Achieve Life Sciences, Inc. (ACHV) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by welcome to the Achieve Life Sciences Third 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 speaker today, Ms. Jaime Xinos, Executive Vice President of Commercial at Achieve. Please go ahead ma'am.

Thank you, Sonia and thanks everyone for joining us this morning. On the call today from Achieve we have Rick Stewart, Chief Executive Officer; Dr. Anthony Clarke, Chief Scientific Officer; Dr. Cindy Jacobs, Chief Medical Officer; and John Bencich, our Chief Financial and Operating Officer. 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. This quarter has been focused on the continuing data analysis of the ORCA-1 Phase IIb trial, which we announced in June, also on presenting the clinical trial results to smoking cessation key opinion leaders in the US and Europe and on preparations for the Phase III clinical trial. Our goal is to build on the success of the ORCA-1 trial and use that experience to optimize the design of the Phase III ORCA-2 and ORCA-3 trials. In May 2018, at an end of Phase II meeting, the FDA agreed in principle to proposed Phase III protocols. Based on the results and the experience of the ORCA-1 trial, we've made some modifications to the protocols and we're meeting with the FDA in the fourth quarter to discuss these amendments before moving forward. We'll talk in more detail later about the current Phase III trial designs. Highlights of the third quarter include five key items. Number one; we held our first Investor Day in New York on September 20, with key opinion leaders in the field of smoking cessation and nicotine addiction. Number two; we presented the final data from the ORCA-1 Phase IIb study and a detailed presentation of the exceptional ORCA-1 compliance rates at the Society for Research on Nicotine and Tobacco or SRNT European annual meeting. Number three; we concluded the maximum tolerated dose or MTD study, demonstrating single administration the safety of cytisinicline at 30 milligrams, which is 10 times higher than the intended commercial dose. Number four; we continued our progress on activities related to our Phase III development program, including finalizing the study protocols, as well as manufacturing drug and packaging for the trials. And finally, number five, we engage in further discussions with potential development partners for commercialization of cytisinicline. I'll now discuss these in more detail. Firstly, the Investor Day, which was a great success. And if you're not listening to the audio webcast that is posted on our website, I strongly encourage you to do so. Our esteemed panel in smoking cessation experts, included Dr. Mitch Nides who is the principal investigator on the ORCA-1 study, Mitchell Nides, Dr. Nancy Rigotti from Mass General and a member of the ORCA-1 data safety monitoring committee, Dr. Judith Prochaska from Stanford University, and Dr. Scott Leischow from Arizona State University. The event was moderated by Michael Higgins from Ladenburg Thalmann and Jason McCarthy from Maxim Group. The meeting highlighted the efficacy, safety and compliance of cytisinicline in the ORCA-1 trial and the importance of bringing cytisinicline to patients urgently. One of the key messages was the current difficulty that physicians have in persuading smokers to use Chantix, give them safety and tolerability perceptions of that treatment. A new option like cytisinicline demonstrating the safety and efficacy we saw in ORCA-1 would give smokers a new treatment option, and importantly, new Hope and moving forward with another quit attempt. It was an excellent opportunity to hear directly from leaders in the field of smoking cessation, and their opinions on the ORCA-1 results was the relevance of cytisinicline for future patients and their physicians who want new treatment options for smoking cessation and nicotine addiction. We also disclose join the event that we are considering a clinical study in e-cigarette users and vapors. [indiscernible] clearly highly topical right now given the controversy about the vaping epidemic in youth and the increasing number of reports of vape related lung disease. There are approximately 34.5 million cigarette smokers in the US, according to the Centre of Disease Control, with a consistent decline in the number of cigarette smokers to around 14% of the US population. In contrast, the number of e-cigarette users in the US continues to grow. And as reported in the Annals of Internal Medicine in 2018, has reached nearly 11 million users, of which nearly half are under the age of 35. While e-cigarettes have historically been viewed as safer than combustible cigarettes, long-term safety of e-cigarettes remains unproven, and usage often leads to a substitute form of nicotine addiction. Nicotine content in e-cigarettes can be higher than combustible cigarettes with a risk of rapid addiction and new users. If e-cigarettes are banned or their availability is restricted, as we are seeing currently in the US, the risk is that former smokers revert back to cigarette smoking and vapors, who have never smoked, but are now nicotine addicts are potentially driven to cigarette smoking, to fulfill their habits. There needs to be a further option for nicotine addicts and we believe cytisinicline could help address this emerging issue. Discussions about cytisinicline study in e-cigarette users are in the early stage and we have been encouraged by the enthusiasm of potential investigators and also by sources of non-diluted financing for this Study. We will keep you updated as we can the discussions continue. Secondly, and also in September, we presented final ORCA-1 Phase IIb data at the SRNT Europe Conference in Oslo. Dr. Anthony Clarke made two presentations, the first with a focus on overall quit rates and odds ratios compared to placebo. And the second review of our methods used to achieve impressive compliance rates of 98%, as observed in the three milligrams three times daily treatment arm. The final day presentation covered the efficacy rates, and in particular odds ratios, odds ratios are used to measure the treatment effect compared to placebo, and also in helping compare results between trials. The odds ratios reported in US patients in the EAGLES study were 1.64 nicotine replacement therapies or NRT and 2.7 for Chantix. This mean that NRTs was 1.6 times more effective than placebo and helping people to quit smoking, and Chantix was 2.7 times more effective. In the ORCA-1 trial, using three milligrams three times daily, we achieved an impressive odds ratio of five, meaning cytisinicline was five times more effective than placebo for smoking cessation. This remarkable efficacy is one of the main reasons smoking cessation opinion leaders are so enthusiastic about cytisinicline. If we can sustain the odds ratios in larger Phase III clinical trials, we'll have an efficacy advantage over existing treatments, in addition to cytisinicline's favorable safety profile. As we discussed previously, the safety profile cytisinicline has continued to demonstrate its potential to be best in class compared to current oral prescription therapies. Overall, in subjects treated with scientists cynically in all individual adverse events reported in ORCA-1 were below a lower rate of 10% with no serious adverse events reported. By comparison, the varenicline or Chantix trials report double digit adverse events, such as near 30% rate of nausea. Turning now to the maximum tolerated dose study which was successfully completed in September, in this Phase I study, we were unable to find a maximum tolerated dose. That is a single dose of cytisinicline that led to a predefined dose limiting adverse events. It is important to stress that this study did not evaluate efficacy. It was intended to identify what amount of cytisinicline to be taken in a single dose without triggering serious adverse events. This study was a standard requirement by FDA for the NDA, and was intended solely for safety reasons, in case a patient exceeded the recommended dose. The starting dose was six milligrams, which increased in three milligram increments up to 30 milligrams or 10 times the expected commercial dose. This dose, the stopping criteria of serious or severe adverse events were still not met, but the data safety monitoring committee recommend stopping the study. It should be noted that varenicline or Chantix is dosed at its maximum tolerated dose or one milligram which is likely one of the reasons for its safety profile and patient compliance. We plan to review the results with the FDA to determine if further escalation beyond 30 milligrams will be required. Moving on to Phase III trial preparations, as you would expect, significant effort is ongoing to prepare for the upcoming coming Phase III trials. Clinical trial medication has been manufactured and packaging will occur over the next several weeks to allow for Phase III clinical development early next year. Detailed discussions with a Contract Research Organization and investigators are underway. And we will be meeting with the FDA this quarter to review and finalize protocols. The data analysis from ORCA-1 has been the driving force behind specific modifications to the Phase III trial design, and also prior discussions with the FDA. We believe that the modified Phase III trial design will address three areas discussed with FDA related to number one, evaluating higher doses of cytisinicline for higher quit rates. Number two, simplifying the dosing schedule for compliance and number three, increasing the treatment duration for more durable efficacy. ORCA-1 answered the first two items, showing the three milligrams three times a daily is the optimum dose for quit rates. The third item will be addressed by the Phase III trials, where we are planning to increase the dosing period from 25 days to 42 days or roughly from four weeks to six weeks. Why a longer dosing period? Feedback from subjects in the trial was strongly in favor of extending the treatment period. They felt that additional benefit could be obtained from prolonging the duration of therapy and associated behavioral support, which might increase chances for a successful quit. It was quite clear in the ORCA-1 trial that there were a number of patients who are trying really hard to quit and reduced their cigarette smoking to almost zero. According to the trial rules that required 100% abstinence, they were considered to be failures and did not have the opportunity to succeed because the treatment period was too short at only 25 days. Our thinking is to give near quitters a chance to succeed by extending the treatment period. We believe this also addresses an FDA request for evaluating repeated or a longer treatment period by adding an extension period of another six weeks. This will also reduce treatment relapse for those patients who quit, or who could gain additional benefit from an extended treatment period. We saw a number of patients across all treatment arms that achieved abstinence, but then relapsed upon the removal of the study drug we believe there may be a lesser chance of relapse the longer a patient is on treatment. Additionally, extending the treatment period to six weeks allows us to measure the FDA agreed upon approval endpoint of four weeks continuous abstinence during the last four weeks of treatment, instead of four weeks post treatment, as was done in ORCA-1. Given our historical dosing of 25 days who is option to measure this endpoint on treatment, however, by extending dosing to six and 12 weeks, we are now able to measure abstinence while patients are still in treatment, which we believe may lead to higher overall quit rates. In theory, this will give us two chances of winning, one, at six weeks of treatment and the other at 12 weeks. The opinion leader response was overwhelmingly positive on these trial design modifications. Finally, we're continuing discussions with potential commercialization partners. These discussions are proceeding well and have been dependent on the ORCA-1 results and the Phase III trial plans. There is an obvious global partnering opportunity, which in the case of Chantix in 2018 represents roughly $1.1 billion in revenues. The US opportunity alone represents 77% or $838 million. I think it's fair to say that we assess the market in a similar way, with an overwhelming majority of revenue potential coming from the US market, and roughly 23% from the rest of the world. We have partnering interest in South Korea, New Zealand and Australia and Canada, with ongoing discussions which are progressing well. However, our main commercial activities have been focused on the US market opportunity and achieves overall commercial planning. We look forward to sharing additional details in the future as our plans for commercialization progress. I'd now I can turn the call over to John to review our third quarter financial results.

Thanks Rick. I'd like to provide an update on our cash balance as of September 30, 2019, and also our operating expenses for the third quarter 2019. As of September 30, 2019, the company's cash, cash equivalents and restricted cash were 7.4 million compared to 14.7 million as of December 31, 2018. Turning to our statement of operations, the company incurred a net loss of 3.7 million for the quarter ended September 30, 2019 as compared to a net loss of 3.2 million for the quarter ended September 30, 2018. Total operating expenses in the third quarter 2019 increased to a total of 3.7 million, compared to 3.3 million in the third quarter of 2018. As highlighted previously, 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 in the fourth quarter in line with the completion of the ORCA-1 trial and in advance of initiating the Phase III development of cytisinicline. That concludes the summary of our third quarter financial results. I'd now like to turn the call back over to Rick.

Thank you, John. As you can hear, the third quarter has been busy and eventful with progressive data analysis, further reinforcing the strength of the ORCA-1 trial plus preparations for the Phase III trials. The Investor Day allowed KOLs to explain the importance of cytisinicline as a potential new therapy for smoking cessation and nicotine addiction. Clearly, there's market opportunity to treat nicotine addiction is expanding with the impact of vaping and the attendant issues, moving users to reassess the safety of e-cigarettes. Thank you again for joining the call. Operator, please open the line for questions.

Thank you. [Operator Instructions] Our first question comes from Michael Higgins of Ladenburg Thalmann. Your line is open.

Good morning guys. Thanks for taking the questions. First one is on your regulatory discussions that are coming up before your end, if you could help us with a little bit of detail on the timing for that Phase III design meeting with the FDA, and also will you be discussing the need for further dosing in the MTD study.

I'll hand that one over to Cindy.

Yeah, so not disclosing a specific date, but FDA meeting will be occurring this quarter. We will be going over the changes of the increased duration of dosing and getting FDA revealed the three milligrams three times today. In regards to the MTD, we are asking their recommendation on whether we should go beyond the 30 milligrams dose or as the data safety monitor committee suggested that this dose was close enough to the MTD that the study could be stopped at 30 milligrams, so we are getting FDAs recommendation on whether we need to go beyond 30 milligrams or not.

Okay, that's helpful. Thank you. Rick, you mentioned discussions with partners. I was hoping for a little bit more detail, a little more color on that. How you could characterize those discussions with the types of partners I assume a major pharma would be involved, are there others as well and if so can give us some details as to how that's looking?

Yeah, Michael without giving away negotiating position. Yeah. We both got major pharma and also specialty pharma involved as well. A key decision is a global partnership versus US plus regional. And as I mentioned on the call, we've got interest in Canada, Australia, New Zealand, and South Korea. We've got some nice interest out of Japan as well. But I think the strategic decision that is important is to maximize the value of that partnership. And clearly with around about 77% of Chantix revenues coming from the US market, I think our intense focus is on finding that partner here in the US. In terms of the kind of criteria that we're looking at, it's a partner that's probably got a underutilized primary care physician sales force where we can add cytisinicline to the bag, but I think it will be important how to factor this from a commercial standpoint for Achieve is an ability to generate our own direct revenues as well. So in terms of characterizing how far they've progressed, the moment we're in discussions or in – not detailed discussion, but in principle discussions with a couple of US players. But I think we've been really focused very much on elucidating the data out of ORCA-1, which as you can see from an odds ratio perspective is very strong before we really engage in those detail negotiations,

Okay, makes sense and just a follow up on your comments regarding your own direct revenues as well. Are you looking to carve out the ability to market to specialists and then have a partner market to the primary care sales force, is that what you're referring to?

Predominantly, yeah, we see the market opportunity around cardiologists, oncologists, et cetera, even down to dentist, we've been polling, dentists are our primary code of tool as well. But I think what we'd also like to do is to advance some part of our strategy more towards the digital marketing side of things as well, which is, yeah, it's emerging. And that's all I can say at the moment. I mean, you've seen this quite a few companies out there that are involved in digital marketing, but I think harnessing our own direct revenues is an important key factor as far as we're concerned.

Thank you. That's helpful. Just one last question, you mentioned in the call here, actually you've referred this before, in ORCA-2 you had patients that hadn't completely gone abstinent of smoking, but they came close. Can you characterize what you mean by close?

Yeah, we saw a number of patients who – effectively either before the 25 day treatment period or soon after the 25 day treatment period – they actually relapse and they actually started smoking again. And what we actually saw was an interesting situation where they were nearly that. That's the best way to characterize it. Have they been given a little bit longer both in terms of treatment with cytisinicline and also the behavioral support, we think they would have actually got there? And that's a kind of principal driving factor for extending the treatment period. But it's also should be recognized that the primary endpoint and weeks where we saw these patients were off drug at the measurement time point, whereas on the Chantix studies, that patients were always on drug. So to a degree by extending the treatment period to six and 12 weeks, we're able to construct a lab where our patients will remain on drug which again we thing will enhance overall quit rates.

Thanks. I appreciate that. Congrats again on the execution during a very busy quarter.

Thank you.

Thank you. And our next question comes from Jason McCarthy of Maxim Group. Your line is now open.

Hi, good morning. This is actually Naureen on for Jason this morning. And thanks for taking the question. Congrats on ORCA progress this quarter. I was just wondering, just a few questions starting with, you talked about how topical vaping is in the news. Have you actually heard any anecdotal evidence of people potentially using Chantix in Eastern Europe to overcome some vaping addiction? Is there vaping addiction over there, do have some insights on that.

Yeah, well, we don't have in Eastern Europe the same kind of intensity. I think Philip Morris IQOS has just hit the market in Central and Eastern Europe, so I think it's emerging there. But I think, from a logical standpoint, the idea of using cytisinicline, not just for combustible cigarette addiction, but also for e-cigarette addiction actually makes sense. We haven't seen any specific anecdotal evidence, but certainly, in our discussions with the key opinion leaders, there was a very strong kind of move on their part to explore whether cytisinicline would actually have an advantage in that particular area. I think – just like to stress in terms of our thinking, the vaping epidemic in the US, and the attention is largely focused on the youth population. And that historically has been an extremely difficult population to conduct studies in. When Chantix – so Pfizer used Chantix in the US population, it simply didn't work because there wasn't that overwhelming desire to quit. So what we're aiming to do is a slightly older population, where we think there's going to be a desire to really have a go at quitting e-cigarettes. Even recently, yesterday, there was an article in Reuters looking at the impact of some pretty heavy nicotine loading in some of the e-cigarettes. And the idea that within five or six uses of JUUL for example, you could be addicted to nicotine. So we do believe there's a significant patient need there and that's something that we want to explore, but again, just to stress, we are not being distracted from our primary focus, which is the ORCA-2 and ORCA-3 clinical trials. And that's why we're looking at non-dilutive financing to support those studies.

Sure, thanks and that's helpful. And in terms of this is mentioned in the press release today. And previous as well, the NIH has extended their collaboration, and they'll be conducting the GLP non-clinical reproductive study. So do you have any idea when they may actually initiate that and you've got it to a 2020 readout, but would you be able to provide some color on the duration of that study?

Cindy, can you answer that one, please.

I'm not sure if we have feedback. And this is regards to the NIH study. That study is for NDA purposes, and it is in progress right now and will be completed early 2040.

Okay, that's great. And just one more from me, I believe you mentioned Dr. Clarke was at the SRNT conference in Oslo. And perhaps he or you all have had interactions with some of the principal investigators of the other independent studies that are ongoing, like the Aurora study, and there's one from Australia. I was just wondering do you have any insight on when those might read out.

Yeah, I think the best estimate I can give you and we actually met with the principal investigator on the Aurora study, we actually also presented at SRNT Oceania two weeks ago. So our expectation is that certainly the Aurora study will read out sometime in the first half of next year.

Great, that's helpful. And I guess that's pretty much for me. Thank you so much.

Yeah, pleasure.

Thank you. And our next question comes from John Vandermosten of Zacks. Your line is now open.

Good morning, everyone. I wanted to ask the first question just on some of the options for raising the money to pursue the Phase III. I guess it can be done in many different ways, including issuance of additional equity or perhaps a royalty or something like that, what are some of the structures that you're looking at to achieve that?

Yeah, thanks for the question, John. I think on the capital side, I think, we'll continue as we have in the past to look at all options that are available, whether it be taking funds down off the shelf for new issuance of equity, as well as funding coming from partnerships. I think the key thing on our side is to get through the FDA meeting here in the fourth quarter, because that in effect is the last game before we would launch into the Phase III program. And I think we want to make sure that we've got full eyes on everything that the FDA is requiring and that we're working in tandem as we move forward.

Okay, and are we still looking at that $50 million number as the amount that will get us through to the end of the Phase IIIs and potentially an NDA as well?

Yeah, that's correct. If we were to run everything together, we think for significantly less, we can run one of the Phase III trials and get a data result really kind of at the end of 2020, beginning of 2021. And again, that would cut those capital needs down significantly.

Okay. And you'd mentioned vaping trial. Would that be potentially complete prior to the registration on trials being complete?

John, I think it's too early to call. We are in preliminary discussions with both the key opinion leaders and non-dilutive sources of finance. So I think there's two time elements there that are to a degree out of our control the moment. So I wouldn't like to put a stake in the ground in terms of the overall timing of that study.

Okay. And in our early work, we'd identified about five different multi-billion dollar global companies that are in the smoking cessation space, I guess, it sounded like from your previous commentary that you're actually looking at a little bit larger set than those names that kind of pop up as being the major ones in the space, is that correct?

Yeah, I think we don't want to limit the potential pool of partners. And clearly this is a global market opportunity with the majority of the revenue generation capability here in the US. So I don't think we want to necessarily limit ourselves to a short list of five or so. There's pretty significant interest in terms of a new treatment option. And I think to a large degree, the comfort of the key opinion leaders are providing that level of interest driving the commercial discussions that we're having. So I think the Investor Day was really important because it gave us the opportunity to lay out pretty clearly from key opinion leader point of view, how important new treatment options are for people who are trying to quit smoking and is largely for most kind of discussions, the e-cigarette study concept came about. So yeah, there are many market opportunities where there are roughly 34 and a half million potential patients. It's also important to note that Chantix actually only treats roughly 3% of smokers here in the US. So yeah, there is a significant opportunity with a product that's potentially got better efficacy. And certainly it's got a better overall side effect profile and good demonstrating compliance.

Alight, great. Well, thanks to Rick, John, Cindy, I appreciate you taking my questions.

Thank you.

Thank you. And our next question comes from Jim Molloy of Alliance Global Partners. Your line is now open.

Hey, guys, thanks for taking my question. I had a question on the FDA. So FDA interactions, can you characterize kind of your FDA interactions to date regarding the drug and what sort of expectations for coming out of the meeting here in the fourth quarter.

Cindy, do you want to talk about that?

Sure. So we had our end of Phase II meeting last year in May of which a number of recommendations we have fulfilled that FDA had. The three milligram single tablets actually will see this set. All information on the manufacturing of that tablet has already been submitted to FDA. We don't expect any issues there. I think this is more just coming back and circling back with FDA fulfilling their recommendations and getting a sign off for our Phase III program.

All right, excellent. And then I believe you spoke a little bit about cytisinicline with Chantix. And I imagine, obviously, again the Phase III is done as a top priority. I thought at some point of trying to head to head first these maybe the Phase IV type environment.

Yeah, I think immediate priorities clearly to get cytisinicline approved here in the US and other markets. I think it's entirely feasible with FDA – we could do a Phase IV study. To an extent the Aurora study down in New Zealand and the one in Australia are actually accomplish that. But I think what's important is to have like-for-like treatment periods, and I think what you'll see with the new ORCA-2 and ORCA-3, is clearly a shorter six week treatment period is not directly comparable with Chantix, but the 12 weeks would be. So once we've got the drug approved and as I said, we've potentially got two shots on goal with this. But at the 12 week time point we should be able to do a direct comparison then overall efficacy between the two. But I think as a competitive advantage, the shorter six week treatment period is going to be significant as far as both patients and doctors are concerned because it lessens the chances of failure.

Well, excellent. Thank you for taking the questions.

Thank you. And ladies and gentlemen, this does conclude our question-answer-session I would not like to turn the call over to Rick Stewart for any closing remarks.

Well, I just like to thank you all for joining the call. We look forward to updating you with the full year results early part of next year. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.