Aclaris Therapeutics Inc (ACRS) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Aclaris Therapeutics, Inc., Q2 2016 earnings conference call. (Operator Instructions)

I would now like to introduce your host for today's conference, Ms. Kamil Ali-Jackson. Ma'am, you may begin.

Thank you. I'm Kamil Ali-Jackson, Chief Legal Officer for Aclaris. Please note that earlier today Aclaris issued its press release announcing second-quarter 2016 financial results. Those of you who have not seen it, you will find a 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 that 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's 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, financial condition, and results of operations sections of Aclaris's quarterly report on Form 10-Q for the quarter ended June 30, 2016, to be filed with the SEC later today, and other filings Aclaris makes with the SEC from time to time. These documents are available under the Financial Information section of the Investors page of Aclaris's 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?

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 during the second quarter of 2016.

During the quarter, we received a reverse inquiry of interest in a private placement financing. In June, we closed on a stock purchase agreement with a group of accredited institutional investors which yielded net proceeds of $18.5 million. The private placement was led by Aisling Capital with participation by both existing and new investors.

The use of proceeds is mainly to support the addition of two new indications to our growing pipeline. As we recently announced, we have completed enrollment in several A-101 clinical trials.

We completed enrollment of the Phase 2 clinical trial in warts, Wart-201, which is evaluating the safety, tolerability, and dose response of two concentrations of A-101, a 40% and a 45% concentration, versus vehicle for treatment of common warts. This trial is a double-blinded randomized and vehicle-control trial which is being conducted at six US investigational sites. We expect to report initial results from the Wart-201 trial in the third quarter of 2016, and the results will help determine the next steps forward.

We also completed enrollment of the two Phase 3 pivotals and the Phase 3 open-label safety trial of A-101 for the treatment of seborrheic keratoses, or SKs. In the two Phase 3 pivotals, 301 and 302, we are evaluating the safety and efficacy of A-101 at a 40% concentration in subjects with SKs on the trunk, extremities, and face. Each pivotal is a multicenter randomized double-blind, vehicle-controlled trial being conducted at 17 US investigational sites per pivotal, for a total of 34 sites.

In addition, the Phase 3 open-label safety trial is being conducted at 10 US sites. We expect to report initial results from all three Phase 3 trials in the fourth quarter of 2016; and if the results are positive, we plan to file an NDA in the first quarter of 2017.

This represents a slight shift in timing, which was due to asymmetric enrollment, as the 301 trial slightly lagged the 302 trial. Physicians who enrolled ahead of schedule were capped at a maximum number of patients and were not allowed to enroll additional patients to make up for the other slower trial sites. Ultimately, both pivotal trials were over-enrolled.

We also continue to make good progress on our JAK inhibitor portfolio. As a reminder, we are currently developing ATI-50001 for the oral administration of the most severe forms of alopecia areata, which are alopecia totalis and universalis. We are also developing ATI-50002 for the topical administration, namely 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 part of this year for the oral -- ATI-50001 -- and commence clinical trials in the first half of 2017. For the topical, we are targeting submission of an IND application and commencement of clinical trials in the first half of 2017.

I'll now turn the call over to our Chief Scientific Officer, Dr. Stuart Shanler, who will provide a brief overview of our two new indications with our JAK inhibitor program, vitiligo and androgenetic alopecia. Stu?

Thanks, Neal. Continuing to build on our JAK inhibitor program, we have initiated preclinical development of the JAK inhibitors which we are developing for a topical use in both vitiligo and androgenetic alopecia, or AGA, which is also known as male or female pattern baldness.

Vitiligo is a dermatologic condition in which the pigment-producing cells of the skin, the melanocytes, become damaged, stop functioning, and ultimately disappear from areas of the skin. As a result, the disease is typically characterized by the appearance of well-circumscribed hypopigmented, or stark white, patches of skin that may be localized to one or a few areas or may be widespread and affect the entire body. The exact cause of vitiligo is unclear, and several mechanisms may be involved; however, an autoimmune-mediated destruction of the pigment-producing cells is currently the most favored etiology.

Vitiligo can be a psychologically devastating disease, particularly in darker-skinned individuals. It occurs in all skin types and with equal frequencies in both men and women, and its onset is usually in childhood or young adulthood with about 50% of patients developing it before the age of 20. Overall, vitiligo affects about 1% of the US population, though in certain global populations incidence rates of over 8% are reported. Recent evidence suggests that the Janus kinase inhibitors may effectively treat the condition.

Perhaps more familiar to everyone is androgenetic alopecia, or AGA, which is the most common cause of hair loss. It is experienced by 70% of men and 40% of women at some point in their lives and affects an estimated 50 million men and 30 million women in the United States.

AGA can start as early as a person's teens, and the risk of developing it increases with age. More than 50% of men over the age of 50 have some degree of hair loss; and in women, hair loss is more likely after menopause.

In men, this condition is also known as male pattern baldness. Hair is lost in a well-defined pattern beginning above both temples. Over time, the hairline recedes to form a characteristic M shape. Hair also thins at the crown -- that, is near the top of the head -- often progressing to partial or complete baldness.

The pattern of hair loss in women differs from male pattern baldness. In women, hair density tends to decrease diffusely over the scalp; the hairline typically does not recede; and in women AGA rarely leads to total baldness.

AGA in both men and women is characterized by the inability of the hair follicles to reenter anagen -- that's the growth phase of a hair cycle -- after being arrested in telogen -- that's the resting phase of the hair cycle. Additionally, there is a progressive shortening of the growth phase, a lengthening of the resting phase, and a progressive shrinkage or miniaturization of the hair follicles, all of which results in there being shorter, thinner, and overall less scalp hair.

It has recently been demonstrated by Angela Christiano and her colleagues at Columbia University in both laboratory and mouse models that topical treatment with JAK inhibitors could induce telogen, resting hairs, to reenter the anagen growth phase, thus promoting hair regrowth, and that JAK inhibition could promote growth of hair follicles in humans, suggesting that localized, such as topical, inhibition of JAK/STAT signaling may be effective in treating AGA.

We have initiated our preclinical development of ATI-50003, a JAK3-specific JAK inhibitor for topical administration in AGA.

I'll now pass the call over to Frank Ruffo, our Chief Financial Officer, who will provide an in-depth review of our financial results. Thank you. Frank?

Thanks, Stu. As Neal mentioned, during the second quarter we raised an additional $18.5 million in net proceeds from a private placement of common stock which was completed in June. As of June 30, 2016, we had approximately $94 million in cash and investments, which we now believe is sufficient to fund our current operating activities through at least the end of the fourth quarter of 2017, without giving effect to potential new business development transactions or financing activities.

For the six months ended June 30, 2016, our total operating expenses were $26.1 million, compared to $5.2 million for the six months ended June 30, 2015. Our operating cash burn for the six months ended June 30, 2016, was $16.6 million.

There are three primary reasons for the differences between our reported operating expenses and our actual cash burn for the six months ended June 30, 2016. During the first half of 2016, we incurred $2.8 million in noncash operating expenses related to the Vixen acquisition; $2.6 million in noncash stock-based compensation; and additionally benefited from an increase of $3.9 million in net working capital. Accordingly, our average monthly cash usage for operations for the first six months of 2016 was approximately $2.8 million.

We expect that our cash burn rate will increase in 2016 as we head towards the completion of our clinical trials and NDA for our SK program and the completion of our Phase 2 wart study, both using our A-101 drug. Additionally, we expect to continue to invest in our preclinical JAK inhibitor program during the second part of this year, as we move toward an IND in our oral drug program, ATI-50001, in the latter part of this year.

On a quarter-over-quarter comparative basis our total operating expenses for the second quarter of 2016 were $13.0 million, compared to $2.6 million for the second quarter of 2015, while our operating cash burn for the most recent quarter ended June 30, 2016, was $9.7 million. Research and development expenses increased by $8 million in Q2 2016 compared to the prior year. This was primarily attributable to an increase of $6.7 million in expenses associated with our A-101 programs for SK and common warts and the preclinical development of our ATI-50001 and ATI-50002 JAK inhibitor drugs.

We also experienced a $1.1 million increase in stock-based compensation and personnel-related expenses due to increased headcount. General and administrative expenses for the quarter ended June 30, 2016, increased $2.4 million compared to the same period in 2015. The quarter-over-quarter increase was related to higher expenses of $1.3 million in noncash stock-based comp and personnel-related expenses due to increased commercial and administrative headcount.

Other quarter-over-quarter increases included $600,000 in professional fees and a $300,000 increase in marketing research costs.

Our net loss attributable to common stockholders includes $676,000 and $1.3 million for the quarter and six months ended June 30, 2015, respectively, in accreted cumulative dividends and issuance costs on our old convertible preferred stock. These shares remained outstanding through the closing of our IPO in October 2015, when the preferred stock was converted into common.

These accretions do not exist for 2016. Accordingly, the net loss attributable to common stockholders was $12.9 million for the second quarter of 2016, compared to $3.3 million for the second quarter of 2015; and $25.9 million for the first half of 2016, compared to $6.6 million for the first half of 2015.

As of June 30, 2016, we had roughly 21.4 million shares of common stock outstanding. This share count reflects approximately 1.1 million newly issued shares from our second-quarter private placement. Assuming no material issuances of equity this year, we expect our subsequent 2016 quarterly share count to be similar and our full-year 2016 weighted average share count to come in at about 20.9 million.

With that, I'll turn the call back over to Neal for a few closing remarks.

Thank you, Frank. We are extremely happy with the progress we have made this year as we developed a diverse pipeline targeting a number of key unmet needs within dermatology. In the second quarter, the Company announced that we have added two new programs, both in vitiligo and AGA, to our pipeline.

We also continue to build out our team with the recent hiring of Kimberley Forbes-McKean, our new Senior Vice President of Drug Development, and Michael Tung, our new Vice President of Investor Relations. In addition we recently added Bill Humphries, who is the President and CEO of Merz North America, to the Board. Bill brings extensive operational and commercial dermatology experience to our team.

As we make progress towards becoming a fully integrated dermatology company, we continue to build out our precommercial activities with the integration of TogoRun to support corporate branding and SK awareness initiatives. We look forward to keeping you updated on the progress of our two clinical programs before year-end.

Thanks for being on today's call. I have also asked Brett Fair, our Senior Vice President of Commercial Operations, to join us for the Q&A.

Jamie, can you please poll for questions?

(Operator Instructions) Louise Chen, Guggenheim.

Hi; thanks for taking my questions. I had a few here. So first question I had was on the Phase 3 trial for A-101 in SK, and if you could compare that to the Phase 2 trial design and results, and what gives you confidence in a positive outcome in the Phase 3 studies.

And then second thing, just curious here on the SK, why the results are delayed from third to fourth quarter.

And then lastly, what type of data do you have now that supports the use of A-101 in warts? Thank you.

Sure. Thank you, Louise. So the pivotal Phase 3s are very similar to the Phase 2. Same skin types; we're studying one through four -- one through actually six skin types. And same -- similar lesion sizes, going from 5 millimeters to up to 1.5 centimeters. Same thicknesses.

The major difference, I would say, would be in the Phase 3 trials. We now include face, trunk, and extremities all in the same study versus in the Phase 2 trials when we broke out a face study versus a trunk and extremities study.

The primary endpoint, just as a reminder, in the pivotal Phase 3s is [3/4] clear all for lesions in a responder analysis.

Your second question regarding why it was slightly delayed, we did have a slight lag in 301 versus 302 in terms of enrollment. The nature of Phase 3 trials is that if somebody -- a trial site enrolls very quickly, you can't continue to add patients to that trial site; it would create an imbalance? So you're held to the slowest enroller.

So was just a slight lag, and we wanted to time the announcement of the results of the two trials simultaneously. So that created a slight nudge into the fourth quarter.

On your last question on -- if you can remind me on that, on the warts. Was that the (multiple speakers)?

Oh, what type of data do you have that supports the use of A-101 in warts? Like, what gives you confidence in a positive outcome basically on the Phase 2 data?

Yes, thank you. So we -- there was a physician IND study that was conducted about a year ago; and in that study, the investigator used 40% and treated the common wart four times, and we showed very strong trend towards getting improvement and also starting to approach good clearance rates.

So we decided to move forward into a Phase 2 trial, where we are now dosing eight times. We also decide to conduct a true dose range study where we're looking at 40% and 45%.

So based on the physician's IND where we saw a good trend in the 40%, we do expect to show -- we are excited to show results with the 45% now dosing out longer -- which is actually more typical when you look at the average number of treatments, just based on the literature of things like cryo or other standard wart treatments in the office.

Particularly for warts that have been treated a number of times, what we would refer to as recalcitrant, the average number of treatments is about six to eight.

Okay.

Tim Lugo, William Blair.

Thanks for taking my question. I guess with the wart study reporting out relatively soon, can you just maybe discuss what level of differentiation you would need to see between the 40% and the 45% for one of the formulations to go forward into a pivotal in warts? And maybe some of the possible outcomes, if they look relatively similar.

Yes; thanks, Tim. We first want to see a nice trend and a nice dose-response between the 45% and 40%. What we have said from the beginning is that we'd really like to see is statistically significant differences between 45% and 40% to convince us that we advance into a Phase 3 program.

That is part of our base budget, is taking that through. So we're pretty confident, and that's largely based on the viricidal nature of hydrogen peroxide at these concentrations. So that's one of the key factors that we'll look at.

There's a number of different scenarios in terms of what we might see in terms of the results. I think if we just see that there isn't much of a dose-response, then I think we will go and just publish that data.

Okay. And for -- it sounds like 2017 is going to be very active for the JAK program. How many indications do you believe you'll have proof-of-concept for during the year? I'm not sure about the length of treatment for the number of studies you reported.

And for 50003, have you finalized the formulation, whether it's going to be an appointment or cream or foam? And maybe can you talk about how that should differentiate you from some of the other competitors?

Sure. In terms of the proof-of-concept, we would expect -- the alopecia areata program is obviously the lead. We would expect to post PoC data on both the oral and topical through 2017.

Vitiligo is a close second to that. We are in the midst of continuing to plan out the development. We've started the preclinical work, particularly on the formulation for vitiligo; and topically that's the rate-limiting step.

For AGA, that is a longer program, of course. Male and female pattern hair loss, the trials are longer.

And we're starting with 50003, which is an NCE, so we're right in the middle of doing the formulation work as we speak. What we would target there is something like a solution or a foam. That's typically what you like to use in hair-bearing areas, particularly an indication like this, that tends to be chronic administration.

Okay. So you have a solution and a foam in the works, and you haven't decided on which one you'll go forward with yet?

Well, we think -- usually what we like to do is have a couple of formulations going along a parallel track, mainly because each patient population is a little bit different. Females and males tend to prefer different types of formulations, so at least in the early days you like to parallel track those formulations.

Okay. Maybe a question for Frank. It sounds like there is a lot of development going on at the program. How do you think R&D trends will continue over the next few quarters?

Yes, I think you'll see a creep up in the R&D spend as we move forward. As we mentioned before we're getting towards the end of the Phase 3 for A-101, our lead candidate; and as we move forward we're going to -- entering the JAK inhibitor, additional indications for the JAK program, we'll expect the quarter-on-quarter expenses to increase from our most recently reported two quarters.

So, Tim, I would say, we are somewhere in the neighborhood of $10 million a quarter in R&D. We'll see that creep up just a bit over the next three to four quarters.

Makes sense. Thanks for the questions.

(Operator Instructions) This concludes the Q&A session for today's call. Thank you for your participation. You may all disconnect. Everyone have a great day.

Thank you.

Thank you.