Arcturus Therapeutics Holdings Inc. (ARCT) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Alcobra First Quarter 2015 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s call, Ms. Debbie Kaye. Please begin.

Good morning and thank you. Before the market opened this morning, Alcobra announced financial results for the first quarter ended March 31, 2015. If you have not yet received this news release or if you would like to be added to the company’s distribution list, please call LifeSci Advisors in New York at 646-597-6979. Before we begin, let me remind you that this conference call will contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Because such statements deal with future events and are based on Alcobra’s current expectations, they are subject to various risks and uncertainties. Actual results, performance or achievements of Alcobra could differ materially from those described and/or implied by the statements on this conference call. For example, forward-looking statements include statements concerning among other things the expected milestones and the development of Alcobra’s lead product candidate and its various indications, including the timing and design of clinical trials, timing of reporting results of such trials, Alcobra’s ability to better design future clinical trials and reduce high placebo response, reaching the milestones required for FDA approval, timing of submitting pediatric study plan to the FDA, the potential of MDX to treat adult and pediatric ADHD and Fragile X Syndrome, statements regarding Alcobra’s future uses of cash and the sufficiency of the company’s financial resources to meet certain milestones and whether such milestones may be achieved at all. In addition, historic results or conclusions from scientific research do not guarantee that future results would not suggest different conclusions or that historic results referred to on this call would not be interpreted differently in light of additional research or otherwise. Also, while the FDA has indicated to Alcobra that positive efficacy results from certain clinical studies may be sufficient to demonstrate efficacy for approval of MDX, the FDA is not bound by these communications and, accordingly, may change its position in the future due to reasons within or outside the control of Alcobra. The forward-looking statements contained or implied on this call are subject to other risks and uncertainties, including those described in the Risk Factors section of Alcobra Limited’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014 filed with the Securities and Exchange Commission and in subsequent filings with the SEC. Except as otherwise required by law, Alcobra disclaims any intention or obligation to update or revise any forward-looking statements, which speak only as of the date of this call, whether as of the result of new information, future events or circumstances or otherwise. Hosting today’s call from Alcobra senior management are Dr. Yaron Daniely, President and Chief Executive Officer of Alcobra; and Dr. Tomer Berkovitz, Chief Financial Officer. It’s now my pleasure to turn the call over to Yaron. Please go ahead.

Thank you, Debbie, and good morning, everyone. Today, I’ll provide an update on the status of our development programs for our lead drug candidate, Metadoxine extended-release or MDX. I will then hand over the call to Tomer to review Alcobra’s Q1 financials which were disclosed earlier this morning. Early in the first quarter this year, we completed a successful public equity offering led by a handful of healthcare funds. With net proceeds of approximately $28 million from this financing, our cash and deposits at the end of Q1 stood at $45 million. The company’s solid financial position provides it with the necessary backing to support our development activities through 2016 as Tomer will report shortly. Late in the first quarter, we announced the outcomes from AL015, our Phase II safety and tolerability study in 83 adolescents aged 13 to 17 with ADHD. The study met its primary endpoint. MDX showed good tolerability and no safety concerns after a single dosing. The most common side effects recorded were headache, 8% of patients in the MDX group versus 12% in the placebo group; nausea, 3% versus 5%; and fatigue, 3% versus 5%. No clinically significant safety findings in any laboratory values, vital sign measurements, ECG parameters, cardiovascular parameters or findings during clinical examination were observed. These results underscore the distinct tolerability and safety profile of MDX and allow us to proceed to efficacy studies involving more than a single drug administration. Also in the first quarter, we had a meeting with the Food and Drug Administration to gain their feedback regarding the previously completed Phase III study in adult subjects with ADHD and the proposed development path leading to an NDA submission for MDX in adult and pediatric ADHD. The meeting was productive. The FDA concurred that building on findings to date, positive efficacy results from a single additional short-term, well-controlled efficacy study in adults with ADHD would be sufficient to demonstrate efficacy in the subpopulation. We plan to launch this pivotal study this quarter. Importantly, the study will include design elements that are expected to provide rigorous controls over the magnitude of placebo responses and response variability we saw in our previous trial. For example, the trial will extend the duration of treatment period in order to minimize placebo response as placebo response reportedly decreases with the duration of treatment. The trial will employ a focus group of clinical sites serving to potentially reduce variability and drawing only on experienced academics and established practitioners with large pools of patients. The trial will also reduce the frequency and duration of trial visits in line with other pivotal studies in ADHD in order to minimize the burden to participating patients and investigators. We plan to utilize certain patient selection and enrichment methods in accordance with FDA guidelines that our peers have used in the past to control placebo rates in adult AHDA trials. And finally, we plan to increase the sample size in the second study, further enhancing the powering assumptions and increasing the likelihood of achieving statistical significance. We believe each updated design element individually could greatly enhance the results seen with MDX in the pivotal trial and that together, we have meaningfully enhanced our potential for success in this trial. We currently project reporting data from this trial by the middle of 2016. The meeting with FDA was also positive and productive in initiating a dialogue over the development plan in the pediatric ADHD subpopulation. The FDA concurred that similar to the path taken by other sponsors for approval, two well-controlled pediatric studies, a single Phase II and a single Phase III will be sufficient to demonstrate efficacy for approval of MDX in this subpopulation. Furthermore, the standard ICH E1 guideline will be followed for the long-term safety database needed for NDA filing in adult and pediatric ADHD, meaning a total of 300 patients treated for six months of whom 100 patients for one year. Given the fruitful starting point of this discussion, we expect to submit for FDA’s review a pediatric study plan for FDA published guidance of 2013 this quarter and finalize the design of these two studies with the agency’s feedback as soon as possible. Moving on to our Fragile X Syndrome program, the company expects to report data from AL014, our ongoing Phase IIb study in adolescents and adults with Fragile X Syndrome later this quarter. AL014 is a multicenter, double-blind, placebo-controlled study of approximately 60 adolescents and adults with Fragile X Syndrome. Fragile X Syndrome is a rare neurogenetic disorder characterized by severe intellectual, behavioral and learning challenges. It is a leading known genetic cause of autism. As a reminder, the FDA granted orphan drug status to Metadoxine in the treatment of Fragile X Syndrome in 2013. In addition to the clinical benefits shown today by MDX on ADHD symptoms and executive functions, we have presented comprehensive preclinical data demonstrating significant improvement in learning, social and cognitive functions in the well-validated Fragile X mouse model. In addition, the mechanism of MDX points to a modulation of the GABA glutamate circuit, which has been closely linked to Fragile X Syndrome in the medical literature. As I said, we’re on track to report outcomes from this trial later this quarter. Finally, it’s been a while since I provided an update on the issue of intellectual property. Since we do not issue routine announcements for every patent that has been allowed or issued, I’d like to provide a brief summary of where the company’s IP portfolio stands today. Due to the unexpected finding of Metadoxine’s procognitive property as well as the design of a delivery system that transforms this short-lived compound into an extended release product, Alcobra was able to obtain key patent protections globally that extend to at least 2028 before any patent term extensions. Two patent family serve as the core protection around MDX, the composition of the bilayer delivery system specifying the unique PK profile of the product and the broad protection of the use of MDX in cognitive disorders. The bilayer composition family includes, as of today, five issued patents in major markets including the U.S. and Japan, two allowances, one of which is in Europe and 11 pending patents globally. The use patent family includes, as of today, three granted patents, one allowance and 12 pending applications globally with a similar geographical distribution. Beyond these two patent families, we have multiple additional patent applications during various stages of prosecution [ph]. We believe that apart from any regulatory exclusivities that may be awarded to MDX if approved, these core patents provide a robust and coherent long-term protection over our commercial plans for MDX. This concludes my operational update. Let me now turn the call over to Tomer to present our Q1 financial statement.

Thank you, Yaron. Today, I will be comparing first quarter 2015 results to fourth quarter 2014 results unless otherwise stated. Total operating expenses for the first quarter of 2015 were $5.2 million as compared to $6.8 million in the previous quarter netting out non-cash charges for stock-based compensation of $0.8 million in both quarters resulting in net operating expense of $4.4 million this quarter compared to $6 million in the previous quarter. As we stated in the past, our operating expenses are closely linked to the clinical development plan. In the first quarter of 2015, research and development expenses were $3.6 million compared to $4.9 million in the previous quarter and $8.8 million in the third quarter of 2014. The difference is primarily driven by the wind down of expenses related to our recently completed Phase III and Phase IIb in adult and pediatric ADHD patients respectively. We expect to see an increase in our R&D expenses for the remainder of 2015 as we launch our second Phase III adult ADHD study. G&A expenses for the first quarter of 2015 were $1.3 million compared to $1.4 million in the previous quarter. Pre-commercialization expenses were $0.3 million this quarter compared to $0.5 million in the previous quarter. Finally, our cash and deposits as of March 31, 2015 were $45 million, this is compared to $21.7 million as of the end of the fourth quarter of 2014. The change in our liquidity position is mainly driven by the net proceeds of $27.9 million from our equity financing completed on January 14, 2015. We believe that the company’s cash position will allow us to complete our ongoing Phase II trial in Fragile X Syndrome and fund the company’s activities through 2016, including the completion of our second Phase III study in adult ADHD. I will now turn over the call back to Yaron.

Thanks, Tomer. I want to thank all of you for participating in this morning’s call. We’re advancing our development plan with confidence and excitement and look forward to communicating with you over the next weeks and months on the clinical outcomes from our Phase II Fragile X study, as well as disclosing more details on the design and launch of our second adult ADHD pivotal study. Our solid financial position will support our continued efforts to establish MDX as an effective compound demonstrating significant cognitive benefits together with a favorable safety and tolerability profile. I’ll now turn the call back to the operator for a Q&A session.

Thank you. [Operator Instructions] The first question is from Annabel Samimy of Stifel. Your line is open.

Hi, thanks for taking my question and good progress there. I want to ask you about the adult program. Are you going to be filing the adult and pediatric separately as you had originally planned or are you waiting for the pediatric study to file it all together? And the second question is regarding the pediatric studies. The Phase II that you’re going to be conducting, can you just give us a little bit of a description of what the FDA is looking for there? Is it a dose finding study, is it just additional confirmation before you move into Phase III? Just a little bit more detail there. And then if you could maybe provide us with a little bit of color from the FDA meeting if you can where their key points of concern were, where they saw benefits, if you can just give us some color, that would be great. Thanks.

Sure, Annabel. Thanks for the questions. Let me try and address them one by one. With regards to the timings, so as you know, all approved ADHD meds to date have been approved either for children only initially or together for children and adults later. I think that in looking at our work plan, although potentially the submission can be staggered, the pediatric efficacy study, the two pediatric efficacy studies, the Phase II and the Phase III are not rate limiting to the NDA submission. So at this point, with the big caveat of not yet finalizing our discussions with FDA on what these two studies will exactly look like, we don’t see or we don’t plan to submit separate NDAs for adults and kids but file a joint NDA for both subpopulations. With regards to details on the first efficacy study, the Phase II study, that study will be a safety and efficacy study as one of the two registration studies. We are not expecting it to have a dose finding element in a classical sense. These studies, if you look at what other sponsors have done, have routinely been smaller studies. If you look for example at the Vyvanse study for approval in kids, this was under 100 pediatric patients in a relative select number of sites, relatively short exposure, just demonstrating efficacy and then you move on to a Phase III study that’s of course larger and more expensive. But having said that, pediatric studies in general tend to be smaller than adult studies, primarily because of the decreased placebo response and the greater effect size that has been consistently seen in kids with ADHD meds than in adults. And again, as I mentioned, according to the 2013 guidelines that FDA issued on the pediatric study plans, the actual details of these two studies are something to be discussed and finalized with the agency. So once that process is completed, we can provide more granularity on those two studies. With regards to FDA feedback, other than what I’ve described in what will be coming out at the details of the adult pivotal study will be posted on ClinicalTrials.gov. We try to refrain from really going into any detail about the requirements. I will refer to just a couple of things I’ve already mentioned. One, as I’ve mentioned, the FDA appeared content with the standard safety database requirements for this product. So I think that conveyed a certain level of comfort with the findings to date and what would be required for filing for both the adult and kids ADHD indication. And I think in general, my sense is and now I’m not trying to speak for FDA, but my sense of the meeting was that FDA was very supportive of the value proposition for MDX as a drug candidate, very supportive of potentially the non-scheduling of the drug, the tolerability and safety profile of the drug. And in general, being able to partake in the development plan of a new alternative to existing therapies for this indication.

Okay. I’d just like to just quickly follow-up on the pediatric studies. There’s no chance that you’d be able to conduct any of those studies simultaneously with the adult?

There’s a great chance that we could do that, yes.

Okay. So do you have any sense when that program could start?

Well, so here is what the PSP guideline states. The PSP guideline requires the sponsor to submit within 60 days of the FDA meeting the PSP document, the pediatric study plan document. Then FDA has 90 days to comment on that document. And theoretically, there could be additional discussions beyond that and we’ll wait to see whether there are discussions beyond that. So looking at the timelines, theoretically, the plans for, at the very least, the Phase II pediatric study could be finalized by the end of this year. So if we chose to do that and if we felt that this would be productive and value-adding, we could start that study at that point.

Okay, great. Thank you.

Sure.

Thank you. And the next question is from Charles Duncan of Piper Jaffray. Your line is open.

Hi, guys. First of all, congrats on a good quarter progress. I had a question, I guess I’m a little confused, lots of questions from Annabel but I’m wondering if you could just restate or state more clearly to me whether or not you intend to pursue the pediatric indication at the same time and conduct trials at the same time as with the adult. And perhaps, even point to NDA timing. Is that going to be triggered by data which is positive from the adult study in next year or is there additional clinical work required prior to the NDA?

Sure, Charles, thanks. I’ll try my best. I’ll try again. I think that with regards to the pediatric program, assuming the finalization of the plan, meaning the agreement of the plan by the agency and Alcobra, we would be in a position to start the first of the two pediatric studies at the very least by the end of the year or maybe in the beginning of next year, before the results of the adult pivotal study would be coming out. And our intention is to do exactly that. Again, the serious caveat that we do not have FDA’s comments on our pediatric study plan, so I am not 100% sure that they would be accepting of the design, the scale, of the study as we believe they should be. So if you clearly understand that caveat, then our plan is to pursue the pediatric development plan in parallel with the adult plan, with the adult pivotal study. And therefore, we could potentially basically make up time and get to a point where the efficacy studies are completed pretty much at the same time or with a very small lag between the adult and pediatric studies. With regards to NDA submission, it’s really a stretch for me to state that. I don’t feel comfortable before seeing what FDA has to say on the pediatric safety plan. I don’t feel comfortable kind of drawing a line in the sand right now. But to just go back to your fundamental question, yes, we believe that we would be pursuing the pediatric studies somewhat in parallel to the adult pivotal program.

Okay. That’s helpful. And then Yaron, also I understand that nuances probably shouldn’t be discussed regarding the FDA’s feedback. But how would you interpret the need for a single additional study in adults? Is that a function of the constructive feedback that you mentioned in your view from the agency regarding the results of the recently read out adult study? Or is more of a function of the pediatric plan or maybe all of the above?

So again, not speaking for the agency, but sharing my impression of the meeting. We believe that as we consistently stated, the two adult studies would be required for the adult program and even after not achieving statistical significance on AL012, our first study, we felt that the study could provide the supportive data needed for only a single additional study. I believe that that resonated with the agency both in their written summary of the data as well as in the fruitful discussion that we had with them. Again, in context, the Strattera atomoxetine conducted two adult ADHD studies, both of which were statistically significant for that part of the NDA file. So again, with regards to relatedness to the pediatric program or not, again, I’m finding it hard to speak for FDA. My impression is that, of course, they’re somewhat linked. It’s the products for the same indication in two different subpopulations. But my feeling is that if the FDA did not see AL012 as supportive of the development program, we might have seen a different outcome from the meeting.

Okay. And final question regarding the Fragile X program. It’s not something we’re overly focused on because it’s nice to have for us. But I’m wondering what you would see as a win out of that study. And then secondarily, is there a specific venue that you’re targeting for disclosing that data or do you believe that it would be just press released and when - is that still this quarter?

Yes. So the results will be conveyed through a press release this quarter, unless something outside of our control happens. But we are on target to be releasing the data this quarter. With regards to what would be a positive outcome in my view, a positive outcome in a Phase II Fragile X study with 60 patients, adolescents and adults, half on placebo, half on drugs, would be a coherent and consistent clinical effect over potentially more than a single functional endpoint in this population. So this population and this indication has no FDA-approved therapies - pharmacotherapies. And most Phase II studies, if you look back over the last two or three years, have not been able to demonstrate statistical significance certainly, but also not a clear clinical benefit over more than one or two clinical domain - behavior, cognition, et cetera. So my sense is in looking at the data, we are able to see a meaningful clinical benefit in multiple impairments, multiple functional domains in this population. Then I think that would provide very promising and supportive data to move forward with this program to pivotal studies. But we’ll look at the data and we’ll certainly try and convey as clearly as we can after looking at the data, whether we believe this program merits further development or not.

Thanks for the added color and taking the questions.

Sure.

Thank you. And the next question is from Debjit Chattopadhyay of Roth Capital Partners. Your line is open.

Hey, good morning, guys, and thank you for taking my questions. Just a couple. Firstly on the upcoming Phase III study in adults, could you walk us through the design [indiscernible] in a higher lever and would there be say a washout period first followed by a brief randomized phase where you weed out the hyper responders before proceeding to the actual randomized section for the efficacy analysis?

Yes. Thanks, Debjit. So there is of course a critical need for elements that are blinded in the protocol to remain blinded to basically deliver the benefit and the effect that they should be delivering. I’m sorry for sounding vague. But I think that people who have learned the literature and have seen what some of our peers have done in their pivotal studies and their Phase III studies, understand that some design elements must be kept blinded to really be effective and deliver their intended benefits. So if you kind of indulge me with that, what I’ll say is that the Phase III, the pivotal study would basically be similar to other studies that we and others have done. It will be a multicenter study. It will be larger than our 300-patient study. It would of course contain a washout period for many existing ADHD medication. So the standard inclusion, exclusion criteria in this study would apply. We, as I mentioned, would be using a more focused group of sites with significant experience in direct patient pools that they would drawing upon. We would be extending the duration of treatments so it would be more than six weeks as first study was. And again, in an effort to better control the placebo response, visits are going to be more spaced apart once every two weeks potentially. Again, similar to what our peers have done. So there’s nothing very fancy or different about the design of the study. More details of course will become apparent when the study is posted to ClinicalTrials.gov as we start recruitment and dosing. But some elements will not be, because again, their sole purpose is to maintain a certain blind to both treating physicians and potential subjects in the study.

Thanks. The reason I asked that question was there was at least one atomoxetine study where there was a randomized blinded section where they basically weeded out the hyper responders after the initial washout and everything before proceeding to the actual efficacy portion. So I was just wondering if that was going to be a part of this study. Then the follow-up question was could you talk to the powering and the effect side assumptions that drove to the trial size here? Thank you.

Sure. So just to comment on your comment before I talk about the powering assumptions. The two atomoxetine adult Phase III study included a two-week placebo lead in which was sort of double-blinded. There was a blinded rater at each side as well as the subjects who were themselves blinded. And the true randomization in that study actually occurred only after two weeks of the placebo lead in to those patients who did not demonstrate a major response within those two weeks to placebo. This is what you’re referring to. This method, again, a placebo lead in is a method that FDA described in its guidance on enrichment strategies - approved enrichment strategies for clinical trial designs. And it’s something that was of course productive in Eli Lilly’s development efforts with atomoxetine for adults. And so we have indicated that we would be using structural elements in line or similar to what others have used. And of course, this is one example - the Lilly example is one example and there are other examples that FDA has provided in its guidance to better control placebo response in clinical trials. With regards to the powering assumptions, what we’ve done in designing the scale, the size of the pivotal ADHD study is really ignore the potential upside of using a more focused group of site, extending the treatment duration, spacing out the visits. Using those patient enrichment strategies, all these are supposed to really increase the effect size by lowering variability and placebo response and really focus on what would be the minimal effect size that we think would be clinically meaningful and also supported by our data. So we look back to the first Phase III, AL012, and looked at the effect size that was achieved there on the ITT population, the overall population including any outliers or entry criteria violators. And we basically attempted to power the study so that it’s successful even if the demonstrated effect size is similar to what we’ve seen before. So the powering assumption is based on a similar effect size to what we have seen before. Although we certainly hope that given the multiple changes to the pivotal study design, the demonstrated effect size in that study would be greater.

Thanks so much.

Sure.

Thank you. And that concludes today’s question-and-answer session. I’ll turn the call back over to Yaron for closing remarks.

Okay. Thank you, everyone, for calling in. Thank you for joining us this morning and have a great day.