was just wondering what do you think the addressable market is there? And how do you actually quantify, for instance, moderate to heavy smokers within that population?

Yes, this is Jaime. We are still obviously learning more about what is happening with this epidemic in the youth. But we have seen some data recently that demonstrates that the 18-to-24 age population is actually the highest population that is attempting to quit, and I can share some of those numbers with you off-line. But what we've seen is it is around 70%-plus in the 18 to 24 market, and about 10% of those are actually successful quitters. So we will be looking at that population as a potential opportunity to expand, post-approval, as a follow-on lifecycle management opportunity.

Great. That's all for me. That's very helpful, though. Thank you.

Your next question comes from the line of John Vandermosten of Zacks Small Cap Research. Your line is now open.

Great. And good afternoon Rick, John, and Cindy. Good to hear you guys again. I wanted to start out with a question on just exploring similar dosing lengths versus Chantix. I think that perhaps since the dosing of 25 days is shorter than what you are getting with Chantix, maybe there is a difficulty there for some to understand that. Is there a possibility you could pursue, in some way, a comparison that would have similar lengths of treatment?

Well, I mean, we possibly could. I think with the TID, that was the most important decision here. Obviously, Chantix is given twice a day; it is because their half-life is a little longer. Our PK would show that we would need to at least give it three times a day. So the three times a day is definitely a much more simplified schedule that could be expanded on. And FDA has already asked us to, in an NDA, look at pretreatment. And so that is where you could get closer to a, let's say, six or 12 weeks.

John, I think we were pretty satisfied with what we saw in the ORCA-1 study, but that is not necessarily to say that we couldn't do better. And I think it is something that we need to think about fairly carefully, now, whether we go out to three months; to a degree, we might actually lose our kind of differentiation. But it may well be a case worthy of consideration where we take it out a little bit longer and see if we can actually boost the overall quit rates at that point. Because, frankly, the higher you start at the end of treatment, the better the results as you go through time. But I think certainly our quit rates were favorable in comparison to, say, Chantix, and that was a real competitive advantage as far as we were concerned. I had a few comments in my script here about feedback from the patients, and they were very positively disposed to a much shorter treatment period overall.

Okay, yes, that makes sense. Definitely shorter is better for the patients.

But it could well be -- just to clarify that -- it could well be we go a little bit longer on the principal treatment, but it may well be there is a case for further retreatment later on.

And that is where we will also have to look at compliance. The longer you go, the less you might have compliance. It's always kind of a double-edged sword.

Okay. And the data from the ORCA-1 trial was highly statistically significant. Does that maybe help reduce the size of the Phase 3 trial, just with those really significant results from what you originally had thought prior to the Phase 2?

Well, definitely we didn't expect it in 50 subjects per treatment arm, so it definitely helped us. We have to be careful, though, because our secondary efficacy endpoint is out to 24 weeks. So we will probably be powering the study for that later endpoint, and making sure that we are still powered for getting out to that length for whatever differences there might be.

Okay. And will you have data from the ORCA-1 to support that 24-week adjustment -- or design, I mean?

No, actually, the ORCA-1 study was only eight weeks. So what we have then is we will have to look at simulations and of what we would predict to be, week 24. But we also have references in the literature for other treatments, so it's not difficult to do that.

Okay. So those patients are not -- I mean, they are not providing data after the end. They are not providing --.

No.

Okay, okay. Great, great. And then just, John, a question for you on any shares or warrants that were exercised, post- the end of the quarter. Was there a significant amount of additional warrants done?

No; so, good question. We did announce that we did the warrant exercise agreement with a single shareholder that resulted in the proceeds coming in. There were no other warrants that were exercised. And I think just for clarification, we did not use the ATM facility that we had put in place earlier in the quarter. And so we reported that the outstanding share count was right around 8 million shares.

Okay. Great, yes, I saw that. All right, thank you, guys. I appreciate it.

Your next question comes from the line of Jim Molloy of Alliance Global Partners. Your line is now open.

[Technical Difficulty] after the close here. Can you talk about any interest from potential partners on this? Certainly the opportunity is vast for smoking cessation. Has there been -- post- the data, I know the stock certainly hasn't been working as one would hope? But post- the data, has there been any increased interest? Or what is the interest level, if any, from potential partners on this product?

Yes, what we are aiming to do with the partnering exercise is to do it in a very controlled fashion. I think what we have got to do is to -- only in the last couple of weeks have we got to a point with the detailed data analysis that puts us in a position to start that more organized process. So, yes, we have had expressions of interest, but we want to put that into a process where we ensure that we do the appropriate deal that is going to maximize value for the asset. So going back to what I said earlier on, we are not prepared to put a timeline on outcome of that. Because you need to make sure we get the right strategic partner, both with the priority being US, then with the potential of a broader relationship globally. But you are right. This is a huge market opportunity. There is 35 million smokers. And, on average, around about 70% of those on an annual basis express a desire to quit smoking, and around about 40% actually do something about it. Typically, that journey goes to going down to Walgreens and picking up nicotine replacement and then ultimately going into the physician and get a prescription for a smoking cessation drug. So the opportunity is vast. And I think going along the lines of the e-cigarette epidemic, that is exploding in front of our eyes. And I think there is going to be a substantial opportunity to expand the target patient population going forward.

Yes, certainly as Sam Clemens said: giving up smoking is easy; I have done it hundreds of times. But actually getting it done to stick would be the best thing. And I know putting a timeline on partnerships can be a fool's errand because it is hard to know exactly when things will close. But are you still anticipating an FDA meeting, so the pre-Phase 3 early fourth quarter 2019, any developments on that? And I guess the last question would be: any thoughts on -- I think we spoke in the past about you guys had discussed maybe presenting at ASCO, sort of stop some of these cancers in the bud. What would be a good venue for you guys to present sort of more data from the recent trial?

Well we have got the SRNT meeting Europe, coming up in October where we will be -- we've got two oral presentations there. We have got more data coming out at SRNT in Sydney in October, and then we have got SRNT in New Orleans in March. Yes, it will be an interesting idea to present at ASCO is probably one of the leading anticancer drugs. But I think we need to think very carefully about how we would position that. But you are quite right; 87% of all lung cancer is caused by smoking. And if we can do something to prevent people from smoking, it can only be a good thing.

Thank you for taking the questions.

Thank you so much. And I am showing no further questions at this time. I would now like to turn the conference back to Mr. Rick Stewart.

Well, I'd just like to say thank you very much for listening in to Achieve Life Sciences' second-quarter 2019 conference call. We look forward to updating you with more information on our next call. So thank you very much.

Thank you so much to our presenters and to everyone who participated on today's conference call. And this concludes today's conference call. You may now disconnect. You all have a great day.