Acasti Pharma Inc (ACST) 2019 Q4 法說會逐字稿

Greetings, and welcome to the Acasti Pharma Fourth Quarter and Year-end Fiscal 2019 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Waldman, with Crescendo Communication. Please go ahead, sir.

Thank you, Kevin. Good afternoon, everyone, and welcome to Acasti Pharma's Fourth Quarter and Fiscal 2019 Conference Call. On the call with us this afternoon are Jan D' Alvise, President and CEO; Pierre Lemieux, Chief Operating Officer, Chief Scientific Officer and Co-Founder; Brian Groch, Chief Commercial Officer; and Jean-François Boily, Vice President, Finance.

If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020.

I'd also like to remind everyone that statements on this conference call that are not statements of historical or current facts constitute forward-looking information within the meaning of the Canadian securities laws and forward-looking statements within the meaning of U.S. federal securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause the actual results of Acasti to be materially different from historical results or from any future results expressed or implied by such forward-looking statements.

In addition to statements which explicitly describes such risks and uncertainties, readers are encouraged to consider statements labeled with the terms believes, belief, expects, intend, anticipates, potential, should, may, will, plan, to continue, or other similar expressions to be uncertain and forward-looking. Listeners are cautioned not to place undue reliance on these forward-looking statements. We speak only as of the date of this conference call. Forward-looking statements in this conference call include but are not limited to information or statements about Acasti's strategy, future operations, prospects and the plans of management; Acasti's ability to conduct all required clinical and nonclinical trials for CaPre, including the timing of results of those trials; the timing and the outcome of licensing negotiation; CaPre's potential to become the best-in-class cardiovascular drug for treating hypertriglyceridemia; Acasti's ability to commercially launch CaPre; and Acasti's ability to fund its continued operations.

The forward-looking statements contained in this conference call are expressly qualified in their entirety by this cautionary statement, the Cautionary Note Regarding Forward-Looking Information section contained in Acasti's latest annual report on Form 20-F and most recent management discussion and analysis, which are available on SEDAR at www.sedar.com, on EDGAR at www.sec.gov/edgar/shtml and on the Investors section of Acasti's website at www.acastipharma.com.

All forward-looking statements in this conference call are made as of the date of this conference call. Acasti does not undertake to update any such forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. The forward-looking statements contained herein are also subject generally to assumptions and risks and uncertainties that are described from time to time in Acasti's public securities filings with the Securities and Exchange Commission and the Canadian Securities Commission, including Acasti's latest annual report on Form 20-F and most recent MD&A.

I'd now like to turn the call over to Jan D' Alvise. Please go ahead, Jan.

Thanks, David, and I want to thank everyone who has joined us on the call today.

Let me start by saying this has been a very exciting year for Acasti. We made tremendous progress in all fronts, clinically, operationally and financially, which we believe positions us extremely well as we get ever closer to reporting our Phase III data. Importantly, both trials remain on schedule and within budget. Just a few weeks ago, we announced that we had achieved 100% patient randomization in both TRILOGY clinical studies. More than 500 patients have now been randomized overall. Currently, more than 60% of the patients in the 2 combined trials have completed their 6-month program on either CaPre or placebo. It's really interesting to note that the patient dropout rates have been significantly lower than we had expected, suggesting a good patient tolerability and acceptability for CaPre. In fact, this is quite consistent with what we saw in our Phase II data. Furthermore, no serious adverse events have been associated with CaPre to date. As a result, we remain on track to report top line results for our primary endpoint for TRILOGY 1 this December and for TRILOGY 2 in January 2020.

In addition to our preliminary top line data, we will seek to present the full data set as a late-breaker presentation at the American College of Cardiology meeting at the end of March next year. In addition to data on our primary endpoint of triglyceride lowering, this presentation will include results for our key secondary and exploratory endpoints of interest such as LDL, VLDL, HDL and hemoglobin A1c and many others. A reminder, the primary endpoint of our Phase III study is to determine the efficacy of CaPre at 4 grams per day in lowering triglycerides after 12 weeks in patients with severe hypertriglyceridemia. The TRILOGY studies are double-blinded, and we will be comparing the results of CaPre against placebo. As part of our top line dataset, we will also confirm the persistence of CaPre's triglyceride-lowering effect over the total 6-month study period, along with providing safety and tolerability data. The Phase III studies were designed to provide a 90% statistical power to detect a difference of at least 20% decrease in triglycerides from baseline between CaPre and placebo after 12 weeks.

So given the positive results we saw from our Phase II trials in a total of 675 patients, we eagerly await the results from the 2 TRILOGY clinical studies. As a reminder, I thought I would point out some key differences and advantages to the design of our TRILOGY studies as compared to our Phase II program. As I mentioned, we expect a total of approximately 500 patients to complete the 2 TRILOGY studies. And there are significant differences in the clinical profile of these patients compared to those who completed our Phase II studies. The patients enrolled in our TRILOGY system all had severe hypertriglyceridemia, meaning, they have much higher baseline triglyceride levels, actually between 500 and 1,500 milligrams per deciliter as compared to our Phase II clinical studies where most patients had baseline triglycerides at the start of the study that were well below 500. In fact, the average triglyceride level at baseline was approximately 350 milligrams per deciliter. And we know from our Phase II studies as well as those done with other therapeutic omega-3s that the higher the baseline triglyceride level, the greater the potential for lowering triglycerides.

Also the patients in our Phase III trial are all receiving 4 grams per day of CaPre, which by the way is identical to the recommended dose for VASCEPA and LOVAZA. This compares favorably to the majority of patients included in our Phase II program who received only 1 or 2 grams per day of CaPre. We generally saw a good dose response in those studies, meaning the higher the daily dose of CaPre that a patient received, the greater the triglyceride reduction that was seen. Finally, all of the patients in the TRILOGY studies will remain on drug for a full 6 months, while the majority of patients included in our Phase II studies receive CaPre or placebo for only 8 to 12 weeks. So for all these reasons, we believe CaPre has the potential to meet or exceed the target primary endpoint of reducing triglycerides by at least 20% as compared to placebo.

Now as I have mentioned in the past, once we have top line data from both of our studies, we will report results on a number of other secondary and exploratory endpoints, including LDL-cholesterol, VLDL, HDL-cholesterol and non-HDL cholesterol, as well as hemoglobin A1c, which again, as a reminder, is a very important biomarker of glucose control for diabetic patients. Our goal in evaluating these secondary and exploratory endpoints is to further validate what we refer to as the trifecta effect that we saw in Phase II. And I want to emphasize that in all of our studies to date, CaPre has shown no negative side effects or safety concerns.

In addition to these top line endpoints, we are investigating CaPre's effect on many other cardiovascular, metabolic and inflammatory markers as secondary and exploratory endpoints. This full data set will be compiled and reported out later in Q1 of next year. Based on the results, we may also seek to identify and pursue development for new potential indications for CaPre that may be appropriate for claim and label expansion.

As we discussed on previous calls, an important differentiator of our formulation is the phospholipids contained in CaPre, which is uniquely sourced from krill. The phospholipids allow for rapid absorption of the omega-3s and they deliver some of the potentially differentiating clinical benefits that we saw in Phase II, such as the lowering of LDL-cholesterol and reduction of hemoglobin A1c. Unlike the prescription ethyl ester omega-3 such as VASCEPA and LOVAZA, CaPre does not require a fatty meal to improve bioavailability. This was well-demonstrated in our earlier PK bridging study among subjects in the fasting state where CaPre showed significantly better bioavailability and absorption than LOVAZA as measured by blood levels of EPA and DHA. This data has been summarized and was recently published in the Journal of Clinical Therapeutics, which we believe further illustrates the superior absorption of CaPre compared to the other ethyl ester omega-3 drugs currently in the market, especially for hypertriglyceridemia patients who, of course, should remain on a low-fat diet.

For these and other reasons, we believe that CaPre has the potential to become the best-in-class omega-3 for the treatment of severe hypertriglyceridemia. Based on recent third-party outcome data, we also believe the potential exists to expand CaPre's initial indications to the roughly 70 million patients in the United States with elevated triglyceride levels, above 150 milligrams per deciliter, although this will likely require at least 1 additional study in the future.

So in conclusion, we believe CaPre has the potential to address the critical market need for an effective, safe and well-absorbing omega-3 therapeutic that can make a positive impact on the major and relevant blood lipids associated with cardiovascular disease risk. This is supported by our market research where physicians interviewed said they would switch approximately 68% of their patients to CaPre who have triglyceride levels in the 200 to 500 milligram per deciliter range, and 82% of their severe hypertriglyceridemia patients to CaPre within 2 years of launch.

So switching gears here. I'd also like to talk about our expanding IP portfolio. And we have added patents recently to our 20-plus patents already issued in major countries around the world. In May 2019, we received notices of allowance for both composition of matter and method of use patents by the Mexican, Chilean and Israeli patent offices. This follows broad composition of matter and method of use patents that were awarded by the European Patent Office at the beginning of this year. This patent is valid until 2030 and covers all of the major countries in Western Europe.

More recently, on Monday of this week, we also announced a notice of allowance for a second patent in the People's Republic of China. This new patent expands on our existing claims and is valid until at least 2030. The new patent relates to concentrated therapeutic omega-3 phospholipid compositions and covers methods for treating or presenting cardiovascular diseases, metabolic syndrome, inflammation, neurodevelopmental and neurodegenerative diseases. This announcement further strengthens and expands our intellectual property portfolio by giving us protection in a very large emerging and important market. It also creates potential expansion opportunities for additional Acasti products going forward.

There are currently no approved omega-3 drugs available in China. And therefore, it represents a greenfield market opportunity for a high-quality, well-studied and differentiated product like CaPre. Now China is actually the third largest pharmaceutical market in the world with an average compounded annual sales growth rate of approximately 20% over the last 10 years. In addition, let me remind you that China represents an important market for Acasti, given the high prevalence of hypertriglyceridemia and the need for an effective, safe and efficiently absorbed drug for the treatment of cardiometabolic-related diseases. The timing of this patent is ideal as we near completion of the TRILOGY Phase III clinical trials for CaPre, prepare for commercialization and advancement of our strategic discussions. This new patent significantly expands and strengthens our current claims and provides us with solid long-term protection in China. This patent also builds upon similar patents that have been awarded around the world.

We've also filed a number of provisional patents and PCTs related to our unique manufacturing process for CaPre, which could also further strengthen and expand our intellectual property portfolio, assuming they're eventually granted by the U.S. Patent Office and the patent offices in other jurisdictions.

Now before I close my prepared remarks, I would also like to take a moment to address our balance sheet. As of March 31, 2019, we had more than $34 million of cash, cash equivalents and marketable securities. As we near completion of our Phase III clinical activities, our monthly cash burn is now declining, and we believe we are currently sufficiently capitalized beyond completion of our Phase III trials. This includes funding that will support continued work on our NDA for CaPre, which we plan to submit to the FDA mid-2020, assuming our Phase III program is successful. We also believe our current cash position is sufficient to support expanded business development and U.S. commercial prelaunch activities into next year. I would like to emphasize that we have no plans to raise capital in the public market in advance of our data. Moreover, we are looking at a variety of strategic and non-dilutive funding options, which could be very significant forces of capital and could extend our cash runway. We will provide further updates on this front at an appropriate time.

We are also in active discussions with a number of major pharmaceutical companies regarding potential commercialization partnerships in key countries around the world. Assuming positive results, management expects those discussions to gain momentum early next year after our Phase III results are announced. We believe that having the data in hand from our Phase III trials will put us in a much stronger position to negotiate any potential partnership deal. I would also like to remind everyone that our strategy in the U.S. is not dependent on partnership. We're planning our U.S. launch strategy with the assumption we will bring CaPre to market through a very focused and targeted go-to-market strategy. Brian Groch, our Chief Commercial Officer, myself and other members of our senior team have extensive experience building commercial organizations and successfully launching new therapeutic products. We will only enter into commercial agreements with the right strategic partners and only if we believe those deals are in the best long-term interest of our shareholders.

We believe that there is significant value to be created over the next year or 2 as this market continues to expand and we learn more about the clinical performance of CaPre. So on that note, I'll now turn it over to Jean-François who will discuss the financials in more detail. Jean-François?

Yes. Thank you, Jan. So turning to our results for the quarter. R&D expenses were $10.8 million for the fourth quarter ended March 31, 2019. That's compared to $6.1 million in the fourth quarter ended March 31, 2018. The $4.7 million increase was primarily attributable to a $4.6 million rise in clinical research contracts related to Phase III CRO contract expenses, combined with the planned contract manufacturing production activities for the quarter ended March 31, 2019. R&D expenses were $38.4 million for the year ended March 31, 2019 compared to $15.7 million for the year ended March 31, 2018. Our general and administrative expenses were $3.1 million for the fourth quarter ended March 31, 2019 compared to $1.3 million for the fourth quarter ended March 31, 2018. The net increase was related mainly to the expansion of full-time business development and commercialization staff and for prelaunch market development activities and increased professional and legal fees.

General and administrative expenses were $6.6 million for the year ended March 31, 2019 compared to $4 million for the year ended March 31, 2018. Our loss from operating activities for the fourth quarter ended March 31, 2019 was $12.1 million compared to a loss from operating activities of $6.4 million for the quarter ended March 31, 2018. The approximate $5.7 million increase was again related to the planned R&D expenses for the TRILOGY Phase III program and an increase in G&A expenses over the last 4 quarters as the activity expanded -- as the company expanded business development and pre-commercialization activities.

Our loss from operating activities for the year ended March 31, 2019 was $40.2 million compared to a loss from operating activities of $6.1 million for the quarter -- for the year ended March 31, 2018. The net loss for the fourth quarter ended March 31, 2019 was $16.8 million or $0.22 per share compared to a net loss of $8.1 million or $0.32 per share for the quarter ended March 31, 2018. The increase in net loss was primarily due to a planned increase in research and development expenses for the TRILOGY Phase III program and financial expenses related to higher value of the warrant derivative liability. Our net loss for the year ended March 31, 2019 was $51.6 million or $0.95 per share compared to a net loss of $21.5 million or $1.23 per share for the year ended March 31, 2018.

As Jan said, we had $34.4 million of cash, cash equivalents and marketable securities as of March 31, 2019, an overall increase of $26.2 million due to proceeds from the May and October 2018 public offering, offset by the cash that we used in operating activities. With clinical activities now decelerating, we believe we are sufficiently capitalized beyond completion of our Phase III trials, including continued work on our new drug application, which will be submitted in mid-2020, assuming our Phase III program is successful, as well as ongoing business and U.S. commercial launch activities.

As mentioned earlier, we believe the existing cash will fully fund our operation beyond top line results of our TRILOGY Phase III clinical trial. We also had a number of warrants outstanding from our earlier financing, most of which at strike prices between $1.05 and $2.15, expiring at different time over the next 5 years. Should we hit our upcoming milestone, there's a reasonable likelihood that some of these holders will exercise their warrants, which could bring additional capital into the company.

Operator, we'll now open the call to questions.

(Operator Instructions) Our first question today is coming from Andre Uddin from Mackie Research Capital.

Jan, just a couple of questions here. Just in terms of your commercial plans for the U.S., how many sales reps do you think you would need?

Andre, thanks for the question. I'll turn that over to Brian Groch, our Chief Commercial Officer, who's actually doing a lot of that planning right now. Brian, do you want to comment?

Sure. Thanks, Andre, for the question. We really have just started our planning for our commercial organization. What I can say is we have not done a full sizing yet, but certainly, we are looking at a scalable commercial organization that allows us to be flexible and athletic to respond to the market dynamic. So I guess I'm kind of dodging your question but we don't really know exactly how big that sales infrastructure will be yet because we're considering all potential commercial opportunities, including things such as print media, digital media, social media and how do we get to potential customers.

Okay. That's fair enough. So that question certainly leads to this one. Can you give us a little bit more color in terms of how your U.S. and rest of world licensing discussions are proceeding?

Brian, do you want to take that?

Sure. Absolutely. So we've had really good discussions across the globe. And certainly, because we've had really good discussions, I can't comment beyond that really other than to say we're moving forward, we've had good interest and we're really looking for the perfect partner that will allow us to maximize the potential of the product for CaPre and for shareholders.

(Operator Instructions) We've reached the end of our question-and-answer session -- actually, one moment please. (Operator Instructions) Our next question today is coming from Tony Polak from Aegis Capital.

Just wanted to know in terms of the cost of krill versus Amarin's product and how you see that affects your profit margins going forward, assuming you get approval?

Yes. I'll make a general comment here and I'll turn it also over to Pierre Lemieux, who is really our expert on sourcing raw krill oil. We expect that the cost of our product will be very much in line with what you see today with VASCEPA and LOVAZA. And in general, the cost of raw krill oil, which we source, has generally been going down over the last few years. So we've been really benefiting from that. But Pierre has been doing a pretty extensive project to evaluate the various sources of raw krill oil. We've now validated probably a half dozen sources and suppliers. But I'll turn it over to Pierre. Pierre, do you want to make any other comments on that?

Yes. I mean, I think, what I can add to this is the fact that it's a good news for us because we see krill suppliers showing up from Asia, which creates a nice competition in the marketplace. So like Jan said, the price of krill is actually going down slightly, which is good news for us. So we can tap into multiple suppliers. And Asian suppliers are also now providing good quality krill. So that's going to be good for us. As you remember, maybe -- so Neptune was one of them. But now the Norwegians were the strongest supplier in the marketplace, but now they have competition, which is good for us. So the RK or what we call the raw krill oil is definitely an important part of our cost of goods, and we believe it is under control and we have multiple options in front of us to keep the price competitive. And our target is to be competitive with the fish oil. And at this stage nothing make us think that we cannot reach what the fish oil product will be in the marketplace. So that's all good news for us and overall from the raw krill oil suppliers, especially that we have multiple suppliers that we can tap in.

(Operator Instructions) Our next question is coming from [Bob Johnson] from [Dorey Research].

Jan, I just want to offer you and your team great congratulations on all the progress that you're making. You're finally getting much closer and the market is beginning to wake up. My question specifically, and you know where I'm coming from in background discussion, given the thought that you'd like to do your own marketing in the U.S. -- and I hear the concept of finding the ability to do that -- taking a look at the cost of educating the public and the whole process of building up your own sales force just give us a little more background because of the work that you've done in previous companies on the real benefits to the shareholders from doing that. And presumably, the cost of doing that will be financed with some kind of agreements with other companies as opposed to going to the equity markets and having the shareholders again finance the dilution, which has occurred in the past. But my primary point is great work in getting to where you are. If you could just flesh it out.

Yes. Thanks, Bob. I appreciate the kind words. And let me say a few things here and then I'll ask Brian to jump in as well. But we have to be prepared to launch this ourself. There's no guarantee we'll get perfect strategic partnership. Not to say we aren't continuing in multiple parallel discussions. So that is the plan, to continue the potential of possibly completing a partnership for the U.S. as well as other countries around the world. But we have to be prepared to go it alone. And we would do it in a very efficient, targeted manner. And we can't speak too much about it at this point. A lot of work is underway, but it could involve a hybrid of approaches, small direct sales, of course, direct sales and marketing, but it could be supported by distribution -- and probably will be supported by distribution partners, potentially co-marketing partners and as Brian mentioned, heavy, heavy use of social media. More and more today, physicians, particularly primary care physicians, don't have the time to see sales reps. So there are other more cost-effective ways to reach the market.

I'll stop there. Brian, is there anything else that I'm forgetting that you might want to add?

No. I don't think so, Jan. I would just concur with your comments. I think we're trying to be as efficient as possible and scalable so we can react quickly to the market as necessary once we launch the product.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Kevin, sorry, do I have the floor?

Yes. I'm sorry. I did turn the floor back over to management for any further or closing comments.

Okay. Sorry. To wrap up, we're progressing on all fronts, and we're very encouraged by the strong clinical data we have reported to date and the progress we're making in our TRILOGY Phase III program, which again remains on schedule. Additionally, we are well-funded with a solid balance sheet and relatively clean cap structure. As a result, we're extremely confident in the long-term outlook for Acasti. So we thank you again for joining us today, and we look forward to providing further updates in the very near future.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.