Aclaris Therapeutics Inc (ACRS) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Aclaris Therapeutics Q3 2017 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to Kamil Ali-Jackson. Please go ahead.

Thank you, Candace. I'm Kamil Ali-Jackson, Chief Legal Officer for Aclaris. Please note that earlier today, Aclaris issued its press release announcing third quarter 2017 financial results. For those of you who have not 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; Chris Powala, our Chief Operating Officer; Dr. Stuart Shanler, our Chief Scientific Officer; Frank Ruffo, our Chief Financial Officer; and Brett Fair, our Senior VP of Commercial Operations.

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' 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 Operations, sections of Aclaris' quarterly report on Form 10-Q for the quarter ended September 30, 2017, filed with the SEC today; our annual report on Form 10-K for the year ended on December 31, 2016, filed with the SEC on March 15, 2017; and other filings Aclaris makes with the SEC from time to time.

We encourage all investors to read these reports and our other SEC filings. These documents are available on the Financial Information section of the Investors page of Aclaris' website at www.aclaristx.com. 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, CEO of Aclaris. Neal?

Thank you, Kamil. Hello, everyone, and thank you for joining our Third Quarter Conference Call. I will start with an update on the company's activities in the third quarter, and then I will hand it off to Stu Shanler, our Chief Scientific Officer, who will briefly address our ongoing clinical activities and our IP estate; and Brett Fair, our Head of Commercial, who will provide an update on our precommercial activities. And then Frank Ruffo, our CFO, who will review the financial results for the third quarter. After our prepared remarks, we'll open up the line to take your questions. Chris Powala, our Chief Operating Officer, will also be available during the question-and-answer portion of the call.

Regarding our lead asset, A-101 40% Topical Solution for the treatment of seborrheic keratosis, as you are all aware, our PDUFA target action date for approval in the United States is December 24 of this year, and we are in the expected active dialogue with the FDA as the review progresses. As a reminder, A-101 is not subject to reimbursement pressures as it is positioned as a cash pay procedure, which is similar to other minimal invasive buy-and-bill procedures, such as BOTOX or dermal fillers.

In August, we completed the Confluence Life Sciences' acquisition, and our integration activities are on track. As a reminder, with the acquisition of Confluence, we have added preeminent scientific leadership in immunology and inflammation, a drug discovery engine focused on the kinome and additional pipeline assets, including an MK-2 inhibitor, ITK inhibitor and a portfolio of soft JAK inhibitors.

In early October, we hosted our inaugural R&D Day in New York. During the event, we provided an update on our precommercial activities for A-101 and SK and detailed the market research we have completed to date. This was followed by a discussion with 2 thought leaders in dermatology: one, a well-known aesthetic dermatologist, Dr. Michael Gold; and the other, a well-known academic and medical dermatologist Dr. Adam Friedman. The latter half of the R&D presentation focused our -- on our immunodermatology pipeline. Dr. Angela Christiano, who is responsible for the seminal work regarding JAK inhibitors and the treatment of alopecia areata, reviewed her entire body of work. Finally, we introduced the Confluence management team, who highlighted their experience and expertise and gave an overview of our newly acquired technology and pipeline assets, which we plan to advance into the clinic in 2019.

I will now turn the call over to Dr. Stuart Shanler, our Chief Scientific Officer, to provide an update on our other clinical programs and on our intellectual property estate.

Thanks, Neal. Firstly, regarding our ongoing clinical activity, as you may recall in June, we initiated 2 Phase II clinical trials of A-101 45% Topical Solution for the treatment of common warts. These randomized, double-blinded, vehicle-controlled Phase II clinical trials were designed to evaluate the safety, tolerability and dose frequency of A-101 45% compared with placebo. Today, we announced that both trials have completed enrollment with a total of 316 subjects enrolled in the 2 trials.

As a reminder, we plan to position A-101 45% Topical Solution as a prescription product, and as such, patients are self-administering the study medication in these trials. We expect to report top line data from both trials together in early 2018.

Turning to our Janus Kinase, or JAK inhibitor portfolio. As you may know, we are targeting multiple dermatologic diseases including alopecia areata, both patchy alopecia areata and alopecia totalis, universalis, vitiligo and androgenetic alopecia.

Today, we also announced that we have initiated 2 Phase II clinical trials of ATI-50002 topical in patients with alopecia areata. The first trial will evaluate the pharmacokinetics, pharmacodynamics and safety of ATI-50002 topical compared with vehicle, that's placebo, in 12 patients with AA. This randomized, double-blinded, placebo-controlled clinical trial is being conducted at 2 investigational centers within the United States, and data is expected in the first half of 2018.

The second trial will evaluate the effect of ATI-50002 topical on the regrowth of eyebrows in up to 24 patients with AA. This open-label clinical trial is being conducted at 2 investigational centers in Sydney and Melbourne, Australia, and data is also expected in the first half of 2018.

Additionally, next week we will initiate a third Phase II study, a dose-ranging trial of ATI-50002 topical for the treatment of AA. This study is a randomized, double-blinded, parallel group, vehicle-controlled trial and will enroll approximately 120 patients at 20 investigational centers within United States. Data is expected from this trial by year-end 2018.

Regarding additional indications for our topical JAK inhibitor, ATI-50002, we continue to expect to initiate a Phase II open-label trial for the treatment of vitiligo before year-end, and we also intend to initiate a Phase II open-label trial with ATI-50002 in AGA, that's androgenetic alopecia, in the first half of 2018.

Regarding ATI-50001, our oral JAK candidate for the treatment of alopecia areata, we are currently conducting additional pK/pD studies evaluating optimized formulations and now expect to initiate a Phase II dose-ranging trial in the first half of 2018. As a reminder, we are developing both oral and topical dosage forms of our JAK inhibitors for alopecia areata to address the phenotypic spectrum of disease inherent in this, as in many other dermatologic disorders.

Turning to our intellectual property estate. We continue to expand our JAK inhibitor IP portfolio and, in September, issued 2 U.S. patents and one Japanese patent that were directed to methods related to the use and administration of several JAK inhibitors, including tofacitinib for treating hair loss disorders. These newly issued patents are owned by Columbia University and are exclusively licensed to Aclaris. I refer you to recent press releases for more detail on the scope of the patent coverage and their respective expiration dates.

I'll now pass the call over to Brett Fair, our Senior Vice President of Commercial Operations, who will discuss our launch planning activities for A-101 40% for seborrheic keratosis. Brett?

Thank you, Stu, and good morning, everyone. As we approach our December 24th PDUFA date, we continue to be excited about the opportunity to launch the first FDA-approved treatment for seborrheic keratosis. With over 80 million sufferers, SK is a highly prevalent condition where patient motivation for treatment is high, yet current treatment options for lesions located in cosmetically sensitive areas like the face are lacking. Based upon our market research, we understand that patients are willing to pay more for treatment that is less likely to scar and does not involve cutting, burning or freezing. A recent market research findings suggest that there are over 5 million people with SK lesions on the face who are motivated to seek treatment and have the willingness to pay out of pocket for treatment like A-101. We believe this intersects well with the growing trend in minimally invasive aesthetic procedures and creates favorable market dynamics for A-101.

In terms of our infrastructure build, we remain on track as we prepare for the anticipated approval and launch of A-101. And then in October, we met our goal of hiring 6 top-performing regional sales managers, all with relevant experience and excellent track records. Following their initial onboarding and training process, they have begun to interview and recruit our 50-person sales force as well as develop regional business plans to support a successful launch.

With respect to the sales rep positions, we've received a very high level of interest from candidates with relevant buy-and-bill dermatology experience who are eager to join the Aclaris team and help us successfully launch this product. W a're currently in the process of extending offer letters, and we'll onboard the sales reps in January.

In terms of launch readiness, we will use Q1 to update the trade and promotional materials for the FDA-approved label as well as initiate our market-readiness activities. Market-readiness activities include sales reps introducing or reintroducing themselves to the target accounts, scheduling in-services and speaker programs and establishing centers of excellence with key providers.

In summary, we are excited about the opportunity to launch the first FDA-approved treatment for SK, and we continue to make excellent strides as we advance our infrastructure build and launch-readiness activities.

With that, I'd like to turn the call over to Frank Ruffo, our CFO. Frank?

Thanks, Brett. Good morning all. As I take you through the third quarter financial results, please reference the financial tables that can be found in today's press release.

During the third quarter of 2017, our total operating expenses were $19 million compared to $10.8 million for the third quarter of 2016 and our net loss was $18.2 million compared to $10.7 million for the same quarter in 2016. We also recorded revenues of $684,000 during the third quarter of 2017 related to Confluence's CRO business acquired in August of this year. For the 9 months ended September 30, 2017, our total operating expenses were $47.2 million compared to $36.9 million for the same 9-month period in 2016 while our net loss was $45.6 million compared to $36.6 million for the same period last year.

Turning towards cash flows. For the 9 months ended September 30, 2017, our operating cash burn was $36.5 million. Additionally, we made a $9.6 million up-front cash payment for the Confluence acquisition, net of cash acquired. These outflows were offset by approximately $100 million in net proceeds from new issuances of common stock between our August public offering and our existing at-the-market equity facility. As a result, our September 30, 2017, balance sheet has an aggregate cash, cash equivalents and marketable security balance of approximately $228 million. Without giving effect to any new business department transactions or financing activities, we believe that the current cash and investments on hand are sufficient to fund our current operating activities into the second half of 2019.

R&D expenses increased by $3.7 million in Q3 2017 compared to Q3 2016. This change was primarily the result of a $1.2 million increase in clinical trial costs associated with our A-101 program for warts. Other increases in R&D were a $1.3 million increase in payroll-related and stock-based compensation costs, $900,000 in JAK program expenses, $600,000 in medical affairs initiatives and $300,000 in early-stage drug discovery. These increases were partially offset by lower clinical trial costs associated with our A-101 program for SK, which was completed last year.

General and administrative expenses increased by $4.4 million in the third quarter 2017 compared to the same period in 2016. This increase was primarily attributable to an increase of $1.6 million in precommercial expenses for A-101 for SK, $1.9 million in payroll-related and stock-based compensation costs and $400,000 in professional fees related to the Confluence acquisition.

We are updating our financial guidance for the full year of 2017. Our estimates now include the operating results of our Confluence business since August 3, 2017. We expect our cash burn for 2017, excluding this year's financings and the cash paid for the Confluence acquisition, to be in the range of $56 million to $59 million versus prior guidance of $65 million to $70 million.

Total operating expenses for 2017 are now estimated to be in the range of $72 million to $75 million or $57 million to $60 million when excluding estimated stock-based compensation expense of $15 million. Our prior guidance for operating expense was $84 million to $92 million or $70 million to $75 million when excluding stock-based compensation in the range of $14 million to $17 million.

Research and development expenses for 2017 are now estimated to be in the range of $39 million to $42 million or $33 million to $36 million when excluding estimated stock-based compensation of $6 million. Our prior guidance for R&D expense was $51 million to $58 million or $46 million to $52 million when excluding stock-based compensation of $5 million to $6 million.

In September 30, 2017, we had roughly 30.8 million shares of common stock outstanding. Assuming no material issuances of equity, we would expect our weighted average share count used in the full year 2017 basic and diluted loss per share calculation to be about 28.1 million shares.

I'll now turn the call back over to Neal for some closing remarks.

Thank you, Frank. Over the course of 2017, Aclaris has continued to develop into a full-integrated biopharmaceutical company. We have added world-class drug discovery capability, acquired and developed an expanse of inflammation and immunology portfolio, grown our R&D organization and continue to build out our commercial infrastructure. We have a solid foundation in place as we look to a catalyst-heavy year in 2018 with multiple pipeline readouts. The company is well-capitalized, and our growing team is excited to continue to deliver our plan of developing, commercializing novel therapies in dermatology.

Thanks for being on today's call. And Candace, can you please poll for questions?

(Operator Instructions) And our first question comes from Seamus Fernandez of Leerink Partners.

Great. Just a few things. In terms of the formulation dynamics that really need updating and, again, what looks like a slight pushout of the start of the oral studies, can you just give us a general sense of what you're trying to do to optimize the formulation? I always thought that the formulation of an oral agent would be, actually, a little bit more straightforward even than the topical, when you guys have the topical, it move forward a bit more quickly. So just trying to get a better sense of how you're trying to optimize the formulation and what the issues are around that.

The second question is as we -- can you just update us? I think at the R&D day, you specifically mentioned that there is an ongoing study of your topical JAK inhibitor that's been initiated in Australia in a relatively small number of patients. Can you just update us on when you would anticipate having, at least, some preliminary data from that proof of principle trial? And I'll follow up with questions later in the queue.

Thanks, Seamus. Appreciate it. Yes, so on the oral, as we had previously talked about earlier in the year, we are in the process of optimizing the formulation. And we went through a process of kind of down-selecting to a couple of formulations that drove more consistency across the lower end of the dose range in terms of absorption. And we think it's important, I think, given the dynamics in the JAK inhibitor space, to have a full dose-range capability in -- when we proceed to the Phase II. So we're taking the step of doing an additional pK/pD study that is nearly complete. And I think you characterized it correctly. It's a minor pushout into the beginning of next year before we start.

I think on your second question, on the topical that has been initiated, and the whole key there was -- is we want to demonstrate efficacy on the topical formulation, I think, in the quickest manner. And eyebrows were identified as a key area in the PRO discussion that we had and that was conducted with the FDA back in the third quarter. And so we expect data on that. With 12 patients, we've designed it as open-label so we can get the quickest readout, show that our topical works. And we anticipate that data probably in the -- we've guided to the first half. We think it's early first half.

(Operator Instructions) And our next question comes from Louise Chen of Cantor Fitzgerald.

It's Brandon Folkes on for Louise. Could you just provide us on any guidelines that you're giving to doctors on how you may price A-101 for SK and how you're thinking about the economics to a doctor using it to treat SK? And then secondly, just aside from the face and neck, are there other areas of body where topical solution for SK is favorable over cryosurgery?

Sure. So thanks for those questions. On the pricing front, what we've guided so far is we typically guided a pretty broad range of $75 to $125, and we've refined that further. And that's priced for the doc. We refined that further to $100 to $125. We've been guiding towards the upper end of that range. We're not done with the pricing work yet. But some of the data that was presented at the R&D day was the result of a Kaiser pricing in SKU, a study that was conducted. And subsequent to our PDUFA date, we'll be obviously guiding more on the pricing and getting more refined there. But I can guide you to the upper end of that range.

The economics to the doc, I think from the perspective of a better aesthetic tool, we think it deserves premium pricing. We see part of the value prop all along has been less pain, less propensity to develop local skin reactions, such as pigmentary changes or scarring. And I think providing that better aesthetical tool warrants premium pricing in this area, and of course, we are focused on the face and neck. But I would remind you that in our studies, we studied all SKs over the entire body, and so we obviously think it's a value to use across the body. We're focusing mainly on the face and neck, out of the gate, because those are clearly the most aesthetically sensitive areas. So that's our thinking at the moment.

And our next question comes from Liav Abraham of Citi.

Can you expand a little bit on your launch strategy for A-101 and SKs? Will you be going after -- out of the gate, will you be going after patients who are already on other therapies but dissatisfied or the strategy to be go -- to be going more after naïve patients? And I know you did talk a little bit at your R&D day about the launch trajectory and how we should think about that. I don't know if there's any additional commentary that you can make at this stage. And then secondly, on the warts program, could you give some preliminary thoughts as to when we could see the start of a Phase III trial? And any thoughts -- initial thoughts on trial design, whether you're looking at, at-home administration or physician-administered trials?

Sure. Thanks, Liav. Appreciate the question. So I'll answer the wart piece, and then I'll hand it off to Brett to answer your first 2 questions. So on the wart program, just as a reminder, so we do have 2 parallel studies going on, one that is dosing weekly and the other is twice-weekly. And we do actually -- we expect to complete the first study in the back part of December. The other study is about 2 weeks -- 2, 3 weeks behind, and so we're choosing to report both out and at the same time frame, in early January. And given that kind of trajectory, we anticipate getting an end-of-Phase II meeting. If the data is positive, we'll have an end-of-Phase II meeting in the middle part of next year. And so when we think about Phase III study starts again, if end-of-Phase II meeting happens in the middle part of the year, we would anticipate starting a Phase III in the back part of the year. So that's the way, I think, to think about that cadence.

In terms of trial design, we had some good dialogue with the FDA in a guidance telecon to give us insight on the appropriate trial design that we think is relevant for our Phase III, and that is the design that you see in our Phase II study. So we don't anticipate anything changing there. We think you're going to have to treat something on the range of 1 to 4 to 5 warts and obviously demonstrate appropriate clearance. So what we'll see reflected in the Phase II work, I think, will reflect the Phase III trial design moving forward, and that's how we initially designed it. And I'll hand it off to Brett to talk a little bit about the lead asset and the launch.

Thanks, Neal. So in terms of the launch strategy, whether it's naïve patients or veteran patients, it'll be both. Based off the work we've done, those that have had cryosurgery or have had other modalities don't like them and would opt for an alternative that doesn't involve cutting, freezing or burning. Yet by the same token, naïve patients will be very important for what we're looking to do. Our target demographic for this product, we're positioned as an aesthetic treatment in those cosmetically sensitive areas, like the face and neck. And that consumer patient or sufferer that will be instituted in this treatment, they skew younger, they skew urban, suburban. And as a function of that, many of them will be naïve. We need to educate them on what seborrheic keratosis is and let them know that there's a solution available, and that will drive them into the practice. We'll see both.

In terms of the launch trajectory, because it's buy and bill, there's really 2 things that we need to accomplish well and to set an account up so that they can take off. And first is the clinical integration, which is guiding to the right patient and allegiance and the application technique, the training related to that and managing expectations. So there's is a whole training component there that we'll do to our in-services. And then there's also business integration, too, in terms of the whole practice, understanding how to incorporate the product into the practice and guide to the patient.

And as we get these -- the offices that we're launching with early on are already established and doing this with other minimally invasive procedures. They know exactly what they do. In terms of business integration, they got it. But our next band of adopters, they'll work with business integration, integrating it to the practice. So that takes a little bit of time. But once you get each of these accounts up and wired for sound, then you could turn up the volume and the patients will flow through. So it takes a little bit longer, smoother launch curve in the beginning.

And just to build, Liav, a little bit on some of Brett's comments, I think everybody has to remember, this is one of the most common conditions that dermatologists see, and as such, I think your question is quite appropriate. Patients who have actually had treatment in the past, but a large percentage of patients don't even know they have SK and have not been treated. And so I think that's one of the reasons that we're opting the sequence DTC campaign early on in the launch process in the first year and that's in an effort to educate the patient, make -- help them understand that there's a better anesthetic tool available, and that's an integral part of the strategy.

And that concludes our question-and-answer session for today. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.