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Operator
Good day, ladies and gentlemen, and welcome to the Aclaris Therapeutics first-quarter 2016 financial results conference call.
(Operator Instructions)
As a reminder, this conference call is being recorded.
I would now like to turn the conference over to Kamil Ali-Jackson.
You may begin.
- Chief Legal Officer
Thank you.
I'm Kamil Ali-Jackson, Chief Legal Officer for Aclaris.
Please note that earlier today, Aclaris issued its press release announcing first-quarter 2016 financial results.
For those of you who have not yet seen it, you will find the release posted in the Investors section of our website at www.Aclaristx.com.
Joining me for the call today are Dr. Neal Walker, President and Chief Executive Officer, Dr. Stuart Shanler, our Chief Scientific Officer, and Frank Ruffo, our Chief Financial Officer.
Before we begin our prepared remarks, I would like to remind you the various statements we make during this call about the Company's future results of operations and financial position, business strategy and plans and objectives for Aclaris' future operations are considered forward-looking statements within the meaning of the federal securities laws.
Our forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties that could cause actual results to differ materially from those reflected in such statements.
These risks are described in the risk factors and management's discussion and analysis of financial condition and results of operation section of Aclaris' quarterly report on Form 10-Q for the quarter ended March 31, 2016, to be filed with the SEC later today, and other filings that Aclaris makes with the SEC from time to time.
These documents are available under the financial information section of the Investors page of Aclaris' website at www.Aclaristx.com.
Additional factors may also be set forth in those sections of our annual report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 23, 2016.
We encourage all investors to read these reports and our other SEC filings.
All the information we provide on this conference call is provided as of today, and we undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events or otherwise.
Please be advised that today's call is being recorded and webcast.
A link to the webcast is posted in the Investors section of our website.
I'll now turn the call over to Dr. Neal Walker, President and CEO of Aclaris.
Neal?
- President and CEO
Thank you, Kamil.
Good morning, everyone, and thanks for joining us today.
This morning I want to provide everyone with a brief update on the progress we have made since our call regarding our year-end results, on both our Janus Kinase or JAK inhibitor program, as well as on our lead drug candidate A-101, which is being developed as a treatment for seborrheic keratosis or SK, and also as a treatment for common warts.
I will then highlight the Company's upcoming potential near-term milestones, before turning the call back over to Latoya for Q&A.
The start of 2016 has been a busy one for Aclaris.
In late March, we announced that Aclaris acquired worldwide rights to compounds and key intellectual property directed towards the treatment of certain hair loss disorders, which expanded the breadth and depth of our JAK inhibitor program.
We entered into an agreement with the shareholders of Vixen Pharmaceuticals to acquire all Vixen stock.
And as a result of that transaction, Aclaris acquired worldwide rights to intellectual property licensed from Columbia University to Vixen.
The in-licensed intellectual property covers the use of certain JAK inhibitor compounds for the treatment of alopecia areata, androgenetic alopecia, often referred to as female or male pattern baldness, as well as other dermatological conditions.
Aclaris agreed to make an upfront payment, and various development and commercial milestone payments, as well additional payments on potential future sales of products using the acquired intellectual property rights.
The Vixen acquisition complements our deal completed in November of 2015, in which Aclaris' wholly-owned subsidiary, Aclaris Therapeutics International entered into a license agreement with JAKPharma and Key Organics.
In that transaction, ATIL exclusively licensed worldwide rights to covalently binding, highly selective JAK3 inhibitor compounds, and related intellectual property for the treatment of hair loss and other dermatological conditions.
Aclaris Therapeutics International made an upfront payment to JAKPharma and Key Organics, and has agreed to make various development milestone payments and tiered royalties on potential sales of products that incorporate the licensed compound.
We believe these two transactions greatly broaden Aclaris' JAK inhibitor portfolio, and further demonstrate our commitment to the development of potential hair loss treatments.
They are also consistent with our core mission of developing and commercializing self-pay aesthetic and medical dermatology products for indications that represent white space opportunities, and that will provide patients and physicians with long sought after solutions in areas of unmet need.
The important discovery of the relationship between JAK inhibition and hair loss was made by team of researchers at Columbia University, led by Dr. Angela Christiano, who reported the potential clinical efficacy of JAK inhibitors in patients with alopecia areata in their groundbreaking Nature of Medicine paper.
This was followed shortly, by the discovery of a role for JAK inhibitors in triggering the normal hair cycle.
I'll now turn the call over to our Chief Scientific Officer, Dr. Stuart Shanler, who will provide a brief overview of alopecia areata and the JAK pathway, and will provide an update on our ongoing clinical trials for A-101.
Stu?
- Chief Scientific Officer
Thanks, Neal.
As a reminder, and for those investors who may be new to Aclaris, I'll begin with a brief overview of alopecia areata or AA.
Alopecia areata is an autoimmune dermatologic condition in which abnormally activated T-cells surround the hair follicles, and suppress normal hair growth.
In its mildest form, alopecia areata is characterized by patchy, non-scarring hair loss on the scalp or on the body.
In its most severe forms, the disease may progress to alopecia totalis or AT, which is characterized by complete hair loss on the scalp, or alopecia universalis or AU, which is characterized by complete hair loss on the scalp and including loss of the eyebrows, eyelashes, intra-nasal hair, and hair on the body.
The National Alopecia Areata Foundations reports that over 6.6 million Americans have had or will develop alopecia areata at some point in their lives, and over two-thirds of affected individuals are 30 years of age or younger at the time of disease onset.
Treatment options alopecia areata are extremely limited, and include topical and injectable corticosteroids and topical contact sensitizing agents.
However, for the more severe forms of the disease, the utilization of the same treatment options is limited, due to limited efficacy, certain side effects, and the impracticality of using these treatments over extensive body surface areas.
By way of background, the Janus Kinases or JAKs are members are members of family of tyrosine kinases that are involved in cytokine receptor signaling.
The JAK family of enzymes plays an essential role in regulating the signaling process of most cytokines in cells, by linking the cytokine-induced signaling from the cell surface membrane receptors, to signal transducers and activators of transcription, or STATs, located within the cells.
Once these JAK receptors are activated by the binding of a cytokine to the appropriate receptor, they initiate a JAK-STAT signaling pathway, which can modify gene expression, and modulate important regulatory functions in the cell, including regulating immune and inflammatory responses.
JAK inhibitors or Jakinibs can block these cytokine receptor signaling pathways, blocking JAK-STAT transcription activation, and can therefore modulate inflammatory or immune responses, which can be beneficial in a variety of disease states, particularly including, as demonstrated by Dr. Angela Christiano and her colleagues, alopecia areata, as well as in other hair loss disorders, including androgenetic alopecia, or AGA.
Based on the newly elucidated pathogenesis of these diseases, we are currently developing ATI-50001, formally A-201, for oral administration for the more severe forms of AA, alopecia totalis and alopecia universalis, and ATI-50002, formally A-301, for topical administration in patchy alopecia areata.
The time frames that we outlined on our last call remain intact, and we plan to submit an IND application in the second half of this year for ATI-50001, that's the oral, and commence clinical trials in the first half of 2017, as well.
For ATI-50002, that's the topical, we are targeting submission of an IND application, and commencement of clinical trials in the first half of 2017.
Now turning to our lead candidate, A-101 which is being developed as an in-office cash pay treatment for seborrheic keratosis or SK.
In January of this year, we initiated two Phase 3 clinical trials to evaluate A-101 topical solution for the treatment of SK.
The two Phase 3 clinical trials are designed to evaluate the safety and efficacy of A-101 topical solution, compared with a placebo solution.
Approximately 800 subjects will be randomized in these multi-center double-blinded vehicle-controlled clinical trials, which are being conducted at 34 investigational centers within the United States.
We are happy to report that the SK trials are enrolling on schedule, and we continue to anticipate results in the third quarter of this year.
And if the data is favorable, our plan is to submit an NDA to the FDA in the fourth quarter of this year for this indication.
Finally, in December of last year, we initiated a Phase 2 clinical trial of A-101 topical solution for the treatment of common warts, also known as verruca vulgaris.
This double-blinded randomized Phase 2 clinical trial is being conducted at six investigative sites in the United States, and is designed to evaluate the safety, tolerability and dose response of two concentrations of A-101, a 40% concentration, and a 45% concentration, compared to a vehicle control.
We expect data from this study in Q3 of this year as well.
I will now pass the call over to Frank Ruffo, our Chief Financial Officer, to provide you with in-depth review of our financial results.
Frank?
- CFO
Thanks, Stu.
As of March 31, 2016, we had approximately $85.2 million in cash and investments, which we believe is sufficient to fund our current operating activities through at least the end of the third quarter of 2017.
On a quarter-over-quarter comparative basis, our total operating expenses for the first quarter of 2016 were $13.1 million, compared to $2.6 million for the first quarter of 2015.
Our cash burn, for the most recent quarter ended March 31, 2016 was $6.8 million.
There are three primary reasons for the difference between our reported operating expenses, and our actual cash burn in the first quarter of 2016.
During the quarter, we incurred $2.8 million in non-cash operating expenses related to the Vixen acquisition, $1.2 million in non-cash stock-based compensation, and also benefited from an increase of $2.2 million in working capital.
Research and development expenses were $9.5 million for the first quarter of 2016, compared with $1.7 million for the first quarter of 2015.
The increase of $7.8 million in 2016 was primarily attributable to the $3.4 million in expense associated with the Vixen acquisition, which was completed on March 24, 2016.
To further expand on our acquisition costs, upon closing we paid Vixen a $600,000 upfront payment in cash, and approximately $2.4 million of additional consideration in the form of Aclaris common stock.
We also accrued, on a present value basis, an additional $400,000 for future payments to be made annually over the next six years.
During the quarter, we also spent $1.4 million in formulation and pre-clinical developments related to our ATI-50001 and AT-50002 compounds licensed from Rigel in August of 2015.
Ongoing clinical spending on our A-101 programs for SK in common warts accounted for a $1.9 million increase in direct costs.
And finally, we incurred an $800,000 increase in stock-based compensation and personnel-related expenses due to increased headcount, as well as a $200,000 increase in our medical affair activities for A-101, versus the quarter ended March 31, 2015.
General and administrative expenses were $3.6 million for the first quarter of 2016, compared to $900,000 for the same period in 2015.
The quarter-over-quarter increase was related to higher expenses of $800,000 in non-cash stock-based compensation, and $500,000 in personnel-related expenses due to increased headcount, as we build out the commercial and finance team.
Other quarter-over-quarter increases included $400,000 in professional fees, mainly associated with being a public company, a $400,000 increase in patent filing and prosecution costs for the JAK inhibitor technology incurred as a result of the Vixen acquisition, and a $300,000 milestone payment related to the clinical development of A-101.
Our net loss attributable to common stockholders for the quarter ended March 31, 2015 includes the accretion of $657,000 of cumulative dividends and issuance costs on our convertible preferred stock, which remained outstanding through the closing of our IPO in October 2015, when it was converted into common stock.
Accordingly, the net loss attributable to common stockholders was $13.0 million for the first quarter of 2016, compared to $3.3 million for the first quarter of 2015.
As of March 31, 2016, we had roughly 20.3 million shares of common stock outstanding, which included the shares issued to Vixen.
Assuming no material issuances of equity this year, we expect our subsequent 2016 quarterly share count to be similar.
With that, I'll turn the call back over to Neal for a few closing remarks.
- President and CEO
Thank you, Frank.
We were extremely happy to start off the year with our acquisition of the Vixen intellectual property.
We think this transaction solidifies our presence in the JAK inhibitor space, by providing us with additional IP, covering the use of certain JAK inhibitor compounds in treating alopecia areata and androgenetic alopecia.
In addition, our vision for building the Company remains on track, as we continue to add to the team with hires such as Kevin Scott, our new VP of Sales, and continue to evaluate potential business development opportunities on ongoing basis.
We look forward to keeping you updated throughout 2016 on our clinical progress, as we await two potential clinical data read outs in the second half of the year.
I've also asked Brett Fair, our Senior Vice President of Commercial Operations to join us for the Q&A.
Thanks for being on today's call.
Latoya, can you please poll for questions?
Operator
Yes.
(Operator Instructions)
Liav Abraham, Citi.
- Analyst
Good morning.
Can you talk a little bit more about what you're doing on the commercial front, and how your preparing for the potential launch of your lead asset in seborrheic keratosis lesions next year?
Thank you.
- President and CEO
Sure, thank you for the question, Liav.
We are spending a lot of time educating the community and doing disease awareness, conducting a number of ad boards, and also building out the commercial infrastructure.
And we do have Brett Fair, our SVP of Commercial on the line.
And I'll hand it off to him to comment further.
Brett?
- SVP of Commercial Operations
Great.
Thanks, Neil.
So we are planning to build our own commercial organization to support the US opportunity.
And with A-101, it's a cash pay, buy and build model.
We would expect to build a specialty sales force, about 50 to 60 professional sales reps, targeting about 5,000 dermatologists.
So as Neal said, we have a lot of work streams in flight to prepare for that.
- President and CEO
Thank you, Brett.
Operator
Thank you.
Tim Lugo, William Blair.
- Analyst
Thanks for the question.
Can you discuss some of the IP gains in the Vixen acquisition?
I believe some of it may have covered other JAK inhibitors in AA?
And maybe in general, can you just talk about method-of-use patents in the derm setting and your IP coverage in AA?
- President and CEO
Sure.
So what we acquired as part of the Vixen transaction, was all the work that was done and discovered -- Angela Christiano and her team were the first discover this link between JAK inhibition and genetic basis of the disease in alopecia areata.
And they built a method of use estate around a variety of JAK inhibitors, covering the method to treat those hair loss conditions, alopecia areata first, and then androgenetic alopecia, and then variety of other scarring alopecias.
And so, what that provides is a relatively broad claim set around a variety of JAK inhibitors.
And I think the interesting thing about the derm space, is that the method-of-use is often, what we tend to live off of, in terms of the intellectual property estate that has been our experience.
- Analyst
Okay.
And for both the oral and topical, do you envision those being used in the same settings or different settings?
Is there, kind of a more severe patient that you would use the oral for, versus the topical?
Or is one going to be induction regimen?
I guess, how do you view that, as you put into the clinic next year?
- Chief Scientific Officer
Thanks, Tim.
There are a lot of nuances in the space, and there are a variety of segments within alopecia areata.
There's a more severe phenotype, where patients lose all of their hair on their scalp, or on the body, and that's alopecia totalis or universalis.
And we think those patients would be more amenable to getting treated with systemic therapies.
We do, however, think that the market overall will be defined by use of both oral and topical therapies.
And that's typically what you see in the dermatology space, if you look at a variety of indications that are similar.
I think you used the -- an interesting word induction.
You like to get the patient into remission, and then transition to something that can be used more chronically.
- Analyst
Okay.
That's interesting.
And maybe as you -- can you update us on your development efforts?
Should we expect another compound coming in before year end?
Are you looking -- actively looking at assets now?
And what broadly, what areas do you think are still white space opportunities?
- President and CEO
Yes, thank you, Tim.
As we stated from the inception of the Company, we continue to pursue business development opportunities.
They're variety of assets that we are looking at.
At the top of the funnel, our two filters are looking at either aesthetic self-pay opportunities, which I think is particularly important, given all the reimbursement headwinds, and also whitespace opportunities.
And I think there are variety white space opportunities still to mine, and we'll continue to evaluate those assets as they evolve.
- Analyst
All right.
Thanks for the questions.
- President and CEO
Thank you.
Operator
Thank you.
(Operator Instructions)
There are no further questions in the queue.
Ladies and gentlemen, this does conclude today's conference.
You may now disconnect at this time.
Good day, everyone.